**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, 2008




OR




**o**
            **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 000-52815*





**CODA
      OCTOPUS GROUP, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
            
            34-200-8348(State
                or other jurisdiction of Incorporation or organization)
            
            (I.R.S.
                Employer Identification Number)164
                West, 25thStreet, 6thFloor, New York
            
            10001(Address
                of principal executive offices)
            
            (Zip
                Code)Registrant's
                telephone number, including area code:
            
            (212)
                924-3442




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes o No x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
      one): o





Large
                accelerated filero
            Accelerated
                filero
            Smaller
                reporting companyx





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x





The
      number of shares outstanding of issuer's common stock, $0.001 par value as
      of
      September 14, 2008: 48,853,664.







**INDEX**





Page**PART
                I - Financial Information**
            
            
            1**Item
                1: Financial Statements**
            
            
            1**Nine
                Months Ended July 31, 2008 and 2007**Condensed
                Consolidated Balance Sheet as of July 31, 2008 (Unaudited) and October
                31,
                2007
            
            
            1Condensed
                Consolidated Statements of Operations and Comprehensive Loss for
                the Three
                and Nine Months Ended July 31, 2008 and 2007 (Unaudited)
            
            
            2Condensed
                Consolidated Statement of Stockholders’ Equity for the Nine Months
                Ended July 31, 2008 (Unaudited)
            
            
            3Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended July
                31,
                2008 and 2007 (Unaudited)
            
            
            4Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            
            
            5**Item
                2: Management's Discussion and Analysis or Plan of
                Operation**
            
            
            16**Item
                3:****Controls
                and Procedures**
            
            
            23**PART
                II - Other Information**
            
            
            24**Item
                1: Legal Proceedings**
            
            
            24**Item
                2: Unregistered Sales of Equity Securities and Use of
                Proceeds**
            
            
            24**Item
                3: Defaults Upon Senior Securities**
            
            
            24**Item
                4: Submission of Matters to a Vote of Security
                Holders**
            
            
            24**Item
                5: Other Information**
            
            
            24**Item
                6: Exhibits**
            
            
            24**Signatures**
            
            
            24


i


**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




**CODA
      OCTOPUS GROUP, INC.**


**CONDENSED**  **CONSOLIDATED
      BALANCE SHEET**


**JULY
      31, 2008 (UNAUDITED) AND OCTOBER 31, 2007**





July
                31,
              2008
              (Unaudited)
            
            October
                31, 2007ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            6,050,996
            
            $
            916,257Short-term
                investments, Note 3
            
            
            272,000
            
            
            935,000Accounts
                receivable, net of allowance for doubtful accounts
            
            
            2,400,265
            
            
            2,720,151Inventory
            
            
            2,502,292
            
            
            2,926,517Due
                from related parties, Note 12
            
            
            160,289
            
            
            105,685Unbilled
                receivables, Note 2
            
            
            1,518,073
            
            
            380,017Other
                current assets, Note 4
            
            
            717,818
            
            
            691,560Prepaid
                expenses
            
            
            542,208
            
            
            476,283Total
                current assets
            
            
            14,163,941
            
            
            9,151,470Property
                and equipment, net, Note 5
            
            
            395,629
            
            
            422,738Goodwill
                and other intangible assets, net, Note 6
            
            
            5,566,171
            
            
            4,007,253Total
                assets
            
            $
            20,125,741
            
            $
            13,581,461LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable, trade
            
            $
            962,029
            
            $
            1,618,250Accrued
                expenses and other current liabilities
            
            
            1,821,150
            
            
            1,937,569Deferred
                revenues, Note 2
            
            
            355,796
            
            
            593,325Deferred
                payment related to acquisitions, Note 13
            
            
            -
            
            
            763,936Accrued
                dividends on Series A&B Preferred Stock
            
            
            31,149
            
            
            86,766Due
                to related parties, Note 12
            
            
            63,740
            
            
            184,425Loans
                and notes payable, short term, Note 11
            
            
            38,051
            
            
            56,382Total
                current liabilities
            
            
            3,271,915
            
            
            5,240,653Loans
                and notes payable, long term, Note 11
            
            
            12,429,845
            
            
            265,139Total
                liabilities
            
            
            15,701,760
            
            
            5,505,792Stockholders'
                equity:Preferred
                stock, $.001 par value; 5,000,000 shares authorized, 6,287 and 6,407
                Series A issued and outstanding, as of July 31, 2008 and October
                31, 2007
                respectively
            
            
            6
            
            
            6Common
                stock, $.001 par value; 150,000,000 shares authorized, 48,753,664
                and
                48,245,768 shares issued and outstanding as of July 31, 2008 and
                October
                31, 2007 respectively
            
            
            48,754
            
            
            48,246Common
                Stock subscribed
            
            
            -
            
            
            80,000Additional
                paid-in capital
            
            
            51,166,908
            
            
            49,785,244Accumulated
                other comprehensive loss
            
            
            (924,657
            )
            
            (238,097
            )Accumulated
                deficit
            
            
            (
                45,867,030
            )
            
            (41,599,730
            )Total
                stockholders' equity
            
            
            4,423,981
            
            
            8,075,669Total
                liabilities and stockholders' equity
            
            $
            20,125,741
            
            $
            13,581,461




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.


1




**CODA
      OCTOPUS GROUP, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      LOSS**


**FOR
      THE**  **THREE
      AND NINE MONTHS ENDED JULY 31, 2008 and 2007**


**(UNAUDITED)**





For
                the three months
            
            For the three months
            
            For the nine months
            
            For the nine monthsended
                July 31,
            
            ended July 31,
            
            ended July 31,
            
            ended July 31,2008
            
            2007
            
            2008
            
            2007Net
                revenue
            
            $
            5,008,525
            
            $
            5,859,907
            
            $
            13,232,440
            
            $
            10,794,621Cost
                of revenue
            
            
            1,984,714
            
            
            2,300,728
            
            
            4,934,266
            
            
            4,513,101Gross
                profit
            
            
            3,023,811
            
            
            3,559,179
            
            
            8,298,174
            
            
            6,281,520Research
                and development
            
            
            880,339
            
            
            634,679
            
            
            2,333,840
            
            
            1,736,437Selling,
                general and administrative expenses
            
            
            3,311,267
            
            
            3,594,560
            
            
            9,170,389
            
            
            8,883,099Other
                operating expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            435,000Operating
                income (loss)
            
            
            (1,167,795
            )
            
            (670,060
            )
            
            (3,206,055
            )
            
            (4,773,016
            )Other
                income (expense)Other
                income
            
            
            47,554
            
            
            35,745
            
            
            96,779
            
            
            73,540Interest
                expense
            
            
            (481,876
            )
            
            (561,350
            )
            
            (1,051,181
            )
            
            (6,349,946
            )Total
                other income (expense)
            
            
            (434,322
            )
            
            (525,605
            )
            
            (954,402
            )
            
            (6,276,406
            )Loss
                before income taxes
            
            
            (1,602,117
            )
            
            (1,195,665
            )
            
            (4,160,457
            )
            
            (11,049,422
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            (1,602,117
            )
            
            (1,195,665
            )
            
            (4,160,457
            )
            
            (11,049,422
            )Preferred
                Stock Dividends:Series
                A
            
            
            (31,819
            )
            
            (31,851
            )
            
            (106,843
            )
            
            (238,950
            )Series
                B
            
            
            -
            
            
            -
            
            
            -
            
            
            (107,680
            )Beneficial
                Conversion Feature
            
            
            -
            
            
            -
            
            
            -
            
            
            (800,000
            )Net
                Loss Applicable to Common Shares
            
            $
            (1,633,936
            )
            $
            (1,227,516
            )
            $
            (4,267,300
            )
            $
            (12,196,051
            )Loss
                per share, basic and diluted
            
            
            (0.03
            )
            
            (0.03
            )
            
            (0.09
            )
            
            (0.34
            )Weighted
                average shares outstanding
            
            
            48,540,133
            
            
            47,986,242
            
            
            48,369,873
            
            
            35,490,398Comprehensive
                loss:Net
                loss
            
            $
            (1,602,117
            )
            $
            (1,195,665
            )
            $
            (4,160,457
            )
            $
            (11,049,422
            )Foreign
                currency translation adjustment
            
            
            98,390
            
            
            55,209
            
            
            (23,560
            )
            
            150,458Unrealized
                loss on investment
            
            
            (280,500
            )
            
            -
            
            
            (663,000
            )
            
            -Comprehensive
                loss
            
            $
            (1,784,227
            )
            $
            (1,140,456
            )
            $
            (4,847,017
            )
            $
            (10,898,964
            )




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.


2




**CODA
      OCTOPUS GROUP, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**


**FOR
      THE NINE MONTHS ENDED JULY 31, 2008**


**(UNAUDITED)**




Preferred
                Stock
              Series
                A
            
            Preferred
                Stock
              Series
                B
            
            Common
                Stock
            
            Stock
            
            Additional
              Paid-in
            
            Accumulated
                Other
              Comprehensive
            
            AccumulatedShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Subscribed
            
            Capital
            
            Loss
            
            Deficit
            
            TotalBalance,
                October 31, 2007
            
            
            6,407
            
            $
            6
            
            
            -
            
            $
            -
            
            
            48,245,768
            
            $
            48,246
            
            
            80,000
            
            $
            49,785,244
            
            $
            (238,097
            )
            $
            (41,599,730
            )
            $
            8,075,669Sale
                of preferred stock
            
            
            200
            
            
            0
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (20,000
            )
            
            20,000
            
            
            
            
            
            
            
            
            -Sale
                of common stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            60,000
            
            $
            60
            
            
            (60,000
            )
            $
            59,940
            
            
            
            
            
            
            
            
            -Conversion
                of preferred stock to common
            
            
            (320
            )
            
            0
            
            
            
            
            
            
            
            
            56,640
            
            $
            57
            
            
            
            
            
            (56
            )
            
            
            
            
            
            
            
            -Stock
                issued for compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            352,937
            
            
            353
            
            
            
            
            $
            238,123
            
            
            
            
            
            
            
            $
            238,476Fair
                value of options and warrants issued for compensation and
                financing
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,022,160
            
            
            
            
            
            
            
            $
            1,022,160Preferred
                stock dividendsSeries
                A
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (106,843
            )
            $
            (106,843
            )Series B
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            
            
            $
            -
            
            
            
            
            $
            -
            
            $
            -Stock
                issued for preferred stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            38,319
            
            
            38
            
            
            
            
            $
            41,498
            
            
            
            
            
            
            
            $
            41,536Accumulated
                other comprehensive lossForeign
                currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (23,560
            )
            
            
            
            $
            (23,560
            )Unrealized
                loss from marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (663,000
            )
            
            
            
            $
            (663,000
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (4,160,457
            )
            $
            (
                4,160,457
            )Balance
                July 31, 2008
            
            
            6,287
            
            $
            6
            
            
            -
            
            $
            -
            
            
            48,753,664
            
            $
            48,754
            
            $
            -
            
            $
            51,166,909
            
            $
            (924,657
            )
            $
            (45,867,030
            )
            $
            4,423,981




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.


3




**CODA
      OCTOPUS GROUP, INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED JULY 31, 2008 and 2007**


**(UNAUDITED)**





2008
            
            2007CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (
                4,160,457
            )
            $
            (11,049,422
            )Adjustments
                to reconcile net loss to net cashused
                by operating activities:Depreciation
                and amortization
            
            
            453,623
            
            
            226,309Stock
                based compensation
            
            
            865,206
            
            
            2,600,378Financing
                costs
            
            
            395,430
            
            
            5,989,488Dividends
            
            
            -
            
            
            164,819Changes
                in operating assets and liabilities:(Increase)
                decrease in:Accounts
                receivable
            
            
            319,886
            
            
            (2,266,830
            )Inventory
            
            
            424,225
            
            
            (391,865
            )Prepaid
                expenses
            
            
            (65,927
            )
            
            (335,974
            )Other
                receivables
            
            
            (1,515,028
            )
            
            (613,707
            )Increase
                (decrease) in:Accounts
                payable and accrued expenses
            
            
            (792,797
            )
            
            (2,309,944
            )Due
                to related parties
            
            
            (41,945
            )
            
            (44,419
            )Net
                cash used in operating activities
            
            
            (4,117,784
            )
            
            (8,031,167
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (110,416
            )
            
            (206,662
            )Purchases
                of intangible assets
            
            
            (180,123
            )
            
            (136,854
            )Acquisitions
            
            
            (763,936
            )
            
            (1,358,470
            )Cash
                acquired from acquisitions
            
            
            -
            
            
            35,515Net
                cash used by investing activities
            
            
            (1,054,475
            )
            
            (1,666,471
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from (repayment of) loans
            
            
            10,453,421
            
            
            (1,124,447
            )Proceeds
                from sale of stock
            
            
            -
            
            
            14,677,980Redemption
                of preferred stock
            
            
            -
            
            
            (1,818,100
            )Preferred
                stock dividend paid
            
            
            (127,541
            )
            
            (606,597
            )Net
                cash provided by financing activities
            
            
            10,325,880
            
            
            11,128,836Effect
                of exchange rate changes on cash
            
            
            (18,882
            )
            
            85,737Net
                increase in cash
            
            
            5,134,739
            
            
            1,516,935Cash
                and cash equivalents, beginning of period
            
            
            916,257
            
            
            1,377,972Cash
                and cash equivalents, end of period
            
            $
            6,050,996
            
            $
            2,894,907Cash
                paid for:Interest
            
            $
            376,909
            
            $
            359,907Income
                taxes
            
            
            -
            
            
            -




Supplemental
      Disclosures:





During
      the Nine Months ended July 31, 2008, 391,256 shares of common stock were issued
      as payment of $238,476 of compensation that was earned, $4,200 of non-cash
      financing costs and $41,536 of series A preferred stock dividends
      due.





During
      the Nine Months ended July 31, 2007, 1,640,268 shares of common stock were
      issued as payment of $1,770,233 of compensation that was earned.




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.


4




**CODA
      OCTOPUS GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**




**NOTE
      1 - SUMMARY OF ACCOUNTING POLICIES**




A
      summary
      of the significant accounting policies applied in the preparation of the
      accompanying consolidated financial statements follows.




**General**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and in accordance
      with instructions to SEC form 10Q-SB. Accordingly, they do not include all
      of
      the information and footnotes required by generally accepted accounting
      principles for complete financial statements.





In
      the
      opinion of management, all adjustments (consisting of normal recurring accruals)
      considered necessary for a fair presentation have been included. Accordingly,
      the results from operations for the nine month period ended July 31, 2008,
      are
      not necessarily indicative of the results that may be expected for the year
      ended October 31, 2008. The unaudited condensed financial statements should
      be
      read in conjunction with the consolidated October 31, 2007 financial statements
      and footnotes thereto included in the Company’s 10K-SB filed on February 26,
      2008 with the Securities Exchange Commission (SEC).





**Business
      and Basis of Presentation**




Coda
      Octopus Group, Inc. ( *”we* ” *,
      “us”,* “ *our
      company* ”
or *“Coda”* ),
      a corporation formed under the laws of the State of Florida, is a developer
      of underwater technologies and equipment for imaging, mapping, defense and
      survey applications. We are based in New York, with research and development,
      sales and manufacturing facilities located in the United Kingdom and Norway,
      and
      additional sales locations in Florida, Utah and Washington, D.C.




The
      consolidated financial statements include the accounts of Coda and our domestic
      and foreign subsidiaries that are more than 50% owned and controlled. All
      significant intercompany transactions and balances have been eliminated in
      the
      consolidated financial statement.




**Use
      of Estimates**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the amounts reported in the consolidated financial statements and
      accompanying disclosures. Although these estimates are based on management's
      best knowledge of current events and actions that we may undertake in the
      future, actual results may differ from those estimates.




**Revenue
      Recognition**




We
      record
      revenue in accordance with the guidance of the SEC's *Staff
      Accounting Bulletin*  *SAB
      No. 104* (SAB
      104), which supersedes SAB
      No. 101 in order
      to encompass Emerging Issues Task Force ( EITF)
      No. 00-21 , *Revenue
      Arrangements with Multiple Deliverables* . Our
      revenue is derived from sales of underwater technologies and equipment for
      imaging, mapping, defense and survey applications. Revenue is recognized when
      persuasive evidence of an arrangement exists, delivery has occurred or services
      have been rendered, the contract price is fixed or determinable, and
      collectability is reasonably assured. No right of return privileges are granted
      to customers after shipment.







For
      arrangements with multiple deliverables, we recognize product revenue by
      allocating the revenue to each deliverable based on the fair value of each
      deliverable in accordance with EITF
      No. 00-21 and SAB
      No. 104 ,
      and
      recognize revenue for equipment upon delivery and for installation and other
      services as performed. EITF
      No. 00-21 was
      effective for revenue arrangements entered into in fiscal periods beginning
      after June 15, 2003.




Our
      contracts sometimes require customer payments in advance of revenue recognition.
      These deposit amounts are reflected as liabilities and recognized as revenue
      when the Company has fulfilled its obligations under the respective
      contracts.




Revenues
      derived from our software license sales are recognized in accordance with
      Statement of Position (SOP) No.
      97-2 ,
      “Software Revenue Recognition”, and SOP
      No. 98-9 ,
      “Modifications of SOP
      No. 97-2 ,
      Software Revenue Recognition with Respect to Certain Transactions”. For software
      license sales for which any services rendered are not considered essential
      to
      the functionality of the software, we recognize revenue upon delivery of the
      software, provided (1) there is evidence of an arrangement, (2) collection
      of
      our fee is considered probable and (3) the fee is fixed and
      determinable.




5


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**Foreign
      Currency Translation**




Coda
      translates the foreign currency financial statements of its foreign subsidiaries
      in accordance with the requirements of SFAS No. 52, *Foreign
      Currency Translation* .
      Assets
      and liabilities are translated at exchange rates existing at the balance sheet
      dates, related revenue and expenses are translated at average exchange rates
      in
      effect during the period and stockholders’ equity, fixed assets and long-term
      investments are recorded at historical exchange rates. Resulting translation
      adjustments are recorded as a separate component in stockholders' equity as
      part
      of accumulated other comprehensive income (loss). Foreign currency transaction
      gains and losses are included in the statement of income.




**Income
      Taxes**




Deferred
      income taxes are provided using the asset and liability method for financial
      reporting purposes in accordance with the provisions of SFAS No. 109, *Accounting
      for Income Taxes* .
      Under
      this method, deferred tax assets and liabilities are recognized for temporary
      differences between the tax bases of assets and liabilities and their carrying
      values for financial reporting purposes, and for operating loss and tax credit
      carry-forwards. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be removed or settled. The effect on
      deferred tax assets and liabilities of a change in tax rates is recognized
      in
      the consolidated statements of operations in the period that includes the
      enactment date.




**Cash
      and Cash Equivalents**




Cash
      equivalents are comprised of highly liquid investments with maturity of three
      months or less when purchased. We maintain our cash in bank deposit accounts,
      which at times, may exceed insured limits. We have not experienced any losses
      in
      such accounts.




**Concentrations
      of Credit Risk**




Financial
      instruments and related items, which potentially subject us to concentrations
      of
      credit risk, consist primarily of cash and cash equivalents and accounts
      receivable. We place our cash and temporary cash investments with credit quality
      institutions. At times, such investments may be in excess of applicable
      government mandated insurance limits.





**Accounts
      Receivable**




We
      periodically review our trade receivables in determining our allowance for
      doubtful accounts. Allowance for doubtful accounts was nil for the period ended
      July 31, 2008 and $17,910 for the year ended October 31, 2007.




**Fair
      Value of Financial Instruments**




SFAS
      No.
      107, "Disclosures About Fair Value of Financial Instruments", requires
      disclosure of the fair value of certain financial instruments. The carrying
      value of cash and cash equivalents, accounts receivable, other receivables,
      accounts payable and short-term borrowings, as reflected in the balance sheets,
      approximate fair value because of the short-term maturity of these instruments.
      Our long term debt has interest rates that approximate market and therefore
      the
      carrying amounts approximate their fair values.





**Inventory**




Inventory
      is stated at the lower of cost or market using the first-in first-out method.
      Inventory is comprised of the following components at July 31, 2008 and October
      31, 2007:




**2008**
            
            **2007**Raw
                materials
            
            $
            2,057,969
            
            $
            1,789,051Work
                in process
            
            
            22,745
            
            
            334,813Finished
                goods
            
            
            421,578
            
            
            802,653Total
                inventory
            
            $
            2,502,292
            
            $
            2,926,517




**Property
      and Equipment**




We
      record
      our equipment at historical cost. We expense maintenance and repairs as
      incurred. Depreciation is provided for by the straight-line method over three
      to
      four years, the estimated useful lives of the property and
      equipment.




**Long-Lived
      Assets**




We
      follow
      SFAS No. 144, "Accounting for Impairment of Disposal of Long-Lived Assets",
      which established a "primary asset" approach to determine the cash flow
      estimation period for a group of assets and liabilities that represents the
      unit
      of accounting for a long-lived asset to be held and used. Long-lived assets
      to
      be held and used are reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. The carrying amount of a long-lived asset is not recoverable if
      it
      exceeds the sum of the undiscounted cash flows expected to result from the
      use
      and eventual disposition of the asset. Long-lived assets to be disposed of
      are
      reported at the lower of carrying amount or fair value less cost to sell. No
      impairment loss was recognized during the period ended July 31, 2008 or the
      year
      ended October 31, 2007.




6


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


**Research
      and Development**




Research
      and development costs consist of expenditures for the present and future patents
      and technology, which cannot be capitalized. We are eligible for United Kingdom
      tax credits related to our qualified research and development expenditures.
      Tax
      credits are classified as a reduction of research and development expense.
      We
      recorded no tax credits during the period ended July 31, 2008 or the year ended
      October 31, 2007.




**Marketing**




We
      charge
      the costs of marketing to expense as incurred. For the period ended July 31,
      2008 marketing costs were $913,760 and $200,459 for the period ended July 31,
      2007.





**Other
      Operating Expenses**




We
      incurred costs of nil and $435,000 as non-recurring fees and expenses in
      connection with our financings and acquisitions for the period ended July 31,
      2008 and the period ended October 31, 2007 respectively, which were also
      included in our loss from operations, and shown separately under Other Operating
      Expenses.





**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. Customer relationships, non-compete
      agreements and licenses are being amortized on a straight-line basis over
      periods of 3 to 10 years. The Company amortizes its intangible assets using
      the
      straight-line method over their estimated period of benefit. We periodically
      evaluate the recoverability of intangible assets and take into account events
      or
      circumstances that warrant revised estimates of useful lives or that indicate
      that impairment exists.




We
      test
      for impairment at the reporting unit level as defined in SFAS No. 142,
“Goodwill and Other Intangible Assets”. This test is a two-step process. 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, the second step must be performed to
      measure the amount of the impairment loss, if any. The second step compares
      the
      implied fair value of the reporting unit’s goodwill with the carrying amount of
      that goodwill. In the fourth quarter of each year, we evaluate goodwill on
      a
      separate reporting unit basis to assess recoverability, and impairments, if
      any,
      are recognized in earnings. An impairment loss would be recognized in an amount
      equal to the excess of the carrying amount of the goodwill over the implied
      fair
      value of the goodwill. SFAS No. 142 also requires that intangible
      assets with determinable useful lives be amortized over their respective
      estimated useful lives and reviewed annually for impairment in accordance with
      SFAS No. 144.




**Stock
      Based Compensation**




SFAS
      No. 123, “Accounting for Stock-Based Compensation”, established and
      encouraged the use of the fair value based method of accounting for stock-based
      compensation arrangements under which compensation cost is determined using
      the
      fair value of stock-based compensation determined as of the date of the grant
      or
      the date at which the performance of the services is completed and is recognized
      over the periods in which the related services are rendered. The statement
      also
      permitted companies to elect to continue using the current intrinsic value
      accounting method specified in Accounting Principles Board (“APB”) Opinion
      No. 25, “Accounting for Stock Issued to Employees”, to account for
      stock-based compensation to employees. Prior to the adoption of SFAS 123(R)
      we
      elected to use the intrinsic value based method for grants to our employees
      and
      directors and have disclosed the pro forma effect of using the fair value based
      method to account for our stock-based compensation to employees.




On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      No. 123R (revised 2004), “Share-Based Payment” (“Statement 123R”) which is a
      revision of SFAS No. 123.




Statement
      123R supersedes APB opinion No. 25 and amends SFAS No. 95, “Statement of Cash
      Flows”. Generally, the approach in Statement 123R is similar to the approach
      described in Statement 123. However, Statement 123R requires all share-based
      payments to employees, including grants of employee stock options, to be
      recognized in the income statement based on their fair values. Pro-forma
      disclosure is no longer an alternative. This statement does not change the
      accounting guidance for share based payment transactions with parties other
      than
      employees provided in SFAS No. 123(R). This statement does not address the
      accounting for employee share ownership plans, which are subject to AICPA
      Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership
      Plans.” On April 14, 2005, the SEC amended the effective date of the provisions
      of this statement. The effect of this amendment by the SEC is that the Company
      had to comply with Statement 123R and use the Fair Value based method of
      accounting no later than the first quarter of 2006. We implemented SFAS
      No. 123(R) on January 1, 2006 using the modified prospective method.
      The fair value of each option grant issued after January 1, 2006 will be
      determined as of grant date, utilizing the Black-Scholes option pricing model.
      The amortization of each option grant will be over the remainder of the vesting
      period of each option grant.  We did not have any unvested amounts of stock
      based compensation grants issued and outstanding at the date of
      implementation.


7


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


We
      use
      the fair value method for equity instruments granted to non-employees and use
      the Black-Scholes model for measuring the fair value. The stock based fair
      value
      compensation is determined as of the date of the grant or the date at which
      the
      performance of the services is completed (measurement date) and is recognized
      over the periods in which the related services are rendered.




**Comprehensive
      Income**




SFAS
      No.
      130, "Reporting Comprehensive Income", establishes standards for reporting
      and
      displaying of comprehensive income, its components and accumulated balances.
      Comprehensive income is defined to include all changes in equity except those
      resulting from investments by owners and distributions to owners. Among other
      disclosures, SFAS 130 requires that all items that are required to be recognized
      under current accounting standards as components of comprehensive income be
      reported in a financial statement that is displayed with the same prominence
      as
      other financial statements. Comprehensive income includes gains and losses
      on
      foreign currency translation adjustments and is included as a component of
      stockholders' equity.




**Loss
      Per Share**




We
      use
      SFAS No. 128, “Earnings per Share” for calculating the basic and diluted
      loss per share. We compute basic loss per share by dividing net loss and net
      loss attributable to common shareholders by the weighted average number of
      common shares outstanding. Diluted loss per share is computed similar to basic
      loss per share except that the denominator is increased to include the number
      of
      additional common shares that would have been outstanding if the potential
      shares had been issued and if the additional shares were dilutive. Common
      equivalent shares are excluded from the computation of net loss per share if
      their effect is anti-dilutive.




Per
      share
      basic and diluted net loss amounted to $0.09 and $0.34 for the periods
      ended July 31, 2008 and 2007, respectively. For the period ended July 31, 2008
      and year ended October 31, 2007, 49,896,559 and 36,508,028 potential shares,
      respectively, were excluded from the shares used to calculate diluted earnings
      per share as their inclusion would reduce net loss per share.




**Liquidity**




As
      of
      July 31, 2008 we have cash and cash equivalents of $6,050,996 and positive
      working capital of $10,892,026. For the period ended July 31, 2008 we had a
      net
      loss of $4,160,457 and negative cash flow from operations of $4,117,784. We
      also
      have an accumulated deficit of $45,867,030 at July 31, 2008.




**NOTE
      2 - CONTRACTS IN PROGRESS**




Costs
      and
      estimated earnings in excess of billings on uncompleted contracts represent
      accumulated project expenses and fees which have not been invoiced to customers
      as of the date of the balance sheet. These amounts are stated on the balance
      sheet as Unbilled Receivables of $1,518,073 and $380,017 as of July 31, 2008
      and
      October 31, 2007 respectively.




Billings
      in excess of cost and estimated earnings on uncompleted contracts represent
      project invoices billed to customers that have not been earned as of the date
      of
      the balance sheet. These amounts are stated on the balance sheet as Deferred
      Revenue of $166,311 and $359,775 as of July 31, 2008 and October 31, 2007
      respectively.




Revenue
      received as part of sales of equipment includes a provision for warranty and
      is
      treated as deferred revenue, along with extended warranty sales, with these
      amounts amortized over 12 months from the date of sale. These amounts are stated
      on the balance sheet as Deferred Revenue of $189,485 and $233,550 as of July
      31,
      2008 and October 31, 2007 respectively.




**NOTE
      3 - INVESTMENTS**





Securities
      which the Company does not have the intent to hold are classified as available
      for sale. Marketable securities that are bought and held principally for the
      purpose of selling them in the near term are classified as trading securities
      and are reported at fair value, with unrealized gains and losses recognized
      in
      earnings. Marketable equity securities are classified as available-for-sale
      and
      are carried at fair market value, with the unrealized gains and losses, net
      of
      tax, included in the determination of comprehensive income and reported in
      shareholder's equity.





The
      fair
      value of all securities is determined by quoted market prices. Gains or losses
      on securities sold are based on the specific identification method. During
      the
      year ended October 31, 2007, the Company received marketable securities worth
      $850,000 in settlement of a $533,147 loan and $316,853 of accounts receivable.
      As of July 31, 2008, the value of the investment, which is available-for-sale
      for financial reporting purposes, was $272,000, compared with $935,000 at
      October 31, 2007. This includes an unrealized loss of $663,000 which has been
      included in the determination of comprehensive loss.




8


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**




**NOTE
      4 - OTHER CURRENT ASSETS**




Other
      current assets on the balance sheet total $717,818 and $691,560 at July 31,
      2008
      and October 31, 2007 respectively. These totals comprise the
      following:





**2008**
            
            **2007**Deposits
            
            $
            117,698
            
            $
            191,352Value
                added tax (VAT)
            
            
            284,855
            
            
            293,934Other
                receivables
            
            
            315,265
            
            
            206,274Total
            
            $
            717,818
            
            $
            691,560





**NOTE
      5 - FIXED ASSETS**




Property
      and equipment at July 31, 2008 and October 31, 2007 is summarized as
      follows:




**2008**
            
            **2007**Machinery
                and equipment
            
            $
            1,093,531
            
            $
            983,115Accumulated
                depreciation
            
            
            (697,902
            )
            
            (560,377
            )Net
                property and equipment assets
            
            $
            395,629
            
            $
            422,738




Depreciation
      expense recorded in the statement of operations for the periods ended July
      31,
      2008 and October 31, 2007 is $137,525 and $101,802, respectively.





Rental
      equipment at July 31, 2008 and October 31, 2007 is summarized as
      follows:





**2008**
            
            **2007**Rental
                equipment
            
            $
            240,876
            
            $
            240,876Accumulated
                depreciation
            
            
            (240,876
            )
            
            (240,876
            )Net
                rental equipment assets
            
            $
            -
            
            $
            -




Depreciation
      expense recorded in the statement of operations for the periods ended July
      31,
      2008 and October 31, 2007 is nil and $120,851, respectively.




**NOTE
      6 - INTANGIBLE ASSETS AND GOODWILL**




The
      Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby
      the Company periodically tests its intangible assets for impairment. On an
      annual basis, and when there is reason to suspect that their values have been
      diminished or impaired, these assets are tested for impairment, and write-downs
      will be included in results from operations.




The
      identifiable intangible assets acquired and their carrying value at July 31,
      2008 and October 31, 2007 is:





**2008**
            
            **2007**Customer
                relationships (weighted average life of 10 years)
            
            $
            694,503
            
            $
            694,503Non-compete
                agreements (weighted average life of 3 years)
            
            
            198,911
            
            
            198,911Patents
                (weighted average life of 10 years)
            
            
            63,695
            
            
            48,530Convertible
                debenture raise costs (expected life of 7 years)
            
            
            1,694,893
            
            
            -Product
                development (weighted average life of 3 years)
            
            
            119,491
            
            
            -Licenses
                (weighted average life of 2 years)
            
            
            100,000
            
            
            100,000Total
                amortized identifiable intangible assets - gross carrying
                value
            
            
            2,871,493
            
            
            1,041,944Less
                accumulated amortization
            
            
            (404,897
            )
            
            (134,266
            )**Net**
            
            
            **2,466,596**
            
            
            **907,678****Residual
                value**
            
            **$**
            **2,466,596**
            
            **$**
            **907,678**




9


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Our
      acquisition of Colmek resulted in the valuation of Colmek’s customer
      relationships and covenants not to compete as intangible assets (see Note 10),
      which have an estimated useful life of 10 years and 3 years respectively, and
      as
      such are being amortized monthly over that period. Goodwill of $2,038,669
      represented the excess of the purchase price over the fair value of the net
      tangible and intangible assets acquired.




Estimated
      amortization expense as of July 31, 2008 is as follows:





2008
            
            $
            167,2362009
            
            
            430,1892010
            
            
            349,0542011
            
            
            325,3302012
                and thereafter
            
            
            1,194,787**Total**
            
            **$**
            **2,466,596**







Amortization
      of patents, customer relationships, non-compete agreements and licenses included
      as a charge to income amounted to $316,098 and $115,005 for the period ended
      July 31, 2008 and year ended October 31, 2007, respectively. Goodwill is not
      being amortized.




As
      a
      result of the acquisitions of Martech and Colmek, the Company has goodwill
      in
      the amount of $3,099,575 as of July 31, 2008 and October 31, 2007. The changes
      in the carrying amount of goodwill for the period ended July 31, 2008 and year
      ended October 31, 2007 are recorded below.





**2008**
            
            **2007**Beginning
                goodwill balance at November 1
            
            $
            3,099,575
            
            $
            1,060,906Goodwill
                recorded upon acquisition
            
            
            -
            
            
            2,038,669**Period
                End Balance**
            
            **$**
            **3,099,575**
            
            **$**
            **3,099,575**




Considerable
      management judgment is necessary to estimate fair value. We enlist the
      assistance of an independent valuation consultant to determine the values of
      our
      intangible assets and goodwill, both at the dates of acquisition and at specific
      dates annually. Based on various market factors and projections used by
      management, actual results could vary significantly from managements'
      estimates.




**NOTE
      7 - CAPITAL STOCK**




The
      Company is authorized to issue 150,000,000 shares of common stock with a par
      value of $.001 per share. As of July 31, 2008 and 2007, the Company has issued
      and outstanding 48,753,664 shares and 48,143,656 shares of common stock
      respectively. The Company is also authorized to issue 5,000,000 shares of
      preferred stock with a par value of $.001 per share. We have designated 50,000
      preferred shares as Series A preferred stock and have designated 50,000
      preferred shares as Series B preferred stock. The remaining 4,900,000 shares
      of
      preferred stock is undesignated. There were 6,287 and 6,407 Series A preferred
      shares outstanding at July 31, 2008 and 2007 respectively, and nil Series B
      preferred shares outstanding at the same dates.




Series
      A Preferred Stock




We
      designated 50,000 shares of our preferred stock, par value $.001, as Series
      A
      Preferred Stock. The Series A Preferred Stock ranks senior to all classes of
      common and preferred stock. The Series A Preferred Stock has a dividend rate
      of
      12% per year. The Series A Preferred Stock and accrued dividends is convertible
      at the option of the holder into shares of our common stock at a conversion
      price of $1.00 per share, and at the option of the Company when the stock price
      reaches or exceeds $3.00.




During
      the period ended July 31, 2008 we issued 200 shares of Series A Preferred Stock,
      which were subscribed for in the year ended October 31, 2007. At July 31, 2008,
      the total of Series A Preferred Stock outstanding is 6,287 shares, convertible
      into 1,013,670 shares of common stock.




During
      the year ended October 31, 2007 we did not issue any shares of Series A
      Preferred Stock. However, we did convert 17,234 shares of Series A Preferred
      Stock into 2,878,418 shares of common stock and 1,439,209 warrants with a
      conversion price of $1.30 and 1,439,209 warrants with a conversion price of
      $1.70. At October 31, 2007, the total of Series A Preferred Stock outstanding
      was 6,407 shares, convertible into 1,050,310 shares of common
      stock.




Series
      B Preferred Stock




We
      designated 50,000 shares of our preferred stock, par value $.001, as Series
      B
      Preferred Stock. The Series B Preferred Stock ranks junior to our issued and
      outstanding Series A preferred Stock and senior to all classes of common stock.
      The Series B Preferred Stock has a dividend rate of 8% per year. The Series
      B
      Preferred Stock and accrued dividends are convertible at the option of the
      holder into shares of our common stock at a conversion price of $1.00 per share.
      As of July 31, 2008, we have no shares of Series B Preferred Stock
      outstanding.




10


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


During
      the period ended October 31, 2007, we sold 8,000 preferred Series B stock units,
      each unit consisting of one share of our Series B Preferred Stock, 100 Series
      A
      warrants, 100 Series B warrants, and 81.25 shares of common stock (650,000
      shares of common stock in total). Each Series A warrant and Series B warrant
      is
      exercisable into shares of our common stock for a period of five years at
      exercise prices of $1.30 and $1.70 per share, respectively. Gross and net
      proceeds from the sale of the units were $800,000.




In
      accordance with EITF No. 00-27, *“Application
      of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial
      Conversion Features or Contingently Adjustable Conversion Rates’, to Certain
      convertible Instruments”,* a
      portion of the proceeds of our stock sales were allocated to the warrants based
      on their relative fair value.




For
      the
      sale of Series B Preferred Stock, this totaled $546,566 using the Black
      Scholes option pricing model. Further, we attributed a beneficial conversion
      feature of $253,434 to the Series B preferred shares based upon the
      difference between the conversion price of those shares and the closing price
      of
      our common shares on the date of issuance, limited to the proceeds attributable
      to the sale of the preferred shares. The weighted average assumptions used
      in
      the Black Scholes model are as follows:  (1) dividend yield of
      0%; (2) expected volatility of 304%, (3) risk-free interest rate
      of 4.90%, and (4) expected life of 2 years as the conversion
      feature and warrants are immediately exercisable. Both the fair value of the
      warrants and the beneficial conversion feature aggregating $800,000 were
      recorded as a dividend and are included in the accompanying financial
      statements.




Also
      during the year, 30,819 shares of Series B Preferred Stock were converted into
      3,081,900 shares of common stock. In addition, 18,181 shares of Series B
      Preferred Stock were redeemed at a price of $110 per share, which included
      the
      dividend accrued from the previous year, with the remainder booked as a
      redemption premium.




Common
      Stock




During
      the period ending July 31, 2008 we issued 352,937 shares of common stock, valued
      at $238,476, to employees, directors and consultants for services, of which
      $202,750 was subscribed for during the year ending October 31, 2007. We also
      issued 38,319 shares of common stock as dividend payments due to holders of
      Series A Preferred stock, which had accrued over the period August 2006 to
      April
      2008, valued at $41,537. We also issued 60,000 shares to an investor who had
      subscribed for these shares in February 2007 and 4,200 shares for financing,
      and
      56,640 shares to an investor on conversion of 320 shares of Series A Preferred
      stock.




During
      the year ending October 31, 2007 we sold 15,025,000 shares of common stock,
      valued at $1 each, with a further 60,000 shares subscribed for during the year.
      These shares were issued alongside 7,542,500 Series A warrants and 7,542,500
      Series B warrants, along with 2,400,000 warrants convertible into common stock
      at a price of $1.00 as part of placement agent fees. Each Series A warrant
      is
      convertible into common stock at a price of $1.30, and each Series B warrant
      is
      convertible into common stock at $1.70, and each warrant has a life of 5 years.
      The gross amount raised was $15,025,000, with $13,764,530 raised
      net.




A
      further
      650,000 shares of common stock were sold as part of a unit with Series B
      Preferred Stock.




During
      the year ending October 31, 2007 we issued 532,090 shares of common stock,
      valued at $792,814, as part payment in our acquisition of Miller & Hilton,
      Inc, d/b/a Colmek Systems Engineering.




During
      the year ending October 31, 2007 a total of 34,100 shares of common stock were
      issued on the exercise of 34,100 stock options, with a conversion value of
      $1.00
      each. The amount received was $34,100.




During
      the year ending October 31, 2007 a total of 3,081,900 shares of common stock
      were issued on conversion of 30,819 shares of Series B Preferred Stock. In
      addition, 2,878,418 shares of common stock were issued on conversion of 17,234
      shares of Series A Preferred Stock.




Other
      Equity Transactions




During
      the period ended July 31, 2008, we issued in the aggregate 335,000 common share
      purchase options to employees and consultants, with exercise prices of $1.30
      to
      $1.50. The initial fair value of the options was $194,135 using the Black
      Scholes method at the date of grant of the options based on the following
      assumptions: (1) risk free interest rate of 5.25%; (2) dividend yield of 0%;
      (3)
      volatility factor of the expected market price of our common stock of 246%-260%;
      and (4) an expected life of the options of 2 years. The fair value of the vested
      options has been expensed in this period. In accordance with EITF 96-18, the
      fair value of consultant vesting options will be recomputed at each reporting
      period and any increase will be charged to expense.




Also
      during the period ended July 31, 2008, a further 524,900 common share purchase
      options which were issued to employees in 2005, 2006 and 2007 vested, with
      $436,795 charged to expense.





During
      the year ending October 31, 2007, we issued in the aggregate 1,500,000 common
      share purchase options to employees and consultants, with exercise prices of
      $1.00 to $1.80. The initial fair value of the options was $1,828,811 using
      the
      Black Scholes method at the date of grant of the options based on the following
      assumptions: (1) risk free interest rate of 4.90%-5.25%; (2) dividend yield
      of
      0%; (3) volatility factor of the expected market price of our common stock
      of
      252% - 328%; and (4) an expected life of the options of 2 years. The fair value
      of the options has been expensed in this period. In accordance with EITF 96-18,
      the fair value of consultant vesting options will be recomputed at each
      reporting period and any increase will be charged to expense. Due to staff
      departures, 330,000 options were cancelled, all of which had exercise prices
      of
      $1.00 to $1.50. Also during the year, a total of 34,100 options were exercised
      at $1.00. During the period ended October 31, 2007, $1,036,454 was charged
      to
      expense.





During
      the period ended July 31, 2008, we issued 600,000 warrants to purchase common
      stock, 300,000 at an exercise price of $1.30 and 300,000 at an exercise price
      of
      $1.70. This was in connection with our debt financing, which was finalized
      in
      February 2008. The initial fair value of the warrants was $391,230 using the
      Black Scholes method at the date of grant of the warrants based on the following
      assumptions: (1) risk free interest rate of 4.57%; (2) dividend yield of 0%;
      (3)
      volatility factor of the expected market price of our common stock of 234%;
      and
      (4) an expected life of the warrants of 2 years. The fair value of the warrants
      has been expensed in this period.




11


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  During
      the year ending October 31, 2007, we issued 22,045,418 warrants to purchase
      common stock with exercise prices of $1.00 to $1.70. The initial fair value
      of
      the warrants was $ using the Black Scholes method at the date of grant of the
      warrants based on the following assumptions: (1) risk free interest rate of
      4.90% - 5.25%; (2) dividend yield of 0%; (3) volatility factor of the expected
      market price of our common stock of 260% - 304%; and (4) an expected life of
      the
      warrants of 2 years. The fair value of the warrants was expensed in this
      period.




**NOTE
      8 - WARRANTS AND STOCK OPTIONS**




Transactions
      involving stock options and warrants issued are summarized as
      follows:




Nine
                months ended
              July
                31, 2008
            
            Year
                ended
              October
                31, 2007Number
            
            Weighted
                Average Exercise Price
            
            Number
            
            Weighted
                Average Exercise PriceOutstanding
                at beginning of the period
            
            
            36,519,318
            
            $
            1.39
            
            
            13,410,000
            
            $
            1.29Granted
                during the period
            
            
            935,000
            
            
            1.43
            
            
            23,473,418
            
            
            1.44Exercised
                during the period
            
            
            -
            
            
            -
            
            
            (34,100
            )
            
            1.00Terminated
                during the period
            
            
            -
            
            
            -
            
            
            (330,000
            )
            
            1.22Outstanding
                at the end of the period
            
            
            37,454,318
            
            $
            1.39
            
            
            36,519,318
            
            $
            1.39Exercisable
                at the end of the period
            
            
            36,860,517
            
            $
            1.39
            
            
            35,467,518
            
            $
            1.39





The
      number and weighted average exercise prices of stock purchase options and
      warrants outstanding as of July 31, 2008 are as follows:





Range
                of
              Exercise
                Prices
            
            Number
                Outstanding
            
            Weighted
                Average Contractual Life (Yrs)
            
            Total
                Vested0.50
            
            
            750,000
            
            
            2.75
            
            
            750,0000.58
            
            
            400,000
            
            
            2.67
            
            
            400,0001.00
            
            
            5,845,900
            
            
            3.82
            
            
            5,789,8001.30
            
            
            15,171,709
            
            
            3.43
            
            
            14,879,0591.50
            
            
            525,000
            
            
            3.35
            
            
            435,2501.70
            
            
            14,701,709
            
            
            3.41
            
            
            14,566,4091.80
            
            
            60,000
            
            
            4.15
            
            
            40,000Totals
            
            
            37,454,318
            
            
            3.30
            
            
            36,860,517




**NOTE
      9 - INCOME TAXES**




The
      Company has adopted Financial Accounting Standard No. 109 which requires the
      recognition of deferred tax liabilities and assets for the expected future
      tax
      consequences of events that have been included in the financial statement or
      tax
      returns. Under this method, deferred tax liabilities and assets are determined
      based on the difference between financial statements and tax bases of assets
      and
      liabilities using enacted tax rates in effect for the year in which the
      differences are expected to reverse. Temporary differences between taxable
      income reported for financial reporting purposes and income tax purposes are
      insignificant.




For
      income tax reporting purposes, the Company's aggregate U.S. unused net operating
      losses approximate $43,017,000 which expire through 2028, subject to limitations
      of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
      related to the carry forward is approximately $14,626,000. The Company has
      provided a valuation reserve against the full amount of the net operating loss
      benefit, because in the opinion of management based upon the earning history
      of
      the Company, it is more likely than not that the benefits will not be
      realized.




For
      income tax reporting purposes, the Company's aggregate UK unused net operating
      losses approximate $3,251,000, with no expiration. The deferred tax asset
      related to the carry-forward is approximately $975,000. The Company has provided
      a valuation reserve against the full amount of the net operating loss benefit,
      because in the opinion of management based upon the earning history of the
      Company, it is more likely than not that the benefits will not be
      realized.




12


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Income
      tax expense for 2007 represents income taxes on our Norwegian
      subsidiary.




Components
      of deferred tax assets as of July 31, 2008 and October 31, 2007 are as
      follows:





**Non-Current**
            
            **2008**
            
            **2007**Net
                Operating Loss Carry Forward
            
            $
            14,626,000
            
            $
            10,455,000Valuation
                Allowance
            
            
            (14,626,000
            )
            
            (10,455,000
            )Net
                Deferred Tax Asset
            
            **$**
            **-**
            
            **$**
            **-**





**NOTE
      10 - CONTINGENCIES AND COMMITMENTS**




**Litigation**




We
      may
      become subject to legal proceedings and claims, which arise in the ordinary
      course of our business. Although occasional adverse decisions or settlements
      may
      occur, we believe that the final disposition of any matters should not have
      a
      material adverse effect on our financial position, results of operations or
      liquidity.




**Factoring
      Agreement**




We
      factor
      certain of our receivables pursuant to a factoring agreement. Advances received
      pursuant to the agreement are secured by our accounts receivable.




An
      initial factoring agreement was entered into on August 17, 2005 between Faunus
      Group International, Inc. (“FGI”) and Coda Octopus Group, Inc., for a maximum
      borrowing in the US of up to $1 million. This agreement can be cancelled with
      three months’ notice before each anniversary date. Subsequent agreements were
      added in November 2006 covering our UK businesses, Martech Systems Ltd and
      Coda
      Octopus Products Ltd, both of which are on the same terms as the original
      agreement, except for the initial term, which is a minimum of two years. All
      agreements end in October 2008 and notice has been served to this
      effect.




Over
      the
      course of the period to July 31, 2008, we factored invoices totaling $5,234,132
      in receivables and we received $3,979,695 in proceeds from FGI. This compares
      with the year to October 31, 2007, where we factored invoices totaling
      $5,088,665 in receivables and we received $3,961,695 in proceeds from
      FGI.




Under
      the
      arrangement, FGI typically advances to the Company 80% of the total amount
      of
      accounts receivable factored. FGI retains 20% of the outstanding factored
      accounts receivable as a reserve, which it holds until the customer pays the
      factored invoice to FGI. The cost of funds for the accounts receivable portion
      of the borrowings with FGI is 1.85% for the initial 30 day credit period, up
      to
      a maximum of 45 days; thereafter, an additional fee of 0.5% is charged for
      each
      10 day period.





**Operating
      Leases**




We
      occupy
      our various office and warehouse facilities pursuant to both term and
      month-to-month leases. Our term leases expire at various times through September
      2013. Future minimum lease obligations are approximately $1,308,794, with the
      minimum future rentals due under these leases as of July 31, 2008 as
      follows:




2008
            
            $
            98,4522009
            
            
            360,5522010
            
            
            344,3682011
            
            
            315,3022012
                and thereafter
            
            
            190,121Total
            
            $
            1,308,794





**Concentrations**




We
      had no
      concentrations of purchases of over 5% during either of the period ended July
      31, 2008 and year ended October 31, 2007. We had a sales concentration of over
      5% for the period ended July 31, 2008 and year ended October 31, 2007 due to
      a
      sale to a customer for $1,580,177 and $2,294,279, respectively.




13


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**




**NOTE
      11 - NOTES AND LOANS PAYABLE**




A
      summary
      of notes payable at July 31, 2008 and October 31, 2007 is as
      follows:




**July
                31,**
              **2008**
            
            **October
                31, 2007**The
                Company, through its UK subsidiary Coda Octopus Products Ltd has
                a 7 year
                unsecured loan note ; interest rate of 12% annually; repayable at
                borrower’s instigation or convertible into common stock when the share
                price reaches $3.
            
            $
            198,060
            
            $
            200,000The
                Company, through its US subsidiary Innalogic, Inc., had a capital
                lease
                for equipment for monthly payments of $2,369.74 for 24
                months.
            
            
            -
            
            
            41,091The
                Company has an unsecured revolving line of credit with a US bank
                through
                its US subsidiary Colmek Systems Engineering, for $50,000 with an
                interest
                rate of 12.5% annually; repayable at borrower’s
                instigation.
            
            
            11,181
            
            
            17,181The
                Company through its US subsidiary Colmek Systems Engineering, has
                an
                outstanding loan note payable for the financing of a truck over 60
                months;
                monthly payments of $897.18; annual interest rate of
                10.99%.
            
            
            22,630
            
            
            29,145The
                Company through its US subsidiary Colmek Systems Engineering, has
                an
                unsecured loan note payable to a director and former officer of the
                Company.
            
            
            16,104
            
            
            34,104The
                Company has a secured convertible debenture for $12M, with a life
                of 7
                years from February 26, 2008, maturing at 130% of face value, and
                with
                interest payable every six months, starting in February 2009, at
                a rate of
                8.5%
            
            
            12,219,921
            
            
            -Total
            
            $
            12,467,896
            
            $
            321,521Less:
                current portion
            
            
            38,051
            
            
            56,382Total
                long-term portion
            
            $
            12,429,845
            
            $
            265,139




**NOTE
      12 - RELATED PARTY TRANSACTIONS**




We
      are
      indebted to various related parties for advances for payments of operating
      expenses and dividends. These related parties include our biggest shareholder
      and other entities controlled by this shareholder. Advances are non interest
      bearing and are due on demand. At the end of the period ending July 31, 2008,
      $63,740 was due to related parties, compared with $184,425 for the year ending
      October 31, 2007.




We
      are
      also owed by related parties a sum of $160,289 at July 31, 2008 compared to
      $105,685 at October 31, 2007.




**NOTE
      13 - ACQUISITIONS**




*Acquisition
      of Colmek Systems Engineering*




On
      April
      6, 2007, we completed the acquisition of Miller & Hilton d/b/a Colmek
      Systems Engineering, a Utah corporation (“Colmek”). The total purchase price was
      $2,356,750, with additional associated costs and outlays of $158,470, consisting
      of cash paid at the closing of the transaction in the amount of $800,000 and
      the
      issuance of 532,090 shares of our common stock (valued at $792,814), and
      $700,000 and 42,910 shares that were due on the first anniversary of the closing
      date through secured promissory notes issued to the former Colmek shareholders
      -
      the promissory note allowed for interest on these amounts and the shares due
      to
      be converted to cash at the option of the promissory note holder and the amount
      paid in cash in full settlement of these promissory notes was $763,936. The
      shares of common stock issued in conjunction with the merger were not registered
      under the Securities Act of 1933. The acquisition of Colmek was accounted for
      using the purchase method in accordance with SFAS 141. The results of operations
      for Colmek have been included in the Consolidated Statements of Operations
      since
      the date of acquisition.




In
      accordance with SFAS No. 141, the total purchase price was allocated to the
      estimated fair value of assets acquired and liabilities assumed. The estimate
      of
      fair value of the assets acquired was based on management’s and an independent
      appraiser’s estimates. The total purchase price was allocated to the assets and
      liabilities acquired as follows:





Current
                assets acquired
            
            $
            231,043Equipment,
                net
            
            
            80,007Current
                liabilities assumed
            
            
            (727,913
            )Customer
                relationships acquired
            
            
            694,503Non-compete
                agreements acquired
            
            
            198,911Goodwill
                acquired
            
            
            2,038,669Total
                purchase price
            
            $
            2,515,220




14


**CODA
        OCTOPUS GROUP, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


The
      intangible assets of $893,414 at the date of acquisition consisted of customer
      relationships and non-compete agreements. The intangible assets acquired have
      an
      estimated useful life of 10 and 3 years, respectively, and as such will be
      amortized monthly over those periods. Goodwill of $2,038,669 represented the
      excess of the purchase price over the fair value of the net tangible and
      intangible assets acquired, plus the associated costs and outlays.




The
      following unaudited pro forma results of operations for the period ended
      July 31, 2007 assume that the acquisition of Colmek occurred on November 1,
      2006. These unaudited pro forma results are not necessarily indicative of the
      actual results of operations that would have been achieved nor are they
      necessarily indicative of future results of operations. There is no change
      to
      the period to July 31, 2008.





**2007**Revenue
            
            $
            11,026,496Net
                loss
            
            
            (11,261,417
            )Loss
                per common share
            
            
            (0.35
            )




**NOTE
      14 - SEGMENT INFORMATION**




Due
      to
      the nature of our businesses, we are operating in two reportable segments,
      which
      are managed separately based upon fundamental differences in their operations.
      Martech, Colmek, and Innalogic operate as contractors, and the balance of our
      operations is comprised of product sales.




Segment
      operating income is total segment revenue reduced by operating expenses
      identifiable with the business segment. Corporate includes general corporate
      administrative costs.




The
      Company evaluates performance and allocates resources based upon operating
      income. The accounting policies of the reportable segments are the same as
      those
      described in the summary of accounting policies.





There
      are
      inter-segment sales between our engineering contracting businesses and our
      products businesses.




The
      following table summarizes segment asset and operating balances by reportable
      segment.





**Contracting**
            
            **Products**
            
            **Corporate**
            
            **Totals**Revenues
            
            $
            4,806,132
            
            $
            6,832,011
            
            $
            1,594,297
            
            $
            13,232,440Operating
                profit/(loss)
            
            
            (477,367
            )
            
            1,533,634
            
            
            (
                4,262,322
            )
            
            (3,206,055
            )Identifiable
                assets
            
            
            6,139,546
            
            
            4,331,717
            
            
            9,654,478
            
            
            20,125,741Capital
                expenditure
            
            
            13,999
            
            
            170,543
            
            
            225,486
            
            
            410,028Selling,
                general & administrative
            
            
            2,504,911
            
            
            2,014,060
            
            
            4,651,418
            
            
            9,170,389Depreciation
                & amortization
            
            
            196,161
            
            
            66,086
            
            
            191,376
            
            
            453,623Interest
                expense
            
            
            74,522
            
            
            254,229
            
            
            722,430
            
            
            1,051,181





The
      Company’s reportable business segments operate in two geographic locations.
      Those geographic locations are:





*
      United
      States


*
      United
      Kingdom





The
      Company evaluates performance and allocates resources based upon operating
      income. The accounting policies of the reportable segments are the same as
      those
      described in the summary of accounting policies. There are no inter-segment
      sales.





Information
      concerning principal geographic areas is presented below according to the area
      where the activity is taking place for the period ending July 31, 2008 and
      the
      year ending October 31, 2007:





**2008**
            
            **2007**Revenues:United
                States
            
            $
            4,662,474
            
            $
            7,129,507United
                Kingdom
            
            
            6,975,669
            
            
            6,723,806Corporate
                and other
            
            
            1,594,297
            
            
            -Total
                Revenues
            
            $
            13,232,440
            
            $
            13,853,313Assets:United
                States
            
            $
            5,087,371
            
            $
            5,529,261United
                Kingdom
            
            
            5,383,892
            
            
            6,597,202Corporate
                and other
            
            
            9,654,478
            
            
            1,454,999Total
                Assets
            
            $
            20,125,741
            
            $
            13,581,462




**NOTE
      15 - SUBSEQUENT EVENTS**




There
      were no significant events which occurred between July 31, 2008 and the date
      of
      filing.


15
  **Item
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




**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. 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**





We
      are a
      developer of underwater technologies and equipment for imaging, mapping, defense
      and survey applications. We are based in New York, with research and
      development, sales and manufacturing facilities located in the United Kingdom,
      United States and Norway as well as two engineering companies located in the
      United States and the United Kingdom.





The
      consolidated financial statements include the accounts of Coda Octopus and
      our
      domestic and foreign subsidiaries that are more than 50% owned and controlled
      except that the financial statements, including Colmek, which was acquired
      on
      April 6, 2007. All significant intercompany transactions and balances have
      been
      eliminated in the consolidated financial statements.





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the amounts reported in the consolidated financial statements and
      accompanying disclosures. Although these estimates are based on management's
      best knowledge of current events and actions that we may undertake in the
      future, actual results may differ from those estimates.





**Background**





We
      are
      engaged in 3-D subsea technology and are the developer and patent holder of
      real-time 3-D sonar products which we expect to play a critical role in the
      next
      generation of underwater port security. We produce hardware, software and fully
      integrated systems which are sold and supported on a worldwide basis, with
      wide
      applications in two distinct market segments:





·
            marine
                geophysical survey (commercial), which focuses around oil and gas,
                construction and oceanographic research and exploration, where we
                market
                to survey companies, research institutions, salvage companies. This
                was
                our original focus, from original founding in 1994, with current
                products
                spanning geophysical data collection and analysis, through to printers
                to
                output geophysical data collected by sonar. We believe that our marine
                geophysical survey markets are experiencing rapid growth due to:
                1)
                successful new product introductions in recent periods; 2)
                market-proximity benefits derived from 2004 relocation to the United
                States; 3) initial market penetration into new sub-sectors of the
                marine
                geophysical survey markets; 4) the high price of oil and gas in the
                past
                few years, resulting in unprecedented exploration and production
                activity.


·
            underwater
                defense/ security, where we market to ports and harbors, state and
                federal
                government agencies and defense contractors. We started to focus
                on this
                market following the acquisition of OmniTech AS, a Norwegian Company,
                in
                December 2002, a company which had developed a prototype system,
                the**Echoscope**TM,
                a unique, patented instrument which permits accurate three-dimensional
                visualization, measurement, data recording and mapping of underwater
                objects. We have recently completed developing and commenced marketing
                this first real time, high resolution, three-dimensional underwater
                sonar
                imaging device which we believe has particularly important applications
                in
                the fields of port security, defense and undersea oil and gas
                development.





In
      addition, through our two engineering services subsidiaries, Martech Systems
      (Weymouth) Ltd, based in Weymouth, England, UK, and Colmek Systems Engineering,
      based in Salt Lake City, Utah, USA , we provide engineering services to a wide
      variety of clients in the subsea, defense, nuclear, government and
      pharmaceutical industries. These engineering capabilities are increasingly
      being
      combined with our product offerings, bringing opportunities to provide complete
      systems, installation and support.




16




For
      the
      foreseeable future, we intend to intensify our focus on port security. We
      believe that in the post 9/11 era there are significant growth opportunities
      available in that particular market segment because of increased government
      expenditures aimed at enhancing security. Specifically, we believe that we
      have
      the ability to capitalize on this opportunity as a result of:




o
            First
                mover advantage in 3-D sonar markets based on our patented technology,
                our
                research and development efforts and extensive and successful testing
                in
                this area that date back almost two decades as well as broad customer
                acceptance.


o
            Early
                recognition of need for 3-D real-time sonar in defense/security
                applications.


o
            Expansion
                into new geographies, such as North
                America.


o
            Expansion
                into new commercial markets, such as construction and dredging, with
                innovative products.


o
            Recent
                sole source classification for one of our products and its derivatives
                by
                certain government procurement
                agencies.





Further,
      we believe the EchoscopeTM will transform certain segments of the sonar products
      market. In addition, 3-D sonar, currently in the early stages of adoption,
      has
      disruptive technology qualities as it has the ability to change industry
      standard practice in respect of the method for visualization and imaging of
      underwater objects and environment. Therefore, it will likely change who the
      suppliers into this market are as well as our market position and that of our
      competitors. We believe the market opportunity in underwater security and
      defense could grow at a rapid pace over the next several years.





Approximately
      52% of our nine month 2008 revenues of $13,232,440 were attributable to pure
      products business. The rest was attributable to our engineering businesses
      at
      Colmek and Martech, and a development contract with TSWG fulfilled through
      our
      corporate Research and Development division.





To
      this
      established base of business, we now plan to add other
      sub-sections:




o
              we
                  are now starting to bid (sometimes in partnership, where areas
                  of focus
                  other than underwater sonar and wireless video surveillance capability
                  are
                  demanded) for complete port security and other solutions. We have
                  bid on a
                  small number of these in the last six months and hope for our first
                  successes shortly. We have not yet been awarded any contracts for
                  the
                  purchase of complete solutions. However, in March of 2008, we received
                  a
                  $1.6 million follow on order from the U.S. Department of Defense
                  to
                  deliver an additional next-generation Underwater Inspection System
                  (UIS)TM
                  for TSWG and other potential users, to enable rapid underwater
                  searches in
                  the nation’s ports and waterways. In addition to the additional hardware
                  (we delivered four original units in December of 2007) TSWG has
                  committed
                  to a $1 million development project to help advance the product.
                  The
                  contract includes additional options which, if fully funded, would
                  require
                  us to deliver further UISTM systems in fiscal 2009. The contract was
                  awarded to us on a sole source basis, which means that the product
                  is
                  considered to be available from one source only and under Federal
                  rules
                  may be acquired from that source without competitive bidding process.
                  Although this is not a complete port security system, it represents
                  the
                  first step towards achieving this.
 o
              we
                  are currently reviewing the possibility of launching next year,
                  in
                  partnership with others, a services business based on our product
                  set.
                  This business will be port based and will, for example, provide
                  ship hull
                  inspections by way of rental of equipment and provision of a team
                  to
                  operate the equipment for any ship entering that particular
                  port.





**Critical
      Accounting Policies**





This
      discussion and analysis of our financial condition and results of operations
      are
      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 US 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 3, "Summary of Significant Accounting Policies"
      of
      our Consolidated Financial Statements.





*Revenue
      Recognition*





We
      record
      revenue in accordance with the guidance of the SEC's *Staff
      Accounting Bulletin SAB No. 104* (SAB
      104), which supersedes SAB
      No. 101 in order
      to encompass EITF
      No. 00-21 , *Revenue
      Arrangements with Multiple Deliverables* (EITF
      00-21).




17




Revenue
      is derived from sales of underwater technologies and equipment for imaging,
      mapping, defense and survey applications. Revenue is also derived through
      contracts gained by our Martech, Colmek and Innalogic businesses.





Revenue
      is recognized when conclusive evidence of firm arrangement exists, delivery
      has
      occurred or services have been rendered, the contract price is fixed or
      determinable, and collectability is reasonably assured. No right of return
      privileges are granted to customers after shipment.





For
      arrangements with multiple deliverables, we recognize product revenue by
      allocating the revenue to each deliverable based on the fair value of each
      deliverable in accordance with EITF
      No. 00-21 and SAB
      No. 104, and recognize revenue for equipment upon delivery and for installation
      and other services as performed. EITF No. 00-21 was effective for revenue
      arrangements entered into in fiscal periods beginning after June 15,
      2003.





Our
      contracts typically require customer payments in advance of revenue recognition.
      These deposit amounts are reflected as liabilities and recognized as revenue
      when the Company has fulfilled its obligations under the respective
      contracts.





Revenues
      derived from our software license sales are recognized in accordance with
      Statement of Position (SOP) SOP No. 97-2, “Software Revenue Recognition,” and
      SOP No. 98-9, “Modifications of SOP No. 97-2, Software Revenue Recognition with
      Respect to Certain Transactions”. For software license sales for which any
      services rendered are not considered essential to the functionality of the
      software, we recognize revenue upon delivery of the software, provided (1)
      there
      is evidence of an arrangement, (2) collection of our fee is considered probable
      and (3) the fee is fixed and determinable.





*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 in accordance with our revenue recognition policy by
      contract. 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 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.




*Stock
      Based Compensation*




SFAS
      No. 123, “Accounting for Stock-Based Compensation,” established and
      encouraged the use of the fair value based method of accounting for stock-based
      compensation arrangements under which compensation cost is determined using
      the
      fair value of stock-based compensation determined as of the date of the grant
      or
      the date at which the performance of the services is completed and is recognized
      over the periods in which the related services are rendered. The statement
      also
      permitted companies to elect to continue using the current intrinsic value
      accounting method specified in Accounting Principles Board (“APB”) Opinion
      No. 25, “Accounting for Stock Issued to Employees,” to account for
      stock-based compensation to employees. Prior to the adoption of SFAS 123(R)
      we
      elected to use the intrinsic value based method for grants to our employees
      and
      directors and have disclosed the pro forma effect of using the fair value based
      method to account for our stock-based compensation to employees.




On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      No. 123R (revised 2004), “Share-Based Payment” (“Statement 123R”) which is a
      revision of SFAS No. 123.




Statement
      123R supersedes APB opinion No. 25 and amends SFAS No. 95, “Statement of Cash
      Flows”. Generally, the approach in Statement 123R is similar to the approach
      described in Statement 123. However, Statement 123R requires all share-based
      payments to employees, including grants of employee stock options, to be
      recognized in the income statement based on their fair values. Pro-forma
      disclosure is no longer an alternative. This statement does not change the
      accounting guidance for share based payment transactions with parties other
      than
      employees provided in SFAS No. 123(R). This statement does not address the
      accounting for employee share ownership plans, which are subject to AICPA
      Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership
      Plans.” On April 14, 2005, the SEC amended the effective date of the provisions
      of this statement. The effect of this amendment by the SEC is that the Company
      had to comply with Statement 123R and use the Fair Value based method of
      accounting no later than the first quarter of 2006. We implemented SFAS
      No. 123(R) on November 1, 2004 using the modified prospective method.
      The fair value of each option grant issued after November 1, 2004 will be
      determined as of grant date, utilizing the Black-Scholes option pricing model.
      The amortization of each option grant will be over the remainder of the vesting
      period of each option grant.  We use the fair value method for equity
      instruments granted to non-employees and use the Black Scholes model for
      measuring the fair value. The stock based fair value compensation is determined
      as of the date of the grant or the date at which the performance of the services
      is completed (measurement date) and is recognized over the periods in which
      the
      related services are rendered.




18




*Income
      Taxes*





Deferred
      income taxes are provided using the asset and liability method for financial
      reporting purposes in accordance with the provisions of Statements of Financial
      Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
      tax assets and liabilities are recognized for temporary differences between
      the
      tax bases of assets and liabilities and their carrying values for financial
      reporting purposes, and for operating loss and tax credit carry forwards.
      Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be removed or settled. The effect on deferred tax
      assets and liabilities of a change in tax rates is recognized in the
      consolidated statements of operations in the period that includes the enactment
      date.





*Purchase
      price allocation and impairment of intangible and long-lived
      assets*





Intangible
      and long-lived assets to be held and used are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amounts of such
      assets may not be recoverable. Determination of recoverability is based on
      an
      estimate of undiscounted future cash flows resulting from the use of the asset,
      and its eventual disposition. Measurement of an impairment loss for intangible
      and long-lived assets that management expects to hold and use is based on the
      fair value of the asset as estimated using a discounted cash flow
      model.




We
      measure the carrying value of goodwill recorded in connection with the
      acquisitions for potential impairment in accordance with SFAS No. 142, Goodwill
      and Other Intangible Assets”. To apply SFAS 142, a company is divided into
      separate “reporting units”, each representing groups of products that are
      separately managed. For this purpose, we have one reporting unit. To determine
      whether or not goodwill may be impaired, a test is required at least annually,
      and more often when there is a change in circumstances that could result in
      an
      impairment of goodwill. If the trading of our common stock is below book value
      for a sustained period, or if other negative trends occur in our results of
      operations, a goodwill impairment test will be performed by comparing book
      value
      to estimated market value. To the extent goodwill is determined to be impaired
      an impairment charge is recorded in accordance with SFAS 142.





**Results
      of Operations**




Introduction





The
      third
      quarter ending July 31, 2007 contained $1,521,675 of TSWG (US Coast Guard)
      Revenues which had an unusual impact on that period. Comparisons will be
      dramatically impacted by that anomaly. In fact, business with the Coast Guard
      has continued but has not had as significant effect on quarterly revenues as
      were realized in the third quarter of 2007.





***Comparison
      of Three Months Ended July 31, 2008 (“2008 Period”) to Three Months Ended July
      31, 2007 (“2007 Period”)***





Revenues .
      Total
      revenues for the 2008 period and the 2007 period were $5,008,525 and $5,859,907
      respectively. This represented a decrease of $851,382 or 14.5%. The acquisition
      of Colmek occurred on April 6, 2007 which makes the period to period comparisons
      consistent for the first time without breaking out the subsidiary. This reflects
      increased business in our products division specifically with regard to the
      oil
      and gas business in Europe, the construction business in the Middle East, the
      US
      Coast Guard continuing to purchase products and services, and a UISTM (Underwater
      Inspection System) sale to a law enforcement agency in the US. Alongside this
      was a decrease in TSWG/USCG revenues, reflecting the current status of the
      contract in each year.




Margins .
      Gross
      margins were 60.4% in the 2008 period compared with 60.7% for the 2007 period.
      This was achieved with the increase in the sale of our signature products,
      the
      EchoscopeTM and the UISTM, as well as the mix of traditional products which are
      sold at higher margins and are becoming a dominant part of the revenue stream.
      The engineering contracting business represented $1,772,894 or 35.4% of sales
      with the products business attaining a level of $2,450,727 or 48.9% of revenues.
      The company is targeting an average gross margin in the vicinity of 63% going
      forward.




Research
      and Development (R&D) .
      R&D
      increased 39% to $880,339 in the 2008 period from $634,679 in 2007. This
      reflects further development of the EchoscopeTM and UISTM tied to the TSWG (US
      Coast Guard) contract, the initial stage of which finished in January, with
      the
      next stage having begun in March. Additionally, work commenced on the
      development contract for the company’s new application which deploys the
      Echoscope TM for underwater construction. The company continues to invest in new
      applications of its signature product.




19




Selling,
      General and Administrative Expenses (SG&A) .
      SG&A expenses for the 2008 period decreased to $3,311,267 from $3,594,560 in
      2007, or by 7.9%. However, the non-cash charges attributable to stock and option
      compensation were $433,478 against $805,825 which brings SG&A for the 2008
      Period to $2,786,391 against $2,788,735 for the 2007 Period, virtually static
      year on year.




Key
      areas
      of expenditures include wages and salaries where the company spent $1,719,375
      while the 2007 period was $1,534,028; legal and professional fees, including
      accounting, audit and investment banking services, decreased to $241,928 in
      2008
      from $480,892 in 2007; travel increased to $186,297 from $127,283; rent
      increased to $164,306 in 2008, from $148,376; and marketing increased to
      $294,732 from $74,031 in 2007, mainly due to reclassification of
      consultants.




Operating
      Income/Loss .
      Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) for the
      period, without non-cash charges for stock and options, were a loss of $467,141
      against positive $246,164 for the 2007 Period. The company produced an operating
      loss for the period of $1,167,795 (which, when adjusted for non-cash charges,
      becomes $642,888) against a loss of $670,060 in 2007.




Interest
      Expense. Interest
      expense for the period was $481,876, of which $383,571 was associated with
      the
      convertible debenture financing by the Royal Bank of Scotland. Interest expense
      in 2007 was $561,350.




Preferred
      Dividends .
      During
      the 2008 period there was a $31,819 dividend paid on the remaining series A
      preferred stock versus $31,851 in 2007. All of the series B preferred stock
      and
      most of the series A preferred stock was converted to equity in April/May
      2007.





***Comparison
      of Nine Months Ended July 31,*** ****** ***2008
      (“2008 Period”) to the Nine Months Ended July 31, 2007 (“2007
      Period”)***





Introduction





Due
      to
      the acquisition of Colmek in April 2007, the financial information presented
      for
      Coda Octopus for the period ended July 31, 2007 (the "2007 Period"), includes
      activity in Colmek from April 6 to the end of the period, combined with revenue,
      other income and SG&A expenses of the rest of Coda Octopus Group, Inc. for
      the period ending July 31, 2007. The financial information presented (“2007
      Period") includes revenues and expenses for Colmek only for the period after
      the
      acquisition which occurred on April 6, 2007. As a result, the increased
      revenues and expenses in the accompanying consolidated statements of operations
      for the period in 2008 compared to those in 2007 may not be a meaningful
      comparison.





Revenues .
      Total
      revenues for the 2008 Period and the 2007 Period were $13,232,440 and
      $10,794,621 respectively, representing an increase of 22.6%. Contributions
      from
      Colmek were $1,709,014 in the 2007 period against $2,928,495 for 2008.
      Subtracting the contribution from this acquisition to the 2008 and 2007 Periods,
      there was a 13.4% increase in our original businesses. This was due to a strong
      demand for our traditional products in the geophysical and hydrographic survey
      markets as well as added traction in selling the UISTM and
      EchoscopeTM.





Gross
      Margins .
      Margins
      were stronger in the 2008 Period at 62.7% compared with 58.2% for the 2007
      period reflecting stronger sales in our traditional products business, a UISTM
sale to a US law enforcement agency and several EchoscopesTM sold to various
      customers including three units sold into the construction market.




Research
      and Development (R&D) .
      R&D
      spending increased to $2,333,840 in the 2008 Period from $1,736,437 in the
      2007
      Period, an increase of 34.4%, as we continue to focus considerable effort into
      enhancing the EchoscopeTM and releasing other products in our suite of marine
      geophysical offerings. In particular, work focused on delivering our Underwater
      Inspection System (UISTM), a turnkey system built around the EchoscopeTM platform
      and further development work for the US Coast Guard on the UISTM system.
      Additionally, the company began development work on the project which deploys
      the EchoscopeTM in the underwater construction market.





Selling,
      General and Administrative Expenses (SG&A) .
      SG&A expenses for the 2008 Period increased to $9,170,389 (the costs for the
      period include $1,323,029 in share compensation, amortization and depreciation
      which are non-cash charges) from $8,883,099 during the 2007 Period ,
      an
      increase of $287,290 or 3.2%. Some of the increase is attributable to the
      acquisition of Colmek which was included for the entire period in
      2008.





Key
      areas
      of expenditure include wages and salaries, where we spent $4,614,613 of our
      SG&A costs (2007 Period was $3,736,218 ); legal and professional fees,
      including accounting, audit and investment banking services, amounted to
      $877,821(2007 Period was $1,169,935); travel costs increased to $418,687 in
      2008
      from $389,987 in 2007; rent for our various locations increased to $394,811
      in
      2008, from $390,526 in 2007; marketing increased to $905,794 in 2008 from
      $200,459 in 2007, which included reclassification of certain consultants engaged
      in sales of our signature products who were previously included in legal and
      professional fees.





Other
      Operating Expenses .
      We
      incurred other operating expenses of $435,000 in the 2007 Period for fees
      incurred connected with equity fund raising. We incurred no comparable expenses
      in the 2008 Period.




20




Operating
      Loss .
      The
      EBITDA results for the 2008 period is a loss of $1,883,026, not including
      non-cash charges for stock and options compensation, against a loss of
      $4,570,217. As a result of the foregoing, the Company incurred a loss from
      operations of $3,206,055 during the 2008 Period compared to a loss from
      operations of $4,773,016 during the 2007 Period.





Interest
      Expense .
      Interest expense for the 2008 Period decreased to $1,051,181 (consisting of
      accrued bond interest and factoring) from $6,349,946 during the 2007 Period.
      Of
      the 2007 amount, $5,544,445 was attributable to the valuation of warrants issued
      as part of our financing, booked as a non-cash financing charge.





Dividends
      and Other Stock Charges .
      During
      the 2008 Period, dividends of $106,843 were declared against $346,630 in the
      2007 Period on preferred stock (most of the preferred stock was converted into
      common stock during the 2007 Period). The 2007 amount includes $238,950 paid
      on
      the series A preferred stock and $107,680 on the series B preferred. In
      addition, the 2007 Period included $800,000 in non-cash charges for the
      beneficial conversion feature related to the issuance of series B preferred
      stock in January 2007. This took the net loss applicable to common shares to
      $12,196,051 or $0.34 per share for the 2007 Period, based on an average of
      35,490,398 shares outstanding, compared to a loss of $4,267,300 or $0.09 per
      share for the 2008 Period, based on an average of 48,369,873 shares
      outstandin g.





**Liquidity
      and Capital Resources**





As
      of
      July 31, 2008 the Company had positive working capital of $10,892,026 and cash
      totaling $6,050,996.





The
      net
      loss of $4,160,457 generated a cash flow deficit from operations of $4,117,784
      in the 2008 Period, compared to $8,031,167 in 2007. During the 2008 Period,
      we
      also invested around $291,000 in tangible and intangible assets for use within
      our various businesses, and completed the acquisition of Colmek for an outlay
      of
      a final amount of $763,936. During the 2008 Period, we raised $12M through
      the
      issuance of a convertible debenture in February 2008 (this was $10,453,421
      after
      the deduction of associated costs), which, combined with the cash flow uses
      outlined above, resulted in a net cash flow into the company for the period
      of
      $5,134,739. The secured convertible debenture attracts interest at a rate of
      8.5%, and has a conversion price of $1.05 per share callable after 2 years
      at
      $2.50, after 3 years at $2.90, and after 4 years at $3.50. The instrument is
      redeemable after 7 years at 130%. The company feels that this funding will
      enable the company to execute its plan over the next 12
      months.





Our
      plan
      to move from loss to profit is based upon intensifying our focus on port
      security. We believe that in the post 9/11 era there are significant growth
      opportunities available in the market segment in which we operate because of
      increased government expenditures aimed at enhancing security. We also have
      had
      a measure of success in the off shore construction area. We believe that we
      can
      continue to sell into that market with success.





In
      the
      short term, our plan involves, specifically:




·
            Continue
                to sell our current range of products into a mixture of commercial,
                defense and security markets, increasing sales of these products
                over the
                course of this financial year - we have seen strong growth over the
                course
                of the year so far.





·
            Start
                to sell complete turnkey systems based around our leading EchoscopeTM 3-D
                technology, to open markets in law enforcement and inspection - a
                great
                deal of our R&D expenditure has been directed towards refining our
                product and completing sales this year that are currently in our
                pipeline,
                with first deliveries occurring in this financial
                year.




·
            Continue
                to deliver to the Coast Guard on the contract we were awarded last
                July.
                Work on stage 2 began in the second quarter of this year and continues
                until at least the end of the financial
                year.




·
            Deliver
                on our first port security solution contract through the provision
                of our
                unique 3-D technology and other products and services, enabling us
                to
                provide complete solutions.




·
            Leverage
                our subsidiaries to take advantage of our lead in underwater sonar
                technology by cross marketing all group products and services from
                each
                company.





·
            Continue
                to review and refocus our cost base where necessary to achieve a
                cost
                level commensurate with our current level of
                activity.





Through
      these measures, we aim to move from cash negative for last year and the first
      quarter of this year to cash positive. We also aim to move from heavily
      loss-making for the past 2 years to profitable for the coming year, prior to
      any
      non-cash charges made to our income statement. Although we intend to pursue
      our
      plans aggressively as set forth in the previous paragraph, there can be no
      assurance that we will be successful in our attempt to make the company
      profitable in the near future, or ever.




21




**Inflation
      and Foreign Currency**





The
      Company maintains its books in local currency: US Dollars for the parent holding
      Company in the United States of America and the US operations, Pounds Sterling
      for UK operations and Norwegian Kroner for Norwegian operations.





The
      Company’s operations are primarily inside of the United States through its
      wholly-owned subsidiaries, though a significant proportion of revenues and
      costs
      are incurred outside of the US. As a result, fluctuations in currency exchange
      rates may significantly 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 additional, we are
      also
      subject to currency fluctuation risk with respect to certain foreign currency
      denominated receivables and payables. Although the Company cannot predict the
      extent to which currency fluctuations may, or will, affect the Company's
      business and financial position, there is a risk that such fluctuations will
      have an adverse impact on the Company's sales, profits and financial position.
      Because differing portions of our revenues and costs are denominated in foreign
      currency, movements could impact our margins by, for example, decreasing our
      foreign revenues when the dollar strengthens and not correspondingly decreasing
      our expenses. The Company does not currently hedge its currency exposure. In
      the
      future, we may engage in hedging transactions to mitigate foreign exchange
      risk.





It
      is the
      opinion of the Company that inflation has not had a material effect on its
      operations.




**Financing
      Activities**





Since
      February 2005, we have raised approximately $36,724,289 in cash through the
      issuance in private offerings at various times of shares of our common stock,
      and units consisting of shares of preferred stock and warrants to purchase
      common stock.




In
      February 2005, we issued a total of 1,000,000 shares of our common stock for
      a
      total cash consideration of $800,534.




In
      October 2005, we issued a total of 15,000 Series A Preferred Stock (Sterling
      Denominated), since converted into 2,655,000 shares of common stock, for a
      total
      cash consideration of £1,500,000 equivalent to approximately $2,655,000, based
      upon a conversion ratio of $1.77 for each UK Pound at the time of the
      investment.




On
      April
      30, 2006, we issued to one investor a total of 7,320.88 shares of our Series
      A
      Preferred Stock to a group of individual investors for total cash consideration
      of £684,618.83 UK Pounds equivalent to $1,211,755 based upon a conversion ratio
      of $1.77 for each UK Pound at the time of the investment.




From
      June
      2006 through January 2007, we issued to one institutional investor units
      consisting 46,000 shares of our Series B Preferred Stock and four five year
      warrants to purchase 9.2 million shares of our common stock at a price ranging
      from $1.30 to $2.00 per share and 650,000 shares of our Common Stock for a
      total
      cash consideration of $4,600,000. Of these 46,000 shares of Series B Preferred
      Stock, 18,181 were redeemed in April 2007 and the remaining shares were
      converted into 2,781,900 shares of our common stock.




In
      July
      2006, we issued to two individual investors 820 shares of our Series A Preferred
      Stock for a total cash consideration of $82,000. These have since been converted
      into 820,000 shares of our common stock.




On
      October 31, 2006, we issued to one investor 500 shares of our Series A Preferred
      Stock for a total consideration of $50,000. These have since been converted
      into
      50,000 shares of our common stock.




In
      January 2007, we issued to one investor 3,000 shares of our Series B Preferred
      Stock plus five-year warrants to purchase 300,000 shares of our common stock
      at
      $1.30 per share and five-year warrants to purchase 300,000 shares of our common
      stock at $1.70 per share for a total cash consideration of $300,000. The 3,000
      shares of Series B Preferred Stock have since been converted into 300,000 shares
      of our common stock.




In
      April
      2007, we issued to an individual investor 25,000 shares of our common stock
      plus
      five-year warrants to purchase the same number of shares of common stock (of
      which 12,500 may be purchased at $1.30 and the balance at $1.70 per share)
      for a
      total of $25,000.




During
      April and May 2007, we issued to a group of investors a total of 15,000,000
      shares of our common stock plus five-year warrants to purchase the same number
      of shares of common stock (of which 7,500,000 may be purchased at $1.30 and
      the
      balance at $1.70 per share) for a total of $15,000,000.





In
      February 2008, we issued $12 million of 8.50% secured convertible debentures.
      This instrument is convertible into common stock at $1.05 per share. It is
      callable by the company at $2.50 after two years, $2.90 after three years and
      at
      $3.50 after four years. It matures at 130% after seven years.




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.




22




**Item
      4T. Controls and Procedures**




(a)
      Evaluation of Disclosure Controls and Procedures




As
      of
      July 31, 2008, we carried out an evaluation, under the supervision and with
      the
      participation of our Chief Executive Officer and Chief Financial Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures. Based on this evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      not
      effective in ensuring that information required to be disclosed by us in our
      periodic reports is recorded, processed, summarized and reported, within the
      time periods specified for each report and that such information is accumulated
      and communicated to our management, including our principal executive and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required
      disclosure.





Our
      Chief
      Executive Officer and Chief Financial Officer have identified the following
      material weaknesses as of July 31, 2008:





·
            Insufficient
                disclosure controls in that we have experienced insufficient communication
                between the various subsidiaries and departments and a lack of timely
                financial reporting.·
            Insufficient
                accounting procedures relating to areas including: revenue booking,
                inventory control, expense sign off procedures and shipping
                documentation.





We
      are in
      the process of putting improved procedures in place to remedy the various
      shortcomings in these areas.




(b)
      Changes in Internal Controls.




There
      was
      no change in our internal controls over financial reporting that has materially
      affected, or is reasonable likely to materially affect, our internal
      control  over financial reporting during the quarter covered by this
      Report.


23
  **PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**




There
      were no material pending legal proceedings at July 31, 2008 to which the Company
      or its subsidiaries is a party other that ordinary routine litigation incidental
      to their respective businesses.




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




Not
      Applicable





**Item
      3. Defaults Upon Senior Securities**




None





**Item
      4. Submission of Matters to a Vote of Security Holders**




Annual
      stockholders meeting - July 1, 2008.





Directors
              elected:
            
            Paul Nussbaum,
              Jason
              Reid, Rodney PeacockProposal
                1:
            
            (Directors):
                for 37,858,466; Withheld 10,422.Proposal
                2:
            
            (2008
                Employees, Directors, Officers and Consultants Stock Option and Stock
                Award Plan): For 29,156,123; Against 17,692; Abstained
                18,024.Proposal
                3:
            
            (Increase
                Authorized Share Capital): for 37,815,604; Against 39,339; Abstained
                13,962.Proposal
                4:
            
            (Appointment
                of Audition): For 37,753,803; Against 10,015; Abstained
                105,091.





**Item
      5. Other Information**




None





**Item
      6. Exhibits**




31
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Rule 13a-14(a)




32
            Certifications
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




**Coda
                Octopus Group, Inc.**
              (Registrant)Date:
                September 15, 2008
            
            /s/ Jason
                ReidJason
                ReidPresident
                and Chief Executive Officer




Date:
                September 15, 2008
            
            /s/ Jody
                E. FrankJody
                FrankChief
                Financial Officer




24