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 July 31, 2021 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 34-2 ...

[Form 10-Q Filing Information](index=1&type=section&id=Form%2010-Q%20Filing%20Information) This section details the Form 10-Q filing information, including registrant details and shares outstanding as of June 10, 2021 - Filing as a Quarterly Report (Form 10-Q) for the period ended April 30, 2021[1](index=1&type=chunk) - Registrant: **CODA OCTOPUS GROUP, INC.**, Delaware incorporation, Nasdaq: **CODA**[1](index=1&type=chunk) - Designation: Smaller reporting company, not a shell company[1](index=1&type=chunk) Shares Outstanding | As of Date | Shares Outstanding | | :----------- | :------------------- | | June 10, 2021 | 10,832,195 | PART I - Financial Information [Item 1: Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) This section provides the unaudited consolidated financial statements for Coda Octopus Group, Inc. for the three and six months ended April 30, 2021 and 2020, prepared in accordance with SEC rules for interim periods, and includes 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%20as%20of%20April%2030%2C%202021%20(Unaudited)%20and%20October%2031%2C%202020) This section presents the unaudited consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of April 30, 2021, and October 31, 2020 Consolidated Balance Sheet Data | Metric | April 30, 2021 (Unaudited) ($) | October 31, 2020 ($) | | :--------------------------------- | :--------------------------- | :--------------- | | Cash | $16,591,308 | $15,134,289 | | Total Current Assets | $32,301,252 | $27,685,897 | | Total Assets | $42,720,966 | $38,039,151 | | Total Current Liabilities | $3,252,255 | $3,384,522 | | Total Liabilities | $3,453,992 | $3,642,883 | | Total Stockholders' Equity | $39,266,974 | $34,396,268 | - Total assets increased by **$4,681,815 (12.3%)** from October 31, 2020, to April 30, 2021[6](index=6&type=chunk) - Total stockholders' equity increased by **$4,870,706 (14.2%)** from October 31, 2020, to April 30, 2021[9](index=9&type=chunk) [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20April%2030%2C%202021%20and%202020%20(Unaudited)) This section provides the unaudited consolidated statements of income and comprehensive income for the three and six months ended April 30, 2021 and 2020, highlighting revenue, profit, and EPS trends Consolidated Income and Comprehensive Income (Three Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :--------------------------------- | :--------------- | :--------------- | :------------- | | Net Revenues | $5,373,076 | $3,289,218 | +63.4% | | Gross Profit | $3,749,604 | $1,925,414 | +94.7% | | Income (Loss) From Operations | $1,324,322 | $(321,437) | N/A (swing to profit) | | Net Income (Loss) | $2,207,933 | $(265,080) | N/A (swing to profit) | | Basic EPS | $0.20 | $(0.02) | N/A (swing to profit) | | Comprehensive Income (Loss) | $2,506,645 | $(819,065) | N/A (swing to profit) | Consolidated Income and Comprehensive Income (Six Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :--------------------------------- | :--------------- | :--------------- | :------------- | | Net Revenues | $10,423,535 | $9,970,197 | +4.5% | | Gross Profit | $7,064,526 | $6,199,854 | +13.9% | | Income (Loss) From Operations | $2,242,739 | $1,133,060 | +97.9% | | Net Income (Loss) | $3,336,777 | $1,081,693 | +208.5% | | Basic EPS | $0.31 | $0.10 | +210.0% | | Comprehensive Income (Loss) | $4,561,101 | $612,459 | +644.7% | - Foreign currency translation adjustment contributed significantly to comprehensive income, with a gain of **$298,712** for the three months and **$1,224,325** for the six months ended April 30, 2021, compared to losses in the prior year[11](index=11&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20April%2030%2C%202021%20and%202020%20(Unaudited)) This section outlines the unaudited consolidated changes in stockholders' equity for the three and six months ended April 30, 2021 and 2020, including net income and other comprehensive income components Changes in Stockholders' Equity (Six Months) | Item | Amount ($) | | :-------------------------------- | :------------- | | Balance, October 31, 2020 | $34,396,268 | | Employee stock based compensation | $309,604 | | Foreign currency translation adjustment | $1,224,325 | | Net Income | $3,336,777 | | Balance, April 30, 2021 | $39,266,974 | - Employee stock-based compensation totaled **$309,604** for the six months ended April 30, 2021[13](index=13&type=chunk) - Accumulated Other Comprehensive Loss improved from **$(2,321,278)** to **$(1,096,953)** due to positive foreign currency translation adjustments[9](index=9&type=chunk)[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20April%2030%2C%202021%20and%202020%20(Unaudited)) This section details the unaudited consolidated cash flows for the six months ended April 30, 2021 and 2020, categorizing cash movements from operating, investing, and financing activities Consolidated Cash Flow Summary (Six Months) | Activity | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :-------------------------------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $434,861 | $1,760,478 | | Net Cash Used in Investing Activities | $(599,189) | $(490,398) | | Net Cash Provided by Financing Activities | $397,022 | $286,133 | | Effect of Currency Translation on Changes in Cash | $1,224,325 | $(469,234) | | Net Increase in Cash | $1,457,019 | $1,086,979 | | Cash at the End of the Period | $16,591,308 | $12,808,662 | - Operating cash flow decreased significantly from **$1,760,478** in 2020 to **$434,861** in 2021, partly due to increases in accounts receivable and inventory[16](index=16&type=chunk) - The positive effect of currency translation (**$1,224,325**) was a major contributor to the net increase in cash for the six months ended April 30, 2021[16](index=16&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited consolidated financial statements, explaining accounting policies, estimates, and specific financial line items [NOTE 1 – BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) This note describes the basis of presentation for the interim financial statements, including their unaudited nature, currency translation policies, and compliance with SEC rules - Interim financial statements are unaudited and prepared with reduced disclosure per SEC rules[19](index=19&type=chunk) - US dollar is the reporting currency; British Pound Sterling and Danish Kroner are functional currencies for UK and Danish operations, respectively[19](index=19&type=chunk) - Foreign currency translation gains/losses are recorded in other comprehensive income[19](index=19&type=chunk) [NOTE 2 – REVENUE RECOGNITION](index=9&type=section&id=NOTE%202%20%E2%80%93%20REVENUE%20RECOGNITION) This note details the company's revenue recognition policies, outlining the five-step process, distinct business operations, and methods for recognizing product sales, rentals, and service contracts - Revenue recognition follows FASB Topic 606, involving a five-step process[20](index=20&type=chunk) - Two distinct business operations: Marine Technology Business (product sales/rentals) and Engineering Business (services to defense contractors)[23](index=23&type=chunk) - Revenue from product sales is recognized upon delivery; rentals/subscriptions are recognized daily over the period; fixed-price service contracts use the percentage-of-completion method[24](index=24&type=chunk)[25](index=25&type=chunk)[29](index=29&type=chunk) - Deferred costs and sales commissions are amortized over the contract performance period[33](index=33&type=chunk)[36](index=36&type=chunk) [NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=11&type=section&id=NOTE%203%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) This note explains the fair value measurement of financial instruments, stating that carrying amounts for short-term assets and liabilities approximate their fair values - Carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair values due to their short-term nature[38](index=38&type=chunk) - Aggregate carrying amount of notes payable approximates fair value as they bear market interest rates[38](index=38&type=chunk)[39](index=39&type=chunk) [NOTE 4 – FOREIGN CURRENCY TRANSLATION](index=12&type=section&id=NOTE%204%20%E2%80%93%20FOREIGN%20CURRENCY%20TRANSLATION) This note describes the company's foreign currency translation policies, including exchange rate application for assets, liabilities, revenues, and expenses, and the recording of translation adjustments - Assets and liabilities translated at balance sheet date exchange rates; revenues and expenses at weighted average rates[42](index=42&type=chunk) - Translation adjustments are recorded in accumulated other comprehensive income (loss)[42](index=42&type=chunk) [NOTE 5 – INVENTORY](index=12&type=section&id=NOTE%205%20%E2%80%93%20INVENTORY) This note details the company's inventory valuation policy, stating inventory is recorded at the lower of cost or net realizable value, and provides a breakdown of inventory components - Inventory is stated at the lower of cost (weighted average method) or net realizable value[43](index=43&type=chunk) Inventory Composition | Component | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------- | :--------------- | :--------------- | | Raw materials and parts | $8,266,304 | $7,322,688 | | Work in progress | $922,880 | $698,756 | | Finished goods | $1,378,910 | $1,120,829 | | **Total Inventory** | **$10,568,094** | **$9,142,273** | - Total inventory increased by **$1,425,821 (15.6%)** from October 31, 2020, to April 30, 2021[43](index=43&type=chunk) [NOTE 6 – FIXED ASSETS](index=12&type=section&id=NOTE%206%20%E2%80%93%20FIXED%20ASSETS) This note provides a breakdown of fixed assets, including buildings, land, machinery, rental assets, and furniture, along with accumulated depreciation Fixed Assets, Net | Category | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------------- | :--------------- | :--------------- | | Buildings | $5,336,681 | $5,103,324 | | Land | $200,000 | $200,000 | | Office machinery and equipment | $1,595,610 | $1,512,938 | | Rental assets | $2,249,550 | $2,062,818 | | Furniture, fixtures and improvements | $1,236,319 | $1,187,927 | | Totals (Gross) | $10,618,160 | $10,067,007 | | Less: accumulated depreciation | $(4,579,936) | $(4,007,107) | | **Total Property and Equipment, net** | **$6,038,224** | **$6,059,900** | - Accumulated depreciation increased by **$572,829** from October 31, 2020, to April 30, 2021[43](index=43&type=chunk) [NOTE 7 – OTHER CURRENT ASSETS](index=13&type=section&id=NOTE%207%20%E2%80%93%20OTHER%20CURRENT%20ASSETS) This note details the components of other current assets, including deposits and tax receivables, and their changes over the reporting period Other Current Assets Breakdown | Component | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------- | :--------------- | :--------------- | | Deposits | $157,745 | $112,984 | | Tax receivables | $443,788 | $131,187 | | **Total Other Current Assets** | **$601,533** | **$244,171** | - Tax receivables increased by **$312,601 (238.3%)** from October 31, 2020, to April 30, 2021[46](index=46&type=chunk) [NOTE 8 – ESTIMATES](index=13&type=section&id=NOTE%208%20%E2%80%93%20ESTIMATES) This note highlights the reliance on management estimates and assumptions in preparing financial statements, particularly for unbilled revenues, stock compensation, and tax positions - Financial statements rely on management estimates and assumptions for assets, liabilities, revenues, and expenses[47](index=47&type=chunk) - Significant estimates include unbilled/deferred revenues, stock compensation, deferred tax assets, uncertain tax positions, and goodwill/intangible valuations[47](index=47&type=chunk) [NOTE 9 – CONTRACTS IN PROGRESS](index=13&type=section&id=NOTE%209%20%E2%80%93%20CONTRACTS%20IN%20PROGRESS) This note details the company's contracts in progress, including unbilled receivables and deferred revenue, and their changes between reporting periods Contracts in Progress Balances | Item | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Unbilled Receivables | $1,080,436 | $861,300 | | Current Deferred Revenue | $1,178,678 | $1,006,454 | | Non-current Deferred Revenue | $201,737 | $195,022 | - Unbilled receivables increased by **$219,136 (25.4%)** from October 31, 2020, to April 30, 2021[48](index=48&type=chunk) - Deferred revenue includes warranty obligations and extended warranty/through-life support, amortized over the relevant warranty period[49](index=49&type=chunk)[50](index=50&type=chunk) [NOTE 10 – CONCENTRATIONS](index=14&type=section&id=NOTE%2010%20%E2%80%93%20CONCENTRATIONS) This note discloses significant customer concentrations, identifying customers that account for a material portion of net revenues and accounts receivable - Three customers accounted for **41% of net revenues ($2,178,677)** and **33% of accounts receivable ($1,048,055)** for the three months ended April 30, 2021[52](index=52&type=chunk) - One customer accounted for **10% of net revenues ($1,045,367)** and **10% of accounts receivable ($321,392)** for the six months ended April 30, 2021[54](index=54&type=chunk) - Customer concentration decreased for the six-month period compared to the prior year, where two customers accounted for **35% of net revenues**[55](index=55&type=chunk) [NOTE 11 – NOTES PAYABLE](index=14&type=section&id=NOTE%2011%20%E2%80%93%20NOTES%20PAYABLE) This note details the company's notes payable, including secured notes, Paycheck Protection Program (PPP) loans, and revolving lines of credit Notes Payable Summary | Item | April 30, 2021 ($) | October 31, 2020 ($) | | :-------------------------------- | :--------------- | :--------------- | | Secured note payable to HSBC NA | $321,258 | $573,108 | | Less: current portion | $(321,258) | $(509,769) | | Total Long Term Note Payable | $0 | $63,339 | - Secured note payable to HSBC NA decreased by **$251,850** and is expected to be fully satisfied by its December 2021 maturity[56](index=56&type=chunk)[197](index=197&type=chunk) - Received and recognized **$648,872** from the Second Round Paycheck Protection Program (PPP) as Other Income, with forgiveness application submitted[57](index=57&type=chunk) - Maintained a **$4,000,000** revolving line of credit with HSBC NA, with a **$0** outstanding balance as of April 30, 2021[60](index=60&type=chunk) [NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS](index=15&type=section&id=NOTE%2012%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This note states that there are no new significant accounting pronouncements not yet effective that would materially impact the company's financial statements - No new significant accounting pronouncements not yet effective[61](index=61&type=chunk) [NOTE 13 – EARNINGS PER COMMON SHARE](index=15&type=section&id=NOTE%2013%20%E2%80%93%20EARNINGS%20PER%20COMMON%20SHARE) This note provides a breakdown of basic and diluted earnings per common share, along with the corresponding net income and weighted average shares outstanding Earnings Per Share (Three Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :--------------------------------- | :--------------- | :--------------- | | Net Income (Loss) | $2,207,933 | $(265,080) | | Basic EPS | $0.20 | $(0.02) | | Diluted EPS | $0.20 | $(0.02) | | Basic Weighted Average Shares | 10,772,315 | 10,721,881 | | Diluted Outstanding Shares | 11,191,315 | 11,276,881 | Earnings Per Share (Six Months) | Metric | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :--------------------------------- | :--------------- | :--------------- | | Net Income (Loss) | $3,336,777 | $1,081,693 | | Basic EPS | $0.31 | $0.10 | | Diluted EPS | $0.30 | $0.10 | | Basic Weighted Average Shares | 10,763,652 | 10,721,881 | | Diluted Outstanding Shares | 11,182,652 | 11,276,881 | - The increase in EPS is primarily due to a significant increase in net income for both the three and six-month periods[62](index=62&type=chunk) [NOTE 14 -SEGMENT ANALYSIS](index=16&type=section&id=NOTE%2014%20-SEGMENT%20ANALYSIS) This note provides a detailed segment analysis, breaking down revenues by the Marine Technology Business and Marine Engineering Business, and by geographical market and major goods/service lines - Two reportable segments: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[64](index=64&type=chunk) - Products Segment: sales/rentals of underwater sonar solutions, hardware, software, and support services[64](index=64&type=chunk) - Services Segment: engineering services, primarily as sub-contractors to prime defense contractors[64](index=64&type=chunk) - Segments sell goods and services in Americas, Europe, Australia/Asia, and Middle East/Africa[67](index=67&type=chunk) Segment Revenues (Three Months) | Segment | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :-------------------- | :--------------- | :--------------- | :------------- | | Products Segment | $4,184,409 | $1,691,199 | +147.4% | | Services Segment | $1,188,667 | $1,598,019 | -25.6% | | **Total Revenues** | **$5,373,076** | **$3,289,218** | **+63.4%** | Segment Revenues (Six Months) | Segment | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | Change (YoY) | | :-------------------- | :--------------- | :--------------- | :------------- | | Products Segment | $7,932,688 | $5,324,011 | +49.0% | | Services Segment | $2,490,847 | $4,646,186 | -46.4% | | **Total Revenues** | **$10,423,535** | **$9,970,197** | **+4.5%** | Geographical Revenues (Three Months) | Geographical Market | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------- | :------------------------- | :-------------------------- | :---------- | | Americas | $914,529 | $597,463 | $1,511,992 | | Europe | $1,665,643 | $591,204 | $2,256,847 | | Australia/Asia | $1,487,023 | - | $1,487,023 | | Middle East/Africa | $117,214 | - | $117,214 | | **Total Revenues** | **$4,184,409** | **$1,188,667** | **$5,373,076** | Revenues by Goods/Service Lines (Three Months) | Major Goods/Service Lines | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------------- | :------------------------- | :-------------------------- | :---------- | | Equipment Sales | $3,090,462 | $93,505 | $3,183,967 | | Equipment Rentals | $598,190 | - | $598,190 | | Software Sales | $221,053 | - | $221,053 | | Engineering Parts | - | $778,369 | $778,369 | | Services | $274,704 | $316,792 | $591,496 | | **Total Revenues** | **$4,184,409** | **$1,188,667** | **$5,373,076** | Geographical Revenues (Six Months) | Geographical Market | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------- | :------------------------- | :-------------------------- | :---------- | | Americas | $1,463,807 | $1,113,904 | $2,577,711 | | Europe | $2,790,755 | $1,376,943 | $4,167,698 | | Australia/Asia | $3,495,233 | - | $3,495,233 | | Middle East/Africa | $182,893 | - | $182,893 | | **Total Revenues** | **$7,932,688** | **$2,490,847** | **$10,423,535** | Revenues by Goods/Service Lines (Six Months) | Major Goods/Service Lines | Marine Technology Business ($) | Marine Engineering Business ($) | Total Grand ($) | | :-------------------------- | :------------------------- | :-------------------------- | :---------- | | Equipment Sales | $5,883,949 | $314,462 | $6,198,411 | | Equipment Rentals | $932,553 | - | $932,553 | | Software Sales | $446,275 | - | $446,275 | | Engineering Parts | $213,956 | $1,634,716 | $1,848,672 | | Services | $455,955 | $541,668 | $997,623 | | **Total Revenues** | **$7,932,688** | **$2,490,847** | **$10,423,535** | [NOTE 15 – PAYROLL PROTECTION PROGRAM](index=24&type=section&id=NOTE%2015%20%E2%80%93%20PAYROLL%20PROTECTION%20PROGRAM) This note details the company's participation in the Payroll Protection Program (PPP), including the receipt and recognition of funds and the status of forgiveness applications - Received **$648,872** from Second Round PPP in H1 2021, fully utilized for payroll, and recognized as 'Other Income' with forgiveness application submitted[86](index=86&type=chunk) - First Round PPP loans received in FY2020 were forgiven in November 2020[87](index=87&type=chunk) [NOTE 16 – COVID-19](index=25&type=section&id=NOTE%2016%20%E2%80%93%20COVID-19) This note discusses the ongoing impact of the COVID-19 pandemic on the company's operations, including workforce disruptions, supply chain challenges, and uncertainty regarding future performance - Pandemic impacts Engineering Services Business through workforce disruption, potential inability to perform contracts, and increased costs[90](index=90&type=chunk) - Marine Technology Business affected by social distancing, travel restrictions, and disruptions to suppliers, customers, and distributors[91](index=91&type=chunk) - Uncertainty regarding evolving virus strains and government responses affects the pace of financial performance improvement[91](index=91&type=chunk) - Supply chain disruption due to high demand in semi-conductor market leads to extreme lead times (up to **40 weeks**) and price increases for components, potentially affecting customer requirements and competitiveness[116](index=116&type=chunk) [NOTE 17 – INCOME TAXES](index=25&type=section&id=NOTE%2017%20%E2%80%93%20INCOME%20TAXES) This note provides information on income taxes, including effective tax rates, factors influencing tax rate changes, and federal net operating loss carryforwards Effective Tax Rates | Period | April 30, 2021 | April 30, 2020 | | :-------------------- | :--------------- | :--------------- | | Three Months Ended | (13.9%) | 28.3% | | Six Months Ended | (13.7%) | 2.4% | - Decrease in effective tax rate due to US companies' shift from taxable loss to taxable income and **$311,966** in Employee Retention Credits[92](index=92&type=chunk)[93](index=93&type=chunk) - US federal net operating loss (NOL) carryforwards of **$1,536,899** as of April 30, 2021, expiring in 2029[94](index=94&type=chunk) [NOTE 18 - RECLASSIFICATION OF PRIOR YEAR PRESENTATION](index=25&type=section&id=NOTE%2018%20-%20RECLASSIFICATION%20OF%20PRIOR%20YEAR%20PRESENTATION) This note explains the reclassification of prior year amounts for consistency, specifically regarding property and equipment composition, with no effect on previously reported financial statements - Prior year amounts reclassified for consistency, specifically property and equipment composition[95](index=95&type=chunk) - Reclassifications had no effect on previously reported consolidated financial statements[95](index=95&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition for the three and six months ended April 30, 2021, discussing key factors affecting the business, critical accounting policies, and detailed analysis of operating results, liquidity, and capital resources [General Overview](index=26&type=section&id=General%20Overview) - Two distinct business operations: Marine Technology Business (Products Segment) and Marine Engineering Business (Services Segment)[99](index=99&type=chunk) - Products Business: designs, manufactures, sells/rents underwater solutions (hardware, software, services) for commercial and defense markets, featuring real-time 3D sonar technology[100](index=100&type=chunk) - Services Business: sub-contractor to prime defense contractors, designing and manufacturing sub-assemblies for larger defense programs (e.g., US Close-In-Weapons Support Program)[101](index=101&type=chunk) - Both businesses share synergies in customer base and specialized engineering skills for harsh environments[102](index=102&type=chunk) [Factors Affecting our Business](index=28&type=section&id=Factors%20Affecting%20our%20Business) - Brexit impacts include new work permit requirements for engineers in EU, wide-scale disruption in UK-EU shipments, increased customs costs/delays, and acute shortage of engineering skills in the UK[105](index=105&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Company established a Danish subsidiary (Coda Octopus Products A/S) to mitigate Brexit impact and maintain EU presence for rental business[107](index=107&type=chunk) - COVID-19 pandemic causes operational limitations, reduced productivity, project overruns, increased staff quarantine/sick pay costs, and significant impact on equipment rentals[110](index=110&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - Supply chain disruption due to high demand in semi-conductor market leads to extreme lead times (up to **40 weeks**) and price increases for components, potentially affecting customer requirements and competitiveness[116](index=116&type=chunk) [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) - Revenue recognition follows Topic 606, with products sold on a stand-alone basis and services recognized when provided[120](index=120&type=chunk)[121](index=121&type=chunk) - Deferred costs (direct and incremental costs for system customization/installation) are recognized in accordance with revenue recognition policy and reviewed quarterly for recoverability[123](index=123&type=chunk)[124](index=124&type=chunk) - Income taxes are accounted for under ASC 740, recording deferred tax assets/liabilities for temporary differences, and using percentage-of-completion for long-term contracts[126](index=126&type=chunk)[128](index=128&type=chunk) - Intangible assets include goodwill (not amortized, tested annually for impairment) and other intangibles (customer relationships, non-compete agreements, licenses) amortized straight-line over **2-15 years**[129](index=129&type=chunk) [Summary of Consolidated Results of Operations](index=32&type=section&id=Summary%20of%20Consolidated%20Results%20of%20Operations) - Current Quarter financial results significantly improved over Previous Quarter, which was severely impacted by global pandemic lockdown[131](index=131&type=chunk) - Business still affected by ongoing pandemic constraints and delays in Services Operations' backlog orders due to US Administration change and remote work[132](index=132&type=chunk)[133](index=133&type=chunk) Revenue Contribution by Segment | Segment | Current Quarter | Previous Quarter | | :----------------- | :-------------- | :--------------- | | Products Business | 77.9% | 51.4% | | Services Segment | 22.1% | 48.6% | - Recognized **$558,901** from Second Round PPP as 'Other Income' and **$48,288** from UK CJRS as a reduction in SG&A[135](index=135&type=chunk)[137](index=137&type=chunk) [Segment Summary](index=33&type=section&id=Segment%20Summary) Products Business Performance (Current vs. Previous Quarter) | Metric | Current Quarter ($) | Previous Quarter ($) | Change | | :-------------------------- | :-------------- | :--------------- | :----- | | Revenues | $4,184,409 | $1,691,199 | +147.4% | | Gross Profit Margin | 75.6% | 75.9% | -0.3 pp | | Total Operating Expenses | Increased 18% | N/A | N/A | | Net Income Before Taxes | $2,009,600 | $146,751 | +1269.4% | Services Business Performance (Current vs. Previous Quarter) | Metric | Current Quarter ($) | Previous Quarter ($) | Change | | :-------------------------- | :-------------- | :--------------- | :----- | | Revenues | $1,188,667 | $1,598,019 | -25.6% | | Gross Profit Margin | 49.5% | 40.1% | +9.3 pp | | Total Operating Expenses | Declined 17.5% | N/A | N/A | | Net Income Before Taxes (incl. PPP) | $361,472 | $(160,859) | N/A | | Net Income Before Taxes (excl. PPP) | $(75,102) | N/A | N/A | - Services Business revenue decline attributed to delays in anticipated backlog government contracts due to US Administration change and pandemic[139](index=139&type=chunk) [Results of Operations for the Current Quarter compared to the Previous Quarter](index=34&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Quarter%20compared%20to%20the%20Previous%20Quarter) Consolidated and Segment Revenues (Current vs. Previous Quarter) | Metric | Current Quarter ($) | Previous Quarter ($) | Change | | :-------------------- | :-------------- | :--------------- | :----- | | Total Consolidated Revenues | $5,373,076 | $3,289,218 | +63.4% | | Products Business Revenues | $4,184,409 | $1,691,199 | +147.4% | | Services Business Revenues | $1,188,667 | $1,598,019 | -25.6% | - Gross Profit Margin improved to **69.8%** (from **58.5%**), with Products Business at **75.6%** and Services Business at **49.5%**[143](index=143&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) Products Business Revenue Breakdown (Current vs. Previous Quarter) | Category | Current Quarter ($) | Previous Quarter ($) | Percentage Change | | :---------------- | :-------------- | :--------------- | :---------------- | | Equipment Sales | $3,090,462 | $513,638 | +501.7% | | Equipment Rentals | $598,190 | $519,990 | +15.0% | | Software Sales | $221,053 | $620,386 | -64.4% | | Engineering Parts | - | $37,185 | -100% | | Services | $274,704 | - | +100% | Research and Development Expenses (Current vs. Previous Quarter) | Segment | Current Quarter ($) | Previous Quarter ($) | Percentage Change | | :-------------------- | :-------------- | :--------------- | :---------------- | | Total Consolidated R&D | $645,281 | $713,641 | -9.6% | | Services Segment R&D | $106,403 | $270,945 | -60.7% | | Products Segment R&D | $538,868 | $442,696 | +21.7% | - SG&A expenses increased by **16%** to **$1,780,001**, driven by higher wages, legal/professional fees, and stock-based compensation (**$135,157**, **+53%**), partially offset by UK CJRS contributions[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - Operating income swung to a profit of **$1,324,322** from a loss of **$(321,437)**[159](index=159&type=chunk) - Net income before taxes was **$1,939,027** (from loss of **$340,204**), and net income was **$2,207,933** (from loss of **$265,080**), significantly aided by **$558,901** in PPP 'Other Income' and a **$298,712** foreign currency translation gain[161](index=161&type=chunk)[162](index=162&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Results of Operations for the Current Six Month Period compared to the Previous Six Month Period](index=38&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Six%20Month%20Period%20compared%20to%20the%20Previous%20Six%20Month%20Period) Consolidated and Segment Revenues (Current vs. Previous Six Months) | Metric | Current Six Month Period ($) | Previous Six Month Period ($) | Change | | :-------------------- | :----------------------- | :------------------------ | :----- | | Total Consolidated Revenues | $10,423,535 | $9,970,197 | +4.5% | | Products Business Revenues | $7,932,688 | $5,324,011 | +49.0% | | Services Business Revenues | $2,490,847 | $4,646,186 | -46.4% | - Gross Profit Margin improved to **67.8%** (from **62.2%**), with Products Business at **75.8%** and Services Business at **42.1%**[168](index=168&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) Products Business Revenue Breakdown (Current vs. Previous Six Months) | Category | Current Six Month Period ($) | Previous Six Month Period ($) | Percentage Change | | :---------------- | :----------------------- | :------------------------ | :---------------- | | Equipment Sales | $5,883,949 | $3,205,777 | +83.5% | | Equipment Rentals | $932,553 | $828,564 | +12.6% | | Software Sales | $446,275 | $245,521 | +81.8% | | Engineering Parts | $213,955 | - | +100% | | Services | $455,955 | $1,044,149 | -56.3% | | **Total Net Sales** | **$7,932,688** | **$5,324,011** | **+49.0%** | Research and Development Expenses (Current vs. Previous Six Months) | Segment | Current Six Month Period ($) | Previous Six Month Period ($) | Percentage Change | | :-------------------------- | :----------------------- | :------------------------ | :---------------- | | Total Consolidated R&D | $1,228,420 | $1,641,906 | -25.2% | | Services Segment R&D | $247,798 | $477,383 | -48.1% | | Products Segment R&D | $980,622 | $999,425 | -1.9% | | Coda Octopus Group, Inc. R&D | - | $165,098 | -100% | - SG&A expenses increased by **4.9%** to **$3,593,367**, with stock-based charges up **146.3%** to **$309,604**[181](index=181&type=chunk)[182](index=182&type=chunk) - Operating income increased by **97.9%** to **$2,242,739**[187](index=187&type=chunk) - Net income before taxes increased by **165%** to **$2,934,955**, and net income increased by **208.5%** to **$3,336,777**, significantly boosted by **$648,872** in PPP funding and a **$1,224,325** foreign currency translation gain[189](index=189&type=chunk)[190](index=190&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) Key Liquidity and Capital Metrics | Metric | Amount ($) | | :-------------------- | :------------- | | Accumulated Deficit | $(20,088,845) | | Working Capital | $29,048,997 | | Stockholders' Equity | $39,266,974 | | Cash from Operating Activities (Six Months) | $434,861 | - Secured promissory note to HSBC NA outstanding balance: **$321,258**, maturing December 2021[197](index=197&type=chunk) - Revolving line of credit with HSBC NA: **$4,000,000** facility, **$0** outstanding balance[198](index=198&type=chunk) [Inflation and Foreign Currency](index=44&type=section&id=Inflation%20and%20Foreign%20Currency) - Company operates in multiple functional currencies (USD, GBP, DKK, AUD), exposing it to foreign currency fluctuation risk[199](index=199&type=chunk)[200](index=200&type=chunk) - Currency fluctuations can affect sales, profitability, and financial position, with no current hedging strategy[200](index=200&type=chunk) Foreign Currency Impact on Financials (Three Months) | Metric | Actual Results ($) | Constant Rates ($) | Total Effect ($) | | :-------------------- | :------------- | :------------- | :----------- | | Revenues | $7,845,825 | $7,378,794 | $467,031 | | Net profit (losses) | $2,735,048 | $2,570,231 | $164,817 | | Net assets | $21,479,589 | $20,112,019 | $1,367,572 | Foreign Currency Impact on Financials (Six Months) | Metric | Actual Results ($) | Constant Rates ($) | Total Effect ($) | | :-------------------- | :------------- | :------------- | :----------- | | Revenues | $7,845,154 | $7,378,164 | $466,990 | | Net profit (losses) | $4,970,202 | $4,672,556 | $297,646 | | Net assets | $21,487,955 | $20,309,192 | $1,367,517 | - Strengthening British Pound against the US Dollar contributed to gains in foreign currency translation[165](index=165&type=chunk)[194](index=194&type=chunk) [Off-Balance Sheet Arrangements](index=44&type=section&id=Off-Balance%20Sheet%20Arrangements) - No off-balance sheet arrangements[205](index=205&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risks](index=45&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[206](index=206&type=chunk) [Item 4: Controls and Procedures](index=45&type=section&id=Item%204%3A%20Controls%20and%20Procedures) As of April 30, 2021, the Company's management, under the supervision of the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures and concluded they were effective. There were no material changes in internal controls over financial reporting during the quarter - Disclosure controls and procedures were effective as of April 30, 2021, based on evaluation by CEO and CFO[208](index=208&type=chunk) - No material changes in internal controls over financial reporting during the quarter[209](index=209&type=chunk) PART II - Other Information [Item 1: Legal Proceedings](index=46&type=section&id=Item%201%3A%20Legal%20Proceedings) The Company may be involved in various lawsuits in the ordinary course of business but is currently unaware of any legal proceedings that would have a material adverse effect on its business, financial condition, or operating results - No current legal proceedings are expected to have a material adverse effect on the business[211](index=211&type=chunk) [Item 1A: Risk Factors](index=46&type=section&id=Item%201A%3A%20Risk%20Factors) This item is not required for smaller reporting companies - Not required for smaller reporting companies[212](index=212&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[212](index=212&type=chunk) [Item 3: Default Upon Senior Securities](index=46&type=section&id=Item%203%3A%20Default%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report - No defaults upon senior securities[212](index=212&type=chunk) [Item 4: Mine Safety Disclosures](index=46&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[213](index=213&type=chunk) [Item 5: Other Information](index=46&type=section&id=Item%205%3A%20Other%20Information) No other information is reported under this item - No other information to report[214](index=214&type=chunk) [Item 6: Exhibits](index=46&type=section&id=Item%206%3A%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and XBRL taxonomy documents - Includes certifications of CEO and CFO (Rule 13a-14(a) and Section 906 of Sarbanes-Oxley Act)[214](index=214&type=chunk) - XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are filed as exhibits[214](index=214&type=chunk) [Signatures](index=47&type=section&id=Signatures) The report was duly signed on June 14, 2021, by Annmarie Gayle, Chief Executive Officer, and Michael Midgley, Chief Financial Officer, on behalf of Coda Octopus Group, Inc - Report signed by Annmarie Gayle (CEO) and Michael Midgley (CFO) on June 14, 2021[216](index=216&type=chunk)[218](index=218&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2021 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) Delawa ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2020 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-38154 CODA OCTOPUS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 34-200-8348 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Id ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2020 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 ...

[PART I - Financial Information](index=3&type=section&id=PART%20I%20-%20Financial%20Information) This section presents the unaudited consolidated financial statements and management's discussion and analysis for the reporting period [Item 1: Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) This section presents unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets and stockholders' equity increased as of January 31, 2020, driven by higher cash, inventory, and property Consolidated Balance Sheets ($) | Metric | Jan 31, 2020 (Unaudited) ($) | Oct 31, 2019 ($) | | :----------------------- | :----------------------- | :----------- | | Total Current Assets | $25,918,475 | $24,279,857 | | Total Assets | $36,483,470 | $34,511,244 | | Total Current Liabilities| $3,838,604 | $3,167,450 | | Total Liabilities | $4,424,173 | $3,883,471 | | Total Stockholders' Equity| $32,059,297 | $30,627,773 | - Cash increased by **$806,276** from $11,721,683 as of October 31, 2019, to **$12,527,959** as of January 31, 2020[7](index=7&type=chunk) - Inventory increased by **$911,098** from $5,350,514 as of October 31, 2019, to **$6,261,612** as of January 31, 2020[7](index=7&type=chunk) [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Net revenues, gross profit, and net income increased for the three months ended January 31, 2020, despite a rise in R&D and operating expenses Consolidated Statements of Income and Comprehensive Income | Metric | Three Months Ended Jan 31, 2020 ($) | Three Months Ended Jan 31, 2019 ($) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :--------- | | Net Revenues | $6,680,979 | $5,758,508 | 16.0% | | Gross Profit | $4,274,440 | $3,533,072 | 21.0% | | Total Operating Expenses | $2,819,943 | $2,190,601 | 28.7% | | Income From Operations | $1,454,497 | $1,342,471 | 8.3% | | Net Income | $1,346,773 | $1,239,013 | 8.7% | | Basic Net Income Per Share | $0.13 | $0.12 | 8.3% | | Comprehensive Income | $1,431,524 | $1,536,868 | -6.9% | - Research & Development expenses increased by **62.5%** from $571,326 in 2019 to **$928,265** in 2020[12](index=12&type=chunk) - Selling, General & Administrative expenses increased by **16.8%** from $1,619,275 in 2019 to **$1,891,678** in 2020[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to $32,059,297 as of January 31, 2020, primarily due to net income and foreign currency translation Consolidated Statements of Stockholders' Equity ($) | Metric | Oct 31, 2019 (Audited) ($) | Jan 31, 2020 (Unaudited) ($) | | :-------------------------------- | :--------------------- | :----------------------- | | Common Stock Amount | $10,723 | $10,723 | | Additional Paid-in Capital | $59,521,665 | $59,521,665 | | Accumulated Other Comprehensive Loss| $(2,135,408) | $(2,050,657) | | Accumulated Deficit | $(26,769,207) | $(25,422,434) | | Total Stockholders' Equity | $30,627,773 | $32,059,297 | - Net Income for the three months ended January 31, 2020, was **$1,346,773**[16](index=16&type=chunk) - Foreign currency translation adjustment contributed **$84,751** to comprehensive income[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased significantly, while cash used in investing and financing activities also saw reductions Consolidated Statements of Cash Flows ($) | Cash Flow Activity | Three Months Ended Jan 31, 2020 ($) | Three Months Ended Jan 31, 2019 ($) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Cash Provided by Operating Activities | $1,484,140 | $2,418,625 | | Net Cash Used in Investing Activities | $(643,159) | $(919,135) | | Net Cash Used in Financing Activities | $(119,456) | $(508,578) | | Net Increase in Cash | $806,276 | $1,288,767 | | Cash at the End of the Period | $12,527,959 | $8,801,189 | - The decrease in net cash from operating activities was partly due to an increase in inventory and a decrease in accounts payable and other current liabilities[20](index=20&type=chunk) - Purchases of property and equipment decreased from **$919,135** in 2019 to **$606,345** in 2020[20](index=20&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes provide essential details on accounting policies, revenue recognition, financial instrument fair values, and segment performance [NOTE 1 – BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) Unaudited interim consolidated financial statements are prepared under SEC rules, consistent with US GAAP, and include foreign operations translated using local functional currencies - The Company's functional currencies include **US Dollars, British Pound Sterling, Australian Dollars, and Danish Kroner**[22](index=22&type=chunk) - Foreign currency translation gains and losses are recorded as a change in **other comprehensive income**[22](index=22&type=chunk) [NOTE 2 – REVENUE RECOGNITION](index=10&type=section&id=NOTE%202%20%E2%80%93%20REVENUE%20RECOGNITION) The Company adopted Topic 606, recognizing revenue through a five-step process for product sales, rentals, subscriptions, and services - Revenue recognition follows a **five-step process** under FASB Topic 606[26](index=26&type=chunk) - Revenue from product sales is recognized on a stand-alone basis, while rental and subscription revenue is recognized daily over the period[28](index=28&type=chunk)[29](index=29&type=chunk) - Deferred commissions were **$42,816** in Q1 2020, amortized over the contract performance period[40](index=40&type=chunk) [NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=12&type=section&id=NOTE%203%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) The Company's short-term financial instruments, including cash, receivables, and payables, have carrying values approximating their estimated fair values - Short-term financial instruments include cash, receivables, accounts payable, accrued expenses, and a revolving line of credit[44](index=44&type=chunk) - Carrying values of these instruments are adjusted for foreign currency exchange rates and approximate their fair values[44](index=44&type=chunk) [NOTE 4 – FOREIGN CURRENCY TRANSLATION](index=13&type=section&id=NOTE%204%20%E2%80%93%20FOREIGN%20CURRENCY%20TRANSLATION) Foreign subsidiary financial statements are translated into US dollars using local functional currencies, with translation gains/losses in other comprehensive income - Assets and liabilities of foreign operations are translated at balance sheet date exchange rates[47](index=47&type=chunk) - Revenues and expenses are translated at weighted average exchange rates during the reporting period[47](index=47&type=chunk) - Translation gains and losses are recorded in **accumulated other comprehensive income (loss)**[47](index=47&type=chunk) [NOTE 5 – INVENTORY](index=13&type=section&id=NOTE%205%20%E2%80%93%20INVENTORY) Inventory is valued at the lower of cost or net realizable value, showing an increase in all components as of January 31, 2020 Inventory ($) | Inventory Component | Jan 31, 2020 ($) | Oct 31, 2019 ($) | | :------------------ | :----------- | :----------- | | Raw materials and parts | $4,965,915 | $4,379,260 | | Work in progress | $714,269 | $517,354 | | Finished goods | $581,428 | $453,900 | | Total Inventory | $6,261,612 | $5,350,514 | [NOTE 6 – FIXED ASSETS](index=14&type=section&id=NOTE%206%20%E2%80%93%20FIXED%20ASSETS) Net property and equipment increased due to higher buildings and rental assets, partially offset by accumulated depreciation Fixed Asset Components ($) | Fixed Asset Component | Jan 31, 2020 ($) | Oct 31, 2019 ($) | | :-------------------- | :----------- | :----------- | | Buildings | $5,167,156 | $4,654,029 | | Rental assets | $1,976,512 | $1,634,684 | | Total Fixed Assets | $9,986,377 | $9,435,124 | | Accumulated depreciation | $(3,611,388) | $(3,448,312) | | Property and Equipment, Net | $6,374,989 | $5,986,812 | [NOTE 7 – OTHER CURRENT ASSETS](index=14&type=section&id=NOTE%207%20%E2%80%93%20OTHER%20CURRENT%20ASSETS) Other current assets decreased mainly due to a reduction in tax receivables, partially offset by an increase in deposits Other Current Asset Components ($) | Other Current Asset Component | Jan 31, 2020 ($) | Oct 31, 2019 ($) | | :---------------------------- | :----------- | :----------- | | Deposits | $104,952 | $42,932 | | Tax receivables | $135,839 | $255,254 | | Total Other Current Assets | $240,791 | $298,186 | [NOTE 8 – ESTIMATES](index=15&type=section&id=NOTE%208%20%E2%80%93%20ESTIMATES) Financial statement preparation requires significant management estimates for revenues, receivables, fixed assets, inventory, deferred tax assets, and goodwill - Significant estimates include valuation of accounts receivable, fixed assets, inventory, deferred tax assets, and goodwill[54](index=54&type=chunk) - Estimates also cover costs and estimated earnings in excess of billings, and billings in excess of costs and estimated earnings[54](index=54&type=chunk) [NOTE 9 – CONTRACTS IN PROGRESS](index=15&type=section&id=NOTE%209%20%E2%80%93%20CONTRACTS%20IN%20PROGRESS) Unbilled receivables and total deferred revenue increased, with deferred revenue amortized over contractual periods Contracts in Progress ($) | Metric | Jan 31, 2020 ($) | Oct 31, 2019 ($) | | :-------------------- | :----------- | :----------- | | Unbilled Receivables | $2,490,905 | $2,279,362 | | Total Deferred Revenue| $1,178,537 | $973,735 | - Deferred revenue for subscription packages, warranty, and TLS obligations was **$501,795** as of January 31, 2020[57](index=57&type=chunk) - Subscription package and warranty obligations are amortized over **12 months**, while TLS varies between **36 and 60 months**[57](index=57&type=chunk) [NOTE 10 – CONCENTRATIONS](index=16&type=section&id=NOTE%2010%20%E2%80%93%20CONCENTRATIONS) The Company experienced significant customer concentration, with two customers accounting for 41% of net revenues and 44% of accounts receivable - Two customers generated **$2,710,008**, or **41% of net revenues**, for the three months ended January 31, 2020[60](index=60&type=chunk) - Total accounts receivable from these two customers was **$1,817,725**, or **44% of accounts receivable**, at January 31, 2020[60](index=60&type=chunk) - Customer concentration is a consequence of the Services Segment's business model, working with a small number of Prime Defense Contractors[62](index=62&type=chunk) [NOTE 11 – NOTE PAYABLE](index=16&type=section&id=NOTE%2011%20%E2%80%93%20NOTE%20PAYABLE) The secured note payable to HSBC NA decreased, and a revolving line of credit had a zero outstanding balance Note Payable ($) | Metric | Jan 31, 2020 ($) | Oct 31, 2019 ($) | | :-------------------- | :----------- | :----------- | | Total Note Payable | $940,118 | $1,059,574 | | Current Portion | $(492,692) | $(487,140) | | Total Long Term Note Payable | $447,426 | $572,434 | - The secured note payable has an annual interest rate of **4.56%** and matures in **December 2021**[63](index=63&type=chunk) - A **$4,000,000** revolving line of credit with HSBC NA had an outstanding balance of **$0** as of January 31, 2020[63](index=63&type=chunk) [NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS](index=17&type=section&id=NOTE%2012%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) The adoption of ASU No. 2016-02, Leases, had no material impact on financial statements as the Company owns most of its facilities - ASU No. 2016-02, Leases, was adopted effective **November 1, 2019**[66](index=66&type=chunk) - The adoption did not materially impact financial statements because the Company owns most of its facilities[66](index=66&type=chunk) [NOTE 13 – EARNINGS PER COMMON SHARE](index=17&type=section&id=NOTE%2013%20%E2%80%93%20EARNINGS%20PER%20COMMON%20SHARE) Basic net income per share increased to $0.13 for the three months ended January 31, 2020, based on increased weighted average common shares outstanding Earnings Per Common Share | Metric | Three Months Ended Jan 31, 2020 | Three Months Ended Jan 31, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Income ($) | $1,346,773 | $1,239,013 | | Basic weighted average common shares outstanding | 10,721,881 | 10,660,694 | | Basic EPS ($) | $0.13 | $0.12 | [NOTE 14 – SEGMENT ANALYSIS](index=18&type=section&id=NOTE%2014%20%E2%80%93%20SEGMENT%20ANALYSIS) The Company operates in Marine Technology (Products) and Marine Engineering (Services) segments, with disaggregated revenues showing strong performance in key regions Three Months Ended January 31, 2020 ($) | Metric | Marine Technology Business (Products) ($) | Marine Engineering Business (Services) ($) | Overhead ($) | Total ($) | | :-------------------------------- | :------------------------------------ | :------------------------------------- | :------- | :---------- | | Revenues from External Customers | $3,632,812 | $3,048,167 | $0 | $6,680,979 | | Gross Profit | $2,977,135 | $1,297,305 | $0 | $4,274,440 | | Income (Loss) from Operations | $1,552,408 | $454,571 | $(552,482)| $1,454,497 | | Net Income (Loss) before Income Taxes | $1,562,000 | $450,889 | $(565,182)| $1,447,707 | | Net Income (Loss) | $1,509,694 | $442,699 | $(605,620)| $1,346,773 | Total Net Sales by Geographic Area (Three Months Ended January 31, 2020) ($) | Geographic Area | Marine Technology Business ($) | Marine Engineering Business ($) | Grand Total ($) | | :-------------- | :------------------------- | :-------------------------- | :---------- | | Americas | $541,332 | $2,135,905 | $2,677,237 | | Europe | $619,017 | $912,262 | $1,531,279 | | Australia/Asia | $2,421,360 | $0 | $2,421,360 | | Middle East & Africa | $51,103 | $0 | $51,103 | | Total Net Sales | $3,632,812 | $3,048,167 | $6,680,979 | Total Net Sales by Product Line (Three Months Ended January 31, 2020) ($) | Product Line | Marine Technology Business ($) | Marine Engineering Business ($) | Grand Total ($) | | :----------- | :------------------------- | :-------------------------- | :---------- | | Equipment Sales | $2,722,919 | $0 | $2,722,919 | | Equipment Rentals | $323,645 | $0 | $323,645 | | Software Sales | $229,775 | $0 | $229,775 | | Engineering Parts | $0 | $2,553,229 | $2,553,229 | | Services | $356,473 | $494,938 | $851,411 | | Total Net Sales | $3,632,812 | $3,048,167 | $6,680,979 | [NOTE 15 – INCOME TAXES](index=25&type=section&id=NOTE%2015%20%E2%80%93%20INCOME%20TAXES) The effective tax rate decreased to 6.9% due to a reduction in the AMT tax refund, with U.S. federal net operating loss carryforwards totaling $2,831,621 - Effective tax rate decreased from **8.2%** in 2019 to **6.9%** in 2020[88](index=88&type=chunk) - The decrease in effective tax rate was due to a reduction in the AMT tax refund from **$75,004** in 2019 to **$37,502** in 2020[88](index=88&type=chunk) NOL Expiration Year ($) | NOL Expiration Year | Amount ($) | | :------------------ | :----------- | | 2029 | $2,707,158 | | 2028 | $124,463 | | Total | $2,831,621 | [NOTE 16 – RECLASSIFICATION OF PRIOR YEAR PRESENTATION](index=25&type=section&id=NOTE%2016%20%E2%80%93%20RECLASSIFICATION%20OF%20PRIOR%20YEAR%20PRESENTATION) Certain prior year amounts were reclassified for consistency, specifically a VAT receivable adjustment, with no effect on reported results of operations - Prior year amounts were reclassified for consistency, including VAT receivable[89](index=89&type=chunk) - These reclassifications had no effect on the reported results of operations[89](index=89&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, critical accounting policies, and significant factors affecting the business, including Brexit and the Coronavirus outbreak [General Overview](index=26&type=section&id=General%20Overview) Coda Octopus Group, Inc. operates two distinct businesses: Marine Technology (Products) and Marine Engineering (Services), focusing on underwater technologies and proprietary defense parts - Products Segment focuses on real-time 3D imaging, mapping, defense, and survey applications for subsea commercial and defense markets[93](index=93&type=chunk) - Services Segment designs and manufactures proprietary parts for larger defense mission-critical integrated systems (MCIS), such as the Close-In-Weapons Support (CIWS) Program for the Phalanx[94](index=94&type=chunk) - The Services Segment holds 'preferred supplier' status for its proprietary parts, ensuring supply and upgrades for the life of programs[94](index=94&type=chunk) [Factors Affecting our Business](index=27&type=section&id=Factors%20Affecting%20our%20Business) The Company's business is significantly affected by Brexit, posing risks of increased costs and supply chain disruptions, and the Coronavirus outbreak, leading to project postponements and reduced sales - Brexit could lead to WTO trade rules, increasing import/export costs, custom duties, and compliance costs for UK operations[98](index=98&type=chunk) - The Company established a Danish subsidiary, Coda Octopus Products A/S, to mitigate Brexit impact and maintain EU market access[100](index=100&type=chunk) - The Coronavirus outbreak has caused indefinite postponements of projects due to travel restrictions and disruptions in the supply of product components, particularly impacting sales in China and other Asian countries[103](index=103&type=chunk) [Critical Accounting Policies](index=28&type=section&id=Critical%20Accounting%20Policies) The Company's critical accounting policies involve significant management estimates for revenue recognition, deferred costs, income taxes, and intangible assets - Revenue recognition for products is based on stand-alone sales, while services are recognized when provided or based on percentage-of-completion for fixed-price contracts[108](index=108&type=chunk)[109](index=109&type=chunk) - Deferred costs on service projects are recognized in accordance with revenue recognition policies and are reviewed quarterly for recoverability[111](index=111&type=chunk) - Goodwill is not amortized but evaluated for impairment annually, while other intangible assets are amortized on a straight-line basis over **2 to 15 years**[116](index=116&type=chunk)[117](index=117&type=chunk) [Consolidated Results of Operations](index=30&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated financial results improved with increased revenues and net income before taxes, driven by the Products Segment, despite significant R&D investments in the Services Segment - Consolidated net income before taxes increased by **7.2%**, and revenues increased by **16%** in the Current Quarter[119](index=119&type=chunk) - Products Segment revenues increased by **28.4%**, and net income before taxes rose by **70.4%** to **$1,562,000**[120](index=120&type=chunk) - Services Segment's net income before taxes decreased by **42.9%** to **$450,889**, primarily due to a **534%** increase in R&D expenditures for the new Thermite® mission computer division[121](index=121&type=chunk) [Results of Operations for the Current Quarter compared to the Previous Quarter](index=31&type=section&id=Results%20of%20Operations%20for%20the%20Current%20Quarter%20compared%20to%20the%20Previous%20Quarter) Total consolidated revenues increased by 16%, with improved gross profit margins, while operating expenses rose due to R&D and SG&A investments Results of Operations Comparison | Metric | Current Quarter (Jan 31, 2020) ($) | Previous Quarter (Jan 31, 2019) ($) | Change (%) | | :-------------------------------- | :----------------------------- | :------------------------------ | :--------- | | Net Revenues | $6,680,979 | $5,758,508 | 16.0% | | Gross Profit Margin | 64.0% | 61.4% | +2.6 ppts | | R&D Expenditures | $928,265 | $571,326 | 62.5% | | SG&A Expenses | $1,891,678 | $1,619,275 | 16.8% | | Income from Operations | $1,454,497 | $1,342,471 | 8.3% | | Net Income | $1,346,773 | $1,239,013 | 8.7% | - R&D increase was driven by investment in the Thermite® mission computer division (**$206,438**) and CRADA HUD prototype development (**$165,098**)[125](index=125&type=chunk)[127](index=127&type=chunk) - SG&A increase was mainly due to higher wages and salaries in the UK and increased legal/professional fees, partially offset by decreased rent due to property ownership[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The Company maintained a strong liquidity position with substantial working capital and stockholders' equity, generating cash from operating activities and reducing debt Liquidity and Capital Resources ($) | Metric | As of Jan 31, 2020 ($) | | :-------------------- | :----------------- | | Accumulated Deficit | $(25,422,434) | | Working Capital | $22,079,871 | | Stockholders' Equity | $32,059,297 | | Cash from Operating Activities (Current Quarter) | $1,484,140 | - The outstanding balance on the secured note payable to HSBC NA was **$940,118** as of January 31, 2020, down from $1,410,216 in the Previous Quarter[136](index=136&type=chunk)[144](index=144&type=chunk) - A **$4,000,000** revolving line of credit with HSBC NA had an outstanding balance of **$0** as of January 31, 2020[142](index=142&type=chunk) [Inflation and Foreign Currency](index=34&type=section&id=Inflation%20and%20Foreign%20Currency) The Company's financial results are exposed to foreign currency fluctuations across multiple functional currencies, with actual currency movements positively impacting net income and net assets - The Company's functional currencies include **US Dollars, British Pound, Danish Kroner, and Australian Dollars**[146](index=146&type=chunk) - Currency fluctuations can affect sales, profitability, and financial position, and the Company does not currently hedge its currency exposure[147](index=147&type=chunk) Total Effect of Currency Fluctuations (Jan 31, 2020) ($) | Metric | Total Effect of Currency Fluctuations (Jan 31, 2020) | | :-------------------- | :------------------------------------------------- | | Net profit (losses) | $103,029 (increase) | | Net assets | $293,079 (increase) | [Off-Balance Sheet Arrangements](index=34&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company does not have any off-balance sheet arrangements - The Company has no off-balance sheet arrangements[150](index=150&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risks](index=34&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[151](index=151&type=chunk) [Item 4: Controls and Procedures](index=34&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective, with no material changes in internal controls - Disclosure controls and procedures were evaluated and deemed effective as of **January 31, 2020**[153](index=153&type=chunk) - No material changes in internal controls over financial reporting occurred during the quarter[155](index=155&type=chunk) [PART II - Other Information](index=35&type=section&id=PART%20II%20-%20Other%20Information) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other disclosures [Item 1: Legal Proceedings](index=35&type=section&id=Item%201%3A%20Legal%20Proceedings) The Company is not currently aware of any legal proceedings expected to have a material adverse effect on its business or financial condition - The Company is not aware of any material adverse legal proceedings[156](index=156&type=chunk) [Item 1A: Risk Factors](index=35&type=section&id=Item%201A%3A%20Risk%20Factors) This item is not required for smaller reporting companies - Not required for smaller reporting companies[157](index=157&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report - None to report[157](index=157&type=chunk) [Item 3: Default Upon Senior Securities](index=35&type=section&id=Item%203%3A%20Default%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report - None to report[157](index=157&type=chunk) [Item 4: Mine Safety Disclosures](index=35&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not Applicable[158](index=158&type=chunk) [Item 5: Other Information](index=35&type=section&id=Item%205%3A%20Other%20Information) No other information is specifically reported under this item [Item 6: Exhibits](index=35&type=section&id=Item%206%3A%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and various XBRL documents - Includes Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350[159](index=159&type=chunk) - Various XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation) are filed as exhibits[159](index=159&type=chunk) [Signatures](index=36&type=section&id=Signatures) The report is duly signed on behalf of Coda Octopus Group, Inc. by its Chief Executive Officer and Chief Financial Officer - Report signed by Annmarie Gayle, Chief Executive Officer, and Michael Midgley, Chief Financial Officer[163](index=163&type=chunk) - Signatures dated **March 16, 2020**[163](index=163&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2019 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-38154 CODA OCTOPUS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 34-200-8348 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Id ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2019 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ | --- | --- | |----------------------------------------------------------------------------------------------------------- ...

[PART I - Financial Information](index=3&type=section&id=PART%20I%20-%20Financial%20Information) [Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) The company's financial statements for the period ended April 30, 2019, reflect significant year-over-year growth across assets, revenue, and profitability [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of April 30, 2019, the company's balance sheet strengthened significantly, driven by increased assets and stockholders' equity while liabilities decreased Consolidated Balance Sheet Highlights (Unaudited) | Account | April 30, 2019 ($) | October 31, 2018 ($) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **31,948,932** | **28,736,611** | **+11.2%** | | Cash | 9,257,932 | 7,512,422 | +23.2% | | Total Current Assets | 20,965,165 | 18,122,307 | +15.7% | | Property and Equipment, net | 6,121,877 | 5,246,183 | +16.7% | | **Total Liabilities** | **3,808,905** | **4,349,661** | **-12.4%** | | Total Current Liabilities | 2,847,583 | 3,241,211 | -12.1% | | **Total Stockholders' Equity** | **28,140,027** | **24,386,950** | **+15.4%** | [Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20%28Loss%29%20and%20Comprehensive%20Income%20%28Loss%29) The company achieved substantial revenue growth and a significant turnaround to net income for both the three and six-month periods ended April 30, 2019 Key Performance Indicators - Income Statement (Unaudited) | Metric | Three Months Ended April 30, 2019 ($) | Three Months Ended April 30, 2018 ($) | YoY Change | Six Months Ended April 30, 2019 ($) | Six Months Ended April 30, 2018 ($) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Revenues** | **6,783,272** | **3,526,396** | **+92.4%** | **12,541,780** | **6,576,953** | **+90.7%** | | Gross Profit | 4,724,662 | 2,585,538 | +82.7% | 8,257,734 | 4,689,988 | +76.1% | | Income (Loss) from Operations | 2,282,753 | (80,569) | N/A | 3,625,224 | (152,415) | N/A | | **Net Income (Loss)** | **1,973,494** | **(77,325)** | **N/A** | **3,212,507** | **(245,264)** | **N/A** | | Diluted EPS | 0.18 | (0.01) | N/A | 0.30 | (0.03) | N/A | [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Total stockholders' equity significantly increased for the six months ended April 30, 2019, primarily driven by net income and positive foreign currency translation - Total Stockholders' Equity grew from **$24,386,950** at October 31, 2018, to **$28,140,027** at April 30, 2019[14](index=14&type=chunk) - The growth in equity was primarily due to the net income of **$3,212,507** for the six-month period[12](index=12&type=chunk)[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company generated substantial cash from operating activities for the six months ended April 30, 2019, leading to a significant overall increase in cash Consolidated Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended April 30, 2019 ($) | Six Months Ended April 30, 2018 ($) | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | **3,208,619** | **242,715** | | Net Cash used in Investing Activities | (1,374,714) | (521,594) | | Net Cash used in Financing Activities | (481,231) | (211,029) | | **Net Increase in Cash** | **1,745,510** | **85,028** | | Cash at End of Period | 9,257,932 | 6,936,567 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, revenue recognition, customer concentration, segment performance, tax carryforwards, and subsequent events - The company adopted the new revenue recognition standard, Topic 606, on November 1, 2018, concluding that it did not have a material cumulative effect on financial statements as the previous policy was substantially consistent[19](index=19&type=chunk) - For the six months ended April 30, 2019, one customer accounted for **$3,209,220**, or **26% of net revenues**[53](index=53&type=chunk) - The company operates in two segments, Marine Technology (Products) and Marine Engineering (Services), with revenues for the six months ended April 30, 2019, almost evenly split at **$6,249,719** and **$6,292,061** respectively[65](index=65&type=chunk)[76](index=76&type=chunk) - As of October 31, 2018, the company had federal tax Net Operating Loss (NOL) carryforwards of **$8,353,186**, which will expire between 2028 and 2029[102](index=102&type=chunk) - Subsequent to the reporting period, on May 17, 2019, the company received a payment of **$166,514** representing short-swing profits recovered from a beneficial owner[108](index=108&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant revenue growth driven by both Marine Technology and Marine Engineering segments, alongside changes in gross margin, operating income, R&D investments, and the impact of Brexit and foreign currency fluctuations Six-Month Performance Comparison (Current vs. Previous Period) | Metric | Current Six Month Period (ended Apr 30, 2019) ($) | Previous Six Month Period (ended Apr 30, 2018) ($) | YoY Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **12,541,780** | **6,576,953** | **+90.7%** | | - Services Segment Revenue | 6,292,061 | 2,360,720 | +167% | | - Products Segment Revenue | 6,249,719 | 4,216,233 | +48% | | Gross Profit Margin | 65.8% | 71.3% | -5.5 p.p. | | Operating Income (Loss) | 3,625,224 | (152,415) | N/A | | Net Income (Loss) | 3,212,507 | (245,264) | N/A | - The company is developing a first-generation prototype Heads Up Display (HUD) for NAVSEA under a Cooperative Research and Development Agreement (CRADA), with the first prototype approved as 'trial ready' and live trials planned with NASA[145](index=145&type=chunk)[146](index=146&type=chunk) - Management identifies the UK's withdrawal from the EU (Brexit) as a significant concern that could affect its UK operations, which generate a substantial portion of earnings[115](index=115&type=chunk)[116](index=116&type=chunk)[121](index=121&type=chunk) - Fluctuations in foreign currency, particularly the weakening of the British Pound against the US Dollar, negatively impacted results, decreasing net income by **$116,177** and net assets by **$938,186** for the six-month period[195](index=195&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) - As of April 30, 2019, the company had working capital of **$18.1 million** and significantly reduced its HSBC loan outstanding balance to **$1.3 million**[186](index=186&type=chunk)[188](index=188&type=chunk) [Quantitative and Qualitative Disclosures about Market Risks](index=43&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) This section is not applicable as the company qualifies as a smaller reporting company - Disclosure about market risk is not required for smaller reporting companies[200](index=200&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of April 30, 2019, due to material weaknesses, with remediation efforts underway through increased accounting staff - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[202](index=202&type=chunk) - The ineffectiveness is attributed to material weaknesses related to limited staffing and inadequate review procedures[203](index=203&type=chunk) - Remediation efforts include increasing the number of accounting staff to improve segregation of duties and financial review[204](index=204&type=chunk) [PART II - Other Information](index=44&type=section&id=PART%20II%20-%20Other%20Information) [Legal Proceedings](index=44&type=section&id=Item%201%3A%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently involved in any material lawsuits or legal proceedings[206](index=206&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A%3A%20Risk%20Factors) This section is not applicable as the company qualifies as a smaller reporting company - Disclosure of Risk Factors is not required for smaller reporting companies[207](index=207&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the reporting period, the company issued common stock to a director, exempt from registration under Section 4(2) of the Securities Act of 1933 - On or around February 3, 2019, the company issued **7,143 shares** of common stock to a director[207](index=207&type=chunk) - The securities were issued pursuant to an exemption from registration requirements under Section 4(2) of the Securities Act[208](index=208&type=chunk) [Default Upon Senior Securities](index=44&type=section&id=Item%203%3A%20Default%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[209](index=209&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not Applicable[210](index=210&type=chunk) [Other Information](index=44&type=section&id=Item%205%3A%20Other%20Information) No information was reported under this item [Exhibits](index=44&type=section&id=Item%206%3A%20Exhibits) The report includes required CEO and CFO certifications and XBRL-related documents filed as exhibits - Exhibits filed include CEO/CFO certifications (Rule 13a-14(a) and Section 906) and XBRL data files[211](index=211&type=chunk)[212](index=212&type=chunk)

PART I - Financial Information [Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) The company's unaudited statements show a significant turnaround with net income reaching $1.24 million from a prior-year loss [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $31.1 million and stockholders' equity increased to $26.0 million as of January 31, 2019 Consolidated Balance Sheet Highlights (as of Jan 31, 2019 vs. Oct 31, 2018) | Metric | Jan 31, 2019 (Unaudited) | Oct 31, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | $19,907,816 | $18,122,307 | | Cash and Cash Equivalents | $8,801,189 | $7,512,422 | | **Total Assets** | **$31,057,332** | **$28,736,611** | | **Total Current Liabilities** | $3,931,152 | $3,241,211 | | Total Liabilities | $5,028,069 | $4,349,661 | | **Total Stockholders' Equity** | **$26,029,263** | **$24,386,950** | [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Net revenues grew 88.8% year-over-year to $5.76 million, resulting in a net income of $1.24 million Income Statement Summary (Three Months Ended Jan 31) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $5,758,508 | $3,050,557 | +88.8% | | Gross Profit | $3,533,072 | $2,104,450 | +67.9% | | Income (Loss) from Operations | $1,342,471 | $(71,846) | Turnaround | | **Net Income (Loss)** | **$1,239,013** | **$(167,939)** | **Turnaround** | | **Diluted EPS** | **$0.12** | **$(0.02)** | **Turnaround** | [Consolidated Statement of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity increased to $26.03 million, driven by net income and foreign currency translation adjustments - Stockholders' equity increased by **$1.64 million** during the quarter, mainly due to **net income of $1,239,013** and **other comprehensive income of $297,855**[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company generated $2.42 million in cash from operations, ending the period with a cash balance of $8.80 million Cash Flow Summary (Three Months Ended Jan 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2,418,625 | $(160,337) | | Net Cash used in Investing Activities | $(919,135) | $(245,822) | | Net Cash (used in) from Financing Activities | $(508,578) | $4,587,664 | | **Net Increase in Cash** | **$1,288,767** | **$5,137,442** | | **Cash at End of Period** | **$8,801,189** | **$11,988,981** | [Notes to (Unaudited) Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20%28Unaudited%29%20Consolidated%20Financial%20Statements) Key notes detail revenue recognition adoption, customer concentration, debt reduction, and subsequent real estate transactions - The company adopted the new revenue recognition standard, **Topic 606**, concluding it had **no material effect** on revenue reporting[19](index=19&type=chunk) - For the three months ended January 31, 2019, **two customers accounted for 45% of net revenues** ($2,616,171)[49](index=49&type=chunk) - Total loans and notes payable **decreased significantly to $1.41 million** from $2.02 million, primarily due to the repayment of a **$500,000 CEO loan**[51](index=51&type=chunk) - Subsequent to the quarter's end, the company sold a residential property for **$725,000** and contracted to purchase a new business property for **$684,000**[82](index=82&type=chunk)[83](index=83&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q1 2019 results to an 88.8% revenue increase driven by both Products and Services segments [Consolidated Results of Operations](index=25&type=section&id=Consolidated%20Results%20of%20Operations) Revenue grew 88.8% YoY, driven by a 191% increase in the Services Segment, though gross margin declined due to sales mix Segment Revenue Growth (Q1 2019 vs Q1 2018) | Segment | Q1 2019 Revenue | Q1 2018 Revenue | Growth | | :--- | :--- | :--- | :--- | | Products Segment | $2,829,536 | $2,042,942 | +39% | | Services Segment | $2,928,972 | $1,007,615 | +191% | | **Total** | **$5,758,508** | **$3,050,557** | **+88.8%** | - The increase in Services Segment revenue was due to receiving **backlog defense contracts** for calendar years 2017 and 2018[108](index=108&type=chunk)[112](index=112&type=chunk) - **Gross margin percentage declined to 61.4%** from 69.0% YoY, reflecting a sales mix shift toward lower-margin services[113](index=113&type=chunk) - **R&D expenses decreased 14.8% YoY** due to the finalization of the Thermite® Octal development, but are expected to increase in fiscal 2019[114](index=114&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained a strong liquidity position with $16.0 million in working capital and significantly reduced its debt - As of January 31, 2019, the company had **working capital of $16.0 million** and **stockholders' equity of $26.0 million**[127](index=127&type=chunk) - Overall loan indebtedness was **reduced to $1.41 million** from $6.91 million in the prior-year quarter, causing a **75.6% drop in interest expense**[121](index=121&type=chunk)[129](index=129&type=chunk) [Inflation and Foreign Currency](index=29&type=section&id=Inflation%20and%20Foreign%20Currency) Unhedged foreign currency exposure negatively impacted net income by approximately $69,390 and net assets by $1.19 million Impact of Foreign Currency Fluctuations (Q1 2019) | Metric | Effect of Currency Change | | :--- | :--- | | Revenues | $(199,898) | | Net Income | $(69,390) | | Net Assets | $(1,185,878) | - The company operates in multiple currencies and **does not currently hedge its currency exposure**, making it subject to risks from exchange rate fluctuations[133](index=133&type=chunk)[134](index=134&type=chunk) [Quantitative and Qualitative Disclosures about Market Risks](index=29&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) This disclosure is not required for smaller reporting companies - Not required for smaller reporting companies[138](index=138&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation as of January 31, 2019, the CEO and CFO concluded that the company's **disclosure controls and procedures were effective**[140](index=140&type=chunk) - There were **no material changes** in internal controls over financial reporting during the quarter[142](index=142&type=chunk) PART II - Other Information [Legal Proceedings](index=30&type=section&id=Item%201%3A%20Legal%20Proceedings) The company is not aware of any legal proceedings that would have a material adverse effect on the business - The company is **not currently aware of any material legal proceedings**[143](index=143&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A%3A%20Risk%20Factors) This disclosure is not required for smaller reporting companies - Not required for smaller reporting companies[144](index=144&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued 23,965 shares of common stock for $105,446 in a private placement exempt from registration - On November 16, 2018, the company issued **23,965 shares of common stock at $4.40 per share**, raising $105,446 in an unregistered sale[144](index=144&type=chunk)[145](index=145&type=chunk) [Other Items (3, 4, 5, 6)](index=30&type=section&id=Other%20Items%20%283%2C%204%2C%205%2C%206%29) The company reports no defaults on senior securities, notes mine safety is not applicable, and lists filed exhibits - Item 3: **No defaults upon senior securities**[146](index=146&type=chunk) - Item 4: **Mine Safety Disclosures are not applicable**[147](index=147&type=chunk) - Item 6 lists **exhibits filed**, including CEO/CFO certifications and XBRL documents[148](index=148&type=chunk)