a Octopus (CODA) - 2025 Q3 - Quarterly Report

PART I – Financial Information Item 1: Financial Statements This section presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with notes on accounting policies and captions for periods ended July 31, 2025, and October 31, 2024 Consolidated Balance Sheets | Metric | July 31, 2025 (Unaudited) | October 31, 2024 | | :-------------------------- | :------------------------ | :----------------------- | | Total Assets | $61,913,058 | $57,544,544 | | Cash and Cash Equivalents | $26,196,439 | $22,479,072 | | Accounts Receivable, net | $3,871,769 | $3,493,463 | | Unbilled Receivables | $2,723,141 | $1,657,827 | | Total Current Assets | $47,408,155 | $42,982,015 | | Total Liabilities | $4,641,312 | $4,416,021 | | Total Stockholders' Equity | $57,271,746 | $53,128,523 | Consolidated Statements of Income and Comprehensive Income | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Revenues | $7,064,795 | $5,476,544 | $19,291,969 | $15,260,913 | | Cost of Revenues | $2,241,039 | $1,428,006 | $6,542,462 | $4,387,205 | | Gross Profit | $4,823,756 | $4,048,538 | $12,749,507 | $10,873,708 | | Income From Operations | $1,379,979 | $1,390,774 | $3,129,685 | $3,296,541 | | Net Income | $1,282,985 | $1,274,658 | $3,104,722 | $3,319,784 | | Basic EPS | $0.11 | $0.11 | $0.28 | $0.30 | | Diluted EPS | $0.11 | $0.11 | $0.27 | $0.29 | Consolidated Statements of Changes in Stockholders' Equity | Metric | October 31, 2024 | July 31, 2025 | | :-------------------------- | :----------------------- | :----------------------- | | Total Stockholders' Equity | $53,128,523 | $57,271,746 | | Common Stock | $11,195 | $11,249 | | Additional Paid-in Capital | $63,096,583 | $63,292,685 | | Accumulated Other Comprehensive Loss | $(2,510,831) | $(1,668,486) | | Accumulated Deficit | $(7,406,491) | $(4,301,769) | Consolidated Statements of Cash Flows | Cash Flow Activity | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net Cash provided by (used in) Operating Activities | $4,307,865 | $458,013 | | Net Cash (used in) provided by Investing Activities | $(822,191) | $235,981 | | Net Cash Used in Financing Activities | $0 | $(15,633) | | Net Increase in Cash and Cash Equivalents | $3,717,367 | $769,124 | | Cash and Cash Equivalents at End of Period | $26,196,439 | $25,217,965 | Notes to Unaudited Consolidated Financial Statements NOTE 1 – Accounting Policies and Supplemental Disclosures - Financial statements are unaudited, prepared under SEC interim reporting rules, and 2025 operating results may not predict the full fiscal year due to seasonal factors[21] - Consolidated financial statements include Coda Octopus Group, Inc. and its wholly-owned subsidiaries, with all material intercompany transactions eliminated[22] - Management's significant estimates, such as the percentage of completion method for contracts, impact reported financial statement amounts[23] NOTE 2 – Revenue Recognition - Revenue recognition follows FASB Topic 606, employing a five-step process from contract identification to recognition upon obligation satisfaction[24][25] - Marine Technology Business recognizes revenue for outright sales upon delivery, rentals daily, and services upon obligation fulfillment, with software licenses recognized upon delivery of installers and activation codes[26] - Marine Engineering Business recognizes revenue based on fixed hourly rates, reimbursable costs, or the percentage of completion method for fixed-price contracts, measured by costs incurred[36] NOTE 3 – Cost of Goods Sold - Cost of goods sold comprises materials, direct costs, and commissions paid to sales agents for RFP participation[43] | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Commission Costs | $146,921 | $100,290 | $782,814 | $525,696 | NOTE 4 – Fair Value of Financial Instruments - Fair values of cash, cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their carrying amounts due to their short-term nature[44] NOTE 5 – Foreign Currency Translation - Assets and liabilities are translated at balance sheet date exchange rates, revenues and expenses at weighted average rates, and stockholders' equity at historical rates[45] - Translation adjustments are recorded in accumulated other comprehensive income (loss), while foreign currency transaction gains and losses are included in consolidated statements of income[46] NOTE 6 – Operating Leases - The company has a non-cancellable operating lease for PAL, acquired October 29, 2024, with a remaining life of 7.67 years expiring March 31, 2033[47] | Metric | July 31, 2025 | October 31, 2024 | | :-------------------------------- | :-------------------- | :-------------------- | | Lease Liability | $401,149 | $413,171 | | Future Minimum Lease Payments | $538,404 | $568,076 | | Remaining Lease Life (Years) | 7.67 | 8.42 | | Discount Rate | 6.75% | 6.75% | NOTE 7 – Composition of Certain Financial Statement Captions - Cash equivalents include certified deposit interest-bearing accounts with HSBC NA and HSBC UK, classified for short-term periods not exceeding 3 months[49] | Metric | July 31, 2025 | October 31, 2024 | | :-------------------------- | :-------------------- | :-------------------- | | Inventory | $13,712,377 | $13,975,529 | | Raw materials and other sub-components | $10,560,839 | $10,368,350 | | Finished goods | $2,716,479 | $3,340,464 | | Total Property and Equipment, net | $7,175,397 | $6,822,990 | | Property and Equipment, net (USA) | $1,964,741 | $1,743,840 | | Property and Equipment, net (Europe) | $5,210,656 | $5,079,150 | | Total Accrued Expenses and Other Current Liabilities | $1,683,758 | $1,604,596 | | Commitment and Contingent Liability – PAL Earn Out | $158,872 | $0 | NOTE 8 – Contracts in Progress | Metric | July 31, 2025 | October 31, 2024 | | :------------------------------------------ | :-------------------- | :-------------------- | | Unbilled Receivables | $2,723,141 | $1,657,827 | | Deferred Revenue (Current) | $1,215,065 | $1,225,634 | | Deferred Revenue (Non-Current) | $75,064 | $56,121 | - Deferred revenue includes customer technical support (including TLS) and product warranty, amortized over 12-60 month contract periods[57][60] NOTE 9 – Acquisitions - Precision Acoustics Limited (PAL) was acquired on October 29, 2024, for $6,538,569 in cash, with a net cash outlay of $4,605,285[61] - The PAL acquisition aims to leverage its acoustic and medical imaging expertise for the subsea market and expand capabilities for larger Defense contracts[62] | PAL Contribution | 3 Months Ended July 31, 2025 | 9 Months Ended July 31, 2025 | | :----------------------------- | :--------------------------- | :--------------------------- | | Revenues | $1,458,536 | $4,069,866 | | Net Income | $248,948 | $811,785 | - A contingent liability of $158,872 (75% of year one Earn Out) was recorded for PAL, exceeding original financial expectations, with the remaining 25% contingent on Q4 revenue targets[68] NOTE 10 – Concentrations - For the three months ended July 31, 2025, two customers generated 27.5% of net revenues ($1,942,295) and accounted for 18.7% of net receivables ($723,585)[75] - For the nine months ended July 31, 2025, no single customer generated sales exceeding 10% of net revenues[76] NOTE 11 – Recent Accounting Pronouncements - ASU 2023-07 (Segment Reporting) will impact segment information reporting starting with the FY2025 10-K[78] - ASU 2024-03 (Expense Disaggregation Disclosures) enhances transparency for specific expense categories, effective for annual periods beginning after December 15, 2026 (FY2028 10-K)[79] - ASU 2023-09 (Improvements to Income Tax Disclosures) will enhance income tax transparency, effective for annual periods beginning after December 15, 2024 (FY2026 10-K), expected to materially impact disclosures but not financial condition[80] NOTE 12 – Goodwill and Identified Intangible Assets | Metric | July 31, 2025 | October 31, 2024 | | :-------------------------- | :-------------------- | :-------------------- | | Total Intangible Assets, net | $3,302,087 | $3,687,034 | | Goodwill | $3,639,334 | $3,639,334 | | Amortization of Intangible Assets | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amortization Expense | $136,259 | $13,020 | $394,566 | $46,887 | - Goodwill represents future economic benefits from acquired intangible assets not separately recognized, including an experienced workforce and expected synergies from integrating PAL's products[70] NOTE 13 – Earnings Per Share | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.11 | $0.11 | $0.28 | $0.30 | | Diluted EPS | $0.11 | $0.11 | $0.27 | $0.29 | | Basic Weighted Average Common Shares | 11,237,654 | 11,173,819 | 11,226,665 | 11,157,799 | | Diluted Outstanding Shares | 11,304,549 | 11,311,236 | 11,293,560 | 11,295,216 | NOTE 14 – 2017 and 2021 Stock Incentive Plans - The 2017 and 2021 Stock Incentive Plans (SIPs) aim to attract and retain qualified individuals through equity participation[86] - As of July 31, 2025, 1,376,848 shares were available for future issuance under the 2017 and 2021 Plans[90] | Stock Compensation Expense | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Expense | $29,773 | $37,081 | $196,156 | $86,843 | NOTE 15 – Segment Analysis - The company operates three reportable segments: Marine Technology, Acoustic Sensors and Materials (PAL), and Marine Engineering, managed separately by operations, resource allocation, and markets[92] - The Marine Technology Business is the core, supplying real-time 3D volumetric imaging sonars (Echoscope) and DAVD diving solutions to the underwater/subsea market[96] - PAL, acquired October 29, 2024, supplies acoustic sensors and materials to medical, subsea, defense, and research markets, also providing ISO/IEC 17025 accredited calibration services[97] | Segment Net Revenues (3 Months Ended July 31) | 2025 | 2024 | | :-------------------------------------------- | :----------- | :----------- | | Marine Technology Business | $3,984,475 | $3,048,544 | | Acoustic Sensors and Materials Business (PAL) | $1,458,536 | N/A | | Marine Engineering Business | $1,621,784 | $2,428,000 | | Total Net Revenues | $7,064,795 | $5,476,544 | | Segment Net Revenues (9 Months Ended July 31) | 2025 | 2024 | | :-------------------------------------------- | :----------- | :----------- | | Marine Technology Business | $10,138,374 | $10,116,024 | | Acoustic Sensors and Materials Business (PAL) | $4,069,866 | N/A | | Marine Engineering Business | $5,083,729 | $5,144,889 | | Total Net Revenues | $19,291,969 | $15,260,913 | NOTE 16 – Disaggregation of Revenue - Net sales are attributed to geographic areas by customer location and disaggregated by major goods/service lines[108] | Revenue by Geography (3 Months Ended July 31, 2025) | Marine Technology | PAL | Marine Engineering | Total | | :---------------------------------- | :---------------- | :---------- | :----------------- | :---------- | | Americas | $1,696,334 | $299,861 | $583,940 | $2,580,135 | | Europe | $157,227 | $619,730 | $1,037,844 | $1,814,801 | | Australia/Asia | $1,079,902 | $501,892 | $0 | $1,581,794 | | Middle East/Africa | $1,051,012 | $37,053 | $0 | $1,088,065 | | Total Revenues | $3,984,475 | $1,458,536 | $1,621,784 | $7,064,795 | | Revenue by Goods/Service (3 Months Ended July 31, 2025) | Marine Technology | PAL | Marine Engineering | Total | | :------------------------------------ | :---------------- | :---------- | :----------------- | :---------- | | Equipment Sales | $2,746,255 | $1,169,611 | $269,036 | $4,184,902 | | Equipment Rentals | $304,617 | $3,084 | $0 | $307,701 | | Software Sales | $236,803 | $0 | $0 | $236,803 | | Engineering Parts | $0 | $0 | $1,100,991 | $1,100,991 | | Services | $696,800 | $285,841 | $251,757 | $1,234,398 | | Total Revenues | $3,984,475 | $1,458,536 | $1,621,784 | $7,064,795 | | Revenue by Geography (9 Months Ended July 31, 2025) | Marine Technology | PAL | Marine Engineering | Total | | :---------------------------------- | :---------------- | :---------- | :----------------- | :---------- | | Americas | $3,474,671 | $732,083 | $2,416,400 | $6,623,154 | | Europe | $734,877 | $1,816,858 | $2,667,329 | $5,219,064 | | Australia/Asia | $4,871,995 | $1,422,636 | $0 | $6,294,631 | | Middle East/Africa | $1,056,831 | $98,289 | $0 | $1,155,120 | | Total Revenues | $10,138,374 | $4,069,866 | $5,083,729 | $19,291,969 | | Revenue by Goods/Service (9 Months Ended July 31, 2025) | Marine Technology | PAL | Marine Engineering | Total | | :------------------------------------ | :---------------- | :---------- | :----------------- | :---------- | | Equipment Sales | $7,800,318 | $3,467,688 | $456,547 | $11,724,553 | | Equipment Rentals | $697,851 | $3,084 | $0 | $700,935 | | Software Sales | $585,651 | $59,600 | $0 | $645,251 | | Engineering Parts | $0 | $0 | $3,921,190 | $3,921,190 | | Services | $1,054,554 | $539,494 | $705,992 | $2,300,040 | | Total Revenues | $10,138,374 | $4,069,866 | $5,083,729 | $19,291,969 | NOTE 17 – Income Taxes - Interim tax provision is estimated using the annual effective tax rate, adjusted for discrete items, and subject to variation from pre-tax income and jurisdictional mix[113][114] - The 2025 Tax Act reinstates 100% accelerated depreciation and immediate expensing of domestic R&D costs, retroactive to January 20, 2025, and January 1, 2025, respectively, with no major changes to U.S. cash taxes anticipated for 2025[115] | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Effective Tax Rate | 16.9% | 21.9% | 17.1% | 18.1% | | Income Tax Provision | $268,786 | $325,625 | $692,361 | $482,683 | | Deferred Tax Benefit (Expense) | $8,022 | $(30,963) | $52,864 | $(252,938) | Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and operations, highlighting performance factors, critical accounting policies, financial comparisons, liquidity, capital resources, and the impact of inflation and foreign currency fluctuations General Overview - Consolidated net revenue in the Current Quarter was $7,064,795, with 63.5% ($4,484,660) derived from outside the United States[122] - Weak demand for European rental solutions in the Current Quarter stemmed from changes in U.S. renewables policy, but new U.S. policy prioritizing domestic Oil & Gas and increased European defense spending are expected to be favorable[123] - The Marine Technology Business, featuring Echoscope 3D sonar and DAVD augmented reality diving solutions, is critical for growth, particularly in the evolving Defense market for underwater vehicles[125][131][132] - The DAVD untethered solution is an early-stage commercial offering with 12+ US Navy commands and is being evaluated by two foreign navies, targeting over 14,000 divers in the USA alone[135][136] - Inflation rates for the 12 months preceding July 2025 were Denmark 2.3%, UK 4.2%, and USA 2.7%[140][145] Critical Accounting Policies - Financial statements are prepared under GAAP, requiring management estimates for assets, liabilities, revenue, and expenses, where actual results may materially differ[147] - Revenue recognition follows Topic 606, with specific methods for Marine Technology (sales/rentals), PAL (sensors/materials), and Marine Engineering (services)[149][150][151] - Assets and liabilities from business acquisitions are recorded at fair value, with any excess purchase price recorded as goodwill, requiring management estimates for identifiable intangibles[153] - Inventory is valued at cost, with obsolescence adjustments based on estimates of future demand and sales prices to reflect the lower of cost or net realizable value[154] Consolidated Results of Operations for the Current Quarter compared to the Previous Quarter | Metric | Current Quarter (July 31, 2025) | Previous Quarter (July 31, 2024) | Change | | :-------------------------------- | :------------------------------ | :------------------------------ | :------- | | Consolidated Net Revenues | $7,064,795 | $5,476,544 | +29.0% | | Gross Profit | $4,823,756 | $4,048,538 | +19.1% | | Gross Profit Margin | 68.3% | 73.9% | -5.6 pp | | Total Operating Expenses | $3,443,777 | $2,657,764 | +29.6% | | Income From Operations | $1,379,979 | $1,390,774 | -0.8% | | Pre-tax Income | $1,543,749 | $1,631,246 | -5.4% | | Net Income | $1,282,985 | $1,274,658 | +0.7% | - Foreign currency translation increased net revenue by $264,175 and foreign subsidiary costs by $224,023 in the Current Quarter due to USD weakening[158][159] | Products Business Sales (3 Months Ended July 31) | 2025 | 2024 | Change | | :----------------------------------------------- | :----------- | :----------- | :------- | | Equipment Sales | $2,746,255 | $1,349,011 | +103.6% | | Equipment Rental | $304,617 | $805,259 | -62.2% | | Software Sales | $236,803 | $251,488 | -5.8% | | Services | $696,800 | $642,786 | +8.4% | | Total Net Sales | $3,984,475 | $3,048,544 | +30.7% | - Marine Engineering Business revenue decreased by 33.2% due to delays in orders from prime defense contractors[163][165] - SG&A expenses increased by 32.8% to $2,871,309, driven by PAL's inclusion ($451,588), a $158,872 contingent liability for PAL Earn Outs, and a significant increase in non-cash charges[176][179] Consolidated Results of Operations for the Current Nine Month Period compared to the Previous Nine Month Period | Metric | Current Nine Month Period (July 31, 2025) | Previous Nine Month Period (July 31, 2024) | Change | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | :------- | | Consolidated Net Revenues | $19,291,969 | $15,260,913 | +26.4% | | Gross Profit | $12,749,507 | $10,873,708 | +17.2% | | Gross Profit Margin | 66.1% | 71.3% | -5.2 pp | | Income From Operations | $3,129,685 | $3,296,541 | -5.1% | | Pre-tax Income | $3,744,219 | $4,055,405 | -7.7% | | Net Income | $3,104,722 | $3,319,784 | -6.5% | - The increase in consolidated net revenue is attributable to PAL's inclusion, contributing $4,069,866; without PAL, net revenue would have been lower by 0.3%[190] - Marine Technology Business rental revenue decreased by 63.0% due to weak demand from reduced offshore renewables project activities by major developers[191][200] | Products Business Sales (9 Months Ended July 31) | 2025 | 2024 | Change | | :----------------------------------------------- | :----------- | :----------- | :------- | | Equipment Sales | $7,800,318 | $5,730,411 | +36.1% | | Equipment Rental | $697,851 | $1,885,732 | -63.0% | | Software Sales | $585,651 | $653,759 | -10.4% | | Services | $1,054,554 | $1,846,122 | -42.9% | | Total Net Sales | $10,138,374 | $10,116,024 | +0.2% | - SG&A expenses increased by 29.1% to $7,814,233, driven by PAL's inclusion ($1,298,765), a $158,872 contingent liability for PAL Earn Outs, and increased non-cash charges (amortization up 741.5%, stock-based compensation up 125.9%)[207][210][212] Liquidity and Capital Resources | Metric (as of July 31, 2025) | Amount | | :--------------------------- | :----------- | | Cash and Cash Equivalents | $26,196,439 | | Working Capital | $43,239,402 | | Stockholders' Equity | $57,271,746 | | Accumulated Deficit | $(4,301,769) | - Operating activities provided $4,307,865 in cash for the nine months ended July 31, 2025[220] - The company holds a $4,000,000 revolving line of credit with HSBC NA, with a $0 outstanding balance as of July 31, 2025, expiring November 26, 2025[221] - Management believes current cash flow from operations, cash and cash equivalents, and the revolving line of credit are sufficient to meet anticipated cash needs for the next twelve months[222] Inflation and Foreign Currency - The company's consolidated financial results are impacted by foreign exchange rate fluctuations due to operations in multiple currencies (USD, GBP, DKK, AUD, INR)[223][224] - USD weakening against the British Pound and Danish Kroner in the Current Quarter resulted in higher translated foreign revenues and associated costs[155][158][159] | Impact of FX Changes (3 Months Ended July 31, 2025) | Total Effect (USD) | | :-------------------------------------------------- | :----------------- | | Net Revenues | +$264,175 | | Net Costs | +$224,023 | | Net Profit (Losses) from Operations | +$40,152 | | Assets | +$1,053,871 | | Liabilities | $(116,514) | | Net Assets | +$937,357 | | Impact of FX Changes (9 Months Ended July 31, 2025) | Total Effect (USD) | | :-------------------------------------------------- | :----------------- | | Net Revenues | +$247,038 | | Net Costs | +$250,847 | | Net Profit (Losses) from Operations | $(3,809) | | Assets | +$1,053,872 | | Liabilities | $(116,514) | | Net Assets | +$937,358 | Off-Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements[229] Item 3: Quantitative and Qualitative Disclosures about Market Risks Quantitative and qualitative disclosures about market risks are not required for smaller reporting companies - Not required for smaller reporting companies[230] Item 4: Controls and Procedures Management, including the CEO and Interim CFO, concluded that disclosure controls and procedures were effective as of July 31, 2025, with no material changes in internal controls over financial reporting during the period - As of July 31, 2025, the CEO and Interim CFO concluded the company's disclosure controls and procedures were effective[233] - No material changes occurred in internal controls over financial reporting during the reporting period[234] PART II – Other Information Item 1: Legal Proceedings The company is not involved in any legal proceedings expected to materially adversely affect its business, financial condition, or operating results - The company is not aware of any legal proceedings expected to materially adversely affect its business, financial condition, or operating results[236] Item 1A: Risk Factors This item is not required for smaller reporting companies - Not required for smaller reporting companies[237] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities and use of proceeds to report[237] Item 3: Default Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities to report[237] Item 4: Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[238] Item 5: Other Information No other information was reported under this item - No other information was reported under this item[239] Item 6: Exhibits This section lists exhibits filed with the 10-Q report, including CEO and CFO certifications and various Inline XBRL documents - The report includes CEO and CFO certifications, Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase), and the Cover Page Interactive Data File[239] Signatures The report was officially signed on September 15, 2025, by Annmarie Gayle, CEO, and Gayle Jardine, Interim CFO - The report was signed by Annmarie Gayle (CEO) and Gayle Jardine (Interim CFO) on September 15, 2025[242]