**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-Q**
  **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**
                **SECURITIES
                  EXCHANGE ACT OF 1934**For
                  the quarterly period ended March 31,
                  2008
  Commission
        file number: 0-32019
  **TASKER
        PRODUCTS CORP.**
 (Exact
        name of registrant as specified in its charter)
  **Delaware**
              
              **88-0426048**(State
                  of incorporation)
              
              (IRS
                  Employer Identification No.)
  **21-00
        Route 208,**
 **Fairlawn,
        NJ 07410**
 (Address
        of principal executive offices)
 
 **(201)
        796-0815**
 (Registrant’s
        telephone number)
  Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
        months
        (or for such shorter period that the registrant was required to file such
        reports), and (2) has been subject to such filing requirements for the past
        90
        days.  Yes  x  No  o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer or a smaller reporting company.
        See
        definition of “accelerated filer”, “large accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act.
  Large
                  accelerated filer o
              Accelerated
                  filer o
              Non-accelerated
                  filer o
              Smaller
                  reporting company x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).  Yes  o  No  x
  The
        number of shares outstanding of the registrant’s common stock as of May 12, 2008
        was 142,843,451.
  
  **TASKER
        PRODUCTS CORP.**
  **INDEX**
  **PART
                  I. FINANCIAL INFORMATION****Item
                  1.**
              **Financial
                  Statements**
              2Unaudited
                  Condensed Consolidated Balance Sheets as of March 31, 2008 and
                  December
                  31, 2007
              2Unaudited
                  Condensed Consolidated Statements of Operations for the three months
                  ended
                  March 31, 2008 and 2007
              3Unaudited
                  Condensed Consolidated Statements of Cash Flows for the three months
                  ended
                  March 31, 2008 and 2007
              4Notes
                  to Unaudited Condensed Consolidated Financial Statements
              5**Item
                  2.**
              **Management’s
                  Discussion And Analysis Of Financial Condition And Results Of
                  Operations**
              23**Item
                  3.**
              **Quantitative
                  And Qualitative Disclosures About Market Risk**
              33**Item
                  4T.**
              **Controls
                  And Procedures**
              34**PART
                  II. OTHER INFORMATION****Item
                  1A.**
              **Risk
                  Factors**
              34**Item
                  2.**
              **Unregistered
                  Sales Of Equity Securities And Use Of Proceeds**
              42**Item
                  6.**
              **Exhibits**
              43**SIGNATURES**
  **Forward-Looking
        Statements**
  In
        this
        Quarterly Report, we state our beliefs of future events and of our future
        financial performance. In some cases, you can identify those so-called
“forward-looking statements” by words such as “may,” “will,” “should,”
“expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” or “continue” or the negative of those words and other comparable
        words. These forward-looking statements are subject to risks and uncertainties
        that could cause actual results to differ materially from historical results
        or
        those we anticipate. Factors that could cause actual results to differ from
        those contained in the forward-looking statements include, but are not limited
        to: our ability to obtain new financing and/or generate revenue growth in
        the
        near future; our history of losses; our limited experience in the marketing
        of
        our products; our ability to compete with other products in our market space;
        the risk of unfavorable federal regulation; and the other risks and
        uncertainties discussed in this Quarterly Report and in our Annual Report
        on
        Form 10-K for the year ended December 31, 2007 and such other reports and
        documents that we file from time to time with the Securities and Exchange
        Commission. Statements included in this Quarterly Report are based upon
        information known to us as of the date that this Quarterly Report is filed
        with
        the Securities and Exchange Commission, and we assume no obligation to update
        or
        alter our forward-looking statements made in this Quarterly Report, whether
        as a
        result of new information, future events or otherwise, except as otherwise
        required by applicable federal securities laws.
  1
  **PART
        I — FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  **TASKER
        PRODUCTS CORP. AND SUBSIDIARIES**
 **UNAUDITED
        CONDENSED CONSOLIDATED BALANCE** **SHEETS**
 **(In
        thousands except per share data)**
  **********March
                    31,**
                
                **********December 31,********************2008**
                
                **********2007************ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                616
                
                $
                2,671Accounts
                    receivable, net of allowance for doubtful accounts of $62 and
                    $39,
                    respectively
                
                
                402
                
                
                283Notes
                    receivable
                
                
                75
                
                
                84Inventories
                
                
                298
                
                
                285Prepaid
                    expenses and other current assets
                
                
                44
                
                
                95Total
                    current assets
                
                
                1,435
                
                
                3,418Notes
                    receivable, net of current portion
                
                
                723
                
                
                707Property
                    and equipment, net
                
                
                937
                
                
                998Intangible
                    assets, net
                
                
                6,877
                
                
                7,084Goodwill
                
                
                9,835
                
                
                9,835Deferred
                    financing costs
                
                
                1,594
                
                
                1,866Deposits,
                    net
                
                
                12
                
                
                19Total
                    assets
                
                $
                21,413
                
                $
                23,927**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY (DEFICIT)**Current
                    liabilities:Accounts
                    payable
                
                $
                678
                
                $
                780Other
                    accrued liabilities
                
                
                1,559
                
                
                1,663Notes
                    payable - first bridge note, net of discount
                
                
                40
                
                
                40Derivative
                    liabilities
                
                
                9,216
                
                
                31,656Warrants
                    payable - placement agent
                
                
                1,501
                
                
                1,501Total
                    current liabilities
                
                
                12,994
                
                
                35,640Long-term
                    liabilities:Notes
                    payable-6% Notes
                
                
                2,059
                
                
                965Other
                    long-term liabilities
                
                
                16
                
                
                19Total long -term liabilities
                
                
                2,075
                
                
                984Total
                    liabilities
                
                
                15,069
                
                
                36,624Stockholders’
                    equity:Preferred
                    stock, $0.001 par value;15,000 shares authorized; none issued
                    andoutstanding
                
                
                —
                
                
                —Common
                    stock, $0.001 par value; 450,000 shares authorized; 140,026and
                    121,456 shares issued and outstanding, respectively
                
                
                140
                
                
                121Additional
                    paid-in capital
                
                
                119,440
                
                
                117,584Accumulated
                    deficit
                
                
                (113,236
                )
                
                (130,402
                )Total
                    stockholders’ equity (deficit)
                
                
                6,344
                
                
                (12,697
                )Total
                    liabilities and stockholders’ equity (deficit)
                
                $
                21,413
                
                $
                23,927
  See
        accompanying notes
  2
  **TASKER
        PRODUCTS CORP. AND SUBSIDIARIES**
 **UNAUDITED
        CONDENSED CONSOLIDATED STATEMENTS OF** **OPERATIONS**
 **(In
        thousands except per share data)**
  **Three Months Ended**
                **March
                  31,************2008**********
              
              **2007**********Revenues
              
              $
              1,022
              
              $
              426Cost
                  of goods sold
              
              
              401
              
              
              95Gross
                  margin
              
              
              621
              
              
              331Operating
                  expensesSelling,
                  general & administrative (1)
              
              
              2,572
              
              
              3,207Product
                  development (1)
              
              
              326
              
              
              484Depreciation
                  and amortization
              
              
              279
              
              
              277Total
                  operating expenses
              
              
              3,177
              
              
              3,968Loss
                  from operations
              
              
              (2,556
              )
              
              (3,637
              )Other
                  income (expense):Interest
                  expense
              
              
              (229
              )
              
              (105
              )Interest
                  income
              
              
              28
              
              
              17Amortization
                  of fair value assigned to beneficial conversion feature and amortization
                  of fair value of warrants
              
              
              (1,194
              )
              
              (1,686
              )Amortization
                  of deferred financing costs
              
              
              (177
              )
              
              (521
              )Gain
                  on extinguishment of debt
              
              
              —
              
              
              51Gain
                  on change in value of derivative liabilities
              
              
              21,
                  294
              
              
              —Total
                  other income (expense), net
              
              
              19,722
              
              
              (2,244
              )Net
                  income (loss) before taxes
              
              
              17,166
              
              
              (5,881
              )Provision
                  for income tax
              
              
              —
              
              
              —Net
                  income (loss)
              
              $
              17,166
              
              $
              (5,881
              )Net
                  income (loss) per common share, basic
              
              $
              .13
              
              $
              (0.06
              )Net
                  income (loss) per common share, diluted
              
              $
              .06
              
              $
              (0.06
              )Weighted
                  average common shares outstanding, basic
              
              
              131,123
              
              
              106,896Weighted
                  average common shares outstanding, dilutive
              
              
              282,781
              
              
              106,896
  (1)
                  Includes stock-based compensation as follows:
  **Three Months Ended**
                **March
                  31,****2008**
              
              **2007**Selling,
                  general & administrative
              
              $
              371
              
              $
              1,344Product
                  development
              
              
              2
              
              
              136Total
              
              $
              373
              
              $
              1,480
  See
        accompanying notes
  3
  **TASKER
        PRODUCTS CORP. AND SUBSIDIARIES**
 **UNAUDITED
        CONDENSED CONSOLIDATED STATEMENTS OF CASH** **FLOWS**
 **(In
        thousands)**
 
 **Three Months Ended**
                **March
                  31,****2008******
              
              **2007********Cash
                  flows from operating activities:**
              
              ****Net
                  income (loss)
              
              $
              17,166
              
              $
              (5,881
              )Adjustments
                  to reconcile net income (loss) to net cash used in operating
                  activities:Non-cash
                  itemsDepreciation
                  and amortization
              
              
              279
              
              
              277Noncash
                  interest and liquidated damages
              
              
              —
              
              
              (7
              )Write-off
                  of raw materials
              
              
              —
              
              
              20Stock-based
                  compensation
              
              
              373
              
              
              1,480Allowance
                  for uncollectible accounts receivable
              
              
              24
              
              
              6Noncash
                  financing costs
              
              
              111
              
              
              —Amortization
                  of debt discount
              
              
              1,194
              
              
              —Amortization
                  of discount on convertible bridge notes
              
              
              
              
              
              1,686Amortization
                  of deferred financing costs
              
              
              177
              
              
              522Gain
                  on change in fair value of derivative liabilities
              
              
              (21,294
              )
              
              —Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (134
              )
              
              (67
              )Inventories
              
              
              (13
              )
              
              (20
              )Prepaid
                  expenses and other current assets
              
              
              145
              
              
              138Accounts
                  payable
              
              
              (102
              )
              
              (575
              )Other
                  accrued liabilities
              
              
              (113
              )
              
              (389
              )Net
                  cash used in operating activities
              
              
              (2,187
              )
              
              (2,810
              )**Cash
                  flows from investing activities:**Purchases
                  of property and equipment and intangible assets
              
              
              (10
              )
              
              (27
              )Payments
                  for deposits and other
              
              
              7
              
              
              —Net
                  cash used in investing activities
              
              
              (3
              )
              
              (27
              )**Cash
                  flows from financing activities:**Proceeds
                  from private placements, net of issue costs
              
              
              135
              
              
              3,041Deferred
                  financing costs
              
              
              —
              
              
              (428
              )Repayment
                  of auto loan
              
              
              —
              
              
              (3
              )Repayments
                  on notes payable
              
              
              —
              
              
              (271
              )Net
                  cash provided by financing activities
              
              
              135
              
              
              2,339**Net
                  decrease in cash and cash equivalents**
              
              
              (2,055
              )
              
              (498
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              2,671
              
              
              932**Cash
                  and cash equivalents, end of period**
              
              $
              616
              
              $
              434**Supplemental
                  disclosures of cash flow information:**Interest
                  paid
              
              $
              —
              
              $
              4Taxes
                  paid
              
              $
              —
              
              
              —**Supplemental
                  disclosures of non-cash investing and financing
                  activities:**Fair
                  value of warrants issued as private placement fees
              
              $
              —
              
              $
              635Recognition
                  of debt discounts related to warrants , beneficial conversion and
                  derivative liabilities
              
              $
              244
              
              $
              3,079Conversion
                  of debt and accrued interest into long-term debt
              
              $
              197
              
              $
              —Conversion
                  of debt and accrued interest into common stock
              
              $
              1,501
              
              $
              —
 
 See
        accompanying notes
  4
  **TASKER
        PRODUCTS CORP. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **1.**  **Basis
        of Presentation**
  Tasker
        Products Corp. (formerly known as Tasker Capital Corp.) was formed
        on May 13, 1996 and was in the development stage through December 31,
        2005. The quarterly period ended March 31, 2006 is the
        first period during which Tasker Products Corp. is considered an operating
        company.
  Tasker
        Products Corp. and its subsidiaries (collectively, the "Company") manufacture,
        distribute and market products using pHarlo technology, a process that enables
        copper sulfate, a compound with bacteriostatic properties, to remain active
        throughout a wide range of pH values. The Company currently markets the
        following: Unifresh Ò Footbath
        and other related products that clean and disinfect the hooves of dairy cows,
        Tasker Blue, an antimicrobial aid in the scalder (a stage in poultry processing
        designed to loosen feathers so that they can be picked and removed mechanically)
        and the post-feather picker process (the method used in chicken processing
        that
        receives chickens immediately after the scalder and mechanically removes
        feathers) sections of poultry processing; Tasker Clear (an acidifier that
        controls pH levels to enhance the effectiveness of liquid bacteriostatic
        applications) and Tasker Pacific Blue Ô Seafood
        Wash (a product used in commercial and retail seafood processing to extend
        shelf
        life and reduce or eliminate odors).
  The
        accompanying unaudited condensed consolidated financial statements of the
        Company as of March 31, 2008 and December 31, 2007 and for the three month
        periods ended March 31, 2008 and 2007 reflect all adjustments of a normal
        and
        recurring nature to present fairly the consolidated financial position, results
        of operations and cash flows for the interim periods.  These unaudited
        condensed, consolidated financial statements have been prepared by the Company
        pursuant to the instructions to Form 10-Q and Article 10 of Regulation
        S-X.  Pursuant to such instructions, certain financial information and
        footnote disclosures normally included in such financial statements have
        been
        condensed or omitted.
  These
        unaudited condensed consolidated financial statements should be read in
        conjunction with the audited consolidated financial statements of the Company
        and notes thereto, together with management’s discussion and analysis or plan of
        operations, contained in the Company’s annual report on Form 10-K for the year
        ended December 31, 2007. The results of operations for the three month period
        ended March 31, 2008 are not necessarily indicative of the results that may
        occur for the year ending December 31, 2008.
  Certain
        prior period amounts have been reclassified to conform to the current year
        presentation. ****
  **2.
        Recently Adopted Accounting Pronouncements**
  In
        September 2006, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements
        (SFAS
        157) . This Standard defines fair value, establishes a framework for measuring
        fair value, and expands disclosures about fair value measurements. It applies
        to
        other accounting pronouncements where the FASB requires or permits fair value
        measurements but does not require any new fair value measurements. In February
        2008, FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of
        FASB
        Statement No. 157 , which delayed the effective date of SFAS 157 for certain
        non-financial assets and non-financial liabilities to fiscal years beginning
        after November 15, 2008, and interim periods within those fiscal years. The
        Company adopted SFAS 157 for financial assets and liabilities on January
        1,
        2008. It did not have any impact on the Company’s results of operations or
        financial position. The disclosures required under SFAS 157 are set forth
        in
        Note 15. The Company is in the process of evaluating the effect, if any,
        the
        adoption of FSP No. 157-2 will have on its results of operations or financial
        position.
  In
        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities- Including an amendment of FASB Statement
        No.
        155 (SFAS 159 ). This statement permits entities to choose to measure selected
        assets and liabilities at fair value. The Company adopted SFAS 159 on January
        1,
        2008 resulting in no impact to the Company’s financial condition, results of
        operations or cash flows.
   5
  **3.**  **New
        Accounting Pronouncements**
  In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007) “Business
        Combinations” (“SFAS 141R”), which requires the acquiring entity in a business
        combination to recognize all (and only) the assets acquired and liabilities
        assumed in the transaction; establishes the acquisition-date fair value as
        the
        measurement objective for all assets acquired and liabilities assumed; and
        requires the acquirer to disclose to investors, and other users, all of the
        information they need to evaluate and understand the nature and financial
        effect
        of the business combination. SFAS 141R will be effective for acquisitions
        with a
        date on or after the beginning of the first annual reporting period beginning
        on
        or after December 15, 2008. We will apply SFAS 141R for any of our applicable
        acquisitions beginning January 1, 2009.
  In
        December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
        Consolidated Financial Statements-an amendment of ARB No. 51” (“SFAS 160”),
        which requires the recognition of a noncontrolling interest (minority interest)
        as equity in the consolidated financial statements and separate from the
        parent’s equity; the inclusion of the amount of net income attributable to the
        noncontrolling interest in consolidated income on the face of the income
        statement; and a parent recognize a gain or loss in net income when a subsidiary
        is deconsolidated. SFAS 160 will be effective for the fiscal years beginning
        on
        or after December 15, 2008. We will apply SFAS 160 to any applicable
        transactions beginning January 1, 2009.
   In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
        Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
        disclosures about an entity’s derivative and hedging activities and thereby
        improves the transparency of financial reporting. The objective of the guidance
        is to provide users of financial statements with an enhanced understanding
        of
        how and why an entity uses derivative instruments; how derivative instruments
        and related hedged items are accounted for; and how derivative instruments
        and
        related hedged items affect an entity’s financial position, financial
        performance, and cash flows. FAS 161 is effective for fiscal years beginning
        after November 15, 2008. Management is currently evaluating the impact FAS
        161 will have on the Company’s consolidated financial statements.
  In
        December 2007, the SEC issued SAB No. 110, “Share-Based Payment” (“SAB 110”).
        SAB 110 establishes the continued use of the simplified method for estimating
        the expected term of equity based compensation. The simplified method was
        intended to be eliminated for any equity based compensation arrangements
        granted
        after December 31, 2007. SAB 110 is being published to help companies that
        may
        not have adequate exercise history to estimate expected terms for future
        grants.
        The Company does not expect the adoption of SAB 110 to have a material effect
        on
        its consolidated financial statements.
  **4.
        Liquidity**
  *Going
        Concern*
  The
        Company has incurred losses in its operations in each quarter since it changed
        its business direction in late 2002. For the three months ended March 31,
        2008,
        the Company incurred a loss from operations of approximately $2.6 million.
        The
        Company has not generated positive cash flow from operating activities for
        the
        three months ended March 31, 2008 and 2007. The
        Company expects to continue to incur operating losses for the foreseeable
        future. We anticipate operating expenses will increase as we attempt to build
        our brands, expand our customer base and develop new products. To become
        profitable, we must increase revenue substantially and achieve and maintain
        positive gross margins. We may not be able to increase revenue and gross
        margins
        sufficiently to achieve profitability. If we are not able to achieve
        profitability, our results of operations and financial condition will be
        materially and adversely affected.
  At
        March
        31, 2008, the Company had a total of approximately $616,000 of cash and cash
        equivalents.
  On
        May 2,
        2008, the Company announced that it had received $250,000 of cash in the
        form of
        a bridge loan, of which its president, CEO and director, Lanny Dacus, and
        executive chairman and director, Greg Osborn, invested $50,000 each. The
        Company
        also announced that it has entered into an agreement with a private placement
        agent to raise up to $5,000,000 (the "Qualified Raise") the terms of which
        are
        still under negotiation. There can be no assurances that the Company will
        be
        able to raise any funds pursuant to this private placement agreement. The
        bridge
        loan will convert into the Qualified Raise, under the same terms and conditions
        upon its completion.
  6
  Based
        upon the Company’s forecast of future revenues from its products in conjunction
        with the cash on hand, cash expected to be generated from operations will
        not
        provide adequate funding for the Company’s working capital over the next twelve
        months. The Company’s cash resources and its ability to continue to operate and
        grow its business are dependent upon obtaining additional financing from
        the
        exercise of outstanding warrants, and the proposed Qualified Raise or a similar
        credit facility and/or generating revenue growth from operations. While the
        Company has been in the process of aggressively developing, marketing and
        selling its products, there can be no assurance that those efforts will be
        met
        with success in the marketplace or that the timing of the Company’s efforts will
        be consistent with its cash availability and burn rate. If the Company is
        unable
        to obtain financing and/or generate sufficient revenue growth from existing
        and
        new business arrangements, the Company will not have sufficient cash to support
        its operations and meet its obligations. The Company anticipates that it
        will
        need approximately an additional $3-5 million to support its operations and
        meet
        its obligations over the next twelve months.
  In
        view
        of the matters described above, recoverability of a major portion of the
        recorded asset amounts shown in the accompanying balance sheet is dependent
        upon
        continued operations of the Company, which in turn is dependent upon the
        Company’s ability to raise additional capital, obtain financing and to succeed
        in its future operations. 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 as a going concern.
  *Registration
        Rights Agreements*
  Since
        the
        Company’s inception, the Company has funded operations and investing activities
        through the sale of common stock, warrants and convertible debt under several
        private placements. Requirements for liquidated damages under some of these
        private placements may have an impact on the Company’s future liquidity. To
        date, the Company has satisfied and/or received waivers for the provisions
        of a
        number of the agreements that would have otherwise required the Company to
        pay
        liquidated damages.
  At
        March
        31, 2008, there was no derivative liability balance related to the April
        2004
        and July 2004 registration rights agreements, since
        the
        shares purchased under the April 2004 and July 2004 private placements could
        be
        sold under Rule 144(k) of the Securities Act of 1933.
  On
        April
        26, 2006, the Company filed a registration statement registering resale of
        securities purchased in the September 2005 and January 2006 private placements.
        This registration statement was declared effective by the SEC on October
        31,
        2006. As it relates to the September 2005 private placement, the Company
        believes that it has used its best efforts to cause the registration statement
        to be declared effective and, therefore, pursuant to the terms of the
        September 2005 registration rights agreement, the Company believes that it
        is not currently liable for liquidated damages as a result of the registration
        statement not being declared effective by May 23, 2006. Should the rights
        holders dispute that the Company used its best efforts, and the Company either
        accedes to their assertion or is found to not have used its best efforts,
        the
        estimated maximum amount of liquidated damages for which the Company would
        be
        liable, assuming ineffectiveness from May 23, 2006 to October 31, 2006 and
        for illustration purposes only, from October 1, 2007 to the end of the period
        covered by the registration agreement is approximately $43,000.
  As
        it
        relates to the January 2006 private placement, the Company, despite using
        its best efforts, failed to have the registration statement declared effective
        by the SEC on or before October 26, 2006. Consequently, as of December 31,
        2006,
        the Company is required to issue to each holder of the January 2006 private
        placement, shares and warrants equal to one percent of the respective number
        of
        shares and warrants purchased by each holder or an aggregate of 133,359 shares
        of common stock and warrants to purchase 133,359 shares of common stock.
        As of
        March 31, 2008, the Company had not issued these shares and warrants.
  We
        are
        required to file a series of registration statements covering the resale
        of the
        shares of common stock underlying the 6% Notes, the Warrants, the December
        6%
        Notes, the December Warrants, the Interest Notes and the four-year warrants
        issued to purchasers of the First Bridge Notes and the Second Bridge Notes,
        as
        well as the warrants issued to the placement agent in connection with the
        issuance of the First Bridge Notes, Second Bridge Notes and 6% Notes issued
        for
        cash and in connection with the Tender Offer (all as defined below). In the
        event we fail to file or cause these registration statements to become effective
        within specified time periods, we will be required to pay liquidated damages
        (except with respect to warrants issued to the placement agent) equal to
        1% of
        the principal amount of the affected notes and the purchase price of shares
        of
        common stock issued on conversion of these notes and exercise of related
        warrants for each 30-day delay in the filing or effectiveness of such
        registration statement (or such lesser pro-rata amount for any period of
        less
        than 30 days .)
  7
 
 **5.
        Notes Receivable**
 On
          March 28, 2005, in connection with the 2005 acquisition of the pHarlo
          Assets, the Company issued to David Creasey, a principal of pHarlo Citrus
          Technologies and Indian River Labs, a loan of $625,000. This loan is secured
          by
          options and stock that Mr. Creasey holds in the Company. As of March 31,
          2008, the balance of this loan is approximately $783,000 including accrued
          interest of approximately $ 158,000.
 
 **6.
          Goodwill and Other Intangible Assets**
  The
          net
          carrying values of goodwill and other intangible assets at March 31, 2008
          were
          as follows (in thousands):
  **Carrying
                    Amount**
                
                **Additions**
                
                **Amortization**
                
                **Net Carrying 
                    Amount/**
                  **Adjusted Basis**Amortizable
                    utility patents
                
                $
                7,084
                
                $
                —
                
                $
                207
                
                $
                6,877Goodwill
                
                $
                9,835
                
                $
                —
                
                $
                —
                
                $
                9,835
  The
          net
          carrying values of goodwill and other intangible assets at December 31,
          2007
          were as follows (in thousands):
  **Gross Carrying**
                    **Amount**
                  
                  **Impairment**
                    **Charges**
                  
                  **Accumulated**
                    **Amortization**
                  
                  **Net Carrying**
                    **Amount/**
                    **Adjusted
                      Basis**Amortizable
                      utility patents
                  
                  $
                  22,525
                  
                  $
                  12,239
                  
                  $
                  3,202
                  
                  $
                  7,084Goodwill
                  
                  $
                  41,677
                  
                  $
                  31,842
                  
                  $
                  —
                  
                  $
                  9,835
  The
          Company recorded amortization expense of approximately $207,000 and $207,000
          related to the other intangible assets for the three months ended March
          31, 2008
          and 2007, respectively.
  Future
          expected amortization expense of intangible assets for the remaining three
          quarters of the current fiscal year and the subsequent fiscal years is
          as
          follows (in thousands):
  2008
                
                
                6222009
                
                
                8292010
                
                
                8292011
                
                
                8292012
                
                
                8292013
                    and thereafter
                
                
                2,939
  8
  **7.**  **Warrants
          and Stock Options**
  **Warrants:**
  Outstanding
          warrants (excluding warrants issued for compensation subsequent to adoption
          of
          SFAS 123R included below under share-based payments) at March 31, 2008,
          were as
          follows:
  ·
                Warrants
                    to purchase 1,270,000 shares of common stock issued to consultants
                    in
                    November 2002. The warrants had an original five-year term, but
                    were
                    extended for one year in November 2007. These warrants have an
                    exercise
                    price of $0.25 per share.
  ·
                Warrants
                    to purchase 400,000 shares of common stock issued to a consultant
                    in May
                    2004. The warrants have a five-year term and were issued with
                    an exercise
                    price of $0.25 per share.
  ·
                Warrants
                    to purchase 562,500 shares of common stock issued to a placement
                    agent in
                    connection with the December 2004 private placement. The warrants
                    have a
                    five-year term and were issued with an exercise price of $2.00
                    per
                    share.
  ·
                Warrants
                    to purchase 1,473,770 shares of common stock issued to investors
                    in
                    connection with the September 2005 private placement. The warrants
                    have a
                    five-year term. The warrants granted pursuant to the September
                    2005
                    private placement originally had an exercise price of $3.00.
                    In January
                    2006, in connection with an amendment to the agreement the exercise
                    price
                    of the warrants was reduced from $3.00 to $1.00 per
                    share.
  ·
                Warrants
                    to purchase 13,335,925 shares of common stock issued to investors
                    in
                    connection with the January 2006 private placement. The warrants
                    have a
                    five-year term and were issued with an exercise price of $1.00
                    per
                    share.
  ·
                Warrants
                    to purchase 800,155 shares of common stock issued to a placement
                    agent in
                    connection with the January 2006 private placement. The warrants
                    have a
                    five-year term and were issued with an exercise price of $1.00
                    per
                    share.
  ·
                Warrants
                    to purchase 11,277,780 shares of common stock issued to lenders
                    in
                    connection with the sale of the First Bridge Notes between December
                    1,
                    2006 and May 1, 2007 (net of 1,111,111 converted to Note Payable).
                    The
                    warrants have a four-year term and were issued with an exercise
                    price of
                    $0.09 per share.
  ·
                Warrants
                    to purchase 8,682,894 shares of common stock issued to a placement
                    agent
                    in connection with the sale of the First Bridge Notes between
                    December 1,
                    2006 and May 1, 2007. The warrants have a seven-year term and
                    were issued
                    with an exercise price of $0.0725 per share. On March 6, 2007,
                    we issued
                    2,000,000 shares of our common stock to our placement agent pursuant
                    to
                    the cashless exercise of 2,983,051 of these
                    warrants.
  ·
                Warrants
                    to purchase 1,000,000 shares of common stock issued to a lender
                    in
                    connection with the sale of the Second Bridge Notes on June 4,
                    2007. The
                    warrants have a four-year term and were issued with an exercise
                    price of
                    $0.20 per share.
  ·
                Warrants
                    to purchase 2,020,202 shares of common stock issuable to a placement
                    agent
                    in connection with the sale of the Second Bridge Notes on June
                    4, 2007.
                    The warrants have a seven-year term, were issuable with an exercise
                    price
                    of $0.099, and contain a "cashless exercise" option.
  9
  ·
                Warrants
                    to purchase 32,343,515 shares of our common stock issued to lenders
                    in
                    connection with the sale of the 6% Notes on September 28, 2007.
                    The
                    warrants have a four-year term and were issued with an exercise
                    price of
                    $0.15.
 
 ·
                Warrants
                    to purchase 3,136,364 shares of our common stock were issuable
                    to a
                    placement agent in connection with the sale of the 6% Notes.
                    The warrants
                    have a seven- year term, were issuable with an exercise price
                    of $0.11 per
                    share and contain a “cashless exercise”
option.
  ·
                Warrants
                    to purchase 2,666,669 shares of our common stock issued to lenders
                    in
                    November and December 2007 in connection with the sale of 6%
                    Notes. The
                    warrants have a four-year term and were issued with an exercise
                    price of
                    $0.15.
  ·
                Warrants
                    to purchase 454,545 shares of our common stock issuable to a
                    placement
                    agent in November in connection with the sale of 6% Notes. The
                    warrants
                    have a seven-year term, were issuable with an exercise price
                    of $0.11 and
                    contain a “cashless exercise”
option.
  ·
                Warrants
                    to purchase 2,710,061 shares of common stock issued to lenders in
                    connection with the December 20, 2007 Tender Offer. The warrants
                    have a
                    four-year term and were issued with an exercise price of $0.15
                    per share.
  ·
                Warrants
                    to purchase 2,258,382 shares of our common stock were issuable
                    to a
                    placement agent in connection with the December 20, 2007 Tender
                    Offer. The
                    warrants have a seven-year term, and were issuable with an exercise
                    price
                    of $0.09 per share.
  ·
                Warrants
                    to purchase 133,333 shares of common stock issued to a lender
                    in January
                    2008 in lieu of common stock in connection with that lender’s exercise of
                    its warrants to purchase common stock at an exercise price of
                    $0.09 per
                    share. The warrants have a four-year term and were issued with
                    an exercise
                    price of $0.15.
  ·
                Warrants
                    to purchase 166,667 shares of our common stock issued to a lender
                    in
                    January 2008 in connection with the sale of a 6% note. The warrants
                    have a
                    four-year term and were issued with an exercise price of
                    $0.15.
  ·
                Warrants
                    to purchase 1,417,292; 535,101; and 316,185 shares of our common
                    stock at
                    $0.0725, $0.11, and $0.09 respectively in connection with notes
                    issued in
                    lieu of interest due for the three months ended March 31, 2008,
                    on the 6%
                    Notes.
  The
          following table summarizes the Company’s warrant activity (excluding warrants
          issued for compensation subsequent to adoption of SFAS 123R included below
          under
          share-based payments) for the quarter ended March 31,2008:
  **Number of**
                  **warrants**
                
                **Exercise Price**
                  **per
                    warrant**
                
                **Weighted average**
                  **exercise price per**
                  **warrant****share**Outstanding,
                    January 1, 2008
                
                
                82,520,823
                
                $
                0.0725
                    - $2.00
                
                $
                0.32Granted
                
                
                2,568,578
                
                $
                0.0725
                    - $0.15
                
                $
                0.09Converted
                    to Note Payable
                
                
                (1,111,111
                )
                $
                0.09
                
                $
                0.09Outstanding,
                    March 31, 2008
                
                
                83,978,290
                
                $
                0.0725
                    - $2.00
                
                $
                0.30
  10
  As
          of
          March 31,2008, the weighted average contractual life of warrants outstanding
          (excluding warrants issued for compensation subsequent to adoption of SFAS
          123R
          included below under share-based payments) is approximately 3.6
          years.
  **Share-based
          payments:**
  On
          January 1, 2006, the Company adopted the provisions of SFAS No. 123R
“Share-Based Payment” using the modified prospective transition method. The
          total expense associated with non-plan warrant and stock option based employee
          compensation was approximately $373,000 and $1,480,000 for the three months
          ended March 31, 2008 and 2007, respectively.
  The
          aggregate intrinsic value in the tables below represents the total intrinsic
          value (the difference between the closing stock price on the last trading
          day of
          the quarter ended March 31, 2008 and the exercise price, multiplied by
          the
          number of in-the-money options and warrants) that holders would have received
          had all such holders exercised their options and warrants on March 31,
          2008.
          This amount changes each reporting period based on changes in the fair
          market
          value of the Company’s common stock. No compensatory options or warrants were
          exercised during the three months ended March 31, 2008 or 2007.
  As
          at
          March 31, 2008, future compensation cost related to non-vested stock options
          and
          warrants, less estimated forfeitures, is approximately $2,309,000 and will
          be
          recognized over an estimated weighted average period of 4.86 years.
  A
                    summary of stock option and warrants activity is as follows:
                
                **Number
                    of**
                  **options
                    and**
                  **warrants**
                
                **Weighted
                    Average Exercise Price per option and warrant**
                
                **Weighted**
                  **Average**
                  **Remaining
                    Contractual**
                  **Term
                    (years)**
                
                **Aggregate**
                  **Intrinsic**
                  **Value**Outstanding,
                    January 1, 2008
                
                
                69,857,460
                
                $
                0.25
                
                
                8.5
                
                $
                1,815,000Granted
                
                
                620,000
                
                $
                0.10Exercised
                
                
                —Cancelled/forfeited
                
                
                (775,000
                )
                $
                0.15Outstanding
                    March 31, 2008
                
                
                69,702,460
                
                $
                0.23
                
                
                8.3
                
                $
                69,000Options
                    and warrants exercisable at March 31, 2008
                
                
                50,859,438
                
                $
                0.23
                
                
                8.0
                
                $
                69,000
  The
          following table summarizes additional information about stock options and
          warrants granted during the three months ended March 31:
  **2008**
                
                **2007**Weighted-average
                    fair value of grants
                
                $
                0.10
                
                $
                0.14Risk-free
                    interest rate
                
                
                2.61%-2.90
                %
                
                4.4-4.8
                %Expected
                    option term
                
                
                4.46
                    years
                
                
                2.5-6
                    year yearsStock
                    price volatility
                
                
                130
                %
                
                139
                %Dividend
                    yield
                
                
                —
                
                
                —
  11
  Outstanding
          compensatory stock options and warrants at March 31, 2008, included the
          following warrants:
  ·
                Warrants
                    to purchase 18,000,000 shares of common stock issued to our President
                    and
                    Chief Executive Officer on December 1, 2006, as part of his compensation.
                    The warrants have a ten-year term and were issued with exercise
                    prices
                    ranging from $0.11 to $0.18 per
                    share.
  ·
                Warrants
                    to purchase 3,030,000 shares of common stock issued to employees,
                    directors and consultants on December 26, 2006, as part of their
                    compensation. The warrants have a ten-year term and were issued
                    with an
                    exercise price of $0.14 per share.
  ·
                Warrants
                    to purchase 750,000 shares of common stock issued to a director
                    on January
                    11, 2007, as part of his compensation. The warrants have a ten-year
                    term
                    and were issued with an exercise price of $0.15 per
                    share.
  ·
                Warrants
                    to purchase 9,010,000 shares of common stock issued to employees,
                    directors and consultants on February 5, 2007, as part of their
                    compensation. The warrants have a ten-year term and were issued
                    with an
                    exercise price of $0.14 per share.
  ·
                Warrants
                    to purchase 870,000 shares of common stock issued to employees,
                    directors
                    and consultants on March 14, 2007, as part of their compensation.
                    The
                    warrants have a ten-year term and were issued with an exercise
                    price of
                    $0.19 per share.
  ·
                Warrants
                    to purchase 50,000 shares of common stock issued to a former
                    consultant to
                    settle a pending litigation matter on March 14, 2007. The warrants
                    have a
                    five-year term and were issued with an exercise price of $0.15
                    per
                    share.
  ·
                Warrants
                    to purchase 10,125,000 shares of common stock issued to our Executive
                    Chairman on March 14, 2007, as part of his compensation. The
                    warrants have
                    a ten-year term and were issued with an exercise price of $0.19
                    per
                    share.
  ·
                Warrants
                    to purchase 200,000 shares of common stock issued to two consultants
                    on
                    April 13, 2007, as part of their compensation. The warrants have
                    a
                    ten-year term and were issued with an exercise price of $0.33
                    per
                    share.
  ·
                Warrants
                    to purchase 1,420,000 shares of common stock issued to employees,
                    directors and consultants on June 29, 2007, as part of their
                    compensation.
                    The warrants have a ten -year term and were issued with an exercise
                    price
                    of $0.20 per share.
  ·
                Warrants
                    to purchase 5,000,000 shares of common stock issued to the placement
                    agent
                    on June 29, 2007, as a fee for various consulting services provided.
                    The
                    warrants have a ten-year term and were issued with an exercise
                    price of
                    $0.19 per share.
  ·
                Warrants
                    to purchase 2,120,000 shares of common stock issued to employees,
                    directors and consultants on September 19, 2007, as part of their
                    compensation. The warrants have a ten-year term and were issued
                    with an
                    exercise price of $0.18 per share.
 
 ·
                Warrants
                    to purchase 1,000,000 shares of common stock issued to consultants
                    on
                    November 8, 2007, as part of their compensation. The warrants
                    have a
                    four-year term and were issued with an exercise price of $0.001
                    per
                    share.
 
 ·
                Warrants
                    to purchase 1,100,000 shares of common stock issued to employees, on
                    November 8, 2007, as part of their compensation. The warrants
                    have a
                    ten-year term and were issued with an exercise price of $0.26
                    per share.
  12
  ·
                Warrants
                    to purchase 80,000 shares of common stock issued to employees, on
                    January 17, 2008, as part of their compensation. The warrants
                    have a
                    ten-year term and were issued with an exercise price of $0.13
                    per
                    share.
  ·
                Warrants
                    to purchase 200,000 shares of common stock issued to consultants, on
                    January 17, 2008, as part of their compensation. The warrants
                    have a
                    five-year term and were issued with an exercise price of $0.13
                    per
                    share.
  ·
                Warrants
                    to purchase 340,000 shares of common stock issued to employees, on
                    March 27, 2008, as part of their compensation. The warrants have
                    a
                    ten-year term and were issued with an exercise price of $0.07
                    per
                    share.
  **8.
          Net Income (Loss) Per Common Share**
  The
          following tables set forth the computation of basic and diluted net income
          (loss) per common share for the three months ended March 31, 2008 and 2007,
          respectively:
  **Three Months Ended********March
                    31,********(in thousands except per share data)************2008**********
                
                **2007************Numerator
                    for basic net income (loss) per share:**
                
                $
                17,166
                
                $
                (5,881
                )**Numerator
                    for diluted net income (loss) per
                    share:**
                
                $
                17,349
                
                $
                (5,881
                )**Denominator
                    for:**Basic
                    - weighted-average shares
                
                
                131,123
                
                
                106,896Convertible
                    notes
                
                
                147,417Warrants
                
                
                3,148Options
                
                
                1,093Diluted - weighted-average shares
                
                
                282,781
                
                
                106,896**Basic
                    net income (loss) per common share:**
                
                $
                0.13
                
                $
                (0.06
                )**Diluted
                    net income (loss) per common share:**
                
                $
                0.06
                
                $
                (0.06
                )
  As
          of
          March 31, 2008, 68,609,226 options, and 80,829,810 warrants  were
          excluded from the computation of net gain per share because they were
          out-of-money. Out-of-money options and warrants had average exercise prices
          of
          $.21 and $.31, respectively. As of March 31, 2007, 20,310,232 options
          and 94,016,001  warrants
          were excluded from the computation of net loss per share because the effect
          would be anti-dilutive.
  **9.
          Inventories**
  Inventories
          consisted of the following:
  **March
                    31,**
                
                **December 31,********2008**
                
                **2007********(in thousands)******Raw
                    Materials
                
                $
                110
                
                $
                101Finished
                    Goods
                
                
                188
                
                
                184$
                298
                
                $
                285
  13
  Inventories
          are stated at the lower of cost or market. Cost is determined using the
          first-in, first-out (FIFO) method.
  **10.**  **Other
          Accrued Liabilities**
  Other
          accrued liabilities consisted of the following (in thousands):
  **March
                    31, 2008**
                
                **December
                    31, 2007**Accrued
                    wages
                
                $
                132
                
                $
                132Employee
                    reimbursable expenses
                
                
                34
                
                
                —Accrued
                    interest
                
                
                141
                
                
                141Liquidated
                    damages
                
                
                464
                
                
                464Accrued
                    legal and accounting fees
                
                
                268
                
                
                342Accrued
                    consulting
                
                
                122
                
                
                139Accrued
                    purchases
                
                
                26
                
                
                7Accrued
                    rent (net)
                
                
                168
                
                
                227Other
                
                
                204
                
                
                211$
                1,559
                
                $
                1,663
  **11.
          Notes Payable**
  *Short-Term
          Convertible Bridge Notes*
  Between
          December 1, 2006 and May 1, 2007 the Company issued 10% Convertible Promissory
          Notes (“First Bridge Notes”) and received cash in the amount of $6,295,091. The
          First Bridge Notes mature six months from issuance with various maturity
          dates
          starting June 1, 2007, accrued interest at 10% per annum and were convertible
          into shares of common stock at a price of $0.0725 per share, including
          interest,
          or other securities pursuant to the terms of the First Bridge Notes.  The
          related discounts and deferred financing fees were fully amortized through
          the
          maturity dates and interest continues to accrue on outstanding notes at
          an
          annual interest rate of 10%.
  As
          discussed below, First Bridge Notes in the aggregate principal amount of
          $6,255,091, as well as interest thereon of $415,617, were exchanged for
          6% Notes
          which are convertible into 92,009,765 shares of common stock at a conversion
          price of $0.0725 per share. As of March 31, 2008, one First Bridge Note
          in the
          aggregate principal of $40,000 had matured and remained outstanding, but
          no
          demand for payment has been made by the holder. This outstanding note is
          convertible into 551,724 shares of common stock. The Company will either
          pay
          such note and related interest when demand is made or, if elected by the
          holder,
          convert the note and accrued interest into common stock.
  In
          connection with the sale of the First Bridge Notes, the Company also issued
          to
          these investors four-year warrants with an exercise price of $0.09 per
          share.
          These warrants entitle the investors to purchase an aggregate of 34,972,733
          shares of common stock, which number of shares is based on 50% of the principal
          amount of the notes purchased by the investor and divided by the per share
          exercise price of $0.09.
  As
          compensation for its services as placement agent, Indigo Securities, LLC
          received cash in the amount of approximately $629,500 and seven-year warrants
          to
          purchase an aggregate of approximately 8,682,894 shares of the Company’s common
          stock at an exercise price of $0.0725 per share. These warrants contain
          a
          "cashless exercise" option. The total fee of $1,721,000, including the
          fair
          value of the warrants issued, has been recorded as deferred financing costs
          and
          is being amortized as additional (noncash) interest expense over the life
          of the
          notes using the effective interest method. On March 6, 2007, the Company
          issued
          2,000,000 shares of its common stock to this placement agent pursuant to
          the
          cashless exercise of 2,983,051 of these warrants.
  14
  On
          June
          4, 2007, we issued 10% Convertible Promissory Notes (the “Second Bridge Notes”)
          to one accredited investor in the aggregate principal amount of $2,000,000.
          As
          an inducement for the investor to purchase the Second Bridge Notes, we
          issued to
          this investor four-year warrants, which entitle it to purchase an aggregate
          of
          1,000,000 shares of common stock at the per share exercise price of $0.20.
          As
          discussed below, the Second Bridge Note in the aggregate principal amount
          of
          $2,000,000, as well as the interest thereon, was exchanged for 6% Notes.
          As of
          March 31, 2008, no Second Bridge Notes remained outstanding.
  As
          compensation for its services as placement agent in connection with a second
          placement of bridge notes, which have since been exchanged for 6% Notes,
          Indigo
          Securities, LLC received cash in the amount of $200,000 and will receive
          seven-year warrants to purchase 2,020,202 shares of common stock at an
          exercise
          price of $0.099 valued at $214,000. The placement agent warrants also contain
          a
“cashless exercise” option.
  Because
          the terms of the warrants issued may cause the potential number of shares
          issuable on conversion to be indeterminable (due to an anti-dilution provision
          in the event the Company does a subsequent financing, which event the Company
          cannot assert is improbable), the warrants are required to be recorded
          as
          derivative liabilities (See Note 14). At March 31, 2008 the investor and
          the
          placement agent warrants were valued at $43,000 and $119,000.
  **March
                    31, 2008**
                
                **December
                    31, 2007****(in
                    thousands)**Convertible
                    Bridge Notes, with interest at 10%
                
                $
                40
                
                $
                8,295Less:
                    Discount to warrants and beneficial conversion features
                
                
                
                
                
                (7,011
                )40
                
                
                1,284Amortization
                    of discount
                
                
                
                
                
                7,011Less
                    Convertible Bridge Notes converted into 6% Notes
                
                
                
                
                
                (8,255
                )$
                40
                
                $
                40
  *Long-term
          6% Convertible Notes*
  Through
          March 31, 2008, the Company issued 6% Secured Convertible Promissory Notes
          (the
“6% Notes”) to accredited investors in the aggregate principal amount of
          $12,734,597. The aggregate consideration was in the form of cash, the exchange
          of First Bridge Notes and the exchange of Second Bridge Notes (in each
          case,
          including the accrued interest thereon) and are convertible at $0.0725,
          $0.099
          and $0.11 per share. The principal amount of the 6% Notes is due on September
          27, 2010. Interest is payable quarterly in cash or by issuance of new notes.
          Each investor of the 6% Notes received four-year warrants at an exercise
          price
          of $0.15 per share (the “Warrants”) to purchase shares of the Company common
          stock; the number of which is based on the form of consideration used to
          purchase the 6% Notes. On December 31, 2007, additional 6% Notes in the
          aggregate principal amount of $34,859 were issued to certain holders of
          6% Notes
          in lieu of cash payments of interest, on the same terms as the holder’s 6%
          Notes, except interest on the new 6% Notes can not be paid by issuance
          of
          another 6% Note. As of March 31, 2008, the 6% Notes were convertible at
          conversion prices as noted above into an aggregate of approximately 122,818,499
          shares of the Company common stock. As of March 31, 2008, the Warrants
          entitle
          the holders thereof to purchase an aggregate of approximately 35,176,849
          shares
          of the Company common stock. The placement agent of the 6% Notes which
          were
          issued for cash consideration received, in the aggregate, a cash fee of
          approximately $395,000 and seven-year warrants to purchase an aggregate
          of
          approximately 3,590,909 shares of the Company common stock at an exercise
          price
          of $0.11 per share.
  Because
          the terms of the instruments cause the potential number of shares issuable
          on
          conversion to be indeterminable (due to an anti-dilution provision in the
          event
          the Company does a subsequent financing which event the Company cannot
          assert is
          improbable) which is not limited by the terms of the agreement, and the
          Company
          is unable to assure it will have sufficient available shares to issue upon
          conversion of all convertible instruments, the conversion option and warrants
          are required to be recorded as derivative liabilities. The derivative
          liabilities related to these notes for the conversion option and warrants
          totaled approximately $7,365,000 at March 31, 2008.
  15
  As
          of
          March 31, 2008, consistent with the terms of the original 6% Notes, we
          issued
          additional 6% Notes in the aggregate principal amount of $167,000 to
          eighty-seven holders of such original 6% Notes in lieu of a cash interest
          payment (the “Interest Notes”). The Interest Notes, which are materially
          identical in their terms to the original 6% Notes issued in exchange for
          First
          Bridge Notes, are convertible into an aggregate of 1,887,241 shares of
          our
          common stock at conversion prices of $0.0725, $0.099 and $0.11 per share.
          A debt
          discount and a derivative conversion liability in the aggregate of $94,000
          were
          recorded in connection with the issuance of the Interest Notes. The net
          carrying
          amount of all of the 6% Notes and Interest Notes at March 31, 2008 is
          $1,847,000.
  **March
                    31, 2008**
                
                **December
                    31, 2007****(in
                    thousands)**Convertible
                    Bridge Notes, with interest at 6%
                
                $
                12,148
                
                $
                12,719Less:
                    Discount to warrants and beneficial conversion features
                
                
                (11,203
                )
                
                (12,719
                )945
                
                
                —Issuance
                    of new notes, net of discount
                
                
                73Amortization
                    of discount to March 31, 2008
                
                
                1,026
                
                
                1,522Less
                    Notes Converted to Common Stock
                
                
                (197
                )
                
                (577
                )$
                1,847
                
                $
                945
  Through
          December 31, 2007, the Company issued 6% Secured Convertible Promissory
          Notes
          due December 2010 (the “December 6% Notes”) in an aggregate principal amount of
          $2,032,546, convertible at $0.09 per share and warrants to purchase an
          aggregate
          of 2,710,061 shares of our common stock at an exercise price of $0.15 per
          share
          (the “December Warrants”). During January 2008, the Company issued an additional
          December 6% Note in the principal amount of $100,000, convertible at $0.09
          per
          share and warrants to purchase 133,333 shares at an exercise price of $0.15
          per
          share. The Company primarily issued these securities in lieu of common
          stock in
          connection with its solicitation of the exercise of warrants to purchase
          common
          stock at an exercise price of $0.09 per share (the “Tender Offer”). The
          placement agent received a cash fee of $203,254 and seven-year warrants
          to
          purchase 2,258,382 shares of our common stock in connection with the Tender
          Offer.
  As
          of
          March 31, 2008, consistent with the terms of the original December 6% Notes,
          we
          issued additional December 6% Notes in the aggregate principal amount of
          $32,344
          to forty-three holders of such original December 6% Notes in lieu of a
          cash
          interest payment (the “Interest Notes”). The Interest Notes, which are
          materially identical in their terms to the original December 6% Notes are
          convertible into an aggregate of 359,370, shares of our common stock at
          a
          conversion price of $0.09 per share. A debt discount and a derivative conversion
          liability in the aggregate of $17,000 were recorded in connection with
          the
          issuance of these December 6% Notes and these Interest Notes.
  Because
          the terms of the instruments cause the potential number of shares issuable
          on
          conversion to be indeterminable (due to an anti-dilution provision in the
          event
          the Company does a subsequent financing which event the Company cannot
          assert is
          improbable) which is not limited by the terms of the agreement, and the
          Company
          is unable to assure it will have sufficient available shares to issue upon
          conversion of all convertible instruments, the conversion option and warrants
          are required to be recorded as derivative liabilities. The derivative
          liabilities related to these notes for the conversion option and warrants
          totaled approximately $1,288,000 at March 31, 2008. The net carrying amount
          of
          the December 6% Notes at March 31, 2008 is $212,000.
  16
  **March
                    31,**
                
                **December
                    31,****2008**
                
                **2007****(in
                    thousands)**December
                    Convertible Notes, with interest at 6%
                
                $
                2,033
                
                $
                2,033Less:
                    Discount to warrants and beneficial conversion features
                
                
                (2,013
                )
                
                (2,033
                )$
                20
                
                $
                —Additional
                    notes issued, net of discount
                
                
                15Amortization
                    of discount to March 31, 2008
                
                
                177
                
                
                20$
                212
                
                $
                20
  *6%
          Notes purchased by related parties*
  On
          December 1, 2006, Greg Osborn, Executive Chairman and a director of the
          Company,
          purchased First Bridge Notes in the principal amount of $25,000, which
          notes are
          convertible into 344,828 shares of common stock, and warrants to purchase
          138,888 shares of our common stock with an exercise price of $0.09 per
          share. On
          September 28, 2007, Mr. Osborn exchanged these First Bridge Notes and the
          accrued interest thereon for 6% Notes in the aggregate amount of $27,132,
          which
          notes are convertible into 374,234 shares of common stock, and received
          warrants
          to purchase 50,000 shares of common stock with an exercise price of $0.15
          per
          share. On March 31, 2008, Mr. Osborn elected to receive the quarterly interest
          due on the September 2007 6% Note in the form of a new 6% Interest Note
          in lieu
          of cash. This note is convertible into 5,676 shares of common stock at
          a
          conversion price of $0.0725 per share.
  On
          December 1, 2006, January 31, 2007 and February 21, 2007, Lanny Dacus,
          President, Chief Executive Officer and a director of the Company, purchased
          First Bridge Notes in the aggregate principal amount of $87,500, which
          notes are
          convertible into 1,206,897 shares of common stock, and warrants to purchase
          486,111 shares of our common stock with an exercise price of $0.09 per
          share. On
          September 28, 2007, Mr. Dacus exchanged these First Bridge Notes and the
          accrued
          interest thereon for 6% Notes in the aggregate amount of $94,063, which
          notes
          are convertible into 1,297,421 shares of common stock, and received warrants
          to
          purchase 175,000 shares of common stock with an exercise price of $0.15
          per
          share. On December 20, 2007, Mr. Dacus exercised warrants to purchase 486,111
          shares of our common stock, and received a note for $43,750 convertible
          into
          486,111 shares of common stock, and warrants to purchase 58,333 shares
          of common
          stock with an exercise price of $0.15 per share. On December 31, 2007 Mr.
          Dacus
          elected to receive the quarterly interest due on the September 2007 6%
          Notes in
          the form of a new 6% note in lieu of cash. This note is convertible into
          20,542
          shares of common stock at a conversion price of $0.0725 per share. On March
          31,
          2008, Mr. Dacus elected to receive the quarterly interest due on the September
          2007 6% Notes in the form of a new 6% Interest Note in lieu of cash. This
          note
          is convertible into 19,677 shares of common stock at a conversion price
          of
          $0.0725 per share
  On
          January 25, 2007, Joseph Carfora, a director of the Company, purchased
          First
          Bridge Notes in the principal amount of $20,000, which notes are convertible
          into 275,862 shares of common stock, and warrants to purchase 111,111 shares
          of
          our common stock with an exercise price of $0.09 per share. On September
          28,
          2007, Mr. Carfora exchanged these First Bridge Notes and the accrued interest
          thereon for 6% Notes in the aggregate amount of $21,361, which notes are
          convertible into 294,634 shares of common stock, and received warrants
          to
          purchase 40,000 shares of common stock with an exercise price of $0.15
          per
          share. On November 29, 2007, Mr. Carfora purchased an additional $5,000
          aggregate principal amount of 6% Notes for cash, which notes are convertible
          into 45,454 shares of common stock. In connection with his cash purchase,
          Mr.
          Carfora also received warrants to purchase 16,667 shares of common stock.
          On
          March 31, 2008, Mr. Carfora elected to receive the quarterly interest due
          on the
          September 2007 6% Note in the form of a new 6% Interest Note in lieu of
          cash.
          This note is convertible into 4,469 shares of common stock at a conversion
          price
          of $0.0725 per share.
  On
          May 1,
          2007, Timothy Lane, a director of the Company, purchased First Bridge Notes
          in
          the principal amount of $50,000, which notes were convertible into 689,655
          shares of common stock, and warrants to purchase 69,444 shares of our common
          stock. On September 28, 2007, Mr. Lane exchanged these First Bridge Notes
          and
          the accrued interest thereon for 6% Notes in the aggregate amount of $52,069,
          which notes are convertible into 718,193 shares of common stock, and received
          warrants to purchase 100,000 shares of common stock. On March 31, 2008,
          Mr. Lane
          elected to receive the quarterly interest due on the September 2007 6%
          Note in
          the form of a new 6% Interest Note in lieu of cash. This note is convertible
          into 10,893 shares of common stock at a conversion price of $0.0725 per
          share.
  17
  On
          February 14, 2007, Leonid Frenkel, who resigned as director of the Company
          on
          June 1, 2007, purchased First Bridge Notes in the principal amount of $250,000,
          which notes were convertible into 3,448,276 shares of common stock, and
          warrants
          to purchase 1,388,888 shares of our common stock. On April 12, 2007,
          Mr. Frenkel purchased additional First Bridge Notes in the principal amount
          of $200,000, which notes were convertible into 2,758,621 shares of common
          stock,
          and additional warrants to purchase 1,111,111 shares of our common stock.
          Under
          the terms of the additional notes and the additional warrant agreements,
          Mr. Frenkel could not convert any of these additional notes or exercise any
          of these additional warrants if his ownership of our common stock exceeded
          4.99%
          or 9.99% of our outstanding stock as calculated according to Section 13(d)
          of the Exchange Act, unless all outstanding First Bridge Notes were converted.
          Either of the 4.99% or 9.99% limitations could be waived by Mr. Frenkel
          on 61
          days notice. On September 28, 2007, Mr. Frenkel exchanged these First Bridge
          Notes and the accrued interest thereon for 6% Notes in the aggregate amount
          of
          $474,958, which notes are convertible into 6,551,149 shares of common stock,
          and
          received warrants to purchase 900,000 shares of common stock. On March
          31, 2008,
          Mr. Frenkel elected to receive the quarterly interest due on the September
          2007
          6% Notes in the form of a new 6% Interest Note in lieu of cash. This note
          is
          convertible into 87,582 shares of common stock at a conversion price of
          $0.0725
          per share.
  On January
          25, 2007, Frederick Ledlow, a director of the Company, purchased First
          Bridge
          Notes in the principal amount of $12,500, which notes are convertible into
          172,414 shares of common stock, and warrants to purchase 69,444 shares
          of our
          common stock. On September 28, 2007, Mr. Ledlow exchanged these First Bridge
          Notes and the accrued interest thereon for 6% Notes in the aggregate amount
          of
          $13,351, which notes are convertible into 184,152 shares of common stock,
          and
          received warrants to purchase 25,000 shares of common stock. On December
          20,
          2007, Mr. Ledlow exercised warrants to purchase 69,444 shares of our common
          stock and received a note for $6,250 convertible into 69,444 shares of
          common
          stock and warrants to purchase 8,333 shares of common stock with an exercise
          price of $0.15 per share. On March 31, 2008, Mr. Ledlow elected to receive
          the
          quarterly interest due on the September 2007 6% Note in the form of a new
          6%
          Interest Note in lieu of cash. This note is convertible into 2,793 shares
          of
          common stock at a conversion price of $0.0725 per share.
  On
          January 25, 2007, Peter O’Gorman, a director of the Company, purchased First
          Bridge Notes in the principal amount of $25,000, which notes are convertible
          into 344,828 shares of common stock, and warrants to purchase 344,828 shares
          of
          our common stock. On September 28, 2007, Mr. O'Gorman exchanged these First
          Bridge Notes and the accrued interest thereon for 6% Notes in the aggregate
          amount of $26,701, which notes are convertible into 50,000 shares of common
          stock, and received warrants to purchase 25,000 shares of common stock.
          On
          December 20, 2007, Mr. O’Gorman exercised warrants to purchase 138,889 shares of
          our common stock and received a note for $12,500 convertible into 138,889
          shares
          of common stock and warrants to purchase 16,667 shares of common stock
          with an
          exercise price of $0.15 per share. On March 31, 2008, Mr. O’Gorman elected to
          receive the quarterly interest due on the September 2007 6% Notes in the
          form of
          a new 6% Interest Note in lieu of cash. This note is convertible into 5,586
          shares of common stock at a conversion price of $0.0725 per share.
  **12.
          Contractual Obligations and Commitments**
  The
          Company has the following off-balance sheet commitments as of March 31,
          2008,
          which are comprised primarily of a research and development fee contract,
          consulting and employment contracts, vendor agreements, notes payable,
          as well
          as numerous operating leases.
  **(in thousands)************Payments**
                  **Due by**
                
                ************
                
                ************
                
                ************
                
                ******************Period******
                
                **Less Than**********
                
                **1-3**********
                
                **3-5**********
                
                **More Than************Contractual Obligations**
                
                **Total**
                
                **1 Year**********
                
                **Years**********
                
                **Years**********
                
                **5 Years**********Research
                    & development (“R&D”) fees (1)
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —Consulting
                    agreements
                
                
                70
                
                
                70
                
                
                —
                
                
                —
                
                
                —Employment
                    agreements (2)
                
                
                385
                
                
                235
                
                
                150
                
                
                —
                
                
                —Vendor
                    agreements
                
                
                12
                
                
                12
                
                
                —
                
                
                —
                
                
                —Operating
                    leases
                
                
                677
                
                
                347
                
                
                330
                
                
                —
                
                
                —**Total**
                
                **$**
                **1,144**
                
                **$**
                **664**
                
                **$**
                **480**
                
                **$**
                —
                
                **$**
                **—**
 (1)          
            On January 26, 2006, R&D fees payable under a Patent and Sub-License
            Agreement with pHarlo IP were amended so as to have no minimum amounts payable
            after 2006; however, they are capped at $2,000,000 for 2007, $4,000,000
            for
            2008, $8,000,000 for 2009 and $10,000,000 for 2010 and beyond. During
            the three
            months ended March 31, 2008, we accrued approximately $31,000 R&D fees.
  (2)          
          As of March 31, 2008 the estimated future minimum annual compensation under
          these employment agreements, for 2008, 2009, and 2010 and beyond is
          approximately $197,500, $150,000 and $37,500.
 18
  **13.
          Related Party Transactions**
  *Greg
          Osborn*
  In
          April
          2007, the Company entered into an employment agreement with Greg Osborn
          in
          connection with his appointment as Executive Chairman, effective March
          14, 2007.
          Mr. Osborn is the Managing Partner of Indigo Ventures, LLC, an affiliate
          of
          Indigo Securities, LLC, the firm that served as the placement agent for
          the
          offerings of our First Bridge Notes, Second Bridge Notes, 6% Notes and
          our
          Tender Offer Notes. Mr. Osborn is also a registered representative of Indigo
          Securities. In connection with its services as placement agent in these
          transactions, Indigo Securities received an aggregate cash fee of $1,427,763
          and
          seven-year warrants to purchase an aggregate of approximately 16,552,377
          shares
          of our common stock at exercise prices between $0.0725 and $0.11 per share.
          Indigo Securities is entitled to a placement agent’s fee with respect to any
          securities purchased in any subsequent offering by any investors introduced
          to
          us by the placement agent, if such subsequent offering is consummated any
          time
          within the twelve month period following the final closing of the offering
          of
          the 6% Notes.
  *Wynn
          Starr*
  In
          2004,
          the Company entered into an Exclusive Field of Use License Agreement and
          Product
          Sale Agreement with Wynn Starr Special Products, LLC. Under the terms of
          this
          agreement, as amended through January 23, 2007, the Company has granted
          Wynn
          Starr the exclusive, worldwide right to market and distribute products
          used as
          post-harvesting processing aids for the poultry industry based on the pHarlo
          technology. As of March 31, 2008, the Company had paid $42,000 to Wynn
          Starr
          under this royalty arrangement. Steven B. Zavagli, a former member of the
          Company’s board of directors, is the founder, Chairman and the Chief Executive
          Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr
          Flavors, Inc. The Company recently notified Wynn Starr of its rescission
          and
          termination of the Wynn Starr Agreement.
  **14.
           Segments — Enterprise Wide Disclosures**
  The
          Company owns several utility patents and patent applications that cover
          certain
          product applications that are marketed and sold by the Company. The Chief
          Operating Decision Maker (CODM) of the Company is the President and CEO.
          The
          operating results of each product application, other than for revenue,
          are not
          separately tracked or reported. Operating results by product application
          are not
          reviewed by the CODM because discrete financial information is not available.
          Consequently, as permitted by the provisions of SFAS No. 131, “Disclosure About
          Segments of an Enterprise and Related Information,” the Company has one
          reportable segment for financial statement purposes.
  19
  *Revenue
          by Product*
  The
          Company’s revenue by product is as follows:
  **Three Months Ended March
                    31,********2008******
                
                **2007********(in
                    thousands)**Unifresh®
                    Footbath
                
                $
                874
                
                $
                248Tasker
                    Blue Poultry Processing
                
                
                134
                
                
                1Close
                    CallTM
                
                
                —
                
                
                177Other
                
                
                14
                
                
                —$
                1,022
                
                $
                426
  *Dependence
          on Certain Customers*
  The
          Company’s dependence on certain customers as a percentage of total revenue is as
          follows:
  **Three Months Ended**
                  **March
                    31,************2008**********
                
                **2007**Customer
                    A
                
                
                17%
                
                
                18%Customer
                    B
                
                
                15%
                
                
                8%Customer
                    C
                
                
                13%
                
                
                0%Customer
                    D
                
                
                11%
                
                
                15%Customer
                    E
                
                
                8
                    %
                
                
                10%
  *Accounts
          Receivable Concentration*
  **Three Months Ended**
                  **March
                    31,************2008**********
                
                **2007**********Customer
                    A
                
                
                29%
                
                
                22%Customer
                    B
                
                
                24
                    %
                
                
                5
                    %Customer
                    C
                
                
                —%
                
                
                —%Customer
                    D
                
                
                —%
                
                
                —%Customer
                    E
                
                
                5
                    %
                
                
                10%
  **15.
           Derivative Instruments**
  To
          date,
          the Company has entered into several debt and equity transactions to fund
          its
          operations. A number of these transactions involved the issuance of convertible
          debt and warrants. Certain of these transactions also included registration
          rights agreements that impose significant penalties on the Company if certain
          conditions are not met. As a result of these transactions the Company faces
          a
          number of unique and complex accounting issues such as the ones discussed
          below.
  The
          Company has issued and outstanding financial instruments with embedded
          derivative features consisting of convertible debt and warrants. **** The
          Company analyzes these financial instruments in accordance with Statement
          of
          Financial Accounting Standards (“SFAS”) No. 133 and Emerging Issues Task Force
          (“EITF”) Issue No. 00-19 to determine if these hybrid contracts have embedded
          derivatives that must be bifurcated. In addition, free standing warrants
          are
          accounted for as either equity or liabilities in accordance with the provisions
          of EITF Issue No. 00-19.
  20
  EITF
          Issue No. 05-4 “The Effect of a Liquidated Damages Clause on a Freestanding
          Financial Instrument Subject to EITF Issue No. 00-19, ‘Accounting for Derivative
          Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
          Stock’” addresses financial instruments, such as convertible notes and stock
          purchase warrants, which are accounted for under EITF 00-19, that are issued
          with a corresponding right to have these securities registered pursuant
          to a
          registration rights agreement that includes a liquidated damages clause.
          Alternative accounting treatments of registration rights are discussed
          in EITF
          Issue No. 05-4. The Company has adopted View C as described in the EITF
          Issue
          No. 05-4 Issue Summary No. 1. Under View C, registration rights agreements
          and
          the associated financial instruments are accounted for as separate instruments.
          Accordingly, the Company has given only prospective application to this
          guidance. On December 21, 2006 the Financial Accounting Standards Board
          issued
          FASB Staff Position (FSP) EITF No. 00-19-2 which is effective for fiscal
          years
          beginning after December 15, 2006. This FSP specifies that the contingent
          obligation to make future payments or otherwise transfer consideration
          under a
          registration rights agreement, whether issued as a separate agreement or
          included as a provision of a financial instrument or other agreement, should
          be
          separately recognized and measured in accordance with FASB Statement No.
          5, *Accounting
          for Contingencies* EITF.
          The Company’s treatment of the registration rights agreement as separate
          instruments is consistent with this FSP.
  In
          connection with the examination of past transactions by the Company for
          application of EITF Issue No. 05-4, it noted that for the period from entering
          into the April 2004 Securities Purchase Agreement until it increased its
          authorized shares in August 2004, it had insufficient shares to meet all
          potential obligations to issue shares under its convertible notes and
          exercisable warrants and options. Under EITF Issue No. 00-19, a liability
          should
          be recognized for those financial instruments for that period, with any
          changes
          in the fair value of such liabilities recognized in the Company’s consolidated
          statement of operations. Based on the Company’s analysis of such liabilities, it
          determined the effect of any such amounts to be immaterial.
  In
          April
          2004 and July 2004, the Company entered into private placement agreements,
          and
          registration rights agreements for convertible debentures and warrants.
          Based on
          the interpretive guidance in EITF Issue No. 05-4 due to an uncapped liquidated
          damages provision in the registration rights agreements, it determined
          that the
          registration rights are derivative liabilities that should be bifurcated
          from
          the related financial instruments. Accordingly, the estimated fair value
          of the
          registration rights derivative of $244,000 was recorded as a liability
          as of
          October 1, 2005, the beginning of the first fiscal period after September
          15,
          2005, the date that EITF postponed further deliberations. As of December
          31,
          2006, the full amount of the derivative liability balance was reversed
          since the
          shares purchased under the April 2004 and July 2004 private placements
          could be
          sold under Rule 144(k) of the Securities Act of 1933 and it had recorded
          the
          full and maximum amount of the actual incurred liquidated damages of
          approximately $442,000, associated with these registration rights agreements.
          Additionally, the Company recorded approximately $141,000 of interest and
          late
          fees related to the April 2004 and July 2004 convertible debentures. Both
          of
          these amounts are included in the other accrued liabilities.
  In
          connection with the Company’s December 2004 and January 2006 private placements,
          it estimated fair value of the related registration rights derivative was
          immaterial at the inception and at each reporting date since and, consequently,
          it has not recorded a liability. At each reporting period, the Company
          calculates the estimated fair value of the registration rights derivatives.
          If
          the underlying assumptions of the calculation change such that the estimated
          fair value is not immaterial, the Company will record a liability at that
          time.
  In
          connection with the Company’s September 2005 private placement, the estimated
          fair value of the related registration rights derivative at its inception
          was
          immaterial and the company did not record a liability. Subsequently, in
          connection with the January 2006 private placement, it amended its September
          2005 agreement with the rights holder to waive the liquidated damages relating
          to its inability to have such registration statement declared effective
          by May
          23, 2006. On April 26, 2006, the Company filed a registration statement
          registering resale of securities purchased in the September 2005 and January
          2006 private placements. The Company believes that as it relates to the
          September 2005 private placement, it has used its best efforts to cause
          the
          registration statement to be declared effective and, therefore, pursuant
          to the
          terms of the September 2005 registration rights agreement, it is not currently
          liable for liquidated damages as a result of the registration statement
          not
          being declared effective by May 23, 2006. Should the rights holders dispute
          that
          the Company’s best efforts were used, and it either accedes to the assertion or
          is found to not have used its best efforts, the estimated maximum amount
          of
          liquidated damages for which it would be liable, assuming
          ineffectiveness from May 23, 2006 to October 31, 2006, is approximately
          $43,000.
  As
          it
          relates to the January 2006 private placement, the Company, despite using
          its
          best efforts, failed to have the registration statement declared effective
          by
          the SEC on or before October 26, 2006. Consequently, as of December 31,
          2006 it
          was required to issue to each holder of the January 2006 private placement,
          shares and warrants equal to one percent of the respective number of shares
          and
          warrants purchased by each holder or an aggregate of 138,859 shares of
          common
          stock and warrants to purchase 138,859 shares of common stock.
  21
  The
          Company is required to file a series of registration statements covering
          the
          resale of the shares of common stock underlying the 6% Notes, the Warrants,
          the
          December 6% Notes, the December Warrants, the Interest Notes and the four-year
          warrants issued to purchasers of the First Bridge Notes and Second Bridge
          Notes,
          as well as the warrants issued to the placement agent in connection with
          the
          issuance of the First Bridge Notes, Second Bridge Notes and 6% Notes issued
          for
          cash and in connection with the Tender Offer. In the event the Company
          fails to
          file or cause these registration statements to become effective within
          specified
          time periods, it will be required to pay liquidated damages (except with
          respect
          to warrants issued to the placement agent) equal to 1% of the principal
          amount
          of the affected notes and the purchase price of shares of common stock
          issued on
          conversion of these notes and exercise of related warrants for each 30-day
          delay
          in the filing or effectiveness of such registration statement (or such
          lesser
          pro-rata amount for any period of less than 30 days). The registration
          statement
          was not declared effective for the shares underlying the December 6% Notes,
          the
          December Warrants and the four-year warrants issued to purchasers of the
          First
          Bridge Notes and the Second Bridge Notes to be declared effective by the
          SEC on
          or before April 18, 2008. Liquidated damages therefore began to accrue
          on April
          19, 2008. The estimated maximum amount of liquidated damages (which are
          payable
          in cash) for which the Company would be liable, assuming ineffectiveness
          from
          April 18, 2008 to June 20, 2008, is approximately $60,000.
  The
          Company has not incurred any liquidated damages liabilities related to
          any of
          its other registration rights agreements. The Company does not currently
          have
          any derivative liabilities which are recorded as a result of registration
          agreements.
  As
          disclosed in Note 10, beginning with the bridge note transaction in June
          2007,
          the Company’s issuance of convertible notes have included provisions which
          require it to account for the conversion feature of the notes and the warrants
          issued in connection with the notes, as well as all other potentially issuable
          share instruments except share-based compensation to employees and non-employee
          directors as derivative liabilities. Such instruments are recorded at fair
          value
          when issued and adjusted to fair value at each reporting date or when
          extinguished, converted or exercised, with the change in fair value reported
          in
          the statements of operations. As a result of changes in fair value since
          the
          later of December 31, 2007 or their issuance, we have recorded a gain on
          changes
          in fair value during the three months ended March 31, 2008 of approximately
          $21.3 million.
  The
          derivative liabilities are valued using the Black-Scholes model using inputs
          applicable to each issuance. Such valuation falls under Level 3 of the
          fair
          value hierarchy under FAS 157. The following two tables represent the
          reconciliation required for Level 3 inputs and the valuation inputs to
          the
          Black-Scholes model.
  Balance
                    - December 31, 2007
                
                $
                31,656,000Additions
                    and settlements
                
                
                (1,146,000
                )Changes
                    in fair value
                
                
                (21,294,000
                )Ending
                    - March 31, 2008
                
                $
                9,216,000Unrealized
                    gains (losses) included in earnings for the three months ended
                    March 31,
                    2008 attributable to derivative liabilities still held at March
                    31,
                    2008
                
                $
                (19,707,000
                )-
                    Cumulative
                
                $
                (35,786,000
                )
  **2008**Risk-free
                    interest rate
                
                
                1.7%-2.9
                %Term
                    of note or warrant
                
                
                3-4
                    yearsStock
                    price volatility
                
                
                128%-132
                %Dividend
                    yield
                
                
                —
  22
  **16.
          Subsequent Events**
  On
          April
          11, 2008, Mr. Stathis Kouninis, the Chief Financial Officer, Treasurer
          and
          Secretary of the Company, resigned from his positions as Chief Financial
          Officer, Treasurer and Secretary to pursue another job opportunity.
  Ms.
          Doreen Remmen joined the Company on April 7, 2008 as Director of Finance.
          She
          was subsequently appointed Chief Financial Officer and Treasurer of the
          Company
          on April 28, 2008.
  On
          May 2,
          2008, the Company reported that it had received cash in the aggregate principal
          amount of $250,000 (the "Bridge Loans") of which its president, CEO and
          director, Lanny Dacus, and executive chairman and director, Greg Osborn,
          invested $50,000 each. The Company has entered into an agreement with a
          private
          placement agent to raise up to $5,000,000 (the "Qualified Raise") the terms
          of
          which are still under negotiation. There
          can
          be no assurances that the Company will be able to raise any funds pursuant
          to
          this private placement agreement. The
          Bridge Loan will convert into the Qualified Raise, under the same terms
          and
          conditions upon its completion.
  **Item
          2. Management’s Discussion And Analysis of Financial Condition And Results Of
          Operations**
  The
          following discussion and analysis of our financial condition and results
          of
          operations should be read in conjunction with the condensed consolidated
          financial statements and notes thereto appearing elsewhere in this Quarterly
          Report on Form 10-Q. This discussion contains forward-looking statements
          that
          involve risks and uncertainties. See “Forward-Looking Statements” for a
          description of the important factors that could cause actual results to
          differ
          materially from those contained in these forward-looking
          statements.
  **Business
          Overview**
 
 We
          manufacture, distribute and market a variety of products using a process
          we
          refer to as “pHarlo technology.” These products are covered by one or more
          patents, or base patents, and manufactured using the pHarlo technology,
          which is
          covered by those patents. The pHarlo technology utilizes a safe solution,
          which
          we call the pHarlo concentrate, a solution whose components have been accepted
          as Generally Recognized as Safe by the U.S. Food and Drug Administration,
          or
          FDA. This safe solution enables copper sulfate, a compound with bacteriostatic
          properties, i.e., the ability to inhibit bacteria growth, to remain active
          throughout a wide range of pH values, or measurements of acidity or alkalinity
          in a solution.
  We
          currently market:
  ·
                Unifresh
                    Footbath and other related products that clean and disinfect
                    the hooves of
                    dairy cows;
  ·
                Tasker
                    Blue, an antimicrobial aid to be used in the scalder process
                    of poultry
                    processing, a stage in poultry processing designed to loosen
                    feathers so
                    that they can be picked and removed mechanically, and the post-feather
                    picker process, which is the method used in chicken processing
                    that
                    receives chickens immediately after the scalder and mechanically
                    removes
                    feathers.
  ·
                Tasker
                    Clear, an acidifier that controls pH levels to enhance the effectiveness
                    of liquid bacteriostatic applications. Currently, the product
                    is marketed
                    for use in intervention points of poultry processing and was
                    recently
                    approved for use in red meat
                    processing.
  ·
                Tasker
                    Pacific Blue Seafood Wash, a product used in commercial and retail
                    seafood
                    processing to extend shelf life and reduce or eliminate odors;
                    and
  23
  We
          are
          currently seeking to license and/or sell the Close CallTM brand an oral hygiene
          drink and derivative applications.
  *Unifresh®
          Footbath*
  We
          currently market Unifresh®Footbath concentrate, and other related products that
          help clean and disinfect the hooves of dairy cows. Because of the bacteriostatic
          properties of the pHarlo technology, the Unifresh®Footbath concentrate helps
          control bacteria that infect the hooves of cows and cause interdigital
          dermatitis, a bacterial infection of the skin on a cow’s hoof, and interdigital
          papillomatosis, a disease that infects a cow’s hoof that may cause severe
          lameness, decreased milk yield, body weight loss, decreased reproductive
          performance and increased veterinary expenses. Unifresh ®Footbath concentrate
          was launched during the third quarter of 2005. The product has since been
          reformulated with the addition of a compound that neutralizes alkali, or
          a type
          of base that has a pH greater than 7, which can increase the pH of water
          or
          soil, enabling the product to be effective in most types of water. It is
          currently being sold to dairy farms throughout the U.S. through our sales
          force,
          independent brokers and farm product distributors. We currently market
          the
          product as a grooming aid. No federal agency approvals are required for
          marketing this product.
  *Poultry
          Processing*
  In
          August
          2005, we began the in-plant commercial verification process for USDA approval
          to
          use the pHarlo technology in the scalder process of poultry processing.
          The
          first in-plant commercial verification test was completed in October 2005
          and
          submitted to the USDA shortly thereafter.
  On
          February 6, 2006, we received a letter from the Food Safety and Inspection
          Service ("FSIS") of the USDA consenting to the continuation of in-plant
          trials
          of our Scalder application at a facility in Athens, Georgia, as well as
          two
          additional poultry processing plants. The trial involved the application
          of the
          pHarlo technology as an antimicrobial in the scalder and post-feather picker
          stages. In August 2006 we received a Letter of No Objections from the FSIS
          indicating that it had no objections to the use of our product as an
          antimicrobial processing aid in poultry Scalder and, in December 2006,
          we
          received a similar letter from the USDA to use our product in the Picker
          and New
          York Dressed Cabinet.
  During
          the fiscal quarter ended June 30, 2007, we submitted protocols to be used
          in the
          testing of an application for use in the On-Line Reprocessor ("OLR") and
          Chiller
          sections. We received the FSIS's consent to proceed with in-plant testing
          of
          these applications. Tests of our OLR application were suspended when we
          were
          informed of the USDA’s intention to reconsider this requirement of this section
          as an intervention point in controlling bacteria.
  In
          April
          of 2008, subsequent to the end of the quarter, we received a "Letter of
          No
          Objections" from the FSIS to market our patented Tasker Clear product,
          an
          effective acidifier, in all sections of poultry processing .
  *Seafood
          Processing Products*
  We
          recently began marketing the pHarlo technology for use in pathogen reduction,
          a
          process by which certain bacteria that cause disease or illness are reduced
          in
          number or eliminated, and the shelf life of seafood is extended. Our product,
          Tasker Pacific Blue Seafood Wash, has been tested at the North Carolina
          State
          Center for Marine Science & Technology, Virginia Tech University and
          Mississippi State University on shrimp, mahi mahi, salmon, flounder, scallops
          and catfish. The results of these studies indicated that the pHarlo technology
          could possibly double the shelf life on catfish filets and significantly
          increase the shelf life of seafood. No federal agency approvals are required
          for
          the marketing of this product beyond our FDA GRAS status.
  In
          the
          processing of fish and seafood species, water is used at many points after
          harvesting. Therefore, the use of dip tanks and sprays of chilled water
          are
          normal and common. The addition of the Tasker Pacific Blue Seafood Wash
          to these
          wash waters is an easy adaptation of existing process equipment. Our seafood
          application is currently in trial testing by a seafood company located
          in the
          southeast and in several supermarkets in the northeast.
  24
  *Close
          CallTM*
  Until
          March 2007, we marketed Close CallTM as an oral hygiene breath drink that
          eliminates odors from tobacco, garlic, onion and alcohol. The FDA requires
          companies making structure or function claims relating to a dietary supplement
          product, such as Close CallTM, to “certify that the firm has substantiation that
          the claim is truthful and not misleading.” While the FDA does not require any
          presentation of this support, it does require a notice of dietary supplement
          ingredients and claims. We believe that our Close CallTM product could be
          marketed more efficiently by a company either already established in the
          industry or with more commercial resources. Therefore, we are actively
          seeking
          to license and/or sell the Close Call TM brand or derivative
          applications.
  **Financial
          Overview**
  Until
          December 31, 2005, we were a development stage company. The quarterly period
          ended March 31, 2006 was the first period we were considered an operating
          company.
 
 Based
          upon our forecast of future revenues from our products in conjunction with
          the
          cash on hand, cash expected to be generated from operations will not provide
          adequate funding for our working capital over the next twelve months. Our
          ability to continue to operate and grow our business is dependent upon
          obtaining
          additional financing from the Qualified Raise or a similar sale of senior
          preferred debentures and the exercise of outstanding warrants, and generating
          revenue growth from operations. While we have been in the process of
          aggressively developing, marketing and selling our products, there can
          be no
          assurances that those efforts will be met with success in the marketplace
          or
          that the timing of our efforts will be consistent with our cash availability
          and
          burn rate. If we are unable to obtain financing and/or generate sufficient
          revenue growth from existing and new business arrangements, we will not
          have
          sufficient cash to support our operations and meet our obligations. We
          anticipate that we will need approximately an additional $3-5 million to
          support
          our operations and meet our obligations over the next twelve
          months.
  **Related
          Party Transactions**
  *Greg
          Osborn*
  In
          April
          2007, we entered into an employment agreement with Greg Osborn in connection
          with his appointment as Executive Chairman, effective March 14, 2007. Mr.
          Osborn
          is the Managing Partner of Indigo Ventures, LLC, an affiliate of Indigo
          Securities, LLC, the firm that served as the placement agent for the offerings
          of our First Bridge Notes, Second Bridge Notes, 6% Notes and our Tender
          Offer
          Notes. Mr. Osborn is also a registered representative of Indigo Securities.
          In
          connection with its services as placement agent in these transactions,
          Indigo
          Securities received an aggregate cash fee of $1,427,763 and seven-year
          warrants
          to purchase an aggregate of approximately 16,552,377 shares of our common
          stock
          at exercise prices between $0.0725 and $0.11 per share. Indigo Securities
          is
          entitled to a placement agent’s fee with respect to any securities purchased in
          any subsequent offering by any investors introduced to us by the placement
          agent, if such subsequent offering is consummated any time within the twelve
          month period following the final closing of the offering of the 6%
          Notes.
  *Wynn
          Starr*
  In
          2004,
          we entered into an Exclusive Field of Use License Agreement and Product
          Sale
          Agreement with Wynn Starr Special Products, LLC. Under the terms of this
          agreement, as amended through January 23, 2007, we have granted Wynn Starr
          the
          exclusive, worldwide right to market and distribute products used as
          post-harvesting processing aids for the poultry industry based on the pHarlo
          technology. As of March 31, 2008, we had paid $42,000 to Wynn Starr under
          this
          royalty arrangement. Steven B. Zavagli, a former member of our board of
          directors, is the founder, Chairman and the Chief Executive Officer of
          Wynn
          Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors, Inc. We have
          recently notified Wynn Starr of our rescission and termination of the Wynn
          Starr
          Agreement.
  25
  **Critical
          Accounting Policies and Estimates**
  We
          believe that several accounting policies are important to understanding
          our
          historical and future performance. We refer to these policies as “critical”
because these specific areas generally require us to make judgments and
          estimates about matters that are uncertain at the time we make the estimate,
          and
          different estimates—which also would have been reasonable—could have been used,
          which would have resulted in different financial results.
  The
          critical accounting policies we identified in our Annual Report on Form
          10-K for
          the fiscal year ended December 31, 2007 related to stock-based compensation,
          derivative instruments, goodwill and intangible assets and the valuation
          of
          acquired intangible assets. It is important that the discussion of our
          operating
          results that follows be read in conjunction with the critical accounting
          policies disclosed in our Annual Report on Form 10-K, as filed with the
          SEC on
          March 31, 2008.
 
 **Three
          Months Ended March 31, 2008 Compared to Three Months Ended March 31,
          2007**
  *Revenues*
  Revenues
          for the three months ended March 31, 2008 were approximately $1,022,000
          compared
          with approximately $426,000 for the corresponding period in 2007. This
          increase
          is primarily due to increased sales in Unifresh ® Footbath and Tasker Blue, our
          poultry processing product. We expect that revenue will continue to increase
          throughout fiscal year 2008, primarily due to our intensified marketing
          efforts
          of our poultry processing products and the expansion of our distributor
          network
          for our Unifresh® Footbath product.
  *Gross
          Margin*
  Gross
          margin for the three months ended March 31, 2008 was $621,000 compared
          to
          $331,000 for the same period of the prior year. The gross margin percent
          decreased from 78% for the three months ended March 31, 2007 to 61% for
          the
          three months ended March 31, 2008. This decrease was primarily due to higher
          sales of a lower margin product mix in the dairy business.
  *Selling,
          General and Administrative*
  Selling,
          General and Administrative (“SGA”) expenses are primarily comprised of sales and
          marketing expenses, compensation expenses, professional fees, and general
          and
          administrative expenses. SGA expenses for the three months ended March
          31, 2008
          decreased by approximately $635,000 from approximately $3.2 million for
          the
          three months ended March 31, 2007, to approximately $2.6 million for the
          three
          months ended March 31, 2008.
  Sales
          and
          marketing expenses consist primarily of salaries and other related expenses
          for
          sales and marketing personnel, sales commissions, promotional expenses,
          advertising, public relations and trade show expenses. Sales and marketing
          expenses for the three months ended March 31, 2008 decreased by approximately
          $160,000 primarily due to a decrease in sales related commissions.
  Compensation
          expense consists primarily of salaries and other related expenses for senior
          management, sales and field service personnel, and finance and administrative
          employees of our company. Compensation expense charged to Selling, General
          and
          Administrative expense increased by approximately $231,000, primarily due
          to an
          increase in field service personnel through additional hiring and the
          reassignment of personnel who had previously been engaged in research and
          development.
  Professional
          fees for the three months ended March 31, 2008 increased by approximately
          $189,000, primarily due to an increase in legal fees of $180,000 related
          to
          proposed financing transactions, the registration statement, and to protecting
          the company’s patents, intellectual property and trademarks.
  26
  General
          and administrative expenses consist primarily of rent, insurance, freight,
          and
          travel and entertainment expenses. The increase in general and administrative
          expenses for the three months ended March 31, 2008 of approximately $91,000
          was
          primarily due to an increase of $142,000 in travel and entertainment expense
          related to increased travel in support of national marketing activities.
          There
          was also an increase of approximately $28,000 in outbound freight expense
          due to
          increased shipments and the increased costs of fuel reflected in our carriers’
charges. These costs were partially offset by reduced rent expense of $32,000
          and other general cost reductions of $47,000. Costs related to exiting
          the lease
          on our former offices in Danbury, CT, were recognized in 2007.
  Stock
          based compensation expense for selling, general and administrative employees
          decreased by approximately $973,000, to approximately $371,000 for the
          three
          months ended March 31, 2008 as compared to $1.3 million for the same time
          period
          in 2007. The expense associated with these awards is recorded as expense
          within
          the same functional expense category that the respective employee’s compensation
          is recorded. For the three months ended March 31, 2008, stock compensation
          expense was allocated as follows:
  **(in thousands)**********Sales
                    and marketing
                
                $
                98General
                    and administrative
                
                
                273Product
                    development
                
                
                2$
                373
  *Product
          Development*
  Product
          development consists primarily of product supplies and personnel expenses
          to
          support product development. Product development and research expenses
          for the
          three months ended March 31, 2008 decreased by approximately $158,000 to
          approximately $326,000 from approximately $484,000 for the three months
          ended
          March 31, 2007. This decrease is primarily due to our decision to focus
          our
          development efforts in a select smaller number of products. The decrease
          in the
          number of products we are developing and testing in the three months ended
          March
          31, 2008 resulted in a decrease in consulting expenses and wages of
          approximately $218,000, and a decrease in stock based compensation expense
          of
          $134,000. These cost savings were partially offset by the consumption of
          an
          additional $231,000 of product supplies in support of research and development.
  *Depreciation
          and Amortization Expense*
  Depreciation
          and amortization expense, which includes the amortization of identifiable
          intangible assets, increased by approximately $2,000 from approximately
          $277,000
          in the three months ended March 31, 2007, to approximately $279,000 for
          the
          three months ended March 31, 2008, primarily due to purchase of machinery
          and
          office equipment during the quarter ended March 31,2008.
  *Interest
          Expense*
  Interest
          expense increased by approximately $124,000 from $105,000 for the three
          months
          ended March 31, 2007, to approximately $229,000 for the three months ended
          March
          31, 2008. The increase was primarily due to accrued interest expense related
          to
          the 6% Notes issued in 2007.
  *Interest
          Income*
  Interest
          income increased by approximately $11,000 from $17,000 for the three months
          ended March 31, 2007, to approximately $28,000 for the three months ended
          March
          31, 2008 primarily due to a higher average cash balance during the three
          months
          ended March 31, 2008, as compared to the same period ending March 31,
          2007.
  27
  *Amortization
          of fair value assigned to beneficial conversion feature and amortization
          of fair
          value of warrants*
  In
          connection with our financing arrangements we issue equity instruments
          or
          include conversion terms at discount to the current market. We are required
          to
          allocate a portion of the proceeds to these features, which result in a
          debt
          discount. Such amounts are amortized over the stated life of the loan.
          We
          amortized approximately $1,194,000 related to debt discounts for all notes
          during the three months ended March 31, 2008.
  *Amortization
          of deferred financing costs*
  In
          connection with our financing arrangements we engaged a placement agent
          to
          facilitate the process. In connection with that engagement we paid a cash
          fee,
          issued equity instruments or made some combination of those payments. Such
          amounts are amortized over the stated life of the financing if it is a
          debt
          transaction or recorded as a cost of the offering if it is an equity
          transaction. We amortized approximately $288,000 related to debt financing
          during the three months ended March 31, 2008.
  *Change
          of value of derivative liability*
  Derivative
          liabilities result from the requirement to treat certain embedded features
          of
          our debt and equity instruments as liabilities. Such items are required
          to be
          recorded at, and subsequently adjusted at each reporting date to, fair
          value.
          Changes in fair value are recognized in our statement of operations. For
          the
          three months ended March 31, 2008, we recorded a non cash gain of $21.5
          million
          due to the change in the fair value of the derivative liability related
          to the
          conversion features and warrants issued in connection with the 6% Notes
          and
          Tender Offer Notes and the changes in the fair value of the derivative
          liability
          related to the placement agent warrants.
  **Liquidity
          and Capital Resources**
  *Overview*
  Since
          our
          inception, we have funded operations and investing activities through the
          sale
          of common stock, warrants and convertible debt under several private placements.
          Requirements for liquidated damages under some of these private placements
          may
          have an impact on our future liquidity. To date we have satisfied and/or
          received waivers for the provisions of a majority of the agreements, that
          would
          have otherwise required us to pay liquidated damages. However, we have
          not
          received waivers and from time to time we have not satisfied some of the
          provisions of the registration rights agreements for the April 2004 and
          July
          2004 convertible debt. Nevertheless, our obligation to accrue liquidated
          damages
          under these registration rights agreements ceased on April 30 and July
          22, 2006,
          respectively. Through March 31, 2008, we have accrued $442,000 in liquidated
          damages related to these agreements. Also, as of March 31, 2008, we have
          accrued
          the full amount of liquidated damages of $23,000 required under the January
          26,
          2006 registration rights agreement. Finally, the registration statement
          for the
          shares underlying the December 6% Notes, the December Warrants and the
          four-year
          warrants issued to purchasers of the First Bridge Notes and Second Bridge
          Notes
          was not declared effective by the SEC on or before April 18, 2008. Liquidated
          damages therefore began to accrue on April 19, 2008. The estimated maximum
          amount of liquidated damages (which are payable in cash) for which the
          Company
          would be liable, assuming ineffectiveness from April 18, 2008 to June 20,
          2008,
          is approximately $60,000.
  *Liquidity
          - Going Concern*
  Based
          upon our forecast of future revenues from our products in conjunction with
          the
          cash on hand, cash expected to be generated from operations will not provide
          adequate funding for our working capital over the next twelve months. Our
          ability to continue to operate and grow our business is dependent upon
          obtaining
          additional financing from the Qualified Raise or a similar sale of senior
          preferred debentures and the exercise of outstanding warrants, and generating
          revenue growth from operations. While we have been in the process of
          aggressively developing, marketing and selling our products, there can
          be no
          assurances that those efforts will be met with success in the marketplace
          or
          that the timing of our efforts will be consistent with our cash availability
          and
          burn rate. If we are unable to obtain financing and/or generate sufficient
          revenue growth from existing and new business arrangements, we will not
          have
          sufficient cash to support our operations and meet our obligations. We
          anticipate that we will need approximately an additional $3-5 million to
          support
          our operations and meet our obligations over the next twelve
          months.
  28
  *Operating
          Activities*
  At
          March
          31, 2008 our cash and cash equivalents balances were approximately $616,000
          compared with $2,671,000 at December 31, 2007.
  Net
          cash
          used in operating activities for the three months ended March 31, 2008
          was
          approximately $2.2 million, primarily due to a net loss from operations
          of $2.6
          million. Net cash used in operating activities for the three months ended
          March
          31, 2007 was approximately $2.8 million.
  *Investing
          Activities*
  Net
          cash
          used in investing activities for the three months ended March 31, 2008
          was
          approximately $3,000 as compared to approximately 27,000 for the three
          months
          ended March 31, 2007. The decrease in net cash used in investing activities
          was
          due to a reduction in purchases of equipment and the return of deposits
          previously made.
  *Financing
          Activities*
  Net
          cash
          provided by financing activities during the three months ended March 31,
          2008
          was approximately $135,000 as compared to approximately $2.3 million for
          the
          three months ended March 31, 2007. Of this amount, $90,000 was the result
          of the
          exchange of warrants to purchase common stock at an exercise price of $0.09
          per
          share for a December 6% Note and December Warrants, and $45,000 was the
          result
          of the issuance of a 6% Note. The proceeds from these two Notes were net
          of
          original issue discounts of $15,000.
  Between
          December 1, 2006 and May 1, 2007, we issued 10% Convertible Promissory
          Notes
          (the “First Bridge Notes”) to accredited investors in the aggregate principal
          amount of $6,295,091. The First Bridge Notes were convertible into an aggregate
          of 86,828,841 shares of common stock at a conversion price of $0.0725 per
          share.
          The First Bridge Notes had a term of six months from the date of issuance
          with
          various maturity dates starting June 1, 2007. As an inducement for the
          investors
          to purchase the First Bridge Notes, we issued to these investors four-year
          warrants, which entitle them to purchase an aggregate of 34,972,733 shares
          of
          common stock, which number of shares is based on 50% of the principal amount
          of
          the notes purchased by the investor and divided by the per share exercise
          price
          of $0.09. As discussed below, First Bridge Notes in the aggregate principal
          amount of $6,255,091, as well as the interest thereon, were exchanged for
          6%
          Notes. As of March 31, 2008, a First Bridge Note in the aggregate principal
          amount of $40,000 remained outstanding. This Note has matured according
          to its
          terms, but no demand for payment has been made by the holder. We will either
          pay
          such note and related interest when demand is made or, if elected by the
          holder,
          convert the note and accrued interest into common stock.
  On
          June
          4, 2007, we issued 10% Convertible Promissory Notes (the “Second Bridge Notes”)
          to one accredited investor in the aggregate principal amount of $2,000,000.
          As
          an inducement for the investor to purchase the Second Bridge Notes, we
          issued to
          this investor four-year warrants, which entitle it to purchase an aggregate
          of
          1,000,000 shares of common stock, which number of shares is based on 10%
          of the
          principal amount of the notes purchased by the investor and divided by
          the per
          share exercise price of $0.20. As discussed below, the Second Bridge Note
          in the
          aggregate principal amount of $2,000,000, as well as the interest thereon,
          was
          exchanged for 6% Notes. As of March 31, 2008, no Second Bridge Notes remained
          outstanding.
  On
          September 28, 2007, November 29, 2007, December 14, 2007, and January 9,
          2008,
          we issued 6% Notes to accredited investors in the aggregate principal amount
          of
          $12,704,597. The aggregate consideration of $12,699,597 was in the form
          of cash
          ($3,995,000), conversion of First Bridge Notes (aggregate principal amount
          of
          $6,255,091 and the accrued interest thereon of $411,617) and conversion
          of
          Second Bridge Notes (aggregate principal amount of $2,000,000 and the accrued
          interest thereon of $63,889).
 
 The
          net
          cash proceeds from the sale of the 6% Notes issued in 2007 ($3,950,000)
          were
          intended to be used for working capital and general corporate
          purposes.
  29
  The
          6%
          Notes have the following basic terms:
  ·
                Interest
                    on the 6% Notes is payable on a quarterly basis in cash or through
                    the
                    issuance of additional 6% Notes.
  ·
                The
                    term of the 6% Notes is three years from the date of issuance,
                    maturing on
                    September 27, 2010.
  ·
                The
                    6% Notes constitute our senior indebtedness; provided that (i)
                    the lenders
                    under a contemplated $3 million line of credit facility and (ii)
                    holders
                    of a contemplated $3.15 million senior term note issuance will
                    have a
                    priority security interest in the collateral (described
                    below).
  ·
                The
                    6% Notes are secured by a first priority security interest in
                    all of our
                    assets (including after-acquired assets, all receivables, intellectual
                    property and the stock of our subsidiaries), subject only to
                    the prior
                    rights of (i) the lenders under a contemplated $3 million line
                    of credit
                    facility and (ii) the holders of a contemplated $3.15 million
                    senior term
                    note issuance.
  ·
                The
                    6% Notes are automatically convertible into our common stock
                    at the then
                    applicable conversion price, in the event that our common stock
                    trades at
                    a price per share greater than 200% of the then current conversion
                    price
                    of the 6% Notes for 30 consecutive trading days and such shares
                    are traded
                    at an average daily dollar volume greater than $300,000 (average
                    share
                    price times the average volume) during the same 30 day trading
                    period.
  ·
                The
                    6% Notes purchased for cash are convertible, in whole or in part,
                    at the
                    holders’ option, at any time or from time to time, into shares of common
                    stock at a conversion price of $0.11 per
                    share.
  ·
                The
                    6% Notes purchased upon conversion of First Bridge Notes are
                    convertible,
                    in whole or in part, at the holders’ option, at any time or from time to
                    time, into shares of common stock at a conversion price of $0.0725
                    per
                    share.
  ·
                The
                    6% Notes purchased upon conversion of Second Bridge Notes are
                    convertible,
                    in whole or in part, at the holders’ option, at any time or from time to
                    time, into shares of common stock at a conversion price of $0.099
                    per
                    share.
  ·
                The
                    6% Notes contain certain other protective provisions for the
                    benefit of
                    holders, including:
  o
                restrictions
                    on the incurrence of liens, the incurrence of debt senior to
                    or pari passu
                    with the 6% Notes and the future issuance of equity and convertible
                    debt
                    securities;
  o
                a
                    mandatory redemption payment of 110% of the principal amount
                    of the 6%
                    Notes (x) in the event we are prohibited from issuing shares
                    of common
                    stock, (y) upon the occurrence of an Event of Default (as defined
                    in the
                    6% Note and the subscription agreement to the 6% Notes) that
                    continues for
                    more than 20 business days or (z) upon the liquidation of the
                    Company and
                    150% of the principal amount of the 6% Notes in the event of
                    a Change in
                    Control (as defined in the subscription agreement to the 6% Notes);
                    and
  o
                penalties
                    for delays in the delivery of shares upon conversion of the 6%
                    Notes or
                    exercise of the Warrants (as defined below) or in the removal
                    of any
                    restrictive legend on shares of common stock in the event of
                    a Rule 144
                    sale and for losses incurred as a result of any Investor buy-in
                    of shares
                    of common stock resulting from such delays.
 
 ·
                Investors
                    have the right to participate in our future financings, if any,
                    on or
                    before June 1, 2009 involving the issuance of common stock or
                    other
                    securities convertible into, or exercisable for, common stock
                    (other than
                    certain exempt issuances).
  30
 
 Each
          investor of the 6% Notes received warrants to purchase a number of shares
          of
          common stock as follows: (i) each investor that paid for 6% Notes by delivery
          of
          First Bridge Notes received warrants to purchase a number of shares of
          common
          stock equal to 30% of such investor’s purchase price for the 6% Notes divided by
          $0.15, (ii) the investor that paid for 6% Notes by delivery of Second Bridge
          Notes received warrants to purchase a number of shares of common stock
          equal to
          70% of such investor’s purchase price for the 6% Notes divided by $0.15, and
          (iii) each investor that paid for 6% Notes with cash received warrants
          to
          purchase a number of shares of common stock equal to 50% of such investor’s
          purchase price for the 6% Notes divided by $0.15. The warrants have a cashless
          exercise provision if a registration statement with respect to the warrant
          shares is not effective within two years after the date of issuance. The
          warrants expire four years from the date of issuance (September 27, 2011)
          and
          have an initial exercise price of $0.15 per share. The conversion price
          of the
          6% Notes and the exercise price of the warrants are subject to customary
          anti-dilution adjustments and also subject to proportional adjustment for
          stock
          splits, stock dividends, recapitalizations and similar events. In addition,
          anti-dilution protection is provided following conversion of the 6% Notes
          into
          shares of common stock.
  As
          of
          December 20, 2007 and January 4, 2008, we issued the December 6% Notes
          in an
          aggregate principal amount of $2,132,546 (convertible into 23,694,955 shares
          of
          our common stock at an initial conversion price of $0.09 per share) and
          December
          Warrants to purchase an aggregate of 2,710,061 shares of our common stock
          at an
          exercise price of $0.15 per share. We issued these securities in lieu of
          common
          stock primarily in connection with our solicitation of the exercise of
          warrants
          to purchase common stock at an exercise price of $0.09 per share or our
          Tender
          Offer. The gross proceeds from the warrant exercise (approximately $2.0
          million)
          were released from escrow on December 31, 2007. The terms of the December
          6%
          Notes and December Warrants are materially identical to the terms of the
          6%
          Notes and Warrants, respectively, except that the December Notes mature
          on
          December 20, 2010 and have an initial conversion price of $0.09 and the
          December
          Warrants expire on December 20, 2011.
  As
          of
          December 31, 2007, consistent with the terms of the original 6% Notes,
          we issued
          additional 6% Notes in the aggregate principal amount of $34,859 to eleven
          holders of such original 6% Notes in lieu of a cash interest payment (the
          “Interest Notes”). The terms of the Interest Notes, are materially identical to
          the terms of the original 6% Notes. The Interest Notes are convertible
          into an
          aggregate of 371,612 and 71,970 shares of our common stock at conversion
          prices
          of $0.0725 and $0.11 per share, respectively.
  As
          of
          March 31, 2008, consistent with the terms of the original 6% Notes, we
          issued
          additional 6% Notes in the aggregate principal amount of $167,000 to
          eighty-seven holders of such original 6% Notes in lieu of a cash interest
          payment (the “Interest Notes”). The terms of the Interest Notes, are materially
          identical to the terms of the original 6% Notes. The Interest Notes are
          convertible into an aggregate of 1,058,922 shares of our common stock at
          conversion prices of $0.0725, $0.099 and $0.11 per share. A debt discount
          and a
          derivative conversion liability of $94,000 were recorded in connection
          with the
          issuance of the Interest Notes.
  As
          of
          March 31, 2008, consistent with the terms of the original December 6% Notes,
          we
          issued additional December 6% Notes in the aggregate principal amount of
          $32,344
          to forty-three holders of such original December 6% Notes in lieu of a
          cash
          interest payment (the “Interest Notes”). The Interest Notes, which are
          materially identical in their terms to the original December 6% Notes are
          convertible into an aggregate of 359,370, shares of our common stock at
          a
          conversion price of $0.09 per share. A debt discount and a derivative conversion
          liability of $17,000 were recorded in connection with the issuance of these
          December 6% Notes. Although
          generally accepted accounting principles require us to record derivative
          liabilities totaling $9.99 million as of March 31,2008 with respect to
          the
          warrants issued in connection with both the 6% Notes and December 6% Notes,
          such
          amount does not represent the cash amounts we are required to pay in the
          future.
          We do not expect to pay more than $13 million with respect to the principal
          of
          the 6% Notes and December 6% Notes and $2.2 million with respect to the
          accrued
          interest due over the life of the 6% Notes and December 6% Notes. The cash
          amount to repay principal and interest of the 6% Notes and December 6%
          Notes may
          be reduced further if the holders of the 6% Notes and December 6% Notes
          elect to
          convert their Notes, prior to their maturity, into shares of common
          stock.
  31
  **Registration
          Rights Agreements**
  On
          April
          26, 2006, we filed a registration statement registering the resale of securities
          purchased in the September 2005 and January 2006 private placements. This
          registration statement was declared effective by the SEC on October 31,
          2006. As
          it
          relates to the September 2005 private placement, we have used our best
          efforts
          to cause the registration statement to be declared effective and, therefore,
          pursuant to the terms of the September 2005 registration rights agreement,
          we
          believe that we are not currently liable for liquidated damages as a result
          of
          the registration statement not being declared effective by May 23, 2006.
          Should
          the rights holders dispute that our best efforts were used, and we either
          accede
          to their assertion or are found to not have used our best efforts, the
          estimated
          maximum amount of liquidated damages for which we would be liable, assuming ineffectiveness
          from May 23, 2006 to October 31, 2006 and for illustration purposes only,
          from April 1, 2007 to the end of the period covered by the registration
          agreement is approximately $43,000.
 
 As
          it
          relates to the January 2006 private placement, despite using our best
          efforts, we failed to have the registration statement declared effective
          by the
          SEC on or before October 26, 2006. Consequently, as of December 31, 2006
          we were
          required to issue to each holder of the January 2006 private placement,
          shares and warrants equal to one percent of the respective number of shares
          and
          warrants purchased by each holder or an aggregate of 133,359 shares of
          common
          stock and warrants to purchase 133,359 shares of common stock. As
          of
          March 31, 2008, we had not issued these shares and warrants.
 
 The
          company is required to file a series of registration statements covering
          the
          resale of the shares of common stock underlying the 6% Notes, the Warrants,
          the
          December 6% Notes, the December Warrants, the Interest Notes and the four-year
          warrants issued to purchasers of the First Bridge Notes and Second Bridge
          Notes
          as well as the warrants issued to the placement agent in connection with
          the
          issuance of the First Bridge Notes, Second Bridge Notes and 6% Notes issued
          for
          cash and in connection with the Tender Offer. In the event the Company
          fails to
          file or cause these registration statements to become effective within
          specified
          time periods, it will be required to pay liquidated damages (except with
          respect
          to warrants issued to the placement agent) equal to 1% of the principal
          amount
          of the affected notes and the purchase price of shares of common stock
          issued on
          conversion of these notes and exercise of related warrants for each 30-day
          delay
          in the filing or effectiveness of such registration statement (or such
          lesser
          pro-rata amount for any period of less than 30 days).
  The
          6%
          Notes and Warrants have the following registration rights:
  ·
                *Upfront
                    Registration:*We
                    were required to file a registration statement covering the resale
                    of
                    shares of common stock underlying the 6% Notes and the related
                    warrants
                    within 60 days of September 28, 2007 (the “Filing Date”) and to cause the
                    registration statement to become effective within 120 days of
                    September
                    28, 2007 (the “Effective Date”). The registration statement was filed on
                    November 9, 2007 and declared effective on January 16, 2008..
                    An Event of
                    Default with respect to the 6% Notes will occur, and liquidated
                    damages
                    (as described below) will accrue, if we, for 30 or more consecutive
                    days,
                    have registered less than the number of shares required to be
                    registered
                    pursuant to the registration
                    rights.
  ·
                *Additional
                    Registration Statement:*Because we could not include all of the common stock underlying
                    the 6%
                    Notes and the related warrants in a registration statement without
                    it
                    being deemed a primary offering by the Securities and Exchange
                    Commission,
                    we were required to include in the registration statement the
                    maximum
                    number of securities that could be included therein, with the
                    number of
                    such securities allocated among the investors in proportion to
                    the total
                    registrable securities held by each investor on the date that
                    the
                    registration statement is filed. With respect to any securities
                    that were
                    not included in the registration statement, we will include the
                    maximum
                    amount of such securities in subsequent registration statements
                    that will
                    be filed on the earliest possible date on which such securities
                    can be
                    included without the subsequent registration statement being
                    deemed a
                    primary offering of securities by us.
 
  32
  
 ·
                *Demand
                    and Piggy-back Registrations:*The holders of more than 50% of the shares of common stock issued
                    and
                    issuable upon conversion of the 6% Notes and exercise of the
                    related
                    warrants shall be entitled to one demand registration right commencing
                    121
                    days after September 28, 2007 (the “Closing Date”) until the second
                    anniversary of the Closing Date. The investors will also be entitled
                    to
                    “piggy-back” registration rights on all registration statements filed by
                    us (other than registration statements on Form S-4 or S-8 relating
                    to
                    issuances of securities in connection with business acquisitions
                    or in
                    connection with stock option or other employee benefit plans).
                    In the
                    event we fail to file these registration statements within 60
                    days or
                    cause the registration statements to become effective within
                    150 days
                    after a written request by the holders, we will be required to
                    pay
                    liquidated damages equal to 1% of the purchase price of the 6%
                    Notes and
                    the related warrants for each 30-day delay in the effectiveness
                    of such
                    registration statements.
  ·
                We
                    will bear all registration expenses (other than brokers' commissions
                    and
                    similar expenses and legal and other costs of the holders of
                    securities).
 
 The
          December 6% Notes and December Warrants have the same registration rights
          as the
          6% Notes and Warrants, except that the trigger dates for the registration
          rights
          are based on a December 20, 2007 issue date. The Interest Notes have the
          same
          registration rights as the 6% Notes, except that the trigger dates for
          the
          registration rights are based on December 31, 2007 and March 31, 2008 issue
          dates, respectively.
  The
          Company failed to cause the registration statement for the shares underlying
          the
          December 6% Notes, the December Warrants and the four-year warrants issued
          to
          purchasers of the First Bridge Notes and the Second Bridge Notes to be
          declared
          effective by the SEC on or before April 18, 2008. Liquidated damages therefore
          began to accrue on April 19, 2008. The estimated maximum amount of liquidated
          damages (which are payable in cash) for which the Company would be liable, assuming
          ineffectiveness from April 18, 2008 to June 20, 2008 is approximately $60,000.
  **Off-Balance
          Sheet Arrangements**
  During
          the three months and twelve months ended March 31, 2008 and December 31,
          2007,
          respectively, we did not engage in material off-balance sheet activities,
          including the use of structured finance, special purpose entities; material
          trading activities in non-exchange traded commodity contracts; or transactions
          with persons or entities that benefit from their non-independent relationship
          with us.
  **Item
          3. Quantitative and Qualitative Disclosures about Market Risk**
  Our
          exposure to market risk, including changes in interest rates, relates primarily
          to cash and cash equivalents. These investments bear interest at a variable
          interest rate, which is subject to market changes. We have not entered
          into any
          interest rate swap agreements, or other instruments to minimize our exposure
          to
          interest rate fluctuations. We have not had any derivativeinstruments in the past and do not presently plan to in the future. Our
          investment portfolio consists of demand deposits and money market mutual
          funds.
          Due to the highly liquid nature of our investment, a sudden sharp change
          in
          interest rates would not have a material adverse effect on the value of
          the
          portfolio.
  33
  **Item
          4T. Controls and Procedures**
  **Evaluation
          of Disclosure Controls and Procedures**
  We
          maintain a system of disclosure controls and procedures, as defined in
          Exchange
          Act Rule 13a-15(e),which is designed to provide reasonable assurance that
          information, which is required to be disclosed in our reports filed pursuant
          to
          the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is
          accumulated and communicated to management in a timely manner. Under the
          supervision and with the participation of management, including our Chairman,
          Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
          of our effectiveness of disclosure controls and procedures as of the end
          of the
          period covered by this quarterly report. Based on that evaluation, the
          Chief
          Executive Officer and Chief Financial Officer concluded that our disclosure
          controls as
          of the
          end of the period covered by the report were not effective due to the
          deficiencies described in our Management’s Report on Internal Control over
          Financial Reporting below.
  We
          instituted and are continuing to implement corrective actions with respect
          to
          the deficiencies in our disclosure controls and procedures.
  **Changes
          in Internal Control over Financial Reporting**
  There
          has
          not been any change in our internal control over financial reporting in
          connection with the evaluation required by Rule 13a-15(d) under the Exchange
          Act
          that occurred during the quarter ended March 31, 2008, that has materially
          affected, or is reasonably likely to materially affect, our internal control
          over financial reporting.
  **PART
          II — OTHER INFORMATION**
  **Item
          1A. Risk Factors**
  **RISKS
          RELATED TO OUR BUSINESS**
  ***Unless
          we obtain new financing and/or generate revenue growth in the near future,
          our
          liquidity position will become significantly impaired.***
 
 The
          Company has incurred losses in its operations in each quarter since it
          changed
          its business direction in late 2002. For the three months ended March 31,
          2008,
          the Company has incurred a net loss from operations of approximately $2.6
          million. The Company has not generated positive cash flow from operating
          activities for the three months ended March 31, 2008 and 2007. The
          Company expects to continue to incur operating losses for at least the
          next six
          months. We anticipate operating expenses will increase as we attempt to
          build
          our brands, expand our customer base and develop new products. To become
          profitable, we must increase revenue substantially and achieve and maintain
          positive gross margins. We may not be able to increase revenue and gross
          margins
          sufficiently to achieve profitability. If we are not able to achieve
          profitability, our results of operations and financial condition will be
          materially and adversely affected.
  At
          March
          31, 2008, the Company had a total of approximately $616,000 of cash and
          cash
          equivalents.
  34
  On
          May 2,
          2008, the Company announced that it had received $250,000 of cash in the
          form of
          a Bridge Loan, of which its president, CEO and director, Lanny Dacus, and
          executive chairman and director, Greg Osborn, invested $50,000 each. The
          Company
          also announced that it has entered into an agreement with a Private Placement
          Agent to raise up to $5,000,000 (the "Qualified Raise") the terms of which
          are
          still under negotiation. There can be no assurances that the Company will
          be
          able to raise any funds pursuant to this private placement agreement. The
          Bridge
          Loan will convert into the Qualified Raise, under the same terms and conditions
          upon its completion.
  Based
          upon the Company’s forecast of future revenues from its products in conjunction
          with the cash on hand, cash expected to be generated from operations will
          not
          provide adequate funding for the Company’s working capital over the next twelve
          months. The Company’s cash resources and its ability to continue to operate and
          grow its business are dependent upon obtaining additional financing from
          the
          exercise of outstanding warrants, and the proposed Qualified Raise or a
          similar
          credit facility and/or generating revenue growth from operations. While
          the
          Company has been in the process of aggressively developing, marketing and
          selling its products, there can be no assurance that those efforts will
          be met
          with success in the marketplace or that the timing of the Company’s efforts will
          be consistent with its cash availability and burn rate. If the Company
          is unable
          to obtain financing and/or generate sufficient revenue growth from existing
          and
          new business arrangements, the Company will not have sufficient cash to
          support
          its operations and meet its obligations. The Company anticipates that it
          will
          need approximately an additional $3-5 million to support its operations
          and meet
          its obligations over the next twelve months.
  In
          view
          of the matters described above, recoverability of a major portion of the
          recorded asset amounts shown in the accompanying balance sheet is dependent
          upon
          continued operations of the Company, which in turn is dependent upon the
          Company’s ability to raise additional capital, obtain financing and to succeed
          in its future operations. 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 as a going concern.
  ***We
          have lost money in each fiscal quarter since we changed our business model
          to
          the development of products in the oral care, food processing, skin care,
          water
          purification and pet industries*** **.** ***We
          expect future losses and we may never become
          profitable.***
  We
          have
          incurred losses from operations in each quarter since we changed our business
          direction in late 2002. We had a net loss from operations of $2,556,000
          for the
          three months ended March 31, 2008, and net income overall of $17,166,000.
          Our
          net losses for the years ended December 31, 2007, 2006 and 2005 were
          approximately, $41,394,000, $62,943,000, and $18,269,000, respectively.
          We
          expect to continue to incur losses for the foreseeable future. We anticipate
          operating expenses will increase as we attempt to build our brands, expand
          our
          customer base and develop new products. To become profitable, we must increase
          revenue substantially and achieve and maintain positive gross margins.
          We may
          not be able to increase revenue and gross margins sufficiently to achieve
          profitability. If we are not able to achieve profitability, our results
          of
          operations and financial condition will be materially and adversely
          affected.
 
 Our
          consolidated financial statements have been prepared assuming that we will
          continue as a going concern. As discussed in the consolidated financial
          statements, we have incurred negative cash flow from operations and net
          losses
          since inception and have a working capital deficiency. These conditions,
          among
          others, raise substantial doubt about our ability to continue as a going
          concern.
  ***To
          the extent that future impairment charges occur, they will likely have
          a
          material impact on our financial results.***
  In
          the
          second quarter of 2006, we tested for impairment of our intangible assets
          and
          our goodwill in accordance with Statement of Financial Accounting Standards
          (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”
(SFAS No. 144) and SFAS No. 142 “Goodwill and Other Intangible Assets” (SFAS No.
          142), respectively. Our testing was triggered by the following events and
          circumstances that constitute impairment indicators under the literature:
  •
                    a
                        preliminary expectation that revenues originally projected
                        for the third
                        and fourth quarters of 2006 would not be attained;
  35
  •
                a
                    decrease in expected future cash flows; and
  •
                a
                    decline in the market price of our common stock
  Upon
          completion of the impairment tests during the second quarter of 2006, we
          recorded non-cash impairment charges to intangible assets and goodwill
          of $12.2
          million and $17.9 million, respectively.
  Also
          in
          the fourth quarter of 2006, we tested for impairment of our intangible
          assets
          and our goodwill as part of our annual goodwill impairment review. Upon
          completion of the impairment tests, we recorded non-cash impairment charges
          to
          goodwill of $13.9 million. There was no impairment of our intangible assets.
  Note
          6 to
          our audited consolidated financial statements for the year ended December
          31,
          2007 and December 31, 2006 describes the impairment tests performed and
          their
          impact during the fourth quarter of 2006 and the second quarter of 2006.
          There
          can be no assurance that there will not be impairment charges in subsequent
          periods as a result of our future periodic impairment reviews. To the extent
          that future impairment charges occur, they will likely have a material
          impact on
          our financial results.
  ***We
          have a limited operating history in our present market and prospective
          investors
          have a limited historical basis on which to judge our ability to be successful.***
  We
          were
          originally organized for the purpose of engaging in the acquisition and
          exploration of mineral properties, primarily in the Province of British
          Columbia, Canada. During 2001, we allowed the option on our mineral property
          to
          lapse and began to investigate other business opportunities. In late 2002,
          we
          entered into an exclusive license to sell, develop, market and distribute
          consumer deodorant breath products, animal deodorant breath products and
          soft
          drink products using the pHarlo technology. Since late 2002, we have pursued
          this business plan and have expanded it to include the use of the pHarlo
          technology in the pre- and post-harvest food processing, skin care, pet
          care,
          hangover remedy, alcohol abatement and water purification industries.
  Since
          inception, we have suffered recurring losses and net cash outflows from
          operations. We expect to continue to incur substantial losses to complete
          the
          development of our business. We have a limited operating history upon which
          investors may evaluate our likely future performance.
  ***We
          completed in July 2005 a significant acquisition of certain assets of pHarlo
          Citrus Technologies, Inc. and other related entities. We cannot guarantee
          that
          we will be able to manage these new assets profitably*** .
  On
          July
          15, 2005, we purchased certain assets of pHarlo Citrus Technologies, Inc.,
          Indian River Labs, LLC, pHarlo Citrus Properties Partnership, LLLP and
          Coast to
          Coast Laboratories, LLC, which four entities are referred to in this annual
          report as the “Selling Entities.” This acquisition (the “2005 Acquisition”),
          represented a highly significant event for our company. Prior to the
          acquisition, we licensed the use of certain patent applications covering
          various
          uses for the pHarlo technology and improvements from the Selling Entities
          and
          also purchased the pHarlo concentrate, a concentrate made using the pHarlo
          technology from Indian River Labs. As a result of the 2005 Acquisition
          and the
          purchase of all of the working assets of Indian River Labs, we now control
          various uses of pHarlo technology in the manufacturing process for the
          pHarlo
          concentrate. Our business, financial condition and results of operations
          could
          suffer materially if we fail to successfully manage these assets and the
          manufacturing process.
  ***Past
          restatements and amendments to our interim financial statements and quarterly
          reports, as well as deficiencies in our disclosure controls and procedures
          and
          internal control over financial reporting, may present a risk of future
          restatements and disclosure compliance errors which could lead to legal
          exposure*** .
  We
          restated and amended our interim financial statements for the periods ended
          June
          30, 2004, September 30, 2004 and September 30, 2005 and filed amendments
          to our
          quarterly reports on Form 10-QSB for each of those periods reflecting these
          restatements. While in the process of amending our quarterly reports on
          Form
          10-QSB to restate these financial statements, we became aware of certain
          required information that had been omitted and other information that needed
          to
          be changed or corrected. As a result of the foregoing, we revised these
          quarterly reports to correct this information and to state, among other
          things,
          that our disclosure controls and procedures were not effective as of June
          30,
          2004, September 30, 2004 and September 30, 2005.
  36
  As
          of
          December 31, 2006, and December 31, 2007, our management concluded that
          our
          disclosure controls and procedures were not effective. We continue taking
          what
          we believe to be reasonable and appropriate steps to correct these deficiencies.
          We will also continue to assess the adequacy and appropriateness of these
          actions and adjust our remediation plan as needed or to reflect changes
          in our
          business. However, we cannot be certain when these deficiencies will ultimately
          be remediated and we expect that we will need a period of time over which
          to
          demonstrate that our disclosure controls are functioning appropriately
          to
          conclude that we have adequately remediated the deficiencies. Any failure
          to
          implement and maintain improvements in our disclosure and internal controls
          may
          present a risk of future restatements and disclosure compliance errors
          and could
          in turn lead to legal exposure. Any failure to improve these controls to
          address
          the identified deficiencies, or any other unidentified deficiencies, could
          also
          cause investors to lose confidence in our reported financial information,
          which
          could have a negative impact on the trading price of our common stock.
          This
          could have a material adverse effect on our business and financial results.
  ***We
          have limited experience in the marketing of our products and may not be
          able to
          market them successfully*** .
  We
          currently market Unifresh® Footbath and related products that clean and
          disinfect the hooves of dairy cows, , Tasker Blue, an antimicrobial aid
          used in
          the scalder process of poultry processing and the post-feather picker process,
          Tasker Clear, an acidifier that controls pH levels to enhance the effectiveness
          of liquid bacteriostatic applications, and Tasker Pacific BlueTM Seafood Wash, a
          product used in commercial and retail seafood processing to extend shelf
          life.
          Shelf life extension is the act of increasing the length of the time a
          product
          can spend during processing, distribution and retail before becoming
          unacceptable for consumption.
  The
          markets to which we sell our products are diverse and we may not be aware
          of all
          the customs and practices and may not be able to successfully compete in
          these
          industries. We believe that we will need to hire appropriate consultants
          and
          staff to reach all of these markets successfully. The consultants that
          we may
          retain may not have sufficient experience to enable us to completely understand
          the characteristics of these diverse industries. There can be no assurance
          that
          we will properly ascertain or assess any and all risks inherent in our
          proposed
          markets or that we will successfully enter into new markets or grow in
          our
          existing markets.
  ***Our
          ability to reach some of the markets currently set forth in our business
          plan
          will require regulatory approval. In addition, new products that we may
          develop
          or acquire may also require regulatory approval.***
  The
          ingredients that we use to produce the pHarlo concentrate are classified
          by the
          FDA as “Generally Recognized as Safe”. Therefore, we believe that our current
          line of products that utilize the pHarlo concentrate; including the intended
          uses of these products, do not require further approval by the FDA. However,
          we
          may develop or acquire future products that use ingredients that will need
          to be
          approved by the FDA, or we may alter the intended uses of our current product,
          such that those products require additional FDA approval(s). There can
          be no
          assurance that FDA approval, if necessary, will be obtained.
  Subsequent
          to December 31, 2006, we began the in-plant testing of an application of
          Tasker
          Blue for use in the On-Line Reprocessing, the final spray wash, section
          and
          received in March 2008 authorization to proceed with in-plant tests for
          an
          application in the Post Chill Spray, or cold water spray, section in an
          effort
          to receive consent from the USDA to market these applications to poultry
          processors for commercial use. Tests of our On-Line Reprocessing application
          were suspended when we were informed of the USDA’s intention to reconsider this
          requirement of this section as an intervention point in controlling bacteria.
          We
          may resume testing of our OLR application when the USDA finalizes the
          requirements for this section. We began tests for the Chiller and Post
          Chiller
          Spray application in the first quarter of 2008. If the Chiller and Post
          Chiller
          Spray tests are successful and we receive a Letter of No Objections from
          the
          FSIS, we will have commercial applications in six of the seven intervention
          stages of poultry processing. We have begun the commercialization phase
          of this
          application of the pHarlo technology. There can be no assurance that we
          will
          successfully complete the commercial verification process. If we do not
          successfully complete the commercial verification process, this may have
          a
          material adverse effect on our business plan. In addition to the poultry
          processing industry, we are currently marketing the pHarlo technology for
          use in
          seafood processing. There can be no assurance that the products will obtain
          all
          necessary approvals, or, if granted, that the approvals will not include
          significant limitations on the indicated uses for which the products may
          be
          marketed or other restrictions or requirements that may reduce the value
          of the
          products
  ***A
          key component of our business strategy is the proprietary nature of the
          pHarlo
          concentrate, and, therefore, our inability to protect our intellectual
          property
          rights could materially harm our business.***
  37
  The
          pHarlo concentrate that we produce is based upon both the patent applications
          that we purchased in the 2005 Acquisition, as well as on certain base patents
          and base patent applications, or patents and applications that we license.
          We
          have entered into an exclusive worldwide royalty free sub-license with
          pHarlo
          IP, the exclusive licensee of the base patents and base patent applications,
          to
          exploit these base patents and applications in certain fields of use. Protecting
          this intellectual property, in addition to protecting the patent applications
          that we purchased in the 2005 Acquisition, is a key component to the success of
          our business. If an infringement occurs within the field of use specified
          in our
          sub-license agreement, there can be no assurance that we would be successful
          in
          any action to protect our rights under the patent applications that we
          have
          purchased. In addition, there can be no assurance that the base patent
          applications or the patent applications that we have purchased will ultimately
          be protected by an issued patent.
  ***Intense
          competition could harm our financial performance and the value of your
          investment*** .
  Some
          of
          the industries in which we are or will be marketing our products are
          characterized by intense competition.
  Our
          Unifresh Footbath and related products control a hoof infection known as
          digital
          dermatitis that causes lameness, swelling and fever in dairy cows, resulting
          in
          a drastic decrease in milk production. Forms of treatment include antibiotic
          bandaging and topical sprays using Terramycin® (oxytetracycline — an antibiotic)
          and footbaths using Formalin (a saturated solution of formaldehyde), copper
          sulfate, Tetracycline (a broad-spectrum antibiotic) or Peracetic Acid (a
          disinfectant and sanitizer). Unifresh Footbath’s underlying technology, pHarlo
          technology, uses a highly acidified form of copper sulfate that helps control
          the bacteria that cause digital dermatitis. Some competing products using
          copper
          sulfate include QuickHit, Healthy Foot and HoofPro+ by SSI Corporation;
          Double-ActionTM Hoof Treatment by West Agro, Inc.; and Hoofcare Supercharger
          manufactured by Marabo.
  Currently,
          there is little competition for bacterial inhibitors in the scalding process
          of
          poultry processors. We intend to expand the use of the pHarlo technology
          into
          the remaining operations of poultry processing. However, we believe we
          will
          encounter competition in the chill process from manufacturers of sodium
          hydrochloride or sodium hypochlorite, chemical compound solutions frequently
          used as disinfectants and bleaching agents. The chill process is cold water
          or
          air that is used in poultry processing to reduce the temperature of the
          carcass
          to 40 degrees Fahrenheit in order to maintain food safety.
  Currently,
          our seafood application product, Pacific BlueTM, is the only treatment in the
          market that reduces odors on seafood by reducing the bacteria that causes
          spoilage. When and if the market for Pacific BlueTM develops, additional products
          created by competitors may enter the market and compete.
  There
          may
          be a number of companies, universities and research organizations actively
          engaged in research and development of technology that could be similar
          to our
          processes and ultimately become our competitors. We cannot assure you that
          we
          will be able to successfully compete with current or future competitors
          who may
          have substantially greater assets, technical staff, established market
          share and
          greater financial and operating resources than we have. If we are unable
          to
          successfully compete with these industry competitors, it may have a material
          adverse effect on our business plan.
  ***Some
          provisions of our amended and restated articles of incorporation, bylaws,
          and
          Delaware law may inhibit potential acquisition bids that may be considered
          favorable to our stockholders.***
  Our
          corporate documents contain provisions that may enable our board of directors
          to
          resist a change in control of our company even if a change in control were
          to be
          considered favorable by our stockholders. These provisions include:
  •
                limitations
                    on persons authorized to call a special meeting of stockholders;
  •
                the
                    ability of a majority of the directors then in office to fill
                    vacancies in
                    directorships; and
  •
                no
                    cumulative voting.
  These
          and
          other provisions contained in our amended and restated articles of incorporation
          and bylaws could delay or discourage transactions involving an actual or
          potential change in control of us or our management, including transactions
          in
          which our stockholders might otherwise receive a premium for their shares
          over
          then current prices, and may limit the ability of stockholders to remove
          our
          current management or approve transactions that our stockholders may deem
          to be
          in their best interests and, therefore, could adversely affect the price
          of our
          common stock.
  38
  In
          addition, we are subject to control share acquisitions provisions and affiliated
          transaction provisions of the Delaware General Corporation Law, the applications
          of which may have the effect of delaying or preventing a merger, takeover
          or
          other change of control of us and therefore could discourage attempts to
          acquire
          our company.
  **RISKS
          RELATED TO OUR COMMON STOCK**
  ***If
          we are unable to comply with the terms of registration rights agreements
          to
          which we are a party, we may be obligated to pay liquidated damages to
          some of
          our security holders.***
  In
          connection with our April 2004, July 2004, December 2004, September 2005
          and
          January 2006 private placements, we entered into registration rights agreements
          with certain of our security holders in which we agreed to prepare and
          file with
          the SEC registration statements to register certain shares of common stock,
          which registration statements must be maintained effective for certain
          specified
          periods. If we are unable to comply with these provisions of these registration
          rights agreements, we may be obligated to pay liquidated damages to the
          holders
          of the securities covered by such registration rights agreements. If we
          are
          required to pay such liquidated damages or other amounts to these holders,
          our
          business, financial condition, operating results and cash flows would be
          materially adversely affected.
  Registration
          statements with respect to the April 2004, July 2004 and December 2004
          private
          placements were filed and declared effective in a timely manner. However,
          on
          June 14, 2006, we notified the holders of securities acquired in these
          private
          placements that the prospectuses contained within these registration statements
          contained financial and other information that was not current and that,
          as a
          result, such prospectuses could not be used to offer and sell such securities.
          Our obligation to accrue liquidated damages under these registration rights
          agreements ceased in April 30 and July 22, 2006, respectively. For the
          period
          through July 22, 2006, we have accrued $442,000 in liquidated damages related
          to
          these agreements.
  We
          were
          unable to have the registration statement registering resale of securities
          purchased in the September 2005 private placement declared effective by
          the
          deadline specified in the applicable registration rights agreement. However,
          in
          connection with the January 2006 private placement, we obtained waivers
          of all
          claims for liquidated damages relating to our inability to have such
          registration statement declared effective by the specified deadline. Under
          the
          waiver, the date by which the registration statement covering resale of
          the
          securities purchased in the September 2005 private placement was required
          to be
          declared effective was extended to May 23, 2006. On April 26, 2006, we
          filed a
          registration statement registering resale of securities purchased in the
          September 2005 and January 2006 private placements. We believe, that as
          it
          relates to the September 2005 private placement, we have used our best
          efforts
          to cause the registration statement to be declared effective and, therefore,
          pursuant to the terms of the September 2005 registration rights agreement,
          we
          believe that we are not currently liable for liquidated damages as a result
          of
          the registration statement not being declared effective by May 23, 2006.
          Should
          the rights holders dispute that our best efforts were used, and we either
          accede
          to the assertion or are found to not have used our best efforts, the estimated
          maximum amount of liquidated damages for which we would be liable, assuming ineffectiveness
          from May 23, 2006 to October 31, 2006, is approximately $43,000. Also,
          as
          it relates to the January 2006 private placement, we, despite using our
          best
          efforts, failed to have the registration statement declared effective by
          the SEC
          on or before October 26, 2006. Consequently, as of December 31, 2006 we
          were
          required to issue to each holder of the January 2006 private placement,
          shares
          and warrants equal to one percent of the respective number of shares and
          warrants purchased by each holder or an aggregate of 133,359 shares of
          common
          stock and warrants to purchase 133,359 shares of common stock. As of March
          31,
          2008, we had not issued these shares and warrants.
 
 We
          are
          required to file a series of registration statements covering the resale
          of the
          shares of common stock underlying the 6% Notes, the Warrants, the December
          6%
          Notes and the December Warrants as well as the warrants issued to the placement
          agent in connection with the issuance of the First Bridge Notes, Second
          Bridge
          Notes and 6% Notes issued for cash and in connection with the Tender Offer
          (all
          as defined below). In the event we fail to file or cause these registration
          statements to become effective within specified time periods, we will be
          required to pay liquidated damages (except with respect to warrants issued
          to
          the placement agent) equal to 1% of the principal amount of the affected
          notes
          and the purchase price of shares of common stock issued on conversion of
          these
          notes and exercise of related warrants for each 30-day delay in the filing
          or
          effectiveness of such registration statement (or such lesser pro-rata amount
          for
          any period of less than 30 days).
  39
  If
          we are
          required to pay such liquidated damages or other amounts to these holders,
          our
          business, financial condition, operating results and cash flows would be
          materially adversely affected.
  ***Future
          sales of our common stock may cause our stock price to decline.***
  Since
          our
          inception, we have funded operations through common stock issuances in
          order to
          meet our strategic objectives. We have completed six private sales of common
          stock and securities convertible into common stock. We may, in the future,
          issue
          more shares of common stock in sales that may or may not be registered
          under the
          Securities Act of 1933, or the Securities Act. Our stock price may decline
          due
          to future sales of our shares or even the perception that such sales may
          occur.
  ***Our
          stock price has been extremely volatile in recent years and continues to
          fluctuate widely.***
  Our
          common stock is traded on the OTC Bulletin Board. There can be no assurance
          that
          an active public market will continue for the common stock, or that the
          market
          price for the common stock will not decline below its current price. The
          price
          of our common stock may be influenced by many factors, including, but not
          limited to, investor perception of us and our industry and general economic
          and
          market conditions. The trading price of our common stock has fluctuated
          widely
          in recent years, ranging from a low of $0.06 per share in the fourth quarter
          of
          fiscal year 2006 to a high of $5.15 per share in the first quarter of fiscal
          year 2005, and continues to be subject to wide fluctuations in response
          to
          announcements of our business developments or our competitors, quarterly
          variations in operating results and other events or factors. In addition,
          stock
          markets have experienced extreme price volatility in recent years. This
          volatility has had a substantial effect on the market prices of companies,
          at
          times, for reasons unrelated to their operating performance. Such broad
          market
          fluctuations may adversely affect the price of our common stock.
  ***The
          large number of shares available for future sale through options, warrants
          and
          debt conversion rights, as highlighted in Note 6 to the March 31, 2008
          financial
          statements, could adversely affect the price of our common stock.***
  There
          are
          approximately 140,776,000 common shares issued and outstanding as of March
          31,
          2008, an additional 147,417,000 potential shares issuable upon the conversion
          of
          notes, an additional 83,978,000 potential shares issuable upon the exchange
          of
          warrants, and an additional 69,702,000 potential shares issuable upon exercise
          of options, for a total of 441,873,000 potential shares.
 In
          addition, the registration rights agreement for the January 2006 private
          placement requires us to pay liquidated damages in the form of additional
          common
          stock and warrants. As of September 30, 2007, 133,359 shares and 133,359
          warrants are issuable as liquidated damages under the terms of the January
          2006
          registration rights agreement.
  We
          are
          required to file a series of registration statements covering the resale
          of the
          shares of common stock underlying the 6% Notes, the Warrants, the December
          6%
          Notes, the December Warrants and the Interest Notes, as well as the warrants
          issued to the placement agent in connection with the issuance of the First
          Bridge Notes, Second Bridge Notes and 6% Notes issued for cash and in connection
          with the Tender Offer. In the event we fail to file or cause these registration
          statements to become effective within specified time periods, we will be
          required to pay liquidated damages (except with respect to warrants issued
          to
          the placement agent) equal to 1% of the principal amount of the affected
          notes
          and the purchase price of shares of common stock issued on conversion of
          these
          notes and exercise of related warrants for each 30-day delay in the filing
          or
          effectiveness of such registration statement (or such lesser pro-rata amount
          for
          any period of less than 30 days).
  Substantially
          all of the shares underlying these notes, options and warrants have been
          or
          would be registered for resale, and none of them are subject to any contractual
          restrictions on resale. Future sales of any of these shares, or the anticipation
          of such sales, could adversely affect the market price of our common stock
          and
          could materially impair our future ability to raise capital through an
          offering
          of equity securities. Further, any issuance of a substantial number of
          these
          shares would dilute the ownership interest of existing stockholders and
          could
          result in increased volatility in the price of our common stock.
  40
  ***The
          effect of a possible reverse split of our common stock is
          unknown.***
  At
          our
          2007 Annual Meeting of Stockholders, our stockholders approved a proposal
          granting our board of directors the discretionary authority to effect a
          reverse
          stock split at any time prior to June 30, 2009, without further stockholders’
approval. The range at which the board could effect the reverse stock split
          is
          from one-for-five to one-for-twenty, with the exact exchange ratio to be
          set by
          the board of directors in its sole discretion within this range at the
          time it
          elects to effect a reverse split. The effect of the reverse split upon
          the
          market price for our common stock cannot be accurately predicted. In particular,
          there is no assurance that prices for shares of our common stock after
          the
          reverse split will be five to twenty times, as applicable, greater than
          the
          price for shares of our common stock immediately prior to the reverse split.
          Furthermore, there can be no assurance that the marketability of the common
          stock will improve and that the market price of our common stock immediately
          after the proposed reverse split will be maintained for any period of time.
          Moreover, because some investors may view the reverse split negatively,
          there
          can be no assurance that the reverse split will not adversely impact the
          market
          price of our common stock or, alternatively, that the market price following
          the
          reverse split will either exceed or remain in excess of the current market
          price.
  ***Our
          common stock, which is quoted on the OTC Bulletin Board, has several
          disadvantages from those securities traded on The Nasdaq Stock Market.***
  Our
          common stock, which is quoted on the OTC Bulletin Board, has several
          disadvantages from those securities traded on The Nasdaq Stock Market.
          These
          disadvantages include the following:
  •
                The
                    SEC’s order handling rules, which apply to Nasdaq-listed securities,
                    do
                    not apply to securities quoted on the OTC Bulletin Board.
  •
                While
                    The Nasdaq Stock Market has rigorous listing standards to ensure
                    the high
                    quality of its issuers, and can delist issuers for not meeting
                    those
                    standards, the OTC Bulletin Board has no listing standards. Rather, it is
                    the market maker who chooses to quote a security on the system
                    by filing
                    an application with the National Association of Securities Dealers,
                    or
                    NASD. The NASD cannot deny an application by a market maker to
                    quote the
                    stock of a company. The only requirement for inclusion in the
                    OTC Bulletin
                    Board is that the issuer be current in its reporting requirements
                    with the
                    SEC.
  •
                Trading
                    activity on the OTC Bulletin Board in general is not conducted
                    as
                    efficiently and effectively as with Nasdaq-listed securities.
                    Investors
                    must contact a broker-dealer to trade OTC Bulletin Board securities.
                    Investors do not have direct access to the bulletin board service.
                    For
                    bulletin board securities, there only has to be one market maker.
  •
                Bulletin
                    board transactions are conducted almost entirely manually. Because
                    there
                    are no automated systems for negotiating trades on the bulletin
                    board,
                    they are conducted via telephone. In times of heavy market volume,
                    the
                    limitations of this process may result in a significant increase
                    in the
                    time it takes to execute investor orders. Therefore, when investors
                    place
                    an order to buy or sell a specific number of shares at the current
                    market
                    price, it is possible for the price of a stock to go up or down
                    significantly during the lapse of time between placing a market
                    order and
                    getting execution.
  •
                  Shares
                      traded on the OTC Bulletin Board generally are quoted with
                      greater spreads
                      between bid and ask prices and may be more expensive to buy
                      or sell.
  •
                Because
                    bulletin board stocks are usually not followed by analysts, there
                    may be
                    lower trading volume than for Nasdaq-listed securities.
  41
  ***If
          we fail to remain current on our reporting requirements, we could be removed
          from the OTC Bulletin Board, which would limit the ability of broker-dealers
          to
          sell our securities and the ability of stockholders to sell their securities
          in
          the secondary market.***
  Companies
          like Tasker that trade on the OTC Bulletin Board must be reporting issuers
          under
          Section 12 of the Exchange Act of 1934, and must be current in their filing
          with
          the SEC of periodic reports under Section 13, in order to maintain price
          quotation privileges on the OTC Bulletin Board. If we fail to remain current
          with respect to reporting requirements, we could be removed from the OTC
          Bulletin Board. In such event, the market liquidity for our securities
          could be
          severely adversely affected because the ability of broker-dealers to sell
          our
          securities and the ability of stockholders to sell their securities in
          the
          secondary market would be limited.
  ***Since
          our common stock is subject to the SEC’s penny stock rules, broker-dealers may
          experience difficulty in completing customer transactions and trading activity
          in our securities may be adversely affected.***
  A
          public
          company’s common stock is subject to the penny stock rules promulgated under the
          Securities Exchange Act of 1934, or Exchange Act, unless its net tangible
          assets
          are greater than $2,000,000 or its common stock has a market price per
          share
          greater than $5.00. Under these rules, broker-dealers who recommend such
          securities to persons other than institutional accredited investors must:
  •
                make
                    a special written suitability determination for the purchaser;
  •
                receive
                    the purchaser’s written agreement to a transaction prior to sale;
  •
                provide
                    the purchaser with risk disclosure documents that identify certain
                    risks
                    associated with investing in “penny stocks” and that describe the market
                    for these “penny stocks,” as well as a purchaser’s legal remedies; and
  •
                obtain
                    a signed and dated acknowledgment from the purchaser demonstrating
                    that
                    the purchaser has actually received the required risk disclosure
                    document
                    before a transaction in “penny stock” can be completed.
  Since
          our
          common stock is subject to these rules, broker-dealers may find it difficult
          to
          effect customer transactions and trading activity in our securities may
          be
          adversely affected. As a result, the market price of our securities may
          be
          depressed, and you may find it more difficult to sell our securities.
 
 **Item
          2. Unregistered Sales of Equity Securities and Use of Proceeds**
 
 During
          the three-month period ended March 31, 2008, we issued the following stock
          options, warrants and common stock:
  On
          January 4, 2008, we issued an additional December 6% Note in the aggregate
          principal amount of $100,000 (convertible into 1,111,111 shares of our
          common
          stock at an initial conversion price of $0.09 per share) and December Warrants
          to purchase an aggregate of 133,333 shares of our common stock at an exercise
          price of $0.15 per share. We issued these securities in lieu of common
          stock to
          an accredited investor in connection with that investor's exercise of its
          warrants to purchase common stock at an exercise price of $0.09 per share.
          We
          received proceeds of $90,000 in connection with this transaction. These
          securities were not registered under the Securities Act because such issuances
          were exempt from registration pursuant to Section 4(2) of the Securities
          Act of
          1933, as they were transactions by an issuer that did not involve a public
          offering of securities.
  On
          January 9, 2008, we issued a 6% Note to an accredited investors in the
          aggregate
          principal amount of $50,000 (convertible into 454,545 shares of our common
          stock
          at an initial conversion price of $0.11 per share) and Warrants to purchase
          an
          aggregate of 166,667 shares of our common stock at an exercise price of
          $0.15
          per share. We received proceeds of $45,000 in connection with this transaction.
          These securities were not registered under the Securities Act because such
          issuances were exempt from registration pursuant to Section 4(2) of the
          Securities Act of 1933, as they were transactions by an issuer that did
          not
          involve a public offering of securities.
  42
  In
          January 2008, several investors in the 6% Notes, converted $530,018 of
          principal
          and accrued interest into 7,258,863 restricted shares of common stock.
          These
          shares were not registered under the Securities Act because such issuances
          were
          exempt from registration pursuant to Section 3(a)(9) of the Securities Act
          of 1933, as no commission or other remuneration was paid or given in connection
          with the conversion.
  In
          February 2008, several investors in the 6% Notes, converted $332,977 of
          principal and accrued interest into 4,592,788 restricted shares of common
          stock.
          These shares were not registered under the Securities Act because such
          issuances
          were exempt from registration pursuant to Section 3(a)(9) of the Securities
          Act of 1933, as no commission or other remuneration was paid or given in
          connection with the conversion.
  In
          March
          2008, several investors in the 6% Notes, converted $487,089 of principal
          and
          accrued interest into 6,718,465 restricted shares of common stock. These
          shares
          were not registered under the Securities Act because such issuances were
          exempt
          from registration pursuant to Section 3(a)(9) of the Securities Act of
          1933, as no commission or other remuneration was paid or given in connection
          with the conversion.
  As
          of
          March 31, 2008, consistent with the terms of the original 6% Notes, we
          issued
          additional 6% Notes in the aggregate principal amount of $167,000 to
          eighty-seven holders of such original 6% Notes in lieu of a cash interest
          payment (the “Interest Notes”). The terms of the Interest Notes are materially
          identical to the terms of the original 6% Notes. The Interest Notes are
          convertible into an aggregate of 1,887,241 shares of our common stock at
          conversion prices of $0.0725, $0.099 and $0.11 per share. A debt discount
          and a
          derivative conversion liability of $94,000 were recorded in connection
          with the
          issuance of the Interest Notes.
  As
          of
          March 31, 2008, consistent with the terms of the original December 6% Notes,
          we
          issued additional December 6% Notes in the aggregate principal amount of
          $32,344
          to forty-three holders of such original December 6% Notes in lieu of a
          cash
          interest payment (the “Interest Notes”). The Interest Notes, which are
          materially identical in their terms to the original December 6% Notes,
          are
          convertible into an aggregate of 359,370, shares of our common stock at
          a
          conversion price of $0.09 per share. A debt discount and a derivative conversion
          liability of $17,000 were recorded in connection with the issuance of these
          December 6% Notes.
  **Item
          6. Exhibits**
  31.1
                
                Rule
                    13a-14(a)/15d-14(a) Certification by Principal Executive
                    Officer31.2
                
                Rule
                    13a-14(a)/15d-14(a) Certification by Principal Financial
                    Officer32.1
                
                Section
                    1350 Certifications by Principal Executive Officer32.2
                
                Section
                    1350 Certifications by Principal Financial
                    Officer
  43
  **SIGNATURES**
  In
          accordance with the requirements of the Exchange Act, the Registrant caused
          this
          report to be signed on its behalf by the undersigned, thereunto duly
          authorized.
  TASKER
                    PRODUCTS CORP.Date: May
                    15, 2008
                
                By:
                
                /s/ Doreen
                    J. RemmenDoreen
                    J. RemmenChief
                    Financial Officer
                  (Principal
                    Financial and Accounting Officer)
           
  **Exhibit
          Index**
  31.1
                
                Rule
                    13a-14(a)/15d-14(a) Certification by Principal Executive
                    Officer31.2
                
                Rule
                    13a-14(a)/15d-14(a) Certification by Principal Financial
                    Officer32.1
                
                Section
                    1350 Certifications by Principal Executive Officer32.2
                
                Section
                    1350 Certifications by Principal Financial
                    Officer