UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

Commission file number 00: 0-32019

TASKER PRODUCTS CORP. ~~(Exact name of registrant as specified in its charter)~~

Nevada	88-0426048
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

(Exact name of registrant as specified in its charter)

39 Old Ridgebury Road-Suite 14, Danbury, CT 06810-5116 (Address of principal executive offices)

Delaware		88-0426048
(State of incorporation)		(IRS Employer Identification No.)

~~(203) 730-4350~~39 ~~(Registrant’s~~ Old ~~telephone~~Ridgebury ~~number)~~Road-Suite 14,

~~TASKER CAPITAL CORP. (Former name~~Danbury, ~~former address and former fiscal year, if changed since last~~ ~~report)~~ CT 06810-5116

(Address of principal executive offices)

(203) 730-4350

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the registrant’s common stock as of August 1110, 2007 ~~2006~~ was ~~105~~ 109,~~026~~461,~~704~~005.

TASKER PRODUCTS CORP.

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	2
	Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2006 and 2005
	Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2007 and 2006	3
	Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2006 and 2005
	Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2007 and 2006	4
	Unaudited Condensed Consolidated Statements of Cash Flow for the six months ended June 30, 2006 and 2005
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	22
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	31
Item 4.	Controls And Procedures	31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors	32
Item 1A.	Risk Factors
Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds	33
Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds
Item 4.	Submission of Matters to a Vote of Security Holders	34
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits	35
Item 6.	Exhibits
SIGNATURES		36
SIGNATURES

2Forward-Looking Statements

In this Quarterly Report, we state our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called “forward-looking statements” by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those we anticipate. Factors that could cause actual results to differ from those contained in the forward-looking statements include, but are not limited to: our ability to obtain new financing and/or generate revenue growth in the near future; our history of losses; our limited experience in the marketing of our products; our ability to compete with other products in our market space; the risk of unfavorable federal regulation; and the other risks and uncertainties discussed in this Quarterly Report and in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2006 and such other reports and documents that we file from time to time with the Securities and Exchange Commission. Statements included in this Quarterly Report are based upon information known to us as of the date that this Quarterly Report is filed with the Securities and Exchange Commission, and we assume no obligation to update or alter our forward-looking statements made in this Quarterly Report, whether as a result of new information, future events or otherwise, except as otherwise required by applicable federal securities laws.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TASKER PRODUCTS CORP. AND SUBSIDIARIES ~~UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands except per share data)~~

	June 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	367		$	1,037
Marketable securities	3,700			—
Accounts receivable, net of allowance for doubtful accounts of $51 and $80 as of June 30, 2006 and December 31, 2005, respectively	265			155
Notes receivable	701			654
Inventories, net of reserve of $0 and $75 as of June 30, 2006 and December 31, 2005, respectively	1,342			1,351
Prepaid expenses & other current assets	211			192
Total current assets	6,586			3,389
Property and equipment, net	1,437			1,525
Investment in equity investee	656			665
Intangible assets, net	8,300			21,562
Goodwill	23,764			41,677
Deposit, net	39			36
Total assets	$	40,782		$	68,854
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debentures	$	—		$	194
Accounts payable	1,161			1,740
Notes payable — acquisition of IRL	446			446
Other accrued liabilities	1,487			1,612
Total current liabilities	3,094			3,992
Long-term liabilities:
Notes payable — shareholders	457			444
Notes payable — acquisition of IRL	595			1,077
Other long term liabilities	47			53
Total long-term liabilities	1,099			1,574
Stockholders’ equity:
Common stock, $0.001 par value; 300,000 shares authorized; 105,002 and 89,167 shares issued and outstanding as of June 30, 2006 and December 31, 2005, respectively	105			89
Additional paid-in capital	101,163			89,265
Accumulated deficit	(64,679		)	(26,066		)
Total stockholders’ equity	36,589			63,288
Total liabilities and stockholders’ equity	$	40,782		$	68,854

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

~~See~~(In thousands ~~accompanying~~except ~~notes~~per share data)

	June 30,			December 31,
	2007			2006
ASSETS

Current assets:
Cash and cash equivalents	$	740		$	932
Accounts receivable, net of allowance for doubtful accounts of $39 and $24, respectively		462			176
Notes receivable		60			50
Inventories		398			300
Prepaid expenses and other current assets		142			268
Deferred financing costs		897			501
Total current assets		2,699			2,227

Notes receivable, net of current portion		675			669
Property and equipment, net		1,229			1,311
Intangible assets, net		7,499			7,887
Goodwill		9,835			9,835
Deposits, net		41			38
Total assets	$	21,978		$	21,967

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	518		$	1,227
Other accrued liabilities		2,323			2,509
Notes payable - acquisition of IRL		74			679
Convertible bridge notes, net of discount of $1,818 and $1,600, respectively		6,476			320
Derivative liabilities		945			—
Warrants payable - placement agent		1,501			409
Notes payable - shareholders		582			564
Total current liabilities		12,419			5,708

Long-term liabilities:
Other long-term liabilities		25			30
Total long-term liabilities		25			30
Commitments (See Note 11)
Stockholders’ equity:
Common stock, $0.001 par value; 300,000 shares authorized; 109,461 and 106,340 shares issued and outstanding, respectively		109			106
Additional paid-in capital		112,361			105,131
Accumulated deficit		(102,936	)		(89,008	)
Total stockholders’ equity		9,534			16,229
Total liabilities and stockholders’ equity	$	21,978		$	21,967

~~TASKER~~ See ~~PRODUCTS~~ accompanying ~~CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data)~~notes

	THREE MONTHS ENDED JUNE 30,
	2006			2005
Revenues	$	537		$	244
Cost of goods sold	145			84
Gross margin	392			160
Expenses
Selling, general & administrative	2,860			3,158
Product development	514			620
Depreciation and amortization	579			25
Impairment of goodwill and intangible asset	30,152			—
Total expenses	34,105			3,803
Loss from operations	(33,713		)	(3,643		)
Other income (expense):
Interest income	100			44
Interest expense	(22		)	(42		)
Liquidated damages	(49		)	(62		)
Other	(4		)	(10		)
Total other expense, net	25			(70		)
Net loss	$	(33,688	)	$	(3,713	)
Net loss per common share, basic and diluted	$	(0.32	)	$	(0.06	)

~~See~~TASKER PRODUCTS ~~accompanying~~CORP. ~~notes~~AND SUBSIDIARIES

4UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~TASKER~~(In ~~PRODUCTS~~ thousands ~~CORP.~~except ~~AND~~per ~~SUBSIDIARIES~~share data)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended June 30,
	2007			2006

Revenues	$	632		$	537
Cost of goods sold		73			145
Gross margin		559			392

Operating expenses
Selling, general & administrative (1)		3,420			2,910
Product development (1)		349			514
Depreciation and amortization		280			579
Impairment of goodwill and intangible asset		—			30,152
Total operating expenses		4,049			34,155

Loss from operations		(3,490	)		(33,763	)

Other income (expense):
Interest expense		(175	)		(22	)
Interest income		16			100
Amortization of debt discount		(3,187	)		—
Amortization of deferred financing costs		(1,200	)		—
Liquidated damages		—			(49	)
Gain on extinguishment of obligations		4			50
Other		(15	)		(4	)
Total other income (expense), net		(4,557	)		75
Net loss	$	(8,047	)	$	(33,688	)

Net loss per common share, basic and diluted	$	(0.07	)	$	(0.32	)
Weighted average common shares outstanding, basic and diluted		108,958			104,947

(1) Stock-based compensation is allocated as follows:

(In thousands except per share data)

	Three Months Ended June 30,
	2007		2006
Selling, general & administrative	$	1,219	$	1,006
Product development		13		101
Total	$	1,232	$	1,107

	SIX MONTHS ENDED JUNE 30,
	2006			2005
Revenues	$	758		$	305
Cost of goods sold	213			110
Gross margin	545			195
Expenses
Selling, general & administrative	6,941			6,032
Product development	889			986
Depreciation and amortization	1,154			37
Impairment of goodwill and intangible asset	30,152			—
Total expenses	39,136			7,055
Loss from operations	(38,591		)	(6,860		)
Other income (expense):
Interest income	138			90
Interest expense	(49		)	(155		)
Liquidated damages	(136		)	(62		)
Loss on disposal of vehicle	(50		)	—
Other	75			(10		)
Total other expense, net	(22		)	(137		)
Net loss	$	(38,613	)	$	(6,997	)
Net loss per common share, basic and diluted	$	(0.38	)	$	(0.11	)

See accompanying notes

~~See accompanying notes~~3

5TASKER PRODUCTS CORP. AND SUBSIDIARIES

~~TASKER~~UNAUDITED ~~PRODUCTS~~ CONDENSED ~~CORP.~~CONSOLIDATED ~~AND~~STATEMENTS ~~SUBSIDIARIES~~OF OPERATIONS

~~UNAUDITED~~(In ~~CONDENSED~~ thousands ~~CONSOLIDATED~~except ~~STATEMENTS~~per OFshare ~~CASH FLOWS~~data)

(In thousands)

	Six Months Ended June 30,
	2007			2006

Revenues	$	1,057		$	758
Cost of goods sold		168			213
Gross margin		889			545

Operating expenses
Selling, general & administrative (1)		6,606			6,991
Product development (1)		833			889
Write-off of raw material		20			—
Impairment of goodwill and intangible assets		—			30,152
Depreciation and amortization		557			1,154
Total operating expenses		8,016			39,186

Loss from operations		(7,127	)		(38,641	)

Other income (expense):
Interest expense		(280)			(49	)
Interest income		33			138
Amortization of debt discount		(4,872	)		—
Amortization of deferred financing costs		(1,722	)		—
Liquidated damages		—			(136	)
Gain on extinguishment of obligations		55			50
Loss on disposal of vehicle		—			(50	)
Other		(15	)		75
Total other income (expense), net		(6,801	)		28

Net loss	$	(13,928	)	$	(38,613	)
Net loss per common share, basic and diluted	$	(0.13	)	$	(0.38	)
Weighted average common shares outstanding, basic and diluted		107,933			102,749

	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net loss	$	(38,613	)	$	(6,997	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,154			37
Non-cash interest - liquidated damages	136			35
Non-cash interest - interest payable on convertible debentures	19			—
Non cash - loss on disposal of vehicle	50			—
Non-cash interest - note payable and note receivable	(33		)	—
Stock option compensation expense	2,831			484
Impairment charge of goodwill and intangible asset	30,152			—
Allowance for uncollectible accounts receivable	10			—
Loss on equity investee	9			11
Common stock, warrants and options for services	—			2,577
Changes in operating assets and liabilities:
Accounts receivable	(120		)	(225		)
Inventories	9			(1,001		)
Prepaid expenses	(10		)	(327		)
Prepaid commissions	(10		)	(45		)
Accounts payable	(489		)	706
Other accrued liabilities	(286		)	(176		)
Net cash used in operating activities	(5,191		)	(4,921		)
Cash flows from investing activities:
Purchases of available-for-sale securities	(6,350		)	—
Proceeds from available-for-sale securities	2,650			—
Purchases of property and equipment	(93		)	(430		)
Repayment of notes	—			(3,486		)
Payment of acquisition costs	—			(572		)
Investments in equity investee	—			(718		)
Payments for deposits and other	(2		)	(16		)
Net cash used in investing activities	(3,795		)	(5,222		)
Cash flows from financing activities:
Proceeds from private placement	9,335			—
Payment of private placement broker fees	(593		)	—
Exercise of warrants/options	57			167
Repayments on note payable - IRL	(483		)	—
Other	—			1
Net cash provided by financing activities	8,316			168
Net decrease in cash and cash equivalents	(670		)	(9,975		)
Cash and cash equivalents, beginning of period	1,037			14,225
Cash and cash equivalents, end of period	$	367		$	4,250
Supplemental disclosures of cash flow information:
Interest paid	$	13		$	27
Supplemental disclosures of non-cash investing and financing activities:
Fair value of warrants issued as private placement fees	$	593		$	—
Conversion of debt and accrued interest into common stock	$	194		$	270

(1) Stock-based compensation is allocated as follows:

See accompanying notes

	Six Months Ended June 30,
	2007		2006
Selling, general & administrative	$	2,563	$	2,673
Product development		149		158
Total	$	2,712	$	2,831

6See accompanying notes

~~TASKER PRODUCTS CORP. AND SUBSIDIARIES~~4

~~NOTES~~TASKER TO PRODUCTS ~~UNAUDITED~~CORP. ~~CONDENSED~~AND ~~CONSOLIDATED FINANCIAL STATEMENTS~~SUBSIDIARIES

~~1. Basis~~UNAUDITED CONDENSED ofCONSOLIDATED ~~Presentation~~STATEMENTS OF CASH FLOWS

~~Tasker Products Corp.~~ (~~formerly known as Tasker~~In ~~Capital Corp.~~ thousands) was formed on May 13, 1996 and was in the development stage through December 31, 2005. The quarterly period ended March 31, 2006 is the first period during which Tasker Products Corp. is considered an operating company.

In June 2006 the shareholders of Tasker approved an amendment to Tasker’s articles of incorporation to change Tasker’s name to Tasker Products Corp. The name change became effective on June 28, 2006.

	Six Months Ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(13,928	)	$	(38,613	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash items
Depreciation and amortization		557			1,154
Noncash interest and liquidated damages		1			122
Noncash loss on disposal of assets		—			50
Write off of raw materials		20			—
Stock-based compensation		2,712			2,831
Impairment of goodwill and intangible assets		—			30,152
Allowance for uncollectible accounts receivable		15			10
Loss on equity investment		—			9
Amortization of discount on first and second convertible bridge notes		4,873			—
Amortization of deferred financing costs		1,722			—
Gain on change in fair value of derivative liabilities		15			—
Changes in operating assets and liabilities:
Accounts receivable		(301	)		(120	)
Inventories		(118	)		9
Prepaid expenses and other current assets		122			(20	)
Accounts payable		(708	)		(489	)
Other accrued liabilities		(163	)		(286	)
Net cash used in operating activities		(5,181	)		(5,191	)

Cash flows from investing activities:
Purchases of available-for-sale securities		—			(6,350	)
Purchases of property and equipment		(86	)		(93	)
Proceeds from available-for-sale-securities					2,650
Payments for deposits and other					(2	)
Net cash used in investing activities		(86	)		(3,795	)

Cash flows from financing activities:
Proceeds from private placements, net of issue costs		6,375			9,335
Deferred financing costs		(812	)		(593	)
Exercise of warrants / options		122			57
Repayment of auto loan		(5	)		—
Repayments on note payable - IRL		(605	)		(483	)
Net cash provided by financing activities		5,075			8,316

Net decrease in cash and cash equivalents		(192	)		(670	)
Cash and cash equivalents, beginning of period		932			1,037

Cash and cash equivalents, end of period	$	740		$	367

Supplemental disclosures of cash flow information:
Interest paid	$	6		$	13
Supplemental disclosures of non-cash investing and financing activities:
Fair value of warrants issued as private placement fees	$	214		$	593
Recognition of debt discount and beneficial conversion on debt	$	4,161		$	—
Conversion of debt and accrued interest into common stock	$	116		$	194

~~The accompanying~~See ~~unaudited~~ accompanying condensed consolidated financial statements of Tasker Products Corp. and its subsidiaries (collectively, “the Company”) as of June 30, 2006 and December 31, 2005 and for the three and six month periods ended June 30, 2006 and 2005 reflect all adjustments of a normal and recurring nature to present fairly the consolidated financial position, results of operations and cash flows for the interim periods. These unaudited condensed, consolidated financial statements have been prepared by the Company pursuant to the instructions to Form 10-Q, and Article 10 of Regulation S-X. Pursuant to such instructions, certain financial information and footnote disclosures normally included in such financial statements have been condensed or omitted.notes

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto, together with management’s discussion and analysis or plan of operations, contained in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005. The results of operations for the three and six month periods ended June 30, 2006 are not necessarily indicative of the results that may occur for the year ending December 31, 2006.5

~~Certain prior period amounts have been reclassified to~~TASKER ~~conform~~ PRODUCTS toCORP. ~~the~~AND ~~current year presentation.~~SUBSIDIARIES

2.NOTES TO ~~Liquidity~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The Company has incurred losses in its operations in each quarter since it changed its business direction in late 2002~~1. For the three and six months ended June 30, 2006 the Company has incurred a net loss of approximately $33.7 million and $38.6 million, respectively, inclusive of an impairment charge for goodwill and intangible assets of approximately $30.2 million. For the three and six months ended June 30, 2005 the Company has incurred a net loss of approximately $3.7 million and 7.0 million, respectively. In addition the Company has not generated positive cash flow from operations for the three and six months ended June 30, 2006 and 2005. The Company expects to continue to incur losses ~~for at~~ ~~least the short term. To become profitable, the Company must increase~~ Basis revenue substantially and achieve and maintain positive gross and operating margins. If the Company is not able to increase revenue and gross and operating margins sufficiently to achieve profitability, the Company’s results of ~~operations~~ ~~and financial condition will be materially and adversely affected.~~Presentation

AtTasker Products ~~June~~Corp. ~~30,~~(formerly ~~2006,~~known ~~the~~as Tasker Capital Corp.) was formed ~~Company~~ on May 13, ~~had~~1996 aand ~~total~~was ofin ~~approximately~~the $4development stage through December 31, 2005.1 ~~million~~The ofquarterly ~~cash~~period ended March 31, ~~cash~~2006 ~~equivalents~~is ~~and~~the ~~marketable~~ first period ~~securities~~during aswhich aTasker ~~result~~Products ofCorp. ~~the~~is ~~January~~considered ~~2006~~an ~~private placement~~operating company.

~~Based upon the Company’s~~Tasker ~~forecast~~ Products ofCorp. ~~future~~and ~~revenues from~~ its ~~products~~subsidiaries in(collectively, ~~conjunction with~~ the ~~cash~~"Company") ~~and marketable securities on hand~~manufacture, ~~cash expected to be generated from operations~~ ~~may~~ distribute ~~not~~and ~~provide~~market ~~adequate~~products ~~funding~~using ~~for~~pHarlo ~~the~~technology, ~~Company’s~~a ~~working~~process ~~capital~~that ~~over the~~enables ~~next~~ copper ~~twelve~~sulfate, ~~months. The~~a ~~Company~~compound iswith ~~rapidly~~bacteriostatic ~~depleting~~properties, ~~its~~to ~~cash~~remain ~~resources~~active ~~and~~ throughout ~~its~~a ~~ability~~wide torange ~~continue~~of topH ~~operate~~values. ~~and~~The ~~grow~~Company ~~its~~currently ~~business~~markets isthe following: ~~dependent upon~~UnifreshÒ ~~obtaining~~ Footbath, ~~new~~a ~~financing~~grooming ~~and/or~~aid ~~generating~~for ~~revenue~~dairy ~~growth~~cows; ~~from~~Tasker ~~operations. The~~Blue, ~~cost~~an ofantimicrobial ~~any new financing may be prohibitive.~~aid ~~While~~ in the ~~Company~~scalder ~~has~~(a ~~been~~stage in ~~the~~poultry ~~process~~processing ofdesigned ~~aggressively~~to ~~developing,~~loosen ~~marketing and~~feathers ~~selling~~so ~~its~~that they ~~products, there~~ can be nopicked ~~assurances~~and ~~that~~removed ~~those~~mechanically) ~~efforts~~and ~~will~~the bepost-feather picker process ~~met~~ (the ~~with~~method ~~success~~used in ~~the~~chicken ~~marketplace~~processing or that ~~the~~receives ~~timing~~chickens ofimmediately after the ~~Company’s~~scalder ~~efforts will be consistent with its cash availability~~ and ~~burn~~mechanically ~~rate.~~removes Iffeathers) bysections ~~the fourth quarter~~ of ~~2006~~poultry ~~the Company is unable to arrange new financing and/or generate~~processing; ~~sufficient revenue growth from existing~~ and ~~new~~Tasker ~~business~~Pacific ~~arrangements~~BlueÔ Seafood Wash, ~~its liquidity~~a ~~position~~product ~~will~~used ~~become~~in ~~significantly~~commercial ~~impaired~~ and itretail ~~will~~seafood beprocessing ~~forced~~ to ~~consider~~ ~~the further restructuring of its operations, the disposition of~~extend ~~various~~ shelf life ~~assets,~~and ~~the~~reduce ~~seeking of protection from its creditors,~~ or ~~ceasing~~eliminate ~~of operations and liquidation~~odors.

~~Since~~The accompanying ~~the~~unaudited ~~Company’s inception,~~condensed ~~the~~consolidated ~~Company~~financial ~~has~~statements ~~funded~~of ~~operations~~the Company ~~and~~as ~~investing~~of ~~activities~~June ~~through the~~30, ~~sale~~2007 ofand ~~common~~December ~~stock~~31, ~~warrants~~2006 and ~~convertible~~for ~~debt~~the ~~under~~three ~~several~~and ~~private~~six ~~placements.~~ month ~~Requirements~~periods ~~for~~ended ~~liquidated~~June ~~damages~~30, ~~under~~2007 ~~some~~and of2006 ~~these~~reflect ~~private placements~~all ~~may~~adjustments ~~have~~of ana ~~impact~~normal and onrecurring ~~the~~nature ~~Company’s~~to ~~future~~present ~~liquidity.~~fairly Tothe ~~date~~consolidated ~~the~~financial position, ~~Company~~ results ~~has~~of ~~satisfied~~operations and~~/or~~ ~~received~~cash ~~waivers~~flows for the ~~provisions~~interim ~~of a majority~~periods. These of unaudited ~~the~~condensed, ~~agreements~~consolidated ~~that~~financial ~~would~~statements have ~~otherwise~~been ~~required~~prepared by the Company pursuant to ~~pay liquidated~~the ~~damages.,~~instructions ~~Although~~to ~~certain~~Form of10-Q ~~the~~and ~~conditions~~Article ~~that~~10 ~~may~~of ~~result in~~Regulation ~~liquidated~~ S-X. Pursuant ~~damages are~~to ~~not in~~such ~~its control~~instructions, ~~the~~certain ~~Company~~financial ~~does~~information ~~not~~and ~~expect~~ footnote ~~that~~disclosures ~~any~~normally ~~liquidated~~included ~~damage~~in ~~amounts~~such itfinancial ~~may~~statements behave ~~required~~been condensed toor ~~pay will be material~~omitted.

7These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto, together with management’s discussion and analysis or plan of operations, contained in Amendment No. 1 to the Company’s annual report on Form 10-K for the year ended December 31, 2006. The results of operations for the three and six month periods ended June 30, 2007 are not necessarily indicative of the results that may occur for the year ending December 31, 2007.

3.Certain prior ~~Impairment~~period ofamounts ~~Goodwill~~have ~~and Intangible~~been ~~Assets~~reclassified to conform to the current year presentation.

~~In the second~~2. ~~quarter~~ Recent ~~of 2006, the Company’s management tested for impairment of its intangible assets and its goodwill in accordance with Statement of Financial~~ Accounting ~~Standards~~Pronouncements (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) and Statement of Financial Standards No. 142 “Goodwill and Other Intangible Assets” (SFAS No. 142) respectively. The testing was triggered by the following events and circumstances that constitute impairment indicators under the literature:

· In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 creates a single accounting and disclosure model for uncertain tax positions, ~~preliminary~~ provides ~~expectation~~guidance on the minimum threshold that ~~third~~a tax uncertainty is required to meet before it can be recognized in the financial statements and ~~fourth~~applies ~~quarter~~to all tax ~~2006~~positions ~~originally~~taken ~~projected~~by a company, both those deemed to be routine as well as ~~revenues~~ those ~~will~~for ~~not~~which there may be ~~attained;~~a high degree of uncertainty.

· FIN 48 establishes a two-step approach for evaluating tax positions. The first step, ~~decrease~~ recognition, occurs when a company concludes (based solely on the technical aspects of the tax matter) that a tax position is more likely than not to be sustained on examination by a taxing authority. The second step, measurement, is only considered after step one has been satisfied and measures any tax benefit at the largest amount that is deemed more likely than not to be realized upon ultimate settlement of the uncertainty. Tax positions that fail to qualify for initial recognition are recognized in ~~expected~~the ~~future~~first ~~cash~~subsequent ~~flows;~~interim period that they meet the more likely than not standard, when they are resolved through negotiation or litigation with the taxing authority or upon the expiration of the statute of limitations. Derecognition of a tax position previously recognized would occur when a company subsequently concludes that a tax position no longer meets the more likely than not threshold of being sustained. FIN 48 also significantly expands the financial statement disclosure requirements relating to uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of the provisions of FIN 48 did not have a material impact on the Company’s financial position, results of operations and cash flows.

~~· a decline in the market price of the Company’s common stock~~ 6

~~Upon~~In September ~~completion~~2006, of the ~~impairment~~FASB ~~tests~~issued SFAS No. 157, ~~the~~Fair Value ~~Company~~Measurements (“SFAS 157”), ~~recorded~~which ~~non-cash~~defines ~~impairment~~fair ~~charges~~value, ~~to identifiable~~establishes ~~intangible~~a ~~assets~~framework ~~and~~for measuring ~~goodwill~~fair ofvalue ~~$12~~in U.2S. ~~million~~generally ~~and~~accepted ~~$17.9~~accounting ~~million~~principles, and ~~respectively~~ expands disclosures about fair value measurements. ~~Note~~SFAS 157 8applies under ~~describes~~other ~~the~~existing accounting pronouncements that require or permit fair ~~impact~~ value measurements, ofas the FASB previously concluded in those accounting pronouncements ~~for~~that fair value is the ~~adoption~~relevant ofmeasurement attribute. Accordingly, SFAS 157 ~~No.~~does ~~142~~not require any new fair value measurements. However, ~~“Goodwill~~the ~~and~~application ~~Other~~of this statement may change the ~~Intangible~~ Company’s ~~Assets”~~current practice for fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and ~~the~~interim ~~impairment~~periods ~~tests~~within ~~performed~~those ~~during~~fiscal years. The Company is currently evaluating the ~~second~~impact this statement will have on its ~~quarter~~ financial position, results of ~~2006~~operations and cash flows.

4In February 2007, the FASB issued SFAS No. 159, ~~Share~~The Fair Value Option for Financial Assets and Financial Liabilities -~~Based~~ ~~Payments~~Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 permits all entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”). A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and not deferred. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact this statement will have on its financial position, results of operations and cash flows.

~~Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No~~3. ~~123 (revised 2004), “Share-Based Payment” (SFAS 123R). Under SFAS~~ 123(R), the Company is required to recognize, as expense, the estimated fair value of all share-based payments to employees. For the three and six months ended June 30, 2006, the Company recorded expense of approximately $1.7 million and approximately $2.8 million, respectively, in connection with its share-based payment awards to its employees. Liquidity

~~The Company adopted SFAS~~Going 123R under the modified prospective method. Under this method, the Company recognized compensation expense for stock options awarded prior to January 1, 2006, but vested in the six months ended June 30, 2006 based on the grant date estimate of fair value for those awards. Prior period financial information has not been restated. Concern

~~For~~The Company ~~periods~~has ~~prior~~incurred tolosses ~~the~~in its operations in each quarter since it changed ~~adoption~~ its ofbusiness ~~SFAS~~direction ~~123R~~in late 2002. For the three and six months ended June 30, 2007, the Company ~~had~~has ~~elected~~incurred toa ~~follow~~net ~~Accounting~~loss ~~Principles~~of approximately $8.0 million and ~~Board~~ $13.9 ~~Opinion~~million, Norespectively. 25 ~~“Accounting~~The Company has not generated positive cash flow from operating activities for ~~Stock~~the ~~Issued~~six tomonths ~~Employees~~ended June 30,” ~~(APB~~2007 ~~25)~~ and ~~related~~2006. The Company ~~Interpretations~~expects into ~~accounting~~continue ~~for~~to ~~its~~incur ~~share~~losses ~~based~~until ~~payment~~it ~~awards~~can generate sufficient revenue growth from existing and new business arrangements.

~~The following table~~At ~~illustrates~~ June 30, ~~the~~2007, ~~effect on net loss and loss per share as if~~ the Company had ~~applied~~ ~~the~~a ~~fair~~total ~~value recognition provisions~~ of ~~FASB~~approximately ~~Statement No. 123~~$740,000 ~~“Accounting for~~of ~~Stock~~cash ~~Based Compensation,” to its share based payment arrangements for the three~~ and ~~six months ended June 30, 2005~~cash equivalents.

	Three Months Ended June 30, 2005
	(In thousands except per share data)
Net loss, as reported	$	(3,713	)
Add: Stock-based employee compensation expense included in reported net loss	$	—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	$	(1,246	)
Pro forma net loss	$	(4,959	)
Basic and diluted net loss per share, as reported:	$	(0.06	)
Pro forma basic and diluted net loss per share:	$	(0.08	)

Between December 1, 2006 and May 1, 2007, the Company received cash in the amount of approximately $6,295,000 (including cash received during December 2006, in the amount of approximately $1,920,000) from several investors. In exchange for the cash received, the Company issued to the investors 10% Secured Convertible Promissory Notes (the “First Convertible Bridge Notes”), which are convertible into 86,828,841 shares of common stock at a conversion price of $0.0725 per share. As an inducement for the investors to purchase the First Convertible Bridge Notes, the Company issued to these investors four-year warrants, which entitle them to purchase an aggregate of 34,972,733 shares of common stock, which number of shares is based on 50% of the principal amount of the notes purchased by the investors and divided by the per share exercise price of $0.09. As compensation for its services as placement agent, Indigo Securities, LLC received cash in the amount of approximately $629,500 and seven-year warrants to purchase an aggregate of 8,682,894 shares of the Company’s common stock at an exercise price of $0.0725 per share. The placement agent warrants contain a “cashless exercise” option.

	Six Months Ended June 30, 2005
	(In thousands except per share data)
Net loss, as reported	$	(6,997	)
Add: Stock-based employee compensation expense included in reported net loss	$	484
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	$	(3,523	)
Pro forma net loss	$	(10,036	)
Basic and diluted net loss per share, as reported:	$	(0.11	)
Pro forma basic and diluted net loss per share	$	(0.16	)

In June 2007, the Company received cash in the amount of $2,000,000 from one investor. In exchange for the cash received, the Company issued to the investor 10% Secured Convertible Promissory Notes (the “Second Convertible Bridge Notes”), which are convertible into shares of common stock at a conversion price of the lower of $0.16 per share or 90% of the per share amount of a Qualified Financing (as defined below) or if such Qualified Financing has not been completed by July 4, 2007, the lower of $0.16 per share or 80% of the per share amount of a Qualified Financing. Based on a conversion price of $0.16 per share, the Second Convertible Bridge Notes are convertible into 12,500,000 shares of common stock. In conjunction with these Second Convertible Bridge Notes, the Company issued to the investor four-year warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.20 per share. Since the Company did not complete the Qualified Financing by July 4, 2007, such investor will receive additional four-year warrants to purchase 1,000,000 shares of common stock at an exercise price of 0.20 per share. As compensation of its services as placement agent, Indigo Securities, LLC received cash in the amount of $200,000 and will receive seven-year warrants at an exercise price of the lower of $0.20 per share or the per share exercise price of warrants issued in a Qualified Financing. The number of shares of common stock issuable upon exercise price of such warrants will have an aggregate purchase price of $200,000. Based on an exercise price of $0.20 per share, the warrants that will be issued to Indigo will be exercisable into 1,000,000 shares of common stock. The placement agent warrants also contain a “cashless exercise” option. Because the number of shares issuable on conversion are indeterminate and not limited by the terms of the agreement, the conversion option and warrants are required to be recorded as derivative liabilities. (See Note 14)

~~Compensation cost~~A ~~associated~~ “Qualified ~~with~~Financing” ~~employee~~is ~~stock~~an ~~options~~offering ~~represented~~of ~~approximately~~debt ~~$1.1~~securities ~~million and~~with ~~$2.8~~aggregate ~~million, respectively, for the three and six months ended June 30,~~gross ~~2006.~~ proceeds ~~Stock~~of ~~based~~at ~~compensation~~least ~~expense increased by approximately~~ $~~1.1~~10,000,000 ~~million and~~(including ~~$2.3 million during~~ the ~~three~~gross ~~and~~proceeds ~~six months ended June 30, 2006~~ from ~~no expense and $484,000 for~~ the ~~three~~ First and ~~six~~Second ~~months~~Convertible ~~ended~~Bridge ~~June 30, 2005, respectively~~Notes).

~~The~~Based upon ~~compensation~~the ~~cost~~Company’s projections of future revenues from its products and cash on ~~associated~~ hand, including ~~with~~cash ~~these~~of ~~awards~~$6.4 ismillion ~~recorded~~received asfrom ~~expense~~the ~~within~~sale of the ~~same~~Company’s ~~functional~~First and ~~expense~~ Second ~~category~~Convertible asBridge ~~cash~~Notes ~~compensation~~between ~~for~~January 1, 2007 and June 30, 2007, the Company ~~respective~~will ~~employee~~not have adequate working capital to fund its operations during the next twelve months. The Company is ~~recorded~~rapidly depleting its cash resources and its ability to continue to operate and grow its business is dependent upon obtaining new financing or generating sufficient cash flows from operations. The cost of any new No financing ~~tax~~may ~~benefit~~be prohibitive. While the Company has been ~~recognized~~in ~~with~~the ~~respect~~process toof aggressively ~~this~~developing, ~~expense~~marketing ~~as we~~and ~~have~~selling its products, there can be no ~~determined~~ assurances that those efforts will be met with success in ~~our~~the ~~evaluation~~marketplace or that the timing of ~~our~~the ~~tax~~Company’s ~~assets~~efforts ~~that~~will it be consistent with its cash availability and burn rate. If the Company is ~~more~~unable ~~likely~~to ~~than~~arrange new financing and/or generate sufficient revenue growth from existing and new business arrangements, the Company will not have sufficient cash to support its operations and meet its obligations. The Company anticipates that weit will ~~not~~need ~~realize~~approximately ~~any~~an additional ~~benefit~~$4 - $6 million to support its operations and ~~have~~meet ~~provided~~its ~~full~~obligations over ~~valuation~~the next twelve months. The Company is currently reviewing alternative ~~allowances~~ methods of financing, including private issuances of debt and/or equity.

~~The~~In view of ~~stock~~the ~~options~~matters ~~were valued~~described ~~taking~~above, ~~into~~recoverability ~~consideration~~of a ~~forfeiture~~major ~~rate~~portion of ~~6.6%~~the recorded ~~based~~asset onamounts ~~historical experience~~shown ~~and~~in ~~using~~the aaccompanying ~~straight-line~~balance ~~pro-rated~~sheet ~~method~~is dependent upon continued operations of ~~valuation.~~the ~~The resulting~~Company, ~~fair~~which ~~value~~in turn is ~~recorded~~dependent asupon ~~compensation~~the Company’s ~~cost~~ability onto araise ~~straight~~additional ~~line~~capital, ~~basis over~~obtain ~~the~~financing ~~option~~and ~~vesting~~to ~~period~~succeed in its future operations. The ~~assumptions~~financial ~~made~~statements ~~for~~do ~~purposes~~not ofinclude ~~estimating~~any ~~fair~~ adjustments ~~value~~relating ~~under~~to the ~~Black-Scholes~~recoverability ~~model~~and ~~for~~classification ~~options~~of ~~granted~~recorded ~~during~~asset amounts ~~the~~or ~~six~~amounts and classification of liabilities that might be necessary ~~months~~ should ~~ended~~the ~~June~~Company ~~30,~~be ~~2006~~unable ~~were~~to continue as ~~follows:~~a going concern.

Dividend yield:	0	%
Expected term of options (years):	6
Risk free interest rate:	4.88% -5.0	4%
Volatility:	132%-13	5%

Registration Rights Agreements

~~The~~ Since the Company’s ~~estimate~~inception, ~~of an~~the ~~expected~~Company ~~option~~has ~~term~~funded ~~was~~operations ~~derived~~and ~~based~~investing onactivities through the ~~average~~sale of ~~the~~common ~~sum~~stock, ofwarrants ~~the vesting term~~ and ~~the~~convertible ~~original~~debt ~~contract~~under ~~term. The estimated stock price~~several ~~volatility~~ private ~~was~~placements. ~~derived~~Requirements ~~based on a review of the Company’s actual historic volatility~~ for aliquidated ~~period~~damages ~~equal~~under tosome ~~the expected term~~ of ~~its stock options awarded~~these in private ~~the~~placements ~~six~~may ~~months~~have ~~ended~~an ~~June~~impact ~~30,~~on ~~2006, by reference to actual stock prices during this period and historic stock prices over~~ the ~~past~~Company’s ~~five~~future ~~years~~liquidity. ~~The risk~~To ~~free~~ date, ~~interest rate was based on~~ the ~~five~~Company ~~year~~has ~~Treasury~~satisfied ~~note.~~and/or ~~The~~received ~~specific~~waivers ~~stock option valuation assumptions used~~ for ~~awards~~the ~~granted~~provisions of ~~prior to January 1,~~a ~~2006~~ majority ~~are~~of ~~as disclosed in~~ the ~~Company’s~~agreements ~~2005~~that ~~annual~~would ~~report~~have onotherwise ~~Form~~required ~~10-KSB,~~the asCompany to ~~filed~~ pay liquidated ~~with the SEC~~damages.

AAt June 30, ~~summary~~2007, ofthere ~~stock~~was ~~option~~no ~~activity~~derivative ~~for~~liability balance related to the ~~six~~April ~~months~~2004 ~~ended~~ and ~~June~~July 302004 registration rights agreements, ~~2006~~since the shares ispurchased under the April 2004 and July 2004 private placements could be sold under Rule 144(k) of the Securities Act of 1933. Conversely, as ~~follows:~~of June 30, 2007, we had recorded approximately $441,000, the full and maximum potential amount of the actual incurred liquidated damages associated with the April 2004 and the July 2004 registration rights agreements.

	Number of shares		Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate Intrinsic Value
	(In thousands)					(In thousands)
Outstanding, December 31, 2005	16,541		$	0.91
Granted	5,645		$	1.00
Exercised	(175	)	$	0.25
Outstanding, March 31, 2006	22,011		$	0.94	8.7	$	4,328
Granted	530		$	1.00
Exercised	(100	)	$	0.25
Outstanding, June 30, 2006	22,441		$	0.94	8.4	$	2,213
Options exercisable at June 30, 2006	16,336		$	0.87	8.2	$	2,000

On April 26, 2006, the Company filed a registration statement registering resale of securities purchased in the September 2005 and January 2006 private placements. This registration statement was declared effective by the SEC on October 31, 2006. As it relates to the September 2005 private placement, the Company believes that it has used its best efforts to cause the registration statement to be declared effective and, therefore, pursuant to the terms of the September 2005 registration rights agreement, the Company believes that it is not currently liable for liquidated damages as a result of the registration statement not being declared effective by May 23, 2006. Should the rights holders dispute that the Company used its best efforts, and the Company either accedes to their assertion or is found to not have used its best efforts, the estimated maximum amount of liquidated damages for which the Company would be liable, assuming ineffectiveness from May 23, 2006 to October 31, 2006 and for illustration purposes only, from July 1, 2007 to the end of the period covered by the registration agreement is approximately $68,000.

~~The~~As it relates ~~weighted~~to ~~average~~the ~~grant~~January 2006 ~~date~~private ~~fair~~placement, ~~value~~the ofCompany, ~~options~~despite using ~~granted~~ its ~~during~~best efforts, failed to have the ~~three~~registration ~~months~~statement ~~ended~~declared ~~June~~effective by 30the SEC on or before October 26, 2006. ~~and~~Consequently, ~~2005~~as ~~was~~of ~~$0.53~~December ~~and~~31, ~~$2.70~~ 2006, the ~~respectively.~~Company ~~The~~is ~~total~~required ~~intrinsic~~to ~~value~~issue ofto ~~options~~each ~~exercised~~holder ~~during~~of the January 2006 private ~~three~~ placement, ~~months~~shares ~~ended~~and ~~June~~warrants ~~30,~~equal ~~2006~~to ~~was~~one ~~approximately~~percent ~~$40,000.~~of Nothe ~~options~~respective ~~were~~number ~~exercised~~ of shares inand ~~the~~warrants ~~three~~purchased ~~months~~by ~~ended~~each ~~June~~holder ~~30,~~or ~~2005.~~an Asaggregate of ~~June 30~~133,359 ~~2006 there~~shares ~~was approximately $4.0 million~~ of ~~unrecognized~~common ~~compensation~~stock ~~cost~~and ~~related~~warrants to ~~stock~~ ~~option~~purchase ~~awards~~133,359 ~~that~~shares isof ~~expected~~common tostock. beAs of June ~~recognized~~30, as2007, ~~expense~~the ~~over~~Company ~~a weighted~~had ~~average~~not ~~period~~issued ofthese 2shares ~~years~~and warrants.

The weighted average grant date fair value of options granted during the six months ended June 30, 2006 and 2005 was $0.69 and $3.00, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2006 and 2005 was approximately $122,000 and $1.4 ~~million, respectively~~. ~~As of June 30, 2006 there was approximately~~ ~~$4.0~~ Notes ~~million of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of 2 years.~~Receivable

5On March 28, 2005, in connection with the 2005 acquisition of the pHarlo Assets, the Company issued to David Creasey, a principal of pHarlo Citrus Technologies and Indian River Labs, a loan of $625,000. ~~Net~~This ~~Loss~~loan ~~Per~~is ~~Common~~secured by options ~~Share~~and stock that Mr. Creasey holds in the Company. As of June 30, 2007, the balance of this loan is approximately $735,000 including accrued interest of approximately $110,000.

~~The following table sets~~5. ~~forth~~ Goodwill ~~the computation of basic~~ and ~~diluted~~Other ~~net~~Intangible ~~loss per common share for the three and six months ended June 30, 2006 and 2005.~~Assets

	Three Months Ended
	June 30,
	(in thousands except per share data)
	2006			2005
Numerator for basic & diluted net loss per share:
Net loss	$	(33,688	)	$	(3,713	)
Net loss available to common stockholders	$	(33,688	)	$	(3,713	)
Denominator:
Denominator for basic & diluted net loss
per share - weighted-average shares	104,947			63,707
Basic & diluted earnings net loss per share:	$	(0.32	)	$	(0.06	)

The net carrying values of goodwill and other intangible assets at June 30, 2007 were as follows (in thousands):

	Net Carrying Amount/ Adjusted Basis		Additions		Accumulated Amortization		Net Carrying Amount

Amortizable utility patents	$	7,887	$	25	$	413	$	7,499

Goodwill	$	9,835	$	—	$	—	$	9,835

	Six Months Ended
	June 30,
	(in thousands except per share data)
	2006			2005
Numerator for basic & diluted net loss per share:
Net loss	$	(38,613	)	$	(6,997	)
Net loss available to common stockholders	$	(38,613	)	$	(6,997	)
Denominator:
Denominator for basic & diluted net loss per share - weighted-average shares	102,749			61,284
Basic & diluted earnings net loss per share:	$	(0.38	)	$	(0.11	)

The net carrying values of goodwill and other intangible assets at December 31, 2006 were as follows (in thousands):

As of June 30, 2006, 22,440,777 options and 21,497,200 warrants were excluded from the computation of net loss per share because their effect would be anti-dilutive. As of June 30, 2005 18,614,999 options, 7,847,350 warrants, and 2,540,000 of convertible debentures were excluded from the computation of net loss per share because the effect would be anti-dilutive.

	Gross Carrying Amount		Impairment Charges		Accumulated Amortization		Net Carrying Amount/ Adjusted Basis
Amortizable utility patents	$	22,500	$	12,239	$	2,374	$	7,887

Goodwill	$	41,677	$	31,842	$	—	$	9,835

~~6. Marketable Securities~~9

The Company ~~accounts~~recorded ~~for marketable~~amortization ~~securities~~expense inof ~~accordance~~approximately ~~with~~$207,000 ~~Statement~~and of$413,000 related ~~Financial~~to ~~Accounting Standards~~the ~~No.~~other ~~115~~intangible ~~“Accounting~~assets for ~~Certain~~the ~~Investments~~three inand ~~Debt~~six ~~and~~months ~~Equity~~ended ~~Securities”~~June ~~(SFAS~~ 30, ~~115)~~2007, respectively. ~~SFAS~~The ~~115~~Company ~~establishes~~recorded ~~the~~amortization ~~accounting~~expense ~~and~~of ~~reporting requirements for~~$511,000 ~~all debt securities~~ and ~~for~~$1,023,000 ~~investments~~related into ~~equity~~the ~~securities~~other ~~that~~intangible ~~have determinable~~assets ~~fair~~for ~~values.~~the ~~All~~three ~~marketable~~and ~~securities must be classified as one~~six of months ~~the~~ended ~~following:~~June ~~held-to-maturity~~30, ~~available-for-sale~~2006, ~~or trading~~respectively.

~~The Company’s marketable~~Future ~~securities~~ expected ~~consist~~amortization expense of ~~auction~~intangible ~~rate~~assets ~~securities~~for ~~which~~the ~~are~~remaining ~~invested in agencies~~two ~~and~~ quarters ~~institutions~~of ~~affiliated~~the ~~with~~current ~~U.S.~~fiscal ~~states.~~year ~~The Company’s auction rate investments are classified as available-for-sale~~ and ~~are recorded at fair value. Interest income on~~ the ~~Company’s~~subsequent ~~marketable~~fiscal ~~securities~~years is ~~recognized~~as follows (in ~~the~~ ~~statement of operations when earned. The cost of securities sold is determined based on the specific identification method.~~thousands):

The Company’s available-for-sale investments may be offered for sale at auction every 28 days. The auction rate securities have stated contractual maturities, which represents the date they will be redeemed by the issuer, ranging from approximately 22 to approximately 40 years, and may, at the option of the issuer, be redeemed prior to the stated maturity date. As of June 30, 2006, the Company had invested $3.7 million in marketable securities.

2007	$	415
2008		829
2009		829
2010		829
2011		829
2012 and thereafter		3,768

76. Warrants and ~~Inventories~~Stock Options

~~Inventories consisted of the following~~Warrants:

	June 30,		December 31,
	2006		2005
	(in thousands)
Raw Materials	$	921	$	956
Finished Goods	421		470
Inventory Reserve	—		(75		)
	$	1,342	$	1,351

Outstanding warrants (excluding warrants issued for compensation subsequent to adoption of FAS 123R included below under share-based payments) at June 30, 2007, were as follows:

~~Inventories~~· ~~are~~Warrants ~~stated~~to atpurchase ~~the~~524,850 ~~lower~~shares of ~~cost~~common orstock ~~market~~issued with notes payable in November 2002. ~~Cost~~ isThe ~~determined~~warrants ~~using~~have ~~the~~a ~~first~~five-~~in,~~year ~~first-out~~term ~~(FIFO)~~and ~~method~~were issued with an exercise price of $2.00 per share.

11· Warrants to purchase 375,000 shares of common stock issued to pHarlo in connection with a license agreement in November 2002. The warrants have a five-year term and were issued with an exercise price of $0.25 per share.

8· Warrants to purchase 3,025,000 shares of common stock issued to consultants in November 2002. ~~Goodwill~~The warrants have a five-year term and ~~Other~~were ~~Intangible Assets~~issued with an exercise price of $0.25 per share.

~~The~~· ~~Company~~Warrants ~~accounts~~to for goodwill and other intangible assets at their estimated fair values in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. In connection with the July 2005 asset acquisition, the Company recorded goodwill based on the excess of the purchase ~~price~~ ~~over the identifiable tangible and intangible assets acquired and liabilities assumed. Goodwill is tested annually for impairment~~400,000 orshares ~~more frequently when indicators~~ of ~~impairment~~common ~~are~~stock ~~present.~~issued Ifto ~~the~~a ~~carrying~~consultant ~~amount~~in ~~of the~~May ~~goodwill exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill~~2004. The ~~implied~~warrants ~~fair~~have ~~value of goodwill is determined in the same manner as would occur in~~ a ~~purchase~~five-year ~~transaction,~~term ~~treating~~and ~~the~~were ~~fair value~~issued ofwith ~~the~~an ~~reporting~~exercise ~~unit as the equivalent of the purchase~~ price ~~and deducting from that amount, the fair value~~ of ~~the net assets assigned to the reporting unit~~$0.25 ~~The~~per ~~Company is the reporting unit for the purpose of this impairment calculation~~share.

~~The~~· ~~Company~~Warrants ~~considered~~to ~~the~~purchase ~~impairment~~562,500 ~~indicators previously~~shares ~~discussed in Note 3 “Impairment~~ of ~~Goodwill~~common ~~and~~stock ~~Intangible~~issued ~~Asset”. With~~to ~~the~~a ~~assistance~~placement ofagent anin ~~independent~~connection ~~valuation~~with ~~firm, we determined~~ the ~~fair values~~December of2004 ~~our~~private ~~reporting unit utilizing the discounted cash flow method~~placement. The ~~analysis~~ ~~indicated~~warrants ~~that~~have ~~the~~a ~~carrying~~five-year ~~amount~~term ofand ~~our reporting unit exceeded its fair value. Accordingly, under SFAS No. 142, we~~ were ~~required~~issued towith ~~perform the~~an ~~second~~exercise ~~step~~price of the impairment testing for the reporting unit. This step involved the adjustment of the assets and liabilities of the reporting unit to their fair market values as of June 30, 2006, for purposes of comparing the implied fair value of the reporting unit’s goodwill to the carrying amount of such goodwill. The analysis indicated a goodwill impairment of approximately $172.900 ~~million.~~per ~~This amount was recorded in the second quarter of 2006~~share.

The Company’s specifically identifiable intangible assets, which consist exclusively of utility patents, are reported at cost, net of accumulated amortization. These intangible assets are being amortized over their estimated useful lives, which is 11.5 years, at amortization rates that reflect the life of the underlying patent and the asset’s estimated economic benefit to the Company.10

~~The~~· ~~carrying~~Warrants ~~value~~to ~~of these~~purchase ~~intangible assets is reviewed annually by the Company~~1,473,770 orshares ~~more~~of ~~frequently when~~common ~~indicators~~stock ofissued ~~impairment~~to ~~are~~investors ~~present,~~ in ~~accordance~~connection with the ~~provisions~~September ~~of SFAS~~2005 Noprivate placement. ~~144,~~The ~~“Accounting~~warrants ~~for~~have ~~the~~a ~~Impairment or Disposal of Long~~five-~~Lived~~year ~~Assets” which~~term ~~requires~~and ~~impairment~~were ~~losses~~issued towith bean ~~recorded~~exercise onprice ~~long-lived assets used in operations when indicators~~ of ~~impairment~~$1.00 ~~are~~per ~~present and undiscounted cash flows estimated to be generated by these assets are less than the assets’ carrying amount~~share.

~~Accordingly,~~· weWarrants ~~initiated~~to anpurchase ~~impairment~~13,335,925 ~~analysis~~shares of ~~our~~ ~~long-lived~~common ~~assets~~stock ~~and~~issued ~~determined~~to ~~that~~investors ~~the~~in ~~carrying~~connection ~~value~~with ~~of these assets exceeded their projected undiscounted net cash flows. With~~ the ~~assistance~~January of2006 ~~an independent~~private ~~valuation firm, we calculated the fair values of our long-lived assets~~placement. The ~~fair~~warrants ~~values~~have ~~were~~a ~~determined~~five-year ~~based~~term ~~on the discounted cash flow method~~ and ~~indicated~~were ~~that~~issued with an ~~impairment~~exercise ofprice ~~the Company’s intangible assets existed. Accordingly, during the second quarter~~ of ~~2006 the Company recorded an impairment charge of approximately~~ $121.200 ~~million~~per ~~related to the acquired utility patents~~share. ~~The amounts are recorded within impairment of goodwill and intangible assets on the consolidated statements of operations~~

~~The~~· ~~approximate~~Warrants ~~net carrying~~to ~~value~~purchase 800,155 shares of ~~the~~common ~~goodwill~~stock ~~and~~issued ~~other~~to ~~intangible~~a ~~assets~~placement atagent ~~June~~in ~~30,~~connection with the January 2006 private placement. The warrants have a five-year term and ~~December~~ ~~31,~~were ~~2005~~issued ~~are~~with asan ~~follows:~~exercise price of $1.00 per share.

	June 30, 2006
	(in thousands)
	Gross carrying amount		Impairment charge		Accumulated amortization		Net carrying value
Amortized utility patents	$	22,505	$	12,239	$	1,966	$	8,300
Unamortized goodwill	41,677		17,913		—		23,764
Total intangible assets	$	64,182	$	30,152	$	1,966	$	32,064

Warrants to purchase 34,972,733 shares of common stock issued to lenders in connection with the sale of the First Convertible Bridge Notes between December 1, 2006 and May 1, 2007. The warrants have a four-year term and were issued with an exercise price of $0.09 per share.

	December 31, 2005
	(in thousands)
	Gross carrying amount		Accumulated amortization		Net carrying value
Amortized utility patents	$	22,505	$	943	$	21,562
Unamortized goodwill	$	41,677	$	—	$	41,677
Total intangible assets	$	64,182	$	943	$	63,239

Warrants to purchase 8,682,894 shares of common stock issued to a placement agent in connection with the sale of the First Convertible Bridge Notes between December 1, 2006 and May 1, 2007. The warrants have a seven-year term and were issued with an exercise price of $0.0725 per share. On March 6, 2007, we issued 2,000,000 shares of our common stock to our placement agent pursuant to the cashless exercise of 2,983,051 of these warrants.

12· Warrants to purchase 1,000,000 shares of common stock issued to a lender in connection with the sale of the Second Convertible Bridge Notes on June 4, 2007. The warrants have a four-year term and were issued with an exercise price of $0.20 per share.

~~For~~· Warrants to purchase shares of common stock issuable to a placement agent in connection with the ~~three~~sale ~~and~~of ~~six~~the ~~months~~Second ~~ended~~Convertible Bridge Notes on June 304, ~~2006,~~2007. ~~the Company~~The ~~recorded~~number ~~amortization~~of ~~expense~~shares of ~~approximately~~common stock issuable upon exercise price of such warrants will have an aggregate purchase price of $~~489~~200,000 ~~and approximately~~at an exercise price of the lower of $10.20 per share or the per share price of warrants issued in a Qualified Financing. The number of shares into which these warrants are convertible, based on a $0.20 ~~million~~per ~~respectively~~share exercise price, ~~related~~is to1,000,000 ~~the~~shares. ~~intangible~~The ~~assets~~warrants have a seven-year term and contain a "cashless exercise" option.

~~Estimated~~The following ~~amortization~~table ~~expense~~summarizes ~~for~~ the ~~intangible~~Company’s warrant activity (excluding warrants ~~asset~~ issued for ~~the~~compensation ~~remaining~~subsequent ~~two~~to ~~quarters~~adoption of ~~the~~FAS ~~current~~123R ~~fiscal~~included ~~year,~~below ~~and subsequent~~under ~~fiscal~~ share-based ~~years,~~payments) isfor asthe ~~follows~~quarter ended June 30, 2007:

	(in thousands)
	Number of warrants			Exercise Price per warrant		Weighted average exercise price per warrant share
2006	$	395
Outstanding, January 1, 2007		33,812,133		$	0.0725 - $2.00	$	0.59
2007	$	790
Granted		21,351,919		$	0.0725 - $0.09	$	0.09
2008	$	790
Exercised		(2,983,051	)	$	0.0725	$	0.07
2009	$	790
Outstanding, March 31, 2007		52,181,001		$	0.0725 - $2.00	$	0.42
2010	$	790
Granted		11,806,957		$	0.0725 - $0.20	$	0.10
2011 and thereafter	$	4,745
Exercised		—			—		—
Outstanding, June 30, 2007		63,987,958		$	0.0725 - $2.00	$	0.34

~~9. Derivative Instruments~~11

ToThe Warrants ~~date,~~granted ~~the~~pursuant ~~Company~~to ~~has entered~~the ~~into~~April ~~several~~2004 ~~debt~~Private ~~and~~Placement ~~equity~~originally ~~transactions~~had exercise toprices ~~fund~~of ~~its operations~~$0.10 ~~A number~~and of$0.20. ~~these~~However, ~~transactions~~in ~~involved~~accordance with the ~~issuance~~terms of the agreement ~~convertible~~and ~~debt~~upon ~~and warrants.~~specified ~~These~~events ~~transactions~~the ~~also~~exercise ~~included~~prices ~~registration~~of ~~rights~~all ~~agreements~~warrants ~~that~~issued ~~impose~~ in ~~significant~~this ~~penalties~~placement onwere usmodified ifto ~~certain~~$0.05 ~~conditions~~per ~~are~~share ~~not~~in ~~met.~~September As2004 aand further ~~result~~ modified ofto ~~these~~$0.01 ~~registration~~per ~~rights~~share ~~agreements,~~in weMay ~~face~~2005. aAll ~~number~~ of ~~unique~~the ~~and~~warrants issued in ~~complex~~ connection ~~accounting~~to ~~issues,~~the ~~such~~April as2004 ~~the~~Private ~~ones~~Placement ~~discussed~~were ~~below~~exercised during 2006.

The Warrants ~~Company~~granted ~~has~~pursuant ~~issued and~~to ~~outstanding~~the ~~several~~July ~~financial~~2004 ~~instruments~~Private ~~with~~Placement ~~embedded~~originally ~~derivative~~had ~~features,~~ an exercise ~~consisting~~price of ~~convertible~~$0.25. ~~debt~~However, ~~which was converted~~ in ~~full~~accordance inwith the ~~first~~ ~~quarter~~terms of ~~2006,~~the agreement and ~~warrants.~~upon ~~The~~specified ~~Company~~events ~~analyzes~~the ~~these~~exercise ~~financial instruments~~price ~~in accordance with Statement~~ of ~~Financial~~all ~~Accounting~~warrants ~~Standards~~issued ~~(“SFAS”)~~in this ~~No. 133~~ placement ~~and~~were ~~Emerging~~modified ~~Issues~~to ~~Task Force (“EITF”) Issue Nos~~$0. ~~00-19 and~~ 05~~-02~~ toper ~~determine~~share ifin ~~these~~September ~~hybrid~~2004 ~~contracts~~and further ~~have~~ modified ~~embedded~~to ~~derivatives~~$0.01 ~~that~~per ~~must~~share bein ~~bifurcated~~May 2005. InAll ~~addition,~~of ~~free~~the ~~standing~~ warrants ~~are~~issued ~~accounted~~in connection ~~for~~to asthe ~~either~~July ~~equity~~2004 orPrivate ~~liabilities~~Placement inwere ~~accordance~~exercised ~~with~~during ~~the provisions of EITF Issue No~~ 2006. ~~00-19.~~

~~EITF Issue No. 05-4 “~~The ~~Effect of a Liquidated Damages Clause on a Freestanding~~ ~~Financial~~ Warrants ~~Instrument~~granted ~~Subject~~pursuant to ~~EITF~~the ~~Issue~~September ~~No. 00-19,~~2005 ~~“Accounting for~~Private ~~Derivative~~Placement ~~Financial Instruments Indexed to, and Potentially Settled in, a~~originally ~~Company’s Own Stock” addresses financial instruments, such as convertible debt~~ had ~~and~~ an ~~stock~~exercise ~~purchase~~price warrants, which are accounted for under EITF 00-19, that are issued with a corresponding right to have these securities registered pursuant to a registration rights agreement that includes a liquidated damages clause. Alternative accounting treatments of ~~registration rights are discussed in EITF Issue No~~$3. ~~05-4~~00. ~~One~~In ~~alternative~~January ~~treatment~~2006, ~~discussed~~ in ~~EITF~~connection ~~Issue No. 05-4~~with ~~could~~an ~~require the warrants, the convertible debt and the~~amendment ~~registration rights agreement~~ to ~~be treated as a single financial instrument.~~ If the ~~EITF~~agreement ~~implements this approach,~~ the ~~convertible~~exercise ~~debt~~price ~~and~~of the warrants ~~we have~~was ~~issued~~reduced ~~would~~from ~~need to be recorded as a liability at fair value and changes in the fair value of the liability would need to be recorded in the statement of operations each period~~$3.00 ~~Implementation of this approach may have a material non-cash impact~~ to ~~our consolidated financial statement. Since no consensus on~~ ~~EITF Issue No. 05-4 has been reached, we have adopted View C as described in the EITF Issue No. 05-4 Issue Summary No.~~ $1. ~~Under View C, registration rights agreements~~00 ~~and~~ per ~~the related financial instruments are accounted for as separate instruments~~share. ~~Accordingly, we have given only prospective application to this guidance.~~

~~Further~~As of June ~~impact~~30, on2007, ~~our consolidated~~the ~~financial~~weighted ~~statements~~average contractual life of ~~adopting~~warrants ~~the~~outstanding (excluding ~~standard,~~warrants ifissued ~~any,~~for ~~will~~compensation ~~follow~~subsequent to adoption of FAS 123R ~~the~~ included ~~transition~~below ~~guidance~~under ~~when~~share-based ~~released~~payments) is approximately 4.2 years.

In April and July 2004, we entered into private placement agreements and registration rights agreements for convertible debentures and warrants. Based on the interpretive guidance in EITF Issue No. 05Share-~~4 due to an uncapped~~based liquidated damages provision in the registration rights agreements, we determined that the registration rights are derivative liabilities that should be bifurcated from the related financial instruments. Accordingly, the estimated fair value of the registration rights derivative of approximately $244,000 was recorded as a liability as of October 1, 2005, the beginning of the first fiscal period after September payments: 15, 2005, the date that EITF postponed further deliberations. In connection with our December 2004 and January 2006 private placements, our estimated fair value of the related registration rights derivative was immaterial at the inception and at each reporting date since and we have not recorded a liability. At each reporting period, we calculate the estimated fair value of the registration rights derivatives. If the underlying assumptions of the calculation change such that the estimated fair value is not immaterial, we will record a liability at that time. In connection with our September 2005 private placement, our estimated fair value of the related registration rights derivative at its inception was immaterial and we did not record a liability. Subsequently, in connection with the January 2006 private placement, we amended our September 2005 agreement with the rights holder to waive the liquidated damages.

~~Changes~~On January in1, 2006, the ~~estimated fair~~Company ~~value~~adopted of the ~~registration~~provisions ~~rights~~of ~~derivative~~SFAS ~~liability~~No. ~~are~~123R “Share-Based ~~recorded~~Payment” inusing the ~~consolidated~~ ~~statement~~modified ofprospective ~~operations~~transition method. ~~There~~The total ~~was~~expense noassociated ~~change~~with innon-plan ~~the~~warrant ~~fair~~and ~~value~~stock ~~of the~~option ~~registration~~based ~~rights~~employee compensation ~~derivative~~was ~~liability~~approximately in$1,232,000 ~~the~~and ~~second~~$1,107,000 ~~quarter~~for ofthe ~~2006.~~three Atmonths ended June 30, 2007 and 2006, ~~the~~respectively. ~~derivative~~The ~~liability~~total expense associated with non-plan warrant and stock option based employee compensation was approximately $~~150~~2,712,000 and ~~was reported~~$2,831,000 ~~under~~for ~~other~~the ~~accrued~~six ~~liabilities~~months ended June 30, 2007 and 2006, respectively.

13The aggregate intrinsic value in the tables below represent the total intrinsic value (the difference between the closing stock price on the last trading day of the quarter ended June 30, 2007 and the exercise price, multiplied by the number of in-the-money options and warrants) that holders would have received had all such holders exercised their options and warrants on June 30, 2007. This amount changes each reporting period based on changes in the fair market value of the Company’s common stock. Total intrinsic value of options exercised for the three and six months ended June 30, 2007 was $1,000. Total intrinsic value of options exercised for the six months ended 2006 was $122,000.

~~In connection with our~~At ~~examination of past transactions for application of EITF Issue No. 05-4,~~ June we 30, ~~noted that for the period from entering into the April 2004 Securities Purchase Agreement until we increased our authorized shares in August 2004~~2007, ~~we had~~future ~~insufficient~~compensation ~~shares~~cost torelated ~~meet all potential obligations~~ to ~~issue~~non-vested ~~shares~~stock ~~under our~~options ~~convertible notes~~ and ~~exercisable~~ warrants, ~~and~~less ~~options.~~estimated ~~Under EITF Issue No. 00-19~~forfeitures, ais ~~liability~~approximately ~~should~~$3,454,000 beand will be recognized ~~for~~over ~~those~~an ~~financial instruments~~estimated ~~for~~weighted ~~that~~average period, ~~with any changes in the fair value~~ of ~~such liabilities recognized in our consolidated statement of operations~~8.5 ~~Based on our analysis of such liabilities, we determined the effect of any such amounts to be immaterial~~years.

~~10.~~A summary of ~~Contractual~~stock ~~Obligations~~option and ~~Commitments~~ warrants activity is as follows:

The Company has the following commitments as of June 30, 2006, which are comprised primarily of a research and development fee contract, consulting and employment contracts, vendor agreements, notes payable, as well as numerous operating leases.

	Number of options			Weighted Average Exercise Price per option		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding, January 1, 2007		41,640,701		$	0.40
Granted		21,138,333		$	0.17
Cancelled/forfeited		(673,490	)	$	1.46
Outstanding, March 31, 2007		62,105,544		$	0.25		8.47	$	2,531,000
Granted		6,620,000		$	0.18
Exercised		(10,000	)	$	0.25
Cancelled/forfeited		(1,000,000	)	$	0.40
Outstanding, June 30, 2007		67,715,544		$	0.25		8.5	$	3,454,000

Options and warrants exercisable at June 30, 2007		40,218,915		$	0.29		8.3	$	959,457

	(in thousands)
	Payments Due by
	Period		Less Than		1-3		3-5		More Than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Research & development (“R&D”) fees (1)	$	139	$	139	$	—	$	—	$	—
Consulting agreements	136		136		—		—		—
Employment agreements (2)	2,284		559		1,725		—		—
Vendor agreements	41		10		31		—		—
Operating leases	1,249		183		957		109		—
Note(s) payable	1,543		450		1,085		8		—
Total	$	5,392	$	1,477	$	3,798	$	117	$	—

(1) On January 26, 2006, R&D fees payable under a Patent and Sub-License Agreement with pHarlo IP were amended so that these fees are (i) payable on a quarterly basis within 30 days after the end of each calendar quarter and (ii) are based on gross sales of the Company (or its affiliates) of products using the pHarlo technology. For fiscal year 2006, the R&D Fees must not be less than $150,000 and are capped at $500,000. The ~~R&D~~ following ~~Fees~~table ~~have~~summarizes noadditional ~~minimum~~information ~~amounts~~about ~~payable~~stock ~~after~~options ~~2006; however, they are~~granted ~~capped~~ during ~~at $2,000,000 for 2007, $4,000,000 for 2008, $8,000,000 for 2009 and $10,000,000 for 2010 and beyond. In~~ the ~~second~~six ~~quarter~~months ofended ~~2006~~June ~~the Company paid, under this agreement, approximately $11,000 of R&D fees related to the revenue generated in the first quarter of 2006.~~30:

(2) In the first quarter of fiscal 2006, the Company terminated several of its existing employment agreements with some of its senior management and entered into new employment agreements with its current executive management. As of June 30, 2006 the revised estimated future minimum annual compensation under these employment agreements, including the new and terminated agreements for 2006, 2007, 2008 and 2009, is approximately $558,900, $892,800, $782,800 and $49,000, respectively.

	2007			2006
Weighted-average fair value of grants	$	0.14		$	0.69
Risk-free interest rate		4.44%-4.92	%		4.88%-5.04	%
Expected option term		4.0-6.1 years			6.1 years
Stock price volatility		138%-141	%		132%-135	%
Dividend yield		—			—

~~11.~~Outstanding stock ~~Related~~options ~~Party~~and ~~Transactions~~warrants issued for compensation at June 30, 2007, were as follows:

In· ~~2004,~~Warrants weto ~~entered~~purchase ~~into an Exclusive Field of Use License Agreement and Product Sale Agreement with Wynn Starr Special Products~~18,000,000 ~~LLC.~~shares ~~Under the terms~~ of ~~this~~common ~~agreement~~stock ~~and~~issued ~~its subsequent~~to ~~amendments,~~our wePresident ~~granted Wynn Starr the exclusive, worldwide right to market~~ and ~~distribute~~Chief ~~products~~Executive ~~used~~Officer ason ~~post-harvesting~~December ~~processing aids~~1, ~~or chemicals that assist with microbial reduction and shelf life extension without changing food characteristics~~2006, ~~for~~as ~~the~~part ~~poultry~~of ~~industry~~his ~~based on the pHarlo technology~~compensation. ~~Wynn~~The ~~Starr~~warrants ishave ~~also~~a ~~responsible~~ten-year ~~for~~term ~~taking the pHarlo concentrate provided by us~~ and ~~blending~~were itissued with ~~liquids~~exercise toprices ~~create~~ranging ~~the~~from ~~finished product that is ultimately distributed by Wynn Starr~~$0.11 ~~In return for this license, Wynn Starr has agreed~~ to ~~pay us a royalty of~~ $700.0018 per ~~gallon on all net sales (as defined in the Exclusive Field of Use License Agreement and Product Sale Agreement) sold by Wynn Starr for which payment is received from customers~~share. As of June 30, 2006 no royalties were due and none had been paid to us under this royalty arrangement. The Company is currently renegotiating an amendment to this royalty arrangement to align its terms to the current market demand for the product. Steven B. Zavagli, one of the Companys’s directors, is the founder, Chairman and the Chief Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors, Inc.

~~The Company~~· ~~paid~~Warrants ~~Mr.~~to ~~Gordon~~purchase ~~O. Davis~~3,030,000 ~~the~~shares ~~former~~of ~~Chairman~~common ofstock ~~the~~issued ~~board~~to ~~of directors~~employees, ~~approximately~~directors ~~$50~~and consultants on December 26,~~000~~ ~~for~~2006, ~~consulting~~as ~~services~~part ~~during~~of ~~the~~their ~~six~~compensation. ~~months ended~~The ~~June~~warrants ~~30,~~have ~~2006~~a ten-year term and were issued with an exercise price of $0.14 per share.

14· Warrants to purchase 750,000 shares of common stock issued to a director on January 11, 2007, as part of his compensation. The warrants have a ten-year term and were issued with an exercise price of $0.15 per share.

12· Warrants to purchase 9,010,000 shares of common stock issued to employees, directors and consultants on February 5, 2007, as part of their compensation. ~~Sale~~The warrants have a ten-year term and were issued with an exercise price of ~~Equity~~$0.14 ~~Securities~~per share.

In· ~~connection~~Warrants ~~with~~to ~~the January~~purchase ~~2006 private placement~~870,000 ~~the~~shares ~~Company obtained waivers~~ of ~~all~~common ~~claims~~stock for liquidated damages relating to the inability of the Company to have the registration statement registering resale of securities purchased in the September 2005 private placement declared effective by the deadline specified in the applicable registration rights agreement. The Company received these waivers from shareholders representing more than a majority of all outstanding securities issued ~~in connection with the September 2005 private placement. In consideration for obtaining the waiver, the Company repriced the warrants issued~~ to ~~shareholders providing the waiver such that the exercise price of the warrants issued in connection with the September 2005 private placement was reduced from $3.00 to $1.00. Under the waiver~~employees, ~~the~~directors date by which the registration statement covering resale of the securities purchased in the September 2005 private placement was required to be declared effective was extended to May 23, 2006. On April 26, 2006, the Company filed a registration statement registering resale of securities purchased in the September 2005 and ~~January~~consultants ~~2006~~on ~~private~~March ~~placements. The Company believes that it has used its best efforts to cause this registration statement to be declared effective and~~14, ~~therefore,~~ ~~pursuant to the terms of the applicable registration rights agreements~~2007, ~~the Company believes that is not currently liable for liquidated damages~~ as apart ~~result~~ of ~~this~~their ~~registration statement not being declared effective by May 23, 2006~~compensation. ~~Should~~The ~~the~~warrants ~~rights~~have ~~holders~~a ~~dispute~~ten ~~that~~-year ~~the~~term ~~Company used its best efforts,~~ and ~~the~~were ~~Company~~issued ~~either~~with ~~accedes~~an toexercise their assertion or is found to not have used its best efforts, the estimated maximum amount of liquidated damages for which the Company would be liable, assuming (i) ineffectiveness from May 23, 2006 to the end of the period covered by the registration agreement and (ii) a stock price of $0.3719 ~~for~~per ~~periods subsequent to July 26, 2006, is approximately $270,000~~share.

13~~. Restructuring Charges~~

~~During~~· ~~the~~Warrants ~~fourth~~to ~~quarter of~~purchase ~~fiscal year 2005 the Company recorded and paid approximately $29~~50,000 shares of ~~severance~~ tocommon ~~one~~stock ~~executive~~issued ~~and five staff members. Seven more staff members were terminated but no severance was paid~~ to ~~them during this time period. Additionally, in~~ a ~~separate~~former ~~cost~~consultant ~~reduction~~to ~~action~~settle ~~during the first quarter of fiscal year 2006, the Company recorded severance costs of approximately $224,000 for one executive and four administrative staff members whose employment was terminated as~~ a ~~result~~pending oflitigation ~~the~~matter ~~Company’s~~on effort to reduce operating costs. In the first fiscal quarter of 2006, the Company paid $117,000 of the $224,000 severance obligation it recorded in the same quarter. Consequently, the severance obligation accrual balance as of March 3114, ~~2006 was $107,000~~2007. InThe ~~the~~warrants ~~second~~have ~~fiscal~~a ~~quarter~~five of-year ~~2006~~term ~~the~~and ~~Company~~were ~~paid~~issued ~~$92,000~~with ofan ~~the $107,000~~exercise ~~severance~~price ~~obligation accrual that remained as~~ of ~~March 31, 2006. The remaining~~ $0.15~~,000~~ ofper ~~severance obligation outstanding as of June 30, 2006 was paid in July 2006~~share. ~~The severance obligation accrual is included on the unaudited condensed consolidated balance sheets as a part of other accrued liabilities.~~

· Warrants to purchase 10,125,000 shares of common stock issued to our Executive Chairman on March 14, 2007, as part of his compensation. ~~Segments~~ —The ~~Enterprise~~warrants ~~Wide~~have ~~Disclosures~~a ten-year term and were issued with exercise prices of $0.19 per share.

~~The~~· ~~Company~~Warrants ~~owns several utility patents that allow it~~ to ~~produce~~purchase 200,000 ~~market~~shares ~~and~~of ~~distribute~~common ~~certain~~stock ~~product applications~~issued ~~related~~ to ~~these~~two ~~utility~~consultants ~~patents.~~on InApril ~~2005~~13, ~~the Company began selling two product applications~~2007, ~~Unifresh®~~as ~~Footbath~~part ~~and Close Call. The Chief Operating Decision Maker (CODM)~~ of ~~the~~their ~~Company is the President and CEO~~compensation. The ~~operating~~warrants ~~results~~have ofa ~~each~~ten-year ~~product~~term ~~application,~~and ~~other~~were ~~than~~issued ~~for~~with ~~revenue, are~~exercise ~~not~~prices separately tracked or reported. Operating results by product application are not reviewed by the CODM because discrete financial information is not available. Consequently, as permitted by the provisions of ~~SFAS No~~$0.33 ~~131, “Disclosure~~per ~~About Segments of an Enterprise and Related Information,” the Company has one reportable segment for financial statement purposes~~share.

~~Revenue by~~· ~~Product~~Warrants to purchase 1,420,000 shares of common stock issued to employees, directors and consultants on June 29, 2007, as part of their compensation. The warrants have a ten -year term and were issued with an exercise price of $0.20 per share.

~~The~~· ~~Company’s~~Warrants ~~revenue~~to ~~by product~~purchase is5,000,000 shares of common stock issued to the placement agent on June 29, 2007, as ~~follows:~~a fee for various consulting services provided. The warrants have a ten-year term and were issued with an exercise price of $0.19 per share.

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(in thousands)
Unifresh® Footbath	$	477	$	—	$	606	$	—
Close Call™	60		244		152		305
	$	537	$	244	$	758	$	305

7. Net Loss Per Common Share

15The following tables set forth the computation of basic and diluted net loss per common share for the three and six months ended June 30, 2007 and 2006, respectively:

Dependence on Certain Customers

	Three Months Ended
	June 30,
	2007			2006
	(in thousands except per share data)
Numerator for basic and diluted net loss per share:
Net loss	$	(8,047	)	$	(33,688	)
Net loss available to common stockholders	$	(8,047	)	$	(33,688	)

Denominator:
Denominator for basic and diluted net loss per share - weighted-average shares		108,958			104,947

Basic and diluted net loss per common share:	$	(0.07	)	$	(0.32	)

The Company’s dependence on certain customers as a percentage of total revenue is as follows:

	Six Months Ended
	June 30,
	2007			2006
	(in thousands except per share data)
Numerator for basic and diluted net loss per share:
Net loss	$	(13,928	)	$	(38,613	)
Net loss available to common stockholders	$	(13,928	)	$	(38,613	)

Denominator:
Denominator for basic and diluted net loss per share - weighted-average shares		107,933			102,749

Basic and diluted net loss per common share:	$	(0.13	)	$	(0.38	)

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Customer A	39.8	%	—	%	30.9	%	—	%
Customer B	24.7	%	—	%	19.9	%	—	%
Customer C	—	%	33.6	%	—	%	26.9	%
Customer D	—	%	14.5	%	—	%	11.6	%
Customer E	—	%	14.5	%	—	%	11.6	%

As of June 30, 2007, 19,300,232 options, 112,422,958 warrants and 109,556,114 shares of common stock issuable upon the conversion of the First and Second Convertible Bridge Notes were excluded from the computation of net loss per share because their effect would be anti-dilutive. As of June 30, 2006, 22,440,777 options and 21,497,200 warrants were excluded from the computation of net loss per share because the effect would be anti-dilutive.

~~15. Subsequent Events~~14

~~In August 2006, we revised the salary structure of three of our employees and we terminated six other employees~~8. ~~In relation to these reductions we recorded severance costs of~~ ~~approximately $15,000. We expect that these severance costs will be paid in full in the third quarter of 2006.~~ Inventories

16Inventories consisted of the following:

Item 2. Management’s Discussion And Analysis of Financial Condition And Results Of Operations

	June 30,		December 31,
	2007		2006
	(in thousands)
Raw Materials	$	121	$	89
Finished Goods		277		211
	$	398	$	300

~~This Form 10-Q, contains~~Inventories ~~forward-looking~~ are ~~statements,~~stated ~~which~~at ~~include~~the ~~all~~lower ~~statements regarding our expected financial position, results~~ of ~~operations,~~cost ~~cash~~or flows, financing plans, strategy, budgets, capital and other expenditures, competitive positions, growth opportunities, benefits from new technology, plans and objectives of management, and markets for stockmarket. ~~These~~Cost ~~forward-looking~~is ~~statements~~determined ~~are~~using ~~based~~the ~~largely on our expectations and~~ first-in, ~~like any other business, are subject to a number of risks and uncertainties, many of which are beyond our control. In some cases, you can identify forward~~first-~~looking~~out ~~statements~~(FIFO) by words such as “may,” “should,” “expect,” “plan,” “could,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “goal,” or “continue” or similar terminologymethod.

~~Forward-looking statements are not guarantees of performance~~9. ~~They involve risks, uncertainties~~ ~~and assumptions. Future results may differ materially from those expressed in~~ Other ~~the~~ Accrued forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Current and potential investors are cautioned not to put undue reliance on any forward-looking statements, which speak only to the date made.Liabilities

~~For a discussion of some~~Other of accrued ~~the~~liabilities ~~factors~~consisted ~~that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors” in our annual report~~ of ~~Form 10-KSB for~~ the ~~year~~ ~~ended~~following ~~December 31, 2005 and~~ (in ~~Part II, Item 1A of this Form 10-Q. Some of the risks that current and potential investors should be aware of include, but are not limited to, the following~~thousands):

· If we are unable to obtain new financing and/or generate revenue growth by the fourth quarter of 2006, our liquidity position will become significantly impaired;

	June 30, 2007		December 31, 2006

Accrued wages	$	134	$	90
Accrued interest		402		148
Liquidated damages		464		464
Accrued legal and accounting fees		130		240
Accrued consulting		151		198
Litigation settlement		—		423
Accrued purchases		20		99
Other		1,022		847
	$	2,323	$	2,509

~~· We do not maintain effective~~10. ~~controls~~ Notes ~~and procedures and we consistently had material weaknesses in our internal controls over financial reporting;~~Payable

~~· Our limited operating history in~~Notes ~~our~~ Payable ~~present~~to ~~markets;~~Shareholders

~~· Our~~During the ~~limited~~year ~~experience~~ended inDecember 31, 2002, the Company completed a private placement ~~marketing~~ offering ~~our~~for ~~products;~~cash proceeds of $524,850. The Company issued 524,850 shares of common stock, issued warrants to purchase 524,850 shares of common stock at a price of $2.00 per share and issued 5% promissory notes with a face value of $524,325, to the investors. The principal amount and accrued interest are due on November 26, 2007.

· Our need to obtain regulatory approval for the manufacturing and sale of some of our current products and products under development;

	June 30, 2007			December 31, 2006
	(in thousands)
Notes payable, with interest at 5%, fair value	$	524		$	524
Less: Discount to record note at fair value		(224	)		(224	)
		300			300
Less: Note converted into equity		(50	)		(50	)
Amortization of discount to June 30, 2007 and December 31, 2006, respectively		223			217
	$	473		$	467

~~· Our ability to protect our intellectual property rights;~~15

~~· Intense~~The fair value ~~competition~~attributed into ~~our~~the ~~current~~notes is based upon the fair value of the underlying ~~markets;~~ financial instruments. The discount resulting from recording the notes at fair value is being amortized using the effective interest method over the five-year term of the notes. As of June 30, 2007 and December 31, 2006 we have accrued interest related to these notes of approximately $109,000 and $97,000, respectively.

~~· Our products, like most regulated~~Note ~~products,~~ Payable may be subject to various enforcement actions, which could require, among other things, the relabeling, reformulation or recall of products and/or the submission of additional information in support of product claims or safety, or punitive actions, any of which could harm our reputation and business.IRL

~~The~~As partial ~~identification~~consideration infor ~~this document~~the purchase of ~~factors~~the ~~that~~pHarlo ~~may~~assets ~~affect~~in ~~future~~2005, ~~performance~~Tasker issued ~~and~~a promissory note in the ~~accuracy~~amount of $1,931,973 to Indian River Labs, ~~forward-looking~~ LLC (“IRL”). ~~statements~~The ispromissory ~~meant~~note tobears beinterest ~~illustrative~~of 3.4% per annum and byis nopayable ~~means~~in ~~exhaustive~~ equal bi-weekly principal installments of $37,153, plus interest, through July 2007. ~~All~~On ~~forward-looking~~May ~~statements~~22, ~~should~~2007 bewe ~~evaluated~~issued ~~with~~761,963 ~~the~~shares of our common stock, in lieu ~~understanding~~ of cash for two installments of ~~their~~this ~~inherent~~note ~~uncertainty~~payable.

~~Company~~The following ~~Overview~~schedule outlines the activity for this note through June 30, 2007 and December 31, 2006:

We are a manufacturer, distributor and marketer of products using a patented process, which we refer to as the “pHarlo technology,” that utilizes a highly charged and acidified, yet stable and safe, solution that enables copper sulfate, a compound with bacteriostatic properties, to remain active throughout a wide range of pH values. We own the utility patent applications and provisional patent applications associated with the pHarlo technology and have entered into a sub-license agreement for the base patents associated with the pHarlo technology, in the following fields of use:

	June 30, 2007			December 31, 2006
	(in thousands)
Note payable, with interest at 3.4%, fair value	$	1,932		$	1,932
Principal repayments		(1,858	)		(1,253	)
	$	74		$	679

~~· Antimicrobial~~Convertible ~~Composition~~ Bridge ~~for Pre-Harvest and Post-Harvest Treatment of Plants and Animals~~Notes

~~· Antimicrobial~~In ~~Food~~ December ~~Additive~~2006, the Company began an offering of 10% Convertible Promissory Notes in which the Company agreed to issue and ~~Treatment~~sell First Convertible Bridge Notes and warrants to purchase shares of common stock at $0.09 per share. The warrants expire in four years from the date of issuance. The First Convertible Bridge Notes mature six months from issuance and have various maturity dates starting June 1, 2007, bear interest at 10% per annum and are convertible into shares of common stock at a price of $0.0725 per share, including interest, or other securities pursuant to the terms of the First Convertible Bridge Notes. Certain of the notes have matured according to their terms, but no demand for ~~Cooked~~payment has ~~Food~~been made by the holders. The related discounts and deferred financing fees were fully amortized through the maturity dates and interest continues to be accrued. The Company will either pay such notes and related interest when demand is made or, ~~Water~~if elected by the holders, convert the notes and ~~Wastewater~~accrued interest into new notes and/or equity instruments in any Qualified Financing commenced by the Company.

~~· AntimicrobialProcessing Aid and Food Additive (US Provisional Application)~~16

~~· Oral Health~~Between ~~Care~~ December ~~Drink~~1, 2006 and ~~Method~~May 1, 2007, the Company had received cash in the amount of approximately $6,295,000 (including cash received during December 2006, in the amount of approximately $1,920,000) from several investors. In exchange for the cash ~~Reducing~~received, ~~Malodors~~the Company issued to the investors 10% Secured Convertible Promissory Notes (the “First Convertible Bridge Notes”), which are convertible into 86,828,841 shares of common stock at a conversion price of $0.0725 per share. As an inducement for the investors to purchase the First Convertible Bridge Notes, the Company issued to these investors four-year warrants, which entitle them to purchase an aggregate of 34,972,733 shares of common stock, which number of shares is based on 50% of the principal amount of the notes purchased by the investor and divided by the per share exercise price of $0.09.

~~· Skin Care~~All ~~Composition~~ of the ~~for~~proceeds ~~Dermatological~~were ~~Disorders~~allocated ~~including~~to ~~burn~~the warrants and ~~wrinkle~~embedded ~~creams~~beneficial ~~(US~~conversion ~~Provisional~~ feature. ~~Application~~The combined discount is being amortized as additional (noncash) interest ~~Hangover~~expense ~~Remedy~~with ~~and~~a ~~Alcohol~~corresponding ~~Abatement~~increase ~~Composition~~to the First Convertible Bridge Notes over the six-month term of the notes using the effective interest method. For the six months ended June 30, 2007, the Company had amortized $4,835,000 of the combined discount to interest expense.

WeIn recording ~~currently~~the ~~market:~~First Convertible Bridge Notes, the Company first allocated the proceeds from the sale of the First Convertible Bridge Notes between the First Convertible Bridge Notes and the warrants based upon their relative fair values, resulting in the recognition of a discount of approximately $1,666,000. The value of the warrants was computed using the Black-Scholes option pricing model. Second, in accordance with EITF No. 00-27, “Application of Issue 98 - 5 to Certain Convertible Instruments” after allocating a portion of the First Convertible Bridge Note proceeds to the warrants, the Company calculated the value of the embedded beneficial conversion feature in the note by comparing the carrying value of the proceeds, net of the warrant discount, to the fair value of the shares issuable upon conversion of the debentures. If there is a beneficial conversion, it is recognized, as an additional discount to the extent of the remaining proceeds. The Company recognized an additional discount of $4,629,000 for the embedded beneficial conversion feature.

~~· Unifresh~~As compensation ®for ~~Footbath~~its services as placement agent, Indigo Securities, LLC received cash in the amount of approximately $629,500 and seven-year warrants to purchase an aggregate of approximately 8,682,894 shares of the Company’s common stock at an exercise price of $0.0725 per share. These warrants contain a "cashless ~~grooming~~exercise" option. The total fee of $1,721,000, including the fair ~~aid~~ value ~~for~~of ~~dairy~~the ~~cows;~~warrants issued, has been recorded as deferred financing costs and is being amortized as additional (noncash) interest expense over the life of the notes using the effective interest method. On March 6, 2007, the Company issued 2,000,000 shares of its common stock to this placement agent pursuant to the cashless exercise of 2,983,051 of these warrants.

~~· Close~~In June 2007, ~~Call™~~the Company received cash in the amount of $2,000,000 from one investor. In exchange for the cash received, the Company issued to the investor 10% Convertible Promissory Notes (the “Second Convertible Bridge Notes”), which are convertible into shares of common stock at a conversion price of the lower of $0.16 per share or 90% of the per share amount of a Qualified Financing (as defined above) or if such Qualified Financing has not been completed by July 4, 2007, the lower of $0.16 per share or 80% of the per share amount of a Qualified Financing. In conjunction with these Second Convertible Bridge Notes, the Company issued to the investor four-year warrants to purchase 1,000,000 shares of common stock at an ~~oral~~exercise ~~hygiene~~price of $0.20 per share. Since the Company ~~breath~~ did not ~~drink;~~complete the Qualified Financing by July 4, 2007, such investor will receive additional four-year warrants to purchase 1,000,000 shares of common stock at an exercise price of 0.20 per share. As compensation for its services as placement agent, Indigo Securities, LLC received cash in the amount of $200,000 and will receive seven-year warrants at an exercise price of the lower of $0.20 per share or the per share price of warrants issued in a Qualified Financing. The number of shares of common stock issuable upon exercise price of such warrants will have an aggregate purchase price of $200,000. Based on an exercise price of $0.20 per share, the warrants that will be issued to Indigo will be exercisable into 1,000,000 shares of common stock. The placement agent warrants also contain a “cashless exercise” option. Because the number of shares issuable on conversion are indeterminate and not limited by the terms of the agreement, the conversion option and warrants are required to be recorded as derivative liabilities (See Note 14).

~~· Tasker Pacific Blue™ Seafood Wash; and~~17

· Tasker Blue, an antimicrobial processing aid in poultry scalders.

	June 30, 2007			December 31, 2006
	(in thousands)
Convertible bridge notes, with interest at 10%	$	8,295		$	1,920
Less: Discount to warrants and beneficial conversion features		(7,011	)		(1920	)
		1,284			—
Amortization of discount to June 30, 2007		5,192			320
	$	6,476		$	320

1711. Contractual Obligations and Commitments

~~In December 2005 we~~The ~~decided~~ Company tohas ~~concentrate~~the ~~our~~following ~~efforts~~off-balance onsheet ~~the~~commitments ~~development~~as ~~and commercialization~~ of ~~our~~ ~~poultry~~June ~~processing products~~30, ~~seafood processing applications~~2007, which ~~and~~are ~~Unifresh® Footbath~~comprised ~~and~~primarily ~~Unifresh®~~of ~~Pen~~a ~~Spray~~research ~~products.~~and Wedevelopment ~~also~~fee ~~decided~~contract, consulting toand ~~seek~~employment tocontracts, ~~license and/or~~vendor ~~sell~~agreements, ~~the~~notes ~~Close~~payable, ~~Call™~~as ~~brand~~well as ~~and~~numerous ~~derivative~~operating ~~applications~~leases.

Unifresh® Footbath

	(in thousands)
	Payments Due by
	Period		Less Than		1-3		3-5		More Than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Research & development (“R&D”) fees (1)	$	—	$	—	$	—	$	—	$	—
Consulting agreements		121		30		91		—		—
Employment agreements (2)		1,281		301		980		—		—
Vendor agreements		16		11		5		—		—
Operating leases		850		185		665		—		—
Total	$	2,268	$	527	$	1,741	$	—	$	—

We(1) On ~~currently~~January ~~market Unifresh®Footbath~~26, ~~concentrate~~2006, aR&D ~~grooming~~fees ~~aid~~payable ~~that~~under ~~helps~~a ~~clean~~Patent and Sub-License ~~disinfect~~ Agreement ~~the~~with ~~hooves~~pHarlo ofIP ~~dairy~~were ~~cows.~~amended ~~Because~~so ofas ~~the~~to ~~bacteriostatic~~have ~~properties~~no ~~of the~~minimum ~~pHarlo~~amounts ~~technology, this product helps control bacteria that infect the~~payable ~~hooves~~ after of2006; ~~cows and cause interdigital dermatitis~~however, orthey aare ~~bacterial~~capped ~~infection~~at ~~of the skin on a cow’s hoof~~$2, ~~and interdigital papillomatosis~~000,000 orfor ~~a disease that affects a cow’s hoof that may cause severe lameness~~2007, ~~decreased milk yield~~$4,000,000 ~~body~~for ~~weight~~ 2008, ~~loss~~$8,000,000 ~~decreased~~for ~~reproductive~~2009 ~~performance~~ and ~~increased veterinary expenses. Unifresh ®Footbath concentrate was launched during the third quarter of 2005. In the fourth quarter of 2005~~$10, ~~we discovered that our Unifresh ®Footbath product’s effectiveness was diminished in water that had abnormally high alkaline content~~000,000 ~~a term commonly used to refer to the measurement of pH,~~ for ~~example,~~2010 ofand ~~soil~~beyond. WeDuring ~~reformulated our Unifresh ®Footbath concentrate with~~ the ~~addition of a compound that neutralizes~~six ~~alkali,~~ months orended aJune ~~type of base that has a pH greater than 7~~30, ~~which can increase the pH of water or soil. In the first quarter of 2006~~2007, we ~~introduced~~paid ~~our~~approximately ~~enhanced formulation to the market. It is currently being sold to dairy farms throughout the U.S. through our sales force~~$21,000 ~~independent brokers~~ and ~~farm~~accrued ~~product~~$30,000 ~~distributors.~~ R&D ~~We currently market the product as a grooming aid~~fees. ~~No federal agency approvals are required for marketing this product.~~

~~Close~~(2) As ~~Call™~~of June 30, 2007 the estimated future minimum annual compensation under these employment agreements, for 2007, 2008 and 2009, is approximately $301,000, $600,000 and $230,000, respectively.

~~Our oral hygiene drink, Close Call™, is marketed as an oral hygiene breath drink that eliminates odors from tobacco, garlic, onion and alcohol~~12. ~~The FDA requires companies making~~ ~~structure~~ Related orParty ~~function~~Transactions claims relating to a dietary supplement product, such as Close Call™, to “certify that the firm has substantiation that the claim is truthful and not misleading.” While the FDA does not require any presentation of this support, it does require a notice of dietary supplement ingredients and claims. This is currently being prepared. We currently market the product as a beverage, but there can be no assurance that the FDA will agree with this characterization or the product claims, which could result in additional regulatory requirements and potentially subject us to a variety of enforcement actions.

~~We believe that our Close~~Greg Call™ product could be marketed more efficiently by a company either already established in the industry or with more commercial resources. Therefore, we plan to seek to license and/or sell the Close Call™ brand or derivative applications. Osborn

~~Poultry~~In April 2007, ~~Processing~~the Company entered into an employment agreement with Greg Osborn in connection with his appointment as Executive Chairman, effective March 14, 2007. The agreement provides for, among other things, a term of up to 21 months, an annual salary of $60,000, an annual bonus at the discretion of the board, the grant of initial warrants for the purchase of 2,625,000 shares of the Company’s common stock exercisable on a quarterly basis over the term of the agreement at an exercise price of $0.19 per share, the grant of additional warrants exercisable for 7,500,000 shares of the Company’s common stock at an exercise price of $0.19 per share with vesting contingent upon achievement of contractually specified performance goals, severance payments and a cash payment of $20,000 per month for a period of nine months commencing when the Company reaches profitability. Mr. Osborn is the Managing Partner of Indigo Securities, LLC, the firm that served from December 2006 to June 2007 as placement agent for the offering of the First and Second Convertible Bridge Notes.

In August 2005, we began the in-plant commercial verification process for USDA approval to use the pHarlo technology in the scalder process of poultry processing. In January 2006 we received initial consent from the USDA to continue in-plant testing in two additional plants. We completed these tests and we submitted their results of the tests to USDA for review in the second quarter of 2006. In August 2006 we received a letter from the USDA indicating that it had no objection to the use of our product as an antimicrobial processing aid in poultry scalders. This letter enables us to begin commercialization of the product in the United States.18

~~Seafood~~Mr. Osborn ~~Processing~~purchased ~~Products~~First Convertible Bridge Notes in the aggregate principal amount of $25,000 and received four-year warrants to purchase an aggregate of 138,888 shares of the Company's common stock at an exercise price of $0.09 per share.

WeAs of ~~recently began~~May ~~marketing~~ 1, 2007, Indigo Securities, LLC, the ~~pHarlo~~placement ~~technology~~agent ~~for~~of ~~use~~the inFirst ~~pathogen~~Convertible Bridge ~~reduction,~~Notes orreceived in the aggregate a ~~process~~fee ~~by which~~of ~~certain~~approximately ~~bacteria~~$629,500 ~~that~~and seven-year ~~cause~~warrants ~~disease~~to orpurchase ~~illness~~an ~~are~~aggregate ~~reduced~~of inapproximately ~~number~~8,682,894 orshares ~~eliminated,~~ of ~~and~~the ~~shelf~~Company's ~~life~~common ~~extension,~~stock orat ~~the~~an ~~act~~exercise price of ~~increasing~~$0.0725 ~~the~~per ~~length~~share. ofAlso, ~~the~~ in ~~time~~connection awith ~~product~~the ~~can~~Second ~~spend~~Convertible ~~during~~Bridge ~~processing,~~Notes ~~distribution~~Indigo ~~and~~Securities, ~~retail before~~LLC ~~becoming~~ received ~~unacceptable~~cash ~~for~~of ~~consumption~~$200,000 inand ~~seafood~~will ~~processing,~~receive ~~subject~~seven-year towarrants. ~~the~~The number ~~receipt~~ of shares of ~~any~~common ~~necessary~~stock ~~regulatory~~issuable ~~approvals.~~upon ~~Our~~exercise ~~product,~~price ~~Tasker~~of ~~Pacific~~such ~~Blue~~warrants will have ~~Seafood~~ an ~~Wash,~~aggregate ~~has~~purchase ~~been~~price ~~tested~~of $200,000 at an exercise price of the ~~North~~lower ~~Carolina~~of $0.20 ~~State~~per ~~Center~~share ~~for~~or ~~Marine~~the per share price of warrants issued in a Qualified ~~Science~~ Financing. &The ~~Technology,~~number ~~Virginia~~of ~~Tech~~shares ~~University~~that ~~and~~the ~~Mississippi~~Indigo ~~State~~warrants are convertible into ~~University~~ based on ~~shrimp,~~a ~~mahi~~$0.20 ~~mahi,~~per ~~salmon,~~share ~~flounder,~~exercise ~~scallops~~price ~~and~~is ~~catfish~~1,000,000 shares. The warrants ~~results~~ contain a "cashless exercise" option. Warrants to purchase 5,000,000 shares of ~~these~~common ~~studies~~stock ~~indicated~~were ~~that~~issued to the ~~pHarlo~~placement ~~technology~~agent ~~could~~on ~~possibly~~June 29, 2007, as a fee ~~double~~ for ~~the~~various ~~shelf~~consulting ~~life~~services onprovided. ~~catfish~~The ~~filets~~warrants have a ten-year term and were ~~significantly~~issued ~~increase~~with ~~the~~an ~~shelf life~~exercise price of ~~scallops~~$0.19 per share.

~~Financial Overview~~Wynn Starr

AsIn 2004, the aCompany ~~result~~entered ofinto an Exclusive Field of Use License Agreement and Product ~~acquisition~~ Sale inAgreement ~~July~~with ~~2005~~Wynn Starr Special Products, weLLC. ~~now~~Under ~~own~~the ~~certain~~terms ~~utility~~of ~~patent~~this agreement, ~~applications~~as amended through January 23, 2007, the Company has granted Wynn Starr a worldwide right to market and distribute products used as ~~provisional~~ post-harvesting ~~patent~~processing ~~applications~~aids ~~associated~~for ~~with~~the poultry industry based on the pHarlo technology. ~~including~~ In return for ~~pre-harvest~~this license, Wynn Starr will purchase licensed products from the Company and ~~post-harvest~~will ~~food~~withhold ~~processing~~up to 25% of the net sale price per gallon sold, ~~skin~~based ~~care~~on different increments of achieved net sale prices. The amended agreement also includes other target performance criteria such that, if met ~~pet~~by ~~products~~Wynn Starr, the Company will issue to Wynn Starr a warrant to purchase ~~hangover~~ up to ~~remedy~~1,300,000 ~~alcohol~~shares ~~abatement~~of the Company’s common stock with an exercise price based upon the closing price of the Company’s common stock on January 23, 2007, the date of the amendment. As of June 30, 2007, the Company had paid $14,000 to Wynn Starr and ~~water~~had ~~purification~~accrued ~~applications~~$22,000 under this royalty arrangement. Steven B. Zavagli, a former member of the Company’s board of directors, is the founder, Chairman and the Chief Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors, Inc.

~~We had a net loss of~~Gordon approximately $33.7 million in the three months ended June 30, 2006 compared to a net loss of $3.7 million in the three months ended June 30, 2005. Excluding the charge for the impairment of goodwill and intangible assets of approximately $30.2 million and the stock based compensation expense of approximately $1.1 million, our net loss for the three months ended June 30, 2006 decreased by approximately $1.3 million to $2.4 million as compared to a net loss of $3.7 million for the three months ended June 30, 2005. There was no stock based compensation expense for the three months ended June 30, 2005. Davis

18During the six months ended June 30, 2007, the Company paid Gordon O. Davis, the former Chairman of the Board of Directors, who resigned in May 2006, approximately $65,000 under a consulting services agreement, as amended on March 7, 2007. Mr. Davis is the father in law of the Company’s Chief Financial Officer.

~~We had a net loss of approximately $38~~13.~~6 million in the six months ended June 30, 2006 compared to a~~ ~~net~~ Segments ~~loss~~— ofEnterprise ~~$7.0~~Wide million in the six months ended June 30, 2005. Excluding the charge for the impairment of goodwill and intangible assets of approximately $30.2 million and the stock based compensation expense of $2.8 million our net loss for the six months ended June 30, 2006 decreased by approximately $880,000 to $5.6 million as compared to a net loss of $6.5 million for the three months ended June 30, 2005, excluding stock based compensation expense of approximately $484,000. The increase in stock based compensation expense is due to the adoption of SFAS 123R “Share Based Payment” on January 1, 2006. As a result of the adoption of SFAS 123(R), the fair value of all stock-based compensation is now recorded as expense in our financial statements, rather than as a footnote disclosure.Disclosures

~~Liquidity~~The Company owns several utility patents and patent applications that cover certain products applications that are marketed and sold by the Company. The Chief Operating Decision Maker (CODM) of the Company is the President and CEO. The operating results of each product application, other than for revenue, are not separately tracked or reported. Operating results by product application are not reviewed by the CODM because discrete financial information is not available. Consequently, as permitted by the provisions of SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,” the Company has one reportable segment for financial statement purposes.

~~Based upon our forecast~~Revenue of future revenues from our products in conjunction with the cash and marketable securities on hand, cash expected to be generated from operations may not provide adequate funding for our working capital over the next twelve months. We are rapidly depleting our cash resources and our ability to continue to operate and grow our business is dependent upon obtaining new financing and/or generating revenue growth from operations. The cost of any new financing may be prohibitive. While we have been in the process of aggressively developing, marketing and selling our products, there can be no assurances that those efforts will be met with success in the marketplace or that the timing of our efforts will be consistent with our cash availability and burn rate. If by the fourth quarter of 2006 we are unable to arrange new financing and/or generate sufficient revenue growth from existing and new business arrangements, our liquidity position will become significantly impaired and we will be forced to consider the further restructuring of our operations, the disposition of various assets, the seeking of protection from our creditors, or ceasing of operations and liquidation.Product

~~Impairment~~The Company’s ofrevenue ~~goodwill~~by ~~and~~product ~~intangible~~is ~~assets~~as follows:

In the second quarter of 2006, we tested for impairment of our intangible assets and our goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) and Statement of Financial Standards No. 142 “Goodwill and Other Intangible Assets” (SFAS No. 142) respectively. Our testing was triggered by the following events and circumstances that constitute impairment indicators under the literature:

	Three Months Ended June 30,
	2007		2006
	(in thousands)
Unifresh® Footbath	$	342	$	477
Tasker Blue Poultry Processing		283		—
Close Call™		—		60
Other		7		—
	$	632	$	537

~~· a preliminary expectation that third and fourth quarter 2006 originally projected revenues will not be attained;~~19

· a decrease in expected future cash flows; and

		Six Months Ended June 30,
		2007		2006
		(in thousands)
Unifresh® Footbath	$	591	$	606
Tasker Blue Poultry Processing		458		—
Close Call™		—		152
Other		8		—
	$	1,057	$	758

~~· a decline in~~Dependence ~~the~~ on ~~market~~Certain ~~price of our common stock~~Customers

~~Upon completion of~~The ~~the~~ Company’s ~~impairment~~dependence ~~tests,~~on wecertain ~~recorded~~customers ~~non-cash~~as ~~impairment~~a ~~charges~~percentage ~~to intangible assets and goodwill~~ of ~~$12.2~~total ~~million~~revenue ~~and~~is ~~$17.9 million, respectively. Note 8 to our unaudited condensed~~as consolidated financial statements describes the impact of accounting for the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets”, and the impairment tests performed during the second quarter of 2006. follows:

Related Party Transactions

	Three Months Ended June 30,
	2007			2006
Customer A		13	%		40	%
Customer B		6	%		25	%
Customer C		38	%		—	%
Customer D		23	%		—	%

In 2004, we entered into an Exclusive Field of Use License Agreement and Product Sale Agreement with Wynn Starr Special Products, LLC. Under the terms of this agreement and its subsequent amendments, we granted Wynn Starr the exclusive, worldwide right to market and distribute products used as post-harvesting processing aids, or chemicals that assist with microbial reduction and shelf life extension without changing food characteristics, for the poultry industry based on the pHarlo technology. Wynn Starr is also responsible for taking the pHarlo concentrate provided by us and blending it with liquids to create the finished product that is ultimately distributed by Wynn Starr. In return for this license, Wynn Starr has agreed to pay us a royalty of $70.00 per gallon on all net sales (as defined in the Exclusive Field of Use License Agreement and Product Sale Agreement) sold by Wynn Starr for which payment is received from customers. As of June 30, 2006 no royalties were due and none had been paid to us under this royalty arrangement. We are currently renegotiating this royalty arrangement to align its terms to the current market demand for the product. Steven B. Zavagli, one of our directors, is the founder, Chairman and the Chief Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors, Inc.

	Six Months Ended June 30,
	2007			2006
Customer A		15	%		31	%
Customer B		7	%		20	%
Customer C		38	%		—	%
Customer D		19	%		—	%

~~The~~Accounts ~~Company~~ Receivable ~~paid Mr. Gordon O. Davis, the former Chairman of the board of directors, approximately $30,000 for consulting services during the quarter ended June 30, 2006.~~Concentration

Critical Accounting Policies and Estimates

	Six Months Ended June 30,
	2007			2006
Customer A		17	%		53	%
Customer B		2	%		38	%
Customer C		40	%		—	%
Customer D		20	%		—	%

~~We believe that several accounting policies are important to understanding our historical and future performance~~14. ~~We refer to these policies as “critical” because these specific~~ ~~areas~~ Derivative ~~generally require us to make judgments and estimates about matters that are uncertain at the~~ Instruments

The Company has issued and outstanding financial instruments with embedded derivative features consisting of convertible debt and warrants. The Company analyzes these financial instruments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133 and Emerging Issues task Force (“EITF”) Issue No. 00-19 to determine if these hybrid contracts have embedded derivatives that must be bifurcated. In addition, free standing warrants are accounted for as either equity or liabilities in accordance with the provisions of EITF Issue No. 00-19.

~~time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.~~20

~~The~~Under EITF ~~critical~~00-19, ~~accounting policies~~instruments wethat ~~identified~~are inissued ~~our~~when ~~most~~there ~~recent~~are ~~Annual~~insufficient ~~Report~~shares to satisfy ontheir ~~Form~~conversion ~~10-KSB~~are ~~for~~required ~~the~~to be recorded as derivative liabilities ~~fiscal~~ and ~~year~~are ~~ended~~then ~~December~~required ~~31,~~to ~~2005~~be ~~related~~adjusted to ~~goodwill~~fair ~~and~~value ~~intangible~~at ~~assets,~~each reporting period ~~valuation~~ with changes ofin ~~acquired~~fair ~~intangible~~value ~~assets,~~being ~~derivative~~recorded ~~liabilities~~in ~~and~~the ~~inventory valuation~~statement ~~and~~of ~~classification~~operations. ~~With~~ Because the conversion ~~adoption~~price of ~~SFAS~~the ~~123(R)~~Second onConvertible ~~January~~Bridge 1,Notes ~~2006~~is based upon a formula, we the ~~have~~number ~~identified~~of ~~the~~shares ~~estimates~~which ~~and~~will ~~assumptions~~ultimately ~~that~~be ~~accompany~~issued ~~the~~is ~~fair~~currently ~~value~~indeterminable ~~determination~~ and ofwe ~~our~~cannot ~~stock~~therefore ~~option~~be ~~awards~~assured asof ~~critical,~~having assufficient ~~discussed~~shares ~~below.~~available ~~It is~~to ~~important~~ satisfy ~~that~~conversions. ~~the~~Also ~~discussion~~as ofa ~~our~~result, ~~operating~~other ~~results~~issuances ~~that~~subsequent ~~follows~~to ~~be read in~~this ~~conjunction~~ transaction, ~~with~~such as the ~~critical~~warrants ~~accounting~~issued ~~policies~~with ~~discussed~~the ~~below~~Second asConvertible ~~well as~~Bridge ~~those~~ Notes ~~disclosed~~are inalso ~~our~~required ~~Annual~~to ~~Report~~be oncarried ~~Form 10-KSB,~~ as ~~filed~~derivative ~~with~~liabilities even though the number ~~SEC~~of ~~on March~~such ~~31,~~instruments ~~2006~~is fixed.

~~Stock-Based~~At the inception ~~Compensation~~and at each reporting date the Company has recorded a derivative liability. At each reporting period, the Company calculates the estimated fair value of the derivative liability. Changes in the estimated fair value of the derivative liabilities are recorded in the consolidated statement of operations. The change in the fair value of the derivative liabilities from issuance to June 30, 2007 was $15,000. At June 30, 2007, the derivative liability was approximately $945,000.

Effective January 1, 2006, we adopted accounting rules (SFAS 123(R), “Share-Based Payment”) requiring the expense recognition of the estimated fair value of all share-based payments issued to employees15. ~~Prior to this, the estimated fair~~ ~~value~~ Subsequent associated with such awards was not recorded as an expense, but rather was disclosed in a footnote to our financial statements. For the six months ended June 30, 2006, we recorded approximately $2.8 million of stock based compensation expense, with approximately $1.7 million of this expense, attributable to employee stock options and the remainder approximately $1.1 attributable to stock options awarded to consultants and non-employee board members.Events

~~The valuation of employee~~On ~~stock options is an inherently subjective process, since market values are~~ July ~~generally not available for long-term~~ 16, ~~non-transferable~~2007 ~~employee~~the ~~stock~~Company ~~options. Accordingly,~~reincorporated anfrom ~~option~~the ~~pricing~~State ~~model~~of isNevada ~~utilized~~ to ~~derive~~the anState ~~estimated fair~~of ~~value~~ Delaware. InAs ~~calculating~~a ~~the~~result ~~estimated~~of ~~fair~~this ~~value~~reincorporation, ofthe ~~our~~number ~~stock~~of ~~options,~~authorized weshares of ~~used~~the ~~a Black-Scholes~~Company’s ~~pricing~~common ~~model~~stock ~~which~~increased ~~requires~~from ~~the~~300,000,000 ~~consideration~~to of450,000,000 ~~the~~and ~~following~~the ~~six~~ Company ~~variables~~has ~~for~~15,000,000 ~~purposes~~shares of ~~estimating~~preferred ~~fair~~stock ~~value:~~authorized.

· Since the Company did not complete the Qualified Financing by July 4, 2007, the investor of the Second Convertible Bridge Notes will receive additional four-year warrants to purchase 1,000,000 shares of common stock ~~option~~at an exercise price, of 0.20 per share.

~~· the expected term of the option,~~21

~~· the~~Item 2. ~~grant~~Management’s ~~date~~Discussion ~~price~~And Analysis of ~~our~~Financial ~~common stock,~~Condition ~~which~~And isResults ~~issuable upon exercise of the option,~~Of Operations

~~· the~~The following ~~expected~~discussion ~~volatility~~and analysis of our financial condition and results of ~~common~~ operations ~~stock,~~should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” for a description of the important factors that could cause actual results to differ materially from those contained in these forward-looking statements.

~~· expected dividends on our common~~Business ~~stock (we do not anticipate paying dividends for the foreseeable future), and~~ Overview

· We manufacture, distribute and market a variety of products using a process we refer to as “pHarlo technology.” These products are covered by one or more patents, or base patents, and manufactured using the ~~risk~~pHarlo ~~free~~technology, ~~interest~~which is covered ~~rate~~by ~~for~~those patents. The pHarlo technology utilizes a safe solution, which we call the ~~expected~~pHarlo ~~option~~concentrate, ~~term~~a solution whose components have been accepted as Generally Recognized as Safe by the U.S. Food and Drug Administration, or FDA. This safe solution enables copper sulfate, a compound with bacteriostatic properties, i.e., the ability to inhibit bacteria growth, to remain active throughout a wide range of pH values, or measurements of acidity or alkalinity in a solution.

Of the variables above, the selection of an expected term and expected stock price volatility are the most subjective. Our estimate of the expected option term was 6 years and was derived based on the average of the sum of the vesting term and the original contract term. In estimating our stock price volatility, we analyzed our historic volatility for a period equal to the expected term of our stock options awarded in the six months ended June 30, 2006, by reference to actual stock prices during this period and calculated an estimated volatility between 132% to 135%. We ~~believe that each of these~~ ~~estimates,~~ currently ~~both expected term and volatility, is reasonable in light of the data we analyzed. However, as with any estimate, the ultimate accuracy of these estimates is only verifiable over time.~~market:

~~The~~· ~~specific~~Unifresh valuation assumptions noted above were applied to stock options that we granted subsequent to our adoption of SFAS 123(R). The majority of the stock option expense recorded in the three and six months ended June 30Footbath, ~~2006 relates to options granted in the six months ended June 30, 2006. We expect that stock compensation expense will continue to have~~ a ~~material~~grooming ~~impact~~aid ~~on our financial results~~ for ~~the~~dairy ~~remainder of the fiscal year. For the remainder of fiscal 2006 we expect to incur stock compensation expenses of approximately $885,000 per quarter.~~cows;

~~Three~~· ~~Months~~Tasker ~~Ended~~Pacific ~~June~~Blue 30Seafood Wash, ~~2006 Compared~~a product used in commercial and retail seafood processing to ~~Three~~extend ~~Months~~shelf ~~Ended~~life ~~June~~and ~~30,~~reduce ~~2005~~or eliminate odors; and

~~Revenues~~· Tasker Blue, an antimicrobial aid to be used in the scalder process of poultry processing, a stage in poultry processing designed to loosen feathers so that they can be picked and removed mechanically, and the post-feather picker process, which is the method used in chicken processing that receives chickens immediately after the scalder and mechanically removes feathers.

~~Revenues for the three~~We ~~months ended June 30, 2006 were approximately $537,000 compared with~~ are ~~approximately~~ currently ~~$244,000~~seeking ~~for the corresponding period in 2005. This increase is primarily due~~ to ~~increased~~license ~~sales~~and/or insell ~~Unifresh ® Footbath. The revenue for~~ the ~~three~~ ~~months ended June 30, 2005, was entirely due to sales of~~ Close Call™. ~~We expect~~brand ~~that~~an ~~revenue~~oral ~~will continue to increase throughout fiscal year 2006~~hygiene ~~primarily~~ drink ~~due to the increased sales in Unifresh® Footbath~~ and toderivative ~~a lesser extent due to the sales of our new products for the poultry and seafood processing industries~~applications.

20Unifresh® Footbath

~~Selling~~We currently market Unifresh®Footbath concentrate, ~~General~~a grooming aid that helps clean and ~~Administrative~~disinfect the hooves of dairy cows. Because of the bacteriostatic properties of the pHarlo technology, this product helps control bacteria that infect the hooves of cows and cause interdigital dermatitis, a bacterial infection of the skin on a cow’s hoof, and interdigital papillomatosis, a disease that infects a cow’s hoof that may cause severe lameness, decreased milk yield, body weight loss, decreased reproductive performance and increased veterinary expenses. Unifresh ®Footbath concentrate was launched during the third quarter of 2005. In the fourth quarter of 2005, we discovered that our Unifresh ®Footbath product’s effectiveness was diminished in water that had abnormally high alkaline content. We reformulated our Unifresh ®Footbath concentrate with the addition of a compound that neutralizes alkali, or a type of base that has a pH greater than 7, which can increase the pH of water or soil. In the first quarter of 2006, we introduced our enhanced formulation to the market. It is currently being sold to dairy farms throughout the U.S. through our sales force, independent brokers and farm product distributors. We currently market the product as a grooming aid. No federal agency approvals are required for marketing this product.

Selling, General, and Administrative (“SGA”) expenses are primarily comprised of sales and marketing costs, compensation costs, professional fees, and general administrative costs. SGA costs for the three months ended June 30, 2006 decreased by approximately $300,000 from approximately $3.2 million for the three months ended June 30, 2005, to approximately $2.9 million for the three months ended June 30, 2006. We anticipate that SGA costs will continue to decrease, as a percentage of revenues and in absolute dollars, in fiscal year 2006.22

~~Sales and marketing expenses~~Poultry consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, promotional expenses, advertising, public relations and trade shows. Sales and marketing costs increased by approximately $79,000 due to marketing research, branding and promotion for our Unifresh® Footbath product line roll-out, as well as increased compensation expense due to the hiring of additional sales personnel. Processing

~~Compensation expense~~In ~~consists~~ August 2005, ~~primarily~~we ofbegan ~~salaries~~the ~~and~~in-plant ~~other~~commercial ~~related~~verification ~~costs~~process for ~~senior~~USDA ~~management,~~approval ~~finance and administrative employees of our company. Compensation expense~~ to ~~decreased~~ use bythe ~~approximately~~pHarlo ~~$239,000~~technology ~~primarily due to a reduction~~ in ~~administrative~~ ~~and warehouse personnel. In August 2006, we revised~~ the ~~salary structure~~scalder ofprocess ~~three~~ of ~~our~~poultry ~~employees and we terminated six other employees~~processing. ~~As a~~The ~~result~~ first ofin-plant ~~these~~commercial ~~reductions~~verification wetest ~~expect~~was ~~that~~completed wein ~~will~~October ~~experience~~2005 ~~cost savings of~~and ~~approximately~~ submitted ~~$150,000~~to ~~starting late in~~ the ~~third~~USDA ~~quarter~~shortly ~~of 2006~~thereafter.

~~Professional~~On February ~~fees~~6, ~~for~~2006, we received a letter from the Food Safety and Inspection ~~three~~ Service ~~months~~("FSIS") ~~ended~~of ~~June~~the 30USDA consenting to the continuation of in-plant trials of our Scalder application at a facility in Athens, ~~2006~~Georgia, ~~decreased~~as bywell $1as two additional poultry processing plants.3 ~~million~~The ~~primarily~~trial ~~due~~involved tothe aapplication of ~~non~~ the pHarlo technology as an antimicrobial in the scalder and post-~~cash~~feather ~~charge~~picker stages. ~~for~~In ~~stock~~August ~~options~~2006 ~~issued~~we received a Letter of No Objections from the FSIS indicating that it had no objections to anthe ~~investor~~use ~~relations~~of ~~consultant~~our product as an ~~for~~ antimicrobial ~~services~~processing ~~provided~~aid in ~~the~~poultry ~~three~~Scalder ~~months~~and, ~~ended~~in ~~June~~December 302006, ~~2005~~we received a similar letter from the USDA to use our product in the Picker and New York Dressed Cabinet.

~~General and~~During ~~administrative~~ the ~~expenses~~fiscal ~~consist~~quarter ~~primarily~~ended ofJune ~~rent~~30, ~~insurance~~2007, ~~and~~we ~~travel~~submitted ~~and entertainment~~protocols ~~expenses.~~to ~~The~~be ~~increase~~used in ~~general administrative costs for~~ the ~~three~~ testing ~~months~~of ~~ended~~an ~~June~~application ~~30,~~for ~~2006~~use ~~by approximately $58,000 was attributable to an increase~~ in ~~travel~~the ~~costs~~On-Line ofReprocessor ~~approximately~~("OLR") ~~$105,000,~~and ~~insurance costs of~~Chiller ~~approximately~~ sections. ~~$106,000,~~We ~~and~~received ~~rent~~the ~~and~~FSIS's ~~associated~~consent ~~utility~~to ~~expenses~~proceed ~~for~~with ~~our Texas facility, acquired~~ in-plant ~~the~~testing ~~July 2005 acquisition,~~ of these ~~approximately $35,000~~applications. ~~The increase~~Tests ~~was~~of ~~partially~~our ~~offset~~OLR byapplication anwere ~~expense~~suspended ~~reduction~~when ofwe ~~approximately $169,000~~were ~~due~~ informed toof the ~~settlement~~USDA’s ofintention ~~vendor~~to ~~trade~~reconsider ~~obligations~~this atrequirement ~~amounts~~of ~~lower~~this ~~than those~~section ~~originally~~ as ~~invoiced~~an tointervention uspoint ~~and a decrease of approximately $13,000~~ in ~~board directors~~controlling ~~fees~~bacteria.

~~Stock~~We recently ~~based~~began ~~compensation expense~~tests ~~increased~~of byour ~~approximately~~Chiller $1application.1 ~~million~~If ~~for~~these ~~the~~tests ~~three~~are ~~months ended June~~successful ~~30,~~ and ~~2006.~~we ~~There~~receive ~~was~~a noLetter ~~compensation~~of ~~expense~~No ~~for~~Objections from the ~~same~~FSIS, ~~period~~we inwill ~~2005.~~have ~~This~~commercial ~~increase~~ applications isin ~~the~~five ~~result~~ of ~~implementing SFAS 123(R) in January 2006. The expense associated with these awards is recorded as expense within~~ the ~~same~~six ~~functional expense~~intervention ~~category~~stages asof ~~cash compensation for the respective employee is recorded.~~poultry ~~For the three months ended June 30, 2006, stock compensation expense was allocated as follows:~~ processing.

	(in thousands)
Sales and marketing	$	38
Product development	118
General and administrative	968
	$	1,124

Seafood Processing Products

~~Product~~We recently ~~Development~~began marketing the pHarlo technology for use in pathogen reduction, a process by which certain bacteria that causes disease or illness are reduced in number or eliminated, and the shelf life of seafood is extended. Our product, Tasker Pacific Blue Seafood Wash, has been tested at the North Carolina State Center for Marine Science & Technology, Virginia Tech University and Mississippi State University on shrimp, mahi mahi, salmon, flounder, scallops and catfish. The results of these studies indicated that the pHarlo technology could possibly double the shelf life on catfish filets and significantly increase the shelf life of seafood. No federal agency approvals are required for the marketing of this product.

~~Product development~~In ~~consists~~ the processing ~~primarily~~ of ~~personnel~~fish ~~costs to support product development. Product development~~ and ~~research~~seafood ~~costs for the three months ended June 30~~species, ~~2006 decreased~~water byis ~~approximately~~used ~~$106,000~~at ormany ~~17%~~points ~~to approximately $514,000 from~~after ~~approximately~~ harvesting. ~~$620~~Therefore,~~000~~ ~~for~~ the ~~three~~use ~~months~~of ~~ended~~dip ~~June~~tanks ~~30,~~and ~~2005.~~sprays ~~This decrease is primarily due to our decision to focus our development efforts in a select smaller number~~ of ~~products,~~chilled ~~which~~water ~~were closer to commercialization rather than~~are ~~the~~ normal ~~larger~~and ~~number of products we were developing in the same time period in 2005~~common. The ~~decrease~~addition ~~in the number~~ of ~~products~~ ~~we are developing and testing in~~ the ~~three~~Tasker ~~months~~Pacific ~~ended~~Blue ~~June~~Seafood ~~30,~~Wash ~~2006~~to ~~resulted~~ these wash inwaters ~~the~~is ~~decrease~~an ineasy ~~consulting~~adaptation ~~expenses~~ of ~~approximately~~existing ~~$209,000~~process ~~and the~~equipment. ~~decrease~~Our inseafood application ~~third~~is ~~party~~currently ~~laboratory~~in trial testing ~~cost~~by ofa ~~approximately~~seafood ~~$124,000, partially~~company ~~offset~~located ~~by an increase~~ in ~~stock based compensation of approximately~~the ~~$118,000~~ southeast and ~~an increase of warehouse expenses of approximately $62,000. We expect that~~ in ~~fiscal~~several ~~2006~~supermarkets ~~product development expense will increase~~ in ~~absolute~~ ~~dollars~~the ~~but decrease as a percentage of revenue~~northeast.

~~Depreciation and Amortization Expense~~Close Call™

~~Depreciation and~~Until ~~amortization~~ March ~~expense~~2007, ~~which~~we ~~includes~~marketed ~~the~~Close ~~amortization~~Call™ ofas ~~identifiable~~an oral hygiene breath drink that ~~intangible~~ eliminates ~~assets~~odors from tobacco, ~~increased~~garlic, byonion ~~approximately~~and ~~$554,000~~alcohol. ~~from~~The ~~approximately~~FDA requires ~~$25,000~~ companies inmaking ~~the~~structure ~~three~~or ~~months~~function ~~ended~~claims ~~June~~relating 30to a dietary supplement product, ~~2005~~such as Close Call™, to ~~approximately~~“certify ~~$579,000~~that ~~for~~the firm has substantiation that the ~~three~~claim ~~months~~is ~~ended~~truthful ~~June~~and ~~30,~~not ~~2006~~misleading.” While the FDA does not require any presentation of this support, ~~primarily~~it ~~due~~does torequire ~~the~~a ~~amortization~~notice of ~~our~~dietary ~~utility~~supplement ~~patent~~ ingredients ~~intangible~~and ~~acquired~~claims. inWe ~~the~~believe ~~July~~that ~~15,~~our ~~2005~~Close ~~acquisition.~~Call™ ~~This~~product ~~patent~~could be ~~intangible,~~ marketed ~~after~~more ~~the~~efficiently ~~impairment~~by ~~charge~~a ofcompany ~~approximately~~either ~~$12.2~~already ~~million~~established ~~recorded~~ in the industry ~~second~~or ~~quarter~~with ofmore ~~2006,~~commercial ~~has~~resources. aTherefore, ~~current~~we ~~estimated~~are ~~value~~actively ~~of approximately~~seeking ~~$8.3~~ to ~~million~~license and/or issell ~~being~~the ~~amortized~~Close ~~over~~Call ~~11.5~~™ ~~years~~brand or derivative applications.

2123

~~Impairment of goodwill and intangible assets~~Financial Overview

~~In the second~~Until ~~quarter~~ December of31, ~~2006~~2005, we ~~initiated testing for~~were ~~impairment of our intangible assets and our goodwill due to the presence of impairment indicators including~~ a ~~preliminary~~development ~~expectation~~stage ~~that~~company. ~~third~~The ~~and~~quarterly ~~fourth~~period ~~quarter~~ ended ~~2006~~March ~~originally projected revenues will not be attained~~31, a2006 ~~decrease~~was ~~in expected future cash flows and a decline in~~ the ~~market~~first ~~price~~period ~~of our common stock . Upon completion of the impairment tests,~~ we ~~recorded~~were ~~non-cash impairment~~considered ~~charges to intangible assets and goodwill of $12.2 million and $17.9 million, respectively. We did not record~~ an ~~impairment charge for the same three month period in 2005. Also, see~~operating ~~discussion under “Financial Overview~~ company.”

~~Interest~~Based upon ~~Expense~~our projections of future revenues from our products and cash on hand, including cash of $6.4 million received from the sale of our First and Second Convertible Bridge Notes between January 1, 2007 and June 30, 2007, we will not have adequate working capital to fund our operations during the next twelve months. We are rapidly depleting our cash resources and our ability to continue to operate and grow our business is dependent upon obtaining new financing or generating sufficient cash flows from operations. The cost of any new financing may be prohibitive. While we have been in the process of aggressively developing, marketing and selling our products, there can be no assurance that those efforts will be met with success in the marketplace or that the timing of our efforts will be consistent with our cash availability and burn rate. If we are unable to arrange new financing and/or generate sufficient revenue growth from existing and new business arrangements, we will not have sufficient cash to support our operations and meet our obligations. We anticipate that we will need approximately an additional $4 - $6 million to support our operations and meet our obligations over the next twelve months. We are currently reviewing alternative methods of financing, including private issuances of debt and/or equity.

~~Interest expense~~Related ~~decreased~~ Party by approximately $20,000 from $42,000 for the three months ended June 30, 2005 to approximately $22,000 for the three months ended June 30, 2006 primarily due to a reduction in interest payable for convertible debt that was converted in full in January 2006.Transactions

~~Interest Income~~Greg Osborn

~~Interest~~In April 2007, ~~income~~we ~~increased~~entered into an employment agreement with Greg Osborn in connection by with ~~approximately~~his ~~$56~~appointment as Executive Chairman,~~000~~ ~~from~~effective ~~$44~~March 14,~~000~~ 2007. The agreement provides for, ~~the~~among ~~three~~other ~~months~~things, ~~ended~~a ~~June~~term 30of up to 21 months, ~~2005~~an annual to salary ~~approximately~~of $~~100~~60,000, ~~for~~an ~~the~~annual ~~three~~bonus ~~months~~at ~~ended~~the ~~June~~discretion 30of the board, ~~2006~~the ~~primarily~~grant ~~due~~ of initial towarrants anfor ~~increased~~the ~~interest~~purchase ~~received~~of 2,625,000 shares of common stock exercisable on a quarterly basis over the ~~Company’s~~term ~~investments~~of inthe agreement at an exercise ~~marketable~~ price ~~securities~~of in$0.19 per share, the ~~three~~grant ~~months~~of ~~ended~~additional ~~June~~warrants 30exercisable for 7,500,000 ~~2006~~shares of common stock at an exercise price of $0.19 per share with vesting contingent upon achievement of contractually specified performance goals, asseverance ~~compared~~payments toand a cash payment of $20,000 per month for a period of nine months commencing when we reach profitability. Mr. Osborn is the Managing ~~same~~Partner ~~period~~of ~~ending~~Indigo ~~June~~Securities, 30LLC, ~~2005~~the firm that served from December 2006 to June 2007 as placement agent for the offering of our First and Second Convertible Bridge Notes.

~~Other~~Mr. Osborn ~~expenses~~purchased First Convertible Bridge Notes in the aggregate principal amount of $25,000 ~~net~~and received four-year warrants to purchase an aggregate of 138,888 shares of our common stock at an exercise price of $0.09 per share.

WeAs of ~~incurred other~~May ~~expenses~~ 1, ~~net~~2007, Indigo Securities, LLC, the placement agent of the First Convertible Bridge Notes received in the aggregate a fee of approximately $49629,~~000~~500 ~~for~~and seven-year ~~the~~warrants ~~three~~to ~~months~~purchase ~~ended~~an ~~June~~aggregate 30of approximately 8,682,894 ~~2006~~shares as of ~~compared~~our tocommon stock at an exercise price of $620.0725 per share. Also,~~000~~ ~~for~~in connection with the ~~three~~Second ~~months~~Convertible ~~ended~~Bridge ~~June~~Notes 30Indigo Securities, ~~2005.~~LLC received ~~The~~cash ~~decrease is~~of ~~solely~~$200,000 ~~due~~and towill ~~the~~receive ~~decrease~~seven-year inwarrants at an exercise price of the ~~accrual~~lower of ~~liquidated~~$0.20 ~~damages~~per ~~for~~share ~~failure to~~or ~~have~~the per share price of warrants issued in a ~~current~~Qualified ~~prospectus~~Financing. ~~available~~The ~~for~~number ~~the~~of ~~resale~~shares of common stock ~~sold~~issuable inupon ~~the~~ exercise ~~April~~price ~~2004~~of ~~and~~such ~~July~~warrants ~~2004~~will ~~private~~have ~~placements.~~an ~~The~~aggregate ~~decrease~~purchase inprice ~~the accrual is~~of ~~due~~ $200,000. toThe ~~the~~number ~~fact~~of shares that the ~~prospectus~~Indigo ~~was~~warrants ~~current~~are inconvertible ~~April~~into based ~~2006~~on ~~and~~a ~~our obligation~~$0.20 toper ~~accrue~~share ~~liquidated~~exercise ~~damages~~price ~~under~~is ~~the~~1,000,000 ~~April~~shares. ~~2005~~The ~~agreement ceased~~warrants in contain ~~April~~a ~~2006~~"cashless exercise" option.

~~Six Months Ended June 30, 2006~~Wynn ~~Compared to Six Months Ended June 30, 2005~~ Starr

~~Revenues~~In 2004, we entered into an Exclusive Field of Use License Agreement and Product Sale Agreement with Wynn Starr Special Products, LLC. Under the terms of this agreement, as amended through January 23, 2007, we have granted Wynn Starr a worldwide right to market and distribute products used as post-harvesting processing aids for the poultry industry based on the pHarlo technology. In return for this license, Wynn Starr will purchase licensed products from us and will remit to us up to 25% of the net sale price per gallon sold, based on different increments of achieved net sale prices. This amended agreement also includes other target performance criteria such that, if met by Wynn Starr, we will issue to Wynn Starr a warrant to purchase up to 1,300,000 shares of our common stock with an exercise price based upon the closing price of our common stock on January 23, 2007, the date of the amendment. Net sales price and licensed products are defined in the Exclusive Field of Use License Agreement and Products Sale Agreement. As of June 30, 2007, we had paid $14,000 to Wynn Starr and had accrued $22,000 under this royalty arrangement. Steven B. Zavagli, a former member of our board of directors, is the founder, Chairman and the Chief Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors, Inc.

Revenues for the six months ended June 30, 2006 were approximately $758,000 compared with approximately $305,000 for the corresponding period in 2005. This increase is primarily due to increased sales in Unifresh® Footbath. The revenue for the six months ended June 30, 2005, was entirely due to sales of Close Call™. We expect that revenue will continue to increase throughout fiscal year 2006 primarily due to the increased sales in Unifresh® Footbath and to a lesser extent due to the sales of our new products for the poultry and seafood processing industries.24

~~Selling, General and Administrative~~Gordon Davis

~~SGA expenses are~~During ~~primarily~~ the ~~comprised~~three ofmonths ~~sales~~ended ~~and~~June ~~marketing costs~~30, ~~compensation,~~2007 ~~professional fees~~and 2006, ~~and~~we ~~general~~paid ~~administrative~~Gordon ~~costs~~O. ~~SGA~~Davis, ~~costs~~the former ~~for~~Chairman of the ~~six~~Board ~~months~~of ~~ended June 30~~Directors, ~~2006~~who ~~increased~~resigned byin May 2006, approximately $~~900~~6,000 ~~from~~and $~~6.0 million for the six months ended June~~ 30,000, ~~2005~~respectively, tounder ~~$6.9~~a ~~million~~consulting ~~for~~services agreement, ~~the~~as ~~six~~amended ~~months~~on ~~ended~~March ~~June 30~~7, ~~2006~~ 2007. WeMr. ~~anticipate~~Davis ~~that~~is ~~SGA~~the ~~costs~~father ~~will~~in ~~continue~~law toof ~~decrease, as a percentage~~our of Chief ~~revenues~~Financial ~~and in absolute dollars, in fiscal year 2006~~Officer.

~~Sales and marketing~~Critical ~~expenses~~ Accounting ~~consist~~Policies ~~primarily of salaries~~ and other related costs for sales and marketing personnel, sales commissions, promotional expenses, advertising, public relations and trade shows. Sales and marketing costs increased by approximately $130,000 due to marketing research, branding and promotion for our Unifresh®Footbath product line roll-out, as well as increased compensation expense due to the hiring of additional sales personnel.Estimates

~~Compensation expense~~We ~~consists~~ believe ~~primarily~~that ofseveral ~~salaries~~accounting ~~and~~policies ~~other~~are ~~related~~important ~~costs~~to ~~for~~understanding ~~senior management,~~our ~~finance~~ historical and ~~administrative~~future ~~employees of our company~~performance. ~~Compensation~~We ~~expense increased~~refer ~~by approximately $178,000 primarily due~~ to anthese ~~increase~~policies inas ~~severance~~“critical” ~~costs~~because ~~associated~~these ~~with~~specific aareas ~~reduction~~generally inrequire ~~administrative~~us ~~and warehouse personnel, and~~ to amake ~~lesser~~judgments ~~extent~~and estimates ~~due~~about tomatters ~~salaries~~that ~~for~~are ~~personnel~~uncertain ~~acquired~~at ~~through~~ the ~~July 2005~~time ~~acquisition. In August 2006,~~ we ~~revised~~make the ~~salary structure of three of~~estimate, ~~our employees~~ and ~~we terminated six other employees. As a result of these~~ ~~reductions~~ different weestimates—which ~~expect~~also ~~that~~would wehave ~~will~~been ~~experience~~reasonable—could ~~cost~~have ~~savings~~been ~~of approximately $150~~used,~~000~~ which ~~starting~~would ~~late~~have resulted in ~~the~~different ~~third~~financial ~~quarter of 2006~~results.

22The critical accounting policies we identified in Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 related to stock-based compensation, derivative instruments, goodwill and intangible assets and the valuation of acquired intangible assets. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in Amendment No. 1 to our Annual Report on Form 10-K, as filed with the SEC on April 27, 2007.

~~Professional fees for the~~Three ~~six~~ Months ~~months~~Ended ~~ended~~ June 30, ~~2006~~2007 ~~decreased~~Compared ~~by $2.3 million primarily due~~ to ~~a non-cash~~Three ~~charge~~Months ofEnded ~~approximately $2.5 million for stock options issued to an investor relations consultant for services provided in the six months ended~~ June 30, ~~2005, partially offset by an increase of approximately $200,000 in~~ ~~legal fees associated with our SEC filings for the six months ended June 30,~~ 2006.

General and administrative expenses consist primarily of rent, insurance and travel and entertainment expenses. The increase in general and administrative costs for the six months ended June 30, 2006, as compared to the six months ended June 30, 2005, was approximately $694,000. This increase was attributable to a settlement fee of approximately $249,000 for the termination of minimum purchase commitment obligations for Close Call™ bottles, increase in travel and entertainment expenses of approximately $155,000, increase in general insurance costs of approximately $104,000, increase in rent and associated utility expenses for the Texas facility, acquired in the July 2005 acquisition, of approximately $72,000, increase due to the settlement of the “BOC” claim, discussed under legal proceedings, of approximately $50,000, increase in recruiting fees of approximately $20,000, and increase in provision for allowance for doubtful accounts of approximately $10,000.Revenues

~~Stock~~Revenues for ~~based~~the ~~compensation~~three ~~expense~~months ~~increased~~ended by June 30, 2007 were approximately $~~2.2~~632,000 ~~million~~compared with approximately $537,000 for the ~~six~~corresponding ~~months~~period ~~ended~~in ~~June 30,~~ 2006. This ~~increase~~ increase is ~~the~~primarily ~~result~~due ofto ~~implementing~~increased ~~SFAS~~sales ~~123(R)~~ in ~~January~~Unifresh ~~2006.~~® ~~The~~Footbath ~~expense associated~~and ~~with~~Tasker ~~these~~Blue, ~~awards~~our poultry isprocessing ~~recorded~~product. asWe ~~expense~~expect ~~within~~that ~~the~~revenue ~~same~~will ~~functional~~continue to increase ~~expense~~ throughout ~~category~~fiscal asyear ~~cash~~2007 ~~compensation~~primarily ~~for~~due ~~the~~to ~~respective~~our ~~employee~~intensified ismarketing ~~recorded.~~efforts ~~For~~ of ~~the~~our ~~six~~poultry ~~months~~processing ~~ended~~product ~~June~~and ~~30,~~due ~~2006,~~the ~~stock~~expansion ~~compensation~~of ~~expense~~our ~~was~~distributor ~~allocated~~ network asfor ~~follows~~our :Unifresh® Footbath product.

	(in thousands)
Sales and marketing	$	221
Product development	175
General and administrative	2,448
	$	2,844

Selling, General and Administrative

~~Product~~Selling, General ~~Development~~and Administrative (“SGA”) expenses are primarily comprised of sales and marketing expenses, compensation expenses, professional fees, and general and administrative expenses. SGA expenses for the three months ended June 30, 2007 increased by approximately $510,000 from approximately $2.9 million for the three months ended June 30, 2006, to approximately $3.4 million for the three months ended June 30, 2007.

~~Product development~~Sales ~~consists~~ and marketing expenses consist primarily of ~~personnel~~salaries ~~costs to support product development. Product development~~ and ~~research~~other ~~costs~~related expenses for ~~the six months ended June 30, 2006 decreased~~ by sales ~~approximately~~and ~~$97,000~~marketing ~~or 10% to approximately $889~~personnel,~~000~~ ~~from~~sales ~~approximately $986~~commissions,~~000~~ ~~for~~promotional ~~the six months ended June 30~~expenses, ~~2005. This decrease is primarily due~~ ~~to our decision to focus our development efforts in a select smaller number of products~~ advertising, ~~which~~public ~~were~~relations ~~closer~~and totrade ~~commercialization~~show ~~rather than the larger number of products we were developing in the same time period in 2005~~expenses. ~~The~~ ~~decrease~~Sales inand ~~the number of products we are~~marketing ~~developing~~ expenses ~~and~~for ~~testing in~~ the ~~six~~three months ended June 30, ~~2006~~2007 ~~resulted~~decreased ~~in the decrease in consulting expenses of approximately $361,000 and a decrease in third party laboratory testing costs of approximately $146,000 decrease. This decrease was partially offset~~ by ~~an increase in stock based compensation of~~ approximately ~~$158,000, an increase in~~ ~~compensation costs of approximately~~ $92155,000, anprimarily ~~increase~~due into ~~warehouse~~the ~~costs~~timing of ~~approximately~~ ~~$91~~consulting,~~000~~ ~~and~~trade anshow ~~increase in production supplies of approximately $70,000. We expect that in fiscal 2006 product development expense will increase in absolute dollars as we continue to develop~~ and ~~enhance our product lines, but should decrease as a percentage of~~advertising ~~total revenues~~ expenses.

~~Depreciation~~Compensation expense consists primarily of salaries and ~~Amortization~~other ~~Expense~~related expenses for senior management, finance and administrative employees of our company. Compensation expenses decreased by approximately $118,000 primarily due to a reduction in administrative and warehouse personnel.

Depreciation and amortization expense, which includes the amortization of identifiable intangible assets, increased by approximately $1.1 million from approximately $37,000 in the six months ended June 30, 2005, to approximately $1.2 million for the six months ended June 30, 2006, primarily due to the amortization of our utility patent intangible. This patent intangible, after the impairment charge of approximately $12.2 million recorded in the second quarter of 2006, has a current estimated value of approximately $8.3 million and is being amortized over 11.5 years.25

~~Impairment~~Professional fees for the three months ended June 30, 2007 increased by approximately $97,000 due to increase in audit and accounting fees of ~~goodwill~~$52,000, legal fees of $20,000 and ~~intangible~~investor ~~assets~~service fees of $25,000.

~~In the second~~General ~~quarter~~ and ofadministrative ~~2006,~~expenses weconsist ~~initiated testing for~~primarily ~~impairment~~ of ~~our~~rent, ~~intangible~~insurance ~~assets~~ and ~~our goodwill due to the presence of~~travel ~~impairment~~ and entertainment ~~indicators~~expenses. ~~including~~The aincrease ~~preliminary~~in ~~expectation~~general ~~that~~administrative ~~third~~expenses ~~and fourth~~for ~~quarter~~ the three ~~2006~~months ~~originally~~ended ~~projected~~June ~~revenues~~30, ~~will~~2007 ~~not~~by beapproximately ~~attained~~$473,000 awas ~~decrease~~primarily indue ~~expected~~ to an ~~future~~increase ~~cash flows and a decline~~ in ~~the~~consulting ~~market~~expenses ~~price~~ of ~~our common stock . Upon completion of the impairment tests~~$329,000 weand ~~recorded~~annual ~~non-cash~~meeting ~~impairment~~expenses ~~charges to intangible assets and goodwill~~ of $1262,000.2 ~~million~~During ~~and~~the ~~$17.9~~three ~~million, respectively. We~~months ~~did~~ended ~~not~~June ~~record~~30, ~~an impairment~~2006, ~~charge~~we ~~for~~settled ~~the~~a ~~same~~minimum purchase ~~six~~agreement ~~month~~at ~~period~~$119,000 inless ~~2005.~~than ~~Also,~~we ~~see~~had ~~discussion under~~originally ~~“Financial Overview~~anticipated.”

~~Interest~~Stock based ~~Expense~~compensation expense for selling, general and administrative employees increased by approximately $213,000, to approximately $1.2 million for the three months ended June 30, 2007 as compared to $1.0 million for the same time period in 2006. The expense associated with these awards is recorded as expense within the same functional expense category as cash compensation for the respective employee is recorded. For the three months ended June 30, 2007, stock compensation expense was allocated as follows:

Interest expense decreased by approximately $106,000 from $155,000 for the six months ended June 30, 2005 to approximately $49,000 for the six months ended June 30, 2006 primarily due to a reduction in interest payable for convertible debt that was converted in full in January 2006.

	(in thousands)
Sales and marketing	$	109
Product development		13
General and administrative		1,110
	$	1,232

23Product Development

~~Interest~~Product development ~~Income~~consists primarily of personnel expenses to support product development. Product development and research expenses for the three months ended June 30, 2007 decreased by approximately $165,000 to approximately $349,000 from approximately $514,000 for the three months ended June 30, 2006. This decrease is primarily due to our decision to focus our development efforts in a select smaller number of products. The decrease in the number of products we are developing and testing in the three months ended June 30, 2007 resulted in the decrease in consulting expenses of approximately $50,000, decrease in third party laboratory testing expenses and product development expenses of $67,000 and decrease in warehouse expenses of $30,000.

~~Interest income increased~~Depreciation by and ~~approximately~~Amortization $48,000 from $90,000 for the six months ended June 30, 2005 to approximately $138,000 for the six months ended June 30, 2006 primarily due to an increase in interest earned from the Company’s investments in marketable securities, as compared to the same period ending June 30, 2005.Expense

~~Other~~Depreciation and ~~expenses~~amortization expense, ~~net~~which includes the amortization of identifiable intangible assets, decreased by approximately $299,000 from approximately $579,000 in the three months ended June 30, 2006, to approximately $280,000 for the three months ended June 30, 2007, primarily due to the reduction in the carrying value of the intangible assets as a result of the impairment charge of $12.2 million recorded in the second quarter of 2006.

~~We incurred other~~Interest expenses, net of approximately $102,000 for the six months ended June 30, 2006 as compared to $62,000 of accrued liquidated damages for the six months ended June 30, 2005. We accrued approximately $136,000 for (i) liquidated damages for failure to have a current prospectus available for the resale of common stock sold in the April 2004 and July 2004 private placements, and (ii) a loss on a disposal of a vehicle in the amount of $50,000 as a result of the Settlement and Release Agreement we entered into with a former executive. This increase in expense was partially offset by the reduction of the fair market value of the registration rights liability by approximately $85,000. Expense

~~Liquidity~~Interest expense increased by approximately $153,000 from $22,000 for the three months ended June 30, 2006, to approximately $ 175,000 for the three months ended June 30, 2007. The increase was primarily due to an increase of $162,000 in accrued interest expense related to the First and ~~Capital~~Second ~~Resources~~Convertible Bridge Notes.

~~Overview~~Interest Income

~~Since our inception, we~~Interest ~~have~~ income ~~funded~~decreased ~~operations~~by ~~and~~approximately ~~investing~~$84,000 ~~activities~~from ~~through the sale of common stock~~$100,000 ~~warrants and convertible debt under several private placements. Requirements~~ for ~~liquidated~~the ~~damages~~three ~~under some of these private placements may~~months ~~have~~ ended anJune ~~impact~~30, on2006, ~~our~~to ~~future~~approximately ~~liquidity.~~$16,000 ~~To date we have satisfied and/or received waivers~~ for the ~~provisions~~three ofmonths aended ~~majority the agreements that would~~June ~~have~~ 30, ~~otherwise~~2007 ~~required~~primarily usdue to ~~pay~~a ~~liquidated~~decreased ~~damages.~~cash ~~Although~~balance ~~the conditions that may result~~ in ~~liquidated~~the ~~damages~~three ~~are~~months ~~not~~ended June in30, ~~our control~~2007, weas docompared ~~not~~to ~~expect that~~the ~~any~~same ~~liquidated~~period ~~damage~~ending ~~amounts~~June we30, ~~may be required to pay will be material~~2006.

~~Based upon our~~Amortization ~~forecast~~ of ~~future~~debt ~~revenues~~discount from our products in conjunction with the cash and marketable securities on hand, cash expected to be generated from operations may not provide adequate funding for our working capital over the next twelve months. We are rapidly depleting our cash resources and our ability to continue to operate and grow our business is dependent upon obtaining new financing and/or generating revenue growth from operations. The cost of any new financing may be prohibitive. While we have been in the process of aggressively developing, marketing and selling our products, there can be no assurances that those efforts will be met with success in the marketplace or that the timing of our efforts will be consistent with our cash availability and burn rate. If by the fourth quarter of 2006 we are unable to arrange new financing and/or generate sufficient revenue growth from existing and new business arrangements, our liquidity position will become significantly impaired and we will be forced to consider the further restructuring of our operations, the disposition of various assets, the seeking of protection from our creditors, or ceasing of operations and liquidation.

~~Operating~~$2,106,000 is ~~Activities~~due to the amortization of the debt discount related to the fair value of the beneficial conversion feature of the First and Second Convertible Bridge Notes, $723,000 is to due to the amortization of the discount related to the fair value of the four-year warrants issued in connection with the First and Second Convertible Bridge Notes and $ 358,000 is due to amortization of discount related to the fair value of the derivative liability in connection with the Second Convertible Bridge Notes.

~~At June 30, 2006 our cash, cash equivalents and marketable securities balances were approximately $4.0 million compared with $1.0 million at December 31, 2005.~~26

~~Net cash used in~~Amortization ~~operating activities for the six months ended June 30, 2006 was approximately $5.2 million, compared to net cash used in operating activities~~ of ~~approximately~~ ~~$4.9~~deferred ~~million~~financing ~~for the six months ended June 30, 2005.~~costs

We$638,000 is ~~have~~due ~~fully~~to ~~reserved our~~the ~~note~~amortization ~~receivable~~ of ~~$890,000~~the ~~from~~fair value of the ~~Biofilm~~placement ~~shareholders~~agent asseven-year warrants ~~there~~issued isin noconnection with the First Convertible Bridge Notes and ~~assurance~~ issuable ~~that~~in itconnection with the Second Convertible Bridge Notes and $562,000 is due ~~collectible.~~to ~~Also~~the ~~see~~amortization ~~discussion~~of ~~under~~the ~~“Off-Balance~~placement ~~Sheet~~agent fee in connection with the First ~~Arrangements”~~ and Second Convertible Bridge Notes.

~~Investing~~Other expenses ~~Activities~~

~~Net~~For the three ~~cash~~months ~~used~~ended ~~in investing~~June ~~activities~~30, ~~for~~2007, we had a gain from the ~~six~~extinguishment of debt for $ 4,000 as a result of settlement of vendor obligations at lower amounts than what we had originally recorded. For the three months ended June 30, ~~2006~~2007, ~~was approximately~~we ~~$3.8~~ also recorded ~~million~~loss ason ~~compared~~change toin ~~approximately~~value of derivative warrant liability and derivative conversion feature liability-note of $5 15,000.2 ~~million~~The other expenses for the ~~six~~ three months ended June 30, ~~2005.~~2006 ~~The~~were ~~decrease~~$49,000 inpertaining ~~net~~to ~~cash~~accrual ~~used~~of inliquidated damages ~~investing~~for ~~activities~~failure ~~was primarily~~to ~~due~~have toa ~~the~~current ~~repayment~~prospectus available for resale of ~~loans~~common stock sold in ~~the~~April ~~six~~2004 ~~months~~and ~~ended~~July ~~June~~2004 ~~30,~~private ~~2005~~placement.

~~Financing~~Six Months ~~Activities~~Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

~~Net cash provided by financing activities during the six months ended June 30, 2006 was approximately $8.3 million, as compared to approximately $168,000 for the six months ended June 30, 2005.~~Revenues

24Revenues for the six months ended June 30, 2007 were approximately $1,057,000 compared with approximately $758,000 for the corresponding period in 2006. This increase is primarily due to increased sales in Unifresh ® Footbath and Tasker Blue, our poultry processing product. We expect that revenue will continue to increase throughout fiscal year 2007 primarily due to our intensified marketing efforts of our poultry processing product and due the expansion of our distributor network for our Unifresh® Footbath product.

~~The net cash provided by financing activities for the six months ended June 30~~Selling, ~~2006 principally~~ ~~represents~~ General ~~proceeds from the sale of common stock~~ and warrants. In January 2006, we completed a private placement in which we raised gross proceeds of $9.3 million through the sale of 13,335,295 shares of our common stock at a purchase price of $.70 per share, which were sold together with warrants to purchase an additional 13,335,295 shares of our common stock at an exercise price of $1.00.Administrative

~~As partial consideration~~SGA expenses for the ~~purchase~~six ofmonths ~~the~~ended ~~pHarlo~~June ~~assets in the July 2005 acquisition~~30, we2007 ~~issued~~decreased ~~a promissory~~by ~~note in the amount of~~ approximately $1385,~~931,973~~000 tofrom ~~Indian~~approximately ~~River Labs, L~~$7.~~L.C.~~0 ~~(“IRL”). The~~million ~~promissory~~for ~~note~~the ~~bears~~six ~~interest~~months ofended ~~3.4%~~June ~~per annum and is payable in equal~~30, ~~bi-weekly~~ 2006, to ~~principal~~approximately ~~installments of~~ $~~37,153,~~6.6 ~~plus~~million ~~interest,~~for ~~through July 2007. During~~ the six months ended June 30, ~~2006 we paid approximately $483,000 under the IRL promissory note~~2007.

~~Registration~~Sales and marketing ~~Rights~~expenses ~~Agreements~~for the six months ended June 30, 2007 increased by approximately $39,000 primarily due to the increase in commission, trade show and promotional expenses incurred as a result of our intensified marketing efforts.

~~In connection with the~~Compensation ~~January~~ expense ~~2006~~consists ~~private~~primarily ~~placement, we~~of ~~obtained~~salaries ~~waivers~~and ofother ~~all~~related ~~claims~~expenses for ~~liquidated~~ ~~damages relating to our inability to have the registration~~senior ~~statement~~ management, ~~registering~~finance ~~resale~~and ofadministrative ~~securities~~employees purchased in the September 2005 private placement declared effective by the deadline specified in the applicable registration rights agreement. We received these waivers from shareholders representing more than a majority of ~~all~~our ~~outstanding securities issued in connection with the September 2005 private placement~~company. ~~In consideration for~~Compensation ~~obtaining~~ expense ~~the~~decreased ~~waiver, we~~by ~~repriced~~approximately ~~the warrants issued to shareholders providing the waiver such that the exercise price of the warrants issued in connection with the September 2005 private placement was reduced from~~ $~~3.00 to $1.00. Under the waiver~~490,000 ~~the~~primarily ~~date~~due ~~by which the registration statement covering resale of the securities purchased in the September 2005 private placement was required~~ to ~~be declared effective was extended to May 23, 2006. On April 26, 2006, we filed~~ a ~~registration~~reduction ~~statement registering resale of securities purchased~~ in ~~the September 2005 and January 2006 private~~ ~~placements. We~~ administrative ~~believe that we have used our best efforts to cause this registration statement to be declared effective~~ and, ~~therefore,~~warehouse pursuant to the terms of the applicable registration rights agreements, we believe that we are not currently liable for liquidated damages as a result of this registration statement not being declared effective by May 23, 2006personnel. ~~Should~~ the rights holders dispute that our best efforts were used, and we either accede to their assertion or are found to not have used our best efforts, the estimated maximum amount of liquidated damages for which we would be liable, assuming (i) ineffectiveness from May 23, 2006 to the end of the period covered by the registration agreement and (ii) a stock price of $0.37 for periods subsequent to July 26, 2006, is approximately $270,000.

~~Off-Balance~~Professional ~~Sheet~~ fees ~~Arrangements~~for the six months ended June 30, 2007 increased by approximately $95,000. The increase is due to increase in audit and accounting fees of $168,000 and partially offset by a decrease in legal fees of $73,000.

~~During~~General and ~~the~~administrative ~~three~~expenses ~~and~~for the six months ended June 30, ~~2006,~~2007 weincreased by approximately ~~did~~$81,000 ~~not~~mainly ~~engage~~due into ~~material~~an ~~off-balance sheet~~increase ~~activities~~ of $88,000 ~~including~~in ~~the~~freight ~~use~~expenses ofand ~~structured finance~~$62,000 ~~special~~for ~~purpose~~annual ~~entities;~~meeting expenses, ~~material~~ partially ~~trading~~offset ~~activities~~by a decrease in ~~non-exchange~~insurance ~~traded~~expense ~~commodity~~of ~~contracts;~~$45,000, ~~or transactions~~a ~~with~~decrease ~~persons~~in orequipment ~~entities~~rental ~~that~~fees of $14,000 ~~benefit~~and a ~~from~~decrease ~~their~~in ~~non-independent relationship~~rent ~~with~~expense usof $10,000.

~~In April 2005, we purchased from Electric Aquagenies Unlimited, Inc. 359,000 common shares of Biofilm, representing~~ 27% of Biofilm’s outstanding common stock, for cash consideration of $718,000. We believe that our 27% equity interest in Biofilm is a significant variable interest, as defined by FIN 46(R) “Consolidation of Variable Interest Entities”, however we believe that we are currently not the primary beneficiary of Biofilm and thus we would not be required to consolidate the accounts of Biofilm. We believe that our maximum exposure to loss as a result of our involvement with Biofilm is limited to our initial investment of $718,000.

~~Contractual~~Stock based ~~Obligations~~compensation expense for selling, general and administrative employees ~~Commitments~~ decreased by approximately $110,000, to approximately $2.6 million for the six months ended June 30, 2007 as compared to $2.7 million for the same time period in 2006. The expense associated with these awards is recorded as expense within the same functional expense category as cash compensation for the respective employee is recorded. For the six months ended June 30, 2007, stock compensation expense was allocated as follows:

We had the following commitments as of June 30, 2006, which are comprised primarily of a research and development fee contract, consulting and employment contracts, a vendor agreement, notes payable, as well as numerous operating leases:

	(in thousands)
Sales and marketing	$	278
Product development		149
General and administrative		2,285
	$	2,712

	(in thousands)
	Payments Due by
	Period		Less Than		1-3		3-5		More Than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Research & development (“R&D”) fees (1)	$	139	$	139	$	—	$	—	$	—
Consulting agreements	136		136		—		—		—
Employment agreements (2)	2,284		559		1,725		—		—
Vendor agreements	41		10		31		—		—
Operating leases	1,249		183		957		109		—
Note(s) payable	1,543		450		1,085		8		—
Total	$	5,392	$	1,477	$	3,798	$	117	$	—

Product Development

~~(1)~~Product development Onconsists ~~January~~primarily 26of personnel expenses to support product development. Product development and research expenses for the six months ended June 30, ~~2006~~2007 decreased by approximately $56,000 to approximately $833,000 ~~R&D~~ from approximately ~~fees~~$889,000 ~~payable~~for ~~under~~the asix ~~Patent~~months ~~and~~ended ~~Sub-License~~June ~~Agreement~~30, ~~with~~2006. ~~pHarlo~~This IPdecrease ~~were~~ is primarily ~~amended~~due soto ~~that~~our ~~these~~decision ~~fees~~to ~~are~~focus ~~(i)~~our ~~payable~~development onefforts in a ~~quarterly~~select smaller ~~basis~~number ~~within~~of 30products. The decrease in the number of products we are ~~days~~ developing ~~after~~and testing in the ~~end~~six months ended June 30, 2007 resulted in the decrease in consulting expenses of ~~each~~approximately ~~calendar~~$84,000, ~~quarter~~decrease in third party laboratory testing cost and ~~(ii)~~product ~~are~~development ~~based~~cost onof ~~gross~~$30,000, ~~sales~~partially offset by increase of ~~our~~$ ~~Company~~80,000 ~~(or~~in bonus expense related to achievement of regulatory approvals.

25Depreciation and Amortization Expense

~~our~~Depreciation and ~~affiliates)~~amortization ofexpense, ~~products~~which ~~using~~includes the ~~pHarlo technology.~~amortization ~~For~~of ~~fiscal~~identifiable intangible ~~year 2006~~assets, ~~the~~decreased ~~R&D~~by ~~Fees~~approximately ~~must not be less than~~ $~~150~~597,000 ~~and~~from ~~are capped at~~ approximately $~~500~~1,154,000. ~~The~~in ~~R&D~~the ~~Fees~~six ~~have~~months noended ~~minimum~~June ~~amounts payable~~30, ~~after~~ 2006~~; however~~, ~~they~~to ~~are~~approximately ~~capped at~~ $2557,000~~,000 for 2007, $4,000,000~~ for the ~~2008,~~six ~~$8,000,000~~months ~~for~~ended ~~2009~~June ~~and~~30, ~~$10~~2007,~~000,000~~ ~~for~~primarily ~~2010~~due ~~and~~to ~~beyond.~~the Inreduction ~~the~~in ~~second~~the ~~quarter~~ carrying value of ~~2006~~the weintangible ~~paid,~~assets ~~under~~as ~~this~~a ~~agreement,~~result ~~approximately $11,000~~ of ~~R&D fees related to~~ the ~~revenue~~impairment ~~generated~~charge of $12.2 million recorded in the ~~first~~second quarter of 2006.

~~(2) Subsequent to~~Interest December 31, 2005, we terminated several of our existing employment agreements with some of our senior management and entered into new employment agreements with our current executive management. As of June 30, 2006 the revised estimated future minimum annual compensation under these employment agreements, including the new and terminated agreements for 2006, 2007, 2008 and 2009, is approximately $558,900, $892,800, $782,800 and $49,000, respectively. Expense

~~Item~~Interest expense 3increased by approximately $231,000 from $49,000 for the six months ended June 30, 2006, to approximately $ 280,000 for the six months ended June 30, 2007. ~~Quantitative~~The ~~and~~increase ~~Qualitative~~was ~~Disclosures~~primarily ~~about~~due ~~Market~~to ~~Risk~~an increase of $254,000 in accrued interest expense related to the First and Second Convertible Bridge Notes.

Interest Income ~~Rate Risk~~

~~Our exposure to market~~Interest ~~risk,~~ income ~~including~~decreased ~~changes~~by inapproximately ~~interest rates~~$105,000 ~~relates~~from ~~primarily~~$138,000 tofor ~~changes in~~ the ~~market~~ ~~value~~six ~~of our investment in marketable securities. These investments bear~~months ~~interest~~ ended atJune a30, ~~variable interest rate~~2006, ~~which is subject~~ to ~~market~~approximately ~~changes.~~$33,000 ~~We have~~for ~~not~~the ~~entered~~six ~~into~~months ~~any~~ended ~~interest rate swap agreements~~June 30, ~~or other instruments~~ to 2007 ~~minimize~~primarily ~~our~~due ~~exposure~~ to ~~interest~~a ~~rate~~decreased ~~fluctuations.~~cash Webalance ~~have not had any derivative instruments~~ in the ~~past~~six ~~and~~months doended ~~not presently plan to in the future.~~June ~~Our~~ 30, 2007, ~~investment~~as ~~portfolio~~compared ~~consists of demand deposits and marketable securities. Due~~ to the ~~highly~~same ~~liquid~~period ~~nature~~ending ofJune ~~our investment~~30, ~~a sudden sharp change in interest rates would not have a material adverse effect on the value of the portfolio~~2006.

~~Item~~Amortization of 4.debt ~~Controls and Procedures~~discount

As$3,331,000 is ~~required~~due byto ~~Rule 13a-15~~the ~~under~~amortization of the ~~Securities~~debt ~~Exchange~~discount ~~Act~~related to the fair value of the beneficial ~~1934~~conversion (feature of the ~~“Exchange~~First ~~Act”),~~and weSecond Convertible Bridge Notes, ~~carried~~ $1,183,000 ~~out~~is anto ~~evaluation~~due ofto the ~~effectiveness~~amortization of the ~~design~~discount ~~and~~related ~~operation~~to ofthe fair ~~our~~ value ~~disclosure~~of ~~controls~~the ~~and~~four-year ~~procedures~~warrants asissued ofin ~~the~~connection ~~end~~with of the ~~period~~First ~~covered~~and bySecond ~~this~~ Convertible ~~report.~~Bridge ~~This~~Notes ~~evaluation~~and ~~was~~$ ~~carried~~358,000 ~~out~~is ~~under~~due ~~the~~to ~~supervision~~amortization ~~and~~of ~~with~~discount related to the ~~participation~~ offair ~~our~~value ~~Chief~~of ~~Executive~~the ~~Officer,~~derivative ~~Richard~~liability ~~Falcone,~~in ~~and~~connection ~~Chief~~with the ~~Financial~~ Second ~~Officer,~~Convertible ~~Stathis~~Bridge ~~Kouninis~~Notes.

~~Disclosure controls and~~Amortization ~~procedures~~ of ~~are~~deferred ~~controls~~financing and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.costs

~~Based upon that evaluation~~$984, ~~our Chief Executive Officer and Chief Financial Officer concluded~~000 ~~that~~ is ~~our~~due ~~disclosure~~to ~~controls~~the ~~and~~amortization ~~procedures as~~ of the ~~end~~fair value of the ~~period~~placement ~~covered~~agent seven-year by warrants ~~this~~issued ~~report~~in ~~were~~connection ~~not~~with ~~effective. As described in~~ the ~~our~~First ~~Quarterly~~Convertible ~~Reports throughout~~Bridge ~~2005~~Notes and issuable ~~under~~in ~~Item~~connection 9Awith ofthe ~~Part~~Second IIConvertible inBridge ~~our~~Note ~~Annual~~and ~~Report on Form~~$738,000 ~~10-KSB~~ is due ~~for~~to the ~~year~~amortization ~~ended~~of ~~December 31,~~the ~~2005,~~placement weagent ~~have~~fee ~~already~~issued ~~instituted and~~in ~~are~~connection ~~continuing to implement, corrective actions~~ with ~~respect to~~ the ~~deficiencies~~ First inand ~~our~~Second ~~disclosure~~Convertible ~~controls~~Bridge ~~and procedures~~Notes.

Although we have instituted and are continuing to implement corrective actions with respect to the deficiencies in our disclosure controls and procedures, such corrective actions were not sufficient to detect an error in our Excel spreadsheet for the calculation of certain line items in the column captioned “May 13, 1996 (inception) to December 31, 2005” in our Consolidated Statements of Operations for the three years ended December 31, 2005 (the “Inception Column”). As a result of this error, we reported incorrect values in the Inception Column as follows:28

~~· Although~~Other ~~the~~ expenses ~~amount of “Total Expenses” was correct, the components of Total Expenses (i.e., selling, general & administrative; product development; and depreciation and amortization) were incorrect.~~

~~· Although~~For the six ~~amount~~months ofended ~~“Total~~June ~~other~~30, ~~expense~~2007, ~~net”~~we ~~was~~had ~~correct,~~a ~~two~~gain offrom the ~~components~~extinguishment of debt ~~Total~~ for ~~other~~$ ~~expense~~55,000 ~~net~~as ~~(i.e.~~a result of settlement of vendor obligations at lower amounts than what we had originally recorded as compared to $50,000 ~~interest~~for ~~expense~~the six months ended June 30, ~~net~~2006. We also recorded loss on change in value of derivative warrant liability and derivative conversion feature liability-note of $15,000. For the six months ended June 30, 2006, we had accrued approximately $136,000 for (i) liquidated damages for failure to have a current prospectus available for the resale of common stock sold in the April 2004 and July 2004 private placements and (ii) a loss on a disposal of ~~were~~ a vehicle ~~incorrect~~in the amount of $50,000 as a result of the Settlement and Release Agreement we entered into with a former executive. This increase in expense was partially offset by the reduction of the fair market value of the registration rights liability by approximately $85,000.

~~Such error was caused by~~Liquidity ~~the lack of an automated financial reporting system~~ and aCapital small accounting staff that does not allow for a thorough review process. We have engaged a consultant to design financial reports so that we do not rely on spreadsheets and we will add additional accounting staff when our financial condition allows us to do so.Resources

26Overview

AsSince our inception, ~~noted~~we ~~above~~have funded operations and investing activities through the sale of common stock, warrants and convertible debt under several private placements. ~~Item~~ Requirements 9Afor liquidated damages under some of ~~Part~~these IIprivate inplacements may have ~~the~~an impact on our ~~Annual~~future ~~Report~~liquidity. onTo ~~Form~~date ~~10-KSB~~we have satisfied and/or received waivers for the ~~year~~provisions ~~ended December 31~~of a majority of the agreements, ~~2005~~that would have otherwise required us to pay liquidated damages. However, ~~there~~we ~~were~~have ~~changes~~not received waivers and from time to ~~the~~time ~~our~~we ~~internal~~have ~~control~~not ~~over~~satisfied ~~financial~~some of the ~~reporting~~ provisions ~~that~~of ~~occurred~~the ~~during~~registration rights agreements for the April 2004 and July 2004 convertible debt. Nevertheless, our ~~last~~obligation ~~fiscal~~to ~~quarter~~accrue ~~that~~liquidated ~~have~~damages under ~~materially~~these registration rights agreements ceased in April 30 and July 22, ~~affected~~ 2006, respectively. orThrough ~~are~~December ~~reasonably~~31, ~~likely~~2006, we have accrued $442,000 in liquidated damages related to ~~materially~~these ~~affect~~agreements. Also, ~~our~~as ~~internal~~of ~~controls~~December 31, 2006, we have ~~over~~ accrued ~~financial~~the ~~reporting~~full amount of liquidated damages of $23,000 required under the January 26, 2006 registration rights agreement.

~~While every effort will~~Liquidity be - ~~made~~Going to ensure the financial reporting system will adhere to our internal controls, we cannot be certain that additional material weaknesses will not be identified prior to the filing of management’s annual report on internal control over financial reporting.Concern

~~PART~~Based II upon —our ~~OTHER~~projections ~~INFORMATION~~of future revenues from our products and cash on hand, including cash of $6.4 million received from the sale of our First and Second Convertible Bridge Notes between January 1, 2007 and June 30, 2007, we will not have adequate working capital to fund its operations during the next twelve months. We are rapidly depleting our cash resources and our ability to continue to operate and grow our business is dependent upon obtaining new financing or generating sufficient cash flows from operations. The cost of any new financing may be prohibitive. While we have been in the process of aggressively developing, marketing and selling our products, there can be no assurances that those efforts will be met with success in the marketplace or that the timing of our efforts will be consistent with our cash availability and burn rate. If we are unable to arrange new financing and/or generate sufficient revenue growth from existing and new business arrangements, we will not have sufficient cash to support our operations and meet our obligations. We anticipate we will need approximately an additional $4 - $6 million to support our operations and meet our obligations over the next twelve months. We are currently reviewing alternative methods of financing, including private issuances of debt and/or equity.

~~Item 1. Legal Proceedings~~Operating Activities

~~On October 26, 2005, a~~At ~~civil action captioned The BOC Group~~ June 30, ~~Inc.~~2007 v.our ~~Tasker~~cash ~~Capital Corp., Randy Cable,~~ and ~~Shaun~~cash ~~Porter~~equivalents ~~was~~balances ~~filed~~were inapproximately ~~the United States District Court for the District of Connecticut. In the complaint~~$740, ~~The BOC Group alleges that~~000 ~~Mr.~~ compared ~~Porter and Mr. Cable, employees of Tasker, have breached certain restrictive covenants contained in their employment agreements~~ with The BOC Group, and that we tortuously interfered with The BOC Group’s agreements with Mr. Porter and Mr. Cable. The BOC Group also claimed that we, Mr. Porter and Mr. Cable violated Connecticut’s statutes governing trade secrets and unfair trade practices. In July 2006, the matter was resolved by our payment of $50932,000 toat ~~The~~December ~~BOC~~31, ~~Group~~2006.

OnNet cash used ~~January~~in ~~18,~~operating ~~2006,~~activities afor ~~civil~~the ~~action~~six ~~captioned~~months ~~Dallas XXIX~~ended ~~Corporate~~June ~~Square~~30, ~~L.P.,~~2007 ~~v. Coast to Coast Laboratories and Tasker Capital~~was ~~Corp~~ approximately $5.2 ~~was~~million, ~~filed~~primarily indue ~~the~~to ~~Circuit~~a ~~Court~~net loss of ~~Pinellas County, Florida~~$13.9 ~~The~~million, ~~plaintiff~~ partially ~~alleged~~offset ~~that~~by ~~Coast~~amortization toof ~~Coast~~discount ~~Laboratories~~on ~~Corp.,~~the aFirst ~~wholly~~and ~~owned~~Second ~~subsidiary~~Convertible of Bridge ~~our~~Notes ~~company,~~of ~~breached~~$4.9 amillion ~~lease agreement~~ and ~~that~~the weamortization ~~breached~~of adeferred ~~guaranty.~~financing Incosts ~~June~~ of $1.7 ~~2006~~million ~~the~~related ~~matter~~to ~~was~~the ~~resolved~~same byconvertible ~~our~~bridge ~~payment~~notes. ofNet ~~$25,000~~cash toused ~~Dallas XXIX~~in ~~Corporate~~ operating ~~Square,~~activities ~~L.P.~~for ~~The~~the ~~settlement~~six ~~and~~months ~~the~~ended ~~stipulation~~June of30, ~~dismissal~~2006 ~~with prejudice~~ was ~~filed~~approximately $5.2 ~~with the Court~~million.

On May 25, 2006, a civil action captioned James Collins v. Tasker Products Corp. was filed in the Connecticut Superior Court for the Judicial District of Stamford. In the complaint, Mr. Collins alleges that Tasker breached the employment agreement between him and our company. Specifically, Mr. Collins alleges that he is due severance compensation pursuant to the employment agreement. On June 29, 2006, we filed our answer to the complaint. The answer also alleges numerous counterclaims against Mr. Collins, including a violation of Connecticut’s Uniform Trade Secrets Act, breach of duty of loyalty and various computer related offenses. We are also presently seeking permission to implead our former President and CEO, Robert P. Appleby, for breach of duty of care, breach of duty of loyalty, and fraud in the inducement related to his entering into the employment agreement with Mr. Collins. The motion is currently pending.

~~Item 1A. Risk Factors~~Investing Activities

~~The~~Net cash used ~~following~~in ~~revises~~investing ~~in its~~activities ~~entirety~~for the ~~risk~~six ~~factors~~months ~~discussed~~ended inJune “30, ~~Risk~~2007 ~~Factors”~~was approximately in$86,000 ~~our~~as ~~Annual~~compared ~~Report on~~to ~~Form~~approximately ~~10-KSB~~$3.8 million for the ~~year~~six months ended ~~December~~June 3130, ~~2005~~2006. ~~These~~The ~~risk~~decrease ~~factors~~in ~~could~~net cash used in investing ~~materially~~ activities ~~affect~~was ~~our~~primarily ~~business,~~due ~~financial~~to ~~condition~~lack orof ~~future~~excess ~~results~~funds to invest in marketable securities during 2007.

~~RISKS~~Financing ~~RELATED TO OUR BUSINESS~~ Activities

~~Unless~~Net cash provided weby ~~obtain~~financing ~~new~~activities ~~financing~~during the six months ended June 30, 2007 ~~and/or~~ was approximately ~~generate~~$5.1 ~~revenue~~million, ~~growth~~as incompared to approximately $8.3 million for the six ~~near~~months ~~future~~ended June 30, ~~our~~2006. ~~liquidity~~The ~~position~~decrease ~~will~~in net cash provided by financing ~~become~~ activities ~~significantly~~was ~~impaired~~primarily due to lower proceeds from the sale of debt and weequity instruments ~~could~~in bethe ~~forced~~six months ended June 30, 2007 as compared to ~~restructure~~the orsame period ~~discontinue~~ in ~~our operations~~2006.

~~We are rapidly depleting our cash resources and our~~The ~~ability to continue to operate and grow our business is dependent upon~~ net ~~obtaining~~ cash ~~new~~provided ~~financing~~by ~~and/or generating revenue growth from operations. The cost of any new~~ financing ~~may~~activities ~~be prohibitive.~~for ~~While we have been in~~ the ~~process~~six ofmonths ~~aggressively~~ended ~~developing, marketing~~June ~~and selling our products~~30, ~~there can be no assurances that those~~2007 ~~efforts~~ principally ~~will~~represents beproceeds ~~met~~from ~~with success in~~ the ~~marketplace~~sale ~~or that the timing~~ of ~~our efforts will be consistent with our cash availability and burn rate. If by~~ the ~~fourth~~ ~~quarter~~First ~~of 2006 we are unable to arrange new financing~~ and~~/or~~ ~~generate~~Second ~~sufficient~~ Convertible ~~revenue~~Bridge ~~growth from existing and new business arrangements~~Notes, ~~our liquidity~~net ~~position will become significantly impaired and we will be forced to consider the further restructuring~~ of ~~our~~placement ~~operations,~~agent ~~the~~fees ~~disposition of various assets, the seeking of protection from our creditors, or ceasing of operations~~ and ~~liquidation~~legal expenses.

WeAs partial ~~have~~consideration ~~lost~~for ~~money~~the inpurchase ~~each~~of ~~fiscal~~the ~~quarter~~pHarlo ~~since~~assets wein ~~changed~~the ~~our~~July ~~business~~2005 acquisition, ~~model~~we toissued ~~the~~a ~~development~~promissory ofnote ~~products~~ in the ~~oral~~amount ~~care~~of $1,931,973 ~~food~~to ~~processing~~Indian River Labs, ~~skin~~L.L.C. ~~care,~~(“IRL”). ~~water~~The ~~purification~~promissory note bears interest of 3.4% per annum and ~~pet~~is ~~industries~~payable in equal bi-weekly principal installments of $37,153, plus interest, through July 2007. WeDuring ~~expect~~the ~~future~~six ~~losses~~months ~~and~~ended June 30, 2007 we ~~may~~paid approximately ~~never~~$605,000 ~~become~~under ~~profitable~~the IRL promissory note.

~~We have incurred losses~~Registration in Rights our operations in each quarter since we changed our business direction in late 2002. Net loss for the quarter ended June 30, 2006 and March 31, 2006 were approximately $33.7 million and $4.9 million, respectively and for the years ended DecemberAgreements 31, 2005, December 31, 2004, December 31, 2003 and December 31, 2002 were approximately $4,925,000, $18,269,000, $6,072,000, $607,000 and $761,000, respectively. We expect to continue to incur losses in the short term. We expect operating expense to

27On April 26, 2006, we filed a registration statement registering the resale of securities purchased in the September 2005 and January 2006 private placements. This registration statement was declared effective by the SEC on October 31, 2006. As it relates to the September 2005 private placement, we have used our best efforts to cause the registration statement to be declared effective and, therefore, pursuant to the terms of the September 2005 registration rights agreement, we believe that we are not currently liable for liquidated damages as a result of the registration statement not being declared effective by May 23, 2006. Should the rights holders dispute that our best efforts were used, and we either accede to their assertion or are found to not have used our best efforts, the estimated maximum amount of liquidated damages for which we would be liable, assuming ineffectiveness from May 23, 2006 to October 31, 2006 and for illustration purposes only, from April 1, 2007 to the end of the period covered by the registration agreement is approximately $96,000.

~~increase~~As it relates asto wethe ~~work~~January 2006 ~~to build~~private placement, despite using our ~~brands~~best efforts, ~~expand~~we ~~our~~failed ~~customer~~to ~~base~~have ~~and~~the ~~develop~~registration ~~new~~statement ~~products.~~declared Toeffective ~~become~~by ~~profitable~~ the SEC on or before October 26, 2006. Consequently, as of December 31, 2006 we were required ~~must~~to ~~increase~~issue ~~revenue~~to ~~substantially~~each ~~and~~holder ~~achieve~~of ~~and~~the ~~maintain~~January 2006 private placement, ~~positive~~ shares ~~gross~~and ~~margins.~~warrants Weequal ~~may~~to ~~not~~one bepercent ~~able~~of tothe ~~increase~~respective ~~revenue~~number ~~and~~of ~~gross~~shares ~~margins~~ and warrants ~~sufficiently~~purchased toby ~~achieve~~each ~~profitability.~~holder Ifor wean ~~are~~aggregate ~~not~~of ~~able~~133,359 toshares ~~achieve~~of common ~~profitability~~ stock and warrants to purchase 133,359 ~~our~~shares ~~results~~of common stock. As of June ~~operations~~30, ~~and~~2007, ~~financial~~we ~~condition~~had ~~will~~not ~~be materially~~issued ~~and~~these ~~adversely~~shares ~~affected~~and warrants.

~~We have a limited operating history in our present market and prospective investors have a limited historical basis on which to judge our ability to be successful.~~30

We were originally organized for the purpose of engaging in the acquisition and exploration of mineral properties, primarily in the Province of British Columbia, Canada. During 2001, we allowed the option on our mineral property to lapse and began to investigate other business opportunities. In late 2002, we entered into an exclusive license to sell, develop, market and distribute consumer deodorant breath products, animal deodorant breath products and soft drink products using the pHarlo technology. Since late 2002, we have pursued this business plan and have expanded it to include the use of the pHarlo technology in the preOff- ~~and~~Balance ~~post-harvest~~ Sheet food processing, skin care, pet care, hangover remedy, alcohol abatement and water purification industries. Additionally, we are investigating the applicability of the pHarlo technology to other aspects of the seafood industry.Arrangements

~~Since inception, we have~~During ~~suffered~~ the ~~recurring~~six ~~losses~~ and ~~net~~twelve ~~cash~~months ~~outflows~~ended ~~from~~June ~~operations.~~30, We2007 ~~expect~~and ~~to continue~~December to31, ~~incur~~2006, respectively, ~~substantial~~we ~~losses~~did tonot ~~complete~~engage ~~the~~in ~~development~~material ofoff-balance ~~our business.~~sheet ~~In addition~~activities, including wethe ~~only~~use ~~recently~~of ~~began~~structured ~~shipping~~finance, ~~our~~special ~~first~~purpose ~~product,~~entities; ~~Close~~material ~~Call®,~~ trading activities in ~~February~~ ofnon-exchange ~~2005.~~traded Wecommodity ~~thus~~contracts; ~~have~~or atransactions with ~~limited~~persons ~~operating~~or ~~history~~entities ~~upon~~that ~~which~~benefit ~~investors may~~from ~~base~~their annon-independent ~~evaluation~~relationship with ~~of our likely future performance~~us.

~~We recently completed a significant acquisition of certain assets of pHarlo Citrus Technologies, Inc~~Item 3. Quantitative and ~~other~~Qualitative ~~related~~Disclosures ~~entities.~~about WeMarket ~~cannot guarantee that we will be able to manage these new assets profitably.~~Risk

OnOur exposure ~~July 15,~~to ~~2005~~market risk, ~~we purchased~~including ~~certain~~changes ~~assets~~in ofinterest ~~pHarlo Citrus Technologies~~rates, ~~Inc.,~~relates ~~Indian River~~primarily ~~Labs,~~ to ~~LLC,~~cash ~~pHarlo~~and ~~Citrus~~cash ~~Properties~~equivalents. ~~Partnership,~~These ~~LLLP~~investments ~~and~~bear ~~Coast~~interest toat ~~Coast~~a variable ~~Laboratories,~~ interest ~~LLC~~rate, which ~~four~~is ~~entities~~subject ~~are referred~~ to inmarket ~~this prospectus as the “Selling Entities~~changes.” ~~This~~We ~~acquisition,~~have ornot ~~our~~entered ~~2005 Acquisition, represented~~into a any interest ~~highly~~rate ~~significant~~swap ~~event~~agreements, ~~for~~or ~~our~~other ~~company.~~instruments ~~Prior~~ to ~~the~~minimize ~~acquisition,~~our weexposure ~~licensed~~ to interest ~~the~~rate ~~use~~fluctuations. ofWe ~~certain~~have ~~patent~~not ~~applications~~had ~~covering~~any ~~various uses for the~~derivative ~~pHarlo~~ instruments ~~technology~~in ~~and improvements from~~ the ~~Selling~~past ~~Entities~~ and ~~also~~do ~~purchased the~~not ~~pHarlo~~presently ~~concentrate,~~plan ato ~~concentrate~~in ~~made using~~ the ~~pHarlo~~future. ~~technology from~~Our ~~Indian~~ investment ~~River~~portfolio ~~Labs.~~consists ~~As a result~~ of ~~the~~demand ~~2005~~deposits ~~Acquisition~~ and ~~the~~money ~~purchase~~market ofmutual ~~all~~funds. of Due to the ~~working~~highly ~~assets~~liquid nature of ~~Indian~~our ~~River Labs~~investment, wea ~~now~~sudden ~~control~~sharp ~~various~~change ~~uses of~~in ~~pHarlo~~ interest ~~technology~~rates inwould ~~the~~not ~~manufacturing~~have ~~process~~a ~~for~~material ~~the~~adverse ~~pHarlo~~effect ~~concentrate.~~on ~~Our business,~~the ~~financial~~value ~~condition and results~~ of ~~operations could suffer materially if we fail to successfully manage these assets and~~ the ~~manufacturing process~~ portfolio.

~~Recent~~Item 4. ~~restatements~~Controls and amendments to our interim financial statements and quarterly reports, as well deficiencies in our disclosure controls and procedures and internal control over financial reporting, may present a risk of future restatements and disclosure compliance errors and could in turn lead to legal exposure.Procedures

~~We have recently restated~~As ~~and~~ required ~~amended~~by ~~our~~Rule ~~interim~~13a-15 ~~financial~~under ~~statements for~~ the ~~periods~~Securities ~~ended June 30,~~Exchange ~~2004~~Act ~~and~~of ~~September 30,~~1934 ~~2004~~(the ~~and have recently filed~~“Exchange ~~amendments~~ Act”), towe ~~our~~carried ~~quarterly~~out ~~reports~~an onevaluation ~~Form 10-QSB for each~~ of ~~those periods reflecting these restatements. While in~~ the ~~process~~effectiveness of ~~amending~~the ~~our quarterly~~design ~~reports on Form 10-QSB to restate these financial~~and ~~statements,~~ operation ~~we became aware~~ of ~~certain~~our ~~required~~disclosure ~~information~~controls ~~that had been omitted~~ and ~~other~~procedures ~~information~~(as ~~that~~defined ~~needed~~by toRule 13a-15(e) beunder ~~changed~~the orExchange ~~corrected.~~Act) Asas ~~a result~~ of the ~~foregoing,~~end weof ~~revised~~the ~~these~~period ~~quarterly~~covered ~~reports~~by ~~to correct~~ this ~~information~~ report. ~~and~~This toevaluation ~~state,~~was ~~among~~carried ~~other~~out ~~things,~~under ~~that~~the ~~our~~supervision ~~disclosure~~and ~~controls~~with ~~and~~the ~~procedures~~ participation ~~were~~of ~~not~~our ~~effective~~Chief asExecutive ~~of June 30~~Officer, ~~2004~~Lanny Dacus and ~~September 30,~~our Chief ~~2004~~ Financial Officer, Stathis Kouninis.

~~As of December 31,~~Disclosure ~~2005, March 31, 2006 and June 30, 2006, our management concluded that our disclosure~~ controls and procedures ~~were not effective. We~~ are ~~taking~~controls ~~what we believe to be reasonable~~ and ~~appropriate~~other ~~steps~~procedures tothat ~~correct~~are ~~these deficiencies.~~designed ~~We will also continue~~ to ~~assess the adequacy and appropriateness of these~~ ~~actions~~ ensure ~~and~~that ~~adjust~~information ~~our~~required ~~remediation plan as needed or~~ to ~~reflect~~be ~~changes~~disclosed in our ~~business.~~ ~~However,~~reports wefiled ~~cannot be certain when these deficiencies will ultimately~~or be submitted ~~remediated~~under ~~and~~the weExchange ~~expect~~Act ~~that~~is werecorded, ~~will~~processed, ~~need~~summarized ~~a period of time over which to~~and ~~demonstrate~~ reported, ~~that~~within ~~our disclosure controls are functioning appropriately to conclude that we have adequately remediated~~ the ~~deficiencies.~~time ~~Any~~periods ~~failure~~specified ~~to implement and maintain improvements~~ in ~~our~~the ~~disclosure~~Securities and ~~internal controls may~~Exchange ~~present~~ Commission’s arules ~~risk~~and offorms. ~~future~~Disclosure ~~restatements~~controls and ~~disclosure~~procedures ~~compliance errors and~~include, ~~could~~ without inlimitation, ~~turn~~controls ~~lead~~and toprocedures ~~legal~~designed ~~exposure. Any failure~~ to ~~improve~~ensure ~~these~~that ~~controls to~~information ~~address~~ required ~~the identified deficiencies, or any other unidentified deficiencies, could also cause investors~~ to ~~lose~~be ~~confidence~~disclosed in our ~~reported~~reports ~~financial information,~~filed ~~which~~under ~~could~~the ~~have~~Exchange aAct ~~negative~~is accumulated ~~impact~~and oncommunicated ~~the~~to ~~trading~~management, ~~price~~including of our ~~common~~ ~~stock.~~Chief ~~This~~Executive Officer ~~could~~and ~~have~~Chief aFinancial ~~material~~Officer, ~~adverse~~to ~~effect~~allow ontimely ~~our~~decisions ~~business and~~regarding ~~financial~~ required ~~results~~disclosure.

WeBased upon ~~have~~that ~~limited~~evaluation, ~~experience~~our inChief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the ~~marketing~~end of the period covered by this report were not effective. Commencing in February 2006, we instituted and are continuing to implement corrective actions with respect to the deficiencies in our ~~products~~disclosure controls and ~~may~~procedures caused by the lack of an automated financial reporting system and a small accounting staff that does not beallow ~~able~~for toa ~~market~~thorough ~~them~~review ~~successfully~~process. We will complete the design of financial reports so that we do not rely on spreadsheets and we will add additional accounting staff when our financial condition allows us to do so.

~~We currently market Close~~There ~~Call,~~ were anno ~~oral~~changes ~~hygiene~~to ~~breath~~our ~~drink,~~internal ~~Tasker~~control ~~Pacific~~over ~~Blue™~~financial ~~Seafood~~reporting ~~Wash,~~(as adefined ~~product~~ on Rule ~~used~~13a-15(f) inunder ~~commercial~~the ~~and~~Exchange ~~retail~~Act) ~~seafood~~that ~~processing~~occurred toduring ~~extend~~our ~~shelf~~last ~~life,~~fiscal ~~and~~ quarter ~~Unifresh® Footbath, a grooming aid~~ that ~~helps clean and disinfect the hooves of dairy cows. We~~ have ~~also~~materially ~~begun~~affected, ~~clinical~~or ~~testing of the pHarlo technology in the poultry scalding process and in various seafood applications. We~~ are ~~continuing~~reasonably ~~our~~likely ~~clinical research and hope~~ to ~~develop~~materially ~~future products using the pHarlo technology in the pre- and post-harvest food processing~~ affect, ~~oral~~our ~~care,~~internal ~~skin~~controls ~~care,~~over ~~pet~~financial ~~care, hangover remedy, alcohol abatement and water treatment industries~~reporting.

28While every effort will be made to ensure the financial reporting system will adhere to our internal controls, we cannot be certain that material weaknesses will not be identified prior to the filing of management’s annual report on internal control over financial reporting.

These are diverse markets and we may not be aware of all the customs and practices and may not be able to successfully compete in these industries. We believe that we will need to hire appropriate consultants and staff to reach all of these markets successfully. The consultants that we may retain may not have had sufficient experience to enable us to completely understand the characteristics of these diverse industries. There can be no assurance that we will properly ascertain or assess any and all risks inherent in our proposed markets or that we will successfully enter into new markets or grow in our existing markets.31

~~Our~~PART II ~~ability~~— toOTHER ~~reach some of the markets currently set forth in our business plan will require regulatory approval. In addition, new products that we may develop or acquire may also require regulatory approval.~~INFORMATION

~~The ingredients that we~~Item ~~use to produce the pHarlo concentrate are approved as Generally Recognized as Safe by the FDA~~ 1A. ~~Therefore,~~Risk we believe that our current line of products that utilize the pHarlo concentrate, including the intended uses of these products, do not require further approval by the FDA. However, we may develop or acquire future products that use ingredients that will need to be approved by the FDA, or we may alter the intended uses of our current product, such that those products require additional FDA approval(s). There can be no assurance that FDA approval, if necessary, will be obtained.Factors

~~The use of our pHarlo~~Except ~~technology~~ for in the ~~meat~~following ~~and~~revised ~~poultry~~risk ~~food~~factor, ~~processing~~there ~~applications~~have ~~requires~~been ~~the approval~~no ofmaterial changes in the ~~USDA.~~risk Infactors ~~August~~from ~~2006~~those wedisclosed ~~received~~in aAmendment ~~Letter of~~ No. ~~Objections~~1 ~~from the~~to ~~Food~~our ~~Safety~~Annual ~~and Inspection agency of the USDA and we began the~~Report ~~commercialization phase of this application of the pHarlo technology. There can~~ on be Form no10-K ~~assurance~~for ~~that we will successfully complete~~ the ~~commercial~~year ~~verification process.~~ended IfDecember ~~we do not successfully complete the commercial verification process~~31, ~~this may have a material adverse effect on our business plan~~2006.

~~In addition to the~~RISKS ~~poultry~~ RELATED ~~processing~~TO ~~industry,~~OUR we also intend to market the pHarlo technology for use in seafood processing, and may resume efforts to introduce the pHarlo technology in skin care and pet care products. If marketed in the United States or internationally, each of these product lines could potentially be subject to a variety of federal, state, and international regulatory authorities that could require additional testing, registration, pre-market approval, labeling, manufacturing, safety, recordkeeping and other obligations. There can be no assurance that the products will obtain the necessary approvals, or, if granted, that the approvals will not include significant limitations on the indicated uses for which the products may be marketed or other restrictions or requirements that may reduce the value of the products.BUSINESS

AUnless we ~~key~~obtain ~~component~~new offinancing ~~our~~and/or ~~business~~generate ~~strategy~~revenue isgrowth ~~the~~in ~~proprietary nature of~~ the ~~pHarlo~~near ~~concentrate~~future, ~~and, therefore,~~ our liquidity ~~inability~~position towill ~~protect~~become ~~our~~significantly ~~intellectual property rights could materially harm our business.~~impaired

~~The~~Based upon ~~pHarlo~~our ~~concentrate that~~projections weof ~~produce~~future isrevenues ~~based~~from ~~upon~~its ~~both~~products ~~the~~and ~~patent~~cash ~~applications~~on hand, including ~~that~~cash weof ~~purchased~~$6.4 in million received from the ~~2005~~sale ~~Acquisition,~~of asthe ~~well~~our asFirst onand Second ~~certain~~Convertible ~~base~~Bridge ~~patents~~Notes ~~and~~between ~~base~~January ~~patent applications~~1, or2007 ~~patents~~ and ~~applications~~June ~~that~~30, 2007, we will ~~license.~~not We have ~~entered~~adequate ~~into an~~working ~~exclusive~~capital ~~worldwide~~to ~~royalty~~fund ~~free~~its ~~sub-license~~operations ~~with~~during ~~pHarlo IP,~~ the ~~exclusive~~next ~~licensee~~ twelve ofmonths. We are ~~the~~rapidly ~~base~~depleting ~~patents~~our ~~and~~cash ~~base~~resources ~~patent~~and ~~applications,~~its ability to ~~exploit~~continue ~~these~~to operate ~~base~~ and ~~patents~~grow ~~and~~our ~~applications~~business inis ~~certain~~dependent ~~fields~~upon ofobtaining ~~use.~~new ~~Protecting~~financing ~~this~~and/or ~~intellectual~~ generating ~~property,~~sufficient inrevenue ~~addition~~growth tofrom existing ~~protecting~~and ~~the~~new ~~patent~~business ~~applications that~~arrangements. we The ~~purchased~~cost inof ~~the~~any ~~2005~~new ~~Acquisition,~~financing ismay abe ~~key~~prohibitive. ~~component~~While towe ~~the~~have ~~success~~been in the process of aggressively developing, marketing and selling our products, there ~~business.~~ can ~~Although~~be weno ~~have~~assurances ~~retained~~that ~~the~~those ~~right~~efforts towill ~~enforce~~be ~~our~~met ~~rights~~with assuccess ain the ~~sub-licensor~~ marketplace ~~under~~or that the ~~base~~timing ~~patents~~of ~~and~~our ~~base~~efforts ~~patent~~will ~~applications,~~be ifconsistent anwith our cash ~~infringement~~ availability ~~occurs~~and ~~within~~burn ~~the~~rate. ~~field~~If ofwe ~~use~~are ~~specified~~unable into ~~our~~arrange ~~sub-license~~new ~~agreement,~~financing and/or ~~there~~ generate ~~can~~sufficient berevenue nogrowth from ~~assurance~~existing ~~that~~and wenew ~~would~~business bearrangements, we ~~successful~~will not inhave ~~any~~sufficient ~~action~~cash to ~~protect~~ support our ~~rights~~operations ~~under~~and ~~the~~meet ~~patent~~our ~~applications~~obligations. We anticipate ~~that~~ we ~~have~~will ~~purchased.~~need Inapproximately ~~addition, there~~an ~~can~~additional be$4 no- ~~assurance~~$6 ~~that~~million ~~the~~to ~~base~~support our ~~patent~~operations ~~applications~~and ormeet our obligations over the ~~patent applications~~next ~~that~~twelve wemonths. ~~have~~We ~~purchased~~are currently ~~will~~reviewing ~~ultimately~~alternative bemethods ~~protected~~of byfinancing, anincluding ~~issued~~private ~~patent~~ issuances of debt and/or equity.

~~Intense~~We have ~~competition~~lost ~~could~~money ~~harm~~in ~~our~~each ~~financial~~fiscal ~~performance~~quarter ~~and~~since we changed our business model to the ~~value~~development of ~~your~~products ~~investment~~in the oral care, food processing, skin care, water purification and pet industries. We expect future losses and we may never become profitable.

~~The~~We have incurred ~~industries~~losses from operations in ~~which we~~each ~~will~~quarter besince ~~marketing~~we changed our ~~products~~business direction ~~are~~in ~~characterized~~late by2002. ~~intense~~Our ~~competition. Through~~net ~~our~~losses ~~acquisition~~for ofthe ~~Coast~~six tomonths ~~Coast~~ended ~~Laboratories~~June ~~Corp.~~30, in2007 and the years ended December 31, 2006, 2005 and 2004 were approximately ~~Acquisition~~ $13,928,000, ~~from~~$62,943,000, ~~Coast~~$18,269,000, and $6,072,000, respectively. We expect to ~~Coast~~continue ~~Laboratories,~~to incur losses for at least the next twelve months. We anticipate operating expenses will increase as we ~~are~~attempt ~~currently~~to ~~marketing~~build our brands, expand ~~Unifresh~~ our customer ~~Footbath~~base ~~concentrate~~and develop new products. To become profitable, awe ~~grooming~~must ~~aid~~increase revenue ~~for~~substantially ~~dairy~~and ~~cows~~achieve and maintain positive gross margins. ~~Competitors~~We inmay ~~this~~ not ~~product~~be ~~market~~able ~~usually~~to ~~contain~~increase ~~Formaldehyde~~revenue orand ~~other~~gross ~~chemicals,~~margins ~~which~~sufficiently ~~are~~to achieve ~~harmful~~ profitability. If we are not able to ~~the~~achieve ~~environment~~profitability, our results of operations and financial condition will be materially and adversely affected.

~~Although our oral hygiene~~Our ~~product~~ consolidated ~~for~~financial ~~humans,~~statements ~~Close~~have ~~Call,~~been isprepared ~~swallowed~~assuming ~~rather~~that ~~than~~we ~~emitted like~~will ~~mouthwash,~~ continue ~~our~~as ~~product~~a ~~may~~going ~~compete~~concern. ~~within~~As ~~the~~discussed ~~mouthwash~~in ~~industry~~the ~~generally.~~consolidated ~~The~~financial ~~mouthwash~~ statements, ~~industry~~we ishave aincurred ~~mature~~negative ~~industry~~cash ~~with~~flow ~~several~~from ~~mass~~operations ~~products~~and ~~such~~net aslosses ~~Listerine®, Scope®,~~ since ~~Act®,~~inception ~~Peroxyl®~~ and ~~Cepacol® from~~ ~~participants,~~have ~~many~~a ofworking ~~which~~capital ~~are~~deficiency. ~~divisions of~~These ~~large corporations~~conditions, ~~such as Pfizer, Procter & Gamble, Johnson &~~among ~~Johnson~~ others, ~~Colgate~~raise ~~and~~substantial ~~Combe.~~doubt ~~These~~about ~~are~~our ~~well-established~~ability ~~companies~~to ~~with~~continue ~~vastly greater~~as ~~resources~~a ~~than we have~~going concern.

~~Currently, there is~~RISKS ~~little~~ RELATED ~~competition~~TO ~~for~~OUR ~~bacterial~~COMMON inhibitors in the scalding process of poultry processors. We intend to expand the use of the pHarlo technology into the remaining operations of poultry processing, specifically the on-line reprocessing area, or an approved process that allows chicken with fecal material on the skin to be sprayed with a chemical disinfectant so that all such material is disinfected and/or removed prior to entry into the chilling process, or freezing process. However, we believe we will encounter competition in the chill process from manufacturers of sodium hydrochloride or sodium hypochlorite, chemical compound solutions frequently used as disinfectants and bleaching agents.STOCK

~~Currently, our product,~~The ~~Pacific~~ large ~~BlueÔ,~~number isof ~~the~~shares ~~treatment in~~available ~~the~~for ~~market~~future ~~that~~sale ~~eliminates~~could ~~odors~~adversely onaffect ~~seafood by reducing~~ the ~~bacteria that~~ ~~causes~~ price ~~spoilage.~~of ~~When~~our ~~and~~common ~~if the market for Pacific BlueÔ develops, additional products created by competitors may enter the market and compete~~stock.

29As of June 30, 2007, approximately 19.3 million shares of common stock were issuable upon exercise of outstanding stock options with a weighted average exercise price of $0.45 per share, approximately 112.4 million shares of common stock were issuable upon exercise of outstanding warrants with an exercise price of between $0.725 to $2.00 per share and approximately 109.6 million shares of common stock were issuable upon the conversion of the First and Second Convertible Bridge Notes with an exercise price of between $0.725 to $0.20 per share . In addition, the registration rights agreement for the January 2006 private placement requires us to pay liquidated damages in the form of additional common stock and warrants. As of June 30, 2007, 133,359 shares and 133,359 warrants are issuable as liquidated damages under the terms of the January 2006 registration rights agreement. Substantially all of the shares underlying these options and warrants have been or would be registered for resale, and none of them are subject to any contractual restrictions on resale. Future sales of any of these shares, or the anticipation of such sales, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through an offering of equity securities. Further, any issuance of a substantial number of these shares would dilute the ownership interest of existing stockholders and could result in increased volatility in the price of our common stock.

Ammonia is an ever-present element of the atmosphere in poultry houses. The detrimental effects of ammonia in poultry farming are widely known and several products focused on litter treatment are available in the market using sodium bisulfate and aluminum sulfate (Alum) that convert litter ammonium to ammonium sulfate, emitting a significantly lower ammonia level. Yucca schidigera extract is also used as an enzyme treatment in the poultry diet to reduce ammonia evolving from poultry manure. Some products currently available in the market include PLTÒ (Poultry Litter Treatment), Ultra Litter TreatmentÔ and Poultry GuardÔ, which are granulated products, BZTÒ and Premium Bio-Treat Poultry Blend.32

~~Our Unifresh Footbath~~Item ~~treats a highly infectious disease known as digital dermatitis that causes lameness, swelling and fever in dairy cows, resulting in a drastic decrease in milk production~~ 2. ~~Forms~~Unregistered ofSales ~~treatment include antibiotic bandaging and topical sprays using TerramycinÒ (oxytetracycline — an antibiotic) and footbaths using Formalin (a saturated solution~~ of ~~formaldehyde),~~ ~~copper~~Equity ~~sulfate,~~Securities ~~Tetracycline (a broad-spectrum antibiotic) or Peracetic Acid (a disinfectant~~ and ~~sanitizer).~~Use ~~Unifresh Footbath’s underlying technology, pHarlo technology, uses a highly acidified form~~ of copper sulfate that helps control the bacteria that cause digital dermatitis. Some competing products using copper sulfate include QuickHit, Healthy Foot and HoofPro+ by SSI Corporation; Double-ActionÔ Hoof Treatment by West Agro, Inc.; and Hoofcare Supercharger manufactured by Marabo.Proceeds

~~There may be a number of~~During ~~companies,~~ the ~~universities~~three-month ~~and~~period ~~research~~ended ~~organizations~~June actively engaged in research and development of technology that could be similar to our processes and ultimately become our competitors. We cannot assure you that we will be able to successfully compete with current or future competitors who may have substantially greater assets30, ~~technical staff~~2007, ~~established market share and greater financial and operating resources than~~ we ~~have.~~issued Ifthe wefollowing ~~are unable to~~stock ~~successfully compete with these industry competitors~~ options, itwarrants ~~may~~and ~~have~~common ~~a material adverse effect on our business plan.~~stock:

~~Some~~· ~~provisions~~Warrants to purchase 7,200,951 shares of ~~our~~common ~~amended~~stock ~~and~~issued ~~restated~~to ~~articles~~lenders in connection with the sale of ~~incorporation,~~the ~~bylaws~~First Convertible Bridge Notes between April 1, 2007 and ~~Nevada~~May ~~law~~10, ~~may~~2007. ~~inhibit~~The ~~potential~~warrants ~~acquisition~~have ~~bids~~a ~~that~~four-year ~~you~~term ~~may~~and ~~consider~~were ~~favorable~~issued with an exercise price of $0.09 per share.

~~Our~~· ~~corporate documents~~Warrants ~~contain~~to ~~provisions~~purchase ~~that~~1,787,824 ~~may~~shares ~~enable~~of ~~our~~common ~~board~~stock ofissued ~~directors~~ to ~~resist~~the ~~a change~~placement agent in ~~control~~connection with the sale of ~~our~~First ~~company~~Convertible ~~even~~Bridge ifNotes between April 1, 2007 and May 1, 2007. The warrants have a ~~change~~seven- inyear ~~control~~term and were toissued bewith ~~considered favorable~~an byexercise ~~our~~price ~~stockholders~~of $0.0725 ~~These~~per ~~provisions~~share. ~~include:~~Our Executive Chairman is the Managing Partner of the placement agent.

· ~~limitations on~~ ~~persons~~Warrants ~~authorized~~to purchase 1,000,000 shares of common stock issued to ~~call~~lenders in connection with the sale of the Second Convertible Bridge Notes on June 4, 2007. The warrants have a ~~special~~four-year ~~meeting~~term and were issued with an exercise price of ~~stockholders;~~$0.20 per share.

· Warrants to purchase shares of common stock issued to the ~~ability~~ placement agent in connection with the sale of the Second Convertible Bridge Notes on June 4, 2007. The warrants have a ~~majority~~seven- ofyear term and were issued with an exercise price the ~~directors~~lesser ~~then~~of in$0.20 ~~office~~per toshare ~~fill~~or ~~vacancies~~the per share price of warrants issued in ~~directorships;~~ ~~and~~a Qualified Financing.

· ~~no cumulative~~ ~~voting~~Warrants to purchase 200,000 shares of common stock issued to consultants on April 13, 2007, as part of their compensation. The warrants have a ten-year term and were issued with an exercise price of $0.33 per share.

~~These~~· ~~and~~334,067 ~~other~~shares ~~provisions~~of ~~contained in~~ our ~~amended and~~common ~~restated~~stock ~~articles~~were ofissued ~~incorporation~~on ~~and~~April ~~bylaws~~16, ~~could~~2007, ~~delay~~to ora ~~discourage transactions~~vendor ~~involving an actual or potential change~~ in ~~control~~lieu of uscash orpayment ~~our management, including transactions in which our stockholders might otherwise receive a premium~~ for ~~their~~services ~~shares~~previously ~~over~~provided ~~then current prices, and may limit the ability of stockholders~~ to ~~remove our current management or approve transactions that our stockholders may deem to be in their best interests and, therefore, could adversely affect the price of our common stock~~us.

In· ~~addition~~761,963 weshares ~~are subject~~of toour ~~control~~common ~~share~~stock ~~acquisitions~~were ~~provisions~~issued ~~and~~on ~~affiliated~~May ~~transaction provisions~~22, ~~of the Nevada General Corporation Law~~2007, ~~the~~in ~~applications~~lieu of ~~which~~cash ~~may have~~payment ~~the~~on ~~effect~~two installments of ~~delaying or preventing~~ a ~~merger,~~note ~~takeover or other change of control of us and therefore could discourage attempts to acquire our company~~payable.

~~RISKS RELATED~~· TOWarrants ~~OUR~~to ~~COMMON~~purchase ~~STOCK~~1,420,000 shares of common stock issued to employees, directors and consultants on June 29, 2007, as part of their compensation. The warrants have a ten -year term and were issued with an exercise price of $0.20 per share.

~~Future~~· ~~sales~~Warrants ofto ~~our~~purchase 5,000,000 shares of common stock ~~may~~issued ~~cause~~to ~~our~~the ~~stock~~placement agent on June 29, 2007, as a fee for various consulting services. The warrants have a ten-year term and were issued with an exercise price toof ~~decline~~$0.19 per share.

Since our inception, we have funded operations through common stock issuances in order to meet our strategic objectives. We have completed six private sales of common stock and securities convertible into common stock. We may, in the future, issue more shares of common stock in sales that may or may not be registered under the Securities Act of 1933, or the Securities Act. Our stock price may decline due to future sales of our shares or even the perception that such sales may occur.33

~~Our~~The issuances of common stock, ~~price~~warrants ~~can~~and bestock ~~extremely~~options ~~volatile~~were not registered under the Securities Act because such issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as they were transactions by an issuer that did not involve a public offering of securities.

~~Our common stock is~~Item ~~traded on the OTC Bulletin Board~~ 4. ~~There~~Submission ~~can be no assurance that an active public market will continue for the common stock, or that the market price for the common stock will not decline below its current price. The price~~ of ~~our common~~Matters ~~stock may be influenced by many factors, including, but not limited~~ to~~, investor~~ perception of us and our industry and general economic and market conditions. The trading price of our common stock could be subject to wide fluctuations in response to announcements of our business developments or our competitors, quarterly variations in operating results and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a ~~substantial~~Vote ~~effect on the market prices~~ of ~~companies,~~Security ~~at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock.~~Holders

30We held our 2007 Annual Meeting of Shareholders on June 29, 2007. We adjourned our annual meeting for the purpose of soliciting additional votes to approve an Agreement and Plan of Merger pursuant to which we would reincorporate from the State of Nevada to the State of Delaware. Voting for all other matters that were presented at the annual meeting closed at the end of the meeting on June 29, 2007. The adjourned meeting resumed at 10:00 a.m., on Monday, July 16, 2007.

The following ~~large~~matters ~~number~~were ofvoted ~~shares~~at ~~available for future sale could adversely affect~~ the ~~price~~2007 ofAnnual ~~our~~Meeting ~~common stock.~~of Shareholders:

~~As of June 30, 2006, approximately 16~~1.3 ~~million~~A ~~shares~~proposal ofto ~~common~~elect ~~stock~~six ~~were~~directors issuable upon exercise of outstanding stock options with a weighted average exercise price of $0.87 per share, and approximately 21.5 million shares of common stock were issuable upon exercise of outstanding warrants with an exercise price of between $0.01 to ~~$2.00~~serve ~~per share. Substantially all of the shares underlying these options and warrants have been registered~~ for resale, and none of them are subject to any contractual restrictions on resale. Future sales of any of these shares, or the anticipation of such sales, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through an offering of equity securities. Further, any issuance of a ~~substantial~~ ~~number~~term of ~~these~~one ~~shares would dilute the ownership interest of existing stockholders and could result in increased volatility in the price of our common stock.~~year

Our common stock, which is quoted on the OTC Bulletin Board, has several disadvantages from those securities traded on The Nasdaq Stock Market.

Nominee’s Name	For	Withheld
Greg Osborn	89,005,753	4,366,731
Joseph P. Carfora	78,492,223	14,880,261
Lanny Dacus	89,103,753	4,268,731
Frederick G. Ledlow	78,508,223	14,864,261
William P. Miller	78,338,223	14,984,261
Peter O’Gorman	78,417,448	14,955,036

~~Our common stock,~~Each ~~which~~ of these isnominees ~~quoted~~was onelected ~~the~~to ~~OTC~~serve ~~Bulletin~~as ~~Board,~~director ~~has~~for ~~several~~a ~~disadvantages~~term ~~from~~of ~~those~~one ~~securities traded on The Nasdaq Stock Market~~ year. ~~These disadvantages include the following:~~

~~· The~~On ~~SEC’s order handling rules~~ June 27, ~~which apply to Nasdaq-listed securities~~2007, doMr. ~~not apply~~Leon toFrenkel ~~securities~~resigned ~~quoted~~from onour ~~the~~Board ~~OTC~~of ~~Bulletin Board~~Directors.

~~· Although~~On ~~The~~ June 27, ~~Nasdaq~~2007, ~~Stock~~Timothy ~~Market~~Lane ~~has~~was ~~rigorous~~appointed ~~listing standards~~ to ~~ensure~~our ~~the~~Board ~~high quality~~ of ~~its issuers~~Directors, and ~~can~~as ~~delist~~of ~~issuers for not meeting those standards,~~June ~~the~~ 29, ~~OTC Bulletin Board has no listing standards. Rather~~2007, itTimothy isLane ~~the~~was ~~market~~appointed ~~maker who chooses~~ to ~~quote a security on~~ the ~~system~~Audit byCommittee ~~filing~~and ~~an application with~~ the ~~NASD.~~ ~~The NASD cannot deny an application by a market maker to quote the stock~~Governance ~~of a company~~ Committee. ~~The only requirement for inclusion in the OTC Bulletin Board is that the issuer be current in its reporting requirements with the SEC.~~

~~· Trading activity on the OTC Bulletin Board in general is not conducted as efficiently and effectively as with Nasdaq-listed securities~~2. ~~Investors~~A ~~must~~proposal ~~contact a broker-dealer~~ to ~~trade~~amend ~~OTC~~our ~~Bulletin~~Nevada ~~Board~~Articles ~~securities.~~of ~~Investors~~Incorporation ~~do not have direct access~~ to increase the ~~bulletin~~maximum ~~board~~number ~~service.~~of ~~For~~directors ~~bulletin~~of ~~board~~our ~~securities, there~~company ~~only~~from ~~has~~seven to ~~be one market maker.~~nine

· Bulletin board transactions are conducted almost entirely manually. Because there are no automated systems for negotiating trades on the bulletin board, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place an order to buy or sell a specific number of shares at the current market price, it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and getting execution.

For			87,947,855
Against			5,346,883
Abstain			77,746

~~· Shares~~Since ~~traded~~ our shareholders onapproved the ~~OTC~~Agreement ~~Bulletin~~and ~~Board~~Plan ~~generally~~of ~~are~~Merger ~~quoted~~for ~~with~~our ~~greater spreads~~reincorporation ~~between~~ into ~~bid~~Delaware, ~~and~~this ~~ask~~proposal, ~~and~~although ~~may~~approved beby ~~more~~our ~~expensive~~shareholders, towill ~~buy or sell~~not be implemented.

~~· Because bulletin~~3. ~~board~~A ~~stocks~~proposal ~~are~~to ~~usually~~amend ~~not~~our ~~followed~~Nevada byArticles ~~analysts,~~of ~~there~~Incorporation ~~may~~to beincrease ~~lower trading~~the ~~volume~~number ~~than~~of ~~for~~authorized ~~Nasdaq-listed~~shares ~~securities.~~of common stock from 300,000,000 to 450,000,000

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

For			82,493,321
Against			10,212,861
Abstain			666,302

~~Companies trading on the~~Since ~~OTC Bulletin Board, such as us, must be reporting issuers under Section 12~~ our of shareholders approved the ~~Exchange~~Agreement ~~Act of 1934,~~ and ~~must~~Plan beof ~~current~~Merger infor ~~their~~our ~~reports under~~reincorporation ~~Section 13,~~ into ~~in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements~~Delaware, ~~we could~~this ~~be removed from the OTC Bulletin Board. In such event~~proposal, ~~the~~although ~~market liquidity~~approved ~~for our securities could be severely adversely affected~~ by ~~limiting the ability of broker-dealers to sell~~ our ~~securities~~shareholders, ~~and~~will ~~the ability of stockholders~~not ~~to sell their securities in the secondary market~~ be implemented.

~~If we are unable to comply with the terms of registration rights agreements to which we are a party, we may be obligated to pay liquidated damages to some of our security holders.~~34

In connection with our April 2004, July 2004, December 2004, September 2005 and January 2006 private placements, we entered into registration rights agreements with certain of our security holders in which we agreed to prepare and file with the SEC registration statements to register certain shares of common stock, which registration statements must be maintained effective for certain specified periods4. If weA ~~are~~proposal ~~unable~~ to ~~comply~~amend ~~with these~~our ~~provisions~~Nevada ofArticles ~~these registration rights agreements, we may be obligated to pay liquidated damages to the holders~~ of ~~the~~Incorporation ~~securities covered by such registration rights agreements. If we are required~~ to ~~pay~~Authorize ~~such liquidated damages or other amounts to these holders~~15, ~~our business~~000,000 ~~financial~~shares ~~condition,~~of ~~operating~~preferred ~~results and cash flows would be materially adversely affected.~~stock

Registration statements with respect to the April 2004, July 2004 and December 2004 private placements were filed and declared effective in a timely manner. However, on June 14, 2006, we notified the holders of securities acquired in these private placements that the prospectuses contained within these registration statements contained financial and other information that was not current and that, as a result, such prospectuses could not be used to offer and sell such securities. Our obligation to accrue liquidated damages under these registration

For			32,312,506
Against			13,732,303
Abstain			315,660

31This proposal was not approved at the 2007 Annual Meeting of Shareholders.

~~rights~~5. ~~agreements~~A ~~ceased in~~proposal ~~April~~to 30grant ~~and~~discretionary ~~July~~authority ~~22,~~to ~~2006,~~our ~~respectively. Through~~board ~~July~~of ~~22,~~directors ~~2006,~~to weamend ~~have~~our ~~accrued~~Nevada ~~$361~~Articles of Incorporation or Delaware Certificate of Incorporation,~~000~~ inas ~~liquidated~~the ~~damages related~~case may be, to ~~these~~effect ~~agreements.~~a reverse split of our common stock within a band ranging from one-for-five to one-for-twenty

We were unable to have the registration statement registering resale of securities purchased in the September 2005 private placement declared effective by the deadline specified in the applicable registration rights agreement. However, in connection with the January 2006 private placement, we obtained waivers of all claims for liquidated damages relating to our inability to have such registration statement declared effective by the specified deadline. Under the waiver, the date by which the registration statement covering resale of the securities purchased in the September 2005 private placement was required to be declared effective was extended to May 23, 2006. On April 26, 2006, we filed a registration statement registering resale of securities purchased in the September 2005 and January 2006 private placements. We believe that we have used our best efforts to cause this registration statement to be declared effective and, therefore, pursuant to the terms of the applicable registration rights agreements, we believe that we are not currently liable for liquidated damages as a result of this registration statement not being declared effective by May 23, 2006. Should the rights holders dispute that our best efforts were used, and we either accede to their assertion or are found to not have used our best efforts, the estimated maximum amount of liquidated damages for which we would be liable, assuming (i) ineffectiveness from May 23, 2006 to the end of the period covered by the registration agreement and (ii) a stock price of $0.37 for periods subsequent to July 26, 2006, is approximately $270,000.

For			82,391,942
Against			10,910,620
Abstain			69,921

~~Since~~This proposal ~~our~~was ~~common~~approved ~~stock~~at ~~is subject to~~ the ~~SEC’s~~2007 ~~penny~~Annual ~~stock~~Meeting ~~rules,~~of ~~broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected~~Shareholders.

6. A ~~public~~proposal ~~company’s common stock is subject~~ to ~~the~~approve ~~penny~~an ~~stock~~Agreement ~~rules~~and ~~promulgated~~Plan ~~under the Securities Exchange Act~~ of ~~1934,~~Merger orpursuant ~~Exchange~~to ~~Act,~~which ~~unless~~we ~~its~~will ~~net~~reincorporate ~~tangible~~from ~~assets~~the ~~are greater~~State ~~than~~of ~~$2,000,000~~Nevada ~~or its common stock has a market price per share greater than $5.00. Under these rules, broker-dealers who recommend such securities~~ to ~~persons~~the ~~other~~State ~~than~~of ~~institutional accredited investors must:~~Delaware

· make a special written suitability determination for the purchaser;

For			56,449,797
Against			3,678,283
Abstain			142,627

~~· receive~~This ~~the~~ proposal ~~purchaser’s~~was ~~written~~approved ~~agreement~~at tothe a2007 ~~transaction~~Annual ~~prior~~Meeting toof ~~sale;~~Shareholders.

~~· provide the~~7. ~~purchaser~~A ~~with~~proposal ~~risk~~to ~~disclosure~~ratify ~~documents~~the ~~that~~selection ~~identify~~of ~~certain~~Rothstein, ~~risks associated~~Kass ~~with~~& ~~investing~~Company, inP.C. ~~“penny~~as ~~stocks”~~our ~~and~~independent ~~that~~registered ~~describe~~public ~~the~~accounting ~~market~~firm for ~~these~~ ~~“penny~~the ~~stocks,”~~fiscal asyear ~~well~~ending asDecember a31, ~~purchaser’s legal remedies; and~~2007

· obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in “penny stock” can be completed.

For			91,609,643
Against			1,649,690
Abstain			113,151

~~Since our common stock is~~This ~~subject~~ proposal towas ~~these~~approved ~~rules,~~at ~~broker-dealers may find it difficult to effect customer transactions and trading activity in our securities may be adversely affected. As a result,~~ the ~~market~~2007 ~~price~~Annual Meeting of ~~our securities may be depressed, and you may find it more difficult to sell our securities~~Shareholders.

Item 2 6. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits

During the three-month period ended June 30, 2006, we granted the following stock options:

10.1		Amendment No. 3 dated January 19, 2007, to Exclusive Field of Use License Agreement and Product Sale Agreement dated September 16, 2004 between the Company, Pharlo Citrus Technologies and Indian River Labs, LLC.*
31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1		Section 1350 Certifications by Principal Executive Officer
32.2		Section 1350 Certifications by Principal Financial Officer

~~· On May 11,~~* ~~2006,~~ Confidential ~~stock~~portions ~~options to purchase an aggregate~~ of ~~530,000~~this ~~shares~~Exhibit ofhave ~~common~~been ~~stock, at~~deleted anand ~~exercise~~filed ~~price of $1.00 per share,~~ separately with athe ~~contract~~Securities ~~term of ten years~~ and a ~~vesting~~Exchange ~~term~~Commission ofpursuant ~~two year, were granted~~ to ~~six~~a ~~non-executive~~request ~~employees~~for confidential treatment.

The grant of such stock options to the above-listed persons was not registered under the Securities Act of 1933, because the stock options either did not involve an offer or sale for purposes of Section 2(a)(3) of the Securities Act, in reliance on the fact that the stock options were granted for no consideration, or were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act pursuant to Section 4(2).35

~~Item 4. Submission of Matters to a Vote of Security Holders~~SIGNATURES

WeIn accordance ~~held~~with ~~our~~the ~~2006~~requirements ~~Annual Meeting~~ of ~~Stockholders~~the ~~on June~~Exchange 16Act, ~~2006.~~the ~~The~~Registrant ~~following~~caused this report ~~matters~~to ~~were~~be ~~voted~~signed ~~upon~~on atits behalf by the ~~Annual~~undersigned, ~~Meeting:~~thereunto duly authorized.

Holders of 76,303,187 shares of our common stock voted to elect James Burns to serve for a term of one year and holders of 3,869,649 shares of our common stock withheld votes from this director.

	TASKER PRODUCTS CORP.


Date: August 14, 2007	By:	/s/ Stathis Kouninis
		Stathis Kouninis
		Chief Financial Officer (Principal Financial and Accounting Officer)

~~Holders~~Exhibit ~~of 66,118,754 shares of our common stock voted to elect Albert Canosa to serve for a term of one year and holders of 14,054,082 shares of our common stock withheld votes from this director.~~ Index

Holders of 79,382,472 shares of our common stock voted to elect Richard Falcone to serve for a term of one year and holders of 790,364 shares of our common stock withheld votes from this director.

10.1		Amendment No. 3 dated January 19, 2007, to Exclusive Field of Use License Agreement and Product Sale Agreement dated September 16, 2004 between the Company, Pharlo Citrus Technologies and Indian River Labs, LLC.*
31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1		Section 1350 Certifications by Principal Executive Officer
32.2		Section 1350 Certifications by Principal Financial Officer

32* Confidential portions of this Exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

~~Holders of 79,496,972 shares of our common stock voted to elect William Miller to serve for a term of one year and holders of 675,864 shares of our common stock withheld votes from this director.~~36

Holders of 79,175,562 shares of our common stock voted to elect Steven Zavagli to serve for a term of one year and holders of 3,997,274 shares of our common stock withheld votes from this director.

Holders of 79,210,878 shares of our common stock voted to amend the Company’s Articles of Incorporation to increase the maximum size of the Company’s Board of Directors from five to seven, holders of 940,358 shares of our common stock voted against this resolution and holders of 21,600 shares of our common stock withheld votes from this resolution.

Holders of 79,662,119 shares of our common stock voted to amend the Company’s Articles of Incorporation to change the Company name from Tasker Capital Corp. to Tasker Products Corp., holders of 217,031 shares of our common stock voted against this resolution and holders of 293,686 shares of our common stock withheld votes from this resolution.

Holders of 32,793,063 shares of our common stock voted to approve the Company’s 2006 Stock Plan, authorizing the issuance of 2,500,000 shares of our common stock, holders of 2,294,484 shares of our common stock voted against this resolution, holders of 3,127,705 shares of our common stock withheld votes from this resolution and holders of 41,957,854 shares of our common abstained from voting.

Holders of 78,868,487 shares of our common stock voted to ratify the appointment of Rothstein, Kass & Company, P.C. as our independent auditors for the current fiscal year, holders of 976,847 shares of our common stock voted against ratifying this appointment and holders of 327,502 shares withheld votes from this ratification.

Item 6. Exhibits

3.1		Articles of Incorporation of Tasker Products Corp., as amended (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-8 filed on July 20, 2006)
10.1		Termination Agreement with James Burns as of August 1, 2006
31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1		Section 1350 Certifications by Principal Executive Officer
32.2		Section 1350 Certifications by Principal Financial Officer

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TASKER PRODUCTS CORP.
Date: August 14, 2006	By:	/s/ Stathis Kouninis
		Stathis Kouninis
		Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

Exhibit Index

3.1		Articles of Incorporation of Tasker Products Corp., as amended (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-8 filed on July 20, 2006)
10.1		Termination Agreement with James Burns as of August 1, 2006
31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer
32.1		Section 1350 Certifications by Principal Executive Officer
32.2		Section 1350 Certifications by Principal Financial Officer

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