Unassociated Document

	·	At October 31, 2005, we owed $6,554 to Green Meadows Food Limited, a United Kingdom company, of which Mr. Reid is a Director, in connection with the sub-lease of a photocopier to us. Pursuant to this transaction a further $3,331 was invoiced to us during the year, and the whole amount outstanding was settled in cash in April 2006, leaving no balance outstanding at October 31, 2007.

	·	At October 31, 2005, we owed $170,297 to Mr. Reid and Mr. Ashley Reid (the latter being a family member of Mr. Reid) pursuant to a loan transaction. This amount was repaid by the Company between January and April 2007, leaving no balance outstanding at October 31, 2007.

	·	At October 31, 2006, Mr. Reid owed a balance of $104,720 to the Company. This amount increased by $965 in the past twelve months as a result of a payment made on Mr. Reid’s behalf. This left a balance outstanding of $105,685 at October 31, 2007. This amount is equivalent to the amount owed to Mr. Reid’s company, Fairwater Technology Group (see above).

All of the foregoing transactions were approved by our Board of Directors. Mr. Reid abstained from deliberations and voting on these transactions.

DESCRIPTION OF SECURITIES

Our authorized capital consists of 100,000,000 shares of common stock, $.001 par value per share, of which 48,409,927 shares were issued and outstanding as of June 2, 2008, and 5,000,000 shares of Preferred Stock, of which 50,000 shares have been designated as Series A Preferred Stock and 50,000 have been designated as Series B Convertible Preferred Stock.

As of June 2, 2008, 6,287 shares of Series A Preferred Stock were issued and outstanding

The following description is a summary and is qualified in its entirety by our Certificate of Incorporation and By-laws as currently in effect.

Common Stock

Each holder of common stock is entitled to receive ratable dividends, if any, as may be declared by the Board of Directors out of funds legally available for the payment of dividends. As of the date of this prospectus, we have not paid any dividends on our common stock, and none are contemplated in the foreseeable future. We anticipate that all earnings that may be generated from our operations will be used to finance our growth.

Holders of common stock are entitled to one vote for each share held of record. There are no cumulative voting rights in the election of directors. Thus the holders of more than 50% of the outstanding shares of common stock can elect all of our directors if they choose to do so.

The holders of our common stock have no preemptive, subscription, conversion or redemption rights. Upon our liquidation, dissolution or winding-up, the holders of our common stock are entitled to receive our assets pro rata.

Preferred Stock

Series A Preferred Stock

Each holder of our Series A Preferred Stock is entitled in preference to holders of our common stock to receive dividends in the amount of 12% per annum, payable semi-annually. Such dividends are payable, at the option of the holder, in cash or shares of common stock valued at the average closing price for the ten trading days preceding the dividend date. Each share of Series A Preferred entitled the holder to 100 votes on all matters submitted to a vote of the stockholders.

Until the seventh anniversary of the date of issuance, each share of Series A Preferred is convertible at the option of the holder into 100 shares of common stock if the Series A Preferred was acquired in US dollars and 177 shares if the Series A Preferred Stock was acquired in pound sterling.

As amended, the certificate of designation for the Series A Preferred Stock provides that, at the option of the company, the Series A Preferred may be converted into such number of shares of common stock as is equal to their purchase price plus any accrued and unpaid dividends commencing one year after the date of issuance if the closing price of common stock is at least $3.00 for the twenty days prior to the receipt by the holders of a conversion notice.

Series B Preferred Stock

Currently, no Series B Preferred Stock are issued. With respect to dividends, a liquidation of the Company and the payment of consideration in the event of a merger or sale of the Company’s assets, the Series B Preferred Stock ranks junior to the Series A Preferred Stock and senior to all other classes of stock, including common stock.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Olde Monmouth Stock Transfer Co., Inc with a mailing address of 200 Memorial Parkway, Atlantic Highlands, New Jersey 07716.

PLAN OF DISTRIBUTION

Each Selling Stockholder (the “ Selling Stockholders”) of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:

	·	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

	·	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	·	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

	·	an exchange distribution in accordance with the rules of the applicable exchange;

	·	privately negotiated transactions;

	·	settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

	·	broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

	·	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

	·	a combination of any such methods of sale; or

	·	any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.

In connection with the sale of the common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

LEGAL MATTERS

The validity of the common stock has been passed upon by Sichenzia Ross Friedman Ference LLP, New York, New York.

EXPERTS

The Company's balance sheet as of October 31, 2007, and the related statements of operations, changes in stockholders’ equity and cash flows for the years ended October 31, 2007 and 2006 included in this Prospectus have been audited by RBSM LLP, as set forth in their report appearing elsewhere herein and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Section 145 (“Section 145”) of the Delaware General Corporation Law, as amended (the “DGCL”), permits indemnification of directors, officers, agents and controlling persons of a corporation under certain conditions and subject to certain limitations. Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer or agent of the corporation or another enterprise if serving at the request of the corporation. Depending on the character of the proceeding, a corporation may indemnify against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner he or she reasonably believed to be in or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of an action by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a present or former director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

Our Amended and Restated Certificate of Incorporation, as amended (the “Charter”), provides that no current or former director of the Registrant shall be personally liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: (a) for any breach of the director’s duty of loyalty to the Registrant or its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the DGCL; or (d) for any transaction from which the director derived any improper personal benefit. The Registrant’s Charter also authorizes the Registrant, to the fullest extent permitted by applicable law, to provide indemnification of, and advanced expenses to, the Registrant’s agents and any other persons to which the DGCL permits.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

CODA OCTOPUS GROUP, INC.

INDEX TO FINANCIAL STATEMENTS

YEARS ENDED OCTOBER 31, 2007 AND 2006

		PAGE

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM		F-1

CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2007 and 2006		F-2

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED OCTOBER 31, 2007 and 2006		F-3

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE TWO YEARS ENDED OCTOBER 31, 2007		F-4

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEARS ENDED OCTOBER 31, 2007 and 2006		F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-6 - F-21

THREE MONTHS ENDED JANUARY 31, 2008 AND 2007

CONDENSED CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 2008 (UNAUDITED)		F-22

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED JANUARY 31, 2008 AND 2007 (UNAUDITED)		F-23

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED JANUARY 31, 2008 (UNAUDITED)		F-24

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JANUARY 31, 2008 AND 2007 (UNAUDITED)		F-25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		F-26 - F-42

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

Board of Directors

Coda Octopus Group, Inc.

New York, New York

We have audited the accompanying consolidated balance sheets of Coda Octopus Group, Inc. and its wholly owned subsidiaries (the “Company”), as of October 31, 2007 and 2006, and the related consolidated statements of stockholder's equity, operations and comprehensive loss and cash flows for each of the two years in the period ended October 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments”, effective January 1, 2006.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Coda Octopus Group Inc. and it's wholly owned subsidiaries as of October 31, 2007 and 2006, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

	/S/RBSM LLP
New York, New York	RBSM LLP
January 16, 2008 except for the fourth paragraph of Note 15, as to which the date is February 26, 2008

F-1

CODA OCTOPUS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2007 and 2006

	2007			2006
ASSETS

Current assets:
Cash and cash equivalents	$	916,257		$	1,377,972
Short-Term Investments, Note 3		935,000			-
Accounts receivable, net of allowance for doubtful accounts		2,720,151			1,120,968
Inventory		2,926,517			1,951,392
Tax credit receivable		-			234,593
Due from MSGI Security Solutions, Inc.		-			533,147
Due from related parties, Note 12		105,685			104,720
Unbilled receivables, Note 2		380,017			-
Other current assets, Note 4		691,560			103,296
Prepaid expenses		476,283			159,969

Total current assets		9,151,470			5,586,057

Property and equipment, net, Note 5		422,738			155,730
Rental equipment, net, Note 5		-			120,851
Goodwill and other intangible assets, net, Note 6		4,007,253			1,071,700

Total assets	$	13,581,461		$	6,934,338

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable, trade	$	1,618,250		$	1,997,817
Accrued expenses and other current liabilities		1,937,569			2,219,568
Deferred revenues, Note 2		593,325			323,350
Deferred payment related to acquisitions, Note 13		763,936			381,680
Accrued dividends on Series A & B Preferred Stock		86,766			304,394
Due to related parties, Note 12		184,425			302,877
Loans and notes payable, short term, Note 11		56,382			1,119,496

Total current liabilities		5,240,653			6,649,182

Loans and notes payable, long term, Note 11		265,139			-

Total liabilities		5,505,792			6,649,182

Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized, 6,407 and 23,641 shares Series A issued and outstanding, as of October 31, 2007 and 2006 respectively		6			24
Nil and 41,000 shares Series B issued and outstanding as of October 31, 2007 and 2006 respectively		-			41
Common stock, $.001 par value; 100,000,000 shares authorized, 48,245,768 and 24,301,980 shares issued and outstanding as of October 31, 2007 and 2006 respectively		48,246			24,302
Common Stock subscribed		80,000			153,750
Additional paid-in capital		49,785,244			25,858,307
Accumulated other comprehensive loss		(238,097	)		(292,821	)
Accumulated deficit		(41,599,730	)		(25,458,447	)

Total stockholders' equity		8,075,669			285,156

Total liabilities and stockholders' equity	$	13,581,461		$	6,934,338

The accompanying notes are an integral part of these consolidated financial statements.

F-2

CODA OCTOPUS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED OCTOBER 31, 2007 and 2006

	2007			2006
Net revenue	$	13,853,313		$	7,291,291

Cost of revenue		6,398,042			2,611,590

Gross profit		7,455,271			4,679,701

Research and development		3,019,090			3,130,821
Selling, general and administrative expenses		12,385,250			7,453,946
Other operating expenses		435,000			447,750

Operating loss		(8,384,069	)		(6,352,816	)

Other expense

Other income		87,143			3,012
Interest expense		(6,655,283	)		(1,203,690	)

Total other expense		(6,568,140	)		(1,200,678	)

Loss before income taxes		(14,952,209	)		(7,553,494	)

Provision for income taxes		106			5,676

Net loss		(14,952,315	)		(7,559,170	)

Preferred Stock Dividends:
Series A		(281,289	)		(309,914	)
Series B		(107,680	)		(74,130	)
Beneficial Conversion Feature		(800,000	)		(4,152,800	)

Net Loss Applicable to Common Shares	$	(16,141,284	)	$	(12,096,014	)

Loss per share, basic and diluted		(0.42	)		(0.50	)

Weighted average shares outstanding		38,476,352			24,030,423

Comprehensive loss:

Net loss	$	(14,952,315	)	$	(7,559,170	)

Foreign currency translation adjustment		(30,276	)		(282,704	)
Unrealized Gain on Investment		85,000			-

Comprehensive loss	$	(14,897,591	)	$	(7,841,874	)

The accompanying footnotes are an integral part of these consolidated financial statements.

F-3

CODA OCTOPUS GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE TWO YEARS ENDED OCTOBER 31, 2007 and 2006

	Preferred Stock Series A						Preferred Stock Series B						Common Stock
	Shares			Amount			Shares			Amount			Shares		Amount		Stock Subscribed			Additional Paid-in Capital			Accumulated Other Comprehensive loss			Accumulated Deficit			Total

Balance, October 31, 2005		15,000		$	15			-		$	-			23,667,656	$	23,668	$	-		$	13,837,534		$	(10,117	)	$	(13,362,433	)	$	488,667

Sale of preferred stock		2,947			3			41,000			41										4,564,056									4,564,100

Preferred stock issued for debt		5,694			6																809,622									809,628

Sale of shares for cash														-		-		-			-									-

Shares issued for compensation														634,324		634		-			316,528									317,162

Common stock subscribed																		153,750												153,750

Fair value of options and warrants issued as compensation and for financing																					2,177,767									2,177,767

Beneficial conversion feature of
preferred stock, Series A																					52,800									52,800
preferred stock, Series B																					4,100,000									4,100,000

Preferred dividend, beneficial conversion feature
Series A																											(52,800	)		(52,800	)
Series B																											(4,100,000	)		(4,100,000	)

Preferred dividend
Series A																											(309,914	)		(309,914	)
Series B																											(74,130	)		(74,130	)

Foreign currency translation adjustment																								(282,704	)					(282,704	)

Net loss																											(7,559,170	)		(7,559,170	)

Balance, October 31, 2006		23,641		$	24			41,000		$	41			24,301,980	$	24,302	$	153,750		$	25,858,307		$	(292,821	)	$	(25,458,447	)	$	285,156

Sale of preferred stock								8,000			8										799,342									799,350

Conversion of preferred stock
Series A		(17,234	)		(17	)								2,878,418		2,878					(2,861	)								(0	)
Series B								(30,819	)		(31	)		3,081,900		3,082					(3,051	)								0

Redemption of preferred stock								(18,181	)		(18	)									(1,818,082	)								(1,818,100	)

Sale of common stock for cash														15,709,100		15,709					13,782,921									13,798,630

Shares issued for compensation														1,619,280		1,619					1,888,244									1,889,863

Stock issued for acquisition														532,090		532					792,282									792,814

Stock subscribed
Preferred stock																		20,000												20,000
Common stock														123,000		123		(93,750	)		153,627									60,000

Fair value of options and warrants issued as compensation																					1,428,597									1,428,597

Fair value of options and warrants issued as financing																					6,105,918									6,105,918

Preferred stock dividends
Series A																											(281,288	)		(281,288	)
Series B																											(107,680	)		(107,680	)

Beneficial conversion feature of preferred stock, Series B																					800,000						(800,000	)		-

Foreign currency translation adjustment																								(30,276	)					(30,276	)

Unrealized gain from marketable securities																								85,000						85,000

Net loss																											(14,952,315	)		(14,952,315	)

Balance, October 31, 2007		6,407		$	6			-		$	-			48,245,768	$	48,246	$	80,000		$	49,785,244		$	(238,097	)	$	(41,599,730	)	$	8,075,669

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CODA OCTOPUS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWO YEARS ENDED OCTOBER 31, 2007 and 2006

	2007			2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(14,952,315	)	$	(7,559,170	)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization		337,658			137,189
Stock based compensation		3,318,460			2,005,056
Financing costs		6,105,918			784,873
Bad debt expense		17,910			16,008
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable		(1,800,802	)		491,922
Inventory		(975,125	)		(482,882	)
Prepaid expenses		(316,367	)		89,953
Other receivables		(672,216	)		2,260,315
Increase (decrease) in:
Accounts payable and accrued expenses		(1,033,074	)		1,855,467
Due to related parties		(118,452	)		523,076

Net cash (used in) / provided by operating activities		(10,088,405	)		121,807

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(288,803	)		(138,172	)
Purchases of intangible assets		(118,475	)		(6,543	)
Acquisitions		(1,358,470	)		(1,154,590	)
Cash acquired in acquisitions		35,515			195,684

Net cash used by investing activities		(1,730,233	)		(1,103,621	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans		(884,405	)		(2,106,342	)
Proceeds from sale of stock		14,677,980			4,564,100
Redemption of preferred stock		(1,818,100	)		-
Preferred stock dividend		(637,476	)		(79,650	)

Net cash provided by financing activities		11,337,999			2,378,108

Effect of exchange rate changes on cash		18,924			(161,258	)

Net (decrease) increase in cash		(461,715	)		1,235,036

Cash and cash equivalents, beginning of period		1,377,972			142,936

Cash and cash equivalents, end of period	$	916,257		$	1,377,972

Cash paid for:
Interest	$	549,365		$	418,817
Income taxes		-			-

Supplemental Disclosures:

During the twelve months ended October 31, 2007, 1,742,280 shares of common stock
were issued as payment of $1,926,268 of compensation that was earned.

During the twelve months ended October 31, 2006, 634,324 shares of common stock
were issued as payment of $317,162 of compensation that was earned.

The acquisitions figure consists of the acquisitions of Martech in 2006 and Colmek
in 2007:

Current assets acquired	$	195,528		$	798,133
Cash acquired		35,515			195,684
Equipment acquired		80,007			37,126
Goodwill and intangible assets		2,773,613			998,591
Liabilities assumed		(727,913	)		(493,264	)
Deferred note payable		(763,936	)		(381,680	)
Amount paid in common stock		(792,814	)		-
Associated costs of acquisition		158,470			-

Cash Paid for Acquisition	$	958,470		$	1,154,590

Acquisition of Martech - deferred payment	$	400,000		$	-

Total	$	1,358,470		$	1,154,590

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

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

Business and Basis of Presentation

Coda Octopus Group, Inc. ( ”we” , “us”,“ our company” or “Coda” ) was formed under the laws of the State of Florida in 1992 as The Panda Project, Inc. (“Panda”). We changed our name in August, 2004, subsequent to the reverse acquisition described below. 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 and Norway, and additional sales locations in Florida, Utah and Washington, D.C.

Effective July 12, 2004, Panda acquired all of the issued and outstanding common stock of Coda Octopus Ltd, now known as Coda Octopus Products Ltd (“COPL”) a U.K. operating company, which also owned United States and Norwegian subsidiaries. As a result of this transaction, COL’s former shareholders obtained control of Panda, a shell corporation with no operations. In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Coda was the acquiring entity, while the transaction was accounted for using the purchase method of accounting, in substance the acquisition was a recapitalization of Coda’s capital structure. For accounting purposes, this acquisition has been treated as a reverse acquisition of Panda. The Company did not recognize any goodwill or any intangible assets in connection with the transaction.

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 collectibility 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.

F-6

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

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 carryforwards. 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 $17,910 and $16,008 for the years ended October 31, 2007 and 2006 respectively.

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 October 31, 2007 and 2006:

	2007		2006
Raw materials	$	1,789,051	$	1,064,655
Work in process		334,813		389,042
Finished goods		802,653		497,695

Total inventory	$	2,926,517	$	1,951,392

F-7

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

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 years ended October 31, 2007 and 2006.

Research and Development

Research and development costs consist of expenditures for the present and future patents and technology, which are not capitalizable. 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 year ended October 31, 2007.

Marketing

We charge the costs of marketing to expense as incurred. For the years ended October 31, 2007 and 2006, marketing costs were $471,049 and $275,285, respectively.

Other Operating Expenses

We incurred costs of $435,000 and $447,750 as non-recurring fees and expenses in connection with our financings and acquisitions for October 31, 2007 and 2006 respectively, which are 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.

F-8

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

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.

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 $0.42 and $0.50 for the years ended October 31, 2007 and 2006, respectively. For the years ended October 31, 2007 and 2006, 36,508,028 and 21,638,728 potential shares, respectively, were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.

F-9

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

Liquidity

As of October 31, 2007 we have cash and cash equivalents of $916,257 and positive working capital of $3,910,817. For the year ended October 31, 2007 we had a net loss of $14,952,315 and negative cash flow from operations of $10,088,405. We also have an accumulated deficit of $41,599,730 at October 31, 2007.

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 $380,017 and nil as of October 31, 2007 and 2006 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 $232,435 and nil as of October 31, 2007 and 2006 respectively.

Revenue received for the sale of equipment includes a provision for warranty and is treated as deferred revenue, along with extended warranty sales. These amounts are amortized over 12 months from the date of sale. These amounts are stated on the balance sheet as Deferred Revenue of $233,550 and $323,350 as of October 31, 2007 and 2006 respectively.

Deferred revenue also includes $127,340 of revenues related to a violation in the terms of a capital lease agreement where the related equipment was sold. The revenues related to the equipment are being deferred until all conditions of the lease are fulfilled. See Note 10.

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 in settlement of $533,147 loan and $316,853 of accounts receivable. As of October 31, 2007, the Company had an investment of $935,000 that is to be available-for-sale for financial reporting purposes. This includes an unrealized gain of $85,000 which has been included in the determination of comprehensive loss.

NOTE 4 - OTHER CURRENT ASSETS

Other current assets on the balance sheet total $691,560 and $103,296 at October 31, 2007 and 2006 respectively. These totals comprise the following:

	2007		2006
Deposits	$	191,352	$	15,152
Value added tax (VAT)		293,934		42,164
Other receivables		206,274		45,980

Total	$	691,560	$	103,296

F-10

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

NOTE 5 - FIXED ASSETS

Property and equipment at October 31, 2007 and 2006 is summarized as follows:

	2007			2006
Machinery and equipment	$	983,115		$	614,305
Accumulated depreciation		(560,377	)		(458,575	)

Net property and equipment assets	$	422,738		$	155,730

Depreciation expense recorded in the statement of operations for the years ended October 31, 2007 and 2006 is $101,802 and $52,396, respectively.

Rental equipment at October 31, 2007 and 2006 is summarized as follows:

	2007			2006
Rental equipment	$	240,876		$	240,876
Accumulated depreciation		(240,876	)		(120,025	)

Net rental equipment assets	$	-		$	120,851

Depreciation expense recorded in the statement of operations for the years ended October 31, 2007 and 2006 is $120,851 and $79,879, 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 October 31, 2007 and 2006 is:

	2007			2006

Customer relationships (weighted average life of 10 years)	$	694,503		$	-
Non-compete agreements (weighted average life of 3 years)		198,911			-
Patents		48,530			30,055
Licenses		100,000			-

Total amortized identifiable intangible assets - gross carrying value		1,041,944			30,055
Less accumulated amortization		(134,266	)		(19,261	)

Net		907,678			10,794

Residual value	$	907,678		$	10,794

F-11

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

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 October 31, 2007 is as follows:

2008	$	195,157
2009		164,719
2010		83,610
2011		71,555
2012 and thereafter		392,637

Total	$	907,678

Amortization of patents, customer relationships, non-compete agreements and licenses included as a charge to income amounted to $115,005 and $4,914 for the years ended October 31, 2007 and 2006, 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 and $1,060,906 as of October 31, 2007 and 2006 respectively. The changes in the carrying amount of goodwill for the years ended October 31, 2007 and 2006 are recorded below.

	2007		2006

Beginning goodwill balance at November 1	$	1,060,906	$	62,315
Goodwill recorded upon acquisition		2,038,669		998,591

Balance at October 31	$	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 October 31, 2007 and 2006, the Company has issued and outstanding 48,245,768 shares and 24,301,980 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 6,407 preferred shares outstanding at October 31, 2007, all of which were Series A.

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.

F-12

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

During the year ended October 31, 2007 we did not issue any further Series A Preferred Stock. We converted 17,234 shares of Series A Preferred Stock into 2,878,418 shares of common stock, along with 2,878,418 warrants at prices ranging from $1.30 to $1.70. At October 31, 2007, the total of Series A Preferred Stock outstanding is 6,407 shares, convertible into 1,050,310 shares of common stock.

We have issued, subsequent to the year end, 200 shares of Series A Preferred Stock, which were subscribed for in March 2007 and converted 320 shares of Series A Preferred Stock into 32,000 shares of common stock.

During the year ended October 31, 2006 we sold 2,947 shares of our Series A Preferred Stock for cash proceeds of $464,100. We also issued 5,694 shares of our Series A Preferred Stock for debt outstanding to related and other parties aggregating $809,628. Of the debt converted, approximately $577,000 was outstanding at October 31, 2005. Each share of preferred stock is denominated either in Pounds Sterling or US Dollars, convertible into 177 shares or 100 shares of common stock respectively. We attributed a beneficial conversion feature of $52,800 to certain of the Series A preferred shares issued during the year ended October 31, 2006, based upon the difference between the conversion price of those shares and the closing price of our common shares on the date of issuance. The beneficial conversion feature was recorded as a dividend and is included in the accompanying financial statements. At October 31, 2006, the total of Series A Preferred Stock outstanding is 23,641 shares, convertible into 3,928,728 shares of common stock.

Series B Preferred Stock

We designated 50,000 shares of our preferred stock, par value $.001, as Series B Preferred Stock. The Series B Preferred Stock ranks junior to our issued and outstanding Series A Preferred Stock and senior to all classes of common stock. The Series B Preferred Stock has a dividend rate of 8% per year. The Series B Preferred Stock and accrued dividends are convertible at the option of the holder into shares of our common stock at a conversion price of $1.00 per share. As of October 31, 2007, we have no shares of Series B Preferred Stock outstanding, compared to 41,000 outstanding as of October 31, 2006.

During the year 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.

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.

During the year ended October 31, 2006 we sold 41,000 preferred Series B stock units, each unit consisting of one share of our Series B Preferred Stock, 100 Series A warrants and 100 Series B warrants. 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 proceeds from the sale of the units were $4,100,000.

F-13

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

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 were allocated to the warrants based on their relative fair value, which totaled $2,919,412 using the Black Scholes option pricing model. Further, we attributed a beneficial conversion feature of $1,180,589 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 367%; (3) weighted average risk-free interest rate of 4.86%; 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 $4,100,000 were recorded as a dividend and are included in the accompanying financial statements.

Common Stock

During the year ending October 31, 2007 we issued 1,742,280 shares of common stock, valued at $2,043,613, to employees, directors and consultants for services.

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 and issued subsequent to the year end. 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.

These transactions result in outstanding common stock of 48,245,768 at October 31, 2007, compared to 24,301,980 at October 31, 2006.

Subsequent to the year end, a further 60,000 shares of common stock have been issued to an investor, which were subscribed for during the year to October 31, 2007.

Other Equity Transactions

During the year 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 year ended October 31, 2007, $1,036,454 was charged to expense.

F-14

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

During the year ended October 31, 2006, we issued in the aggregate 1,315,000 common share purchase options to employees and consultants. The options were issued with exercise prices of $1.00 and $1.50. Of these awards, 598,000 vested immediately and the balance vests over various periods through April 2008. The initial fair value of the options was $922,311 using the Black Scholes method at the date of grant of the options based on the following assumptions ranges: (1) risk free interest rate of 4.25% - 5.1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 328% - 563%; and (4) an expected life of the options of 2 years. The fair value of the options is being expensed over the vesting 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. During the years ended October 31, 2007 and 2006, $222,816 and $675,316 respectively were charged to expense.

During the year ended October 31, 2005, we issued in the aggregate 2,350,000 common share purchase options to employees and consultants. The options were issued with an exercise price of $1.00. Of these awards, 888,500 vested immediately and the balance vests over various periods through May, 2007. The initial fair value of the options was $1,257,600 using the Black Scholes method at the date of grant of the options based on the following assumptions ranges: (1) risk free interest rate of 4.5%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 679%; and (4) an expected life of the options of 2 years. The fair value of the options is being expensed over the vesting 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. During the years ending October 31, 2007 and 2006, $169,327 and $430,039 respectively were charged to expense.

NOTE 8 - WARRANTS AND STOCK OPTIONS

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

	2007					2006
	Number			Weighted Average Exercise Price		Number		Weighted Average Exercise Price

Outstanding at beginning of the period		13,410,000		$	1.29		2,350,000	$	1.00
Granted during the period		23,473,418			1.44		11,060,000		1.35
Exercised during the period		(34,100	)		1.00		-		-
Terminated during the period		(330,000	)		1.22		-		-

Outstanding at the end of the period		36,519,318		$	1.39		13,410,000	$	1.29

Exercisable at the end of the period		35,467,518		$	1.39		12,084,000	$	1.31

The number and weighted average exercise prices of stock purchase options and warrants outstanding as of October 31, 2007 are as follows:

Range of Exercise Prices	Number Outstanding	Weighted Average Contractual Life (Yrs)	Total Vested
0.50	750,000	3.50	750,000
0.58	400,000	3.42	400,000
1.00	5,845,900	3.57	5,585,200
1.30	14,566,709	4.23	14,220,209
1.50	495,000	4.05	328,000
1.70	14,401,709	4.23	14,164,109
1.80	60,000	4.90	20,000
Totals	36,519,318	4.10	35,467,518

F-15

CODA OCTOPUS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2007 and 2006

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 $30,750,000 which expire through 2027, subject to limitations of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset related to the carry forward is approximately $10,455,000. 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 $10,235,000, with no expiration. The deferred tax asset related to the carry-forward is approximately $3,070,000. 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.

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

Components of deferred tax assets as of October 31, 2007 and 2006 are as follows:

Non-Current	2007			2006

Net Operating Loss Carry Forward	$	10,455,000		$	2,429,000
Valuation Allowance		(10,455,000	)		(2,429,000	)

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.

F-16

Delaware	3812	34-200-8348
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification No.)

		Page

Prospectus Summary		1
Risk Factors		3
Forward Looking Statements		8
Use of Proceeds		8
Management's Discussion and Analysis or Plan of Operation		9
Business		22
Description of Property		35
Legal Proceedings		36
Directors and Executive Officers		37
Executive Compensation		40
Security Ownership of Certain Beneficial Owners and Management		48
Market for Common Equity and Related Stockholder Matters		49
Selling Stockholders		50
Recent Financing		53
Certain Relationships and Related Transactions		54
Description of Securities		57
Plan of Distribution		59
Legal Matters		60
Experts		60
Where You Can Find More Information		61
Disclosure of Commission Position on Indemnification for Securities Act Liabilities		61
Index to Consolidated Financial Statements		62

Shares offered by Selling Stockholders		Up to 27,485,943 shares, including 17,800,000 shares issuable upon exercise of warrants

Common Stock to be outstanding after the offering		66,209,927*

Use of Proceeds		We will not receive any proceeds from the sale of the common stock hereunder. See "Use of Proceeds" for a complete description

Risk Factors		The purchase of our common stock involves a high degree of risk. You should carefully review and consider "Risk Factors" beginning on page 3

	Pound Sterling						Norwegian Kroner
	Actual Results			Constant Rates			Actual Results		Constant Rates			Total Effect

Revenues	$	11,256,485		$	(10,268,005	)	$	1,058,181	$	(978,214	)	$	1,068,447
Costs		11,824,358			(10,786,011	)		1,057,910		(977,964	)		1,118,293
Profits/(Losses)		(567,873	)		517,994			271		(250	)		(49,858	)
Assets		11,347,451			(10,422,812	)		758,499		(625,504	)		1,057,634
Liabilities		11,922,351			(10,950,866	)		442,274		(364,726	)		1,049,033
Net Assets/(Liabilities)		(574,900	)		528,054			316,225		(260,778	)		8,601

Option	Description	Estimated Purchase Price		Time Period for Delivery
Option 1 RANGE RESOLUTION ENHANCEMENT	Development of core beam forming hardware and related technology to improve the current 3 or 4cm range resolution to 1 or 2cm, and increase target detection of objects on harbor walls and other close range applications.	$	634,065	Six months from date of exercise

Option 2 INCREASE ECHOSCOPE FREQUENCY	Development of new transducer and channel board hardware to allow operation at higher frequencies (up to 500KHz) which will increase the resolution of the data	$	378,084	Six months from date of exercise

Option 3 AUTOMATED CHANGE DETECTION	Development of software compatible with the UIS platform and designed for on-line detection and post-processing analysis of captured Echoscope data. In essence, the software will have the capability of registering any changes of new data collected against a baseline survey and automatically alert end-user to the changes (i.e the presence of something that was not there on the last inspection - example of a harbor wall).	$	1,122,948	18 months from date of exercise

Option 4 ADVANCED PROTOTYPE UIS SYSTEM	Building of up to seven (7) additional UIS Systems to agreed USCG specifications.	$	3,291,750	Six months from date of exercise

Option 5 DEVELOPMENT OF ONE PIECE F190	Development of a F190 Positioning System to replace the standard two piece system currently used in the UIS.	$	247,434	Six months from date of exercise

	·	marine geophysical survey (commercial), which focuses around oil and gas, construction and oceanographic research and exploration, where we market to survey companies, research institutions, and salvage companies. This was our original focus, from founding in 1994. Our current products encompass 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 (now operating under the name of Coda Octopus Omnitech AS), a company which had developed a prototype system, the Echoscope™, a unique, patented instrument which supplies accurate real time 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.

	·	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 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.

	·	marine geophysical survey (commercial), which focuses around oil and gas, construction and oceanographic research and exploration, where we market to survey companies, research institutions, and salvage companies. This was our original focus, from original founding in 1994. Our current products encompass 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 (now operating under the name of Coda Octopus Omnitech AS), a company which had developed a prototype system, the Echoscope™, a unique, patented instrument which supplies 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.

	·	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.
	·	Early recognition of need for 3-D real-time sonar in defense/security applications.
	·	Expansion into new geographies like North America and Western Europe.
	·	Expansion into new commercial markets like commercial marine survey with innovative products.
	·	Recent sole source classification for one of our products and its derivatives by certain government procurement agencies.

·	inspection of harbor walls;
·	inspection of ship hulls;
·	inspection of bridge pilings;
·	ROV navigation (obstacle avoidance);
·	AUV navigation and target recognition (obstacle avoidance);
·	construction - pipeline touchdown placement and inspection;
·	obstacle avoidance navigation;
·	bathymetry (measurement of water depth to create 3-D terrain models);
·	monitoring underwater construction;
·	underwater intruder detection;
·	dredging and rock dumping;
·	contraband detection;
·	locating and identifying objects undersea, including mines.

	·	Coda Octopus Products - eight persons distributed between the UK and Florida, USA
	·	Martech Systems (Weymouth) - two full time and one part time based in Weymouth, UK
	·	Colmek Systems Engineering - two full time staff, one in California and one in Washington state
	·	Innalogic, Inc. - one staff member based in New York City, USA
	·	Port Security Group - currently being developed by Group-level staff
	·	Group level – one member of staff, based in New York City, USA

	·	Product: The extension of our product line (particularly Echoscope™) through adding value to produce higher added functionality products (eg. UIS™, the Company’s Underwater Inspection System).

	·	Price: The maintenance and enhancement of profit margin through value add (as described above).

	·	Place: The use of strategic partnerships, at the higher value end of the market, particularly to provide solutions rather than product (eg. the provision, through partnership, of a complete port security solution to a major port), and the use of existing and new sales agents to provide sales leads for lower value but very important “pure” product sales.

	·	Promotion: The attendance and illustration of our capabilities at trade shows, use of customer mailing, advertising and trade public relations.

	·	PMA, a lobbying firm based in Washington, DC, is assisting in reaching congressional members to assit with government funding towards the use of our products in port security applications;
	·	CJ Strategies, a lobbying firm based in Washington, DC, is assisting in reaching the US Navy and has strong connections with the state of California;
	·	The Grossman Group, LLC, a lobbying firm based in Washington, D.C, is assisting in helping to gain governmental support for our operations in Utah.

	·	Patent No. 6,438,071 concerns the “Method for Producing a 3-D Image” and is recorded in the European Patents Register File #SH-44923; Australia #55375/99; Norway #307014 and US Patent Office # 6,438,071. This patent relates to the method for producing an image of a submerged object (3), e.g. a shipwreck or the sea bottom, comprising the steps of emitting acoustic waves from a first transducer toward a first chosen volume.

	·	Patent No. 6,532,192 concerns “Subsea Positioning System and Apparatus”, recorded in the US Patent Office. This patent relates to subsea positioning system and apparatus.

	·	6 are employed in research and development in our Bergen facility
	·	4 are employed in production, marketing and administration at our Edinburgh facility
	·	22 are employed in software development, marketing and administration at our Edinburgh office
	·	9 are employed in management and administration at our New York City office
	·	7 are employed in product development, sales and support in New York City
	·	4 are employed in sales and marketing at our Florida office
	·	2 are employed in Government Relations at our Washington, DC, office
	·	23 are employed in Martech in Weymouth, of which 20 are full time employees and 3 are part time (paid on an hourly basis)
	·	22 are employed in Colmek in Salt Lake City, the main categories of employees being engineers and technician.

Name	Age	Position(s)
Jason Reid	42	President, Chief Executive Officer and Director
Paul Nussbaum	60	Chairman of the Board of Directors
Rodney Peacock	62	Director
Jody E. Frank	56	Chief Financial Officer
Blair Cunningham	39	Chief Technology Officer
Anthony Davis	42	President US Operations
Frank B. Moore	72	Senior Vice President, Government Relations
Geoff Turner	55	President European Operations
Angus Lugsdin	31	Senior Vice President, Market Development

	·	being directly responsible for the appointment, compensation and oversight of the independent auditor, which shall report directly to the Audit Committee, including resolution of disagreements between management and auditors regarding financial reporting for the purpose of preparing or issuing an audit report or related work;

	·	to oversee management’s preparation of the Company’s financial statements and management’s conduct regarding the accounting and financial reporting processes;

	·	to oversee management’s maintenance of internal controls and procedures for financial reporting;

	·	to oversee the Company’s compliance with applicable legal and regulatory requirements, including without limitation, those requirements relating to financial controls and reporting;

	·	to oversee the independent auditor’s qualifications and independence;

	·	to oversee the performance of the independent auditors, including the annual independent audit of the Company’s financial statements;

	·	to prepare the report required by the rules of the SEC to be included in the Company’s proxy statement; and

	·	to discharge such duties and responsibilities as may be required of the Audit Committee by the provisions of applicable law or rule or regulation of the American Stock Exchange and the Sarbanes-Oxley Act of 2002.

Name and Principal Position	Year		Salary			Bonus		Restricted Stock Awards			Option Awards			All Other Compensation		Total
			($)			($)		($)			($) (2)			($) (3)		($)

Jason Reid President & Chief Executive Officer		2007 2006		350,000 250,000			-0- -0-		100,000 100,000	(5)(6)		-0- -0-			50,385 12,667		400,385 362,667
Blair Cunningham (1) Chief Technology Officer		2007 2006		175,000 144,072			-0- -0-		50,000 43,750	(7) (8)		-0- -0-			18,866 20,249		243,866 208,071
Anthony Davis (1) President US Operations		2007 2006		175,000 163,796			-0- -0-		50,000 43,750	(7)(8)		-0- -0-			11,962 10,858		236,962 218,404
Jody Frank Chief Financial Officer		2007 2006		104,808 -0-	(4)		-0- -0-		12,908 -0-	(9)		281,243 -0-	(10)		1,750 -0-		400,709 -0-

Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)		Number of Securities Underlying Unexercised Options (#) Unexercisable (c)			Option Exercise Price ($) (e)		Option Expiration Date (f)
Jason Reid President and Chief Executive Officer		400,000				$	1.00		May 2010
Blair Cunningham Chief Technology Officer		200,000				$	1.00		May 2010
Anthony Davis President US Operations		150,000				$	1.00		May 2010
Geoff Turner President European Operations		150,000				$	1.00		November 2010
Frank Moore Senior VP Government Relations		100,500		49,500	**	$	1.00		May 2011
Angus Lugsdin Senior VP Market Development		100,000				$	1.00		May 2010

Name (a)	Fees Earned or Paid in Cash ($) (b)			Stock Awards ($) (c)			Option Awards ($) (d) (4)			Total ($) (j)
Paul Nussbaum	$	30,000	(2)	$	30,000	(5)	$	109,573	(4a)	$	169,573
Rodney Peacock	$	20,000	(3)	$	20,000	(6)	$	73,049	(4b)	$	113,049


	(2)	Consists of an annual retainer in the amount of $45,000 and $3,750 per board meeting attended. Half of these amounts is payable in the Company’s Stock.

	(3)	Consists of an annual retainer in the amount of $25,000 and $3,750 per board meeting attended. Half of these amounts is payable in the Company’s Stock.

	(4a)	Comprising 75,000 options valued based on date of issue using Black Scholes method and booked into our accounts as an expense.

	(4b)	Comprising 50,000 options valued based on date of issue using Black Scholes method and booked into our accounts as an expense.

	(5)	Consist of 24,095 shares.

	(6)	Consist of 15,532 shares.

(a)	assist the Company’s Management with the analysis and effective and optimal implementation of its business plan;
(b)	oversee the Company’s European operations and performance of the Group;
(c)	explore acquisitions, strategic alliances, partnering opportunities and other cooperative ventures within and without its industry focus;
(d)	evaluate possible acquisitions and strategic strategies and partnering candidates, including the evaluation of targets and the structuring of related transactions; and
(e)	advise and consult with executive officers with respect to any of the above described matters.

	·	the unpaid portion of his or her base salary;
	·	reimbursement for out-of-pocket expenses;
	·	continued insurance benefits to the extent required by law;
	·	payment of any vested but unpaid rights as required by any bonus or incentive pay or stock plan or any other employee benefit plan; and
	·	any unpaid bonus or incentive compensation that was approved (except in the case of termination for cause).

	·	a lump sum payment equal to one times the sum of (x) the Executive’s then current Base Salary and (y) the greater of (A) the average of the Executive’s bonuses (taking into account a payment of no bonus or a payment of a bonus of $0) with respect to the preceding three fiscal years (or the period of the Executive’s employment if shorter), (B) the Executive’s bonus with respect to the preceding fiscal year and (C) in the event that such termination of employment occurs before the first anniversary of the Commencement Date, the Executive’s annualized projected bonus for such year (the “Severance Payment”). The Severance Payment shall be paid to the Executive within 60 days following the Date of Termination;
	·	continued payment by Coda Octopus for life, health and disability insurance coverage and salary and other benefits for the Executive and the Executive’s spouse and dependents for one year following the Date of Termination to the same extent that Coda Octopus paid for such coverage immediately prior to the termination of the Executive’s employment and subject to the eligibility requirements and other terms and conditions of such insurance coverage, provided that if any such insurance coverage shall become unavailable during the one year period, Coda Octopus thereafter shall be obliged only to pay to the Executive an amount which, after reduction for income and employment taxes, is equal to the employer premiums for such insurance for the remainder of such severance period; and
	·	vesting as of the Date of Termination in any unvested portion of any stock option, restricted stock and any other long term incentive award previously issued to the Executive by Coda Octopus. Each such stock option must be exercised by the Executive within 180 days after the Date of Termination or the date of the remaining option term, if earlier.

Name and Address of Beneficial Owner (1)	Amount and Nature of Beneficial Ownership of Common Stock (2)		Percent of Common Stock
Jason Reid (3)		23,736,877		49.0	%
Paul Nussbaum (4)		708,295		1.5	%
Rodney Peacock (5)		517,064		1.1	%
Blair Cunningham (6)		490,159		1.0	%
Anthony Davis (7)		390,159		*
Frank B. Moore (8)		215,159		*
Geoff Turner (9)		190,159		*
Jody Frank (10)		187,908		*
Angus Lugsdin (12)		237,587		*
Vision Opportunity Master Fund Limited (11) 317 Madison Avenue, Suite 1220 New York, NY 10017		5,157,472		9.9	%

*All Directors and Executive Officers as a Group* *(nine persons):*		26,673,367		55.1	%

Year Ended October 31, 2006	HIGH		LOW
First Quarter	$	0.65	$	0.45
Second Quarter	$	0.75	$	0.40
Third Quarter	$	1.40	$	0.65
Fourth Quarter	$	1.50	$	1.00

Year Ended October 31, 2007	HIGH		LOW
First Quarter	$	1.55	$	0.72
Second Quarter	$	1.70	$	1.05
Third Quarter	$	1.72	$	1.50
Fourth Quarter	$	1.50	$	0.80

Year Ended October 31, 2008	HIGH		LOW
First Quarter	$	0.88	$	0.45
Second Quarter	$	0.80	$	0.35

Selling Stockholder	Shares Benficially Owned Prior to Offering*		Shares to be Sold in Offering		Shares Beneficially Owned After Offering		Perecentage Beneficial Ownership After Offering
JMG Capital Partners, LP (1)		1,997,400		1,997,400		-0-		n/a
JMG Triton Offshore Fund, Ltd. (2)		1,997,400		1,997,400		-0-		n/a
MM & B Holdings, a California general partnership (3)		2,000,000		2,000,000		-0-		n/a
IRA FBO J. Steven Emerson Rollover II Pershing LLC as Custodian (4)		1,600,000		1,600,000		-0-		n/a
IRA FBO J. Steven Emerson Roth Pershing LLC as Custodian (4)		1,300,000		1,300,000		-0-		n/a
Emerson Partners (4)		400,000		400,000		-0-		n/a
J. Steven Emerson Investment Account (4)		500,000		500,000		-0-		n/a
JMB Capital Partners Master Fund, L.P. (5) **		1,759,000		1,759,000		-0-		n/a
The Jay Goldman Master L.P. (6)		500,000		500,000		-0-		n/a
Woodmont Investments, Ltd. (6)		500,000		500,000		-0-		n/a
John B. Davies **		100,000		100,000		-0-		n/a
Steven B. Dunn **		250,000		250,000		-0-		n/a
The Muhl Family Trust, Phillip E. Muhl & Kristin A. Muhl TTEE DTD 10-11-95 **		100,000		100,000		-0-		n/a
Apex Investment Fund, Ltd. (7) **		500,000		500,000		-0-		n/a
G. Tyler Runnels or Jasmine Niklas Runnels TTEES The Runnels Family Trust DTD 1-11-2000		995,457		150,000		845,457		1.8	%
TRW Capital Growth Fund, LP (8)		300,000		300,000		-0-		n/a
Joseph H. Merback & Tema N. Merback Co-TTEE FBO Merback Family Trust UTD 8-30-89		200,000		200,000		-0-		n/a
B & R Richie's (9)		100,000		100,000		-0-		n/a
Charles B. Runnels Family Trust DTD 10-14-93 Charles B. Runnels & Amy Jo Runnels TTEES **		50,000		25,000		25,000		***
Karen Kang **		10,000		10,000		-0-		n/a
Christopher G. Niklas		20,000		20,000		-0-		n/a
Newberg Family Trust UTD 12/18/90 **		200,000		200,000		-0-		n/a
John W. Galuchie, Jr. & Marianne C. Galuchie Trustees Galuchie Living Trust DTD 9/11/00 **		10,000		10,000		-0-		n/a
Rockmore Investment Master Fund Ltd. (10)		495,000		495,000		-0-		n/a
Bristol Investment Fund, Ltd. (11)		995,000		995,000		-0-		n/a
Whalehaven Capital Fund Limited (12)		849,600		800,000		49,600		***
Cranshire Capital, LP (13)		357,143		357,143		-0-		n/a
Iroquois Master Fund, Ltd. (14)		971,628		800,000		171,628		***
David Sidoo		200,000		200,000		-0-		n/a
Andrew Lessman **		1,000,000		1,000,000		-0-		n/a
Arden Merback **		108,000		50,000		58,000		***
The Sankin Group, LLC (15)		890,000		890,000		-0-		n/a
Matthew Weiss and Michele Weiss JT TEN		200,000		200,000		-0-		n/a
Epsom Investment Services, N.V. (16) **		100,000		100,000		-0-		n/a
Asset Protection Fund Ltd. (17)		500,000		500,000		-0-		n/a
Lord Robin Russell		200,000		200,000		-0-		n/a
W Robert Ramsdell & Majorie F Ramsdell TTEE Ramsdell Family Trust DTD 7/7/94		200,000		200,000		-0-		n/a
Core Fund L.P. (18)		200,000		200,000		-0-		n/a
Ganesha Capital LLP (19)		300,000		300,000		-0-		n/a
Scot J Cohen		2,408,570		1,980,000		428,570		***
Philip Mirabelli		121,428		100,000		21,428		***
Joshua Silverman		121,428		100,000		21,428		***
Richard K Abbe Custodian for Talia Abbe		80,953		66,668		14,285		***
Richard K Abbe Custodia for Samantha Abbe		80,953		66,666		14,285		***
Richard K Abbe Custodian for Bennett Abbe		80,953		66,666		14,285		***
T R Winston & Company (20)		2,400,000		2,400,000		-0-		n/a
Equity Communications, LLC (21)		775,000		400,000		375,000		***
Centrum Bank AG (22)		500,000		500,000
Total				27,485,943

*	The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholder has sole or shared voting power or investment power and also any shares which the selling stockholder has the right to acquire within 60 days. Nevertheless, for purposes hereof, for each selling stockholder, does not give effect to the 4.9% limitation on the number of shares that may be held by each stockholder as agreed to in the warrant held by each selling stockholder which limitation is subject to waiver by the holder upon 61 days prior written notice to us (subject to a further non-waivable limitation of 9.99%). Unless otherwise indicated, for each selling stockholder, the number of shares beneficially owned prior to this offering consists of shares of common stock currently owned by the selling stockholder as well as an equal number of shares of common stock issuable upon the exercise of warrants.
**	Shares reported consist of shares issuable upon warrants only.
***	Less than 1%
(1)	Includes 1,000,000 shares issuable upon exercise of warrants. JMG Capital Partners, L.P. (“JMG Partners”) is a California limited partnership. Its general partner is JMG Capital Management, LLC (the “Manager”), a Delaware limited liability company and an investment adviser that has voting and dispositive power over JMG Partners’ investments, including the Registrable Securities. The equity interests of the Manager are owned by JMG Capital Management, Inc., (“JMG Capital”) a California corporation, and Asset Alliance Holding Corp., a Delaware corporation. Jonathan M. Glaser is the Executive Officer and Director of JMG Capital and has sole investment discretion over JMG Partners’ portfolio holdings.

(2)	Includes 1,000,000 shares issuable upon exercise of warrants. JMG Triton Offshore Fund, Ltd. (the “Fund”) is an international business company organized under the laws of the British Virgin Islands. The Fund’s investment manager is Pacific Assets Management LLC, a Delaware limited liability company (the “Manager”) that has voting and dispositive power over the Fund’s investments, including the Registrable Securities. The equity interests of the Manager are owned by Pacific Capital Management, Inc., a California corporation (“Pacific”) and Asset Alliance Holding Corp., a Delaware corporation. The equity interests of Pacific are owned by Messrs. Roger Richter, Jonathan M. Glaser and Daniel A. David. Messrs. Glaser and Richter have sole investment discretion over the Fund’s portfolio holdings.

(3)	Bryan Ezralow as trustee of the Bryan Ezralow 1994 Trust, general partner of MM & B Holdings has voting and dispositive power over the shares held by that entity.

(4)	J Steven Emerson has voting and dispositive control over the shares held by these selling stockholders.

(5)	Jon Brooks has voting and dispositive control over the shares held by JMB Capital Partners Master Fund.

(6)	Jay Goldman has voting and dispositive control over the shares held by The Jay Goldman Master L.P.

(7)	Susan Fairhurst has voting and dispositive control over the shares held by Apex.

(8)	G. Tyler Runnels has voting and dispositive power over the shares held by TRW Capital Growth Fund, LP.

(9)	Bradley Ross has voting and dispositive control over the shares held by B&R Richies.

(10)	Includes 250,000 shares issuable upon exercise of warrants. Rockmore Capital, LLC (“Rockmore Capital”) and Rockmore Partners, LLC (“Rockmore Partners”), each a limited liability company formed under the laws of the State of Delaware, serve as the investment manager and general partner, respectively, to Rockmore Investments (US) LP, a Delaware limited partnership, which invests all of its assets through Rockmore Investment Master Fund Ltd., an exempted company formed under the laws of Bermuda (“Rockmore Master Fund”). By reason of such relationships, Rockmore Capital and Rockmore Partners may be deemed to share dispositive power over the shares of our common stock owned by Rockrnore Master Fund. Rockmore Capital and Rockmore Partners disclaim beneficial ownership of such shares of our common stock. Rockmore Partners has delegated authority to Rockmore Capital regarding the portfolio management decisions with respect to the shares of common stock owned by Rockmore Master Fund and, as of September 17th, 2006, Mr. Bruce T. Bernstein and Mr. Brian Daly, as officers of Rockmore Capital, are responsible for the portfolio management decisions of the shares of common stock owned by Rockmore Master Fund. By reason of such authority, Messrs. Bernstein and Daly may be deemed to share dispositive power over the shares of our common stock owned by Rockmore Master Fund. Messrs. Bernstein and Daly disclaim beneficial ownership of such shares of our common stock and neither of such persons has any legal right to maintain such authority. No other person has sole or shared voting or dispositive power with respect to the shares of our common stock as those terms are used for purposes under Regulation 13D-G of the Securities Exchange Act of 1934, as amended. No person or “group” (as that term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended, or the SEC’s Regulation 13D-G) controls Rockmore Master Fund.

(11)	Includes 500,000 shares issuable upon exercise of warrants. Bristol Capital Advisers, LLC (“BCA”) is the investment advisor to Bristol Investment Fund, Ltd. (“Bristol”). Paul Kessler is the manager of BCA and as such has voting and investment control over the securities held by Bristol. Mr. Kessler disclaims beneficial ownership of these securities.

(12)	Michael Finkelstein (Investment Manager), Arthur Jones, Trevor Williams, and Marco Weisfeld (Directors) have voting and dispositive control over the shares held by Whalehaven Capital Fund Limited.

(13)	Consist of shares issuable upon exercise of warrants. Mitchell P. Kopin, president of Downsview Capital, Inc., the general partner of Cranshire Capital, LP has sole voting and investment power of these securities.

(14)	Joshua Silverman has voting and investment control over the shares held by Iroquois Master Fund Ltd. Mr. Silverstein disclaims beneficial ownership of these shares.

(15)	Andrew Sankin has sole voting and investment power of the securities held by this entity.

(16)	Steven Drayton has sole voting and investment power of the securities held by Epsom.

(17)	Consists of shares of common stock. David Dawes and Christoph Langenauer share voting and dispositive control over the shares held by Asset Protection Fund Ltd.

(18)	Steven Shum has sole voting and investment power over the securities held by Core Fund, L.P.

(19)	Simon John Evans has sole voting and investment power over the securities held by Ganesha Capital.

(20)	Consists of shares issuable upon exercise of warrants. G. Tyler Runnels, the firm’s Chairman and Chief Executive Officer has voting and investment power over the shares held by T.R. Winston.

(21)	Shares to be sold herewith consist of shares issuable upon exercise of warrants. Other shares held by this entity include shares held by Ira Weingarten, the firm’s president. Mr. Weingarten has voting and dispositive power over the securities held by this entity.

(22)	Consists of shares issuable upon exercise of warrants. Dr. Peter Marxer, Centrum Bank’s Chairman of the Board, has voting and dispositive power with respect to securities held by the bank.

	·	At October 31, 2005 we owed $70,584 to Weight Management Group Limited, a UK Company of which Mr. Reid is Director and Principal Stockholder, for certain services provided, including insurance, healthcare, recharged expenses, vehicle contract hire and administrative services. This balance increased by approximately $5,566 as a result of fluctuating exchange rates, to $76,150 by October 31, 2006. Since October 31, 2006, the amount outstanding to Weight Management Group Limited has been transferred to Weight Management (UK) Ltd (see below), leaving no balance outstanding with this company at October 31, 2007.
	·	As of October 31, 2005, we owed an amount of $351,302 to Softworks Limited, a Scottish company of which Mr. Reid is a Director and Principal Stockholder and of which Blair Cunningham, one of our executive officers, is a Director. During the year ended October 31, 2005, Softworks Limited provided to us consultancy and programming services valued at $218,488, including services provided by Mr. Blair Cunningham and associated expenses for these services. Between November 2005 and July 2006, we provided Softworks Limited with technical support services valued at $85,056. Softworks Limited also loaned us a cash sum of $19,667 over the course of that year. We also received cash totaling $69,108 in connection with receivables assigned to us by Softworks Limited. A total of $520,289 was repaid to Softworks Limited on our behalf by Dr R M Reid and Graham Reid, both family members of Jason Reid, in consideration for which we issued to these individuals 4,029.70 shares of Series A Preferred Stock. Of the remaining outstanding amount, $51,121 was converted into 500 shares of Series A Preferred Stock with an estimated fair value of $20,000, which has since been converted into 50,000 shares of our common stock. In consideration for this early conversion, we also issued warrants to purchase 50,000 shares of common stock at a price ranging from $1.30 to $1.70. These warrants were valued at approximately $54,455. Allowing for a currency translation gain of $783, this left a balance due to Softworks of $1,316, which we repaid in cash on July 31, 2007. There is no balance outstanding between the two companies at October 31, 2007.
	·	As a result of a series of loan transactions, at October 31, 2005 we owed an amount of $81,107 to Fairwater Technology Group Limited, a UK company, of which Mr. Reid is a Director and Principal Stockholder. A summary of material charges and payments between the two entities follows:
	·	A dividend of $30,622 due to Fairwater for an earlier Series A preferred stock investment (since converted into shares of our common stock) was added to the amount owed by us in April 2006, which was paid in June 2006;
	·	An additional $10,491 in cash was loaned to us by Fairwater Technology Group in April 2006; and
	·	Of the balance outstanding, $91,418 was converted into Series A Preferred Stock at April 30, 2006 (which has since been converted into shares of our common stock). Allowing for a currency translation gain of $177, this left a balance due to Fairwater of $878 which was repaid in cash on July 31, 2007.
	·	Dividends due to Fairwater on series A preferred stock, before its conversion on March 25, 2007, were not paid but recognized as a loan from Fairwater to the Company, bearing no interest. This left an amount of $105,685 owed by the Company to Fairwater at October 31, 2007.
	·	At October 31, 2005 we owed an amount of $67,435 to Weight Management (UK) Limited, a UK company of which Mr. Reid is a Director and Principal Stockholder, for services rendered, including administration, internet hosting, office facilities and health insurance. This amount was reduced as follows:
	·	From November 2005 to June 2006, a variety of services were provided by Weight Management (UK) Limited, including health insurance, vehicles, internet hosting, administrative services, insurance, plus the recharge of telephone and travel costs incurred and paid for by Weight Management. These services and recharges totaled $128,159.
	·	From July 2006 to October 2006, we supplied to Weight Management software development and support services totaling $42,418.
	·	We subsequently repaid $98,940 in cash, leaving $54,236 outstanding and due to Weight Management at October 31, 2006.
	·	This amount has subsequently been further repaid through the provision of services by us to Weight Management to the value of $51,646, with a balance of $76,150 also transferred from Weight Management Group (see above). As at October 31, 2007 we are indebted to Weight Management in an amount of $78,740.
	·	Agreement was made by the Company in September 2007 that an amount of $60,000 would be repaid to this company in January 2008.

2008	$	463,062
2009		377,090
2010		360,121
2011		329,549
2012 and thereafter		177,846

Total	$	1,707,667

		2007			2006
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		$	-

The Company had outstanding balances under our UK bank revolving credit facility of $1,119,496 as of October 31, 2006.This balance was fully repaid in the following year. The advances bear interest at 2.0% over UK Bank Base Rate and are due on demand. The advances were secured by a bond and a security interest in the assets of our subsidiary, Coda Octopus Products Ltd, exclusive of accounts receivable.		-		1,119,496

The Company, through its US subsidiary Innalogic, Inc., has a capital lease for equipment for monthly payments of $2,369.74 for 24 months. The Company at year end has sold the equipment and thus violated the terms of the lease that prohibit sale of equipment under the capital lease. The Company has deferred revenue of $127,340 in relation to this capital lease. See Note 2.		41,091		-

The 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.		17,181		-

The 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%.		29,145		-

The Company through its US subsidiary Colmek Systems Engineering, has an unsecured loan note payable to a director and former officer of the Company.		34,104		-

Total	$	321,521	$	1,119,496

Less: current portion		56,382		1,119,496

Total long-term portion	$	265,139	$	-