**SECURITIES
        AND EXCHANGE COMMISSION**
 Washington, D.C. 20549
  **FORM
        10-QSB**
 (Mark
        One)
 x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  For
        the
        quarterly period ended April 30, 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
              Non-accelerated
                  filer o
              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
        June 16, 2008: 48, 409,927.
  
 
 **INDEX**
 
 Page**PART
                  I - Financial Information**
              
              
              1**Item
                  1: Financial Statements**
              
              
              1**Six
                  Months Ended April 30, 2008 and 2007**Condensed
                  Consolidated Balance Sheet as of April 30, 2008 (Unaudited) and
                  October
                  31, 2007 (Audited)
              
              
              1Condensed
                  Consolidated Statements of Operations and Comprehensive Loss for
                  the Three
                  and Six Months Ended April 30, 2008 and 2007 (Unaudited)
              
              
              2Condensed
                  Consolidated Statement of Stockholders’ Equity for the Six Months
                  Ended April 30, 2008 (Unaudited)
              
              
              3Condensed
                  Consolidated Statements of Cash Flows for the Six Months Ended
                  April 30,
                  2008 and 2007 (Unaudited)
              
              
              4Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              
              
              5**Item
                  2: Management's Discussion and Analysis or Plan of
                  Operation**
              
              
              17**Item
                  3:****Controls
                  and Procedures**
              
              
              25**PART
                  II - Other Information**
              
              
              26**Item
                  1: Legal Proceedings**
              
              
              26**Item
                  2: Unregistered Sales of Equity Securities and Use of
                  Proceeds**
              
              
              26**Item
                  3: Defaults Upon Senior Securities**
              
              
              26**Item
                  4: Submission of Matters to a Vote of Security
                  Holders**
              
              
              26**Item
                  5: Other Information**
              
              
              26**Item
                  6: Exhibits**
              
              
              26**Signatures**
              
              
              26
  
 
 **PART
        I. FINANCIAL INFORMATION**
 
 **Item
        1. Financial Statements**
 **CODA
        OCTOPUS GROUP, INC.**
 **CONDENSED**  **CONSOLIDATED
        BALANCE SHEET**
 **APRIL
        30, 2008 AND OCTOBER 31, 2007**
 April
                    30,
                  2008
                  (Unaudited)
                
                October
                    31,
                  2007
                  (Audited)ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                7,723,806
                
                $
                916,257Short-term
                    investments, Note 3
                
                
                552,500
                
                
                935,000Accounts
                    receivable, net of allowance for doubtful accounts
                
                
                2,583,838
                
                
                2,720,151Inventory
                
                
                2,722,722
                
                
                2,926,517Due
                    from related parties, Note 12
                
                
                148,153
                
                
                105,685Unbilled
                    receivables, Note 2
                
                
                997,917
                
                
                380,017Other
                    current assets, Note 4
                
                
                438,830
                
                
                691,560Prepaid
                    expenses
                
                
                459,440
                
                
                476,283Total
                    current assets
                
                
                15,627,206
                
                
                9,151,470Property
                    and equipment, net, Note 5
                
                
                403,422
                
                
                422,738Rental
                    equipment, net, Note 5
                
                
                -
                
                
                -Goodwill
                    and other intangible assets, net, Note 6
                
                
                5,629,288
                
                
                4,007,253Total
                    assets
                
                $
                21,659,916
                
                $
                13,581,461LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilities:Accounts
                    payable, trade
                
                $
                1,284,742
                
                $
                1,618,250Accrued
                    expenses and other current liabilities
                
                
                1,673,897
                
                
                1,937,569Deferred
                    revenues, Note 2
                
                
                503,057
                
                
                593,325Deferred
                    payment related to acquisitions, Note 13
                
                
                -
                
                
                763,936Accrued
                    dividends on Series A&B Preferred Stock
                
                
                68,900
                
                
                86,766Due
                    to related parties, Note 12
                
                
                14,641
                
                
                184,425Loans
                    and notes payable, short term, Note 11
                
                
                115,297
                
                
                56,382Total
                    current liabilities
                
                
                3,660,534
                
                
                5,240,653Loans
                    and notes payable, long term, Note 11
                
                
                12,234,140
                
                
                265,139Total
                    liabilities
                
                
                15,894,674
                
                
                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 April 30, 2008 and October
                    31, 2007
                    respectively
                
                
                6
                
                
                6Common
                    stock, $.001 par value; 100,000,000 shares authorized, 48,399,896
                    and
                    48,245,768 shares issued and outstanding as of April 30, 2008
                    and October
                    31, 2007 respectively
                
                
                48,400
                
                
                48,246Common
                    Stock subscribed
                
                
                200,750
                
                
                80,000Additional
                    paid-in capital
                
                
                50,491,726
                
                
                49,785,244Accumulated
                    other comprehensive loss
                
                
                (742,547
                )
                
                (238,097
                )Accumulated
                    deficit
                
                
                (
                    44,233,093
                )
                
                (41,599,730
                )Total
                    stockholders' equity
                
                
                5,765,242
                
                
                8,075,669Total
                    liabilities and stockholders' equity
                
                $
                21,659,916
                
                $
                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 SIX MONTHS ENDED APRIL 30, 2008 and 2007**
 **(UNAUDITED)**
 For
                    the three months
                
                For
                    the three months
                
                For
                    the six months
                
                For
                    the six monthsended
                    April 30,
                
                ended
                    April 30,
                
                ended
                    April 30,
                
                ended
                    April 30,2008
                
                2007
                
                2008
                
                2007Net
                    revenue
                
                $
                5,096,684
                
                $
                2,233,439
                
                $
                8,223,915
                
                $
                4,934,714Cost
                    of revenue
                
                
                1,306,776
                
                
                1,271,344
                
                
                2,949,552
                
                
                2,212,373Gross
                    profit
                
                
                3,789,908
                
                
                962,095
                
                
                5,274,363
                
                
                2,722,341Research
                    and development
                
                
                764,308
                
                
                583,365
                
                
                1,453,501
                
                
                1,101,758Selling,
                    general and administrative expenses
                
                
                2,802,193
                
                
                2,063,880
                
                
                5,859,122
                
                
                5,288,539Non-recurring
                    expenses
                
                
                -
                
                
                -
                
                
                -
                
                
                435,000Operating
                    income (loss)
                
                
                223,407
                
                
                (1,685,150
                )
                
                (2,038,260
                )
                
                (4,102,956
                )Other
                    income (expense)Other
                    income
                
                
                44,368
                
                
                35,697
                
                
                49,225
                
                
                37,795Interest
                    expense
                
                
                (455,334
                )
                
                (5,673,385
                )
                
                (569,305
                )
                
                (5,788,596
                )Total
                    other income (expense)
                
                
                (410,966
                )
                
                (5,637,688
                )
                
                (520,080
                )
                
                (5,750,801
                )Loss
                    before income taxes
                
                
                (187,559
                )
                
                (7,322,838
                )
                
                (2,558,340
                )
                
                (9,853,757
                )Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    loss
                
                
                (187,559
                )
                
                (7,322,838
                )
                
                (2,558,340
                )
                
                (9,853,757
                )Preferred
                    Stock Dividends:Series
                    A
                
                
                (28,931
                )
                
                (207,099
                )
                
                (75,024
                )
                
                (207,099
                )Series
                    B
                
                
                -
                
                
                (107,680
                )
                
                -
                
                
                (107,680
                )Beneficial
                    Conversion Feature
                
                
                -
                
                
                -
                
                
                -
                
                
                (800,000
                )Net
                    Loss Applicable to Common Shares
                
                $
                (216,490
                )
                $
                (7,637,617
                )
                $
                (2,633,364
                )
                $
                (10,968,536
                )Loss
                    per share, basic and diluted
                
                
                (0.00
                )
                
                (0.23
                )
                
                (0.05
                )
                
                (0.38
                )Weighted
                    average shares outstanding
                
                
                48,317,993
                
                
                33,027,006
                
                
                48,283,808
                
                
                29,138,920Comprehensive
                    loss:Net
                    loss
                
                $
                (187,559
                )
                $
                (7,322,838
                )
                $
                (2,558,340
                )
                $
                (9,853,757
                )Foreign
                    currency translation adjustment
                
                
                (4,289
                )
                
                130,737
                
                
                (121,950
                )
                
                95,249Unrealized
                    loss on investment
                
                
                (195,500
                )
                
                -
                
                
                (382,500
                )
                
                -Comprehensive
                    loss
                
                $
                (387,348
                )
                $
                (7,192,101
                )
                $
                (3,062,790
                )
                $
                (9,758,508
                )
  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 SIX MONTHS ENDED APRIL 30, 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
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                9,200
                
                
                9
                
                
                200,750
                
                $
                7,441
                
                
                
                
                
                
                
                
                208,200Fair
                    value of options and warrants issued for compensation and
                    financing
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                584,169
                
                
                
                
                
                
                
                
                584,169Preferred
                    stock dividendsSeries
                    A cash
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (75,024
                )
                
                (75,024
                )Series
                    A stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                28,288
                
                
                28
                
                
                
                
                
                34,988
                
                
                
                
                
                
                
                
                35,016Accumulated
                    other comprehensive lossForeign
                    currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (121,950
                )
                
                
                
                
                (121,950
                )Unrealized
                    loss from marketable securities
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (382,500
                )
                
                
                
                
                (382,500
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,558,340
                )
                
                (
                    2,558,340
                )Balance
                    April 30, 2008
                
                
                6,287
                
                $
                6
                
                
                -
                
                $
                -
                
                
                48,399,896
                
                $
                48,400
                
                $
                200,750
                
                $
                50,491,726
                
                $
                (742,547
                )
                $
                (44,233,093
                )
                $
                5,765,242
  See
        accompanying notes to these unaudited condensed consolidated financial
        statements.
  3
  **CODA
        OCTOPUS GROUP, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENT OF CASH FLOWS**
 **FOR
        THE SIX MONTHS ENDED APRIL 30, 2008 and 2007**
 **(UNAUDITED)**
 2008
                
                2007CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (
                    2,558,340
                )
                $
                (9,853,757
                )Adjustments
                    to reconcile net loss to net cashused
                    by operating activities:Depreciation
                    and amortization
                
                
                253,155
                
                
                160,713Stock
                    based compensation
                
                
                196,189
                
                
                1,823,061Financing
                    costs
                
                
                395,430
                
                
                5,544,445Dividends
                
                
                -
                
                
                132,968Changes
                    in operating assets and liabilities:(Increase)
                    decrease in:Accounts
                    receivable
                
                
                136,313
                
                
                (263,127
                )Inventory
                
                
                203,795
                
                
                (604,375
                )Prepaid
                    expenses
                
                
                16,843
                
                
                (196,603
                )Other
                    receivables
                
                
                (407,638
                )
                
                (112,018
                )Increase
                    (decrease) in:Accounts
                    payable and accrued expenses
                
                
                (492,299
                )
                
                (1,557,443
                )Due
                    to related parties
                
                
                (169,784
                )
                
                (196,002
                )Net
                    cash used in operating activities
                
                
                (2,426,336
                )
                
                (5,122,138
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchases
                    of property and equipment
                
                
                (63,154
                )
                
                (113,582
                )Purchases
                    of intangible assets
                
                
                (97,827
                )
                
                (1,000
                )Acquisitions
                
                
                (763,936
                )
                
                (800,000
                )Cash
                    acquired from acquisitions
                
                
                -
                
                
                35,515Net
                    cash used by investing activities
                
                
                (924,917
                )
                
                (879,067
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from (repayment of) loans
                
                
                10,437,753
                
                
                (1,066,447
                )Proceeds
                    from sale of stock
                
                
                -
                
                
                13,080,865Redemption
                    of preferred stock
                
                
                -
                
                
                (1,818,100
                )Preferred
                    stock dividend paid
                
                
                (64,491
                )
                
                (247,840
                )Net
                    cash provided by financing activities
                
                
                10,373,262
                
                
                9,948,478Effect
                    of exchange rate changes on cash
                
                
                (214,460
                )
                
                (19,398
                )Net
                    (increase) in cash
                
                
                6,807,549
                
                
                3,927,875Cash
                    and cash equivalents, beginning of period
                
                
                916,257
                
                
                1,377,972Cash
                    and cash equivalents, end of period
                
                $
                7,723,806
                
                $
                5,305,847Cash
                    paid for:Interest
                
                $
                282,805
                
                $
                243,600Income
                    taxes
                
                
                -
                
                
                -
  Supplemental
        Disclosures:
 
 During
        the Six Months ended April 30, 2008, 37,488 shares of common stock were issued
        as payment of $3,250 of compensation that was earned, $4,200 of non-cash
        financing costs and $35,016 of series A preferred stock dividends
        due.
 
 During
        the Six Months ended April 30, 2007, 1,522,180 shares of common stock were
        issued as payment of $1,662,817 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 six month period ended April 30, 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
  **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
        April 30, 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 April 30, 2008 and
        October
        31, 2007:
 **2008**
                
                **2007**Raw
                    materials
                
                $
                1,778,188
                
                $
                1,789,051Work
                    in process
                
                
                83,400
                
                
                334,813Finished
                    goods
                
                
                861,134
                
                
                802,653Total
                    inventory
                
                $
                2,722,722
                
                $
                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 April 30, 2008 or
        the
        year ended October 31, 2007.
  6
  **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 April 30, 2008 or the year
        ended
        October 31, 2007.
  **Marketing**
  We
        charge
        the costs of marketing to expense as incurred. For the period ended April
        30,
        2008 marketing costs were $637,186.
 
 **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 April
        30,
        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
  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 $0.05 and $0.38 for the periods
        ended April 30, 2008 and 2007, respectively. For the period ended April 30,
        2008
        and year ended October 31, 2007, 48,796,759 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
        April 31, 2008 we have cash and cash equivalents of $7,723,806 and positive
        working capital of $11,966,672. For the period ended April 30, 2008 we had
        a net
        loss of $2,558,340 and negative cash flow from operations of $2,426,336.
        We also
        have an accumulated deficit of $44,233,093 at April 30, 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 $997,917 and $380,017 as of April 30, 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 $305,342 and $232,435 as of April 30, 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 $197,715 and $233,550 as of April
        30, 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 April 30, 2008, the value of the investment, which is available-for-sale
        for financial reporting purposes, was $552,500, compared with $935,000 at
        October 31, 2007. This includes an unrealized loss of $297,500 which has
        been
        included in the determination of comprehensive loss.
  8
 
 **NOTE
        4 - OTHER CURRENT ASSETS**
  Other
        current assets on the balance sheet total $438,830 and $691,560 at April
        30,
        2008 and October 31, 2007 respectively. These totals comprise the
        following:
 **2008**
                
                **2007**Deposits
                
                $
                117,101
                
                $
                191,352Value
                    added tax (VAT)
                
                
                115,966
                
                
                293,934Other
                    receivables
                
                
                205,763
                
                
                206,274Total
                
                $
                438,830
                
                $
                691,560
 **NOTE
          5 - FIXED ASSETS**
  Property
        and equipment at April 30, 2008 and October 31, 2007 is summarized as
        follows:
  **2008**
              
              **2007**Machinery
                  and equipment
              
              $
              1,046,269
              
              $
              983,115Accumulated
                  depreciation
              
              
              (642,847
              )
              
              (560,377
              )Net
                  property and equipment assets
              
              $
              403,422
              
              $
              422,738
  Depreciation
        expense recorded in the statement of operations for the periods ended April
        30,
        2008 and October 31, 2007 is $82,470 and $101,802, respectively.
 
 Rental
        equipment at April 30, 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 April
        30,
        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 April
        30,
        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)
                
                
                69,320
                
                
                48,530Convertible
                    debenture raise costs (expected life of 7 years)
                
                
                1,694,893
                
                
                -Product
                    development (weighted average life of 3 years)
                
                
                60,014
                
                
                -Licenses
                    (weighted average life of 2 years)
                
                
                100,000
                
                
                100,000Total
                    amortized identifiable intangible assets - gross carrying
                    value
                
                
                2,817,641
                
                
                1,041,944Less
                    accumulated amortization
                
                
                (287,928
                )
                
                (134,266
                )**Net**
                
                
                **2,529,713**
                
                
                **907,678****Residual
                    value**
                
                **$**
                **2,529,713**
                
                **$**
                **907,678**
  9
 
 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 April 30, 2008 is as follows:
 2008
                
                $
                230,3532009
                
                
                430,1892010
                
                
                349,0542011
                
                
                325,3302012
                    and thereafter
                
                
                1,194,787**Total**
                
                **$**
                **2,529,713**
  
 Amortization
        of patents, customer relationships, non-compete agreements and licenses included
        as a charge to income amounted to $170,685 and $115,005 for the period ended
        April 30, 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 April 30, 2008 and October 31, 2007. The changes
        in the carrying amount of goodwill for the periods ended January 31, 2008
        are
        recorded below.
 
 **2008**
              
              **2007**Beginning
                  goodwill balance at November 1, 2007
              
              $
              3,099,575
              
              $
              1,060,906Goodwill
                  recorded upon acquisition
              
              
              -
              
              
              -**Period
                  End Balance**
              
              **$**
              **3,099,575**
              
              **$**
              **1,060,906**
  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 100,000,000 shares of common stock with a
        par
        value of $.001 per share. As of April 30, 2008 and 2007, the Company has
        issued
        and outstanding 48,399,896 shares and 46,064,668 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 April 30, 2008 and 2007 respectively, and nil and 1,819
        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 April 30, 2008 we issued 200 shares of Series A Preferred
        Stock. We converted 320 shares of Series A Preferred Stock into 56,640 shares
        of
        common stock. At April 30, 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.
  10
  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 April 30, 2008, we have no shares of Series B Preferred Stock
        outstanding.
  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 April 30, 2008 we issued 5,000 shares of common stock,
        valued
        at $3,250, to employees, directors and consultants for services. We also
        issued
        28,288 shares of common stock as dividend payments due to holders of Series
        A
        Preferred stock, which had accrued over the period August 2006 to October
        2007,
        valued at $35,017. A further 56,640 share were issued as conversion of 320
        shares of Series A preferred stock. We also issued 64,200 shares to an investor
        who had subscribed for these shares in February 2007.
  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, with a further 42,910 shares payable
        within 12 months.
  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 April 30, 2008, we issued in the aggregate 245,000 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 $176,782 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 238%
        -
        246%; 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.
  11
  Also
        during the period ended April 30, 2008, a further 67,000 common share purchase
        options which were issued to employees in 2005 and 2006 vested, with $91,299
        charged to expense.
  During
        the period ended 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.
  **NOTE
        8 - WARRANTS AND STOCK OPTIONS**
  Transactions
        involving stock options and warrants issued are summarized as
        follows:
  Six
                  months ended
                April
                  30, 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
              
              
              845,000
              
              
              1.45
              
              
              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
              
              
              37,364,318
              
              $
              1.39
              
              
              36,519,318
              
              $
              1.39Exercisable
                  at the end of the period
              
              
              36,354,518
              
              $
              1.39
              
              
              35,467,518
              
              $
              1.39
 
 The
        number and weighted average exercise prices of stock purchase options and
        warrants outstanding as of April 30, 2008 are as follows:
 
 Range
                  of
                Exercise
                  Prices
              
              Number
                  Outstanding
              
              Weighted
                  Average Contractual Life (Yrs)
              
              Total
                  Vested0.50
              
              
              750,000
              
              
              3.00
              
              
              750,0000.58
              
              
              400,000
              
              
              2.92
              
              
              400,0001.00
              
              
              5,845,900
              
              
              3.08
              
              
              5,634,7001.30
              
              
              15,081,709
              
              
              3.67
              
              
              14,675,2091.50
              
              
              525,000
              
              
              3.60
              
              
              410,5001.70
              
              
              14,701,709
              
              
              3.66
              
              
              14,464,1091.80
              
              
              60,000
              
              
              4.40
              
              
              20,000Totals
              
              
              37,364,318
              
              
              3.55
              
              
              36,354,518
  **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 $36,313,000 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 $12,346,000. 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 $7,069,000, with no expiration. The deferred tax asset
        related to the carry-forward is approximately $2,121,000. 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
  Income
        tax expense for 2007 represents income taxes on our Norwegian
        subsidiary.
  Components
        of deferred tax assets as of April 30, 2008 and October 31, 2007 are as
        follows:
 
 **Non-Current**
              
              **2008**
              
              **2007**Net
                  Operating Loss Carry Forward
              
              **$**
              **12,346,000**
              
              **$**
              **10,455,000**Valuation
                  Allowance
              
              
              (12,346,000
              )
              
              (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.
  Over
        the
        course of the period to April 30, 2008, we factored invoices totaling $3,547,621
        in receivables and we received $2,932,006 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 $1,418,736, with
        the
        minimum future rentals due under these leases as of April 30, 2008 as
        follows:
 2008
                
                $
                207,8352009
                
                
                360,5522010
                
                
                344,3682011
                
                
                315,3022012
                    and thereafter
                
                
                190,680Total
                
                $
                1,418,736
 
 **Concentrations**
  We
        had no
        concentrations of purchases of over 5% during either of the period ended
        April
        30, 2008 and year ended October 31, 2007. We had a sales concentration of
        over
        5% for the period ended April 30, 2008 and year ended October 31, 2007 due
        to a
        sale to a customer for $1,026,473 and $2,294,279, respectively.
  13
 
 **NOTE
        11 - NOTES AND LOANS PAYABLE**
  A
        summary
        of notes payable at April 30, 2008 and October 31, 2007 is as
        follows:
 **April
                    30,**
                  **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.
                
                $
                200,000
                
                $
                200,000The
                    Company, through its US subsidiary Innalogic, Inc., has 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.
                
                
                13,181
                
                
                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%.
                
                
                24,802
                
                
                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.
                
                
                20,104
                
                
                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 at a rate of 8.5%
                
                
                12,091,350
                
                
                -Total
                
                $
                12,349,437
                
                $
                321,521Less:
                    current portion
                
                
                115,297
                
                
                56,382Total
                    long-term portion
                
                $
                12,234,140
                
                $
                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 April 30,
        2008,
        $14,641 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 $148,153 at April 30, 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, and $700,000 and 42,910 shares
        that were due and paid on the first anniversary of the closing date through
        secured promissory notes issued to the former Colmek shareholders. At the
        date
        of issuance of the 532,090 shares these were valued at $792,814. 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:
 
 14
 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
   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
        April 30, 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 April 30, 2008.
 
 **2007**Revenue
              
              $
              5,829,377Net
                  loss
              
              
              (10,063,240
              )Loss
                  per common share
              
              
              (0.38
              )
  **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
              
              $
              3,033,238
              
              $
              4,381,284
              
              $
              809,393
              
              $
              8,223,915Operating
                  profit/(loss)
              
              
              (356,547
              )
              
              497,310
              
              
              (
                  2,179,023
              )
              
              (2,038,260
              )Identifiable
                  assets
              
              
              5,985,500
              
              
              3,445,245
              
              
              12,229,171
              
              
              21,659,916Capital
                  expenditure
              
              
              3,973
              
              
              90,388
              
              
              66,620
              
              
              160,981Selling,
                  general & administrative
              
              
              1,695,660
              
              
              1,211,535
              
              
              2,951,927
              
              
              5,859,122Depreciation
                  & amortization
              
              
              129,590
              
              
              39,438
              
              
              82,573
              
              
              251,601Interest
                  expense
              
              
              50,559
              
              
              189,229
              
              
              329,517
              
              
              569,305
 
 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 April 30, 2008 and
        the
        year ending October 31, 2007:
 
 15
 **2008**
                
                **2007**Revenues:United
                    States
                
                $
                2,896,178
                
                $
                7,129,507United
                    Kingdom
                
                
                4,518,344
                
                
                6,723,806Corporate
                    and other
                
                
                809,393
                
                
                -Total
                    Revenues
                
                $
                8,223,915
                
                $
                13,853,313Assets:United
                    States
                
                $
                4,531,926
                
                $
                5,529,261United
                    Kingdom
                
                
                4,898,819
                
                
                6,597,202Corporate
                    and other
                
                
                12,229,171
                
                
                1,454,999Total
                    Assets
                
                $
                21,659,916
                
                $
                13,581,462
   **NOTE
        15 - SUBSEQUENT EVENTS**
  There
        were no significant events which occurred between April 30, 2008 and the
        date of
        filing.
 
 16
 
 **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, US A , 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.
  17
  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:
  ཉ
              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.
 ཉ
              Early
                  recognition of need for 3-D real-time sonar in defense/security
                  applications.
 ཉ
              Expansion
                  into new geographies like North America and Western
                  Europe.
 ཉ
              Expansion
                  into new commercial markets like commercial marine survey and construction
                  with innovative products.
 ཉ
              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
        64% of our six month 2008 revenues of $8,223,915 were attributable to pure
        products business. The rest was attributable to our engineering businesses
        at
        Colmek and Martech.
 
 To
        this
        established base of business, we now plan to add other
        sub-sections:
 
 ཉ
              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 the US Coast Guard 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) the Coast Guard 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.ཉ
              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.
  18
  *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).
 
 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.
  19
  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.
 
 *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
  Activities
        pursuant to the acquisition of Miller and Hilton Inc. d/b/a Colmek System
        Engineering (“Colmek”) on April 6, 2007 are included in the three months ending
        April 30, 2007 for the period between April 6 and April 30. The three month
        period ending April 30, 2008 includes revenues and expenses of Colmek for
        that
        entire period.
  ***Comparison
        of Three Months Ended April 30, 2008 (“2008 Period”) to Three Months Ended April
        30, 2007 (“2007 Period”)***
 
 Revenues .
        Total
        revenues for the 2008 period and the 2007 period were $5,096,684 and $2,233,439
        respectively. This represented an increase of $2,863,245 or 128.1%.
        Contributions from Colmek in the quarter were $939,047 against $120,454 of
        revenues in the same period in 2007, as it was acquired on April 06, 2007.
        Excluding Colmek, revenues for the corresponding periods, second quarter
        revenues in 2008 were $4,157,637 and $2,112,985 in the 2007 quarter,
        representing an increase of 96.7%. 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.
  Margins .
        Gross
        margins were strong in the 2008 period at 74.4% compared with 43.1% 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 business represented $1,565,973 or 30.1%
        of
        sales with the products business attaining a level of 69.9% of revenues.
        The
        company is targeting an average gross margin in the vicinity of 63% going
        forward.
  20
  Research
        and Development (R&D) .
        R&D
        increased 31% to $764,308 in the 2008 period from $583,365 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. The company will continue to work on
        enhancements to all its products.
  Selling,
        General and Administrative Expenses (SG&A) .
        SG&A expenses for the 2008 period increased to $2,802,193 from $2,063,880 in
        2007, an increase of 35.7%. The addition of Colmek in the 2008 period is
        responsible for SG&A of $458,424, against $59,054 in 2007. The actual growth
        of SG&A in the period when adjusted for the Colmek acquisition is 16.9%.
        Management believes that SG&A will be scalable as revenues
        grow.
  Key
        areas
        of expenditures include wages and salaries, where the company spent $1,674,800
        or 59.8% of our SG&A costs while the 2007 period was $1,086,340 or 52.6%;
        legal and professional fees, including accounting, audit and investment banking
        services, decreased to $190,337 or 6.8% in 2008 from $394,222 or 19.1% in
        2007
        primarily because certain consultants were moved to the marketing expense
        category in 2008; travel decreased to $94,369 or 3.4% of SG&A from $162,372
        or 7.9% in 2007; rent decreased slightly to $130,913, or 4.7%, in 2008, from
        $143,675, or 7.0% in 2007; and marketing increased to $422,293 or 15.1% of
        SG&A from $76,134 or 3.7% of SG&A in 2007 again due to reclassification
        of consultants.
  Operating
        Income/Loss .
        The
        company produced an operating profit for the period of $223,407 against a
        loss
        of $1,685,150 in 2007. This occurred as a result of improved gross margins
        and
        higher revenues.
  Interest
        Expense. Interest
        expense for the period was $455,334, of which $286,500 was associated with
        the
        convertible debenture financing by the Royal Bank of Scotland. Interest expense
        in 2007 was $5,673,385, mainly a non-cash item associated with the warrants
        in
        the equity financing of April, 2007.
  Preferred
        Dividends .
        During
        the 2008 period there was a $28,931 dividend paid on the remaining series
        A
        preferred stock versus $194,963 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 Six Months Ended April 30,*** ****** ***2008
        (“2008 Period”) to the Six Months Ended April 30, 2007 (“2007
        Period”)***
 
 Introduction
 
 Due
        to
        the acquisition of Colmek in April 2007, the financial information presented
        for
        Coda Octopus for the six months ended April 30, 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 six months ending April 30, 2007. The financial information
        presented (“2007 Period") includes only revenues and expenses for Colmek 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 six months 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 $8,223,915 and
        $4,934,714, respectively, representing an increase of 66.6%. Contributions
        from
        Colmek were $120,454 in the 2007 Period against $1,910,420 for 2008. Subtracting
        the contribution from this acquisition to the 2008 and 2007 Periods, there
        was a
        31.1% 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 64.9% compared with 55.1% 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 $1,453,501 in the 2008 Period from $1,101,758 in the
        2007
        Period, an increase of 31%, 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.
 
 Selling,
        General and Administrative Expenses (SG&A) .
        SG&A expenses for the 2008 Period increased to $5,859,122 from $5,288,539
        during the 2007 Period ,
        an
        increase of $580,583 or 10.9% (the 2007 Period included $1.8 million in non-cash
        compensation charges). Some of the increase is attributable to the acquisition
        of Colmek which was included for the entire period in 2008.
  21
  Key
        areas
        of expenditure include wages and salaries, where we spent $3,231,105 or 55.1%
        of
        our SG&A costs (2007 Period was $4,003,808 or 75.7%, including $1,801,619 of
        non-cash compensation); legal and professional fees, including accounting,
        audit
        and investment banking services, amounted to $658,893, or 11.2% of our SG&A
        costs (2007 Period was $654,043 or 12.4%); travel costs decreased to $248,972
        or
        4.2% of SG&A in 2008 from $262,704 and 5.0% of SG&A in 2007; rent for
        our various locations remained broadly constant at $257,362, or 4.4% of SG&A
        in 2008, from $242,151 or 4.6% of SG&A in 2007; and marketing increased to
        $637,186 (10.9% of SG&A) in 2008 from $126,428 (2.4% of SG&A) in 2007.
        This increase in marketing costs 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.
 
 Operating
        Loss .
        As a
        result of the foregoing the Company incurred a loss from operations of
        $2,038,260 during the 2008 Period compared to a loss from operations of
        $4,102,956 during the 2007 Period.
 
 Interest
        Expense .
        Interest expense for the 2008 Period decreased to $569,305 from $5,788,596
        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 $75,024 were declared against $314,779 in the
        2007
        Period on preferred stock (most of the preferred stock was converted into
        common
        stock at the end of the 2007 Period), The 2007 amount includes $207,099 paid
        on
        the series A preferred stock and $107,680 on the series B preferred. Also
        included was $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 $10,968,536 or $0.38 per share
        for
        the 2007 Period, based on an average of 29,138,920 shares outstanding, compared
        to a loss of $2,633,364 or $0.05 per share for the 2008 Period, based on
        an
        average of 48,283,808 shares outstandin g.
  **Liquidity
        and Capital Resources**
 
 As
        of
        April 30, 2008 the Company had positive working capital of $11,966,672 and
        cash
        totaling $7,723,806.
 
 In
        spite
        of the net loss generated of $2,558,340, the cash flow deficit from operations
        for the period was $2,426,336 in the 2008 Period, compared to $5,122,138
        in
        2007. During the 2008 Period, we also invested around $161,000 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, which, combined with the cash flow uses outlined above, resulted
        in a net cash flow into the company for the period of $6,807,549. 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 are expecting previous growth
                  trends
                  broadly to continue over the course of the
                  year.
 
 ·
              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 delivery expected to start from the second
                  quarter.
  ·
              Continue
                  to deliver to the Coast Guard on the contract we were awarded last
                  July.
                  Work on stage 2 will begin in the second
                  quarter.
  ·
              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.
  22
  ·
              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 current 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.
 
 **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, Pounds Sterling for its UK operations
        and Norwegian Kroner for its 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.
  23
  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 amount
        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.
  24
  **Item
        3. Control and Procedures**
  (a)
        Evaluation of Disclosure Controls and Procedures
  As
        of
        April 30, 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 April 30, 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.
 
 25
  **PART
        II - OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
  There
        were no material pending legal proceedings at April 30, 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**
  None
 
 **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:
                  June 16, 2008
              
              /s/ Jason
                  ReidJason
                ReidPresident
                  and Chief Executive Officer
  Date:
                  June 16, 2008
              
              /s/ Jody
                  E. FrankJody
                FrankChief
                  Financial Officer
   26