Coda Octopus Group, Inc.

Note 1 –ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES

We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all material adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2026 due to seasonality, macroeconomic conditions, geopolitical events, customer procurement cycles and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the U.S. Securities Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes presented in the Company’s Annual Report on Form 10-K for the year ended October 31, 2025 as filed with the Securities and Exchange Commission on January 29, 2026 and amended on Form 10-K/A as filed with the Securities and Exchange Commission on February 26, 2026.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Coda Octopus Group, Inc. and its wholly owned domestic and foreign subsidiaries (“Group”). All material intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates are used for, but not limited to, income taxes, useful lives of equipment, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases. The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include estimates related to the percentage of completion method used to account for contracts including costs and earnings in excess of billings, billings in excess of costs and estimated earnings. Differences in these estimates could be material. Actual results realized by the Company may differ from management’s estimates.

Note 2 –REVENUE RECOGNITION

The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s Topic 606,Revenue from Contracts with Customers(“Topic 606”).

Topic 606 has established a five-step process to determine the amount of revenue to record from contracts with customers. The five steps are:

Note 2 – REVENUE RECOGNITION (Continued)

We have three business segments:

Marine Technology Business (“Products Business”)

The Products Business segment earns revenue under written contracts with its customers. Revenue in this segment is generated through the following activities:

All products and services are sold on a stand-alone basis and those market prices are evidence of the value of these products and services. Revenue derived from outright sale is recognized when its performance obligations are met. This is typically upon delivery and passing of risks in the goods in accordance with the contract terms. For rentals we supply our rental equipment on a door-to-door basis and the rental period typically commences when the equipment is under the control of the customer and revenue derived from these contracts is recognized on a daily basis during the rental period. Revenue derived from services is recognized when our performance obligations are met under the terms of the contract. For contracts with multiple performance obligations, we recognize product revenue by allocating the transaction price to each performance obligation based on a relative standalone selling price basis and recognize revenue when performance obligations are met. For software license arrangements in which any related services are not distinct from the software functionality, the Company recognizes revenue when control of the software is transferred to the customer, generally upon delivery of the software installers and activation codes.

Our contracts sometimes require customer payments in advance of revenue recognition. These are recognized as revenue when we have fulfilled our obligations under the respective contracts. Until our performance obligations are met, we recognize these prepayments as deferred revenue.

Our contracts do not give the customer the right of return. Where there are contractual failures giving rise to post-sale obligations these are addressed under our warranty or through life support provisions. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses.

Acoustics Sensors and Materials Business (“PAL”)

PAL Business segment earns revenue under written contracts with its customers. Revenue in this segment is generated through the following activities:

All products and services are sold on a stand-alone basis, and those market prices are evidence of the value of these products and services. Revenue derived from outright sale is recognized when its performance obligations are met. This is typically upon delivery and passing of risks in accordance with the contract terms. For contracts with multiple performance obligations, we recognize product revenue by allocating the transaction price to each performance obligation based on a relative standalone selling price basis and recognize revenue when performance obligations are met. Software license sales for which any services rendered are not considered distinct to the functionality of the software, we recognize revenue upon delivery of the software by the provision of the software installers and activation codes to the software.

Our contracts sometimes require customer payments in advance of revenue recognition. These are recognized as revenue when we have fulfilled our obligations under the respective contracts. Until our performance obligations are met, we recognize these prepayments as deferred revenue.

Our contracts do not give the customer the right of return. Where there are contractual failures giving rise to post-sale obligations these are addressed under our warranty or through life support provisions. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses.

Note 2 – REVENUE RECOGNITION (Continued)

Defense Engineering Services Business (“Services”)

The Engineering Services Business segment generates revenue pursuant to written contracts with its customers, who are primarily Prime Defense Contractors (“DoD Contractors”). Revenue in this segment is derived from the following activities:

With respect to revenues related to our Defense Engineering Services Business, certain contracts provide for billing at fixed hourly rates, together with reimbursement of material and other allowable costs incurred. Revenue from these contracts is recognized as services are performed and costs are incurred. Revenues from fixed-price contracts are recognized over time as performance obligations are satisfied. Progress toward completion is measured using a cost-to-cost input method based on direct labor and material costs incurred relative to total estimated contract costs for each contract. Management believes this input method properly depicts the transfer of control of goods and services to customers because direct labor and material costs incurred are representative of the Company’s progress toward satisfying its performance obligations.

On a quarterly basis, we examine all our fixed-price contracts to determine if there are any losses to be recognized during the period. Any such loss is recorded in the quarter in which the loss first becomes apparent based upon costs incurred to date and the estimated costs to complete as determined by experience from similar contracts. Variations from estimated contract performance could result in adjustments to our operating results.

For contracts with multiple performance obligations, we recognize product revenue by allocating the transaction price to each performance obligation based on a relative standalone selling price basis and recognize revenue when performance obligations are met.

Recoverability of Deferred Costs

In accordance with Topic 606, we defer costs on projects for service revenue. Deferred costs consist primarily of incremental direct costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties. The pricing of these service contracts is intended to provide for the recovery of these types of deferred costs over the life of the contract.

We recognize such costs in accordance with our revenue recognition policies for the related contracts. Revenues from fixed-price contracts are recognized over time as performance obligations are satisfied. Progress toward completion is measured using a cost-to-cost input method based on direct labor and material costs incurred relative to total estimated contract costs. Capitalized contract costs are recognized as expense in a manner consistent with the transfer of the related goods or services to the customer. At each quarterly balance sheet date, we evaluate deferred costs for recoverability and recognize any impairment losses when the carrying amount is not expected to be recovered.

Any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.

Other Revenue Disclosures

See Notes 15 and 16 – Segment Analysis and Disaggregation of Net Revenues. These Notes, respectively, provide disclosure of our revenues by segment; revenues from external customers and cost of those revenues; and the split of revenues by geography including within and outside the USA.

Note 3 –COST OF REVENUES

Cost of revenues includes raw materials, direct labor, subcontractor costs, commissions directly attributable to specific sales transactions, and other direct costs associated with the production and delivery of the Company’s products and services.

For sales made through the Company’s sales-agent distribution network, commission costs related to specific transactions are included in cost of revenues. Participation in certain Requests for Proposals (“RFPs”) and customer procurement processes requires the use of such agents. Accordingly, commissions paid on these transactions are considered directly attributable to the related revenues and are included in cost of revenues. All other sales-related expenses, including costs incurred in connection with unsuccessful bids and business development activities, are recorded within selling, general and administrative expenses.

Commission costs included in cost of revenues for the three months ended July 31, 2026 and 2025 were $69,799 and $146,921, respectively. Commission costs included in cost of revenues for the nine months ended July 31, 2026 and 2025 were $550,311 and $782,814, respectively.

Note 4 –FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. Due to the short-term nature of these instruments, the carrying amounts reported in the accompanying consolidated balance sheets approximate their fair values.

Note 5 –FOREIGN CURRENCY TRANSLATION

Assets and liabilities of foreign subsidiaries whose functional currency is the local currency are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Revenues and expenses are translated using weighted average exchange rates prevailing during the reporting period. Stockholders’ equity accounts are translated using historical exchange rates.

Translation adjustments resulting from the conversion of foreign subsidiaries’ financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity.

Foreign currency transaction gains and losses resulting from transactions denominated in currencies other than an entity’s functional currency are included in the consolidated statements of income and comprehensive income.

Note 6 –OPERATING LEASES

The Company leases its PAL operating facility under a non-cancellable operating lease agreement that expires on March 31, 2033. The lease is accounted for in accordance with ASC 842,Leases. Information related to the Company’s operating lease is summarized below:

Estimated future minimum lease payments and imputed interest related to the operating lease liability as of July 31, 2026 are as follows:

Note 7 –COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Interest-Bearing Deposit Accounts for the period ended July 31, 2026, and 2025:

The Company maintains interest-bearing certificate of deposit accounts with HSBC Bank USA, N.A. These deposits have fixed and rolling maturities of three months or less and are classified as cash equivalents in the accompanying consolidated financial statements.

In addition, the Company maintains interest-bearing deposit accounts with HSBC UK. Funds held in these accounts are unrestricted and earn interest at a variable rate equal to 0.25% below the Bank of England base rate. At July 31, 2026, the applicable interest rate on this account was 3.50%.

The table below presents the balances held in certificate of deposit and unrestricted interest-bearing accounts as of July 31, 2026 and 2025, together with the interest income earned during the respective nine-month periods then ended.

Inventory consisted of the following as of:

Other current assets consisted of the following as of:

Note 7 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (Continued)

Fixed Assets consisted of the following as of:

Depreciation expense for the three months ended July 31, 2026, and 2025 was $227,701 and $232,036, respectively, and for the nine months ended July 31, 2026, and 2025 was $646,311 and $642,801, respectively.

Property and equipment, net, by geographic areas were as follows:

Accrued Expenses and Other Current Liabilities consisted of the following as of:

Total Other Income, consisted of the following:

Note 8 –CONTRACTS IN PROGRESS

Unbilled receivables represent revenue recognized for performance obligations satisfied for which the Company has not yet billed the customer as of the balance sheet date. These amounts are presented as Unbilled Receivables in the consolidated balance sheets and were $3,260,065 and $2,988,779 as of July 31, 2026 and October 31, 2025, respectively.

Deferred revenue consists primarily of customer payments received in advance of the Company’s satisfaction of performance obligations, including the future delivery of products and services, technical support services, warranty obligations, and Through Life Support (“TLS”) services. Total deferred revenue was $1,865,668 and $1,781,876 as of July 31, 2026 and October 31, 2025, respectively.

Certain equipment sales include warranty and TLS obligations. Revenue associated with these obligations is deferred and recognized over the period during which the Company is required to provide the related services. Standard warranty obligations are generally recognized over a twelve-month period, while TLS arrangements are generally recognized over periods of 24, 36, or 60 months, depending on the terms of the underlying contract.

Note 8 – CONTRACTS IN PROGRESS (Continued)

Current deferred revenue includes customer payments received in advance of the delivery of products or services, technical support services expected to be provided within twelve months, warranty obligations expected to be satisfied within twelve months, and the current portion of TLS arrangements. Current deferred revenue was $1,829,012 and $1,722,796 as of July 31, 2026, and October 31, 2025, respectively.

Schedule of Deferred Revenue:

Non-current deferred revenue consists primarily of customer prepaid TLS services and other performance obligations that are expected to be satisfied more than twelve months from the balance sheet date. Non-current deferred revenue was $36,656 and $59,080 as of July 31, 2026 and October 31, 2025, respectively.

Note 9 –CONTINGENT CONSIDERATION – PRECISION ACOUSTICS LIMITED (“PAL”)

In connection with the acquisition of Precision Acoustics Limited (“PAL”), the Company may be required to make contingent consideration payments based on PAL achieving specified revenue and pre-tax profit targets during a three-year earn-out period. The earn-out period consists of three annual measurement periods referred to as Year 1, Year 2 and Year 3. The Year 1 earn-out period ended in October 2025.

PAL achieved the Year 1 earn-out targets. As a result, the Company recognized contingent consideration expense of $213,343 in its consolidated financial statements for the year ended October 31, 2025. In accordance with the terms of the acquisition agreement, this amount was paid to the sellers following the filing of the Company’s Annual Report on Form 10-K on January 29, 2026 as amended on Form 10-K/A.

During the quarter ended July 31, 2026, management completed its assessment of PAL’s operating performance and forecasted results for the Year 2 earn-out period. Based on PAL’s year-to-date operating performance and forecast for the remainder of the measurement period, management concluded that achievement of the applicable revenue and pre-tax profit targets for the Year 2 earn-out period is probable and that the related contingent consideration obligation is reasonably estimable.

Accordingly, the Company recognized a contingent consideration expense and corresponding contingent consideration liability of $438,588 during the quarter ended July 31, 2026, representing management’s current estimate of the Year 2 earn-out obligation.

The potential contingent consideration payable for the remaining earn-out periods as of July 31, 2026 is presented below using an exchange rate of $1.341249 per British Pound Sterling:

Schedule of potential earn-out amounts:

The earn-out obligations are denominated in British Pounds Sterling. Accordingly, the ultimate amount payable, if earned, may differ from the amounts presented above due to fluctuations in foreign currency exchange rates.

As of July 31, 2026, the Company has recognized a contingent consideration liability of $438,588 relating to the Year 2 earn-out period. No liability has been recorded with respect to the Year 3 earn-out period, as management has not concluded that achievement of the related performance conditions is probable. The Company will continue to evaluate the likelihood of achieving the Year 3 performance targets and will recognize any related contingent consideration liability when it becomes probable that the applicable performance conditions will be achieved and the amount can be reasonably estimated.

No contingent consideration liability relating to the Year 2 earn-out period had been recognized as of April 30, 2026. Accordingly, the full Year 2 contingent consideration expense was recognized during the quarter ended July 31, 2026.

Note 10 –CONCENTRATIONS

Significant Customers

During the three months ended July 31, 2026, the Company had one customer from whom it generated sales greater than 10% of net revenues. Revenue from this customer was $1,143,875, or 14.8% of our unaudited net consolidated revenues during the three months ended July 31, 2026. Receivables from this customer were $1,143,875, or 20.1% of net receivables as of July 31, 2026.

During the three months ended July 31, 2025, the Company had two customers from whom it generated sales greater than 10% of net revenues. Revenue from these customers was $1,942,295, or 27.5% of our net consolidated revenues during the three months ended July 31, 2025. Receivables from these customers were $723,585, or 18.7% of net receivables as of July 31, 2025.

During the nine months ended July 31, 2026, the Company had no customers from whom it generated sales greater than 10% of net consolidated revenues.

During the nine months ended July 31, 2025, the Company had no customers from whom it generated sales greater than 10% of net consolidated revenues.

Note 11 –RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On October 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands segment disclosure requirements by requiring disclosure of significant segment expenses and other segment items that are regularly provided to the Company’s Chief Operating Decision Maker (“CODM”) and included in each reported measure of segment profit or loss. The amendments also require disclosure of other segment items by reportable segment.

The Company adopted ASU 2023-07 on November 1, 2025. Accordingly, the segment disclosures included in these unaudited consolidated financial statements have been prepared in accordance with the amended requirements of Topic 280.

Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures. ASU 2024-03 is intended to improve disclosures regarding a public business entity’s expenses and address investor requests for additional information about the nature of expenses included in commonly presented expense captions, such as cost of revenues, selling, general and administrative expenses, and research and development expenses. The amendments are disclosure-related and do not affect recognition or measurement. The Company expects to adopt ASU 2024-03 effective November 1, 2026, with interim disclosures beginning in the quarter ending January 31, 2027.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 enhances income tax disclosure requirements by requiring greater disaggregation of information included in the effective income tax rate reconciliation and income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024. The Company expects to adopt ASU 2023-09 effective November 1, 2026 and is currently evaluating the presentation and disclosure requirements of the standard. Because the amendments are disclosure-related, the Company does not expect adoption to have an impact on its consolidated financial position, results of operations, or cash flows.

In March 2025, the FASB issued ASU 2025-02,Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122. ASU 2025-02 incorporates certain Securities and Exchange Commission guidance into the Accounting Standards Codification. The amendments do not change existing GAAP requirements. Accordingly, the Company does not expect adoption of ASU 2025-02 to have a material impact on its consolidated financial statements.

In November 2025, the FASB issued ASU 2025-05,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. Among other amendments, ASU 2025-05 permits public companies to assume that economic conditions existing at the time a receivable or contract asset is recognized are representative of future economic conditions when estimating expected credit losses. The amendments are effective for annual periods beginning after December 15, 2025. The Company is currently evaluating the impact of ASU 2025-05 and expects to adopt the standard on its effective date.

In December 2025, the FASB issued ASU 2025-10,Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. ASU 2025-10 establishes guidance regarding the recognition, presentation, and disclosure of government grants received by business entities. The amendments are effective for annual periods beginning after December 15, 2028, and early adoption is permitted. The Company receives government grants from time to time and is evaluating the potential impact of ASU 2025-10 on its accounting and disclosures. The Company expects to adopt the standard on its effective date.

In December 2025, the FASB issued ASU 2025-11,Interim Reporting (Topic 270): Narrow-Scope Improvements. ASU 2025-11 consolidates certain interim reporting requirements currently dispersed throughout the Accounting Standards Codification and introduces an additional disclosure principle requiring entities to disclose events occurring since the end of the most recent annual reporting period that have a material impact on the entity. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. The Company expects to adopt ASU 2025-11 on its effective date.

In December 2025, the FASB issued ASU 2025-12,Codification Improvements. ASU 2025-12 is part of the FASB’s ongoing project to make minor amendments and technical corrections to the Accounting Standards Codification. The amendments affect multiple Codification topics and are intended to clarify and improve existing guidance. The amendments are effective for annual periods beginning after December 15, 2026, and interim periods within those annual periods. Based on its preliminary evaluation, the Company does not expect adoption of ASU 2025-12 to have a material impact on its consolidated financial statements.

Note 12 –GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

Intangibles consisted of the following as of:

Amortization of intangible assets for the three months ended July 31, 2026 and 2025 was $135,372 and $136,259, respectively, and for the nine months ended July 31, 2026 and 2025 was $406,681 and $394,566, respectively.

Note 12 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (Continued)

Goodwill consisted of the following as of:

Note 13–EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share are computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of potential common shares. Potentially dilutive securities consist primarily of stock options and restricted stock awards and are included in the calculation of diluted earnings per share using the treasury stock method.

Potential common shares are excluded from the computation of diluted earnings per share when their effect would be anti-dilutive.

Note 14 –2017 AND 2021 STOCK INCENTIVE PLANS (SIPs)

On December 6, 2017, the Board of Directors adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which was subsequently approved by shareholders at the Annual General Meeting held on July 24, 2018. The purpose of the 2017 Plan is to promote the long-term interests of the Company and its shareholders by attracting, retaining and motivating directors, officers, employees and other eligible service providers through equity-based incentives. The 2017 Plan authorizes the issuance of up to 913,612 shares of common stock.

On July 12, 2021, the Board of Directors adopted the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan is substantially identical to the 2017 Plan in all material respects, except that it authorizes the issuance of up to 1,000,000 shares of common stock. The 2017 Plan and the 2021 Plan are referred to collectively as the “Stock Incentive Plans” or “SIPs.”

Shares issued under the SIPs may consist of either authorized but unissued shares or treasury shares, as determined by the Compensation Committee. To the extent treasury shares are utilized, references in the SIPs to the issuance of shares shall be deemed, for corporate law purposes, to refer to the transfer of shares from treasury.

During the three months ended July 31, 2026, the Company granted 12,802 restricted stock awards and no stock options were exercised. During the period,3,500 previously vested restricted stock awards that had remained unsettled were settled. In addition,1,102 shares of common stock were issued pursuant to the terms of the 2017 Plan.

During the nine months ended July 31, 2026,12,802 stock awards were granted andno stock options were exercised. Restricted stock award settlements during the period resulted in the issuance of 10,179 shares of common stock and the transfer of 1,303 treasury shares. In addition,2,500 restricted stock awards were forfeited, and 2,347 restricted stock awards vested but remained unsettled as of July 31, 2026.

As of July 31, 2026, an aggregate of 1,398,911 shares of common stock remained available for future grants under the SIPs.

The Company recognized stock-based compensation expense of $25,778 and $29,773 for the three months ended July 31, 2026 and 2025, respectively. The stock-based compensation expense recognized during the three months ended July 31, 2026 related to restricted stock awards. For the nine months ended July 31, 2026 and 2025, the Company recognized stock-based compensation expense of $39,063 and $196,156, respectively.

Note 15 –SEGMENT ANALYSIS

The Company operates through three reportable segments: the Marine Technology Business, Acoustics Sensors and Materials Business, and Defense Engineering Services Business (collectively, the “Business Segments”).

The Business Segments are managed separately due to differences in their products and services, customer bases, markets served, operational characteristics, and resource requirements. Segment operating income is determined as segment revenue less cost of revenues and directly attributable operating expenses, including research and development (“R&D”) and selling, general and administrative (“SG&A”) expenses. Corporate expenses consist primarily of general corporate administrative costs and are not allocated to the reportable segments.

The Company’s Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”). The CODM evaluates the performance of the Business Segments using segment revenues, operating expenses and operating income prepared in accordance with U.S. GAAP. Segment operating income is the primary measure of segment profit or loss used by the CODM to assess segment performance, allocate resources, evaluate operating trends, assess investment opportunities, and monitor actual results against budgets and forecasts.

The revenues presented in this Note 15 represent sales to external customers. Intercompany transactions between reportable segments are eliminated in consolidation and are therefore excluded from consolidated revenues. Supplemental information regarding intercompany sales is presented below for segment reporting purposes.

Marine Technology Business (“Products”)

The Marine Technology Business develops, manufactures and supplies underwater technologies for commercial and government customers. Its principal products include real-time 3D imaging sonar systems and diving augmented reality technologies through near eye displays for subsea applications.

Acoustics Sensors and Materials Business (“PAL”)

PAL develops and supplies acoustic sensors, acoustic testing environments and acoustic materials. Its sensor technologies are used in precision ultrasonic measurement applications across a diverse range of markets, including medical, subsea, defense, academic and research institutions.

Defense Engineering Services Business (“Services”)

The Defense Engineering Services Business consists of two operational units, one located in the United States and one located in the United Kingdom. These operations primarily provide engineering services and proprietary subassemblies to prime defense contractors for integration into larger mission-critical defense systems.

The following tables summarize segment asset and operating balances by reportable segment for the three and nine months ended July 31, 2026, and 2025, respectively.

The Company’s reportable segments generate revenues from customers located in the following geographic regions:

Revenue information by geographic region is based on the location of the end customer.

Note 15 - SEGMENT ANALYSIS (Continued)

Note 15 – SEGMENT ANALYSIS (Continued)

NOTE 15 – SEGMENT ANALYSIS (Continued)

Note 15 – SEGMENT ANALYSIS (Continued)

Note 16 –DISAGGREGATION OF NET REVENUES

Information about the Company’s operations in different geographic areas for the three months and nine months ended July 31, 2026 and 2025, is shown below. Net revenues are attributed to geographic areas based on the location of the customer.

Note 16 – DISAGGREGATION OF NET REVENUES (Continued)

Note 16 – DISAGGREGATION OF NET REVENUES (Continued)

Note 17 –INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740,Income Taxes. The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items recognized in the applicable reporting period. The estimated annual effective tax rate is updated quarterly based on the most current information available. Changes in the estimated annual effective tax rate are recognized in the period in which the change is identified.

The Company’s quarterly income tax provision and estimated annual effective tax rate may vary significantly from period to period due to several factors, including the level and mix of earnings among taxing jurisdictions, the timing and impact of intercompany transactions, the applicability of special tax regimes, changes in the Company’s operating structure, fluctuations in foreign currency exchange rates, stock-based compensation, and changes in tax laws, regulations, and administrative practices.

The One Big Beautiful Bill Act of 2025 (the “2025 Tax Act”) was enacted on July 4, 2025. The 2025 Tax Act includes several changes to U.S. corporate income tax rules, including the reinstatement of 100% accelerated depreciation for qualified property, retroactive to January 20, 2025, and the immediate expensing of domestic research and development costs, retroactive to January 1, 2025. For fiscal year 2026, the Company does not expect these provisions to have a material impact on its U.S. cash tax obligations.

Beginning in fiscal year 2027, the Company expects its income tax provision to increase primarily as a result of a reduction in the foreign income deduction available under the global intangible low-taxed income (“GILTI”) provisions of the 2025 Tax Act.

The Company continues to evaluate the impact of the 2025 Tax Act and other enacted or proposed tax law changes as additional guidance becomes available. Any resulting adjustments will be recognized in the period in which such information becomes available and the effects can be reasonably estimated.

The Company’s estimated effective tax rate for the three months ended July 31, 2026 and 2025 was 22.4% and 16.9%, respectively. Current income tax expense for the three months ended July 31, 2026 and 2025 was $408,583 and $268,786, respectively.

The Company’s estimated effective tax rate for the nine months ended July 31, 2026 and 2025 was 21.4% and 17.1%, respectively. Current income tax expense for the nine months ended July 31, 2026 and 2025 was $1,104,002 and $692,361, respectively.

Deferred income tax benefit for the three months ended July 31, 2026 was $6,844, compared to a deferred income tax benefit of $8,022 for the three months ended July 31, 2025. Deferred income tax benefit for the nine months ended July 31, 2026 was $10,371, compared to a deferred income tax benefit of $52,864 for the nine months ended July 31, 2025.