PART I - Financial Information [Item 1: Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) Coda Octopus Group, Inc.'s unaudited consolidated financial statements, covering balance sheets, income, equity, cash flows, and detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (July 31, 2023 vs. October 31, 2022) | Metric | July 31, 2023 | October 31, 2022 | Change (%) | | :-------------------------- | :-------------- | :--------------- | :--------- | | Total Assets | $51,969,795 | $46,927,458 | 10.7% | | Total Liabilities | $2,132,566 | $3,544,649 | -39.9% | | Total Stockholders' Equity | $49,837,229 | $43,382,809 | 14.9% | | Cash and Cash Equivalents | $24,890,568 | $22,927,371 | 8.6% | | Inventory | $11,647,639 | $10,027,111 | 16.1% | | Unbilled Receivables | $1,742,334 | $602,115 | 189.4% | | Accounts Payable | $1,126,762 | $793,247 | 42.1% | | Accrued Expenses & Other Current Liabilities | $225,787 | $1,731,706 | -87.0% | | Deferred Revenue (Current) | $640,775 | $943,569 | -32.1% | [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Consolidated Income and Comprehensive Income (3 Months Ended July 31) | Metric | 2023 | 2022 | Change (%) | | :---------------------- | :------------ | :------------ | :--------- | | Net Revenues | $4,890,532 | $6,267,409 | -22.0% | | Gross Profit | $3,365,224 | $4,562,644 | -26.3% | | Income from Operations | $862,614 | $2,023,713 | -57.4% | | Net Income | $1,038,780 | $1,768,657 | -41.3% | | Basic EPS | $0.09 | $0.16 | -43.8% | | Diluted EPS | $0.09 | $0.16 | -43.8% | | Comprehensive Income | $1,431,263 | $963,500 | 48.5% | Consolidated Income and Comprehensive Income (9 Months Ended July 31) | Metric | 2023 | 2022 | Change (%) | | :---------------------- | :------------- | :------------- | :--------- | | Net Revenues | $15,788,325 | $17,090,455 | -7.6% | | Gross Profit | $10,741,470 | $11,754,284 | -8.6% | | Income from Operations | $3,063,818 | $3,869,978 | -20.8% | | Net Income | $3,445,114 | $3,597,208 | -4.2% | | Basic EPS | $0.31 | $0.33 | -6.1% | | Diluted EPS | $0.31 | $0.32 | -3.1% | | Comprehensive Income | $5,983,620 | $766,450 | 680.7% | [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) - Total Stockholders' Equity increased from **$43,382,809** as of October 31, 2022, to **$49,837,229** as of July 31, 2023[12](index=12&type=chunk) - Accumulated Other Comprehensive Loss improved from **$(4,737,124)** to **$(2,198,618)** over the nine months, largely due to foreign currency translation adjustments[12](index=12&type=chunk)[14](index=14&type=chunk) - Accumulated Deficit decreased from **$(14,176,636)** to **$(10,731,522)** over the nine months, reflecting net income[12](index=12&type=chunk) - Employee stock-based compensation contributed **$488,764** to additional paid-in capital for the nine months ended July 31, 2023[16](index=16&type=chunk)[59](index=59&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Cash Flows (9 Months Ended July 31) | Cash Flow Activity | 2023 | 2022 | Change (%) | | :-------------------------- | :------------ | :------------ | :--------- | | Net Cash from Operating | $1,384,897 | $6,282,523 | -77.9% | | Net Cash from Investing | $(509,609) | $(1,195,885) | -57.4% | | Net Cash from Financing | $(17,963) | $(63,559) | -71.7% | | Effect of Currency Translation | $1,105,872 | $(1,399,815) | N/A | | Net Increase in Cash | $1,963,197 | $3,623,264 | -45.8% | | Cash at End of Period | $24,890,568 | $21,370,920 | 16.5% | [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS](index=10&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) - Coda Octopus Group, Inc. operates two distinct business units: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[23](index=23&type=chunk) - The Marine Technology Business sells and rents Echoscope real-time 3D imaging sonar and the new Diver Augmented Vision Display (DAVD) system to subsea and underwater markets, with DAVD being a significant growth area[23](index=23&type=chunk) - The Marine Engineering Business is a sub-contractor to prime defense contractors, supplying proprietary sub-assemblies for mission-critical defense systems[23](index=23&type=chunk) [NOTE 2 – REVENUE RECOGNITION](index=10&type=section&id=NOTE%202%20%E2%80%93%20REVENUE%20RECOGNITION) - Revenue is recognized in accordance with Topic 606, when performance obligations are met, which includes product delivery, service performance, or over the subscription/rental period[26](index=26&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Fixed-price contracts for services are recognized using the percentage of completion method, measured by the percentage of costs incurred to date[33](index=33&type=chunk) - Deferred revenue includes customer prepayments and amounts related to warranty or Through Life Support (TLS) obligations, amortized over the relevant service period[32](index=32&type=chunk)[48](index=48&type=chunk) [NOTE 3 – COST OF REVENUES](index=12&type=section&id=NOTE%203%20%E2%80%93%20COST%20OF%20REVENUES) - Cost of Revenues includes materials, direct costs, and commissions paid to sales agents, primarily for the Marine Technology Business[39](index=39&type=chunk) Commissions Included in Cost of Revenues | Period | 2023 | 2022 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Three Months Ended July 31 | $120,724 | $33,001 | 265.8% | | Nine Months Ended July 31 | $728,552 | $434,005 | 67.9% | [NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=12&type=section&id=NOTE%204%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) - The carrying amounts of financial instruments (cash, accounts receivable, accounts payable, accrued expenses) approximate fair values due to their short-term nature[40](index=40&type=chunk) [NOTE 5 – FOREIGN CURRENCY TRANSLATION](index=12&type=section&id=NOTE%205%20%E2%80%93%20FOREIGN%20CURRENCY%20TRANSLATION) - Assets and liabilities are translated at prevailing exchange rates at balance sheet dates, while revenues and expenses use weighted average rates[41](index=41&type=chunk) - Resulting translation adjustments are recorded as a separate component in stockholders' equity as part of accumulated other comprehensive income or loss[41](index=41&type=chunk) [NOTE 6 – INVENTORY](index=12&type=section&id=NOTE%206%20%E2%80%93%20INVENTORY) Inventory Composition (July 31, 2023 vs. October 31, 2022) | Component | July 31, 2023 | October 31, 2022 | | :---------------- | :------------ | :--------------- | | Raw materials and parts | $8,940,798 | $7,219,344 | | Work in progress | $396,359 | $383,427 | | Finished goods | $2,310,482 | $2,424,340 | | **Total Inventory** | **$11,647,639** | **$10,027,111** | - Total inventory increased by **16.1%** from October 31, 2022, to July 31, 2023, primarily driven by an increase in raw materials and parts[42](index=42&type=chunk) [NOTE 7 – FIXED ASSETS](index=12&type=section&id=NOTE%207%20%E2%80%93%20FIXED%20ASSETS) Property and Equipment, Net (July 31, 2023 vs. October 31, 2022) | Component | July 31, 2023 | October 31, 2022 | | :---------------------------- | :------------ | :--------------- | | Buildings | $5,852,425 | $5,419,946 | | Land | $200,000 | $200,000 | | Office machinery and equipment | $1,888,864 | $1,556,030 | | Rental assets | $2,636,744 | $2,252,292 | | Furniture, fixtures and improvements | $1,214,734 | $1,108,787 | | Totals (Gross) | $11,792,767 | $10,537,055 | | Less: accumulated depreciation | $(5,541,521) | $(4,704,523) | | **Total Property and Equipment, net** | **$6,251,246** | **$5,832,532** | - Total Property and Equipment, net, increased by **7.2%** from October 31, 2022, to July 31, 2023[44](index=44&type=chunk) [NOTE 8 – OTHER CURRENT ASSETS](index=14&type=section&id=NOTE%208%20%E2%80%93%20OTHER%20CURRENT%20ASSETS) Other Current Assets (July 31, 2023 vs. October 31, 2022) | Component | July 31, 2023 | October 31, 2022 | | :---------------------------- | :------------ | :--------------- | | Deposits | $24,664 | $18,631 | | Other Tax Receivables | $172,271 | $151,217 | | Employee Retention Credit Receivables | $173,213 | $173,213 | | Other Receivables | $2,035 | $- | | **Total Other Current Assets** | **$372,183** | **$343,061** | - Total Other Current Assets increased by **8.5%** from October 31, 2022, to July 31, 2023[45](index=45&type=chunk) [NOTE 9 – CONTRACTS IN PROGRESS](index=14&type=section&id=NOTE%209%20%E2%80%93%20CONTRACTS%20IN%20PROGRESS) - Unbilled Receivables, representing costs and estimated earnings in excess of billings, increased significantly from **$602,115** as of October 31, 2022, to **$1,742,334** as of July 31, 2023[46](index=46&type=chunk) - Deferred Revenue (billings in excess of costs and warranty obligations) decreased from **$790,458** as of October 31, 2022, to **$543,991** as of July 31, 2023[47](index=47&type=chunk) - Deferred revenue for warranty or Through Life Support (TLS) was **$236,026** as of July 31, 2023, compared to **$229,238** as of October 31, 2022[48](index=48&type=chunk) [NOTE 10 – CONCENTRATIONS](index=14&type=section&id=NOTE%2010%20%E2%80%93%20CONCENTRATIONS) - For the three months ended July 31, 2023, three customers accounted for **36.1% of net revenues** and **41.2% of net receivables**[49](index=49&type=chunk) - For the nine months ended July 31, 2023, one customer accounted for **11.7% of net revenues** and **21.4% of net receivables**[51](index=51&type=chunk) [NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS](index=14&type=section&id=NOTE%2011%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - There have been no new accounting pronouncements not yet effective that have significance or potential significance to the Consolidated Financial Statements[53](index=53&type=chunk) [NOTE 12 – EARNINGS PER SHARE](index=14&type=section&id=NOTE%2012%20%E2%80%93%20EARNINGS%20PER%20SHARE) Net Income Per Share (3 Months Ended July 31) | Metric | 2023 | 2022 | | :-------- | :---- | :---- | | Basic EPS | $0.09 | $0.16 | | Diluted EPS | $0.09 | $0.16 | Net Income Per Share (9 Months Ended July 31) | Metric | 2023 | 2022 | | :-------- | :---- | :---- | | Basic EPS | $0.31 | $0.33 | | Diluted EPS | $0.31 | $0.32 | [NOTE 13 – 2017 STOCK INCENTIVE PLAN](index=16&type=section&id=NOTE%2013%20%E2%80%93%202017%20STOCK%20INCENTIVE%20PLAN) - The total stock compensation expense for the nine months ended July 31, 2023, was **$488,764**[59](index=59&type=chunk) - During the nine months ended July 31, 2023, **199,496 options** were exercised on a cashless basis, resulting in the issuance of **92,275 shares**[58](index=58&type=chunk) - As of July 31, 2023, there were **370,682 shares** available for issuance under the 2017 Plan and a total of **1,370,682 shares** available under both the 2017 and 2021 Plans[58](index=58&type=chunk)[62](index=62&type=chunk) [NOTE 14 – SEGMENT ANALYSIS](index=16&type=section&id=NOTE%2014%20%E2%80%93%20SEGMENT%20ANALYSIS) - The Company operates two distinct reportable segments: Marine Technology Business (Products) and Marine Engineering Business (Services), managed separately[63](index=63&type=chunk) Segment Performance (3 Months Ended July 31) | Metric | Marine Technology (2023) | Marine Technology (2022) | Marine Engineering (2023) | Marine Engineering (2022) | | :---------------------- | :----------------------- | :----------------------- | :------------------------ | :------------------------ | | Net Revenues | $2,863,251 | $4,004,557 | $2,027,281 | $2,262,852 | | Income from Operations | $911,237 | $2,135,252 | $455,325 | $417,419 | Segment Performance (9 Months Ended July 31) | Metric | Marine Technology (2023) | Marine Technology (2022) | Marine Engineering (2023) | Marine Engineering (2022) | | :---------------------- | :----------------------- | :----------------------- | :------------------------ | :------------------------ | | Net Revenues | $10,270,839 | $11,319,314 | $5,517,486 | $5,771,141 | | Income from Operations | $3,872,766 | $5,587,116 | $1,057,876 | $299,192 | [NOTE 15 – DISAGGREGATION OF REVENUE](index=23&type=section&id=NOTE%2015%20%E2%80%93%20DISAGGREGATION%20OF%20REVENUE) Revenue Disaggregation by Geographical Market (3 Months Ended July 31) | Market | 2023 Total | 2022 Total | Change (%) | | :-------------- | :------------ | :------------ | :--------- | | Americas | $2,606,628 | $3,095,140 | -15.8% | | Europe | $1,245,334 | $1,073,342 | 16.0% | | Australia/Asia | $442,670 | $1,435,637 | -69.2% | | Middle East/Africa | $595,900 | $663,290 | -10.2% | | **Total Revenues** | **$4,890,532** | **$6,267,409** | **-22.0%** | Revenue Disaggregation by Major Goods/Service Lines (3 Months Ended July 31) | Line of Business | 2023 Total | 2022 Total | Change (%) | | :--------------- | :------------ | :------------ | :--------- | | Equipment Sales | $2,224,874 | $3,379,435 | -34.2% | | Equipment Rentals | $303,525 | $380,984 | -20.3% | | Software Sales | $147,453 | $252,204 | -41.5% | | Engineering Parts | $1,377,562 | $999,228 | 37.9% | | Services | $837,118 | $1,255,558 | -33.3% | | **Total Revenues** | **$4,890,532** | **$6,267,409** | **-22.0%** | Revenue Disaggregation by Geographical Market (9 Months Ended July 31) | Market | 2023 Total | 2022 Total | Change (%) | | :-------------- | :------------- | :------------- | :--------- | | Americas | $7,315,039 | $7,360,269 | -0.6% | | Europe | $3,776,269 | $3,511,455 | 7.5% | | Australia/Asia | $3,799,349 | $4,477,178 | -15.1% | | Middle East/Africa | $897,668 | $1,741,553 | -48.4% | | **Total Revenues** | **$15,788,325** | **$17,090,455** | **-7.6%** | Revenue Disaggregation by Major Goods/Service Lines (9 Months Ended July 31) | Line of Business | 2023 Total | 2022 Total | Change (%) | | :--------------- | :------------- | :------------- | :--------- | | Equipment Sales | $7,305,543 | $8,376,415 | -12.8% | | Equipment Rentals | $1,088,855 | $1,726,760 | -36.9% | | Software Sales | $784,046 | $691,422 | 13.4% | | Engineering Parts | $3,598,547 | $2,918,181 | 23.3% | | Services | $3,011,334 | $3,377,677 | -10.9% | | **Total Revenues** | **$15,788,325** | **$17,090,455** | **-7.6%** | [NOTE 16 – INCOME TAXES](index=27&type=section&id=NOTE%2016%20%E2%80%93%20INCOME%20TAXES) - The effective tax rate for the three months ended July 31, 2023, was **3.6%**, down from **13.4%** in 2022[79](index=79&type=chunk) - The effective tax rate for the nine months ended July 31, 2023, was **0.6%**, down from **9.6%** in 2022[80](index=80&type=chunk) - UK subsidiaries recorded a **0.0% tax rate** due to R&D tax credits, while the Danish company had a **22.0% provision**[79](index=79&type=chunk)[80](index=80&type=chunk) [NOTE 17 – CERTIFIED DEPOSIT INTEREST BEARING ACCOUNTS](index=27&type=section&id=NOTE%2017%20%E2%80%93%20CERTIFIED%20DEPOSIT%20INTEREST%20BEARING%20ACCOUNTS) - The Company established certified deposit interest-bearing accounts in February 2023, classified as 'cash equivalent' for short-term periods not exceeding **3 months**[81](index=81&type=chunk) Interest-Bearing Accounts as of July 31, 2023 | Currency Denomination | Amount | Bank | Interest Rate | | :-------------------- | :------------ | :--------- | :------------ | | USD | $13,256,709 | HSBC | 5.17% | | GBP | £750,000 | HSBC | 4.80% | | GBP (Unrestricted) | £1,248,151 | N/A | 5.00% | | Euro | €795,000 | Jyske Bank | 1.9% | | British Pound | £414,000 | Jyske Bank | 3.2% | | Danish Kroner | DKK 3,190,000 | Jyske Bank | 1.6% | | USD | $1,094,000 | Jyske Bank | 3.8% | [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and results of operations, including business overview, key factors, and financial performance [General Overview](index=28&type=section&id=General%20Overview) - The Marine Technology Business provides Echoscope real-time 3D imaging sonar and the CodaOctopusDAVD (Diver Augmented Vision Display) system for underwater defense and commercial markets globally[84](index=84&type=chunk)[86](index=86&type=chunk) - The DAVD system, protected by patent, integrates real-time data into a diver's Head-up Display (HUD), enhancing safety and efficiency in diving operations[86](index=86&type=chunk)[99](index=99&type=chunk) - The Marine Engineering Business is a long-term Department of Defense (DoD) supplier, designing and manufacturing proprietary sub-assemblies for mission-critical integrated systems (MCIS)[90](index=90&type=chunk) - Volumetric real-time imaging sonar technology and the DAVD are identified as the most promising products for the Company's near-term growth[91](index=91&type=chunk) [Factors Affecting our Business in the Current Quarter](index=31&type=section&id=Factors%20Affecting%20our%20Business%20in%20the%20Current%20Quarter) - Ongoing cumulative supply chain issues, including shortages of key electronic components (e.g., FPGAs), result in lead times up to **12 months** and significant price increases, impacting production and project progression[103](index=103&type=chunk)[108](index=108&type=chunk) - Inflation in operating countries (Denmark **3.1%**, UK **6.4%**, USA **3.2%**) increases operational and material costs, and creates pressure on salaries, making it difficult to attract and retain skilled personnel[104](index=104&type=chunk)[108](index=108&type=chunk) - Currency fluctuations, particularly the weakening USD against GBP, EUR, DKK, and INR, can impact consolidated financial results, though it had a positive impact on revenue in the current quarter[105](index=105&type=chunk) - Skill shortages in critical areas (sales, marketing, software developers, electronic technicians) coupled with wage pressure pose a risk to business continuity and growth[106](index=106&type=chunk) - Long and unpredictable sales cycles in the defense market, particularly for the Services Business and Marine Technology's defense opportunities, affect the timing of orders and quarterly revenues[107](index=107&type=chunk) [Impact on Revenues and Earnings](index=33&type=section&id=Impact%20on%20Revenues%20and%20Earnings) - The Company is uncertain about the full extent of the impact these factors will have on future financial results[109](index=109&type=chunk) [Impact on Liquidity, Balance Sheet and Assets](index=34&type=section&id=Impact%20on%20Liquidity%2C%20Balance%20Sheet%20and%20Assets) - As of July 31, 2023, the Company had cash and cash equivalents of **$24,890,568** and believes it has sufficient working capital for the foreseeable future, despite potential adverse impacts from market factors[110](index=110&type=chunk) [Critical Accounting Policies](index=34&type=section&id=Critical%20Accounting%20Policies) - Revenue recognition follows Topic 606, with revenues derived from sales and rentals of underwater solutions and engineering services, recognized when performance obligations are met[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Deferred costs on service projects, primarily direct and incremental costs, are recognized in accordance with revenue recognition policies and reviewed quarterly for recoverability[116](index=116&type=chunk)[117](index=117&type=chunk) - Income taxes are accounted for under ASC 740, with deferred tax assets and liabilities recorded for temporary differences between financial and tax reporting bases[119](index=119&type=chunk)[120](index=120&type=chunk) - Intangible assets, including goodwill, customer relationships, and licenses, are evaluated for impairment annually (goodwill) or amortized over **2 to 15 years** (finite-lived assets)[122](index=122&type=chunk)[123](index=123&type=chunk) [Consolidated Results of Operations](index=35&type=section&id=Consolidated%20Results%20of%20Operations) - Consolidated revenue for the Current Quarter decreased by **22.0%** to **$4,890,532** compared to the Previous Quarter, primarily due to falls in both Marine Technology and Services segments[124](index=124&type=chunk)[135](index=135&type=chunk) - Income from operations fell by **57.4%**, and net income before taxes decreased by **47.3%** to **$1,077,166** in the Current Quarter[124](index=124&type=chunk) - Currency fluctuations had a positive impact on reported revenue in the Current Quarter, increasing it by **0.4%** or **$18,633**[124](index=124&type=chunk)[188](index=188&type=chunk) [Segment Summary](index=36&type=section&id=Segment%20Summary) [Marine Technology Business](index=36&type=section&id=Marine%20Technology%20Business%20Segment%20Summary) - Revenue decreased by **28.5%** to **$2,863,251** in the Current Quarter, contributing **58.5%** of consolidated revenues[126](index=126&type=chunk) - Gross Profit Margin fell by **4.6%** to **82.1%** due to increased agent commissions and lower sales of high-margin rentals, software, and customization services[126](index=126&type=chunk) - Sales from the Asia region decreased by **69.2%** to **$442,670** in the Current Quarter, attributed to a slow pace of converting proposals into orders[129](index=129&type=chunk) - The defense market application increased to **46.5%** of revenues, while construction sector revenue decreased from **37.9%** to **10.0%**[130](index=130&type=chunk)[132](index=132&type=chunk) - A slowdown in European offshore wind power generation, driven by rising costs and higher interest rates, significantly impacted rental and associated services revenues[128](index=128&type=chunk)[131](index=131&type=chunk) [Services Business](index=37&type=section&id=Services%20Business%20Segment%20Summary) - Revenue decreased by **10.4%** to **$2,027,281** in the Current Quarter, contributing **41.5%** of consolidated revenues[133](index=133&type=chunk) - Gross Profit Margin increased by **1.8%** to **50.0%**, and total operating expenses fell by **17.0%**[133](index=133&type=chunk) - The fall in revenue is largely due to significant delays in securing orders from UK customers, whose priorities shifted to supporting Ukraine-related land-based solutions[133](index=133&type=chunk) [Results of Operations for the Current Quarter compared to the Previous Quarter](index=38&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Quarter%20compared%20to%20the%20Previous%20Quarter) - Total consolidated revenues decreased by **22.0%** to **$4,890,532**, driven by reduced sales in the Marine Technology Business (Europe, Asia) and delays in orders for the Services Business (UK operations)[135](index=135&type=chunk) - Gross Profit Margin weakened to **68.8%** (from **72.8%**), attributed to a lower percentage of higher-margin Marine Technology sales, increased commission costs, and a less favorable sales mix[136](index=136&type=chunk) Marine Technology Business Sales Mix (3 Months Ended July 31) | Category | 2023 | 2022 | Change (%) | | :---------------- | :------------ | :------------ | :--------- | | Equipment Sales | $2,143,203 | $2,928,019 | -26.8% | | Equipment Rentals | $303,525 | $380,984 | -20.3% | | Software Sales | $147,453 | $252,204 | -41.5% | | Services | $269,070 | $443,350 | -39.3% | | **Total Net Sales** | **$2,863,251** | **$4,004,557** | **-28.5%** | - Research and Development (R&D) expenditure slightly decreased by **1.7%** to **$568,287**, aligning with a strategic shift towards business development and marketing[141](index=141&type=chunk) - Other Income increased significantly by **986.7%** to **$214,552**, primarily due to **$211,704** in interest earned on certified deposit accounts established in February 2023[153](index=153&type=chunk) - Net Income decreased by **41.3%** to **$1,038,780**, while Comprehensive Income increased by **48.5%** to **$1,431,263**, reflecting a positive foreign currency translation adjustment[155](index=155&type=chunk)[156](index=156&type=chunk) [Results of Operations for the Current Nine Month Period compared to the Previous Nine Month Period](index=41&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Nine%20Month%20Period%20compared%20to%20the%20Previous%20Nine%20Month%20Period) - Total consolidated revenues decreased by **7.6%** to **$15,788,325**, primarily due to a fall in Marine Technology Business revenue (Asia sales, rentals) and significant delays in orders for the Services Business UK Operations[157](index=157&type=chunk) - Consolidated Gross Profit Margin was lower at **68.0%** (vs. **68.8%**), influenced by a lower percentage of higher-margin Marine Technology sales, increased commission costs, and a shift towards more hardware sales[158](index=158&type=chunk) - Services Business gross profit margins strengthened to **53.1%** (from **40.8%**) due to an exceptionally low-margin engineering project in the prior period[162](index=162&type=chunk) - R&D expenditures decreased by **13.0%** to **$1,538,684**, reflecting a strategic shift from R&D to marketing and business development, with major development projects now completed[164](index=164&type=chunk)[166](index=166&type=chunk) - Other Income increased by **253.4%** to **$403,693**, with **$395,161** attributable to interest earned on certified deposit accounts[176](index=176&type=chunk) - Net Income decreased by **4.2%** to **$3,445,114**, while Comprehensive Income significantly increased to **$5,983,620** (from **$766,450**), driven by a substantial gain from foreign currency translation adjustments[178](index=178&type=chunk)[179](index=179&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity and Capital Resources (July 31, 2023) | Metric | Amount | | :---------------------- | :------------ | | Accumulated Deficit | $10,731,522 | | Working Capital | $39,738,904 | | Cash and Cash Equivalents | $24,890,568 | | Cash from Operating Activities (9 months) | $1,384,898 | - The Company has a **$4,000,000** revolving line of credit with HSBC NA, with a **$0** outstanding balance as of July 31, 2023, set to expire on November 26, 2023[181](index=181&type=chunk) [Inflation and Foreign Currency](index=47&type=section&id=Inflation%20and%20Foreign%20Currency) - The Company's consolidated results are impacted by fluctuations in currency exchange rates as its foreign subsidiaries maintain accounts in native currencies (GBP, DKK, AUD, INR) translated into USD[183](index=183&type=chunk)[184](index=184&type=chunk) Impact of Currency Fluctuations (3 Months Ended July 31, 2023) | Metric | Actual Results | Constant Rates | Total Effect | | :---------- | :------------- | :------------- | :----------- | | Revenues | $2,313,763 | $2,295,130 | $18,633 | | Net profit (losses) | $177,600 | $170,793 | $6,807 | | Net assets | $24,529,308 | $21,979,780 | $2,549,528 | Impact of Currency Fluctuations (9 Months Ended July 31, 2023) | Metric | Actual Results | Constant Rates | Total Effect | | :---------- | :------------- | :------------- | :----------- | | Revenues | $8,521,593 | $8,812,857 | $(291,264) | | Net profit (losses) | $1,928,099 | $1,946,989 | $(18,890) | | Net assets | $24,529,308 | $21,981,835 | $2,547,473 | [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company does not have any off-balance sheet arrangements[191](index=191&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risks](index=48&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) This item is not required for smaller reporting companies - Not required for smaller reporting companies[192](index=192&type=chunk) [Item 4: Controls and Procedures](index=48&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Evaluation of disclosure controls and procedures, including identification and remediation of a material weakness in intercompany eliminations - A material weakness in internal controls over financial reporting, concerning the identification and review of intercompany eliminations, was disclosed in the Form 10-K for the fiscal year ended October 31, 2022[195](index=195&type=chunk) - A comprehensive remediation plan was implemented in the **first quarter of 2023**, including designated codes for intercompany transactions, a standalone 'Elimination Workbook,' and an Error Log for monitoring[196](index=196&type=chunk) - Management concluded that the material weakness has been remediated as of **July 31, 2023**, following monitoring and testing of the new controls[197](index=197&type=chunk)[199](index=199&type=chunk) PART II - Other Information [Item 1: Legal Proceedings](index=50&type=section&id=Item%201%3A%20Legal%20Proceedings) No legal proceedings are expected to materially adversely affect the company's business, financial condition, or operating results - The Company is not aware of any legal proceedings that are believed to have a material adverse effect on its business, financial condition, or operating results[201](index=201&type=chunk) [Item 1A: Risk Factors](index=50&type=section&id=Item%201A%3A%20Risk%20Factors) This item is not required for smaller reporting companies - Not required for smaller reporting companies[202](index=202&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds to report during the period - None to report[202](index=202&type=chunk) [Item 3: Default Upon Senior Securities](index=50&type=section&id=Item%203%3A%20Default%20Upon%20Senior%20Securities) No defaults upon senior securities to report during the period - None to report[203](index=203&type=chunk) [Item 4: Mine Safety Disclosures](index=50&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[204](index=204&type=chunk) [Item 5: Other Information](index=50&type=section&id=Item%205%3A%20Other%20Information) No other information is required to be reported under this item - No other information to report[205](index=205&type=chunk) [Item 6: Exhibits](index=50&type=section&id=Item%206%3A%20Exhibits) Lists exhibits filed as part of the Form 10-Q, including certifications and Inline XBRL documents - Exhibits include Certifications of the Chief Executive Officer and Acting Chief Financial Officer (**31, 32**) and various Inline XBRL documents (**101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104**)[205](index=205&type=chunk)[206](index=206&type=chunk) [Signatures](index=51&type=section&id=Signatures) The report is duly signed by the registrant's authorized officers - The report was signed by Annmarie Gayle, Chief Executive Officer, and Gayle Jardine, Acting Chief Financial Officer, on **September 13, 2023**[209](index=209&type=chunk)

Coda Octopus Group, Inc. (NASDAQ:CODA) Q2 2023 Earnings Conference Call June 14, 2023 10:00 AM ET Company Participants Jackie Keshner - Gateway Group, Inc. Annmarie Gayle - Chairman & CEO Gayle Jardine - Acting CFO Conference Call Participants Brian Kinstlinger - Alliance Global Partners Walter Ramsley - R-Squared David Wright - Henry Investment Trust Operator Good morning, and welcome to Coda Octopus Group's Second Quarter Fiscal Year 2023 Earnings Conference Call. My name is Christine, and I'll be your op ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Coda Octopus Group, Inc. for the periods ended April 30, 2023, and October 31, 2022, including balance sheets, income statements, statements of changes in stockholders' equity, cash flow statements, and detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) | Metric | April 30, 2023 (Unaudited) | October 31, 2022 | | :-------------------------------- | :------------------------- | :--------------- | | Total Current Assets | $40,843,201 | $37,010,722 | | Total Assets | $50,903,462 | $46,927,458 | | Total Current Liabilities | $2,504,463 | $3,468,522 | | Total Liabilities | $2,592,721 | $3,544,649 | | Total Stockholders' Equity | $48,310,741 | $43,382,809 | [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) | Metric | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Revenues | $5,301,509 | $4,984,838 | $10,897,793 | $10,823,046 | | Gross Profit | $3,623,241 | $3,031,706 | $7,376,246 | $7,191,640 | | Income From Operations | $855,108 | $481,212 | $2,201,204 | $1,846,266 | | Net Income | $1,008,477 | $611,303 | $2,406,334 | $1,828,551 | | Basic Net Income Per Share | $0.09 | $0.06 | $0.22 | $0.17 | | Diluted Net Income Per Share | $0.09 | $0.05 | $0.21 | $0.16 | | Comprehensive Income | $1,546,850 | $(1,655,448) | $4,552,357 | $(197,050) | [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) | Equity Component | Balance, October 31, 2022 | Balance, April 30, 2023 | | :-------------------------------- | :------------------------ | :---------------------- | | Common Shares | 10,916,853 | 11,042,897 | | Stock Amount | $10,918 | $11,043 | | Additional Paid-in Capital | $62,313,988 | $62,692,276 | | Accumulated Other Comprehensive Loss | $(4,737,124) | $(2,591,101) | | Accumulated Deficit | $(14,176,636) | $(11,770,302) | | Treasury Stock | $(28,337) | $(31,175) | | Total | $43,382,809 | $48,310,741 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net Cash (used in) provided by Operating Activities | $(261,033) | $4,707,661 | | Net Cash Used in Investing Activities | $(224,354) | $(1,141,476) | | Net Cash Used in Financing Activities | $(2,838) | $(63,559) | | Effect of Currency Translation on Changes in Cash | $1,015,972 | $(592,163) | | Net Increase in Cash and Cash Equivalents | $527,747 | $2,910,463 | | Cash and Cash Equivalents at End of Period | $23,455,118 | $20,658,119 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS](index=9&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) Coda Octopus Group, Inc. operates two distinct business units: the Marine Technology Business (Products Segment), which sells technology solutions like Echoscope and DAVD to subsea markets, and the Marine Engineering Business (Services Segment), which provides proprietary sub-assemblies and engineering services to prime defense contractors - The Company operates two distinct business units: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[28](index=28&type=chunk)[53](index=53&type=chunk) - Marine Technology Business offers Echoscope, Echoscope PIPE, and the new Diver Augmented Vision Display (DAVD) for subsea and underwater markets, with DAVD being a significant growth driver[28](index=28&type=chunk) - Marine Engineering Business acts as a sub-contractor to prime defense contractors, supplying proprietary sub-assemblies and engineering services for mission-critical defense systems[28](index=28&type=chunk) [NOTE 2 – REVENUE RECOGNITION](index=9&type=section&id=NOTE%202%20%E2%80%93%20REVENUE%20RECOGNITION) The Company recognizes revenue following FASB Topic 606, applying a five-step process. Revenue from product sales, rentals, and software is recognized when performance obligations are met, while engineering services revenue is recognized based on fixed hourly rates or the percentage of completion method for fixed-price contracts - Revenue is recognized in accordance with FASB Topic 606, which involves a five-step process: identifying the contract, performance obligations, transaction price, allocating price to obligations, and recognizing revenue when obligations are satisfied[14](index=14&type=chunk)[29](index=29&type=chunk)[55](index=55&type=chunk) - For Marine Technology Business (Products), revenue from product sales is recognized on a stand-alone basis, and services (installation, training) are either included or contracted separately[57](index=57&type=chunk)[184](index=184&type=chunk) - Revenue from subscription packages or equipment rentals is recognized daily over the subscription or rental period, while software license sales are recognized upon delivery of activation codes[31](index=31&type=chunk)[59](index=59&type=chunk) - For Marine Engineering Business (Services), revenue from time-and-materials contracts is recognized based on incurred material and direct labor hours, and fixed-price contracts use the percentage of completion method[33](index=33&type=chunk) [NOTE 3 – COST OF REVENUES](index=11&type=section&id=NOTE%203%20%E2%80%93%20COST%20OF%20REVENUES) Cost of revenues includes materials, direct costs, and commissions paid to sales agents, particularly for the Marine Technology Business. Commissions decreased by 61.0% for the three months ended April 30, 2023, but increased by 51.6% for the six months ended April 30, 2023, reflecting varying sales agent activity - Cost of Revenues includes materials, direct costs, and commissions paid to sales agents, primarily for the Marine Technology Business[37](index=37&type=chunk) | Period | Commissions (2023) | Commissions (2022) | Change | | :-------------------------------- | :------------------- | :------------------- | :------- | | Three Months Ended April 30 | $102,452 | $262,632 | -61.0% | | Six Months Ended April 30 | $607,828 | $401,004 | +51.6% | [NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=11&type=section&id=NOTE%204%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) The carrying amounts of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate their fair values due to their short-term nature - The carrying amounts of financial instruments (cash, receivables, payables, accrued expenses) approximate fair values due to their short-term nature[38](index=38&type=chunk) [NOTE 5 – FOREIGN CURRENCY TRANSLATION](index=11&type=section&id=NOTE%205%20%E2%80%93%20FOREIGN%20CURRENCY%20TRANSLATION) Assets and liabilities of foreign subsidiaries are translated at prevailing exchange rates at balance sheet dates, while revenues and expenses use weighted average exchange rates. Stockholders' equity is recorded at historical rates, with translation adjustments recognized in accumulated other comprehensive income or loss - Assets and liabilities are translated at prevailing exchange rates at balance sheet dates[39](index=39&type=chunk) - Revenues and expenses are translated at weighted average exchange rates during the reporting period[39](index=39&type=chunk) - Stockholders' equity is recorded at historical exchange rates, and translation adjustments are part of accumulated other comprehensive income or (loss)[39](index=39&type=chunk) [NOTE 6 – INVENTORY](index=12&type=section&id=NOTE%206%20%E2%80%93%20INVENTORY) Inventory is valued at the lower of cost (FIFO method) or net realizable value, comprising raw materials, work in progress, and finished goods - Inventory is stated at the lower of cost (First In, First Out method) or net realizable value[66](index=66&type=chunk) | Inventory Component | April 30, 2023 | October 31, 2022 | | :------------------ | :------------- | :--------------- | | Raw materials and parts | $8,568,699 | $7,219,344 | | Work in progress | $366,485 | $383,427 | | Finished goods | $2,298,501 | $2,424,340 | | Total Inventory | $11,233,685 | $10,027,111 | [NOTE 7 – PROPERTY AND EQUIPMENT](index=12&type=section&id=NOTE%207%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT) Property and equipment, net of accumulated depreciation, includes buildings, land, office machinery, rental assets, and furniture, fixtures, and improvements | Property and Equipment Component | April 30, 2023 | October 31, 2022 | | :------------------------------- | :------------- | :--------------- | | Buildings | $5,776,882 | $5,419,946 | | Land | $200,000 | $200,000 | | Office machinery and equipment | $1,702,189 | $1,556,030 | | Rental assets | $2,493,622 | $2,252,292 | | Furniture, fixtures and improvements | $1,197,705 | $1,108,787 | | Totals | $11,370,398 | $10,537,055 | | Less: accumulated depreciation | $(5,299,732) | $(4,704,523) | | Total Property and Equipment, net | $6,070,666 | $5,832,532 | [NOTE 8 – OTHER CURRENT ASSETS](index=12&type=section&id=NOTE%208%20%E2%80%93%20OTHER%20CURRENT%20ASSETS) Other current assets consist of deposits, other tax receivables, employee retention credit receivables, and other receivables | Other Current Asset | April 30, 2023 | October 31, 2022 | | :------------------ | :------------- | :--------------- | | Deposits | $24,647 | $18,631 | | Other Tax Receivables | $214,274 | $151,217 | | Employee Retention Credit Receivables | $173,213 | $173,213 | | Other Receivables | $10,236 | $- | | Total Other Current Assets | $422,371 | $343,061 | [NOTE 9 – CONTRACTS IN PROGRESS](index=13&type=section&id=NOTE%209%20%E2%80%93%20CONTRACTS%20IN%20PROGRESS) The Company recognizes warranty or Through Life Support (TLS) as deferred revenue, amortized over the obligation period. Unbilled receivables represent accumulated project expenses and fees not yet invoiced to customers - Warranty or Through Life Support (TLS) is treated as deferred revenue, amortized over 12, 36, or 60 months[44](index=44&type=chunk) | Deferred Revenue Type | April 30, 2023 | October 31, 2022 | | :-------------------- | :------------- | :--------------- | | Warranty/TLS | $233,592 | $229,238 | | Billings in excess of costs and revenues | $878,423 | $790,458 | | Unbilled Receivables | April 30, 2023 | October 31, 2022 | | :------------------- | :------------- | :--------------- | | Total | $1,099,066 | $602,115 | [NOTE 10 – CONCENTRATIONS](index=13&type=section&id=NOTE%2010%20%E2%80%93%20CONCENTRATIONS) The Company had significant customer concentrations in both the three-month and six-month periods ended April 30, 2023 and 2022, with certain customers accounting for over 10% of net revenues and receivables | Period | Customer Count | Revenue % of Net Revenues | Receivables % of Net Receivables | | :-------------------------------- | :------------- | :------------------------ | :------------------------------- | | Three Months Ended April 30, 2023 | 1 | 24.0% ($1,270,138) | 35.1% ($1,365,300) | | Three Months Ended April 30, 2022 | 1 | 11.0% ($549,134) | 9.3% ($184,374) | | Six Months Ended April 30, 2023 | 2 | 23.1% ($2,517,093) | 38.1% ($1,483,542) | | Six Months Ended April 30, 2022 | 2 | 22.0% ($2,374,201) | 0.03% ($600) | [NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS](index=13&type=section&id=NOTE%2011%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) There have been no new accounting pronouncements not yet effective that have significance or potential significance to the Company's Consolidated Financial Statements - No new accounting pronouncements with significant impact are yet effective[70](index=70&type=chunk)[96](index=96&type=chunk) [NOTE 12 – EARNINGS PER SHARE](index=14&type=section&id=NOTE%2012%20%E2%80%93%20EARNINGS%20PER%20SHARE) This note provides the basic and diluted net income per share, along with the weighted average common shares outstanding for both basic and diluted calculations | Metric | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Basic Net Income Per Share | $0.09 | $0.06 | $0.22 | $0.17 | | Diluted Net Income Per Share | $0.09 | $0.05 | $0.21 | $0.16 | | Basic Weighted Average Common Shares | 11,010,077 | 10,857,673 | 10,970,806 | 10,857,429 | | Diluted Outstanding Shares | 11,330,754 | 11,405,507 | 11,291,483 | 11,405,263 | [NOTE 13 – 2017 STOCK INCENTIVE PLAN](index=14&type=section&id=NOTE%2013%20%E2%80%93%202017%20STOCK%20INCENTIVE%20PLAN) The Company operates under the 2017 and 2021 Stock Incentive Plans to attract and retain qualified individuals. During the six months ended April 30, 2023, 39,000 restricted stock awards were granted, 146,168 options and 90,073 restricted stock awards vested, and total stock compensation expense was $378,414 - The 2017 Stock Incentive Plan and 2021 Stock Incentive Plan aim to attract and retain talent through equity participation[72](index=72&type=chunk)[99](index=99&type=chunk) - As of April 30, 2023, **1,321,026 shares** were available for future issuance under both plans[74](index=74&type=chunk) | Metric | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Restricted Stock Awards Granted | 39,000 | 55,181 | | Options Vested | 146,168 | 177,333 | | Restricted Stock Awards Vested | 90,073 | - | | Total Stock Compensation Expense | $378,414 | $690,743 | [NOTE 14 – SEGMENT ANALYSIS](index=15&type=section&id=NOTE%2014%20%E2%80%93%20SEGMENT%20ANALYSIS) The Company operates two distinct reportable segments: Marine Technology Business (Products) and Marine Engineering Business (Services). This note provides a detailed breakdown of their financial performance, including revenues, gross profit, operating expenses, and income from operations, along with segment assets and liabilities - The Company has two reportable segments: Marine Technology Business (Products) and Marine Engineering Business (Services), managed separately due to fundamental differences in offerings[76](index=76&type=chunk) **Three Months Ended April 30, 2023:** | Metric | Marine Technology Business | Marine Engineering Business | Overhead | Total | | :-------------------------- | :------------------------- | :-------------------------- | :------- | :---------- | | Net Revenues | $3,583,429 | $1,718,080 | $- | $5,301,509 | | Gross Profit | $2,698,047 | $925,194 | $- | $3,623,241 | | Income (Loss) from Operations | $1,301,681 | $261,921 | $(708,494) | $855,108 | | Net Income (Loss) | $1,342,876 | $283,205 | $(617,604) | $1,008,477 | | Total Assets | $36,187,625 | $13,618,065 | $1,097,772 | $50,903,462 | | Total Liabilities | $1,665,630 | $802,459 | $124,632 | $2,592,721 | **Six Months Ended April 30, 2023:** | Metric | Marine Technology Business | Marine Engineering Business | Overhead | Total | | :-------------------------- | :------------------------- | :-------------------------- | :------- | :---------- | | Net Revenues | $7,407,588 | $3,490,205 | $- | $10,897,793 | | Gross Profit | $5,457,962 | $1,918,284 | $- | $7,376,246 | | Income (Loss) from Operations | $2,961,529 | $602,551 | $(1,362,876) | $2,201,204 | | Net Income (Loss) | $2,998,871 | $604,724 | $(1,197,261) | $2,406,334 | | Total Assets | $36,187,625 | $13,618,065 | $1,097,772 | $50,903,462 | | Total Liabilities | $1,665,630 | $802,459 | $124,632 | $2,592,721 | [NOTE 15 – DISAGGREGATION OF REVENUE](index=20&type=section&id=NOTE%2015%20%E2%80%93%20DISAGGREGATION%20OF%20REVENUE) This note disaggregates the Company's total net sales by primary geographical markets (Americas, Europe, Australia/Asia, Middle East/Africa) and major goods/service lines (Equipment Sales, Rentals, Software Sales, Engineering Parts, Services) for both the Marine Technology and Marine Engineering segments **Three Months Ended April 30, 2023 - Total Revenues by Geography:** | Geography | Marine Technology Business | Marine Engineering Business | Total Revenues | | :---------------- | :------------------------- | :-------------------------- | :------------- | | Americas | $1,754,250 | $1,144,891 | $2,899,141 | | Europe | $812,188 | $573,189 | $1,385,377 | | Australia/Asia | $924,251 | $- | $924,251 | | Middle East/Africa | $92,740 | $- | $92,740 | | **Total** | **$3,583,429** | **$1,718,080** | **$5,301,509** | **Three Months Ended April 30, 2023 - Total Revenues by Goods/Service Lines:** | Goods/Service Line | Marine Technology Business | Marine Engineering Business | Total Revenues | | :----------------- | :------------------------- | :-------------------------- | :------------- | | Equipment Sales | $2,500,156 | $7,953 | $2,508,109 | | Equipment Rentals | $519,427 | $- | $519,427 | | Software Sales | $219,423 | $- | $219,423 | | Engineering Parts | $- | $1,071,906 | $1,071,906 | | Services | $344,423 | $638,221 | $982,644 | | **Total** | **$3,583,429** | **$1,718,080** | **$5,301,509** | **Six Months Ended April 30, 2023 - Total Revenues by Geography:** | Geography | Marine Technology Business | Marine Engineering Business | Total Revenues | | :---------------- | :------------------------- | :-------------------------- | :------------- | | Americas | $2,240,543 | $2,467,868 | $4,708,411 | | Europe | $1,508,598 | $1,022,337 | $2,530,935 | | Australia/Asia | $3,356,679 | $- | $3,356,679 | | Middle East/Africa | $301,768 | $- | $301,768 | | **Total** | **$7,407,588** | **$3,490,205** | **$10,897,793**| **Six Months Ended April 30, 2023 - Total Revenues by Goods/Service Lines:** | Goods/Service Line | Marine Technology Business | Marine Engineering Business | Total Revenues | | :----------------- | :------------------------- | :-------------------------- | :------------- | | Equipment Sales | $5,072,716 | $7,953 | $5,080,669 | | Equipment Rentals | $785,330 | $- | $785,330 | | Software Sales | $636,593 | $- | $636,593 | | Engineering Parts | $- | $2,220,985 | $2,220,985 | | Services | $912,949 | $1,261,267 | $2,174,216 | | **Total** | **$7,407,588** | **$3,490,205** | **$10,897,793**| [NOTE 16 – INCOME TAXES](index=24&type=section&id=NOTE%2016%20%E2%80%93%20INCOME%20TAXES) The Company accounts for income taxes under ASC 740, recording deferred tax assets and liabilities for temporary differences. Effective tax rates varied significantly, with specific provisions for US (25%), UK (0% due to R&D credits), and Danish (22%) operations - The Company accounts for income taxes under ASC 740, recording deferred tax assets and liabilities for temporary differences[187](index=187&type=chunk) | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Three Months Ended April 30, 2023 | 1.9% | | Three Months Ended April 30, 2022 | (23.9)% | | Six Months Ended April 30, 2023 | (0.7)% | | Six Months Ended April 30, 2022 | 5.6% | - Tax rates applied: US at **25%**, UK at **0%** (due to R&D tax credits), and Danish at **22%**[112](index=112&type=chunk)[139](index=139&type=chunk) [NOTE 17 – CERTIFIED DEPOSIT INTEREST BEARING ACCOUNTS](index=24&type=section&id=NOTE%2017%20%E2%80%93%20CERTIFIED%20DEPOSIT%20INTEREST%20BEARING%20ACCOUNTS) The Company established certified deposit interest-bearing accounts with HSBC NA and Jyske Bank in February 2023, classified as cash equivalents. These accounts, along with an unrestricted UK deposit account, earn interest at various rates - Certified deposit interest-bearing accounts were established in February 2023 with HSBC NA and Jyske Bank, classified as cash equivalents[140](index=140&type=chunk) | Currency Denomination | Amount | Bank/Rate (HSBC) | Bank/Rate (Jyske Bank) | | :-------------------- | :---------- | :--------------- | :--------------------- | | USD | $13,100,000 | 4.5% | - | | GBP | £750,000 | 3.77% | - | | GBP (Unrestricted) | £1,585,277 | 4.00% | - | | Euro | €665,000 | - | 1.3% | | British Pound | £414,000 | - | 2.65% | | Danish Kroner | DKK 2,850,000 | - | 0.91% | | USD | $819,000 | - | 3.41% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and operating results for the three and six months ended April 30, 2023, compared to the prior periods, covering business overview, factors affecting performance, critical accounting policies, and detailed analysis of consolidated and segment-specific financial results, liquidity, and the impact of inflation and foreign currency [General Overview](index=25&type=section&id=General%20Overview) Coda Octopus Group, Inc. operates two core businesses: Marine Technology (Products), focusing on subsea imaging and diving technology like Echoscope and DAVD, and Marine Engineering (Services), providing sub-assemblies for defense contractors. Both segments leverage specialized engineering skills and customer synergies, with DAVD and real-time 3D sonar identified as key growth drivers - The Company operates two distinct businesses: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[115](index=115&type=chunk)[144](index=144&type=chunk) - Marine Technology Business provides Echoscope and Echoscope PIPE for underwater construction, offshore energy, and defense, and the CodaOctopusDAVD for global defense and commercial diving, which is poised to transform diving operations[115](index=115&type=chunk)[116](index=116&type=chunk)[145](index=145&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Marine Engineering Business is a Department of Defense (DoD) supplier, designing and manufacturing proprietary sub-assemblies for mission-critical integrated systems, with customers including prime defense contractors[147](index=147&type=chunk) [Factors Affecting our Business in the Current Quarter](index=26&type=section&id=Factors%20Affecting%20our%20Business%20in%20the%20Current%20Quarter) The Company faces challenges from cumulative supply chain issues, leading to component shortages and price increases, and significant inflation in its operating countries. Additionally, skill shortages in critical areas and the long, unpredictable sales cycle for defense contracts pose risks to project progression, manufacturing, and overall growth - Cumulative supply chain issues, including shortages of key electronic components (e.g., FPGAs) and lead times up to **12 months**, are impacting project progression, manufacturing, and staff utilization[123](index=123&type=chunk)[154](index=154&type=chunk) - Significant inflation in operating countries (Denmark **5.3%**, UK **7.8%**, USA **4.9%** for 12 months to April 2023) increases operational costs and material expenses, and creates pressure on wages, exacerbating skill shortages[124](index=124&type=chunk)[156](index=156&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - The sales cycle for defense contracts is long and unpredictable, affecting quarterly revenues and growth plans, particularly for the Services Business and key Products Business opportunities in the Defense Market[126](index=126&type=chunk)[181](index=181&type=chunk) [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) This section highlights critical accounting policies for revenue recognition, recoverability of deferred costs, income taxes, and intangible assets. Management's estimates and assumptions are crucial, particularly for percentage of completion contracts, deferred cost recovery, deferred tax assets/liabilities, and goodwill impairment evaluations - Revenue recognition policies follow GAAP, with contracts for sales and rentals of underwater solutions and engineering services. Product sales do not include a right of return[159](index=159&type=chunk)[184](index=184&type=chunk) - Deferred costs on service projects, including direct and incremental costs for customization and installation, are recognized contract-by-contract in accordance with revenue recognition policies and reviewed quarterly for recoverability[160](index=160&type=chunk)[185](index=185&type=chunk) - Income taxes are accounted for under ASC 740, with deferred tax assets and liabilities recorded for temporary differences. Intangible assets, including goodwill, customer relationships, and licenses, are evaluated annually for impairment, with finite-lived assets amortized over **2 to 15 years**[161](index=161&type=chunk)[163](index=163&type=chunk)[187](index=187&type=chunk)[189](index=189&type=chunk) [Consolidated Results of Operations](index=30&type=section&id=Consolidated%20Results%20of%20Operations) For the Current Quarter, consolidated revenue increased by 6.4% to $5,301,509, with operating income up 77.7% and net income after taxes rising 65.0% to $1,008,477. Currency fluctuations, particularly the strengthening USD, resulted in $429,180 lower reported revenue | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :-------------------------------- | :------------------------------- | :-------------------------------- | :--------- | | Consolidated Revenue | $5,301,509 | $4,984,838 | +6.4% | | Total Operating Expenses | $2,768,133 | $2,550,494 | +8.5% | | Income from Operations | $855,108 | $481,212 | +77.7% | | Net Income before Income Tax | $1,028,484 | $493,207 | +108.5% | | Net Income after Income Tax | $1,008,477 | $611,303 | +65.0% | - Applying a constant exchange rate, consolidated revenue would have increased by **8.6%** over the Previous Quarter, indicating a negative impact of currency fluctuations of **$429,180** on reported revenue[164](index=164&type=chunk) [Segment Summary](index=30&type=section&id=Segment%20Summary) In the Current Quarter, the Products Business revenue increased by 2.6% (5.0% at constant rates) to $3,583,429, with a gross profit margin of 75.3%. The Services Business revenue increased by 15.0% (17.1% at constant rates) to $1,718,080, with operating income of $261,921. Agent commissions for the Products Business decreased by 61.0% | Segment | Current Quarter Revenue (Actual) | Current Quarter Revenue (Constant Rate) | Previous Quarter Revenue | Change (Actual) | Change (Constant Rate) | | :------------------------- | :------------------------------- | :-------------------------------------- | :----------------------- | :-------------- | :--------------------- | | Products Business | $3,583,429 | $3,665,060 | $3,491,009 | +2.6% | +5.0% | | Services Business | $1,718,080 | $1,748,958 | $1,493,829 | +15.0% | +17.1% | - Products Business gross profit margin was **75.3%** in the Current Quarter, a **1.3%** decrease from the Previous Quarter, partly due to a **61.0%** fall in agent commissions[191](index=191&type=chunk) - Services Business operating income was **$261,921** in the Current Quarter, with total operating expenses increasing by **13.6%**[167](index=167&type=chunk) [Results of Operations for the Current Quarter compared to the Previous Quarter](index=32&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Quarter%20compared%20to%20the%20Previous%20Quarter) This section details the financial performance for the three months ended April 30, 2023, compared to the same period in 2022, highlighting changes in revenue, gross profit, operating expenses, and net income, with specific attention to the impact of currency fluctuations and strategic shifts [Revenue](index=32&type=section&id=Revenue) | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :------------------------- | :------------------------------- | :-------------------------------- | :--------- | | Total Consolidated Revenues | $5,301,509 | $4,984,838 | +6.4% | | Products Business Revenues | $3,583,429 | $3,491,009 | +2.6% | | Services Business Revenues | $1,718,080 | $1,493,829 | +15.0% | - Currency fluctuations resulted in **$429,180** lower reported revenue for the Current Quarter compared to using a constant exchange rate[194](index=194&type=chunk) [Gross Profit Margins](index=32&type=section&id=Gross%20Profit%20Margins) | Segment/Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (Percentage Points) | | :------------------------- | :------------------------------- | :-------------------------------- | :------------------------- | | Consolidated Gross Profit Margin | 68.3% | 60.8% | +7.5 | | Marine Technology Business Margin | 75.3% | 76.6% | -1.3 | | Services Business Margin | 53.9% | 23.9% | +30.0 | - The significant improvement in consolidated gross profit margin was largely due to the Services Business recovering from an exceptionally low margin in the Previous Quarter, which was impacted by a specific motor racing project[168](index=168&type=chunk)[196](index=196&type=chunk) - Agent commissions for the Marine Technology Business decreased by **61.0%** to **$102,452**, reflecting decreased sales from Asia[197](index=197&type=chunk) [Research and Development (R&D)](index=33&type=section&id=Research%20and%20Development%20%28R%26D%29) | Segment/Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :------------------------- | :------------------------------- | :-------------------------------- | :--------- | | Total R&D Expenditure | $525,939 | $517,378 | +1.7% | | Services Segment R&D Expenditure | $7,534 | $(99,868) | +107.5% | | Products Segment R&D Expenditure | $518,405 | $617,246 | -16.0% | - The modest increase in total R&D aligns with a strategy to focus more resources on business development, marketing, and global brand building[198](index=198&type=chunk) - The negative R&D for the Services Segment in the Previous Quarter was due to reallocation of expenditure to a customer project after receiving the purchase order[226](index=226&type=chunk) [Selling, General and Administrative Expenses (SG&A)](index=34&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20%28SG%26A%29) | SG&A Category | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :---------------------------------------- | :------------------------------- | :-------------------------------- | :--------- | | Total SG&A Expenses | $2,242,194 | $2,033,116 | +10.3% | | Wages and Salaries | $907,297 | $940,460 | -3.5% | | Legal and Professional Fees | $467,784 | $390,218 | +19.9% | | Marketing | $66,578 | $108,569 | -38.7% | - The increase in SG&A was primarily driven by higher legal and professional fees due to engaging tax specialists and increased audit fees[173](index=173&type=chunk)[174](index=174&type=chunk) - Non-cash items as a percentage of SG&A decreased to **13.9%** from **24.8%**, largely due to a **46.3%** reduction in stock-based compensation charges[227](index=227&type=chunk) [Operating Income](index=34&type=section&id=Operating%20Income) | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :----------------- | :------------------------------- | :-------------------------------- | :--------- | | Operating Income | $855,108 | $481,212 | +77.7% | - The increase in operating income was a result of higher consolidated revenues and improved gross profit margins[202](index=202&type=chunk) [Other Income](index=34&type=section&id=Other%20Income) | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :----------------- | :------------------------------- | :-------------------------------- | :--------- | | Other Income | $173,376 | $14,497 | +1095.9% | - The significant increase in other income was primarily due to **$170,596** in interest earned on newly established certified deposit accounts[175](index=175&type=chunk) [Net Income before income taxes](index=34&type=section&id=Net%20Income%20before%20income%20taxes) | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :------------------------- | :------------------------------- | :-------------------------------- | :--------- | | Net Income before Income Taxes | $1,028,484 | $493,207 | +108.5% | - The increase was driven by higher consolidated revenues, improved gross profit margins, and material interest earned on certified deposit accounts[230](index=230&type=chunk) [Net Income](index=35&type=section&id=Net%20Income) | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | Change (%) | | :----------------- | :------------------------------- | :-------------------------------- | :--------- | | Net Income | $1,008,477 | $611,303 | +65.0% | | Current Tax Expense (Benefit) | $(68,773) | $109,150 | - | | Deferred Tax Benefit | $48,766 | $8,946 | - | - Net income increased by **65.0%**, with tax expenses varying based on the composition of consolidated income and specific tax provisions for US, UK (no provision due to carryforward losses), and Danish (**22%** rate) subsidiaries[9](index=9&type=chunk)[176](index=176&type=chunk) [Comprehensive Income](index=35&type=section&id=Comprehensive%20Income) | Metric | Current Quarter (April 30, 2023) | Previous Quarter (April 30, 2022) | | :------------------------------------ | :------------------------------- | :-------------------------------- | | Comprehensive Income (Loss) | $1,546,850 | $(1,655,448) | | Foreign Currency Translation Adjustment | $538,373 | $(2,266,751) | - Comprehensive income shifted from a loss to a gain, primarily reflecting significant positive adjustments from foreign currency translations, which are largely non-cash gains/losses[9](index=9&type=chunk)[231](index=231&type=chunk) [Results of Operations for the Current Six Month Period compared to the Previous Six Month Period](index=35&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Six%20Month%20Period%20compared%20to%20the%20Previous%20Six%20Month%20Period) This section analyzes the Company's financial performance for the six months ended April 30, 2023, versus the same period in 2022, detailing revenue, gross profit, operating expenses, and net income, emphasizing the impact of strategic shifts, currency fluctuations, and specific project influences [Revenue](index=35&type=section&id=Revenue) | Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :------------------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Total Consolidated Revenues | $10,897,793 | $10,823,046 | +0.7% | | Products Business Revenues | $7,407,588 | $7,314,757 | +1.3% | | Services Business Revenues | $3,490,205 | $3,508,289 | -0.5% | - Currency fluctuations negatively impacted total consolidated revenues by **$471,956**; at a constant rate, revenues would have increased by **4.4%**[177](index=177&type=chunk) [Gross Profit Margins](index=36&type=section&id=Gross%20Profit%20Margins) | Segment/Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (Percentage Points) | | :------------------------- | :---------------------------------------- | :----------------------------------------- | :------------------------- | | Consolidated Gross Profit Margin | 67.7% | 66.4% | +1.3 | | Products Business Margin | 73.7% | 81.0% | -7.3 | | Services Business Margin | 55.0% | 36.1% | +18.9 | - Consolidated margin improved due to a significant strengthening in the Services Business margin, which was exceptionally low in the prior period due to a specific low-margin motor racing project[207](index=207&type=chunk)[232](index=232&type=chunk) - Products Business margins weakened due to a **51.6%** increase in foreign agent commission costs (**$607,828** vs. **$401,004**), particularly from Asia sales[208](index=208&type=chunk) [Research and Development (R&D)](index=36&type=section&id=Research%20and%20Development%20%28R%26D%29) | Segment/Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :------------------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Total R&D Expenditures | $970,397 | $1,190,268 | -18.5% | | Services Segment R&D Expenditures | $13,684 | $43,647 | -68.6% | | Products Segment R&D Expenditures | $956,713 | $1,146,621 | -16.6% | - The overall decrease in R&D reflects a strategic shift towards marketing and business development, and the completion of high-expenditure projects like Echoscope PIPE, F280 Series, and DAVD development in the Products Segment[209](index=209&type=chunk)[211](index=211&type=chunk) - Services Business R&D decrease is due to a reduction in Thermite product line development, with re-engagement with customers expected to potentially increase future expenditure[210](index=210&type=chunk) [Selling, General and Administrative Expenses (SG&A)](index=38&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20%28SG%26A%29) | SG&A Category | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :---------------------------------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Total SG&A Expenses | $4,204,645 | $4,155,106 | +1.2% | | Wages and Salaries | $1,754,811 | $1,843,622 | -4.8% | | Legal and Professional Fees | $872,872 | $749,235 | +16.5% | | Marketing | $87,020 | $122,335 | -28.8% | - The increase in SG&A was primarily due to higher legal and professional fees, including costs for tax specialists and increased audit fees[213](index=213&type=chunk)[240](index=240&type=chunk) - Non-cash items as a percentage of SG&A decreased to **14.2%** from **23.3%**, mainly due to a **45.2%** reduction in stock-based compensation charges[239](index=239&type=chunk) [Operating Income](index=38&type=section&id=Operating%20Income) | Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :----------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Operating Income | $2,201,204 | $1,846,266 | +19.2% | - The increase in operating income reflects a small increase in revenues, improved gross profit margins, and a reduction in R&D expenditure[216](index=216&type=chunk) [Other Income](index=38&type=section&id=Other%20Income) | Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :----------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Other Income | $189,141 | $91,589 | +106.5% | - The significant increase in other income was primarily due to **$183,457** in interest earned on certified deposit accounts[242](index=242&type=chunk) [Net Income before income taxes](index=38&type=section&id=Net%20Income%20before%20income%20taxes) | Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :------------------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Net Income before Income Taxes | $2,390,345 | $1,937,855 | +23.4% | - The increase reflects a small increase in revenues, improved gross profit margins, reduced total operating expenses, and a material increase in other income[217](index=217&type=chunk) [Net Income](index=39&type=section&id=Net%20Income) | Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | Change (%) | | :------------------------------------ | :---------------------------------------- | :----------------------------------------- | :--------- | | Net Income | $2,406,334 | $1,828,551 | +31.6% | | Current Tax Expense (Benefit) | $(68,784) | $(176,459) | - | | Deferred Tax Benefit | $84,773 | $67,155 | - | - Net income increased by **31.6%**, influenced by tax expense variations across subsidiaries, with UK subsidiaries having no tax provision due to carryforward losses and the Danish subsidiary having a **22%** tax provision[9](index=9&type=chunk)[218](index=218&type=chunk) [Comprehensive Income (loss)](index=39&type=section&id=Comprehensive%20Income%20%28loss%29) | Metric | Current Six Month Period (April 30, 2023) | Previous Six Month Period (April 30, 2022) | | :------------------------------------ | :---------------------------------------- | :----------------------------------------- | | Comprehensive Income (Loss) | $4,552,357 | $(197,050) | | Foreign Currency Translation Adjustment | $2,146,023 | $(2,025,601) | - Comprehensive income shifted from a loss to a significant gain, primarily due to a large positive foreign currency translation adjustment, reflecting the strengthening USD against major currencies[9](index=9&type=chunk)[244](index=244&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) As of April 30, 2023, the Company reported an accumulated deficit of $11,770,302, but maintained strong liquidity with $38,338,739 in working capital and $23,455,118 in cash. Despite a cash deficit from operating activities of ($261,033) in the Current Six-Month Period, management believes it has sufficient working capital for foreseeable operations. The Company also has a $4,000,000 revolving line of credit with HSBC NA, with a zero outstanding balance | Metric | April 30, 2023 | | :-------------------------------- | :------------- | | Accumulated Deficit | $(11,770,302) | | Working Capital | $38,338,739 | | Cash | $23,455,118 | | Stockholders' Equity | $48,310,741 | | Cash Deficit from Operating Activities (Current Six-Month Period) | $(261,033) | - The Company has a **$4,000,000** revolving line of credit with HSBC NA, with a **$0** outstanding balance as of April 30, 2023, expiring November 26, 2023[219](index=219&type=chunk) [Inflation and Foreign Currency](index=40&type=section&id=Inflation%20and%20Foreign%20Currency) Inflation impacts the Company's operating costs and material expenses. Foreign currency fluctuations significantly affect sales, profitability, and financial position due to the translation of foreign subsidiaries' functional currencies (GBP, DKK, AUD, INR) into USD for reporting, with the USD strengthening against major currencies in the Current Quarter and Six-Month Period - Inflation affects operating costs and bill of material costs[179](index=179&type=chunk) - The Company's functional currencies include USD, British Pound, Danish Kroner, Australian Dollars, and Indian Rupees[247](index=247&type=chunk)[260](index=260&type=chunk) - Currency fluctuations impact sales, profitability, and financial position, with the USD strengthening against major currencies in the Current Quarter and Six-Month Period[125](index=125&type=chunk)[244](index=244&type=chunk)[260](index=260&type=chunk) **Impact of Currency Fluctuations (Constant Rate vs. Actual) - Three Months Ended April 30, 2023:** | Metric | Actual Results | Constant Rates | Effect (Actual - Constant) | | :---------------- | :------------- | :------------- | :------------------------- | | Net Profit (Losses) | $183,538 | $160,885 | $22,653 | | Net Assets | $23,969,620 | $21,878,937 | $2,090,683 | **Impact of Currency Fluctuations (Constant Rate vs. Actual) - Six Months Ended April 30, 2023:** | Metric | Actual Results | Constant Rates | Effect (Actual - Constant) | | :---------------- | :------------- | :------------- | :------------------------- | | Net Profit (Losses) | $1,750,499 | $1,811,025 | $(60,526) | | Net Assets | $23,969,620 | $21,878,916 | $2,090,704 | [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company does not have any off-balance sheet arrangements, noting that this disclosure is not required for smaller reporting companies - The Company has no off-balance sheet arrangements[251](index=251&type=chunk)[263](index=263&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This item is not required for smaller reporting companies - This item is not required for smaller reporting companies[225](index=225&type=chunk)[263](index=263&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were ineffective as of April 30, 2023, due to a material weakness related to intercompany elimination entries. However, new controls and procedures have been implemented and are being monitored for effectiveness, with no other material changes to internal controls reported [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Disclosure controls and procedures were deemed ineffective as of April 30, 2023, due to a material weakness concerning inadequate processes for reviewing intercompany elimination entries during consolidation[252](index=252&type=chunk)[264](index=264&type=chunk) - New controls and procedures, including metrics for comparison and expanded review, have been implemented and are being monitored, with quarterly closing procedures completed without intercompany elimination errors[253](index=253&type=chunk)[265](index=265&type=chunk) [Changes in Internal Controls](index=41&type=section&id=Changes%20in%20Internal%20Controls) - No material changes in internal control over financial reporting occurred during the period, except for those implemented to address the identified material weakness[254](index=254&type=chunk)[266](index=266&type=chunk) [PART II - OTHER INFORMATION](index=42&type=section&id=PART%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently aware of any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or operating results - The Company is not aware of any legal proceedings that will have a material adverse effect on its business, financial condition, or operating results[269](index=269&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This item is not required for smaller reporting companies - This item is not required for smaller reporting companies[270](index=270&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities during the period - None[270](index=270&type=chunk) [Item 3. Default Upon Senior Securities](index=42&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - None[271](index=271&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not Applicable[272](index=272&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) No other information is required to be disclosed under this item - None[270](index=270&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including XBRL documents for financial data and certifications from the Chief Executive Officer and Acting Chief Financial Officer - Exhibits include Inline XBRL Instance Document, Taxonomy Extension Calculation, Label, Schema, Definition, and Presentation Linkbase Documents[256](index=256&type=chunk)[268](index=268&type=chunk) - Certifications from the Chief Executive Officer and Acting Chief Financial Officer are included pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350[257](index=257&type=chunk)[273](index=273&type=chunk) [Signatures](index=43&type=section&id=Signatures) The report is duly signed on behalf of Coda Octopus Group, Inc. by Annmarie Gayle, Chief Executive Officer, and Gayle Jardine, Acting Chief Financial Officer, on June 14, 2023 - The report is signed by Annmarie Gayle, Chief Executive Officer, and Gayle Jardine, Acting Chief Financial Officer, on June 14, 2023[259](index=259&type=chunk)[274](index=274&type=chunk)

Coda Octopus Group, Inc. (NASDAQ:CODA) Q1 2023 Earnings Conference Call March 16, 2023 10:00 AM ET Company Participants Jackie Keshner - Gateway Group, Inc. Annmarie Gayle - Chairman and Chief Executive Officer Nathan Parker - Chief Financial Officer Conference Call Participants Brian Kinstlinger - Alliance Global Partners Operator Good morning, and welcome to Coda Octopus Group's First Quarter Fiscal Year 2023 Earnings Conference Call. My name is Vico, and I'll be your operator today. Before this call, Cod ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) Commission File Number 001-38154 CODA OCTOPUS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 34-2008348 (State or other jurisdiction of Incorporation or organization) (I.R.S. Employer Identification Number) 3300 S Hiawassee Rd, Suite 104-105, Orlando, Florida 32835 (Address of principal executive offices) (Zi ...

Financial Data and Key Metrics Changes - For fiscal 2022, the company recorded revenues of $22.2 million, representing a 4.2% growth compared to $21.3 million in fiscal 2021, attributed to further market penetration for Echoscope and DAVD solutions [51] - Gross profit for fiscal 2022 was $15.2 million, a 2.9% increase from $14.8 million in fiscal 2021, with a gross margin percentage of 68.3% compared to 69.2% in the prior year [53] - Net income after taxes for fiscal 2022 totaled $4.3 million, or $0.40 per basic share, down from $4.9 million or $0.46 per basic share in 2021, largely due to an increase in the effective tax rate [57] Business Line Data and Key Metrics Changes - The marine technology business recorded revenue of $14.7 million for fiscal 2022, a 7% decrease compared to $15.8 million in fiscal 2021 [82] - The marine engineering business saw revenue growth of 36%, reaching $7.5 million in fiscal 2022 compared to $5.5 million in fiscal 2021 [83] - The gross margin for the marine technology business improved slightly to 80% in fiscal 2022, while the marine engineering business gross margin improved to 45.4% from 38.6% in the prior year [84] Market Data and Key Metrics Changes - The company faced currency headwinds of approximately $1.2 million due to the strengthening of the U.S. dollar, which impacted revenue translation from foreign subsidiaries [51][82] - The company anticipates a rebound in oil and gas projects, which could positively impact future revenues [99] Company Strategy and Development Direction - The company aims to increase marine business revenue, targeting approximately $25 million in revenue for the technology business on a standalone basis over the next two to three years, compared to $14.7 million in fiscal 2022 [44] - The focus is on expanding the number of programs supplied to prime defense contractors, leveraging long-standing relationships to secure recurring revenue [30][67] - The company is shifting resources from research and development to global business development and investor relations to create shareholder value [55] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about ongoing supply chain challenges, particularly regarding semiconductor availability, which is a global issue rather than a company-specific problem [5] - The management highlighted a strong pipeline of opportunities for 2023, indicating a potential increase in rental activities and project execution as the market normalizes post-COVID [60] - The company is optimistic about the future prospects of the Echoscope PIPE and DAVD technologies, which are expected to transform underwater imaging and diving operations [89] Other Important Information - The company has approximately $22.9 million in cash on hand and no debt as of October 31, 2022, compared to $17.7 million in cash and approximately $64,000 in debt a year earlier [106] - The DAVD technology has moved from R&D to operational status, which is expected to lead to increased orders from U.S. Navy commands [49][93] Q&A Session Summary Question: What are the major challenges to growth in fiscal 2022? - Management noted that pipeline activities were high, but many opportunities were shifting into 2023, with a normalization of project execution expected [60] Question: Are defense contractors still evaluating competing technologies to Echoscope? - Management indicated that the successful sales to prime defense contractors suggest a high degree of confidence in their technology, implying that evaluation of competitors is less likely at this stage [111] Question: What are the prohibitive factors in the engineering services business? - Management acknowledged the need to return to pre-pandemic revenue levels and noted that slow visibility on broader defense programs has been a challenge [94] Question: Any updates on first quarter trends for fiscal 2023? - Management reported good traction in the level of quotations and proposals, indicating a positive outlook for the first quarter [115]

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | --- | --- | --- | --- | --- | --- | |-------|-------------|-------|-------|-------|-------| | | FIRM | | | | F-1 | | | | | | | | | | | | | | F-2 | | | | | | | | | | INCOME FOR | THE | YEARS | ENDED | | | | | | | | F-4 | | | EQUITY FOR | THE | YEARS | ENDED | | | | | | | | F-5 | | | | | | | | | | OCTOBER 31, | 2022 | AND | 2021 | F-6 | | | | | | | | | | | | | | F-7 | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ...

Coda Octopus Group, Inc. CODA OCTOPUS GROUP, INC. World Leader in Sound Underwater Technology Corporate Presentation September 15, 2022 Coda Octopus Group, Inc. Forward-Looking Statements | --- | --- | |-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

Part I - Financial Information [Item 1: Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) The unaudited consolidated financial statements detail the company's financial position, operations, and cash flows, showing asset growth and a decline in nine-month net income [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet shows total assets increased to **$47.2 million** driven by cash, with stable liabilities and growing stockholders' equity Consolidated Balance Sheet Highlights (Unaudited) | Account | July 31, 2022 ($) | October 31, 2021 ($) | | :--- | :--- | :--- | | **Assets** | | | | Cash | $21,370,920 | $17,747,656 | | Total Current Assets | $37,090,997 | $35,557,159 | | Total Assets | $47,203,976 | $45,465,419 | | **Liabilities & Equity** | | | | Total Current Liabilities | $4,309,791 | $4,258,460 | | Total Liabilities | $4,412,606 | $4,416,346 | | Total Stockholders' Equity | $42,791,370 | $41,049,073 | [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Q3 2022 saw revenue and net income growth, while nine-month net income declined due to the absence of prior-year PPP loan forgiveness and a tax benefit reversal Q3 2022 vs Q3 2021 Performance (Unaudited) | Metric | Three Months Ended July 31, 2022 ($) | Three Months Ended July 31, 2021 ($) | | :--- | :--- | :--- | | Net Revenues | $6,267,409 | $5,827,375 | | Gross Profit | $4,562,644 | $4,212,409 | | Income from Operations | $2,023,713 | $1,322,822 | | Net Income | $1,768,657 | $1,521,086 | | Diluted EPS | $0.16 | $0.13 | Nine Months 2022 vs 2021 Performance (Unaudited) | Metric | Nine Months Ended July 31, 2022 ($) | Nine Months Ended July 31, 2021 ($) | | :--- | :--- | :--- | | Net Revenues | $17,090,455 | $16,250,910 | | Gross Profit | $11,754,284 | $11,276,935 | | Income from Operations | $3,869,978 | $3,548,703 | | Net Income | $3,597,208 | $4,857,863 | | Diluted EPS | $0.32 | $0.43 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased to **$6.3 million**, contributing to a **$3.6 million** rise in the cash balance, ending at **$21.4 million** Cash Flow Summary for Nine Months Ended July 31 (Unaudited) | Activity | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $6,282,523 | $3,631,489 | | Net Cash Used in Investing Activities | ($1,195,885) | ($838,626) | | Net Cash (Used in) Provided by Financing Activities | ($63,559) | $269,109 | | **Net Increase in Cash** | **$3,623,264** | **$4,025,616** | | **Cash at End of Period** | **$21,370,920** | **$19,159,905** | [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail business segments, revenue recognition, and performance, highlighting COVID-19 risks, supply chain issues, and a significant increase in the effective tax rate - The company operates two distinct business units: **Marine Technology (Products)**, selling patented 3D sonar solutions like Echoscope®, and **Marine Engineering (Services)**, acting as a sub-contractor to prime defense contractors[22](index=22&type=chunk) - The company continues to face risks from the COVID-19 pandemic, including supply chain disruptions and travel restrictions impacting customer engagement and product demonstrations[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - The effective tax rate for the nine months ended July 31, 2022, was **9.6%**, a significant increase from **(14.2%)** in the prior year, primarily due to US subsidiaries utilizing net operating loss carryforwards and becoming tax-paying entities[92](index=92&type=chunk) Revenue by Segment - Nine Months Ended July 31, 2022 | Segment | Net Revenues ($) | % of Total | | :--- | :--- | :--- | | Marine Technology (Products) | $11,319,314 | 66.2% | | Marine Engineering (Services) | $5,771,141 | 33.8% | | **Total** | **$17,090,455** | **100%** | Revenue by Geography - Nine Months Ended July 31, 2022 | Region | Net Revenues ($) | % of Total | | :--- | :--- | :--- | | Americas | $7,360,269 | 43.1% | | Europe | $3,511,455 | 20.5% | | Australia/Asia | $4,477,178 | 26.2% | | Middle East/Africa | $1,741,553 | 10.2% | | **Total** | **$17,090,455** | **100%** | [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2022 revenue and operating income growth, highlighting challenges from supply chain disruptions, inflation, and currency effects, while affirming strong liquidity [Factors Affecting our Business](index=28&type=section&id=Factors%20Affecting%20our%20Business) The company faces significant operational challenges including severe supply chain disruptions, high inflation, adverse currency translation from a strong USD, and skilled personnel shortages - The company faces significant supply chain challenges, including high component unavailability, lead times of **six months to a year**, and price increases exceeding **100%**, particularly impacting the Services Business[108](index=108&type=chunk)[109](index=109&type=chunk) - High inflation in key operating countries (US: **8.5%**, UK: **10.1%**) is increasing operational costs and wage pressures[112](index=112&type=chunk)[113](index=113&type=chunk) - The strengthening U.S. dollar negatively impacts foreign subsidiary results, with the British Pound falling **11.8%** and the Euro falling **12.6%** against the USD in Q3 2022[114](index=114&type=chunk) - The company is experiencing skill shortages in critical areas such as sales, marketing, and software development, exacerbated by inflationary wage pressures[115](index=115&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q3 2022 saw revenue and operating income growth, while nine-month net income declined due to the absence of prior-year PPP loan forgiveness and a tax benefit reversal, compounded by foreign currency translation losses Q3 2022 vs Q3 2021 Revenue by Segment | Segment | Q3 2022 Revenue ($) | Q3 2021 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Products Business | $4,004,557 | $3,845,051 | +4.1% | | Services Business | $2,262,852 | $1,982,324 | +14.2% | | **Total** | **$6,267,409** | **$5,827,375** | **+7.6%** | - Q3 2022 operating income increased by **53%** to **$2.0 million**, driven by **7.6%** revenue growth and a **12.1%** decrease in total operating expenses[158](index=158&type=chunk) Nine Months 2022 vs 2021 Revenue by Segment | Segment | 9M 2022 Revenue ($) | 9M 2021 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Products Business | $11,319,314 | $11,777,739 | -3.9% | | Services Business | $5,771,141 | $4,473,171 | +29.0% | | **Total** | **$17,090,455** | **$16,250,910** | **+5.2%** | - Nine-month net income fell by **26.0%** YoY, primarily due to a prior-year **$649k** PPP loan forgiveness benefit and a **$603k** tax benefit, contrasting with a **$384k** tax expense in the current period[188](index=188&type=chunk) - Comprehensive income for the nine-month period was significantly impacted by a foreign currency translation loss of **$2.8 million**, compared to a gain of **$964k** in the prior year, due to the strengthening USD[189](index=189&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with **$32.8 million** in working capital and **$21.4 million** in cash, supported by **$6.3 million** in operating cash flow and an undrawn **$4.0 million** credit line - The company has working capital of **$32.8 million** and cash of **$21.4 million** as of July 31, 2022[119](index=119&type=chunk)[190](index=190&type=chunk) - The company has an undrawn **$4.0 million** revolving line of credit available until November 2022[192](index=192&type=chunk) - The company's **$8.0 million** term loan with HSBC was fully satisfied on December 28, 2021[191](index=191&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risks](index=43&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) This disclosure is not required for smaller reporting companies - Disclosure is not required for smaller reporting companies[200](index=200&type=chunk) [Item 4: Controls and Procedures](index=43&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of July 31, 2022, with no material changes to internal controls over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of July 31, 2022[202](index=202&type=chunk) - No material changes to internal controls over financial reporting occurred during the reporting period[204](index=204&type=chunk) Part II - Other Information [Item 1: Legal Proceedings](index=45&type=section&id=Item%201%3A%20Legal%20Proceedings) The company is not aware of any legal proceedings expected to have a material adverse effect on its business, financial condition, or operating results - The company is not aware of any legal proceedings expected to have a material adverse effect on its business[206](index=206&type=chunk) [Item 1A: Risk Factors](index=45&type=section&id=Item%201A%3A%20Risk%20Factors) This disclosure is not required for smaller reporting companies - Disclosure is not required for smaller reporting companies[207](index=207&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None reported[207](index=207&type=chunk) [Item 6: Exhibits](index=45&type=section&id=Item%206%3A%20Exhibits) The report lists filed exhibits, including CEO/CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications and Inline XBRL data files[210](index=210&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number 001-38154 CODA OCTOPUS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 34- ...