Forward-Looking Statements


The information herein contains forward-looking statements. All statements other
than statements of historical fact made herein are forward looking. In
particular, the statements herein regarding industry prospects and future
results of operations or financial position are forward-looking statements.
These forward-looking statements can be identified by the use of words such as
"believes," "estimates," "could," "possibly," "probably," anticipates,"
"projects," "expects," "may," "will," or "should" or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. Forward-looking statements reflect
management's current expectations and are inherently uncertain. Our actual
results may differ significantly from management's expectations.



The following discussion and analysis should be read in conjunction with our
financial statements, included herewith and the audited financial statements
included in our annual report on Form 10-K filed with the Securities and
Exchange Commission on January 30, 2023. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.



General Overview

Throughout these discussions "Current Quarter" means the Three-month period ended January 31, 2023 and "Previous Quarter" means the Three-month period ended January 31, 2022.

The Company operates two distinct businesses. These are:





  ? the Marine Technology Business (also referred to in this Form 10-Q as
    "Products Business", or "Products Segment"); and

  ? the Marine Engineering Business (also referred to in this Form 10-Q as
    "Engineering Business", or "Services Business" or "Services Segment").




Our Marine Technology Business is an established technology solution provider to
the subsea and underwater imaging, surveying and diving market. It has been
operating as a supplier of solutions comprising both hardware and software
products for over 25 years to this market and it owns key proprietary technology
including real time volumetric 3D imaging sonar technology and cutting-edge
diving technology, that are used in both the underwater defense and commercial
markets. All design, development and manufacturing of our technology and
solutions are performed within the Company.



Our imaging sonar technology products and solutions marketed under the name of
Echoscope® and Echoscope PIPE®are used primarily in the underwater construction
market, offshore wind energy industry (offshore renewables), offshore oil and
gas, forward looking obstacle avoidance, complex underwater mapping, salvage
operations, dredging, bridge inspection, underwater hazard detection, port
security, mining, fisheries, commercial and defense diving, and marine sciences
sectors.



Our novel diving technology is distributed under the name "CodaOctopus® DAVD"
(Diver Augmented Vision Display) to the global defense and commercial diving
markets and is new to the market. The DAVD embeds inside of the diver Head up
Display (HUD) a pair of transparent glasses which is used as the data hub for
displaying real time data to the diver. We believe that the DAVD system has the
potential to radically transform how diving operations are performed globally
because it provides a fully integrated singular system for topside control and a
fully connected HUD system for the diver allowing both the topside and diver to
share a range of critical information including depth (pressure and
temperature), compass and head tracking, real time dive timers and alerts, diver
position and navigation, ultra-low light enhanced video system and enhanced
digital voice communications. Limitations of current diving operations are that
the diver only shares analog voice communications with the topside and there is
no real time information including real time navigation, tracking and mapping of
the dive area. The topside must also manage several independent systems for
video, communications, and positioning. The Company's solution addresses these
deficiencies. Importantly also, using our sonar technology, diving can be
performed in zero visibility conditions, a common problem which besets these
operations.



20







Although we generate most of our revenues from our real time 3D sonar which
includes both proprietary hardware and software, we have a number of other
products which we supply to the marine offshore market such as our inertial
navigation systems (F280 Series®) and our geophysical hardware (DA4G) and
software solutions (GeoSurvey and Survey Engine®, which include artificial
intelligence based automatic detection systems). Our customers include offshore
service providers to major oil and gas companies, renewable energy companies,
underwater construction companies, law enforcement agencies, ports, mining
companies, defense bodies, prime defense contractors, navies, research
institutes and universities and diving companies.



The Services Business has operations in the USA and UK. Its central business
model is working with Prime Defense Contractors to design and manufacture
sub-assemblies for utilization into larger defense mission critical integrated
systems ("MCIS"). An example of such MCIS is the US Close-In-Weapons Support
(CIWS) Program for the Phalanx radar-guided cannon used on combat ships. These
proprietary sub-assemblies, once approved within the MCIS program, afford the
Services Business the status of preferred supplier. Such status permits it to
supply these sub-assemblies and upgrades in the event of obsolescence or
advancement of technology for the life of the MCIS program. Clients include
prime defense contractors such as Raytheon, Northrop Grumman, Thales Underwater
and BAE Systems. The scope of services provided by the Services Business
encompasses concept, design, prototype and manufacturing.

Key Pillars for our Growth Plans

Our volumetric real time imaging sonar technology and our DAVD are our most promising products for the Company's near-term growth.





Our real time 3D/4D/5D/6D Imaging sonars are the only underwater imaging sonars
which are capable of providing complex seabed mapping, real time inspection and
monitoring and providing 3D/4D/5D/6D data of moving underwater objects
irrespective of water conditions including in zero visibility (which is a common
and costly problem in underwater operations). Competing products such as the
multibeam sonar can perform mapping (but not complex mapping) without the
ability to perform real time inspection and monitoring of moving objects
underwater. We also believe our Echoscope PIPE® is the only technology that can
generate multiple real time 3D/4D/5D/6D acoustic images using different acoustic
parameters such as frequency, field of view, pulse length, and filters.

In the industry in which we operate, we are widely considered the leading solution providers for underwater real time 3D visualization.


We also believe that the DAVD system is poised to radically change the way
diving operations are performed globally by providing a fully integrated suite
of sensor data shared in real time by the dive supervisor on the surface and the
diver. Current diving is done largely by voice command missions from the topside
using disparate suite of systems for video data, communications and positioning.



The DAVD is now in early-stage adoption by different teams within the US Navy
such as the underwater construction and salvage teams and has been moved from
R&D phase to operational phase. Operational phase means that this is now a
standard item available for purchase and for which budget lines are established
within the various user commands within the Navy.



The concept of utilizing a pair of transparent glasses in the Head Up Display
(HUD) underwater, is protected by patent. All component parts of the DAVD system
are proprietary to the Company and include software (4G USE®), Diver Processing
Pack - telemetry system (DPP), Top Side Controller and real time 3D Sonar. The
Company benefits from the exclusive license from the United States Department of
the Navy at Naval Surface Warfare Center Panama City Division to exploit the
utility patent covering the concept of using the pair of transparent glasses as
a data hub underwater. The DAVD is an "Approved Navy Use" item.



Both the Marine Technology Business and Engineering Business have established
synergies in terms of customers and specialized engineering skill sets
(hardware, firmware and software) encompassing capturing, computing, processing
and displaying data in harsh environments. Both businesses jointly bid for
projects for which their common joint skills provide competitive advantage and
make them eligible for such projects.

Factors Affecting our Business in the Current Quarter


Following is a short description of some of the most critical and pressing
factors that affect our business. For a more detailed discussion of these and
additional factors, refer to our Form 10-K for the fiscal year ended October 31,
2022.



21

Cumulative Supply Chain Issues





We continue to experience shortage of key electronic components in the market
and suppliers are still quoting lead times as long as 12 months out for routine
components, including FPGAs (Field Programmable Gate Arrays). The unavailability
of components affects our business in a number of ways, including:

Ø Our ability to progress ongoing projects including customer projects,


        particularly on the Engineering Segment.
    Ø   Significant increase in prices because demand exceeds supply for these
        components.
    Ø   Our ability to manufacture systems in our Products Business.

Ø Our ability to fully utilize our Production staff, as critical parts are


        unavailable.
    Ø   Our ability to perform outstanding contractual obligations in the
        Engineering Business.




Inflation

Inflation measured as the Consumer Price Index is significant in the countries in which we operate. For the 12-month period preceding January 2023, this was:





  Ø Denmark 7.7% - source: Statistics Denmark,
  Ø UK 10.1% - source: Office of National Statistics; and
  Ø USA 6.4% - source: U.S. Bureau of Labor Statistics.




Inflation affects our business in a number of areas including increasing our
cost of operations and our bill of material costs for the products we sell and
therefore our overall financial results. See the MD&A section which concerns
"Inflation and Foreign Currency".



Currency Fluctuations



The Company has operations in the UK, USA, Denmark, Australia and India. Our
consolidated results include the Company's foreign subsidiaries results which
are translated into USD, our reporting currency. Revenue and expenses are
translated using the weighted average exchange rates in effect during the
reporting period. In the Current Quarter the USD has strengthened against major
currencies including the British Pound, Euro, Danish Kroner and Indian Rupees
(the functional currencies of the Company's foreign subsidiaries). A significant
part of our consolidated results is transacted in British Pounds and Danish
Kroner and translated into USD for reporting purposes. In the Current Quarter,
for the purposes of reporting revenues and expenses, the value of the Pound and
Euro (the Danish Kroner is pegged to the Euro) respectively fell 9.5% and 5.8%,
against the USD, when compared to the Previous Quarter. For the reporting of
assets and liabilities, the Pound fell 8.3% when compared to the Previous
Quarter and the Danish Kroner fell 3.1% over the same period. The impact of
currency fluctuations is discussed more fully below under "Inflation and Foreign
Currency". See also Note 5 (Foreign Currency Translation) to the Unaudited
Consolidated Financial Statements and the section of this report which concerns
"Inflation and Foreign Currency".

Skills/Resource Shortages and Pressure on Salaries and Wages





We are experiencing skill shortages in areas that are critical to our growth
strategy including experienced sales and marketing personnel, software
developers and skilled electronic technicians. The inflationary conditions in
the countries in which we operate (US, the UK, Denmark and India) make it
difficult for us to compete for these skills as there is extreme pressure on
wages.

Concentration of Business Opportunities Where the Sales Cycle is Long and Unpredictable





The Services Business revenues are highly concentrated and are generated from
sub-contracts with Prime Defense Contractors. The sales cycle is generally
protracted and this may affect quarterly revenues. It is also dependent on the
federal government appropriating budget for defense projects and where the
federal government is unable to find consensus in the US Congress, this affects
the timely award of sub-contract from Prime Defense Contractors to our Services
Business, which is reliant on these awards. Furthermore, the Products Business
key opportunities which are critical to its growth strategy are in the Defense
Market for both its imaging sonars and the DAVD both of which are key pillars of
the Company's growth strategy. Due to the protracted nature of the government
procurement process and cycle for defense spending under federal and/or state
budgets, the sales cycle can be long and unpredictable, thus affecting timing of
orders and thus quarterly revenues.

Impact on Revenues and Earnings


We are uncertain as to the extent of the impact the factors disclosed above and
in our Form 10-K covering fiscal year ended October 31, 2022 will have on our
future financial results.



22

Impact on Liquidity, Balance Sheet and Assets





These factors may adversely impact on our availability of free cash flow,
working capital and business prospects. As of January 31, 2023, we had cash and
cash equivalents of $24,522,383 and in the Current Quarter we generated $984,886
of cash from operations. Based on our outstanding obligations and our cash
balances, we believe we have sufficient working capital to effectively continue
our business operations for the foreseeable future.



Critical Accounting Policies



This discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements that have been
prepared under accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of financial statements in conformity with
GAAP requires our management to make estimates and assumptions that affect the
reported values of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
levels of revenue and expenses during the reporting period. Actual results could
materially differ from those estimates.



Below is a discussion of accounting policies that we consider critical to an
understanding of our financial condition and operating results and that may
require complex judgment in their application or require estimates about matters
which are inherently uncertain. A discussion of our significant accounting
policies, including further discussion of the accounting policies described
below, can be found in Note 2, "Summary of Accounting Policies" of our Annual
Report on Form 10-K for the fiscal year ended October 31, 2022.



Revenue Recognition



Our revenues are earned under formal contracts with our customers and are
derived from both sales and rental of underwater solutions for imaging, mapping,
defense and survey applications and from the engineering services that we
provide. Our contracts do not include the possibility for additional contingent
consideration so that our determination of the contract price does not involve
having to consider potential variable additional consideration. Our product
sales do not include a right of return by the customer.



Regarding our Products Business, all of our products are sold on a stand-alone
basis and those market prices are evidence of the value of the products. To the
extent that we also provide services (e.g., installation, training, etc.), those
services are either included as part of the product or are subject to written
contracts based on the stand-alone value of those services. Revenue from the
sale of services is recognized when those services have been provided to the
customer and evidence of the provision of those services exist.



For further discussion of our revenue recognition accounting policies, refer to
Note 2 - "Revenue Recognition" in these unaudited consolidated financial
statements and Note 2 "Summary of Accounting Policies" in our Annual Report on
Form 10-K for the fiscal year ended October 31, 2022.

Recoverability of Deferred Costs





We defer costs on projects for service revenue. Deferred costs consist primarily
of direct and incremental costs to customize and install systems, as defined in
individual customer contracts, including costs to acquire hardware and software
from third parties and payroll costs for our employees and other third parties.



We recognize such costs on a contract by contract basis in accordance with our
revenue recognition policy. For revenue recognized under the completed contract
method, costs are deferred until the products are delivered, or upon completion
of services or, where applicable, customer acceptance. For revenue recognized
under the percentage of completion method, costs are recognized as products are
delivered or services are provided in accordance with the percentage of
completion calculation. For revenue recognized ratably over the term of the
contract, costs are also recognized ratably over the term of the contract,
commencing on the date of revenue recognition. At each balance sheet date, we
review deferred costs, to ensure they are ultimately recoverable. Any
anticipated losses on uncompleted contracts are recognized when evidence
indicates the estimated total cost of a contract exceeds its estimated total
revenue.



23






Income Taxes



The Company accounts for income taxes in accordance with Accounting Standards
Codification 740, Income Taxes (ASC 740). Under ASC 740, deferred income tax
assets and liabilities are recorded for the income tax effects of differences
between the bases of assets and liabilities for financial reporting purposes and
their bases for income tax reporting. The Company's differences arise
principally from the use of various accelerated and modified accelerated cost
recovery system for income tax purposes versus straight line depreciation used
for book purposes and from the utilization of net operating loss carry-forwards.



Deferred tax assets and liabilities are the amounts by which the Company's
future income taxes are expected to be impacted by these differences as they
reverse. Deferred tax assets are based on differences that are expected to
decrease future income taxes as they reverse. Correspondingly, deferred tax
liabilities are based on differences that are expected to increase future income
taxes as they reverse.

For income tax purposes, the Company uses the percentage of completion method of recognizing revenues on long-term contracts which is consistent with the Company's financial reporting under GAAP.





Intangible Assets



Intangible assets consist principally of the excess of cost over the fair value
of net assets acquired (or goodwill), customer relationships, non-compete
agreements and licenses. Goodwill was allocated to our reporting units based on
the original purchase price allocation. Goodwill is not amortized and is
evaluated for impairment annually or more often if circumstances indicate
impairment may exist. Customer relationships, non-compete agreements, patents
and licenses are being amortized on a straight-line basis over periods of 2 to
15 years. The Company amortizes its limited lived intangible assets using the
straight-line method over their estimated period of benefit. Annually, or sooner
if there is indication of a loss in value, we evaluate the recoverability of
intangible assets and consider events or circumstances that warrant revised
estimates of useful lives or that indicate that impairment exists. There were no
impairment charges during the periods presented.



The first step of the goodwill impairment test, used to identify potential
impairment, compares the fair value of the reporting unit with its carrying
amount, including goodwill. If the fair value, which is based on future cash
flows, exceeds the carrying amount, goodwill is not considered impaired. If the
carrying amount exceeds the fair value, goodwill is reduced by the excess of the
carrying amount of the reporting unit over that reporting unit's fair value.
Goodwill can never be reduced below zero, if any. At the end of each year, we
evaluate goodwill on a separate reporting unit basis to assess recoverability,
and impairments, if any, are recognized in earnings.

Consolidated Results of Operations





Our consolidated financial results include the results of the Company's foreign
subsidiaries. Foreign subsidiaries results are translated from their functional
currencies to USD for reporting purposes. Fluctuations in currency can therefore
impact our translated revenue. One factor in the Current Quarter is that the
translated revenue of the Company's foreign subsidiaries was impacted by
currency fluctuations as a result of the strengthening of the USD against the
Pound and the Danish Kroner. During the Current Quarter our consolidated revenue
was $5,596,284 compared to $5,838,208 in the Previous Quarter, representing a
decrease of 4.1%. However, applying the same exchange rate as the Previous
Quarter, revenue of our foreign subsidiaries would have increased by $342,146
resulting in an increase in consolidated revenue in the Current Quarter by 1.7%
over the Previous Quarter. During the Current Quarter total operating expenses
fell by 13.5% and Income from operations fell by 2.2%. This was affected by the
high percentage of agents' commissions incurred on sales of our technology in
Asia in the Current Quarter - which were $486,341 compared to $138,372 in the
Previous Quarter, representing an increase on commission recorded of 251% over
the Previous Quarter (see Notes 14 and 15 to the Unaudited Consolidated
Financial Statements for more information on Segment reporting and
Disaggregation of Revenue by Segment and geography). Net income before taxes
fell by 5.7% and was $1,361,861 compared to $1,444,648 and net income after
taxes was $1,397,857 compared to $1,217,248, representing an increase of 14.8%.



Segment Summary



Products Business




In the Current Quarter, the Products Business generated $3,824,159 or 68.3% of
our consolidated revenues compared to $3,823,748 or 65.5% in the Previous
Quarter and was broadly in line with the Previous Quarter. Although in its
native currency the foreign subsidiaries revenue increased over the Previous
Quarter, the USD equivalent was reduced due to the sharp depreciation of the
British Pound and Danish Kroner against the USD. Gross Profit Margin fell by 15%
and was 72% in the Current Quarter compared to 85% in Previous Quarter due to
the significant agents' commissions we incurred on sales. A significant
proportion of the Products Business' sales in the Current Quarter was conducted
through sales agents due to geographic location of sales (Asia) and we recorded
commission of $486,341 in the Current Quarter compared to $138,372 in the
Previous Quarter, representing a 251% increase in this area. In the Current
Quarter Total Operating Expenses fell in the Products Business by 14.3% and was
$1,100,067 compared to $1,282,989 in the Previous Quarter.



Services Business




In the Current Quarter, the Services Business generated $1,772,125 or 31.7% of
our consolidated revenues compared to $2,014,460 or 34.5% in the Previous
Quarter, representing a fall in sales of 12%. The main factor in the fall in
sales in the Services Business is that it is experiencing delays in both closing
contracts and progressing existing contracts with its prime defense contractor
customers due to supply chain issues. A number of projects have stalled due to
component shortage and also several of its key opportunities have stalled in the
Current Quarter due to ongoing supply chain issues. This has resulted in a fall
in the revenues of this segment in the Current Quarter. Gross Profit Margin was
56% compared to 45%, reflecting the types of engineering projects performed
during the reporting period. Total Operating Expenses fell by 17.9% and was
$652,460 compared to $794,664.



24

Results of Operations for the Current Quarter compared to the Previous Quarter





Revenue: Total consolidated revenues for the Current Quarter and the Previous
Quarter were $5,596,284 and $5,838,208 respectively, representing a decrease of
4.1%. This is caused by the Services Business revenue decreasing by 12.0% due to
order take slowing because of supply chain issues on broader defense programs.
This has resulted in delays in our customers placing orders. Additionally, the
Company's foreign subsidiaries revenues were impacted by currency fluctuations
caused by the sharp depreciation of the Pound, Euro and Danish Kroner against
the USD. A significant part of our revenues is derived from our foreign
subsidiaries in the UK and Denmark and therefore for the purpose of our
financial reporting, the functional currencies of these subsidiaries are
translated into USD. Applying the same exchange rate as the Previous Quarter,
revenue of our foreign subsidiaries would have increased by $342,146 and be
largely in line with the Previous Quarter



Gross Profit Margins: Margin percentage was weaker in the Current Quarter at
67.1% (gross profit of $3,753,005) compared to 71.3% (gross profit of
$4,159,934) in the Previous Quarter. The main factor which affected Gross Profit
Margins in the Current Quarter was the level of sales commission incurred. A
significant percentage of recorded sales generated by the Products Business
emanated from Asia and these were conducted through sales agents, resulting in
increased commission level. For the Products Business we recorded $486,341 in
commission in the Current Quarter compared to $138,372 in the Previous Quarter,
representing an increase of 251%.

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

? The percentage of consolidated sales attributed to the Marine Technology

Business versus the Services Business. The gross profit margin yielded by the

Marine Technology Business is generally higher than that of the Services

Business.

? The percentage of consolidated sales attributed to the Services Business. The

Services Business yields a lower gross profit margin on generated sales which

are largely based on time and materials for our Department of Defense contracts

(DoD sub-contracts).

? The mix of sales within the Marine Technology Business during the reporting

period:

? Outright Sale versus Rentals.

? Hardware Sale versus Software, software is generally higher margin.

? Mix of Services rendered in the period - Offshore Engineering Services


            versus paid Customer Research and Development Projects.

? Level of commissions on products which may vary according to volume. Both the

Services and Marine Technology Businesses work with sales/distribution agents.

Most of the Marine Technology Business sales in Asia is via agents or

distributors. See Note 3 "Cost of Goods Sold" for more discussion on this.

? Level of Rental Assets in the Marine Technology Business' Rental Pool and

therefore the depreciation expenses may vary accordingly.

? The mix of engineering projects performed by our Services Business (Design

prototyping versus manufacturing), may also affect Gross Profit Margins.

In the Current Quarter, gross profit margins for the Products Business were 72.2% compared to 85.0% in the Previous Quarter. For the Services Business these were 56.0% in the Current Quarter compared to 45.1% in the Previous Quarter.

Since there are more variable factors affecting gross profit margins in the Marine Technology Business (Products Business), a table showing a summary of break-out of sales generated by the this business in the Current Quarter compared to the Previous Quarter is set out below:





                     Current Quarter       Previous Quarter       Percentage
                        Products               Products             Change
Equipment Sales     $       2,572,560     $        1,958,845             31.3 %
Equipment Rentals             265,903                630,468            (57.8 )%
Software Sales                417,170                304,796             36.9 %
Services                      568,526                929,639            (38.8 )%

Total Net Sales     $       3,824,159     $        3,823,748              0.0 %




In the Current Quarter the Marine Technology Business incurred commission costs
of $486,341 compared to $138,372 in the Previous Quarter, representing an
increase of 251%, resulting in gross profit margins being lower. A significant
percentage of our sales in foreign territories such as South Korea, Japan and
China are conducted through our sales agents and distributors.



Further information on the performance in the Current Quarter compared to the
Previous Quarter of each business segment including revenues by type and
geography can be found in Notes 14 and Note 15 to the Unaudited Consolidated
Financial Statements.



Research and Development (R&D): R&D expenditures in the Current Quarter were
$444,458 compared to $672,890 in the Previous Quarter, representing a decrease
of 33.9%.



                                     January 31,       January 31,         Percentage
             Segment                    2023              2022               Change

Services Segment R&D Expenditures $ 6,150 $ 143,515 Decrease of 95.7% Products Segment R&D Expenditures $ 438,308 $ 529,375 Decrease of 17.2%






25

The decrease in R&D expenditures is a reflection that we had less R&D projects ongoing in the Current Quarter.

Selling, General and Administrative Expenses (SG&A): SG&A expenses for the Current Quarter fell by 7.0% to $1,962,451 from $2,111,112 in the Previous Quarter.





The fall in SG&A in the Current Quarter is largely due recording of a
significantly lower non-cash charge relating to stock compensation, which was
$182,153 as compared to $325,175 in the Previous Quarter, representing a 44.0%
reduction.




Within the category of SG&A we have transactions which are cash charges and
non-cash charges. The non-cash charges comprise Depreciation, Amortization and
Stock-based compensation charges. In the Current Quarter non-cash items as a
percentage of SG&A expenses was 14.5% compared to 22.0% in the Previous Quarter.

Key Areas of SG&A Expenditure across the Company for the Current Quarter compared to the Previous Quarter are:





                                        January 31,       January 31,         Percentage
            Expenditure                    2023              2022               Change
Wages and Salaries                     $     847,514     $     903,162     Decrease of 6.2%
Legal and Professional Fees

(including accounting and audit)       $     405,088     $     359,018     Increase of 12.8%
Rent for our various locations         $      12,712     $      15,745
Decrease of 19.3%
Marketing                              $      20,442     $      13,766     Increase of 48.5%




Although in the Current Quarter "Wages and Salaries" have fallen, we believe on
the full year basis this category will increase due to inflation and potential
new hires to fill open positions. Our revision of salaries for the Fiscal Year
2023 will start to be recorded in our second quarter, due to the date when

these
increases became effective.

The increase in "Legal and Professional" reflects an increase in audit fees.


The increase in marketing is anticipated within our plans. This is an area of
expenditures which we anticipate will increase materially in this fiscal year
and subsequent years. As we shift our focus from R&D to business development and
marketing, including undertaking efforts to build our brands, we anticipate a
significant increase in this area of expenditure.



Operating Income: In the Current Quarter Operating Income marginally fell by
2.2% and was $1,346,096 as compared to $1,375,932 in the Previous Quarter. The
slight decrease in Operating Income is due to the fall in our consolidated
revenues and gross profit margins realized in the Current Quarter.



Other Income: In the Current Quarter, we had Other Income of $15,765 compared to
$68,716, representing a decrease of 77.1% from the Previous Quarter. In the
Current Quarter $12,861 of this amount represents interest earned on our
deposits. We have established certified deposit accounts with our bankers and
would expect that interest earned will be material in the future. See Note 17
("Subsequent Events") where we discuss this further.



Net Income before income taxes: In the Current Quarter, we had income before
income taxes of $1,361,861 as compared to $1,444,648 in the Previous Quarter,
representing a decrease of 5.7%. Net income before income taxes fell due to the
decrease in our consolidated revenues compounded by the decrease in Gross Profit
Margins in the Current Quarter.



26







Net Income: In the Current Quarter we had Net Income of $1,397,857 compared to
$1,217,248 in the Previous Quarter, representing an increase of 14.8%. In the
Previous Quarter we recorded Current Tax Expense of $285,609 and in the Current
Quarter we recorded Current Tax Benefit of $35,996. The Company has utilized all
its net operating losses carryforwards. Our tax liability included in our
consolidated financial results will depend on the composition of our
consolidated income, whether they relate to the Company's foreign subsidiaries
or US subsidiaries and similarly the percentage of consolidated income from US
and Foreign subsidiaries. In the Current Quarter, the Company and its US
subsidiaries had no taxable income. The UK companies have carryforward losses
which will be applied to defray income tax liability and therefore no provision
has been made for tax liability for the foreign subsidiaries in our consolidated
results for the Current Quarter.



Comprehensive Income. In the Current Quarter Comprehensive income was $3,005,507
compared to Comprehensive Income of $1,458,398 for the Previous Quarter
reflecting adjustments resulting from foreign currency translations. This
category is affected by fluctuations in foreign currency exchange transactions
both relating to our profit and loss expenses and valuation of our assets and
liabilities on our balance sheet. In the Previous Quarter we had a gain of
$241,150 on foreign currency translation adjustment transactions compared to a
gain of $1,607,650 in the Current Quarter. A significant part of the Company's
operations is based in the UK and Denmark, and therefore a major part of our
assets and liabilities recorded in our consolidated balance sheet and financial
transactions are translated from the functional currencies of these subsidiaries
into USD for reporting purposes. See Table 2 under the section which concerns
"Inflation & Foreign Currency" which shows the impact of the currency
adjustments on our Income Statement and Balance Sheet in the Current Quarter
compared to the Previous Quarter.

Liquidity and Capital Resources





As of January 31, 2023, the Company had an accumulated deficit of $12,778,779,
working capital of $36,474,417, cash of $24,522,383 and stockholders' equity of
$46,570,469. For the Current Quarter, the Company's operating activities
provided cash of $984,866.



The Company entered into a $4,000,000 revolving line of credit with HSBC NA on
November 27, 2019, at prime. The outstanding balance on the line of credit was
$0 as of January 31, 2023. This revolving credit line will expire on November
26, 2023, unless renewed.



27

Inflation and Foreign Currency

The Company maintains its books in functional currency, as follows:





  ? US Dollars for US Operations.
  ? British Pound for United Kingdom Operations.
  ? Danish Kroner for our Danish Operations.
  ? Australian Dollars for our Australian Operations.
  ? Indian Rupees for our Indian Operations.

See Note 5 (Foreign Currency Translation) of our Unaudited Consolidated Financial Statements for more information on the applicable rates used for our Balance Sheet transactions and Statement of Income and Comprehensive Income.





Fluctuations in currency exchange rates can affect the Company's sales,
profitability and financial position when the foreign currencies of its
international operations are translated into U.S. dollars for financial
reporting. In addition, we are also subject to currency fluctuation risk with
respect to certain foreign currency denominated receivables and payables. The
Company cannot predict the extent to which currency fluctuations may affect the
Company's business and financial position, and there is a risk that such
fluctuations will have an adverse impact on the Company's sales, profits and
financial position. Also, because differing portions of our revenues and costs
are denominated in foreign currency, movements can impact our margins by, for
example, decreasing our foreign revenues when the dollar strengthens without
correspondingly decreasing our expenses. The Company does not currently hedge
its currency exposure.



Applying the Constant Rate, the impact of currency fluctuations on the three
months ended January 31, 2023, is shown below. In this context "Constant Rates"
is defined as:

For Revenue and Expenses (Income The Prevailing weighted average Statement Transactions)

                   exchange rate in the Previous

Quarter


For balance sheet transactions            The Prevailing exchange rate as of
                                          October 31, 2022 (the Balance Sheet
                                          Date")

Information is not specified for INR and AUD as there is limited scope of operations in these jurisdictions and therefore contributions are immaterial. However, the information for INR and AUD is included in the totals.





                                           British Pounds based              Danish Kroner based                           US Dollar
                                          Actual          Constant         Actual         Constant          Actual          Constant          Total
                                        Results $         Rates $         Results $        Rates $        Results $         Rates $         Effect $
Revenues                                  2,431,323        2,687,865       1,371,456       1,457,060        3,802,779        4,144,925        (342,146 )
Costs                                     1,907,019        2,108,239         296,109         314,592        2,210,184        2,430,592        (220,408 )
Net profit (losses)                         524,304          579,626       1,075,347       1,142,468        1,592,595        1,714,333        (121,738 )
Assets                                   22,847,165       21,350,036       4,146,903       3,771,741       27,025,529       25,150,688       1,875,056
Liabilities                              (1,800,852 )     (1,682,846 )       (71,667 )       (65,183 )     (1,871,399 )     (1,746,803 )      (124,475 )
Net assets                               21,046,313       19,667,190       4,075,236       3,706,558       25,154,130       23,403,885       1,750,580




This table shows that the effect of constant exchange rates, versus the actual
exchange rate fluctuations, decreased our net income on activities in the
Current Quarter by $121,738 and increased net assets by $1,750,580. In addition,
the Company recorded a transactional exchange rate loss of $72,649 during the
Current Quarter.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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