UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

[X]  Annual  Report  Under Section 13 or 15(d) of the Securities Exchange Act of
1934  for  the  Fiscal  Year  Ended  December  31,  2006

[ ]  Transition  Report  Under Section 13 or 15(d) of the Securities Exchange
Act  of  1934  for  the  transition  period  from  ---  to  ---
                        Commission file number: 000-31883

                            PROTON LABORATORIES, INC.
                 (Name of small business issuer in its charter)

                Washington                               91-2022700
    (State or other jurisdiction of            (IRS Employer identification
      incorporation or organization)                      Number)


     1135 Atlantic Avenue, Suite 101, Alameda, CA        94501

    (Address of principal executive offices)           (Zip Code)

                                 (510) 865-6412
                           Issuer's telephone number

  Securities registered under Section 12(b) of the Act:

  Title of Each Class:                 Name of exchange on which registered:
          None.                                         None.

              Securities registered under Section 12(g) of the Act:
                        Common Stock, $0.0001 par value
                                (Title of class)

Check  whether the issuer is not required to file reports pursuant to Section 13
or  15(d)  of  the  Exchange  Act.  [ ]

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 [ ]

     Check  if  there  is no disclosure of delinquent filers in response to Item
405  of  Regulation  S-B  is  contained  in this form, and no disclosure will be
contained,  to  the  best  of  registrant's  knowledge,  in  definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or  any  amendment  to  this  Form  10-KSB.  [X]

     Indicate  by check mark whether the registrant is a shell company (as
defined in Section  12b-2  of  the  Exchange  Act).[ ]YES   [X]NO


<PAGE>
     Registrant's  revenues  for  its  most  recent  fiscal  year:  $143,341.

     The  aggregate  market  value of the common stock held by non-affiliates of
the  registrant  on April 12, 2007 is $3,661,054.

     On   April 12,2007,  the  registrant had outstanding 26,685,673 shares of
Common  Stock, at  $0.0001  par  value  per  share and 8000 preferred shares of
common stock outstanding at $.0001 per share.

Transitional  Small  Business  Disclosure  Format: Yes [ ]  No [X]


INFORMATION  REGARDING  FORWARD-LOOKING  STATEMENTS

     Some  of the statements contained in this annual report, including, without
limitation,  statements  containing  the  words  "believes,"  "anticipates,"
"expects,"  and other words of similar import, are "forward-looking statements."
Forward-looking  statements  involve  known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be  materially  different  from any future results, performance, or achievements
expressed  or  implied by forward-looking statements. Given these uncertainties,
readers are cautioned not to place undue reliance on forward-looking statements.
In  addition  to the forward-looking statements contained in this annual report,
the  following  forward-looking factors could cause our future results to differ
materially  from  our  forward-looking  statements:  market  acceptance  of  our
products  and  our  functional  water technology, competition, ability to obtain
further  funding  and  government  compliance.

                                     PART I

Item  1.  Descripton  of  Business

INTRODUCTION

      Proton  Laboratories,  Inc.  ("Proton"  or  the  "company")  is  a company
specializing  in  the  process  of electrolysis of water and in the marketing of
"functional  water  systems."  The  company  utilizes  this ionic separation and
enhancement  process  as  a  method  to  alter the properties of water and other
liquids.  These  advantages  are found in the areas of improved efficacies, cost
efficiencies,  environmental  safety,  worker  safety,  enhanced  products  and
performance  and  generally as a simple-yet-advanced method in addressing a wide
array  of  today's  industrial  and  humanity-related  concerns.

     Our  executive  offices  are  located  at:  Proton Laboratories, Inc., 1135
Atlantic  Avenue,  Suite  101,  Alameda,  CA  94501,  tel.  (510) 865-6412, fax:
(510)865-9385.  Our  Web  site  is  www.protonlabs.com.

     Proton  Laboratories,  Inc.  was originally founded as Proton Laboratories,
LLC  by  our  Chief  Executive  Officer  Ed  Alexander in 2000. This predecessor
company  specialized  in  the  marketing  of  residential  water  systems and in
research and development of water electrolysis systems. In 2002 we merged into a
public  company  trading  on the NASDAQ Over the Counter Bulletin Board("OTCBB")
market.


<PAGE>
     Our  growth  is  dependent  on attaining profit from our operations and our
raising capital through the sale of stock or debt. There is no assurance that we
will  be  able  to  raise  any equity financing or sell any of our products at a
profit.

     Our  stock  is  traded  on  the  OTCBB.  Our  trading  symbol  is  "PLBI."

OUR  BUSINESS--THE  BACKGROUND  OF  FUNCTIONAL  WATER

     Our  business  is  the marketing of "functional water systems." "Functional
water"  is  water that has been processed through an electrolytic ion separation
process  or  electrolysis  process and has a wide array of functional properties
due  to its unique characteristics. Our functional water systems restructure tap
water  into  one type of water that is alkaline in concentration and one type of
water  that  is  acidic  in  concentration. We believe that the functional water
systems  that we market will have applications in a large variety of industries,
such  as  corporate  agriculture, organic agriculture, food processing, medicine
and  dentistry,  dermatology,  heavy  industry,  mining, environmental clean-up,
product  formulations  and  beverages.

     We  believe that water with these unique functional properties is desirable
for  a  number  of reasons. Water with smaller clusters of molecules has a lower
surface  tension.  With  a  lower  surface  tension,  water  may  have  improved
hydrating,  permeating  and  solubility properties. These properties may enhance
the  overall  functional  effectiveness of water. The separation of the alkaline
and  acidic  properties  found  in  water  provides  the  water  with functional
abilities.  For  example,  functional acidic water has disinfecting abilities to
meet  a  wide  array of disinfecting requirements in food processing procedures.
Functional  alkaline  water  makes  an  excellent drinking water due to improved
hydration.

OUR  BUSINESS--SYSTEMS  AND  MARKETS

     We  have  been marketing functional water systems to the residential market
since  2000,  and  intend to expand into commercial markets. For the residential
market,  we  market  functional  water  systems  that  are  used  to  produce  a
health-beneficial,  alkaline-concentrated  drinking  water.  For  the commercial
market,  we  market  commercial-grade  functional water systems that are used in
applications ranging from food preparation to hospital disinfection. Our goal is
to  take our functional water technology and market it throughout North America.

     Our business model envisions us as: a supplier of technology for functional
water  applications;  a  supplier  of  hardware  for functional water systems; a
provider  of  intellectual property for functional water systems under licensing
agreements;  a  supplier  of  consumer functional water products; consultants to
industries  requiring functional water; facilitators between Japanese functional
water  manufacturers and industrial users in the United States; and educators of
academia,  government  and  industry  on  the  benefits  of  functional  water.

     In  2006, we expended approximately $275,000 to configure our operations so
we  can  become a manufacturer of our own private labeled products. During 2006,
we  have  designed,  engineered  and  started assembly of our own, "Proton Labs"
branded  water  electrolysis  systems.  In  this  process  we  have  designed  5
different  systems  of  which  3  systems  are  designed  for  a  wide  use  of
antimicrobial  applications, 1 system as a hand disinfectant system and 1 system
as  a  commercial  grade alkaline


<PAGE>
drinking water unit. Additionally, an advanced residential drinking water system
was  designed.  By making a substantial change in designs and manufacturing, the
company  has  transitioned itself from a reseller of other manufacturers systems
to  that  of  a  proprietary  branding  owned  by  the company. The company used
substantial  expertise  developed through itself and its consultants through the
years  in  the  design  and assembly of these units to ensure user friendliness,
durability,  lowest  manufacturing  cost  available  with  a guaranteed level of
quality  control  coupled  to  an  advanced  design  to  conduct  an  effective
electrolysis  process.

     We  also  have  had  an  agreement  as  an  exclusive  importer  and master
distributor  of  functional  water  systems  that are manufactured by Matsushita
Electric  Corporation  of America. We also utilize functional water intellectual
property  under  licensing  agreements.  We  supply consumer products related to
functional  water.  We  consult  on  projects  utilizing  functional  water.  We
facilitate  knowledge  about  functional  water  between  the  manufacturer  and
industry,  and  we  act  as  educators  about  the benefits of functional water.

     We  are in preparation to market commercial functional water systems to the
food  processing,  medical  and agricultural industries. The system for the food
processing  industry  includes:  (1)  a hand disinfectant system for proper hand
washing,  and  (2)  an  anti-microbial  water  production  system  for  general
sterilization  and  disinfectant needs. We also intend to market similar systems
to  the  medical  industry.  For  the  agricultural  industry, we intend to sell
functional  water  systems  to organic food growers who desire to use functional
water  to  replace  the  use  of pesticides, fungicides, herbicides and chemical
fertilizers.  Our  commercial functional water systems produce approximately one
gallon  per  minute  of  electrolyzed  alkaline  and  acidic  waters.

     For  the  food  processing  industry,  the alkaline water may be used as an
effective  medium  for removing pesticides from agricultural products, while the
acidic water may be used as anti-microbial water. For the hospital industry, the
alkaline  water  may  be used as an effective medium in removing protein buildup
from  surfaces,  while the acidic water may be used as anti-microbial water. For
the  organic  agricultural  industry,  the  alkaline water may be used for plant
growth  and  as  a  solid  nutrient,  while  the  acidic  water may be used as a
substitute  for  fungicides,  pesticides,  herbicides  and  sporicides.

     Electrolyzed  water  may  also  be used in the formulation of nutraceutical
-type  dietary  supplement  products  in  the health-food and dietary supplement
industries,  and  we  intend  to  target  this  market.

OUR  BUSINESS  --RECENT  EVENTS  AND  NEW  PRODUCTS

In 2006, we raised $1,065,052 from investors. We used some of those proceeds for
the  following  purposes:

A.    Design and preparation for assembly and sales of a proprietary residential
counter-top unit which produces an enhanced drinking water through electrolysis.
Our  device  will  have  a  filtration system coupled to an electrolysis process
which  effectively  filters  the tap water while restructuring the properties of
water  to  make it: (i) have


<PAGE>
greater  mineral  effectiveness;  (ii)  be tastier than tap water; and, (iii) be
more  hydrating  than  tap  water.  We anticipate that this product line will be
ready  for  marketing  in  2007.

B.   Design  and preparation for assembly, validation and sales of a proprietary
anti-microbial  spray.  We have identified a form of electrolyzed water that may
be  an  effective  anti-microbial  agent. One of our proprietary aspects of this
product  may be the stabilization of the electrolyzed water thereby allowing for
an  extended  shelf  life  compared  to  other forms of electrolyzed water. This
product  is  being readied for testing by a third party testing lab to establish
the efficacies of its anti-microbial effect on MRSA, HBV, HIV and Avian Flu. The
objective  of  our  anti-microbial  spray is to be able to control and eliminate
these  four  microbial  strains  on  a  hard surface or on a topical surface. We
anticipate  introducing  this  product  to  ambulance services as a non-chemical
based,  user  friendly product for which these microbes do not have an immunity.
We  anticipate that this product line will be ready for marketing in 2007. As of
the  date  of this 10K, the Company has received successful test results from an
independent  3rd  party  testing laboratory, indicating the high efficacy of the
anti-microbial  spray  with  MRSA.

C.   Design  and  preparation  for  assembly  of  3 proprietary commercial-grade
electrolysis  systems  based  on  a standard platform. There are many industrial
uses  for  water  electrolysis systems. Our 3 system designs based on a standard
platform  which  minimizes  the  need  for  different  components  for different
applications.  The standard platform will provide ease of assembly, ease of use,
durability  and cost effectiveness. We anticipate that this product line will be
ready  for  marketing  in  2007.

D.   The  use  of  the  wine  enhancement through the use of our equipment being
integrated  into  an  existing  wine  production  line  to  achieve:

     1.   A  jumpstart  to  the  wine  aging  process.

     2.   The  control  of  the  wine  aging  process.

     3.   The  termination  of  the  wine  aging  process.

     4.   The  ability  to  circumvent  the  use  of  a  particular wine process
          ingredient.

     5.   The  ability to bring a specific component of wine to the forefront of
          taste.

     6.   The ability to tone down a specific component of wine so to reduce its
          taste.

     7.   The  ability  to control the classification (rating) of a wine product
          based  on  a  desired  combination  of  several  features of the wine.

     Our  ability  to  successfully  market  these products will depend upon our
continued  ability  to  raise  capital.

OUR  BUSINESS--SCIENCE

     "Functional  water"  is  a term that has been assigned to a new category of
water.  Functional  water  has  a wide array of functional properties due to its
unique  characteristics.  We  believe  the  uses  for


<PAGE>
this  type  of water are far reaching, since we are identifying new applications
and  uses for functional water on an ongoing basis. Functional water systems are
capable  of  producing  the  following  types  of  functional  water:

     Ionic-Structured  Water.  Ionic-structured  water  is electrolyzed drinking
water that is alkaline-concentrated and utilizes smaller molecular clusters than
regular  water  for improved hydration and solubility. Ionic structured water is
smooth  to  the  palate.

     Electro-Structured  Water.  Electro-structured  water  is  water  that  is
anti-microbial  in  nature and may be effective against virus, bacteria, fungus,
mildew  and  spores.  This  water  may  have  a wide array of disinfectant uses.

     Derma-Structured Water. Derma-structured water is electrolyzed low pH water
that  has  astringent  and  disinfecting properties and may have a wide array of
cosmetic, dermatological and post-plastic surgery applications that may minimize
infections  and  scarring  and  expedite  healing.

FUNCTIONAL  WATER  RESEARCH  IN  ACADEMIA

     The  process to produce functional water was developed by Scottish inventor
Michael  Faraday  in  Boston,  Massachusetts  in  1834.  In  1929,  the value of
electrolytic  water  separation  to produce water with functional properties was
realized in Japan. Japanese researchers have since taken this process, created a
wide  array  of  functional  waters  and have introduced this technology to food
processing,  hospital disinfection, wound care, agriculture, organic agriculture
and  food  safety  in  Japan. During recent years, functional water applications
have  been  studied  by universities in the U.S.A. and Canada. For example, in a
University  of Georgia study published in the Journal of Food Protection in 1999
entitled "Inactivation of Escherichia coli O157:H7 and Listeria monocytogenes on
Plastic  Kitchen  Cutting Boards by Electrolyzed Oxidizing Water," the immersion
of  plastic  kitchen cutting boards in electrolyzed oxidizing water was found to
be  an  effective  method for inactivating food-borne pathogens such as E. coli.
Other  studies  at  the  University  of  Georgia  have looked at the efficacy of
electrolyzed  oxidizing  water for inactivating E. coli, Salmonella and Listeria
and  have  determined that such water may be a useful disinfectant. A University
of  Georgia  study  entitled  "Antimicrobial  effect  of  electrolyzed water for
inactivating  Campylobacter  jejuni  during  poultry  washing" demonstrated that
electrolyzed  water  is  not  only  effective  in reducing the populations of C.
jejuni  on  chicken,  but  also  may  be  effective  in  the  prevention  of
cross-contamination  of  processing  environments.

OUR  BUSINESS--FUNCTIONAL  WATER  SYSTEMS  PROCESSES

     Residential  Systems.  The residential countertop, functional water systems
produce  water  that  scientists  believe  contains  more  wellness  and health-
beneficial  properties  than regular tap water (see, "Electrolyzed-Reduced Water
Scavenges  Active  Oxygen  Species  and  Protects  DNA  from  Oxidative Damage,"
Biochemical  and  Biophysical  Research  Communications,  Vol.  234,  No. 1, pp.
269-274 (1997); and, Hanaoka, K., "Antioxidant Effects Of Reduced Water Produced
By  Electrolysis  Of  Sodium  Chloride  Solutions,"  31  Journal  of  Applied
Electrochemistry 1307-1313 (2001)). Generally, the residential countertop system
sits  next  to the kitchen faucet, and through the use of a diverter, allows tap
water  to  be  routed  through the system. The


<PAGE>
water  is  then processed through a charcoal filter where chlorine and sediments
are  removed.  The filtered water then proceeds to the electrolysis chamber that
is  made  up  of  electrodes  and  membranes. A positive and negative electrical
charge  is  passed  through  the  electrodes. The minerals that are found in the
filtered  water  are attracted to opposite electrodes. For example, the alkaline
minerals  (minerals with positive(+) properties that include calcium, magnesium,
sodium,  manganese,  iron and potassium) are attracted to the negatively charged
(-)  electrode.  The  acidic  minerals  (minerals  with  negative (-) properties
include  nitric  acid,  sulfuric  acid  and  chlorine)  are  attracted  to  the
positively-charged  (+)  electrode. Through this mineral separation process, two
separate  types  of water are formed, which are water with alkaline-concentrated
minerals,  and  water  with  acidic-concentrated minerals. Each type of water is
held  in  a  separate  chamber  in  the  residential  countertop  system.  The
alkaline-concentrated  water  may be consumed for drinking and cooking purposes,
while the acidic-concentrated water may be used in a topical, astringent medium.

OUR  BUSINESS--MARKETING

Our  objectives  are:

     -    To  create  a  revenue  stream  through  our  marketing of residential
systems.  These  sales  may  be  made  through independent distributors, network
marketing,  infomercials,  mail  order,  retail sales and direct sales generated
through  word-of-mouth  referrals.

     -    To create a revenue stream through the sale of disinfectant systems to
the  food  processing  industry.

     -    To  create  a revenue stream through licensing agreements based upon a
wide  array  of  applications  for  functional  water  that  will be targeted to
specific industries. For example, electrolyzed water may be used in the beverage
industry  to  extract flavors from their natural sources, such as extracting tea
from  tea  leaves  for  use  in  bottled  iced  tea.

     -    To  continue  the  development  of  functional  water applications for
industries  that  are currently dependent upon chemicals as a processing medium.
In  addition to the food processing, medical and agricultural markets, we intend
to  develop market-driven applications for functional water, provide the science
to  these  applications,  publish  the developments in scientific and industrial
circulars  and  perform consulting functions to industries that can benefit from
functional  water.  We  intend to hire our own engineers to design, engineer and
assemble  prototypes  of  functional  water  systems that are built for specific
industrial  needs.  We  believe that by performing these functions ourselves, we
will  have all of the necessary tools to become a leading provider of functional
water  technology.

OUR  BUSINESS--GOVERNMENT  REGULATIONS

     Our  functional  water  systems  are, or may be, subject to regulation by a
variety  of  federal,  state  and local agencies, including the Consumer Product
Safety  Commission  (CPSC")  and  the  Food  and  Drug  Administration  ("FDA").

     Our  hand disinfectant functional water system may be subject to pre-market
approval  by the FDA under Title 21 of the Code of Federal


<PAGE>
Regulations.  We  would expect such an approval process to take approximately 90
days  after  filing with the FDA, although there is no assurance that we will be
able  to  obtain  pre-market  approval  from  the  FDA.  We  have  not  made any
applications  to the FDA yet. We have engaged the consulting services of Environ
Health  Associates  Inc.  to  assist  us  with  our FDA application for the hand
disinfectant.  We  anticipate  filing  the  FDA  application in the near future.
Environ  Health  Associates Inc. is familiar with a modern food safety procedure
known  as  Hazard Analysis and Critical Control Point ("HACCP"). HACCP is a food
safety  procedure  that focuses on identifying and preventing hazards that could
cause  food-borne  illnesses. We believe that complying with the HACCP procedure
may  assist  us  in  getting  FDA  approval,  since the FDA generally encourages
retailers  to  apply  HACCP-based  food  safety  principles,  along  with  other
recommended  practices.

     At  such  time  as  we may obtain FDA listing for the hand disinfectant, we
then  would  request that the system be tested by Underwriter's Laboratories and
the  National  Sanitation  Foundation.

OUR  BUSINESS--MARKETING  AND  DISTRIBUTION

     We  intend  to  develop  systems  for  the  following  markets:

     -    Hand disinfection for the food processing, fast food, medical, dental,
personal  care  and  general  health  care  industries.

     -    Residential,  countertop  drinking  water  electrolysis  systems.

     -    Commercial  functional  water  systems,  such  as  metal  mining  and
refining,  wine  grape mildew treatment, wine aging control, and the formulation
of  functional  water  based  aquaceuticals.

     Hand  Disinfection.  After  we obtain FDA listing for the hand disinfection
system,  we  plan  to  introduce  the  device  and  what  we  believe  to be its
operational  simplicity,  user-friendliness,  high  efficacy  and affordability,
through industrial circulars where hand disinfection is of a primary concern. We
also  intend  to  arrange  with a leasing company to lease the hand disinfectant
system  to the fast food industry. A large part of our marketing efforts will be
directed  to  educating  our  target  markets about functional water. We plan to
write  and publish articles through industrial media, disinfection forums, trade
shows and documentary-type films that may be aired through CNN, PBS and Voice of
America  introducing  a new and novel method for hand disinfection. We intend to
handle  all  inquiries  through  a  toll-free  number.

     We  plan  to  hire  a public relations company that provides the news media
with  documentary  videos  for  the  purpose  of  educating  the  public  on the
technology, processes and applications that we market. The videos will cover the
following  subjects:

     -    The  use  of  functional  electrolyzed  water  for  food  safety.

     -    The use of functional electrolyzed water for effective disinfection in
hospitals  and  clinical  settings.

     -    The  use  of functional electrolyzed water for agriculture and organic
agriculture.

     -    The  use  of  functional  electrolyzed  water  as  a  wellness medium.


<PAGE>
     Residential  Countertop  Units.  The  first  step towards the marketing and
distribution  of  residential  countertop units is to develop a national product
distribution  program  through  network  marketing,  mail  order catalogs sales,
infomercials, independent distributor channels and word of mouth sales. Since we
understand  that  the  demographics  in  these  sales  channels is predominately
composed of females in the age groups of 35-60, we intend to concentrate on this
market segment. The second step in the marketing and distribution of residential
countertop  units  is  to  introduce a simplified, lower price-point system that
will  be  introduced  through  retail  outlets under a series of private labels.

     Commercial  Functional  Water  Systems.  In  addition  to  marketing  the
residential  countertop  systems,  we  plan  to  develop  marketing  plans  for
commercial  systems.  We  may  enter  into  agreements  with companies to act as
distributors of our functional water systems. We may also grant exclusive rights
to companies to use our systems in specific industries for specific applications
in  exchange  for  royalties.

     During  2006,  the  company  had 12 product distributors.  During December,
2006, the company entered into a discussions with a private company, AquaThirst,
Inc.  ("Aquathirst"), to explore an exclusive manufacturing, marketing and sales
arrangement. AquaThirst's marketing group has specialized experiences in product
distribution  in the dietary supplement, functional foods, functional beverages,
Cosmetics  (hair and skin), over the counter drugs, specialty foods and pet care
markets,  as  well  as  in  distributing  products requiring clinical diagnostic
laboratory  testing,  both  physician  and  consumer.

   These  exclusive  manufacturing  and  marketing  agreements  were ratified by
Proton's  Board  of  Directors in March   2007, and effectively provide that the
Company  will  have  access  to  Aquathirst's  product  distribution channels in
domestic  and  international  markets.  These  distribution  channels will cover
residential,  cosmetic,  medical,  agricultural,  food  processing  and consumer
product  areas.

OUR  BUSINESS--COMPETITION

     Our  direct  competitors  include  several entry-level importers of systems
from  Japan  and  Korea.  We believe that we have several distinctive advantages
over  entry-level  distributors:

     We  and  our consultants, who are scientists, business people and advisers,
are  individuals  who  have  helped  pioneer  the  understanding, documentation,
representation and structuring of the technology and its relevance to the United
States  during  the  past  nine-year  period  through  various  companies  and
organizations.  These  consultants  are the leaders in the U.S. in the knowledge
and  representation  of  functional  water.

     We  have  been  able  to create a strong platform of specialists to advance
functional  water  technology in the United States, which would be difficult for
others  to replicate due to our high level of focused commitment and dedication.

     We  have  close  working relationships with our Japanese counterparts which
have been developed and nurtured over the past eleven-year period. These members
are  highly  respected  within  the  Japanese  electrolysis community and attend
annual  conferences  as  invited  speakers.


<PAGE>
     We have excellent working relationships with the Japanese manufacturers and
we are often relied upon to provide international perspectives to be used in the
refinement  of  their  scientific,  design  and engineering thought processes to
create  products  that  will  be  accepted  on  a  global  basis.

     Although  the  majority  of  competitors  of  water  systems  are  limited
resellers,  the  one  significant  competitor  that  we  have is named Hoshizaki
U.S.A.,  which  is  an  established  U.S.  based  Japanese  company  that  has a
substantial  market  presence  in refrigeration and icemakers. We expect that we
may face additional competition from new market entrants and current competitors
as  they  expand  their  business  models.

     In  our  new  products  areas,  we  will  compete with United Kingdom based
Sterilox  regarding our antimicrobial spray, as well as traditional suppliers of
chemical  disinfectants such as Johnson and Johnson. With respect to nutritional
and  enhanced  consumable  water  products,  our  nearest  competitor  would  be
Essentia,  which  manufactures  bottled  water  products.

     To  be  competitive,  we  must  assemble  a  strategic  marketing and sales
infrastructure.  Our  success  will  be  dependent  on  our  ability to become a
formidable  marketing and sales entity based upon the technology we have and our
ability  to aggressively introduce this technology and its far-reaching benefits
through  documentary  videos and other methods of public relations. Sufficiently
adding  to  this  requirement  are  the  discussions that are currently underway
involving the alliance of the company with an established product manufacturing,
marketing  and  sales  infrastructure.

EMPLOYEES

     We  currently  have  3  full-time  employees  all of whom are in management
positions.  None  of  our  employees  is  subject  to  a  collective  bargaining
agreement.  We  believe  that  our  employee  relations  are  good.

OTHER  DEVELOPMENTS

     We  have been developing a proprietary process allowing for electrolysis to
be applied to wine. The primary objective for this application is to allow for a
wine  maker  to  have direct control over the aging process of wine such that it
allows a wine maker to shorten, complement or, if desired, bypass the wine aging
process.  The  test  results  that  were achieved showed promise in creating the
"optimal"  wine  through a controlled process which provides a smooth texture to
the  wine  along  with  an  enhancement

     We have completed a 3-year testing in the wine industry with respect to the
control  of  mildew  on  wine  grapes  in  vineyards. Mildew on wine grapes is a
serious grapevine fungal disease. The tendency for mildew to grow on wine grapes
occurs,  for example, in areas of Napa Valley where foggy conditions prevail. If
mildew  is  found  on  the wine grapes, then spraying with dusty sulfur is done.
Spraying  with  dusty  sulfur will generally eliminate and control the mildew on
grapes.  If  this  fungus  is  ignored,  the wine grapes may spoil. However, the
long-term  effects  of  sulfur exposure is unknown. The use of low pH functional
water  through  routine  application  removes  mildew.


<PAGE>
     We  have done preliminary field testing in the potato growing industry with
respect to potato maintenance during storage. Our preliminary review of this use
of  functional water indicates better potato maintenance during storage. We plan
to  continue  this preliminary test using an automated functional water sprayer.

     We  have  done preliminary testing in the mining and refining industry with
respect  to  the  effect  of  the  use  of functional water on heap leaching and
refining  of  precious  metals.

     We  are  identifying suppliers who can provide components and tools for the
manufacture  of our proprietary residential water-enhancing small appliance. The
residential  system  utilizes  an  advanced  form of electrolysis to enhance the
beneficial  properties  of electrolytes found in tap water. This small appliance
will  allow  for  the  consumer  to create an enhanced drink, similar to bottled
water,  using  our contemporary, kitchen counter-top, small appliance. We expect
these  consumer  appliances  to  be  ready  for  retail  sales  in  2008.

     Utilizing  the sublicense from Edward Alexander at no cost to us, which are
the  North  American  rights  to  manufacture  and  distribute  an  electrolyzed
water-based  antioxidant  dietary  supplement  developed  by  MIZ Corporation, a
Japanese  company  specializing  in  advanced  uses  of  electrolyzed water, the
company  has  begun  advancing  the terms of this sublicense.  During the latter
part  of  2006,  the  company  ordered a commercial-grade system to produce this
advanced  antioxidant  beverage.  During  the first quarter of 2007, the company
will  take  delivery of this unit with production of this product anticipated to
begin  during  the  second  quarter  of  2007.

     In  conjunction  with our Japanese engineering group, we have completed the
proprietary  process  allowing  for  electrolysis  to  be  applied to wine.  The
primary  objective  for  this  application  is to allow for a wine maker to have
direct  control  over the aging process of wine such that it allows a wine maker
to  shorten, complement or, if desired, bypass the wine aging process.  The test
results that were achieved showed promise in creating the "optimal" wine through
a  controlled  process  resulting in a wine product with a smooth texture to the
wine  along with an enhancement to the various active properties of the wine. In
August,  2006,  the  company  and  its  lead  engineer, Mr. Hiroshi Tanaka, were
invited  to  address  the 40th Anniversary Mondavi Wine Conference, held in Napa
California,  with  this  newly-developed  technique  for  wine enhancement.  The
presentation  was  well  understood  by  the  specialized  audience  and several
articles  had  been  written  about  it  in various media.  The company has been
invited  to  attend  the  Taste3  Conference held in Napa, California during the
month  of  May,  2007.  With  what  the  company  has  achieved through the wine
enhancing  process,  the  company  and its engineer has extended the use of this
application  to  the enhancement of Tequila, Japanese Sake, Japanese Sho-chu and
through  a  business  alliance,  a Cello product.  During 2007, the company will
introduce  this  enhancement method to a targeted audience specializing in wine,
tequila  and  other  alcohol-based  products.

     In  2007,  we plan to file an EPA/FDA application for our hand disinfectant
system  and  our  surface  disinfectant  system. We are currently working on the
submission  of  our  antimicrobial waters to be used for produce misting and for
vegetable  washes  to  the  EPA.

     In February 2005, MIZ, a Japanese company that owns four U.S. patents whose
subject  matter  is the electrolysis of water, assigned a


<PAGE>
50%  ownership  interest in those four patents to Mr. Alexander in consideration
of  consulting  services provided to MIZ Company by Mr. Alexander. Mr. Alexander
has  agreed  to  allow  us  to exploit the four patents on a royalty-free basis.
Since  MIZ  Company and Mr. Alexander each has an ownership interest in the four
patents,  either  Mr.  Alexander or the Japanese company could grant licenses to
others  to use the four patents, and the Japanese company could exploit the four
patents  by  itself.


Item  2.  Description  of  Property

     We  lease  approximately  4,000  square  feet  of  office and storage space
located  at  1135  Atlantic  Avenue,  Suite  101, Alameda, CA 94501, for a lease
payment  of approximately $6,300 per month. Under this lease, we are required to
pay  a  percentage  of  the property taxes, insurance and maintenance. The lease
expires  in  July  2007  and  we  anticipate renewing the lease at that time. We
believe  this space is adequate for our current needs, and that additional space
is  available  to  us  at  a  reasonable  cost,  if  needed.


Item  3.  Legal  Proceedings

     We  are  not  a  plaintiff  or  defendant  in  any  litigation,  nor is any
litigation  threatened  against  us.


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

     None.


Item 5. Market for Common, Equity Related Stockholder Matters and Small Business
        Issuer  Purchases  of  Equity  Securities

     Our  stock  is  traded  on  the  OTCBB.  Our  trading symbol is "PLBI." The
following  table  sets  forth the quarterly high and low bid price per share for
our  common  stock.  These  bid  and asked price quotations reflect inter-dealer
prices,  without  retail mark-up, mark-down or commission, and may not represent
actual  prices.  Our  fiscal  year  ends  on  December  31.

<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE

YEAR AND QUARTER        HIGH    LOW
------------------------------------
<S>                     <C>    <C>
2006:
-----

First  Quarter          $0.40  $0.20
Second  Quarter         $0.61  $0.29
Third  Quarter          $1.21  $0.55
Fourth  Quarter         $0.69  $0.17

2005:
-----

First  Quarter          $1.55  $0.37
Second  Quarter         $0.48  $0.32
Third  Quarter          $0.40  $0.20
Fourth  Quarter         $0.34  $0.14
</TABLE>

-------------------------


<PAGE>
     On April 12, 2007, the closing price of our stock was $0.20.

     On April 12, 2007, we had outstanding 26,685,673 shares of common stock and
we  had  approximately  254  shareholders  of  record which includes shares held
directly  by shareholders and shares beneficially owned by shareholders who have
deposited their shares into an account at a broker-dealer. Such deposited shares
into  a  brokerage  account  are accumulated in a nominee account in the name of
Cede,  Inc.

     We  have  not  paid  any  cash  dividends on our common stock and we do not
expect  to  declare  or  pay  any  cash  dividends  on  our  common stock in the
foreseeable  future.  Payment  of any cash dividends will depend upon our future
earnings,  if any, our financial condition, and other factors as deemed relevant
by  the  Board  of  Directors.

     We  have  outstanding  8,000 shares of Series A Preferred Stock. We have no
outstanding options, warrants, or convertible debt. Our Series A Preferred Stock
pays  dividends.

Sales  of  Securities

     Sales of Unregistered Securities in 2006:

     During  the  twelve  months  ended  December  31,  2006,  we sold 6,575,723
restricted  common  shares to foreign residents, for a total value of $1,882,314
cash  and  services.  These  securities  were issued in private transactions, in
reliance  on  the  exemption from registration under the federal securities laws
provided by Regulation S. We also sold to United States residents 812,400 shares
of  restricted  common shares for a total value of $307,195 in cash and services
in reliance on the exemption available under Section 4(2) of the 1933 Securities
Act.

     The  total  amount  of  cash  we  received  in  2006 for sale of restricted
securities,  both  from  foreign  and  United  States  residents was $1,065,052.

Proceeds of Sale from Registration of Our Common Stock

     We filed an SB-2 registration statement for 5,846,250 shares of our selling
shareholders'  common  stock  on September 11, 2006. This registration statement
became effective on September 29, 2006. We do not receive proceeds from the sale
of  these shares by our selling shareholders. The selling shareholders may offer
and  sell  their shares at a price and time determined by them. The market price
of  our common stock could drop if a substantial amount of these shares are sold
in  the  public  market.


<PAGE>
Item  6.  Management's  Discussion  and  Analysis

INTRODUCTION

     The  following  discussion  and  analysis  of  our  financial condition and
results  of  operations should be read in conjunction with the audited financial
statements  and accompanying notes and the other financial information appearing
elsewhere  herein.  The accompanying consolidated financial statements have been
prepared  in  conformity  with  accounting  principles generally accepted in the
U.S.,  which  contemplate  our  continuation  as  a  going  concern.

     We  have  incurred  net  losses of $1,716,680 in 2006 and $981,674 in 2005.
Loans  from  our  CEO  were  required  to  fund  operations.

     Our independent auditors made a going concern qualification in their report
dated  April  13,  2007,  which  raises  substantial  doubt about our ability to
continue  as  a  going  concern.  The  financial  statements  do not include any
adjustments  relating to the recoverability and classification of recorded asset
amounts  or  amounts  and  classification of liabilities that might be necessary
should  the  Company  be  unable  to  continue  in  existence.

     Our ability to continue as a going concern is dependent upon our ability to
generate  sufficient  cash  flows  to meet our obligations on a timely basis, to
obtain  additional  financing  as  may  be  required,  and  ultimately to attain
profitable operations. However, there is no assurance that profitable operations
or  sufficient  cash  flows  will  occur  in  the  future.

     We  have our primary office located in Alameda, California.  During 2006 we
created  a  presence  in  Quincy,  Washington  and  Portland, Oregon by aligning
ourselves  with office spaces that were made available to us.  These offices are
used  primarily  for  marketing  and  sales  generation.

     Our  business  consists  of  the  development,  marketing  and sales of the
industrial,  environmental,  and  residential  systems through the United States
which  alter  the properties of water to produce functional water.  During 2006,
we  continued  to  import  and  resell  systems manufactured by various Japanese
companies;  however,  during  the  same  time period the company started design,
engineering,  parts  sourcing and assembly identification for developing its own
brand  labeled  products.  In  Management's  view,  the company has successfully
designed,  engineered  and developed five commercial systems and one residential
unit.  If  the  company  can  raise  sufficient  capital,  of  which there is no
assurance, management believes these units will be ready for market introduction
during  the  second  quarter  of  2007.

     We  continue  to  raise  funds to bring inventory to market. The company in
late 2006 started a dialogue with a funding sourcing entity to raise $10,000,000
to  advance  its  market-ready  products  to  production  and  revenue.  These
negotiations  have  been  finalized  in  the  first  quarter  of  2007.


<PAGE>
     We  formulate  intellectual  properties  under licensing agreements; supply
consumer  products;  consult  on projects utilizing functional water; facilitate
usage, uses and users of functional water between manufacturer and industry; and
act  as  educators  on  the  benefits of functional water. Our business has been
focused  on  marketing  functional  water  equipment  and  systems.  Alkaline-
concentrated  functional  water may have health-beneficial properties and may be
used for drinking and cooking purposes. Acidic-concentrated functional water may
be  used  as  a  topical,  astringent  medium.

CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES

     Our  discussion  and  analysis  of  our  financial condition and results of
operations  is based upon our consolidated financial statements, which have been
prepared  in  accordance  with  generally  accepted  accounting  principles. The
preparation  of  these  financial  statements  requires us to make estimates and
judgments  that  affect the reported amounts of assets, liabilities, revenue and
expenses,  and  related  disclosure  of contingent assets and liabilities. On an
ongoing  basis,  we  evaluate our estimates. We base our estimates on historical
experience  and  on various other assumptions that are believed to be reasonable
under  the circumstances. These estimates and assumptions provide a basis for us
to  make  judgments about the carrying values of assets and liabilities that are
not  readily  apparent  from  other  sources. Our actual results may differ from
these estimates under different assumptions or conditions, and these differences
may  be  material.

     We  recognize  revenue  when  all  four  of the following criteria are met:
(i)persuasive evidence that an arrangement exists; (ii) delivery of the products
and/or  services  has  occurred;  (iii)  the  selling  price  is  both fixed and
determinable  and;  (iv) collectibility is reasonably probable. Our revenues are
derived  from  sales  of  our industrial, environmental and residential systems,
which alter the properties of water to produce functional water. We believe that
this  critical  accounting  policy  affects  our  more significant judgments and
estimates  used  in  the  preparation  of our consolidated financial statements.

     Our  fiscal  year  end  is  December  31.

RESULTS  OF  OPERATIONS-YEARS  ENDED  DECEMBER  31,  2006  AND  2005.

     We  had  revenue of $143,341 for the year ended December 31, 2006, compared
to revenue of $328,200 for the year ended December 31, 2005. This was a decrease
of  56%.  We  had a working capital deficit of $251,472 and $871,723 at December
31,  2006  and  2005,  respectively.

     We  had a net loss $1,716,680 for the year ended December 31, 2006 compared
to a net loss of $981,674 for the year ended December 31, 2005. This increase in
net  loss  was directly attributed to the following circumstances.  (a) Expenses
incurred  in  various  consulting services that the company needed for marketing
and  public  relations.  (b)  Expenses  incurred  in  the  development  of  its
proprietary  brand  products  consisting of 4 different antimicrobial systems, 1
commercial grade drinking water system, 1 hand disinfectant system, a disposable
antimicrobial  spray,  and  a  produce  misting/vegetable  washing  system.  (c)
Expenses  incurred in various 3rd party testings to validate the efficacy of the
company's  waters.  (d)  Reduction  to  2006  revenues  due to a delayed product
substitution  process brought about by funding delays  (e) Interest expenses and
principal paid in retiring a note that was carried by the company to its current
President.


<PAGE>
     Cash used by  operating activities was $762,118 for the year ended December
31,  2006 compared to cash used by operating activities of $250,646 for the year
ended  December 31, 2005. This increase in cash used by operating activities was
due  primarily   to  expenditures  incurred in the  development of the Company's
own  systems,  third  party  testing  and applications development expenditures.

LIQUIDITY

     As  of December 31, 2006, we had cash on hand of $9,768.  The Company had a
working  capital deficit of $251,472 and $871,723 at December 31, 2006 and 2005,
respectively.  Our  growth  is dependent on attaining profit from our operations
and  our  raising  of  additional  capital  either  through the sale of stock or
borrowing.  There  is  no  assurance  that  we  will be able to raise any equity
financing  or  sell  any  of  our  products  to  generate  a  profit.

    At  December 31, 2006 and 2005, the outstanding principal on all stockholder
loans  was  $270,642 and $484,642 respectively, and accrued interest was $51,554
and  $37,154  annually.  During  2006,  we  paid  in full stockholder loans of a
principal  amount  of  $287,852.

     As  of  December  31,2006,  one  stockholder  agreed  to  consolidate  all
outstanding  notes  due  to him and to extend the time for repayment of interest
and  principal  to December 31, 2009. Total amount due to this stockholder under
the  consolidated  note  is  $270,642  in  principal  and  $51,554  in interest.
Interest  will  continue  to  accrue  at  7%  per  annum.

     The  company  raised  $1,065,052  from  the  sale  of common stock in 2006,
compared  to  $20,000  from  the  sale  of  common  stock  in  2005.

FUTURE  CAPITAL  REQUIREMENTS

     Our  growth  is  dependent  on attaining profit from our operations, or our
raising  additional capital either through the sale of stock or borrowing. There
is  no  assurance that we will be able to raise any equity financing or sell any
of  our  products  at  a  profit.

     Our  future  capital requirements will depend upon many factors, including:

     -    The  cost  to  acquire  equipment  that  we  then  would  resell.

     -    The  cost  of  sales  and  marketing.

     -    The  rate  at  which  we  expand  our  operations.

     -    The  results  of  our  consulting  business.

     -    The  response  of  competitors.


<PAGE>
Item 7.  Financial Statements

     The financial statements required by this item are set forth beginning on
page F-1.


Item  8.  Changes  In  and  Disagreements  with  Accountants  On  Accounting and
        Financial  Disclosure

     None.


Item  8A.  Controls  and  Procedures

(a)   Evaluation  of  disclosure  controls  and  procedures.

     As  of  the end of the period covered by this report, the Company conducted
an  evaluation,  under  the  supervision and with the participation of the Chief
Executive  Officer  and  Chief  Financial  Officer,  of the Company's disclosure
controls  and  procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934  Act.  The  evaluation was prompted by the following communication from the
Company's  registered  public  accounting  firm.

     In   connection   with  its  review of the Company's consolidated financial
statements  for  ended  December 31, 2006, Hansen, Barnett  & Maxwell  ("HB&M"),
the Company's registered public accounting firm, advised the Audit Committee and
management  of  internal  control  matters  with  respect  to  certain financial
reporting  controls  that  they  considered  to be a material weakness, which is
described  below.  A material weakness is a control deficiency, or a combination
of  control  deficiencies,  that  results  in  there  being  more  than a remote
likelihood  that  a  material  misstatement  of  the annual or interim financial
statements will not be prevented or detected. The material weakness   identified
at   December  31,  2006  was  as  follows:

     A  material  weakness  existed  in  our  control  environment  relating  to
inadequate  staffing  of  our technical accounting function, including a lack of
sufficient  personnel with skills, training and familiarity with certain complex
technical  accounting  pronouncements  that  have  or  may  affect our financial
statements  and  disclosures.

     We  considered  these matters in connection with the annual closing process
and  the   preparation   of   the   December  31,  2006  consolidated  financial
statements  included  in  this  Form  10-KSB and determined that no prior period
financial  statements  were  materially affected by such matters.  In   response
to  the  observations   made  by  HB&M,  we  are  in the process of implementing
enhancements to our internal controls, accounting staff and procedures, which we
believe  address  the  matters  raised  by  HB&M,  including  the  retaining  of
additional  outside consultants and employees who will have the skills, training
and  familiarity  with  certain  complex  technical  accounting  pronouncements
appropriate  to  preparing  our  financial  statements  and  disclosures.


Item 8B.  Other Information

     None.


<PAGE>
Item 9.  Directors and Executive Officers of the Registrant, Promoters and
         Control Persons; Compliance with Section 16(a) of the Exchange Act


EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
Name                    Age                 Position
--------------------------------------------------------------------
<S>                     <C>  <C>
Edward Alexander         55  Director, Chief Executive Officer,
                             Chief Financial Officer, and Secretary

Michael Fintan Ledwith   64  Director, Member of the Audit Committee

Gary Taylor              57  Director  and  President
</TABLE>

     Edward  Alexander  has  been  our  Chairman,  a  Director,  Chief Executive
Officer,  Chief  Financial  Officer,  and  Secretary since 2002. He had been the
owner  and  president  of  Proton Laboratories, LLC from January, 2001 until its
merger  with  us.  Proton  Laboratories,  LLC  introduced  an electrolytic water
separation  technology  that has many uses in industry, product formulations and
consumer products. From January 1997 to July 1998, Mr. Alexander served as owner
and  president of Advanced H2O, LLC. In July 1998, Mr. Alexander formed Advanced
H2O,  Inc.  to  specialize  in  bottled  water  production.  Prior  to 1997, Mr.
Alexander  served  as  General  Manager  for Tomoe Incorporated and held various
positions  with  various  divisions of the U.S. Navy Resale System during the 22
years  prior  to  1993. In February 2002, the Securities and Exchange Commission
accepted  a  settlement  offer from Mr. Alexander and imposed a cease and desist
order  against  Mr. Alexander from committing or causing any violation or future
violation  of Section 10(b) of the Exchange Act and Rule 10b-5  thereunder. This
order  was  imposed  in  connection  with a press release that Mr. Alexander was
persuaded  to authorize and release about Proton Laboratories, LLC by a business
associate  whom  Mr.  Alexander  trusted  at  the  time.

     Michael  Ledwith  has been our Director since 2002. He has been a member of
the  Audit  Committee  since  June  2004.  He  has  been semi-retired from daily
business  activities  since 1998. He was Professor of Systematic Theology at the
Pontifical  University  of  Maynooth  in Ireland from 1976 to 1994. He was later
Dean  of  the  Faculty,  Head of Department and Editor of "The Irish Theological
Quarterly."  He  was  later  appointed  as  a  Consulting Editor of the renowned
international  review  "Communion"  and  still  serves  in that capacity. He was
appointed  Vice-President  of  the University in 1980, re-appointed in 1983, and
was appointed President in 1985. He served as Chairman of the Committee of Heads
of  the  Irish  Universities  and  was  a  Member of the Governing Bureau of the
European  University  Presidents'  Federation  (CRE).  He  retired  from  his
Professorship  on  September  30,  1996  and  has  since continued to pursue his
interest  in  research, writing, and lecturing in the field of actualizing human
potential.  Since  November  2001  he has been a partner in World of Star Stuff,
which  markets  whole  food  products.

     On  June 3, 2005, Gary Taylor was appointed as a Director and President. We
granted  131,600  shares  of  common stock to Mr. Taylor in connection with this
appointment.  Since 1998, Mr. Taylor has been the


<PAGE>
CEO  of The Moore Company which provides consulting for product distribution and
third  party  logistical  services.

COMMITTEES  OF  THE  BOARD  OF  DIRECTORS

     We  do not have any nominating, or compensation committees of the Board, or
committees  performing  similar  functions.

     In  December  2003,  our  Board  adopted  our  Audit Committee Charter (the
"Charter")  which  established  our  Audit Committee. The Board of Directors has
selected  Michael  Ledwith,  our  only  independent Director, to be on the Audit
Committee.  Mr.  Ledwith  is  not  a  financial  expert.  We have determined Mr.
Ledwith's  independence  using  the definition of independence set forth in NASD
Rule 4200-(14). We have not yet been able to recruit an independent director who
is  also  a  financial  expert.

     The  primary  purpose  of  the  Audit Committee is to oversee our financial
reporting  process on behalf of the Board of Directors. The Audit Committee will
meet privately with our Chief Accounting Officer and with our independent public
accountants  and  evaluate the responses by the Chief Accounting Officer both to
the  facts  presented  and to the judgments made by our independent accountants.
The  Charter  establishes the independence of our Audit Committee and sets forth
the scope of the Audit Committee's duties. The Purpose of the Audit Committee is
to  conduct  continuing  oversight of our financial affairs. The Audit Committee
conducts  an  ongoing  review  of  our  financial  reports  and  other financial
information prior to filing them with the Securities and Exchange Commission, or
otherwise  providing  them  to  the public. The Audit Committee also reviews our
systems,  methods and procedures of internal controls in the areas of: financial
reporting, audits, treasury operations, corporate finance, managerial, financial
and  SEC accounting, compliance with law, and ethical conduct. A majority of the
members  of  the  Audit  Committee  will  be  independent  directors.  The Audit
Committee  is  objective,  and  reviews and assesses the work of our independent
accountants  and  our internal audit department. The Audit Committee will review
and  discuss the matters required by SAS 61 and our audited financial statements
for  the  year  ended  December 31, 2007 with our management and our independent
auditors.  The  Audit  Committee  will  receive  the written disclosures and the
letter from our independent accountants required by Independence Standards Board
No.  1, and the Audit Committee will discuss with the independent accountant the
independent  accountant's  independence.

SECTION  16(A)  BENEFICIAL  OWNERSHIP  REPORTING  COMPLIANCE

     Section  16(a)  of  the  Exchange  Act requires our officers, directors and
persons  who  beneficially own more than 10% of our common stock to file reports
of ownership and changes in ownership with the SEC. These reporting persons also
are  required to furnish us with copies of all Section 16(a) forms they file. To
the  best  of  our knowledge, all persons required to file reports under Section
16(a)  of  the  Exchange  Act  have  done  so  in  a  timely  manner.

CODE  OF  ETHICS

     We  have  a  Code of Ethics that applies to our principal executive officer
and  our  principal  financial  officer.  We undertake to provide to any person,
without  charge,  upon  request, a copy of our Code of Ethics. You may request a
copy  of  our Code of Ethics by mailing your written request to us. Your written
request  must  contain  the  phrase "Request


<PAGE>
for  a  Copy of the Code of Ethics of Proton Laboratories, Inc." Our address is:
Proton  Laboratories,  Inc., 1135 Atlantic Avenue, Suite 101, Alameda, CA 94501.


Item  10.  Executive  Compensation


                             Executive  Compensation

     The  following  table sets forth certain information as to our highest paid
officers  and  directors. No other compensation was paid to any such officers or
directors  other  than  the  compensation  set  forth  below.


<PAGE>
<TABLE>
<CAPTION>
                             Annual  Compensation        Long-Term Compensation
                                                               Awards                  Pay-Outs
                                                                      Securities
Name and                                                   Other        Under-
All                                                      Restricted     lying
Principal                                   Annual         Stock       Options      LTIP       Other
Position       Year     Salary   Bonus   Compensation     Award(s)       SARs     Payouts   Compensation
---------------------------------------------------------------------------------------------------------
<S>          <C>        <C>      <C>     <C>            <C>           <C>         <C>       <C>
Edward
Alexander
CEO,  CFO
                           $       $          $              $            #           $
             2006(1)     68,400     -0-            -0-           -0-                   -0-           -0-
             2005(2)     62,400     -0-            -0-           -0-                   -0-           -0-

Gary Taylor
President
2006                        -0-     -0-            -0-           -0-                   -0-
2005                        -0-     -0-            -0-           -0-                   -0-
</TABLE>

--------------------------------
(1)  Mr.  Alexander's  services  were  valued  at  $60,000 which was recorded as
accrued  wages.  Mr.  Alexander  also  received  $8,400  as  cash  compensation.

(2)  Mr.  Alexander's  services  were  valued  at $60,000, which was recorded as
accrued  wages  Mr.  Alexander  also  received  $2,400  as  cash  compensation.


<PAGE>
OUTSTANDING STOCK OPTIONS

     We have not granted any options to purchase common stock and we do not have
any  outstanding  options  to  purchase  common  stock.

COMPENSATION OF DIRECTORS

     No  compensation  was  paid to outside directors in either 2005 or 2006. Ed
Alexander,  CEO  and  Chairman,  did not receive compensation in addition to his
salary  for  serving  as  a  director  in  2005  and  2006.

EMPLOYEE STOCK OPTION PLANS

     In  June, 2005, the Board of Directors approved the "June 2, 2005 Stock and
Stock Option Plan" which made available 1,500,000 shares of the company's common
stock  as  incentive  grants for consultants, directors and key employees. As of
December  31,  2006,  all  shares  available  under  the  plan  were  granted to
consultants  to  the  company,  and  no  shares  were  granted  to  officers and
directors.

NO EMPLOYMENT AGREEMENT

     We  do  not  have  any  employment  agreements  with  any  employees.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

<TABLE>
<CAPTION>
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

                           Number of
                           securities to                          Number of securities
                           be issued                              remaining available
                           upon            Weighted-average       for future issuance
                           exercise  of    exercise  price  of    under equity
                           outstanding     outstanding            compensation
                           options,        options,               plans (excluding
                           warrants and    warrants and           securities reflected
                           rights          rights                 in column (a))

                                (a)                 (b)                   (c)
---------------------------------------------------------------------------------------
<S>                        <C>             <C>                    <C>
PLAN  CATEGORY:

Equity  compensation
plans  approved  by
security  holders               -0-                 n/a                   -0-

Equity  compensation
plans  not  approved  by
security  holders  (2)          -0-                 n/a                    --

    Total                       -0-                 n/a                   -0-
</TABLE>


<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

     The following table sets forth certain information concerning the number of
shares  of  common  stock  owned beneficially as of April 12, 2007, by: (i) each
person  (including  any group) known by us to own more than five percent (5%) of
any  class  of  our  voting securities, (ii) each of our directors and executive
officers,  and (iii) and our officers and directors as a group. Unless otherwise
indicated, the shareholders listed possess sole voting and investment power with
respect  to  the shares shown. As of April 12, 2007, we had 26,685,673 shares of
common  stock  outstanding.

<TABLE>
<CAPTION>
Name                               Amount of Shares     Class of    Percentage
and Address                       Beneficially Owned   Securities    of Class
--------------------------------------------------------------------------------
<S>                               <C>                 <C>           <C>
Edward Alexander
1135 Atlantic Avenue, Suite 101
Alameda, CA 94501                          8,224,000  Common Stock        30.7%

Gary Taylor
333 S.E. 2ND AVE.
PORTLAND OR 97214                            156,400  Common Stock         0.6%

Michael Fintan Ledwith
6610 Churchill Rd. SE
Tenino, WA 98589                              40,000  Common Stock         0.1%

Executive Officers
As A Group(3 Persons)                      8,380,400  Common Stock        31.4%
</TABLE>


<PAGE>
     We  are  not  aware  of  any  arrangements that could result in a change of
control.


Item 12. Certain Relationships and Related Transactions

     We  have  a  policy  that  our  business  affairs  will be conducted in all
respects  by standards applicable to publicly held corporations and that we will
not enter into any future transactions and/or loans between us and our officers,
directors  and  5% shareholders unless the terms are: (a) no less favorable than
could  be obtained from independent third parties, and (b) will be approved by a
majority of our independent and disinterested directors. In our view, all of the
transactions  described  below  meet  this  standard.

     During  2006,  notes of total principal amount of $168,000 that were due to
our  President and current director, Gary Taylor, and the principal and interest
that  was  due  on  each  of  these  notes  have  been  paid  in  full.

     Our  CEO,  Ed  Alexander,  held  a  series of notes from the Company during
fiscal  years  2005  and  2006  which  at  fiscal  year  end  of  2006 had total
outstanding principal due of $270,642 and total accrued interest due of $51,554.
As  of December 31, 2006, our CEO agreed to consolidate all of these outstanding
notes  and  to extend the term of repayment to December 31, 2009.  Interest will
continue  to  accrue  on  these  notes  at  an  interest  rate  of 7% per annum.


Item 13. Exhibits

Exhibit Number    Exhibit  Description
-----------------------------------------------------------------------

31                Certification pursuant to Section 13a-14 of CEO

32                Certification pursuant to Section 1350 of CEO


Item 14. Principal Accountant Fees and Services

OUR  INDEPENDENT  ACCOUNTANT

     In  2005, our Board of Directors selected as our independent accountant the
CPA  firm  of  Hansen,  Barnett & Maxwell, a Professional Corporation ("HBM") of
Salt  Lake  City, Utah. HBM audited our financial statements for the years ended
December  31,  2006  and  2005. Our Audit Committee approved 100% of the work of
HBM.

1.   AUDIT  FEES

     For  the  two  years  ended  December  31, 2006 and 2005, HBM billed us the
aggregate amount of $35,357 and $24,096, respectively, for


<PAGE>
professional  services  rendered  for  their  audits  of  our  annual  financial
statements  for  those  years  and  their  reviews  of  our  quarterly financial
statements  for  those  years. We were not billed for professional services from
any  other  accounting  firm  for  audits  or  reviews  done  in  2006 and 2005.

2.   AUDIT-RELATED  FEES

     For  the  two years ended December 31, 2006 and 2005, we were billed $3,040
and  $5,029,  respectively,  by  HBM  for  audit-related  fees.

3.   TAX  FEES

     For  the  two years ended December 31, 2006 and 2005, we were not billed by
HBM  for  any  tax  fees.

4.   ALL  OTHER  FEES

     For  the  two years ended December 31, 2006 and 2005, we were not billed by
HBM  for  any  other  professional  services.

5(I).  PRE-APPROVAL  POLICIES

     Our  Audit  Committee  does  not  pre-approve  any  work of our independent
auditor,  but  rather  approves  independent  auditor  engagements  before  each
engagement.

5(II).  PERCENTAGE  OF  SERVICES  APPROVED  BY  OUR  AUDIT  COMMITTEE

     There  were  no  services  performed by our independent auditor of the type
described  in Items 9(e)(2) through 9(e)(4) of Schedule 14A. Our Audit Committee
considers  that the work done for us by HBM is compatible with maintaining HBM's
independence.

6.   AUDITOR'S  TIME  ON  TASK

     At  least  50% of the work expended by HBM on our 2006 audit was attributed
to  work  performed  by  HBM's  full-time,  permanent  employees.


<PAGE>
SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this FORM 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized in Alameda, California.


                                   PROTON LABORATORIES, INC.


April 16, 2007                     By:  /s/ Edward Alexander
                                        Edward  Alexander
                                        Director, Chief Executive Officer,
                                        Chief Financial Officer


     In accordance with the Exchange Act, this FORM 10-KSB has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


April 16, 2007                     By:  /s/ Edward Alexander
                                        Edward Alexander
                                        Director, Chief Executive Officer and
                                        Chief Financial Officer


April 16, 2007                     By:  /s/ Michael Fintan Ledwith
                                        Michael Fintan Ledwith
                                        Director


April 16, 2007                     By:  /s/ Gary Taylor
                                        Gary Taylor
                                        Director and President


<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS


                            PROTON LABORATORIES, INC.

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                                       AND
                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2006 AND 2005

                         HANSEN, BARNETT & MAXWELL, P.C.
                           A Professional Corporation
                          CERTIFIED PUBLIC ACCOUNTANTS

<PAGE>
                            PROTON LABORATORIES, INC.
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                 PAGE
<S>                                                                                              <C>

Report of Independent Registered Public Accounting Firm                                          F-2

Consolidated Balance Sheets - December 31, 2006 and 2005                                         F-3

Consolidated Statements of Operations for the years ended December 31, 2006 and 2005             F-4

Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2005
and 2006                                                                                         F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005             F-6

Notes to Consolidated Financial Statements                                                       F-7
</TABLE>


<PAGE>
HANSEN, BARNETT & MAXWELL, P.C.
  A Professional Corporation                  REGISTERED WITH THE PUBLIC COMPANY
 CERTIFIED PUBLIC ACCOUNTANTS                     ACCOUNTING OVERSIGHT BOARD
  5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128                       an independent member of
   Phone: (801) 532-2200                                  BAKER TILLY
    Fax: (801) 532-7944                                  INTERNATIONAL
      www.hbmcpas.com


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and the Stockholders
Proton Laboratories, Inc. and subsidiaries

We  have audited the consolidated balance sheets of Proton Laboratories, Inc. as
of  December  31,  2006  and  2005,  and  the related consolidated statements of
operations,  stockholders'  deficit  and cash flows for the years ended December
31,  2006  and  2005.  These  consolidated  financial  statements  are  the
responsibility  of the Company's management. Our responsibility is to express an
opinion  on  these  consolidated  financial  statements  based  on  our  audits.

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

In  our  opinion the consolidated financial statements referred to above present
fairly,  in all material respects, the consolidated financial position of Proton
Laboratories  as  of  December  31,  2006  and  2005,  and  the results of their
consolidated  operations  and  their consolidated cash flows for the years ended
December  31,  2006 and 2005, in conformity with accounting principles generally
accepted  in  the  United  States  of  America.

The  accompanying  consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial  statements, the Company has an accumulated deficit, has
suffered  reoccurring  losses  from operations and has negative working capital.
These factors raise substantial doubt about the Company's ability to continue as
a  going  concern.  Management's  plans  in  regards  to  these matters are also
described  in  Note  2. The consolidated financial statements do not include any
adjustments  that  might  result  from  the  outcome  of  this  uncertainty.


                                                 HANSEN, BARNETT & MAXWELL, P.C.

Salt Lake City, Utah
April 13, 2007


                                     F-2
<PAGE>
<TABLE>
<CAPTION>
                            PROTON LABORATORIES, INC
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2006 AND 2005


                                                                       2006          2005
---------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
ASSETS
CURRENT ASSETS
Cash                                                               $     9,768   $     1,384
Accounts receivable, less allowance for doubtful accounts of
  $30,419 and $16,522, respectively                                        794        21,927
Inventory                                                              143,865        32,861
---------------------------------------------------------------------------------------------
  TOTAL CURRENT ASSETS                                                 154,427        56,172
---------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Furniture and fixtures                                                  23,316        19,709
Equipment and machinery                                                238,776       161,833
Leasehold improvements                                                  11,323        11,323
  Accumulated depreciation                                             (69,550)      (45,820)
---------------------------------------------------------------------------------------------
  NET PROPERTY AND EQUIPMENT                                           203,865       147,045
---------------------------------------------------------------------------------------------
DEPOSITS                                                                 6,131         6,131
=============================================================================================
TOTAL ASSETS                                                       $   364,423   $   209,348
=============================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable                                                   $    71,314   $   168,378
Accrued expenses                                                       266,079       252,769
Deferred revenue                                                        52,506        52,506
Preferred dividends payable                                             16,000         9,600
Stockholder loans, current portion                                           -       444,642
---------------------------------------------------------------------------------------------
  TOTAL CURRENT LIABILITIES                                            405,899       927,895
---------------------------------------------------------------------------------------------
STOCKHOLDER LOANS, NET OF CURRENT PORTION                              270,642        40,000
=============================================================================================
TOTAL LIABILITIES                                                  $   676,541   $   967,895
=============================================================================================
STOCKHOLDERS' DEFICIT
Series A convertible preferred stock, 400,000 shares authorized
  with a par value of $0.0001; 8,000 shares issued and
  outstanding, respectively; liquidation preference of $80,000
  and $0, respectively                                                  80,000        80,000
Undesignated preferred stock, 19,600,000 shares authorized with a
  par value of $0.0001; no shares issued or outstanding                      -             -
Common stock, 100,000,000 common shares authorized with a par
  value of $0.0001; 21,658,223 and 14,270,100 shares issued and
  outstanding, respectively                                              2,168         1,429
Additional paid in capital                                           4,045,371     1,856,601
Subscription receivable                                                (20,000)            -
Accumulated deficit                                                 (4,419,657)   (2,696,577)
---------------------------------------------------------------------------------------------
  TOTAL STOCKHOLDERS' DEFICIT                                         (312,118)     (758,547)
---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                        $   364,423   $   209,348
=============================================================================================
</TABLE>

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


                                     F-3
<PAGE>
<TABLE>
<CAPTION>
                            PROTON LABORATORIES, INC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                                       2006          2005
---------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
SALES                                                              $   143,341   $   328,200

COST OF GOODS SOLD                                                     113,288       246,630
---------------------------------------------------------------------------------------------

GROSS PROFIT                                                            30,053        81,570
---------------------------------------------------------------------------------------------

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including
  equity-based expenses of $1,063,931 and $459,040, respectively)    1,702,134       954,834
---------------------------------------------------------------------------------------------

LOSS FROM OPERATIONS                                                (1,672,081)     (873,264)
---------------------------------------------------------------------------------------------

OTHER INCOME AND (EXPENSE)
Interest income                                                          1,615           186
Interest expense                                                       (46,214)     (108,596)
---------------------------------------------------------------------------------------------
  NET OTHER EXPENSE                                                    (44,599)     (108,410)
---------------------------------------------------------------------------------------------

    NET LOSS                                                        (1,716,680)     (981,674)

PREFERRED STOCK DIVIDEND                                                (6,400)       (6,400)
---------------------------------------------------------------------------------------------

LOSS APPLICABLE TO COMMON SHAREHOLDERS                             $(1,723,080)  $  (988,074)
---------------------------------------------------------------------------------------------

BASIC AND DILUTED LOSS PER
  COMMON SHARE                                                     $     (0.10)  $     (0.07)
---------------------------------------------------------------------------------------------

BASIC AND DILUTED WEIGHTED AVERAGE
  SHARES OUTSTANDING                                                17,813,461    13,720,209
---------------------------------------------------------------------------------------------
</TABLE>

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


                                     F-4
<PAGE>
<TABLE>
<CAPTION>
                                               PROTON LABORATORIES, INC
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                     FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2006

                               PREFERRED STOCK       COMMON STOCK     ADDITIONAL
                             ------------------  -------------------    PAID IN     SUBSCRIPTION    ACCUMULATED
                              SHARES    AMOUNT     SHARES    AMOUNT     CAPITAL      RECEIVABLE       DEFICIT        TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>      <C>         <C>      <C>          <C>             <C>            <C>
BALANCE - DECEMBER 31, 2004      8,000  $80,000  12,975,000  $ 1,299  $ 1,350,616  $           -   $ (1,708,503)  $  (276,588)
Issuance of shares for
  interest expense                   -        -      47,500        5       27,070              -              -        27,075
Issuance of directors
  shares                             -        -     131,600       13       52,627              -              -        52,640
Issuance of shares for
  consulting services                -        -   1,016,000      102      406,298              -              -       406,400
Issuance of shares for
  cash                               -        -     100,000       10       19,990              -              -        20,000
Dividends declared                   -        -           -        -            -              -         (6,400)       (6,400)
Net loss for the period              -        -           -        -            -              -       (981,674)     (981,674)
------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2005      8,000   80,000  14,270,100    1,429    1,856,601              -     (2,696,577)     (758,547)
Issuance of shares for
  legal services                     -        -     352,400       35       81,017              -              -        81,052
Issuance of shares for
  consulting services                -        -   1,410,000      141    1,023,264              -              -     1,023,405
Issuance of shares for
  cash                               -        -   5,625,723      563    1,084,489        (20,000)             -     1,065,052
Dividends declared                   -        -           -        -            -              -         (6,400)       (6,400)
Net loss for the period              -        -           -        -            -              -     (1,716,680)   (1,716,680)
------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2006      8,000  $80,000  21,658,223  $ 2,168  $ 4,045,371  $     (20,000)  $ (4,419,657)  $  (312,118)
==============================================================================================================================
</TABLE>

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


                                     F-5
<PAGE>
<TABLE>
<CAPTION>
                            PROTON LABORATORIES, INC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                              2006         2005
----------------------------------------------------------------------------------
<S>                                                       <C>           <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                  $(1,716,680)  $(981,674)
Adjustments to reconcile net loss to cash used
  in operating activities:
  Depreciation                                                 23,730      26,660
  Common stock issued for services                          1,063,931     459,040
  Amortization of loan costs                                        -      27,075
  Changes in operating assets and liabilities
    Accounts receivable                                        21,133     (11,294)
    Inventory                                                (111,004)      1,236
    Deferred revenue                                                -      52,506
    Accounts payable                                          (56,538)     33,598
    Accrued expenses                                           13,310     142,207
----------------------------------------------------------------------------------

  NET CASH FROM OPERATING ACTIVITIES                         (762,118)   (250,646)
----------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Refund of deposit                                                   -       5,000
Cash paid for deposit                                               -      (6,131)
Purchases of property and equipment                           (80,550)     (3,893)
----------------------------------------------------------------------------------

  NET CASH FROM INVESTING ACTIVITIES                          (80,550)     (5,024)
----------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock                          1,065,052      20,000
Proceeds from stockholder loans                                73,852     222,642
Payment on stockholder loans                                 (287,852)          -
----------------------------------------------------------------------------------
  NET CASH FROM FINANCING ACTIVITIES                          851,052     242,642
----------------------------------------------------------------------------------

NET INCREASE (DECREASE)  IN CASH                                8,384     (13,028)

CASH AT BEGINNING OF PERIOD                                     1,384      14,412
----------------------------------------------------------------------------------

CASH AT END OF PERIOD                                     $     9,768   $   1,384
----------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for interest                                    $    46,214   $ 108,596
No taxes were paid

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Issuance of common stock for prior period legal services  $    40,526   $  27,075
Accrual of preferred stock dividends                      $     6,400   $   6,400
</TABLE>


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


                                     F-6
<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATIONS

ORGANIZATION-  Proton  Laboratories,  LLC. (Proton) was incorporated on February
16,  2000  in the State of California. Proton did not begin its operations until
January  1, 2001.  On January 1, 2001, Proton's sole owner contributed inventory
and  property  and  equipment  to  the  Company.

BentleyCapitalCorp.com  Inc.  (Bentley)  was  incorporated  in  the  State  of
Washington,  U.S.A. on March 14, 2000. On November 15, 2002, Proton entered into
an  Agreement and Plan of Reorganization with Bentley whereby Proton merged with
and  into VWO I Inc. (VWO), a wholly owned subsidiary of Bentley (the "Merger").
In  April  2004  the  subsidiary  changed  its  name  to  Water  Science,  Inc.

For financial statement purposes Proton is considered the parent corporation and
originally elected to maintain BentleyCapitalCorp.com, Inc as its business name.
In  December  2003  the  Company's  board  elected  to change its name to Proton
Laboratories,  Inc.,  and  hereafter  collectively referred to as the "Company".

CONSOLIDATION  POLICY  -  The  accompanying  consolidated  financial  statements
reflect the financial position of and operations for Proton and its subsidiaries
as  of  and  for  the  years  ended  December 31, 2006 and 2005. All significant
intercompany  transactions  have  been  eliminated  in  consolidation.

NATURE  OF  OPERATIONS  -  The  Company's  operations  are  located  in Alameda,
California.  The  core  business  of  the  Company  consists  of  the  design,
manufacturing,  marketing,  sales  and  integration of the Company's industrial,
environmental  and  residential  systems throughout the United States of America
which  alter  the properties of water to produce functional water.  During 2006,
the  company switched from an exclusive importer and master distributor of these
products  to becoming a design, engineering, manufacturing, marketing and seller
of  these  products  to  companies in which uses for the product range from food
processing  to  retail  water  sales.  Additionally,  the  Company  formulates
intellectual  properties under licensing agreements, supplies consumer products,
consults  on  projects  utilizing  functional  water,  facilitates  between
manufacturer  and  industry  and acts as educators on the benefits of functional
electrolyzed  water.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE  OF  ESTIMATES  - The preparation of financial statements in conformity with
accounting  principles  generally  accepted  in  the  United  States  of America
requires  management  to make estimates and assumptions that affect the reported
amounts  of  assets  and  liabilities,  disclosure  of  contingent  assets  and
liabilities  and  the  reported  amounts  of  revenues  and  expenses during the
reporting  period.  Actual  results  could  differ  from  those  estimates.

FINANCIAL  INSTRUMENTS  -The  Company is subject to concentration of credit risk
with  respect  to  sales  primarily  in the functional water industry.  Accounts
receivable  are  generally unsecured. The Company normally obtains payments from
customers prior to delivery of the related products. Otherwise, the Company does
not  require  collateral  for  accounts  receivable.

The  carrying value of the stockholder loans approximates fair value based on it
bearing  interest  at  a  rate  which  approximates  market  rates.

BUSINESS  CONDITION  -  The  accompanying consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the
United  States  of  America,  which contemplate continuation of the Company as a
going  concern.  The  Company has incurred net losses of $1,716,680 and $981,674
for  the years ended December 31, 2006 and 2005, respectively. The Company had a
working  capital deficit of $251,472 and $871,723 at December 31, 2006 and 2005,
respectively.  Loans  from the Company's shareholders have been required to fund
operations.  These  conditions  raise  a


                                     F-7
<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

substantial  doubt  about  the Company's ability to continue as a going concern.
The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  and  classification  of  recorded  asset  amounts or amounts and
classification  of  liabilities  that  might  be necessary should the Company be
unable  to  continue  in  existence.

The Company is, and has been, working towards raising public funds to expand its
marketing  and  revenues.  During  the  fourth  quarter of 2006, the Company has
spent considerable time in advancing discussions with U.S. product manufacturing
and  U.S.  marketing  and  sales  groups for manufacturing and distribution into
domestic and overseas markets.  The Company has also spent considerable time and
financial resources in the development of its proprietary brand and electrolysis
systems utilizing Japanese engineering and assembly. During 2007, the Company is
planning  to begin its marketing and sales efforts with a completely new line of
products  and  applications.

The  Company's  ability  to  continue  as  a going concern is dependent upon its
ability  to  generate  sufficient cash flows to meet its obligations on a timely
basis,  to  obtain  additional  financing  as may be required, and ultimately to
attain  profitable  operations.  However,  there is no assurance that profitable
operations  or  sufficient  cash  flows  will  occur  in  the  future.

CASH  AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
purchased  with  a  maturity  of  less than three months to be cash equivalents.

ACCOUNTS  RECEIVABLE  -  Accounts receivable are recorded at the invoiced amount
and  do  not bear interest. The allowance for doubtful accounts is the Company's
best  estimate of the amount of probable credit losses in the Company's existing
accounts  receivable.  The  Company determines the allowance based on historical
write-off  experience. Past due balances over 90 days and a specified amount are
reviewed  individually  for  collectibility.  Account  balances  are charged off
against  the allowance after all means of collection have been exhausted and the
potential  for  recovery  is  considered  remote.  The Company does not have any
off-balance  sheet  credit  exposure  related  to  its  customers.

INVENTORY  - Inventory consists of purchased finished goods and is stated at the
lower  of  cost  (using  the  first-in,  first-out  method)  or  market  value.

PROPERTY  AND  EQUIPMENT  -  Equipment, and furniture and fixtures are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful  lives  of  the  assets.  Estimated useful lives range from 3 to 7 years.
Depreciation expense for the years ended December 31, 2006 and 2005, was $23,730
and  $26,660, respectively.  Expenditures for maintenance, repairs, and renewals
are  charged  to  expense  as  incurred.  Expenditures  for  major  renewals and
betterments  that  extend the useful lives of existing equipment are capitalized
and  depreciated.  On  retirement  or disposition of property and equipment, the
cost  and accumulated depreciation are removed and any resulting gain or loss is
recognized  in  the  statement  of  operations.

Long-lived  assets are reviewed for impairment yearly.  Recoverability of assets
to be held and used is measured by comparison of the carrying amount of an asset
to  future net cash flows expected to be generated by the asset.  If such assets
are  considered  to  be impaired, the impairment to be recognized is measured by
the  amount that the carrying amount of the assets exceeds the fair value of the
assets.  Assets  to  be  disposed  of  are reported at the lower of the carrying
amount  or fair value less costs to sell. Based on the evaluation, no impairment
was  considered  necessary  during  the  years  ended December 31, 2006 or 2005.

INCOME TAXES - The Company recognizes an asset or liability for the deferred tax
consequences  of  all  temporary  differences between the tax basis of assets or
liabilities  and  their  reported amounts in the financial statements. That will
result  in  taxable  or  deductible  amounts  in  future years when the reported


                                     F-8
<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

amounts  of  the assets or liabilities are recovered.  These deferred tax assets
and  or  liabilities  are  measured  using the enacted tax rates that will be in
effect  when  the  differences are expected to reverse.  Deferred tax assets are
reviewed  periodically  for  recoverability  and  valuation  allowances  and
adjustments  are  provided  as  necessary.

ADVERTISING - The Company follows the policy of charging the cost of advertising
to  expense  as  incurred.  Advertising  expense for the year ended December 31,
2006  and  2005  was  $8,137  and  $2,055,  respectively.

CONCENTRATIONS  OF  RISK  - Sales to major customers are defined as sales to any
one  customer  which  exceeded  10% of total sales.  The risk of loss of a major
customer  subjects the Company to the possibility of decreased sales.  Purchases
from  major vendors are defined as inventory purchases from any one vendor which
exceeded  10%  of total inventory purchases.  The risk of loss of a major vendor
subjects the Company to the possibility of increased costs and not being able to
fulfill  customer  orders.  See  Note  7.

REVENUE  RECOGNITION  -  The  Company  recognizes  revenue  when all four of the
following  criteria  are  met:  (i) persuasive evidence that arrangement exists;
(ii)  delivery  of  the products and/or services has occurred; (iii) the selling
price  is  both  fixed  and  determinable and; (iv) collectibility is reasonably
probable.  The  Company's  revenues  are derived from sales of their industrial,
environmental  and  residential  systems  which alter the properties of water to
produce  functional  water.

BASIC  AND  DILUTED  LOSS  PER  COMMON  SHARE  -  Basic loss per common share is
calculated  by dividing net loss by the weighted-average number of common shares
outstanding.  Diluted  loss  per common share is calculated by dividing net loss
by  the  weighted-average  number  of  Series A convertible preferred shares and
common  shares  outstanding to give effect to potentially issuable common shares
except  during  loss  periods  when  those  potentially  issuable  shares  are
anti-dilutive.  2,008,000  potential  common  shares  from convertible preferred
stock  have  not  been  included  as  they  are  anti-dilutive.

NEW  ACCOUNTING STANDARDS - In July 2006, the FASB issued Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" (FIN 48), which attempts to set out
a  consistent  framework for preparers to use to determine the appropriate level
of tax reserves to maintain for uncertain tax positions.  This interpretation of
FASB  Statement  No.  109  uses  a  two-step  approach  wherein a tax benefit is
recognized if a position is more-likely-than-not to be sustained.  The amount of
the benefit is then measured to be the highest tax benefit which is greater than
fifty  percent  likely  to  be  realized.  FIN  48  also  sets  out  disclosure
requirements  to  enhance transparency of an entity's tax reserves.  The Company
will  be  required  to  adopt  this  Interpretation  as of January 1, 2007.  The
Company  is  still  evaluating  the  impact  of  the  adoption  of  FIN  48.

In  September  2006, the FASB issued Statement of Financial Accounting Standards
No.  157,  "Fair  Value  Measurements"  (SFAS  157),  which  defines fair value,
establishes  a  framework  for  measuring  fair  value  in  generally  accepted
accounting  principles  and  requires  additional  disclosures  about fair value
measurements.  SFAS  157  aims  to  improve the consistency and comparability of
fair  value  measurements  by  creating  a single definition of fair value.  The
Statement  emphasizes  that  fair value is not entity-specific, but instead is a
market-based  measurement  of  an  asset  or  liability.  SFAS  157  upholds the
requirements  of  previously  issued  pronouncements  concerning  fair  value
measurements  and expands the required disclosures.  This Statement is effective
for  financial  statements  issued for fiscal years beginning after November 15,
2007, however earlier application is permitted provided the reporting entity has
not  yet issued financial statements for that fiscal year.  The Company does not
believe  that  the  adoption  of  SFAS  157  will  have a material effect on its
consolidated  financial  statements.

In  September  2006,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting  Bulletin  No.  108  (SAB  108).  SAB  108  was  issued  to  provide
interpretive  guidance  on  how  the  effects  of  the  carryover


                                     F-9
<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

reversal  of  prior  year  misstatements  should  be considered in quantifying a
current  year  misstatement.  The  provisions  of  SAB 108 are effective for the
Company  for  its  December  31,  2006 year-end.  The adoption of SAB 108 had no
impact  on  the  Company's  consolidated  financial  statements.

NOTE 3 - RELATED PARTY TRANSACTIONS

Stockholder  loans  as of December 31, 2006 and 2005 consisted of the following:

<TABLE>
<CAPTION>
                                                                      2006      2005
======================================================================================
<S>                                                                 <C>       <C>

Note payable to President; settled during the year ended
  December 31, 2006                                                 $      -  $168,500

Note payable to CEO and majority shareholder; principal and
  interest due December 2009; interest is accrued at 7% per annum;
  unsecured.                                                         270,642   276,142

Note payable to shareholder; settled during the year end 12-31-06          -    40,000
                                                                    ------------------

    TOTAL STOCKHOLDER LOAN                                           270,642   484,642

    Less: Current Portion                                                  -   444,642
--------------------------------------------------------------------------------------

    TOTAL STOCKHOLDER LOAN - LONG TERM                              $270,642  $ 40,000
======================================================================================
</TABLE>

The  following  table shows the schedule of principal payments under shareholder
loans  as  of  December  31,  2006:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,  PAYMENTS
------------------------  ---------
<S>                       <C>
         2007             $       -
         2008                     -
         2009               270,642
                          ---------
                          $ 270,642
                          =========
</TABLE>

The  note  payable  to  the  president was issued in March 2005 in the amount of
$164,000  and  was  originally  due  in May 2005.  During 2005, the due date was
extended  to  May 2006.  The original terms of the loan provided for an interest
payment of $28,500 or 106% per annum. The interest rate for the extension period
is  30% on the original principal balance. In October 2005, the Company obtained
an  additional  $4,500  from the same lender under the same terms.  In addition,
the  Company issued the lender 47,500 shares of common stock, which was recorded
as  a  $27,075  loan  cost and was amortized over the original term of the note.
During 2006, the note payable and accrued interest were paid to the President in
full.

At  December  31,  2006  and  2005, the accrued interest relating to stockholder
loans  was  $51,554  and  $97,575,  respectively.

During  the  years ended December 31, 2006 and 2005, the Company accrued $60,000
as  salaries payable to the Company's CEO, resulting in $195,091 and $135,091 of
salaries  payable  at  December  31,  2006  and  2005,  respectively.

NOTE  4  -  INCOME  TAXES

There  was  no  provision  for  or  benefit from income tax for any period.  The
components  of  the  net deferred tax asset at December 31, 2006 and 2005 are as
follows:


                                      F-10
<PAGE>
<TABLE>
<CAPTION>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                                   2006         2005
=======================================================================
<S>                                            <C>           <C>
Net operating loss carryforward                $ 1,289,066   $ 654,778
Bad debt reserve                                    11,748       6,381
Accrued salaries                                    75,344      52,172
Less: valuation allowance                       (1,376,158)   (713,331)
-----------------------------------------------------------------------

NET DEFERRED TAX ASSET                         $         -   $       -
=======================================================================
</TABLE>

For tax reporting purposes, the Company has net operating loss carry forwards in
the  amount  of  $3,374,643  which  will  begin  expiring  in  2022.

The following is a reconciliation of the amount of tax benefit that would result
from  applying  the  federal statutory rate to pretax loss with the benefit from
income  taxes  for  the  years  ended  December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                                                   2006         2005
=======================================================================
<S>                                            <C>           <C>
Benefit as statutory rate (34%)                $  (583,671)  $(231,769)
Non-deductible expenses                                155       1,436
Change in valuation allowance                      662,827     261,826
State tax benefit, net of federal tax effect       (79,311)    (31,493)
-----------------------------------------------------------------------

NET BENEFIT FROM INCOME TAXES                  $         -   $       -
=======================================================================
</TABLE>

NOTE  5  -  PREFERRED  STOCK

On  December 31, 2006 and 2005 the company had 400,000 shares of preferred stock
designated  as  Series  A  convertible preferred stock.  The holders of Series A
convertible preferred stock are entitled to a cumulative dividend of 8% per year
in cash payable in arrears.  The holders of Series A convertible preferred stock
may  convert  any  or  all  of  their  shares  plus all accrued dividends on the
preferred  stock  into  common stock at any time.  Each share of preferred stock
may  be  converted  into  5 shares of common stock.  The holder will receive one
share  of  common  stock  for  $2  of  accrued  dividends.

Upon  the  liquidation,  dissolution  or  winding  up of the Company, holders of
Series  A  convertible  preferred stock, are entitled to receive, out of legally
available  assets,  a  liquidation  preference  of $10 per share, plus an amount
equal  to  any  unpaid dividends through the payment date, before any payment or
distribution  is  made  to  holders  of  common  stock.  The holders of Series A
convertible  preferred  stock  are  not  entitled  to  vote.

At  December  31,  2006  and  2005,  dividends  payable  was $16,000 and $9,600,
respectively.

NOTE  6  -  COMMON  STOCK

During May through September 2006, the Company issued 5,625,723 shares of common
stock  for  cash  proceeds  of $1,065,052 and a stock subscription of $20,000 at
prices  ranging  from  $0.11  to  $0.34 per share. The proceeds received are net
$41,025  of  offering costs paid and include 666,250 shares issued to finders as
offering  costs.

In  July and August 2006 the Company issued 1,410,000 shares of common stock for
marketing  and  sales expense through December 31, 2006. The value of the shares
was  $1,023,405  based  on  market  prices ranging from $0.62 to $0.74 per share
which  was  the  market  price  of  the  Company's  common stock on the dates of
issuance.


                                      F-11
<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

In  March  2006 the Company issued 352,400 shares of common stock for payment of
legal fees.  The value of the shares issued was $81,052, based on a market price
on  date  of  issuance  of $0.23.  $40,526 of this amount is related to services
rendered  during  the  year  ended  December  31,  2005.

During  the  year  ended December 31, 2005, the Company issued 131,600 shares of
its  common  stock  to a director for compensation of services.  The shares were
valued  at  $52,640,  based  on  the  market price on date of issuance of $0.40.

In  August 2005, the Company sold 100,000 shares of restricted common stock at a
sale  price  of  $0.20  per  share  for  total consideration of $20,000 in cash.

In  June  2005,  the Company issued 1,016,000 of its common stock to consultants
for  services.  The  shares were valued at $406,400 based on the market value of
the  Company's  stock  on  the  date  of  issuance.

NOTE  7  -  COMMITMENTS

PRODUCTION  AGREEMENT - In June 2005, the Company entered into an agreement with
Mitachi, a Japanese electronics component manufacturer, to aid in the production
of  enhanced  drinking  water  generators.  Pursuant  to this agreement, Mitachi
agreed  to  pay  the  Company  25,000,000  Yen  for engineering design, molding,
tooling and preparation costs, and the exclusive product distribution rights for
China,  Taiwan,  and Japan.  As of December 31, 2005, Mitachi had paid 6,000,000
Yen, or $52,506, for the above mentioned distribution rights.  Since the project
is  not  yet completed and no units have been sold, this amount is classified as
deferred  revenue.

In August 2006, the Company entered into an agreement with Innovative Design and
Technology  to  design,  engineer  and  assemble five separate systems under the
Company's  proprietary  designs  and label.  As of December 31, 2006 the company
had  incurred  and  expensed  $176,466  of  product development costs under this
agreement.

EQUITY  LINE  -  In  November  2005,  the  Company  entered  into an equity line
agreement  with  a  private  investor  (the  "Equity Line Investor").  Under the
equity line, the Company had the right to draw up to $10,000,000 from the Equity
Line  Investor.  The  Company  was  entitled  to  draw funds and to "put" to the
Equity  Line  Investor  shares  of the Company's Class A common stock in lieu of
repayment  of  the  draw.

For  the years ended December 31, 2005 and 2006, the Company had not drawn funds
under the equity line.  The Company has paid the Equity Line Investor $10,000 as
a  documentation  fee  for  the equity line, which is to be netted against funds
drawn.  No  funds  have  been drawn and the Company's intends not to draw on the
equity  line, this documentation fee was expensed during the year ended December
31,  2005.

OPERATING  LEASES - The Company currently leases office and storage space from a
third party.  On July 1, 2005, the Company entered into a lease agreement to pay
monthly  lease  payments  of  $6,131 until June 30, 2006 and $6,335 from July 1,
2006  through  June  30,  2007.

As  of  December  31,  2006 the company had six remaining months of future lease
payments  under  operating  lease  obligations  totaling  $38,010.

Rent  expense  for  the  years  ended December 31, 2006 and 2005 was $87,153 and
$45,649,  respectively.

MAJOR  CUSTOMER  -  During  the  year  ended  December  31,  2006, sales to five
customers  accounted  for  45% of total sales.  As of December 31, 2006, $11,370
was due from these customers.  During the year ended December 31, 2005, sales to
three  customers  accounted  for  39%  of total sales.  As of December 31, 2005,
$4,573  was  due  from  these  customers.


                                      F-12
<PAGE>
                            PROTON LABORATORIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

MAJOR  VENDOR  -  During  the  year ended December 31, 2006, purchases from four
vendors  accounted  for  95%  of  total inventory purchases.  As of December 31,
2006, amounts due to these vendors accounted for 0% of accounts payable.  During
the  year ended December 31, 2005, purchases from four vendors accounted for 96%
of  total  inventory  purchases.  As  of December 31, 2005, amounts due to these
vendors  accounted  for  35%  of  accounts  payable.

NOTE  8  -  SUBSEQUENT  EVENTS

During  January  through  March  31, 2007 the Company issued 5,412,300 shares of
restricted  common  stock  for various services and agreements. The value of the
shares  was  $1,930,674  based  on market prices ranging from $0.30 to $0.38 per
share  which  was the market price of the Company's common stock on the dates of
issuance.

On  February  20, 2007, the Board of Directors of Proton Laboratories, Inc. (the
"Company")  ratified  an  exclusive  Marketing, Distribution and Sales Agreement
("Marketing  Agreement")  and  a  Manufacturing  and  Packaging  Agreement
("Manufacturing  Agreement"),  each  made  with  Aqua  Thirst,  Inc. Through the
enactment  of these agreements, the Company has been able to acquire the two key
components  necessary  to  strengthen  its infrastructure for the manufacturing,
marketing  and  sales  of  its  products  and  applications.


                                      F-13