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

                                   FORM 10-KSB

(Mark One)
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
       OF THE SECURITIES EXCHANGE ACT OF 1934
       For the fiscal years ended June 30, 2006, June 30, 2007, June 30, 2008

[ ]   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 1-16165


                              AQUACELL WATER, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)


            Delaware                                     86-0675195
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


10410 Trademark Street, Rancho Cucamonga, CA                             91730
--------------------------------------------                          ----------
  (Address of principal executive offices)                            (Zip Code)


Issuer's telephone number:  (909) 987-0456

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.001 per share

     Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  ___   No X

     Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best of
issuer's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [X]

     State issuer's revenues for its most recent fiscal year:  $862,000

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

     As of September 30, 2008, the aggregate market value of the issuer's Common
Stock (based on its reported last sale price by the OTC Pink Sheets) held by
non-affiliates of the issuer was $5,857,000.

     At September 30, 2008, 58,766,306 shares of issuer's Common Stock
were outstanding.

                                        1

<PAGE>

                                  Table of Contents


                                                                           Page
Part I

Item 1      Description of Business	                                     3
Item 2      Description of Property	                                     7
Item 3      Legal Proceedings  	                                             7
Item 4      Submission of Matters to a Vote of Security Holders 	     7

Part II

Item 5      Market for Common Equity and Related Stockholder Matters  	     8
Item 6      Management's Discussion and Analysis or Plan of Operation  	     9
Item 7      Financial Statements  	                                    20
Item 8      Changes In and Disagreements With Accountants on Accounting and
            Financial Disclosure  	                                    20
Item 8A(T)  Controls & Procedures	                                    21
Item 8B     Other Information	                                            22

Part III

Item 9      Directors, Executive Officers, Promoters and Control Persons;
            Compliance With Section 16(a) of the Exchange Act              23
Item 10     Executive Compensation                                         26
Item 11     Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters                                29
Item 12     Certain Relationships and Related Transactions                 31
Item 13     Exhibits and Reports on Form 8-K                               31
Item 14     Principal Accountant Fees and Services                         31

Signatures                                                                 32

Exhibit Index                                                              33

                                        2

<PAGE>

                                EXPLANATORY NOTE:

The accompanying Form 10-KSB reports the annual consolidated financial
statements for the years ended June 30, 2006, 2007 and 2008, in addition to
summary unaudited quarterly financial information for the quarterly periods of
2006, 2007 and 2008.

                                      PART I

ITEM 1.  BUSINESS

Background

     Aquacell Water, Inc. was previously a wholly owned subsidiary of AquaCell
Technologies, Inc. (Technologies).  In March 2002 Technologies had acquired all
the issued and outstanding shares of Water Science Technologies, Inc. (AZ), an
Arizona corporation pursuant to the terms of a stock purchase agreement dated
October 23, 2001 and amended March 19, 2002.  As a result, Water Science
Technologies, Inc. (AZ) became a wholly owned subsidiary of Technologies.  In
July 2005 Technologies caused to be formed Water Science Technologies, Inc. (DE)
and in August 2005 merged the Arizona corporation into that Delaware corporation
with the Delaware corporation surviving.  Simultaneously, the Delaware
corporation changed its name to Aquacell Water, Inc., operating as a wholly
owned subsidiary of Technologies.

     On March 9, 2006, Technologies separated Aquacell Water, Inc. ("the
Company" or "Aquacell") from itself through a distribution to its shareholders.
Holders of record of Technologies common shares as of the close of business on
March 9, 2006, which was the record date, received one share of Aquacell  common
stock for every one share of Technologies common stock held, provided they had
not sold the shares between the record date and distribution date of April 3,
2006. On May 23, 2006 Aquacell began trading on the OTC Bulletin Board as an
independent public company.

     In April 2007, Aquacell formed a wholly-owned subsidiary, Aquacell Water
Treatment, Inc. ("Treatment"), for the purpose of acquiring McPhee Environmental
Supply, Inc. ("McPhee") a competitor of Aquacell Water for arsenic treatment
systems, allowing the Company to expand its arsenic treatment services and
increase its presence in the marketplace.   In April 2007, Aquacell  acquired
McPhee and effectively merged McPhee into Treatment.

Overview

     Through its operating subsidiary, Treatment, the Company manufactures
custom designed turnkey water purification and treatment systems for municipal,
industrial and commercial applications. Depending upon the source of the water -
ground water, surface water or wastewater - its content and the required quality
of the treated water, Aquacell Water builds a custom system designed to meet the
specifications of the end user. We engineer and design the systems we produce to
ensure that we meet the needs of our customers, and provide installation,
maintenance and training.

     We integrate various technologies - including dealkalization, deionization,
desalination, carbon filtration, multimedia filtration, ozonation, reverse
osmosis, ultrafiltration, ultraviolet light disinfection and water softening -
combined with pumps, valves and control panels to provide the ideal system for
the customer's needs.

     We have built and installed systems around the world for a myriad of
applications including municipal drinking water systems, water bottling plants,
manufacturing facilities for process and waste water, restaurants and food
processing, car washes and many more.

     Given the custom nature of our business, we do not have a standard product
line nor do we carry a finished goods inventory and will have a limited
inventory of raw materials at any one time.

                                        3

<PAGE>

Water Purification Industry Background

     The highly fragmented water purification industry has thousands of
companies involved in various capacities, including companies which design fully
integrated systems for processing millions of gallons of water for municipal,
industrial, and commercial applications, down to the independent water delivery
route person.

     Water supply businesses generate approximately $400 billion in revenue
worldwide annually. Demand for water has continued to grow nationally and
internationally due to economic expansion, scarcity of usable water, concern
about water quality and regulatory requirements.

Municipal Water Treatment

     In the United States, new federal standards for drinking water are
requiring community water systems to be significantly upgraded.  Each year, more
than 50 million people in the United States are exposed to contaminated
municipal water necessitating "boil water alerts" to be issued.

     The Safe Drinking Water Act requires municipalities to comply with
federally mandated maximum contaminant levels (MCL) of a number of impurities.
As awareness of health issues brought about by contaminants in drinking water
increase, the Environmental Protection Agency ("EPA") is often forced to lower
the allowable levels of certain contaminants, requiring municipalities to
upgrade their systems.

     Pursuant to an EPA Rule that became final on January 22, 2001, all
community water systems (CWSs[SS1]*) and non-transient, non-community water
systems (NTNCWSs**) must comply with the arsenic requirement.  EPA estimates
that 3,024 CWSs and 1,080 NTNCWSs will have to install treatment to comply with
the revised MCL.

     On January 23, 2006, the new arsenic MCL of 10 parts-per-billion became
effective.  All systems must begin monitoring or when allowed by the State,
submit data that meets grandfathering requirements.  On December 31, 2006,
surface water systems must have completed initial monitoring or have a State
approved waiver.  On December 31, 2007, ground water systems must have completed
initial monitoring or have a State approved waiver.

     Since the promulgation of this Rule, Aquacell Water's main area of
marketing concentration has been on turnkey arsenic removal solutions for public
drinking water providers.  The Company's geographical area of concentration for
sales of arsenic treatment systems is in the southwest United States, where
arsenic in drinking water is more prevalent due primarily to geological
composition and the region's heavy reliance upon groundwater sources for
drinking water.  Although the regulation became effective in 2006, as of 2008
many water providers have still not complied with the regulations.

     The cycle for arsenic treatment sales can be long due funding issues and to
varying state regulations for approval and permitting, which in some
jurisdictions includes requirements for lengthy pilot studies for each well to
be treated.  Aquacell is involved in various stages of such studies with a
number of drinking water providers in several states.

     Upon analysis of water chemistry, well characteristics and in some cases
results of pilot test studies, the Company designs an arsenic treatment system
to allow public drinking water providers to be compliant with the EPA Rule.
Depending upon the water quality, various pre-treatment techniques and
technologies may be employed to enhance performance of the arsenic removal
system. Each system is custom designed to ensure the customer is provided with
a treatment system that will best meet its needs, including from a perspective
of capital expenditure as well as on-going maintenance and operating costs.

---------
*  CWSs serve year-round residents; these include municipal systems, mobile home
parks, apartment buildings and condominiums with their own source of supply and
serving 15 or more residents.

** NTNCWSs are entities having their own water supply, serving an average of at
least 25 persons who do not live at the location but who use the water for more
than six months per year; these include schools, churches, factories and office
buildings.

                                        4

<PAGE>

     Aquacell utilizes titanium-based adsorbent media for removing arsenic from
drinking water with zero wastewater discharge requiring no periodic backwashing
or onsite chemicals.  The Company initially designed its systems to use arsenic
removal media from the Dow Chemical Company, and later became the exclusive
distributor of media provided by Graver Technologies.  Recently, Aquacell
determined it was in the Company's best interest to not be exclusive to any
single media, due to performance variations that can occur with varying water
chemistry.

     The adsorbent media used for arsenic removal, as well as other consumable
products in the systems Aquacell designs must be replaced periodically,
generally on an annual basis.  The replacement media provides an on-going
revenue source for systems installed by the Company, as well as potentially for
systems installed by competitors.

     Recently, the Company has applied a similar process for the removal of
other heavy metals from industrial wastewater streams.

Industrial and Commercial Water Treatment

     Nearly every product manufactured requires some level of water treatment
for process or wastewater. While some industries only require lower level
treatment, such as for cooling towers or boiler feed water, others require
ultra-pure water for specific sensitive processes or products, as in the micro-
chip and pharmaceutical industries.  Additionally, commercial entities across a
broad spectrum require water treatment for their operations.

     Aquacell Water has custom designed water treatment systems for numerous
industrial and commercial applications.  Following thorough evaluation of the
influent water quality and the requirement of the effluent stream, Aquacell
fabricates the most effective treatment system utilizing various treatment
technologies to address the specific situation.  Aquacell has built and
installed systems globally for large and small companies, ranging from textile
manufacturing, aerospace manufacturers, food processing, beverage manufacturer/
bottlers, car washes, resorts, restaurants and aqua farming.

Customers

     Our customers include a broad range of industries including municipalities,
manufacturers, and various commercial clients. We have built systems for Fortune
500 companies and international corporate customers as well as the Canadian and
US Federal governments and local governments.  Our standard terms include a
fifty percent (50%) non-refundable deposit with an order and the remaining fifty
percent (50%) prior to shipment.  There are certain circumstances where
additional installation services are performed, in which case we ask for a fifty
percent (50%) non-refundable deposit, forty percent (40%) prior to shipping and
ten percent (10%) upon installation and start up.

     Our customers for arsenic treatment systems represent the majority of
revenue for the years ended 2006, 2007 and 2008, with our largest customers
being the Bureau of Indian Affairs, New Mexico Utilities and Cold Water
Canyon Water.

Production, Raw Materials and Supplies

     Our products are fabricated either on-site, or in our facility located in
Rancho Cucamonga, California.  Until August 2008 we had built systems in our
facility located in Tempe, Arizona.

     Multiple vendors have been identified as sources for parts and supplies for
our products and we do not anticipate any shortages of such materials.  Aquacell
Water has identified back up vendors in the event primary vendors are unable to
supply us necessary parts and supplies.

                                        5

<PAGE>

     Our facility utilizes manufacturing processes that follow the guidelines
and standards of the American Waterworks Association, the Water Quality
Association and/or National Sanitary Foundation. Upon completion of manufacture,
each system undergoes quality assurance testing prior to shipping and
installation.  The raw materials and components used in these systems are
commonly available commodities such as tanks, piping, valves, gauges, fittings,
electrical components, filters, carbon and other filtration medias or resins.
Our products are fabricated from these materials and assembled together to form
an integrated product.  We do not depend on any single supplier.  If any
supplier were to become unable to perform, we believe we could readily find a
substitute source.  We are not a party to any material long-term fixed price
supply contracts.

Government Regulation

     Federal, state, local and foreign environmental laws and regulations
require substantial expenditures and compliance with water quality standards and
impose liabilities for noncompliance.  We believe that environmental laws and
regulations and their enforcement are, and will continue to be, a significant
factor affecting the marketability of our products.  The treatment of drinking
water in the United States is governed by the Safe Drinking Water Act. The 1996
amendments to the Act emphasize risk-based standards for contaminants in
drinking water, afford small water supply systems operational flexibility and
provide assistance to water system infrastructures through a multi- billion-
dollar Drinking Water State Revolving Fund.  The Fund program assists public
water systems with the financing of the costs of drinking infrastructure that is
necessary to achieve or maintain compliance with the Safe Drinking Water Act
requirements and to protect public health.  The Fund, patterned after the State
Revolving Fund contained in the Clean Water Act, provides funding to the states
to establish a renewable source of financing for drinking water infrastructure
projects.  The Fund program is designed to ensure that the drinking water
supplies in the United States remain safe and affordable, and that systems that
receive funding will be properly operated and maintained.  Regulations under
the Safe Water Drinking Act also established maximum containment levels for a
wide variety of chemicals that may be present in drinking water treatment to
meet applicable standards.

     Any changes in applicable regulations or their enforcement may affect our
operations by imposing additional regulatory compliance costs on our customers,
requiring modification of our products or affecting the market for our products.
To the extent that demand for our products are created by the need to comply
with such enhanced standards or their enforcement, any modification of the
standards or their enforcement may reduce demand, thereby adversely affecting
our business, financial condition or results of operations.  The relaxation or
repeal of any such laws or regulations or the strict enforcement thereof could
also adversely affect our business and prospects.  Conversely, changes in
applicable environmental requirements imposing additional regulatory compliance
requirements or causing stricter enforcement of these laws or regulations could
increase the demand for our products.

Competition

     The water purification industry is fragmented and highly competitive due to
the large number of businesses within certain product areas.  We compete with
many companies that have greater market penetration, depth of product line,
resources and access to capital, all of which could be competitive advantages.
Competitors of our Company include water filtration systems manufacturers such
as Basin Water, Layne Christensen Company, and Severn Trent, PLC.

     While we believe that we can deliver our products on an economically
competitive basis, there can be no assurance in that regard.  In addition, many
competitors have greater financial resources than us to finance their expansion
and internal growth opportunities.  Consequently, we may encounter significant
competition in our efforts to achieve our strategic goals.  There can be no
assurance that our competitors will not develop products that are superior to
ours or achieve greater market acceptance than our products.  Competition could
have a material adverse effect on our ability to consummate arrangements with
customers or enter into strategic business alliances.  Moreover, in response to
changes in the competitive environment, we may make certain pricing, service or
marketing decisions or enter into acquisitions or new ventures that could have
a material adverse effect on our business, financial condition and results
of operations.

                                        6

<PAGE>

Intellectual Property

     Aquacell Water does not presently own any patents.

Employees

     As of June 30, 2008 we had 10 employees.  None of our employees are covered
under collective bargaining agreements although we do have employment agreements
with certain executives.  Management believes we maintain a good relationship
with our employees.


ITEM 2.  PROPERTIES

     We maintain a facility in space leased by an affiliated company in Rancho
Cucamonga, California at no cost to the Company.  We had also previously
maintained an 8,300 square foot manufacturing facility in Tempe, Arizona under
a five (5) year lease that commenced on November 1, 2001 and expired on August
31, 2008.  That lease had an average annual base rent of $90,000.  We believe
that, if necessary, alternative space is readily available at comparable rates
and on comparable terms with respect to all of our leased properties.  We also
believe that we can obtain additional space necessary to support increases in
our future operation.  We believe that the properties described above are
currently protected by adequate insurance.


ITEM 3.  LEGAL PROCEEDINGS

     Aquacell Water is not aware of any threatened or pending material legal
proceedings to which the Company is a party.


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

     None.

                                        7

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock commenced quotation on the OTC Bulletin Board
on May 23, 2006 following its separation from its previous parent company.  The
following table sets forth, for the periods indicated, the last sale prices for
the Common Stock as reported by the Pink Sheets.


Period                                               High ($)       Low ($)
------                                             -----------    -----------
Fiscal 2009
First Quarter......................................  $   0.12       $    0.05


Fiscal 2008
Fourth Quarter.....................................  $   0.10       $    0.08
Third Quarter......................................      0.25            0.12
Second Quarter.....................................      0.25            0.15
First Quarter......................................      0.26            0.16


Fiscal 2007
Fourth Quarter.....................................  $   0.39       $    0.23
Third Quarter......................................      0.31            0.14
Second Quarter.....................................      0.21            0.08
First Quarter......................................      0.24            0.10


Fiscal 2006
Fourth Quarter.....................................  $   0.25       $    0.11
Third Quarter......................................Not trading    Not trading
Second Quarter.....................................Not trading    Not trading
First Quarter......................................Not trading    Not trading

     On September 30, 2008 the last sale price of the Common Stock as reported
by Pink Sheets was $0.12.  On September 30, 2008, there were approximately 130
holders of record of the Company's Common Stock and the Company believes, over
1,500 beneficial owners of the Company's Common Stock.

     Depending upon the Company's capital resources and needs, the Company has
no present plans to pay cash dividends in the future.  The payment of dividends
on common stock, if any, in the future is within the discretion of the Board of
Directors and will depend upon the Company's earnings, its capital requirements,
financial condition, and other relevant factors, although this may change based
upon the foregoing factors.

                                        8

<PAGE>

Recent Sales of Unregistered Securities

     During the years ended June 30, 2006, 2007 and 2008 the Company made the
following sales of unregistered securities:


<TABLE>

<CAPTION>
                                                                                    Exemption
                                     Consideration Received and Description of      From          If Option, Warrant or
Date       Title of      Number      Underwriting or Other Discounts to             Registration  Convertible Security,
of Sale    Security      Sold        Market Price Afforded to Purchasers            Claimed       Terms of Exercise or Conversion
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
<S>        <C>           <C>         <C>                                            <C>           <C>

07/02/06-  Common Stock   3,269,750  Issued in connection with                          4(2);
10/30/06                             private offering at $0.10 per share                4(6)
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
07/02/06-  Warrants to    4,904,625  Issued in connection with                          4(2);     All exercisable at $5.00 per share
10/30/06   Purchase                  private offering: no cash until exercise.          4(6)
           Common Stock
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
01/26/07   Common Stock   1,500,000  Issued in connection with                          4(2);
                                     private placement at $0.05 per share.              4(6)
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
02/06/07-  Common Stock  10,666,666  Issued in connection with                          4(2);
05/09-07                             private offering at $0.15 per share                4(6)
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
04/10/07   Common Stock   1,500,000  Issued in connection with an                       4(2);
                                     acquisition at $0.15 per share                     4(6)
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
12/31/07   Common stock   7,333,332  Issued in connection with                          4(2);
                                     private offering at $0.15 per share                4(6)
---------  ------------  ----------  ---------------------------------------------  ------------  ----------------------------------
</TABLE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     When used in this Form 10-KSB and in future filings by the company with the
Commission, statements identified by the words "believe", "positioned",
"estimate", "project", "target", "continue", "will", "intend", "expect",
"future", "anticipates", and similar expressions express management's present
belief, expectations or intentions regarding the company's future performance
within the meaning of the Private Securities Litigation Reform Act of 1995.
The safe harbor in the Private Securities Litigation Act of 1995 does not apply
to statements made in this document.  Readers are cautioned not to place undue
reliance on any such forward-looking statements, each of which speaks only as
of the date made.  Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.  The company
has no obligations to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.

Overview

     The following discussions and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes presented
following the financial statements.  The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.

                                        9

<PAGE>

     Aquacell Water, Inc. builds water treatment systems for the municipal,
industrial and commercial sectors of the water treatment and purification
industry.  We design, manufacture, install and service our custom designed
turnkey systems that treat from hundreds to millions of gallons of water per day
for a variety of applications, including treatment of process water for public
drinking water, manufacturing, purification of water for bottling plants and
food service, and removal of contaminants from municipal drinking water systems.
Our customers range from drinking water providers and manufacturers, to defense
contractors and the military.

     We provide a process for removing arsenic from drinking water with zero
wastewater discharge requiring no onsite chemicals.  This process reduces both
the capital and operating costs for municipalities. As of January 2006,
municipalities are required to be in compliance with a mandate lowering the
allowable level of arsenic in drinking water from 50 parts-per-billion to ten.
We anticipate a significant portion of our business in 2009 will be in arsenic
removal systems.

     The adsorbent media used for arsenic removal, as well as other consumable
products in our systems, must be replaced generally on an annual basis.  The
replacement media provides an on-going revenue source for systems installed by
the Company, as well as potentially for systems installed by competitors.

     The Registrant, a small business issuer with limited resources, has been
behind in filing its periodic reports since March 2006. In an effort to become
current the company has focused its attention and resources on completing its
past due financial audits by filing a comprehensive Form 10-KSB covering the
fiscal years ended 2006, 2007 and 2008.

Critical Accounting Policies

     The accompanying discussion and analysis of our financial condition and
results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses, and related disclosure
of contingent assets and liabilities. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. We base our estimates and judgments on
historical experience and all available information. However, future events are
subject to change, and the best estimates and judgments routinely require
adjustment. US GAAP requires us to make estimates and judgments in several
areas, including those related to recording various accruals, income taxes, the
useful lives of long-lived assets, such as property and equipment and intangible
assets, and potential losses from contingencies and litigation. We believe the
policies discussed below are the most critical to our financial statements
because they are affected significantly by management's judgments, assumptions
and estimates.

Goodwill

     Goodwill represents the excess of the purchase price over the fair value
of net assets of a business acquired. The Company has adopted Statements of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets". Fair value of the reporting unit is determined by comparing
the fair value of the unit with its carrying value, including goodwill.
Impairment tests are performed using discounted cash flow analysis and estimates
of sales proceeds. The annual evaluation of goodwill is performed at June 30th,
the end of the Company's fiscal year.

     Based on impairment testing performed, the Company determined that the
recorded amount of goodwill of $776,000 related to the McPhee acquisition was
fully impaired at June 30, 2007.  Accordingly, the Company recorded an
impairment charge of $776,000 during the year ended June 30, 2007.

                                        10

<PAGE>

Income Taxes

     The Company accounts for income taxes using the asset and liability method
described on SFAS No. 109, "Accounting For Income Taxes", the objective of which
is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting and the tax bases of Water's assets
and liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled. A valuation allowance related to deferred tax assets
is recorded when it is more likely than no that some portion or all of the
deferred tax assets will not be realized.

New Accounting Pronouncements

     In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" (FIN 48), an interpretation of SFAS 109,
"Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with SFAS 109. FIN 48 prescribes a two-step process to determine the amount of
tax benefit to be recognized. First, the tax position must be evaluated to
determine the likelihood that it will be sustained upon examination. If the tax
position is deemed "more-likely-than-not" to be sustained, the tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. FIN 48 was adopted by the Company
in fiscal 2008 and did not have any impact on its consolidated results of
operations and financial position.

     In September 2006, the FASB issued SFAS 157, "Fair Market Measurements."
SFAS 157 clarifies the definition of fair value, establishes a framework for
 measuring fair value and expands disclosure on fair value measurement. SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be applied on a prospective basis. The Company does
not expect the adoption of SFAS 157 to have a material impact on its
consolidated results of operations, financial position or cash flows.

     In February 2007, the FASB issued SFAS 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS 159 permits entities to
measure many financial instruments and certain other items at fair value at
specified election dates. Under SFAS 159, any unrealized holding gains and
losses on items for which the fair value option has been elected are reported
in earnings at each subsequent reporting date. If elected, the fair value option
(1) may be applied instrument by instrument, with a few exceptions, such as
investments otherwise accounted for by the equity method; (2) is irrevocable
(unless a new election date occurs); and (3) is applied only to entire
instruments and not to portions of instruments. SFAS 159 is effective as of an
entity's first fiscal year that begins after November 15, 2007. The Company is
currently evaluating the potential impact of SFAS 159 on its consolidated
results of operations and financial position.

     In December 2007, the FASB issued SFAS 141 (revised 2007), "Business
Combinations". SFAS 141R is a revision to SFAS 141 and includes substantial
changes to the acquisition method used to account for business combinations
(formerly the "purchase accounting" method), including broadening the definition
of a business, as well as revisions to accounting methods for contingent
consideration and other contingencies related to the acquired business,
accounting for transaction costs, and accounting for adjustments to
provisional amounts recorded in connection with acquisitions. SFAS 141R retains
the fundamental requirement of SFAS 141 that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. SFAS 141R is effective for periods
beginning on or after December 15, 2008, and will apply to all business
combinations occurring after the effective date. The Company is currently
evaluating the potential impact of SFAS 141R on its consolidated
financial statements.

     In December 2007, the FASB issued SFAS 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("ARB 51"). This Statement amends
ARB 51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold
will be recognized in earnings. SFAS 160 is effective for periods beginning
after December 15, 2008. The Company is currently evaluating the potential
impacts of SFAS 160 on its consolidated results of operations and
financial position.

                                        11

<PAGE>

     In March 2008, the FASB issued ASAS No. 161, "Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which establishes, among other things, the disclosure requirements
for derivative instruments and hedging activities. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS 161 is effective for fiscal periods and interim
period beginning after November 15, 2008. The Company does not expect the
adoption of SFAS 161 to have a material impact on its consolidated results of
operations, financial position or cash flows.

Results of Operations

     For the year ended June 30, 2008 revenues were $862,000 representing an
increase of $168,000, or 24%, over the preceding year.  The increase was due
primarily to the increase of orders received for the completion of arsenic
removal treatment systems as well the inclusion of the operations of Aquacell's
acquisition of McPhee Environmental for the full fiscal year. Gross profit
margin of 37% compared with 10% for the same period in the preceding year
reflected Aquacell's emphasis and concentration on higher margin
bid opportunities.

     Operating expenses for the year ended June 30, 2008 totaled $2,055,000
representing an increase of $536,000, or 35%, over the preceding year.  The
increase was due almost entirely to the inclusion of the operations of McPhee
Environmental for the full fiscal 2008 year, as reflected in the increase in
salaries and wages for the additional eight McPhee Environmental full-time
employees added through the acquisition.

     Net loss for the year ended June 30, 2008 was $1,779,000, a decrease of
$513,000 from the net loss incurred for the year ended June 30, 2007 of
$2,292,000.  The decrease was due primarily to the impairment loss on goodwill
in connection with the acquisition of McPhee Environmental in the prior fiscal
year of $776,000.

     For the year ended June 30, 2007 revenues were $694,000, approximately the
same as the $626,000 in revenue for the preceding fiscal year.

     Operating expenses totaled $1,519,000 representing an increase of $389,000,
or 34%, over the preceding year.  Salaries and wages were $929,000 the year
ended June 30, 2007 and represented a $175,000 increase from the preceding year.
This increase was attributable to the addition of executive management personnel
during fiscal 2007 as well as the addition of additional employees following the
acquisition of McPhee Environmental in April 2007.  Selling, general and
administrative expenses increased $198,000 from the preceding year resulting
primarily from accounting fees and other administrative expenses.

     Net loss for the year ended June 30, 2007 was $2,292,000 representing an
increase of $1,192,000 over the preceding year.  This increase was due in large
part to an impairment loss on goodwill of $776,000 in connection with Aquacell's
acquisition of McPhee Environmental.

     For the year ended June 30, 2006 revenues were $626,000, approximately the
same as the $619,000 in revenue for the preceding year.  Gross profit margin
totaled 21% for the year ended June 30, 2006, consistent with the 23% gross
profit margin for the preceding year.  Total operating expenses were $1,130,000,
an increase of $571,000 from the $559,000 in total operating expenses in the
preceding year.  This increase was due to several factors including
administrative expenses incurred in connection with the separation of Aquacell
from its former parent company, AquaCell Technologies on March 9, 2006.

                                        12

<PAGE>

QUARTERLY FINANCIAL INFORMATION (Unaudited)

     The following tables contain the 2008 and 2007 unaudited consolidated
balance sheets as of September 30, December 31 and March 31 and the consolidated
statements of operations for the three month periods ended September 30,
December 31, March 31 and June 30 of 2008, 2007 and 2006. Management believes
that the following information reflects all normal recurring adjustments
necessary for a fair presentation of the information for the periods presented.

     Unaudited quarterly results are as follows:

                                        13

<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
          Unaudited Quarterly Consolidated Balance Sheets-Fiscal 2008

<TABLE>
<CAPTION>
                                                        September 30,   December 31,     March 31,
                                                             2007           2007           2008
(in thousands)                                           (Unaudited)    (Unaudited)    (Unaudited)
-----------------------------------------------------   -------------  -------------  -------------
<S>                                                     <C>            <C>            <C>

Assets

Current assets:
    Cash                                                $         32   $        648   $        101
    Accounts receivable, net of allowance                        363            118             84
    Inventories                                                    -              -              -
    Subscriptions receivable                                       -            500              -
    Receivables from related parties, net                          -              -             44
                                                        -------------  -------------  -------------
          Total current assets                                   395          1,266            229

Other assets                                                       -              -              -
                                                        -------------  -------------  -------------
                                                        $        395   $      1,266   $        229
                                                        =============  =============  =============
Liabilities and Stockholders' Deficit

Current liabilities:
   Bank overdraft                                       $          -   $          -   $          -
   Advances under line of credit agreements                      117            104             78
   Accounts payable and accrued liabilities                      875          1,018            902
   Accrued officer compensation                                  134            134            134
   Advances from related parties, net                            356            532             62
   Shareholder notes payable                                      55             55             35
   Accrued interest payable                                       14             16              8
   Customer deposits                                              28             94            150
                                                        -------------  -------------  -------------
          Total current liabilities                            1,579          1,953          1,369

Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, par value $.001; 20,000,000 shares
      authorized; no shares  issued and outstanding                -              -              -
Common stock, par value $.001; 100,000,000 shares and
      authorized; 58,766,306 , 50,929,641 and 29,009,408
      shares issued and outstanding at June 30, 2008,
      2007, and 2006, respectively                                51             59             59
Additional paid-in capital                                     4,571          5,614          5,624
Accumulated deficit                                           (5,806)        (6,360)        (6,823)
                                                        -------------  -------------  -------------
          Total stockholders' equity (deficit)                (1,184)          (687)        (1,140)
                                                        -------------  -------------  -------------
                                                        $        395   $      1,266   $        229
                                                        =============  =============  =============

</TABLE>
                                        14

<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
          Unaudited Quarterly Consolidated Balance Sheets-Fiscal 2007

<TABLE>
<CAPTION>
                                                        September 30,   December 31,     March 31,
                                                             2006           2006           2007
(in thousands)                                           (Unaudited)    (Unaudited)    (Unaudited)
-----------------------------------------------------   -------------  -------------  -------------
<S>                                                     <C>            <C>            <C>

Assets

Current assets:
    Cash                                                $          -   $          -   $        274
    Accounts receivable, net of allowance                          3              4             65
    Inventories                                                    3              2              2
    Subscriptions receivable                                       -              -              -
    Receivables from related parties, net                          -              -            211
                                                        -------------  -------------  -------------
          Total current assets                                     6              6            552

Other assets                                                       -              -              -
                                                        -------------  -------------  -------------
                                                        $          6   $          6   $        552
                                                        =============  =============  =============

Liabilities and Stockholders' Deficit

Current liabilities:
   Bank overdraft                                       $          -   $          -   $          -
   Advances under line of credit agreements                        -              -              -
   Accounts payable and accrued liabilities                      880            931            671
   Accrued officer compensation                                  305            379            134
   Advances from related parties, net                            114            109              -
   Shareholder notes payable                                     280            280             55
   Accrued interest payable                                        8             17             10
   Customer deposits                                              22              8            195
                                                        -------------  -------------  -------------
          Total current liabilities                            1,609          1,724          1,065


Commitments and contingencies

Stockholders' equity (deficiency):
Preferred stock, par value $.001; 20,000,000 shares
      authorized; no shares  issued and outstanding                -              -              -
Common stock, par value $.001; 100,000,000 shares and
      authorized; 58,766,306 , 50,929,641 and 29,009,408
      shares issued and outstanding at June 30, 2008,
      2007, and 2006, respectively                                31             33             44
Additional paid-in capital                                     1,864          1,998          3,596
Accumulated deficit                                           (3,498)        (3,749)        (4,153)
                                                        -------------  -------------  -------------
          Total stockholders' equity (deficit)                (1,603)        (1,718)          (513)
                                                        -------------  -------------  -------------
                                                        $          6   $          6   $        552
                                                        =============  =============  =============

</TABLE>

                                        15

<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
     Unaudited Quarterly Consolidated Statements of Operations-Fiscal 2008

<TABLE>
<CAPTION>
                                                                      Quarterly Period Ended
                                                     -------------------------------------------------------
                                                     September 30,  December 31,    March 31,     June 30,
                                                         2007           2007          2008          2008
                                                     -------------  ------------  ------------  ------------
(in thousands, except per share amounts)              (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
---------------------------------------------------  -------------  ------------  ------------  ------------
<S>                                                  <C>            <C>           <C>           <C>

Sales                                                $        472   $        56   $        99   $       235

Cost of sales                                                 268            62            88           126
                                                     -------------  ------------  ------------  ------------
Gross profit                                                  204            (6)           11           109

Operating expenses
  Salaries and wages                                          279           311           317           391
  Legal, accounting and other professional expenses            80            21            21            23
  Selling, general and administrative expenses                241           209           137            25
                                                     -------------  ------------  ------------  ------------
    Total operating expenses                                  600           541           475           439
                                                     -------------  ------------  ------------  ------------
Operating income (loss)                                      (396)         (547)         (464)         (330)

Other income (expense):
  Goodwill impairment charge                                    -             -             -             -
  Other income                                                  -             -             -             2
  Interest income - related Parties                             -             -             -             -
  Gain (loss) on disposition of assets                          -             -             -             -
  Interest expense, net                                        (7)           (7)            1           (31)
                                                     -------------  ------------  ------------  ------------
    Total other income (expense)                               (7)           (7)            1           (29)

Income (loss) before provision for income taxes              (403)         (554)         (463)         (359)

Provision for (benefit from) income taxes                       -             -             -             -
                                                     -------------  ------------  ------------  ------------
Net loss for the period                              $       (403)  $      (554)  $       (463) $      (359)
                                                     =============  ============  ============  ============
Net loss per common share                            $      (0.01)  $     (0.01)  $     (0.01)  $         -
                                                     =============  ============  ============  ============
Weighted average common shares outstanding
   - basic and diluted                                 42,520,537    47,243,748    52,403,989    54,815,360
                                                     =============  ============  ============  ============
</TABLE>

                                        16

<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
     Unaudited Quarterly Consolidated Statements of Operations-Fiscal 2007

<TABLE>
<CAPTION>
                                                                      Quarterly Period Ended
                                                     -------------------------------------------------------
                                                     September 30,  December 31,    March 31,     June 30,
                                                         2006           2006          2007          2007
                                                     -------------  ------------  ------------  ------------
(in thousands, except per share amounts)              (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
---------------------------------------------------  -------------  ------------  ------------  ------------
<S>                                                  <C>            <C>           <C>           <C>

Sales                                                $         29   $        19   $         -   $       646

Cost of sales                                                  71             4            17           532
                                                     -------------  ------------  ------------  ------------
Gross profit                                                  (42)           15           (17)          114

Operating expenses
  Salaries and wages                                          160           117           264           388
  Legal, accounting and other professional expenses            38            34            (3)            8
  Selling, general and administrative expenses                134           101           115           163
                                                     -------------  ------------  ------------  ------------
    Total operating expenses                                  332           252           376           559
                                                     -------------  ------------  ------------  ------------
Operating income (loss)                                      (374)         (237)         (393)         (445)

Other income (expense):

  Goodwill impairment charge                                    -             -             -          (776)
  Other income                                                  -             -             -             -
  Interest income - related Parties                             -             -             -             -
  Gain (loss) on disposition of assets                          -             -             -             -
  Interest expense, net                                       (13)          (14)          (11)          (29)
                                                     -------------  ------------  ------------  ------------
    Total other income (expense)                              (13)          (14)          (11)         (805)

Income (loss) before provision for income taxes              (387)         (251)         (404)       (1,250)

Provision for (benefit from) income taxes                       -             -             -             -
                                                     -------------  ------------  ------------  ------------
Net loss for the period                              $       (387)  $      (251)  $      (404)  $    (1,250)
                                                     =============  ============  ============  ============
Net loss per common share                            $      (0.01)  $     (0.01)  $     (0.01)  $     (0.03)
                                                     =============  ============  ============  ============
Weighted average common shares outstanding
   - basic and diluted                                 29,365,682    30,171,503    32,170,270    37,351,711
                                                     =============  ============  ============  ============
</TABLE>

                                        17

<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
     Unaudited Quarterly Consolidated Statements of Operations-Fiscal 2006


<TABLE>
<CAPTION>
                                                                      Quarterly Period Ended
                                                     -------------------------------------------------------
                                                     September 30,  December 31,    March 31,     June 30,
                                                         2005           2005          2006          2006
                                                     -------------  ------------  ------------  ------------
(in thousands, except per share amounts)              (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
---------------------------------------------------  -------------  ------------  ------------  ------------
<S>                                                  <C>            <C>           <C>           <C>

Sales                                                $        101   $       184   $       271   $        71

Cost of sales                                                 105            84           179           130
                                                     -------------  ------------  ------------  ------------
Gross profit                                                   (4)          100            92           (59)

Operating expenses
  Salaries and wages                                          202           217           193           141
  Legal, accounting and other professional expenses             -            16            37             8
  Selling, general and administrative expenses                 75            73           114            53
                                                     -------------  ------------  ------------  ------------
    Total operating expenses                                  277           306           344           202
                                                     -------------  ------------  ------------  ------------
Operating income (loss)                                      (281)         (206)         (252)         (261)

Other income (expense):
  Goodwill impairment charge                                    -             -             -             -
  Other income                                                  -             -             -             -
  Interest income - related Parties                             -             -             -             1
  Gain (loss) on disposition of assets                          -             -             -            (2)
  Interest expense, net                                       (10)          (14)          (17)          (55)
                                                     -------------  ------------  ------------  ------------
    Total other income (expense)                              (10)          (14)          (17)          (56)

Income (loss) before provision for income taxes              (291)         (220)         (269)         (317)

Provision for (benefit from) income taxes                       -             -             -             -
                                                     -------------  ------------  ------------  ------------
Net loss for the period                              $       (291)  $      (220)  $      (269)  $      (317)
                                                     =============  ============  ============  ============
Net loss per common share                            $      (0.15)  $     (0.11)  $     (0.03)  $     (0.04)
                                                     =============  ============  ============  ============
Weighted average common shares outstanding
   - basic and diluted                                  1,990,998     1,990,998     7,922,361     8,063,731
                                                     =============  ============  ============  ============
</TABLE>

                                        18

<PAGE>

Liquidity and Capital Resources

Year Ended June 30, 2008

     Aquacell has developed a plan to address liquidity, in connection with its
ability to continue as a going concern in several ways.  It intends to raise
capital through the sale or exercise of equity securities as needed for working
capital.  Aquacell presently has no agreement or understanding with any party
to market, sell or purchase its equity securities.  Any future equity offering
undertaken will be predicated upon the price of the stock and cash flows
generated from operations.  Aquacell has continued to pursue the increase of
its revenues through its customer base and arsenic removal system strategy.  It
is our policy to require a 50% deposit on all custom system sales providing a
significant cash flow as our revenues increase.  Although the majority of our
revenues are derived from custom jobs it is not possible to quantify such
amounts at this time.

     Cash used by operations during the year ended June 30, 2008 amounted to
$1,290,000.  Net loss of $1,779,000 was reduced by non-cash compensation
expense of $22,000, expenses settled with common stock issuances of $41,000,
the accrual of unpaid officer compensation of $168,000 and customer deposits
of $120,000.

     Cash provided by financial activities was approximately $916,000, primarily
from the sale of equity common stock.

     At June 30, 2008 Aquacell has entered into an installment agreement with
the Internal Revenue Service for the payment of unpaid payroll taxes which
represents a monthly payment of $15,000 for approximately 10 months.

     Management believes that its anticipated borrowings, equity raise and cash
flows expected to be generated from future operations will be sufficient to
meet presently anticipated needs for working capital and capital expenditures
through at least the next 12 months; however, there can be no assurance in
that regard.  Water presently has no material commitments for future capital
expenditures and internally generated cash flows expected from
future operations.

Year Ended June 30, 2007

     Cash used by operations during the year ended June 30, 2007 amounted to
$1,545,000.  Net loss of $2,292,000 was reduced by a goodwill impairment charge
of $776,000.

     Cash provided by financing activities was approximately $1,959,000,
primarily from the sale of equity common stock.

     Management believes that its anticipated borrowings, equity raise and cash
flows expected to be generated from future operations will be sufficient to
meet presently anticipated needs for working capital and capital expenditures
through at least the next 12 months; however, there can be no assurance in that
regard.  Water presently has no material commitments for future capital
expenditures and internally generated cash flows expected from
future operations.

Year Ended June 30, 2006

     Cash used by operations during the year ended June 30, 2006 amounted to
$315,000.  Net loss of $1,100,000 was reduced by a loss on disposal of assets
of $2,000, an increase in accounts payable and accrued expenses of $487,000,
and accrued and unpaid officer compensation of $213,000.

     Cash provided by financing activities was approximately $315,000, primarily
from the issuance of convertible debt.

                                        19

<PAGE>

     Management believes that its anticipated borrowings, equity raise and cash
flows expected to be generated from future operations will be sufficient to
meet presently anticipated needs for working capital and capital expenditures
through at least the next 12 months; however, there can be no assurance in that
regard.  Water presently has no material commitments for future capital
expenditures and internally generated cash flows expected from
future operations.

ITEM 7.  FINANCIAL STATEMENTS

     See Financial Statements beginning on page F-1.

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

     On May 2, 2007 the Company received notification that the Company's former
accountant Wolinetz, Lafazan & Company, P.C. resigned as of April 30, 2007.  The
audit report of the former accountant on the financial statements of the
Registrant for the last fiscal year reported, June 30, 2005, did not contain an
adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles, except that the former
accountant's report on the registrant's financial statements expressed
substantial doubt with respect to the Registrant's ability to continue as a
going concern for the fiscal year ended June 30, 2005.  The decision to resign
was solely that of the former accountant into which the Board of Directors had
no input.

     There were no disagreements, whether or not resolved, with the former
accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
the former accountant's satisfaction, would have caused it to  make reference
to the subject matter of the disagreement(s).

      On May 8, 2007, KMJ Corbin & Company LLP ("KMJ") was engaged as the
independent registered public accounting firm to audit the registrant's
financial statements.  During the Registrant's two most recent fiscal years and
through May 8, 2007, neither the Registrant nor anyone on its behalf has
consulted with KMJ regarding either (i) the application of accounting principles
to a specified transaction, either  completed or proposed; or the type of audit
opinion that might  be rendered on the Registrant's financial statements, and
neither a written report was provided to the Registrant nor oral advice was
provided by KMJ that was an important factor considered by the Registrant in
reaching a decision as to any  accounting, auditing or financial reporting
issue; or (ii) any matter that was the subject of a disagreement, as that term
is  defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of  Regulation S-K.

     On February 25, 2008, the audit committee of the Company's Board of
Directors dismissed its former independent registered public accounting firm
KMJ Corbin & Company LLP ("KMJ"). KMJ was retained by the Company in May 2007
and never issued any report on the Company's financial statements. There were
no disagreements, whether or not resolved, with the former accountant on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to KMJ's satisfaction,
would have caused it to make  reference to the subject matter of
the disagreement(s).

     As of February 25, 2008, PS Stephenson & Co. PC has been engaged as the
principal accountant to audit the Company's financial statements. During the
Registrant's two most recent fiscal years and through February 25, 2008,
neither the Registrant nor anyone on its behalf has consulted with PS
Stephenson & Co., PC regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed; or the
type of audit opinion that might be rendered on the Registrant's financial
statements, and neither a written report was provided to the Registrant nor
oral advice was provided by PS Stephenson & Co., PC that was an important
factor considered by the Registrant in reaching a decision as to any
accounting, auditing or financial reporting issue; or (ii) any matter that was
the subject of a disagreement, as that term is  defined in Item 304 (a)(1)(iv)
of Regulation S-K and the related  instructions to Item 304 of Regulation S-K,
or a reportable event, as that term is defined in Item 304 (a)(1)(v) of
Regulation S-K.

                                        20

<PAGE>

ITEM 8A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     Our management, with the participation of our Principal Executive Officer
and our Principal Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of the end of the
periods covered by this Annual Report (June 30, 2008, June 30, 2007 and June 30,
2006), as is defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended. Our disclosure controls and procedures are intended to
ensure that the information we are required to disclose in the reports that we
file or submit under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and (ii) accumulated and
communicated to our management, including the Principal Executive Officer and
Principal Financial Officer to allow timely decisions regarding
required disclosures.

     Based on that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that, as of the end of the period covered by this
Annual Report, our disclosure controls and procedures were ineffective.  The
failure to file annual reports for 2006 and 2007 and the failure to timely file
this annual report for 2008 leads to the conclusion that the disclosure
controls and procedures were not effective.  As of the date of this report,
the Company has added the further step of fully discussing with its outside
advisors whether they are aware of any new SEC rules and regulations affecting
our disclosure requirements and whether each report being filed is compliant
with current rules and regulations. Our management has concluded that the
financial statements included in this Form 10-KSB present fairly, in all
material respects our financial position, results of operations and cash flows
for the periods presented in conformity with generally accepted
accounting principles.

     It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of
future events.

Management's Report on Internal Control Over Financial Reporting

     Management is responsible for establishing and maintaining adequate
internal control over our financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act). Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.

     Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Our
management, with the participation of our Principal Executive Officer and
Principal Financial Officer, conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that, as
of the end of the period covered by this Annual Report, our internal control
over financial reporting was effective.

                                        21

<PAGE>

     This Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit us to provide only
management's report in this Annual Report.

Changes in Internal Control Over Financial Reporting

     During our most recent fiscal quarter, there have been no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect our internal control over
financial reporting.


ITEM 8B.  OTHER INFORMATION

     None.

                                        22

<PAGE>

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL P
         ERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

<TABLE>
<CAPTION>
                                                           Director
Name                       Age  Position                   Since      Term Expires
-------------------------  ---  -------------------------  ---------  -------------
<S>                        <C>  <C>                        <C>        <C>

James C. Witham             67  Chairman of the Board and  July 2005  December 2010
                                Chief Executive Officer


Kevin Spence                52  President and              July 2005  N/A
                                Chief Financial Officer


Karen B. Laustsen           48  Chief Operating Officer,   July 2005  December 2009
                                Secretary and Director


Dr. William DiTuro (1)      53  Director                   July 2005  December 2009


Glenn A. Bergenfield (1)    55  Director                   July 2005  December 2010


James Barton (1)            57  Director                   July 2005  December 2008

</TABLE>

(1) Member of Audit Committee and Compensation Committee

     James C. Witham founded Aquacell Water as a wholly owned subsidiary of its
former parent, AquaCell Technologies, and has served as its Chairman and Chief
Executive Officer since July 2005.  Mr. Witham has been Chairman of the Board
and Chief Executive Officer of GreenCore Technology, Inc. (formerly AquaCell
Technologies, Inc.) since 1998.  From April, 1987 through May, 1996, Mr. Witham
founded and served as Chairman, Chief Executive Officer and President of U.S.
Alcohol Testing.  Mr. Witham also served as Chairman and Chief Executive Officer
of U.S. Alcohol's two publicly held subsidiaries, U.S. Drug Testing, Inc. and
Good Ideas Enterprises, Inc.  Mr. Witham is the husband of Karen B. Laustsen,
Chief Operating Officer of Aquacell Water.

     Kevin L. Spence was appointed President and Chief Financial Officer of
Aquacell Water effective January 2007.  Mr. Spence has been President and Chief
Financial Officer of GreenCore Technology, Inc. (formerly AquaCell Technologies,
Inc.) since 2007.  From January, 2004 through January 2007 he served as
President of Citation Publishing, Inc. a privately held company.  From June,
2001 through June, 2003 Mr. Spence served as Chief Financial Officer of
Swiftcomm, Inc. a privately held company.  From 1992 to 2000 Mr. Spence was
Executive Vice President and Chief Financial Officer of US Filter Corporation,
a Fortune 500 global provider of water and wastewater treatment systems and
services.  Prior to his employment at US Filter, Mr. Spence was an audit
partner at KPMG Peat Marwick.

     Karen B. Laustsen  served Aquacell Water's  President, Chief Operating
Officer, Secretary, and as a Director since from July 2005 through January 2007,
and currently serves as its Chief Operating Officer, Secretary, and as a
Director.  Ms. Laustsen served as President, Chief Operating Officer, Secretary
and as a Director of GreenCore Technology, Inc. (formerly AquaCell Technologies,
Inc.) since 1998, and currently serves as Chief Operating Officer, Secretary,
and as a Director.  From April, 1987 through May, 1996, Ms. Laustsen served as
Executive Vice President and a Director of U.S. Alcohol Testing of America, Inc.
Ms. Laustsen also served on the Board of Directors of U.S. Drug Testing, Inc.
and Good Ideas Enterprises, Inc.  Ms. Laustsen is the wife of James C. Witham,
Chairman of AquaCell.

     William DiTuro has been a Director of Aquacell Water since July 2005.  Dr.
DiTuro was been self-employed as a sole practitioner of general pediatrics from
1986 through 2005 and has served as a clinical instructor of pediatrics at the
Robert Wood Johnson Medical School.  Dr. DiTuro currently serves as a Director
of GreenCore Technology, Inc. Dr. DiTuro previously served as a Director of
U.S. Alcohol, U.S. Drug Testing, Inc. and Good Ideas Enterprises, Inc.

                                        23

<PAGE>

     Glenn A. Bergenfield has been a Director of Aquacell Water since July 2005.
Since 1983, Mr. Bergenfield has been self-employed as a sole practitioner of law
in the State of New Jersey. Mr. Bergenfield currently serves as a Director of
GreenCore Technology, Inc. Mr. Bergenfield previously served as a Director of
U.S. Alcohol, and as a Director of U.S. Drug Testing, Inc. and Good Ideas
Enterprises, Inc.

     James Barton was appointed as a Director in July 2005.  He is presently a
Manager of Michigan Ornamental Metals, a privately held company. Mr. Barton
currently serves as a Director of GreenCore Technology, Inc.

Independence of Directors

     The Board of Directors consults with counsel to ensure that the Board's
determinations are consistent with those rules and relevant securities and other
laws regarding director independence.  Consistent with these considerations, the
Board of Directors has affirmatively determined that Glenn Bergenfield, William
DiTuro and James Barton will be independent directors for the ensuing year.  The
remaining directors are not independent because they are employed by the
company.  The independent directors constitute the audit, nominating and
compensation committees.

Compensation Committee Interlocks and Insider Participation

     The Company's independent directors act as the compensation committee of
the Company.

Audit Committee and Audit Committee Financial Expert

     The Company's audit committee was established in July 2005 and is currently
comprised of Glenn Bergenfield, William DiTuro and James Barton.

     Our Board has determined that it does not have a member of its Audit
Committee that qualifies as an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B, and is "independent" as the term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

     We believe that retaining an independent director who would qualify as an
"audit committee financial expert" would be overly costly and burdensome and is
not warranted in our current circumstances.

Code of Ethics

     The Board adopted a Code of Ethics in 2006 that applies to, among other
persons, Board members, officers including our Chief Executive Officer and Chief
Financial Officer, contractors, consultants and advisors. Our Code of Ethics
sets forth written standards designed to deter wrongdoing and to promote:

     1)   honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;

     2)   full, fair, accurate, timely and understandable disclosure in reports
and documents that we file with or submit to the SEC and in other public
communications made by us;

     3)   compliance with applicable governmental laws, rules and regulations;

     4)   the prompt internal reporting of violations of the Code of Ethics to
an appropriate person or persons identified in the Code of Ethics; and

                                        24

<PAGE>

     5)   accountability for adherence to the Code of Ethics.

     A copy of the Code of Ethics is filed as an exhibit to this report and is
available on our website www.aquacellwater.com. We will also make available a
copy of the Code of Ethics upon written request.

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Exchange Act requires our executive officers,
directors and persons who beneficially own more than ten percent of the common
stock to file reports of ownership and changes in ownership with the SEC, as
well as providing us with copies of those reports. For the years ended June 30,
2006 and June 30,2007, all such reports were timely filed. For the year ended
June 30, 2008. Each of the persons set forth in the table above failed to file
one report on Form 4 related to an option grant in February, 2008. Each of those
persons subsequently filed a corrective report on Form 5. As of the date of this
filing, we believe that our executive officers and directors are current in
their Section 16 filings.

                                        25

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

     Mr. Witham and Ms. Laustsen  entered into five year employments which
expire in October, 2010.  Mr. Spence entered into an employment agreement which
expires in December 2011.

<TABLE>
<CAPTION>

Name and Principal Position          Annual Compensation             Long-Term Compensation
---------------------------  ----------------------------------    --------------------------
                                                                   Options
                                     Salary ($)                    Granted (4)   All Other
                             Year    (1)(2)(3)(4)  Bonus ($)(5)    (5)(6)(7)(8)  Compensation
---------------------------  ----    ------------  ------------    ------------  ------------
<S>                          <C>     <C>           <C>             <C>           <C>

James C. Witham............  2008       165,625       48,314          200,000         --
Chairman of the Board        2007       165,625         --            200,000         --
and Chief Executive Officer  2006       154,745         --               -            --


Kevin L Spence.............  2008       165,000       48,314          200,000         --
President and                2007        82,500         --            500,000         --
Chief Financial Officer      2006          --           --               -            --


Karen B. Laustsen (9)......  2008       100,000       24,157          100,000         --
Chief Operating Officer,     2007       100,000         --            100,000         --
Secretary and Director       2006        93,432         --               -            --


Gary S. Wolff..............  2007        33,333         --               -            --
Former Treasurer,            2006        90,437         --               -            --
Chief Financial Officer
and Director

</TABLE>

(1) For the fiscal year ended 2006 aggregate salaries accrued but not paid
    amounted to $213,282.
(2) For the fiscal year ended 2007 aggregate salaries accrued but not paid
    amounted to $166,145.
(3) For the fiscal year ended 2008 aggregate salaries accrued but not paid
    amounted to $28,266
(4) For the fiscal years ended 2006 and 2007, Mr. Witham, Mr. Wolff and Ms.
    Laustsen converted an aggregate of $245,823 of accrued but not paid salary
    to common stock at $0.15 per share the same price of a private offering
    being conducted at the time of conversion.
(5) For the fiscal year ended 2008 aggregate bonuses accrued but not paid
    amounted to $120,785.
(6) No options were issued in January 2006.
(7) 800,000 options were issued in January 2007 and vest at the rate of 33% per
    year over period of 7-10 years.
(8) 500,000 options were issued in February 2008 and vest at the rate of 33% per
    year over a 7 year period.
(9) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer.

                                        26

<PAGE>

     During the fiscal year ended June 30, 2006, no stock options were granted
to executive officers.

     The following table summarizes the number of options granted to the
executive officers named above during the fiscal year ended June 30, 2007.

<TABLE>
<CAPTION>
                                  Options / SAR Grants in Last Fiscal Year
                                              Individual Grants
-------------------------------------------------------------------------------------------------------------
                                                                              Potential
                                                                              Realizable
                                                                              Value at Assumed
                                                                              Annual Rates
                                            % of Total                        of Stock Price
                                            Options/Shares                    Appreciation For
                                            Granted to                        Option Term ($)(1)
                           Options/Shares   Employees        Exercise Price   --------  --------   Expiration
Name                       Granted (#)      in Fiscal Year   ($/Share)          5% ($)  10% ($)    Date
------------------------   --------------   --------------   --------------   --------  --------   ----------
<S>                        <C>              <C>              <C>              <C>       <C>        <C>

James C. Witham.........     200,000 (2)         19.6%            $0.20        $16,000   $38,000    1/12/2014
Chairman of the Board


Kevin L.Spence..........     500,000 (3)         49.0%            $0.11        $35,000   $88,000    1/02/2017
President/
Chief Financial Officer

Karen B. Laustsen.......     100,000 (2)          9.8%            $0.20        $ 8,000   $19,000    1/12/2014
Chief Operating Officer

</TABLE>

(1) The above information concerning five percent and ten percent assumed annual
    rates of compounded stock price appreciation is mandated by the Securities
    and Exchange Commission.  There is no assurance provided to any executive
    officer or to any other optionee that there will be appreciation of the
    stock price over the option term or that the optionee will realize any
    gains with respect to the options.
(2) Represents seven year options granted from the 2005 Incentive Stock Plan
    that vest 33.3% per year over a three year period.
(3) Represents ten year options granted from the 2005 Incentive Stock Plan that
    vest 33.3% per year over a three year period.


     The following table summarizes the number of options granted to the
executive officers named above during the fiscal year ended June 30, 2008.

<TABLE>
<CAPTION>
                                  Options / SAR Grants in Last Fiscal Year
                                              Individual Grants
-------------------------------------------------------------------------------------------------------------
                                                                              Potential
                                                                              Realizable
                                                                              Value at Assumed
                                                                              Annual Rates
                                            % of Total                        of Stock Price
                                            Options/Shares                    Appreciation For
                                            Granted to                        Option Term ($)(1)
                           Options/Shares   Employees        Exercise Price   --------  --------   Expiration
Name                       Granted (#)      in Fiscal Year   ($/Share)          5% ($)  10% ($)    Date
------------------------   --------------   --------------   --------------   --------  --------   ----------
<S>                        <C>              <C>              <C>              <C>       <C>        <C>

James C. Witham.........     200,000 (2)         30.7%            $0.23        $19,000   $44,000    2/08/2015
Chairman of the Board


Kevin L.Spence..........     200,000 (2)         30.7%            $0.23        $19,000   $44,000    2/08/2015
President/
Chief Financial Officer

Karen B. Laustsen.......     100,000 (2)         15.4%            $0.23        $ 9,000   $22,000    2/08/2015
Chief Operating Officer

</TABLE>

(1) The above information concerning five percent and ten percent assumed annual
    rates of compounded stock price appreciation is mandated by the Securities
    and Exchange Commission.  There is no assurance provided to any executive
    officer or to any other optionee that there will be appreciation of the
    stock price over the option term or that the optionee will realize any
    gains with respect to the options.
(2) Represents seven year options granted from the 2005 Incentive Stock Plan
    that vest 33.3% per year over a three year period.

                                        27

<PAGE>

     The following table summarizes the number of exercisable and unexercisable
options held by the executive officers named above at June 30, 2006, and their
value at that date if such options were in-the-money.

                           2006 Year End Option Values
--------------------------------------------------------------------------------
                                                     Value of
                      Number of                      securities underlying
                      securities underlying          unexercised
                      unexercised options            in-the-money options
Name                  at June 30, 2008               at June 30, 2008
                      ---------------------------    ---------------------------
                      Exercisable   Unexercisable    Exercisable   Unexercisable
------------------    -----------   -------------    -----------   -------------
James C. Witham.......    -0-            -0-             -0-            -0-
Karen B. Laustsen.....    -0-            -0-             -0-            -0-
Gary S. Wolff.........    -0-            -0-             -0-            -0-

     The following table summarizes the number of exercisable and unexercisable
options held by the executive officers named above at June 30, 2007, and their
value at that date if such options were in-the-money.

                           2007 Year End Option Values
--------------------------------------------------------------------------------
                                                     Value of
                      Number of                      securities underlying
                      securities underlying          unexercised
                      unexercised options            in-the-money options
Name                  at June 30, 2008               at June 30, 2008 (1)
                      ---------------------------    ---------------------------
                      Exercisable   Unexercisable    Exercisable   Unexercisable
------------------    -----------   -------------    -----------   -------------
James C. Witham.......    -0-          200,000           -0-         $  50,000
Kevin L. Spence.......    -0-          500,000           -0-         $ 125,000
Karen B. Laustsen.....    -0-          100,000           -0-         $  25,000

     The executive officers named above did not exercise any options during the
fiscal year ended June 30, 2007.

     The following table summarizes the number of exercisable and unexercisable
options held by the executive officers named above at June 30, 2008, and their
value at that date if such options were in-the-money.

                           2008 Year End Option Values
--------------------------------------------------------------------------------
                                                     Value of
                      Number of                      securities underlying
                      securities underlying          unexercised
                      unexercised options            in-the-money options
Name                  at June 30, 2008               at June 30, 2008 (1)
                      ---------------------------    ---------------------------
                      Exercisable   Unexercisable    Exercisable   Unexercisable
------------------    -----------   -------------    -----------   -------------
James C. Witham.......   66,667        333,333           -0-            -0-
Kevin L. Spence.......  166,667        533,333           -0-            -0-
Karen B. Laustsen.....   33,333        166,667           -0-            -0-

(1) At June 30, 2008, the closing price of the stock was less than the price of
    the options.

     The executive officers named above did not exercise any options during the
fiscal year ended June 30, 2008.

                                        28

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

June 30, 2006

                                     Shares of            Percentage of
                                     Common Stock         Common Stock,
Name and Address                     Beneficially Owned   Warrants and Options
----------------------------------   ------------------   --------------------

James C. Witham...................     2,017,030 (1)              6.95%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Karen B. Laustsen (2).............       576,172                  1.99%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Gary S. Wolff.....................       488,367                  1.68%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Glenn A. Bergenfield..............       395,033                  1.36%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Dr. William DiTuro................       369,957                  1.28%
10410 Trademark Street
Rancho Cucamonga, CA  91730

James Barton......................        42,061                   *
10410 Trademark Street
Rancho Cucamonga, CA  91730

All officers and directors as
  a group (six persons)...........     3,888,620                 13.41%


*   Less than 1%.
(1) Includes an aggregate of 480,000 shares owned of record by Witham Group, LLC
    and JW Acquisitions, LLC   which are entities in which Mr. Witham controls
    100% of the outstanding equity.
(2) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer,
    James Witham.

                                        29

<PAGE>

June 30, 2007
                                     Shares of            Percentage of
                                     Common Stock         Common Stock,
Name and Address                     Beneficially Owned   Warrants and Options
----------------------------------   ------------------   --------------------

James C. Witham...................     2,683,696 (1)              5.27%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Karen B. Laustsen.................       909,505 (3)              1.79%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Kevin Spence......................     1,000,000                  1.96%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Glenn A. Bergenfield..............       445,033 (2)               *
10410 Trademark Street
Rancho Cucamonga, CA  91730

Dr. William DiTuro................     1,101,623 (2)              2.26%
10410 Trademark Street
Rancho Cucamonga, CA  91730

James Barton......................        92,061 (2)               *
10410 Trademark Street
Rancho Cucamonga, CA  91730

Marathon Resource Investments, LLC     3,333,333                  6.54%

All officers and directors as
  a group (six persons)...........     6,281,918                 12.30%


*   Less than 1%.
(1) Includes an aggregate of 480,000 shares owned of record by Witham Group, LLC
    and JW Acquisitions, LLC which are entities in which Mr. Witham controls
    100% of the outstanding equity.
(2) Includes 50,000 options exercisable within 60 days
(3) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer,
    James Witham.

                                        30

<PAGE>

June 30, 2008
                                     Shares of            Percentage of
                                     Common Stock         Common Stock,
Name and Address                     Beneficially Owned   Warrants and Options
----------------------------------   ------------------   --------------------

James C. Witham...................     2,750,363 (1)(2)           4.67 %
10410 Trademark Street
Rancho Cucamonga, CA  91730

Karen B. Laustsen.................       942,838 (3)(6)           1.60%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Kevin Spence......................     1,166,667 (4)              1.98%
10410 Trademark Street
Rancho Cucamonga, CA  91730

Glenn A. Bergenfield..............       470,033 (5)               *
10410 Trademark Street
Rancho Cucamonga, CA  91730

Dr. William DiTuro................     1,176,623 (5)              2.00%
10410 Trademark Street
Rancho Cucamonga, CA  91730

James Barton......................       117,061 (5)               *
10410 Trademark Street
Rancho Cucamonga, CA  91730

Marathon Resource Investments, LLC     3,333,333                  5.67%

All officers and directors as
  a group (six persons)...........     6,623,585                 11.18 %

*   Less than 1%.
(1) Includes an aggregate of 480,000 shares owned of record by Witham Group, LLC
    and JW Acquisitions, LLC which are entities in which Mr. Witham controls
    100% of the outstanding equity.
(2) Includes 66,667 options exercisable within 60 days.
(3) Includes 33,333 options exercisable within 60 days.
(4) Includes 166,667 options exercisable within 60 days.
(5) Includes 75,000 options exercisable within 60 days.
(6) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer,
    James Witham.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.


ITEM 13. EXHIBITS

     See Exhibit Index.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     For the fiscal year ended June 30, 2006, the aggregate fees billed for
professional services rendered for the audit of the Company's annual financial
statements and the reviews of its financial statements included in the Company's
quarterly reports totaled approximately $32,000.  For our fiscal year ended
June 30, 2005, there were no fees billed.

                                        31

<PAGE>

     For the fiscal year ended June 30, 2007, the aggregate fees billed for
professional services rendered for the audit of the Company's annual financial
statements and the reviews of its financial statements included in the Company's
quarterly reports totaled approximately $17,000.  For our fiscal year ended
June 30, 2006, those fees were $32,000.

     For the fiscal year ended June 30, 2008, the aggregate fees billed for
professional services rendered for the audit of the Company's annual financial
statements and the reviews of its financial statements included in the Company's
quarterly reports totaled approximately $42,000.  For our fiscal year ended
June 30, 2007, those fees were $17,000.

Tax Fees

     For the fiscal years ended June 30, 2006 and June 2005, there were no fees
billed for tax compliance, tax advice or tax planning.


     For the fiscal years ended June 30, 2007 and June 2006, there were no fees
billed for tax compliance, tax advice or tax planning.

     For the fiscal year ended June 30, 2008, there was $2200 in fees billed for
tax compliance, tax advice or tax planning and for the fiscal year ended June
2007, there were no fees billed for tax compliance, tax advice or tax planning.

All Other Fees

     For the fiscal years ended June 30, 2006, June 30, 2007 and June 30, 2008,
there were no other fees billed by the Company's independent auditors.

                                        32

<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated:  October 14, 2008                       AQUACELL WATER, INC.
                                               (Registrant)

                                               By: /s/ JAMES C. WITHAM
                                               ---------------------------------
                                               Name:   James C. Witham
                                               Title:  Chief Executive Officer



     In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

         Signatures             Title                                Date

/s/ James C. Witham      Chairman of the Board of Directors     October 14, 2008
----------------------   and Chief Executive Officer
    James C. Witham      (Principal Executive Officer)

/s/ Kevin L. Spence      President and Chief Financial Officer  October 14, 2008
----------------------   (and Principal Accounting Officer)
    Kevin L. Spence

/s/ Karen Laustsen       Director and Chief Operating Officer   October 14, 2008
----------------------
    Karen Laustsen

/s/ Glenn Bergenfield    Director                               October 14, 2008
----------------------
    Glenn Bergenfield

/s/ Dr. William DiTuro   Director                               October 14, 2008
----------------------
    Dr. William DiTuro

/s/ James Barton         Director                               October 14, 2008
----------------------
    James Barton

                                        33

<PAGE>

                                  EXHIBIT INDEX


10.1    Employment Contract with Kevin Spence

14.0    Code of Ethics

31.1    Chief Executive Officer's Certification Pursuant to Rule 13A-14 and
        15D-14 Under the Securities Exchange Act of 1934, As Amended

31.2    Chief Financial Officer's Certification Pursuant to Rule 13A-14 and
        15D-14 Under the Securities Exchange Act of 1934, As Amended

32.1    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
        Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1    McPhee Environmental Supply, LLC Financial Statements


                                        34

<PAGE>


                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Index to Consolidated Financial Statements

                                                                           Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................F-1

Consolidated Balance Sheets, June 30, 2008, 2007 and 2006...................F-2


Consolidated Statements of Operations for the years ended
     June 30, 2008, 2007 and 2006...........................................F-3


Consolidated Statements of Stockholders' Equity (Deficit) for
     the years ended June 30, 2008, 2007 and 2006...........................F-4


Consolidated Statements of Cash Flows for the years ended
     June 30, 2008, 2007 and 2006...........................................F-5

Notes to Consolidated Financial Statements..................................F-6


<PAGE>


Report of Independent Registered Public Accounting Firm


To The Board of Directors of
Aquacell Water, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of Aquacell Water,
Inc. and Subsidiary as of June 30, 2008, 2007 and 2006, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
as established by the U.S. Auditing Standards Board and in accordance with the
auditing 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 2008, 2007 and 2006 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Aquacell Water, Inc. and Subsidiary as of June 30, 2008, 2007 and
2006, and the results of its operations and its cash flows for the years then
ended 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 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding these matters are described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



/s/ PS Stephenson & Co. PC

Wharton, Texas
October 12, 2008

                                       F-1
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                              June 30,
                                                                  --------------------------------
                                                                    2008        2007        2006
(in thousands, except share amounts)                              --------    --------    --------
<S>                                                               <C>         <C>         <C>

Assets
Current assets:
  Cash                                                            $     -     $   374     $     -
  Accounts receivable, net of allowance for doubtful
    accounts of $43, $43, and $24, respectively                       105         141          34
  Inventories                                                           -           -          13
  Receivables from related parties, net                                56          60           -
                                                                  --------    --------    --------
          Total current assets                                        161         575          47

Other assets                                                            -           -           -
                                                                  --------    --------    --------
                                                                  $   161     $   575     $    47
                                                                  ========    ========    ========

Liabilities and Stockholders' Deficit
Current liabilities:
  Bank overdraft                                                  $     9     $     -     $     1
  Advances under line of credit agreements                             75         131           -
  Accounts payable and accrued liabilities                          1,030         931         764
  Accrued officer compensation                                        302         134         213
  Advances from related parties, net                                   62          89         259
  Notes payable                                                        35          55         225
  Accrued interest payable                                             14          15           2
  Customer deposits                                                   130          10          22
                                                                  --------    --------    --------
          Total current liabilities                                 1,657       1,365       1,486


Commitments and contingencies

Stockholders' equity (deficit):
  Preferred stock, par value $.001; 20,000,000 shares authorized;
    no shares issued and outstanding                                    -           -           -
  Common stock, par value $.001; 100,000,000 shares authorized;
    58,766,306, 50,929,641 and 29,009,408 shares issued and
    outstanding at June 30, 2008, 2007, and 2006, respectively         59          51          29
Additional paid-in capital                                          5,627       4,562       1,643
Accumulated deficit                                                (7,182)     (5,403)     (3,111)
                                                                  --------    --------    --------
          Total stockholders' equity (deficit)                     (1,496)       (790)     (1,439)
                                                                  --------    --------    --------
                                                                  $   161     $   575     $    47
                                                                  ========    ========    ========
</TABLE>

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

                                       F-2
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                     Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                    Years Ended June 30,
                                                        --------------------------------------------
                                                            2008            2007            2006
(in thousands, except per share amounts)                ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>

Sales                                                   $       862     $       694     $       626

Cost of sales                                                   544             624             498
                                                        ------------    ------------    ------------
Gross profit                                                    318              70             128

Operating expenses
  Salaries and wages                                          1,298             929             754
  Legal, accounting and other professional expenses             145              77              61
  Selling, general and administrative expenses                  612             513             315
                                                        ------------    ------------    ------------
          Total operating expenses                            2,055           1,519           1,130
                                                        ------------    ------------    ------------
Operating income (loss)                                      (1,737)         (1,449)         (1,002)


Other income (expense):
  Goodwill impairment charge                                      -            (776)              -
  Other income                                                    2               -               -
  Interest income - related parties                               -               -               1
  Gain (loss) on disposition of assets                            -               -              (2)
  Interest expense                                              (44)            (67)            (97)
                                                        ------------    ------------    ------------
          Total other income (expense)                          (42)           (843)            (98)

Income (loss) before provision for income taxes              (1,779)         (2,292)         (1,100)

Provision for (benefit from) income taxes                         -               -               -
                                                        ------------    ------------    ------------

Net loss                                                $    (1,779)    $    (2,292)    $    (1,100)
                                                        ============    ============    ============

Net loss per common share                               $     (0.03)    $     (0.06)    $     (0.14)
                                                        ============    ============    ============
Weighted average common shares
   outstanding - basic and diluted                        54,815,36      37,351,711       8,063,731
                                                        ============    ============    ============
</TABLE>

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

                                       F-3
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
            Consolidated Statement of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                 Common Stock
                                              ------------------   Additional
                                                 Number     Par      Paid-in    Accumulated
(in thousands, except share amounts)           of Shares   Value     Capital      Deficit       Total
                                              ----------   -----   ----------   -----------   ---------
<S>                                           <C>          <C>     <C>          <C>           <C>

         Balances - June 30, 2005              1,990,998   $   2   $   1,611    $   (2,011)   $   (398)
Adjustment for post spin-off stock par value  25,818,410      26         (26)                        -
Legal fees in connection with filing of
   Form 10-SB                                                            (63)                      (63)
Sale of common shares in connection with
   private placements, net                     1,000,000       1          89                        90
Common stock issued in connection
   with notes payable                            200,000       -          32                        32
Net loss for the year ended June 30, 2006                                           (1,100)     (1,100)
                                              ----------   -----   ----------   -----------   ---------
          Balances - June 30, 2006            29,009,408      29       1,643        (3,111)     (1,439)
Sale of common shares in connection with
   private placements, net                    15,436,416      15       1,909                     1,924
Issuance of common shares in consideration
   for services                                1,500,000       2         198                       200
Issuance of common shares in connection
   with conversion of indebtedness             3,428,817       3         511                       514
Common stock issued in connection
   with notes payable                             55,000       -          11                        11
Compensation expense in connection with
   stock options issued                                                   67                        67
Issuance of common stock for acquisition
   of McPhee Environmental Supply              1,500,000       2         223                       225
Net loss for the year ended June 30, 2007                                           (2,292)     (2,292)
                                              ----------   -----   ----------   -----------   ---------
          Balances - June 30, 2007            50,929,641      51       4,562        (5,403)       (790)
Sale of common shares in connection with
   private placements, net                     7,333,332       7         983                       990
Common stock issued in connection with
   private placement registration penalty        320,000       1          31                        32
Issuance of common shares in connection
   with conversion of indebtedness               133,333       -          20                        20
Common stock issued in connection
   with notes payable                             50,000       -           9                         9
Compensation expense in connection with
  stock options issued                                                    22                        22
Net loss for the year ended June 30, 2008                                           (1,779)     (1,779)
                                              ----------   -----   ----------   -----------   ---------
          Balances - June 30, 2008            58,766,306   $  59   $   5,627    $   (7,182)   $ (1,496)
                                              ==========   =====   ==========   ===========   =========
</TABLE>

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

                                       F-4
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                    Years Ended June 30,
                                                        --------------------------------------------
                                                            2008            2007            2006
(in thousands)                                          ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>

Cash flows from operating activities:
Net loss                                                $    (1,779)    $    (2,292)    $    (1,100)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
    Loss on disposal of assets                                    -               -               2
    Compensation expense                                         22              67               -
    Goodwill impairment charge                                    -             776               -
    Expenses settled from stock issuances                        41             211             (31)
Changes in:
    Accounts receivable                                          36             (70)            (27)
    Related party receivables                                     4             (60)              -
    Inventories                                                   -              13             (10)
    Deposits                                                      -               -               5
    Accounts payable and accrued liabilities                     99            (112)            487
    Related party payables                                        -            (259)            139
    Accrued officer compensation                                168             167             213
    Accrued interest payable                                     (1)             26               2
    Customer deposits                                           120             (12)              5

                                                        ------------    ------------    ------------
          Net cash used by operating activities              (1,290)         (1,545)           (315)

Cash flows from investing activities:
    Cash paid in McPhee acquisition                               -             (40)              -
                                                        ------------    ------------    ------------
        Net cash used by investing activities                     -             (40)              -

Cash flows from financing activities:
   Repayment of advances from related parties, net              (27)            (19)              -
   Lines of credit, net                                         (56)              -               -
   Proceeds from issuance of stock, net                         990           1,924              90
   Bank overdraft                                                 9              (1)              -
   Proceeds from issuance of debt                                 -              55             225
                                                        ------------    ------------    ------------
        Net cash provided from financing activities             916           1,959             315
                                                        ------------    ------------    ------------
Increase (decrease) in cash                                    (374)            374               -
Cash, beginning of period                                       374               -               -
                                                        ------------    ------------    ------------

Cash, end of period                                     $         -     $       374     $         -
                                                        ============    ============    ============
Supplemental disclosure of cash flow information:

    Cash paid for interest                              $        45     $        54     $         2
                                                        ============    ============    ============
    Cash paid for federal income taxes                  $         -     $         -     $         -
                                                        ============    ============    ============

</TABLE>

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

                                       F-5
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

1. Organization

Description of Business

Water Science Technologies, Inc. ("WST-Arizona") was originally incorporated in
Arizona on March 1, 1991.  On July 28, 2005, Greencore Technology, Inc.
("Greencore" and formerly known as Aquacell Technologies, Inc.), a publicly
traded corporation and the then parent company of WST-Arizona, formed Water
Science Technologies, Inc., a Delaware corporation ("WST-Delaware"), and
WST-Arizona was merged into WST-Delaware on August 15, 2005.  Concurrently, the
name of WST-Delaware was changed to Aquacell Water, Inc ("Aquacell").  On March
13, 2006, Aquacell's Form 10 filed in January 2006, registering all 27,809,408
issued and outstanding shares, was declared effective, completing the spin-off
of Aquacell from Greencore.

In April 2007, Aquacell formed a wholly-owned subsidiary Aquacell Water
Treatment, Inc. ("Treatment") for the purpose of acquiring McPhee Environmental
Supply, LLC ("McPhee").  On April 10, 2007, Aquacell acquired 100% of the
outstanding membership interests of McPhee, and McPhee was effectively merged
into Treatment (Note 4). The accompanying financial statements of Aquacell
Water, Inc. and subsidiary include the operations of Treatment since April 10,
2007.  All references herein to the Company refer to Aquacell Water, Inc. prior
to April 10, 2007 and to Aquacell Water, Inc. and Subsidiary thereafter.

The Company's principal business activity is the manufacture and sale of water
treatment systems for arsenic removal from drinking water.  Systems are
generally built at the Company's manufacturing facility and then shipped to the
customer's site for installation.

Going Concern

The Company has incurred net losses aggregating $5,171,000 during the three
years ended June 30, 2008.  In addition, the Company has a working capital
deficiency of $1,496,000 and a stockholder's deficiency of $1,496,000 at June
30, 2008. These factors, amongst others, raise substantial doubt about the
Company's ability to continue as a going concern.

There can be no assurance that sufficient funds required during the next year or
thereafter will be generated from operations or that funds will be available
from external sources such as debt or equity financings or other potential
sources. The lack of additional capital resulting from the inability to generate
cash flow from operations or to raise capital from external sources would force
the Company to substantially curtail or cease operations and would, therefore,
have a material adverse effect on its business. Further, there can be no
assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significant dilutive effect on the
Company's existing stockholders.

The accompanying financial statements do not include any adjustments related to
the recoverability or classification of asset carrying amounts or the amounts
and classification of liabilities that may result should the Company be unable
to continue as a going concern.

During the years ended June 30, 2008, 2007 and 2006, and in addition to
internally generated funds, the Company had obtained financing through the sale
of equity securities, issuance of notes payable, and advances from related
parties.

The Company has developed a plan to address liquidity in the following ways:

   * To raise capital through the sale or exercise of equity securities
   * Increase revenue through the sale of arsenic removal water systems and
     related products

                                       F-6
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Aquacell Water,
Inc. and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates

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

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks and all highly
liquid investments with a purchased maturity of less than three months. The
Company maintains cash balances at financial institutions insured up to $100,000
by the Federal Deposit Insurance Corporation. Balances may exceed these insured
amounts throughout a fiscal year.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable and accounts payable. Management believes that
the carrying values of these assets and liabilities are representative of their
respective fair values based on their short-term nature.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is
determined on a first-in, first-out basis. At each balance sheet date, the
Company evaluates its ending inventories for excess quantities and obsolescence.
This evaluation includes an analysis of sales levels by product type. Among
other factors, the Company considers historical and forecasted demand in
relation to the inventory on hand, competitiveness of product offerings, market
conditions and product life cycles when determining the net realizable value of
the inventory. Provisions are made to reduce excess or obsolete inventories to
their estimated net realizable values. Once established, write-downs are
considered permanent adjustments to the cost basis of the excess or obsolete
inventories.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recognized using
the straight-line method over the estimated useful lives of the related assets,
generally five years for equipment, seven years for office furniture and
equipment and the lesser of the term of the lease or the useful life for
leasehold improvements. Maintenance and repairs are expensed as incurred while
expenditures that extend the useful life of an asset are capitalized.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of a long-lived asset,
management evaluates whether the estimated future undiscounted net cash flows
from the asset are less than its carrying amount.

                                       F-7
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

If impairment is indicated, the long-lived asset would be written down to its
fair value. Fair value is determined by an evaluation of available price
information at which assets could be bought or sold, including quoted market
prices, if available, or the present value of the estimated future cash flows
based on reasonable and supportable assumptions.

Goodwill

Goodwill represents cost in excess of fair value on the net assets acquired.
Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life).

Based on impairment testing performed, the Company determined that the recorded
amount of goodwill of $776,000 related to the McPhee acquisition was fully
impaired at June 30, 2007.  Accordingly, the Company recorded an impairment
charge of $776,000 during the year ended June 30, 2007 (Note 4).

Customer Deposits

The Company requires a cash deposit of 50% when customers order the product.
This deposit is recorded as a customer deposit until the product is delivered to
the customer, at which time, the Company recognizes the deposit as revenue.

Revenue Recognition

The Company's revenues primarily consist of the sale of water treatment
equipment to customers. The Company recognizes revenues when there is persuasive
evidence of an arrangement, product delivery and acceptance have occurred, the
sales price is fixed and determinable, and collectability of the resulting
receivable is reasonably assured. Such conditions are typically met upon
delivery of the equipment to the customers.

The Company classifies amounts billed for shipping and handling as revenue in
accordance with Emerging Issues Task Force ("EITF") Issue No. 00-10, Accounting
for Shipping and Handling Fees and Costs. Costs incurred for shipping and
handling are included in cost of sales.

Stock Options

Effective July 1, 2005, the Company adopted Statement of Financial Accounting
Standards (SFAS) 123(R), "Share-Based Payment," using the modified prospective
method. SFAS 123(R) establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services and
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements, based on the fair value of the equity or
liability instruments issued, adjusted for estimated forfeitures. The Company
determines the value of stock options utilizing the Black-Scholes option-pricing
model. Compensation costs for share-based awards with pro rata vesting are
allocated to periods on a straight-line basis.

The Company accounts for options granted to consultants in accordance with
Emerging Issues Task Force (EITF) Issue 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," and SFAS 123(R).

Net Loss per Common Share

Basic earnings per share ("EPS") is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of securities
into common stock, including stock options and warrants.

                                       F-8
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

For the years ended June 30, 2008, 2007 and 2006, there were no dilutive effects
of such securities as the Company incurred a net loss in each period. Common
shares issuable upon the exercise of outstanding options and warrants aggregated
8,289,720, and 7,764,720 as of June 30, 2008, and 2007, respectively.  There
were no outstanding options or warrants as of June 30, 2006.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consists principally of cash in banks and trade receivables.  The
Company manages this risk by maintaining all deposits in high quality financial
institutions and periodically performing evaluations of the relative credit
standing of the financial institutions that are considered in the Company's
investment strategy. The Company grants unsecured credit to its customers during
the normal course of business and performs ongoing credit evaluations of its
customers to minimize any potential loss.

Income Taxes

The Company and its subsidiary file consolidated federal income tax returns.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
assets and liabilities and their respective tax basis and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences or operating loss and tax credit carryforwards are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date.

In accordance with SFAS 109, "Accounting for Income Taxes," the Company has
recorded a valuation allowance against its deferred tax assets. The valuation
allowance is based on management's estimates and analysis, which includes
provisions of tax laws that may limit the Company's ability to utilize its net
operating loss carryforwards.

Recently Issued Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" (FIN 48), an interpretation of SFAS 109,
"Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with SFAS 109. FIN 48 prescribes a two-step process to determine the amount of
tax benefit to be recognized. First, the tax position must be evaluated to
determine the likelihood that it will be sustained upon examination. If the tax
position is deemed "more-likely-than-not" to be sustained, the tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. FIN 48 was adopted by the Company in
fiscal 2008 and did not have any impact on its consolidated results of
operations and financial position.

In September 2006, the FASB issued SFAS 157, "Fair Market Measurements." SFAS
157 clarifies the definition of fair value, establishes a framework for
measuring fair value and expands disclosure on fair value measurement. SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be applied on a prospective basis. The Company does
not expect the adoption of SFAS 157 to have a material impact on its
consolidated results of operations, financial position or cash flows.

In February 2007, the FASB issued SFAS 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS 159 permits entities to
measure many financial instruments and certain other items at fair value at
specified election dates. Under SFAS 159, any unrealized holding gains and
losses on items for which the fair value option has been elected are reported
in earnings at each subsequent reporting date. If elected, the fair value option
(1) may be applied instrument by instrument, with a few exceptions, such as
investments otherwise accounted for by the equity method; (2) is irrevocable
(unless a new election date occurs); and (3) is applied only to entire
instruments and not to portions of instruments. SFAS 159 is effective as of an
entity's first fiscal year that begins after November 15, 2007. The Company is
currently evaluating the potential impact of SFAS 159 on its consolidated
results of operations and financial position.

                                       F-9
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

In December 2007, the FASB issued SFAS 141 (revised 2007), "Business
Combinations". SFAS 141R is a revision to SFAS 141 and includes substantial
changes to the acquisition method used to account for business combinations
(formerly the "purchase accounting" method), including broadening the definition
of a business, as well as revisions to accounting methods for contingent
consideration and other contingencies related to the acquired business,
accounting for transaction costs, and accounting for adjustments to provisional
amounts recorded in connection with acquisitions. SFAS 141R retains the
fundamental requirement of SFAS 141 that the acquisition method of accounting be
used for all business combinations and for an acquirer to be identified for each
business combination. SFAS 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring after
the effective date. The Company is currently evaluating the potential impact of
SFAS 141R on its consolidated financial statements.

In December 2007, the FASB issued SFAS 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("ARB 51"). This Statement amends
ARB 51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS 160 is effective for periods beginning after
December 15, 2008. The Company is currently evaluating the potential impacts of
SFAS 160 on its consolidated results of operations and financial position.

In March 2008, the FASB issued ASAS No. 161, "Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which establishes, among other things, the disclosure requirements
for derivative instruments and hedging activities. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS 161 is effective for fiscal periods and interim
period beginning after November 15, 2008. The Company does not expect the
adoption of SFAS 161 to have a material impact on its consolidated results of
operations, financial position or cash flows.

3. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following (in
thousands):

                                         2008        2007        2006
                                       --------    --------    --------
Trade accounts payable                 $    588    $    548    $    275
Accrued payroll and  payroll taxes          289         326         414
Sales tax payable                            24           4           4
Credit cards payable                         91          33          60
Other accrued liabilities                    38          20          11
                                       --------    --------    --------
                                       $  1,030    $    931    $    764
                                       ========    ========    ========

A federal tax lien was filed against the company in fiscal 2006 for prior year
payroll taxes, penalties and interest.  The Company has entered into a work-out
agreement to reduce the liability over the next fiscal year and has accrued all
taxes, penalties and interest due under the workout agreement.

                                       F-10
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

4. Acquisition of McPhee Environmental Supply, LLC

On April 10, 2007, the Company acquired all of the outstanding member's stock in
McPhee Environmental Supply, LLC ("McPhee") for approximately $265,000,
consisting of 1,500,000 shares of Company common stock and the payment of
$40,000 in cash. The acquisition of McPhee provided the Company additional sales
people and opportunities with an expertise in the removal of arsenic from
drinking water. The fair value of the 1,500,000 shares of common stock issued
was determined to be $225,000, or $0.15/share.  The fair value per share was
based on the average quoted closing market prices of the Company's common stock
immediately before and after the date the Letter of Intent was consummated and
the public announcement of the acquisition was released.  The results of
operations of McPhee have been included in our consolidated financial statements
since the date of acquisition.

In accordance with SFAS No. 141, the Company allocated the total purchase price
to the tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair values as of the date of acquisition,
using the purchase method of accounting.

The components of the purchase price allocation are as follows (in thousands):

          Allocation:
             Net tangible assets acquired
                Accounts receivable                        $     37
             Identifiable intangible assets acquired
                Goodwill                                        776
                                                           ---------
                     Total assets acquired                      813
                                                           ---------
             Less liabilities assumed:
                Accounts payable and accrued expenses           309
                Advances from related parties                   108
                Lines of credit                                 131
                                                           ---------
                     Total liabilities assumed                  548
                                                           ---------
                          Total purchase price             $    265
                                                           =========

Based on impairment testing performed, the Company determined that the recorded
amount of goodwill of $776,000 related to the McPhee acquisition was fully
impaired at June 30, 2007.  Accordingly, the Company recorded an impairment
charge of $776,000 during the year ended June 30, 2007.

The results of operations for the Company's financial statements included the
results of McPhee's operations since April 2007. The following table represents
the unaudited pro-forma combined results of operations of the Company as if
McPhee had been acquired on July 1, 2007, with comparable results for the prior
year (in thousands):

                                    2007           2006
                                 ----------     ----------
          Revenues               $     742      $   2,384
          Gross profit           $      97      $     748
          Operating loss         $  (1,776)     $    (920)
          Net loss               $  (2,313)     $  (1,080)
          Net loss per share     $   (0.07)     $   (0.13)

                                       F-11
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

5. Notes Payable

Notes payable consist of the following at June 30, 2008, 2007 and 2006 (in
thousands):

                                                    2008      2007      2006
                                                  --------  --------  --------
Short term unsecured note, bearing interest at
  8%, converted to common stock in fiscal 2007
  (Note 7).  Consideration paid at the issuance
  of the note in   2006 was 100,000 shares of
  the Company's common stock (Note 7).            $      -  $      -  $100,000

Short term unsecured note, bearing interest at
  8%, converted to common stock in fiscal 2007
  (Note 7).  Consideration paid at the issuance
  of the note in 2006 was 100,000 shares of the
  Company's common stock (Note 7).                       -         -   100,000

Short term unsecured note, bearing interest at
  8%, converted common stock in fiscal 2007
  (Note 7).                                              -         -    25,000

Short-term unsecured note, bearing interest at
  8%, convertible into 133,333 shares of common
  stock of the company at $0.15 per share if not
  repaid within 90 days of issuance.  Note was
  converted in 2008 (Note 7).  The Company also
  issued  25,000 shares of common stock in
  connection with this note and 105,000 common
  stock purchase warrants.                               -    20,000         -

Short-term unsecured note, bearing interest at
  8%, convertible into 233,333 shares of common
  stock of the Company at $0.15 per share if not
  repaid within 90 days of issuance.  The Company
  also issued 35,000 shares of common stock in
  connection with this note and 60,000 common
  stock purchase warrants (Note 7).                 35,000    35,000         -
                                                  --------  --------  --------
                                                  $ 35,000  $ 55,000  $225,000
                                                  ========  ========  ========

For the years ended June 30, 2008, 2007 and 2006, interest expense related to
the notes payable aggregated $14,000, $26,000, and $2,000, respectively.


6. Lines of credit payable

The Company has two lines of credit (the "Lines") from two financial
institutions with a maximum aggregate borrowing amount of $150,000. The lines of
credit were assumed by the Company as part of the McPhee acquisition (Note 4).
The Lines bear interest at the prime rate plus 1% per annum and are subject to
change from time to time. The Lines expired September 15, 2007. The Company does
not have any borrowing capacity under these lines and are currently in default.
The Lines are personally guaranteed by the former owners of McPhee.

As of June 30, 2008 and 2007, the Company owed $75,000, and $131,000,
respectively.

                                       F-12
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

7. Equity Transactions

Issuances of Common Stock

WST-Delaware, formerly a wholly owned subsidiary of Greencore, was capitalized
with 100,000,000 shares of authorized common stock at $.001 par value and
20,000,000 shares of authorized preferred stock at $.001 par value. WST-Arizona,
a wholly owned subsidiary of Greencore, was merged into WST-Delaware on August
15, 2005 and the name of WST-Delaware was changed to Aquacell Water, Inc. ("the
Company"). The 1,991 outstanding shares of common stock of WST-Arizona were
exchanged on a 1,000 for 1 basis for shares of WST-Delaware. All share and per
share amounts have been retroactively restated to reflect this recapitalization.

On March 13, 2006, the Company's Form 10 filed in January 2006, which registered
 all 27,809,408 issued and outstanding shares, was declared effective. The
record date for the distribution of all outstanding shares of the Company's
common stock to the holders of Greencore's common stock on a share for share
basis was March 9, 2006.  The Company incurred legal fees of $63,000 in
connection with the Form 10 filing, which were reflected as a reduction of
additional paid-in capital.

During May 2006, the Company completed a private placement for 1,000,000 shares
of its common stock at a price of $.10 per share. The Company realized gross
proceeds of $100,000 and incurred expenses of $10,000 in connection with the
placement.

During May 2006, the Company received loan proceeds aggregating $225,000 (Note
5). In connection with the loans, the Company issued 200,000 shares of common
stock and recorded loan expenses of $32,000, the fair value of the common stock
as determined by the closing market price at the date of issuance.

During the period from July through October 2006, the Company completed a
private placement of 2,972,500 shares of its common stock. The offering
consisted of one share of common stock at a price of $.10 per share and one and
one-half common stock purchase warrants exercisable at $5.00 per share. The
Company received proceeds of $297,000 and expenses of the offering amounted to
$30,000, which was paid by issuance of 297,250 shares of common stock to the
placement agent.  In addition, the Company issued 297,250 common stock purchase
warrants, exercisable at $5.00 per share, to the placement agent.

During July 2006, the Company received loan proceeds aggregating $55,000 (Note
5). In connection with the loans, the Company issued 55,000 shares of common
stock and 165,000 common stock purchase warrants exercisable at $5.00 per share.
The Company recorded loan expenses of $11,000, the fair value of the common
stock as determined by the closing market price at the date of issuance.

During January 2007, the Company completed a private placement of 1,500,000
shares of its common stock. The offering consisted of one share of common stock
at a price of $0.05. The Company received net proceeds of $75,000. There were no
expenses incurred.

During the period February through May 2007 the Company completed a private
placement of 10,666,666 shares of its common stock. The offering consisted of
one share of common stock at a price of $0.15. The Company received proceeds of
$1,600,000 and expenses of the offering amounted to $48,000.

                                       F-13
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

On February 16, 2007, the Company issued 3,428,817 shares of its common stock in
 satisfaction of unsecured promissory notes to three individuals in the
aggregate amount of $225,000 plus accrued and unpaid interest of $13,000,
accrued and unpaid legal fees of $30,000 and accrued and unpaid salary of
$246,000. There were no expenses incurred.  The shares were valued at $0.15 per
share, based on the current private placement offering price per share at the
time of issuance.

During November 2006, the Company issued 500,000 shares of common stock and
issued warrants to purchase 500,000 shares of common stock to be exercisable at
a price of $5.00 per share in connection with a consulting agreement. These
shares were valued at $0.10 per share or $50,000, based upon the closing market
price at the date of issuance. The issuance was expensed at the date of
issuance.

In January 2007, the Company issued an aggregate 1,000,000 shares of common
stock in connection with the hiring of the Company President/Chief Financial
Officer. These shares were valued at $0.15 per share or $150,000, based upon the
closing market price at the date of issuance.  The issuance was expensed at the
date of issuance.

On April 10, 2007, the Company issued 1,500,000 shares of its common stock in
connection with the acquisition of McPhee Environmental Supply, LLC (Note 4).
The shares were valued at $225,000 based on the average quoted closing market
prices of the Company's common stock immediately before and after the date the
Letter of Intent was consummated and the public announcement of the acquisition
was released.

During December 2007, the Company completed a private placement of 7,333,332
shares of its common stock. The offering consisted of one share of common stock
at a price of $0.15. The Company received proceeds of $1,100,000 and expenses of
the offering amounted to $110,000.

During December 2007, the Company issued 320,000 shares of its common stock in
connection with the terms of the private placement as a late registration
penalty.  The shares were valued at 50% of the closing market price of the
Company's stock as of July 1, 2007, or $0.10 per share.  Accordingly, the
Company recorded an expense of $32,000.

On February 14, 2008, the Company issued 133,333 shares of its common stock in
satisfaction of unsecured promissory notes to an individual in the aggregate
amount of $20,000 plus accrued and unpaid interest. There were no expenses
incurred.  The note was converted at $0.15 per share.

In June 2008, the Company issued 50,000 shares of its common stock in
consideration for late payment concessions by three note agreements aggregating
$225,000, that were repaid in February 2007 by conversion to common stock.  The
late payment concessions were valued at $0.18 per share, or $9,000, based on the
closing market price per share at the date of the concessions, July 18, 2006.
The Company accrued the liability in fiscal 2007, as reflected in other accrued
liabilities (Note 3).

Issuance of Common Stock Purchase Warrants

During November 2005, the Company issued warrants to purchase 727,845 shares of
common stock exercisable at $5.00 per share in connection with a private
placement.  The warrants have an expiration term of 5 years.

During November 2006, the Company issued warrants to purchase 500,000 shares of
common stock exercisable at $5.00 per share in connection with a consulting
agreement.  The warrants have an expiration term of 5 years.

                                       F-14
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

During the year ended June 30, 2007, the Company issued warrants to purchase
5,366,875 shares of common stock exercisable at $5.00 per share in connection
with private placements completed during the year.  The warrants have an
expiration term of 5 years.

At June 30, 2008, the Company had purchase warrants outstanding to acquire
6,594,720 shares of its common stock at an exercise price of $5.00 per share
with termination dates between November 4, 2010 and October 30, 2011.

Stock Based Compensation

The Company adopted SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS
123(R)") in fiscal year 2006. The Company adopted SFAS 123(R) using the modified
prospective method, and, accordingly, consolidated financial statements for
prior periods have not been restated to reflect the effect of SFAS 123(R). In
March 2005, the SEC issued SEC SAB No. 107 ("SAB 107") relating to SFAS 123(R).
The Company has applied SAB 107 in its adoption of SFAS 123(R). The Company
previously applied APB Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25"), and related interpretations and had adopted the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123")
and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123.

During September 2005, the Company adopted the 2005 Incentive Stock Plan (the
"Plan") under which options (either incentive or nonqualified), stock
appreciation rights, stock and other awards, covering an aggregate amount of
3,000,000 shares of common stock, may be granted to officers, directors,
employees and consultants of the Company.  The number of awards and the
exercise price established for any awards granted under the Plan shall be
determined by the Compensation Committee.  The exercise price of incentive
stock options cannot be less than 100% (110% for 10% or greater shareholder
employees) of the fair market value per share ("FMV") at the date of grant and
the exercise price of nonqualified options cannot be less than 85% of the FMV at
the date of grant.  The exercise period of incentive options cannot extend
beyond 10 years from the date of grant and nonqualified options cannot extend
beyond 15 years from the date of grant.  Options granted under the Plan
generally vest over 3 to 5 years and expire seven years from the date of the
grant.  As of June 30, 2008 and 2007, 920,000 and 1,470,000, options,
respectively, have been granted under the Plan.

During September 2005, the Board of Directors adopted the Director's Option Plan
("Director's Plan") covering an aggregate amount of 500,000 shares of common
stock.   The number of awards and the exercise price established for any awards
granted under the Director's Plan shall be determined by a committee comprised
of at least two "disinterested" Directors.  Options granted under the Director's
Plan generally vest within 1 year and expire seven to ten years from the date of
the grant.  As of June 30, 2008 and 2007, 225,000 and 150,000 options,
respectively, have been granted under the Director's Plan.

The fair value of awards granted under the Company's plans is estimated on the
date of grant using the Black-Scholes valuation model. The Company estimates
expected volatility is based solely on historical volatility of the Company's
common stock over the period commensurate with the expected term of the stock
options, as the Company does not have traded options. The expected term
calculation for stock options is based on the simplified method as described in
the SEC SAB No. 107, as the Company does not have sufficient historical
information on exercise patterns to develop a model for expected term.  The
risk-free interest rate is based on the U.S. Treasury yield in effect at the
time of grant for an instrument with a maturity that is commensurate with the
expected term of the stock options.  The dividend yield rate is zero, as the
company has never paid cash dividends and does not intend to pay cash dividends
on its common stock.

                                       F-15
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

The risk-free interest rate is based on the U.S. Treasury yield. The Company
determines dividend yield by dividing the annualized dividends per share by the
quarter's average stock price. The result is analyzed by the Company to decide
whether it represents expected future dividend yield. Assumptions are revised as
necessary. As required by SFAS 123(R), the Company also estimates forfeitures at
the time of grant and makes revisions if the estimate changes or actual differs
from those estimates. When estimating forfeitures, the Company considers
voluntary termination behaviors as well as trends of actual forfeitures of
vested stock options.

The fair value of each award granted in fiscal years 2008 and 2007 has been
estimated at the date of grant using the Black-Scholes option pricing model with
the following assumptions:

                                                    2008           2007
                                                 ----------     ----------
     Expected option holding period (in years)          3.0            3.6
     Risk-free interest rate                            4.1 %          4.8 %
     Stock price volatility                             150 %          184 %
     Dividend yield                                       - %            - %


A summary of stock option activity under both plans is as follows:

                                                         Weighted-
                                            Weighted-     Average     Aggregate
                                             Average     Remaining    Intrinsic
                                            Exercise    Contractual     Value
                                 Options     Price     Life (Years)     (000)
                               ----------  ----------  ------------  -----------
Outstanding at July 1, 2005             -  $        -             -  $        -
Granted                                 -           -
Forfeited                               -           -
                               ----------  ----------  ------------  -----------
Outstanding at June 30, 2006            -           -             -           -
Granted                         1,170,000         .17
Cancelled                         100,000         .24
                               ----------  ----------  ------------  -----------
Outstanding at June 30, 2007    1,070,000         .18          6.86      73,000
Granted                           725,000         .23
Cancelled                         100,000         .19
                               ----------  ----------  ------------  -----------
Outstanding at June 30, 2008    1,695,000         .21          6.33    (222,000)
                               ==========  ==========  ============  ===========
Exercisable at June 30, 2008      529,000         .19          6.73     (59,000)
                               ==========  ==========  ============  ===========


The aggregate intrinsic value in the table above is before applicable income
taxes and is calculated based on the difference between the exercise price of
the options and the quoted price of the common stock as of the reporting date
multiplied by the number of options outstanding and exercisable.

The Company's aggregate stock-based compensation cost for fiscal year 2008 and
2007 was $22,000 and $67,000, respectively, and resulted primarily from awards
of stock options under the Company's two plans.

As of June 30, 2008, total unrecognized stock-based compensation expense related
to nonvested stock options was approximately $78,000, which is expected to be
recognized over a weighted average period of approximately 3.2 years.

                                       F-16
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

The following table summarizes information about stock options outstanding and
exercisable as of June 30, 2008:


<TABLE>
<CAPTION>
                   Outstanding Options                      Options Exercisable
                   ---------------------------------------  ---------------------
                   Number       Weighted Average  Weighted  Number       Weighted
                   Outstanding  Remaining         Average   Exercisable  Average
Range of Exercise  at June 30,  Contractual Life  Exercise  at June 30,  Exercise
Prices             2008         (Years)           Price     2008         Price
-----------------  -----------  ----------------  --------  -----------  --------
<S>                <C>          <C>               <C>       <C>          <C>

          $0.11
                      500,000          8.52       $   0.11     166,667   $   0.11
          $0.20
                      520,000          5.54           0.20     270,666       0.20
  $0.23 - $0.24
                      675,000          7.63           0.23      91,667       0.23
                   -----------                              -----------
                    1,695,000                                  529,000
                   ===========                              ===========

</TABLE>

During fiscal year 2008 and 2007, the Company granted 625,000 and 1,170,000
stock options, respectively, from its two plans with an estimated total grant
date fair value of $144,000 and $195,000, respectively. The weighted average
grant date fair values of stock options granted during fiscal years 2008 and
2007 were $0.23 and $0.17, respectively. There was no intrinsic value of stock
options exercised as there were no exercises in 2008 or 2007.

As of June 30, 2008, the Company had 6,594,720 warrants outstanding to purchase
common shares of the Company at $5.00 per share.  The weighted average remaining
contractual life of the warrants at June 30, 2008 is 2.95 years.


8. Transactions with Related Parties

Related party balances consist of the following at June 30, 2008, 2007 and 2006
(in thousands):

                                                         2008    2007    2006
                                                        ------  ------  ------
   Receivable from (payable to) GreenCore Technology    $  56   $  60   $(259)
   Payable to former McPhee members, net                  (62)    (89)      -
                                                        ------  ------  ------
        Net related party payable                       $  (6)  $ (29)  $(259)

Greencore Technology, Inc., ("Greencore"), formerly Aquacell Technologies, Inc.,
was the former parent of the Company.  The Company was spun-off from Greencore
on March 13, 2006.  The Company shares its corporate offices with Greencore and
both Greencore and the Company operate under the same executive management team,
although each member of management has a separate and distinct employment
agreement with the Company and Greencore.

The Company also has an informal agreement with Greencore for the utilization of
personnel, whereby various employees' salary expenses are shared by both
companies.  At June 30, 2008 and 2007, the Company believes these amounts were
fully collectible.

In connection with the McPhee acquisition, the Company assumed advances owed to
three former owners of McPhee aggregating $108,000.  During fiscal 2008 and
2007, $27,000 and $19,000, respectively, was paid on the outstanding advances.

                                       F-17
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

9. Income Taxes

The provision for income taxes consists of the following:

                                                      June 30,
                                    --------------------------------------------
                                        2008            2007            2006
                                    ------------    ------------    ------------
Current:
   Federal                          $         -     $         -     $         -
                                    ------------    ------------    ------------
                                              -               -               -
                                    ------------    ------------    ------------

Deferred:
   Federal                              589,000         533,000         374,000
                                    ------------    ------------    ------------
                                        589,000         533,000         374,000
                                    ------------    ------------    ------------

Less change in valuation allowance     (589,000)       (533,000)       (374,000)
                                    ------------    ------------    ------------

Net deferred tax asset (liability)  $         -     $         -     $         -
                                    ============    ============    ============


Deferred income taxes are provided for the tax effects of temporary differences
in the reporting of income for financial statement and income tax reporting
purposes and arise principally from net operating loss carry-forwards, accrued
expenses and basis differences in fixed assets.

The Company's effective tax rate differs from the Federal statutory rates due to
the valuation allowance recorded for the unused net operating loss carry-
forwards deferred tax asset. An allowance has been provided for by the Company
which reduced the tax benefits accrued by the Company for its net operating
losses to zero, as it cannot be determined when, or if, the tax benefits derived
from these operating losses will materialize.

At June 30, 2008, the Company had available federal net operating loss carry
forwards to reduce future taxable income, if any, of approximately $6,196,000.
The net operating loss carry forwards expire at various dates through 2028.
Under Section 382 of the Internal Revenue Code certain significant changes in
ownership of the Company may restrict the future utilization of these tax loss
carry forwards.


10. Interest Expense

Included in interest expense is penalties and interest of $8,000, $15,000 and
$66,000 on delinquent payroll taxes payable for the years ended June 30, 2008,
2007 and 2006, respectively. The balance of interest expense, in the amounts of
$36,000, $52,000 and $31,000 for the years ended June 30, 2008, 2007, and 2006,
respectively, represents penalties and interest on loans and lines of credit
payable by the Company.

                                       F-18
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

11. Commitments and Contingencies

Lease Commitments

The Company occupied a manufacturing office space in Arizona, under a
noncancellable operating lease held by a related company. The lease expires in
August 2008 and the Company does not intend to renew the lease.  As of June 30,
2008, future minimum commitments under office and equipment operating leases are
$7,500 per month for July and August 2008.

Rent expense under office leases amounted to approximately $116,000 and $104,000
for the years ended June 30, 2008 and 2007, respectively.

Legal Proceedings

From time to time, the Company is named in legal actions in the normal course of
business. In the opinion of management, the outcome of these matters, if any,
will not have a material impact on the financial condition or results of
operations of the Company.

Employment Agreements

On November 1, 2005 the Company entered into five-year employment agreements
with the three members of the executive management team providing for aggregate
minimum annual salaries of $366,000. The agreements also provide for incentive
bonuses based upon achievement of certain milestones.  In October 2006, the
Company's former chief financial officer retired and his employment agreement
was terminated.  In January 2007, the Company entered into a five-year
employment agreement with the new member of the executive management team
providing for minimum annual salaries of $165,000. The agreement also provide
for incentive bonuses based upon achievement of certain milestones.


12. Statement of Cash Flows Supplemental Disclosure of Non-Cash Transactions

The following schedule summarizes the Company's supplemental disclosure of non-
cash transactions for the Consolidated Statements of Cash Flows for the years
ended June 30, 2008, 2007, and 2006 (in thousands):

                                            2008          2007          2006
                                         ----------    ----------    ----------
Supplemental Disclosure of Non-Cash
Transactions
  Purchase of McPhee Environmental, LLC
    Accounts receivable, net             $       -     $      37     $       -
    Goodwill                                     -           776             -
    Accounts payable and accrued liabilities     -          (309)            -
    Advances from related parties                -          (108)            -
    Lines of credit assumed                      -          (131)            -
                                         ----------    ----------    ----------
       Net purchase price                $       -     $     265     $       -
                                         ==========    ==========    ==========

                                       F-19
<PAGE>

                      AQUACELL WATER, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

13. Selected Quarterly Financial Results (unaudited)

<TABLE>
<CAPTION>

Year ended June 30, 2008
                                    First      Second     Third      Fourth
                                   Quarter    Quarter    Quarter    Quarter      Total
(in thousands, except per share)   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>

Revenues                           $   472    $    56    $    99    $   235    $   862
Gross profit                           204         (6)        11        109        318
Operating income (loss)               (396)      (547)      (464)      (330)    (1,737)
Other income (loss)                     (7)        (7)         1        (29)       (42)
                                   --------   --------   --------   --------   --------
Net income (loss)                  $  (403)   $  (554)   $  (463)   $  (359)   $(1,779)
                                   ========   ========   ========   ========   ========
Net loss per common share
  Basic and diluted                $ (0.01)   $ (0.01)   $ (0.01)   $ (0.00)   $ (0.03)
                                   ========   ========   ========   ========   ========


Year ended June 30, 2007
                                    First      Second     Third      Fourth
                                   Quarter    Quarter    Quarter    Quarter      Total
(in thousands, except per share)   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>

Revenues                           $    29    $    19    $     -    $   646    $   694
Gross profit                           (42)        15        (17)       114         70
Operating income (loss)               (374)      (237)      (393)      (445)    (1,449)
Other income (loss)                    (13)       (14)       (11)      (805)      (843)
                                   --------   --------   --------   --------   --------
Net income (loss)                  $  (387)   $  (251)   $  (404)   $(1,250)   $(2,292)
                                   ========   ========   ========   ========   ========
Net loss per common share
  Basic and diluted                $ (0.01)   $ (0.01)   $ (0.01)   $ (0.03)   $ (0.06)
                                   ========   ========   ========   ========   ========

Year ended June 30, 2006
                                    First      Second     Third      Fourth
                                   Quarter    Quarter    Quarter    Quarter      Total
(in thousands, except per share)   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>

Revenues                           $   101    $   184    $   271    $    71    $   627
Gross profit                            (4)       100         92        (59)       129
Operating income (loss)               (281)      (206)      (252)      (261)    (1,000)
Other income (loss)                    (10)       (14)       (17)       (56)       (97)
                                   --------   --------   --------   --------   --------
Net income (loss)                  $  (291)   $  (220)   $  (269)   $  (317)   $(1,097)
                                   ========   ========   ========   ========   ========
Net loss per common share
  Basic and diluted                $ (0.15)   $ (0.11)   $ (0.03)   $ (0.04)   $ (0.14)
                                   ========   ========   ========   ========   ========

</TABLE>

                                       F-20