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

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

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2007

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

            For the transition period from ___________ to ___________

                        Commission file number 000-29196


                           PROFILE TECHNOLOGIES, INC.
                           --------------------------
                 (Name of Small Business Issuer in Its Charter)


                     Delaware                             91-1418002
                     --------                             ----------
         (State or other jurisdiction of               (I.R.S. Employer
          incorporation or organization)              Identification No.)

             2 Park Avenue, Suite 201
               Manhasset, New York                           11030
               -------------------                           -----
    (Address of principal executive offices)              (Zip Code)



                                 (516) 365-1909
                                 --------------
                (Issuer's Telephone Number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 par value


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

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

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

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


                                        i
<PAGE>

     The issuer's revenues for the fiscal year ended June 30, 2007 were $0.

     The aggregate market value, based on the average bid and asked prices on
NASD's OTC Bulletin Board on September 13, 2007, of the voting common stock,
$0.001 par value per share, held by non-affiliates of the issuer as of September
13, 2007 was approximately $10,790,000.

     There were 13,625,150 shares of common stock, $0.001 par value per share,
outstanding as of September 13, 2007.


                       DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-KSB incorporates certain information
by reference to the issuer's Definitive Proxy Statement on Form 14A for its
annual meeting of stockholders to be held on November 13, 2007.

Transitional Small Business Disclosure Format. Yes |_| No |X|.



















                                       ii
<PAGE>

                                Table of Contents

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

Description                                                          Page Number

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


                                     PART I
                                     ------

ITEM 1    DESCRIPTION OF BUSINESS...........................................   1

ITEM 2    DESCRIPTION OF PROPERTY...........................................   6

ITEM 3    LEGAL PROCEEDINGS.................................................   6

ITEM 4    SUBMISSION OF MATTERS TO A VOTE
          OF SECURITY HOLDERS...............................................   6

                                     PART II
                                     -------

ITEM 5    MARKET FOR COMMON EQUITY, RELATED
          STOCKHOLDER MATTERS AND SMALL
          BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES....................   6

ITEM 6    MANAGEMENT'S DISCUSSION AND ANALYSIS OR
          PLAN OF OPERATION.................................................   9

ITEM 7    FINANCIAL STATEMENTS..............................................  11

ITEM 8    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE............................  32

ITEM 8A   CONTROLS AND PROCEDURES...........................................  32

ITEM 8B   OTHER INFORMATION.................................................  32


                                    PART III
                                    --------

ITEM 9    DIRECTORS AND EXECUTIVE OFFICERS..................................  32

ITEM 10   EXECUTIVE COMPENSATION............................................  33

ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
          OWNERS AND MANAGEMENT.............................................  33


                                       iii
<PAGE>

ITEM 12   CERTAIN RELATIONSHIPS AND RELATED
          TRANSACTIONS......................................................  34

ITEM 13   EXHIBITS..........................................................  34

ITEM 14   PRINCIPAL ACCOUNTANT FEES AND SERVICES............................  36

SIGNATURES..................................................................  37

EXHIBIT INDEX...............................................................  38

CERTIFICATIONS




















                                       iv
<PAGE>

                    Preliminary Note Regarding Certain Risks
                         and Forward-Looking Statements
                    ----------------------------------------


     This Annual Report on Form 10-KSB contains "forward-looking" information
within the meaning of the federal securities laws. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "anticipates,"
"expects" or words of similar import. Similarly, statements that describe the
Company's projected future results, future plans, objectives or goals or future
conditions or events are also forward-looking statements. Actual results are
inherently difficult to predict. Any such forward-looking statements are subject
to the risks and uncertainties that could cause actual results of operations,
financial condition, acquisitions, financing transactions, operations,
expenditures, expansion and other events to differ materially from those
expressed or implied in such forward-looking statements. Any such
forward-looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such statements are made as well as predictions as to
future facts and conditions, the accurate prediction of which may be difficult
and involve the assessment of events beyond the Company's control.

     The forward-looking statements contained in this report are based on
current expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will obtain
or have access to adequate financing for each successive phase of its growth,
that the Company will market and provide products and services on a timely
basis, that there will be no material adverse competitive or technological
change with respect to the Company's business, demand for the Company's products
and services will significantly increase, that the Company's executive officers
will remain employed as such by the Company, that the Company's forecast
accurately anticipates market demand, and that there will be no material adverse
change in the Company's operations, business or governmental regulation
affecting the Company or its customers. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Although the Company believes the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements.










                                        v
<PAGE>

                                     PART I

Item 1. Description of Business.

Business Overview

     Profile Technologies, Inc. (the "Company"), was incorporated in 1986 and
commenced operations in fiscal year 1988. The Company is in the business of
inspecting pipelines for corrosion and has developed a patented, non-destructive
and non-invasive, high speed scanning process, using electro magnetic waves to
remotely inspect buried, encased and insulated pipelines for corrosion.

     During the summer of 1998, the Company completed work on its first
commercial contract with ASCG Inspection, Inc., testing British Petroleum
pipelines at approximately 100 road and caribou crossings located on the North
Slope of Alaska. During the summer of 1999, the Company continued testing
pipelines under a contract with another large multi-national oil company related
to the inspection of approximately 250 below-grade pipelines. During the summer
of 2000, the Company expanded its Alaska efforts by testing a total of 372
below-grade pipelines. In 2001, the Company completed the testing of
approximately 441 pipelines in Alaska. In 2002 and 2003, the Company inspected
364 and 250 below-grade pipelines, respectively.

     As a result of the Company's experience in Alaska and in response to
regulatory changes that occurred in 2003 and thereafter, the Company refocused
its technology development efforts on addressing the inspection needs of the
lower-48 markets. Over the last four years significant improvements have been
made in the Company's hardware, software and testing methods.

     While additional development work remains to be done on the testing of
direct buried pipe, the Company feels that it has a commercial product for the
testing of both cased pipelines (e.g., road crossings and river crossings) and
insulated pipelines for corrosion and other defects, such as shorts or water
encroachment. The Company is now actively marketing its inspection services for
encased and insulated pipelines. In order to focus its resources on securing
contracts for those services, it has temporarily suspended development work on
its direct buried (unencased pipe) inspection service.

     The Company has recently filed a provisional patent application to adapt
its technology to the inspection of pipelines and other facilities for internal
corrosion.

Industry Overview

     Refineries, chemical plants, utilities, natural gas transmission companies
and the petroleum industry have millions of miles of pipeline, much of which may
be exposed to harsh and severe environments subjecting such pipeline to higher
incidence of corrosion. As a result of such environments these industries are
continually challenged to ensure that the quality of its pipeline meets
applicable standards established by relevant regulatory bodies to protect
operating personnel and the environment.

     The federal Office of Pipeline Safety (OPS) is the federal safety authority
for the nation's 2.3 million miles of natural gas and hazardous liquid
pipelines. Each state also has one or more agencies that are responsible for the
safe operation of intrastate pipeline and other facilities. Typically, all such
pipelines are required to be inspected periodically for corrosion and other
defects.

     The regulated companies are constantly searching for new inspection
technologies to assist them in fulfilling their regulatory obligations. The
alternatives for the inspection of cased pipes are currently limited.

                                       1
<PAGE>

Ultrasound, generically known as "guided wave", has been used with some limited
success to inspect cased pipe. The Company feels, however, that its technology
has certain advantages over competing technologies, e.g., greater distance and
the ability to see multiple defects on cased pipes.

     Accordingly, the Company is, for the near future, concentrating its
marketing efforts on cased pipelines.

The Company's EMW Inspection Process

     The EMW Inspection Process provides a corrosion inspection method which
does not require the inspector to physically remove the pipeline's casing or
insulation or otherwise dig up the pipeline to visually inspect for corrosion.
In certain instances, limited access points to buried pipelines exist for
reasons unrelated to corrosion inspection. As a result, corrosion inspection may
be conducted at these access points. Where such access points are not already
available, the EMW Inspection Process permits the inspection of pipelines with a
minimal amount of disturbance to the coating or insulation on the pipeline. In
addition, the EMW Inspection Process permits corrosion inspection over the
entire pipeline, as opposed to other inspection methods, which only provide for
spot point inspections.

     The Company has developed two basic EMW Inspection Process techniques,
namely, Dual Pulse or Pulse Propagation Analyzer and Single-Pulse or Calibration
Mark Z.

     For more than a year, the Company has been developing new hardware and
software to permit the testing of cased pipe from a single location while, at
the same time, capturing data from the pipe traveling in both directions. This
new equipment has recently been tested over a three-day period at an industry
pipe test facility in the northeast. The results of these tests have provided
the Company with critical information as to the detection capabilities of its
new hardware which should accelerate the commercial deployment of the Company's
new hardware and software.

     The Company has now initiated efforts to actively market its cased pipe
inspection service.

     Correlating pipeline corrosion information using the Company's technology
requires a combination of state-of-the-art instrumentation plus an understanding
of the physical phenomena that are being measured. Management believes that the
EMW measurement and analysis are on the leading edge of inspection technology.

     The Company also believes that its technology has at least two significant
competitive advantages. First, it can inspect certain pipelines that are
inaccessible to other testing methods. Second, with respect to facilities that
are accessible to other inspection methods, the Company's technology requires
little excavation and the removal of only a small area of coating. Accordingly
the Company's technology will typically have a lower cost of site preparation
that results in a significant cost advantage.

     As stated above, the Company's ongoing research and development efforts
will be targeted on new hardware and software for the inspection of direct
buried pipelines for internal and external corrosion.

The New Test Set

     To position the Company to address the cased pipeline market, the Company
redesigned and improved the hardware underlying the EMW Inspection Process. The
new hardware (the "New Test Set") provides a different pulse waveform
specifically tailored to the cased pipe environment. This waveform has increased
low frequency energy content, which enables efficient wave propagation over
greater distances.

     The New Test Set is smaller than the previous more cumbersome generation
hardware used in Alaska. The New Test Set weighs less than 12 pounds, including
the data acquisition digitizer and battery power supply. The New Test Set can be
hand-carried and operated by a single person and no longer requires an
oscilloscope or a gasoline powered AC generator which were necessary with the
previous generation hardware. This portable system is designed to allow testing
of both underground and above-grade, cased and insulated pipelines with one test
set.

                                       2
<PAGE>

     Although several important milestones have been achieved in the testing of
the Company's new hardware and software, there can be no assurance that the
field testing portion of this testing program can be funded or that the new
hardware and software can be successfully tested and deployed on a commercial
basis. Failure to do so could have a serious and material effect on the business
and financial condition of the Company.

Regulatory Environment

     A combination of federal, state, and industry rules combine to regulate
corrosion protection. The U.S. Department of Labor, operating through the
Occupational Safety and Health Administration, has jurisdiction over numerous
plants and facilities containing corrosion protected pipeline that, if breached,
could cause serious bodily injury or death to on-site workers. The U.S.
Department of Transportation (the "DOT") has jurisdiction over interstate
natural gas and hazardous liquids pipelines. Counterpart state agencies have
jurisdiction over intrastate natural gas and hazardous liquids pipelines. In
addition, the American Petroleum Institute has promulgated a comprehensive
Piping Inspection Code which requires that extensive corrosion testing be done
by all members (which includes the vast majority of the petroleum and
petrochemical industries). As a result of extensive regulation and testing
requirements, the industry is faced with the requirement to engage in extensive
testing for corrosion. In 1993, the American Petroleum Institute imposed
stricter test standards for corrosion under the insulation on pipelines.

     The American Petroleum Institute testing standard adopted in 1993, in
essence, mandates either the stripping of larger amounts of coating or using an
alternate system that will identify corrosion under the insulation without
stripping the coating on suspected and unsuspected pipe. Because of the enormous
cost involved in using the stripping and visual testing process, the Company
believes that the industry will be receptive to an alternate testing system that
is reliable and less costly. The Company believes that its EMW Inspection
Process provides an alternate testing system that could be widely accepted by
the industry. However, while the Company has obtained some commercial contracts
and prospects for expanded commercial contracts in the future appear strong,
there can be no assurance that such acceptance will continue to grow or that
competitors will not develop newer and better technologies.

     On December 15, 2003, the DOT issued regulations under the Pipeline Safety
Improvement Act of 2002 requiring regulated companies to gather baseline
integrity data on pipelines in so-called "high consequence areas" ("HCAs")
(e.g., populated areas) initially over a ten-year period and then every seven
years thereafter. Based on consultations with industry representatives, the
Company believes that its new buried pipe inspection hardware will provide such
regulated companies with a superior tool for gathering the baseline integrity
data required under the DOT regulations.

Revenues and Customers

     The Company derives revenue solely from the sale of the EMW inspection
technology service. The Company relies solely upon several employees, including
the Chief Executive Officer and the Chief Operating Officer to conduct the
Company's sales activities.

     The Company did not have revenues during the years ended June 30, 2007 and
2006, as it was engaged solely in the redevelopment of its testing hardware and
software. The testing of that hardware and software is nearing completion. The
Company is continuing ongoing efforts to improve its technology.

Sales and Marketing

     The Company's sales and marketing strategy has been to position the
Company's EMW inspection process as the method of choice to detect pipeline
corrosion where the pipelines are either inaccessible to other inspection tools
or much more costly to inspect with tools other than the Company's EMW

                                       3
<PAGE>

technology. Pipelines are commonly found in refinery and chemical plants (such
as insulated, overhead pipes), natural gas distribution systems (such as pipes
buried in city streets), and natural gas transmission systems (such as road,
bridge and stream crossings and concrete-encased pipes).

     As described above, the Company has fabricated new pipe inspection hardware
for the inspection of cased and insulated pipelines and is actively seeking
industry cooperation and other financing sources in order to rigorously field
test that hardware. In order to obtain additional revenue generating contracts,
the Company intends to emphasize the unique capabilities of its cased and
insulated pipeline testing method, the flexibility of the method's application,
and its cost effectiveness as compared to other methods. In fiscal year 2008,
the Company intends to continue its marketing efforts in the pipeline and
utility buried pipe inspection markets in the lower-48 states, particularly in
"high consequence areas" as defined in the federal Department of
Transportation's regulations. However, there can be no assurance that the
Company will be successful in concentrating its marketing efforts for the EMW
technology on natural gas utility and pipeline markets.

Patents, Intellectual Property and Licensing

     The Company pursues a policy of generally obtaining patent protection both
in the United States and abroad for patentable subject matter in its proprietary
technology. As of June 30, 2007, the Company had 11 issued U.S. patents, 3
issued foreign patents, 1 U.S. patent application pending, 4 foreign patents
pending, 1 U.S. provisional patent application and 1 PCT International patent
application.

     The Company's success depends in large part upon its ability to protect its
process and technology under United States and international patent laws and
other intellectual property laws. U.S. patents have a term of 17 years from date
of issuance or, for more recently filed patent applications, 20 years from the
filing of such applications, and patents in most foreign countries have a term
of 20 years from the proprietary filing date of the patent application. The
first U.S. patent was issued in 1990; two patents were issued in 1993; one
patent was issued in 1998; two patents were issued in 2000, two patents were
issued in 2001, two patents were issued in 2002; and one patent was issued in
2007.

     The Company believes that it owns and has the right to use or license all
proprietary technology necessary to license and market its EMW process under
development. The Company is not aware of the issuance of any patents or the
filing of any patent applications which relate to processes or products which
utilize the Company's proprietary technology in a manner which could be similar
to or competitive with the Company's products or processes. The Company has no
knowledge that it is infringing on any existing patent such that it would be
prevented from marketing or licensing products or services currently being
developed by the Company.

     The Company may decide for business reasons to retain a patentable
invention as a trade secret. In such event or if patent protection is not
available, the Company must rely upon trade secrets, internal knowledge and
continuing technological innovation to develop and maintain its competitive
position. The Company's employees and consultants have access to the Company's
proprietary information and have signed confidentiality agreements. However,
even inadvertent disclosure of such a trade secret without a promise of
confidentiality could destroy trade secret protection. There can be no assurance
that inadvertent disclosures might not occur. If the Company's proprietary
information is disclosed to competitors, it may have a material adverse effect
on the Company's business.

Competition

     Although a number of inspection technologies have been developed to aid in
ascertaining the condition of piping throughout the pipeline corrosion control
industry, information needed to determine the integrity of these critical
systems is often difficult and costly to acquire. The Company has numerous
indirect competitors, but the Company believes that its inspection services have
significant competitive advantages over other services provided by competitors.

                                       4
<PAGE>

     The Company's EMW inspection service is designed to help pipeline operators
quickly and less expensively screen buried, insulated, or hard to-access piping
for external corrosion. Although its technology does not provide pipeline and
plant operators with all the data they will require to manage and remediate
corrosion, when used as a "front-end" screening tool in combination with one or
more spot inspection tools, it can dramatically lower the cost of acquiring all
of the data necessary to manage corrosion risks to their piping systems. There
can be no assurances, however, that the Company's competitors will not develop
newer, more efficient and less costly technologies.

Employees and Consultants

     As of June 30, 2007, the Company had four employees.

     The Company relies on the expertise of two consultant scientists to
facilitate the development and testing of the Company's hardware and software.
These scientists are also instrumental in compiling and interpreting the data
captured during the testing of the hardware and software. The loss of the
specialized knowledge provided by the scientists could have an adverse effect on
the ability of the Company to successfully market its hardware and software.
During the years ended June 30, 2007 and 2006, the Company incurred cash fees
payable to the scientists of $266,968 and $188,731, which are included in
research and development expense in the Company's Statements of Operations.

     As partial compensation for services rendered, on November 13, 2006, the
Company granted the scientists stock options to purchase a total of 100,000
shares of common stock at an exercise price of $0.86 per share, expiring
November 12, 2016. The 100,000 stock options had a fair value at the date of
grant of $77,000, which is included in research and development expense in the
Company's Statements of Operations for the year ended June 30, 2007.

     As partial compensation for services rendered, on July 13, 2006, the
Company granted one of the scientists a stock option to purchase 100,000 shares
of common stock at an exercise price of $1.05 per share, expiring July 12, 2011.
The 100,000 stock options had a fair value at the date of grant of $89,000,
which is included in research and development expenses in the Company's
Statements of Operations for the year ended June 30, 2007.

     As partial compensation for services rendered, on December 12, 2005, the
Company granted one of the scientists a stock option to purchase 50,000 shares
of common stock at an exercise price of $1.12 per share, expiring December 12,
2010. The 50,000 stock options had a fair value at the date of grant of $50,500,
which is included in research and development expense in the Company's
Statements of Operations for the year ended June 30, 2006.

     Total cash and equity compensation expense incurred for settlement of
services rendered by the scientists totaled $432,968 and $239,231, or
approximately 94% and 66%, of research and development expense for the years
ended June 30, 2007.

Research and Development Expenditures

     During the last year, the Company has re-developed and improved the
hardware and software it uses to detect corrosion on direct-buried pipe. As a
result of such re-development and improvement, the Company believes that its
technology is now ready to obtain broad acceptance in the U.S pipeline and
utility industry segments. However, additional funding and certifications must
be acquired to gain significant market share in the Company's target markets.

     Research and development expenses for the years ended June 30, 2007 and
2006 were $458,911 and $357,709.

                                       5
<PAGE>

Item 2. Description of Property.

     The Company's corporate office is located at 2 Park Avenue, Suite 201,
Manhasset, NY 11030. On March 1, 2007, the Company entered into a one year
operating lease for its corporate office.

Item 3. Legal Proceedings.

     From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is currently not a party to any legal proceedings, the adverse outcome
of which, in management's opinion, individually or in the aggregate, would have
a material adverse effect on the Company's results of operations or financial
position.

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

     No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 2007.

                                     PART II

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

Market Information

     The Company's common stock traded on the NASDAQ Small Cap market from the
date it began to be publicly traded in February 1997 until August 10, 2001 under
the symbol PRTK. On August 13, 2001, the Company's common stock was delisted
from the NASDAQ Small Cap market and began trading on the Over the Counter
Bulletin Board (the "OTCBB") under the same symbol. The Company's common stock
continues to be traded on the OTCBB.

     The following table sets forth the high and low bid prices for the
Company's common stock for each quarter within the past two fiscal years as
reported by the OTCBB. The quotations reflect inter-dealer prices, with retail
mark-up, mark-down or commissions, and may not represent actual transactions.

                                                Range of
                                               Bid Prices
                                               -----------
                                             High         Low
                                            ------      ------
           Fiscal Year 2007
                First Quarter               $1.39        $0.60
                Second Quarter              $1.35        $0.66
                Third Quarter               $1.19        $0.93
                Fourth Quarter              $1.30        $0.86

           Fiscal Year 2006
                First Quarter               $1.40        $0.70
                Second Quarter              $1.40        $0.80
                Third Quarter               $1.89        $1.00
                Fourth Quarter              $1.45        $0.70


     As of September 13, 2007, the Company had approximately 1,060 holders of
record of the Company's common stock.

                                       6
<PAGE>

Dividends

     The payment of dividends by the Company is within the discretion of its
Board of Directors and depends in part upon the Company's earnings, capital
requirements, debt covenants and financial condition. Since its inception, the
Company has not paid any dividends on its common stock and does not anticipate
paying such dividends in the foreseeable future. The Company intends to retain
earnings, if any, to finance its operations.

Securities Authorized for Issuance Under Equity Compensation Plans

     The following table sets forth certain information regarding the common
stock that may be issued upon the exercise of options, warrants and other rights
that have been or may be granted to employees, directors or consultants under
all of the Company's existing equity compensation plans, as of June 30, 2007.

<TABLE>
<CAPTION>
<S> <C> <C>
-----------------------------------------------------------------------------------------
                                                                            Number of
                                                                            securities
                                                                            remaining
                                                                          available for
                                       Number of                         future issuance
                                    securities to be   Weighted-average    under equity
                                      issued upon      exercise price      compensation
                                      exercise of      of outstanding    plans (excluding
                                      outstanding         options,          securities
                                   options, warrants    warrants and       reflected in
                                       and rights          rights          column (a))
-----------------------------------------------------------------------------------------
                                          (a)                (b)                (c)
-----------------------------------------------------------------------------------------
    Equity compensation plans           765,000             $0.82           1,735,000
approved by security holders (1)
-----------------------------------------------------------------------------------------
  Equity compensation plans not       4,324,600(3)          $1.46              N/A
 approved by security holders(2)
-----------------------------------------------------------------------------------------
              Total                    5,089,600            $1.37           1,735,000
-----------------------------------------------------------------------------------------

(1)  Consists of grants under the Company's 1999 Stock Option Plan.

(2)  Consists of grants under individual compensation arrangements approved
     separately by the Board of Directors and are not part of any written or
     formal plan under which the Company will be obligated to issue equity
     compensation in the future.

(3)  Includes non-qualified stock options granted to officers, directors, and
     consultants to purchase 2,415,000 shares of common stock and warrants to
     purchase 1,909,600 shares of common stock.

     The stock options granted to officers, directors, and consultants were
     granted with an exercise price at or greater than the fair value of the
     Company's common stock on the date of grant as reported by the OTCBB.
     Compensatory stock options granted outside of the 1999 Stock Option Plan
     consists of the following: (a) 15,000 options at an exercise price of $6.50
     per share, expiring on October 31, 2007, (b) 15,000 options at an exercise
     price of $10.50 per share, expiring on October 31, 2007, (c) 1,850,000
     options at an exercise price of $1.155, of which 1,600,000 expire on
     February 15, 2015 and 250,000 expire on February 15, 2010, (d) 200,000
     options at an exercise price of $1.12 per share, expiring on December 12,
     2015, (e) 150,000 options at an exercise price of $1.21 per share, expiring
     on December 12, 2015, (f) 85,000 options at an exercise price of $1.12,
     expiring on December 12, 2010, and (g) 100,000 options at $1.05, expiring
     on July 12, 2011.

     Compensatory warrants consists of the following: (a) 15,000 warrants at an
     exercise price of $0.55 per share, expiring on December 9, 2007, (b)
     439,600 warrants at an exercise price of $0.60 per share, expiring on
     August 14, 2011, (c) 40,000 warrants at an exercise price of $0.70 per
     share, expiring on December 16, 2008, (d) 450,000 warrants at an exercise
     price of $0.86 per share, expiring on November 12, 2006, (e) 50,000

                                       7
</TABLE>
<PAGE>

     warrants at an exercise price of $1.00 per share, expiring on April 10,
     2012, (f) 305,000 warrants at an exercise price of $1.125 per share,
     expiring on October 31, 2007, (g) 40,000 warrants at an exercise price of
     $1.50 per share, expiring on October 31, 2007, (h) 235,000 warrants at an
     exercise price of $3.00 per share, expiring on October 31, 2007, (i)
     285,000 warrants at an exercise price of $3.50 per share, expiring on
     October 31, 2007, (j) 30,000 warrants at an exercise price of $7.20 per
     share, expiring on October 31, 2007, and (k) 20,000 warrants at an exercise
     price of $13.50 per share, expiring on October 31, 2007.

Recent Sales of Unregistered Securities

     Convertible Debentures and Warrants

     On June 19, 2003, the Board of Directors approved the offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. Delinquent interest payments bear interest at a rate of 12% per
annum. The Company is required to redeem each Debenture on the 5th anniversary
of the date of the Debenture. The Company may, in its discretion, redeem any
Debenture at any time prior to the mandatory redemption date of the Debenture by
providing no less than 60 days' prior written notice to the holder of the
Debenture. Certain events of default will result in the Debentures being
redeemable by the Company upon demand of the holder.

     Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company issued to each investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. The Warrants are exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture.

     The 2003 Offering was exempt from the registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of
Regulation D, promulgated by the SEC. In the 2003 Offering, no general
solicitation was made by the Company or any person acting on behalf of the
Company, the Debentures and Warrants were sold subject to transfer restrictions,
and the certificates for the Debentures and Warrants contained an appropriate
legend stating that such securities have not been registered under the
Securities Act and may not be offered or sold absent registration or an
exemption therefrom.

     During the year ended June 30, 2007, three investors exercised their
conversion right under the Debentures and converted $50,000 of principal
pursuant to the terms of the 2003 Offering. Accordingly, the Company issued
100,000 shares of common stock in accordance with the conversion terms of the
Debentures.

     Conversion of Notes Payable to Stockholders

     During the year ended June 30, 2007, two stockholders converted a total of
$50,000 of principal pursuant to the terms of the Stockholder Loan agreements.
See Note 6, "Related Parties - Notes Payable - Stockholders." Accordingly, the
Company issued a combined 71,428 shares of common stock to the two stockholders.
The issuance of the common stock is exempt from registration pursuant to Section
4(2) of the Securities Act and the stock certificates contained an appropriate
legend stating that such securities have not been registered under the
Securities Act and may not be offered or sold absent registration or an
exemption therefrom.

     Warrants

     On April 11, 2007, the Company entered into a three-year consulting
agreement ("Consulting Agreement") with R.F. Lafferty & Co., Inc. ("Lafferty")
to provide consulting services and assist in obtaining both short and long-term
financing. As compensation, upon execution of the Consulting Agreement, the
Company issued to Lafferty 100,000 shares of common stock and a warrant to

                                       8
<PAGE>

purchase 50,000 shares of common stock at an exercise price of $1.00 per share.
The warrant expires on April 10, 2012. The issuance of the common stock and
warrant are exempt from registration pursuant to Section 4(2) of the Securities
Act.

     On October 18, 2006, a non-employee Board member exercised a warrant to
purchase 20,833 shares of common stock at $1.00 per share. The issuance of the
common stock is exempt from registration pursuant to Section 4(2) of the
Securities Act and the stock certificates contained an appropriate legend
stating that such securities have not been registered under the Securities Act
and may not be offered or sold absent registration or an exemption therefrom.

     Stock Options

     Stock Option Grants

     On November 13, 2006, the Board approved the issuance of stock options
exercisable for a total of 575,000 shares of common stock pursuant to the 1999
Stock Option Plan to certain directors, officers, employees and four consultants
of the Company. The stock options were fully vested upon grant and are
exercisable until November 12, 2016. The exercise price of the stock options
granted to insiders owning or controlling more than ten percent of the Company's
common stock was $0.95, which is ten percent over the closing bid price of the
Company's common stock as quoted on the Over the Counter Bulletin Board on the
grant date, November 13, 2006. The exercise price of the stock options granted
to non-insiders was $0.86.

     On July 13, 2006, the Board approved an option grant to a consultant to
purchase 100,000 shares of the Company's common stock at an exercise price of
$1.05 per share. The option was granted in consideration for work performed for
the Company and was not granted pursuant to the 1999 Stock Option Plan. The
option was fully vested upon grant and is exercisable until July 13, 2011.

     Stock Option Exercises

     On October 18, 2006, a non-employee Board member exercised stock options to
purchase a total of 50,000 shares of the Company's common stock. The following
is a summary of the stock options exercised on October 18, 2006 by the
non-employee Board member:

                   Number of Shares of      Exercise Price of Stock
                  Common Stock Acquired             Option
                  ---------------------     -----------------------
Stock Option              20,000                     $1.05
Stock Option              10,000                     $0.55
Stock Option              20,000                     $0.70


Item 6. Management's Discussion and Analysis or Plan of Operation.

Plan of Operation

     In recent years, the Company has focused on the buried pipe market in the
United States. Through its operations, it has identified key changes to its EMW
Inspection Process and has redesigned and improved the equipment hardware. It
has also performed lab and field testing of this new hardware and has developed
computer models to better predict and interpret field conditions.

     On March 27, 2007, the Company was issued a patent by the United States
Patent and Trademark Office. This patent provides significant patent protection
for the improvements made to the Company's EMW technology over the last three
years. These improvements have now been incorporated into new hardware and
software that will be deployed to the field. To date, two field-ready test sets
are being built to utilize the latest improvements.

                                       9
<PAGE>

     In order to obtain additional revenue generating contracts, the Company
intends to emphasize the unique capabilities of its cased and insulated pipeline
testing method, the flexibility of the method's application, and its cost
effectiveness as compared to other methods. In fiscal year 2008, the Company
intends to continue its marketing efforts in the refining, pipeline and utility
insulated and cased pipe inspection markets in the lower-48 states. With respect
to the pipeline and utility market segments, efforts will be particularly
focused on "high consequence areas" as that term is defined in the federal
Department of Transportation's regulations. However, there can be no assurance
that the Company will be successful in concentrating its marketing efforts for
the EMW technology on these market segments. Failure to obtain revenue
generating contracts could have a serious and material effect on the business
and financial condition of the Company.

     The Company has temporarily postponed further development work on its
direct buried (uncased) pipe inspection equipment, so that, in the short term,
its efforts can be focused on obtaining contracts for the inspection of cased
and insulated pipes.

     While the Company has, in the past, inspected only for external corrosion,
it has recently filed a patent application covering the adaptation of its
technology for internal pipe inspections. However, significant design,
fabrication and testing must be done before the Company will be able to offer
internal pipe inspection services.

     Capital will be expended to support operations until the Company can
generate sufficient cash flows from operations. In order for the Company to
generate cash flows from operations, the Company must obtain revenue generating
contracts. Management is currently directing the Company's activities towards
obtaining service contracts, which, if obtained, will necessitate the Company
attracting, hiring, training and outfitting qualified technicians. If service
contracts are obtained, it will also necessitate additional field test equipment
purchases in order to provide the services. The Company expects that if revenue
contracts are secured, working capital requirements will increase. The Company
will incur additional expenses as it hires and trains field crews and support
personnel related to the successful receipt of commercial contracts.
Additionally, the Company anticipates that cash will be used to meet capital
expenditure requirements necessary to develop infrastructure to support future
growth.

     The Company has expended a significant amount of cash in developing its
technology and patented processes. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The Company has
raised $928,300 under its current effect private placement memorandum. However,
management recognizes that in order to meet the Company's capital requirements
and continue to operate, it may require additional financing, perhaps through
industry-partner investment or through joint ventures or other possible
arrangements within the next twelve months. The Company is evaluating
alternative sources of financing to improve its cash position. If the Company is
unable to raise additional capital or secure revenue contracts and generate
positive cash flow, it is unlikely that the Company will be able to continue as
a going concern.

Off-Balance Sheet Arrangements

     The Company has no off-balance sheet arrangements.





                                       10
<PAGE>

Item 7. Financial Statements


                           Profile Technologies, Inc.


                                Table of Contents



                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm                      12

Balance Sheet as of June 30, 2007                                            13

Statements of Operations for Years Ended June 30, 2007 and 2006              14

Statements of Stockholders' Deficit for Years Ended June 30, 2007 and 2006   15

Statements of Cash Flows for Years Ended June 30, 2007 and 2006              16

Notes to Financial Statements                                                17













                                       11
<PAGE>

PETERSON SULLIVAN PLLC
--------------------------------------------------------------------------------

Certified Public Accountants                 Tel 206.382.7777 * Fax 206.382.7700
601 Union Street, Suite 2300                 http://www.pscpa.com
Seattle, Washington 98101



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

The Board of Directors
Profile Technologies, Inc.


We have audited the accompanying balance sheet of Profile Technologies, Inc. as
of June 30, 2007, and the related statements of operations, stockholders'
deficit, and cash flows for the years ended June 30, 2007 and 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Profile Technologies, Inc. as
of June 30, 2007, and the results of its operations and its cash flows for the
years ended June 30, 2007 and 2006, in conformity with accounting principles
generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred cumulative losses and had
negative working capital of $1,062,803 at June 30, 2007. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plan regarding those matters is also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/S/ PETERSON SULLIVAN PLLC

Seattle, Washington
September 25, 2007

                                       12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>

                           PROFILE TECHNOLOGIES, INC.
                                  Balance Sheet

                                                                        June 30,
                                                                          2007
                                                                      ------------
                                     Assets

Current assets:
           Cash and cash equivalents                                  $    119,585
           Prepaid expenses and other current assets                        11,372
                                                                      ------------

                   Total current assets                                    130,957

Equipment, net of accumulated depreciation of $10,170                       10,188
Deferred financing fees                                                        320
Other assets                                                                 3,184
                                                                      ------------

                   Total assets                                       $    144,649
                                                                      ============

                     Liabilities and Stockholders' Deficit

Current Liabilities:
           Accounts payable                                           $    157,225
           Notes payable to stockholders                                     7,500
           Current portion of convertible debt                              65,000
           Deferred wages                                                  739,683
           Accrued professional fees                                       210,150
           Accrued interest                                                  1,558
           Other accrued expenses                                           12,644
                                                                      ------------

                   Total current liabilities                             1,193,760

Long-term convertible debt, net of unamortized discount of $59,001             999

Stockholders' deficit:
           Common stock, $0.001 par value.  Authorized 35,000,000
                   shares; issued and outstanding 12,798,706 shares         12,799
           Additional paid-in capital                                   13,599,061
           Accumulated deficit                                         (14,661,970)
                                                                      ------------

                   Total stockholders' deficit                          (1,050,110)

Commitments, contingencies and subsequent events

                                                                      ------------
           Total liabilities and stockholders' deficit                $    144,649
                                                                      ============


                 See accompanying notes to financial statements.

                                       13
<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                            Statements of Operations


                                                             For the Year Ended
                                                                  June 30,
                                                            2007            2006
                                                        ------------    ------------

Revenue                                                 $       --      $       --

Cost of revenues                                                --              --
                                                        ------------    ------------

       Gross profit                                             --              --
                                                        ------------    ------------

Operating expenses:
       Research and development                              458,911         357,709
       General and administrative                          1,350,186         633,156
                                                        ------------    ------------

       Total operating expenses                            1,809,097         990,865
                                                        ------------    ------------

       Loss from operations                               (1,809,097)       (990,865)

Interest expense                                              19,083         241,382
Interest income                                                3,596            --
                                                        ------------    ------------

       Net loss                                         $ (1,824,584)   $ (1,232,247)
                                                        ============    ============

Basic and diluted net loss per share                    $      (0.14)   $      (0.13)

Weighted average shares outstanding used to
       calculate basic and diluted net loss per share     12,596,188       9,667,742




                 See accompanying notes to financial statements.

                                       14
<PAGE>

                                              PROFILE TECHNOLOGIES, INC.
                                          Statements of Stockholders' Deficit
                                      For the Years Ended June 30, 2007 and 2006


                                                                            Common Stock             Common Stock Issuable
                                                                    ---------------------------   ----------------------------
                                                                       Shares         Amount         Shares          Amount
                                                                    ------------   ------------   ------------    ------------

Balance at June 30, 2005                                               5,925,705   $      5,926         45,000    $         45

Issuance of common stock previously reported as "issuable"                45,000             45        (45,000)            (45)
Issuance of common stock warrants and options
   for services                                                             --             --             --              --
Issuance of common stock upon conversion
   of notes payable to stockholder and accrued interest to equity      2,552,000          2,552           --              --
Issuance of common stock upon conversion
   of convertible debt to equity                                         456,740            456           --              --
Issuance of common stock warrants related to
   the 2005 Offering                                                        --             --             --              --
Issuance of common stock related to the
   2005 Offering                                                       3,132,000          3,132        345,000             345
Common stock issuance costs                                                 --             --             --              --

Net loss                                                                    --             --             --              --
                                                                    ------------   ------------   ------------    ------------

Balance at June 30, 2006                                              12,111,445   $     12,111        345,000    $        345

Issuance of common stock previously reported as "issuable"               345,000            345       (345,000)           (345)
Issuance of common stock for services                                    100,000            100           --              --
Issuance of common stock warrants and options
   for services to consultants                                              --             --             --              --
Issuance of common stock warrants and options
   for services to employees and board of directors                         --             --             --              --
Issuance of common stock upon conversion
   of notes payable to stockholders to equity                             71,428             72           --              --
Issuance of common stock upon conversion
   of convertible debt to equity                                         100,000            100           --              --
Exercise of stock options                                                 50,000             50           --              --
Exercise of warrants                                                      20,833             21           --              --

Net loss                                                                    --             --             --              --
                                                                    ------------   ------------   ------------    ------------

Balance at June 30, 2007                                              12,798,706   $     12,799           --      $       --
                                                                    ============   ============   ============    ============

Table continues below.

                                                                     Additional                        Total
                                                                       Paid-in       Accumulated    Stockholders'
                                                                       Capital         Deficit         Deficit
                                                                    ------------    ------------    ------------

Balance at June 30, 2005                                            $  9,271,137    $(11,605,139)   $ (2,328,031)

Issuance of common stock previously reported as "issuable"                  --              --              --
Issuance of common stock warrants and options
   for services                                                          441,381            --           441,381
Issuance of common stock upon conversion
   of notes payable to stockholder and accrued interest to equity      1,273,448            --         1,276,000
Issuance of common stock upon conversion
   of convertible debt to equity                                         227,913            --           228,369
Issuance of common stock warrants related to
   the 2005 Offering                                                   1,192,381            --         1,192,381
Issuance of common stock related to the
   2005 Offering                                                         542,642            --           546,119
Common stock issuance costs                                             (496,581)           --          (496,581)

Net loss                                                                    --        (1,232,247)     (1,232,247)
                                                                    ------------    ------------    ------------

Balance at June 30, 2006                                            $ 12,452,321    $(12,837,386)   $   (372,609)

Issuance of common stock previously reported as "issuable"                  --              --              --
Issuance of common stock for services                                    104,900            --           105,000
Issuance of common stock warrants and options
   for services to consultants                                           195,450            --           195,450
Issuance of common stock warrants and options
   for services to employees and board of directors                      685,300            --           685,300
Issuance of common stock upon conversion
   of notes payable to stockholders to equity                             49,928            --            50,000
Issuance of common stock upon conversion
   of convertible debt to equity                                          49,900            --            50,000
Exercise of stock options                                                 40,450            --            40,500
Exercise of warrants                                                      20,812            --            20,833

Net loss                                                                    --        (1,824,584)     (1,824,584)
                                                                    ------------    ------------    ------------

Balance at June 30, 2007                                            $ 13,599,061    $(14,661,970)   $ (1,050,110)
                                                                    ============    ============    ============


                                     See accompanying notes to financial statements.

                                                           15
<PAGE>

                                                    PROFILE TECHNOLOGIES, INC.
                                                     Statements of Cash Flows

                                                                                                             For the Year Ended
                                                                                                                  June 30,
                                                                                                             2007           2006
                                                                                                         -----------    -----------

Cash flows from operating activities:
        Net loss                                                                                         $(1,824,584)   $(1,232,247)
        Adjustments to reconcile net loss to net cash used in operating activities:
              Depreciation and amortization                                                                    5,442          5,109
              Accreted discount on convertible debt                                                              945            183
              Amortization of convertible debt discount included in interest expense                           7,365        197,945
              Accrued interest on convertible debt converted to equity                                          --              370
              Accrued interest on notes payable to stockholders converted to equity                             --          114,777
              Amortization of debt issuance costs                                                                520         10,520
              Equity issued for services to consultants                                                      300,450         85,850
              Equity issued for services to employees and board of directors                                 685,300           --
              Changes in operating assets and liabilities:
                   Prepaid expenses and other current assets                                                   1,350          4,929
                   Other assets                                                                               (1,634)           865
                   Accounts payable                                                                          (14,828)       (24,312)
                   Deferred wages                                                                             28,082         72,475
                   Accrued professional fees                                                                  18,000         24,000
                   Accrued interest                                                                             (624)      (101,170)
                   Other accrued expenses                                                                       --           (7,950)
                                                                                                         -----------    -----------
                   Net cash used in operating activities                                                    (794,216)      (848,656)

Cash flows from investing activies:
        Purchase of fixed assets                                                                                --          (13,104)
                                                                                                         -----------    -----------
                   Net cash used in investing activities                                                        --          (13,104)
                                                                                                         -----------    -----------

Cash flows from financing activities:
        Common stock issuance costs                                                                             --         (141,050)
        Allocated proceeds from issuance of common stock                                                        --          546,119
        Allocated proceeds from issuance of warrants attached to issuance of common stock                       --        1,192,381
        Proceeds from issuance of notes payable to stockholders                                                 --           89,733
        Proceeds from exercise of stock options and warrants                                                  61,333           --
                                                                                                         -----------    -----------
                   Net cash provided by financing activities                                                  61,333      1,687,183
                                                                                                         -----------    -----------

                   Increase (decrease) in cash                                                              (732,883)       825,423

Cash at beginning of period                                                                                  852,468         27,045
                                                                                                         -----------    -----------

Cash at end of period                                                                                    $   119,585    $   852,468
                                                                                                         ===========    ===========

Supplemental disclosure of cash flow information:
        Cash paid for interest                                                                           $     7,933    $    12,884
        Convertible debt and related accrued interest converted into 100,000 and 456,740 shares of
              common stock during the years ended June 30, 2007 and 2006, respectively                   $    50,000    $   228,369
        Notes payable to stockholders converted into 71,428 and 2,322,446 shares of common stock
              during the years ended June 30, 2007 and 2006, respectively                                $    50,000    $ 1,161,223
        Accrued interest on notes payable to stockholder converted into 229,554 shares of common stock
              during the year ended June 30, 2006                                                        $      --      $   114,777


                                             See accompanying notes to financial statements.

                                                                   16
</TABLE>
<PAGE>

Note 1: Description of Business

     Profile Technologies, Inc. (the "Company"), was incorporated in 1986 and
commenced operations in fiscal year 1988. The Company is in the business of
inspecting pipelines for corrosion and has developed a patented, non-destructive
and non-invasive, high speed scanning process, using electro magnetic waves to
remotely inspect buried, encased and insulated pipelines for corrosion. The
Company is actively marketing its inspection services for encased and insulated
pipelines. In order to focus its resources on securing contracts for those
services, it has temporarily suspended development work on its direct buried
(uncased) inspection service.

Note 2: Liquidity

     The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred cumulative losses
of $14,661,970 through June 30, 2007, and had negative working capital of
$1,062,803 as of June 30, 2007. Additionally, the Company has expended a
significant amount of cash in developing its technology and patented processes.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management recognizes that in order to meet the Company's
capital requirements, and continue to operate, additional financing, including
seeking industry-partner investment through joint ventures or other possible
arrangements, will be necessary. The Company is evaluating alternative sources
of financing to improve its cash position and is undertaking efforts to raise
capital. If the Company is unable to raise additional capital or secure revenue
contracts and generate positive cash flow, it is unlikely that the Company will
be able to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Note 3: Summary of Significant Accounting Policies

  Cash and Cash Equivalents

     Cash and cash equivalents includes highly liquid investments with original
maturities of three months or less. On occasion, the Company has amounts
deposited with financial institutions in excess of federally insured limits.

  Fair Value of Financial Instruments and Concentrations of Credit Risk

     At June 30, 2007, the Company has the following financial instruments:
cash, accounting payable, notes payable to stockholders, convertible short-term
and long-term debt, deferred wages, accrued professional fees, and other accrued
expenses. The carrying value of these instruments, other than the convertible
debt, approximate fair value based on their liquidity. The fair value of the
convertible debt was determined as the excess of the proceeds over the fair
value of the warrants. Credit is extended to customers based on an evaluation of
their financial condition. The Company does not require any collateral.

  Deferred Financing Fees

     The Company records costs incurred related to debt financings as deferred
financing fees and amortizes, on a straight-line basis, the costs incurred over
the life of the related debt. The amortization is recognized as interest in the
financial statements. Upon conversion into equity or extinguishment of the
related debt, the Company recognizes any unamortized portion of the deferred
financing fees as interest expense.

  Contract Revenue Recognition

     The Company recognizes revenue from service contracts using the percentage
of completion method of accounting. Contract revenues earned are measured using
either the percentage of contract costs incurred to date to total estimated

                                       17
<PAGE>

contract costs or, when the contract is based on measurable units of completion,
revenue is based on the completion of such units. This method is used because
management considers total cost or measurable units of completion to be the best
available measure of progress on contracts. Because of the inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used may change in the near term.

     Anticipated losses on contracts, if any, are charged to earnings as soon as
such losses can be estimated. Changes in estimated profits on contracts are
recognized during the period in which the change in estimate is known.

     Cost of revenues include contract costs incurred to date as well as any
idle time incurred by personnel scheduled to work on customer contracts.

     The Company records claims for additional compensation on contracts upon
revision of the contract to include the amount to be received for the additional
work performed. Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as indirect labor,
supplies, tools and repairs, and depreciation costs. Selling, general, and
administrative costs are charged to expense as incurred. Service contracts
generally extend no more than six months.

     The Company does not currently have any revenue generating service
contracts to which this contract revenue recognition policy applies.

  Research and Development

     Research and development costs are expensed when incurred. During the years
ended June 30, 2007 and 2006, the Company incurred $458,911 and $357,709 on
research and development activities.

  Equipment

     Equipment is stated at cost and is depreciated using the straight-line
method over estimated useful lives of three to seven years. At June 30, 2007,
the Company removed the cost and related accumulated depreciation from the
Company's financial statements for the equipment that was either no longer in
service or deemed obsolete. Substantially all of this equipment was fully
depreciated.

  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

     The Company reviews long-lived assets, such as equipment and intangibles,
for impairment at least annually or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.

  Valuation of Warrants and Options

     The Company estimates the value of warrants and option grants using a
Black-Scholes pricing model based on management assumptions regarding the
warrant and option lives, expected volatility, and risk free interest rates.

                                       18
<PAGE>

  Income Taxes

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded for deferred tax assets when
it is more likely than not that such deferred tax assets will not be realized.

  Use of Estimates

     The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.

  Patents, Proprietary Technology, and Other Intellectual Property

     The Company pursues a policy of generally obtaining patent protection both
in the United States of America and abroad for patentable subject matter in its
proprietary technology. The Company's success depends in a large part upon its
ability to protect its products and technology under United States of America
and international patent laws and other intellectual property laws. U.S. patents
have a term of 17 years from date of issuance or, for more recently filed patent
applications, 20 years from the filing of such applications, and patents in most
foreign countries have a term of 20 years from the proprietary filing date of
the patent application.

     The Company believes that it owns and has the right to use or license all
proprietary technology necessary to license and market its products under
development. The Company is not aware of the issuance of any patents or the
filing of any patent applications, which relate to processes or products which
utilize the Company's proprietary technology in a manner which could be similar
to or competitive with the Company's products or processes. The Company has no
knowledge that it is infringing on any existing patent such that it would be
prevented from marketing or licensing products or services currently being
developed by the Company.

  Vendor Concentration

  Consultant Scientist Fees

     The Company relies on the expertise of two consultant scientists to
facilitate the development and testing of the Company's hardware and software.
These scientists are also instrumental in compiling and interpreting the data
captured during the testing of the hardware and software. The loss of the
specialized knowledge provided by the scientists could have an adverse effect on
the ability of the Company to successfully market its hardware and software.
During the years ended June 30, 2007 and 2006, the Company incurred cash fees
payable to the scientists of $266,968 and $188,731, which are included in
research and development expense in the Company's Statements of Operations.

     As partial compensation for services rendered, on November 13, 2006, the
Company granted the scientists stock options to purchase a total of 100,000
shares of common stock at an exercise price of $0.86 per share, expiring
November 12, 2016. The 100,000 stock options had a fair value at the date of
grant of $77,000, which is included in research and development expense in the
Company's Statements of Operations for the year ended June 30, 2007.

                                       19
<PAGE>

     As partial compensation for services rendered, on July 13, 2006, the
Company granted one of the scientists a stock option to purchase 100,000 shares
of common stock at an exercise price of $1.05 per share, expiring July 12, 2011.
The 100,000 stock options had a fair value at the date of grant of $89,000,
which is included in research and development expenses in the Company's
Statements of Operations for the year ended June 30, 2007.

     As partial compensation for services rendered, on December 12, 2005, the
Company granted one of the scientists a stock option to purchase 50,000 shares
of common stock at an exercise price of $1.12 per share, expiring December 12,
2010. The 50,000 stock options had a fair value at the date of grant of $50,500,
which is included in research and development expense in the Company's
Statements of Operations for the year ended June 30, 2006.

     Total cash and equity compensation expense incurred for settlement of
services rendered by the scientists totaled $432,968 and $239,231, or
approximately 94% and 66%, of research and development expense for the years
ended June 30, 2007.

     As of June 30, 2007, the Company owed the consultant scientists a total of
$83,780, which is included in accounts payable at June 30, 2007.

  Segment Reporting

     The Company has one operating segment. Expenses incurred to date are
reported according to their expense category.

  Comprehensive Income (Loss)

     Comprehensive income (loss) is equal to net income (loss) for the years
ended June 30, 2007 and 2006.

  Recently Issued Accounting Standards Not Yet Adopted

     In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements but does not require any new fair
value measurements. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, with early adoption
permitted as of January 1, 2007. The Company does not expect the application of
SFAS No. 157 to have a material effect on the Statements of Operations and
Balance Sheet.

     In February 2007, the FASB issued FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities ("SFAS No. 159"). SFAS No.
159 permits an instrument by instrument election to account for selected
financial assets and liabilities at fair value. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007, with early adoption permitted as
of January 1, 2007. The Company is currently evaluating the impact SFAS No. 159
will have on the Statements of Operations and Balance Sheet.

     In June 2007, the Emerging Issues Task Force of the FASB issued EITF Issue
No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to
be Used in Future Research and Development Activities, ("EITF 07-3") which is
effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires
that nonrefundable advance payments for future research and development
activities be deferred and capitalized. Such amounts will be recognized as an
expense as the goods are delivered or the related services are performed. The
Company does not expect the adoption of EITF 07-3 to have a material impact on
the financial results of the Company.

                                       20
<PAGE>

Note 4: Stock Based Compensation

     Prior to January 1, 2006, the Company accounted for stock-based awards
under the intrinsic value method, which followed the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. The intrinsic value method of accounting resulted in
compensation expense for stock options to the extent that the exercise prices
were set below the fair market price of the Company's stock at the date of
grant.

     Effective January 1, 2006, the Company adopted SFAS No. 123R, Share-Based
Payment ("SFAS 123R") using the modified prospective application method, which
requires measurement of compensation cost for all stock-based awards at fair
value on date of grant and recognition of compensation over the service period
for awards expected to vest. The fair value of stock options is determined using
the Black-Scholes valuation model, which is consistent with the Company's
valuation techniques previously utilized for options in footnote disclosures
required under SFAS No. 123, Accounting for Stock Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based Compensation--Transition and
Disclosure. Such value is recognized as expense over the service period. To
date, all stock option grants have been fully vested upon grant.

     Had compensation cost for the Company's stock options been determined using
the fair value method consistent with SFAS 123R for all periods presented, the
Company's net loss and net loss per share would have been reduced to the pro
forma amounts indicated below:

                                                   For the Year Ended
                                                     June 30, 2006
                                                   ------------------
Net loss:
         As reported                                  $(1,232,247)
         Plus: stock-based employee compensation
           expense included in reported net loss             --

         Less: stock based compensation expense
           determined under fair value based method
           for all employee rewards                      (352,000)
                                                      -----------
Pro forma net loss                                    $(1,584,247)
                                                      -----------

Net loss per share
         Basic and diluted - as reported              $     (0.13)
         Basic and diluted - pro forma                $     (0.16)


     The fair value of option and warrant grants was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants made during the year ended June 30, 2006: expected
volatility of 150%, risk-free interest rate of 4.46%, expected lives of five
years, and a 0% dividend yield.

Note 5: Net Loss Per Share

     Basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. As the Company had a net loss attributable to common stockholders in
each of the periods presented, basic and diluted net loss per share are the
same.

                                       21
<PAGE>

     Excluded from the computation of diluted net loss per share for the year
ended June 30, 2007, because their effect would be antidilutive, are options and
warrants to acquire 12,067,456 shares of common stock with a weighted-average
exercise price of $0.99 per share. Also excluded from the computation of diluted
net loss per share for the year ended June 30, 2007 are 250,000 shares of common
stock that may be issued if investors exercise their conversion right under the
Debentures related to the 2003 Offering as discussed in Note 7 "Convertible
Debt" because their effect would be antidilutive.

     Excluded from the computation of diluted net loss per share for the year
ended June 30, 2006, because their effect would be antidilutive, are options and
warrants to acquire 12,643,418 shares of common stock with a weighted-average
exercise price of $1.06 per share. Also excluded from the computation of diluted
net loss per share for the year ended June 30, 2006 are 350,000 shares of common
stock that may be issued if investors exercise their conversion right under the
Debentures related to the 2003 Offering as discussed in Note 7 "Convertible
Debt" because their effect would be antidilutive.

     For the years ended June 30, 2007 and 2006, additional potential dilutive
securities that were excluded from the diluted net loss per share computation
are the exchange rights discussed in Note 8 "Deferred Wages and Accrued
Professional Fees" that could result in options to acquire up to 223,000 shares
of common stock with an exercise price of $1.00 per share at June 30, 2007 and
June 30, 2006.

     For purposes of earnings per share computations, shares of common stock
that are issuable at the end of a reporting period are included as outstanding.

Note 6: Related Parties

  Notes Payable to Stockholders

     In April 2002, the Company issued a non-interest bearing bridge note
payable to an officer of the Company in the amount of $7,500. The note is
payable in full when the Company determines it has sufficient working capital to
do so. On September 29, 2002, the officer who was owed the $7,500 died.

     The Company entered into various loan agreements with Murphy Evans,
President, a director and stockholder of the Company. On March 6, 2003, the
Company's Board of Directors approved the Loan Amendment and Promissory Note
(the "Amended Evans Loan") between the Company and Murphy Evans. The Amended
Evans Loan aggregated all previous debt and superseded and replaced all of the
terms of the previous loans with Mr. Evans, including any conversion features.
The Amended Evans Loan bore interest on the aggregate principal balance at a
rate of 5% per annum, payable on June 30 and December 31 of each year, with the
principal balance due and payable in full on December 31, 2003. The Amended
Evans Loan was exempt from registration under Section 4(2) of the Securities
Act.

     In January 2006, Mr. Evans converted the entire then outstanding principal
and accrued interest on the Amended Evans Loan pursuant to the terms of the 2005
Offering as defined below.

     Interest expense related to the Amended Evans Loan was $16,449 for the year
ended June 30, 2006.

     In September 2002, the Company entered into two non-interest bearing bridge
loans in the respective principal amounts of $40,000 and $10,000 (the
"Stockholder Loans") payable to two stockholders of the Company. The terms of
the Stockholder Loans provide for payment at such time as the Company determined
it had sufficient working capital to repay the principal balances of the
Stockholder Loans. The Stockholder Loans were convertible into 57,142 and 14,286

                                       22
<PAGE>

equity units, respectively, at any time prior to re-payment. Each equity unit
was comprised of one share of the Company's common stock, with a detachable
5-year warrant to purchase one additional share at an exercise price of $1.05
per share. In May 2007, the two stockholders converted their respective
Stockholder Loans into a total 71,428 shares of common stock and received
warrants to purchase a total of 71,428 shares of common stock at $1.05, expiring
in May 2012.

  Royalty Arrangement

     In September, 1988, at the time Gale D. Burnett, a beneficial stockholder
of more than 10% of the Company's common stock, first transferred certain
technology, know-how and patent rights to the Company, a royalty interest of 4%
of all pre-tax profits derived from the technology and know-how transferred was
granted to Northwood Enterprises, Inc., a family-owned company controlled by Mr.
Burnett. Northwoods Enterprises subsequently assigned such royalty interest back
to Mr. Burnett. On April 8, 1996, Mr. Burnett assigned 2% of this royalty
interest to certain stockholders of the Company, 1 1/4% of which was assigned to
Henry Gemino, currently the Chief Executive Officer and Chief Financial Officer,
and a director of the Company. This royalty arrangement also applies to all
future patent rights and technology developed by Mr. Burnett and assigned to the
Company. To date, no royalty payments have been made or earned under the above
described arrangement.

Note 7: Convertible Debt

     On June 19, 2003, the Board of Directors approved the offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. Delinquent interest payments bear interest at a rate of 12% per
annum. The Company is required to redeem each Debenture on the 5th anniversary
of the date of the Debenture. The Company may, in its discretion, redeem any
Debenture at any time prior to the mandatory redemption date of the Debenture by
providing no less than 60 days' prior written notice to the holder of the
Debenture. Certain events of default will result in the Debentures being
redeemable by the Company upon demand of the holder.

     Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company issued to each investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. The Warrants are exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture.

     Warrants issued in connection with the 2003 Offering were recorded based on
their relative fair value as compared to the fair value of the debt at issuance.
The relative fair value of the warrants was recorded as paid-in capital. The
intrinsic value of the Debentures results in a beneficial conversion feature,
recorded as a discount against the Debentures, which reduces the book value of
the convertible debt to not less than zero. The Company amortizes the discount
using the effective interest method over the five-year life of the Debentures.

     During the quarter ended March 31, 2005, the Board of Directors terminated
the 2003 Offering. As of the closing date of the 2003 Offering, the Company had
raised $503,000 from the 2003 Offering.

     During the year ended June 30, 2007, three investors exercised their
conversion right and converted Debentures in the combined principal amount of
$50,000, pursuant to the terms of the 2003 Offering. Of the $50,000 converted
during the year ended June 30, 2007, $7,500 was recorded as long-term
convertible debt on the balance sheet at the time of conversion. Accordingly,
upon conversion, the remaining unamortized discount of $7,365 related to the

                                       23
<PAGE>

long-term portion of the convertible debt at the conversion date was recognized
as interest expense and is included in interest expense for the year ended June
30, 2007. The discount related to the remaining principal amount of $42,500 was
previously expensed as interest expense during the quarter ended June 30, 2004
when the Company was deemed to be in default with respect to the interest
payment terms.

     During the year ended June 30, 2006, six investors exercised their
conversion right and converted Debentures in the combined principal amount of
$220,000 and accrued interest of $8,369, pursuant to the terms of the 2003
Offering. Of the principal amount of $220,000 converted during the year ended
June 30, 2006, $190,000 was recorded as long-term convertible debt on the
balance sheet at the time of conversion. Accordingly, upon conversion, the
remaining unamortized discount of $197,945 related to the long-term portion of
the convertible debt at the conversion date was recognized as interest expense
and is included in interest expense for the year ended June 30, 2006. The
discount related to the remaining principal amount of $30,000 was previously
expensed as interest expense during the quarter ended June 30, 2004 when the
Company was deemed to be in default with respect to the interest payment terms.

     As of June 30, 2007, accrued interest on the Debentures was $1,558. The
Company recorded interest expense related to the accretion of the discount on
the Debentures and amortization of the convertible debt discount as a result of
the conversions discussed above of $8,310 and $198,128 for the years ended June
30, 2007 and 2006. As of June 30, 2007 the carrying value of the long-term
portion of the Debentures was $999, net of unamortized debt discount of $59,001.

Note 8: Deferred Wages and Accrued Professional Fees

     To reduce cash outflows, certain of the Company's employees, officers,
consultants, and directors have agreed to defer a portion of their salaries and
professional fees until the Company has sufficient resources to pay the amounts
owed or to exchange such amounts into options as described below. At June 30,
2007, the Company has accrued $949,833 related to the deferred payment of
salaries and professional fees of which $739,683 is included under deferred
wages and $210,150 in accrued professional fees. On March 18, 2002, the Board
approved a conversion right on all deferred wages and accrued professional fees
deferred as of March 18, 2002 (the "Conversion Right"). Pursuant to the
Conversion Right, employees, officers, consultants, and directors may elect to
convert $1.00 of fees owed to them as of March 18, 2002 for an option to
purchase two shares of the Company's common stock, at an exercise price of $1.00
per share for a term of five years. Of the total $949,833 deferred salaries and
professional fees, the amount subject to the Conversion Right is $111,500,
resulting in the potential issuance of 223,000 options under the terms mentioned
above. No conversions have occurred to date. At March 18, 2002, there was no
intrinsic value associated with these exchange rights. As such, no additional
compensation cost was recorded.

Note 9: Common Stock and Warrants

     On January 19, 2005, the Board of Directors approved the offering (the
"2005 Offering") of 2,000,000 units (the "Units") to accredited investors for a
total offering price of $1,000,000. Each Unit consists of one share of common
stock and a warrant to acquire common stock. On November 21, 2005, the Board of
Directors approved an increase in the number of Units offered in the 2005
Offering to 6,000,000 Units, for a total offering price of $3,000,000. The
purchase price of one Unit is $0.50. Each Unit consists of one share of common
stock and a warrant to purchase one share of common stock at an exercise price
of $0.75. The warrants are exercisable at any time prior to the fifth
anniversary from the date of their issuance.

                                       24
<PAGE>

     During the year ended June 30, 2006, the Company raised $1,738,500 under
the terms of the 2005 Offering. Accordingly, the Company issued 3,477,000 shares
of common stock and warrants to purchase up to 3,477,000 shares of common stock
at an exercise price of $0.75 per share.

     The 2005 Offering was terminated on June 9, 2006. As of the closing date of
the 2005 Offering, the Company had raised $1,801,000 from the 2005 Offering.
Accordingly, the Company issued a total of 3,602,000 shares of common stock and
warrants to purchase up to 3,602,000 shares of common stock at an exercise price
of $0.75 per share under the 2005 Offering.

     The Company engaged a brokerage firm to help in the fund raising efforts of
the 2005 Offering. Pursuant to the terms of the agreement with the brokerage
firm, the Company paid the brokerage firm a ten percent cash commission on all
funds that the brokerage firm helped raise. During the year ended June 30, 2006,
the Company incurred $141,050 of fees that were paid in cash to the brokerage
firm. The brokerage firm and the Company also agreed that the Company would
issue warrants to purchase a total of 439,600 shares of common stock at an
exercise price of $0.60. The warrants are exercisable for up to five years from
the date of issuance, which is the date the proceeds were received under the
2005 Offering. Of the total 439,600 warrants that the brokerage firm received,
427,100 were earned during the year ended June 30, 2006 as a result of the funds
raised by the brokerage firm during that period. Accordingly, during year ended
June 30, 2006, the Company recorded $355,531 as a reduction to paid-in capital
for the fair value of the 427,100 warrants. The fair value of the warrants
issued to the brokerage firm during the year ended June 30, 2006 were estimated
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected volatility ranging from 79.12% to 376.15%, risk-free
interest rates ranging from 4.14% to 5.10%, expected lives of five years, and a
0% dividend yield.

Note 10: Income Taxes

     Federal income taxes reported by the Company differ from the amount
computed by applying the statutory rate due primarily to an increase in the
valuation allowance for deferred tax assets.

     The tax effect of temporary differences that give rise to federal deferred
tax assets are comprised of the following at June 30, 2007:

       Deferred tax assets:
            Net operating loss carryforwards                 $ 3,902,377
            Depreciation and amortization                          1,377
            Wages and professional fees                          252,232
            Stock compensation                                   747,065
            Research and development credit carry forwards        86,033
                                                             -----------
                        Gross deferred tax assets              4,989,084
       Less: valuation allowance                              (4,989,084)
                                                             -----------
                        Net deferred tax assets              $      --
                                                             ===========


     The net increase in the valuation allowance for deferred tax assets was
$575,770 and $394,586 for the years ended June 30, 2007 and 2006. The increases
were primarily due to an increase in net operating loss carry forwards and stock
compensation, the realization of which was uncertain.

                                       25
<PAGE>

     For federal income tax purposes, the Company has net operating loss carry
forwards at June 30, 2007 available to offset future federal taxable income, if
any, of approximately $11,477,580 which began expiring during the fiscal year
ended June 30, 2005 and may be carried forward to the fiscal year ended June 30,
2027. In addition, the Company has research and development tax credit carry
forwards of approximately $86,033 at June 30, 2007, which are available to
offset federal income taxes and began to expire during the year ended June 30,
2006.

     The utilization of the tax net operating loss carry forwards may be limited
due to ownership changes that have occurred as a result of sales of common
stock.

     The effects of state income taxes were insignificant for the years ended
June 30, 2007 and 2006.

Note 11: Common Stock

     During the year ended June 30, 2007, three investors exercised their
conversion right in accordance with the terms of the 2003 Offering. As a result,
the Company issued 100,000 restricted shares of common stock.

     During the year ended June 30, 2007, two stockholders converted a total of
$50,000 of principal pursuant to the terms of the Stockholder Loan agreements.
See Note 6, "Related Parties - Notes Payable to Stockholders." Accordingly, the
Company issued a combined 71,428 shares of common stock to the two stockholders.

     On October 18, 2006, a non-employee Board member exercised a warrant to
purchase 20,833 shares of common stock at $1.00 per share and exercised stock
options to purchase a total of 50,000 shares of the Company's common stock at
various exercise prices.

     On April 11, 2007, the Company entered into a three-year consulting
agreement ("Consulting Agreement") with R.F. Lafferty & Co., Inc. ("Lafferty")
to provide consulting services and assist in obtaining both short and long-term
financing. As compensation, upon execution of the Consulting Agreement, the
Company issued to Lafferty 100,000 shares of common stock and a warrant to
purchase 50,000 shares of common stock at an exercise price of $1.00 per share.
The warrant expires on April 10, 2012.

     During the year ended June 30, 2006, six investors exercised their
conversion right in accordance with the terms of the 2003 Offering. As a result,
456,740 restricted shares of common stock were issued. Additionally, pursuant to
the terms of the 2005 Offering, the Company issued 3,477,000 restricted shares
of common stock during the year ended June 30, 2006.

     During the year ended June 30, 2006, Mr. Evans converted the entire then
outstanding $1,161,223 of principal and $114,777 of accrued interest of the
Amended Evans Loan pursuant to the terms of the 2005 Offering. Accordingly, Mr.
Evans received 2,552,000 shares of common stock and warrants to purchase
2,552,000 shares of common stock at an exercise price of $0.75 per share. The
warrants are exercisable any time prior to the fifth anniversary from the date
of grant.

     On June 21, 2007, the Company entered into a private placement offering
(the "2007 Offering") of 1,300,000 shares of common stock at $0.90 per share to
accredited investors for a total offering price of $1,170,000.

     Subsequent to June 30, 2007, the Company has raised $928,300 under the
terms of the 2007 Offering. Accordingly, the Company issued 1,031,443 shares of
common stock.

                                       26
<PAGE>

     The Company engaged a brokerage firm to help in the fund raising efforts of
the 2007 Offering. Pursuant to the terms of the agreement with the brokerage
firm, the Company will pay the brokerage firm a ten percent cash commission on
all funds that the brokerage firm helps raise.

Note 12: Stock Options and Warrants

1999 Stock Option Plan

     During 1999, the Company adopted a stock option plan (the "1999 Plan"). The
1999 Plan provides for both incentive and nonqualified stock options to be
granted to employees, officers, directors, and consultants. The 1999 Plan
originally provided for the granting of options to purchase a maximum of 500,000
shares of common stock with expiration dates of a maximum of five years from the
date of grant. In November 2006, the Board of Directors amended, and the
Company's stockholders approved, an increase in the maximum number of shares of
common stock available for grant to 3,500,000 and an increase in the period of
time for which stock options may be exercisable to ten years from the date of
grant.

     Since the inception of the 1999 Plan, and prior to the amendment approved
in November 2006, the Company made various stock option grants that have
expiration dates exceeding five years from the date of grant. These stock option
grants are deemed to be granted outside of the 1999 Plan.
<TABLE>
<CAPTION>
<S> <C> <C>

     A summary of stock option-related activity follows:

                                                                       Options outstanding
                                                                     -----------------------
                                                                                    Weighted
                                                       Shares                       average
                                                    available for     Number of     exercise
                                                      grant (1)       shares (2)     price
                                                    -------------    ------------   --------
Balance at June 30, 2005                                 75,000       2,305,000     $  1.23
Grants                                                       --         435,000        1.15
Cancellations                                                --              --          --
Expirations                                              40,000         (40,000)       3.75
                                                    -------------    ------------
Balance at June 30, 2006                                115,000       2,700,000        1.18
Increase in stock options available for grant         3,000,000
Grants                                                 (575,000)        675,000        0.91
Exercises                                                50,000         (50,000)       0.81
Cancellations                                            30,000         (30,000)       0.55
Expirations                                             115,000        (115,000)       1.05
                                                    -------------    ------------
Balance at June 30, 2007                              2,735,000       3,180,000     $  1.14
                                                    =============    ============


(1)  Consists of stock options available for grant under the 1999 Plan.

(2)  Consists of stock options outstanding under the 1999 Plan and stock options
     outstanding that were granted outside of the 1999 Plan.

                                       27
</TABLE>
<PAGE>

     The following is a summary of all stock options outstanding, all of which
     are exercisable at June 30, 2007:

                                    Options outstanding
                          -----------------------------------------
                                             Weighted
                                             average       Weighted
                                            remaining      average
                            Number         contractual     exercise
       Exercise prices    outstanding      life (years)      price
       ---------------    -----------      ------------    --------
         $  0.50               30,000          1.56        $   0.50
            0.55               50,000          0.99            0.55
            0.70              110,000          1.46            0.70
            0.86              435,000          9.38            0.86
            0.95              140,000          9.38            0.95
            1.05              100,000          4.04            1.05
            1.12              285,000          6.97            1.12
            1.16            1,850,000          6.96            1.16
            1.21              150,000          8.46            1.21
            6.50               15,000          0.34            6.50
            10.50              15,000          0.34           10.50
                         ------------
        $  0.50 - 10.50     3,180,000          6.98        $   1.14
                         ============

     The aggregate intrinsic value of stock options outstanding at June 30, 2007
is $219,900.

     Prior to January 1, 2006, the Company accounted for stock-based awards
under the intrinsic value method, which followed the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. As of January 1, 2006, the Company adopted SFAS No.
123(R) using the modified prospective method.

     On November 13, 2006, the Board approved the issuance of stock options
exercisable for a total of 575,000 shares of common stock pursuant to the 1999
Plan to certain directors, officers, employees and four consultants of the
Company. The stock options were fully vested upon grant and are exercisable
until November 12, 2016. The exercise price of the stock options granted to
insiders owning or controlling more than ten percent of the Company's common
stock was $0.95, which is ten percent over the closing bid price of the
Company's common stock as quoted on the Over the Counter Bulletin Board on the
grant date, November 13, 2006. The exercise price of the stock options granted
to non-insiders was $0.86. On November 13, 2006, the date of grant, the Company
recognized $77,000 as research and development expense related to the fair value
of 100,000 of the stock options and $365,750 as general and administrative
expense related to the fair value of 475,000 of the stock options. The fair
value of the stock option grants were estimated using the Black-Scholes option
pricing model with the following weighted average assumptions: expected
volatility of 142%, risk-free interest rate of 4.60%, expected lives of five
years, and a 0% dividend yield.

     On July 13, 2006, the Board approved an option grant to a consultant to
purchase 100,000 shares of the Company's common stock at an exercise price of
$1.05 per share. The option was granted in consideration for consulting services
and was not granted pursuant to the 1999 Plan. The option was fully vested upon
grant and is exercisable until July 13, 2011. The Company recognized $89,000, at
the time of grant, as research and development expense for the fair value of the
option grant. The fair value of the option grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected volatility of 160%, risk-free interest rate of 5.04%,
expected life of five years, and a 0% dividend yield.

     During the year ended June 30, 2006, the Company recorded stock
compensation expense totaling $85,850 for the fair market value of 85,000
options granted to third-parties in exchange for services. The options were

                                       28
<PAGE>

valued using the Black-Scholes option pricing model with the following
assumptions: Expected volatility of 150%, risk free interest rate of 4.46%,
expected lives of five years, and a 0% dividend yield.

     The weighted average fair value per share of the option grants made during
the years ended June 30, 2007 and 2006 were $0.79 and $1.01.

     Cash received from stock options exercised during the year ended June 30,
2007 was $40,500. The Company did not receive any income tax benefits from stock
options exercised during the year ended June 30, 2007 as the common stock issued
was restricted and therefore not deductible for tax purposes.

     Warrants

     The Company has granted warrants to compensate key employees, consultants,
and board members for past and future services and as incentives during
placements of stock and convertible debt.

     A summary of warrant-related activity follows:

                                              Number of       Weighted
                                              warrants        average
                                             outstanding   exercise price
                                            -------------  --------------
         Outstanding at June 30, 2005         3,487,318       $  1.40
         Grants                               6,456,100          0.74
                                            -------------
         Outstanding at June 30, 2006         9,943,418          0.97
         Grants                                 571,428          0.90
         Expirations                         (1,181,557)         1.02
         Cancellations                         (425,000)         1.44
         Exercises                              (20,833)         1.00
                                            -------------
         Outstanding at June 30, 2007         8,887,456       $  0.94
                                            =============


     The following is a summary of warrants outstanding, all of which are
     exercisable at June 30, 2007:

                                              Weighted
                                              average
                                             remaining          Weighted
           Exercise           Number      contractual life      average
            prices         outstanding        (years)        exercise price
        --------------     -----------    ----------------   --------------
        $  0.55 - 0.70        489,600           3.83            $  0.61
           0.75             7,160,000           3.93               0.75
           0.86               450,000           9.38               0.86
           1.00 - 1.50        297,856           2.16               1.13
           3.00 - 3.50        440,000           0.34               3.32
           7.20                30,000           0.34               7.20
           13.50               20,000           0.34              13.50
                           -----------
        $  0.55-13.50       8,887,456           3.95            $  0.94
                           ===========

                                       29
<PAGE>

     On November 13, 2006, the Board approved the issuance of warrants
exercisable for a total of 450,000 shares of common stock to certain directors
and officers of the Company. The warrants were fully vested upon grant and are
exercisable until November 12, 2016. The exercise price of the warrants is
$0.86, which was the closing bid price of the Company's common stock as quoted
on the Over the Counter Bulletin Board on the grant date, November 13, 2006. On
the date of grant, the Company recognized $346,500 as general and administrative
expense related to the fair value of the warrants. The fair value of the warrant
grants were estimated using the Black-Scholes option pricing model with the
following weighted average assumptions: expected volatility of 142%, risk-free
interest rate of 4.60%, expected lives of five years, and a 0% dividend yield.

     On April 11, 2007, the Company entered into a three-year consulting
agreement ("Consulting Agreement") with R.F. Lafferty & Co., Inc. ("Lafferty")
to provide consulting services and assist in obtaining both short and long-term
financing. As compensation, upon execution of the Consulting Agreement, the
Company issued to Lafferty 100,000 shares of common stock and a warrant to
purchase 50,000 shares of common stock at an exercise price of $1.00 per share.
The warrant expires on April 10, 2012. On the date of grant, the Company
recognized $2,500 as general and administrative expense related to the fair
value of the warrants. The fair value of the warrant grants were estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions: expected volatility of 121%, risk-free interest rate of 4.66%,
expected life of three years, and a 0% dividend yield.

     In May 2007, the two stockholders converted their respective Stockholder
Loans into a total 71,428 shares of common stock and received warrants to
purchase a total of 71,428 shares of common stock at $1.05, expiring in May
2012. See Note 6, "Related Parties - Notes Payable to Stockholders."

     During the year ended June 30, 2006, the Company recorded $355,531 as a
reduction to paid-in capital for the fair value of the 427,100 warrants granted
to a brokerage firm. The fair value of the warrants issued to the brokerage firm
during the year ended June 30, 2006 were estimated using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
volatility ranging from 79.12% to 376.15%, risk-free interest rates ranging from
4.14% to 5.10%, expected lives of five years, and a 0% dividend yield.

     The weighted average fair value per share of the warrant grants made during
the years ended June 30, 2007 and 2006 were $0.70 and $1.08.

     Cash received from warrants exercised during the year ended June 30, 2007
was $20,833. The Company did not receive any income tax benefits from warrants
exercised during the year ended June 30, 2007 as the common stock issued was
restricted and therefore not deductible for tax purposes.

Note 13: Operating Leases

     The Company's research and development facility was located in Ferndale,
Washington. Pursuant to an operating lease that expired on January 31, 2007, the
Company leased 1,800 square feet of space from a non-affiliate at a monthly cost
of approximately $2,100. In October 2006, the Company provided written
notification to the landlord of the Ferndale property that it would not be
renewing the operating lease in January 2007. The Company continued to lease, on
a month-to-month basis a storage facility at the Ferndale location and therefore
continued to incur the monthly rental fee of approximately $2,100 through
September 2007, at which time the Company vacated the premises.

     The Company's corporate office is located at 2 Park Avenue, Suite 201,
Manhasset, NY 11030. On March 1, 2007, the Company entered into a one year
operating lease for its corporate office. The monthly rent is $817. As of June
30, 2007, the Company has future minimum lease payments of $6,536.

                                       30
<PAGE>

     The Company expects to continue to incur costs on leased properties, as the
Company has extended such leases in the past or will use alternate facilities.

     Total rent expense under operating leases with third parties was $36,342
and $35,718 during the years ended June 30, 2007 and 2006.

Note 14: Subsequent Events

     On June 21, 2007, the Company entered into a private placement offering
(the "2007 Offering") of 1,300,000 shares of common stock at $0.90 per share to
accredited investors for a total offering price of $1,170,000.

     Subsequent to June 30, 2007, the Company has raised $928,300 under the
terms of the 2007 Offering. Accordingly, the Company issued 1,031,443 shares of
common stock.

     The Company engaged a brokerage firm to help in the fund raising efforts of
the 2007 Offering. Pursuant to the terms of the agreement with the brokerage
firm, the Company will pay the brokerage firm a ten percent cash commission on
all funds that the brokerage firm helps raise. Accordingly, the Company has
incurred cash fees payable to the brokerage firm in the amount of $92,830.

     On July 23, 2007, a stockholder exercised a warrant to purchase 60,000
shares of common stock at $0.75 per share. Total proceeds received by the
Company were $45,000.

     Subsequent to June 30, 2007, one investor exercised their conversion right,
pursuant to the terms of the 2003 Offering and converted their Debenture in the
principal amount of $15,000 pursuant to the terms of the 2003 Offering.
Accordingly, the Company issued 30,000 shares of common stock in accordance with
the terms of the 2003 Offering.

     On August 20, 2007, the Board elected Robert C. Geib as the Company's Chief
Operating Officer, effective September 4, 2007. Mr. Geib's annual base salary
was set by the Board at $115,000. In addition, the Board agreed to grant Mr.
Geib on September 4, 2007 an option to purchase 50,000 shares of the Company's
common stock, under the Company's 1999 Stock Plan, and on March 4, 2008 to grant
him an additional option to purchase 50,000 shares of common stock. The exercise
price of each grant shall be equal to the closing price of the common stock on
the date of grant, or, if the Company's stock is not traded on the date of
grant, the first day of active trading following each respective grant date.
Each of the two option grants will vest 25% on the first anniversary of the
grant dates, with the remainder vesting at 25% on each of the three subsequent
anniversaries of the grant dates until the options are fully vested.

     On August 21, 2007, the Board nominated Richard L. Palmer to fill the
vacancy on the Board created as a result of the death of Mr. William Krivsky in
December 2006. The election of Mr. Palmer by the Stockholders will be included
in the Company's Proxy Statement for the 2007Annual Meeting of Stockholders
under the caption "Proposal One: Election of Directors," which will be filed
with the Commission not later than 120 days after the end of the fiscal year
ended June 30, 2007. On September 12, 2007, the Board granted Mr. Palmer an
option to purchase 15,000 shares of the Company's common stock, under the
Company's 1999 Stock Plan. The exercise price of the stock option is $1.50, the
closing price of the common stock on the date of grant. The stock option is
fully vested upon grant and expires on September 11, 2017. In addition, if Mr.
Palmer is elected to the Board by the Stockholders, he will receive $1,000 per
month as a compensation for his services as a Board member.

                                       31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     None.

Item 8A. Controls and Procedures.

     Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms. The Company's executive officers, including the
Company's Chief Executive Officer, who also serves as Chief Financial Officer,
and the Chief Operating Officer, are responsible for establishing and
maintaining disclosure controls and procedures for the Company. These executives
have designed such controls to ensure that all material information related to
the Company is made known to them by others within the organization. As of June
30, 2007, the Company's Chief Executive Officer and Chief Operating Officer
completed an evaluation of the Company's disclosure controls and procedures and
have determined that such disclosure controls and procedures are functioning
properly and effectively. They did not discover any significant deficiencies or
material weaknesses within the controls and procedures that require
modification. There were no changes in the Company's internal control over
financial reporting identified in connection with the Company's evaluation that
occurred during the Company's fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

Item 8B. Other Information.

     None.

                                    PART III

Item 9. Directors and Executive Officers.

Directors, Executive Officers, Promoters and Control Persons

     The information regarding directors contained under the caption "Proposal
One: Election of Directors" in the Company's Proxy Statement for the 2007 Annual
Meeting of Stockholders, which will be filed with the Commission not later than
120 days after the end of the fiscal year covered by this report, is
incorporated herein by reference.

Executive Officers of the Company

     In addition to Murphy Evans and Henry Gemino, who also serve as directors,
the following constitutes the executive officers of the Company:

                                            Positions Held and Principal
           Name         Age              Occupations During the Past 5 Years
           ----         ---              -----------------------------------

     Philip L. Jones    64      Mr. Jones has served as the Chief Operating Officer and
                                Executive Vice President for the Company during the past
                                five fiscal years. Effective September 4, 2007, the Board
                                elected Robert C. Geib to serve as the Company's Chief
                                Operating Officer. Previous to his employment with the
                                Company, Mr. Jones provided energy consulting services to
                                certain utility companies for a period of one year. Prior
                                to that time, Mr. Jones held various executive positions
                                with Consolidated Natural Gas Company before retiring in
                                April 2000.

     Robert C. Geib     36      Mr.Geib was elected by the Board to serve as the Company's
                                Chief Operating Officer, effective September 4, 2007.
                                Prior to joining the Company, Mr. Geib was the Director of
                                Operations Services for the Northeast Gas Association in
                                New York, NY. From 1999 to 2005, Mr. Geib worked at
                                Southwest Gas Corporation in Las Vegas, NV as a supervisor
                                and a distribution engineer.

                                       32
</TABLE>
<PAGE>

Compliance with Section 16(a) of the Exchange Act

     The information regarding reports required under Section 16(a) of the
Securities Exchange Act of 1934, as amended, contained under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the 2007 Annual Meeting of Stockholders, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this report, is incorporated herein by reference.

Code of Ethics

     The Company has adopted a Code of Ethics applicable to its chief executive
officer, chief operating officer, chief financial officer, president and other
finance leaders. A copy of the Code of Ethics may be obtained by any person
without charge, upon request, by contacting the principle office of the Company.

Audit Committee

     The information contained under the caption "Board of Directors and
Committees" in the Company's Proxy Statement for the 2007 Annual Meeting of
Stockholders, which will be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this report, is incorporated herein
by reference.

Item 10. Executive Compensation.

     The information contained under the caption "Executive Compensation" in the
Company's Proxy Statement for the 2007 Annual Meeting of Stockholders, which
will be filed with the Commission not later than 120 days after the end of the
fiscal year covered by this report, is incorporated herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 2007
Annual Meeting of Stockholders, which will be filed with the Commission not
later than 120 days after the end of the fiscal year covered by this report, is
incorporated herein by reference.

     Information regarding securities authorized for issuance under equity
compensation plans is hereby incorporated by reference to Item 5 of Part II of
this Annual Report on Form 10-KSB, under the heading "Securities Authorized for
Issuance Under Equity Compensation Plans."

                                       33
<PAGE>

Item 12. Certain Relationships and Related Transactions.

     The information contained under the caption "Certain Relationship and
Related Transactions" in the Company's Proxy Statement for the 2007 Annual
Meeting of Stockholders, which will be filed with the Commission not later than
120 days after the end of the fiscal year covered by this report, is
incorporated herein by reference.

Item 13. Exhibits.

The following exhibits were filed with or incorporated by reference into this
report.

     Exhibit No.                      Description of Exhibit
     -----------                      ----------------------

     Exhibit 3.1    Articles of Incorporation (incorporated by reference to
                    Exhibit 3.1 to the Company's Registration Statement on Form
                    SB-2 filed with the Commission on May 10, 1996).

     Exhibit 3.2    Bylaws of the Company (incorporated by reference to Exhibit
                    3.3 to the Company's Registration Statement on Form SB-2
                    filed with the Commission on May 10, 1996).

     Exhibit 3.3    Amendment to Certificate of Incorporation (incorporated by
                    reference to Exhibit A to the Company's Definitive Proxy
                    Statement filed with the Commission on October 28, 2002).

     Exhibit 3.4    Amendment to Certificate of Incorporation (incorporated by
                    reference to Appendix A to the Company's Preliminary Proxy
                    Statement filed with the Commission on September 13, 2006).

     Exhibit 10.1   Loan Agreement dated March 6, 2003, by and between the
                    Company and Murphy Evans (incorporated by reference to
                    Exhibit 4.1 to the Company's Quarterly Report on Form 10-QSB
                    filed with the Commission on May 15, 2002).

     Exhibit 10.2   Loan Amendment and Promissory Note dated March 6, 2003, by
                    and between the Company and Murphy Evans (incorporated by
                    reference to Exhibit 10.1 to the Company's Quarterly Report
                    on Form 10-QSB filed with the Commission on May 20, 2003).

     Exhibit 10.3   Lease Extension dated February 26, 2003 by and between the
                    Company and Fatum LLC (incorporated by reference to Exhibit
                    10.5 to the Company's Annual Report on Form 10-KSB filed
                    with the Commission on October 12, 2004).

     Exhibit 10.4   Royalty Agreement (incorporated by reference to Exhibit 10.1
                    to the Company's Registration Statement on Form SB-2 filed
                    with the Commission on May 10, 1996).

                                       34
<PAGE>

     Exhibit 10.5   Assignment of Patent Rights (incorporated by reference to
                    Exhibit 10.2 to the Company's Registration Statement on Form
                    SB-2 filed with the Commission on May 10, 1996).

     Exhibit 10.6   1999 Stock Option Plan (incorporated by reference to Exhibit
                    10.9 to the Company's Annual Report on Form 10-KSB filed
                    with the Commission on October 12, 2004).

     Exhibit 10.7   First Amendment to the 1999 Stock Option Plan (incorporated
                    by reference to Appendix B to the Company's Preliminary
                    Proxy Statement filed with the Commission on September 13,
                    2006).

     Exhibit 10.8   Lease dated March 1, 2007 by and between the Company and
                    Long Island Property Management LP. (incorporated by
                    reference to Exhibit 10.8 to the Company's Quarterly Report
                    on Form 10-QSB filed with the Commission on May 9, 2007).

     Exhibit 10.9   Consulting Agreement dated April 11, 2007, by and between
                    the Company and R.F. Lafferty. (incorporated by reference to
                    Exhibit 10.9 to the Company's Quarterly Report on Form
                    10-QSB filed with the Commission on May 9, 2007).

     Exhibit 31.1   Rule 13a-14(a)/15d-14(a) Certification of Henry E. Gemino,
                    as Chief Executive Officer and Chief Financial Officer of
                    the Company. *

     Exhibit 32.1   Certification under Section 906 of the Sarbanes-Oxley Act of
                    2002 by Henry E. Gemino, as Chief Executive Officer and
                    Chief Financial Officer of the Company. *

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

*Filed herewith.








                                       35
<PAGE>

Item 14. Principal Accountant Fees and Services.

     The information required by this item is incorporated by reference to the
sections entitled "Independent Public Accountants" and "Principal Accountant
Fees and Services" in the Company's Proxy Statement for the 2007 Annual Meeting
of Stockholders, which will be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this report, is incorporated herein
by reference.




























                                       36
<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                               PROFILE TECHNOLOGIES, INC.



                                               By /s/ Henry E. Gemino
                                                  ------------------------------
                                                  Henry E. Gemino
                                                  Chief Executive Officer
                                                  and Chief Financial Officer


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and as of
the dates indicated:

Signature                           Title             Date
---------                           -----             ----

/s/Charles Christenson              Director          September 27, 2007
----------------------
Charles Christenson


/s/Murphy Evans                     Director          September 27, 2007
---------------
Murphy Evans


/s/Henry E. Gemino                  Director          September 27, 2007
------------------
Henry E. Gemino


/s/Richard L. Palmer                Director          September 27, 2007
--------------------
Richard L. Palmer





                                       37
<PAGE>

                                  Exhibit Index

     Exhibit No.    Description of Exhibit
     -----------    ----------------------

     Exhibit 3.1    Articles of Incorporation (incorporated by reference to
                    Exhibit 3.1 to the Company's Registration Statement on Form
                    SB-2 filed with the Commission on May 10, 1996).

     Exhibit 3.2    Bylaws of the Company (incorporated by reference to Exhibit
                    3.3 to the Company's Registration Statement on Form SB-2
                    filed with the Commission on May 10, 1996).

     Exhibit 3.3    Amendment to Certificate of Incorporation (incorporated by
                    reference to Exhibit A to the Company's Definitive Proxy
                    Statement filed with the Commission on October 28, 2002).

     Exhibit 3.4    Amendment to Certificate of Incorporation (incorporated by
                    reference to Appendix A to the Company's Preliminary Proxy
                    Statement filed with the Commission on September 13, 2006).

     Exhibit 10.1   Loan Agreement dated March 6, 2003, by and between the
                    Company and Murphy Evans (incorporated by reference to
                    Exhibit 4.1 to the Company's Quarterly Report on Form 10-QSB
                    filed with the Commission on May 15, 2002).

     Exhibit 10.2   Loan Amendment and Promissory Note dated March 6, 2003, by
                    and between the Company and Murphy Evans (incorporated by
                    reference to Exhibit 10.1 to the Company's Quarterly Report
                    on Form 10-QSB filed with the Commission on May 20, 2003).

     Exhibit 10.3   Lease Extension dated February 26, 2003 by and between the
                    Company and Fatum LLC (incorporated by reference to Exhibit
                    10.5 to the Company's Annual Report on Form 10-KSB filed
                    with the Commission on October 12, 2004).

     Exhibit 10.4   Royalty Agreement (incorporated by reference to Exhibit 10.1
                    to the Company's Registration Statement on Form SB-2 filed
                    with the Commission on May 10, 1996).

     Exhibit 10.5   Assignment of Patent Rights (incorporated by reference to
                    Exhibit 10.2 to the Company's Registration Statement on Form
                    SB-2 filed with the Commission on May 10, 1996).

     Exhibit 10.6   1999 Stock Option Plan (incorporated by reference to Exhibit
                    10.9 to the Company's Annual Report on Form 10-KSB filed
                    with the Commission on October 12, 2004).

     Exhibit 10.7   First Amendment to the 1999 Stock Option Plan (incorporated
                    by reference to Appendix B to the Company's Preliminary
                    Proxy Statement filed with the Commission on September 13,
                    2006).

     Exhibit 10.8   Lease dated March 1, 2007 by and between the Company and
                    Long Island Property Management LP. (incorporated by
                    reference to Exhibit 10.8 to the Company's Quarterly Report
                    on Form 10-QSB filed with the Commission on May 9, 2007).

                                       38
<PAGE>

     Exhibit 10.9   Consulting Agreement dated April 11, 2007, by and between
                    the Company and R.F. Lafferty. (incorporated by reference to
                    Exhibit 10.9 to the Company's Quarterly Report on Form
                    10-QSB filed with the Commission on May 9, 2007).

     Exhibit 31.1   Rule 13a-14(a)/15d-14(a) Certification of Henry E. Gemino,
                    as Chief Executive Officer and Chief Financial Officer of
                    the Company. *

     Exhibit 32.1   Certification under Section 906 of the Sarbanes-Oxley Act of
                    2002 by Henry E. Gemino, as Chief Executive Officer and
                    Chief Financial Officer of the Company. *

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

*Filed herewith.



















                                       39