**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 September 30, 2007




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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer x




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




The
      number of shares outstanding of the registrant’s common stock as of November 12,
      2007 was 109,446,005.





**TASKER
      PRODUCTS CORP.**




**INDEX**




**PART
                I. FINANCIAL INFORMATION****Item
                1.**
            **Financial
                Statements**Unaudited
                Condensed Consolidated Balance Sheets as of September 30, 2007 and
                December 31, 2006
            2Unaudited
                Condensed Consolidated Statements of Operations for the three months
                ended
                September 30, 2007 and 2006
            3Unaudited
                Condensed Consolidated Statements of Operations for the nine months
                ended
                September 30, 2007 and 2006
            4Unaudited
                Condensed Consolidated Statements of Cash Flows for the nine months
                ended
                September 30, 2007 and 2006
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            7**Item
                2.**
            **Management’s
                Discussion And Analysis Of Financial Condition And Results Of
                Operations**
            24**Item
                3.**
            **Quantitative
                And Qualitative Disclosures About Market Risk**
            37**Item
                4.**
            **Controls
                And Procedures**
            37**PART
                II. OTHER INFORMATION****Item
                1A.**
            **Risk
                Factors**
            38**Item
                2.**
            **Unregistered
                Sales Of Equity Securities And Use Of Proceeds**
            40**Item
                6.**
            **Exhibits**
            40**SIGNATURES**
            41




**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 Amendment No. 1 to
      our
      Annual Report on Form 10-K for the year ended December 31, 2006 and such other
      reports and documents that we file from time to time with the Securities and
      Exchange Commission. Statements included in this Quarterly Report are based
      upon
      information known to us as of the date that this Quarterly Report is filed
      with
      the Securities and Exchange Commission, and we assume no obligation to update
      or
      alter our forward-looking statements made in this Quarterly Report, whether
      as a
      result of new information, future events or otherwise, except as otherwise
      required by applicable federal securities laws.


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)**




**September 30,**
            
            **December 31,****2007**
            
            **2006****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            2,594
            
            $
            932Accounts
                receivable, net of allowance for doubtful accounts of $91 and $24,
                respectively
            
            
            356
            
            
            176Notes
                receivable
            
            
            95
            
            
            50Inventories
            
            
            259
            
            
            300Prepaid
                expenses and other current assets
            
            
            178
            
            
            268Deferred
                financing costs
            
            
            1,364
            
            
            501Total
                current assets
            
            
            4,846
            
            
            2,227Notes
                receivable, net of current portion
            
            
            691
            
            
            669Property
                and equipment, net
            
            
            1,165
            
            
            1,311Intangible
                assets, net
            
            
            7,292
            
            
            7,887Goodwill
            
            
            9,835
            
            
            9,835Deposits,
                net
            
            
            44
            
            
            38Total
                assets
            
            $
            23,873
            
            $
            21,967**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            791
            
            $
            1,227Other
                accrued liabilities
            
            
            2,802
            
            
            2,509Notes
                payable - acquisition of IRL
            
            
            —
            
            
            679Convertible
                bridge notes, net of discount of $11,651 and $1,600,
                respectively
            
            
            533
            
            
            320Derivative
                liabilities
            
            
            45,140
            
            
            —Warrants
                payable - placement agent
            
            
            1,501
            
            
            409Notes
                payable - shareholders
            
            
            589
            
            
            564Total
                current liabilities
            
            
            51,356
            
            
            5,708Long-term
                liabilities:Other
                long-term liabilities
            
            
            23
            
            
            30Commitments
                (See Note 11)Stockholders’
                equity:Preferred
                Stock, $0.001 par value;15,000 shares authorized; none issued
                and
              outstanding
            
            
            —
            
            
            —Common
                stock, $0.001 par value; 450,000 shares authorized; 109,446 and 106,340
                shares issued and outstanding, respectively
            
            
            109
            
            
            106Additional
                paid-in capital
            
            
            113,632
            
            
            105,131Accumulated
                deficit
            
            
            (141,247
            )
            
            (89,008
            )Total
                stockholders’ (deficit) equity
            
            
            (27,506
            )
            
            16,229Total
                liabilities and stockholders’ equity
            
            $
            23,873
            
            $
            21,967




See
      accompanying notes


2


**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF** **OPERATIONS**


**(In
      thousands except per share data)**




**Three Months Ended**
              **September
                30,************2007**********
            
            **2006**********Revenues
            
            $
            693
            
            $
            531Cost
                of goods sold
            
            
            224
            
            
            234Gross
                margin
            
            
            469
            
            
            297Operating
                expensesSelling,
                general & administrative (1)
            
            
            3,530
            
            
            2,551Write-off
                of raw material
            
            
            109
            
            
            582Product
                development (1)
            
            
            290
            
            
            558Depreciation
                and amortization
            
            
            281
            
            
            276Total
                operating expenses
            
            
            4,210
            
            
            3,967Loss
                from operations
            
            
            (3,741
            )
            
            (3,670
            )Other
                income (expense):Interest
                expense
            
            
            (230
            ))
            
            (20
            )Finance
                costs related to long-term debt
            
            
            (7,364
            ))
            
            —Interest
                income
            
            
            15
            
            
            52Amortization
                of debt discount
            
            
            (1,648
            )
            
            —Amortization
                of deferred financing costs
            
            
            (805
            )
            
            —Liquidated
                damages
            
            
            —
            
            
            (19
            )Loss
                on extinguishment of debt
            
            
            (16,630
            )
            
            —Loss
                on change in value of derivative liabilities
            
            
            (7,887
            )
            
            —Other
            
            
            —
            
            
            6Total
                other income (expense), net
            
            
            (34,549
            )
            
            19Net
                loss before taxes
            
            
            (38,290
            )
            
            (3,651
            )Provision
                for income tax
            
            
            (21
            )
            
            —Net
                loss
            
            $
            (38,311
            )
            $
            (3,651
            )Net
                loss per common share, basic and diluted
            
            $
            (0.35
            )
            $
            (0.03
            )Weighted
                average common shares outstanding, basic and diluted
            
            
            109,449
            
            
            105,206





(1)
      Includes stock-based compensation as follows:





**Three Months Ended**
              **September
                30,****2007**
            
            **2006**Selling,
                general & administrative
            
            $
            1,154
            
            $
            425Product
                development
            
            
            38
            
            
            56Total
            
            $
            1,192
            
            $
            481




See
      accompanying notes


3


**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**


**(In
      thousands except per share data)**


**Nine Months Ended**
                **September
                  30,****2007**
              
              **2006**Revenues
              
              $
              1,750
              
              $
              1,289Cost
                  of goods sold
              
              
              392
              
              
              447Gross
                  margin
              
              
              1,358
              
              
              842Operating
                  expensesSelling,
                  general & administrative (1)
              
              
              10,137
              
              
              9,542Product
                  development (1)
              
              
              1,123
              
              
              1,447Write-off
                  of raw material
              
              
              128
              
              
              582Impairment
                  of goodwill and intangible assets
              
              
              —
              
              
              30,152Depreciation
                  and amortization
              
              
              838
              
              
              1,430Total
                  operating expenses
              
              
              12,226
              
              
              43,153Loss
                  from operations
              
              
              (10,868
              )
              
              (42,311
              )Other
                  income (expense):Interest
                  expense
              
              
              (510
              ))
              
              (69
              )Finance
                  costs related to long-term debt
              
              
              (7,364
              ))
              
              —Interest
                  income
              
              
              48
              
              
              190Amortization
                  of debt discount
              
              
              (6,520
              )
              
              —Amortization
                  of deferred financing costs
              
              
              (2,527
              )
              
              —Liquidated
                  damages
              
              
              —
              
              
              (155
              )Gain
                  on extinguishment of vendor obligations
              
              
              55
              
              
              —Loss
                  on extinguishment of debt
              
              
              (16,630
              )
              
              —Change
                  in value of derivative liabilities
              
              
              (7,902
              )
              
              —Other
              
              
              —
              
              
              81Total
                  other income (expense), net
              
              
              (41,350
              )
              
              47Net
                  loss before taxes
              
              
              (52,218
              )
              
              (42,264
              )Provision
                  for income tax
              
              
              21
              
              
              —Net
                  loss
              
              $
              (52,239
              )
              $
              (42,264
              )Net
                  loss per common share, basic and diluted
              
              $
              (0.48
              )
              $
              (0.41
              )Weighted
                  average common shares outstanding, basic and diluted
              
              
              108,444
              
              
              103,577





(1)
      Includes stock-based compensation as follows:





**Nine Months Ended**
              **September
                30,****2007**
            
            **2006**Selling,
                general & administrative
            
            $
            3,717
            
            $
            3,098Product
                development
            
            
            187
            
            
            214Total
            
            $
            3,904
            
            $
            3,312




See
      accompanying notes


4


**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH** **FLOWS**


**(In
      thousands)**


**Nine Months Ended****September
                  30,****2007**
              
              **2006****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (52,239
              )
              $
              (42,264
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Non-cash
                  itemsDepreciation
                  and amortization
              
              
              838
              
              
              1,430Liquidated
                  damages
              
              
              —
              
              
              156Write-off
                  of raw materials
              
              
              129
              
              
              582Non
                  cash consulting fees
              
              
              83
              
              
              —Stock-based
                  compensation
              
              
              3,904
              
              
              3,312Impairment
                  of goodwill and intangible assets
              
              
              —
              
              
              30,152Allowance
                  for uncollectible accounts receivable
              
              
              67
              
              
              19Loss
                  on equity investee and asset disposal
              
              
              —
              
              
              66Noncash
                  financing costs
              
              
              7,364
              
              
              24Amortization
                  of debt discount
              
              
              6,520
              
              
              —Amortization
                  of deferred financing costs
              
              
              2,527
              
              
              —Noncash
                  interest income on note receivable
              
              
              (68
              )
              
              (37
              )Gain
                  on settlement of vendor obligations
              
              
              (55
              )
              
              (63
              )Loss
                  on change in fair value of derivative liabilities
              
              
              7,902
              
              
              —Loss
                  on extinguishment of debt
              
              
              16,630
              
              
              —Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (246
              )
              
              (204
              )Inventories
              
              
              (87)
              )))
              
              36Prepaid
                  expenses and other current assets
              
              
              83
              
              
              (74
              )Accounts
                  payable
              
              
              (389
              )
              
              (558
              )Other
                  accrued liabilities
              
              
              826
              
              
              (263
              )Net
                  cash used in operating activities
              
              
              (6,211
              )
              
              (7,686
              )**Cash
                  flows from investing activities:**Purchases
                  of available-for-sale securities
              
              
              —
              
              
              (18,100
              )Purchases
                  of property and equipment and intangible assets
              
              
              (96
              )
              
              (121
              )Proceeds
                  from available-for-sale-securities
              
              
              —
              
              
              16,850Payments
                  for deposits and other
              
              
              —
              
              
              (3
              )Net
                  cash used in investing activities
              
              
              (96
              )
              
              (1,374
              )**Cash
                  flows from financing activities:**Proceeds
                  from private placements, net of issue costs
              
              
              9,825
              
              
              9,335Deferred
                  financing costs
              
              
              (1,250
              )
              
              (593
              )Exercise
                  of warrants /options
              
              
              3
              
              
              63Repayments
                  on notes payable
              
              
              (609
              )
              
              (706
              )Net
                  cash provided by financing activities
              
              
              7,969
              
              
              8,099**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              1,662
              
              
              (961
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              932
              
              
              1,037**Cash
                  and cash equivalents, end of period**
              
              $
              2,594
              
              $
              76**Supplemental
                  disclosures of cash flow information:**Interest
                  paid
              
              $
              10
              
              $
              32Taxes
                  paid
              
              $
              21
              
              
              —**Supplemental
                  disclosures of non-cash investing and financing
                  activities:**Fair
                  value of warrants issued as private placement fees
              
              $
              1,123
              
              $
              593Recognition
                  of debt discounts related to warrants , beneficial conversion and
                  derivative liabilities
              
              $
              15,805
              
              $
              —Conversion
                  of debt and accrued interest into common
                  stock
              
              $
              —
              
              $
              194Conversion
                  of debt and accrued interest into long-term debt
              
              $
              8,194
              
              $
              —Conversion
                  of note payable and accounts payable into common stock
              
              $
              116
              
              $
              —





See
      accompanying notes


5


**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, a grooming aid for 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;
      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 September 30, 2007 and December 31, 2006 and for the three and
      nine month periods ended September 30, 2007 and 2006 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 Amendment No. 1 to the Company’s annual report on Form
      10-K for the year ended December 31, 2006. The results of operations for the
      three and nine month periods ended September 30, 2007 are not necessarily
      indicative of the results that may occur for the year ending December 31,
      2007.




Certain
      prior period amounts have been reclassified to conform to the current year
      presentation. ****




**2.
      Recent Accounting Pronouncements**




In
      July
      2006, the Financial Accounting Standards Board issued Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48
      creates a single accounting and disclosure model for uncertain tax positions,
      provides guidance on the minimum threshold that a tax uncertainty is required
      to
      meet before it can be recognized in the financial statements and applies to
      all
      tax positions taken by a company, both those deemed to be routine as well as
      those for which there may be a high degree of uncertainty.




FIN
      48
      establishes a two-step approach for evaluating tax positions. The first step,
      recognition, occurs when a company concludes (based solely on the technical
      aspects of the tax matter) that a tax position is more likely than not to be
      sustained on examination by a taxing authority. The second step, measurement,
      is
      only considered after step one has been satisfied and measures any tax benefit
      at the largest amount that is deemed more likely than not to be realized upon
      ultimate settlement of the uncertainty. Tax positions that fail to qualify
      for
      initial recognition are recognized in the first subsequent interim period that
      they meet the more likely than not standard, when they are resolved through
      negotiation or litigation with the taxing authority or upon the expiration
      of
      the statute of limitations. Derecognition of a tax position previously
      recognized would occur when a company subsequently concludes that a tax position
      no longer meets the more likely than not threshold of being sustained. FIN
      48
      also significantly expands the financial statement disclosure requirements
      relating to uncertain tax positions. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company’s financial position, results of operations and cash flows. During the
      quarter ended September 30, 2007, the Company recognized no adjustments for
      uncertain tax provisions.


6


In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS 157”), which defines fair value, establishes a framework for
      measuring fair value in U.S. generally accepted accounting principles, and
      expands disclosures about fair value measurements.  SFAS 157 applies
      under other existing accounting pronouncements that require or permit fair
      value
      measurements, as the FASB previously concluded in those accounting
      pronouncements that fair value is the relevant measurement attribute. 
Accordingly, SFAS 157 does not require any new fair value
      measurements.  However, the application of this statement may change the
      Company’s current practice for fair value measurements.  SFAS 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years.  The
      Company is currently evaluating the impact this statement will have on its
      financial position, results of operations and cash
      flows .




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. 115* (“SFAS 159”). SFAS 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value. SFAS 159 permits all
      entities to choose, at specified election dates, to measure eligible items
      at
      fair value (the “fair value option”).  A business entity shall report
      unrealized gains and losses on items for which the fair value option has been
      elected in earnings at each subsequent reporting date.  Upfront costs and
      fees related to items for which the fair value option is elected are recognized
      in earnings as incurred and not deferred.  SFAS 159 also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between entities that choose different measurement attributes for similar types
      of assets and liabilities.  SFAS 159 is effective as of the beginning
      of an entity’s first fiscal year that begins after November 15, 2007. 
The Company is currently evaluating the impact this statement will have on
      its
      financial position, results of operations and cash
      flows .





**3.
      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 and nine months ended
      September 30, 2007, the Company has incurred a net loss of approximately $38.3
      million and $52.2 million, respectively. The Company has not generated positive
      cash flow from operating activities for the nine months ended September 30,
      2007
      and 2006. The
      Company expects to continue to incur 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
      September 30, 2007, the Company had a total of approximately $2,594,000 of
      cash
      and cash equivalents.




On
      September 28, 2007, the Company issued 6% Secured Convertible Promissory Notes
      (the “6% Notes”) to accredited investors in the aggregate principal amount of
      $11,643,624. The aggregate consideration of $11,643,624 was in the form of
      cash
      ($3,450,000), the conversion of notes issued by the Company between December
      1,
      2006 and April 23, 2007 (aggregate principal amount of $5,755,091 (the “First
      Convertible Bridge Notes”) and the accrued interest thereon of $374,645) and the
      conversion of notes issued by the Company on June 4, 2007 (aggregate principal
      amount of $2,000,000 (the “Second Convertible Bridge Notes”) and the accrued
      interest thereon of $63,888).




The
      Company believes that it will have adequate working capital to fund its
      operations during the next twelve months based upon:




·
            The
                Company’s projections of future revenues from our
                products;


7


·
            cash
                and cash equivalents as of September 30, 2007 including the $3.5
                million
                received in September 2007 from the sale of its 6% Secured Convertible
                Promissory Notes;


·
            an
                estimated $2.5 million expected to be received from the exercise
                of
                certain outstanding warrants; and


·
            available
                cash from a proposed $3 million credit facility, which is currently
                being
                negotiated.




The
      Company can give no assurance that any outstanding warrants will be exercised
      or
      that it will obtain the $3 million credit facility.




The
      Company’s ability to continue to operate and grow its business is dependent upon
      obtaining additional financing from the exercise of outstanding warrants,
      obtaining the proposed 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 assurances
      that
      those efforts will be met with success in the marketplace or that the timing
      of
      its efforts will be consistent with its cash availability and burn rate. If
      the
      Company does not receive approximately $2.5 million from the exercise of
      outstanding warrants, obtain the contemplated credit facility and/or generate
      sufficient revenue growth from existing and new business arrangements, it will
      not have sufficient cash to support its continued operations and meet its
      obligations.




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
      majority of the agreements that would have otherwise required the Company to
      pay
      liquidated damages.




At
      September 30, 2007, 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. Conversely, as of
      September 30, 2007, we had recorded approximately $441,000, the full and maximum
      potential amount of the actual incurred liquidated damages associated with
      the
      April 2004 and the July 2004 registration rights agreements.




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
      September 30, 2007, the Company had not issued these shares and
      warrants.


8


As
      it
      relates to the September 2007 private placement, we are required to file a
      series of registration statements covering the resale of the shares of common
      stock underlying the 6% Notes and Warrants. 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 equal to 1% of the
      purchase price of the 6% Notes and Warrants for each 30-day delay in the
      effectiveness of such registration statement.




**4.
      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 September
      30, 2007, the balance of this loan is approximately $751,000 including accrued
      interest of approximately $126,000.





**5.
      Goodwill and Other Intangible Assets**




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




**CarryingAmount**
              
              **Additions**
              
              **Accumulated
                  Amortization**
              
              **Net Carrying 
                  Amount**Amortizable
                  utility patents
              
              $
              7,887
              
              $
              25
              
              $
              620
              
              $
              7,292Goodwill
              
              $
              9,835
              
              $
              —
              
              $
              —
              
              $
              9,835






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




**Gross Carrying
                 Amount**
            
            **ImpairmentCharges**
            
            **Accumulated
                Amortization**
            
            **Net Carrying 
                Amount/Adjusted Basis**Amortizable
                utility patents
            
            $
            22,500
            
            $
            12,239
            
            $
            2,374
            
            $
            7,887Goodwill
            
            $
            41,677
            
            $
            31,842
            
            $
            —
            
            $
            9,835




The
      Company recorded amortization expense of approximately $207,000 and $621,000
      related to the other intangible assets for the three and nine months ended
      September 30, 2007, respectively. The Company recorded amortization expense
      of
      $206,000 and $1.2 million related to the other intangible assets for the three
      and nine months ended September 30, 2006, respectively.


9


Future
      expected amortization expense of intangible assets for the remaining quarter
      of
      the current fiscal year and the subsequent fiscal years is as follows (in
      thousands):




2007
            
            $
            2082008
            
            
            8292009
            
            
            8292010
            
            
            8292011
            
            
            8292012
            
            
            8292013
                and thereafter
            
            
            2,939




**6.**  **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 September 30, 2007,
      were
      as follows:




·
            Warrants
                to purchase 524,850 shares of common stock issued with notes payable
                in
                November 2002. The warrants have a five-year term and were issued
                with an
                exercise price of $2.00 per share.




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




·
            Warrants
                to purchase 3,025,000 shares of common stock issued to consultants
                in
                November 2002. The warrants have a five-year term and were issued
                with 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 and were issued with an exercise price of $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.


10


·
            Warrants
                to purchase 34,972,728 shares of common stock issued to lenders in
                connection with the sale of the First Convertible Bridge Notes between
                December 1, 2006 and May 1, 2007. The warrants have a four-year term
                and
                were issued with an exercise price of $0.09 per
                share.




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




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




·
            Warrants
                to purchase 2,020,000 shares of common stock issuable to a placement
                agent
                in connection with the sale of the Second Convertible Bridge Notes
                on June
                4, 2007. The warrants have a seven-year term and contain a "cashless
                exercise" option.




·
            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 issued to a
                placement agent in connection with the sale of the 6% Notes. The
                warrants
                have a seven- year term and were issued with an exercise price of
                $0.11
                per share.





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 September 30, 2007:




**Number of warrants**
            
            **Exercise Price**
              **per
                warrant**
            
            **Weighted average
                exercise price per warrant**
              **share**Outstanding,
                January 1, 2007
            
            
            33,812,133
            
            $
            0.0725
                - $2.00
            
            $
            0.59Granted
            
            
            21,351,919
            
            $
            0.0725
                - $0.09
            
            $
            0.09Exercised
            
            
            (2,983,051
            )
            $
            0.0725
            
            $
            0.07Outstanding,
                March 31, 2007
            
            
            52,181,001
            
            $
            0.0725
                - $2.00
            
            $
            0.42Granted
            
            
            11,806,957
            
            $
            0.0725
                - $0.20
            
            $
            0.10Exercised
            
            
            —
            
            
            —
            
            
            —Outstanding,
                June 30, 2007
            
            
            63,987,958
            
            $
            0.0725
                - $2.00
            
            $
            0.34Granted
            
            
            35,479,879
            
            $
            0.11
                - $0.15
            
            $
            0.15Exercised
            
            
            —
            
            
            —
            
            
            —Outstanding,
                September 30, 2007
            
            
            99,467,837
            
            $
            0.0725
                - $2.00
            
            $
            0.28




The
      Warrants granted pursuant to the April 2004 Private Placement originally had
      exercise prices of $0.10 and $0.20. However, in accordance with the terms of
      the
      agreement and upon specified events the exercise prices of all warrants issued
      in this placement were modified to $0.05 per share in September 2004 and further
      modified to $0.01 per share in May 2005. All of the warrants issued in
      connection to the April 2004 Private Placement were exercised during
      2006.


11




The
      Warrants granted pursuant to the July 2004 Private Placement originally had
      an
      exercise price of $0.25. However, in accordance with the terms of the agreement
      and upon specified events the exercise price of all warrants issued in this
      placement were modified to $0.05 per share in September 2004 and further
      modified to $0.01 per share in May 2005. All of the warrants issued in
      connection to the July 2004 Private Placement were exercised during
      2006.




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.




In
      September 2007 we modified the expiration period of certain warrants and
      recorded a compensation expense of approximately $84,000 related to this
      revaluation of these warrants.




As
      of
      September 30, 2007, 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 3.9
      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 $1,192,000 and $481,000 for the three months
      ended September 30, 2007 and 2006, respectively. The total expense associated
      with non-plan warrant and stock option based employee compensation was
      approximately $3,904,000 and $3,312,000 for the nine months ended September
      30,
      2007 and 2006, respectively.




The
      aggregate intrinsic value in the tables below represent the total intrinsic
      value (the difference between the closing stock price on the last trading day
      of
      the quarter ended September 30, 2007 and the exercise price, multiplied by
      the
      number of in-the-money options and warrants) that holders would have received
      had all such holders exercised their options and warrants on September 30,
      2007.
      This amount changes each reporting period based on changes in the fair market
      value of the Company’s common stock. Total intrinsic value of options exercised
      for the three and nine months ended September 30, 2007 was $1,000. Total
      intrinsic value of options exercised for the nine months ended September 30,
      2006 was $217,000.




At
      September 30, 2007, future compensation cost related to non-vested stock options
      and warrants, less estimated forfeitures, is approximately $3,729,000 and will
      be recognized over an estimated weighted average period of 8.68 years.




A
      summary
      of stock option and warrants activity is as follows:


**Number ofoptions andwarrants**
              
              **WeightedAverage Exercise**
                **Price per option**
                **and warrant**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Term (years)**
              
              **Aggregate**
                **Intrinsic**
                **Value**Outstanding,
                  January 1, 2007
              
              
              41,640,701
              
              $
              0.40Granted
              
              
              21,138,333
              
              $
              0.17Cancelled/forfeited
              
              
              (673,490
              )
              $
              1.46Outstanding,
                  March 31, 2007
              
              
              62,105,544
              
              $
              0.25
              
              
              8.47
              
              $
              2,531,000Granted
              
              
              6,620,000
              
              $
              0.18Exercised
              
              
              (10,000
              )
              $
              0.25Cancelled/forfeited
              
              
              (1,000,000
              )
              $
              0.40Outstanding,
                  June 30, 2007
              
              
              67,715,544
              
              $
              0.25
              
              
              8.5
              
              $
              3,454,000Granted
              
              
              2,120,000
              
              $
              0.18Exercised
              
              
              —Cancelled/forfeited
              
              
              (1,889,334
              )
              $
              1.19Outstanding
                  September 30, 2007
              
              
              67,946,210
              
              $
              0.21
              
              
              8.7
              
              $
              8,120,000Options
                  and warrants exercisable at September 30, 2007
              
              
              44,138,145
              
              $
              0.24
              
              
              8.3
              
              $
              5,067,000


12




The
      following table summarizes additional information about stock options and
      warrants granted during the nine months ended September 30:




**2007**
            
            **2006**Weighted-average
                fair value of grants
            
            $
            0.17
            
            $
            0.65Risk-free
                interest rate
            
            
            4.19%-4.92
            %
            
            4.63%-5.04
            %Expected
                option term
            
            
            4.0-6.1
                years
            
            
            6
                yearsStock
                price volatility
            
            
            130%-141
            %
            
            132%-135
            %Dividend
                yield
            
            
            —
            
            
            —




Outstanding
      stock options and warrants issued for compensation at September 30, 2007, were
      as follows:




·
            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.  13





·
              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 exercise prices 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 exercise prices 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 2,170,000 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.
 
 **7.
        Net Loss Per Common Share**
  The
        following tables set forth the computation of basic and diluted net loss
        per
        common share for the three and nine months ended September 30, 2007 and 2006,
        respectively:
  **Three Months Ended****September
                  30,****(in thousands except per share data)****2007**
              
              **2006****Numerator
                  for basic and diluted net loss per share:**Net
                  loss
              
              $
              (38,311
              )
              $
              (3,651
              )**Denominator:**Denominator
                  for basic and diluted net loss per share - weighted-average
                  shares
              
              
              109,449
              
              
              105,206**Basic
                  and diluted net loss per common share:**
              
              $
              (0.35
              )
              $
              (0.03
              )
  **Nine Months Ended****September
                  30,****(in thousands except per share data)****2007**
              
              **2006****Numerator
                  for basic and diluted net loss per share:**Net
                  loss
              
              $
              (52,239
              )
              $
              (42,264
              )**Denominator:**Denominator
                  for basic and diluted net loss per share - weighted-average
                  shares
              
              
              108,444
              
              
              103,577**Basic
                  and diluted net loss per common share:**
              
              $
              (0.48
              )
              $
              (0.41
              )
  14
  As
        of
        September 30, 2007, 17,672,148 compensatory options, 50,274,062 compensatory
        warrants, 35,972,728 non-compensatory warrants issued on connection with
        the
        First and Second Convertible Bridge Notes, 35,479,880 warrants issued in
        connection with the 6% Notes, 7,888,735 shares
        of
        common stock issuable upon the conversion of outstanding First Convertible
        Bridge Notes and 136,759,081 shares of common stock issuable upon the conversion
        of the 6% Notes were
        excluded from the computation of net loss per share because their effect
        would
        be anti-dilutive. As of September 30, 2006, 20,977,368 options
        and 21,497,200  warrants
        were excluded from the computation of net loss per share because the effect
        would be anti-dilutive.
  **8.
        Inventories**
  Inventories
        consisted of the following:
  **September 30,**
              
              **December 31,****2007**
              
              **2006****(in thousands)**Raw
                  Materials
              
              $
              113
              
              $
              89Finished
                  Goods
              
              
              146
              
              
              211$
              259
              
              $
              300
  Inventories
        are stated at the lower of cost or market. Cost is determined using the
        first-in, first-out (FIFO) method.
  **9.**  **Other
        Accrued Liabilities**
  Other
        accrued liabilities consisted of the following (in thousands):
 **September 30,**
                  **2007**
                
                **December
                    31,**
                  **2006**Accrued
                    wages
                
                $
                235
                
                $
                90Employee
                    reimbursable expenses
                
                
                60
                
                
                —Accrued
                    interest
                
                
                185
                
                
                148Liquidated
                    damages
                
                
                464
                
                
                464Accrued
                    legal and accounting fees
                
                
                224
                
                
                240Accrued
                    consulting
                
                
                258
                
                
                198Litigation
                    settlement
                
                
                —
                
                
                423Accrued
                    purchases
                
                
                71
                
                
                99Office
                    lease termination
                
                
                263
                
                
                —Deferred
                    revenue
                
                
                41
                
                
                —Other
                
                
                1,001
                
                
                847$
                2,802
                
                $
                2,509
  15
  **10.
        Notes Payable**
  *November
        2002 Notes Payable*
  During
        the year ended December 31, 2002, the Company completed a private placement
        offering for cash proceeds of $524,850. The Company issued 524,850 shares
        of
        common stock, issued warrants to purchase 524,850 shares of common stock
        at a
        price of $2.00 per share and issued 5% promissory notes with a face value
        of
        $524,325, to the investors. The principal amount and accrued interest are
        due on
        November 26, 2007.
 **September 30,2007**
                  
                  **December
                      31,2006****(in
                      thousands)**Notes
                      payable, with interest at 5%, fair value
                  
                  $
                  524
                  
                  $
                  524Less:
                      Discount to record note at fair value
                  
                  
                  (224
                  )
                  
                  (224
                  )300
                  
                  
                  300Less:
                      Note converted into equity
                  
                  
                  (50
                  )
                  
                  (50
                  )Amortization
                      of discount to September 30, 2007 and December 31, 2006,
                      respectively
                  
                  
                  224
                  
                  
                  217$
                  474
                  
                  $
                  467
  The
        fair
        value attributed to the notes is based upon the fair value of the underlying
        financial instruments. The discount resulting from recording the notes at
        fair
        value is being amortized using the effective interest method over the five-year
        term of the notes.  As of
        September 30, 2007 and December 31, 2006 we have accrued interest related
        to
        these notes of approximately $115,000 and $97,000,
        respectively.
  *Note
        Payable IRL*
  As
        partial consideration for the purchase of the pHarlo assets in 2005, Tasker
        issued a promissory note in the amount of $1,931,973 to Indian River Labs,
        LLC
        (“IRL”). The promissory note bears interest of 3.4% per annum and is payable in
        equal bi-weekly principal installments of $37,153, plus interest, through
        July
        2007. On May 22, 2007 we issued 761,963 shares of our common stock, in lieu
        of
        cash for two installments of this note payable. This note was paid in full
        in
        July 2007.
  The
        following schedule outlines the activity for this note through September
        30,
        2007 and December 31, 2006:
  **September
                    30,2007**
                
                **December
                    31,2006****(in
                    thousands)**Note
                    payable, with interest at 3.4%, fair value
                
                $
                1,932
                
                $
                1,932Principal
                    repayments
                
                
                (1,932
                )
                
                (1,253
                )$
                —
                
                $
                679
  16
  *Short-Term
        Convertible Bridge Notes*
  Between
        December 1, 2006 and May 1, 2007 the Company issued 10% Convertible Promissory
        Notes (“First Convertible Bridge Notes”) and received cash in the amount of
        $6,295,091. The First Convertible Bridge Notes had maturities six months
        from
        issuance and had various maturity dates starting June 1, 2007, had 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 Convertible Bridge Notes.  The
        related discounts and deferred financing fees were fully amortized through
        the
        maturity dates and interest continued to accrue at an annual interest rate
        of
        10%.
  As
        discussed below, First Convertible Bridge Notes in the aggregate principal
        amount of $6,193,625, as well as interest thereon, were exchanged for 6%
        Notes
        which are convertible into 85,429,310 shares of common stock at a conversion
        price of $0.0725 per share. As of September 30, 2007, First Convertible Bridge
        Notes in the aggregate principal and accrued interest amount of $576,795
        had
        matured and remained outstanding, but no demand for payment has been made
        by the
        holders. These outstanding notes are convertible into 7,955,793 shares of
        common
        stock at a conversion price of $0.0725 per share. The Company is in discussions
        with the note holders of the remaining First Convertible Bridge Notes to
        convert
        these notes and accrued interest into new notes and/or equity.
  In
        connection with the sale of the First Convertible 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.
  All
        of
        the proceeds of the First Convertible Bridge Notes were allocated to the
        warrants and embedded beneficial conversion feature. The combined discount
        was
        amortized as additional (noncash) interest expense with a corresponding increase
        to the First Convertible Bridge Notes over the six-month term of the notes
        using
        the effective interest method. For the nine months ended September 30, 2007,
        the
        Company had amortized $6,124,000 of the combined discount to interest
        expense.
  In
        recording the First Convertible Bridge Notes, the Company first allocated
        the
        proceeds from the sale of the First Convertible Bridge Notes between the
        First
        Convertible Bridge Notes and the warrants based upon their relative fair
        values,
        resulting in the recognition of a discount of approximately $1,666,000. The
        value of the warrants was computed using the Black-Scholes option pricing
        model.
        Second, in accordance with EITF No. 00-27, “Application of Issue 98 **-** 5 to
        Certain Convertible Instruments” after allocating a portion of the First
        Convertible Bridge Note proceeds to the warrants, the Company calculated
        the
        value of the embedded beneficial conversion feature in the note by comparing
        the
        carrying value of the proceeds, net of the warrant discount, to the fair
        value
        of the shares issuable upon conversion of the debentures. If there is a
        beneficial conversion, it is recognized, as an additional discount to the
        extent
        of the remaining proceeds. The Company recognized an additional discount
        of
        $4,629,000 for the embedded beneficial conversion feature.
  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.
  17
  In
        June
        2007, the Company received cash in the amount of $2,000,000 from one investor.
        In exchange for the cash received, the Company issued to the investor 10%
        Convertible Promissory Notes (the “Second Convertible Bridge Notes”), which were
        convertible into shares of common stock at a conversion price of the lower
        of
        $0.16 per share or 90% of the per share amount of a subsequent private placement
        or if such private placement was not completed by July 4, 2007, the lower
        of
        $0.16 per share or 80% of the per share amount of a subsequent private
        placement. In conjunction with these Second Convertible Bridge Notes, the
        Company issued to the investor four-year warrants to purchase 1,000,000 shares
        of common stock at an exercise price of $0.20 per share. These warrants were
        valued at $155,000. The
        subsequent private placement was completed on September 28, 2007 with the
        issuance of the 6% Notes and the related warrants.  Even though the Company
        did not complete the subsequent private placement before July 4, 2007, the
        Company did not issue to the holder of the Second Convertible Bridge Notes
        additional warrants and did not issue to such holder in exchange for the
        Second Convertible Bridge Note a 6% Note at a conversion price of 80%
        of the per share amount of the subsequent private placement but
        issued such 6% Note at a conversion price of 90% of the per share
        amount of the subsequent private placement. In exchange for these
        concessions by the investor, the Company issued to the investor a higher
        number
        of warrants in connection with this investor's participation in the subsequent
        private placement as compared to warrants issued to other
        investors.
  As
        compensation for its services as placement agent, Indigo Securities, LLC
        received cash in the amount of $200,000 and will receive seven-year warrants
        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), the conversion
        option and warrants are required to be recorded as derivative liabilities
        (See
        Note 14). At September 30, 2007 the investor and the placement agent warrants
        were valued at $263,000 and $568,000. As discussed below, Second Convertible
        Bridge Notes in the aggregate principal amount of $2,000,000, as well as
        interest thereon, were exchanged for 6% Notes. As of September 30, 2007,
        no
        Second Convertible Bridge Notes remained outstanding.
 **September 30,2007**
                
                **December 31,2006****(in
                    thousands)**Convertible
                    Bridge Notes, with interest at 10%
                
                $
                8,295
                
                $
                1,920Less:
                    Discount to warrants and beneficial conversion features
                
                
                (7,011
                )
                
                (1,920
                )1,284
                
                
                —Amortization
                    of discount to September 30, 2007
                
                
                6,840
                
                
                320Less
                    Convertible Bridge Notes converted into 6% Notes
                
                
                (7,591
                )
                
                —$
                533
                
                $
                320
  *Long-term
        6% Convertible Notes*
  On
        September 28, 2007, the Company issued 6% Secured Convertible Promissory
        Notes
        (the “6% Notes”) to accredited investors in the aggregate principal amount of
        $11,643,624. The aggregate consideration of $11,643,624 was in the form of
        cash
        of $3,450,000, convertible at $0.11 per share, the conversion of First
        Convertible Bridge Notes with an aggregate principal amount of $5,755,000,
        net
        of unamortized debt discount of $164,000 and the accrued interest thereon
        of
        $375,000 convertible at $0.0725 per share and the conversion of Second
        Convertible Bridge Notes with an aggregate principal amount of $2,000,000
        and
        the accrued interest thereon of $64,000, convertible at $0.099 per share.
        The
        principal amount of the 6% Notes is due three years from the date of issuance,
        maturing 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. The 6% Notes in the aggregate
        are
        convertible at conversion prices as noted above into approximately 136,759,081
        shares of the Company common stock. The Warrants entitle the holders thereof
        to
        purchase an aggregate of approximately 32,343,515 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 $345,000
        and seven-year warrants to purchase an aggregate of approximately 3,136,364
        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 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 (See Note 14). The initial amounts recorded for these
        derivative liabilities are approximately $8,351,000 for the warrants and
        approximately $35,049,000 for the conversion option, which result in a debt
        discount of $11,644,000, extinguishment of a derivative conversion liability
        related to the Second Convertible Bridge Notes of approximately $8,002,000,
        remaining unamortized deferred financing costs of approximately $63,000,
        resulting expenses recorded as a financing cost of approximately $7,364,000
        and
        a loss on refinancing of existing debt of approximately $16,618,000. The
        net
        carrying amount of the 6% Notes at September 30, 2007 is $0.
  18
 **September
                    30, 2007**
                
                **December
                    31, 2006****(in
                    thousands)**Convertible
                    Bridge Notes, with interest at 6%
                
                $
                11,644
                
                $
                —Less:
                    Discount to warrants and beneficial conversion features
                
                
                (11,644
                )
                
                —$
                —
                
                $
                —
 
 **11.
        Contractual Obligations and Commitments**
  The
        Company has the following off-balance sheet commitments as of September 30,
        2007, 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
              
              
              112
              
              
              84
              
              
              28
              
              
              —
              
              
              —Employment
                  agreements (2)
              
              
              862
              
              
              501
              
              
              361
              
              
              —
              
              
              —Vendor
                  agreements
              
              
              34
              
              
              34
              
              
              —
              
              
              —
              
              
              —Operating
                  leases
              
              
              866
              
              
              365
              
              
              501
              
              
              —
              
              
              —**Total**
              
              **$**
              **1,874**
              
              **$**
              **984**
              
              **$**
              **890**
              
              **$**
              —
              
              **$**
              **—**
  
 (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
        nine
        months ended September 30, 2007, we paid approximately $53,000 and accrued
        $34,000 R&D fees.
  (2)          
        As of September 30, 2007 the estimated future minimum annual compensation
        under
        these employment agreements, for 2007, 2008 and 2009, 2010 and beyond is
        approximately $149,000, $464,000 and $212,000, and $37,000
        respectively.
  19
  **12.
        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.
        The agreement provides for, among other things, a term of up to 21 months,
        an
        annual salary of $60,000, an annual bonus at the discretion of the board,
        the
        grant of initial warrants for the purchase of 2,625,000 shares of common
        stock
        exercisable on a quarterly basis over the term of the agreement at an exercise
        price of $0.19 per share, the grant of additional warrants exercisable for
        7,500,000 shares of common stock at an exercise price of $0.19 per share
        with
        vesting contingent upon achievement of contractually specified performance
        goals, severance payments and a cash payment of $20,000 per month for a period
        of nine months commencing when we reach profitability. Mr. Osborn is the
        Managing Partner of Indigo Securities, LLC, the firm that served as the
        placement agent for the offerings of our First Convertible Bridge Notes,
        Second
        Convertible Bridge Notes and 6% Notes. In connection with its services as
        placement agent of the First Convertible Bridge Notes, Indigo Securities
        received a fee of $629,509 and seven-year warrants to purchase an aggregate
        of
        approximately 8,682,884 shares of our common stock at an exercise price of
        $0.0725 per share. In connection with its services as placement agent of
        the
        Second Convertible Bridge Notes, Indigo Securities received a fee of $200,000
        and seven-year warrants to purchase an aggregate of 2,020,000 shares of our
        common stock at an exercise price of $0.11 per share. In connection with
        its
        services as placement agent of the 6% Notes that were issued for cash
        consideration, Indigo Securities received a fee of approximately $345,000
        and
        seven-year warrants to purchase an aggregate of approximately 3,136,364 shares
        of our common stock at an exercise price of $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.
        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.
  *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 a worldwide right to market and distribute products used as
        post-harvesting processing aids for the poultry industry based on the pHarlo
        technology. In return for this license, Wynn Starr will purchase licensed
        products from the Company and will withhold up to 25% of the net sale price
        per
        gallon sold, based on different increments of achieved net sale prices. The
        amended agreement also includes other target performance criteria such that,
        if
        met by Wynn Starr, the Company will issue to Wynn Starr a warrant to purchase
        up
        to 1,300,000 shares of the Company’s common stock with an exercise price based
        upon the closing price of the Company’s common stock on January 23, 2007, the
        date of the amendment. As of September 30, 2007, the Company had paid $39,000
        to
        Wynn Starr and had accrued $58,000 under this royalty arrangement. Steven
        B.
        Zavagli, a former member of the Company’s board of directors, is the founder,
        Chairman and the Chief Executive Officer of Wynn Starr and Wynn Starr’s ultimate
        parent company, Wynn Starr Flavors, Inc.
  **13.
         Segments — Enterprise Wide Disclosures**
  The
        Company owns several utility patents and patent applications that cover certain
        products applications that are marketed and sold by the Company. The Chief
        Operating Decision Maker (CODM) of the Company is the President and CEO.
        The
        operating results of each product application, other than for revenue, are
        not
        separately tracked or reported. Operating results by product application
        are not
        reviewed by the CODM because discrete financial information is not available.
        Consequently, as permitted by the provisions of SFAS No. 131, “Disclosure
        About
  20
  Segments
        of an Enterprise and Related Information,” the Company has one reportable
        segment for financial statement purposes.
  *Revenue
        by Product*
  The
        Company’s revenue by product is as follows:
 Three Months Ended September 30,2007
                    
                    2006**(in
                        thousands)**Unifresh®
                        Footbath
                    
                    $
                    305
                    
                    $
                    488Tasker
                        Blue Poultry Processing
                    
                    
                    384
                    
                    
                    23Close
                        CallTM
                    
                    
                    —
                    
                    
                    20Other
                    
                    
                    4
                    
                    
                    —$
                    693
                    
                    $
                    531
  **Nine Months Ended September 30,****2007**
                
                **2006****(in
                    thousands)**Unifresh®
                    Footbath
                
                $
                897
                
                $
                1,094Tasker
                    Blue Poultry Processing
                
                
                841
                
                
                23Close
                    CallTM
                
                
                —
                
                
                172Other
                
                
                12
                
                
                —$
                1,750
                
                $
                1,289
  *Dependence
        on Certain Customers*
  The
        Company’s dependence on certain customers as a percentage of total revenue is as
        follows:
  **Three Months Ended**
                **September
                  30,****2007**
              
              **2006**Customer
                  A
              
              
              6
              %
              
              49
              %Customer
                  B
              
              
              4
              %
              
              21
              %Customer
                  C
              
              
              3
              %
              
              —
              %Customer
                  D
              
              
              25
              %
              
              —
              %Customer
                  E
              
              
              31
              %
              
              —
              %
  ************
                
                **Nine Months Ended**
                  **September
                    30,**************
                
                **2007**
                
                **2006**Customer
                    A
                
                
                6
                %
                
                32
                %Customer
                    B-
                
                
                3
                %
                
                —
                %Customer
                    C
                
                
                10
                %
                
                18
                %Customer
                    D
                
                
                34
                %
                
                —
                %Customer
                    E
                
                
                14
                %
                
                —
                %
  21
  *Accounts
        Receivable Concentration*
  **Nine Months Ended**
                **September
                  30,****2007**
              
              **2006**Customer
                  A
              
              
              4
              %
              
              47
              %Customer
                  B
              
              
              3
              %
              
              5
              %Customer
                  C
              
              
              9
              %
              
              22
              %Customer
                  D
              
              
              21
              %
              
              —
              %Customer
                  E
              
              
              38
              %
              
              —
              %
  **14.
         Derivative Instruments**
  The
        Company has issued and outstanding financial instruments with embedded
        derivative features consisting of convertible debt and warrants. **** The
        Company analyzes these financial instruments in accordance with Statement
        of
        Financial Accounting Standards (“SFAS”) No. 133 and Emerging Issues Task Force
        (“EITF”) Issue No. 00-19 to determine if these hybrid contracts have embedded
        derivatives that must be bifurcated. In addition, free standing warrants
        are
        accounted for as either equity or liabilities in accordance with the provisions
        of EITF Issue No. 00-19.
  Under
        EITF 00-19, instruments that are issued when there are insufficient shares
        to
        satisfy their conversion are required to be recorded as derivative liabilities
        and are then required to be adjusted to fair value at each reporting period
        with
        changes in fair value being recorded in the statement of operations. Currently,
        the Company has available sufficient authorized and unissued shares of common
        stock to effect all possible conversions, however, because the conversion
        price
        of the Second Convertible Bridge Notes was based upon a formula, the number
        of
        shares which would ultimately be issued was indeterminable and the Company
        could
        not therefore be assured of having sufficient shares available in the future
        to
        satisfy all potential conversions. Additionally, the Company is no longer
        able
        to assert that it would not trigger anti-dilution provisions in other
        instruments related to subsequent financings which would cause us to be required
        to potentially issue more shares than we have available. Also as a result,
        other
        issuances subsequent to this transaction, such as the warrants issued with
        the
        Second Convertible Bridge Notes, are also required to be reported as derivative
        liabilities even though the number of such instruments is fixed. Although
        the
        Second Convertible Bridge Note was converted in the financing for the 6%
        Notes,
        the anti-dilution provision in other instruments, as well as the 6% Notes,
        is
        still outstanding, resulting in subsequent convertible issuances being required
        to be reported as derivative liabilities.
  At
        the
        inception of the respective instruments the Company recorded a derivative
        liability. At each reporting period, the Company calculates the estimated
        fair
        value of the derivative liability and adjusts its carrying value to the
        estimated fair value. Changes in the estimated fair value of the derivative
        liabilities are recorded in the consolidated statement of operations. The
        change
        in the fair value of the derivative liabilities from issuance to September
        30,
        2007 was $7,902,000 due to the adjustment of derivatives associated with
        the
        Second Convertible Bridge Note which was marked to market prior to the
        extinguishment of debt and the issuance of the 6% Notes. At September 30,
        2007,
        the derivative liabilities totaled approximately $45,140,000.
  Although
          generally accepted accounting principles required the Company to record
          derivative liabilities totaling $43.4 million with respect to the warrants
          issued in connection with the 6% Notes, as well as the embedded conversion
          feature of the 6% Notes, such amount does not represent the cash amounts
          the
          Company is required to pay in the future. The Company does not expect to
          pay
          more than $11.6 million with respect to the principal of the 6% Notes and
          $2.1
          million with respect to the accrued interest due over the life of the 6%
          Notes.
          The cash amount to repay principal and interest of the 6% Notes may be
          reduced
          further if the holders of the 6% Notes elect to convert their Notes, prior
          to
          their maturity, into shares of common stock.
  22
  **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, a grooming aid for 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
                  Pacific Blue Seafood Wash, a product used in commercial and retail
                  seafood
                  processing to extend shelf life and reduce or eliminate odors;
                  and
  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, a grooming aid that helps clean
        and disinfect the hooves of dairy cows. Because of the bacteriostatic properties
        of the pHarlo technology, this product helps control bacteria that infect
        the
        hooves of cows and cause interdigital dermatitis, a bacterial infection of
        the
        skin on a cow’s hoof, and interdigital papillomatosis, a disease that infects a
        cow’s hoof that may cause severe lameness, decreased milk yield, body weight
        loss, decreased reproductive performance and increased veterinary expenses.
        Unifresh ®Footbath concentrate was launched during the third quarter of 2005. In
        the fourth quarter of 2005, we discovered that our Unifresh ®Footbath product’s
        effectiveness was diminished in water that had abnormally high alkaline content.
        We reformulated our Unifresh ®Footbath concentrate with the addition of a
        compound that neutralizes alkali, or a type of base that has a pH greater
        than
        7, which can increase the pH of water or soil. In the first quarter of 2006,
        we
        introduced our enhanced formulation to the market. It is currently being
        sold to
        dairy farms throughout the U.S. through our sales force, independent brokers
        and
        farm product distributors. We currently market the product as a grooming
        aid. No
        federal agency approvals are required for marketing this
        product.
  23


*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.




We
      recently began tests of our Chiller application. If these tests are successful
      and we receive a Letter of No Objections from the FSIS, we will have commercial
      applications in five of the six intervention stages 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.




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.




*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.


24


**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.





We
      believe that we will have adequate working capital to fund our operations during
      the next twelve months based upon




·
            our
                projections of future revenues from our products including cash and
                cash
                equivalents as of September 30, 2007 including the $3.5 million received
                in September 2007 from the sale of our 6% Secured Convertible Promissory
                Notes;




·
            an
                estimated $2.5 million expected to be received from the exercise
                of
                certain outstanding warrants; and




·
            available
                cash from a proposed $3 million credit facility, which is currently
                being
                negotiated.




We
      can
      give no assurance that any outstanding warrants will be exercised or that we
      will obtain the $3 million credit facility.




Our
      ability to continue to operate and grow our business is dependent upon obtaining
      additional financing from the exercise of outstanding warrants, obtaining the
      proposed credit facility and/or 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 don not receive approximately
      $2.5 million from the exercise of outstanding warrants, obtain the contemplated
      credit facility and/or generate sufficient revenue growth from existing and
      new
      business arrangements, we will not have sufficient cash to support our continued
      operations and meet our obligations.




**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 Securities, LLC, the firm that served as
      the
      placement agent for the offerings of our First Convertible Bridge Notes, Second
      Convertible Bridge Notes and 6% Notes. In connection with its services as
      placement agent of the First Convertible Bridge Notes, Indigo Securities
      received a fee of $629,509 and seven-year warrants to purchase an aggregate
      of
      approximately 8,682,884 shares of our common stock at an exercise price of
      $0.0725 per share. In connection with its services as placement agent of the
      Second Convertible Bridge Notes, Indigo Securities received a fee of $200,000
      and seven-year warrants to purchase an aggregate of 2,020,202 shares of our
      common stock at an exercise price of $0.099 per share. In connection with its
      services as placement agent of the 6% Notes that were issued for cash
      consideration, Indigo Securities received a fee of approximately $345,000 and
      seven-year warrants to purchase an aggregate of approximately 3,136,364 shares
      of our common stock at an exercise price of $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.




25





*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
      a
      worldwide right to market and distribute products used as post-harvesting
      processing aids for the poultry industry based on the pHarlo technology. In
      return for this license, Wynn Starr will purchase licensed products from us
      and
      will remit to us up to 25% of the net sale price per gallon sold, based on
      different increments of achieved net sale prices. This amended agreement also
      includes other target performance criteria such that, if met by Wynn Starr,
      we
      will issue to Wynn Starr a warrant to purchase up to 1,300,000 shares of our
      common stock with an exercise price based upon the closing price of our common
      stock on January 23, 2007, the date of the amendment. Net sales price and
      licensed products are defined in the Exclusive Field of Use License Agreement
      and Products Sale Agreement. As of September 30, 2007, we had paid $39,000
      to
      Wynn Starr and had accrued $54,000 under this royalty arrangement. Steven B.
      Zavagli, a former member of our board of directors, is the founder, Chairman
      and
      the Chief Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent
      company, Wynn Starr Flavors, Inc.


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





**Three
      Months Ended September 30, 2007 Compared to Three Months Ended September 30,
      2006**




*Revenues*




Revenues
      for the three months ended September 30, 2007 were approximately $693,000
      compared with approximately $531,000 for the corresponding period in 2006.
      This
      increase is primarily due to increased sales in Unifresh ® Footbath and Tasker
      Blue, our poultry processing product. We expect that revenue will continue
      to
      increase throughout fiscal year 2007 primarily due to our intensified marketing
      efforts of our poultry processing product and due the expansion of our
      distributor network for our Unifresh® Footbath product.




*Gross
      Margin*




Gross
      margin for the three months ended September 30, 2007 was $469,000 compared
      to
      $297,000 for the same period of the prior year. The gross margin percent
      increased from 56% for the three months ended September 30, 2006 to 68% for
      the
      three months ended September 30, 2007. This increase was primarily due to higher
      poultry sales of $361,000 and a higher margin product mix.




*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 September
      30,
      2007 increased by approximately $980,000 from approximately $2.55 million for
      the three months ended September 30, 2006, to approximately $3.53 million for
      the three months ended September 30, 2007.




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 September 30, 2007 decreased by
      approximately $107,000 primarily due a decrease in advertising and sales related
      consulting expenses.




26


Compensation
      expense consists primarily of salaries and other related expenses for senior
      management, finance and administrative employees of our company. Compensation
      expense decreased by approximately $33,000, primarily due to a reduction in
      the
      number of sales and administrative personnel.




Professional
      fees for the three months ended September 30, 2007 increased by approximately
      $116,000 due to increase in audit and accounting fees of $202,000 and increase
      in investor related fees of $14,000, partially offset by a decrease in legal
      fees of $100,000.




General
      and administrative expenses consist primarily of rent, insurance and travel
      and
      entertainment expenses. The increase in general and administrative expenses
      for
      the three months ended September 30, 2007 of approximately $275,000 was
      primarily due to $249,000 of accrued office lease exit costs, net of estimated
      sublease income, in connection with the lease of our former corporate office
      in
      Danbury, Connecticut, which
      expires in April 2010 and to a lesser extent due to an
      increase in consulting fees of $83,000, partially offset by a decrease in annual
      meeting expenses of $31,000 and sales and property tax of $26,000.




Stock
      based compensation expense for selling, general and administrative employees
      increased by approximately $729,000, to approximately $1,154,000 for the three
      months ended September 30, 2007 as compared to $425,000 for the same time period
      in 2006. 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 September 30, 2007, stock compensation
      expense was allocated as follows:




**(in thousands)**Sales
                and marketing
            
            $
            10Product
                development
            
            
            38General
                and administrative
            
            
            1,144$
            1,192




*Product
      Development*




Product
      development consists primarily of personnel expenses to support product
      development. Product development and research expenses for the three months
      ended September 30, 2007 decreased by approximately $269,000 to approximately
      $289,000 from approximately $558,000 for the three months ended September 30,
      2006. This decrease is primarily due to our decision to focus our development
      efforts in a select smaller number of products. The decrease in the number
      of
      products we are developing and testing in the three months ended September
      30,
      2007 resulted in the decrease in consulting expenses and wages of approximately
      $194,000, decrease in stock based compensation expense of $18,000 and decrease
      in warehouse expenses of $57,000.




*Depreciation
      and Amortization Expense*




Depreciation
      and amortization expense, which includes the amortization of identifiable
      intangible assets, increased by approximately $5,000 from approximately $276,000
      in the three months ended September 30, 2006, to approximately $281,000 for
      the
      three months ended September 30, 2007, primarily due to purchase of machinery
      and office equipment during the quarter ended September 30,2007.




*Interest
      Expense*




Interest
      expense increased by approximately $210,000 from $20,000 for the three months
      ended September 30, 2006, to approximately $230,000 for the three months ended
      September 30, 2007. The increase was primarily due to $220,000 in accrued
      interest expense related to the First and Second Convertible Bridge Notes
      partially offset by a decrease of $10,000 in interest expense related to the
      lower balance of the IRL note payable which was paid in full in July
      2007.


27


*Finance
      costs related to long-term debt*




The
      increase was due to $7,364,000 of finance costs associated with the issuance
      of
      the 6% convertible notes of $3,450,000, in September 2007,




*Interest
      Income*




Interest
      income decreased by approximately $37,000 from $52,000 for the three months
      ended September 30, 2006, to approximately $15,000 for the three months ended
      September 30, 2007 primarily due to a lower cash balance during the three months
      ended September 30, 2007, as compared to the same period ending September 30,
      2006.




*Amortization
      of debt discount*




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. The
      following amounts related to debt discounts were amortized during the three
      months ended September 30, 2007; $943,000 is due to the amortization of the
      debt
      discount related to the fair value of the beneficial conversion feature of
      the
      First and Second Convertible Bridge Notes, $347,000 is to due to the
      amortization of the discount related to the fair value of the four-year warrants
      issued in connection with the First and Second Convertible Bridge Notes,
      $358,000 is due to amortization of discount related to the fair value of the
      derivative liability in connection with the Second Convertible Bridge Notes.




*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. The following amounts related to debt financing were amortized
      during the three months ended September 30, 2007; $382,000 is due to the
      amortization of the fair value of the placement agent seven-year warrants issued
      in connection with the First and Second Convertible Bridge Notes and $423,000
      is
      due to the amortization of the placement agent fee in connection with the First
      and Second Convertible Bridge Notes and 6% Notes.




*Loss
      on extinguishment of debt*




For
      the
      three months ended September 30, 2007, we recorded a non cash loss of $16.6
      million on the refinancing of the First and Second Convertible Bridge Notes
      into
      the 6% Notes. The loss primarily results from the terms of the conversion
      feature of the 6% Notes, as well as the value of the additional warrants issued
      to holders of the Convertible Bridge Notes. In recording the 6% Notes, the
      net
      carrying amount of the Convertible Bridge Notes, related derivative conversion
      liability and deferred financing costs were written off and new derivative
      liabilities for the conversion feature and warrants, as well as the principal
      balance of the 6% Notes and a full debt discount were recorded.




*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 September 30, 2007, we recorded a non cash loss of $7.9
      million due to the change in the fair value of the derivative liability related
      to the conversion feature of the Second Convertible Bridge Notes and the change
      in the fair value of the derivative liability related to the placement agent
      warrants of the Second Convertible Bridge Notes.


28


**Nine
      Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
      2006**




*Revenues*




Revenues
      for the nine months ended September 30, 2007 were approximately $1.8 million
      compared with approximately $ 1.3 million for the corresponding period in 2006.
      This increase is primarily due to increased sales in Unifresh ® Footbath and
      Tasker Blue, our poultry processing product. We expect that revenue will
      continue to increase throughout fiscal year 2007 primarily due to our
      intensified marketing efforts of our poultry processing product and due the
      expansion of our distributor network for our Unifresh® Footbath
      product.




*Gross
      Margin*




Gross
      margin for the nine months ended September 30, 2007 was $1,358,000 compared
      to
      $842,000 for the same period of the prior year. Gross margin as a percent of
      revenues increased from 65% for the nine months ended September 30, 2006 to
      78%
      for the nine months ended September 30, 2007. This increase was primarily due
      to
      higher poultry sales and a higher margin product mix.




*Selling,
      General and Administrative*




SGA
      expenses for the nine months ended September 30, 2007 increased by approximately
      $595,000 from approximately $9.5 million for the nine months ended September
      30,
      2006, to approximately $10.1 million for the nine months ended September 30,
      2007.




Sales
      and
      marketing expenses for the nine months ended September 30, 2007 decreased by
      approximately $67,000 primarily due to the decrease in commission, advertising
      and promotional expenses.




Compensation
      expense consists primarily of salaries and other related expenses for senior
      management, finance and administrative employees of our company. Compensation
      expense decreased by approximately $524,000 primarily due to a reduction in
      sales and administrative personnel.




Professional
      fees for the nine months ended September 30, 2007 increased by approximately
      $212,000. The increase is due to increase in audit and accounting fees of
      $371,000 and partially offset by a decrease in legal fees of
      $159,000.




General
      and administrative expenses for the nine months ended September 30, 2007
      increased by approximately $355,000, primarily due to $249,000 of accrued office
      lease exit costs, net of estimated sublease income, in connection with the
      lease
      of our former corporate office in Danbury, Connecticut, which
      expires in April 2010, an increase
      of $130,000 in freight expenses, an increase of $83,000 in consulting expenses
      and $31,000 for annual meeting expenses. This increase was partially offset
      by a
      decrease in insurance expense of $127,000 and a decrease in sales and property
      tax of $11,000.




Stock
      based compensation expense for selling, general and administrative employees
      increased by approximately $619,000, to approximately $3.7 million for the
      nine
      months ended September 30, 2007 as compared to $3.1 million for the same time
      period in 2006. The expense associated with these awards is recorded as expense
      within the same functional expense category as cash compensation for the
      respective employee is recorded. For the nine months ended September 30, 2007,
      stock compensation expense was allocated as follows:




**(in thousands)**Sales
                and marketing
            
            $
            95Product
                development
            
            
            187General
                and administrative
            
            
            3,622$
            3,904


29




*Product
      Development*




Product
      development consists primarily of personnel expenses to support product
      development. Product development and research expenses for the nine months
      ended
      September 30, 2007 decreased by approximately $325,000 to approximately $1.1
      million from approximately $1.4 million for the nine months ended September
      30,
      2006. This decrease is primarily due to our decision to focus our development
      efforts in a select smaller number of products. The decrease in the number
      of
      products we are developing and testing in the nine months ended September 30,
      2007 resulted in the decrease in consulting expenses of approximately $106,000,
      decrease in third party laboratory testing cost and product development expense
      of $12,000 decrease in warehouse expense of $88,000,decrease in wages of
      approximately $93,000 and a decrease in stock based compensation of $26,000.




*Depreciation
      and Amortization Expense*




Depreciation
      and amortization expense, which includes the amortization of identifiable
      intangible assets, decreased by approximately $592,000 from approximately
      $1,430,000 in the nine months ended September 30, 2006, to approximately
      $838,000 for the nine months ended September 30, 2007, primarily due to the
      reduction in the carrying value of the intangible assets as a result of the
      impairment charge of $12.2 million recorded in the second quarter of
      2006.




*Interest
      Expense*




Interest
      expense increased by approximately $441,000 from $69,000 for the nine months
      ended September 30, 2006, to approximately $510,000 for the nine months ended
      September 30, 2007. The increase was primarily due to $459,000 in accrued
      interest expense related to the First and Second Convertible Bridge Notes
      partially offset by a decrease of $18,000 in interest expense related to the
      lower balance of the IRL note payable which was paid in full in July
      2007.




*Finance
      costs related to long-term debt*




The
      increase was due to $7,364,000 of finance costs associated with the issuance
      of
      the 6% convertible notes of $3,450,000, in September 2007,




*Interest
      Income*




Interest
      income decreased by approximately $142,000 from $190,000 for the nine months
      ended September 30, 2006, to approximately $48,000 for the nine months ended
      September 30, 2007 primarily due to a lower cash balance in the nine months
      ended September 30, 2007, as compared to the same period ending September 30,
      2006.




*Amortization
      of debt discount*




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. During
      the nine months ended September 30, 2007, the following amounts were amortized;
      $4,274,000 is due to the amortization of the debt discount related to the fair
      value of the beneficial conversion feature of the First and Second Convertible
      Bridge Notes, $1,529,000 is to due to the amortization of the discount related
      to the fair value of the four-year warrants issued in connection with the First
      and Second Convertible Bridge Notes,$716,000 is due to amortization of discount
      related to the fair value of the derivative liability in connection with the
      Second Convertible Bridge Notes and $7,364,000 is due to the financing cost
      of
      the 6% Notes.




*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.


30




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. The following amounts related to debt financing were amortized
      during the nine months ended September 30, 2007; $1,366,000 is due to the
      amortization of the fair value of the placement agent seven-year warrants issued
      in connection with the First Convertible Bridge Notes and issuable in connection
      with the Second Convertible Bridge Note and $1,161,000 is due to the
      amortization of the placement agent fee issued in connection with the First,
      Second Convertible Bridge Notes and 6% Notes.




*Loss
      on extinguishment of debt*




For
      the
      nine months ended September 30, 2007, we recorded a non cash loss of $16.6
      million on the refinancing of the First and Second Convertible Bridge Notes
      into
      the 6% Notes. The loss primarily results from the terms of the conversion
      feature of the 6% Notes, as well as the value of the additional warrants issued
      to holders of the Convertible Bridge Notes. In recording the 6% Notes, the
      net
      carrying amount of the Convertible Bridge Notes, related derivative conversion
      liability and deferred financing costs were written off and new derivative
      liabilities for the conversion feature and warrants, as well as the principal
      balance of the 6% Notes and a full debt discount were recorded.




*Change
      in 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
      nine months ended September 30, 2007, we recorded a non cash loss of $7.9
      million due to the change in the fair value of the derivative liability related
      to the conversion feature of the Second Convertible Bridge Notes and the change
      in the fair value of the derivative liability related to the placement agent
      warrants of the Second Convertible Bridge Notes.




**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 in April 30 and July 22,
      2006,
      respectively. Through September 30, 2007, we have accrued $442,000 in liquidated
      damages related to these agreements. Also, as of September 30, 2007, we have
      accrued the full amount of liquidated damages of $23,000 required under the
      January 26, 2006 registration rights agreement.




*Liquidity
      - Going Concern*




We
      believe we will have adequate working capital to fund our operations during
      the
      next twelve months based upon:




·
            our
                projections of future revenues from our
                products;




·
            cash
                and cash equivalents as of September 30, 2007 including the $3.5
                million
                received in September 2007 from the sale of our 6%
                Notes;




·
            an
                estimated $2.5 million expected to be received from the exercise
                of
                certain outstanding warrants; and




31


·
            available
                cash from a proposed $3 million credit facility, which is currently
                being
                negotiated.




We
      can
      give no assurance that any outstanding warrants will be exercised or that we
      will obtain the $3 million credit facility.




Our
      ability to continue to operate and grow our business is dependent upon obtaining
      additional financing from the exercise of outstanding warrants, obtaining the
      proposed credit facility and/or 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 do not receive approximately
      $2.5 million from the exercise of outstanding warrants, obtain the contemplated
      credit facility and/or generate sufficient revenue growth from existing and
      new
      business arrangements, we will not have sufficient cash to support our continued
      operations and meet our obligations.




*Operating
      Activities*




At
      September 30, 2007 our cash and cash equivalents balances were approximately
      $2,594,000 compared with $932,000 at December 31, 2006.




Net
      cash
      used in operating activities for the nine months ended September 30, 2007 was
      approximately $6.2 million, primarily due to a net loss of $52.2 million,
      partially offset by amortization of discount on the First and Second Convertible
      Bridge Notes and finance cost associated with the issuance of 6% Notes of $13.9
      million, change in value of derivative liability of $7.9 million, loss on
      extinguishment of debt of $16.6 million and the amortization of deferred
      financing costs of $2.5 million related to the First Convertible Bridge Notes,
      Second Convertible Bridge Notes and 6% Notes. Net cash used in operating
      activities for the nine months ended September 30, 2006 was approximately $7.7
      million.




*Investing
      Activities*




Net
      cash
      used in investing activities for the nine months ended September 30, 2007 was
      approximately $96,000 as compared to approximately 1.4 million for the nine
      months ended September 30, 2006. The decrease in net cash used in investing
      activities was primarily due to lack of excess funds to invest in marketable
      securities during 2007.




*Financing
      Activities*




Net
      cash
      provided by financing activities during the nine months ended September 30,
      2007
      was approximately $8.0 million, as compared to approximately $8.1 million for
      the nine months ended September 30, 2006.




The
      net
      cash provided by financing activities for the nine months ended September 30,
      2007 principally represents proceeds from the sale of the First and Second
      Convertible Bridge Notes and the 6% Notes, net of placement agent fees and
      legal
      expenses.




As
      partial consideration for the purchase of the pHarlo assets in the July 2005
      acquisition, we issued a promissory note in the amount of $1,931,973 to Indian
      River Labs, L.L.C. (“IRL”). The promissory note bears interest of 3.4% per annum
      and is payable in equal bi-weekly principal installments of $37,153, plus
      interest, through July 2007. During the nine months ended September 30, 2007
      we
      paid approximately $603,000 under the IRL promissory note. This note was paid
      in
      full in July 2007.




Between
      December 1, 2006 and May 1, 2007, we issued 10% Convertible Promissory Notes
      (the “First Convertible Bridge Notes”) to accredited investors in the aggregate
      principal amount of $6,295,091. The First Convertible 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 Convertible 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
      Convertible 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
      $5,755,091, as well as the interest thereon, were exchanged for 6% Notes. As
      of
      September 30, 2007, First Convertible Bridge Notes in the aggregate principal
      amount of $540,000 remained outstanding. Certain of the remaining First
      Convertible Bridge Notes have matured according to their terms, but no demand
      for payment has been made by the holders. We will either pay such notes and
      related interest when demand is made or, if elected by the holders, convert
      the
      notes and accrued interest into common stock.


32


On
      June
      4, 2007, we issued 10% Convertible Promissory Notes (the “Second Convertible
      Bridge Notes”) to one accredited investor in the aggregate principal amount of
      $2,000,000. The Second Convertible Bridge Notes were convertible into shares
      of
      common stock at a conversion price of the lower of $0.16 per share or 90% of
      the
      per share amount of a Qualified Financing (as defined above) or if such
      Qualified Financing had not been completed by July 4, 2007, the lower of $0.16
      per share or 80% of the per share amount of a Qualified Financing. Based on
      a
      conversion price of $0.16 per share, the Second Convertible Bridge Notes were
      convertible into 12,500,000 shares of common stock. The Second Convertible
      Bridge Notes had a term of six months from the date of issuance. As an
      inducement for the investor to purchase the Second Convertible 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, Second
      Convertible Bridge Note in the aggregate principal amount of $2,000,000, as
      well
      as the interest thereon, was exchanged for 6% Notes. As of September 30, 2007,
      no Second Convertible Bridge Notes remained outstanding.




On
      September 28, 2007, we issued 6% Secured Convertible Promissory Notes (the
      6%
“Notes”) to accredited investors in the aggregate principal amount of
      $11,643,624. The aggregate consideration of $11,643,624 was in the form of
      cash
      ($3,450,000), conversion of First Convertible Bridge Notes (aggregate principal
      amount of $5,755,091 and the accrued interest thereon of $374,645) and
      conversion of Second Convertible Bridge Notes (aggregate principal amount of
      $2,000,000 and the accrued interest thereon of $63,888).





The
      net
      cash proceeds from the sale of the 6% Notes ($3,450,000) are intended to be
      used
      for working capital and general corporate purposes.




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.




33


·
            The
                6% Notes purchased upon conversion of First Convertible 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 Convertible 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).




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 Convertible 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
      Convertible 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.




Although
        generally accepted accounting principles require us to record derivative
        liabilities totaling $43.4 million with respect to the warrants issued in
        connection with the 6% Notes, as well as the embedded conversion feature
        of the
        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 $11.6 million with respect
        to
        the principal of the 6% Notes and $2.1 million with respect to the accrued
        interest due over the life of the 6% Notes. The cash amount to repay principal
        and interest of the 6% Notes may be reduced further if the holders of the
        6%
        Notes elect to convert their Notes, prior to their maturity, into shares
        of
        common stock.




34


**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 $96,000.





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
      September 30, 2007, we had not issued these shares and warrants.





As
      it
      relates to the September 2007 private placement, we are required to file a
      series of registration statements covering the resale of the shares of common
      stock underlying the 6% Notes and Warrants. 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 equal to 1% of the
      purchase price of the 6% Notes and Warrants for each 30-day delay in the
      effectiveness of such registration statement.





The
      6%
      Notes and warrants issued with the 6% Notes have the following registration
      rights:




·
            *Upfront
                Registration:*We
                are 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”). In the event we fail to file or cause the
                registration statement to become effective within such time periods,
                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 statement. An Event of Default
                with
                respect to the 6% Notes will occur if the Filing Date occurs later
                than 90
                days following September 28, 2007 (the “Closing Date”) or if the Effective
                Date occurs later than 270 days following the Closing
                Date.




·
            *Additional
                Registration Statement:*If
                we cannot 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, then
                we will
                include in the registration statement the maximum number of securities
                that can be included therein, with the number of such securities
                to be
                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 are 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.





·
            *Demand
                and Piggy-back Registrations:*The holders of more than 50% of the shares of common stock issuable
                upon
                conversion of the 6% Notes or exercise of the related warrants shall
                be
                entitled to one demand registration right commencing 61 days after
                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).




35




·
            We
                will bear all registration expenses (other than brokers' commissions
                and
                similar expenses and legal and other costs of the holders of
                securities).





**Off-Balance
      Sheet Arrangements**




During
      the nine and twelve months ended September 30, 2007 and December 31, 2006,
      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.




**Item
      4. Controls and Procedures**




As
      required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange
      Act”), we carried out an evaluation of the effectiveness of the design and
      operation of our disclosure controls and procedures (as defined by Rule
      13a-15(e) under the Exchange Act) as of the end of the period covered by this
      report. This evaluation was carried out under the supervision and with the
      participation of our Chief Executive Officer, Lanny Dacus and our Chief
      Financial Officer, Stathis Kouninis.




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




Based
      upon that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures as of the end of the
      period covered by this report were not effective. We instituted and are
      continuing to implement corrective actions with respect to the deficiencies
      in
      our disclosure controls and procedures caused by the lack of an automated
      financial reporting system and a small accounting staff that does not allow
      for
      a thorough review process. We will complete the design of financial reports
      so
      that we do not rely on spreadsheets and we will add additional accounting staff
      when our financial condition allows us to do so.




There
      were no changes to our internal control over financial reporting (as defined
      on
      Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal
      quarter that have materially affected, or are reasonably likely to materially
      affect, our internal controls over financial reporting.




36


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







**PART
      II — OTHER INFORMATION**




**Item
      1A. Risk Factors**


Except
      for the following revised risk factors, there have been no material changes
      in
      the risk factors from those disclosed in Amendment No. 1 to our Annual Report
      on
      Form 10-K for the year ended December 31, 2006.




**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***





We
      believe that we will have adequate working capital to fund our operations during
      the next twelve months based upon:




·
            our projections of future revenues from our
                products;




·
            cash and cash equivalents as of June 30, 2007 including the $3.5
                million
                received in September 2007 from the sale of our 6%
                Notes




·
            an estimated $2.5 million expected to be received from the exercise
                of
                certain outstanding warrants; and




·
            available cash from a proposed $3 million credit facility, which
                is
                currently being negotiated.




We
      can
      give no assurance that any outstanding warrants will be exercised or that we
      will obtain the proposed $3 million credit facility.




Our
      ability to continue to operate and grow our business is dependent upon obtaining
      additional financing from the exercise of outstanding warrants, obtaining the
      proposed credit facility and/or generating revenue growth from operations.
      While
      we have been in the process of aggressively developing, marketing and selling
      our products, there can be no assurance that those efforts will be met with
      success in the marketplace or that the timing of our efforts will be consistent
      with our cash availability and burn rate. If we do not receive approximately
      $2.5 million from the exercise of outstanding warrants, obtain the contemplated
      credit facility and/or generate sufficient revenue growth from existing and
      new
      business arrangements, we will not have sufficient cash to support our continued
      operations and meet our obligations.





***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. Our net losses for the nine months ended September
      30,
      2007 and the years ended December 31, 2006, 2005 and 2004 were
      approximately $52,239,000, $62,943,000, $18,269,000, and $6,072,000,
      respectively. We expect to continue to incur 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.


37





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.




**RISKS
      RELATED TO OUR COMMON STOCK**




***The
      large number of shares available for future sale could adversely affect the
      price of our common stock.***




As
      of
      September 30, 2007:




·
            17,672,148
                million shares of common stock were issuable as compensation for
                employees, directors and consultants upon exercise of outstanding
                stock
                options with a weighted average exercise price of $0.37 per
                share;




·
            50,274,062
                shares of our common stock were issuable as compensation for employees,
                directors and consultants upon exercise of our outstanding warrants
                with
                an exercise price between $0.11 to $0.33 per
                share;




·
            99,669,826shares
                of common stock were issuable upon exercise of outstanding warrants
                with
                an exercise price between $0.0725 to $2.00 per
                share;




·
            7,888,736
                shares of common stock were issuable upon the conversion of the First
                Convertible Bridge Notes with a conversion price of $0.0725 per share;
                and




·
            136,759,081
                shares of common stock were issuable upon the conversion of the 6%
                Notes
                with a conversion price between $0.0725 to $0.11 per
                share.




In
      addition, the registration rights agreement for the January 2006 private
      placement requires us to pay liquidated damages in the form of additional common
      stock and warrants. As of 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 and Warrants and the warrants
      issued to the placement agent in the cash offering of the 6% Notes. 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
      equal to 1% of the purchase price of the 6% Notes and Warrants for each 30-day
      delay in the effectiveness of such registration statement.




Substantially
      all of the shares underlying these options and warrants have been or would
      be
      registered for resale, and none of them are subject to any contractual
      restrictions on resale. Future sales of any of these shares, or the anticipation
      of such sales, could adversely affect the market price of our common stock
      and
      could materially impair our future ability to raise capital through an offering
      of equity securities. Further, any issuance of a substantial number of these
      shares would dilute the ownership interest of existing stockholders and could
      result in increased volatility in the price of our common stock.




38




***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 shareholder approval.
      The board of directors has no immediate plans to effectuate a reverse split.
      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.


**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds**




During
      the three-month period ended September 30, 2007, we issued the following stock
      options, warrants and common stock:




·
            Warrants
                to purchase 2,170,000 shares of common stock issued to employees,
                directors and consultants on September 19, 2007, as compensation.
                The
                warrants have a ten-year term and were issued with an exercise price
                of
                $0.18 per share.





The
      issuances of warrants 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.




**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


39




**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: November
                14, 2007
            By:
            /s/ Stathis
                KouninisStathis
                KouninisChief
                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


40