**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-QSB**


(Mark
      One)




**xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**




For
      the
      Quarterly period ended September 30, 2007




**oTRANSITION
      REPORT UNDER SECTION 13
      OR 15(d) OF THE EXCHANGE ACT**




For
      the
      transition period from ______________ to ______________




*Commission
      file number 000-28195*




**VERSADIAL,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





Nevada
            11-3535204(State
                or other jurisdiction of
            (State
                or I.R.S. Employerincorporation
                of organization)
            Identification
                Number)




305
      Madison Avenue, Suite 4510, New York, New York 10165


(Address
      of principal executive offices)




212-986-0886


(Issuer's
      telephone number including area code)




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 registrants were required to file such
      reports) and (2) has been subject to such filing requirements for the past
      90
      days.




Yes xNo o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12B-2 of the Exchange Act).




Yes oNo x




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**




Indicate
      the number of shares outstanding of each of the issuer's class of common stock,
      as of the latest practicable date: 15,309,194 shares of common stock, par value
      $0.0001 per share, as of November 19, 2007.








**VERSADIAL,
      INC.**


FORM
      10-QSB


QUARTERLY
      REPORT


For
      the Three Months Ended September 30, 2007


**TABLE
        OF CONTENTS**
 
 Part
                  I - Financial InformationItem
                  1. Consolidated Financial Statements:Consolidated
                  Balance Sheet
              1Consolidated
                  Statements of Operations
              2Consolidated
                  Statements of Cash Flows
              3-4Notes
                  to Consolidated Financial Statements
              5-17Item
                  2. Management's Discussion and Analysis of Financial Condition
                  and Results
                  of Operations
              18-24Item
                  3. Controls and Procedures
              25Part
                  II. - Other Information
              26-27Signatures
              28Exhibit
                  31Exhibit
                  32




**Item
      1. Financial Statements**





**VERSADIAL,
      INC.**





**CONSOLIDATED
      BALANCE SHEET**





**September 30,****2007****(unaudited)****ASSETS****Current
                assets**Cash
            
            $
            53,665Due
                from affiliates
            
            
            29,363Accounts
                receivable
            
            
            223,053Sublease
                and other receivable
            
            
            229,347Inventories
            
            
            644,385Prepaid
                expenses and other current assets
            
            
            72,457Total
                current assets
            
            
            1,252,270**Property
                and equipment,**net
            
            
            2,837,398**Other
                assets**Deposits
                on production equipment
            
            
            3,073,921Deferred
                financing costs
            
            
            463,098Deferred
                registration costs
            
            
            25,015Security
                deposit
            
            
            34,155Total
                other assets
            
            
            3,596,189$
            7,685,857**LIABILITIES
                AND STOCKHOLDERS' DEFICIT****Current
                liabilities**Notes
                and interest payable, net of debt discount of $169,927
            
            $
            2,180,508Notes
                and interest payable, related parties, net of debt discount of
                $17,011
            
            
            2,129,220Interest
                payable on convertible note
            
            
            104,167Due
                to licensor
            
            
            530,793Accounts
                payable and accrued expenses
            
            
            1,907,076Capital
                lease obligations, current portion
            
            
            585,672Due
                to related parties
            
            
            224,253Deferred
                revenue
            
            
            257,966Customer
                deposits
            
            
            18,911Total
                current liabilities
            
            
            7,938,566**Long-term
                liabilities**Convertible
                note and interest payable, net of debt discount of
                $344,731
            
            
            7,829,725Customer
                advance
            
            
            1,700,000Capital
                lease obligations
            
            
            478,528Derivative
                financial instruments
            
            
            2,994,106Sublease
                security deposit, affiliate
            
            
            6,83013,009,189**Commitments
                and contingencies****Stockholders'
                deficit**Preferred
                stock, $.0001 par value, 2 million shares authorized,zero
                issued and outstandingCommon
                stock, $.0001 par value, 35 million shares authorized,15,309,194
                issued and outstanding
            
            
            1,531Additional
                paid-in-capital
            
            
            4,285,390Accumulated
                deficit
            
            
            (17,548,819
            )Total
                stockholders' deficit
            
            
            (13,261,898
            )$
            7,685,857





*See
      accompanying notes to unaudited consolidated financial
      statements*


1





**VERSADIAL,
      INC.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**







**Three
                Months Ended****September
                30,****2007**
            
            **2006****(unaudited)**
            
            **(unaudited)****Net
                revenues**
            
            $
            148,687
            
            $
            19,475**Cost
                of revenues**Direct
                costs
            
            
            290,989
            
            
            21,765Indirect
                costs
            
            
            421,503
            
            
            148,940712,492
            
            
            170,705**Gross
                margin**
            
            
            (563,805
            )
            
            (151,230
            )**Operating
                expenses**General
                and administrative
            
            
            787,637
            
            
            697,178**Loss
                from operations**
            
            
            (1,351,442
            )
            
            (848,408
            )**Other
                income (expenses)**Sublease
                income, affiliates
            
            
            12,915
            
            
            9,624Interest
                expense
            
            
            (479,219
            )
            
            (261,005
            )Interest
                expense, related parties
            
            
            (25,777
            )
            
            (31,877
            )Amortization
                of debt discount
            
            
            (190,227
            )
            
            (36,214
            )Amortization
                of financing costs
            
            
            (125,322
            )
            
            (74,836
            )Loss
                on derivative financial instruments
            
            
            (526,901
            )Loss
                on foreign currency exchange
            
            
            (33,174
            )
            
            (4,007
            )(1,367,705
            )
            
            (398,315
            )**Net
                loss**
            
            $
            (2,719,147
            )
            $
            (1,246,723
            )**Weighted
                average common shares outstanding**Basic
            
            
            14,318,197
            
            
            12,188,815Diluted
            
            
            17,400,688
            
            
            12,899,917**Loss
                per common share**Basic
                and Diluted
            
            $
            (0.19
            )
            $
            (0.10
            )


*See
      accompanying notes to unaudited consolidated financial
      statements*


2


**VERSADIAL,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**







**Three
                Months Ended****September
                30,****2007**
            
            **2006****(unaudited)**
            
            **(unaudited)****Cash
                flows from operating activities**Net
                loss
            
            $
            (2,719,147
            )
            $
            (1,246,723
            )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
                and amortization
            
            
            203,366
            
            
            81,141Amortization
                of financing costs
            
            
            125,322
            
            
            74,836Amortization
                of debt discount
            
            
            190,227
            
            
            36,214Loss
                on derivative financial instruments
            
            
            526,901Changes
                in operating assets and liabilities:Due
                from affiliates
            
            
            176
            
            
            (3,275
            )Accounts
                receivable
            
            
            1,931
            
            
            39,415Sublease
                and other receivable
            
            
            (229,347
            )Inventories
            
            
            (97,053
            )
            
            (252,483
            )Prepaid
                expenses and other current assets
            
            
            (8,169
            )
            
            (16,341
            )Due
                to licensor
            
            
            98,673
            
            
            75,024Accounts
                payable and accrued expenses
            
            
            276,538
            
            
            137,734Due
                to related parties
            
            
            28,304
            
            
            7,430Deferred
                revenue
            
            
            257,966Customer
                deposits
            
            
            
            
            
            13,480Interest
                payable
            
            
            391,901
            
            
            386,510**Net
                cash used in operating activities**
            
            
            (952,411
            )
            
            (667,038
            )**Cash
                flows from investing activities**Purchase
                of equipment
            
            
            (186,655
            )
            
            (167,133
            )Payment
                of deposits on production equipment
            
            
            (653,407
            )Payments
                for merger costs
            
            
            
            
            
            (142,919
            )Net
                cash acquired from merger
            
            
            
            
            
            95**Net
                cash used in investing activities**
            
            
            (840,062
            )
            
            (309,957
            )**Cash
                flows from financing activities**Proceeds
                from issuance of convertible note
            
            
            
            
            
            1,706,846Proceeds
                from issuance of note, related parties
            
            
            600,000Proceeds
                from issuance of notes
            
            
            1,200,000Proceeds
                from customer advance
            
            
            
            
            
            700,000Payments
                for financing costs
            
            
            (30,000
            )Payments
                on equipment leases
            
            
            (58,223
            )**Net
                cash provided by financing activities**
            
            
            1,711,777
            
            
            2,406,846**Net
                (decrease) increase in cash**
            
            
            (80,696
            )
            
            1,429,851**Cash,
                beginning of period**
            
            
            134,361
            
            
            917,296**Cash,
                end of period**
            
            $
            53,665
            
            $
            2,347,147


*See
      accompanying notes to unaudited consolidated financial
      statements*


3





**VERSADIAL,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)**







**Three
                Months Ended****September
                30,****2007**
            
            **2006****(unaudited)**
            
            **(unaudited)****Supplemental
                  disclosure of cash flow information,**
                cash
                  paid during the period for interest
            
            $
            101,857
            
            $
            427,288**Supplemental
                      disclosure of non-cash investing and
                      financing** **activities:**Convertible
                debentures and note converted to common stock
            
            $
            2,000,000
            
            $
            1,200,000Interest
                paid in common stock
            
            $
            796,687
            
            $
            -Debt
                discount related to convertible note
            
            $
            -
            
            $
            635,142Purchase
                of equipment financed by lease obligation
            
            $
            870,965
            
            $
            -Reclassification
                of deposit on equipment to equipment
            
            $
            147,493
            
            $
            -Reclassification
                of deferred financing cost to accounts payable
            
            $
            -
            
            $
            175,000Issuance
                of convertible notes
            
            $
            
            
            $
            7,500,000Payments
                made directly to debtholders
            
            
            
            
            
            (4,517,154
            )Merger
                and financing costs
            
            
            
            
            
            (1,026,000
            )Payment
                made directly to licensor
            
            
            
            
            
            (250,000
            )Net
                proceeds received
            
            $
            
            
            
            1,706,846


*See
      accompanying notes to unaudited consolidated financial
      statements*


4




**VERSADIAL,
      INC.**


**NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




**1.**
            **Organization
                and nature of operations**





Versadial,
      Inc. (hereinafter referred to as the “Registrant” or “Versadial” or the
“Company”), was originally incorporated in Nevada under the name
      Carsunlimited.com, Inc. (“CARS”) on March 7, 2000. CARS, a publicly traded
      corporation, prior to August 9, 2006, was a development stage company with
      limited operations and revenues and only nominal assets. Its intended purpose
      was to offer users the ability to search a database that contained products
      and
      information about the Automobile industry, new and used car sales (classified
      ads), as well as automotive products such as extended warranty information
      and
      anti-theft body part marking.





On
      August
      9, 2006, the Registrant executed an Agreement and Plan of Merger (“Merger
      Agreement”) with Pump Acquisition Corp. ("PAC"), a wholly-owned subsidiary of
      the Registrant, Innopump, Inc. D/B/A Versadial (“Innopump”), a Nevada
      corporation which was formed on April 1, 2005, and certain Innopump
      stockholders.





Pursuant
      to the Merger Agreement, the Registrant issued 12,625,243 shares of its common
      stock to shareholders of Innopump in consideration of Innopump merging with
      and
      into PAC and becoming a wholly-owned subsidiary of the Registrant ("Merger")
      which resulted in the Innopump shareholders receiving approximately 93.25%
      of
      the outstanding stock and the CARS shareholders retaining approximately 6.75%
      or
      914,227 shares. As a result of the Merger, Innopump became a wholly-owned
      subsidiary of the Registrant and the holders of Innopump common stock and debt
      acquired a majority interest of the Company. The accounting of this transaction
      differs from its legal form, as Innopump is considered the accounting acquirer
      and the Registrant the acquired entity. The transaction has been accounted
      for
      as a reverse acquisition under the purchase method of accounting, whereby the
      assets of CARS were revalued and the purchase price allocated to those assets
      acquired and liabilities assumed. Innopump’s historical financial statements
      were carried forward subsequent to the merger as those of the combined entity.
      On March 2, 2007, CARS changed its name to Versadial to capitalize on the
      awareness of its trademarked name for its products in the marketplace as
      described below.





The
      Company is engaged in the manufacture of a dispenser that enables the user
      to
      blend two liquids in varying proportions. The dispensers are currently
      manufactured in Germany and are being utilized in the food, sun care, skincare,
      and cosmetic industries.





**2.**
            **Going
                concern and liquidity**





The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States of America, which
      contemplate continuation of the Company as a going concern. At September 30,
      2007, the Company has incurred cumulative losses of approximately $17.5 million
      since inception and utilized cash of approximately $1.0 million for operating
      activities during the three months ended September 30, 2007. The Company has
      a
      working capital deficit of approximately $6.7 million and a stockholders’
deficit of approximately $13.3 million as of September 30, 2007.





At
      September 30, 2007, current liabilities include $1.5 million due to shareholders
      on February 28, 2008 (see Note 17) which management believes will be extended
      if
      necessary prior to maturity. Current liabilities also include approximately
      $2.0
      million (before debt discount) in notes due on February 1, 2008 (see Note 8)
      which management believes may be converted to equity dependent on additional
      future financings.





On
      August
      30, 2007, the Company entered into a Securities Purchase Agreement whereby
      it
      could sell 8% promissory notes in the principal amount of up to $2.5 million
      at
      a price of ninety seven (97%) percent of the principal amount of notes. The
      notes are due upon the earlier of (a) six months following final closing, (b)
      the date on which the Company receives no less than $4.0 million in gross
      proceeds from the closing of a private offering of its equity securities or
      (c)
      on the date the Company closes on a rights offering. As of November 13, 2007,
      the Company has received net proceeds of $1.5 million in regards to the notes
      of
      which $1.3 million was received from a related party (see Notes 7 and
      17).




5


**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




Management
      recognizes that the Company must generate additional revenue and sufficient
      gross profits to achieve profitable operations. Management's plans to increase
      revenues include the continued building of its customer base and product line
      as
      well as commencing production at a domestic manufacturing facility in the United
      States and commencing production in connection with a supply agreement with
      a
      customer in the consumer products industry as related to the manufacture of
      a
      new size dispenser. Management believes that the capital received to date from
      previous financings will not be sufficient to meet financial obligations in
      regard to the capital equipment commitments required to expand its product
      line
      and increase production capacity and to fund operations during the next twelve
      months and that additional debt or equity financing will be required (see Note
      15).





There
      can
      be no assurance that the Company will be successful in building its customer
      base and product line or that the available capital will be sufficient to fund
      current operations and to meet financial obligations as related to capital
      expenditures until such time that the revenues increase to generate sufficient
      profit margins to cover operating costs. If the Company is unsuccessful in
      building its customer base or is unable to obtain additional financing, on
      terms
      favorable to the Company, there could be a material adverse effect on the
      financial position, results of operations and cash flows of the Company. The
      accompanying unaudited consolidated financial statements do not include any
      adjustments that might be necessary if the Company is unable to continue as
      a
      going concern.





**3.**
            **Summary
                of significant accounting
                policies**





*Basis
      of Presentation*





The
      Company’s fiscal year ends on June 30, and therefore references to fiscal 2007
      and 2006 refer to the fiscal years ended June 30, 2007 and June 30, 2006,
      respectively.





The
      accompanying unaudited consolidated financial statements of the Company reflect
      the historical results of the predecessor entity, Innopump, prior to August
      9,
      2006 and the consolidated results of operations of Versadial subsequent to
      the
      acquisition date of August 9, 2006.





The
      common stock and per share information in the consolidated financial information
      and related notes have been retroactively adjusted to give effect to the reverse
      merger on August 9, 2006 and to give effect to the one for forty-five reverse
      stock split that became effective on March 2, 2007 (see Note 14).





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      statements and with the instructions to Form 10-QSB and Item 310(b) of
      Regulation S-B. Accordingly, they do not include all the information and
      disclosures required for annual financial statements. These financial statements
      should be read in conjunction with the financial statements and related
      footnotes for the year ended June 30, 2007 of the Company, included in the
      Annual Report filed on Form l0-KSB for the year then ended. These statements
      reflect all adjustments which are of a normal recurring nature and which, in
      the
      opinion of management, are necessary for a fair statement of the results for
      the
      fiscal quarters ended September 30, 2007 and 2006. The results of operations
      for
      the first quarter of fiscal 2008 are not necessarily indicative of the results
      to be expected for the full year.





*Principles
      of Consolidation*





On
      May
      25, 2005, Innopump acquired all of the assets and assumed certain liabilities
      of
      Sea Change Group, LLC ("SCG"), a privately held New York Limited Liability
      Company formed in 1999. This transaction between Innopump and SCG, which were
      entities under common control, was accounted for in a manner similar to a
      pooling of interests whereby the assets and liabilities of SCG were transferred
      to Innopump at historical amounts. Prior to the merger with Registrant, the
      financial statements of Innopump were prepared as if the transaction had
      occurred at the beginning of the period presented, and present the financial
      data of previously separate entities.




6




**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**


In
      December 2003, the Financial Accounting Standards Board (“FASB”) revised FASB
      Interpretation 46, “Consolidation of Variable Interest Entities” (“FIN 46r”).
      FIN 46r requires certain variable interest entities (“VIE”) to be consolidated
      by the primary beneficiary entity if the equity investors in the entity do
      not
      have the characteristics of a controlling financial interest or do not have
      sufficient equity at risk for the entity to finance its activities without
      additional subordinated financial support from other parties.





The
      Company is the primary beneficiary of SCG under FIN 46r. SCG, as a result of
      the
      business acquisition, is no longer an operating entity and is dependent on
      the
      Company for all of its income consisting of future royalties and license fees.
      The Company consolidated the results of SCG’s operations for the three months
      ended September 30, 2007 and 2006. For the three months ended September 30,
      2007
      the operations of SCG consisted of approximately $(19,000) in net loss derived
      from an aggregate of $4,000 in royalty fees from the Company, net of interest
      and other operating expenses. For the three months ended September 30, 2006
      the
      operations of SCG consisted of approximately $116,000 in net income derived
      from
      a $150,000 license fee from the Company, net of interest and other operating
      expenses. SCG’s assets at September 30, 2007 approximated $140,000 consisting
      mainly of sublease income receivable, royalties receivable from the Company
      and
      a security deposit on a lease. SCG’s liabilities at September 30, 2007
      approximated $1.5 million consisting primarily of loans due to partners which
      were not assumed by the Company as part of the business acquisition described
      above. These assets and liabilities are included in the unaudited consolidated
      financial statements.





The
      unaudited consolidated financial statements include the accounts of the Company
      and SCG. All intercompany transactions and balances have been eliminated in
      consolidation.





*Accounts
      Receivable*





The
      Company carries its accounts receivable at cost less an allowance for doubtful
      accounts. On a periodic basis, the Company evaluates its accounts receivable
      and
      establishes an allowance for doubtful accounts, based on a history of past
      write-offs and collections and current credit conditions. Accounts are written
      off as uncollectible at the discretion of management. There was no allowance
      for
      doubtful accounts at September 30, 2007.





*Inventories*





Inventories,
      which consist principally of raw materials and finished goods, are stated at
      cost on the first-in, first-out basis, which does not exceed market value.
      Finished goods are assembled per customer specifications and shipped upon
      completion.





*Revenue
      Recognition*





Revenues
      are generally recognized at the time of shipment. The Company requires deposits
      from certain customers which are recorded as current liabilities until the
      time
      of shipment. All shipments are picked up by the customers’ freight forwarders
      and are F.O.B. from the Company’s manufacturer. The Company bears no economic
      risk for goods damaged or lost in transit.





*Depreciation
      and Amortization*





Property
      and equipment is recorded at cost less accumulated depreciation and
      amortization. Depreciation and amortization is computed using the straight-line
      method over the estimated useful lives of the related assets. The Company
      provides for depreciation and amortization over the following estimated useful
      lives:





Machinery
                and equipment
            7
                YearsMolds
            2-7
                YearsComputer
                equipment
            3
                Years





Costs
      of
      maintenance and repairs are expensed as incurred while betterments and
      improvements are capitalized.




7


**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




*Classification
      of Expenses*





Cost
      of
      revenues are classified as either direct or indirect costs. Direct costs consist
      primarily of assembly labor, the cost of materials and parts used to manufacture
      the dispensers, freight charges and warehouse storage charges. Indirect costs
      consist primarily of equipment repair and maintenance, manufacturing supplies,
      depreciation of equipment and molds, the costs of ongoing and new product
      development, and technical and administrative support costs as directly related
      to production functions such as purchasing and receiving. General and
      administrative expenses consist mainly of royalties, salaries of overhead
      personnel, consulting fees, legal and professional fees, travel, and other
      general expenses.





*Loss
      Per Share*





Basic
      loss per common share is computed by dividing net loss by the weighted average
      number of common shares outstanding during the period. Diluted loss per common
      share incorporates the dilutive effect of common stock equivalents on an average
      basis during the period. Warrants are included in the determination of dilutive
      earnings per share if they are dilutive and the potential dilutive effect is
      computed using the treasury stock method. The calculation of diluted net loss
      per share excludes potential common shares if the effect is anti-dilutive.





*Fair
      Value of Financial Instruments*





The
      fair
      value of the Company's assets and liabilities, which qualify as financial
      instruments under Statement of Financial Accounting Standards (“SFAS”) No. 107,
      "Disclosures About Fair Value of Financial Instruments,” approximate the
      carrying amounts presented in the balance sheets.





*Impairment
      of Long-Lived Assets*





Certain
      long-lived assets of the Company are reviewed at least annually to determine
      whether there are indications that their carrying value has become impaired,
      pursuant to guidance established in SFAS No. 144, "Accounting for the Impairment
      or Disposal of Long-Lived Assets". Management considers assets to be impaired
      if
      the carrying value exceeds the future projected cash flows from related
      operations (undiscounted and without interest charges). If impairment is deemed
      to exist, the assets will be written down to fair value. Management also
      reevaluates the periods of amortization to determine whether subsequent events
      and circumstances warrant revised estimates of useful lives. There were no
      impairment charges as of September 30, 2007.





*Foreign
      Currency Transactions*




The
      Company complies with SFAS No. 52 “Foreign Operations and Currency Translation”.
      All foreign currency transaction gains and losses are included in the Company’s
      net income (loss) in the period the exchange rate changes.





*Derivative
      Financial Instruments*





The
      Company accounts for non-hedging contracts that are indexed to, and potentially
      settled in, its own common stock in accordance with the provisions of Emerging
      Issues Task Force (“EITF”) No. 00-19, "Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock".
      These non-hedging contracts accounted for in accordance with EITF No. 00-19
      include freestanding warrants and options to purchase the Company's common
      stock
      as well as embedded conversion features that have been bifurcated from the
      host
      financing contract in accordance with the requirements of SFAS No. 133,
      "Accounting for Derivative Instruments and Hedging Activities". Under certain
      circumstances that could require the Company to settle these equity items in
      cash or stock, and without regard to probability, EITF 00-19 could require
      the
      classification of all or part of the item as a liability and the adjustment
      of
      that reclassified amount to fair value at each reporting date, with such
      adjustments reflected in the Company's consolidated statements of operations.




8


**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




*Use
      of Estimates*





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




**4.**
            **Inventories**


Inventories
        consist of the following at September 30, 2007:




**September 30,****2007**Raw
                materials
            
            $
            341,287Work-in-process
            
            
            60,298Finished
                goods
            
            
            242,800$
            644,385





**5.**
            **Property
                and equipment**





Property
      and equipment consist of the following at September 30, 2007:





**September 30,****2007**Machinery
                and equipment
            
            $
            1,048,146Molds
            
            
            2,990,586Computer
                equipment
            
            
            11,3564,050,088Less
                accumulated depreciation
            
            
            1,212,690$
            2,837,398





Depreciation
      expense amounted to approximately $203,000 and $81,000 for the three months
      ended September 30, 2007 and 2006, respectively.





**6.**
            **Deposits
                on production equipment**





Deposits
      on production equipment consist of the following at September 30,
      2007:





**Amount at**
              **September 30,****2007**
            
            **Total**
              **estimated cost**New
                assembly equipment
            
            $
            141,409
            
            $
            425,000Assembly
                equipment new size dispenser
            
            
            401,492
            
            
            1,150,000Production
                molds for new size dispenser
            
            
            2,531,020
            
            
            3,300,000
            (a)$
            3,073,921
            
            $
            4,875,000




(a)
            Upon
                completion of construction of molds, approximately $800,000 of balance
                will be financed through a capital lease to be paid monthly through
                March
                2009 (see Note 15).




9




**VERSADIAL,
          INC.**
 
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
          30, 2007**




**7.**
            **Securities
                Purchase Agreement**





On
      August
      30, 2007, with the consent of the holder of the Company’s $7.5 million senior
      convertible debt, Fursa Master Global Event Driven, Fund, LP (referred to herein
      as the “Investor”), the Company entered into a Securities Purchase Agreement
      whereby it could sell 8% promissory notes (“Notes”) in the principal amount of
      up to $2.5 million at a price of ninety seven (97%) percent of the principal
      amount of Notes. The Notes and interest are due upon the earlier of (a) six
      months following the final closing of the Notes, (b) the date on which the
      Company receives no less than $4.0 million in gross cash proceeds from the
      closing of a private offering of its equity securities or (c) on the date the
      Company closes on a rights offering. At September 30, 2007, the Company had
      received $800,000 in net proceeds of which $600,000 was received from Richard
      Harriton, a related party, who serves as a Director and is a major shareholder
      of the Company. Debt discount of approximately $25,000 will be charged to
      operations over the life of the underlying debt with a corresponding increase
      to
      the debt. For the three months ended September 30, 2007, approximately $3,000
      was charged to operations. Interest expenses approximated $3,000 for the three
      months ended September 30, 2007. As of November 13, 2007, the Company has
      received net proceeds of $1.5 million in regard to the Notes of which $1.3
      million was received from Mr. Harriton (see Note 17).





**8.   
      Amendment to the Secured Line of Credit Agreement**





The
      Secured Line of Credit Agreement (“Credit Agreement”) with Fursa Alternative
      Strategies, LLC (referred to herein as the “Lender”) dated February 1, 2007 was
      amended on July 9, 2007 to reflect the increased amount of the line of credit
      available to the Company from $3.0 million to $4.0 million. On July 10, 2007,
      Versadial drew down the additional $1.0 million available under the terms of
      the
      amended Credit Agreement. In August 2007, the Lender agreed to convert $2.0
      million of the line of credit to equity (See Note 9).





The
      Company also agreed to pay to the Lender a waiver fee of $50,000, payable on
      the
      earlier of September 30, 2007 or upon obtaining additional financing, as
      referred to in the amended Credit Agreement. The waiver fee is payable for
      the
      Company’s failure to appoint a chief operating officer and meet certain
      financial covenants, as referred to in the amended Credit Agreement and was
      accrued at June 30, 2007. The waiver also required the Company, no later than
      September 30, 2007, to establish a comprehensive financing plan that addresses
      Versadial’s funding needs for at least 18 months following September 30,
      2007.





On
      September 28, 2007, the Company paid the $50,000 waiver fee and provided the
      Lender a comprehensive financing plan for the next 18 months. The Lender also
      agreed to delay, until further notice, the requirement of the Company to appoint
      a chief operating officer.





**9.   
      Debt and Interest Conversions**





In
      August, 2007, a total of 1,769,724 shares of common stock were issued upon
      the
      conversion of debt and interest payments based upon the following transactions.
      First on August 27, 2007, the Lender agreed to convert $2.0 million in principal
      amount of the Company’s secured revolving credit notes (see Note 8) at a
      conversion price of $1.7662 per share for an aggregate of 1,132,375 shares.
      Second, the Investor agreed to convert $750,000 in interest due on August 9,
      2007 on the Company’s $7.5M senior convertible debt at a conversion price of
      $1.1768, equal to the conversion price of the underlying convertible notes
      for
      an aggregate 637,349 shares. The value of the shares ($796,686) and amount
      of
      interest expense recorded by the Company was calculated based on the market
      price on August 9, 2007 of $1.25 per share.




10




**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




**10. 
      Registration Rights**





The
      Company signed a Registration Rights Agreement with the Investor on August
      9,
      2006 whereby the Company is obligated to register the resale of its shares
      of
      common stock issuable upon the conversion of senior convertible debt and
      exercise of the related warrants and have the registration statement declared
      effective by the Securities and Exchange Commission. On August 6, 2007, the
      Investor agreed to waive the Liquidated Damages Warrants which were to be issued
      for the Company’s failure to have the Registration Statement declared effective
      by the original due date and failure to include all of the Investor’s securities
      in the Registration Statement. The Investor agreed to extend the effective
      date
      to October 1, 2007 and to allow the Company to file two subsequent separate
      Registration Statements no earlier than six months after the initial effective
      date of the first filing. On September 28, 2007, the Investor agreed to extend
      the required date for the initial Registration statement to be declared
      effective again to a date to be established as long as the Company files an
      amended SB-2A addressing the SEC comments and responded to the current comment
      letter by October 31, 2007. On October 24, 2007, the Company responded to the
      SEC comments and filed an amended SB-2A. The Company received additional SEC
      comments on November 7, 2007. The Company intends to address these comments
      and
      file an amended SB-2A, if required, subsequent to the completion of its first
      fiscal quarter financial statements.





If
      the
      registration statement is not declared effective within the time frame
      described, or if the registration is suspended, the Company will be obligated
      to
      issue additional warrants (“Liquidated Damages Warrants”) to the Investor.
      Initially, the Company will be obligated to issue to the Investor 2% of the
      number of shares of common stock issuable to the Investor upon conversion of
      the
      Convertible Debt or approximately 127,000 shares. In addition, for each full
      thirty (30) day period after the date that the registration statement has not
      been declared effective, the Company is obligated to issue to the Investor
      warrants exercisable for a number of shares of common stock equal to 2% percent
      of the number of shares of common stock issuable to the Investor.





**11. 
      Capital lease obligation**





On
      April
      24, 2007, the Company entered into a Supply Agreement and a related Tooling
      Amortization Agreement with an outside contractor located in the United States
      (see Note 15).





These
      Agreements provide that the Supplier will fund the estimated $4.8 million cost
      of the injection molding, tooling and automatic equipment necessary to produce
      the products to be purchased by the Company. Although financed by the Supplier,
      the equipment will be owned by the Company. The Company will capitalize the
      related equipment at inception of production which is anticipated to begin
      full
      scale in the fourth calendar quarter of 2007. During the quarter ended September
      30, 2007, molds and equipment in the aggregate of approximately $857,000 were
      completed, utilized in production and capitalized by the Company. The Company
      estimates that 50% or approximately $428,000 will be amortized over the next
      12
      months and the remaining balance during fiscal 2009 based on production
      forecasts.





The
      cost
      of the tooling and automatic equipment, with a three (3%) percent per annum
      interest factor, will be amortized over a period of 18 months against dispensers
      purchased and delivered to the Company pursuant to the Supply Agreement, with
      a
      per unit amortization cost included in the cost price for the dispensers. If
      the
      Company fails to place orders within 18 months sufficient to cover the
      amortization, any remaining balance will be due in 18 months from the inception
      of the respective amortization period.





**12. 
      Derivative financial instruments**





Pursuant
      to Paragraph 14 of EITF No. 00-19, "Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock",
      warrants issued by the Company (see Note 8 and 10) meet the requirements of
      and
      are accounted for as a liability since the warrants contain registration rights
      where Liquidated Damages Warrants would be required to be issued to the holder
      in the event the Company failed to receive an effective
      registration.





The
      initial value of the warrants granted on August 9, 2006 ($635,000) was treated
      as a discount to the convertible notes payable (debt discount) and recorded
      as a
      liability (derivative financial instruments). The value of the additional
      warrants granted on October 17, 2006, March 31, 2007, and May 4, 2007 ($346,000)
      were treated as additional debt discount expense and recorded as a liability
      (derivative financial instruments). The value of the warrants granted on
      February 1, 2007 ($494,000) to the Lender were treated as a discount to the
      debt
      (debt discount) and recorded as a liability (derivative financial
      instruments).




11




**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




Using
      the
      Black-Scholes option-pricing method, the value of the derivative financial
      instruments are reassessed at each balance sheet date and marked to market
      as a
      derivative gain or loss until exercised or expiration. Upon exercise of the
      derivative financial instruments, the related liability is removed by recording
      an adjustment to additional paid-in-capital. The derivative financial
      instruments had a value of approximately $2,994,106 at September 30, 2007.
      The
      derivative loss for the three months ended September 30, 2007 and the year
      ended
      June 30, 2007 approximated $527,000 and $992,000 respectively.





**13. 
      License agreement and sublicense agreement, related
      parties**





*License
      Agreement*





On
      September 18, 2007, under the terms of a License Agreement between SCG (the
      “Licensee”) and Gerhard Brugger (the “Licensor”), the Licensor signed a waiver
      of defaults whereby royalty payments in arrears due through June 30, 2007 of
      $432,000 would be paid as follows: 5% of any proceeds received from a capital
      raise between $1 million and $2 million and 10% of everything over $2 million
      in
      proceeds until the entire amount of the past due royalty is paid in full. In
      calculating the proceeds of a capital raise, (i) any bridge loans raised prior
      to completion of a capital raise and to be and actually paid out of the capital
      raise, and (ii) any debt of the Company converted into the capital raise will
      not be deemed to be proceeds. The Company will have the right to pre-pay any
      of
      the past due royalties at any time without premium or penalty.





In
      addition, the licensor agreed to accept royalties as calculated on actual
      shipments after June 30, 2007 through June 30, 2008 to be paid monthly and
      the
      cumulative difference between minimum monthly royalties and actual monthly
      royalties to be paid no later than June 30, 2008 unless the Licensor and the
      Company have entered into a written agreement prior to that date providing
      for
      an alternate payment schedule; and if the past due royalties are not fully
      paid
      prior to June 30, 2008, then the parties agree to, in good faith negotiations,
      negotiate a further arrangement to fully repay any such balance based on cash
      flow projections prior to June 30, 2008 as long as the technical consultant
      payments are made in accordance with the License Agreement. All payments were
      paid when due through September 30, 2007. At September 30, 2007, the licensor
      is
      due royalties of approximately $531,000.





*Sublicense
      Agreement*





On
      May 1,
      2005, SCG (the “Sub-licensor”) entered into a sub-license agreement with the
      Company (the “Sub-licensee”) whereby SCG assigned to the Company all rights,
      titles and interests that the Sub-licensor has in the Amended and Restated
      License Agreement dated January 1, 2003 between SCG and Gerhard Brugger. In
      consideration for the assignment and patent rights hereunder, the Company agreed
      to pay SCG a sublicense fee in the aggregate of $600,000. In addition the
      Company agreed to pay the royalties due under the original Amended and Restated
      License Agreement either directly to the original licensor or to SCG. The
      Company also agreed to pay SCG a royalty of 3% of the first $100 million of
      gross revenues, which was increased to $130 million in July 2006. On September
      18, 2007, the agreement was amended to extend the payment dates of the remaining
      $450,000 sublicense fee, with $300,000 due on December 31, 2007, and $150,000
      due on May 1, 2008.





**14.
      Stockholders’ deficit**





*Capitalization*





The
      Company’s initial authorized capitalization consisted of 50 million (50.0
      million) shares of common stock, par value $.001 and no preferred stock. Prior
      to the merger, the certificate of incorporation was amended to increase the
      capitalization of the Company to 1.3 billion (1,300.0 million) shares of common
      stock, par value $.001 and 100 million (100.0 million) shares of preferred
      stock, par value $.001.




12


**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**




On
      March
      2, 2007, the Company completed a one for forty-five reverse stock split. The
      Company’s Articles of Incorporation were amended to provide for authority to
      issue 35 million shares of common stock, par value $.0001 per share, and 2
      million shares of preferred stock, par value $.0001 per share. The common stock
      and per share information in the consolidated financial information and related
      notes have been retroactively adjusted to give effect to the stock split. Prior
      to the reverse split the Company had outstanding 609,259,259 common shares.
      Subsequent to the reverse split, the Company had outstanding 13,539,470 common
      shares. All fractional shares were rounded up.





*Issuance
      of Common Stock*





On
      August
      8, 2006, ODC Partners, LLC, a debt holder of Registrant, agreed to convert
      its
      outstanding debt of approximately $100,000 and accrued interest into 222,223
      shares of the Company’s common stock. This conversion resulted in an aggregate
      of 914,227 shares (as rounded up for fractional shares) outstanding prior to
      the
      merger.





On
      August
      9, 2006, as a result of the merger, the Company issued an aggregate of
      11,377,331 shares to Innopump shareholders (a conversion of approximately 43.333
      shares of stock for each share of Innopump stock, 262,500 shares outstanding).
      In addition the Company issued an aggregate of 1,247,912 shares to Innopump
      debt
      holders who elected to convert their debt to equity prior to the merger (a
      conversion of approximately 43.333 shares of stock for each share of Innopump
      stock). These debt holders converted $1.2 million in debt to 28,792 shares
      of
      Innopump stock prior to the merger.





In
      August, 2007, a total of 1,769,724 shares of common stock were issued upon
      the
      conversion of debt and interest payments based upon the following transactions.
      First on August 27, 2007, the Lender agreed to convert $2.0 million in principal
      amount of the Company’s secured revolving credit notes (see Note 8) at a
      conversion price of $1.7662 per share for an aggregate of 1,132,375 shares.
      Second, the Investor agreed to convert $750,000 in interest due on August 9,
      2007 on the Company’s $7.5M senior convertible debt at a conversion price of
      $1.1768, equal to the conversion price of the underlying convertible notes
      for
      an aggregate 637,349 shares. The value of the shares ($796,686) and amount
      of
      interest expense recorded by the Company was calculated based on the market
      price on August 9, 2007 of $1.25 per share.




*Loss
      Per Share*





Basic
      loss per share excludes dilution and is calculated by dividing the net loss
      attributable to common shareholders by the weighted average number of common
      shares outstanding for the period. Diluted loss per share reflects the potential
      dilution that could occur if securities or other contracts to issue common
      stock
      were exercised or converted into common stock and resulted in the issuance
      of
      common stock.





At
      September 30, 2006, basic loss per share does not include approximately 715,154
      shares which were redeemable under the terms of put options by certain
      shareholders. The put options expired on October 30, 2006 and are included
      in
      additional paid in capital subsequent to that date. At September 30, 2007,
      the
      basic loss per common share does not include an aggregate of 3,778,834 warrants
      outstanding and 6,373,415 shares issuable under the terms of convertible debt.
      The effect of these securities would be antidilutive. These warrants are
      currently exercisable at prices that range between $.94-$2.475 and expire
      between August 9, 2011 and February 1, 2012. At September 30, 2007, diluted
      loss
      per common share includes 3,082,491 shares as calculated using the treasury
      stock method for proceeds that would have been received from the exercise of
      convertible debt and warrants as if they were used to purchase common stock
      at
      the average market price during the period.


13
 **VERSADIAL,
          INC.**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
            30, 2007**


**15.
      Commitments and contingencies**




*Manufacturing
      Agreement and Equipment Purchase*





On
      September 20, 2006, the Company entered into a 30-month manufacturing agreement
      with an outside contractor located in Germany. The agreement calls for the
      contractor to develop certain production molds for the Company for a new size
      (20 millimeter) dispenser. The Company will place all customer orders relating
      to the product with the contractor until at least eighty percent (80%) of the
      manufacturer’s production capacity is utilized based on five (5) days per week,
      three (3) shifts per day. The agreement calls for the Company to make payments
      in the aggregate of approximately $780,000 for preproduction molds and $3.3
      million for the required production molds. Title of the molds will transfer
      to
      the Company upon final payment. As of June 30, 2007, the preproduction molds
      were complete and placed in service. The Company paid an aggregate of
      approximately $529,000 for the preproduction molds prior to their completion
      and
      financed the balance of approximately $251,000 under the terms of a capital
      lease obligation. The total amount of the lease, including interest, is to
      be
      paid monthly in varying installments beginning in July 2007 through March 2009.
      At September 30, 2007, the Company has an outstanding balance of approximately
      $207,000 due on the remaining capital lease. As of September 30, 2007, the
      Company has made payments of approximately $2.5 million for the production
      molds
      which is included in deposits on production equipment (see Note 6). Upon
      completion of construction of the production molds, approximately $800,000
      of
      the remaining balance will be financed through a capital lease to be paid
      monthly through March 2009.




In
      conjunction with the above manufacturing agreement, the Company also ordered
      related assembly equipment from a vendor in the amount of approximately $1.2
      million. The Company has made payments of approximately $401,000 for the
      equipment which is included in deposits on production equipment (see Note
      6).





*Supply
      and Tooling Amortization Agreement*





On
      April
      24, 2007, the Company entered into a Supply Agreement and a related Tooling
      Amortization Agreement with an outside contractor located in the United States
      (the “Supplier”). These two agreements became effective on April 30, 2007, when
      SCG and the licensor to the Company of the technology covering the patented
      dispenser produced by the Company, and Gerhard Brugger, the patent owner of
      the
      patented dispenser, entered into an Agreement to License with the Supplier.
      This
      agreement, a condition precedent to the effectiveness of the Supply Agreement
      and the related Tooling Amortization Agreement, provides security to the
      Supplier if the Company were to default in the performance of its obligations
      under the Supply Agreement.





The
      Supply Agreement provides, among other things, that the Company, over the five
      year term of the Agreement, will purchase from the Supplier no less than 100.0
      million units of the Company’s 40 millimeter and 49 millimeter
      dispensers.





These
      Agreements provide that the Supplier will fund the estimated $4.8 million cost
      of the injection molding, tooling and automatic equipment necessary to produce
      the products to be purchased by the Company. Although financed by the Supplier,
      the equipment will be owned by the Company. The Company will capitalize the
      related equipment at inception of production which is anticipated to begin
      full
      scale in the fourth calendar quarter of 2007. During the quarter ended September
      30, 2007, molds and equipment in the aggregate of approximately $857,000 were
      completed, utilized in production and capitalized by the Company. The Company
      estimates that 50% or approximately $428,000 will be amortized over the next
      12
      months and the remaining balance during fiscal 2009 based on production
      forecasts.





The
      cost
      of the tooling and automatic equipment, with a three (3%) percent per annum
      interest factor, will be amortized over a period of 18 months against dispensers
      purchased and delivered to the Company pursuant to the Supply Agreement, with
      a
      per unit amortization cost included in the cost price for the dispensers. If
      the
      Company fails to place orders within 18 months sufficient to cover the
      amortization, any remaining balance will be due in 18 months from the inception
      of the respective amortization period.


The
        Supply Agreement also contains normal commercial terms, including a
        representation by the Supplier as to the dispensers being produced in accordance
        with specifications, indemnification of the Supplier by the Company against
        intellectual property infringement claims of third parties, insurance,
        confidentiality and termination provisions, including a right of optional
        termination by Company upon payment of all unamortized tooling and equipment
        costs plus a penalty, the amount of which varies based on the date of
        termination.




14




**VERSADIAL,
        INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        30, 2007**


The
      price
      for the dispensers is fixed, subject to adjustment at six month intervals to
      reflect changes in the cost of resins and other component parts.




The
      Supply Agreement also grants to the Supplier a right of first refusal to furnish
      additional tooling, if the Company elects to acquire additional tooling, and
      affords the Supplier a right to match the terms of a replacement supply contract
      at the end of the five year term of the Supply Agreement.





The
      related Agreement to License between the Supplier and Sea Change Group, LLC
      and
      Gerhard Brugger permits the Supplier, in the event of a default by the Company
      under the Supply Agreement, to require that SCG and Brugger utilize the Supplier
      to continue to produce and market the dispensers that are the subject of the
      Supply Agreement for the remaining term of the Supply Agreement, if the Supplier
      is not then in default of its obligations under the Supply Agreement. In such
      case, the right of Supplier to continue to amortize the cost of the tooling
      and
      automatic equipment would continue.





*Customer
      Master Supply Agreement*





On
      July
      10, 2007 the Company entered into a two-year Master Supply Agreement with Avon
      Products, Inc. (“Avon”), a consumer products company for seventeen million units
      of certain of the Company’s products. The Agreement will remain in effect
      through the second anniversary of the first shipment of such products in
      commercial production quantities.





Pursuant
      to the terms of the Credit Memo previously entered into with Avon, the Company
      will repay Avon’s $1.7 million advances received in fiscal year 2007 by a credit
      against the purchase price of products sold to Avon pursuant to the Master
      Supply Agreement and pursuant to other agreements that may be entered into
      between Versadial and Avon, commencing six months after the date of the first
      shipment of products to Avon. In the event of a default by the Company, Avon
      may, at its discretion, recover the remaining amount of the advance as a credit
      against other product purchases from us or the amount will be due under the
      terms of a promissory note to be issued at the time of default. The Company
      anticipates that the exclusive supply relationship with Avon will consume all
      available manufacturing capacity of the specially designed pump through the
      first year. The Company anticipates production to begin in early 2008.





**16. 
      Major customers and segment information**





*Major
      customers*




Customers
      accounting for 10% or more of revenue for the three months ended September
      30,
      2007 and 2006 are as follows:





**Three months**
              **ending**
              **September 30,**
              **2007**
            
            **Three months**
              **ending**
              **September 30,**
              **2006**Customer
                A
            
            $
            74,000
            
            $
            10,000Customer
                B
            
            
            39,000
            
            
            9,000Customer
                C
            
            
            27,000
            
            
            -Customer
                D
            
            
            
            
            
            -$
            140,000
            
            $
            19,000





Accounts
      receivable from customer A for 2007 aggregated approximately $74,000 at
      September 30, 2007. Accounts receivable from customer C for 2007 aggregated
      approximately $115,000 of which $88,000 relates to reimbursement for tooling
      costs which are to be amortized over future revenues of the customer.




15




**VERSADIAL,
      INC.**





**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**





*Segment
      information*





Assets,
      classified by geographic location are as follows at September 30,
      2007:


United
                  States
              
              $
              2,156,368Other
                  countries
              
              
              5,529,489$
              7,685,857





Assets
      in
      other countries are primarily inventory and equipment which are located at
      subcontractor production facilities in Germany and amounts classified as
      deposits on production equipment.





Revenue,
      classified by the major geographic areas was as follows:




Three months ending
            
            Three months endingSeptember 30, 2007
            
            September, 2006United
                States
            
            $
            100,970
            
            $
            19,475Other
                countries
            
            
            47,717
            
            
            -0-$
            148,687
            
            $
            19,475




**17.
      Subsequent events**




*Debt
      Extensions*





SCG
      has
      an outstanding note with a related party in the principal amount of $1,098,536
      which bears interest at 8% and matures on October 31, 2007. On October 31,
      2007,
      the lender agreed to extend the maturity date, under the same terms and
      conditions as the original note, to February 28, 2008.





SCG
      has
      an outstanding note with a related party in the principal amount of $100,000
      which bears interest at 8% and matures on October 31, 2007. On October 16,
      2006,
      SCG repaid $30,000 of the note. On October 31, 2007, the lender agreed to extend
      the maturity date of the remaining $70,000 balance, under the same terms and
      conditions as the original note, to February 28, 2008.





*Additional
      Financing – Securities Purchase Agreement*





On
      August
      30, 2007, with the consent of Investor, the Company entered into a Securities
      Purchase Agreement whereby it could sell 8% promissory notes (“Notes”) in the
      principal amount of up to $2.5 million at a price of ninety seven (97%) percent
      of the principal amount of Notes. The Notes and interest are due upon the
      earlier of (a) six months following the final closing of the Notes, (b) the
      date
      on which the Company receives no less than $4.0 million in gross cash proceeds
      from the closing of a private offering of its equity securities or (c) on the
      date the Company closes on a rights offering. At September 30, 2007, the Company
      had received $800,000 in net proceeds of which $600,000 was received from a
      related party. Subsequent to September 30, 2007, the Company received additional
      net proceeds of $700,000 in regard to the Notes from a related party (see Note
      7).




16


**VERSADIAL,
      INC.**





**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**





*Registration
      Rights Agreement*





The
      Company signed a Registration Rights Agreement with the Investor on August
      9,
      2006 whereby the Company is obligated to register the resale of its shares
      of
      common stock issuable upon the conversion of senior convertible debt and
      exercise of the related warrants and have the registration statement declared
      effective by the Securities and Exchange Commission. On August 6, 2007, the
      Investor agreed to waive the Liquidated Damages Warrants which were to be issued
      for the Company’s failure to have the Registration Statement declared effective
      by the original due date and failure to include all of the Investor’s securities
      in the Registration Statement. The Investor agreed to extend the effective
      date
      to October 1, 2007 and to allow the Company to file two subsequent separate
      Registration Statements no earlier than six months after the initial effective
      date of the first filing. On September 28, 2007, the Investor agreed to extend
      the required date for the initial Registration statement to be declared
      effective again to a date to be established as long as the Company files an
      amended SB-2A addressing the SEC comments and responded to the current comment
      letter by October 31, 2007. On October 24, 2007, the Company responded to the
      SEC comments and filed an amended SB-2A. The Company received additional SEC
      comments on November 7, 2007. The Company intends to address these comments
      and
      file an amended SB-2A, if required, subsequent to the completion of its first
      fiscal quarter financial statements.





17




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




*The
      following discussion should be read along with our financial statements, which
      are included in another section of this 10-QSB. This discussion contains
      forward-looking statements about our expectations for our business and financial
      needs. These expectations are subject to a variety of uncertainties and risks
      that may cause actual results to vary significantly from our expectations.
      The
      cautionary statements made in this Report should be read as applying to all
      forward-looking statements in any part of this 10-QSB. The forward-looking
      statements are made as of the date of this Form 10-QSB, and the Company assumes
      no obligation to update the forward-looking statements, or to update the reasons
      actual results could differ from those projected in such forward-looking
      statements.*





OVERVIEW





Versadial,
      Inc. was originally incorporated in Nevada under the name Carsunlimited.com,
      Inc. (“CARS”) on March 7, 2000, with a principal business objective to operate
      an Internet database business involving the automobile industry. Prior to August
      9, 2006, we were a development stage company with limited operations and
      revenues and only nominal assets. Our intended purpose was to offer users the
      ability to search a database that contained products and information about
      the
      automobile industry, new and used car sales (classified ads), as well as
      automotive products such as extended warranty information and anti-theft body
      part marking.





On
      August
      9, 2006, we executed an Agreement and Plan of Merger (“Merger Agreement”) with
      PAC, our wholly-owned subsidiary, Innopump, a Nevada corporation which was
      formed on April 1, 2005, and certain Innopump stockholders. Pursuant to the
      merger contemplated by the Merger Agreement, Innopump became a wholly-owned
      subsidiary of ours ("Merger").





Innopump,
      our wholly owned subsidiary, holds the exclusive worldwide license for a
      patented dual-chambered variable dispensing system for all categorizes of uses,
      marketed under the registered trademark "Versadial ® ".
      The
      patented system utilizes multiple volumetric pumps, controlled by a rotating
      head and disc system, providing the dispensing of precise fixed or variable
      ratios of distinct and separate fluids. The Versadial ® custom
      blending dual dispensing head provides consumer packaged goods manufacturers
      with a new and innovative dispensing technique permitting precision measured
      blending by the consumer of different lotions, gels, creams, and liquids, or
      combination thereof.





Versadial’s
      business is designed to capitalize on the commercial opportunities for
      innovation in packaging and dispensing within the consumer products industries.
      We are engaged in the manufacture of a dual dispenser that enables the user
      to
      blend two liquids in varying proportions. Substantially all of our revenues
      come
      from wholesale sales and our customers are located both in the United States
      and
      in Europe. The dual dispensers are currently manufactured in Germany and are
      currently being utilized in the food, sun care, skincare, and cosmetic
      industries. We will begin manufacturing in the United States commencing in
      the
      fourth calendar quarter of 2007 and will have operations located both
      domestically and in Germany for future production.





On
      March
      2, 2007, we changed our name to Versadial, Inc. (“Versadial” or “the Company”)
      to capitalize on the awareness of our trademarked name for our products in
      the
      marketplace.





Our
      fiscal year ends on June 30, and therefore references to fiscal 2007 and 2006
      refer to the fiscal years ended June 30, 2007 and June 30, 2006, respectively.
      Our fiscal year end was December 31, which was changed to June 30 to conform
      to
      the year end of Innopump, the accounting acquirer as a result of the
      Merger.





The
      common stock and per share information have been retroactively adjusted to
      give
      effect to the reverse merger on August 9, 2006 and to give effect to the one
      for
      forty-five reverse stock split that became effective on March 2,
      2007.





Recent
      Developments





The
      following developments took place during the past fiscal year, the current
      fiscal quarter and subsequent to September 30, 2007:




18




·
            On
                August 9, 2006, concurrent with the merger closing, we sold 10% senior
                redeemable convertible debt (“Convertible Debt”) in the principal amount
                of $7.5 million to Mellon HBV Master U.S. Event Driven Fund, L.P.
                and
                Mellon HBV Master Global Event Driven Fund, L.P. Fund (now known
                as Fursa
                Master Global Event Driven Fund, LP, and referred to herein as the
                “Investor”) under the terms of a Securities Purchase Agreement in exchange
                for $7.5 million in cash. The Convertible Debt matures 30 months
                after the
                date of issuance (“Maturity Date”) and bears interest at 10% per annum. We
                do not have the option to prepay the Convertible Debt prior to the
                Maturity Date and must redeem 100% of the Convertible Debt, unless
                earlier
                converted, for an amount equal to 120% ($9.0 million) of the outstanding
                principal plus accrued but unpaid interest, on the Maturity Date.
                The
                proceeds from the Convertible Debt were used for working capital,
                capital
                expenditures, mandatory debt repayment, and general corporate
                purposes.





·
            On
                September 20, 2006, we entered into a 30-month manufacturing agreement
                with Seidel GMBH, an outside contractor located in Germany. The agreement
                calls for the contractor to develop certain production molds for
                us for a
                new size (20 millimeter) dispenser. We will place all customer orders
                relating to the product with the contractor until at least eighty
                percent
                (80%) of the manufacturer’s production capacity is utilized based on five
                (5) days per week, three (3) shifts per day. The agreement calls
                for us to
                make payments in the aggregate of approximately $780,000 for preproduction
                molds and $3.3 million for the required production molds. Title of
                the
                molds will transfer to us upon final payment. As of June 30, 2007,
                the
                preproduction molds were complete and placed in service. We paid
                an
                aggregate of approximately $529,000 for the preproduction molds prior
                to
                their completion and financed the balance of approximately $251,000
                under
                the terms of a capital lease obligation. As of September 30, 2007,
                we have
                an outstanding balance of approximately $207,000 due on the remaining
                capital lease. As of September 30, 2007, we have made payments of
                approximately $2.5 million for the production molds. Uponcompletion
                of construction of the production molds, approximately $800,000 of
                the
                remaining balance will be financed through a capital lease to be
                paid
                monthly through March 2009.





In
      conjunction with the above manufacturing agreement, we also ordered related
      assembly equipment from a vendor in the amount of approximately $1.2 million.
      We
      have made payments of approximately $401,000 as of September 30,
      2007.




·
            On
                February 1, 2007, we entered into a $3.0 million Secured Line Of
                Credit
                Agreement (“Credit Agreement”) with Fursa Alternative Strategies, LLC
                (referred to herein as the “Lender”). The line is due on February 1, 2008
                but may be extended for an additional 3 months. The line bears interest
                at
                a rate equal to the three month LIBOR rate plus 700 basis points
                (12.4% at
                June 30, 2007). At June 30, 2007, we had drawn an aggregate of $3.0
                million of the available line. On July 9, 2007, the Credit Agreement
                was
                amended to (i) increase the amount of the line of credit available
                to us
                from $3.0 million to $4.0 million and (ii) waive certain default
                provisions required by the original Credit Agreement. In August 2007,
                the
                Lender agreed to convert $2.0 million of the outstanding principal
                balance
                to equity at a conversion price of $1.7662 per share for an aggregate
                of
                1,132,375 shares. As of September 30, 2007, we have an outstanding
                balance
                of $2.0 million due on the credit
                line.





·
            On
                April 24, 2007, we entered into a Supply Agreement and a related
                Tooling
                Amortization Agreement with Alltrista Plastics Corporation d/b/a
                Jarden
                Plastic Solutions, an outside contractor located in the United States
                (the
                “Supplier”). The Supply Agreement provides, among other things, that we,
                over the five year term of the Agreement, will purchase from the
                Supplier
                no less than 100.0 million units of our 40 millimeter and 49 millimeter
                dispensers.





These
      Agreements provide that the Supplier will fund the estimated $4.8 million cost
      of the injection molding, tooling and automatic equipment necessary to produce
      the products to be purchased by us. Although financed by the Supplier, the
      equipment will be owned by Versadial. We will capitalize the related equipment
      at inception of production which is anticipated to begin full scale in the
      fourth calendar quarter of 2007. During the quarter ended September 30, 2007,
      molds and equipment in the aggregate of approximately $857,000 were completed,
      utilized in production and capitalized. The cost of the tooling and automatic
      equipment, with a three (3%) percent per annum interest factor, will be
      amortized over a period of 18 months against dispensers purchased and delivered
      to us pursuant to the Supply Agreement, with a per unit amortization cost
      included in the cost price for the dispensers.





19


·
            On
                July 10, 2007 we entered into a two-year Master Supply Agreement
                with Avon
                Products, Inc. (“Avon”), a consumer products company for seventeen million
                units of certain of our products. The Agreement will remain in effect
                through the second anniversary of the first shipment of such products
                in
                commercial production quantities.





Pursuant
      to the terms of a Credit Memo previously entered into with Avon, we will repay
      Avon’s $1.7 million advances by a credit against the purchase price of products
      sold to Avon pursuant to the Master Supply Agreement and pursuant to other
      agreements that may be entered into between Versadial and Avon, commencing
      six
      months after the date of the first shipment of products to Avon. We anticipate
      that the exclusive supply relationship with Avon will consume all available
      manufacturing capacity of the specially designed 20mm pump through the first
      year. We anticipate production to begin in early 2008.





·
            On
                August 30, 2007, with the consent of the Investor, we entered into
                a
                Securities Purchase Agreement whereby we could sell 8% promissory
                notes
                (“Notes”) in the principal amount of up to $2.5 million at a price of
                ninety seven (97%) percent of the principal amount of Notes. The
                Notes are
                due upon the earlier of (a) six months following the final closing
                of the
                Notes, (b) the date on which the we receive no less than $4.0 million
                in
                gross cash proceeds from the closing of a private offering of our
                equity
                securities or (c) on the date we close on a rights offering. As of
                November 13, 2007, we have received net proceeds of approximately
                $1.5
                million from the sale of the Notes of which $1.3 million was received
                from
                Richard Harriton, a related party who serves as a Director and is
                a major
                shareholder of the Company.





RESULTS
      OF OPERATIONS





Executive
      Summary





The
      table
      below sets forth a summary of financial highlights for the three months ended
      September 30, 2007 and 2006:





Overall,
      our revenue grew substantially by 663% during the current quarter as our
      operations began to grow in the skincare and cosmetic sectors. Our direct costs
      exceeded our revenues due to several factors, which were primarily the need
      for
      manual labor of certain functions which will no longer be needed once U.S.
      production begins in late 2007, the unfavorable Euro/US Dollar currency exchange
      fluctuation, and high direct freight costs due mainly to component parts being
      produced in the U.S. and shipped to Germany for assembly which also will no
      longer be a factor once our U.S. production facility becomes fully operational
      in late 2007. Our indirect costs increased due to higher depreciation expenses
      in the current quarter on capital acquisitions, costs for prototype samples
      for
      new customers and products, and high costs for testing of new equipment for
      the
      U.S. facility. Our revenues did not increase enough to cover these costs as
      our
      production capacity was limited due to the moving of equipment from Germany
      to
      the U.S. Our German facility is still operational but with a limited amount
      of
      equipment with less production capacity than previously as the newer higher
      cavity equipment shipped to the U.S. in September 2007. The equipment had to
      be
      retrofitted for U.S. production and we expect to be operating by December 2007.
      Our interest expense increased due to the increase in debt obligations which
      were incurred for future growth including capital expenditures and for ongoing
      expenses. These changes are explained in more detail below.





Our
      focus
      for the coming fiscal year will be to grow our revenue and decrease our direct
      costs per unit which we believe will be accomplished as our new 20mm product
      line is completed and manufacturing should begin in early calendar 2008 at
      Seidel in Germany. We estimate we will be able to produce approximately 15
      million units annually of this product. In addition, we believe the completion
      of our new U.S. based facility for our 40 and 49mm product line will enable
      us
      to increase production with substantially all new automated molds and assembly
      equipment. This should also begin in late calendar 2007 at Jarden. We estimate
      we will be able to produce approximately 20 million units annually of these
      products. We have commitments from several multi-national customers for in
      excess of 20 million units at the current time for our various products. We
      also
      anticipate improving our costs and margins as both the injection molding and
      assembly functions will be performed together at both of these new subcontractor
      facilities and we will be better able to manage our costs as they will be on
      a
      completed per piece basis and we will no longer need to purchase individual
      component parts and contract assembly labor separately. Additionally, we will
      retain the services of Holzmann Montague, our prior assembly manufacturer in
      Germany, with limited production capacity, for development projects with new
      and
      existing customers, and possibly for assembly of foreign orders or additional
      production use if necessary.





20





**For
                the three months ended September 30,**
            
            **2007**
            
            **2006**
            
            **CHANGE****Net
                revenues**
            
            $
            148,687
            
            $
            19,475
            
            
            663
            %**Cost
                of revenues**Direct
                costs
            
            
            290,989
            
            
            21,765
            
            
            1237
            %Indirect
                costs
            
            
            421,503
            
            
            148,940
            
            
            183
            %712,492
            
            
            170,705
            
            
            317
            %**Gross
                margin**
            
            
            (563,805
            )
            
            (151,230
            )
            
            273
            %**Operating
                expenses**General
                and administrative
            
            
            787,637
            
            
            697,178
            
            
            13
            %**Loss
                from operations**
            
            
            (1,351,442
            )
            
            (848,408
            )
            
            59
            %**Other
                income (expenses)**Sublease
                income, affiliates
            
            
            12,915
            
            
            9,624
            
            
            34
            %Interest
                and other expense
            
            
            (479,219
            )
            
            (261,005
            )
            
            84
            %Interest
                expense, related parties
            
            
            (25,777
            )
            
            (31,877
            )
            
            -19
            %Amortization
                of debt discount
            
            
            (190,227
            )
            
            (36,214
            )
            
            425
            %Amortization
                of financing costs
            
            
            (125,322
            )
            
            (74,836
            )
            
            67
            %Loss
                on derivative financial instruments
            
            
            (526,901
            )
            
            -Loss
                on foreign currency exchange
            
            
            (33,174
            )
            
            (4,007
            )
            
            728
            %(1,367,705
            )
            
            (398,315
            )
            
            243
            %**Net
                loss**
            
            $
            (2,719,147
            )
            $
            (1,246,723
            )
            
            118
            %





REVENUES.
      During the three months ended September 30, 2007, we had revenues of $148,687
      as
      compared to revenues of $19,475 during the three months ended September 30,
      2006, an increase of approximately 663%. In 2007, 95% of the revenue was
      primarily attributable to three customers in the skincare, cosmetic and food
      industries. In 2006, all of the revenue was attributable to two customers in
      the
      beauty and cosmetic industries. As discussed above, we anticipate our revenues
      to continue to increase in the coming fiscal year.





GROSS
      MARGIN. Cost of revenues – direct costs, which consist of direct labor,
      overhead and product costs, were $290,989 (196% of revenues) for the three
      months ended September 30, 2007 as compared to $21,765 (112% of revenues) for
      the year three months September 30, 2006. The increase for 2007 is a result
      of
      the increase in revenues. The increase as a percent of revenues resulting in
      a
      negative gross margin is related to higher production costs in 2007. Our direct
      costs exceeded our revenues due to several factors, which were primarily the
      need for manual labor of certain functions on the 40mm line which will no longer
      be needed once U.S. production begins in late 2007, the unfavorable Euro/US
      Dollar currency exchange fluctuation due to foreign operations and U.S.
      customers, and high direct freight costs due mainly to component parts being
      produced in the U.S. and shipped to Germany for assembly which also will no
      longer be a factor once our U.S. production facility becomes fully operational
      in late 2007. Cost of revenues - indirect costs, which consist of indirect
      labor, quality control costs, factory maintenance, product development and
      depreciation, were $421,503 for the three months ended September 30, 2007 as
      compared to $148,940 for the three months ended September 30, 2006. The increase
      was due primarily to increased depreciation of approximately $122,000 due to
      the
      purchase of more manufacturing equipment, for additional costs for runoff
      testing of parts of approximately $82,000 needed to validate the new U.S.
      equipment, and for additional labor for testing and development in 2007 as
      compared to 2006. Gross margin was a deficit of $(563,805) for the three months
      ended September 30, 2007 as compared to a deficit of $(151,230) for the three
      months ended September 30, 2006, representing gross margins of approximately
      (379) % and (777) % of revenues, respectively. We believe that indirect costs,
      which are primarily related to depreciation and the testing of new automated
      equipment, will decrease both in amount and as a percent of revenues as the
      equipment is placed in service and revenues increase to cover these costs.
      We
      also believe direct costs should decrease on a percentage of revenue basis
      as
      discussed above when our new facilities become operational in late 2007 and
      early 2008 as both our capacity and production capabilities will increase and
      we
      will become more cost efficient.





21




OPERATING
      EXPENSES. General and administrative expenses totaled $787,637 for the three
      months ended September 30, 2007, as compared to $697,178 for the three months
      ended September 30, 2006, an increase of approximately 13%. This increase of
      approximately $90,000 is primarily attributable to an increase in the technical
      consultant fee and royalties due the licensor under contract of $25,000, and
      an
      increase in consulting fees of $81,000 as more general consultants were used
      in
      2007 for sales, design work and other administrative functions, The balance
      of
      the change was comprised of net increases and decreases in various other general
      and administrative costs.





NET
      LOSS.
      We had a net loss of $2,719,147 for the three months ended September 30, 2007
      as
      compared to $1,246,723 for the three months ended September 30, 2006, an
      increase of approximately $1,472,000. The increase in net loss is attributable
      to the increases in general and administrative and cost of revenues as described
      above. In addition, interest expense and amortization of debt/financing costs
      increased by approximately $417,000 in 2007 due to increased debt obligations.
      We believe that revenues should increase in the coming fiscal year as we
      introduce our new product line and are able to grow our customer base, and
      direct costs should decrease as production becomes more automated and
      diversified in both the U.S. and in Germany, allowing operating expenses to
      decline on a per piece basis and indirect costs to be covered.





GOING
      CONCERN, LIQUIDITY AND CAPITAL RESOURCES





The
      following table sets forth our working capital deficit as of September 30,
      2007:





At September 30,2007Current
                assets
            
            $
            1,252,270Current
                liabilities
            
            
            7,938,566Working
                capital deficit
            
            $
            (6,686,296
            )





At
      September 30, 2007, we had incurred cumulative losses of approximately $17.5
      million since inception and $2.7 million for the three months ended September
      30, 2007. We have a working capital deficit of approximately $6.7 million and
      a
      stockholders’ deficit of approximately $13.3 million as of September 30, 2007.





During
      the three months ended September 30, 2007, we utilized cash of approximately
      $1.0 million for operating activities primarily due to the revenues not yet
      great enough to cover general and administrative expenses and indirect costs.
      We
      utilized cash of approximately $840,000 from investing activities primarily
      to
      purchase molds and equipment. We received cash from financing activities of
      approximately $1.7 million from the secured credit line and bridge loans under
      the securities purchase agreement. These funds were utilized to purchase
      equipment and cover operating costs.





At
      September 30, 2007, current liabilities are approximately $7.9 million which
      includes $1.5 million due to shareholders on February 28, 2008 which we believe
      will be extended if necessary prior to maturity. Current liabilities also
      include approximately $2.0 million (before debt discount) due under the line
      of
      credit due on February 1, 2008 which we believe may be converted to equity
      dependent upon additional future financings.





22




Approximately
      $531,000 in current liabilities relates to minimum royalties due to the
      Licensor, pursuant to the License Agreement, which are in arrears. On September
      18, 2007, the Licensor signed a waiver of defaults whereby royalty payments
      in
      arrears due through June 30, 2007 of $432,000 would be paid as follows: 5%
      of
      any proceeds received from a capital raise between $1 million and $2 million
      and
      10% of everything over $2 million in proceeds until the entire amount of the
      past due royalty is paid in full. In calculating the proceeds of a capital
      raise, (i) any bridge loans raised prior to completion of a capital raise and
      actually paid out of the capital raise, and (ii) any debt converted into the
      capital raise shall not be deemed to be proceeds. In addition, the Licensor
      agreed to accept royalties as calculated on actual shipments after June 30,
      2007
      through June 30, 2008 to be paid monthly and the cumulative difference between
      minimum monthly royalties and actual monthly royalties to be paid no later
      than
      June 30, 2008 unless the Licensor and Licensee have entered into a written
      agreement prior to that date providing for an alternate payment schedule; and
      if
      the past due royalties are not fully paid prior to June 30, 2008, then the
      parties agree to, in good faith negotiations, negotiate a further arrangement
      to
      fully repay any such balance based on cash flow projections prior to June 30,
      2008 as long as the technical consultant payments are made in accordance with
      the License Agreement. All payments were paid when due through September 30,
      2007.





On
      August
      30, 2007, with the consent of the Investor, we entered into a Securities
      Purchase Agreement whereby we could sell 8% promissory notes in the principal
      amount of up to $2.5 million at a price of ninety seven (97%) percent of the
      principal amount of notes. The notes are due upon the earlier of (a) six months
      following final closing under the Purchase Agreement, (b) the date on which
      we
      receives no less than $4.0 million in gross proceeds from the closing of a
      private offering of our equity securities or (c) on the date we close on a
      rights offering. As of November 13, 2007, we have received net proceeds of
      approximately $1.5 million from the sale of the notes of which $1.3 million
      was
      received from a related party. These funds were used for current operating
      costs
      and capital expenditures. At September 30, 2007, the outstanding current balance
      of these notes aggregated $800,000.





The
      balance of current liabilities consists primarily of accounts payable, interest,
      and other expenses.





We
      recognize that we must generate additional revenue and sufficient gross profit
      margins to achieve profitable operations. Management's plans to increase
      revenues include the continued building of its customer base capitalizing on
      successful product introductions in 2007 resulting in anticipated volume
      increases of more than 200%, or five (5) million pieces per annum for 2008
      and
      2009, from current customers; the addition of firm commitments from new
      customers totaling more than twenty (20) million units for the combined 2008
      and
      2009 seasons; the solidification of high potential customer interest equivalent
      to an additional twenty (20) million units for the same period deliverable
      upon
      demonstration of ability to manufacture; the realization that the above
      production is coming from a limited amount of potential customers whose demand
      is so great it may limit our opportunity to create capacity for other interested
      customers, and the resultant focus by us to identify production partners who
      will fund manufacturing equipment in consideration for customer commitment.
      In
      addition, we are commencing production at Jarden, a domestic manufacturing
      facility in the United States, and commencing production in Germany at Seidel
      for our new 20mm size dispenser. We believe that the capital on hand will not
      be
      sufficient to purchase the necessary capital equipment needed to expand our
      product line, meet current obligations, fund operations during the next twelve
      months and that additional debt or equity financing will be required. We are
      currently evaluating alternative sources of capital funding either through
      debt
      or equity financing as well as from possible production partners.





We
      are
      currently in negotiations with several other large consumer products companies
      regarding the introduction of a 20mm dual chamber pump similar to the pump
      assembled by Seidel. The fulfillment of these orders, if obtained, will require
      a similar capital investment as described above as related to our agreements
      with Jarden or Seidel , and we are currently evaluating, in lieu of additional
      debt or equity financing, several opportunities for capitalization of same
      from
      existing and new production partners in consideration for a volume and
      amortization commitment. We believe that in the future we can finance all the
      capital requirements through such arrangements due to the strength of the
      current customer commitments; the performance of our products currently in
      the
      marketplace; the consumer interest demonstrated in our products, as revealed
      by
      our customers market research investigations and resultant large initial order
      commitments; and the multiple indicators of support we are receiving from
      potential manufacturing partners.





The
      following is a table summarizing our significant commitments as of September
      30,
      2007, consisting of equipment commitments, debt repayments, royalty payments
      and
      future minimum lease payments with initial or remaining terms in excess of
      one
      year for the next fiscal 5 years.




23




**Contractual
                Obligations**
              **(in
                millions):**
            
            **Total**
            
            **FYE
                2008**
            
            **FYE**
              **2009-2010**
            
            **FYE**
              **2011-2012**
            
            **FYE 2013 and
                Thereafter**Convertible
                Debt and interest
            
            $
            10.2
            
            $
            0.8
            
            $
            9.4
            
            $
            -
            
            $
            -Notes
                and interest - related parties
            
            
            2.2
            
            
            2.2Secured
                Line of Credit and interest
            
            
            2.1
            
            
            2.1Other
                notes and interest
            
            
            0.4
            
            
            0.4Royalties
                including arrears
            
            
            16.0
            
            
            0.9
            
            
            1.1
            
            
            1.3
            
            
            12.7Equipment
                obligations and leases
            
            
            2.0
            
            
            1.5
            
            
            0.5Tooling
                Amortization
            
            
            4.8
            
            
            2.2
            
            
            2.6Operating
                lease
            
            
            0.2
            
            
            0.1
            
            
            0.1$
            37.9
            
            $
            10.2
            
            $
            13.7
            
            $
            1.3
            
            $
            12.7





Based
      on
      the current operating plan and available cash and cash equivalents currently
      available, we will need to obtain additional financing through the sale of
      equity securities, private placements, funding from new or existing production
      partners, and/or bridge loans within the next 12 months. Additional financing,
      whether through public or private equity or debt financing, arrangements with
      stockholders or other sources to fund operations, may not be available, or
      if
      available, may be on terms unacceptable to us. The ability to maintain
      sufficient liquidity is dependent on our ability to successfully build our
      customer base and product line with the required capital equipment. If
      additional equity securities are issued to raise funds, the ownership percentage
      of existing stockholders would be reduced. New investors may demand rights,
      preferences or privileges senior to those of existing holders of common stock.
      Debt incurred by us would be senior to equity in the ability of debt holders
      to
      make claims on our assets. The terms of any debt issued could impose
      restrictions on our operations.





There
      can
      be no assurance that we will be successful in building our customer base and
      product line or that the available capital will be sufficient to fund current
      operations and the necessary capital expenditures until such time as revenues
      increase to cover operating costs. If we are unsuccessful in building our
      customer base or are unable to obtain additional financing, if necessary, on
      terms favorable to us there could be a material adverse effect on our financial
      position, results of operations and cash flows. The accompanying financial
      statements do not include any adjustments that might be necessary if we are
      unable to continue as a going concern.





24


**ITEM
      3. CONTROLS AND PROCEDURES**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer, who serves as our
      Principal Executive Officer and Principal Financial Officer and our Controller,
      who serves as our Principal Accounting Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures pursuant to
      Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, our
      Chief Executive Officer and the Controller concluded that as of the end of
      the
      period covered by this report our disclosure controls and procedures are
      effective 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 SEC's rules and forms, and
      are
      also effective to ensure that information required to be disclosed in our
      reports filed or submitted under the Exchange Act is accumulated and
      communicated to the Company's management, including the principal executive
      and
      principal financial officers, to allow timely decisions regarding required
      disclosure. During this fiscal quarter, there has been no change in our internal
      control over financial reporting that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.





25




**PART
      II. OTHER INFORMATION**




**ITEM
      1. Legal Proceedings**




None




**ITEM
      2. Unregistered Sales of Equity Securities**




There
      have been no changes in the instruments defining the rights or rights evidenced
      by any class of registered securities.




There
      have been no dividends declared.




**ITEM
      3. Defaults Upon Senior Securities**




None




**ITEM
      4. Submission of Matters to Vote of Security Holders**




None




**ITEM
      5. Other Information**




None




**ITEM
      6. Exhibits and Reports on Form 8-K**




(A)
      Exhibits


4.17
            Amendment
                No. 1 dated July 9, 2007 to the Line of Credit Agreement between
                the
                Company and Fursa Alternative Strategies, LLC. (2)4.18
            Form
                of Note issued in connection with Amendment No. 1 to the Line of
                Credit
                (2)4.19
            Securities
                Purchase Agreement dated as of August 30, 2007 between the Company
                and the
                Lenders Named Herein. (3)10.15
            Master
                Supply Agreement dated July 10, 2007 between Versadial, Inc. and
                Avon
                Products, Inc. (1)10.16
            Amendment
                No. 3 dated September 18, 2007 to the Sublicense, Development and
                Technology Transfer Agreement dated May 1, 2005 between Innopump,
                Inc. and
                Sea Change Group, LLC. (3)10.17
            Amendment
                No. 2 as to Payment Terms dated September 18, 2007 to the Amended
                and
                Restated License Agreement dated January 1, 2003 between Sea Change
                Group,
                LLC and Gerhard Brugger. (3)




31
      Certification of CEO and CFO pursuant to Securities Exchange Act rules 13a-15
      and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley Act
      of
      2002.*




32
      Certification of Chief Executive Officer and Chief Financial Officer, pursuant
      to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the
      Sarbanes-Oxley Act of 2002.*




*
      Filed
      herewith


(1)
            Incorporated
                by reference to Exhibit 10.1 of Form 8-K of the Company filed on
                July 16,
                2007(2)
            Incorporated
                by reference to Exhibit 10.1 and Exhibit 10.2 of Form 8-K of the
                Company
                filed on July 12, 2007.(3)
            Incorporated
                by reference to same Exhibit No. on Form 10-KSB of the Company filed
                on
                October 15, 2007.





26





(B)
      Reports on Form 8-K





Current
      reports on Form 8-K during the quarter ended September 30, 2007 are as
      follows:





·
            Report
                on Form 8-K filed with the SEC on July 12, 2007, announcing under
                Item
                1.01 the entering into Amendment No. 1 to the Secured Line of Credit
                Agreement between the Registrant and Fursa Alternative Strategies,
                LLC.


·
            Report
                on Form 8-K filed with the SEC on July 16, 2007, reporting under
                Item 1.01
                the entering into a Master Supply Agreement between the Registrant
                and
                Avon Products, Inc.


·
            Report
                on Form 8-K filed with the SEC on August 31, 2007, reporting under
                Item
                3.02 the issuance of unregistered securities to Fursa Master Global
                Event
                Driven Fund, LP for conversion of debt and interest.





27





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Company has duly caused this report to be signed on its behalf by
      the
      undersigned, thereunto duly authorized on the 19th day of November
      2007.





VERSADIAL,
                INC./s/
                Geoffrey DonaldsonBy:
            Geoffrey
                Donaldson, Principal Executive and Financial Officer/s/
                Karen NazzarenoBy:
            Karen
                Nazzareno,Controller





28