**United
      States**


**Securities
      and Exchange Commission**


**Washington,
      D.C. 20549**





**AMENDMENT
      NO. 1**


**TO**


**FORM
      10-K**




**(Mark
      One)**


**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the fiscal year ended December 31, 2006****OR****o**
            **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 00-32019**







**TASKER
      PRODUCTS CORP.**


( Exact
      name
      of registrant as specified in its charter )




**Nevada**
            
            **88-0426048**(State
                or other jurisdiction of
              Incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)




**39
      Old Ridgebury Road, Danbury, CT 06810**


(Address
      of principal executive offices) (Zip Code)


**203-730-4350**


(Registrant’s
      telephone number)


Securities
      registered under Section 12(b) of the Exchange Act: **None**


Securities
      registered under Section 12(g) of the Exchange Act:


**Common
      Stock, Par value $0.001 Per Share**


(Title
      of
      each class)




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes  ̈ No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes  ̈ No x




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be filed by Section 13 or 15 (d) of the Securities Exchange Act of
      1934 during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. Yes x No  ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      one):


Large
                accelerated filer ̈
            
            Accelerated
                filer ̈
            
            Non-accelerated
                filerx




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




The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant, based on the average bid and asked price of the registrant’s common
      stock on June 30, 2006 was $42,104,240 (reference is made to Part II,
      Item 5 herein for a statement of assumptions upon which this calculation is
      based). The registrant has no non-voting stock.




There
      were
      108,339,957 shares of common stock, of the registrant outstanding as of March
      19, 2007.


Transitional
      Small Business Disclosure Format (check one): o Yes x No




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Items
      10,
      11, 12, 13 and 14 of Part III have been omitted from this report, as we expect
      to file with the Securities and Exchange Commission, not later than 120 days
      after the close of our fiscal year ended December 31, 2006, a definitive proxy
      statement for our annual meeting of s tockholders.
      The information required by Items 10, 11, 12, 13 and 14 of Part III of this
      report, which will appear in our definitive proxy statement, is incorporated
      by
      reference into this report.












**INDEX**




**Page****PART
                I**
            
            4Item
                1.
            
            Business
            
            4Item
                1A.
            
            Risk
                Factors
            
            13Item
                1B.
            
            Unresolved
                Staff Comments
            
            19Item
                2.
            
            Properties
            
            19Item
                3.
            
            Legal
                Proceedings
            
            19Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            20**PART
                II**
            
            20Item
                5.
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            20Item
                6.
            
            Selected
                Financial Data
            
            21Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            22Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            38Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            38Item
                9.
            
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            38Item
                9A.
            
            Controls
                and Procedures
            
            38Item
                9B.
            
            Other
                information
            
            39**PART
                III**
            
            39Item
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            39Item
                11.
            
            Executive
                Compensation
            
            42Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            51Item
                13.
            
            Certain
                Relationships and Related Transactions and Director
                Independence
            
            55Item
                14.
            
            Principal
                Accountant Fees and Services
            
            57**PART
                IV**
            
            58Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            
            58Signatures




2




**Forward-Looking
        Statements**
  Because
        we want to provide you with meaningful and useful information, this annual
        report contains certain forward-looking statements that reflect our current
        expectations regarding our future results of operations, performance and
        achievements. We have tried, wherever possible, to identify these
        forward-looking statements by using words such as “anticipate,” “believe,”
“estimate,” “expect,” “plan,” “intend” and similar expressions. These statements
        reflect our current beliefs and are based on information currently available
        to
        us. Accordingly, these statements are subject to certain risks, uncertainties
        and contingencies, including the factors set forth under “Risk Factors,” which
        could cause our actual results, performance or achievements to differ materially
        from those expressed in, or implied by, any of these statements. You should
        not
        place undue reliance on any forward-looking statements. Except as otherwise
        required by federal securities laws, we undertake no obligation to release
        publicly the results of any revisions to any such forward-looking statements
        that may be made to reflect events or circumstances after the date this annual
        report is filed with the Securities and Exchange Commission or to reflect
        the
        occurrence of unanticipated events.
  **Trademarks**
  The
        Tasker name and logo and the names of products offered by us are trademarks,
        registered trademarks, service marks or registered service marks of Tasker.
        All
        other trademarks and service marks appearing in this annual report are the
        property of their respective holders.
  As
        used
        herein, TaskerTM, Unifresh ® ,
        Tasker
        Pacific BlueTM, Close CallTM and Breath RephreshTM are trademarks of Tasker
        Products Corp.
  3


**PART
      I**




As
      used
      in this annual report on Form 10-K, “we,” “us,” “our,” “Tasker” and “our
      company” refer to Tasker Products Corp. and our subsidiaries, unless the context
      otherwise requires.




**ITEM
              1.**
            **BUSINESS**




**Overview**




We
      manufacture, distribute and market a variety of products using a process we
      refer to as “pHarlo technology.” These products are covered by one or more
      patents, or base patents, and manufactured using the pHarlo technology, which
      is
      covered by those patents. The pHarlo technology utilizes a safe solution, which
      we call the pHarlo concentrate, and is a solution whose components have been
      accepted as Generally Recognized as Safe by the U.S. Food and Drug
      Administration, or FDA. This safe solution enables copper sulfate, a compound
      with bacteriostatic properties, *i.e.* ,
      the
      ability to inhibit bacteria growth, to remain active throughout a wide range
      of
      pH values, or measurements of acidity or alkalinity in a solution. A Generally
      Recognized as Safe designation for our solution allows it to be added to food
      and is considered by experts to be safe for human consumption and, therefore,
      exempt from the usual Federal Food, Drug and Cosmetic Act food additive
      tolerance requirements.





As
      a
      result of the 2005 Acquisition described below, we now own the utility patent
      applications and provisional patent applications associated with the pHarlo
      technology in our fields of use, and have entered into a sub-license agreement
      for the base patents associated with the pHarlo technology.





We
      currently market:





·
            Unifresh
                Footbath, a grooming aid for dairy cows;




·
            Tasker
                Pacific Blue Seafood Wash, a product used in commercial and retail
                seafood
                processing to extend shelf life and reduce or eliminate odors; and




·
            Tasker
                Blue, an antimicrobial aid to be used in the scalder process of poultry
                processing, which is a method of loosening feathers so that they
                can be
                picked and removed mechanically, and the post-feather picker process,
                which is the method used in chicken processing that receives chickens
                immediately after the scalder and mechanically removes feathers.




Subsequent
      to December 31, 2006, we began the in-plant testing of an application for use
      in
      the On-Line Reprocessor, the final spray wash, section and received
      authorization to proceed with in-plant tests for an application in the Chiller,
      or cold water submersion, section in an effort to receive consent from the
      United States Department of Agriculture (“USDA”) to market these applications to
      poultry processors for commercial use. We are also in the process of conducting
      tests of the pHarlo technology in other pre-harvest, or on-farm, and
      post-harvest, or food processing, applications.




We
      have
      incurred losses from operations in each quarter since we changed our business
      direction in late 2002. Our net losses for the years ended December 31,
      2006, 2005 and 2004 were approximately $62,943,000, $18,269,000, and $6,072,000,
      respectively. We expect to continue to incur losses for at leastthe next twelve
      months. We anticipate operating expenses will increase as we attempt to build
      our brands, expand our customer base and develop new products. To become
      profitable, we must increase revenue substantially and achieve and maintain
      positive gross margins. We may not be able to increase revenue and gross margins
      sufficiently to achieve profitability. If we are not able to achieve
      profitability, our results of operations and financial condition will be
      materially and adversely affected.





Based
      upon our projections of future revenues from our products and cash on hand,
      including cash of $4.9 million received from the sale of our 10% Secured
      Convertible Bridge Notes (the “Convertible Bridge Notes”) in December 2006 and
      the first quarter of 2007, we will not have adequate working capital to fund
      our
      operations during the next twelve months. Our ability to continue to operate
      and
      grow our business is dependent upon obtaining additional financing and/or
      generating revenue growth from operations. While
      we
      have been in the process of aggressively developing, marketing and selling
      our
      products, there can be no assurance that those efforts will be met with success
      in the marketplace or that the timing of our efforts will be consistent with
      our
      cash availability and burn rate. If we are unable to obtain new financing and/or
      generate sufficient revenue growth from existing and new business arrangements,
      we will not have sufficient cash to support our operations and meet our
      obligations. We anticipate that we will need approximately an additional $4
      million to support our operations and meet our obligations over the next twelve
      months. We are currently reviewing alternative methods of financing, including
      private issuances of debt and/or equity.





4


We
      are
      incorporated in Nevada and were first organized to explore and develop minerals
      in 1999. In late 2002, we began our current operations with the pHarlo
      technology. On June 28, 2006, we amended our articles of incorporation to change
      our name to Tasker Products Corp. Our headquarters are located at 39 Old
      Ridgebury Road, Danbury, Connecticut 06810. Our telephone number is
      (203) 730-4350. Our website can be visited at www.taskerproducts.com.
      Information contained on our website is not part of this annual
      report.




**Changes
      in Management and the Board of Directors**




In
      March
      2007, Greg Osborn was appointed as a Director and Chairman of our company.
      Also,
      in March 2007, Leon Frenkel was appointed as a Director of our
      company.





In
      February 2007, Joseph Carfora was appointed as a Director of our
      company.





In
      January 2007, Peter O'Gorman, was appointed as a Director and a member of the
      Compensation Committee of our company.





In
      December 2006, Lanny Dacus was appointed President of our company and on
      December 14, 2006, Mr. Dacus was appointed as Chief Executive Officer and a
      Director of our company following the resignation of Richard D. Falcone. Also,
      in December 2006, Frederick Ledlow was appointed as a Director, a member of
      the
      Audit Committee and the Chairman of the Compensation Committee of our company.
      James Manfredonia resigned as a Director and a member of the Compensation
      Committee of our company in December 2006. Mr. Manfredonia held these positions
      since September 2006.





In
      September 2006, Albert Canosa resigned as a Director, Chairman of the Audit
      Committee and a member of the Compensation Committee of our company. Mr. Canosa
      held these positions since May 2006. Also, in September 2006,Steven Zavagli,
      resigned as a Director and a member of the Compensation Committee of our
      company. Mr. Zavagli held these positions since February 2005.





In
      August
      2006, James Burns resigned as Executive Vice President - Business Development
      and as a Director of our company. Mr. Burns held these positions since April
      2004.





In
      May
      2006, William Miller was appointed as a Director of our company and a member
      of
      the Audit Committee and Compensation Committee. In September 2006 Mr. Miller
      was
      appointed Chairman of the Audit Committee. In May 2006, Gordon Davis resigned
      as
      a Director of our company and Chairman of the Board of Directors. Mr. Davis
      held
      these positions since February 2006.





In
      February 2006, Stathis Kouninis was appointed Chief Financial Officer of our
      company following the resignation of Robert Jenkins.





**2005
      Acquisition**




In
      July 2005, we acquired certain assets of pHarlo Citrus Technologies, Indian
      River Labs, LLC, pHarlo Citrus Properties Partnership, LLLP, and Coast to Coast
      Laboratories, LLC, and now own the utility patent applications and provisional
      patent applications associated with the pHarlo technology in our fields of
      use.
      In this annual report, we refer to these four entities as the “Selling Entities”
and to this acquisition as the “2005 Acquisition.” In connection with the 2005
      Acquisition, we also entered into a sub-license agreement for the base patents
      associated with the pHarlo technology.




**Financings**




To
      fund
      our operations, we completed three financings in 2004. In April 2004, we sold
      $800,000 of 7% debentures, convertible into common stock at $0.05 per share;
      warrants to purchase 8,000,000 shares of common stock at $0.10 per share
      (modified to $0.05 per share in September 2004 and $0.01 per share in May 2005),
      which expire five years from the date of issuance and warrants to purchase
      8,000,0000 shares of common stock at $0.20 per share (modified to $0.05 per
      share in September 2004 and $0.01 per share in May 2005) which expire five
      years
      from the date of issuance. In July 2004, we completed a private placement of
      $1,647,674 of convertible debentures with an original discount of 16%, which
      were convertible into 8,238,370 common shares at $0.20 per share, and warrants
      to purchase 3,461,500 of its common shares at $0.25 per share (modified to
      $0.05
      per share in September 2004 and $0.01 per share in May 2005), which expire
      five
      years from the date of issuance. In December 2004, we completed the private
      placement of 9,406,250 shares of our common stock with several accredited
      investors for an aggregate purchase price of $15,050,000. Emerging Growth
      Equities Ltd. served as placement agent and received a cash payment of 6% of
      the
      funds raised in the offering and a warrant to purchase 562,500 of our common
      shares exercisable at $2.00 per common share, which expires three years from
      issuance.




5




In
      September 2005, we raised an additional $6,484,599 through the sale of 2,947,545
      shares of our common stock, to a group of accredited investors, at a purchase
      price of $2.20 per share. As part of this private placement the investors also
      received warrants exercisable for 1,473,679 of our common stock at an exercise
      price of $3.00 per share (modified to $1.00 per share in January 2006). The
      warrants expire five years from the date of issuance.




In
      January 2006, we sold 13,335,925 units consisting of one share of common stock
      and a warrant to purchase one share of common stock at an exercise price of
      $1.00 per share for $0.70 per unit. The gross proceeds to us at the closing
      of
      this private placement, exclusive of the exercise price of the warrants, were
      $9,335,148. The warrants expire five years from the date of issuance. Emerging
      Growth Equities, Ltd. served as placement agent for the transaction. As
      compensation for serving as placement agent, Emerging Growth Equities, Ltd.
      received a cash payment equal to 6% of the gross proceeds from the private
      placement, and also received a warrant exercisable for 800,155 shares of our
      common stock at an exercise price of $1.00 per share. The warrant is exercisable
      immediately and has a term of five years.




Between
      December 2006 and March 2007, we raised gross proceeds of $4,999,000 from the
      issuance of our Convertible Bridge Notes, which are convertible into an
      aggregate of 68,951,724 shares of our common stock at a conversion price of
      $0.0725 per share, subject to adjustment. As an inducement for the investors
      to
      purchase the Convertible Bridge Notes, we also issued to these investors
      warrants, which entitle them to purchase an aggregate of 27,772,222 shares
      of
      our common stock, at an exercise price of $0.09 per share. As compensation
      for
      serving as placement agent, the placement agent received cash of approximately
      $499,900 and seven-year warrants to purchase an aggregate of 6,757,241 shares
      of
      our common stock at an exercise price of $0.0725 per share. These warrants
      contain a "cashless exercise" option.





**Products**





*Unifresh
      Footbath*




We
      currently market Unifresh Footbath concentrate, a grooming aid that helps clean
      and disinfect the hooves of dairy cows. Because of the bacteriostatic properties
      of the pHarlo technology, this product helps control bacteria that infect the
      hooves of cows and cause interdigital dermatitis, or a bacterial infection
      of
      the skin on a cow’s hoof, and interdigital papillomatosis, or a disease that
      affects a cow’s hoof that may cause severe lameness, decreased milk yield, body
      weight loss, decreased reproductive performance and increased veterinary
      expenses. Unifresh Footbath concentrate was launched during the third quarter
      of
      2005. In the fourth quarter of 2005, we discovered that our Unifresh Footbath
      product’s effectiveness was diminished in water that had abnormally high
      alkaline content. We reformulated our Unifresh Footbath concentrate with the
      addition of a compound that neutralizes alkali, or a type of base that has
      a pH
      greater than 7, which can increase the pH of water or soil. In the first quarter
      of 2006, we introduced our enhanced formulation to the market. It is currently
      being sold to dairy farms throughout the U.S. through our sales force,
      independent brokers and farm product distributors. We currently market the
      product as a grooming aid. No federal agency approvals are required for
      marketing this product.




*Poultry
      Processing Products*




In
      August
      2005, we began the in-plant commercial verification process for USDA approval
      to
      use the pHarlo technology in the scalder process of poultry processing. The
      first in-plant commercial verification test was completed in October 2005,
      and
      submitted to the USDA shortly thereafter. On February 6, 2006, we received
      a
      letter from the Food Safety and Inspection Service (“FSIS”) of the USDA
      consenting to the continuation of in-plant trials of our Scalder application
      at
      the facility in Athens, Georgia, as well as two additional poultry processors.
      The trial involved the application of the pHarlo technology as an antimicrobial
      in the scalder and post-feather picker processes. In August 2006 we received
      a
      Letter of No Objections from the USDA indicating that it had no objections
      to
      the use of our product as an antimicrobial processing aid in poultry Scalder
      and, in December 2006, we received a similar letter from the USDA to use our
      product in the Picker and New York Dressed Cabinet. Subsequent to December
      31,
      2006, we submitted protocols to be used in the testing of an application for
      use
      in the On-Line Reprocessor (“OLR”) and Chiller sections. We received the FSIS’s
      consent to proceed with in-plant testing of these applications. Tests of the
      company’s OLR application are currently in process at one plant and tests of its
      Chiller application are scheduled to begin shortly. Upon the successful
      completion of these tests, the company will have applications in six of the
      seven intervention points of poultry processing.




6


*Seafood
      Processing Products*




We
      recently began marketing the pHarlo technology for use in pathogen reduction,
      or
      a process by which certain bacteria that cause disease or illness are reduced
      in
      number or eliminated, and the shelf life of seafood is extended. Our product,
      Tasker Pacific Blue Seafood Wash, has been tested at the North Carolina State
      Center for Marine Science & Technology, Virginia Tech University and
      Mississippi State University on shrimp, mahi mahi, salmon, flounder, scallops
      and catfish. The results of these studies indicated that the pHarlo technology
      could possibly double the shelf life on catfish filets and significantly
      increase the shelf life of scallops. No federal agency approvals are required
      for the marketing of this product.




In
      the
      processing of fish and seafood species, water is used in the process at many
      points after harvesting. Therefore, the use of dip tanks and sprays of chilled
      water are normal and common. The addition of the Tasker Pacific Blue Seafood
      Wash to these wash waters is an easy adaptation of existing process equipment.
      Our seafood application is currently in trial testing by a seafood company
      located in the southeast and in several supermarkets in the northeast.




*Close
      Call*




Until
      March 2007, we marketed Close CallTM as an oral hygiene breath drink that
      eliminates odors from tobacco, garlic, onion and alcohol. The FDA requires
      companies making structure or function claims relating to a dietary supplement
      product, such as Close Call, to “certify that the firm has substantiation that
      the claim is truthful and not misleading.” While the FDA does not require any
      presentation of this support, it does require a notice of dietary supplement
      ingredients and claims. We believe that our Close Call product could be marketed
      more efficiently by a company either already established in the industry or
      with
      more commercial resources. Therefore, we are actively seeking to license and/or
      sell the Close Call brand or derivative applications.




**Government
      Approvals and Regulations**




All
      of
      the ingredients used to produce the pHarlo concentrate are acknowledged as
      Generally Recognized as Safe (“GRAS”) by the FDA. Therefore, we believe that our
      current line of products that utilize the pHarlo concentrate, including the
      intended uses of these products, do not require further approval by the FDA.
      These ingredients are already in wide use in the food industry and are readily
      available. The unique combination of these ingredients and the preparation
      process of the pHarlo formula are protected under two U.S. patents and are
      covered in several pending patent applications in the U.S. and elsewhere. The
      use of the pHarlo technology in food processing, with the exception of meat
      and
      poultry, has been approved by the FDA in letters addressed to us, dated February
      18, 2004 and March 24, 2005.




The
      use
      of the pHarlo technology in meat and poultry food processing applications
      requires the approval of the USDA. The Food Safety and Inspection Services
      agency of the USDA shares the responsibility for reviewing antimicrobials for
      use on meat, poultry and egg products. The FSIS has the authority to determine
      whether or not new substances and uses of previously approved substances are
      suitable for use. In February of 2005, we submitted reports and laboratory
      data
      to the FSIS, requesting approval as an anti-microbial processing aide for
      poultry Scalders. The FSIS directed us to prepare a proper protocol and conduct
      an in-plant trial to prove the safety and effectiveness of the anti-microbial.
      The first in-plant commercial verification test was completed in October 2005.
      In January 2006, the FSIS indicated that the data from the in-plant trial was
      sufficient to support additional trials. These additional trials were completed,
      and the final report was submitted to the FSIS in June of this year. In August
      2006 we received a Letter of No Objections from the USDA indicating that it
      had
      no objections to the use of our product as an antimicrobial processing aid
      in
      poultry Scalder and, in December 2006, we received a similar letter from the
      USDA to use our product in the Picker and New York Dressed Cabinet. Subsequent
      to December 31, 2006, we submitted protocols to be used in the testing of an
      application for use in the On-Line Reprocessor (“OLR”) and Chiller sections. We
      received the FSIS’s consent to proceed with in-plant testing of these
      applications. Tests of the company’s OLR application are currently in process at
      one plant and tests of its Chiller application are scheduled to begin shortly.
      Upon the successful completion of these tests, the company will have
      applications in six of the seven intervention points of poultry
      processing.




**Manufacturing**




We
      currently manufacture the concentrate used for all of the products we currently
      market, including Close Call and Unifresh Footbath, in our facility located
      in
      Conroe, Texas. We believe our facility procedures and manufacturing process
      assures the finished products meet specifications and comply with applicable
      regulatory requirements, but there can be no assurance that the pertinent
      regulatory authorities will agree with this conclusion, which could result
      in a
      variety of enforcement actions. It is possible that additional manufacturing
      facilities or controls will be necessary to market the product lines currently
      under development.




7


All
      of
      the raw materials required for the production of our concentrate are widely
      available in ample quantities form various qualified outside vendors.
      Accordingly, we do not anticipate that there will be supply interruption of
      these materials or that price increases will have a material adverse effect
      on
      us.




**Strategic
      Relationships**




In
      2004,
      we entered into an Exclusive Field of Use License Agreement and Product Sale
      Agreement with Wynn Starr Special Products, LLC, or Wynn Starr. Under the terms
      of this agreement, as amended through January 23, 2007, we have granted Wynn
      Starr the exclusive worldwide right to market and distribute products used
      as
      post-harvesting processing aids for the poultry industry based on the pHarlo
      technology. In return for this license, Wynn Starr will purchase licensed
      products from us and will share up to 25% of the net sale price per gallon
      sold,
      based on different increments of achieved net sale prices. The Amendment also
      includes other target performance criteria such that, if met by Wynn Starr,
      we
      will issue to Wynn Starr a warrant to purchase up to 1,300,000 shares of our
      common stock with an exercise price based upon the closing price of our common
      stock on the date of the January 23, 2007 amendment. Steven B. Zavagli, a former
      member of our board of directors, is the founder, Chairman and the Chief
      Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn
      Starr Flavors, Inc.




As
      a
      result of the 2005 Acquisition, we now own the tangible assets used in the
      manufacturing process for the pHarlo concentrate. The pHarlo concentrate is
      based upon both the patent applications that we purchased in the acquisition,
      as
      well as on the base patents associated with the pHarlo technology. We have
      entered into an exclusive worldwide license, the Sub-License Agreement, with
      pHarlo IP, LLC, the exclusive licensee of the base patents, to exploit the
      base
      patents in our fields of use. Pursuant to the Sub-License Agreement, we also
      granted pHarlo IP an exclusive royalty-free worldwide right and license to
      import, export, make, manufacture, use and sell any inventions outside of our
      fields of use that were disclosed and claimed in the patent applications that
      we
      purchased in the acquisition. The terms of the Sub-License Agreement are more
      fully discussed under the caption “Intellectual Property Rights.”




**Distribution
      Channels**




We
      expect
      to sell our products through distributors, strategic intermediaries (such as
      Wynn Starr) and directly to commercial end-users. The choice of distribution
      channel will vary by product and will be decided by our management according
      to
      our strategic objectives.




**Competition**




Some
      or
      all of the products we intend to market may be in industries in which
      competition is intense. Our current product lines include applications in the
      poultry processing, dairy, seafood and oral hygiene industry, for which there
      are varying intensities of competition. We believe that the pHarlo technology
      will provide us with an advantage over our competition.




*Unifresh
      Footbath*




Our
      Unifresh Footbath treats a highly infectious disease known as digital dermatitis
      that causes lameness, swelling and fever in dairy cows, resulting in a drastic
      decrease in milk production. Forms of treatment include antibiotic bandaging
      and
      topical sprays using Terramycin Ò (oxytetracycline - an antibiotic) and footbaths using Formalin (a saturated
      solution of formaldehyde), copper sulfate, Tetracycline (a broad-spectrum
      antibiotic) or Peracetic Acid (a disinfectant and sanitizer). Unifresh
      Footbath’s underlying technology, pHarlo, uses a highly acidified form of copper
      sulfate that helps control the bacteria that cause digital dermatitis, as
      compared to competing copper sulfate products that are non-ionized. Some
      competing products using copper sulfate include QuickHit, Healthy Foot and
      HoofPro+ by SSI Corporation; Double-Action Ô Hoof
      Treatment by West Agro, Inc.; and Hoofcare Supercharger manufactured by
      Marabo.




*Poultry
      Processing*




Currently,
      there is little competition for bacterial inhibitors in the Scalder section
      of
      poultry processing; however, there are varying number of competing products
      for
      use in the OLR and Chiller sections. In the Chiller section, manufacturers
      of
      sodium hydrochloride or sodium hypochlorite, chemical compound solutions
      frequently used as disinfectants and bleaching agents, represent the dominant
      competition. We believe that our product presents a healthier, yet more
      effective, alternative to the use of sodium hydrochloride and sodium
      hypochlorite. We further believe that, because the poultry processing industry
      is a very large industry, our presence in that market will attract other
      products designed to reduce or eliminate bacteria. We believe that the
      effectiveness of the pHarlo technology and its competitive pricing will enable
      us to successfully compete against existing and future competitive products
      in
      the poultry processing industry.




8


*Pacific
      Blue* *Ô* *Seafood Application*




Our
      seafood application, Pacific Blue Ô ,
      an
      antibacterial treatment that eliminates odors and extends the shelf life of
      seafood products, is targeted for the retail industry. The natural spoilers
      of
      seafood quality, bacteria, enzymes, dehydration, oxidation and contamination,
      bacteria and enzymes (proteins that aid in digestion) are present in all fish
      and shellfish, but their activity increases at higher temperatures. These
      spoilers break down the flesh of seafood, turning firm, resilient tissue soft
      and mushy. This process affects taste, appearance and texture and develops
      a
      strong “fishy” smell. Retailers displaying unpackaged fresh seafood generally
      maintain the seafood at temperatures between 29°-34° Fahrenheit to preserve
      freshness. Seafood exposed to air will dehydrate causing a loss of fluids,
      which
      decreases the net product weight and damages texture and color. To prevent
      dehydration, retailers frequently mist fresh fish on display with water.
      Currently, our Pacific Blue Ô is the
      treatment in the market that eliminates odors on seafood by reducing the
      bacteria that causes spoilage. When and if the market for Pacific
      Blue Ô develops, additional products created by competitors may enter the market and
      compete.




**Dependence
      on Certain Customers**




For
      the
      year ended December 31, 2005 there was no single customer that accounted for
      10%
      or more of our consolidated revenue. For the year ended December 31, 2006 one
      customer accounted for 27%, another customer accounted for 14% and another
      customer accounted for 11% of our consolidated revenue.




**Intellectual
      Property Rights**




*Patents*




Pursuant
      to the 2005 Acquisition, we acquired the rights to the following utility patent
      applications, which applications included both United States applications and
      PCT applications, or patent applications filed under the Patent Cooperation
      Treaty, which allows us at a future date to file patent applications in a number
      of foreign countries or national phase filings, and included two United States
      Provisional Applications (the “Transferred Patents”):




·
            Antimicrobial
                Composition for Pre-Harvest and Post-Harvest Treatment of Plants
                and
                Animals (filed on August 20, 2004);




·
            Skin
                Care Composition for Dermatological Disorders including burn and
                wrinkle
                creams (United States Provisional
                Application);




·
            Oral
                Health Care Drink and Method for Reducing Malodors (filed on December
                21,
                2004);




·
            Antimicrobial
                Food Additive and Treatment for Cooked Food, Water and Wastewater
                (filed
                on February 24, 2005);




·
            Antimicrobial
                Processing Aid and Food Additive (United States Provisional Application);
                and




·
            Hangover
                Remedy and Alcohol Abatement Composition (filed on February 24,
                2005).




In
      addition to the utility patent applications and provisional patent applications
      described above, we also recently filed in the United States Patent and
      Trademark Office two new provisional patent applications covering aspects of
      our
      technology and a continuation patent application based on a previously filed
      utility patent application. According to United States patent law, the term
      of
      issued patents are 20 years from the earliest date on which the corresponding
      application was filed in the United States Patent and Trademark Office. The
      United States Patent and Trademark Office has issued one of our patent
      applications as U.S. Patent No. 7,192,618 on March 20, 2007. Additionally,
      we
      have made national phase filings for four of our patent applications in Europe
      and Mexico and for two of our patent applications in China, and plan to continue
      to make certain national phase filings with respect to our pending PCT patent
      applications.




We
      also
      entered into the Sub-License Agreement with pHarlo IP, LLC. Pursuant to the
      Sub-License Agreement, pHarlo IP has granted us an exclusive worldwide license
      to exploit the base patents (as defined below) in the following fields of use
      (the “Fields of Use”):




·
            Pre-harvest
                food processing and safety applications, including treatment for
                plants
                and animals;




9


·
            Post-harvest
                food processing and safety applications, including treatment for
                plants
                and animals, including the
                following:




·
            antimicrobial
                processing aide and food additive including specific seafood applications,
                and




·
            antimicrobial
                for airborne contaminants on cooked
                food;




·
            Breath
                and mouthwash applications;




·
            Hangover
                and alcohol abatement applications;




·
            Topical
                palliative for dermatological disorders, including skin moisturizing
                applications, anti-wrinkle applications and burn treatment
                applications;




·
            Pet
                product applications; and




·
            Antimicrobial
                water treatment applications.




Pursuant
      to the Sub-License Agreement, we granted to pHarlo IP a royalty-free, worldwide,
      exclusive right and license to import, export, make, have made, manufacture,
      use, offer for sale and sell any inventions outside the Field of Use that are
      disclosed and claimed in the Transferred Patents. In addition, pHarlo IP has
      the
      right to sublicense and assign to third parties all of the rights and licenses
      granted by us with respect to the Transferred Patents. The term of the
      Sub-License Agreement is until the expiration of the last to expire of the
      base
      patents.




To
      the
      extent that pHarlo IP expresses an intent to enter into a transaction with
      an
      unaffiliated third party pursuant to which the third party would acquire rights
      related to the base patents outside the Fields of Use, we have the right of
      first refusal to enter into the transaction with pHarlo IP for the same
      consideration and on the same terms offered to the third party (“Right of First
      Refusal”).




Subject
      to certain conditions, we may obtain a 10% equity ownership interest in Phitex
      Ltd. LLLP, the direct one hundred percent owner of pHarlo IP, the sole and
      exclusive licensee of the base patents. In the event we elect not to exercise
      this Right of First Refusal for rights to the base patents outside the Fields
      of
      Use, as an equity owner we would share in the monetary benefits derived by
      Phitex from any transaction between pHarlo IP and an unaffiliated third party
      pursuant to which that third party acquires rights to exploit the base patents
      outside the Fields of Use. Prior to the issuance of the Phitex equity interests,
      (i) the prospectus that forms part of the registration statement covering
      the resale of the shares acquired by the Selling Entities in the 2005
      Acquisition must be amended or supplemented so that the Selling Entities can
      sell such shares for a period of 60 consecutive days; (ii) we must be in
      compliance with all of our obligations under the Asset Purchase Agreement
      forming part of the transaction documents for the 2005 Acquisition (subject
      to
      certain exceptions) and (iii) we must enter into a lock-up and repurchase
      right agreement relating to our Phitex equity interests. Under the lock-up
      and
      repurchase right agreement, Phitex will retain the right to repurchase our
      equity interests for a nominal amount upon a change of control of our
      company.




The
      technology that forms the basis of the pHarlo technology is derived from U.S.
      Patent No. 5,989,595 (filed on March 8, 1996), U.S. Patent
      No. 6,242,011(filed on August 5, 1999) and U.S. Patent Application Serial
      No. 10/453,805, the base patents. pHarlo IP is the sole and exclusive
      licensee of the base patents pursuant to a certain License Agreement by and
      between Mr. Barry Cummins and pHarlo IP, dated July 15, 2005, and
      effective as of March 18, 2005 (the “Base License”). Pursuant to the Base
      License, pHarlo IP is required to pay to Mr. Cummins royalties (“Base
      License Royalty Payments”). Pursuant to the Sub-License Agreement, in the event
      that pHarlo IP defaults in its obligations to make the Base License Royalty
      Payments to Mr. Cummins, pHarlo IP is required to assign that portion of
      the Base License representing all of the rights sublicensed to us under the
      Sub-License Agreement to us, and we will assume pHarlo IP’s obligation to pay
      the Base License Royalty Payments.




Prior
      to
      the 2005 Acquisition, on December 7, 2004, we entered into a Settlement
      Agreement and General Release pursuant to which we effectively purchased the
      exclusive rights of first refusal to applications of the pHarlo technology
      from
      Richard J. Kirby, a developer who had previously purchased the rights on
      July 19, 2002. Under the terms of the settlement agreement, Mr. Kirby
      assigned and granted all his rights, titles and interests in his license
      agreements with pHarlo Citrus Technologies to us for which we agreed to pay
      Mr. Kirby a fee of one-half of one percent (0.5%) of net revenues generated
      from products using the pHarlo technology, in an amount not to exceed $400,000
      in any one calendar year. On January 2006, we amended the Settlement Agreement
      and General Release. Under this amendment, sixty-five percent of half of one
      percent, or 0.325% of the fee, not to exceed $260,000 in any one calendar year,
      were to be paid to Mr. Kirby and the remaining thirty-five percent of one and
      one-half percent or 0.175% of the fee, not to exceed $140,000 in any one
      calendar year were to be paid to Mr. Tri Van To. As of December 31, 2006 ,
      under
      this agreement, we had paid fees to Mr. Kirby and Mr. To of approximately
      $76,000 and $8,000, respectively, in excess of the of the amounts earned under
      the agreement. In February 2007, Mr. Kirby agreed to forego any future fees
      in
      exchange for the forgiveness of any excess fees to date amounts and a lump
      sum
      payment of $95,000. The agreement, related to Mr. To, continues until the
      termination or expiration of pHarlo Citrus Technologies’ patent to the licensed
      technology.




10


On
      January 26, 2006, we entered into a letter agreement with the Selling
      Entities and pHarlo IP that amended certain terms of the transaction documents
      related to the 2005 Acquisition, including the Sub-License Agreement. The
      Sub-License Agreement was amended, in part, to restructure the fees payable
      to
      pHarlo IP. Prior to the amendment, pHarlo IP had agreed to provide to us
      technical assistance necessary to implement, refine and exploit the base patents
      for the pHarlo technology in the Fields of Use. In consideration for the
      technical assistance, we had agreed to pay to pHarlo IP, in advance, prior
      to
      the calendar quarter for which they are payable, certain research and
      development fees (“R&D Fees”). The R&D Fees were originally set at a
      fixed amount and although subject to recovery in certain circumstances, were
      not
      dependant on sales of our products until certain thresholds had been
      met.




The
      amendment restructures the R&D Fees so that they are (i) payable on a
      quarterly basis within 30 days after the end of each calendar quarter and
      (ii) are based on gross sales of our company (or our affiliates) of
      products using the pHarlo technology. For fiscal year 2006, the R&D Fees
      must not be less than $150,000 and are capped at $500,000. In 2006 we paid
      pHarlo IP $150,000. There is no other minimum R&D Fees payable after 2006,
      although R&D Fees for all subsequent years are capped at specified
      rates.




*Trademarks*




In
      addition to our patent filings, we have also protected our intellectual property
      through trademark use and the filing of trademark applications in the United
      States and in certain foreign countries. The names under which we market our
      products are valuable assets to us and we have undertaken a program to protect
      these assets through appropriate trademark protection and our use of the names
      as trademarks.




We
      currently market a grooming aid that helps clean and disinfect the hooves of
      dairy cows, under the trademark *Unifresh* .
      We have
      filed trademark applications for the mark *Unifresh* in the
      United States and in Australia, Canada, China, France, Mexico and New Zealand.
      On February 14, 2006, the United States Patent and Trademark Office issued
      us
      trademark registration Serial No. 3,058,912 for our trademark *Unifresh* in the
      United States. We have additionally, received registrations for the mark *Unifresh* in
      Australia, France and New Zealand.




We
      also
      recently began marketing a product for pathogen reduction, extending the shelf
      life of certain seafood products and reducing odors under the trademark *Tasker
      Pacific Blue* .
      We have
      filed a trademark application for the mark *Tasker
      Pacific Blue* in the
      United States Patent and Trademark Office as well as in Argentina, Brazil,
      Canada, Chile, Mexico and Peru.





Our
      oral
      hygiene breath drink that eliminates odors from tobacco, garlic, onion and
      alcohol is currently being marketed under the trademark *Close
      Call* .
      We have
      filed trademark applications for the mark *Close
      Call* in the
      United States and in Canada, China and Mexico. On May 16, 2006, the United
      States Patent and Trademark Office issued us trademark registration Serial
      No. 3,093,254 for our trademark *Close
      Call* in the
      United States for our oral hygiene breath drink. On December 12, 2006, the
      United States Patent and Trademark Office issued us trademark registration
      Serial No. 3,184,240 for our trademark *Close
      Call* in the
      United States for our breath freshener product. We have also filed a number
      of
      applications in the United States, China and Mexico to register the mark *Close
      Call* for use
      in conjunction with the marketing of other types of products. We have received
      notices of allowance from the United States Patent and Trademark Office on
      September 27, 2005 with respect to three of these applications, on May 16,
      2006
      with respect to three of these applications, and on October 30, 2006 with
      respect to two of these applications. Three of our trademark applications in
      Mexico for the mark *Close
      Call* issued
      as registrations on December 9, 2005.




We
      have
      also filed trademark applications in the United States for Tasker and a number
      of other trademarks that we intend to use in conjunction with the marketing
      of
      future products. These trademark applications were filed as intent to use,
      or
      ITU, applications. Two of these applications were allowed by the United States
      Patent and Trademark Office and the others are pending.





Pursuant
      to the 2005 Acquisition we acquired trademark registration Serial
      No. 2,936,272, which was registered on March 29, 2005, for the mark *pHB0020* .




11


According
      to United States trademark law, these trademark registrations will remain in
      force for a period of ten years from the date of registration to the extent
      that
      the trademarks remain in continuous use during that time. These trademark
      registrations may be renewed for additional periods of ten years each, at the
      end of each successive ten year period following the date of
      registration.




**Product
      Development**




Research
      and development of new products using the pHarlo technology, as well as other
      products, are continually under development. Our efforts in this area are
      focused on the product applications to which we currently have rights of use.
      It
      is our intention to develop and market commercially viable applications for
      this
      technology within its product ranges. We spent approximately $1,803,000,
      $3,356,000 and $1,375,000 on product development costs for the years ended
      December 31, 2006, 2005, and 2004, respectively.




**Employees**




At
      March 19, 2007, we had 33 full-time employees, 16 of whom are in sales
& marketing, 6 of whom are in research and development, 7 of whom are in
      warehousing and production and 4 of whom are in finance and administration.
      None
      of our employees are represented by a labor union. We have not experienced
      any
      work stoppages and believe that employee relationships are good. Our future
      success will depend in part on our ability to attract, retain and motivate
      highly qualified technical and managerial personnel.




**Available
      Information**




We
      file
      annual, quarterly, and current reports, proxy statements, and other information
      with the Securities and Exchange Commission. The public may read and copy any
      documents we file at the Commission’s Public Reference Room at 100 First Street,
      Washington, D.C. 20549. The public may obtain information on the operation
      of
      the Public Reference Room by calling the Commission at 1-800-SEC-0330. SEC
      filings are also available to the public from the SEC’s Internet website at
      http://www.sec.gov.




We
      make
      available free of charge on or through our Internet website at
      www.taskerproducts.com our annual reports on Form 10-K, quarterly reports on
      Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
      or
      furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
      reasonably practicable after we electronically file such material with, or
      furnish it to, the Commission. Our Code of Business Conduct and Ethics is
      available on our Internet site at www.taskerproducts.com or may
      be obtained, free of charge, by writing to the Secretary, Tasker Products Corp.,
      39 Old Ridgebury Road, Danbury, CT 06810.




12




**ITEM
              1A.**
            **RISK
                FACTORS**




*You
      should carefully consider the following factors. This document contains
      forward-looking statements that involve risks and uncertainties, and actual
      results may differ materially from the results we discuss in the forward-looking
      statements. If any of the following risks actually occur, they could have a
      severe negative impact on our financial results and stock
      price.*




**RISKS
      RELATED TO OUR BUSINESS**




***Unless
      we obtain new financing and/or generate revenue growth in the near future,
      our
      liquidity position will become significantly impaired***




After
      taking into consideration the $4.9 million received between December 2006 and
      March 2007 from the sale of our Convertible Bridge Notes, and future revenues
      we
      expect to receive from the sale of our products, we will not have adequate
      working capital to fund our operations during the next twelve months. Our
      ability to continue to operate and grow our business is dependent upon obtaining
      additional financing and/or generating revenue growth from operations. While
      we
      have been in the process of aggressively developing, marketing and selling
      our
      products, there can be no assurance that those efforts will be met with success
      in the marketplace or that the timing of our efforts will be consistent with
      our
      cash availability and burn rate. If we are unable to obtain new financing and/or
      generate sufficient revenue growth from existing and new business arrangements,
      we will not have sufficient cash to support our operations and meet our
      obligations. We anticipate that we will need approximately an additional $4
      million to support our operations and meet our obligations over the next twelve
      months. We are currently reviewing alternative methods of financing, including
      private issuances of debt and/or equity.


.


***We
      have lost money in each fiscal quarter since we changed our business model
      to
      the development of products in the oral care, food processing, skin care, water
      purification and pet industries*** **.** ***We
      expect future losses and we may never become
      profitable.***




We
      have
      incurred losses from operations in each quarter since we changed our business
      direction in late 2002. Our net losses for the years ended December 31,
      2006, 2005 and 2004 were approximately $62,943,000, $18,269,000, and $6,072,000,
      respectively. We expect to continue to incur losses for at least the next twelve
      months. We anticipate operating expenses will increase as we attempt to build
      our brands, expand our customer base and develop new products. To become
      profitable, we must increase revenue substantially and achieve and maintain
      positive gross margins. We may not be able to increase revenue and gross margins
      sufficiently to achieve profitability. If we are not able to achieve
      profitability, our results of operations and financial condition will be
      materially and adversely affected.





Our
      consolidated financial statements have been prepared assuming that we will
      continue as a going concern. As discussed in the consolidated financial
      statements, we have incurred negative cash flow from operations and net losses
      since inception and have a working capital deficiency. These conditions, among
      others, raise substantial doubt about our ability to continue as a going
      concern.




***To
      the extent that future impairment charges occur, they will likely have a
      material impact on our financial results.***




In
      the
      second quarter of 2006, we tested for impairment of our intangible assets and
      our goodwill in accordance with Statement of Financial Accounting Standards
      (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived
      Assets” (SFAS No. 144) and SFAS No. 142 “Goodwill and Other Intangible
      Assets” (SFAS No. 142), respectively. Our testing was triggered by the
      following events and circumstances that constitute impairment indicators under
      the literature:




·
            a
                preliminary expectation that third and fourth quarter 2006 originally
                projected revenues will not be
                attained;




·
            a
                decrease in expected future cash flows;
                and




·
            a
                decline in the market price of our common
                stock




Upon
      completion of the impairment tests during the second quarter of 2006, we
      recorded non-cash impairment charges to intangible assets and goodwill of $12.2
      million and $17.9 million, respectively.




Also
      in
      the fourth quarter of 2006, we tested for impairment of our intangible assets
      and our goodwill. Our goodwill review was performed as part of our annual
      goodwill impairment review. Upon completion of the impairment tests, we recorded
      non-cash impairment charges to goodwill of $13.9 million. There was no
      impairment of our intangible assets.




Note 5
      to our audited consolidated financial statements for the year ended December
      31,
      2006 describes the impairment tests performed and their impact during the second
      and fourth quarter of 2006. There can be no assurance that there will not be
      impairment charges in subsequent periods as a result of our future periodic
      impairment reviews. To the extent that future impairment charges occur, they
      will likely have a material impact on our financial results.




13


***We
      have a limited operating history in our present market and prospective investors
      have a limited historical basis on which to judge our ability to be
      successful.***




We
      were
      originally organized for the purpose of engaging in the acquisition and
      exploration of mineral properties, primarily in the Province of British
      Columbia, Canada. During 2001, we allowed the option on our mineral property
      to
      lapse and began to investigate other business opportunities. In late 2002,
      we
      entered into an exclusive license to sell, develop, market and distribute
      consumer deodorant breath products, animal deodorant breath products and soft
      drink products using the pHarlo technology. Since late 2002, we have pursued
      this business plan and have expanded it to include the use of the pHarlo
      technology in the pre- and post-harvest food processing, skin care, pet care,
      hangover remedy, alcohol abatement and water purification industries.
      Additionally, we are investigating the applicability of the pHarlo technology
      to
      other aspects of the seafood industry.




Since
      inception, we have suffered recurring losses and net cash outflows from
      operations. We expect to continue to incur substantial losses to complete the
      development of our business. We have a limited operating history upon which
      investors may evaluate our likely future performance.




***We
      recently completed a significant acquisition of certain assets of pHarlo Citrus
      Technologies, Inc. and other related entities. We cannot guarantee that we
      will be able to manage these new assets profitably.***




On
      July 15, 2005, we purchased certain assets of pHarlo Citrus
      Technologies, Inc., Indian River Labs, LLC, pHarlo Citrus Properties
      Partnership, LLLP and Coast to Coast Laboratories, LLC, which four entities
      are
      referred to in this annual report as the "Selling Entities." This acquisition,
      or our 2005 Acquisition, represented a highly significant event for our company.
      Prior to the acquisition, we licensed the use of certain patent applications
      covering various uses for the pHarlo technology and improvements from the
      Selling Entities and also purchased the pHarlo concentrate, a concentrate made
      using the pHarlo technology from Indian River Labs. As a result of the 2005
      Acquisition and the purchase of all of the working assets of Indian River Labs,
      we now control various uses of pHarlo technology in the manufacturing process
      for the pHarlo concentrate. Our business, financial condition and results of
      operations could suffer materially if we fail to successfully manage these
      assets and the manufacturing process.




***Recent
      restatements and amendments to our interim financial statements and quarterly
      reports, as well as deficiencies in our disclosure controls and procedures
      and
      internal control over financial reporting, may present a risk of future
      restatements and disclosure compliance errors which could lead to legal
      exposure.***




We
      have
      recently restated and amended our interim financial statements for the periods
      ended June 30, 2004, September 30, 2004 and September 30, 2005
      and have recently filed amendments to our quarterly reports on Form 10-QSB
      for each of those periods reflecting these restatements. While in the process
      of
      amending our quarterly reports on Form 10-QSB to restate these financial
      statements, we became aware of certain required information that had been
      omitted and other information that needed to be changed or corrected. As a
      result of the foregoing, we revised these quarterly reports to correct this
      information and to state, among other things, that our disclosure controls
      and
      procedures were not effective as of June 30, 2004, September 30, 2004
      and September 30, 2005.




As
      of
      December 31, 2005, and December 31, 2006, our management concluded that our
      disclosure controls and procedures were not effective. We continue taking what
      we believe to be reasonable and appropriate steps to correct these deficiencies.
      We will also continue to assess the adequacy and appropriateness of these
      actions and adjust our remediation plan as needed or to reflect changes in
      our
      business. However, we cannot be certain when these deficiencies will ultimately
      be remediated and we expect that we will need a period of time over which to
      demonstrate that our disclosure controls are functioning appropriately to
      conclude that we have adequately remediated the deficiencies. Any failure to
      implement and maintain improvements in our disclosure and internal controls
      may
      present a risk of future restatements and disclosure compliance errors and
      could
      in turn lead to legal exposure. Any failure to improve these controls to address
      the identified deficiencies, or any other unidentified deficiencies, could
      also
      cause investors to lose confidence in our reported financial information, which
      could have a negative impact on the trading price of our common stock. This
      could have a material adverse effect on our business and financial
      results.




***We
      have limited experience in the marketing of our products and may not be able
      to
      market them successfully.***




We
      currently market Unifresh® Footbath, a grooming aid that helps clean and
      disinfect the hooves of dairy cows, and Tasker Pacific BlueTM Seafood Wash, a
      product used in commercial and retail seafood processing to extend shelf life.
      Shelf life extension is the act of increasing the length of the time a product
      can spend during processing, distribution and retail before becoming
      unacceptable for consumption. We also began marketing Tasker Blue Poultry Wash,
      an antimicrobial processing aid in poultry scalders and picker rails.




14


These
      are
      diverse markets and we may not be aware of all the customs and practices and
      may
      not be able to successfully compete in these industries. We believe that we
      will
      need to hire appropriate consultants and staff to reach all of these markets
      successfully. The consultants that we may retain may not have sufficient
      experience to enable us to completely understand the characteristics of these
      diverse industries. There can be no assurance that we will properly ascertain
      or
      assess any and all risks inherent in our proposed markets or that we will
      successfully enter into new markets or grow in our existing
      markets.




***Our
      ability to reach some of the markets currently set forth in our business plan
      will require regulatory approval. In addition, new products that we may develop
      or acquire may also require regulatory approval.***




The
      ingredients that we use to produce the pHarlo concentrate are approved as
      Generally Recognized as Safe by the FDA. Therefore, we believe that our current
      line of products that utilize the pHarlo concentrate; including the intended
      uses of these products, do not require further approval by the FDA. However,
      we
      may develop or acquire future products that use ingredients that will need
      to be
      approved by the FDA, or we may alter the intended uses of our current product,
      such that those products require additional FDA approval(s). There can be no
      assurance that FDA approval, if necessary, will be obtained.




The
      use
      of our pHarlo technology in the meat and poultry food processing applications
      requires the approval of the USDA. In August 2006 we received a Letter of No
      Objections from the USDA indicating that it had no objections to the use of
      our
      product as an antimicrobial processing aid in poultry Scalder and, in December
      2006, we received a similar letter from the USDA to use our product in the
      Picker and New York Dressed Cabinet. Subsequent to December 31, 2006, we
      submitted protocols to be used in the testing of an application for use in
      the
      On-Line Reprocessor (“OLR”) and Chiller sections. We received the FSIS’s consent
      to proceed with in-plant testing of these applications. Tests of the company’s
      OLR application are currently in process at one plant and tests of its Chiller
      application are scheduled to begin shortly. Upon the successful completion
      of
      these tests, the company will have applications in six of the seven intervention
      points of poultry processing. We have begun the commercialization phase of
      this
      application of the pHarlo technology. There can be no assurance that we will
      successfully complete the commercial verification process. If we do not
      successfully complete the commercial verification process, this may have a
      material adverse effect on our business plan.




In
      addition to the poultry processing industry, we are currently marketing the
      pHarlo technology for use in seafood processing. There can be no assurance
      that
      the products will obtain all necessary approvals, or, if granted, that the
      approvals will not include significant limitations on the indicated uses for
      which the products may be marketed or other restrictions or requirements that
      may reduce the value of the products.




***A
      key component of our business strategy is the proprietary nature of the pHarlo
      concentrate, and, therefore, our inability to protect our intellectual property
      rights could materially harm our business.***




The
      pHarlo concentrate that we produce is based upon both the patent applications
      that we purchased in the 2005 Acquisition, as well as on certain base patents
      and base patent applications, or patents and applications that we license.
      We
      have entered into an exclusive worldwide royalty free sub-license with pHarlo
      IP, the exclusive licensee of the base patents and base patent applications,
      to
      exploit these base patents and applications in certain fields of use. Protecting
      this intellectual property, in addition to protecting the patent applications
      that we purchased in the 2005 Acquisition, is a key component to the success
      of
      our business. Although we have retained the right to enforce our rights as
      a
      sub-licensor under the base patents and base patent applications, if an
      infringement occurs within the field of use specified in our sub-license
      agreement, there can be no assurance that we would be successful in any action
      to protect our rights under the patent applications that we have purchased.
      In
      addition, there can be no assurance that the base patent applications or the
      patent applications that we have purchased will ultimately be protected by
      an
      issued patent.




***Intense
      competition could harm our financial performance and the value of your
      investment.***




Some
      of
      the industries in which we are or will be marketing our products are
      characterized by intense competition.




Our
      Unifresh Footbath treats a highly infectious disease known as digital dermatitis
      that causes lameness, swelling and fever in dairy cows, resulting in a drastic
      decrease in milk production. Forms of treatment include antibiotic bandaging
      and
      topical sprays using Terramycin Ò (oxytetracycline - an antibiotic) and footbaths using Formalin (a saturated
      solution of formaldehyde), copper sulfate, Tetracycline (a broad-spectrum
      antibiotic) or Peracetic Acid (a disinfectant and sanitizer). Unifresh
      Footbath’s underlying technology, pHarlo technology, uses a highly acidified
      form of copper sulfate that helps control the bacteria that cause digital
      dermatitis. Some competing products using copper sulfate include QuickHit,
      Healthy Foot and HoofPro+ by SSI Corporation; Double-Action Ô Hoof
      Treatment by West Agro, Inc.; and Hoofcare Supercharger manufactured by
      Marabo.




15


Currently,
      there is little competition for bacterial inhibitors in the scalding process
      of
      poultry processors. We intend to expand the use of the pHarlo technology into
      the remaining operations of poultry processing, specifically the on-line
      reprocessing area, or an approved process that allows chicken with fecal
      material on the skin to be sprayed with a chemical disinfectant so that all
      such
      material is disinfected and/or removed prior to entry into the chilling process,
      or freezing process. However, we believe we will encounter competition in the
      chill process from manufacturers of sodium hydrochloride or sodium hypochlorite,
      chemical compound solutions frequently used as disinfectants and bleaching
      agents. The chill process is cold water or air that is used in poultry
      processing to reduce the temperature of the carcass to 40 degrees Fahrenheit
      in
      order to maintain food safety.




In
      addition, ammonia is an ever-present element of the atmosphere in poultry
      houses. The detrimental effects of ammonia in poultry farming are widely known
      and several products focused on litter treatment are available in the market
      using sodium bisulfate and aluminum sulfate (Alum) that convert litter ammonium
      to ammonium sulfate, emitting a significantly lower ammonia level. Yucca
      schidigera extract is also used as an enzyme treatment in the poultry diet
      to
      reduce ammonia evolving from poultry manure. Some products currently available
      in the market include PLT Ò (Poultry
      Litter Treatment), Ultra Litter Treatment Ô and
      Poultry Guard Ô ,
      which
      are granulated products, BZT Ò and
      Premium Bio-Treat Poultry Blend.




Currently,
      our seafood application product, Pacific Blue Ô ,
      is the
      only treatment in the market that eliminates odors on seafood by reducing the
      bacteria that causes spoilage. When and if the market for Pacific
      Blue Ô develops, additional products created by competitors may enter the market and
      compete.




There
      may
      be a number of companies, universities and research organizations actively
      engaged in research and development of technology that could be similar to
      our
      processes and ultimately become our competitors. We cannot assure you that
      we
      will be able to successfully compete with current or future competitors who
      may
      have substantially greater assets, technical staff, established market share
      and
      greater financial and operating resources than we have. If we are unable to
      successfully compete with these industry competitors, it may have a material
      adverse effect on our business plan.




***Some
      provisions of our amended and restated articles of incorporation, bylaws, and
      Nevada law may inhibit potential acquisition bids that may be considered
      favorable to our stockholders.***




Our
      corporate documents contain provisions that may enable our board of directors
      to
      resist a change in control of our company even if a change in control were
      to be
      considered favorable by our stockholders. These provisions include:




·
            limitations
                on persons authorized to call a special meeting of
                stockholders;




·
            the
                ability of a majority of the directors then in office to fill vacancies
                in
                directorships; and




·
            no
                cumulative voting.




These
      and
      other provisions contained in our amended and restated articles of incorporation
      and bylaws could delay or discourage transactions involving an actual or
      potential change in control of us or our management, including transactions
      in
      which our stockholders might otherwise receive a premium for their shares over
      then current prices, and may limit the ability of stockholders to remove our
      current management or approve transactions that our stockholders may deem to
      be
      in their best interests and, therefore, could adversely affect the price of
      our
      common stock.




In
      addition, we are subject to control share acquisitions provisions and affiliated
      transaction provisions of the Nevada General Corporation Law, the applications
      of which may have the effect of delaying or preventing a merger, takeover or
      other change of control of us and therefore could discourage attempts to acquire
      our company.




**RISKS
      RELATED TO OUR COMMON STOCK**




***If
      we are unable to comply with the terms of registration*** ** ***rights
      agreements to which we are a party, we may be obligated to pay
      liquidated*** ** ***damages
      to some of our security holders.***




In
      connection with our April 2004, July 2004, December 2004, September 2005 and
      January 2006 private placements, we entered into registration rights agreements
      with certain of our security holders in which we agreed to prepare and file
      with
      the SEC registration statements to register certain shares of common stock,
      which registration statements must be maintained effective for certain specified
      periods. If we are unable to comply with these provisions of these registration
      rights agreements, we may be obligated to pay liquidated damages to the holders
      of the securities covered by such registration rights agreements. If we are
      required to pay such liquidated damages or other amounts to these holders,
      our
      business, financial condition, operating results and cash flows would be
      materially adversely affected.




16


Registration
      statements with respect to the April 2004, July 2004 and December 2004 private
      placements were filed and declared effective in a timely manner. However, on
      June 14, 2006, we notified the holders of securities acquired in these private
      placements that the prospectuses contained within these registration statements
      contained financial and other information that was not current and that, as
      a
      result, such prospectuses could not be used to offer and sell such securities.
      Our obligation to accrue liquidated damages under these registration rights
      agreements ceased in April 30 and July 22, 2006, respectively. For the period
      through July 22, 2006, we have accrued $442,000 in liquidated damages related
      to
      these agreements.




We
      were
      unable to have the registration statement registering resale of securities
      purchased in the September 2005 private placement declared effective by the
      deadline specified in the applicable registration rights agreement. However,
      in
      connection with the January 2006 private placement, we obtained waivers of
      all
      claims for liquidated damages relating to our inability to have such
      registration statement declared effective by the specified deadline. Under
      the
      waiver, the date by which the registration statement covering resale of the
      securities purchased in the September 2005 private placement was required to
      be
      declared effective was extended to May 23, 2006. On April 26, 2006, we filed
      a
      registration statement registering resale of securities purchased in the
      September 2005 and January 2006 private placements. We believe, that as it
      relates to the September 2005 private placement, we have used our best efforts
      to cause the registration statement to be declared effective and, therefore,
      pursuant to the terms of the September 2005 registration rights agreement,
      we
      believe that we are not currently liable for liquidated damages as a result
      of
      the registration statement not being declared effective by May 23, 2006. Should
      the rights holders dispute that our best efforts were used, and we either accede
      to their assertion or are found to not have used our best efforts, the estimated
      maximum amount of liquidated damages for which we would be liable, assuming
      (i) ineffectiveness from May 23, 2006 to the end of the period covered by
      the registration agreement and (ii) a stock price of $0.37 for periods
      subsequent to July 26, 2006, is approximately $270,000. Also, a s
      it
      relates to the January 2006 private placement, we, despite using our best
      efforts, failed to have the registration statement declared effective by the
      SEC
      on or before October 26, 2006. Consequently, as of December 31, 2006 we are
      required to issue to each holder of the January 2006 private placement,
      shares and warrants equal to one percent of the respective number of shares
      and
      warrants purchased by each holder or an aggregate of 133,359 shares of common
      stock and warrants to purchase 133,359 shares of common stock.




***Future
      sales of our common stock may cause our stock price to
      decline.***




Since
      our
      inception, we have funded operations through common stock issuances in order
      to
      meet our strategic objectives. We have completed six private sales of common
      stock and securities convertible into common stock. We may, in the future,
      issue
      more shares of common stock in sales that may or may not be registered under
      the
      Securities Act of 1933, or the Securities Act. Our stock price may decline
      due
      to future sales of our shares or even the perception that such sales may
      occur.




***Our
      stock price can be extremely volatile.***




Our
      common stock is traded on the OTC Bulletin Board. There can be no assurance
      that
      an active public market will continue for the common stock, or that the market
      price for the common stock will not decline below its current price. The price
      of our common stock may be influenced by many factors, including, but not
      limited to, investor perception of us and our industry and general economic
      and
      market conditions. The trading price of our common stock could be subject to
      wide fluctuations in response to announcements of our business developments
      or
      our competitors, quarterly variations in operating results and other events
      or
      factors. In addition, stock markets have experienced extreme price volatility
      in
      recent years. This volatility has had a substantial effect on the market prices
      of companies, at times for reasons unrelated to their operating performance.
      Such broad market fluctuations may adversely affect the price of our common
      stock.




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




As
      of
      December 31, 2006, approximately 19.1 million shares of common stock were
      issuable upon exercise of outstanding stock options with a weighted average
      exercise price of $0.63 per share, and approximately 36.8 million shares of
      common stock were issuable upon exercise of outstanding warrants with an
      exercise price of between $0.25 to $2.00 per share. In addition, the
      registration rights agreement for the January 2006 private placement requires
      us
      to pay liquidated damages in additional common stock and warrants. As of
      December 31, 2006, 133,359 shares and 133,359 warrants are issuable as
      liquidated damages under the terms of the January 2006 registration rights
      agreement. Substantially all of the shares underlying these options and warrants
      have been or would be registered for resale, and none of them are subject to
      any
      contractual restrictions on resale. Also,
      as
      of March 2007, an additional 42,468,966
      shares of common stock at a conversion price of $0.0725 per share and
      warrants to purchase 17,105,556 shares of common stock with an exercise price
      of
      $0.09 per share are issuable in conjunction with the additional Convertible
      Bridge Notes we sold between January 2007 and March 2007. Also in relation
      to
      these notes an additional 4,246,897 shares
      of common stock at an exercise price of $0.0725 per share are issuable to the
      placement agent. Future
      sales of any of these shares, or the anticipation of such sales, could adversely
      affect the market price of our common stock and could materially impair our
      future ability to raise capital through an offering of equity securities.
      Further, any issuance of a substantial number of these shares would dilute
      the
      ownership interest of existing stockholders and could result in increased
      volatility in the price of our common stock.




17


***Our
      common stock, which is quoted on the OTC Bulletin Board, has several
      disadvantages from those securities traded on The Nasdaq Stock
      Market.***




Our
      common stock, which is quoted on the OTC Bulletin Board, has several
      disadvantages from those securities traded on The Nasdaq Stock Market. These
      disadvantages include the following:




·
            The
                SEC’s order handling rules, which apply to Nasdaq-listed securities,
                do
                not apply to securities quoted on the OTC Bulletin
                Board.




·
            Although
                The Nasdaq Stock Market has rigorous listing standards to ensure
                the high
                quality of its issuers, and can delist issuers for not meeting those
                standards, the OTC Bulletin Board has no listing standards. Rather,
                it is
                the market maker who chooses to quote a security on the system by
                filing
                an application with the NASD. The NASD cannot deny an application
                by a
                market maker to quote the stock of a company. The only requirement
                for
                inclusion in the OTC Bulletin Board is that the issuer be current
                in its
                reporting requirements with the
                SEC.




·
            Trading
                activity on the OTC Bulletin Board in general is not conducted as
                efficiently and effectively as with Nasdaq-listed securities. Investors
                must contact a broker-dealer to trade OTC Bulletin Board securities.
                Investors do not have direct access to the bulletin board service.
                For
                bulletin board securities, there only has to be one market
                maker.




·
            Bulletin
                board transactions are conducted almost entirely manually. Because
                there
                are no automated systems for negotiating trades on the bulletin board,
                they are conducted via telephone. In times of heavy market volume,
                the
                limitations of this process may result in a significant increase
                in the
                time it takes to execute investor orders. Therefore, when investors
                place
                an order to buy or sell a specific number of shares at the current
                market
                price, it is possible for the price of a stock to go up or down
                significantly during the lapse of time between placing a market order
                and
                getting execution.




·
            Shares
                traded on the OTC Bulletin Board generally are quoted with greater
                spreads
                between bid and asked and may be more expensive to buy or
                sell.




·
            Because
                bulletin board stocks are usually not followed by analysts, there
                may be
                lower trading volume than for Nasdaq-listed
                securities.




***If
      we fail to remain current on our reporting requirements, we could be removed
      from the OTC Bulletin Board, which would limit the ability of broker-dealers
      to
      sell our securities and the ability of stockholders to sell their securities
      in
      the secondary market.***




Companies
      like us that trade on the OTC Bulletin Board must be reporting issuers under
      Section 12 of the Exchange Act of 1934, and must be current in their
      reports under Section 13, in order to maintain price quotation privileges
      on the OTC Bulletin Board. If we fail to remain current on our reporting
      requirements, we could be removed from the OTC Bulletin Board. In such event,
      the market liquidity for our securities could be severely adversely affected
      by
      limiting the ability of broker-dealers to sell our securities and the ability
      of
      stockholders to sell their securities in the secondary market.




***Since
      our common stock is subject to the SEC’s penny stock rules, broker-dealers may
      experience difficulty in completing customer transactions and trading activity
      in our securities may be adversely affected.***




A
      public
      company’s common stock is subject to the penny stock rules promulgated under the
      Securities Exchange Act of 1934, or Exchange Act, unless its net tangible assets
      are greater than $2,000,000 or its common stock has a market price per share
      greater than $5.00. Under these rules, broker-dealers who recommend such
      securities to persons other than institutional accredited investors
      must:




·
            make
                a special written suitability determination for the
                purchaser;




·
            receive
                the purchaser’s written agreement to a transaction prior to
                sale;




18




·
            provide
                the purchaser with risk disclosure documents that identify certain
                risks
                associated with investing in “penny stocks” and that describe the market
                for these “penny stocks,” as well as a purchaser’s legal remedies;
                and




·
            obtain
                a signed and dated acknowledgment from the purchaser demonstrating
                that
                the purchaser has actually received the required risk disclosure
                document
                before a transaction in “penny stock” can be
                completed.




Since
      our
      common stock is subject to these rules, broker-dealers may find it difficult
      to
      effect customer transactions and trading activity in our securities may be
      adversely affected. As a result, the market price of our securities may be
      depressed, and you may find it more difficult to sell our
      securities.


**Item
                1B.**
              ****UNRESOLVED
                  STAFF COMMENTS****




There
      are
      no unresolved written comments from the staff of the SEC regarding our periodic
      or current reports received not less than 180 days before the end of our fiscal
      year to which this Form 10-K relates.




**ITEM
              2.**
            **PROPERTIES**




We
      currently lease approximately 9,000 square feet of office space at our corporate
      headquarters in Danbury, Connecticut under a lease that expires in April 2010.
      We also occupy approximately 27,000 square feet of manufacturing, warehouse
      and
      office space under a lease in Conroe, Texas that expires in
      September 2009.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**




We
      are
      involved in certain legal proceedings and we are subject to certain lawsuits,
      claims and regulations in the ordinary course of our business. Although the
      ultimate effect of these matters is often difficult to predict, we believe
      that
      their resolution will not have a material adverse effect on our financial
      statements.




The
      following is a list of our litigation matters:




On
      October 26, 2005, a civil action captioned The
      BOC Group, Inc. v. Tasker Capital Corp., Randy Cable, and Shaun Porter was
      filed
      in the United States District Court for the District of Connecticut. In the
      complaint, The BOC Group alleges that Mr. Porter and Mr. Cable, employees of
      Tasker, have breached certain restrictive covenants contained in their
      employment agreements with The BOC Group, and that we tortuously interfered
      with
      The BOC Group’s agreements with Mr. Porter and Mr. Cable. The BOC Group also
      claimed that we, Mr. Porter and Mr. Cable violated Connecticut’s statutes
      governing trade secrets and unfair trade practices. In July 2006, the matter
      was
      resolved by our payment of $50,000 to The BOC Group.




On
      January 5, 2006, a civil action captioned Robert
      L. Mandell, D.M.D., and Anthony M. Boschetti, D.M.D. v. Tasker Products Corp.,
      Arthur P. Bergeron and Richard J. Kirby was
      filed in the Middlesex Superior Court in Massachusetts. In the complaint, the
      plaintiffs allege that we, our former President, Mr. Bergeron, and our
      alleged former agent, Mr. Kirby, breached an agreement to pay for a study
      regarding our Breath RephreshTM product, a mouthwash predecessor to Close Call.
      The plaintiffs seek recovery of $100,000 in connection with the breach of
      contract claim. In March 2007, we reached an agreement in principle to resolve
      this matter by the payment of $40,000 and the issuance of a warrant for the
      purchase of 50,000 shares of our common stock at an exercise price of $0.15
      per
      share.




On
      January 18, 2006, a civil action captioned Dallas
      XXIX Corporate Square, L.P., v. Coast to Coast Laboratories and Tasker Capital
      Corp. was
      filed in the Circuit Court of Pinellas County, Florida. The plaintiff alleged
      that Coast to Coast Laboratories Corp., a wholly owned subsidiary of our
      company, breached a lease agreement and that we breached a guaranty. In June
      2006 the matter was resolved by our payment of $25,000 to Dallas XXIX Corporate
      Square, L.P. The settlement and the stipulation of dismissal with prejudice
      was
      filed with the Court.




On
      May
      25, 2006, a civil action captioned James
      Collins v. Tasker Products Corp .
      was
      filed in the Connecticut Superior Court for the Judicial District of Stamford.
      In the complaint, Mr. Collins alleges that Tasker breached the employment
      agreement between him and our company. Specifically, Mr. Collins alleges that
      he
      is due severance compensation pursuant to the employment agreement. On June
      29,
      2006, we filed our answer to the complaint. The answer also alleges numerous
      counterclaims against Mr. Collins, including a violation of Connecticut’s
      Uniform Trade Secrets Act, breach of duty of loyalty and various computer
      related offenses. We were also seeking permission to implead our former
      President and CEO, Robert P. Appleby, for breach of duty of care, breach of
      duty
      of loyalty, and fraud in the inducement related to his entering into the
      employment agreement with Mr. Collins. In February 2007, we entered into a
      settlement agreement in connection with this civil action. The settlement
      agreement provides for among other things (i) payment to Collins of $400,000
      in
      cash, of which $150,000 was paid on February 20, 2007 and $250,000 is payable
      within 90 days after February 16, 2007 (the "Second Payment"), (ii) acceleration
      of previously granted stock options exercisable for 1,000,000 shares of common
      stock granted to Collins to the extent that they have not already vested, which
      stock options expire 90 days from February 16, 2007, (iii) registration of
      the
      shares of common stock underlying such stock options with the Securities and
      Exchange Commission and reduction of the exercise price of such stock options
      from an exercise price of $1.45 per share to $0.40 per share, (iv) granting
      of
      mutual general releases and (v) withdrawal by Collins of the Lawsuit with
      prejudice once the Second Payment has been made and such shares of common stock
      have been registered.





19


On
      January 2006, we received correspondence from Provco Ventures I, LP, an
      investor in our September 2005 private placement, alleging securities law
      claims in connection with the September 2005 private placement. On March 6,
      2007, we paid Provco Ventures $50,000 in settlement of its claim.




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




There
      was
      no matter submitted during the fourth quarter of the fiscal year covered by
      this
      report to a vote of security holders, through the solicitation of proxies or
      otherwise.




**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
                ISSUE****R
                PURCHASES OF EQUITY
                SECURITIES**




**Market
      for Common Stock**




Our
      common stock is currently quoted on the OTC Bulletin Board under the symbol
      “TKER.”





The
      following table sets forth, for the periods indicated, the high and low bids
      for
      our common stock-based on inter-dealer prices, without retail mark-up, mark-down
      or commission and may not represent actual transactions.


**Price
                  Range of Common Stock****Quarter
                  Ended**
              
              **High**
              
              **Low****Fiscal
                  2005**First
                  Quarter
              
              $
              5.15
              
              $
              2.31Second
                  Quarter
              
              $
              4.14
              
              $
              2.21Third
                  Quarter
              
              $
              3.90
              
              $
              2.21Fourth
                  Quarter
              
              $
              2.79
              
              $
              0.58**Fiscal
                  2006**First
                  Quarter
              
              $
              1.04
              
              $
              0.54Second
                  Quarter
              
              $
              0.74
              
              $
              0.44Third
                  Quarter
              
              $
              0.57
              
              $
              0.08Fourth
                  Quarter
              
              $
              0.30
              
              $
              0.05




As
      of
      March 19, 2007, we had 108,339,975 shares of common stock outstanding and
      approximately 94 stockholders of record. Because many of the shares are held
      by
      brokers and other institutions on behalf of stockholders, we are unable to
      estimate the total number of individual stockholders represented by these
      holders of record.





The
      closing price for our common stock on March 19, 2007 was $0.19. For purposes
      of
      calculating the aggregate market value of the shares of our common stock held
      by
      non-affiliates, as shown on the cover page of this report, it has been assumed
      that all of the outstanding shares were held by non-affiliates except for the
      shares beneficially held by our directors and executive officers and
      stockholders beneficially holding 10% or more of our outstanding common stock,
      as reflected in filings such persons are required to make with the Securities
      and Exchange Commission under Sections 13(d) or 13(g) of the Exchange Act.
      However, there may be other persons who may be deemed to be affiliates of
      ours.




We
      have
      never paid dividends on our common stock. We intend to retain our earnings
      for
      use in our business and, therefore, do not anticipate paying any cash dividends
      on our common stock for the foreseeable future.




20




**Recent
      Unregistered Sales of Securities**




·
            On
                December 26, 2006, we granted ten-year warrants to purchase an aggregate
                of 1,530,000 shares of common stock, at an exercise price of $0.14
                per
                share and a vesting term of two years, to one executive employee,
                eight
                non-executive employees, and one consultant. Also on December 26,
                2006, we
                granted ten-year warrants to purchase an aggregate of 1,500,000 shares
                of
                common stock, at an exercise price of $0.14 per share and an immediate
                vesting to two members of our board of
                directors.


·
              On
                  December 26, 2006, we granted ten-year warrants to our President
                  and Chief
                  Executive Officer to purchase an aggregate of $18,000,000 shares
                  of common
                  stock, at exercise prices of $0.11 to $0.18 per share, 4,777,778
                  of which vest over two years, 1,652,778 of which vest March 31, 2007
                  and 11,569,444 of which vest at various dates through September
                  30, 2008
                  upon achievement of contractually specified performance
                  goals.




·
            On
                February 5, 2007, we granted ten-year warrants to purchase an aggregate
                of
                5,960,000 shares of common stock, at an exercise price of $0.14 per
                share
                and a vesting term of two years, to one executive employee, twenty
                non-executive employees, and seven consultants. Also on February
                5, 2007,
                we granted ten-year warrants to purchase an aggregate of 1,750,000
                shares
                of common stock, at an exercise price of $0.14 per share and an immediate
                vesting to one non executive employee and two new members of our
                board of
                directors.




·
            On
                March 14, 2007, we granted ten-year warrants to purchase an aggregate
                of
                120,000 shares of common stock, at an exercise price of $0.14 per
                share
                and a vesting term of two years, to one non executive employee and
                one
                consultant. Also on March 14, 2007, we granted ten-year warrants
                to
                purchase an aggregate of 750,000 shares of common stock, at an exercise
                price of $0.14 per share and an immediate vesting to one new member
                of our
                board of directors.




·
            Between
                December 1, 2006 and March 12, 2007, we issued to accredited investors
                Convertible Bridge Notes in the aggregate principal amount of $4,999,000.
                These notes are convertible into 68,951,724 shares of common stock
                at a
                conversion price of $0.0725 per share, subject to adjustment. As
                an
                inducement for the investors to purchase the Convertible Bridge Notes,
                we
                issued to these investors four-year warrants to purchase an aggregate
                of
                27,772,222 shares of common stock at an exercise price of $0.09 per
                share.




·
            Between
                December 1, 2006 and March 12, 2007, we issued to the placement agent
                of
                the Convertible Bridge Notes four-year warrants to purchase an aggregate
                of 6,895,172 shares of common stock at an exercise price of $0.0725
                per
                share in consideration for its services as placement
                agent.


The
      issuances of these securities were not registered under the Securities Act
      because such issuances were exempt from registration pursuant to
      Section 4(2) of the Securities Act, as they were transactions by an issuer
      that did not involve a public offering of securities.




**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA**




The
      following table sets forth our selected historical consolidated financial data
      as of and for each of the five years ended December 31, 2006.




The
      selected consolidated financial data for the years ended December 31, 2006,
      2005 and 2004 and as of December 31, 2006 and 2005 have been derived from
      the financial statements of Tasker Products Corp., included in this annual
      report, which have been audited by Rothstein, Kass & Company, P.C., an
      independent registered public accounting firm. The selected historical
      consolidated financial data as of and for the years ended December 31, 2003
      and 2002 have been derived from our consolidated financial statements not
      included in this annual report, which have been audited by Morgan and Company.
      As a result of the 2005 Acquisition, financial data for periods prior to the
      2005 Acquisition may not be comparable with financial data for periods following
      the 2005 Acquisition.




The
      following financial data should be read in conjunction with “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” and
      our historical consolidated financial statements and the notes thereto included
      elsewhere in this report. Until December 31, 2005, we were a development stage
      company.




21




**Statement
      of Operations Data (in thousands except per share data):**




**Year Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Revenues
            
            $
            1,486
            
            $
            705
            
            $
            —
            
            $
            —
            
            $
            —Impairment
                of goodwill and intangible assets
            
            
            44,081
            
            
            —
            
            
            —
            
            
            —
            
            
            —Write-off
                of raw materials
            
            
            839
            
            
            —
            
            
            —
            
            
            —
            
            
            —Litigation
                settlement
            
            
            423
            
            
            —
            
            
            —
            
            
            —
            
            
            —Loss
                from operations
            
            
            (62,051
            )
            
            (16,964
            )
            
            (3,368
            )
            
            (501
            )
            
            (745
            )Other
                income (expense)
            
            
            (892
            )
            
            (1,305
            )
            
            (2,704
            )
            
            (106
            )
            
            (17
            )Net
                loss
            
            
            (62,943
            )
            
            (18,269
            )
            
            (6,072
            )
            
            (607
            )
            
            (761
            )Net
                loss per common share, basic and diluted
            
            $
            (0.60
            )
            $
            (0.25
            )
            $
            (0.26
            )
            $
            (0.05
            )
            $
            (0.07
            )Weighted
                average common shares outstanding
            
            
            104,081
            
            
            73,549
            
            
            23,597
            
            
            13,003
            
            
            11,305




**Balance
      Sheet Data (in thousands):**




**As of December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Working
                capital (deficit)
            
            $
            (3,481
            )
            $
            (603
            )
            $
            14,334
            
            $
            34
            
            $
            (50
            )Total
                assets
            
            
            21,967
            
            
            68,854
            
            
            16,767
            
            
            548
            
            
            422Long-term
                liabilities
            
            
            30
            
            
            1,574
            
            
            1,389
            
            
            386
            
            
            308Stockholders’
                equity (deficit)
            
            $
            16,229
            
            $
            63,288
            
            $
            14,244
            
            $
            21
            
            $
            (908
            )Number
                of shares outstanding at end of period
            
            
            106,340
            
            
            89,167
            
            
            48,864
            
            
            14,511
            
            
            11,787





**ITEM
              7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS****OF
                FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the “Selected Consolidated
      Financial Data” and the consolidated financial statements and notes thereto
      appearing elsewhere in this Annual Report on Form 10-K. This discussion contains
      forward-looking statements that involve risks and uncertainties. See
“Forward-Looking Statements” and “Risk Factors” for a description of the
      important factors that could cause actual results to differ materially from
      those contained in these forward-looking statements.




**Business
      Overview**




We
      are a
      manufacturer, distributor and marketer of products using a patented process,
      which we refer to as the “pHarlo technology,” that utilizes a highly charged and
      acidified, yet stable and safe, solution that enables copper sulfate, a compound
      with bacteriostatic properties, to remain active throughout a wide range of
      pH
      values. We own the utility patent applications and provisional patent
      applications associated with the pHarlo technology and have entered into a
      sub-license agreement for the base patents associated with the pHarlo
      technology, in the following fields of use:




·
            Antimicrobial
                Composition for Pre-Harvest and Post-Harvest Treatment of Plants
                and
                Animals




·
            Antimicrobial
                Food Additive and Treatment for Cooked Food, Water and
                Wastewater




·
            Antimicrobial
                Processing Aid and Food Additive (US Provisional
                Application)




·
            Oral
                Health Care Drink and Method for Reducing
                Malodors




·
            Skin
                Care Composition for Dermatological Disorders including burn and
                wrinkle
                creams (US Provisional Application), Hangover Remedy and Alcohol
                Abatement
                Composition




We
      currently market:




·
            Unifresh
                ®Footbath, a grooming aid for dairy cows;




·
            Tasker
                Pacific BlueTM Seafood Wash; and




·
            Tasker
                Blue, an antimicrobial processing aid in poultry scalders.




22




We
      are
      currently seeking to license and/or sell the Close CallTM brand and derivative
      applications.




*Unifresh®
      Footbath*




We
      currently market Unifresh®Footbath concentrate, a grooming aid that helps clean
      and disinfect the hooves of dairy cows. Because of the bacteriostatic properties
      of the pHarlo technology, this product helps control bacteria that infect the
      hooves of cows and cause interdigital dermatitis, or a bacterial infection
      of
      the skin on a cow’s hoof, and interdigital papillomatosis, or a disease that
      affects a cow’s hoof that may cause severe lameness, decreased milk yield, body
      weight loss, decreased reproductive performance and increased veterinary
      expenses. Unifresh ®Footbath concentrate was launched during the third quarter
      of 2005. In the fourth quarter of 2005, we discovered that our Unifresh
®Footbath product’s effectiveness was diminished in water that had abnormally
      high alkaline content, a term commonly used to refer to a substance that has
      a
      pH level greater than 7. We reformulated our Unifresh ®Footbath concentrate with
      the addition of a compound that neutralizes alkali, or a type of base that
      has a
      pH greater than 7, which can increase the pH of water or soil. In the first
      quarter of 2006, we introduced our enhanced formulation to the market. It is
      currently being sold to dairy farms throughout the U.S. through our sales force,
      independent brokers and farm product distributors. We currently market the
      product as a grooming aid. No federal agency approvals are required for
      marketing this product.




*Poultry
      Processing*




In
      August
      2005, we began the in-plant commercial verification process for USDA approval
      to
      use the pHarlo technology in the scalder process of poultry processing. The
      first in-plant commercial verification test was completed in October 2005,
      and
      submitted to the USDA shortly thereafter. On February 6, 2006, we received
      a
      letter from the Food Safety and Inspection Service (“FSIS”) of the USDA
      consenting to the continuation of in-plant trials of our Scalder application
      at
      the facility in Athens, Georgia, as well as two additional poultry processors.
      The trial involved the application of the pHarlo technology as an antimicrobial
      in the scalder and post-feather picker processes. In August 2006 we received
      a
      Letter of No Objections from the USDA indicating that it had no objections
      to
      the use of our product as an antimicrobial processing aid in poultry Scalder
      and, in December 2006, we received a similar letter from the USDA to use our
      product in the Picker and New York Dressed Cabinet. Subsequent to December
      31,
      2006, we submitted protocols to be used in the testing of an application for
      use
      in the On-Line Reprocessor (“OLR”) and Chiller sections. We received the FSIS’s
      consent to proceed with in-plant testing of these applications. Tests of the
      company’s OLR application are currently in process at one plant and tests of its
      Chiller application are scheduled to begin shortly. Upon the successful
      completion of these tests, the company will have applications in six of the
      seven intervention points of poultry processing.




*Seafood
      Processing Products*




We
      recently began marketing the pHarlo technology for use in pathogen reduction,
      or
      a process by which certain bacteria that cause disease or illness are reduced
      in
      number or eliminated, and the shelf life of seafood is extended. Our product,
      Tasker Pacific Blue Seafood Wash, has been tested at the North Carolina State
      Center for Marine Science & Technology, Virginia Tech University and
      Mississippi State University on shrimp, mahi mahi, salmon, flounder, scallops
      and catfish. The results of these studies indicated that the pHarlo technology
      could possibly double the shelf life on catfish filets and significantly
      increase the shelf life of scallops. No federal agency approvals are required
      for the marketing of this product.




In
      the
      processing of fish and seafood species, water is used in the process at many
      points after harvesting. Therefore, the use of dip tanks and sprays of chilled
      water are normal and common. The addition of the Tasker Pacific Blue Seafood
      Wash to these wash waters is an easy adaptation of existing process equipment.
      Our seafood application is currently in trial testing by a seafood company
      located in the southeast and in several supermarkets in the northeast.




*Close
      CallTM*




Until
      March 2007 we marketed Close CallTM as an oral hygiene breath drink that
      eliminates odors from tobacco, garlic, onion and alcohol. The FDA requires
      companies making structure or function claims relating to a dietary supplement
      product, such as Close CallTM, to “certify that the firm has substantiation that
      the claim is truthful and not misleading.” While the FDA does not require any
      presentation of this support, it does require a notice of dietary supplement
      ingredients and claims. We believe that our Close CallTM product could be
      marketed more efficiently by a company either already established in the
      industry or with more commercial resources. Therefore, we are actively seeking
      to license and/or sell the Close Call TMbrand or derivative
      applications.




23




**Financial
      Overview**




Until
      December 31, 2005, we were a development stage company. The quarterly period
      ended March 31, 2006 was the first period we were considered an operating
      company.




Based
      upon our projections of future revenues from our products and cash on hand,
      including cash of $4.9 million received from the sale of our Convertible Bridge
      Notes in December 2006 and the first quarter of 2007, we will not have adequate
      working capital to fund our operations during the next twelve months. Our
      ability to continue to operate and grow our business is dependent upon obtaining
      additional financing and/or generating revenue growth from operations. While
      we
      have been in the process of aggressively developing, marketing and selling
      our
      products, there can be no assurance that those efforts will be met with success
      in the marketplace or that the timing of our efforts will be consistent with
      our
      cash availability and burn rate. If we are unable to obtain new financing and/or
      generate sufficient revenue growth from existing and new business arrangements,
      we will not have sufficient cash to support our operations and meet our
      obligations. We anticipate that we will need approximately an additional $4
      million to support our operations and meet our obligations over the next twelve
      months. We are currently reviewing alternative methods of financing, including
      private issuances of debt and/or equity.




**Impairment
      of goodwill and intangible assets**




In
      the
      second quarter of 2006, we tested for impairment of our intangible assets and
      our goodwill in accordance with Statement of Financial Accounting Standards
      (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived
      Assets” and SFAS No. 142 “Goodwill and Other Intangible Assets”
respectively. Our testing was triggered by the following events and
      circumstances that constitute impairment indicators under the
      literature:




·
            a
                preliminary expectation that third and fourth quarter 2006 originally
                projected revenues will not be
                attained;




·
            a
                decrease in expected future cash flows;
                and




·
            a
                decline in the market price of our common
                stock




Upon
      completion of the impairment tests, we recorded non-cash impairment charges
      to
      intangible assets and goodwill of $12.2 million and $17.9 million, respectively.




Also
      in
      the fourth quarter of 2006, we tested for impairment of our intangible assets
      and our goodwill. Our goodwill review was performed as part of our annual
      goodwill impairment review. Upon completion of the impairment tests, we recorded
      non-cash impairment charges to goodwill of $13.9 million. There was no further
      impairment of our intangible assets.




Note 5
      to our consolidated financial statements for the year ended December 31, 2006
      describes the impairment tests performed and their impact during 2006. There
      can
      be no assurance that there will not be impairment charges in subsequent periods
      as a result of our future periodic impairment reviews. To the extent that future
      impairment charges occur, they will likely have a material impact on our
      financial results.




**Related
      Party Transactions**




In
      2004,
      we entered into an Exclusive Field of Use License Agreement and Product Sale
      Agreement with Wynn Starr Special Products, LLC. Under the terms of this
      agreement, as amended through January 23, 2007, we have granted Wynn Starr
      the
      exclusive, worldwide right to market and distribute products used as
      post-harvesting processing aids for the poultry industry based on the pHarlo
      technology. In return for this license, Wynn Starr will purchase licensed
      products from us and will remit to us up to 25% of the net sale price per gallon
      sold, based on different increments of achieved net sale prices. The Amendment
      also includes other target performance criteria such that, if met by Wynn Starr,
      we will issue to Wynn Starr a warrant to purchase up to 1,300,000 shares of
      our
      common stock with an exercise price based upon the closing price of our common
      stock on January 23, 2007, the date of the amendment. Net sales price and
      licensed products are defined in the Exclusive Field of Use License Agreement
      and Products Sale Agreement. As of December 31, 2006 no royalties were due
      and
      none had been paid to us under this royalty arrangement. Steven B. Zavagli,
      a
      former member of our board of directors, is the founder, Chairman and the Chief
      Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn
      Starr Flavors, Inc.




We
      paid
      Mr. Gordon O. Davis, the former Chairman of the board of directors,
      approximately $60,000 for consulting services during the twelve months ended
      December 31, 2006.




24




**Severance
      Costs**




In
      connection with two cost reduction actions during the first and third fiscal
      quarters of fiscal year 2006, we recorded severance costs of approximately
      $259,000 for one executive and eleven non executive employees. As of December
      31, 2006 all severance costs related to these cost reduction actions had been
      paid.




**Critical
      Accounting Policies and Estimates**




Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of these
      consolidated financial statements requires us to make estimates and assumptions
      that affect the reported amounts of assets, liabilities, revenues, costs and
      expenses and related disclosures. On an ongoing basis, we evaluate our estimates
      and assumptions. Our actual results may differ from these estimates under
      different assumptions or conditions.




We
      believe that of our significant accounting policies, which are described in
      Note 2 to the consolidated financial statements, the following accounting
      policies involve a greater degree of judgment and complexity. Accordingly,
      these
      are the policies we believe are the most critical to aid in fully understanding
      and evaluating our consolidated financial condition and results of operations.





*Derivative
      Instruments*




To
      date,
      we have entered into several debt and equity transactions to fund our
      operations. A number of these transactions involved the issuance of convertible
      debt and warrants. These transactions also included registration rights
      agreements that impose significant penalties on us if certain conditions are
      not
      met. As a result of these registration rights agreements we face a number of
      unique and complex accounting issues such as the ones discussed
      below.




We
      have
      issued and outstanding several financial instruments with embedded derivative
      features, consisting of convertible debt and warrants. We analyze these
      financial instruments in accordance with SFAS No. 133 and Emerging Issues Task
      Force, (EITF) Issue Nos. 00−19 and 05−02 to determine if these hybrid contracts
      have embedded derivatives that must be bifurcated. In addition, free standing
      warrants are accounted for as either equity or liabilities in accordance with
      the provisions of EITF Issue No. 00−19.




EITF
      Issue No. 05−4 “The Effect of a Liquidated Damages Clause on a Freestanding
      Financial Instrument Subject to EITF Issue No. 00−19, ‘Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock’” addresses financial instruments, such as convertible notes and stock
      purchase warrants, which are accounted for under EITF 00−19, that are issued
      with a corresponding right to have these securities registered pursuant to
      a
      registration rights agreement that includes a liquidated damages clause.
      Alternative accounting treatments of registration rights are discussed in EITF
      Issue No. 05-4. We have adopted View C as described in the EITF Issue No. 05-4
      Issue Summary No. 1. Under View C, registration rights agreements and the
      associated financial instruments are accounted for as separate instruments.
      Accordingly, we have given only prospective application to this guidance. On
      December 21, 2006 the Financial Accounting Standards Board issued FASB
      Staff Position (FSP) EITF No. 00-19-2 which is effective for fiscal years
      beginning after December 15, 2006. This
      FSP
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration rights agreement, whether issued
      as
      a separate agreement or included as a provision of a financial instrument or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, *Accounting
      for Contingencies* EITF.
      Our treatment of the registration rights agreement as separate instruments
      is
      consistent with this FSP.




In
      connection with our examination of past transactions for application of EITF
      Issue No. 05-4, we noted that for the period from entering into the April 2004
      Securities Purchase Agreement until we increased our authorized shares in August
      2004, we had insufficient shares to meet all potential obligations to issue
      shares under our convertible notes and exercisable warrants and options. Under
      EITF Issue No. 00-19, a liability should be recognized for those financial
      instruments for that period, with any changes in the fair value of such
      liabilities recognized in our consolidated statement of operations. Based on
      our
      analysis of such liabilities, we determined the effect of any such amounts
      to be
      immaterial.




In
      April
      2004 and July 2004, we entered into private placement agreements, and
      registration rights agreements for
      convertible debentures and
      warrants. Based on the interpretive guidance in EITF Issue No. 05−4 due to an
      uncapped liquidated damages provision in the registration rights agreements,
      we
      determined that the registration rights are derivative liabilities that should
      be bifurcated from the related financial instruments. Accordingly, the estimated
      fair value of the registration rights derivative of $244,000 was recorded as
      a
      liability as of October 1, 2005, the beginning of the first fiscal period after
      September 15, 2005, the date that EITF postponed further deliberations. As
      of
      December 31, 2006, the full amount of the derivative liability balance was
      reversed since the shares purchased under the April 2004 and July 2004 private
      placements could be sold under Rule 144(k) of the Securities Act of 1933 and
      we
      had recorded the full and maximum amount of the actual incurred liquidated
      damages of approximately $442,000, associated with these registration rights
      agreements. Additionally, we recorded approximately $141,000 of interest and
      late fees related to the April 2004 and July 2004 convertible debentures. Both
      of these amounts are included in the other accrued liabilities.




25




In
      connection with our December 2004 and January 2006 private placements, our
      estimated fair value of the related registration rights derivative was
      immaterial at the inception and at each reporting date since and, consequently,
      we have not recorded a liability. At each reporting period, we calculate the
      estimated fair value of the registration rights derivatives. If the underlying
      assumptions of the calculation change such that the estimated fair value is
      not
      immaterial, we will record a liability at that time.




In
      connection with our September 2005 private placement, our estimated fair value
      of the related registration rights derivative at its inception was immaterial
      and we did not record a liability. Subsequently, in connection with the January
      2006 private placement, we amended our September 2005 agreement with the rights
      holder to waive the liquidated damages relating to our inability to have such
      registration statement declared effective by May 23, 2006. On
      April 26, 2006, we filed a registration statement registering resale of
      securities purchased in the September 2005 and January 2006 private placements.
      We believe, that as it relates to the September 2005 private placement, we
      have
      used our best efforts to cause the registration statement to be declared
      effective and, therefore, pursuant to the terms of the September 2005
      registration rights agreement, we are not currently liable for liquidated
      damages as a result of the registration statement not being declared effective
      by May 23, 2006. Should the rights holders dispute that our best efforts were
      used, and we either accede to their assertion or are found to not have used
      our
      best efforts, the estimated maximum amount of liquidated damages for which
      we
      would be liable, assuming (i) ineffectiveness from May 23, 2006 to the
      end of the period covered by the registration agreement and (ii) a stock
      price of $0.37 for periods subsequent to July 26, 2006, is approximately
      $270,000.




Also,
      a s
      it
      relates to the January 2006 private placement, we, despite using our best
      efforts, failed to have the registration statement declared effective by the
      SEC
      on or before October 26, 2006. Consequently, as of December 31, 2006 we are
      required to issue to each holder of the January 2006 private placement,
      shares and warrants equal to one percent of the respective number of shares
      and
      warrants purchased by each holder or an aggregate of 138,859 shares of common
      stock and warrants to purchase 138,859 shares of common stock.




We
      have
      not incurred any liquidated damages liabilities related to any of our other
      registration rights agreements.




*Goodwill
      and Intangible Assets*




The
      discussions under the captions “Goodwill” and “Intangible Assets” below,
      describe the valuation methods we used to estimate the fair values. We have
      made
      assumptions in our valuation methods that we will achieve certain levels of
      revenue and funding of cash requirements, which are dependent upon certain
      factors outside of our control. If we do not meet our projections, we may be
      required to record additional impairment charges. To the extent that future
      impairment charges occur, they will likely have a material impact on our
      financial results. We
      anticipate that we will need approximately an additional $4 million to support
      our operations and meet our obligations over the next twelve months. We are
      currently reviewing alternative methods of financing, including private
      issuances of debt and/or equity. We have
      a limited history on which to base our projections and on which to determine
      the
      accuracy of our projections.




Goodwill




*June
      2006*




In
      the
      second quarter of 2006, we tested for impairment of our goodwill in accordance
      with SFAS No. 142. Our testing was triggered by a preliminary expectation
      that third and fourth quarter 2006 originally projected revenues would not
      be
      attained, a decrease in expected future cash flows and a decline in the market
      price of our common stock. These events and circumstances constitute impairment
      indicators under the literature. Upon completion of the impairment tests, we
      recorded a non-cash impairment charge to goodwill of $17.9 million. At June
      30,
      2006, the carrying value of goodwill before the impairment charge was
      approximately $41.7 million and the carrying value of the reporting unit was
      $68.2 million. Our estimate of the fair value of the reporting unit, and after
      recording impairments of our intangible assets and goodwill, the carrying value,
      was $38.1 million, and our estimate of the closing price on June 30, 2006 was
      $51.5 million, which exceeded our estimate of fair value by $13.4 million.
      At
      June 30, 2006, after recording an impairment charge to the intangible assets
      of
      $12.2 million based on their estimated fair value, the carrying value of the
      reporting unit was $56.0 million, resulting in an impairment charge to goodwill
      of $17.9 million. After the impairment charge, the carrying value of the
      goodwill was $23.8 million.




26




The
      fair
      value of the reporting unit was based on the income approach using a discounted
      cash flow model. Cash flow projections were based on our revenue projections
      for
      our products. As a result of the circumstances outlined in the following, we
      reduced our revenue projections by 68% in 2006 and in 2007, 54% in 2008, 46%
      in
      2009 and 43% in 2010. We projected revenue growth rates of 300% in 2007, as
      compared to the significantly reduced revenue amount base in 2006, and from
      reduced revenue levels, growth rates per year of 80%, 55% and 38% in 2008,
      2009
      and 2010, respectively, a growth rate of 7% per year in 2011 through 2015 and
      a
      terminal growth rate of 5% for all subsequent years. The majority of the
      reduction in the amount of revenue was due to the indefinite delay in the
      implementation of the enforcement framework of EU regulations regarding the
      welfare of poultry birds. We removed from our projections all revenue related
      to
      our poultry pen spray product since we are not certain of the timing of the
      enforcement of these regulations. Additionally, in order for this product to
      be
      sold in the U.S., we need to make additional revisions to its formulation that
      will require time and additional resources. Consequently, we have not included
      any U.S. revenue in our projections. We also reduced our projections related
      to
      our Unifresh Footbath product since our distributors were unable to devote
      the
      level of sale and technical personnel to promote and educate our customers
      on
      the benefits of our products that we originally anticipated. On the other hand,
      the expectation of receipt of USDA approval in the third quarter of 2006
      (received in August 2006) for the application of our poultry processing wash
      in
      the scalder process resulted in the increase of projected revenues related
      to
      this product. However, we are still in the process of completing the commercial
      verification process for the poultry processing wash and the Tasker Pacific
      Blue
      Seafood Wash as we do not yet have a proven record of acceptance of our products
      by our target audience. Customers in our industry are traditionally averse
      to
      entering into long-term agreements, therefore limiting our ability to commit
      distributors or predict specific customer purchase volumes. If we do not
      commercially verify these products, we may need to record an additional
      impairment charge. To the extent an additional impairment charge is required,
      it
      will likely have a material impact on our financial results.




The
      discount rate used was 25% and was based on venture capital rates for start-up
      companies in similar industries.




The
      table
      below presents a sensitivity analysis of the effect on enterprise fair value
      for
      +/- 5% change per projected year in earnings before taxes and +/- 1% change
      in
      the discount rate:




Earnings
                Before Taxes
            
            24%
                Discount Rate
            
            25%
                Discount Rate
            
            26%
                Discount Rate(in
                millions)-5%
            
            $
            38.7
            
            $
            35.7
            
            $
            33.0As
                projected
            
            $
            41.3
            
            $
            38.1
            
            $
            35.3+5%
            
            $
            43.9
            
            $
            40.5
            
            $
            37.4





The
      table
      below presents a sensitivity analysis of the effect on enterprise fair value
      (including tax amortization benefit) for +/- 1% change in the revenue terminal
      growth rate and +/- 1% change in the discount rate:




Terminal
                Growth Rate
            
            24%
                Discount Rate
            
            25%
                Discount Rate
            
            26%
                Discount Rate(in
                millions)4%
            
            $
            40.4
            
            $
            37.3
            
            $
            34.65%
            
            $
            41.3
            
            $
            38.1
            
            $
            35.36%
            
            $
            42.3
            
            $
            38.9
            
            $
            35.9




*December
      2006*




In
      the
      fourth quarter of 2006, we tested for impairment of our goodwill in accordance
      with SFAS No. 142. Our goodwill review was performed as part of our annual
      goodwill impairment review. Upon completion of the impairment tests, we recorded
      non-cash impairment charges to goodwill of $13.9 million. There was no
      impairment of our intangible assets.




At
      December 31, 2006, the carrying value of goodwill before the impairment charge
      was approximately $23.8 million and the carrying value of the reporting unit
      was
      $30.7 million. Our estimate of the fair value of the reporting unit was $14.2
      million and after recording impairments of our goodwill, the carrying value,
      was
      $16.8 million. After the impairment charge, the carrying value of the goodwill
      was approximately $9.8 million.





The
      fair
      value of the reporting unit was based on a weighted average of the income
      approach using a discounted cash flow model and the market approach using the
      company’s market capitalization. Cash flow projections were based on our revenue
      projections for our products. We
      projected revenue growth rates of 114% in 2008, as compared to a relatively
      lower revenue base in 2007; a growth rate of 42% in 2008, declining in 7%
      increments to a 23% growth rate in 2011; a growth rate of 18% in 2012 gradually
      declining to a 10% growth rate in 2016; and a terminal value
      based on a enterprise value to EBITDA multiple of 7.5. T he
      majority of the decrease in the overall revenue, both in absolute dollars and
      in
      growth percentage, was due to the reduction of our revenue projections
      for Unifresh
      Footbath product as compared to the projections used in the June 2006 cash
      flow
      projections. This
      decrease was partially offset by the increase in projected sales of our
      poultry processing wash (Tasker Blue) for which we received letters from the FSIS of
      the
      USDA indicating that it had no objection to the use of our product as an
      antimicrobial processing aid in poultry scalders and in the post-feather
      picker-rails processes in August 2006 and in December 2006, respectively.
      Subsequent to December 31, 2006, we submitted protocols to be used in the
      testing of an application for use in the On-Line Reprocessor (“OLR”) and Chiller
      sections. We received the FSIS’s consent to proceed with in-plant testing of
      these applications. Tests of the company’s OLR application are currently in
      process at one plant and tests of its Chiller application are scheduled to
      begin
      shortly. Upon the successful completion of these tests, the company will have
      applications in six of the seven intervention points of poultry processing.
      However, we are still in the process of completing the commercial verification
      process for the poultry processing wash and the Tasker Pacific Blue Seafood
      Wash
      as we do not yet have a proven record of acceptance of our products by our
      target audience. Customers in our industry are traditionally averse to entering
      into long-term agreements, therefore limiting our ability to commit distributors
      or predict specific customer purchase volumes. If we do not commercially verify
      these products, we may need to record an additional impairment charge.





27




The
      discount rate used was 24% and was based on a weighted average cost of capital
      (WACC). The required rates of return on equity and debt were weighted to arrive
      at the WACC. The table below presents a sensitivity analysis of the effect
      on
      enterprise fair value for a +/- 5% change per projected year in earnings before
      taxes and a +/- 1% change in the discount rate:




Earnings
                Before Taxes
            
            23%
                Discount Rate
            
            24%
                Discount Rate
            
            25%
                Discount Rate(in
                millions)-5%
            
            $
            13.9
            
            $
            12.6
            
            $
            11.3As
                projected
            
            $
            14.6
            
            $
            13.1
            
            $
            11.8+5%
            
            $
            15.2
            
            $
            13.7
            
            $
            12.3




The
      table
      below presents a sensitivity analysis of the effect on enterprise fair value
      (including tax amortization benefit) of a +/- 5% change in the EBITDA multiple
      used in the terminal value and a +/- 1% change in the discount
      rate:




Enterprise
                Value to EBITDA multiple
            
            23%
                Discount Rate
            
            24%
                Discount Rate
            
            25%
                Discount Rate(in
                millions)7.125
            
            $
            13.9
            
            $
            12.6
            
            $
            11.3As
                projected - 7.5
            
            $
            14.6
            
            $
            13.1
            
            $
            11.87.875
            
            $
            15.2
            
            $
            13.7
            
            $
            12.3




Also
      see
      Note 5 to our consolidated financial statements for the year ended December
      31, 2006 for a description of the impairment tests performed and their impact
      during 2006.




*Intangible
      Assets*




In
      addition to our annual goodwill review, we also perform periodic reviews of
      the
      carrying value of our other intangible assets. These intangible assets consist
      of utility patent applications. We specifically consider whether any indicators
      of impairment are present, including:




·
            whether
                there has been a significant decrease in the market price of an asset;




·
            whether
                there has been a significant adverse change in the extent or manner
                in
                which an asset is used; and




28




·
            whether
                there is an expectation that the asset will be sold or disposed of
                before
                the end of its originally estimated useful
                life.




If
      indicators of impairment are present, an estimate of the undiscounted cash
      flows
      that the specific asset is expected to generate is made to ensure that the
      carrying value of the asset can be recovered. These estimates involve
      significant subjectivity.




Consistent
      with this policy, in the second quarter of 2006, we tested for impairment of
      our
      intangible assets in accordance with SFAS No. 144 “Accounting for the
      Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). Our testing
      was triggered by a preliminary expectation that third and fourth quarter 2006
      originally projected revenues would not be attained, a decrease in expected
      future cash flows and a decline in the market price of our common stock. These
      events and circumstances constitute impairment indicators under the literature.
      Upon completion of the impairment tests, we recorded a non-cash impairment
      charge to intangible assets of $12.2 million. At June 30, 2006 and after giving
      effect to the impairment charge, the carrying value of the intangible assets
      was
      approximately $8.3 million.




*Valuation
      of Acquired Intangible Assets*




In
      connection with the 2005 Acquisition, we recorded other intangible assets
      relating to acquired utility patent applications. The valuation process used
      to
      calculate the value assigned to the acquired intangible assets is complex and
      involves significantly subjective financial projection estimates. The principal
      component of the valuation is the determination of discounted future cash flows
      expected to be derived from the use of these intangible assets. In addition,
      there are a number of other variables that we considered for purposes of
      projecting these future cash flows, including those listed below.




There
      is
      inherent uncertainty involved with this estimation of cash flows from intangible
      assets, and, while our estimates are consistent with our internal planning
      assumptions, the ultimate accuracy of these estimates is only verifiable over
      time. Further, the projections required for the valuation process normally
      utilize a ten-year forecast, which exceeds our normal internal planning and
      forecasting timeline. The particularly sensitive components of these estimates
      include, but are not limited to:




the
      selection of an appropriate discount rate;




the
      required return on all assets employed by the valued asset to generate future
      income streams;




our
      projected overall revenue growth;




our
      gross
      margin estimates;




our
      patent-pending technology and its useful life;




our
      planned level of operating expenses; and




our
      effective tax rate.




*June
      2006*




Our
      revenue projection, the same as those used in our reporting unit cash flow
      projections for purposes of evaluating any impairment of goodwill, assumes
      growth rates of 300% in 2007, as compared to a relatively low revenue base
      in
      2006, growth rates per year of 80%, 55% and 38% in 2008, 2009 and 2010,
      respectively, and a growth rate of 7% per year in 2011 through 2015. The
      majority of the reduction in the amount of revenue was due to the indefinite
      delay of the enforcement framework of EU regulations regarding the welfare
      of
      poultry birds. We removed from our projections all revenue related to our
      poultry pen spray product since we are not certain of the timing of the
      enforcement of these regulations. Additionally, in order for this product to
      be
      sold in the U.S., we need to make additional revisions to its formulation.
      Consequently, we have not included any U.S. revenue in our projections. We
      also
      reduced our projections related to our Unifresh Footbath product since our
      distributors were unable to devote the level of sale and technical personnel
      to
      promote and educate our customers on the benefits of our product that we
      originally anticipated. On the other hand, the expectation of receipt of USDA
      approval in the third quarter of 2006 (received in August 2006) for the
      application of our poultry processing wash in the scalder process resulted
      in
      the increase of projected revenues related to this product. However, we are
      still in the process of completing the commercial verification process for
      the
      poultry processing wash and the Tasker Pacific Blue Seafood Wash as we do not
      yet have a proven record of acceptance of our products by our target audience.
      Customers in our industry are traditionally averse to entering into long-term
      agreements, therefore limiting our ability to commit distributors or predict
      specific customer purchase volumes. If we do not commercially verify these
      products, we may need to record an additional impairment charge. To the extent
      an additional impairment charge is required, it will likely have a material
      impact on our financial results.





29




The
      discount rate used was 16%. The discount rate was based on a cost of equity
      analysis, which was based on industry rates of returns, by applying the Capital
      Asset Pricing Model (CAPM). The royalty rate was 5%, which was based primarily
      on the royalty rate we paid to pHarlo IP LLC prior to the acquisition of the
      patents, as well as economic factors.





The
      table
      below presents a sensitivity analysis of the effect on the fair value of the
      intangible assets of a +/- 5% change in revenue per projected year (including
      tax amortization benefit) and a +/- 1% change in the discount rate:





Revenue
                Change for Each Year
            
            15%
                Discount Rate
            
            16%
                Discount Rate
            
            17%
                Discount Rate(in
                millions)-5%
            
            $
            8.1
            
            $
            7.7
            
            $
            7.3As
                projected
            
            $
            8.8
            
            $
            8.3
            
            $
            7.8+5%
            
            $
            9.4
            
            $
            8.9
            
            $
            8.4





The
      table
      below presents a sensitivity analysis of the effect on the fair value of the
      intangible assets of a +/- 1% change in the royalty rate and a +/- 1% change
      in
      the discount rate:





Royalty
                Rate
            
            15%
                Discount Rate
            
            16%
                Discount Rate
            
            17%
                Discount Rate(in
                millions)4%
            
            $
            6.2
            
            $
            5.9
            
            $
            5.65%
            
            $
            8.8
            
            $
            8.3
            
            $
            7.86%
            
            $
            11.2
            
            $
            10.6
            
            $
            10.1




*December
      2006*




At
      December 31, 2006, the carrying value of our intangible assets, excluding
      goodwill, was approximately $7.9 million. As a result of the impairment of
      goodwill, we also reviewed our intangible assets, excluding goodwill, for
      impairment. None of these assets were deemed to be impaired as of December
      31,
      2006.




*Inventory
      Valuation and Classification*




Our
      inventory is valued at the lower of cost or market on an average cost basis.
      We
      regularly review inventory balances to determine whether a write-down is
      necessary. We consider various factors in making this determination, including
      recent sales history and predicted trends, industry market conditions, general
      economic conditions, the age of our inventory and recent quality control data.
      Changes in the factors above or other factors could result in significant
      additional inventory cost reductions and write-offs. During the year ended
      December 31, 2006, we wrote off approximately $158,000 of Close Call TM finished
      goods inventory and $839,000 of Close Call TM empty
      bottles and related packaging materials.




*Stock-Based
      Compensation*




Effective
      January 1, 2006, we adopted SFAS 123R, “Share-Based Payment,” requiring the
      expense recognition of the estimated fair value of all share-based payments
      issued to employees. Prior to this, the estimated fair value associated with
      such awards was not recorded as an expense, but rather was disclosed in a
      footnote to our financial statements. For the year ended December 31, 2006,
      we
      recorded approximately $4.9 million of stock based compensation expense, of
      which approximately $3.1 million was attributable to employee stock options
      and
      warrants and the remainder, approximately $1.8 million, was attributable to
      stock options and warrants awarded to consultants and non-employee board
      members.




The
      valuation of employee stock options and warrants is an inherently
      subjective process since market values are generally not available for
      long-term, non-transferable employee stock options and warrants. Accordingly,
      an
      option pricing model is utilized to derive an estimated fair value. In
      calculating the estimated fair value of our stock options and warrants, we
      used
      a Black-Scholes pricing model which requires the consideration of the following
      six variables for purposes of estimating fair value:




·
            the
                stock option or warrant exercise
                price,




30




·
            the
                expected term of the option or
                warrant,




·
            the
                grant date fair value of our common stock, which is issuable upon
                exercise
                of the option or warrant,




·
            the
                expected volatility of our common
                stock,




·
            expected
                dividends on our common stock (we do not anticipate paying dividends
                for
                the foreseeable future), and




·
            the
                risk free interest rate for the expected option or warrant term,
                and




·
            the
                expected forfeiture rate




Of
      the
      variables above, the selection of an expected term and expected stock price
      volatility are the most subjective. Our estimate of the expected term was
      approximately 6 years and was derived based on the weighted average of the
      sum
      of the vesting term and the original contract term. In estimating our stock
      price volatility, we analyzed our historic volatility for a period equal to
      the
      expected term of our stock options and warrants awarded in the twelve months
      ended December 31, 2006, by reference to actual stock prices during this period
      and calculated an estimated volatility between 132% to 139%. The
      stock
      options and warrants were valued taking into consideration forfeiture rates
      ranging from 6.6% to 14.5%. The estimated forfeiture rate is determined
      quarterly for unvested options and warrants based on the historical rates of
      forfeiture. Due to the variety of grant transactions, setting an estimated
      forfeiture rate by grant is deemed impractical. We
      believe that each of these estimates, including both expected term and
      volatility, is reasonable in light of the data we analyzed. However, as with
      any
      estimate, the ultimate accuracy of these estimates is only verifiable over
      time.




The
      specific valuation assumptions noted above were applied to stock options and
      warrants that we granted subsequent to our adoption of SFAS 123R. We expect
      that
      share-based compensation expense will continue to have a material impact on
      our
      financial results for all subsequent fiscal years.




**Recent
      Accounting Pronouncements**




In
      February 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
      Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
      instruments that have embedded derivatives to be accounted for as a whole
      (eliminating the need to bifurcate the derivative from its host) if the holder
      elects to account for the whole instrument on a fair value basis. SFAS 155
      also
      clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
      statement is effective for all financial instruments acquired or issued in
      fiscal years beginning after September 15, 2006. We are currently
      evaluating the effect, if any, the adoption of SFAS 155 will have on our
      financial statements.




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




FIN
      48
      establishes a two-step approach for evaluating tax positions. The first step,
      recognition, occurs when a company concludes (based solely on the technical
      aspects of the tax matter) that a tax position is more likely than not to be
      sustained on examination by a taxing authority. The second step, measurement,
      is
      only considered after step one has been satisfied and measures any tax benefit
      at the largest amount that is deemed more likely than not to be realized upon
      ultimate settlement of the uncertainty. Tax positions that fail to qualify
      for
      initial recognition are recognized in the first subsequent interim period that
      they meet the more likely than not standard, when they are resolved through
      negotiation or litigation with the taxing authority or upon the expiration
      of
      the statute of limitations. Derecognition of a tax position previously
      recognized would occur when a company subsequently concludes that a tax position
      no longer meets the more likely than not threshold of being sustained. FIN
      48
      also significantly expands the financial statement disclosure requirements
      relating to uncertain tax positions. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. Differences between the amounts
      recognized in the balance sheet prior to adoption and the amounts recognized
      in
      the balance sheet after adoption will be accounted for as a cumulative effect
      adjustment to the beginning balance of retained earnings. We do not believe
      that
      the adoption of FIN 48 will have a material effect on our consolidated financial
      statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements” (SFAS 157), which defines fair value, establishes a framework for
      measuring fair value and requires additional disclosures about fair value
      measurements. SFAS 157 is effective for fiscal years beginning after
      November 15, 2007. We are currently evaluating the effect, if any, the
      adoption of SFAS 157 will have on our consolidated financial statements.





31




In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”), which provides guidance for quantifying financial
      statement misstatements. The Company adopted the provisions of SAB 108 in 2006.
      The adoption of this guidance did not have a material effect on our consolidated
      financial statements.




In
      December 2006, the FASB issued FSP EITF 00-19-2, “Accounting for Registration
      Payment Arrangements” ("FSP 00-19-2") which addresses accounting for
      registration payment arrangements. FSP 00-19-2 specifies that the contingent
      obligation to make future payments or otherwise transfer consideration under
      a
      registration payment arrangement, whether issued as a separate agreement or
      included as a provision of a financial instrument or other agreement, should
      be
      separately recognized and measured in accordance with SFAS No. 5, Accounting
      for
      Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject
      to a registration payment arrangement should be accounted for in accordance
      with
      other applicable generally accepted accounting principles without regard to
      the
      contingent obligation to transfer consideration pursuant to the registration
      payment arrangement. For registration payment arrangements and financial
      instruments subject to those arrangements that were entered into prior to the
      issuance of EITF 00-19-2, this guidance is effective for financial statements
      issued for fiscal years beginning after December 15, 2006 and interim periods
      within those fiscal years. We do not believe that the adoption of FSP EITF
      00-19-2 will have a material effect on our consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
      to measure many financial instruments, and certain other items, at fair value.
      SFAS 159 applies to reporting periods beginning after November 15, 2007. We
      are
      currently evaluating the effect, if any, the adoption of SFAS 159 will have
      on our financial statements.





**Results
      of Operations**




**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**




***Revenues***




Revenues
      for the year ended December 31,2006 were approximately $1.5 million compared
      with approximately $705,000 for the corresponding period in 2005. This increase
      was primarily due to the increase in sales of Unifresh® Footbath which we expect
      to continue to increase as a result of our intensified marketing efforts and
      the
      expansion of our distributor network. Also, to a lesser extent, the increase
      in
      revenue is attributable to the sales of our poultry processing product.




***Gross
      Margin***




During
      the year ended December 31, 2006, we wrote off approximately $158,000 of Close
      Call TM finished
      goods inventory that we estimated would not be sold prior to its shelf
      expiration date.




***Selling,
      General and Administrative***




SGA
      expenses are primarily comprised of sales and marketing costs, employee
      compensation, professional fees, and general administrative costs. SGA costs
      increased by approximately $1.9 million from $11.9 million for the year ended
      December 31, 2005, to $13.8 million for the year ended December 31,2006. We
      anticipate that SGA costs will decrease as a percentage of revenues in fiscal
      year 2007 based on current revenue projections.




Sales
      and
      marketing expenses consist primarily of salaries and other related costs for
      sales and marketing personnel, sales commissions, promotional expenses,
      advertising, public relations and trade shows. Sales and marketing costs
      decreased by approximately $241,000 due to a decrease in promotional and
      advertising expenses of $211,000, a decrease in marketing expenses of $ 161,000
      and a decrease in sales commissions of $71,000. This decrease was partially
      offset by an increase in consulting sales fees of $303,000 related to increased
      efforts to promote our products.




Compensation
      expense consists primarily of salaries and other related costs for senior
      management, finance and administrative employees of our company. Compensation
      expense decreased by approximately $832,000 from $ 4.1 million for the year
      ended December 31, 2005 to $3.2 million for the year ended December 31,2006
      primarily due to the termination of three executive and eleven non executive
      employees and the salary reduction of three other non executive employees.




32




Professional
      fees consist primarily of legal, accounting and investor relation fees.
      Professional fees decreased by $2.0 million from $4.1 million in 2005 to $2.1
      million in 2006 primarily due to a non-cash charge of approximately $2.5 million
      incurred in 2005 for stock options issued to an investor relations consultant
      in
      the year ended December 31,2005 and a decrease in accounting fees of $155,000
      partially offset by an increase of approximately $681,000 in legal fees
      associated with our increased litigation activity and the SEC filings for the
      year ended December 31,2006.




General
      and administrative expenses consist primarily of rent, insurance, travel and
      entertainment and other expenses. General and administrative costs increased
      by
      $755,000 from $2.3 million in 2005 to $3.1 in 2006. This increase was
      attributable to, a settlement fee of approximately $249,000 for the termination
      of minimum purchase commitment obligations for Close CallTM bottles, increase in
      travel and entertainment expenses of approximately $74,000, an increase in
      general insurance costs of approximately $105,000 and a net increase in other
      administrative expenses.




Stock
      based compensation expense for selling, general and administrative employees
      increased by approximately $4.1 million from $484,000 for the year ended
      December 31, 2005 to $4.6 million for the year ended December 31, 2006. This
      increase is the result of our adoption of SFAS 123R in January 2006. The expense
      associated with these awards is recorded within the same functional expense
      category as cash compensation for the respective employee. For the year ended
      December 31, 2006, stock compensation expense was allocated as
      follows:




**(in thousands)**General
                and administrative
            
            $
            4,084Sales
                and marketing
            
            
            541Product
                development
            
            
            239$
            4,864





***Product
      Development***




Product
      development consists primarily of personnel costs to support product
      development. Product development and research costs decreased by approximately
      $1.6 million from $3.4 million in 2005 to approximately $1.8 million in 2006.
      This decrease is primarily due to our decision to focus our development efforts
      in a select smaller number of products, which were closer to commercialization
      rather than the larger number of products we were developing in the same time
      period in 2005. The decrease in the number of products we were developing and
      testing during the year 2006 resulted in a decrease in consulting expenses
      of
      approximately $1.4 million and a decrease in third party laboratory testing
      costs of approximately $607,000. This decrease was partially offset by an
      increase in stock based compensation expense of approximately $239,000, an
      increase in warehouse expenses of approximately $147,000 and an increase in
      parts and supplies expense of $187,000. We expect that in fiscal 2007 product
      development expense will continue to increase in absolute dollars as we develop
      new products and enhance our existing product lines, but should decrease as
      a
      percentage of total revenues.




***Depreciation
      and Amortization Expense***




Depreciation
      and amortization expense, which includes the amortization of identifiable
      intangible assets, increased by approximately $603,000 from approximately $1.1
      million for the year ended December 31, 2005 to approximately $1.7 million
      for
      the year ended December 31,2006 primarily due to the increased amortization
      period of our utility patent intangible in 2006 as the intangible assets were
      acquired midway through fiscal 2005. This patent intangible, after the
      impairment charge of approximately $12.2 million recorded in the second quarter
      of 2006, has a current estimated value of approximately $7.9 million and is
      being amortized over 10.5 years.




***Impairment
      of goodwill and intangible assets***




In
      2006
      we recorded a non-cash impairment charge to goodwill and intangible assets
      of
      approximately $44.1 million. See discussion under “Critical Accounting Policies
      and Estimates.”




***Write-off
      of raw materials***




We
      believe that our Close CallTM product could be marketed more efficiently by a
      company either already established in the industry or with more commercial
      resources. Therefore, we are currently seeking to license and/or sell the Close
      CallTM brand or derivative applications. In implementing this approach and in an
      effort to reduce warehousing expenses we adjusted the level of Close CallTM raw
      materials and finished goods in the third and fourth quarter of 2006.
      Accordingly, we wrote off $ 839,000 of Close CallTM empty bottles, related
      packaging material.




33




***Litigation
      Settlement***




In
      2006
      we recorded a litigation settlement of approximately $423,000 related to an
      employment claim brought against the company by a former employee.




***Interest
      Expense***




Interest
      expense increased by approximately $386,000 from $222,000 for the year ended
      December 31,2005 to approximately $607,000 for the year ended December
      31,2006  primarily
      due to amortization of debt discount-warrants and beneficial conversion feature
      and amortization of placement agent fees.




***Interest
      Income***




Interest
      income increased by approximately $80,000 from $135,000 for the year ended
      December 31,2005 to approximately $215,000 for the year ended December 31,2006
      primarily due to an increase in interest earned from the Company’s investments
      in marketable securities, as compared to the year ended December
      31,2005.




***Loss
      on Equity Investee***




In
      the
      fourth quarter of 2006 our negotiations to license the Biofilm product from
      the
      owner and inventor of the product, failed and we are currently exploring all
      legal remedies. The value assigned to our Biofilm investment was based on the
      commercialization potential of the Biofilm product. In absence of this license
      and in absence of any revenues expected to be realized by Biofilm from other
      sources, we believe that our 27% interest in Biofilm is other than temporarily
      impaired. Consequently, we have written off in full the balance of our
      investment in Biofilm of approximately $665,000.




***Liquidated
      damages***




Liquidated
      damages related to the registration statements for the April 2004 and July
      2004
      private placements decreased by approximately $131,000 from approximately
      $286,000 for the year ended December 31,2005 to approximately $155,000 for
      the
      year ended December 31,2006. The decrease is  because
      our obligation to accrue liquidated damages under these registration rights
      agreements ceased in April 30, 2006 and July 22, 2006, respectively since the
      shares purchased under the April 2004 and July 2004 private placements could
      be
      sold after those dates under Rule 144(k) of the Securities Act of 1933. This
      decrease was offset by an increase of approximately $23,000 in liquidated
      damages related to the registration statement for the January 2006 private
      placement. No additional liquidated damages obligation exists under the January
      2006 registration statement.




***Other
      Expenses, net***




We
      incurred other income, net of approximately $168,000 for the year ended December
      31,2006 as compared to $881,000 of other expense, net for the year ended
      December 31,2005. In 2006 the other income, net was attributable to the reversal
      of the registration rights derivative liability of $235,000 recorded in the
      fourth fiscal quarter of 2005. The reversal was due to the fact that the shares
      purchased under the April 2004 and July 2004 private placements could be sold
      under Rule 144(k) of the Securities Act of 1933 and we had recorded the full
      and
      maximum amount of the actual incurred liquidated damages of approximately
      $442,000, associated with these registration rights agreements. This reversal
      was offset by a loss on the disposal of assets in the amount of $67,000. The
      other expenses, net of approximately $881,000 for the year ended December 31,
      2005, related primarily to a reserve recorded for certain notes receivable
      in
      the amount of $890,000.




***Year
      Ended December 31, 2005 Compared to Year Ended December 31,
      2004***




***Revenues***




Revenues
      for the year ended December 31, 2005 were approximately $705,000, compared
      with
      no revenue for the corresponding period in 2004. This increase in revenue was
      due primarily to revenue associated with sales of Close Call TM ,
      which
      contributed approximately $503,000 for the year ended December 31, 2005 and
      the
      sales of Unifresh® Footbath, a product we acquired in the 2005 Acquisition,
      which contributed approximately $202,000 in revenue for the year ended December
      31, 2005, net of approximately $890,000 of credit memos. These credit memos
      were
      issued to customers to whom we promised to take back the Unifresh® Footbath that
      was not as effective due to abnormally high alkaline content, or pH level,
      in
      the customers’ water sources. We have now reformulated this product by adding a
      compound that neutralizes alkali, or a type of base that has a pH greater than
      seven.




34




***Gross
      Margin***




During
      the year ended December 31, 2005, we wrote-off approximately $741,000 of Close
      Call TM finished
      goods inventory that we estimated would not be sold prior to its shelf
      expiration date. This write-off resulted in negative gross margin of
      approximately $(603,000) for the year ended December 31, 2005, compared to
      zero
      gross margin for the year ended December 31, 2004. As a result of anticipated
      increased sales in fiscal year 2006, gross margin, in absolute dollars and
      as
      percentage of revenue, is expected to increase.




***Product
      Development***




Product
      development consists primarily of personnel costs to support product development
      and clinical trials, which continued to be the focus of our company during
      2005.
      Product development and research costs for the year ended December 31, 2005
      increased by approximately $2.0 million or 143% to $3.4 million from $1.4
      million for the year ended December 31, 2004. This increase was primarily due
      to
      an increase in salary expense of approximately $740,000 from $170,000 for the
      year ended December 31, 2004, to $910,000 for the year ended December 31, 2005,
      and an increase in consulting costs of approximately $600,000 from $900,000
      for
      the year ended December 31, 2004 to $1.5 million for the year ended December
      31,
      2005. The increase in consulting costs was due to research and development
      in
      the areas of food processing and the Unifresh® Footbath product. Production
      supply expense increased by approximately $100,000 from $200,000 for the year
      ended December 31, 2004 to approximately $300,000 for the year ended December
      31, 2005. Also, the expense of clinical trials increased approximately $520,000
      from $105,000 in 2004 to $625,000 in2005 due to increased testing and
      development of new product lines.




***Selling,
      General and Administrative***




Selling,
      General, and Administrative (“SGA”) expenses are primarily comprised of sales
      and marketing costs, compensation, professional fees, and general administrative
      costs. SGA costs for the year ended December 31, 2005 increased by approximately
      $9.9 million from $2.0 million for the year ended December 31, 2004, to $11.9
      million for the year ended December 31, 2005.




Sales
      and
      marketing expenses consist mainly of salaries and other related costs for sales
      and marketing personnel, sales commissions, promotional expenses, advertising,
      public relations and trade shows. Sales and marketing costs increased by
      approximately $820,000 from $160,000 for the year ended December 31, 2004 to
      approximately $980,000 for the year ended December 31, 2005. This increase
      is
      due to marketing research, branding and promotion for our Close Call TM and
      Unifresh® Footbath product line roll-outs.




Compensation
      expense consists primarily of salaries and other related costs for our
      executives, senior management, finance and administrative employees.
      Compensation expense increased by approximately $4.2 million from approximately
      $700,000 for the year ended December 31, 2004, to approximately $4.9 million
      for
      the year ended December 31, 2005. This increase is primarily due to the addition
      of executive and other management to oversee the development of our oral care,
      food processing, skin care, pet care and, to a lesser extent, due to salaries
      for personnel added in the 2005 Acquisition. During the fourth quarter of fiscal
      year 2005, we recorded and paid approximately $29,000 of severance to one
      executive and five staff members. Seven more staff members were terminated
      but
      no severance was paid to them during this time period.




Professional
      fees consist primarily of legal, accounting, and investor relation fees.
      Professional fees for the year ended December 31, 2005 increased by $3.5
      million, from $600,000 in 2004 to $4.1 million in 2005, primarily due to
      non-cash charges of approximately $2.8 million for stock options issued to
      an
      investor relations consultant for services rendered. The remaining increase
      in
      2005 over 2004 of $700,000 is mainly due to increased legal and accounting
      fees
      necessary to complete our various SEC filings during 2005.




General
      and administrative expenses consist primarily of rent, insurance, stock -based
      compensation and travel and entertainment expenses. General administrative
      costs
      for the year ended December 31, 2005 increased by $1.4 million from $500,000
      in
      2004 to $1.9 million in 2005. This increase is attributable to an increase
      in
      travel expenses of approximately $500,000, due to the increased sales efforts
      to
      promote our products, increased insurance costs of approximately $327,000,
      an
      increase in rent expense of approximately $283,000, an increase in utility
      and
      equipment charges of approximately $200,000 and an increase of approximately
      $111,000 in stock -based compensation as a result of “in the money” stock
      options issued to employees during the year ended December 31, 2005. In 2006,
      we
      expect a significant increase in stock compensation expense based on our
      adoption of SFAS 123(R) on January 1, 2006.




***Depreciation
      and Amortization Expense***




Depreciation
      and amortization expense, which includes the amortization of identifiable
      intangible assets, increased by approximately $1.1 million from approximately
      $29,000 in the year ended December 31, 2004, to approximately $1.1 million
      for
      the year ended December 31, 2005, due in large part to the 2005 Acquisition
      whereby we acquired fixed assets and intellectual property. The intellectual
      property, which consist of utility patent applications, has a current estimated
      value of approximately $21.5 million and is being amortized over 11.5 years.
      See
      Note 12 to the consolidated financial statements.




35




***Interest
      Expense, Net***




Interest
      expense, net, decreased by approximately $2.6 million from $2.7 million for
      the
      year ended December 31, 2004 to approximately $85,000 for the year ended
      December 31, 2005. This decrease is principally due to the one-time write off
      in
      September 2004 of approximately $1.7 million of debt discount caused by our
      default of certain covenants in the July 2004 convertible debentures private
      placement and the one-time write off in June 2004 of approximately $800,000
      of
      debt discount caused by our default of certain covenants in the April 2004
      convertible debentures private placement. Interest income increased by
      approximately $112,000, from $23,000 for the year ended December 31, 2004 to
      approximately $135,000 for the year ended December 31, 2005, primarily due
      to an
      increased average cash balance throughout 2005.




***Other***




We
      incurred other expenses of approximately $1.2 million for the year ended
      December 31, 2005, related primarily to a reserve recorded for certain notes
      receivable in the amount of $890,000, and an additional accrued expense for
      potential liquidated damages in the amount of $286,000.




**Liquidity
      and Capital Resources**




*Overview*




Since
      our
      inception, we have funded operations and investing activities through the sale
      of common stock, warrants and convertible debt under several private placements.
      Requirements for liquidated damages under some of these private placements
      may
      have an impact on our future liquidity. To date we have satisfied and/or
      received waivers for the provisions of a majority of the agreements that would
      have otherwise required us to pay liquidated damages. However, we have not
      received waivers and from time to time we have not satisfied some of the
      provisions of the registration rights agreements for the April 2004 and July
      2004 convertible debt. Nevertheless, our obligation to accrue liquidated damages
      under these registration rights agreements ceased in April 30 and July 22,
      2006,
      respectively. Through December 31, 2006, we have accrued $442,000 in liquidated
      damages related to these agreements. Also as of December 31, 2006 we have
      accrued the full amount of liquidated damages required under the January 26,
      2006 registration rights agreement.




Based
      upon our projections of future revenues from our products and cash on hand,
      including cash of $4.9 million received from the sale of our Convertible Bridge
      Notes in December 2006 and the first quarter of 2007, we will not have adequate
      working capital to fund our operations during the next twelve months. Our
      ability to continue to operate and grow our business is dependent upon obtaining
      additional financing and/or generating revenue growth from operations. While
      we
      have been in the process of aggressively developing, marketing and selling
      our
      products, there can be no assurance that those efforts will be met with success
      in the marketplace or that the timing of our efforts will be consistent with
      our
      cash availability and burn rate. If we are unable to obtain new financing and/or
      generate sufficient revenue growth from existing and new business arrangements,
      we will not have sufficient cash to support our operations and meet our
      obligations. We anticipate that we will need approximately an additional $4
      million to support our operations and meet our obligations over the next twelve
      months. We are currently reviewing alternative methods of financing, including
      private issuances of debt and/or equity.




*Operating
      Activities*




Our
      cash
      and cash equivalents balance was approximately $932,000 and $1.0 million at
      December 31, 2006 and December 31, 2005, respectively.




Net
      cash
      used in operating activities for the year ended December 31, 2006 was
      approximately $9.7 million, compared to approximately $11.8 million in 2005
      and
      approximately $2.4 in 2004.




Our
      inventory level was significantly reduced to approximately $300,000 for the
      year
      ended December 31, 2006, from approximately $1.3 million for the year ended
      December 31, 2005, as a result of the write-off of raw materials including
      bottles and packaging and finished goods of our Close Call product. The
      write-off was the result of our decision to license and/or sell the Close Call
      brand or derivative applications since we believe that it can be marketed more
      efficiently by a company either already established in the industry or one
      with
      more commercial resources.




36




*Investing
      Activities*




Net
      cash
      used in investing activities for the year ended December 31, 2006 was
      approximately $123,000, and approximately $7.7 million and $530,000 for the
      years ended December 31, 2005 and 2004, respectively.




*Financing
      Activities*




As
      partial consideration for the purchase of the pHarlo assets in the July 2005
      acquisition, we issued a promissory note in the amount of $1,931,973 to Indian
      River Labs, L.L.C (“IRL”). The promissory note bears interest of 3.4% per annum
      and is payable in equal bi-weekly principal installments of $37,153, plus
      interest, through July 2007. During 2006 we paid approximately $844,000 under
      the Indian River Labs promissory note.




The
      net
      cash provided by our financing activities during the year ended December 31,
      2006 was approximately $9.7 million, as compared to approximately $6.3 million
      and $17.1 million for the years ended 2005 and 2004, respectively.




The
      net
      cash provided by financing activities for the year ended December 31, 2006
      is
      mainly due to proceeds from the sale of common stock and warrants in the January
      2006 private placement of approximately $8.7 million, net of placement agent
      fees of approximately $600,000 and the sale of convertible bridge notes in
      December 2006 of approximately $1.8 million net of placement agent fees and
      legal costs of approximately $120,000.




**Registration
      Rights Agreements**




As
      it
      relates to the September 2005 private placement, we have used our best efforts
      to cause the registration statement to be declared effective and, therefore,
      pursuant to the terms of the September 2005 registration rights agreement,
      we
      believe that we are not currently liable for liquidated damages as a result
      of
      the registration statement not being declared effective by May 23, 2006. Should
      the rights holders dispute that our best efforts were used, and we either accede
      to their assertion or are found to not have used our best efforts, the estimated
      maximum amount of liquidated damages for which we would be liable, assuming
      (i) ineffectiveness from May 23, 2006 to the end of the period covered by
      the registration agreement and (ii) a stock price of $0.37 for periods
      subsequent to July 26, 2006, is approximately $270,000.




Also,
      a s
      it
      relates to the January 2006 private placement, despite using our best
      efforts, we failed to have the registration statement declared effective by
      the
      SEC on or before October 26, 2006. Consequently, as of December 31, 2006 we
      are
      required to issue to each holder of the January 2006 private placement,
      shares and warrants equal to one percent of the respective number of shares
      and
      warrants purchased by each holder or an aggregate of 133,359 shares of common
      stock and warrants to purchase 133,359 shares of common stock.




**Off-Balance
      Sheet Arrangements**




During
      the twelve months ended December 31, 2006, we did not engage in material
      off-balance sheet activities, including the use of structured finance, special
      purpose entities; material trading activities in non-exchange traded commodity
      contracts; or transactions with persons or entities that benefit from their
      non-independent relationship with us.




**Contractual
      Obligations and Commitments**




We
      had
      the following commitments as of December 31, 2006, which are comprised primarily
      of a research and development fee contract, consulting and employment contracts,
      a vendor agreement, notes payable, as well as numerous operating leases (In
      thousands):




**Total**
            
            **Less than**
              **one year**
            
            **1-3**
              **years**
            
            **3-5**
              **Years**
            
            **More than**
              **5 years**Research
                & Development (“R&D”) fees (1)
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Consulting
                agreements
            
            
            139
            
            
            48
            
            
            91
            
            
            —
            
            
            —Employment
                agreements (2)
            
            
            1,385
            
            
            523
            
            
            862
            
            
            —
            
            
            —Vendor
                agreements
            
            
            27
            
            
            22
            
            
            5
            
            
            —
            
            
            —Operating
                leases
            
            
            1,039
            
            
            374
            
            
            665
            
            
            —
            
            
            —Note(s)
                payable
            
            
            1,272
            
            
            1,272
            
            
            —
            
            
            —
            
            
            —Bridge
                Loan-Dec '06
            
            
            1,927
            
            
            1,927
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            5,789
            
            $
            4,166
            
            $
            1,623
            
            $
            —
            
            $
            —







(1)
            On
                January 26, 2006, R&D fees payable under a Patent and Sub-License
                Agreement with pHarlo IP were amended so that these fees are
                (i) payable on a quarterly basis within 30 days after the end of each
                calendar quarter and (ii) are based on gross sales of the Company (or
                its affiliates) of products using the pHarlo technology. For fiscal
                year
                2006, the R&D Fees must not be less than $150,000 and are capped at
                $500,000. The R&D Fees have no minimum amounts payable after 2006;
                however, they are capped at $2,000,000 for 2007, $4,000,000 for 2008,
                $8,000,000 for 2009 and $10,000,000 for 2010 and beyond. In the fiscal
                year 2006 we paid, under this agreement $150,000.




37




(2)
            In
                the fiscal 2006, the Company terminated several of its employment
                agreements and entered into new employment agreements. As of December
                31,
                2006 the estimated future minimum annual compensation under the employment
                agreements, for 2007, 2008 and 2009, is approximately $ 410,000,
                $ 137,000
                and $ 38,000, respectively.




**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




**Interest
      Rate Risk**




Our
      exposure to market risk, including changes in interest rates, relates primarily
      to cash and cash equivalents. These investments bear interest at a variable
      interest rate, which is subject to market changes. We have not entered into
      any
      interest rate swap agreements, or other instruments to minimize our exposure
      to
      interest rate fluctuations. We have not had any derivative instruments in the
      past and do not presently plan to in the future. Our investment portfolio
      consists of demand deposits and money market mutual funds. Due to the highly
      liquid nature of our investment, a sudden sharp change in interest rates would
      not have a material adverse effect on the value of the portfolio.




**ITEM
              8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA**




Supplementary
      Data appears on page 40 and Index to the Consolidated Financial Statements
      and
      Financial Statements appear on pages F-1 to F-28 of this Annual Report on Form
      10-K.




**ITEM
              9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AN****D
                FINANCIAL DISCLOSURE**




None.




**ITEM
              9A.**
            **CONTROLS
                AND PROCEDURES**




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




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




Based
      upon that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures as of the end of the
      period covered by this report were not effective. Commencing in February 2006,
      we instituted and are continuing to implement corrective actions with respect
      to
      the deficiencies in our disclosure controls and procedures.




38




Although
      we have instituted and are continuing to implement corrective actions with
      respect to the deficiencies in our disclosure controls and procedures, such
      corrective actions were not sufficient to detect an error in our Excel
      spreadsheet for the calculation of certain line items in the column captioned
      “May 13, 1996 (inception) to December 31, 2005” in our Consolidated Statements
      of Operations for the three years ended December 31, 2005 (the “Inception
      Column”). As a result of this error, we reported incorrect values in the
      Inception Column as follows:




·
            Although
                the amount of “Total Expenses” was correct, the components of Total
                Expenses (i.e., selling, general & administrative; product
                development; and depreciation and amortization) were
                incorrect.




·
            Although
                the amount of “Total other expense, net” was correct, two of the
                components of Total other expense, net (i.e., interest expense, net
                and
                liquidated damages) were incorrect.




Such
      error was caused by the lack of an automated financial reporting system and
      a
      small accounting staff that does not allow for a thorough review process. We
      will complete the design of financial reports so that we do not rely on
      spreadsheets and we will add additional accounting staff when our financial
      condition allows us to do so.




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




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




**ITEM
              9B.**
            **OTHER
                INFORMATION**




None


**PART
        III**
 **ITEM
                  10.**
                **DIRECTORS,
                    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
 Set
        forth
        below is information concerning each of our directors and executive officers
        as
        of April 20, 2007.
  **Name**
              
              **Age**
              
              **Position**Greg
                  Osborn
              
              42
              
              Executive
                  Chairman and DirectorLanny
                  Dacus
              
              66
              
              President,
                  Chief Executive Officer and DirectorStathis
                  Kouninis
              
              45
              
              Chief
                  Financial Officer, Treasurer and SecretaryJoseph
                  P. Carfora
              
              56
              
              DirectorLeonid
                  Frenkel
              
              60
              
              DirectorFrederick
                  G. Ledlow
              
              79
              
              DirectorWilliam
                  P. Miller
              
              69
              
              DirectorPeter
                  O’Gorman
              
              68
              
              Director
 
 ***Greg
        Osborn*** has been
        Executive Chairman and a director of our company since March 2007.
        Mr. Osborn is the founder and since 1999 has been the Managing Director of
        IndiGo Ventures LLC. Between December 2006 and April 2007, IndiGo Ventures
        served as the placement agent for the offering of our convertible bridge
        notes.
        Mr. Osborn received a B.S. in Finance and Economics from Ramapo College of
        New Jersey. Mr. Osborn serves on the board of directors of Migo Software,
        Celsia Technologies and The Children of Bellevue. Mr. Osborn is a corporate
        advisor to Ideavillage.com.
  ***Lanny
        Dacus*** has been
        President, Chief Executive Officer and a director of our company since December
        2006. Mr. Dacus was involved in the development and growth of Enterprise
        Rent-A-Car, where he worked for 26 years, retiring in 1996 as President of
        its
        New York Group.
  ***Stathis
        Kouninis*** has been
        Chief Financial Officer of our company since February 2006, Treasurer of
        our
        company since March 2006 and Secretary of our company since April 2006. From
        November 2004 to February 2006, Mr. Kouninis served on the Staff of the
        Division of Corporation Finance of the U.S. Securities and Exchange Commission.
        From January 2004 to November 2004, Mr. Kouninis was the Director of
        Finance for Bottomline Technologies, Inc., a publicly traded financial process
        software company. From January 2003 to December 2003, Mr. Kouninis was the
        Chief Financial Officer of PCA, Inc., a non-profit educational organization.
        From May 2000 to January 2003, Mr. Kouninis was Director of Finance for
        CMGI, Inc., a publicly traded Internet technology company. Mr. Kouninis
        received a Bachelor of Science degree from the University of Massachusetts,
        and
        an Accounting Post Baccalaureate and a Master of Science degree in Taxation
        from
        Bentley College.
  ***Joseph
        P. Carfora*** has been
        a director of our company since February 2007. Mr. Carfora is a founding
        partner and since 2005 has been a senior litigation partner of the firm of
        Carfora Klar Gallo Vitucci Pinter & Cogan. Previously and from 1999,
        Mr. Carfora was a partner with Motola Klar Dinowitz & Carfora.
        Mr. Carfora is a member of the American Bar Association and Association of
        the Bar of the City of New York. Mr. Carfora is a graduate of California
        Western School of Law and he holds a Juris Doctor Degree in Law and a Bachelors
        Degree in Business and Finance.
  ***Leonid
        Frenkel*** has been
        a director of our company since March 2007. Mr. Frenkel is the founder and
        since 1994 has been the Senior Managing Member of the general partner of
        Triage
        Capital Management, a private investment fund. Mr. Frenkel is a graduate of
        Kiev University with a Masters Degree in Engineering.
  ***Frederick
        G. Ledlow*** has been
        a director of our company since December 2006. Mr. Ledlow has been a
        private investor since 1995. Mr. Ledlow is the retired president of
        Cyanamid of Canada (a subsidiary of American Cyanamid now American Home
        Products). Mr. Ledlow currently serves on the board of directors of
        Orangeville Inn & Suites, Inc. and has served as a board director and
        Audit Committee Chairman for National Registry Inc.
  39
 ***William
        P. Miller*** has been
        a director of our company since May 2006. Mr. Miller has been a private
        investor since 2000. He is a board member and Chairman of the Audit Committee
        of
        Helios and Matheson North America (formerly known as The A Consulting Team),
        a
        NASDAQ listed company. He is a board member of Beth Israel Hospital, the
        New
        York Eye and Ear Infirmary and Lighthouse International.
  ***Peter
        O’Gorman*** has been
        a director of our company since January 2007. Mr. O’Gorman has been a
        private investor since 2001. Mr. O’Gorman was a former Executive Vice
        President of the Great Atlantic and Pacific Tea Company.
  **Determination
        of Director Independence**
  The
        board
        of directors has determined that each of Joseph P. Carfora, Leonid Frenkel,
        Frederick G. Ledlow, William P. Miller and Peter O’Gorman, who collectively
        constitute a majority of the board, meets the general independence standards
        set
        forth in the Nasdaq Marketplace rules. In addition, the board has made a
        subjective determination as to each of the foregoing individuals that no
        relationships exist that, in the opinion of the board, would interfere with
        the
        exercise of independent judgment in carrying out the responsibilities of
        a
        director.
  **Committees
        of the Board of Directors**
  The
        board
        of directors currently has an Audit Committee and a Compensation
        Committee.
  William
        P. Miller and Frederick G. Ledlow are the members of the Audit Committee.
        Mr. Miller is the Chairman of the Audit Committee. The board of directors
        has determined that each member of the Audit Committee meets the Nasdaq
        Marketplace definition of “independent” for audit committee purposes. The board
        of directors has also determined that Mr. Miller meets the SEC definition
        of an “audit committee financial expert.” The
        functions of the Audit Committee are focused on three areas:
 ·
              the
                  adequacy of our internal controls and financial reporting process
                  and the
                  reliability of our financial statements;  ·
              the
                  appointment, compensation, retention, and oversight of our independent
                  registered public accounting firm; and  ·
              our
                  compliance with legal and regulatory
                  requirements.
  The
        Compensation Committee currently consists of Frederick G. Ledlow, William
        P.
        Miller and Peter O’Gorman. Mr. Ledlow is the Chairman of the Compensation
        Committee. The board of directors has determined that each member of the
        Compensation Committee meets the Nasdaq Marketplace definition of “independent”
for compensation committee purposes. The Compensation Committee does not
        have a
        written charter. The Compensation Committee is responsible for approving
        the
        compensation for our chief executive officer and, in consultation with our
        chief
        executive officer, approving the compensation of other executive officers
        and
        administering our 2006 Stock Plan. However, see “Compensation Discussion and
        Analysis” under Item 11 - Executive Compensation as to the recent determination
        of compensation packages.
  Each
        committee has the power to engage independent legal, financial or other
        advisors, as it may deem necessary, without consulting or obtaining the approval
        of the board of directors or any officer of our company.
  **Meetings
        of the Board of Directors and Committees**
  During
        2006, there were twelve meetings of the board of directors, six meetings
        of the
        Audit Committee and three meetings of the Compensation Committee. Each director,
        who was a director of our company at the time of the board meeting, attended
        all
        of the meetings of the board of directors. Each director attended all of
        the
        meetings of each Committee of which he was then a member.
  **Director
        Nomination Process**
  We
        do not
        have a nominating committee as the board has determined, given its relatively
        small size, that the function of a nominating committee could be performed
        by
        the board as a whole without unduly burdening the duties and responsibilities
        of
        the board members. The board does not currently have a charter or written
        policy
        with regard to the nominating process.
  40
 At
        this
        time, we do not have a formal policy with regard to the consideration of
        any
        director nominees recommended by our stockholders because historically we
        have
        not received nominations from our stockholders and the costs of establishing
        and
        maintaining procedures for the consideration of stockholder nominations would
        be
        unduly burdensome. However, any recommendations received from stockholders
        will
        be evaluated in the same manner that potential nominees recommended by board
        members, management or other parties are evaluated. Any stockholder nominations
        proposed for consideration should include the nominee’s name and qualifications
        for board membership and should be addressed to: Stathis Kouninis, Chief
        Financial Officer, Tasker Products Corp., 39 Old Ridgebury Road, Danbury,
        CT 06810. We do not intend to treat stockholder recommendations in any manner
        different from other recommendations.
  Qualifications
        for consideration as a board nominee may vary according to the particular
        areas
        of expertise being sought as a complement to the existing board composition.
        However, in making its nominations, the board of directors consider, among
        other
        things, an individual’s business experience, industry experience, breadth of
        knowledge about issues affecting us, time available for meetings and
        consultation regarding company matters and other particular skills and
        experience possessed by the individual.
  We
        do not
        currently employ an executive search firm, or pay a fee to any other third
        party, to locate qualified candidates for director positions.
  **Code
        of Ethics**
  Effective
        March 2005, the board of directors adopted a Code of Business Conduct and
        Ethics
        and Compliance Program that applies to, among other persons, our President
        and
        Chief Executive Officer (being our principal executive officer), our Chief
        Financial Officer (being our principal financial and accounting officer),
        as
        well as persons performing similar functions. We have made the Code of Ethics
        available on our website at www.taskerproducts.com under the heading “Investor
        Relations.”
  **Stockholder
        Communication with Board Members**
  We
        maintain board member contact information for stockholders both telephone
        and
        email, on our website (www.taskerproducts.com) under the headings “Contact Us”
and “Investor Relations,” respectively. By following the Contact Us link, a
        stockholder will be given access to our telephone number and mailing address
        and
        by following the Investor Relations link, a stockholder is provided our email
        address. Communications sent to us and specifically marked as a communication
        for the board will be forwarded to the board or specific members of the board
        as
        directed in the stockholder communication. In addition, communications received
        via telephone for the board are forwarded to the board by an officer of our
        company.
  **Board
        Member Attendance at Annual Meetings**
  The
        board
        of directors does not have a formal policy regarding attendance of directors
        at
        our annual stockholder meetings, although all board members are encouraged
        to
        attend. Four of our then five directors attended our 2006 annual meeting
        of
        stockholders.
  41
  **ITEM
                  11.**
                **EXECUTIVE
                    COMPENSATION**
 **Compensation
        Discussion and Analysis**
  This
        Compensation Discussion and Analysis (the “CD&A”) is provided to generally
        explain the compensation awarded, earned by or paid during 2006 to our named
        executive officers including our Chief Executive Officer, Lanny Dacus, and
        Chief
        Financial Officer, Stathis Kouninis. In addition, the CD&A is intended to
        supplement the information provided in the following tables and the narrative
        information that accompanies them. The CD&A outlines the primary objectives
        and overall structure of our executive compensation program and describes
        the
        process used to establish named executive officer compensation each year.
        The
        CD&A also defines and describes the primary components of the named
        executive officers’ 2006 compensation.
  The
        numerous changes in management during the past 18 months resulted in us
        negotiating individual compensation packages with each named executive officer.
        Accordingly, the Compensation Committee has not established a uniform
        compensation policy for the named executive officers.
  The
        elements of our compensation program for named executive officers include
        salary, a discretionary bonus, and equity compensation. In addition, our
        named
        executive officers participate in the benefit plans (health, disability and
        group term life) that are generally available to all employees. We provide
        limited perquisites and fringe benefits for our named executive officers.
        We
        have no 401(k) plan, retirement plan or deferred compensation plan.
  Salary
        -
        We provide salary to our named executive officers according to the employment
        agreement negotiated with each one of them. In the case of Mr. Dacus who
        has a great deal of responsibility for the performance and growth of our
        company, salary is modest, representing a small fraction of his total annual
        compensation.
  Bonus
        -
        We do not have a formal bonus plan. Annual bonuses, if any, for our named
        executive officers are granted at the discretion of the board. No bonuses
        were
        awarded for 2006.
  Equity-based
        compensation - A substantial portion of the compensation of our named executive
        officers is in the form of options and warrants, which are exercisable at
        specified prices into a specified number of shares of our common stock. This
        is
        intended to incentivize performance that will increase our value to our
        shareholders. In the case of Mr. Dacus, a large portion of the warrants he
        holds vest based on his ability to bring in new customers, as described more
        fully in note 3 to the Grants of Plan Based Awards Table. The number of warrants
        or options awarded to the named executive officers is determined on a case
        by
        case basis at the date of hire of the named executive officer. Any additional
        option or warrant awards are granted by the Compensation Committee and are
        based
        on the performance of the named executive officer. The exercise price of
        the
        award is based on the closing price of our common stock on the trading day
        before the day the board of directors authorized the stock option or warrant
        grant.
  Prior
        to
        June 1, 2006, we awarded stock options as part of our equity compensation.
        Post
        June 1, 2006, we awarded warrants as part of our equity compensation to our
        named executive officers.
  In
        December 2006, we cancelled a number of options previously granted to two
        of our
        named executive officers and issued new options for a like number of shares
        at a
        reduced exercise price (“repriced”). In the case of Mr. Falcone, our former
        President and Chief Executive Officer, we repriced all of the 2,600,000 options
        previously granted to him (100,000 options awarded in August 2005 at an exercise
        price of $2.93 per share, 300,000 options awarded in November 2005 at an
        exercise price of $1.50 per share and 2,200,000 options awarded in January
        2006
        at an exercise price of $1.00 per share) to $0.11 per share. The new exercise
        price was based on the closing price of our common stock on November 30,
        2006,
        the trading day before December 1, 2006, the day that the board of directors
        approved the reprice. The repricing of these options was part of the
        settlement relating to Mr. Falcone's resignation as President, Chief Executive
        Officer and a director of our company.
  Also
        on
        December 26, 2006, we repriced 450,000 options awarded to Mr. Kouninis, our
        Chief Financial Officer, on February 8, 2006 from $1.00 per share to $0.14
        per
        share and we awarded to Mr. Kouninis 550,000 warrants at an exercise price
        of $0.14 per share in order to retain his services. The exercise price for
        the
        repriced options and the award of the warrants was based on the closing price
        of
        our common stock on December 22, 2006, the trading day before December 26,
        2006,
        the day that the board of directors approved the reprice and the warrant
        grant.
  42
 Benefits
        - We do not have special benefits for our named executive officers. They
        participate in health, life, and disability benefit programs that are generally
        available to all of our employees.
  Perquisites
        and fringe benefits - The named executive officers are entitled to drive
        a
        company-leased car and we reimburse the expenses of operating the car.
  There
        is
        no stock ownership policy for our executive officers.
  For
        purposes of the Summary Compensation Table, there were no named executive
        officers other than Messrs. Dacus, Kouninis, Burns, Falcone and Jenkins as
        of
        December 31, 2006. Messrs. Burns, Falcone and Jenkins were not employed by
        us on
        December 31, 2006. In March 2007, Greg Osborn was appointed Executive Chairman
        of our company.
  **Compensation
        Committee Report**
  Our
        Compensation Committee has reviewed and discussed the Compensation Discussion
        and Analysis required by Item 402(b) of Regulation S-K with management
        and, based on such review and discussions, the Compensation Committee
        recommended to the board that the Compensation Discussion and Analysis be
        included in this annual report on Form 10-K.
  Compensation
        Committee of the Board of Directors
  Frederick
        G. Ledlow, Chairman
 William
        P. Miller
 Peter
        O’Gorman
  **Summary
        Compensation Table**
  The
        following table summarizes the total compensation paid or earned by each
        of the
        named executive officers for the fiscal year ended December 31,
        2006.
  **Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
              
              **Bonus**
              
              **Stock
                  option/warrant awards (1)**
              
              **All
                  Other Compensation**
              
              **Total
                  Compensation**Lanny
                  Dacus (2)
                President
                  and Chief Executive Officer
              
              
              2006
              
              $
              3,423
              
              
              —
              
              $
              21,894
              
              $
              561
              
              $
              25,878Richard
                  Falcone (3)
                Former
                  President and Chief Executive Officer
              
              
              2006
              
              $
              257,544
              
              
              —
              
              $
              1,587,580
              
              $
              173,172
                  (4
              )
              $
              2,018,296Stathis
                  Kouninis (5)
                Chief
                  Financial Officer, Treasurer & Secretary
              
              
              2006
              
              $
              145,962
              
              
              —
              
              $
              202,044
              
              
              —
              
              $
              348,006Robert
                  Jenkins (6)
                Former
                  Chief Financial Officer, Treasurer & Secretary
              
              
              2006
              
              $
              20,833
              
              
              —
              
              
              —
              
              $
              91,485
                  (7
              )
              $
              112,318James
                  Burns (8)
                Former
                  Executive Vice President - Business Development
              
              
              2006
              
              $
              156,667
              
              
              —
              
              $
              16,017
              
              $
              15,941
                  (9
              )
              $
              188,625
   43
  (1)
              The
                  amounts shown in this column reflect the dollar amount recognized
                  for
                  financial statement reporting purposes for the fiscal year ended
                  December
                  31, 2006 (in accordance with FAS 123(R)). See Note 9 to the audited
                  consolidated financial statements included elsewhere in this annual
                  report
                  on Form 10-K, for a discussion of the assumptions used to value
                  the
                  options and warrants. These amounts do not reflect the actual value
                  that
                  will be realized by the named executive
                  officers.
  (2)
              Mr. Dacus
                  was appointed President and Chief Executive Officer of our company
                  on
                  December 12, 2006 and December 14, 2006,
                  respectively.
  (3)
              Mr. Falcone
                  resigned as President and Chief Executive Officer of our company
                  on
                  December 12, 2006 and December 14, 2006, respectively. Mr. Falcone
                  had been appointed President and Chief Executive Officer of our
                  company on
                  January 26, 2006.
  (4)
              Includes
                  a payment of $150,000 related to Mr. Falcone’s resignation as
                  President and Chief Executive Officer of our company, $19,500 for
                  board of
                  director fees and the value of other property transferred to
                  Mr. Falcone based on his termination agreement. See discussion under
                  “Termination of Employment Agreements; Severance
                  Agreements.”
  (5)
              Mr. Kouninis
                  was appointed Chief Financial Officer of our company on February
                  13,
                  2006.
  (6)
              Mr. Jenkins
                  was terminated from his employment as Chief Financial Officer,
                  Treasurer
                  and Secretary of our company on February 8,
                  2006.
  (7)
              Represents
                  severance related to the termination of Mr. Jenkins employment with
                  us.
  (8)
              Mr. Burns
                  was terminated from his employment as Executive Vice President
                  - Business
                  Development of our company effective July 11,
                  2006.
  (9)
              Includes
                  $10,500 of board of director fees, the value of other property
                  transferred
                  to Mr. Burns based on his termination agreement and the value of
                  perquisites that in aggregate is less than
                  $10,000.
  **Grants
        In 2006 of Plan Based Awards**
  The
        following table sets forth information concerning individual grants of stock
        options and warrants made during 2006 to the named executive officers in
        the
        Summary Compensation Table.
  **Estimated
                  Future Payout under Equity Incentive Plan Awards**
              **All
                  Other Option/ Warrant Awards**
              **Exercise
                  Price of Option/ Warrant Awards**
              **Closing
                  Price at Date of Grant (1)**
              **Grant
                  Date Fair Value of Option/ Warrant Awards (2)****(#
                  of securities underlying options/warrants)**
              **($
                  per share)**
              **($
                  per share)****Name**
              **Grant
                  Date**
              **Target**
              **Maximum**Lanny
                  Dacus
              12/01/06
              6,000,000
                  (3)
              6,000,000
                  (3)
              
              0.12
              0/17
              $985,20012/01/06
              5,569,444
                  (3)
              5,569,444
                  (3)
              
              0.18
              0.17
              $900,02212/01/06
              
              
              1,652,778
                  (3)
              0.12
              0.17
              $271,38612/01/06
              
              
              4,777,778 (4)
              0.11
              0.17
              $786,900Richard
                  Falcone
              01/25/06
              
              
              2,200,000
              1.00
              0.76
              $1,512,72012/01/06
              —
              —
              2,200,000
              0.11
              0.17
              $58,080
                  (5)Stathis
                  Kouninis
              02/08/06
              
              
              450,000
              1.00
              0.92
              $348,07512/26/06
              —
              —
              450,000
              0.14
              0.17
              $11,115
                  (6)12/26/06
              
              
              550,000
              0.14
              0.17
              $89,705
   44
  (1)
              The
                  exercise price of the award is based on the closing price of our
                  common
                  stock on the trading day before the day the board of directors
                  authorized
                  the stock option or warrant grant.
  (2)
              These
                  values are calculated based on the FAS 123(R) aggregate fair value
                  at the
                  grant date. These amounts do not reflect the actual value that
                  will be
                  realized by the named executive
                  officers.
  (3)
              Mr. Dacus
                  was granted warrants exercisable for 13,222,222 shares of our common
                  stock
                  as of December 1, 2006.Warrants
                  exercisable for 1,652,778 shares, at an exercise price of $0.12
                  per share,
                  vested on March 31, 2007.The
                  remaining warrants will vest and become exercisable, if at all,
                  based on
                  certain performance conditions, as follows:(i) warrants
                  exercisable for 6,000,000 shares will vest, if at all,in
                  three equal installments of 2,000,000 each, at an exercise price
                  of $0.12
                  per share in the second, third and fourth calendar quarters of
                  2007,
                  provided that, (A) in such second calendar quarter Mr. Dacus has
                  brought one poultry or seafood plant as a customer to us and (B) for
                  each of the third and fourth calendar quarters Mr. Dacus has brought
                  two poultry and/or seafood plants as customers to us (it being
                  understood
                  that in the event that Mr. Dacus has brought at least five poultry
                  and/or seafood plants as customers to us during calendar year 2007,
                  all
                  6,000,000 of the warrants will vest on the date on which Mr. Dacus
                  brings the fifth poultry and/or seafood plant customer to us,
                  (ii) warrants exercisable for 4,000,000 shares will vest, at an
                  exercise price of $0.18 per share, in the first and second calendar
                  quarters of 2008, provided Mr. Dacus has brought two poultry and/or
                  seafood plants as customers to us during each such calendar quarter
                  (it
                  being understood that in the event that Mr. Dacus has brought at
                  least nine poultry and/or seafood plants as customers to us prior
                  to July
                  1, 2008, a total of 10,000,000 warrants in aggregate will vest
                  (to the
                  extent not previously vested) on the date on which Mr. Dacus brings
                  the ninth poultry and/or seafood plant customer to us) and
                  (iii) warrants exercisable for 1,569,444 shares will vest, at an
                  exercise price of $0.18 per share, on September 30, 2008 provided
                  Mr. Dacus has brought two poultry and/or seafood plants as customers
                  to us during the third calendar quarter in 2008 (it being understood
                  that
                  in the event that Mr. Dacus has brought at least eleven poultry
                  and/or seafood plants as customers to us prior to October 1, 2008,
                  all
                  11,569,444 warrants subject to performance-based vesting will vest
                  (to the
                  extent not previously vested) on the date on which Mr. Dacus brings
                  the eleventh poultry and/or seafood plant customer to us).Notwithstanding
                  the foregoing, all of these warrants will vest no later than the
                  date
                  Mr. Dacus has brought his eleventh poultry and/or seafood plant as
                  a
                  customer to us.Vesting
                  of these warrants will cease if Mr. Dacus’ employment is terminated,
                  unless termination is by us other than for Cause (as described
                  in Note 1
                  to the table in “Employment Agreements - Lanny R. Dacus”), by
                  Mr. Dacus for Good Reason, or caused by Mr. Dacus death or
                  disability. All of the then unvested warrants will become vested
                  and
                  exercisable upon the occurrence of a Change in Control of our
                  company.The
                  warrants generally have a 10-year term and terminate immediately
                  upon a
                  termination of employment, except that if Mr. Dacus employment is
                  terminated by us other than for Cause, by Mr. Dacus for Good Reason,
                  or caused by Mr. Dacus’ death or disability, vested warrants are
                  exercisable for five years from Mr. Dacus’ termination (but in no
                  case after the end of the initial 10-year term).“Good
                  Reason”, as defined in Mr. Dacus' employment agreement, means
                  (a) failure to remain as President or Chief Executive Officer;
                  (b) a material diminution in the nature or scope of responsibilities,
                  duties or authority or a request by us to engage in unlawful behavior;
                  (c) a Change in Control; (d) failure to pay compensation and
                  benefits; or (e) required relocation over 50 miles.“Change
                  in Control”, as defined in Mr. Dacus' employment agreement, means
                  (a) shareholder approval (or the occurrence) of a merger that results
                  in our shareholders holding less than a majority of the post-merger
                  entity, (b) acquisition by a third party of 35% or more of our voting
                  securities, (c) sale of all or substantially all of our assets, or
                  (d) our dissolution or liquidation.
  (4)
              Mr. Dacus
                  was granted warrants exercisable for 4,777,778 shares of the our
                  common
                  stock, at an exercise price of $0.11 per share as of December 1,
                  2006.597,224
                  of these warrants vested March 1, 2007.Subject
                  to Mr. Dacus’ employment by us on the vesting date, the remaining
                  4,180,554 warrants will vest in 7 equal quarterly installments
                  of 597,222
                  each, ending on December 1, 2008.However,
                  in the event Mr. Dacus’ employment is terminated by us other than for
                  Cause, by Mr. Dacus for Good Reason, or caused by Mr. Dacus’
                  death or disability, the unvested warrants that would have otherwise
                  vested in the succeeding two calendar quarters will become vested
                  and
                  exercisable upon termination.The
                  warrants generally have a 10-year term and terminate immediately
                  upon a
                  termination of employment, except that if Mr. Dacus employment is
                  terminated by us other than for Cause, by Mr. Dacus for Good Reason,
                  or caused by Mr. Dacus’ death or disability, vested warrants are
                  exercisable for 5 years from Mr. Dacus’ termination (but in no case
                  after the end of the initial 10-year term).
   45
  (5)
              Represents
                  the incremental value for the reprice of 2,200,000 options on December
                  1,
                  2006, from $1.00 to $0.11 per share, as recognized under FAS 123(R).
                  25%
                  of the options vested at the date of the original grant and the
                  remaining
                  75% were scheduled to vest equally on a monthly basis over twenty
                  four
                  months. All of the unvested options vested at the date of
                  Mr. Falcone’s resignation.
  (6)
              Represent
                  the incremental value for the reduction in the exercise price of
                  450,000
                  options from $1.00 per share to $0.14 per share, effective
                  December 26, 2006, as recognized under FAS 123(R).25%
                  of these options vested at the date of the original grant and the
                  remaining 75% vest equally on a monthly basis over twenty four
                  months.See
                  discussion under “Employment Agreements—Stathis
                  Kouninis.”
  **Outstanding
        Equity Awards at 2006 Fiscal Year End**
  The
        following table sets forth information at December 31, 2006 concerning stock
        options and warrants held by the named executive officers in the Summary
        Compensation Table. No options or warrants held by such individuals were
        exercised during 2006.
  **Name**
              
              **Exercisable
                  (1)**
              
              **Unexercisable
                  (1)**
              
              **Option
                  Exercise Price ($)**
              
              **Option
                  Expiration Date**Lanny
                  Dacus
              
              
              
              
              
              4,777,778
              
              
              0.11
              
              
              11/30/2016—
              
              
              7,652,778
              
              
              0.12
              
              
              11/30/20165,569,444
              
              
              0.18
              
              
              11/30/2016Richard
                  Falcone
              
              
              2,600,000
              
              
              —
              
              
              0.11
              (2)
              
              11/30/2011Stathis
                  Kouninis
              
              
              263,125
              
              
              186,875
              
              
              0.14
              (3)
              
              02/07/2016137,500
              
              
              412,500
              
              
              0.14
              
              
              12/25/2016Robert
                  Jenkins
              
              
              1,000,000
              
              
              —
              
              
              1.45
              
              
              11/15/2014James
                  Burns
              
              
              2,777,778
              
              
              —
              
              
              0.25
              
              
              07/31/2011
   (1)
              All
                  options and warrants are exercisable for shares of common
                  stock.
  (2)
              Represents
                  the reprice of 100,000 options from $2.93 per share to $0.11 per
                  share,
                  the reprice of 300,000 options from $1.50 per share to $0.11 per
                  share and
                  the reprice of 2,200,000 options from $1.00 to $0.11 per share
                  as of
                  December 1, 2006.
  (3)
              Represents
                  the reprice of 450,000 options from $1.00 per share to $0.14 per
                  share as
                  of December 26, 2006.
  46
 **Employment
        Agreements**
  *Greg
        Osborn*
  In
        April
        2007, we entered into an employment agreement with Greg Osborn in connection
        with his appointment as Executive Chairman. The agreement provides for, among
        other things, a term of up to 21 months, an annual salary of $60,000, an
        annual
        bonus at the discretion of the board, the grant of initial warrants for the
        purchase of 2,625,000 shares of common stock exercisable on a quarterly basis
        over the term of the agreement at an exercise price of $0.19 per share, the
        grant of additional warrants exercisable for 7,500,000 shares of common stock
        at
        an exercise price of $0.19 per share with vesting contingent upon achievement
        of
        contractually specified performance goals, severance payments and a cash
        payment
        of $20,000 per month for a period of nine months commencing when we reache
        profitability. Mr. Osborn is the Managing Partner of the firm that served
        from December 2006 to April 2007 as placement agent for the offering of our
        convertible bridge notes.
  *Lanny
        R. Dacus*
  In
        December 2006, Lanny R. Dacus was appointed President and Chief Executive
        Officer of our company. In connection with this appointment, we entered into
        an
        employment agreement with Mr. Dacus. Under the terms of the agreement,
        Mr. Dacus will receive a base salary of $60,000 per year and the right to
        participate in our existing benefit plans, with bonus payments to be made
        at the
        discretion of the board of directors. We will provide Mr. Dacus with a
        company automobile during the term of the employment agreement. We also granted
        warrants to purchase 4,777,778 shares of common stock at an exercise price
        of
        $0.11 per share to Mr. Dacus in connection with this agreement. The
        warrants have a ten- year term and vest over a two-year period from the date
        of
        grant. We granted additional warrants to purchase 13,222,222 shares of common
        stock at exercise prices ranging from $0.12 to $0.18 per share, with vesting
        terms contingent upon Mr. Dacus’ achievement of contractually specified
        performance goals described in Note 3 to the Grants in 2006 Plan Based
        Awards Table.
  The
        following table shows the potential payments upon termination or change of
        control of our company as of December 31, 2006 for Lanny Dacus, President
        and Chief Executive Officer.
  **Executive
                  Benefits and Payments**
              
              **Voluntary
                  Resignation or Termination for Cause (1)**
              
              **Termination
                  by Us without Cause (2)**
              
              **Death
                  or Disability (3)**
              
              **Change
                  in Control (without Termination)**
              
              **Upon
                  Change in Control (with Termination)(4)****Compensation:**Base
                  salary
              
              $
              —
              
              $
              116,577
              
              $
              —
              
              $
              —
              
              $
              116,577**Benefits &
                  Perquisites:**Health &
                  Welfare Benefits
              
              $
              —
              
              $
              24,021
              
              $
              —
              
              $
              —
              
              $
              24,021Company
                  Vehicle
              
              $
              —
              
              $
              21,127
              
              $
              —
              
              $
              —
              
              $
              21,127Accelerated
                  Vesting of Option/Warrant Awards
              
              $
              —
              
              $
              973,611
              
              $
              —
              
              $
              973,611
              
              $
              973,611
   (1)
              “Cause”
                  for termination, as defined in Mr. Dacus’ employment agreement,
                  includes: (i) Mr. Dacus’ conviction of a felony or conviction of
                  any other crime involving moral turpitude (which specifically excludes
                  all
                  traffic violations); (ii) Mr. Dacus’ theft, embezzlement,
                  misappropriation of or intentional and malicious infliction of
                  material
                  damage to our business or property; (iii) Mr. Dacus’ gross
                  dereliction of duties or gross negligence if not cured by Mr. Dacus
                  within 20 business days following notice from us; or
                  (iv) Mr. Dacus’ breach of any material term under his employment
                  agreement not cured by Mr. Dacus within 20 business days following
                  notice from us. Upon termination for Cause or in the event of his
                  voluntary resignation other than for Good Reason, Mr. Dacus is
                  entitled only to (i) his base salary earned but not paid through the
                  date of termination, (ii) any vacation time earned but not used
                  through the date of termination, and (iii) any business expenses
                  incurred but unreimbursed on the date of termination (collectively,
                  the
                  “Accrued Obligations”).
  (2)
              Upon
                  termination by us other than for Cause or termination by Mr. Dacus
                  for Good Reason (as described in Note 3 to the Grants in 2006 of Plan
                  Based Awards table), Mr. Dacus is entitled to (i) continued
                  payment of base salary for a period of 24 months less one month
                  for each
                  month after December 12, 2006 (but in no case for less than 12
                  months)
                  (the “severance period”); (ii) any bonus to which he would have been
                  entitled during the severance period; and (iii) continued health
                  insurance coverage during the severance period at a level equivalent
                  to
                  that provided to Mr. Dacus by us immediately prior to the termination
                  date.These
                  payments and benefits are conditioned upon Mr. Dacus signing a
                  mutually acceptable release of
                  claims.
   47
  (3)
              Death
                  or Disability - In the event Mr. Dacus’ employment is terminated by
                  death, his beneficiary will receive, in addition to Accrued Obligations,
                  continued payment of base salary through the severance period,
                  and any
                  bonus owed to Mr. Dacus. In the event Mr. Dacus’ employment is
                  terminated by disability (any illness, injury, accident or condition
                  of
                  either a physical or psychological nature the renders him unable
                  to
                  perform substantially all of his duties and responsibilities, for
                  120
                  consecutive days during any calendar year), Mr. Dacus will be
                  entitled to the Accrued
                  Obligations.
  (4)
              In
                  the event of a Change in Control (as defined in Note 3 to the Grants
                  in 2006 of Plan Based Awards Table), Mr. Dacus may terminate his
                  employment and receive the same benefits as if he had terminated
                  for Good
                  Reason.
  *Stathis
        Kouninis*
  On
        February 8, 2006, we appointed Stathis Kouninis as Chief Financial Officer.
        On
        February 13, 2006, we entered into an employment agreement with
        Mr. Kouninis with a three-year term and automatic renewals for successive
        one-year periods. The terms of the employment agreement provide (i) a base
        salary of $165,000 per year; (ii) a bonus payment at the discretion of the
        board; and (iii) eligibility to participate in our existing benefit plans.
        If Mr. Kouninis is terminated by us for any reason other than Cause, as
        defined in his employment agreement, or if he should resign for Good Reason,
        as
        defined in his employment agreement, Mr. Kouninis will be entitled to six
        months’ salary continuation, provided he executes a mutually agreeable release
        of claims against us. In connection with his employment, we granted
        Mr. Kouninis stock options to purchase 450,000 shares of our common stock
        at an exercise price of $1.00 per share. The options have a ten year term
        less
        one day. 25% of the options vested on the date of grant, and the remainder
        will
        vest in equal monthly installments over the two-year period from the date
        of
        grant, provided that Mr. Kouninis remains employed by us. If we undergo a
        Change in Control, as defined in his employment agreement, the stock options
        granted above will fully vest upon the Change in Control. “Cause,” “Good Reason”
and “Change of Control” as defined in Mr. Kouninis' employment agreement have
        substantially the same meanings as such terms are defined in Mr. Dacus'
        employment agreement. See Note 3 to the Grants in 2006 of Plan Based Awards
        Table and Note 1 to the table in “Employment Agreement - Lanny R.
        Dacus.”
  The
        following table shows the potential payments upon termination or Change in
        Control of our company as of December 31, 2006 for Stathis Kouninis, Chief
        Financial Officer:
  **Executive
                  Benefits and Payments**
              
              **Voluntary
                  Resignation or Termination for Cause**
              
              **Termination
                  by Us without Cause or Termination for Good
                  Reason**
              
              **Death
                  or Disability**
              
              **Change
                  in Control (without Termination)**
              
              **Upon
                  Change in Control (with Good Reason Termination)****Compensation:**Base
                  salary
              
              $
              —
              
              $
              82,500
              
              $
              —
              
              $
              —
              
              $
              82,500**Benefits &
                  Perquisites:**Accelerated
                  Vesting of Option/Warrant Awards
              
              $
              —
              
              $
              50,000
              
              $
              —
              
              $
              50,000
              
              $
              50,000
 
 **Termination
        of Employment Agreements; Severance Arrangements**
  *Richard
        Falcone*
  On
        December 14, 2006, Richard Falcone resigned as Chief Executive Officer and
        a
        director of our company. In connection with his resignation Mr. Falcone
        entered into an agreement with us pursuant to which we agreed to pay
        Mr. Falcone a settlement payment of $150,000. Also under the agreement
        Mr. Falcone retained stock options to purchase 2,600,000 shares of our
        common stock, the terms of which were amended to accelerate the vesting of
        the
        962,500 unvested options, allow for cashless exercise and reduce the exercise
        price to $0.11 per share. The intrinsic value of 962,500 options that were
        accelerated upon Mr. Falcone’s termination was $77,000. Mr. Falcone
        was also granted the continued use of an automobile leased by us and is entitled
        to reimbursement of medical insurance costs through December 31, 2007. See
        note 4 of the Summary Compensation Table. Mr. Falcone and we entered
        into a mutual release agreement.
  48
 *James
        Burns*
  On
        August
        1, 2006, we entered into a termination agreement with James Burns in connection
        with Mr. Burns' termination as our Executive Vice President - Business
        Development. The termination agreement was effective as of July 11, 2006,
        and
        provided Mr. Burns with a company leased vehicle until August 31, 2006. The
        termination agreement included a release agreement and a non-compete agreement.
  *Robert D.
        Jenkins*
  On
        February 8, 2006, we entered into a separation agreement and general release
        with Robert D. Jenkins in connection with Mr. Jenkins’ resignation as
        our Chief Financial Officer, Treasurer and Secretary. Pursuant to the separation
        agreement and general release, we agreed to continue paying Mr. Jenkins at
        his current annual base salary rate of $200,000 through June 28, 2006. Under
        the
        terms of the agreement Mr. Jenkins was also eligible to participate in our
        medical and dental plans through August 31, 2006, with us continuing to pay
        80%
        of the premiums for such coverage. In addition, we agreed that the exercise
        period for Mr. Jenkins’ options to purchase 1,000,000 shares of our common
        stock would be reduced from 10 years from the grant date to 5 years from
        the
        grant date .
  **Directors’
        Compensation**
  For
        2006,
        each of our directors received compensation for serving on the board. Each
        director was paid a $3,000 cash retainer for each fiscal quarter served on
        the
        board of directors and a $1,500 cash retainer for each board meeting attended.
        Additionally each non-employee director received an award of 250,000 stock
        options with exercise prices of $1.00 per share. Effective December 2006
        the
        cash retainer was changed to a flat $3,750 per fiscal quarter regardless
        of the
        number of meetings attended. Additionally, at their date of appointment,
        all
        board members are awarded 750,000 warrants that vest immediately and have
        a term
        of ten years.
  **Name
                  and Principal Position**
              
              **Fees
                  Earned or Paid in Cash**
              
              **Stock
                  option/warrant awards (1)**
              
              **Total
                  Compensation**Albert
                  Canosa (2)
              
              $
              11,000
              
              $
              90,644
              
              $
              101,644Gordon
                  Davis (3)
              
              $
              9,000
              
              $
              749,337
              
              $
              758,337Frederick
                  Ledlow (4)
              
              
              —
              
              $
              122,325
              
              $
              122,325James
                  Manfredonia (5)
              
              $
              3,000
              
              $
              26,425
              
              $
              29,425William
                  Miller (6)
              
              $
              13,500
              
              $
              276,400
              
              $
              289,900Steve
                  Zavagli, Sr. (7)
              
              $
              16,500
              
              $
              161,156
              
              $
              177,656
   (1)
              All
                  options are exercisable for shares of common stock. The amounts
                  shown in
                  this column reflect the dollar amount recognized for financial
                  statement
                  reporting purposes for the fiscal year ended December 31, 2006
                  (in
                  accordance with FAS 123(R)). See Note 9 to the audited consolidated
                  financial statements included elsewhere in this annual report on Form
                  10-K, for a discussion of the assumptions used to value the options
                  and
                  warrants. These amounts do not reflect the actual value that will
                  be
                  realized by the named directors.
  (2)
              On
                  September 22, 2006, Mr. Canosa resigned as a director, Chairman of
                  the Audit Committee and a member of our Compensation Committee.
                  Mr. Canosa had been appointed to the board on February 3, 2006
                  and to the Audit and Compensation Committees on May 11, 2006. At the
                  date of his appointment to the board, Mr. Canosa was awarded 250,000
                  options with an exercise price of $1.00 per share. 25% of these
                  options
                  vested at the date of the grant and the remaining 75% vested equally
                  on a
                  monthly basis over twenty-four months. Mr. Canosa forfeited 132,813
                  options upon his resignation. The vested options may be exercised
                  within
                  five years after Mr. Canosa’s
                  resignation.
  49
  (3)
              On
                  May 11, 2006, Mr. Davis resigned as a director of our company and
                  Chairman of the board of directors. Mr. Davis had held these
                  positions since February 2006. In January 26, 2006 Mr. Davis was
                  awarded 1,750,000 options with an exercise price of $1.00 per share
                  in
                  conjunction with his entry into a consulting agreement with us.
                  These
                  options had a vesting period of two years. In February 2007,
                  Mr. Davis entered into an amended consulting agreement under which
                  all of his 1,750,000 options were repriced to $0.16 per share and
                  any
                  unvested portion of these options vested
                  immediately.
  (4)
              On
                  December 18, 2006, Mr. Ledlow was appointed as a director, a
                  member of the Audit Committee and the Chairman of our Compensation
                  Committee. On December 26, 2006 Mr. Ledlow was awarded 750,000
                  warrants with an exercise price of $0.14 per share. All of the
                  warrants
                  vested on the date of the grant.
  (5)
              Mr. Manfredonia
                  resigned as a director and a member of our Compensation Committee
                  on
                  December 14, 2006. Mr. Manfredonia had held these positions
                  since September 28, 2006. At the date of his appointment
                  Mr. Manfredonia was awarded 250,000 options with an exercise price
                  of
                  $0.12 per share. All of the options vested on the date of the grant.
                  The
                  vested options may be exercised within five years after
                  Mr. Manfredonia’s resignation.
  (6)
              In
                  May 2006, Mr. Miller was appointed as a director of our company and a
                  member of the Audit Committee and Compensation Committee. In September
                  2006 Mr. Miller was appointed Chairman of the Audit Committee. At the
                  date of his appointment Mr. Miller was awarded 250,000 options with
                  an exercise price of $1.00 per share and a vesting period of two
                  years.Based
                  on the FAS 123(R) calculation, theaggregate
                  fair value of these options at the grant date was $133,050.On
                  September 28, 2006, the exercise price of these options was reduced
                  to $0.12 per share and all unvested options vested immediately.
                  The amount
                  reported under the “Stock option/warrant award” column includes a value of
                  $21,025, which is based on the repricing of the 250,000 options
                  and a
                  value of $83,156, which is based on the acceleration of the vesting
                  of
                  156,250 unvested options. On December 26, 2006, Mr. Miller was
                  awarded 750,000 warrants with an exercise price of $0.14 per share.
                  All of
                  these warrants vested at the date of the
                  grant.
  (7)
              On
                  September 7, 2006, Mr. Zavagli, resigned as a director and a
                  member of our Compensation Committee. Mr. Zavagli had held these
                  positions since February 2005. In December 2004, Mr. Zavagli was
                  awarded 500,000 options at an exercise price of $2.05 per share
                  and a
                  vesting period of two years. Also, in January 2006, M. Zavagli
                  was awarded
                  500,000 options with an exercise price of $1.00. 25% of these options
                  vested at the date of the grant and the remaining 75% vested equally
                  on a
                  monthly basis over twenty four months. Mr. Zavagli forfeited an
                  aggregate of 432,292 options upon his resignation. In February
                  2007,
                  Mr. Zavagli surrendered all of his vested options that had not been
                  forfeited upon his resignation. In exchange, we issued 1,000,000
                  warrants
                  at an exercise price of $0.14 per
                  share.
  **Compensation
        Committee Interlocks and Insider Participation**
  Currently,
        the members of the Compensation Committee of the board of directors are Messrs
        Ledlow, Miller and O’Gorman. Except for Lanny Dacus and Greg Osborn, no director
        of our company is a current or former officer or employee of our company
        or any
        of our subsidiaries. In addition, no employee director or other executive
        officer of our company serves as a director of a company where a non-employee
        director of our company is an executive officer.
  50
  **ITEM
                  12.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS**
  The
        following table sets forth certain information as of April 20, 2007 regarding
        the beneficial ownership of our common stock by (i) each executive officer
        of our company named in the Summary Compensation Table, (ii) each director
        of our company, (iii) each stockholder known by us to beneficially own 5%
        or more of our common stock and (iv) all directors and executive officers,
        as a group. Except as otherwise indicated, the address of each beneficial
        holder
        of our common stock listed below is the same as us.
  **Name
                  and Address of Beneficial Owner**
              
              **Amount
                  and Nature of Beneficial Ownership (1)**
              
              **Percentage
                  of Class (2)**Greg
                  Osborn
              
              
              7,577,756
                  (3
              )
              
              6.6Joseph
                  P. Carfora
              
              
              1,166,973
                  (4
              )
              
              1.1Lanny
                  Dacus
              
              
              2,887,454
                  (5
              )
              
              2.6Leonid
                  Frenkel
              
              
              5,688,165
                  (6
              )
              
              4.9
                  (6)Frederick
                  G. Ledlow
              
              
              991,858
                  (7
              )
              
              *William
                  P. Miller
              
              
              1,000,000
                  (8
              )
              
              *Peter
                  O’Gorman
              
              
              1,233,716
                  (9
              )
              
              1.1Stathis
                  Kouninis
              
              
              765,625
                  (10
              )
              
              *James
                  Burns
              
              
              2,834,920
                  (11
              )
              
              2.5Richard
                  Falcone
              
              
              2,748,570
                  (12
              )
              
              2.5Robert
                  Jenkins
              
              
              1,000,000
                  (13
              )
              
              *Knoll
                  Capital Management, LP
                1203
                  Egret Avenue
                Fort
                  Pierce, FL 34982
              
              
              13,520,000
                  (14
              )
              
              12.5Quilcap
                  Management, LLC
                145
                  East 57thStreet
                New
                  York, NY 10022
              
              
              11,609,249
                  (15
              )
              
              9.7Navigator
                  Management Ltd.
                Harbour
                  House
                Waterfront
                  Drive
                Road
                  Town, Tortola
                British
                  Virgin Islands
              
              
              9,674,330
                  (16
              )
              
              8.2Dialectic
                  Capital Management, LLC
                153
                  East 53rdStreet
                New
                  York, NY 10022
              
              
              5,804,598
                  (17
              )
              
              5.1All
                  directors and executive officers as a group (8 persons)
              
              
              21,311,547
                  (18
              )
              
              16.7
   *
              Less
                  than 1%.
  51
  (1)
              Except
                  as indicated in the footnotes to this table and pursuant to applicable
                  community property laws, the persons named in the table have sole
                  voting
                  and investment power with respect to all shares of common stock.
                  The
                  number of shares beneficially owned by each person as of April
                  20, 2007
                  includes shares of common stock that such person had the right
                  to acquire
                  on or within 60 days after April 20, 2007, including, but not limited
                  to,
                  upon the conversion of convertible bridge notes and the exercise
                  of
                  warrants associated with the purchase of these convertible bridge
                  notes
                  and the exercise of options and
                  warrants.
  (2)
              Holders
                  of common stock are entitled to one vote per share. Percentage
                  of
                  beneficial ownership is based on 108,674,042 shares of common stock
                  issued
                  and outstanding as of April 20,
                  2007.
  (3)
              Includes
                  344,828 shares of common stock issuable upon the conversion of
                  convertible
                  bridge notes, 138,889 shares upon the exercise of warrants associated
                  with
                  the purchase of these convertible bridge notes and 4,765,915 shares
                  of
                  common stock issuable upon the conversion of placement agent warrants.
                  Also includes 328,215 shares of common stock issuable upon the
                  exercise of
                  warrants associated with Mr. Osborn’s employment with our
                  company.
  (4)
              Includes
                  275,862 shares of common stock issuable upon the conversion of
                  convertible
                  bridge notes and 111,111 shares upon the exercise of warrants associated
                  with the purchase of the convertible bridge notes. Also includes
                  750,000
                  shares of common stock issuable upon the exercise of warrants issued
                  as
                  compensation to Mr. Carfora.
  (5)
              Includes
                  1,206,897 shares of common stock issuable upon the conversion of
                  convertible bridge notes and 486,111 shares upon the exercise of
                  warrants
                  associated with the purchase of these convertible bridge notes.
                  Also
                  includes 1,194,446 shares of common stock issuable upon the exercise
                  of
                  warrants issued as compensation to
                  Mr. Dacus.
  (6)
              Includes
                  3,448,276 shares of common stock issuable upon the conversion of
                  convertible bridge notes and 1,388,889 shares upon the exercise
                  of
                  warrants associated with the purchase of these convertible bridge
                  notes.
                  Also includes 750,000 shares of common stock issuable upon the
                  exercise of
                  warrants issued as compensation to Mr. Frenkel. Mr. Frenkel also
                  owns additional convertible bridge notes, which are convertible
                  into
                  2,758,621 shares of common stock, and additional warrants associated
                  with
                  the purchase of these convertible bridge notes, which warrants
                  are
                  exercisable into 1,111,111 shares of common stock. Under the terms
                  of the
                  additional notes and the additional warrant agreements, Mr. Frenkel
                  may not convert any of these additional notes or exercise any of
                  these
                  additional warrants if his ownership of our common stock exceeds
                  4.99% or
                  9.99% of our outstanding stock as calculated according to
                  Section 13(d) of the Exchange Act, unless all outstanding convertible
                  bridge notes are converted. Either of the 4.99% or 9.99% limitations
                  may
                  be waived by Mr. Frenkel on 61 days notice.
  (7)
              Represents
                  172,414 shares of common stock issuable upon the conversion of
                  convertible
                  bridge notes and 69,444 shares upon the exercise of warrants associated
                  with the purchase of these convertible bridge notes. Also includes
                  750,000
                  shares of common stock issuable upon the exercise of warrants issued
                  as
                  compensation to Mr. Ledlow.
  (8)
              Represents
                  shares of common stock issuable upon the exercise of options and
                  warrants
                  issued as compensation to
                  Mr. Miller.
  (9)
              Represents
                  344,828 shares of common stock issuable upon the conversion of
                  convertible
                  bridge notes and 138,889 shares upon the exercise of warrants associated
                  with the purchase of these convertible bridge notes. Also includes
                  750,000
                  shares of common stock issuable upon the exercise of warrants issued
                  as
                  compensation to Mr. O’Gorman.
  (10)
              Represents
                  shares of common stock issuable upon the exercise of options and
                  warrants
                  issued as compensation to
                  Mr. Kouninis.
  (11)
              Includes
                  28,571 shares issuable upon the exercise of warrants purchased
                  in the
                  January 2006 private placement and 2,777,778 shares of common stock
                  issuable upon the exercise of options, issued as compensation to
                  Mr. Burns. Based on information available to us, as of July 11, 2006,
                  the effective date of Mr. Burns termination from his employment with
                  our company.
  52
  (12)
              Includes
                  64,285 shares issuable upon the exercise of warrants purchased
                  in the
                  January 2006 private placement and 2,600,000 shares of common stock
                  issuable upon the exercise of options issued as compensation to
                  Mr. Falcone. Based on information available to us as of December 14,
                  2006, the date of Mr. Falcone’s
                  resignation.
  (13)
              Represents
                  shares of common stock issuable upon the exercise of options issued
                  as
                  compensation to Mr. Jenkins. Based on information available to us as
                  of February 8, 2006, the date of Mr. Jenkin’s
                  resignation.
  (14)
              Based
                  on information contained in a Schedule 13G jointly filed by Knoll
                  Capital Management, LP, Fred Knoll, Europa International, Inc.,
                  Knoll
                  Capital Fund II Master Fund, Ltd., KOM Capital Management, LLC
                  and Patrick
                  O’Neill in February 2007, such shares are beneficially owned by Knoll
                  Capital Management, LP and Fred
                  Knoll.
  (15)
              Represents
                  8,275,900 shares of common stock issuable upon the conversion of
                  convertible bridge notes and 3,333,349 shares upon the exercise
                  of
                  warrants associated with the purchase of these convertible bridge
                  notes.
                  Based on information provided to us by Quilcap Management, LLC
                  in their
                  convertible bridge note subscription documents on April 13,
                  2007.
  (16)
              Represents
                  6,896,552 shares of common stock issuable upon the conversion of
                  convertible bridge notes and 2,777,778 shares upon the exercise
                  of
                  warrants associated with the purchase of these convertible bridge
                  notes.
                  Based on information provided to us by Navigator Management Ltd
                  in their
                  convertible bridge note subscription documents on February 21,
                  2007.
  (17)
              Represents
                  4,137,931 shares of common stock issuable upon the conversion of
                  convertible bridge notes and 1,666,667 shares upon the exercise
                  of
                  warrants associated with the purchase of these convertible bridge
                  notes.
                  Based on information provided to us by Dialectic Capital Management,
                  LLC
                  in their convertible bridge note subscription documents on March
                  8,
                  2007.
  (18)
              Includes
                  5,793,103 shares of common stock issuable upon the conversion of
                  convertible bridge notes, 2,333,333 shares issuable upon the exercise
                  of
                  warrants associated with the purchase of these convertible bridge
                  notes
                  and 4,765,915 shares of common stock issued upon the conversion
                  of
                  placement agent warrants. Also includes 6,288,196 shares of common
                  stock
                  issuable upon the exercise of options and warrants issued as compensation
                  to our directors and executive
                  officers.
   53
  **Equity
        Compensation Plan Information**
  The
        following table provides information as of December 31, 2006 about our common
        stock that may be issued upon the exercise of options, warrants and rights
        under
        all of our existing equity compensation plans.
  **Plan
                  Category**
              
              **Number
                  of Shares of Common Stock To Be Issued upon Exercise of Outstanding
                  Options, Warrants and Rights**
              
              **Weighted
                  Average Exercise Price of Outstanding Options, Warrants and
                  Rights**
              
              **Number
                  of Shares of Common Stock Remaining Available for Future Issuance
                  under
                  Equity Compensation Plans (Excluding Common Stock Reflected in
                  First
                  Numerical Column)****Equity
                  compensation plans approved by security holders:**None
              
              —
              
              —
              
              —**Equity
                  compensation plans not approved by security
                  holders:**Stock
                  Option and Warrant Agreements (1)
              
              41,640,071
              
              $0.40
              
              —**Total:**
              
              41,640,071
              
              $0.40
              
              —
   (1)
              We
                  have entered into individual stock option and warrant agreements
                  with an
                  aggregate of 39 employees, including two current and five former
                  executive
                  officers. Pursuant to these agreements, which were not approved
                  by
                  security holders, options and warrants to purchase an aggregate
                  of
                  41,640,701 shares of our common stock were outstanding as of December
                  31,
                  2006. 21,032,044 of these options and warrants were exercisable
                  as of
                  December 31, 2006. These options and warrants have exercise prices
                  per
                  share ranging from $0.11 to $4.70 and expire 10 years following
                  the grant
                  date.
  54
 **ITEM
        13.** **CERTAIN
        RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
        INDEPENDENCE**
  In
        2004,
        we entered into an Exclusive Field of Use License Agreement and Product Sale
        Agreement with Wynn Starr Special Products, LLC. Under the terms of this
        agreement, as amended through January 23, 2007, we have granted Wynn Starr
        the
        exclusive, worldwide right to market and distribute products used as
        post-harvesting processing aids for the poultry industry based on the pHarlo
        technology. In return for this license, Wynn Starr will purchase licensed
        products from us and will withhold up to 25% of the net sale price per gallon
        sold, based on different increments of achieved net sale prices. The amended
        agreement also includes other target performance criteria such that, if met
        by
        Wynn Starr, we will issue to Wynn Starr a warrant to purchase up to 1,300,000
        shares of our common stock with an exercise price based upon the closing
        price
        of our common stock on January 23, 2007, the date of the amendment. As of
        December 31, 2006, no royalties were due and none had been paid to us under
        this
        royalty arrangement. Steven B. Zavagli, a former member of our board of
        directors who resigned in September 2006, is the founder, Chairman and the
        Chief
        Executive Officer of Wynn Starr and Wynn Starr’s ultimate parent company, Wynn
        Starr Flavors, Inc.
  We
        paid
        Gordon O. Davis, the former Chairman of the board of directors who resigned
        May
        2006, approximately $60,000 for consulting services during the twelve months
        ended December 31, 2006. In January 2007, we and Mr. Davis entered into an
        amendment to Mr. Davis’ consulting agreement dated February 2, 2006. The
        amended agreement provides for among other things (i) payment to
        Mr. Davis of $50,000 in cash for past due amounts owed under the original
        consulting agreement, (ii) payment of $3,000 per month for nine months
        starting January 2007 and payment of $7,000 per month for sixteen months
        starting October 2007, (iii) repricing of stock options exercisable for
        1,750,000 shares of common stock such that the exercise price for such stock
        options be reduced to an exercise price per share equal to $.16, (iv) the
        right of the Corporation to terminate Mr. Davis’ consultancy other than for
        cause at any time upon notice to Mr. Davis (with the obligation to pay
        Davis consulting fees otherwise due for the remainder of the term).
        Mr. Davis is the father in law of Stathis Kouninis, our Chief Financial
        Officer.
  Between
        December 1, 2006 and April 20, 2007, as compensation for serving as placement
        agent, the placement agent received cash of approximately $549,900 and
        seven-year warrants to purchase an aggregate of 7,748,966 shares of common
        stock
        at an exercise price of $0.0725 per share. These warrants contain a “cashless
        exercise” option. In March 2007, we issued 2,000,000 shares of our common stock
        to our placement agent, pursuant to the cashless exercise of 2,983,051 of
        these
        warrants resulting in no cash proceeds to us. Greg Osborn, Executive
        Chairman and a director of our company, is the founder and Managing Director
        of
        the placement agent.
  On
        December 1, 2006, Greg Osborn, Executive Chairman and a director of our company,
        purchased convertible bridge notes in the principal amount of $25,000, which
        notes are convertible into 344,828 shares of common stock, and warrants to
        purchase 138,888 shares of our common stock.
  On
        December 1, 2006, January 31, 2007 and February 21, 2007, Lanny Dacus,
        President, Chief Executive Officer and a director of our company, purchased
        convertible bridge notes in the aggregate principal amount of $87,500, which
        notes are convertible into 1,206,897 shares of common stock, and warrants
        to
        purchase 486,111 shares of our common stock.
  On
        January 25, 2007, Joseph Carfora, a director of our company, purchased
        convertible bridge notes in the principal amount of $20,000, which notes
        are
        convertible into 275,862 shares of common stock, and warrants to purchase
        111,111 shares of our common stock.
  On
        February 14, 2007, Leonid Frenkel, a director of our company, purchased
        convertible bridge notes in the principal amount of $250,000, which notes
        are
        convertible into 3,448,276 shares of common stock, and warrants to purchase
        1,388,888 shares of our common stock. On April 12, 2007, Mr. Frenkel
        purchased additional convertible bridge notes in the principal amount of
        $200,000, which notes are convertible into 2,758,621 shares of common stock,
        and
        additional warrants associated with the purchase of these convertible bridge
        notes, which warrants are exercisable into 1,111,111 shares of common stock.
        Under the terms of the additional notes and the additional warrant agreements,
        Mr. Frenkel may not convert any of these additional notes or exercise any
        of these additional warrants if his ownership of our common stock exceeds
        4.99%
        or 9.99% of our outstanding stock as calculated according to Section 13(d)
        of the Exchange Act, unless all outstanding convertible bridge notes are
        converted. Either of the 4.99% or 9.99% limitations may be waived by Mr.
        Frenkel
        on 61 days notice.
  55
 On
        January 25, 2007, Frederick Ledlow, a director of our company, purchased
        convertible bridge notes in the principal amount of $12,500, which notes
        are
        convertible into 172,414 shares of common stock, and warrants to purchase
        69,444
        shares of our common stock.
  On
        January 25, 2007, Peter O’Gorman, a director of our company, purchased
        convertible bridge notes in the principal amount of $25,000, which notes
        are
        convertible into 344,828 shares of common stock, and warrants to purchase
        344,828 shares of our common stock.
  56
 **ITEM
        14.** **PRINCIPAL
        ACCOUNTANT FEES AND SERVICES**
  Fees
        for
        professional services provided by our independent registered public accounting
        firm in each of the last two fiscal years, in each of the following categories,
        are as follows:
  **2005**
              
              **2005**Audit
                  fees
              
              $
              210,500
              
              $
              302,500Audit
                  related fees
              
              
              0
              
              
              61,000Tax
                  fees
              
              
              0
              
              
              0All
                  other fees
              
              
              0
              
              
              0Total
              
              $
              210,500
              
              $
              363,500
 
 Fees
        for
        audit services included fees associated with the audit of our financial
        statements for the fiscal year indicated, reviews of the financial statements
        included in each of our quarterly reports on Form 10-Q during the fiscal
        year indicated, and services performed in connection with certain registration
        statements we filed.
  Audit-related
        fees principally consisted of assurance advisory services related to the
        review
        of the financial statements related to the July 2005 acquisition, acquisition
        accounting and review of the conclusions of the internal
        investigation.
  The
        Audit
        Committee has adopted a policy that requires pre-approval of all audit,
        audit-related, tax services, and other services performed by our independent
        auditor. The policy provides for pre-approval by the Audit Committee of
        specifically defined audit and non-audit services. Unless the specific service
        has been previously pre-approved with respect to that year, the Audit Committee
        must approve the permitted service before the independent auditor is engaged
        to
        perform it.
   57


**PART
      IV**




**ITEM
              15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES**




(a) *Financial
      Statements, Financial Statement Schedule and Exhibits*




(1)
            
            Financial
                Statement Schedule for the Years Ended December 31, 2006,
                2005and
                2004: Schedule II - Valuation and Qualifying Accounts


**SCHEDULE
        II—VALUATION AND QUALIFYING ACCOUNTS**
  **ALLOWANCE
        FOR DOUBTFUL ACCOUNTS AND RETURNS**
 **Years
        Ended, 2006, 2005 and 2004**
  **Additions****Year Ended**
              
              **Balance at**
                **Beginning**
                **of Year**
              
              **(Charged to**
                **Costs and**
                **Expenses)**
              
              **Recoveries**
              
              **Deductions**
              
              **Balance at**
                **End of**
                **Year****(in thousands)**December
                  31, 2006
              
              $
              80
              
              
              48
              
              
              —
              
              
              (104
              )
              $
              24December
                  31, 2005
              
              $
              —
              
              
              80
              
              
              —
              
              
              —
              
              
              80December
                  31, 2004
              
              $
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              —


Financial
                statement schedules not included have been omitted because of
                theabsence
                of conditions under which they are required or because the
                requiredinformation,
                where material, is shown in the financial statements or
                notes.(2)
            
            Financial
                Statements - see “Index to Financial Statements”(3)
            
            Exhibits:




58







**EXHIBIT**
              **NUMBER**
            
            **DESCRIPTION
                OF EXHIBIT**


2.1
            
            Asset
                Purchase Agreement by and among the Registrant and Tasker Products
                IP
                Holdings Corp. (as “Buyers”) and Indian River Labs, L.L.C., pHarlo Citrus
                Technologies, Inc., pHarlo Citrus Properties Partnership, LLLP and
                Coast
                to Coast Laboratories, LLC (as “Sellers”) dated July 15, 2005
                (incorporated by reference to Exhibit 2.1 to the Registrant’s
                Form 8-K filed on July 21, 2005)3.1
            
            Articles
                of Incorporation of the Registrant, as amended (incorporated by reference
                to Exhibit 4.2 to the Registrant’s Registration Statement on
                Form S-8 filed July 20, 2006)3.2
            
            By-Laws
                of the Registrant (incorporated by reference to Exhibit 2.2 to the
                Registrant’s Registration Statement on Form 10-SB filed with the SEC
                on November 27, 2000)4.1
            
            Cummins
                Lock-Up Agreement dated July 15, 2005 (incorporated by reference to
                Exhibit 4.1 to the Registrant’s Form 8-K filed on July 21,
                2005)4.2
            
            Creasey
                Lock-Up Agreement dated July 15, 2005 (incorporated by reference to
                Exhibit 4.2 to the Registrant’s Form 8-K filed on July 21,
                2005)4.3
            
            Dickinson
                Lock-Up Agreement dated July 15, 2005 (incorporated by reference to
                Exhibit 4.3 to the Registrant’s Form 8-K filed on July 21,
                2005)4.4
            
            Smith
                Lock-Up Agreement dated July 15, 2005 (incorporated by reference to
                Exhibit 4.4 to the Registrant’s Form 8-K filed on July 21,
                2005)4.5
            
            Form
                of Warrant from the September 2005 Private Placement (incorporated by
                reference to Exhibit 4.01 to the Registrant’s Form 8-K filed on
                September 26, 2005)10.1(1)
            
            April
                5, 2004 Non-qualified Stock Option Grant Agreement with Robert Appleby
                (incorporated by reference to Exhibit 10.1 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.2(1)
            
            April
                5, 2004 Non-qualified Stock Option Grant Agreement with James Burns
                (incorporated by reference to Exhibit 10.2 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.3(1)
            
            May 11,
                2004 Non-qualified Stock Option Grant Agreement with Robert Appleby
                (incorporated by reference to Exhibit 10.3 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.4(1)
            
            May 11,
                2004 Non-qualified Stock Option Grant Agreement with James Burns
                (incorporated by reference to Exhibit 10.4 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.5(1)
            
            May 31,
                2004 Employee Non-Statutory Stock Option Agreement with Barbara Longchamp
                (incorporated by reference to Exhibit 10.5 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.6(1)
            
            May 31,
                2004 Employee Non-Statutory Stock Option Agreement with Gordon Davis
                (incorporated by reference to Exhibit 10.6 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.7(1)
            
            August
                25, 2004 Employee Non-Statutory Stock Option Agreement with Robert
                Appleby
                (incorporated by reference to Exhibit 10.7 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.8(1)
            
            August
                25, 2004 Employee Non-Statutory Stock Option Agreement with James
                Burns
                (incorporated by reference to Exhibit 10.8 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.9(1)
            
            January 1,
                2005 Executive Employment Agreement with Robert P. Appleby (incorporated
                by reference to Exhibit 10.9 to the Registrant’s Form 10-KSB
                filed on April 15, 2005)10.10(1)
            
            January 1,
                2005 Executive Employment Agreement with James Burns (incorporated
                by
                reference to Exhibit 10.10 to the Registrant’s Form 10-KSB filed
                on April 15, 2005)




59




**EXHIBIT**
                **NUMBER**
              
              **DESCRIPTION
                  OF EXHIBIT**


10.11(1)
            
            December
                1, 2004 Executive Employment Agreement with Dennis Smithyman (incorporated
                by reference to Exhibit 10.11 to the Registrant’s Form 10-KSB
                filed on April 15, 2005)10.12(1)
            
            November
                15, 2004 Executive Employment Agreement with James Collins (incorporated
                by reference to Exhibit 10.12 to the Registrant’s Form 10-KSB
                filed on April 15, 2005)10.13(1)
            
            November
                15, 2004 Executive Employment Agreement with Robert D. Jenkins
                (incorporated by reference to Exhibit 10.13 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.14
            
            Securities
                Purchase Agreement dated as of April 30, 2004, Registration Rights
                Agreement dated as of April 30, 2004, Form of Common Stock Purchase
                Warrant and Form of 7% Convertible Debenture for the April 2004 private
                placement (incorporated by reference to Exhibits 4.1, 4.2, 4.3 and
                4.4 to the Registrant’s Form 8-K filed on May 5,
                2004)10.15
            
            Securities
                Purchase Agreement dated as of July 21, 2004, Registration Rights
                Agreement dated as of July 21, 2004, Form of Common Stock Purchase
                Warrant and Form of Convertible Debenture for the July 2004 private
                placement (incorporated by reference to Exhibits 4.1, 4.2, 4.3 and
                4.4 to the Registrant’s Form 8-K filed on July 22,
                2004)10.16
            
            Securities
                Purchase Agreement dated as of December 23, 2004, Registration Rights
                Agreement dated as of December 23, 2004, and Warrant issued to
                Emerging Growth Equities, Ltd. for the December 2004 private
                placement (Equity financing that closed on 12/29/04) (incorporated
                by
                reference to Exhibits 4.1, 4.2 and 4.3 to the Registrant’s
                Form 8-K filed on January 5, 2005)10.17
            
            Exclusive
                Field of Use License Agreement with pHarlo Citrus Technologies, Inc.
                dated
                September 16, 2004 (incorporated by reference to Exhibit 10.17
                to the Registrant’s Form 10-KSB filed on April 15,
                2005)10.18
            
            Exclusive
                Field of Use License Agreement with pHarlo Citrus Technologies, Inc.
                dated
                September 20, 2004 (incorporated by reference to Exhibit 10.18
                to the Registrant’s Form 10-KSB filed on April 15,
                2005)10.19
            
            Exclusive
                Field of Use License Agreement & Product Sale Agreement between Wynn
                Starr Special Products LLC and the Registrant, dated September 16,
                2004 (incorporated by reference to Exhibit 10.19 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.20
            
            Promissory
                Note From pHarlo Citrus Technologies dated September 28, 2004
                (incorporated by reference to Exhibit 10.20 to the Registrant’s
                Form 10-KSB filed on April 15, 2005).10.21
            
            Promissory
                Note From pHarlo Citrus Technologies dated November 12, 2004
                (incorporated by reference to Exhibit 10.21 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.22
            
            Promissory
                Note From pHarlo Citrus Properties Partnership LLLP dated
                December 15, 2004 (incorporated by reference to Exhibit 10.22 to
                the Registrant’s Form 10-KSB filed on April 15,
                2005)10.23
            
            Promissory
                Note From pHarlo Citrus Properties Partnership LLLP dated
                December 30, 2004 (incorporated by reference to Exhibit 10.23 to
                the Registrant’s Form 10-KSB filed on April 15,
                2005)10.24
            
            January 10,
                2004 Consulting Agreement with Thomas Brazil (incorporated by reference
                to
                Exhibit 10.24 to the Registrant’s Form 10-KSB filed on April 15,
                2005)10.25
            
            January 20,
                2004 Consulting Agreement with Stuart McPherson (incorporated by
                reference
                to Exhibit 10.25 to the Registrant’s Form 10-KSB filed on April
                15, 2005)10.26
            
            May,
                2004 Consulting Agreement with Arthur Bergeron (incorporated by reference
                to Exhibit 10.26 to the Registrant’s Form 10-KSB filed on April
                15, 2005)




60


**EXHIBIT**
                **NUMBER**
              
              **DESCRIPTION
                  OF EXHIBIT**


10.27
            
            August,
                2004 Consulting Agreement with Wall Street Investor Relations
                (incorporated by reference to Exhibit 10.27 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.28
            
            December 7,
                2004 Settlement Agreement with Richard J. Kirby (incorporated by
                reference
                to Exhibit 10.28 to the Registrant’s Form 10-KSB filed on April
                15, 2005)10.29
            
            December 27,
                2004 Consulting Agreement with Avanti HR Placement & Consulting
                (incorporated by reference to Exhibit 10.29 to the Registrant’s
                Form 10-KSB filed on April 15, 2005)10.30
            
            Promissory
                Note From Barry Cummins, dated January 10, 2005 (incorporated by
                reference to Exhibit 10.30 to the Registrant’s Form 10-QSB filed
                on May 16, 2005)10.31
            
            Promissory
                Note From David Creasey, dated January 3, 2005 (incorporated by
                reference to Exhibit 10.31 to the Registrant’s Form 10-QSB filed
                on May 16, 2005)10.32
            
            Promissory
                Note From David Creasey, dated March 1, 2005 (incorporated by
                reference to Exhibit 10.32 to the Registrant’s Form 10-QSB filed
                on May 16, 2005)10.33
            
            Promissory
                Note From David Dickinson, dated January 10, 2005 (incorporated
                by reference to Exhibit 10.33 to the Registrant’s Form 10-QSB
                filed on May 16, 2005)10.34
            
            Promissory
                Note From David Dickinson, dated March 4, 2005 (incorporated by
                reference to Exhibit 10.34 to the Registrant’s Form 10-QSB filed
                on May 16, 2005)10.35
            
            Loan
                Agreement by and between pHarlo Citrus Properties Partnership, LLLP
                and
                Tasker Products Corp., dated January 20, 2005 (incorporated by
                reference to Exhibit 10.35 to the Registrant’s Form 10-QSB filed
                on May 16, 2005)10.36
            
            Loan
                Agreement by and between pHarlo Citrus Properties Partnership, LLLP
                and
                Tasker Products Corp., dated February 15, 2005 (incorporated by reference
                to Exhibit 10.36 to the Registrant’s Form 10-QSB filed on
                May 16, 2005)10.37
            
            Loan
                Agreement by and between pHarlo Citrus Properties Partnership, LLLP
                and
                Tasker Products Corp., dated March 7, 2005 (incorporated by reference
                to Exhibit 10.37 to the Registrant’s Form 10-QSB filed on
                May 16, 2005)10.38
            
            Loan
                Agreement by and between pHarlo Citrus Properties Partnership, LLLP
                and
                Tasker Products Corp., dated March 31, 2005 (incorporated by
                reference to Exhibit 10.38 to the Registrant’s Form 10-QSB filed
                on May 16, 2005)10.39
            
            Loan
                Agreement by and between Coast to Coast LLC and Tasker Products Corp.,
                dated March 3, 2005 (incorporated by reference to Exhibit 10.39
                to the Registrant’s Form 10-QSB filed on May 16,
                2005)10.40
            
            Promissory
                Note by David Creasey to Tasker Products Corp., dated March 28, 2005
                (incorporated by reference to Exhibit 10.40 to the Registrant’s
                Form 10-QSB filed on May 16, 2005)10.41
            
            February
                3, 2005 sale of promissory note by Philip Georgas to the Registrant
                in the
                sum of $49,950 plus interest and services for 32,272 restricted common
                shares at United States $1.65 share (incorporated by reference to
                Exhibit 10.41 to the Registrant’s Form 10-QSB filed on
                May 16, 2005)10.42(1)
            
            Employment
                agreement between the Registrant and Mr. Richard Weiner dated April
                12, 2005 (incorporated by reference to Exhibit 10.42 to the
                Registrant’s Form 10-QSB filed on May 16,
                2005)10.43(1)
            
            Amendment
                No. 1 to Executive Employment Agreement, dated May 16, 2005,
                between the Registrant and Robert P. Appleby (incorporated by reference
                to
                Exhibit 10.43 to the Registrant’s Form 10-QSB filed on
                May 16, 2005)




61


**EXHIBIT**
                **NUMBER**
              
              **DESCRIPTION
                  OF EXHIBIT**


10.44(1)
            
            Amendment
                No. 1 to Executive Employment Agreement, dated May 16, 2005,
                between the Registrant and James Burns (incorporated by reference
                to
                Exhibit 10.44 to the Registrant’s Form 10-QSB filed on
                May 16, 2005)10.45(1)
            
            Amendment
                No. 1 to Executive Employment Agreement, dated May 16, 2005,
                between the Registrant and Robert D. Jenkins (incorporated by reference
                to
                Exhibit 10.45 to the Registrant’s Form 10-QSB filed on
                May 16, 2005)10.46
            
            Loan
                Agreement by and between Pharlo Citrus Properties Partnership, LLLP
                and
                the Registrant, dated April 20, 2005 (incorporated by reference to
                Exhibit 10.46 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.47
            
            Loan
                Agreement by and between Pharlo Citrus Properties Partnership, LLLP
                and
                the Registrant, dated May 19, 2005 (incorporated by reference to
                Exhibit 10.47 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.48
            
            Loan
                Agreement by and between Pharlo Citrus Properties Partnership, LLLP
                and
                the Registrant, dated June 14, 2005 (incorporated by reference to
                Exhibit 10.48 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.49
            
            Loan
                Agreement by and between Pharlo Citrus Properties Partnership, LLLP
                and
                the Registrant, dated July 6, 2005 (incorporated by reference to
                Exhibit 10.49 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.50
            
            Loan
                Agreement by and between Coast to Coast Laboratories LLC and the
                Registrant, dated May 25, 2005 (incorporated by reference to
                Exhibit 10.50 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.51
            
            Loan
                Agreement by and between Coast to Coast Laboratories LLC and the
                Registrant, dated June 29, 2005 (incorporated by reference to
                Exhibit 10.51 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.52
            
            Loan
                Agreement by and between Pharlo Citrus Technologies and the Registrant,
                dated May 11, 2005 (incorporated by reference to Exhibit 10.52
                to the Registrant’s Form 10-QSB filed on August 15,
                2005)10.53
            
            Loan
                Agreement by and between Pharlo Citrus Technologies and the Registrant,
                dated May 27, 2005 (incorporated by reference to Exhibit 10.53
                to the Registrant’s Form 10-QSB filed on August 15,
                2005)10.54
            
            Loan
                Agreement by and between Pharlo Citrus Technologies and the Registrant,
                dated June 2, 2005 (incorporated by reference to Exhibit 10.54
                to the Registrant’s Form 10-QSB filed on August 15,
                2005)10.55
            
            Loan
                Agreement by and between Pharlo Citrus Technologies and the Registrant,
                dated June 14, 2005 (incorporated by reference to Exhibit 10.55
                to the Registrant’s Form 10-QSB filed on August 15,
                2005)10.56
            
            Loan
                Agreement by and between Pharlo Citrus Technologies and the Registrant,
                dated June 27, 2005 (incorporated by reference to Exhibit 10.56
                to the Registrant’s Form 10-QSB filed on August 15,
                2005)10.57
            
            Loan
                Agreement by and between Pharlo Citrus Technologies and the Registrant,
                dated July 12, 2005 (incorporated by reference to Exhibit 10.57
                to the Registrant’s Form 10-QSB filed on August 15,
                2005)10.58
            
            Loan
                Agreement by and between Indian River Labs and the Registrant, dated
                June 29, 2005 (incorporated by reference to Exhibit 10.58 to the
                Registrant’s Form 10-QSB filed on August 15, 2005)10.59
            
            Stock
                Purchase Agreement between Electric Aquagenics Unlimited, Inc. and
                the
                Registrant, dated April 22, 2005 (incorporated by reference to
                Exhibit 10.59 to the Registrant’s Form 10-QSB filed on August
                15, 2005)




62




**EXHIBIT**
                **NUMBER**
              
              **DESCRIPTION
                  OF EXHIBIT**


10.60(1)
            
            Amendment
                No. 2 to Executive Employment Agreement, dated August 10, 2005,
                between the Registrant and Robert P. Appleby (incorporated by reference
                to
                Exhibit 10.60 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.61(1)
            
            Amendment
                No. 2 to Executive Employment Agreement, dated August 10, 2005,
                between the Registrant and James Burns (incorporated by reference
                to
                Exhibit 10.61 to the Registrant’s Form 10-QSB filed on August
                15, 2005)10.62
            
            Patent
                Technology Sublicense Agreement made as of July 15, 2005 by and among
                pHarlo IP, LLC, the Registrant and Tasker Products IP Holdings Corp.
                (incorporated by reference to Exhibit 10.2 to the Registrant’s
                Form 8-K filed on July 21, 2005)10.63
            
            Promissory
                note executed by the Registrant to Indian River Labs, L.L.C. dated
                July 15, 2005 (incorporated by reference to Exhibit 10.1 to the
                Registrant’s Form 8-K filed on July 21, 2005)10.64
            
            Securities
                Purchase Agreement, dated as of September 21, 2005, by and among the
                Registrant and the Purchaser parties thereto (incorporated by reference
                to
                Exhibit 10.01 to the Registrant’s Form 8-K filed on
                September 26, 2005)10.65
            
            Registration
                Rights Agreement, dated as of September 21, 2005, by and among the
                Registrant and the Purchaser parties thereto (incorporated by reference
                to
                Exhibit 10.02 to the Registrant’s Form 8-K filed on
                September 26, 2005)10.66
            
            Amendment
                to Exclusive Field of Use License Agreement and Product Sale Agreement
                by
                and between the Registrant, Wynn Starr Special Products, LLC, Pharlo
                Citrus Technologies, Inc., and Indian River Labs, LLC, retroactively
                effective to March 18, 2005 (incorporated by reference to
                Exhibit 10.66 to the Registrant’s Form 10-QSB filed on November
                14, 2005).10.67
            
            Settlement
                Agreement and General Lease, dated December 23, 2005, between the
                Registrant and Robert P. Appleby (incorporated by reference to
                Exhibit 10.67 to the Registrant’s Form S-1 filed on April 26,
                2006).10.68
            
            Securities
                Purchase Agreement, dated as of January 26, 2006, by and among the
                Registrant, Emerging Growth Equity, Ltd. and the Purchaser parties
                thereto
                (incorporated by reference to Exhibit 10.68 to the Registrant’s
                Form S-1 filed on April 26, 2006).10.69
            
            Registration
                Rights Agreement, dated as of January 26, 2006, by and among the
                Registrant and the Purchaser parties thereto(incorporated by reference
                to
                Exhibit 10.67 to the Registrant’s Form S-1 filed on April 26,
                2006).10.70
            
            Form
                of Stock Purchase Warrant, dated as of January 26, 2006, among the
                Registrant and the Purchaser parties thereto (incorporated by reference
                to
                Exhibit 4.1 to the Registrant’s Form 8-K filed on February 1,
                2006).10.71(1)
            
            Employment
                Agreement, dated as of February 2, 2006, between the Registrant and
                Richard D. Falcone (incorporated by reference to Exhibit 10.70 to the
                Registrant’s Form S-1 filed on April 26, 2006).10.72
            
            Consultant Agreement,
                dated as of February 2, 2006, between the Registrant and Gordon Davis
                (incorporated by reference to Exhibit 10.74 to Amendment 1 to the
                Registrant’s Form S-1 filed on July 11, 2006).10.73(1)
            
            Employment
                Agreement, dated as of February 13, 2006, between the Registrant
                and
                Stathis Kouninis (incorporated by reference to Exhibit 10.72 to the
                Registrant’s Form S-1 filed on April 26, 2006).10.74
            
            Separation Agreement
                and General Release, dated as of February 8, 2006, between the Registrant
                and Robert D. Jenkins (incorporated by reference to Exhibit 10.73 to
                the Registrant’s Form S-1 filed on April 26,
                2006).




63


**EXHIBIT**
                **NUMBER**
              
              **DESCRIPTION
                  OF EXHIBIT**


10.75
            
            Termination
                Agreement, dated as of August 1, 2006, between the Registrant and
                James Burns (incorporated by reference to Exhibit 10.1 of the Registrant’s
                Form 10-Q filed on August 14, 2006)10.76
            
            2006
                Stock Plan (incorporated by reference to Annex B to the Registrant’s
                amended definitive proxy statement filed on May 12,
                2006)10.77
            
            Second
                Amendment to Exclusive Field of Use License Agreement and Product
                Sale
                Agreement, by and between the Registrant, Wynn Starr Special Products
                LLC,
                Pharlo Citrus Technologies, Inc., and Pharlo IP, LLC f/k/a Indian
                River
                Labs LLC, dated as of October 20, 2006 (incorporated by reference
                to
                Exhibit 10.76 to the Registrant’s Form S-1 filed on October 25,
                2006).10.78*
            
            Agreement,
                dated as of December 14, 2006, between the Registrant and R
                Falcone10.79(1)*
            
            Employment
                Agreement, dated as of December 12, 2006, between the Registrant
                and Lanny
                Dacus10.80*
            
            Settlement
                Agreement and General Release, dated as of February 16, 2007, between
                the
                Registrant and James Collins10.81*
            
            Form
                of 10% Secured Convertible Bridge Note10.82*
            
            Form
                of Warrant between Registrant and Purchasers of 10% Secured Convertible
                Bridge Notes10.83*
            
            Form
                of Warrant between Registrant and Placement Agent of the 10% Secured
                Convertible Bridge Notes21.1
            
            Subsidiaries
                of the Registrant (incorporated by reference to Exhibit 21.1 to the
                Registrant’s Registration Statement on Form SB-2 filed on August 30,
                2005)23.1**
            
            Consent
                of Rothstein, Kass & Company, P.C.31.1**
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Executive
                Officer31.2**
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Financial
                Officer32**
            
            Section
                1350 Certification of Principal Executive Officer and Principal Financial
                Officer







*
      Previously filed with this Form 10-K




**Filed
      herewith




(1)
      Management contract or compensatory plan or
      arrangement




64




**INDEX
      TO FINANCIAL STA** **TEMENTS**




PageReport
                of Independent Registered Public Accounting Firm (Rothstein, Kass
&
                Company, P.C.)
            
            F-2Consolidated
                Balance Sheets as of December 31, 2006 and 2005
            
            F-3Consolidated
                Statements of Operations for the years ended December 31, 2006, 2005
                and
                2004
            
            F-4Consolidated
                Statements of Stockholders’ Equity for the years ended December 31, 2006,
                2005 and 2004
            
            F-5Consolidated
                Statements of Cash Flows for the years ended December 31, 2006, 2005
                and
                2004
            
            F-6Notes
                to Consolidated Financial Statements





F-1


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders of


Tasker
      Products Corp. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Tasker Products Corp.
      and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated
      statements of operations, stockholders’ equity, and cash flows for each of the
      years in the three-year period ended December 31, 2006. These consolidated
      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 audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company 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 also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Tasker Products Corp. and
      Subsidiaries as of December 31, 2006 and 2005, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2006, in conformity with accounting principles generally
      accepted in the United States of America.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has incurred negative cash flow
      from operations and net losses since inception and has a working capital
      deficiency. These conditions, among others, raise substantial doubt about its
      ability to continue as a going concern. Management’s plans in regard to these
      matters are also described in Note 2. The accompanying consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





/s/
                Rothstein, Kass & Company, P.C.





Roseland,
      New Jersey


March
      19,
      2007




F-2


**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(in
      thousands, except per share data)




**December 31,****2006**
            
            **2005**ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            932
            
            $
            1,037Accounts
                receivable, net of allowance for doubtful accounts of $24 and $80,
                respectively
            
            
            176
            
            
            155Notes
                receivable
            
            
            50
            
            
            654Inventories,
                net of reserve of $-0- and $75, respectively
            
            
            300
            
            
            1,351Prepaid
                expenses
            
            
            268
            
            
            192Deferred
                financing costs
            
            
            501
            
            
            —Total
                current assets
            
            
            2,227
            
            
            3,389Notes
                receivable, net of current portion
            
            
            669
            
            
            —Property
                and equipment, net
            
            
            1,311
            
            
            1,525Equity
                investment
            
            
            —
            
            
            665Intangible
                assets, net
            
            
            7,887
            
            
            21,562Goodwill
            
            
            9,835
            
            
            41,677Deposit,
                net
            
            
            38
            
            
            36Total
                assets
            
            $
            21,967
            
            $
            68,854LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            1,227
            
            $
            1,740Other
                accrued liabilities
            
            
            2,509
            
            
            1,612Convertible
                debentures
            
            
            —
            
            
            194Notes
                payable - acquisition of IRL
            
            
            679
            
            
            446Notes
                payable - convertible bridge note, net of discount
            
            
            320
            
            
            —Warrants
                payable - placement agent
            
            
            409
            
            
            —Notes
                payable - shareholders
            
            
            564
            
            
            —Total
                current liabilities
            
            
            5,708
            
            
            3,992Long-term
                liabilities:Notes
                payable - shareholders
            
            
            —
            
            
            444Notes
                payable - acquisition of IRL
            
            
            —
            
            
            1,077Other
                long-term liabilities
            
            
            30
            
            
            53Total
                long-term liabilities
            
            
            30
            
            
            1,574Total
                liabilities
            
            
            5,738
            
            
            5,566Stockholders’
                equity:Common
                stock, $0.001 par value; 300,000 shares authorized; 106,340 and 89,167
                shares issued and outstanding, respectively
            
            
            106
            
            
            89Additional
                paid-in capital
            
            
            105,131
            
            
            89,265Accumulated
                deficit
            
            
            (89,008
            )
            
            (26,066
            )Total
                stockholders’ equity
            
            
            16,229
            
            
            63,288Total
                liabilities and stockholders’ equity
            
            $
            21,967
            
            $
            68,854




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




F-3


**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(in
      thousands, except per share data)




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues
            
            $
            1,486
            
            $
            705
            
            $
            —Cost
                of goods sold
            
            
            937
            
            
            1,308
            
            
            —Gross
                margin
            
            
            549
            
            
            (603
            )
            
            —Operating
                expenses:Selling,
                general & administrative (1)
            
            
            13,751
            
            
            11,905
            
            
            1,964Product
                development (1)
            
            
            1,803
            
            
            3,356
            
            
            1,375Depreciation
                and amortization
            
            
            1,703
            
            
            1,100
            
            
            29Impairment
                of goodwill and intangible assets
            
            
            44,081
            
            
            —
            
            
            —Write-off
                of raw materials
            
            
            839
            
            
            —
            
            
            —Litigation
                settlement
            
            
            423
            
            
            —
            
            
            —Total
                operating expenses
            
            
            62,600
            
            
            16,361
            
            
            3,368Loss
                from operations
            
            
            (62,051
            )
            
            (16,964
            )
            
            (3,368
            )Other
                income (expense):Interest
                expense, net
            
            
            (392
            )
            
            (85
            )
            
            (2,730
            )Loss
                on equity investee
            
            
            (665
            )
            
            (53
            )
            
            —Liquidated
                damages
            
            
            (178
            )
            
            (286
            )
            
            —Gain
                on extinguishment of obligations
            
            
            175
            
            
            —Other
            
            
            168
            
            
            (881
            )
            
            26Other
                income (expense), net
            
            
            (892
            )
            
            (1,305
            )
            
            (2,704
            )Net
                loss
            
            $
            (62,943
            )
            $
            (18,269
            )
            $
            (6,072
            )Net
                loss per common share, basic and diluted
            
            $
            (0.60
            )
            $
            (0.25
            )
            $
            (0.26
            )Weighted
                average common shares outstanding, basic and diluted
            
            
            104,081
            
            
            73,549
            
            
            23,597




**Fiscal
                Year Ended December 31,****2006**
            
            **2005**
            
            **2004**(1)
                Stock-based compensation is allocated as follows:Selling,
                general & administrative
            
            $
            4,625
            
            $
            485
            
            $
            —Product
                development
            
            
            239
            
            
            —
            
            
            —Total
            
            $
            4,864
            
            $
            485
            
            $
            —




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




F-4




**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


(in
      thousands)




**COMMON STOCK****ADDITIONAL****NUMBER OF**
              
              
              
              **PAID-IN**
              
              **COMMON STOCK**
              
              **ACCUMULATED****SHARES**
              
              **AMOUNT**
              
              **CAPITAL**
              
              **SUBSCRIBED**
              
              **DEFICIT**
              
              **TOTAL****Balance,
                  December 31, 2003**
              
              
              **14,511**
              
              
              **15**
              
              
              **1,704**
              
              
              **28**
              
              
              **(1,726**
              **)**
              
              **21**Private
                  placement, net of costs
              
              
              —
              
              
              —
              
              
              
              
              
              13,868
              
              
              
              
              
              13,868Warrants
                  and embedded conversion option associated with debentures
              
              
              —
              
              
              —
              
              
              2,185
              
              
              
              
              
              
              
              
              2,185Debentures
                  and accrued interest converted to common stock
              
              
              18,162
              
              
              18
              
              
              1,998
              
              
              
              
              
              
              
              
              2,016Exercise
                  of warrants
              
              
              14,491
              
              
              14
              
              
              1,153
              
              
              
              
              
              
              
              
              1,167Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              373
              
              
              
              
              
              
              
              
              373Common
                  stock, warrants and options issued forservices
              
              
              1,700
              
              
              2
              
              
              702
              
              
              (19
              )
              
              
              
              
              685Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,072
              )
              
              (6,072
              )**Balance,
                  December 31, 2004**
              
              
              **48,864**
              
              
              **49**
              
              
              **8,115**
              
              
              **13,877**
              
              
              **(7,796**
              **)**
              
              **14,243**Shares
                  issued for prior year private placement
              
              
              9,406
              
              
              9
              
              
              13,918
              
              
              (13,877
              )
              
              
              
              
              50Private
                  placement, net of costs
              
              
              2,948
              
              
              3
              
              
              6,431
              
              
              
              
              
              
              
              
              6,434Debentures
                  and accrued interest converted tocommon
                  stock
              
              
              4,090
              
              
              4
              
              
              239
              
              
              
              
              
              
              
              
              243Note
                  payable and accrued interest converted tocommon
                  stock
              
              
              32
              
              
              —
              
              
              32
              
              
              
              
              
              
              
              
              32Exercise
                  of warrants and stock options
              
              
              4,835
              
              
              5
              
              
              230
              
              
              
              
              
              
              
              
              235Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              485
              
              
              
              
              
              
              
              
              485Common
                  stock, warrants and options issued for services
              
              
              —
              
              
              —
              
              
              3,101
              
              
              
              
              
              
              
              
              3,101Shares
                  issued as part consideration for assets acquired
              
              
              18,992
              
              
              19
              
              
              56,958
              
              
              
              
              
              
              
              
              56,977Registration
                  rights derivative liability
              
              
              —
              
              
              —
              
              
              (244
              )
              
              
              
              
              
              
              
              (244
              )Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              (18,269
              )
              
              (18,269
              )**Balance,
                  December 31, 2005**
              
              
              **89,167**
              
              **$**
              **89**
              
              **$**
              **89,265**
              
              **$**
              **—**
              
              **$**
              **(26,065**
              **)**
              **$**
              **63,287**Private
                  placement, net of costs
              
              
              13,336
              
              
              13
              
              
              8,729
              
              
              
              
              
              
              
              
              8,742Debentures
                  and accrued interest converted tocommon
                  stock
              
              
              2,095
              
              
              2
              
              
              192
              
              
              
              
              
              
              
              
              194Share
                  subscriptions
              
              
              
              
              
              
              
              
              
              
              
              6
              
              
              
              
              
              6Exercise
                  of warrants and stock options
              
              
              1,613
              
              
              2
              
              
              71
              
              
              (6
              )
              
              
              
              
              67Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              4,864
              
              
              
              
              
              
              
              
              4,864Common
                  stock, warrants and options issued for services
              
              
              129
              
              
              —
              
              
              90
              
              
              
              
              
              
              
              
              90Fair
                  value of warrants issued with Dec 06 private placement
              
              
              —
              
              
              —
              
              
              539
              
              
              
              
              
              
              
              
              539Beneficial
                  conversion of notes issued Dec 06 private placement
              
              
              —
              
              
              —
              
              
              1,381
              
              
              
              
              
              
              
              
              1,381Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              (62,943
              )
              
              (62,943
              )**Balance,
                  December 31, 2006**
              
              
              **106,340**
              
              **$**
              **106**
              
              **$**
              **105,131**
              
              **$**
              **—**
              
              **$**
              **(89,008**
              **)**
              **$**
              **16,229**






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




F-5


**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(in
      thousands)




**December 31****Cash flows from operating activities:**
            
            **2006**
            
            **2005**
            
            **2004**Net
                loss
            
            $
            (62,943
            )
            $
            (18,269
            )
            $
            (6,072
            )Adjustments
                to reconcile net loss tonet
                cash used in operatingactivities:Depreciation
                and amortization
            
            
            1,703
            
            
            1,100
            
            
            29Noncash
                interest and liquidated damages
            
            
            264
            
            
            85
            
            
            2,661Impairment
                of goodwill and intangibles
            
            
            44,081
            
            
            —
            
            
            —Noncash
                loss on disposal of assets
            
            
            70
            
            
            —
            
            
            —Write-down
                of raw materials and finished goods
            
            
            997
            
            
            —
            
            
            —Stock-based
                compensation
            
            
            4,864
            
            
            484
            
            
            373Allowance
                for uncollectible accounts receivable
            
            
            55
            
            
            80
            
            
            —Allowance
                for uncollectible note receivable
            
            
            —
            
            
            890
            
            
            —Loss
                on equity investee
            
            
            665
            
            
            53Inventory
                reserve
            
            
            75
            
            
            —
            
            
            —Litigation
                settlement
            
            
            489
            
            
            —
            
            
            —Amortization
                of discount on convertible bridge notes
            
            
            320
            
            
            —
            
            
            —Fair
                value adjustment for registration rights derivative
                liability
            
            
            —
            
            
            (9
            )
            
            —Common
                stock, warrants and optionsfor
                services
            
            
            90
            
            
            3,080
            
            
            686Amortization
                of deferred financing cost
            
            
            100
            
            
            —
            
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (76
            )
            
            (227
            )Inventories
            
            
            (21
            )
            
            (1,210
            )
            
            (100
            )Prepaid
                expenses
            
            
            (79
            )
            
            (276
            )
            
            (442
            )Accounts
                payable
            
            
            (513
            )
            
            1,592
            
            
            63Other
                accrued liabilities
            
            
            189
            
            
            781
            
            
            424Net
                cash used in operating activities
            
            
            (9,670
            )
            
            (11,846
            )
            
            (2,378
            )Cash
                flows from investing activities:Cash
                payments made as part consideration for assets acquired
            
            
            —
            
            
            (2,582
            )Purchases
                of property and equipment
            
            
            (123
            )
            
            (824
            )
            
            (112
            )Advances
                pursuant to notes
            
            
            —
            
            
            (3,511
            )
            
            (400
            )Investment
                in equity investee
            
            
            —
            
            
            (718
            )Payments
                for deposits and other
            
            
            —
            
            
            (19
            )
            
            (18
            )Net
                cash used in investing activities
            
            
            (123
            )
            
            (7,654
            )
            
            (530
            )Cash
                flows from financing activities:Proceeds
                from private placements,net
                of issue costs
            
            
            10,560
            
            
            6,435
            
            
            13,867Deferred
                financing costs
            
            
            (90
            )
            
            —
            
            
            —Proceeds
                from convertible debentures, net
            
            
            —
            
            
            —
            
            
            2,066Exercise
                of warrants/options
            
            
            73
            
            
            286
            
            
            1,168Repayment
                of auto loan
            
            
            (11
            )Repayments
                on note payable - IRL
            
            
            (844
            )
            
            (409
            )Net
                cash provided by financingactivities
            
            
            9,688
            
            
            6,311
            
            
            17,100Net
                decrease in cash and cash equivalents
            
            
            (105
            )
            
            (13,188
            )
            
            14,192Cash
                and cash equivalents, beginningof
                period
            
            
            1,037
            
            
            14,225
            
            
            33Cash
                and cash equivalents, end ofperiod
            
            $
            932
            
            $
            1,037
            
            $
            14,225Supplemental
                disclosures of cashflow
                information:Interest
                paid
            
            $
            38
            
            $
            186
            
            $
            27Supplemental
                disclosures of noncash investing and financing activities:Conversion
                of debt and accruedinterest
                into common stock
            
            $
            194
            
            $
            29
            
            $
            2,016Warrants
                issued and embedded conversion feature associatedwith
                debt financing
            
            $
            1,920
            
            $
            —
            
            $
            2,185Warrants
                payable - placement agent
            
            $
            409
            
            $
            —
            
            $
            —Vehicle
                purchased via note payable
            
            $
            
            
            $
            57
            
            $
            —Payment
                of deferred financing costs
            
            $
            121
            
            $
            —
            
            $
            —






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




F-6




**TASKER
      PRODUCTS CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.**  **NATURE
      OF OPERATIONS**




Tasker
      Products Corp. (formerly known as Tasker Capital Corp.) and its subsidiaries
      (collectively, “the Company” or “Tasker”) was
      formed on May 13, 1996 and was in the development stage through
      December 31, 2005. The quarterly period ended March 31, 2006 is
      the first period during which Tasker is considered an operating company.
      The Company manufactures,
      distributes and markets products using pHarlo technology, a process that enables
      copper sulfate, a compound with bacteriostatic properties, to remain active
      throughout a wide range of pH values. The Company currently markets, Unifresh®
Footbath, a grooming aid for dairy cows ;
      Tasker
      Blue, an antimicrobial aid in the scalder (which is a method of loosening
      feathers so that they can be picked and removed mechanically) and post-feather
      picker process (the method used in chicken processing that receives chickens
      immediately after the scalder and mechanically removes feathers) sections of
      poultry processing; and Tasker Pacific BlueTM Seafood
      Wash, a product used in commercial and retail seafood processing to extend
      shelf
      life and reduce or eliminate odors. In August 2005, we began the in-plant
      commercial verification process for United States Department of Agriculture
      (USDA) approval to use the pHarlo technology in the scalder process of poultry
      processing.





As
      a
      result of the acquisition (the “2005 Acquisition”) by the Company of certain
      assets of pHarlo Citrus Technologies, Inc. (“PCTI”), Indian River Labs, LLC
      (“IRL”), pHarlo Citrus Properties Partnership, LLLP (“PCPP”), and Coast to Coast
      Laboratories, LLC (“C2C, **”** and
      together with PCTI, PCPP and IRL, the “Selling Entities”) in July 2005 (see Note
      12), the Company now owns the utility patent applications and provisional patent
      applications associated with the pHarlo technology in the Company’s field of
      use, and has entered into a new sub-license agreement for the base patents
      associated with the pHarlo technology.




In
      June
      2006 the shareholders of Tasker approved an amendment to Tasker’s articles of
      incorporation to change Tasker’s name to Tasker Products Corp. The name change
      became effective on June 28, 2006.




**2.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




**Principles
      of Consolidation:**




The
      consolidated financial statements include the accounts of Tasker and its
      subsidiaries. All significant intercompany balances and transactions have been
      eliminated in consolidation.




**Use
      of Estimates:**




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





**Fair
      Value of Financial instruments:**




The
      carrying amounts of the Company’s financial instruments, including cash and cash
      equivalents, accounts receivable, accounts payable and accrued liabilities,
      approximate their fair values because of their short-term nature.




**Cash
      and Cash Equivalents:**




The
      Company considers all highly liquid investments with maturity of three months
      or
      less at date of purchase to be cash equivalents. The Company maintains its
      cash
      primarily in one financial institution which, at times, exceeds Federal Deposit
      Insurance Corporation (“FDIC”) insured limits. The Company has not incurred any
      losses in such accounts and believes it is not exposed to any significant credit
      risk on cash.




F-7




**Going
      Concern and Management’s Response:**




The
      Company has continued to sustain losses from operations and for the years ended
      December 31, 2006, 2005 and 2004 it has incurred losses of approximately
      $62,943,000, $18,269,000, and $6,072,000 respectively. In addition, the Company
      has not generated positive cash flows from operations for the years ended
      December 31, 2006, 2005 and 2004.




As
      of
      December 31, 2006, the Company received cash in the amount of $1,920,000 from
      several investors. In exchange for the cash received the Company issued to
      the
      investors 10% Secured Convertible Bridge Notes (the “Convertible Bridge
      Notes”)  that  are
      convertible to purchase approximately 26,482,759 shares of common stock at
      a
      conversion price of $0.0725 per share. As an inducement for the investors to
      purchase the Convertible Bridge Notes, the Company issued to these investors
      four-year warrants, which entitle them to purchase an aggregate of approximately
      10,666,656 shares of the Company’s common stock based on 50% of the principal
      amount of the notes purchased by the investor and divided by the per share
      exercise price of $0.09. As compensation for serving as placement agent, Indigo
      Securities, LLC received cash of approximately $192,000 and seven-year warrants
      purchasing an aggregate of approximately 2,648,276 shares of the Registrant’s
      common stock at an exercise price of $0.0725 per share. These warrants contain
      a
      "cashless exercise" option. Between January 1, 2007 and March 2007, the Company
      received additional cash of approximately $3,079,000 and issued additional
      Convertible Bridge Notes that are convertible to purchase approximately
      42,468,966 shares of commons stock at a conversion price of $0.0725 per share.
      In conjunction with these Convertible Bridge Notes the Company issued to the
      investors warrants, to purchase an aggregate of approximately 17,105,556 shares
      of our common stock at an exercise price of $0.09 per share. Indigo Securities,
      LLC received cash of approximately $307,900 and seven-year warrants to purchase
      an aggregate of approximately 4,246,897 shares of the Registrant's common stock
      at an exercise price of $0.0725 per share. These warrants contain a "cashless
      exercise" option.





Based
      upon the Company’s forecast of future revenues from its products in conjunction
      with the cash on hand, cash expected to be generated from operations will not
      provide adequate funding for the Company’s working capital over the next twelve
      months. The Company’s cash resources and its ability to continue to operate and
      grow its business are dependent upon obtaining new financing and/or generating
      revenue growth from operations. While the Company has been in the process of
      aggressively developing, marketing and selling its products, there can be no
      assurance that those efforts will be met with success in the marketplace or
      that
      the timing of the Company’s efforts will be consistent with its cash
      availability and burn rate. If the Company is unable to arrange new financing
      and/or generate sufficient revenue growth from existing and new business
      arrangements, the Company will not have sufficient cash to support its
      operations and meet its obligations. The Company anticipates that it will need
      approximately an additional $4 million to support its operations and meet its
      obligations over the next twelve months. To raise additional cash, the Company
      is currently in the process of securing alternative methods of financing,
      including the exercise of warrants by current investors, private issuances
      of
      debt and/or equity.





In
      view
      of the matters described above, recoverability of a major portion of the
      recorded asset amounts shown in the accompanying balance sheet is dependent
      upon
      continued operations of the Company, which in turn is dependent upon the
      Company’s ability to raise additional capital, obtain financing and to succeed
      in its future operations. The financial statements do not include any
      adjustments relating to the recoverability and classification of recorded asset
      amounts or amounts and classification of liabilities that might be necessary
      should the company be unable to continue as a going concern.





**Allowance
      for Doubtful Accounts:**




Estimates
      are used to determine the amount of the allowance for doubtful accounts
      necessary to reduce accounts receivable to the estimated net realizable value.
      These estimates are made by analyzing the status of significant past-due
      receivables and by establishing general provisions for estimated losses by
      analyzing current and historical bad debt trends. Actual collection experience
      has not varied significantly from estimates. Receivables that are ultimately
      deemed uncollectible are charged off as a reduction of receivables and the
      allowance for doubtful accounts. Accounts receivable balances are not
      collateralized.




**Inventories:**




Inventories
      are stated at the lower of cost or market. Cost is determined using the
      first-in, first-out (FIFO) method.




**Property
      and Equipment and Other Assets:**




Property
      and equipment are stated at cost, net of accumulated depreciation. Depreciation
      is computed using the straight-line method over the estimated useful lives
      of
      the assets, generally three to ten years. Repairs and maintenance costs are
      charged to expense as incurred. When assets are retired or otherwise disposed
      of, the asset and related accumulated depreciation are eliminated from the
      accounts and any resulting gain or loss is recorded in operations.




F-8




**Goodwill
      and Other Intangible Assets** **:**




In
      accordance with Statement of Financial Accounting Standard (SFAS)
      No. 142, *Goodwill
      and Other Intangible Assets* (SFAS No. 142), the Company does not amortize goodwill, but instead
      tests goodwill for impairment at least annually or whenever events or changes
      in
      circumstances indicate that impairment may have occurred. In accordance with
      SFAS No. 142, the Company tests for potential impairment of goodwill by
      comparing the carrying amount of the reporting unit to its fair value. If the
      carrying amount of the reporting unit is greater than the fair value, goodwill
      impairment may be present. The Company measures the goodwill impairment, if
      any,
      based upon the fair value of the underlying assets and liabilities of the
      reporting unit, including any unrecognized intangible assets, and estimates
      the
      implied fair value of goodwill. An impairment charge is recognized to the extent
      the recorded goodwill exceeds the implied fair value of goodwill.





In
      accordance with SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* (SFAS No. 144),
      long-lived assets, including intangible assets, are reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be fully recoverable. If an impairment indicator is present,
      the Company evaluates recoverability by a comparison of the carrying amount
      of
      the assets to future undiscounted net cash flows expected to be generated by
      the
      assets. If the assets are impaired, the impairment recognized is measured by
      the
      amount by which the carrying amount exceeds the estimated fair value of the
      assets.





As
      discussed more fully in Note 6, the Company tested goodwill and intangible
      assets for impairment at both June 30 and December 31, 2006, and recorded
      impairment charges of $31,842 for goodwill and $12,239 for intangible assets
      for
      the year ended December 31, 2006.




**Income
      Taxes:**




The
      Company accounts for income taxes pursuant to SFAS No. 109, “Accounting for
      Income Taxes,” (SFAS No. 109) which requires recognition of deferred tax assets
      and liabilities for the expected future income tax consequences of transactions
      that have been included in the financial statements or tax returns. Under this
      method, deferred tax assets and liabilities are determined based on the
      differences between the financial statement and tax basis of assets and
      liabilities using enacted tax rates in effect for the year in which the
      differences are expected to reverse. SFAS No. 109 requires that a valuation
      allowance be established against recorded deferred tax assets recorded if,
      based
      on the weight of available evidence, it is more likely than not that some
      portion or all of the deferred tax assets will not be realized. The Company
      has
      concluded that it is more likely than not that it will not be able to realize
      its deferred tax assets as of December 31, 2006 and, accordingly, a valuation
      allowance has been recorded against those assets.




In
      September 2005, the FASB ratified EITF Issue No. 05-8, “Income Tax Consequences
      of Issuing Convertible Debt with a Beneficial Conversion Feature” (“EITF No.
      05-8”), which addresses tax consequences of the accounting treatment of
      convertible debt issued with a beneficial conversion feature. As a result,
      a
      deferred tax liability should be recognized for the temporary difference between
      the carrying value of debt with a beneficial conversion feature for book and
      tax
      reporting purposes. The tax-effected difference should be recognized as an
      adjustment of additional paid-in capital. Entities were required to apply the
      guidance in EITF No. 05-8 in the first interim or annual reporting period that
      begins after December 15, 2005. The provisions are to be applied retrospectively
      under the guidance in SFAS 154 to all convertible debt instruments with a
      beneficial conversion feature accounted for under the guidance in EITF No.
      00-27
“Application of EITF Issue No. 98-5 `Accounting for Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion Ratios.'”
We have applied the requirements of EITF No. 05-8 to all previously existing
      convertible debt instruments with a beneficial conversion feature and will
      apply
      the requirements of EITF No. 05-8 for all new convertible debt instruments
      with
      a beneficial conversion feature. Because we have recorded a valuation allowance
      against our deferred tax assets, the adoption of this pronouncement for new
      convertible debt instruments with a beneficial conversion feature did not have
      an impact on our consolidated financial position, results of operations or
      cash
      flows.




**Share-Based
      Compensation:**




Prior
      to
      January 1, 2006, the Company accounted for its stock-based compensation
      using the intrinsic value method of accounting under the provisions of
      Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* (APB
      No. 25). The Company’s stock-based compensation awards have generally been
      granted with an exercise price equal to the estimated fair value of the
      underlying common stock on the grant date, and accordingly, any stock-based
      compensation related to stock option grants was not material under APB
      No. 25. The Company applied the disclosure provisions under SFAS
      No. 123, *Accounting
      for Stock-Based Compensation* and
      related interpretations (SFAS No. 123) as if the fair value had
      been applied in measuring compensation expense. As a result, stock-based
      compensation expense, based upon the fair value method was included as a pro
      forma disclosure in the notes to the Company’s financial statements.




F-9





The
      following illustrates the effect on the Company’s net loss as if the Company had
      applied the fair value recognition provisions of SFAS No. 123 to
      stock-based compensation during 2005 and 2004 (in thousands, except per share
      data):




**2005**
            
            **2004**Net
                loss, as reported
            
            $
            (18,269
            )
            $
            (6,072
            )Add:
                Stock -based compensation included in net loss, as
                reported
            
            
            484
            
            
            373Less:
                Stock -based compensation expense determined under the fair value
                method
            
            
            (6,252
            )
            
            (2,671
            )Net
                loss, pro-forma
            
            $
            (24,037
            )
            $
            (8,370
            )Basic
                and diluted loss per share, as reported
            
            $
            (0.25
            )
            $
            (0.26
            )Basic
                and diluted loss per share, pro-forma
            
            $
            (0.33
            )
            $
            (0.35
            )




The
      following assumptions were used in calculating the pro forma stock-based
      compensation expense:




**2005**
            
            **2004**Risk-free
                interest rate
            
            
            2.10
                - 3.80
            %
            
            2.10
                - 3.18
            %Expected
                option term
            
            
            2.5
                - 5 years
            
            
            2.5
                - 3 yearsStock
                price volatility
            
            
            140
            %
            
            197
            %Dividend
                yield
            
            
            —
            
            
            —




Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS No. 123R”), utilizing the modified prospective
      method whereby prior periods were not restated for comparability. SFAS No.
      123R
      requires recognition of stock-based compensation expense in the statement of
      operations over the vesting period based on the fair value of the award at
      the
      grant date. The Company recorded approximately $4.9 million of stock based
      compensation expense for the year ended December 31, 2006, with approximately
      $3.7 million of this expense attributable to employee stock options and warrants
      and the remainder, approximately $1.2 million, attributable to stock options
      and
      warrants awarded to consultants and non-employee board members. The compensation
      cost associated with these awards is recorded as an expense within the same
      functional expense category as cash compensation for the respective grantee.
      No
      tax benefit has been recognized with respect to this expense.




**Derivative
      Instruments** **:**




Since
      inception, the Company has entered into several debt and equity transactions
      to
      fund its operations. A number of these transactions involved the issuance of
      convertible debt and warrants. These transactions also included registration
      rights agreements that impose significant penalties on the Company if certain
      conditions are not met.




The
      Company has issued and outstanding several financial instruments with
      embedded-derivative features, consisting of convertible debt and warrants.
      The
      Company analyzes these financial instruments in accordance with SFAS No. 133
      “Accounting for Derivative Instruments and Hedging Activities”, Emerging Issues
      Task Force (EITF) Issue, No. 00−19 “Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (EITF
      00-19) and No. 05−2 “The Meaning of ‘Conventional Convertible Debt Instruments’
in Issue No. 00-19” (EITF 05-2) to determine if these hybrid contracts have
      embedded derivatives that must be bifurcated and accounted for at fair value.
      In
      addition, free standing warrants are accounted for as either equity or
      liabilities in accordance with the provisions of EITF 00−19.




EITF
      Issue No. 05−4 “The Effect of a Liquidated Damages Clause on a Freestanding
      Financial Instrument Subject to EITF Issue No. 00−19, ‘Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock’” (EITF 05-4) addresses financial instruments, such as convertible notes
      and stock purchase warrants, which are accounted for under EITF 00−19, that are
      issued with a corresponding right to have these securities registered pursuant
      to a registration rights agreement and that includes a liquidated damages
      clause. We have adopted View C as described in the EITF Issue No. 05-4 Issue
      Summary No. 1. Under View C, registration rights agreements and the associated
      financial instruments are accounted for as separate instruments. Accordingly,
      we
      have given only prospective application to this guidance. On December 21, 2006,
      the Financial Accounting Standards Board issued FASB
      Staff Position (FSP) EITF No. 00-19-2 which is effective for fiscal years
      beginning after December 15, 2006. This
      FSP
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration rights agreement, whether issued
      as
      a separate agreement or included as a provision of a financial instrument or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, *Accounting
      for Contingencies* .
      Our
      treatment of the registration rights agreement as separate instruments is
      consistent with this FSP.




F-10




In
      connection with our examination of past transactions for application of EITF
      05-4, we noted that for the period from entering into the April 2004 Securities
      Purchase Agreement until we increased our authorized shares in August 2004,
      we
      had insufficient shares to meet all potential obligations to issue shares under
      our convertible notes and exercisable warrants and options. Under EITF 00-19,
      a
      liability should have been recognized upon issuance, with any changes in the
      fair value of the liability recognized in earnings. The Company has determined
      that the impact on earnings was not material.




In
      April
      2004 and July 2004, we entered into private placement agreements, including
      registration rights agreements for convertible debentures and warrants. Based
      on
      the interpretive guidance in EITF 05−4, due to an uncapped liquidated damages
      provision in the registration rights agreements, the registration rights
      represent derivative liabilities and are to be from the related financial
      instruments and accounted for at fair value. Accordingly, the estimated fair
      value of the registration rights derivative of $244,000 was recorded as a
      liability on October 1, 2005, the beginning of the first fiscal period after
      September 15, 2005, the date that EITF postponed further deliberations.
      Subsequently, changes in the estimated fair value of the derivative liability
      were recorded in the consolidated statement of operations. As of December 31,
      2006, the full amount of the derivative liability balance was reversed since
      the
      shares purchased under the April 2004 and July 2004 private placements could
      be
      sold under Rule 144(k) of the Securities Act of 1933. Conversely, as of December
      31, 2006, we had recorded approximately $441,000, the full and maximum potential
      amount of the actual incurred liquidated damages associated with the April
      2004
      and the July 2004 registration rights agreements.




In
      December 2004 and January 2006 we entered into private placements agreements,
      including registration rights agreements. The estimated fair values of the
      related registration rights derivatives were not material, either at issuance
      or
      at subsequent reporting dates and, accordingly, the liabilities were not
      recorded. With the adoption of the FSP effective January 1, 2007, we will assess
      our exposure to liquidated damages in connection with the registration rights
      and if determined to be probable, the Company will record a liability at that
      time.




In
      September 2005 we entered into a private placement agreement, including a
      registration rights agreement. The estimated fair value of the registration
      rights derivative was not material at the time of issuance, and accordingly,
      a
      liability was not recorded. Subsequently, in connection with the January 2006
      private placement, we amended our September 2005 agreement such that the rights
      holder waived the liquidated damages relating to our inability to have such
      registration statement declared effective by May 23, 2006. On
      April 26, 2006, we filed a registration statement registering for resale
      the securities purchased in the September 2005 and January 2006 private
      placements. The Company believes, that as it relates to the September 2005
      private placement, we have used our best efforts to cause the registration
      statement to be declared effective and, therefore, pursuant to the terms of
      the
      September 2005 registration rights agreement, we are not currently liable for
      liquidated damages as a result of the registration statement not being declared
      effective by May 23, 2006. Should the rights holders dispute our position,
      and
      should they prevail, the estimated maximum amount of liquidated damages for
      which we could be liable, assuming (i) ineffectiveness from May 23,
      2006 to the end of the period covered by the registration agreement and
      (ii) a stock price of $0.37 for periods subsequent to July 26, 2006,
      is approximately $270,000.




As
      it
      relates to the January 2006 private placement, the Company, despite using
      its best efforts, failed to have the registration statement declared effective
      by the SEC on or before October 26, 2006. Consequently, as of December 31,
      2006
      the Company is required to issue to each holder of the January 2006 private
      placement, shares and warrants equal to one percent of the respective number
      of
      shares and warrants purchased by each holder or an aggregate of 138,859 shares
      of common stock and warrants to purchase 138,859 shares of common stock and
      recorded liquidated damages expense of $23,000.




We
      have
      not incurred any liquidated damages liabilities related to any of our other
      registration rights agreements.




**Revenue
      Recognition:**




The
      Company recognizes revenues from the sale of its products based on the
      provisions of SEC Staff Accounting Bulletin No. 104, “Revenue Recognition”. The
      Company recognizes revenue when all of the following conditions are
      met:




·
            there
                is persuasive evidence of an
                arrangement;




F-11




·
            the
                risk of loss and title to the product transfers to the
                customer;




·
            the
                collection of the fees is reasonably assured
                and




·
            the
                amount of fees to be paid by the customer is fixed or
                determinable.




The
      Company’s arrangements do not contain general rights of return or warranty
      provisions.




**Advertising
      Costs:**




Advertising
      costs are charged to operations as incurred and were $111,000, $177,000 and
      $-0-
      for the years ended December 31, 2006, 2005 and 2004, respectively.




**Product
      Development:**




Product
      development expenditures are expensed as incurred.





**Basic
      and Diluted Net Loss Per Common Share:**




Basic
      and
      diluted earnings per common share are computed in accordance with SFAS
      No. 128, “Earnings per Share”. Basic loss per common share is computed by
      dividing net loss attributable to common stockholders by the weighted average
      number of common shares outstanding. Diluted net loss per common share is
      computed similarly to basic loss per common share except that the denominator
      is
      increased to include common share equivalents. Diluted net loss per common
      share
      does not differ from basic net loss per common share since potential common
      shares from the exercises of stock options and warrants and the conversion
      of
      debt are anti-dilutive for all periods presented The following common share
      equivalents were excluded from the calculation of net loss per common share
      at
      December 31, (in thousands):





**2006**
            
            **2005**
            
            **2004**Stock
                Options
            
            
            20,611
            
            
            16,541
            
            
            15,650Warrants
            
            
            54,842
            
            
            7,361
            
            
            10,242Convertible
                Debentures
            
            
            —
            
            
            2,095
            
            
            6,190Convertible
                Bridge Notes
            
            
            26,483
            
            
            —
            
            
            —101,936
            
            
            25,997
            
            
            32,082




**Reclassifications:**




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




**Recent
      Accounting Pronouncements:**




In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Instruments,” which amends SFAS No. 133, “Accounting for Derivative Instruments
      and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155
      allows financial instruments that have embedded derivatives to be accounted
      for
      as a whole (eliminating the need to bifurcate the derivative from its host)
      if
      the holder elects to account for the whole instrument on a fair value basis.
      SFAS No. 155 also clarifies and amends certain other provisions of SFAS No.
      133
      and SFAS No. 140. This statement is effective for all financial instruments
      acquired or issued in fiscal years beginning after September 15, 2006. The
      Company is currently evaluating the effect, if any, the adoption of
      SFAS No. 155 will have on our financial statements.




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




FIN
      48
      establishes a two-step approach for evaluating tax positions. The first step,
      recognition, occurs when a company concludes (based solely on the technical
      aspects of the tax matter) that a tax position is more likely than not to be
      sustained on examination by a taxing authority. The second step, measurement,
      is
      only considered after step one has been satisfied and measures any tax benefit
      at the largest amount that is deemed more likely than not to be realized upon
      ultimate settlement of the uncertainty. Tax positions that fail to qualify
      for
      initial recognition are recognized in the first subsequent interim period that
      they meet the more likely than not standard, when they are resolved through
      negotiation or litigation with the taxing authority or upon the expiration
      of
      the statute of limitations. Derecognition of a tax position previously
      recognized would occur when a company subsequently concludes that a tax position
      no longer meets the more likely than not threshold of being sustained. FIN
      48
      also significantly expands the financial statement disclosure requirements
      relating to uncertain tax positions. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. Differences between the amounts
      recognized in the balance sheet prior to adoption and the amounts recognized
      in
      the balance sheet after adoption will be accounted for as a cumulative effect
      adjustment to the beginning balance of retained earnings. We do not believe
      that
      the adoption of FIN 48 will have a material effect on our consolidated financial
      statements.




F-12




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS No. 157), which defines fair value, establishes a framework for measuring
      fair value and requires additional disclosures about fair value measurements.
      SFAS No. 157 is effective for fiscal years beginning after
      November 15, 2007. The Company is currently evaluating the effect, if any,
      the adoption of SFAS No. 157 will have on our consolidated financial
      statements.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (SAB 108), which provides guidance for quantifying financial
      statement misstatements. The Company adopted the provisions of SAB 108 in 2006.
      The adoption of SAB 108 did not have a material effect on the Company’s
      consolidated financial statements.




In
      December 2006, the FASB issued FSP EITF No.  00-19-2,
      “Accounting for Registration Payment Arrangements” (FSP 00-19-2) which addresses
      accounting for registration payment arrangements. FSP 00-19-2 specifies that
      the
      contingent obligation to make future payments or otherwise transfer
      consideration under a registration payment arrangement, whether issued as a
      separate agreement or included as a provision of a financial instrument or
      other
      agreement, should be separately recognized and measured in accordance with
      FASB
      Statement No. 5, Accounting for Contingencies. FSP 00-19-2 further clarifies
      that a financial instrument subject to a registration payment arrangement should
      be accounted for in accordance with other applicable generally accepted
      accounting principles without regard to the contingent obligation to transfer
      consideration pursuant to the registration payment arrangement. For registration
      payment arrangements and financial instruments subject to those arrangements
      that were entered into prior to the issuance of FSP 00-19-2, this guidance
      is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2006 and interim periods within those fiscal years. We do not
      believe that the adoption of FSP 00-19-2 will have a material effect on our
      consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to
      choose to measure many financial instruments, and certain other items, at fair
      value. SFAS No. 159 applies to reporting periods beginning after November 15,
      2007. The Company is currently evaluating the effect, if any, the adoption
      of
      SFAS No. 159 will have on its financial statements.




F-13




**3.** **INVENTORIES**




Inventory
      consisted of the following (in thousands):





**December
                31,****2006**
            
            **2005**Raw
                materials
            
            $
            89
            
            $
            956Finished
                goods
            
            
            211
            
            
            470300
            
            
            1,426Less
                Inventory Reserve
            
            
            —
            
            
            (75
            )$
            300
            
            $
            1,351




**4.** **PROPERTY
        AND EQUIPMENT, NET**




Property
      and equipment consisted of the following (in thousands):





**December 31,****Estimated
                Useful Life**
            
            **2006**
            
            **2005**Machinery
                and equipment
            
            
            5-10
                years
            
            $
            1,114
            
            $
            1,062Office
                furniture, fixtures and capitalized software
            
            
            1-5
                years
            
            
            541
            
            
            466Vehicles
            
            
            5
                years
            
            
            62
            
            
            1651,717
            
            
            1,693Less
                Accumulated depreciation
            
            
            
            
            
            (406
            )
            
            (168
            )$
            1,311
            
            $
            1,525




Depreciation
      expense for the years ended December 31, 2006, 2005 and 2004 was approximately
      $267,000, $157,000 and $29,000, respectively.




**5.**  **NOTES
      RECEIVABLE**





On
      March 28, 2005, pursuant to the 2005 acquisition we issued to David
      Creasey, a principal of pHarlo Citrus Technologies and Indian River Labs, in
      the
      amount of $625,000. This loan is evidenced by a promissory note and secured
      by
      options and stock that Mr. Creasey holds in our company. As of December 31,
      2006, the balance of this note is approximately $719,000 including accrued
      interest of approximately $94,000.





**6.**  **GOODWILL
      AND INTANGIBLE ASSETS**




The
      Company accounts for goodwill and other intangible assets at their estimated
      fair values in accordance with SFAS No. 142, “Goodwill and Other Intangible
      Assets”. Goodwill is tested annually for impairment, or more frequently when
      indicators of impairment are present. The impairment test for goodwill involves
      a two-step process. The first step compares the fair value of a reporting unit
      with its carrying amount, including the goodwill allocated to each reporting
      unit. If the carrying amount is in excess of the fair value, SFAS No. 142
      requires performance of the second step of the impairment testing for the
      reporting unit. The second step requires the comparison of the implied fair
      value of the reporting unit goodwill with the carrying value of the reporting
      unit goodwill. Any excess of the carrying value of the goodwill over the implied
      fair value will be recorded as an impairment loss. The implied fair value of
      goodwill is determined in the same manner as would occur in a purchase
      transaction, treating the fair value of the reporting unit as the equivalent
      of
      the purchase price and deducting from that amount, the fair value of the net
      assets assigned to the reporting unit. The Company, in its entirety, comprises
      a
      single reporting unit for the purpose of this impairment
      calculation.




In
      accordance with SFAS No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets *”* ,
      long-lived assets, including intangible assets, are reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be fully recoverable. If an impairment indicator is present,
      the Company evaluates recoverability by a comparison of the carrying amount
      of
      the assets to future undiscounted net cash flows expected to be generated by
      the
      assets. If the assets are impaired, the impairment recognized is measured by
      the
      amount by which the carrying amount exceeds the estimated fair value of the
      assets.





F-14
 
  In
        June
        2006 and again in December 2006, based on the following impairment indicators,
        the Company tested goodwill and intangible assets for
        impairment:




· an expectation that third and fourth quarter 2006 revenue projections
      would not be attained;




· a decrease in expected future cash flows; and




· a
      decline in the market price of the Company’s common stock




The
      Company considered these impairment indicators and, determined the fair value
      of
      the Company’s single reporting unit utilizing the discounted cash flow method in
      June 2006 and a weighted average income approach in December 2006. The analysis
      indicated that the carrying amount of the reporting unit exceeded its fair
      value. Accordingly, the second step was performed. The combined results of
      the
      June and December impairment tests resulted in the recognition of non-cash
      impairment charges to identifiable intangible assets and goodwill of $12.2
      million and $31.8 million, respectively.




The
      Company’s specifically identifiable intangible assets, which consist exclusively
      of utility patents, are reported at cost, net of accumulated amortization.
      These
      intangible assets are being amortized using the straight-line method over their
      estimated useful lives of 10.5 years.




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




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




The
      net
      carrying values of goodwill and other intangible assets at December 31, 2005
      were as follows (in thousands):




**Gross Carrying Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net Carrying Amount/
                Adjusted Basis**Amortizable
                utility patents
            
            $
            22,500
            
            $
            938
            
            $
            21,562Goodwill
            
            $
            41,677
            
            $
            —
            
            $
            41,677




The
      Company recorded amortization expense of $1,436,000 and $938,000 related to
      the
      other intangible assets for the years ended December 31, 2006 and 2005,
      respectively.




Future
      expected amortization of intangible assets at December 31, 2006 was as follows
      (in thousands):




2007
            
            $
            8272008
            
            
            8272009
            
            
            8272010
            
            
            8272011
                and thereafter
            
            $
            4,579




**7.**  **OTHER
      ACCRUED LIABILITIES**





Other
      accrued liabilities consisted of the following (in thousands):





**December 31,****2006**
            
            **2005**Accrued
                wages
            
            $
            90
            
            $
            162Accrued
                interest
            
            
            148
            
            
            119Liquidated
                damages
            
            
            464
            
            
            286Accrued
                legal and accounting fees
            
            
            240
            
            
            322Accrued
                consulting
            
            
            198
            
            
            173Registration
                rights liability
            
            
            —
            
            
            235Litigation
                settlement
            
            
            423
            
            
            —Accrued
                purchases
            
            
            99
            
            
            —Other
            
            
            847
            
            
            315$
            2,509
            
            $
            1,612




F-15




**8.**  **STOCKHOLDERS’
      EQUITY:**




In
      December 2004, the Company completed the private placement of 9,406,250 shares
      of its common stock with several accredited investors for an aggregate purchase
      price of $13,868,000, net of issuance costs. Since the common shares related
      to
      this private placement were not issued until 2005, the net proceeds from this
      offering were classified as common stock subscribed at December 31,
      2004.




During
      the year ended December 31, 2004, stockholders **’** equity
      was also increased as a primary result of (i) the allocation of proceeds to
      the
      approximate 19.5 million warrants and embedded conversion features associated
      with the issuance of convertible debentures , (ii) the conversion of
      approximately $2.0 million of debentures into approximately 18.2 million shares
      of common stock **,** (iii)
      the exercise of approximately 14.5 million warrants generating cash proceeds
      of
      approximately $1.2 million, (iv) stock **-** based
      compensation of approximately $373,000 and (v) the issuance of common stock,
      warrants and options for services of approximately $685,000.




In
      February 2005, a secured promissory note holder exchanged his note in the amount
      of $49,950, plus interest and services rendered over the past two
      years **,** for
      32,272 restricted common shares at $1.65, or $2.30 less than the market value
      of
      the stock on the date of the exchange. In connection with the exchange, the
      Company recognized approximately $74,000 of consulting fees during the year
      ended December 31, 2005.




In
      July
      2005, the Company executed an Asset Purchase Agreement whereby the Company
      issued 18,992,388 shares of its common stock valued at $56,977,164 (see Note
      12).




In
      September 2005, the Company completed the private placement of 2,947,545 shares
      of its common stock with several accredited investors for an aggregate purchase
      price of approximately $6,485,000 or $2.20 per share. As part of the private
      placement, the Company also (i) issued 1,473,769 warrants to purchase the
      Company’s common stock at $3.00 per share and (ii) entered into a Registration
      Rights Agreement (as discussed in more detail in Note 2).




During
      the year ended December 31, 2005, stockholders **’** equity
      was also increased as a result of (i) the issuance of options for vendor
      services of approximately $3.1 million, (ii) employee stock-based compensation
      of approximately $484,000, (iii) the conversion of approximately $243,000 of
      convertible debentures and accrued interest into approximately 4,090,000 shares
      of common stock and (iv) the exercise of approximately 4.8 million options
      and
      warrants generating cash proceeds of approximately $285,000.




On
      January 26, 2006, the Company issued to accredited investors 13,335,925 units
      consisting of one share of common stock and one warrant to purchase one share
      of
      common stock at an exercise price of $1.00 per share for $0.70 per unit, with
      net proceeds of $8.7 million. In connection with this private placement, the
      Company entered into a Registration Rights Agreement with the investors pursuant
      to which the Company agreed to register common shares issued, as well as the
      shares underlying the warrants. The Company filed the registration statement
      in
      April 2006. The Company incurred issuance costs of approximately $4.6 million,
      including cash payments and warrants issued to the placement agent.





During
      the year ended December 31, 2006, stockholders’ equity was also increased as a
      result of (i) the issuance of options for vendor services of approximately
      $90,000, (ii) the recording of employee stock-based compensation of
      approximately $4.9 million, (iii) the conversion of approximately $194,000
      of
      convertible debentures and accrued interest into approximately 2,095,000 shares
      of common stock, (iv) the exercise of warrants and stock options for
      approximately 1,613,000 shares of common stock generating cash proceeds of
      approximately $73,000, and (v) the allocation of value to warrants to purchase
      approximately 13,315,000 shares of common stock and the recording of beneficial
      conversion features associated with the December 2006 convertible debt
      offering.





F-16




**9.**  **WARRANTS
      AND STOCK OPTIONS**




**Warrants:**




Outstanding
      warrants were as follows at December 31, 2006:




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




·
            Warrants
                to purchase 300,000 shares of common stock issued to pHarlo in connection
                with a license agreement in November 2002. The warrants have a five
                year
                term and were issued with an exercise price of $0.25 per
                share.




·
            Warrants
                to purchase 3,100,000 shares of common stock issued to consultants
                in
                November 2002. The warrants have a five year term and were issued
                with an
                exercise price of $0.25 per share.




·
            Warrants
                to purchase 400,000 shares of common stock issued to a consultant
                in May
                2005. The warrants have a five year term and were issued with an
                exercise
                price of $0.25 per share.




·
            Warrants
                to purchase 562,500 shares of common stock issued to a placement
                agent in
                connection with the December 2004 private placement. The warrants
                have a
                five year term and were issued with an exercise price of $2.00 per
                share.




·
            Warrants
                to purchase 1,473,770 shares of common stock issued to investors
                in
                connection with the September 2005 private placement. The warrants
                have a
                five year term and were issued with an exercise price of $1.00 per
                share.




·
            Warrants
                to purchase 13,335,925 shares of common stock issued to investors
                in
                connection with the January 2006 private placement. The warrants
                have a
                five year term and were issued with an exercise price of $1.00 per
                share.




·
            Warrants
                to purchase 800,155 shares of common stock issued to a placement
                agent in
                connection with the January 2006 private placement. The warrants
                have a
                five year term and were issued with an exercise price of $1.00 per
                share.




·
            Warrants
                to purchase 10,666,656 shares of common stock issued to lenders in
                connection with the December 2006 convertible debt offering. The
                warrants
                have a four year term and were issued with an exercise price of $0.09
                per
                share.




·
            Warrants
                to purchase 2,648,277 shares of common stock issued to a placement
                agent
                in connection with the December 2006 convertible debt offering. The
                warrants have a four year term and were issued with an exercise price
                of
                $0.0725 per share.




·
            Warrants
                to purchase 3,030,000 shares of common stock issued to employees
                and
                consultants in December 2006. The warrants have a five year term
                and were
                issued with an exercise price of $0.14 per
                share.


·
              Warrants
                  to purchase 18,000,000 shares of common stock issued to our President
                  and
                  Chief Executive Officer in December 2006. The warrants have a ten-year
                  term and were issued with exercise prices of $0.11-$0.18 per share.
                  (See
                  Note 14, Employment
                  Agreements.)




The
      following table summarizes the Company’s warrant activity for the years ended
      December 31, 2004, 2005 and 2006:


**Number of shares**
              
              **Exercise Price per**
                **share**
              
              **Weighted average**
                **exercise price per**
                **share**
              
              **Future
                  Compensation expense**Outstanding,
                  January 1, 2004
              
              
              4,284,850
              
              $
              0.25
                  - $2.00
              
              $
              0.46Granted
              
              
              20,424,000
              
              $
              0.10
                  - $2.00
              
              $
              0.22Exercised
              
              
              (14,466,500
              )
              $
              0.05
                  - $0.25
              
              $
              0.08Outstanding,
                  December 31, 2004
              
              
              10,242,350
              
              $
              0.05
                  - $2.00
              
              $
              0.37Granted
              
              
              1,473,770
              
              $
              1.00
              
              $
              1.00Exercised
              
              
              (4,355,000
              )
              $
              0.01
                  - $0.25
              
              $
              0.07Outstanding,
                  December 31, 2005
              
              
              7,361,120
              
              $
              0.05
                  - $2.00
              
              $
              0.63Granted
              
              
              48,481,013
              
              $
              0.0725
                  - $1.00
              
              $
              0.37Exercised
              
              
              (1,000,000
              )
              $
              0.01
              
              $
              0.01Outstanding,
                  December 31, 2006
              
              
              54,842,133
              
              $
              0.0725
                  - $2.00
              
              $
              0.41
              
              $
              1,222,435




F-17




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




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




The
      Warrants granted pursuant to the September 2005 Private Placement originally
      had
      an exercise price of $3.00. In January 2006, in connection with an amendment
      to
      the agreement the exercise price of the warrants was reduced from $3.00 to
      $1.00
      per share.




As
      of
      December 31, 2006, the weighted average contractual life of warrants outstanding
      is approximately 5.8 years.




**Stock
      Options:**




On
      January 1, 2006, the Company adopted the provisions of SFAS No. 123R requiring
      the recognition of compensation expense based upon the grant date fair value
      of
      its stock-based compensation awards. The effect of adopting SFAS No. 123R was
      an
      increase in net loss per share of $0.05 for the year ended December 31, 2006.




In
      accordance with SFAS No.  123R,
      the
      Company uses the Black-Scholes option pricing model to measure the fair value
      of
      its option awards granted after January 1, 2006. The Black-Scholes model
      requires the input of highly subjective assumptions including volatility,
      expected term, risk-free interest rate and dividend yield. The stock options
      were valued taking into consideration forfeiture rates ranging from 6.6% to
      14.5%. The estimated forfeiture rate is determined quarterly for unvested
      options based on the historical rates of forfeiture. The resulting fair value
      is
      recorded as compensation cost on a straight-line basis over the option vesting
      period. The fair value of options granted during the year ended December 31,
      2006 was estimated using the Black-Scholes model and the following assumptions:
      risk-free rate of return ranging from 4.61% to 5.01%; zero estimated dividend
      yield; expected terms ranging from 2.12 years to 6.07 years and volatility
      ranging from 132% to 139%.





The
      Company’s estimate of an expected option term was derived based on the average
      of the sum of the vesting term and the original contract term. The estimated
      stock price volatility was derived based on a review of the Company’s actual
      historic volatility for a period equal to the expected term of its stock options
      awarded in the year ended December 31, 2006, by reference to actual stock prices
      during this period and historic stock prices over the past five years. The
      risk
      free interest rate was based on the rate of a Constant
      Maturity Treasury note for a period approximating the expected term, as
      available.





A
      summary
      of stock option activity is as follows:




**Number of**
              **shares**
            
            **Weighted**
              **Average
                Exercise Price**
              **per
                Share**
            
            **Weighted**
              **Average**
              **Remaining
                Contractual**
              **Term
                (years)**
            
            **Aggregate**
              **Intrinsic
                Value**Outstanding,
                January 1, 2004
            
            
            2,400,000
            
            $
            0.25Granted
            
            
            13,250,000
            
            $
            0.58Outstanding,
                December 31, 2004
            
            
            15,650,000
            
            $
            0.53Granted
            
            
            4,084,999
            
            $
            2.30Exercised
            
            
            (480,000
            )
            $
            0.25Cancelled
            
            
            (2,714,222
            )
            $
            0.97Outstanding,
                December 31, 2005
            
            
            16,540,777
            
            $
            0.91Granted(1)
            
            
            6,425,000
            
            $
            0.96Exercised
            
            
            (883,333
            )
            $
            0.25Cancelled
            
            
            (1,471,743
            )
            $
            1.37Outstanding,
                December 31, 2006
            
            
            20,610,701
            
            $
            0.66
            
            
            7.89
            
            $
            326,950Options
                exercisable at December 31, 2004
            
            
            9,244,438
            
            $
            0.37Options
                exercisable at December 31, 2005
            
            
            13,774,886
            
            $
            0.82Options
                exercisable at December 31, 2006
            
            
            19,149,504
            
            $
            0.63
            
            
            7.83
            
            $
            307,825




F-18




The
      following table summarizes additional information about stock options
      outstanding at December 31, 2006:




**Options
                Outstanding**
            
            **Options
                Exercisable****Outstanding**
              **as
                of**
              **December 31,
                2006**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual
                Term (years)**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Exercisable**
              **as
                of**
              **December
                31, 2006**
            
            **Weighted-**
              **Average**
              **Exercise
                Price**$0.11
                - $0.14
            
            
            5,310,000
            
            
            8.46
            
            $
            0.12
            
            
            4,885,001
            
            $
            0.12$0.25
            
            
            8,192,223
            
            
            7.11
            
            $
            0.25
            
            
            8,192,223
            
            $
            0.25$0.67
                - $1.00
            
            
            3,287,813
            
            
            8.64
            
            $
            0.90
            
            
            2,518,281
            
            $
            0.87$1.45
                - $1.75
            
            
            1,866,666
            
            
            7.88
            
            $
            1.47
            
            
            1,866,666
            
            $
            1.47$2.01
                - $2.47
            
            
            899,999
            
            
            8.35
            
            $
            2.26
            
            
            899,999
            
            $
            2.26$2.70
                - $3.14
            
            
            976,000
            
            
            8.40
            
            $
            2.97
            
            
            709,334
            
            $
            2.96$3.32
                - $4.70
            
            
            78,000
            
            
            8.24
            
            $
            3.96
            
            
            78,000
            
            $
            3.9620,610,701
            
            
            
            
            
            
            
            
            19,149,504




The
      weighted average grant date fair value of options granted during the years
      ended
      December 31, 2006, 2005 and 2004 was $0.68, $2.62 and $0.51 per share,
      respectively. The aggregate intrinsic value represents the difference between
      the exercise price of the underlying awards and the quoted closing price of
      the
      Company’s common stock at December 31, 2006 multiplied by the number of shares
      that would have been received by the option holders had all option holders
      exercised their options on December 31, 2006. During the year ended December
      31,
      2006, 2005 and 2004, the aggregate intrinsic value of options exercised was
      $168,357, $1,531,800 and $-0-, respectively.




As
      of
      December 31, 2006, future compensation cost related to non-vested stock options,
      less estimated forfeitures, is approximately $1,098,576 and will be recognized
      over an estimated weighted average period of 0.83 years. The total fair value
      of
      shares vested during the year ended December 31, 2006, 2005 and 2004 was
      $3,851,852, $8,050,433 and $3,442,459, respectively. During the year ended
      December 31, 2006, 5,060,000 options to 13 grantees with a weighted average
      exercise price of $1.17 were repriced to $0.11 to $0.14 (a weighted average
      exercise price of $0.12) resulting in additional compensation cost over the
      vesting terms of the options of approximately $120,000. In addition, the
      remaining vesting period of 1,118,750 of these options was accelerated from
      a
      weighted average of 1.07 years to immediate. The Company currently expects
      to
      amortize the following amounts of stock-based compensation related to stock
      options outstanding as of December 31 2006 as follows:




2007
            
            $
            1,031,3472008
            
            
            67,2292009
                and thereafter
            
            
            —




**10.**  **EQUITY
      INVESTMENT**




In
      April
      2005, the Company purchased a 27% equity interest in Biofilm Strategies
      Corporation (“Biofilm”) from Electric Aquagenics Unlimited, Inc. The Company
      concluded that the 27% equity interest in Biofilm was a significant variable
      interest, as defined by FIN No. 46(R) “Consolidation of Variable Interest
      Entities”; however, since the Company is not the primary beneficiary of Biofilm,
      the Company was not required to consolidate the accounts of Biofilm.
      Accordingly, the 27% interest was accounted for under the equity method. In
      the
      fourth quarter of 2006, negotiations to license the Biofilm product from the
      owner and inventor of the product failed and the Company is currently exploring
      all legal remedies. The value assigned to the Biofilm investment was based
      on
      the commercialization potential of the Biofilm product. In absence of this
      license and in absence of any revenues expected to be realized by Biofilm from
      other sources, the Company concluded that the investment in Biofilm is other
      than temporarily impaired. Consequently, during 2006, the Company wrote-off
      the
      balance of the investment in Biofilm of approximately $665,000.




**11.**  **NOTES
      RECEIVABLE**




From
      time
      to time and prior to the 2005 acquisition of the pHarlo assets, the Company
      made
      loans to PCTI and affiliated parties to finance a production facility to produce
      the products that the Company was licensing from PCTI. All of the loans were
      cancelled on July 15, 2005 upon the completion of the 2005 Acquisition, with
      the
      exception of the March 28, 2005 note with one of the former owners of PCTI
      in
      the amount of $625,000, which remains due and bears interest at 10% per annum.
      The balance outstanding including accrued interest as of December 31, 2006
      is
      approximately $719,000 of which $ 50,000 is current. The Company is continuing
      to negotiate formal repayment terms on this note and expects that the note
      will
      be fully repaid by the end of 2008.




F-19




**12.**  **NOTES
      PAYABLE**




*Convertible
      Debentures:*




In
      April
      2004, the Company entered into a Securities Purchase Agreement with several
      investors by which the Company issued and sold $800,000 of convertible
      debentures and issued warrants to purchase 16,000,000 shares of common stock.
      The April 2004 debentures were payable three years from issuance, bore interest
      at 7% per annum and were convertible into shares of common stock at a price
      of
      $0.05 per share. At December 31, 2005, there remained $75,000 outstanding under
      this agreement. The outstanding balance was converted to 1,500,000 shares of
      common stock during 2006.




In
      July
      2004, the Company entered into another Securities Purchase Agreement with
      several investors under which the Company issued and sold in a private placement
      $1,647,674 of convertible debentures, at a discount of $263,074, for a net
      amount of $1,384,600 and issued warrants to purchase 3,461,500 shares of common
      stock at a price of $0.20 per share. The July 2004 Debentures were payable
      two
      years from issuance, bore interest at 7% per annum and were convertible into
      shares of common stock at a price of $0.20 per share. At December 31, 2005,
      there remained $119,000 outstanding under this agreement. The outstanding
      balance was converted into 595,000 shares of common stock during
      2006.




The
      following tables summarize the conversion activity of the April 2004 Debentures
      and the July 2004 Debentures:




**April 2004**
              **Debentures**
            
            **July 2004**
              **Debentures**
            
            **Total**Principal
                amount
            
            $
            800,000
            
            $
            1,647,674
            
            $
            2,447,6742004
                conversion (excludes accrued interest of $5,673)
            
            
            (533,000
            )
            
            (1,477,694
            )
            
            (2,010,694
            )Principal
                outstanding at December 31, 2004
            
            
            267,000
            
            
            169,980
            
            
            436,9802005
                conversion
            
            
            (192,000
            )
            
            (50,980
            )
            
            (242,980
            )Principal
                outstanding at December 31, 2005
            
            $
            75,000
            
            $
            119,000
            
            $
            194,0002006
                conversion
            
            
            (75,000
            )
            
            (119,000
            )
            
            (194,000
            )Principal
                outstanding at December 31, 2006
            
            $
            —
            
            $
            —
            
            $
            —




*Notes
      Payable to Shareholders:*




During
      the year ended December 31, 2002, the Company completed a private placement
      offering for cash proceeds of $524,850. The Company issued 524,850 shares of
      common stock, issued warrants to purchase 524,850 shares of common stock at
      a
      price of $2.00 per share and issued 5% promissory notes with a face value of
      $524,325, to the investors. The principal amount and accrued interest are due
      on
      November 26, 2007.




**December 31,****2006**
            
            **2005**Notes
                payable, with interest at 5%, fair value
            
            $
            524,325
            
            $
            524,325Less:
                Discount to record note at fair value
            
            
            (224,149
            )
            
            (224,149
            )300,176
            
            
            300,176Less:
                Note converted into equity
            
            
            (49,950
            )
            
            (49,950
            )Amortization
                of discount to December 31, 2006
            
            
            216,835
            
            
            193,564467,061
            
            $
            443,790





The
      fair
      value attributed to the notes is based upon the fair value of the underlying
      financial instruments. The discount resulting from recording the notes at fair
      value is being amortized using the effective interest method over the five-year
      term of the notes.




F-20





*Note
      Payable IRL:*




As
      partial consideration for the purchase of the pHarlo assets (see Note 12),
      Tasker issued a promissory note in the amount of $1,931,973 to IRL. The
      promissory note bears interest of 3.4% per annum and is payable in equal
      bi-weekly principal installments of $37,153, plus interest, through July 2007.
      The following schedule outlines the activity for this note during 2006 and
      2005:


**December 31,****2006**
              
              **2005**Note
                  payable, with interest at 3.4%, fair value
              
              $
              1,931,973
              
              $
              1,931,973Principal
                  repayments
              
              
              (1,252,944
              )
              
              (408,686
              )679,029
              
              
              1,523,287Current
                  portion—Note payable—Acquisition of IRC
              
              
              679,029
              
              
              445,840Non-current
                  portion—Note payable—Acquisition of IRC
              
              
              —
              
              
              1,077,447$
              679,029
              
              $
              1,523,287




*Convertible
      Bridge Notes:*




In
      December 2006, as amended in February 2007, the Company began a Convertible
      Bridge Note Offering in which the Company agreed to issue and sell up to
      $5,500,000 of convertible bridge notes and warrants to purchase approximately
      30.6 million shares of common stock at $0.09 per share. The warrants expire
      in
      seven years from the date of issuance. The Convertible Bridge Notes mature
      six
      months from issuance and have various maturity dates starting June 1, 2007,
      bear
      interest at 10% per annum and are convertible into shares of common stock at
      a
      price of $0.0725 per share, including interest, for an aggregate of
      approximately 79.7 million shares of common stock.




As
      of
      December 31, 2006, the Company had sold $1,920,000 of the Convertible Bridge
      Notes and issued 10,666,656 warrants. All of the proceeds were allocated to
      the
      warrants and embedded beneficial conversion feature (see discussion below).
      The
      combined discount is being amortized as additional (non cash) interest expense
      with a corresponding increase to the Convertible Bridge Notes over the six-month
      term of the notes using the effective interest method. As of December 31, 2006,
      the Company had amortized $320,000 of the combined discount to interest
      expense.




In
      recording the Convertible Bridge Notes, the Company first allocated the proceeds
      from the sale of the Convertible Bridge Notes between the Convertible Bridge
      Notes and the warrants based upon their relative fair values, resulting in
      the
      recognition of a discount of $539,221. The value of the warrants was computed
      using the Black-Scholes option pricing model. Second, in accordance with EITF
      No. 00-27, “Application of Issue 98 **-** 5
      to
      Certain Convertible Instruments **,** ”
after
      allocating a portion of the Convertible Bridge Note proceeds to the warrants,
      the Company calculated the value of the embedded beneficial conversion feature
      in the note by comparing the carrying value of the proceeds, net of the warrant
      discount, to the fair value of the shares issuable upon conversion of the
      debentures. If there is a beneficial conversion, it is recognized, as an
      additional discount to the extent of the remaining proceeds. The Company
      recognized an additional discount of $1,380,777 for the embedded beneficial
      conversion feature.




In
      addition, the Company paid cash of $192,000 and issued warrants to purchase
      2,648,277 shares of common stock at $0.0725 per share to a placement agent.
      The
      total fee of $600,690, including the fair value of the warrants issued, has
      been
      recorded as deferred financing costs and is being amortized as additional (non
      cash) interest expense over the life of the notes using the effective interest
      method.




**13.**  **ACQUISITION
      OF** **PHARLO** **ASSETS**




On
      July
      15, 2005, the Company executed an asset purchase agreement (the “Asset Purchase
      Agreement”) whereby the Company purchased all of the assets that relate to the
      Company’s product applications and fields of use (the “pHarlo assets”) from the
      Selling Entities, including, but not limited to, utility patent applications,
      equipment, inventories and existing contracts for a purchase price of $64.3
      million. In consideration of the purchase price the Company issued 18,992,388
      shares of common stock valued at approximately $56.98 million, issued a
      promissory note in the approximate amount of $1,932,000, cancelled notes
      receivable totaling $2,543,000, paid cash of $1,428,000 and incurred acquisition
      costs of approximately $1,421,000.




F-21




The
      acquisition of the pHarlo assets was accounted for as a business combination
      in
      accordance with SFAS No. 141 “Business Combinations” and accordingly, the
      tangible and intangible assets acquired and liabilities assumed have been
      recorded at their estimated fair values as of the date of the acquisition,
      with
      the resulting excess purchase price being recorded as goodwill. As a result
      of
      the acquisition, the Company owns the utility patent applications and
      provisional patent applications associated with the pHarlo technology in the
      Company’s field of use. In addition to the acquisition of these patent
      applications, the Company received the right of first refusal to purchase any
      other utility patent applications that may be developed by a third party based
      on the pHarlo technology. The acquisition of these patents will allow the
      Company to manufacture its products at a lower cost than it would otherwise
      have
      incurred by licensing the underlying technology.




The
      purchase price was allocated to assets acquired and liabilities assumed, as
      follows:




Property
                and equipment
            
            $
            703,000Other
                assets
            
            
            49,000Other
                liabilities
            
            
            (629,000
            )Net
                assets acquired
            
            
            123,000Identifiable
                intangible assets acquired
            
            
            22,500,000Goodwill
            
            
            41,677,000Total
                cost of acquisition
            
            $
            64,300,000





The
      results of operations of the Selling Entities have been included in the
      Company’s Consolidated Statements of Operations since July 15, 2005, the
      acquisition date.




The
      following unaudited proforma information gives effect to the acquisition as
      if
      it had occurred on the first day of each of the periods ended:




**December 31,****2005**
            
            **2004**Total
                revenues
            
            $
            705,467
            
            $
            —Net
                loss
            
            
            (20,033,116
            )
            
            (7,713,589
            )Loss
                per share, basic and diluted
            
            $
            (0.24
            )
            $
            (0.33
            )




F-22


**14.**  **INCOME
      TAXES**




A
      reconciliation of income tax expense to the benefit computed at the statutory
      rate of 34% for the years ended December 31, 2006, 2005 and 2004 is
      approximately as follows:




**2006**
            
            **2005**
            
            **2004**Benefit
                at statutory rate
            
            $
            (21,400,000
            )
            $
            (6,211,000
            )
            $
            (2,064,000
            )Non-cash
                interest on Convertible Debentures
            
            
            —
            
            
            —
            
            
            832,000Stock-based
                compensation
            
            
            —
            
            
            165,000
            
            
            188,000Beneficial
                conversion feature
            
            
            92,000
            
            
            —
            
            
            —State
                and local taxes, net of federal benefit
            
            
            (3,777,000
            )
            
            (1,096,000
            )
            
            (364,000
            )Adjustment
                of prior year accrual
            
            
            (324,000
            )
            
            —
            
            
            —Change
                in valuation allowance
            
            
            25,390,000
            
            
            367,000
            
            
            (248,000
            )Other
            
            
            19,000
            
            
            36,000
            
            
            (100,000
            )$
            —
            
            $
            —
            
            $
            —





Significant
      components of the Company’s deferred income tax assets and liabilities at
      December 31, 2006 and 2005 are approximately as follows:





**2006**
            
            **2005**Deferred
                tax assets:Net
                operating losses
            
            $
            13,355,000
            
            $
            7,215,000Intangible
                assets
            
            
            16,038,000Stock
                -based compensation
            
            
            3,409,000
            
            
            1,464,000Reserves
            
            
            1,236,000
            
            
            553,000Valuation
                allowance
            
            
            (33,566,000
            )
            
            (8,637,000
            )Net
                deferred tax assets
            
            $
            472,000
            
            $
            595,000Deferred
                tax liabilities:Depreciation
                & Amortization
            
            $
            (12,000
            )
            
            (595,000
            )Beneficial
                Conversion
            
            
            (460,000
            )Total
                deferred tax liabilities
            
            
            (472,000
            )
            
            (595,000
            )Net
                deferred tax assets
            
            $
            —
            
            $
            —





As
      of
      December 31, 2006, the Company has a U.S. Federal net operating loss carry
      forward of approximately $33.1 million, which will expire commencing 2019
      through 2026, if not utilized. Under Internal Revenue Code Section 382, the
      amounts of and benefits from net operating loss carryforwards may be impaired
      or
      limited in certain circumstances. Events that cause limitations in the amount
      of
      net operating losses that the Company may utilize in any one year include,
      but
      are not limited to, a cumulative ownership change of more than 50%, as defined
      over a three year period. The amount of such limitation, if any, has not been
      determined.




Management
      of the Company has decided to record a valuation allowance for its full net
      deferred tax asset, as it is more likely than not that the Company will not
      be
      able to utilize these deferred tax assets against future income, in addition
      to
      possible limitations of the net operating losses due to various changes in
      ownership over the past year. Our valuation allowance increased $24,929,000
      and
      $6,775,000 during the years ended December 31, 2006 and 2005,
      respectively.




**15.**  **COMMITMENTS
      AND CONTINGENCIES**




*Patent
      and Technology Sub-License Agreement with pHarlo IP*





In
      connection with the 2005 Acquisition, the Company entered into a Patent and
      Technology Sub-License Agreement with pHarlo IP, LLC (“pHarlo IP”), in which
      pHarlo IP has agreed to provide to the Company technical assistance necessary
      to
      implement, refine and exploit the base patents to the pHarlo technology in
      the
      Company’s fields of use. In consideration for the technical assistance, the
      Company agreed to pay to pHarlo IP certain research and development fees
      ( **“** R&D
      Fees **”** ).
      The
      R&D Fees may be subject to recovery by the Company in certain circumstances
      described below.




On
      January 26, 2006 the Patent and Technology Sub-License Agreement was amended
      to
      restructure the R&D Fees payable to pHarlo IP, eliminating the requirement
      for advance payments of contractually specified amounts in lieu of quarterly
      payments in arrears based on actual sales of products using the pHarlo
      technology. The amended Sub-License Agreement provided for minimum fees of
      $150,000, capped at $500,000, for fiscal 2006. There are no other minimum
      R&D Fees payable after 2006, although R&D Fees for all subsequent years
      are capped at specified rates.




F-23




*Wynn
      Starr Agreement*





In
      2004
      the Company entered into an Exclusive Field of Use License Agreement and Product
      Sale Agreement with Wynn Starr Special Products, LLC. Under the terms of this
      agreement, as amended through January 23, 2007, the Company has granted Wynn
      Starr the exclusive, worldwide right to market and distribute products used
      as
      post-harvesting processing aids for the poultry industry based on the pHarlo
      technology. In return for this license, Wynn Starr will purchase licensed
      products from the Company and will withhold up to 25% of the net sale price
      per
      gallon sold, based on different increments of achieved net sale prices. The
      Amended agreement also includes other target performance criteria such that,
      if
      met by Wynn Starr, the Company will issue to Wynn Starr a warrant to purchase
      up
      to 1,300,000 shares of our common stock with an exercise price based upon the
      closing price of our common stock on January 23, 2007, the date of the
      amendment. As of December 31, 2006 no royalties were due and none had been
      paid
      to us under this royalty arrangement. Steven B. Zavagli, a former member of
      our
      board of directors, is the founder, Chairman and the Chief Executive Officer
      of
      Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors,
      Inc.




*Agreement
      with Richard Kirby*





In
      2004,
      and prior to the 2005 acquisition of the pHarlo assets, the Company entered
      into
      a Settlement Agreement and General Release, effectively purchasing the exclusive
      rights of first refusal to applications of the pHarlo technology from Richard
      J.
      Kirby, a developer who had purchased the rights in 2002. Under the terms of
      the
      settlement agreement, Mr. Kirby assigned and granted all his rights, titles
      and interests in his license agreements with pHarlo Citrus Technologies to
      the
      Company in exchange for a fee equal to one half of one percent (0.5%) of net
      revenues generated from products using the pHarlo technology, in an amount
      not
      to exceed $400,000 in any one calendar year. In January 2006, the Settlement
      Agreement and General Release was amended to reduce the maximum annual fee
      payable to Mr. Kirby to sixty-five percent of one half of one percent, or 0.325%
      of net revenues generated from products using the pHarlo technology, not to
      exceed $260,000 in any one calendar year. The amendment also provided for
      payment of a fee equal to thirty five percent of one half of one percent or
      0.175% of net revenues generated from products using the pHarlo technology,
      not
      to exceed $140,000 in any one calendar year to be paid to Mr. Tri Van To. As
      of
      December 31, 2006 , under this agreement, the Company had paid fees to Mr.
      Kirby
      and Mr. To of approximately $76,000 and $8,000, respectively, in excess of
      the
      of the amounts earned under the agreement. In February 2007, Mr. Kirby agreed
      to
      forego any future fees in exchange for the forgiveness of any previous
      overpayments and a lump sum payment of $95,000. The agreement, as it relates
      to
      Mr. To, continues until the termination of or expiration of pHarlo Citrus
      Technologies’ patent to the licensed technology.





*Consulting
      Agreement with Gordon Davis*





In
      February 2007, the Company entered into an amendment with Mr. Gordon Davis, which
      amendment amends that certain Consultant Agreement dated February 2, 2006 by
      and
      between the Company and Mr. Davis dated as of January 16, 2007 which provides
      for among other things (i) payment to Mr. Davis of $50,000 in cash for past
      due
      amounts owed under the original consulting agreement, (ii) payment of $3,000
      per
      month for nine months starting January 2007 and payment of $7,000 per month
      for
      sixteen months starting October 2007, (iii) repricing of stock options
      exercisable for 1,750,000 shares of Common Stock such that the exercise price
      for such stock options be reduced to an exercise price per share equal to $0.16,
      (iv) the right of the Corporation to terminate Davis’ consultancy other than for
      cause at any time upon notice to Davis (with the obligation to pay Davis
      consulting fees otherwise due for the remainder of the term), and (v) the
      granting of mutual general releases.




*Litigation
      and Claims*





The
      Company is involved in certain legal proceedings and is subject to certain
      lawsuits, alleged claims and regulations in the ordinary course of its business.
      Although the ultimate effect of these matters is often difficult to predict,
      the
      Company believes that their resolution will not have a material adverse effect
      on the Company's financial statements.




The
      following is a list of the Company’s litigation matters:




On
      October 26, 2005, a civil action captioned The
      BOC Group, Inc. v. Tasker Capital Corp., Randy Cable, and Shaun Porter was
      filed
      in the United States District Court for the District of Connecticut. In the
      complaint, The BOC Group alleges that Mr. Porter and Mr. Cable, employees of
      Tasker, have breached certain restrictive covenants contained in their
      employment agreements with The BOC Group, and that the Company tortuously
      interfered with The BOC Group’s agreements with Mr. Porter and Mr. Cable. The
      BOC Group also claimed that the Company, Mr. Porter and Mr. Cable violated
      Connecticut’s statutes governing trade secrets and unfair trade practices. In
      July 2006, the matter was resolved by payment of $50,000 to The BOC
      Group.




F-24




On
      January 5, 2006, a civil action captioned Robert
      L. Mandell, D.M.D., and Anthony M. Boschetti, D.M.D. v. Tasker Products Corp.,
      Arthur P. Bergeron and Richard J. Kirby was
      filed in the Middlesex Superior Court in Massachusetts. In the complaint, the
      plaintiffs allege that the Company, our former President, Mr. Bergeron, and
      our alleged former agent, Mr. Kirby, breached an agreement to pay for a
      study regarding our Breath RephreshTM product, a mouthwash predecessor to Close
      Call. The plaintiffs seek recovery of $100,000 in connection with the breach
      of
      contract claim. In March 2007 the Company reached an agreement in principle
      to
      resolve this matter by the payment of $40,000 and the issuance of a warrant
      for
      the purchase of 50,000 shares of our common stock at an exercise price of $0.15
      per share.




On
      January 18, 2006, a civil action captioned Dallas
      XXIX Corporate Square, L.P., v. Coast to Coast Laboratories and Tasker Capital
      Corp. was
      filed in the Circuit Court of Pinellas County, Florida. The plaintiff alleged
      that Coast to Coast Laboratories Corp., a wholly owned subsidiary of the
      Company, breached a lease agreement and that the Company breached a guaranty.
      In
      June 2006 the matter was resolved by payment of $25,000 to Dallas XXIX Corporate
      Square, L.P. The settlement and the stipulation of dismissal with prejudice
      were
      filed with the Court.




On
      May
      25, 2006, a civil action captioned James
      Collins v. Tasker Products Corp .
      was
      filed in the Connecticut Superior Court for the Judicial District of Stamford.
      In the complaint, Mr. Collins alleged that Tasker breached his employment
      agreement with the Company. Specifically, Mr. Collins alleged that he was due
      severance compensation pursuant to the employment agreement. On June 29, 2006,
      the Company filed an answer to the complaint. The answer also alleged numerous
      counterclaims against Mr. Collins, including a violation of Connecticut’s
      Uniform Trade Secrets Act, breach of duty of loyalty and various computer
      related offenses. The Company sought permission to implead our former President
      and CEO, Robert P. Appleby, for breach of duty of care, breach of duty of
      loyalty, and fraud in the inducement related to his entering into the employment
      agreement with Mr. Collins. In February 2007 the Company entered into a
      settlement agreement with Mr. Collins. The settlement agreement provides for
      among other things, payment to Mr. Collins of $400,000 in cash, acceleration
      of
      stock options exercisable for 1,000,000 shares of common stock, registration
      of
      the shares of common stock underlying such stock options, granting of mutual
      general releases and withdrawal by Mr. Collins of the lawsuit with prejudice
      as
      soon as all other terms of the settlement agreement have been
      satisfied.





On
      January 2006, the Company received correspondence from Provco Ventures I,
      LP, an investor in our September 2005 private placement, alleging potential
      securities law claims in connection with the September 2005 private
      placement. On March 6, 2007, the Company paid Provco Ventures $50,000 in
      settlement of its claim.




**Employment
      Agreements**




In
      February 2006, the Company entered into an employment agreement with Stathis
      Kouninis in connection with his appointment as Chief Financial Officer. Under
      the terms of the agreement, Mr. Kouninis will receive a base salary of $165,000
      per year and the right to participate in the Company’s existing benefit plans,
      with bonus payments to be made at the discretion of the Board of Directors.
      The
      Company also granted stock options to purchase 450,000 shares of common stock
      at
      an exercise price of $1.00 per share to Mr. Kouninis in connection with this
      agreement. The options have a ten-year term, less one day and vest over a two-
      year period from the date of grant. The employment agreement will have a term
      of
      three years with provision for automatic renewal for successive one-year terms
      and provides for severance payments under certain conditions.




In
      December 2006, Lanny R. Dacus was appointed President and Chief Executive
      Officer of the Company. In connection with this appointment, the Company entered
      into an employment agreement with Mr. Dacus. Under the terms of the agreement,
      Mr. Dacus will receive a base salary of $60,000 per year and the right to
      participate in the Company’s existing benefit plans, with bonus payments to be
      made at the discretion of the Board of Directors. The Company will provide
      Mr.
      Dacus with a Company automobile during the term of the employment agreement.
      The
      Company also granted warrants to purchase 4,777,778 shares of common stock
      at an
      exercise price of $0.11 per share and 1,652,778 shares of common stock
      at an exercise price of $0.12 per share to Mr. Dacus in connection
      with this agreement. The warrants have a ten- year term and vest over a two-year
      period ($0.11per share options) and on March 31, 2007 ($0.12 per share
      options) from the date of grant. The Company granted additional warrants to
      purchase 11,569,444 shares of common stock, with exercise prices of $0.12
      to $0.18 and vesting terms contingent upon Mr. Dacus’ achievement of
      contractually specified performance goals.





F-25




**16.**  **OPERATING
      LEASE**




On
      April
      19, 2005, the Company entered into a five -year lease effective May 1, 2005,
      for
      executive office at an annual base rent of $173,660, subject to modest annual
      increases thereafter. As part of the 2005 Acquisition, the Company assumed
      a
      five-year lease for manufacturing, warehousing and office space at an annual
      base rent of $114,000.




Future
      aggregate minimum annual rental payments under these facility leases for the
      next five years is shown in the schedule below. In addition, the annual lease
      expense for leased vehicles is approximately, $60,000, $12,000 and $1,000 for
      the years ended December 31, 2007, 2008 and 2009, respectively.




**Future Minimum**
              **Facility
                Lease Payments**2007
            
            $
            3012008
            
            
            3012009
            
            
            2722010
            
            
            47Total
            
            $
            921





Rent
      expense for the years ended December 31, 2006, 2005 and 2004 was approximately
      $304,000, $340,000 and $57,000, respectively.




**17.**  **RELATED
      PARTY TRANSACTIONS**




In
      2004,
      the Company entered into an Exclusive Field of Use License Agreement and Product
      Sale Agreement with Wynn Starr Special Products, LLC. Under the terms of this
      agreement, as amended through January 23, 2007, the Company has granted Wynn
      Starr the exclusive, worldwide right to market and distribute products used
      as
      post-harvesting processing aids for the poultry industry based on the pHarlo
      technology. In return for this license, Wynn Starr will purchase licensed
      products from the Company and will withhold up to 25% of the net sale price
      per
      gallon sold, based on different increments of achieved net sale prices. The
      Amended agreement also includes other target performance criteria such that,
      if
      met by Wynn Starr, the Company will issue to Wynn Starr a warrant to purchase
      up
      to 1,300,000 shares of our common stock with an exercise price based upon the
      closing price of our common stock on January 23, 2007, the date of the
      amendment. As of December 31, 2006, no royalties were due and none had been
      paid
      to us under this royalty arrangement. Steven B. Zavagli, a former member of
      our
      board of directors, is the founder, Chairman and the Chief Executive Officer
      of
      Wynn Starr and Wynn Starr’s ultimate parent company, Wynn Starr Flavors,
      Inc.




The
      Company paid Mr. Gordon O. Davis, the former Chairman of the Board of
      Directors, approximately $60,000 for consulting services during the twelve
      months ended December 31, 2006.




The
      following table summarizes related party transactions during the years ended
      December 31, 2006 and 2005. There were no payments to related parties in
      2004:




**2006**
            
            **2005**Remuneration
                paid and payable to a director
            
            $
            110,000
            
            $
            318,000Rent
                reimbursed to a director
            
            
            —
            
            $
            35,000





In
      March
      2007, the Company’s board of directors approved that the Company enter into an
      employment agreement with Mr. Greg Osborn in connection with his appointment
      as
      Director and Chairman of the Board of Directors. Mr. Osborn is the Managing
      Partner of the placement agent for the Convertible Bridge Notes (see Note
      21).





**18.**  **SEVERANCE
      PAYMENTS**




On
      February 8, 2006, the Company entered into a Separation Agreement and General
      Release with Robert D. Jenkins in connection with Mr. Jenkins’ resignation as
      the Company’s Chief Financial Officer, Treasurer and Secretary. Pursuant to the
      Separation Agreement and General Release, the Company agreed to continue paying
      Mr. Jenkins at his current annual base salary rate of $200,000 through June
      28,
      2006. Under the terms of the agreement Mr. Jenkins was also eligible to
      participate in the Company’s medical and dental plans thru August 31, 2006, with
      the Company continuing to pay eighty percent (80%) of the premiums for such
      coverage. In addition, the Company agreed that the exercise period for Mr.
      Jenkins’ options to purchase 1,000,000 shares of the Company’s common stock
      would be reduced from 10 years from the grant date to 5 years from the grant
      date.





F-26




As
      of
      December 14, 2006, Richard Falcone resigned as Chief Executive Officer and
      a
      director of the Company. In connection with his resignation Mr. Falcone entered
      into an agreement with the Company pursuant to which the Company agreed to
      pay
      Mr. Falcone a settlement payment of $150,000. Also under the Agreement Mr.
      Falcone retained stock options to purchase 2,600,000 shares of the Company’s
      common stock, the terms of which were amended to accelerate the vesting, allow
      for cashless exercise and reduce the exercise price to $0.11 per share. Mr.
      Falcone was also granted the continued use of an automobile leased by the
      Company and is entitled to reimbursement of medical insurance costs through
      December 31, 2007.





**19.**  **SEGMENTS
      - ENTERPRISE WIDE DISCLOSURES**




The
      Company owns several utility patents that allow it to produce, market and
      distribute certain product applications related to these utility patents. In
      2005, the Company began selling two product applications, Unifresh® Footbath and
      Close CallTM and then added Tasker Pacific BlueTM Seafood Wash and Unifresh® Pen
      Spray products. The Chief Operating Decision Maker (CODM) of the Company is
      the
      President and CEO. The operating results of each product application, other
      than
      for revenues, are not separately tracked or reported. Operating results by
      product application are not reviewed by the CODM because discrete financial
      information is not available. Consequently, as permitted by the provisions
      of
      SFAS No. 131, “Disclosure About Segments of an Enterprise and Related
      Information,” the Company has one reportable segment for financial statement
      purposes.




*Revenue
      by Product*




The
      Company’s revenue by product is as follows for each of the periods ended (in
      thousands):


**December 31,****2006**
              
              **2005**Unifresh
                  Footbath®
              
              $
              1,147
              
              $
              202Close
                  CallTM
              
              
              174
              
              
              503Tasker
                  Pacific BlueTM Seafood Wash
              
              
              5
              
              
              —Unifresh®
                  Pen Spray products
              
              
              160
              
              
              —$
              1,486
              
              $
              705




*Dependence
      on Certain Customers*




For
      the
      years ended December 31, 2006 and 2005, there were three customers and one
      customer, respectively that accounted for 10% or more of the Company’s
      consolidated revenue.




**2006**
            
            **2005**Customer
                A
            
            
            27
            %
            
            —Customer
                B
            
            
            14
            %
            
            —Customer
                C
            
            
            11
            %
            
            —Customer
                D
            
            
            —
            
            
            18
            %




**20.**  **QUARTERLY
      RESULTS OF OPERATIONS (UNAUDITED)**




The
      following is a summary of the unaudited quarterly results of operations:




**Quarter Ended****(in thousands, except per share amounts)**
            
            **March 31,**
              **2006**
            
            **June 30,**
              **2006**
            
            **September 30,**
              **2006**
            
            **December 31,**
              **2006**Revenues
            
            $
            221
            
            $
            537
            
            $
            531
            
            $
            197Gross
                margin
            
            
            153
            
            
            392
            
            
            297
            
            
            (293
            )Net
                loss
            
            
            (4,925
            )
            
            (33,688
            )
            
            (3,651
            )
            
            (20,679
            )Net
                loss per share - basic and dilutive
            
            $
            (0.05
            )
            $
            (0.32
            )
            $
            (0.03
            )
            $
            (0.20
            )





F-27




**Quarter Ended****March 31,**
              **2005**
            
            **June 30,**
              **2005**
            
            **September 30,**
              **2005**
            
            **December 31,**
              **2005**Revenues
            
            $
            61
            
            $
            244
            
            $
            1,128
            
            $
            (728
            )Gross
                margin
            
            
            36
            
            
            160
            
            
            800
            
            
            (1,597
            )Net
                loss
            
            
            (3,284
            )
            
            (3,713
            )
            
            (4,208
            )
            
            (7,064
            )Net
                loss per share - basic and dilutive
            
            $
            (0.06
            )
            $
            (0.06
            )
            $
            (0.05
            )
            $
            (0.08
            )





**21.**  **SUBSEQUENT
      EVENTS**




*Employment
      agreement:*




In
      March
      2007, the Company’s board of directors approved that the Company enter into an
      employment agreement with Mr. Greg Osborn in connection with his appointment
      as
      Director and Chairman of the Board of Directors. The agreement provides for,
      among other things, a term of up to 21 months, an annual salary of $60,000,
      an
      annual bonus at the discretion of the Board, the grant of initial warrants
      for
      the purchase of 2,625,000 shares, of common stock, exercisable on a quarterly
      basis over the term of the agreement at an exercise price of $0.19 per share,
      the grant of additional warrants exercisable for 7,500,000 shares of common
      stock at an exercise price of $0.19 per share with vesting contingent upon
      achievement of contractually specified performance goals (the fair value and
      the
      term over which it will be recognized it has not been determined yet), severance
      payments and a cash payment of $20,000 per month for a period of nine months
      commencing when the Company reaches profitability. Mr. Osborn is the Managing
      Partner of the firm that served as placement agent for the Convertible Bridge
      Notes.





*Convertible
      Bridge Notes*





From
      January 1, 2007, through March 19, 2007 and in connection with the Company’s
      Convertible Bridge Notes, the Company closed on an additional $3,079,000 of
      Convertible Bridge Notes that
      are
      convertible to purchase approximately 42,468,966 shares of commons stock at
      a
      conversion price of $0.0725 per share. In conjunction with these Convertible
      Bridge Notes the Company issued
      additional warrants to purchase 17,105,556 shares of common stock with an
      exercise price of $0.09 per share. The Company also issued warrants to purchase 4,246,897 shares
      of common stock at an exercise price of $0.0725 per share to the placement
      agent
      in connection with the issuance of the notes. The warrants issued and the
      beneficial conversion feature resulted in a debt discount which will be
      amortized over the various maturities of the notes.





*Warrant
      and Common stock issuances*





·
            Between
                December 1, 2006 and March 12, 2007, the Company issued to accredited
                investors Convertible Bridge Notes in the aggregate principal amount
                of
                $4,999,000. These notes are convertible into 68,951,724 shares of
                common
                stock at a conversion price of $0.0725 per share, subject to adjustment.
                As an inducement for the investors to purchase the Convertible Bridge
                Notes, the Company issued to these investors four-year warrants to
                purchase an aggregate of 27,772,222 shares of common stock at an
                exercise
                price of $0.09 per share.




·
            Between
                December 1, 2006 and March 12, 2007, the Company issued to the placement
                agent of the Convertible Bridge Notes four-year warrants to purchase
                an
                aggregate of 6,895,172 shares of common stock at an exercise price
                of
                $0.0725 per share in consideration for its services as placement
                agent.




·
            In
                March 2007, the Company issued 2,000,000 shares of its common stock
                to its placement agent, pursuant to the cashless exercise of
                2,983,051 warrants resulting in no cash proceeds to the
                Company.




F-28


**SIGNATURES**




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




TASKER
                PRODUCTS CORP.By:
            /s/
                Stathis KouninisStathis
                Kouninis
              Chief
                  Financial Officer


Date:
        April 27, 2007