**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-KSB/A**


**Amendment
      no. 1**


x
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]


For
      the
      fiscal year ended June 30, 2007


OR


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


For
      the
      transition period
      from                        
to





Commission
      File No. 333-43748





**VERSADIAL,
      INC.**


(Name
      of
      small business issuer in its charter)





Nevada
            
            11-3535204(State
                or other jurisdiction ofincorporation or organization)
            
            (I.R.S.
                Employer Identification No.)305
                Madison Avenue, New York, NY
            
            10165(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number, including area code (212) 986-0886




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


Securities
      registered pursuant to Section 12 (g) of the Act:




Title
                  of each class
              
              Name
                  of each exchange on which registeredCommon
                  Stock, par value $.0001
              
              OTC
                  - BB





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





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





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





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


State
      issuer’s revenues for its most recent fiscal year: $1,396,251


As
      of
      October 12, 2007, there were 15,309,194 shares of the registrant’s Common Stock
      outstanding. The aggregate market value of the Common Stock held by
      non-affiliates was approximately $7,247,132 based on the closing sales price
      of
      the Common Stock of $1.50 per share as quoted on the OTC-BB on such date. Shares
      of Common Stock held by each officer and director and each person who owns
      10%
      or more of the outstanding Common Stock have been excluded in that such persons
      may be deemed affiliates. This determination of affiliates is not necessarily
      a
      conclusive determination for other purposes.


DOCUMENTS
      INCORPORATED BY REFERENCE: None


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





**Explanatory
      Note**





Versadial,
      Inc. hereby amends its Annual Report on Form 10-KSB for the fiscal year end
      June 30, 2007, filed on October 15, 2007, as set forth in this Annual
      Report on Form 10-KSB/A (Amendment No. 1), in response to comments
      from the Securities and Exchange Commission related to our Registration
      Statement on Form SB-2/A, as amended, filed on January 3, 2008
      .





2




**Item
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





*The
      following Management’s Discussion and Analysis or Plan of Operation contain
“forward-looking statements”, including statements about our beliefs and
      expectations. There are many risks and uncertainties that could cause actual
      results to differ materially from those contemplated by the forward-looking
      statements. Potential factors that could cause actual results to differ
      materially from those discussed in any forward-looking statements include,
      but
      are not limited to, those stated previously under the headings “Forward-Looking
      Statements” and “Risk Factors”.*




*All
      forward-looking statements are based on information available to us on the
      date
      of this filing, and we assume no obligation to update such statements. The
      following discussion should be read in conjunction with the consolidated
      financial statements and the related notes in this 10-KSB.*




OVERVIEW





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





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





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





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





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





3




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





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





Recent
      Developments





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


·
              On
                  August 9, 2006, concurrent with the merger closing, we sold 10%
                  senior
                  redeemable convertible debt (“Convertible Debt”) in the principal amount
                  of $7.5 million to Mellon HBV Master U.S. Event Driven Fund, L.P.
                  and
                  Mellon HBV Master Global Event Driven Fund, L.P. Fund (now known
                  as Fursa
                  Master Global Event Driven Fund, LP, and referred to herein as
                  the
                  “Investor”) under the terms of a Securities Purchase Agreement in exchange
                  for $7.5 million in cash. The Convertible Debt matures 30 months
                  after the
                  date of issuance (“Maturity Date”) and bears interest at 10% per annum. We
                  do not have the option to prepay the Convertible Debt prior to
                  the
                  Maturity Date and must redeem 100% of the Convertible Debt, unless
                  earlier
                  converted, for an amount equal to 120% ($9.0 million) of the outstanding
                  principal plus accrued but unpaid interest, on the Maturity Date.
                  The
                  proceeds from the Convertible Debt were used for working capital,
                  capital
                  expenditures, mandatory debt repayment, and general corporate
                  purposes.
 
 ·
              On
                  September 20, 2006, we entered into a 30-month manufacturing agreement
                  with Seidel GMBH, an outside contractor located in Germany. The
                  agreement
                  calls for the contractor to develop certain production molds for
                  us for a
                  new size (20 millimeter) dispenser. We will place all customer
                  orders
                  relating to the product with the contractor until at least eighty
                  percent
                  (80%) of the manufacturer’s production capacity is utilized based on five
                  (5) days per week, three (3) shifts per day. The agreement calls
                  for us to
                  make payments in the aggregate of approximately $780,000 for preproduction
                  molds and $3.2 million for the required production molds. Title
                  of the
                  molds will transfer to us upon final payment. As of June 30, 2007,
                  the
                  preproduction molds were complete and placed in service. We paid
                  an
                  aggregate of approximately $529,000 for the preproduction molds
                  prior to
                  their completion and financed the balance of approximately $251,000
                  under
                  the terms of a capital lease obligation. As of June 30, 2007, the
                  Company
                  has made payments of approximately $1.9 million for the production
                  molds.
                  Uponcompletion
                  of construction of the production molds, approximately $1.2 million
                  of
                  balance will be financed through a capital
                  lease.
 In
                  conjunction with the above manufacturing agreement, we also ordered
                  related assembly equipment from a vendor in the amount of approximately
                  $1.2 million. We have made payments of approximately $401,000 as
                  of June
                  30, 2007.
 
 ·
              On
                  February 1, 2007, we entered into a $3.0 million Secured Line Of
                  Credit
                  Agreement (“Credit Agreement”) with Fursa Alternative Strategies, LLC
                  (referred to herein as the “Lender”). The line is due on February 1, 2008
                  but may be extended for an additional 3 months. The line bears
                  interest at
                  a rate equal to the three month LIBOR rate plus 700 basis points
                  (12.4% at
                  June 30, 2007). At June 30, 2007, the Company had drawn an aggregate
                  of
                  $3.0 million of the available line. On July 9, 2007, the Credit
                  Agreement
                  was amended to (i) increase the amount of the line of credit available
                  to
                  us from $3.0 million to $4.0 million and (ii) waive certain default
                  provisions required by the original Credit Agreement. In August
                  2007, the
                  Lender agreed to convert $2.0 million of the outstanding principal
                  balance
                  to equity**at
                  a conversion price of $1.7662 per share for an aggregate of 1,132,375
                  shares.
  4
  ·
              On
                  April 24, 2007, we entered into a Supply Agreement and a related
                  Tooling
                  Amortization Agreement with Alltrista Plastics Corporation d/b/a
                  Jarden
                  Plastic Solutions, an outside contractor located in the United
                  States (the
                  “Supplier”). The Supply Agreement provides, among other things, that we,
                  over the five year term of the Agreement, will purchase from the
                  Supplier
                  no less than 100.0 million units of our 40 millimeter and 49 millimeter
                  dispensers.
 
 These
                  Agreements provide that the Supplier will fund the estimated $4.3
                  million
                  cost of the injection molding, tooling and automatic equipment
                  necessary
                  to produce the products to be purchased by us. Although financed
                  by the
                  Supplier, the equipment will be owned by Versadial. We will capitalize
                  the
                  related equipment at inception of production which is anticipated
                  to begin
                  in the fourth calendar quarter of 2007. The cost of the tooling
                  and
                  automatic equipment, with a three (3%) percent per annum interest
                  factor,
                  will be amortized over a period of 18 months against dispensers
                  purchased
                  and delivered to us pursuant to the Supply Agreement, with a per
                  unit
                  amortization cost included in the cost price for the dispensers.
 
 ·
              On
                  July 10, 2007 we entered into a two-year Master Supply Agreement
                  with Avon
                  Products, Inc. (“Avon”), a consumer products company for seventeen million
                  units of certain of our products. The Agreement will remain in
                  effect
                  through the second anniversary of the first shipment of such products
                  in
                  commercial production quantities.
 
 Pursuant
                  to the terms of a Credit Memo previously entered into with Avon,
                  we will
                  repay Avon’s $1.7 million advances by a credit against the purchase price
                  of products sold to Avon pursuant to the Master Supply Agreement
                  and
                  pursuant to other agreements that may be entered into between Versadial
                  and Avon, commencing six months after the date of the first shipment
                  of
                  products to Avon. We anticipate that the exclusive supply relationship
                  with Avon will consume all available manufacturing capacity of
                  the
                  specially designed 20mm pump through the first year. We anticipate
                  production to begin in late calendar year 2007.
 
 ·
              On
                  August 30, 2007, with the consent of the Investor, we entered into
                  a
                  Securities Purchase Agreement whereby we could sell 8% promissory
                  notes
                  (“Notes”) in the principal amount of up to $2.5 million at a price of
                  ninety seven (97%) percent of the principal amount of Notes. The
                  Notes are
                  due upon the earlier of (a) six months following the final closing
                  of the
                  Notes, (b) the date on which the we receive no less than $4.0 million
                  in
                  gross cash proceeds from the closing of a private offering of our
                  equity
                  securities or (c) on the date we close on a rights offering. As
                  of October
                  4, 2007, we have received net proceeds of approximately $1.1 million
                  from
                  the sale of the Notes of which $900,000 was received from a related
                  party.
  Critical
        accounting policies and estimates





Our
      consoldiated financial statements are impacted by the accounting policies used,
      and the estimates and assumptions made, by management during their preparation.
      A summary of the significant accounting policies can be found in the Notes
      to
      the Consolidated Financial Statements. Presented below is a description of
      the
      accounting policies that we believe are most critical to understanding the
      consolidated financial statements.





5




*Basis
      of Presentation*





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





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





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





*Principles
      of Consolidation*





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





We
      are
      the primary beneficiary of SCG under FIN 46R. SCG, as a result of the business
      acquisition described previously, is no longer an operating entity and is
      dependent on us for all of its income consisting of future royalties and license
      fees. The consolidated financial statements include the accounts of Versadial
      and SCG. All intercompany transactions and balances have been eliminated in
      consolidation.





*Depreciation
      and Amortization*





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


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





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





*Revenue
      Recognition*





Revenues
      are generally recognized at the time of shipment. Deposits are required deposits
      from certain customers which are recorded as current liabilities until the
      time
      of shipment. All shipments are picked up by the customers freight forwarders
      and
      are F.O.B. from our manufacturer. We bear no economic risk for goods damaged
      or
      lost in transit.




6





*Impairment
      of Long-Lived Assets*





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





*Foreign
      Currency Transactions*





We
      comply
      with SFAS No. 52 “Foreign Operations and Currency Translation”. All foreign
      currency transaction gains and losses are included in our net income (loss)
      in
      the period the exchange rate changes.





*Fair
      Value of Financial Instruments*





The
      fair
      value of our assets and liabilities, which qualify as financial instruments
      under SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
      approximate the carrying amounts presented in the consolidated balance
      sheet.





*Derivative
      Financial Instruments*





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





*Use
      of Estimates*





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





7




Recent
      Accounting Pronouncements





In
      July
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
      Uncertainty in Income Taxes”, an Interpretation of FASB Statement No. 109. FIN
      No. 48 clarifies the accounting for uncertainty in income taxes recognized
      in an
      enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
      for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. The new standard also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods and disclosure. The provisions of FIN No. 48
      are
      effective for fiscal years beginning after December 15, 2006. We do not
      expect the new standard to have any material impact on our financial position
      and results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans”, an amendment of FASB Statements
      No. 87, 88, 106, and 132(R).  SFAS No. 158 requires an employer
      to: (a) recognize in its statement of financial position an asset for
      a plan’s overfunded status or a liability for a plan’s underfunded status;
      (b) measure a plan’s assets and its obligations that determine its funded
      status as of the end of the employer’s fiscal year (with limited exceptions);
      (c) recognize changes in the funded status of a defined benefit
      postretirement plan in the year in which the changes occur. Those changes will
      be reported in comprehensive income of a business entity and in changes in
      net
      assets of a not-for-profit organization.  The requirement to recognize the
      funded status of a benefit plan and the disclosure requirements are effective
      for us for the fiscal year ending on June 30, 2007.  The requirement to
      measure plan assets and benefit obligations as of the date of our fiscal
      year-end balance sheet is effective for us for the fiscal year ending June
      30,
      2009.  We do not
      expect the new standard to have any material impact on our financial position
      and results of operations.




In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, expands disclosures about fair
      value measurements, and applies under other accounting pronouncements that
      require or permit fair value measurements. SFAS No. 157 does not require any
      new
      fair value measurements. However, the FASB anticipates that for some entities,
      the application of SFAS No. 157 will change current practice. SFAS No. 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, which for us would be our fiscal year beginning July 1,
      2008.
      We are currently evaluating the impact of SFAS No. 157 but do not expect that
      it
      will have a material impact on our financial statements.




In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities". This Statement permits entities
      to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS No. 159 is effective for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS
      No. 159 on our financial position and results of operations.




RESULTS
      OF OPERATIONS





Executive
      Summary





The
      table
      below sets forth a summary of financial highlights for the two years ended
      June
      30, 2007:





Overall,
      our revenue grew substantially by 525% during the current year as our operations
      began to grow in the skincare and cosmetic sectors. Our direct costs exceeded
      our revenues due to several factors, which were primarily the need for manual
      labor of certain functions, the unfavorable Euro/US Dollar currency exchange
      fluctuation, the purchase of new assembly equipment which had some startup
      production problems, and customer chargebacks for shipping costs due to late
      production. Our indirect costs increased due to higher depreciation expenses
      in
      the current year on capital acquisitions, costs for prototype samples for new
      customers and products, and equipment repair and maintenance. Our revenues
      did
      not increase enough to cover these costs. Our general expenses increased as
      we
      started in the current fiscal year to grow our business for the future as
      related both to administrative expenses and developmental costs. Our interest
      expense increased due to the increase in debt obligations which were incurred
      for future growth including capital expenditures and for ongoing expenses.
      These
      changes are explained in more detail below.





8




Our
      focus
      for the coming fiscal year will be to grow our revenue and decrease our direct
      costs per unit which we believe will be accomplished as our new 20mm product
      line is completed and manufacturing should begin in late calendar 2007 at Seidel
      in Germany. We estimate we will be able to produce approximately 15 million
      units annually of this product. In addition, we believe the completion of our
      new U.S. based facility for our 40 and 49mm product line will enable us to
      increase production with substantially all new automated molds and assembly
      equipment. This should also begin in late calendar 2007 at Jarden. We estimate
      we will be able to produce approximately 20 million units annually of these
      products. We have commitments from several multi-national customers for in
      excess of 20 million units at the current time for our various products. We
      also
      anticipate improving our costs and margins as both the injection molding and
      assembly functions will be performed together at both of these new subcontractor
      facilities and we will be better able to manage our costs as they will be on
      a
      per piece basis. Additionally, we will retain the services of Holzmann Montague,
      our previous assembly facility, for development projects with new and existing
      customers, and possibly for assembly of foreign orders or additional production
      use if necessary.





**For
                the year ended June 30,**
            
            **2007**
            
            **2006**
            
            **CHANGE****Net
                revenues**
            
            $
            1,396,251
            
            $
            223,404
            
            
            525
            %**Cost
                of revenues**Direct
                costs
            
            
            1,592,462
            
            
            170,163
            
            
            836
            %Indirect
                costs
            
            
            820,474
            
            
            509,410
            
            
            61
            %2,412,936
            
            
            679,573
            
            
            255
            %**Gross
                margin**
            
            
            (1,016,685
            )
            
            (456,169
            )
            
            123
            %**Operating
                expenses**General
                and administrative
            
            
            3,153,936
            
            
            2,240,987
            
            
            41
            %**Loss
                from operations**
            
            
            (4,170,621
            )
            
            (2,697,156
            )
            
            55
            %**Other
                income (expenses)**Sublease
                income, affiliates
            
            
            12,315
            
            
            28,564
            
            
            -57
            %Interest
                and other expense
            
            
            (1,391,166
            )
            
            (268,493
            )
            
            418
            %Interest
                expense, related parties
            
            
            (101,655
            )
            
            (148,810
            )
            
            -32
            %Amortization
                of debt discount
            
            
            (778,137
            )
            
            -Amortization
                of financing costs
            
            
            (485,706
            )
            
            (71,279
            )
            
            581
            %Loss
                on derivative financial instruments
            
            
            (991,916
            )
            
            -Loss
                on foreign currency exchange
            
            
            (35,460
            )
            
            (1,618
            )
            
            2092
            %(3,771,725
            )
            
            (461,636
            )
            
            717
            %**Net
                loss**
            
            $
            (7,942,346
            )
            $
            (3,158,792
            )
            
            151
            %




REVENUES.
      During the year ended June 30, 2007, we had revenues of $1,396,251 as compared
      to revenues of $223,404 during the year ended June 30, 2006, an increase of
      approximately 525%. In 2007, 96% of the revenue was primarily attributable
      to
      two customers in the suncare and skincare industry. In 2006, approximately
      86%
      of the revenue was attributable to four customers in the food and cosmetic
      industries. As discussed above, we anticipate our revenues to continue to
      increase in the coming fiscal year.





9




GROSS
      MARGIN. Cost of revenues – direct costs, which consist of direct labor,
      overhead and product costs, were $1,592,462 (114% of revenues) for the year
      ended June 30, 2007 as compared to $170,163 (76% of revenues) for the year
      ended
      June 30, 2006. The increase for 2007 is a result of the increase in revenues.
      The increase as a percent of revenues resulting in a negative gross margin
      is
      related to higher production costs in 2007. Our direct costs exceeded our
      revenues due to several factors, which were primarily the need for manual labor
      of certain functions on the 40mm line, the unfavorable Euro fluctuation due
      to
      foreign operations and U.S. customers, the purchase of new assembly equipment
      with which we had some startup production problems resulting in rework costs,
      and customer chargebacks for shipping costs due to late production. Cost of
      revenues – indirect costs, which consist of indirect labor, quality control
      costs, factory maintenance, product development and depreciation, were $820,474
      for the year ended June 30, 2007 as compared to $509,410 for the year ended
      June
      30, 2006. The increase was due primarily to increased depreciation of
      approximately $194,000 due to the purchase of more manufacturing equipment
      and
      additional costs for product design including samples and prototype parts,
      and
      additional labor for testing and development in 2007 as compared to 2006. Gross
      margin was a deficit of $(1,016,685) for the year ended June 30, 2007 as
      compared to a deficit of $(456,169) for the year ended June 30, 2006,
      representing gross margins of approximately (73) % and (204) % of revenues,
      respectively. We believe that indirect costs, which are primarily related to
      depreciation and the development of the 20mm dispenser, will decrease as this
      product is introduced into the marketplace and as revenues increase to cover
      these costs. We also believe direct costs should decrease on a percentage of
      revenue basis as discussed above when our new facilities become operational
      in
      late 2007 as both our capacity and production capabilities will increase and
      we
      will become more cost efficient.





OPERATING
      EXPENSES. General and administrative expenses totaled $3,153,936 for the year
      ended June 30, 2007, as compared to $2,240,987 for the year ended June 30,
      2006,
      an increase of approximately 41%. This increase of approximately $913,000 is
      primarily attributable to an increase in the technical consultant fee and
      royalties due the licensor under contract of $100,000, an increase in consulting
      fees of $701,000 as more general consultants were used in 2007 for sales, design
      work and other administrative functions, and an increase in salaries of $140,000
      we added to our financial and sales staff. The balance of the change was
      comprised of increases in various costs due to the growth of our operations
      and
      a decrease in professional fees as we had higher legal and audit costs in the
      prior year due to the anticipated merger which occurred in August 2006.





NET
      LOSS.
      We had a net loss of $7,942,346 for the year ended June 30, 2007 as compared
      to
      $3,158,792 for the year ended June 30, 2006, an increase of approximately
      $4,783,000. The increase in net loss is attributable to the increases in general
      and administrative and cost of revenues as described above. In addition,
      interest expense increased by approximately $1,076,000 in 2007 due to increased
      debt obligations and amortization of financing costs increased by approximately
      $415,000 in conjunction with these debt obligations. We believe that revenues
      should increase in the coming fiscal year as we introduce our new product line
      and are able to grow our customer base, and direct costs should decrease as
      production becomes more automated and diversified in both the U.S. and in
      Germany, allowing operating expenses to decline on a per piece basis and
      indirect costs to be covered.





10





Liquidity
      and Capital Resources





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




At
                  June 30,2007Current
                  assets
              
              $
              1,000,504Current
                  liabilities
              
              
              7,485,455Working
                  capital deficit
              
              $
              (6,484,951
              )





At
      June
      30, 2007, we had incurred cumulative losses of approximately $14.8 million
      since
      inception and $7.9 million for the year ended June 30, 2007. We have a working
      capital deficit of approximately $6.5 million and a stockholders’ deficit of
      approximately $13.3 million as of June 30, 2007.





During
      the year ended June 30, 2007, we utilized cash of approximately $3.0 million
      for
      operating activities primarily due to the revenues not yet great enough to
      cover
      general and administrative expenses and indirect costs. We utilized cash of
      approximately $3.8 million from investing activities primarily to purchase
      molds
      and equipment. We received cash from financing activities of approximately
      $6.0
      million from the merger, the secured credit line and a customer advance. These
      funds were utilized to purchase equipment and cover operating costs.





At
      June
      30, 2007, current liabilities are approximately $7.5 million which includes
      $1.5
      million due to shareholders on October 31, 2007 which we believe will be
      extended prior to maturity. Current liabilities also include approximately
      $3.0
      million (before debt discount) due under the line of credit due on February
      1,
      2008. The $3.0 million line of credit was increased to $4.0 million on July
      9,
      2007, which we used to fund operations. In August 2007, the Lender agreed to
      convert $2.0 million of the outstanding principal balance to equity. The
      remaining $2.0 million balance is due on February 1, 2008. Current liabilities
      also include approximately $700,000 of interest payable on our secured debt
      which was converted to equity on the due date August 9, 2007. Approximately
      $432,000 in current liabilities relates to minimum royalties due to the
      Licensor, pursuant to the License Agreement, which are in arrears. On September
      18, 2007, the Licensor signed a waiver of defaults whereby royalty payments
      in
      arrears due through June 30, 2007 of $432,000 would be paid as follows: 5%
      of
      any proceeds received from a capital raise between $1 million and $2 million
      and
      10% of everything over $2 million in proceeds until the entire amount of the
      past due royalty is paid in full. In calculating the proceeds of a capital
      raise, (i) any bridge loans raised prior to completion of a capital raise and
      actually paid out of the capital raise, and (ii) any debt converted into the
      capital raise shall not be deemed to be proceeds. In addition, the Licensor
      agreed to accept royalties as calculated on actual shipments after June 30,
      2007
      through June 30, 2008 to be paid monthly and the cumulative difference between
      minimum monthly royalties and actual monthly royalties to be paid no later
      than
      June 30, 2008 unless the Licensor and Licensee have entered into a written
      agreement prior to that date providing for an alternate payment schedule; and
      if
      the past due royalties are not fully paid prior to June 30, 2008, then the
      parties agree to, in good faith negotiations, negotiate a further arrangement
      to
      fully repay any such balance based on cash flow projections prior to June 30,
      2008 as long as the technical consultant payments are made in accordance with
      the License Agreement. The balance of current liabilities consists primarily
      of
      accounts payable and other expenses.





11




On
      August
      30, 2007, with the consent of the Investor, we entered into a Securities
      Purchase Agreement whereby we could sell 8% promissory notes in the principal
      amount of up to $2.5 million at a price of ninety seven (97%) percent of the
      principal amount of notes. The notes are due upon the earlier of (a) six months
      following final closing under the Purchase Agreement, (b) the date on which
      we
      receives no less than $4.0 million in gross proceeds from the closing of a
      private offering of our equity securities or (c) on the date we close on a
      rights offering. As of October 4, 2007, we have received net proceeds of
      approximately $1.1 million from the sale of the notes of which $900,000 was
      received from a related party. These funds were used for current operating
      costs
      and capital expenditures.





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





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





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





**Contractual Obligations**
              **(in millions):**
            
            **Total**
            
            **FYE
                2008**
            
            **FYE**
              **2009-2010**
            
            **FYE**
              **2011-2012**
            
            **FYE 2013 and**
              **Thereafter**Convertible
                Debt and interest
            
            $
            10.2
            
            $
            0.8
            
            $
            9.4
            
            $
            -
            
            $
            -Notes
                and interest - related parties
            
            
            1.5
            
            
            1.5Secured
                Line of Credit and interest
            
            
            3.2
            
            
            3.2Royalties
                including arrears
            
            
            16.0
            
            
            0.9
            
            
            1.1
            
            
            1.3
            
            
            12.7Equipment
                obligations and leases
            
            
            2.3
            
            
            1.8
            
            
            0.5Tooling
                Amortization
            
            
            4.4
            
            
            2.2
            
            
            2.2Operating
                lease
            
            
            0.2
            
            
            0.1
            
            
            0.1$
            37.8
            
            $
            10.5
            
            $
            13.3
            
            $
            1.3
            
            $
            12.7





12




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





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





Off-balance
      sheet arrangements





We
      have
      not entered into any financial guarantees or other commitments to guarantee
      the
      payment obligations of any third parties. We have not entered into any
      derivative contracts that are indexed to our shares and classified as
      shareholder’s equity or that are not reflected in our financial statements.
      Furthermore, we do not have any retained or contingent interest in assets
      transferred to an unconsolidated entity that serves as credit, liquidity or
      market risk support to such entity. We do not have any variable interest in
      any
      unconsolidated entity that provides financing, liquidity, market risk or credit
      support to us or engages in leasing, hedging or research and development
      services with us.





Inflation





We
      believe that inflation has not had a material effect on our operations to
      date.





13




**Item
      7.**  **** **FINANCIAL
      STATEMENTS**





The
      financial statements are included beginning on page F-1





**CONTENTS**




**Report
                  of Independent Registered Public Accounting Firm**
              
              F-1**Consolidated
                  Financial Statements**Balance
                  Sheet as of June 30, 2007
              
              F-2Statements
                  of Operations for the Years ended June 30, 2007 and June 30,
                  2006
              
              F-3Statements
                  of Stockholders' Deficit for the Years ended June 30, 2007 and
                  June 30,
                  2006
              
              F-4Statements
                  of Cash Flows for the Years ended June 30, 2007 and June 30,
                  2006
              
              F5-F6Notes
                  to Consolidated Financial Statements
              
              F7-F27




14




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders


of
      Versadial, Inc.




We
      have
      audited the accompanying consolidated balance sheet of Versadial, Inc. (the
      “Company”) as of June 30, 2007 and the related consolidated statements of
      operations, stockholders’ deficit and cash flows for each of the years in the
      two-year period ended June 30, 2007. These financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated 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 consolidated financial statements, assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Versadial, Inc. as of June
      30, 2007, and the results of its operations and cash flows for the each of
      the
      years in the two-year period ended June 30, 2007, in conformity with accounting
      principles generally accepted in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2, the
      Company's ability to continue in the normal course of business is dependent
      upon
      the success of future operations. The Company has incurred cumulative losses
      of
      approximately $14.8 million since inception and utilized cash of approximately
      $5.1 million for operating activities during the two years ended June 30, 2007.
      The Company has a working capital deficit of approximately $6.5 million and
      a
      stockholders’ deficit of approximately $13.3 million as of June 30, 2007. These
      conditions raise substantial doubt about the Company’s ability to continue as a
      going concern. Management's plans regarding these matters are also described
      in
      Note 2. The consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.




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





Roseland,
      New Jersey


October
      4, 200 7




F-1




**VERSADIAL,
        INC.**
  **CONSOLIDATED
        BALANCE SHEET**
  
 **June 30,****2007****ASSETS****Current
                  assets**Cash
              
              $
              134,361Due
                  from affiliates
              
              
              29,539Accounts
                  receivable
              
              
              224,984Inventories
              
              
              547,332Prepaid
                  expenses and other current assets
              
              
              64,288Total
                  current assets
              
              
              1,000,504**Property
                  and equipment,**net
              
              
              1,977,062**Other
                  assets**Deposits
                  on production equipment
              
              
              2,426,598Deferred
                  financing costs
              
              
              558,420Deferred
                  registration costs
              
              
              25,015Security
                  deposit
              
              
              34,155Total
                  other assets
              
              
              3,044,188$
              6,021,754**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****Current
                  liabilities**Notes
                  and interest payable, net of debt discount of $288,350
              
              $
              2,861,514Notes
                  and interest payable, related parties
              
              
              1,501,898Interest
                  payable on convertible note
              
              
              677,083Due
                  to licensor
              
              
              432,120Accounts
                  payable and accrued expenses
              
              
              1,630,538Capital
                  lease obligation, current portion
              
              
              167,442Due
                  to related parties
              
              
              195,949Customer
                  deposits
              
              
              18,911Total
                  current liabilities
              
              
              7,485,455**Long-term
                  liabilities**Convertible
                  note and interest payable, net of debt discount of
                  $408,802
              
              
              7,617,685Customer
                  advance
              
              
              1,700,000Capital
                  lease obligation
              
              
              84,016Derivative
                  financial instruments
              
              
              2,467,205Sublease
                  security deposit, affiliate
              
              
              6,830Total
                  long-term liabilities
              
              
              11,875,736**Commitments
                  and contingencies****Stockholders'
                  deficit**Preferred
                  stock, $.0001 par value, 2 million shares authorized, zero
                  issued and outstandingCommon
                    stock, $.0001 par value, 35 million shares authorized,13,539,470
                    issued and outstanding
              
              
              1,354Additional
                  paid-in-capital
              
              
              1,488,881Accumulated
                  deficit
              
              
              (14,829,672
              )Total
                  stockholders' deficit
              
              
              (13,339,437
              )$
              6,021,754
 
 *See
        accompanying notes to consolidated financial statements*
  F-2
 
 **VERSADIAL,
        INC.**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  **For
                    the year ended June 30,**
                
                **2007**
                
                **2006****Net
                    revenues**
                
                $
                1,396,251
                
                $
                223,404**Cost
                    of revenues**Direct
                    costs
                
                
                1,592,462
                
                
                170,163Indirect
                    costs
                
                
                820,474
                
                
                509,4102,412,936
                
                
                679,573**Gross
                    margin**
                
                
                (1,016,685
                )
                
                (456,169
                )**Operating
                    expenses**General
                    and administrative
                
                
                3,153,936
                
                
                2,240,987**Loss
                    from operations**
                
                
                (4,170,621
                )
                
                (2,697,156
                )**Other
                    income (expenses)**Sublease
                    income, affiliates
                
                
                12,315
                
                
                28,564Interest
                    expense
                
                
                (1,391,166
                )
                
                (268,493
                )Interest
                    expense, related parties
                
                
                (101,655
                )
                
                (148,810
                )Amortization
                    of debt discount
                
                
                (778,137
                )
                
                -Amortization
                    of financing costs
                
                
                (485,706
                )
                
                (71,279
                )Loss
                    on derivative financial instruments
                
                
                (991,916
                )
                
                -Loss
                    on foreign currency exchange
                
                
                (35,460
                )
                
                (1,618
                )(3,771,725
                )
                
                (461,636
                )**Net
                    loss**
                
                $
                (7,942,346
                )
                $
                (3,158,792
                )**Weighted
                    average common shares outstanding**Basic
                
                
                13,138,355
                
                
                10,666,217Diluted
                
                
                14,728,639
                
                
                11,377,319**Loss
                    per common share**Basic
                    and Diluted
                
                $
                (0.60
                )
                $
                (0.30
                )
  *See
        accompanying notes to consolidated financial statements*
  F-3
  **VERSADIAL,
        INC.**
 
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' DEFICIT**
 **Common Stock**
                
                **Additional**
                
                **Accumulated****Years
                  Ended June 30, 2007 and 2006**
                
                **Shares******
                
                **Amount**
                
                **Paid-In Capital**
                
                **Deficit**
                
                **Total****Balances,
                    July 1, 2005***
                
                
                10,662,177
                
                $
                1,066
                
                $
                (1,041
                )
                $
                (3,728,534
                )
                $
                (3,728,509
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                (3,158,792
                )
                
                (3,158,792
                )**Balances,
                    June 30, 2006**
                
                
                10,662,177
                
                
                1,066
                
                
                (1,041
                )
                
                (6,887,326
                )
                
                (6,887,301
                )Reverse
                    acquisition on August 9, 2006:Capitalization
                    of equity of acquiree (including merger costs)
                
                
                914,227
                
                
                91
                
                
                (548,163
                )
                
                
                
                
                (548,072
                )Conversion
                    of convertible debt to common stock
                
                
                1,247,912
                
                
                125
                
                
                1,199,875
                
                
                
                
                
                1,200,000Expiration
                    of put option on common stock subject to redemption (including
                    $62,403 in
                    accrued interest through conversion date)
                
                
                715,154
                
                
                72
                
                
                887,331
                
                
                
                
                
                887,403Capital
                    distributions to members of SCG
                
                
                
                
                
                
                
                
                (49,121
                )
                
                
                
                
                (49,121
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                (7,942,346
                )
                
                (7,942,346
                )**Balances,
                    June 30, 2007**
                
                
                13,539,470
                
                $
                1,354
                
                $
                1,488,881
                
                $
                (14,829,672
                )
                $
                (13,339,437
                )
  *
        Conversion shares have been retroactivly restated to reflect the number of
        shares received in the business combination
 
 *See
        accompanying notes to consolidated financial statements*
  F-4
  **VERSADIAL,
        INC.**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
  **For
                    the year ended June 30,**
                
                **2007**
                
                **2006****Cash
                    flows from operating activities**Net
                    loss
                
                $
                (7,942,346
                )
                $
                (3,158,792
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                447,216
                
                
                253,130Amortization
                    of debt discount
                
                
                778,137Amortization
                    of financing costs
                
                
                485,706
                
                
                71,279Loss
                    on derivative financial instruments
                
                
                991,916Changes
                    in operating assets and liabilities:Due
                    from affiliates
                
                
                21,969
                
                
                (20,273
                )Accounts
                    receivable
                
                
                (116,605
                )
                
                (102,073
                )Inventories
                
                
                (433,437
                )
                
                (47,863
                )Prepaid
                    expenses and other current assets
                
                
                (13,852
                )
                
                (677
                )Due
                    to licensor
                
                
                152,046
                
                
                245,939Accounts
                    payable and accrued expenses
                
                
                1,120,732
                
                
                197,843Due
                    to related parties
                
                
                36,767
                
                
                42,870Customer
                    deposits
                
                
                (10,618
                )
                
                (4,057
                )Interest
                    payable
                
                
                1,494,953
                
                
                374,524**Net
                    cash used in operating activities**
                
                
                (2,987,416
                )
                
                (2,148,150
                )**Cash
                    flows from investing activities**Purchase
                    of equipment
                
                
                (1,425,489
                )
                
                (645,384
                )Payment
                    of deposits on production equipment
                
                
                (2,212,213
                )Payments
                    for merger costs
                
                
                (142,919
                )Payments
                    for registration costs
                
                
                (25,015
                )Net
                    cash acquired from merger
                
                
                95**Net
                    cash used in investing activities**
                
                
                (3,805,541
                )
                
                (645,384
                )**Cash
                    flows from financing activities**Proceeds
                    from issuance of convertible notes
                
                
                1,706,846
                
                
                450,000Proceeds
                    from issuance of notes
                
                
                3,000,000
                
                
                3,350,000Proceeds
                    from customer advance
                
                
                1,700,000Payment
                    on notes payable, related parties
                
                
                (30,000
                )Payments
                    for financing costs
                
                
                (317,702
                )
                
                (62,500
                )Distributions
                    to investors
                
                
                (49,122
                )Payments
                    on equipment lease
                
                
                
                
                
                (81,914
                )**Net
                    cash provided by financing activities**
                
                
                6,010,022
                
                
                3,655,586**Net
                    (decrease) increase in cash**
                
                
                (782,935
                )
                
                862,052**Cash,
                    beginning of year**
                
                
                917,296
                
                
                55,244**Cash,
                    end of year**
                
                $
                134,361
                
                $
                917,296
 
 *See
        accompanying notes to consolidated financial statements*
  F-5
  **VERSADIAL,
        INC.**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (CONTINUED)**
  
 **For
                    the year ended June 30,**
                
                **2007**
                
                **2006****Supplemental
                    disclosure of cash flow information,**cash
                    paid during the period for interest
                
                $
                549,308
                
                $
                50,359**Supplemental
                    disclosure of non-cash investing and financing,****activities:**Convertible
                    debentures converted to common stock
                
                $
                1,200,000
                
                $
                -Debt
                    discount related to convertible note and secured line of
                    credit
                
                $
                1,475,289
                
                $
                -Accounts
                    payable converted into promissory note
                
                $
                -
                
                $
                104,284Purchase
                    of equipment financed by lease obligation
                
                $
                251,458
                
                $
                -Shares
                    formerly subject to redemption converted to common stock
                
                $
                887,403
                
                $
                -Notes
                    and interest payable converted into convertible notes
                
                $
                -
                
                $
                366,702Reclassification
                    of deferred financing cost payable to equity
                
                $
                42,588
                
                $
                -Issuance
                    of Mellon convertible notes
                
                $
                7,500,000Payments
                    made directly to debtholders
                
                
                (4,517,154
                )Merger
                    and financing costs
                
                
                (1,026,000
                )Payment
                    made directly to licensor
                
                
                (250,000
                )Net
                    proceeds received
                
                $
                1,706,846
 *See
        accompanying notes to consolidated financial statements*
  F-6











**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









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





Versadial,
      Inc. (hereinafter referred to as the “Registrant” or “Versadial” or the
“Company”), was originally incorporated in Nevada under the name
      Carsunlimited.com, Inc. (“CARS”) on March 7, 2000. CARS, a publicly traded
      corporation, prior to August 9, 2006, was a development stage company with
      limited operations and revenues and only nominal assets. Its intended purpose
      was to offer users the ability to search a database that contained products
      and
      information about the Automobile industry, new and used car sales (classified
      ads), as well as automotive products such as extended warranty information
      and
      anti-theft body part marking. On March 2, 2007, CARS changed its name to
      Versadial to capitalize on the awareness of its trademarked name for its
      products in the marketplace as described below.





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





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





The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States of America, which
      contemplate continuation of the Company as a going concern. At June 30, 2007,
      the Company has incurred cumulative losses of approximately $14.8 million since
      inception and utilized cash of approximately $5.1 million for operating
      activities during the two years ended June 30, 2007. The Company has a working
      capital deficit of approximately $6.5 million and a stockholders’ deficit of
      approximately $13.3 million as of June 30, 2007.





At
      June
      30, 2007, current liabilities include $1.5 million due to shareholders on
      October 31, 2007 (see Note 9) which management believes will be extended prior
      to maturity. Current liabilities also include approximately $3.0 million (before
      debt discount) in notes due on February 1, 2008 (see Note 8). The $3.0 million
      line of credit was increased to $4.0 million on July 9, 2007, which the Company
      used to fund operations. In August 2007, the lender agreed to convert $2.0
      million of the outstanding principal balance to equity (see Note
      22).





On
      August
      30, 2007, the Company entered into a Securities Purchase Agreement whereby
      it
      could sell 8% promissory notes in the principal amount of up to $2.5 million
      at
      a price of ninety seven (97%) percent of the principal amount of notes. The
      notes are due upon the earlier of (a) six months following final closing, (b)
      the date on which the Company receives no less than $4.0 million in gross
      proceeds from the closing of a private offering of its equity securities or
      (c)
      on the date the Company closes on a rights offering. As of October 4, 2007,
      the
      Company has received net proceeds of $1.1 million in regards to the notes of
      which $900,000 was received from a related party (see Note 22).





Management
      recognizes that the Company must generate additional revenue and sufficient
      gross profits to achieve profitable operations. Management's plans to increase
      revenues include the continued building of its customer base and product line
      as
      well as commencing production at a domestic manufacturing facility in the United
      States and commencing production in connection with a supply agreement with
      a
      customer in the consumer products industry as related to the manufacture of
      a
      new size dispenser (see Notes 14, 19 and 22). Management believes that the
      capital received to date as a result of the above transactions will not be
      sufficient to purchase the necessary capital equipment needed to expand its
      product line, increase production capacity and fund operations during the next
      twelve months and that additional debt or equity financing will be required
      as
      described above.





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




F-7




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









**3.**
            **Reverse
                merger**





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





Pursuant
      to the Merger Agreement, the Registrant issued 12,625,243 shares of its common
      stock to shareholders of Innopump in consideration of Innopump merging with
      and
      into PAC and becoming a wholly-owned subsidiary of the Registrant ("Merger").
      The Registrant, prior to the Merger, is sometimes referred to herein as OLDCO.
      As a result of the Merger, Innopump became a majority-owned subsidiary of OLDCO
      and the holders of Innopump common stock and debt acquired a majority interest
      of OLDCO. The accounting of this transaction differs from its legal form, as
      Innopump is considered the accounting acquirer and OLDCO the acquired entity.
      The transaction has been accounted for as a reverse acquisition under the
      purchase method of accounting, whereby the assets of OLDCO were revalued and
      the
      purchase price allocated to those assets acquired and liabilities assumed.
      Innopump’s historical financial statements were carried forward subsequent to
      the merger as those of the combined entity (hereinafter referred to as
“NEWCO”).





The
      Merger Agreement required OLDCO to issue to the Innopump stockholders
      approximately 43.333 shares of common stock for each share of Innopump common
      stock outstanding at the closing date of August 9, 2006. At the closing, there
      were 262,500 outstanding shares of Innopump common stock plus 28,792 shares
      issued on conversion of certain debt for a total of 291,292 shares which
      resulted in the issuance of 12,625,243 shares (rounded up for fractional shares)
      of common stock and resulted in OLDCO stockholders retaining approximately
      6.75%
      (914,227 shares rounded up for fractional shares) of the outstanding stock
      and
      Innopump stockholders receiving approximately 93.25% of the outstanding stock
      on
      a pre-diluted basis.





The
      parties’ completion of the transactions contemplated under the Merger Agreement
      were subject to the satisfaction of certain contingencies which were deemed
      satisfied at the closing.





NEWCO
      incurred merger costs of approximately $460,000, which were charged to equity,
      consisting of approximately $307,000 in advisory fees payable to the investment
      banker and $153,000 in legal fees. The investment banker agreed to defer payment
      of $175,000 of the advisory fee until February 2007. The deferred portion of
      the
      fee was paid on February 9, 2007 pursuant to the agreement with the investment
      banker. All other fees were paid at or subsequent to the closing.





The
      following supplemental pro forma information is presented to illustrate the
      effects of the acquisition of Innopump on the historical operating results
      for
      the years ended June 30, 2007 and 2006 as if the acquisition had occurred at
      the
      beginning of the respective period:





Years
                  Ended
                June,
                    302007
            
            2006Revenues
            
            $
            1,396,251
            
            $
            223,404Net
                loss
            
            $
            (8,036,422
            )
            $
            (4,566,193
            )Net
                loss per share
            
            $
            (0.61
            )
            $
            (0.43
            )





The
      above
      unaudited pro forma condensed financial information is presented for
      illustrative purposes only and is not necessarily indicative of the condensed
      consolidated results of operations that actually would have been realized had
      Innopump and OLDCO been a combined company during the specified
      periods.




F-8




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









**4.**
            **Summary
                of significant accounting
                policies**





*Basis
      of Presentation*





NEWCO’s
      fiscal year ends on June 30, and therefore references to fiscal 2007 and 2006
      refer to the fiscal years ended June 30, 2007 and June 30, 2006, respectively.
      OLDCO’s fiscal year end was December 31, which was changed to June 30 to conform
      to the year end of Innopump, the accounting acquirer.





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





The
      common stock and per share information in the consolidated financial information
      and related notes have been retroactively adjusted to give effect to the reverse
      merger on August 9, 2006 and to give effect to the one for forty-five reverse
      stock split that became effective on March 2, 2007 (see Note 16).





*Principles
      of Consolidation*





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





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





The
      Company is the primary beneficiary of SCG under FIN 46r. SCG, as a result of
      the
      business acquisition, is no longer an operating entity and is dependent on
      the
      Company for all of its income consisting of future royalties and license fees.
      The Company consolidated the results of SCG’s operations for the year ended June
      30, 2007, consisting of approximately $18,000 in net income derived from an
      aggregate of $191,000 in license and royalty fees from the Company, net of
      interest and other operating expenses. SCG’s assets at June 30, 2007
      approximated $133,000 consisting mainly of cash, sublease income receivable,
      royalties receivable from the Company and a security deposit on a lease. SCG’s
      liabilities at June 30, 2007 approximated $1,511,000 consisting primarily of
      loans due to partners which were not assumed by the Company as part of the
      business acquisition described above. These assets and liabilities are included
      in the consolidated financial statements.





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




F-9




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









*Accounts
      Receivable*





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





*Inventories*





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





*Revenue
      Recognition*





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





*Depreciation
      and Amortization*





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


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





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





*Classification
      of expenses*





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





*Loss
      Per Share*





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




F-10




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









*Fair
      Value of Financial Instruments*





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





*Income
      Taxes*





The
      Company complies with SFAS No. 109, “Accounting for Income Taxes,” which
      requires an asset and liability approach to financial accounting and reporting
      for income taxes. Deferred income tax assets and liabilities are computed for
      differences between the financial statement and tax bases of assets and
      liabilities that will result in taxable or deductible amounts in the future,
      based on enacted tax laws and rates applicable to the periods in which the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce the deferred income tax assets to the
      amount expected to be realized.





*Impairment
      of Long-Lived Assets*





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





*Foreign
      Currency Transactions*




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





*Derivative
      Financial Instruments*





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





*Use
      of Estimates*





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




F-11




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









*Recent
      Accounting Pronouncements*





In
      July
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
      Uncertainty in Income Taxes”, an Interpretation of FASB Statement No. 109. FIN
      No. 48 clarifies the accounting for uncertainty in income taxes recognized
      in an
      enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
      for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. The new standard also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods and disclosure. The provisions of FIN No. 48
      are
      effective for fiscal years beginning after December 15, 2006. The Company
      does not
      expect the new standard to have any material impact on its financial position
      and results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans”, an amendment of FASB Statements
      No. 87, 88, 106, and 132(R). SFAS No. 158 requires an employer
      to: (a) recognize in its statement of financial position an asset for
      a plan’s overfunded status or a liability for a plan’s underfunded status;
      (b) measure a plan’s assets and its obligations that determine its funded
      status as of the end of the employer’s fiscal year (with limited exceptions);
      (c) recognize changes in the funded status of a defined benefit
      postretirement plan in the year in which the changes occur. Those changes will
      be reported in comprehensive income of a business entity and in changes in
      net
      assets of a not-for-profit organization. The requirement to recognize the funded
      status of a benefit plan and the disclosure requirements are effective for
      us
      for the fiscal year ending on June 30, 2007. The requirement to measure plan
      assets and benefit obligations would become effective for the Company for the
      fiscal year ending June 30, 2009. The Company does not
      expect the new standard to have any material impact on its financial position
      and results of operations.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, expands disclosures about fair
      value measurements, and applies under other accounting pronouncements that
      require or permit fair value measurements. SFAS No. 157 does not require any
      new
      fair value measurements. However, the FASB anticipates that for some entities,
      the application of SFAS No. 157 will change current practice. SFAS No. 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, which for the Company would be the fiscal year beginning
      July
      1, 2008. The Company is currently evaluating the impact of SFAS No. 157 but
      does
      not expect that it will have a material impact on its financial statements.





In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities". This Statement permits entities
      to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS No. 159 is effective for fiscal years
      beginning after November 15, 2007. The Company is currently assessing the impact
      of SFAS No. 159 on its financial position and results of operations.




**5.**
            **Inventories**





Inventories
      consist of the following at June 30, 2007:





**June
                  30,**
                **2007**Raw
                materials
            
            $
            234,557Work-in-process
            
            
            35,739Finished
                goods
            
            
            277,036$
            547,332




F-12




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









**6.**
            **Property
                and equipment**





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




**June 30,**
                **2007**Machinery
                and equipment
            
            $
            1,035,954Molds
            
            
            1,939,075Computer
                equipment
            
            
            11,3562,986,385Less
                accumulated depreciation
            
            
            1,009,323$
            1,977,062




Depreciation
      expense amounted to approximately $447,000 and $253,000 for the years ended
      June
      30, 2007 and 2006, respectively.




**7.**
            **Deposits
                on production equipment**





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




**Amount at June 30, 2007**
            
            **Total estimated cost**Custom molds for
                customer
            
            $
            147,492
            
            $
            350,000
            (a)Assembly
                equipment new size dispenser
            
            
            401,492
            
            
            1,150,000Production
                molds for new size dispenser
            
            
            1,877,614
            
            
            3,200,000
            (b)$
            2,426,598
            
            $
            4,700,000




(a)
            Customer
                is advancing the Company the majority of funds to pay for molds which
                are
                to be used exclusively for this customer. The advance is to be applied
                against future revenues over an aggregate of 8 million
                pieces.




(b)
            Upon
                completion of construction of molds, approximately $1.2 million of
                balance
                will be financed through a capital lease to be paid monthly through
                March
                2009 (see Notes 11 and 19).




**8.**
            **Notes
                and interest payable**





Notes
      and
      interest payable consist of the following as of June 30, 2007:





**June
                  30,**
                **2007**Fursa
                Alternative Strategies, LLC
            (a)
            $
            2,742,793Individual
                lender
            (b)
            
            118,721$
            2,861,514




F-13




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







a)
            On
                February 1, 2007, the Company entered into a $3.0 million Secured
                Line Of
                Credit Agreement (“Credit Agreement”) with Fursa Alternative Strategies,
                LLC (referred to herein as the “Lender”). The line is due on February 1,
                2008 but may be extended for an additional 3 months. The line bears
                interest at a rate equal to the three month LIBOR rate plus 700 basis
                points (12.4% at June 30, 2007). Upon a default under the terms of
                the
                note, the Interest Rate will increase by 4%. In addition, on the
                maturity
                date, the Company will incur a non-refundable fee equal to .75% on
                the
                average monthly undrawn portion of the maximum
                borrowings.





At
      June
      30, 2007, the Company had drawn an aggregate of $3.0 million of the available
      line which is included in notes payable. Interest expense for the year ended
      June 30, 2007 approximated $123,000. Accrued interest payable aggregated
      approximately $29,000 at June 30, 2007 which was paid on July 1,
      2007.





In
      conjunction with the Credit Agreement, the Company initially granted warrants
      to
      each of Lender and Prospero Capital, LLC (formerly known as Sagamore Hill
      Capital, LLC), an affiliate of the Lender (“Prospero”), to purchase
      respectively, one million eighty four thousand four hundred and forty two
      (1,084,543) shares of the Company’s common stock.





On
      March
      31, 2007, the Company secured certain purchase orders as defined in the Credit
      Agreement which entitled the Company to redeem 25% of the initial warrants.
      The
      aggregate warrants issued to each of Lender and Prospero, after giving effect
      to
      the 25% redemption, to purchase 813,407 shares of the Company’s common stock
      were valued at the grant date at approximately $494,000. The fair value was
      calculated using the Black-Scholes model with an expected volatility of 44%
      and
      a risk free interest rate of 4.50%. The initial warrants granted under the
      agreement i n
      the
      aggregate of 1,084,543 to each o f Lender and Prospero were replaced with new
      warrants reflecting the redemption .
      The
      warrants are exercisable for five years from the date of issuance at an initial
      exercise price equal to $2.475 per share subject to adjustment under certain
      events.





Upon
      the
      expiration or termination of the credit facility under the Agreement, whichever
      occurs first, the Company has the option to purchase 25% of the total number
      of
      initial warrants, (or an aggregate of 271,136 warrants from each of Lender
      and
      Prospero) issued at an aggregate purchase price of $250,000.





The
      debt
      discount will be charged to operations over the life of the underlying debt
      with
      a corresponding increase to the debt. For the year ended June 30, 2007,
      approximately $206,000 was charged to operations.





Financing
      fees in connection with this debt approximated $135,000, including a $90,000
      fully earned non-refundable commitment fee paid to the Lender which is included
      in operations, and other costs of $45,000 which are being amortized over the
      term of the convertible debt. For the year ended June 30, 2007, the expense
      and
      amortization of financing costs approximated $109,000 .





On
      July
      9, 2007, the Credit Agreement was amended to (i) increase the amount of the
      line
      of credit available to Versadial from $3.0 million to $4.0 million and (ii)
      waive certain default provisions required by the original Credit Agreement.
      In
      August 2007, the Lender agreed to convert $2.0 million of the outstanding
      principal balance to equity (see Note 22).





b)
            On
                October 11, 2005, the Company agreed to convert $104,284 in legal
                fees to
                debt and issued a secured promissory note. The note bears interest
                at 8%,
                is collateralized by the assets of the Company, and is due, as amended
                with interest on December 31, 2007. On May 4, 2007, the date of the
                amended extension of the maturity date, the lender was granted warrants
                to
                purchase 55,000 shares of the Company’s common stock exercisable for five
                years from the date of issuance at an initial exercise price equal
                to
                $2.475 per share. These warrants were valued at the grant date at
                approximately $18,000. The fair value was calculated using the
                Black-Scholes model with an expected volatility of 44% and a risk
                free
                interest rate of 4.51%. The value of the additional warrants were
                treated
                as debt discount expense. Accrued interest related to the above notes
                included in notes and interest payable approximated $14,000 at June
                30,
                2007. Interest expense approximated $8,000 and $6,000 for the years
                ended
                June 30, 2007 and 2006,
                respectively.




F-14




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









**9.**
            **Notes
                and interest payable, related
                parties**





Notes
      and
      interest payable, related parties consist of the following as of June 30,
      2007:





**June 30,**
                **2007**Related
                party
            (a)
            $
            1,402,323Related
                party
            (b)
            
            99,575$
            1,501,898





a)
            The
                Company has a $1,098,536, 8% per annum note with a related party
                which
                matures, as amended, on October 31, 2007.





b)
            The
                Company has a $100,000, 8% per annum note with an outstanding balance
                of
                $70,000 at June 30, 2007, with a related party which matures, as
                amended,
                on October 31, 2007.





Accrued
      interest included in notes and interest payable to related parties approximated
      $333,000 at June 30, 2007. Interest expense approximated $94,000, and $96,000
      for the years ended June 30, 2007 and 2006, respectively.




**10.**
            **Convertible
                note and interest**





Convertible
      notes and interest consist of the following as of June 30, 2007:





**June 30,**
                **2007**Fursa
                Master Global Event Driven Fund, LP
            
            $
            8,294,768Less:
                current liabilities
            
            
            677,083$
            7,617,685





*General
      Terms*





On
      August
      9, 2006, concurrent with the merger closing, OLDCO sold 10% senior redeemable
      convertible debt (“Convertible Debt”) in the principal amount of $7.5 million to
      Mellon HBV Master U.S. Event Driven Fund, L.P. and Mellon HBV Master Global
      Event Driven Fund, L.P. Fund (now known as Fursa Master Global Event Driven
      Fund, LP, and referred to herein as the “Investor”) under the terms of a
      Securities Purchase Agreement in exchange for $7.5 million in cash. The
      Convertible Debt matures 30 months after the date of issuance (“Maturity Date”)
      and bears interest at 10% per annum. Interest is payable in cash or payable
      in
      kind (“PIK”) at the holders’ option, on the one year anniversary of the date of
      issuance with respect to the first year of accrued interest and quarterly in
      arrears thereafter. Any interest not paid when due will accrue and will be
      added
      to the principal in determining the number of shares of Common Stock issuable
      upon conversion of the Convertible Debt.





The
      holder does not have the option to prepay the Convertible Debt prior to the
      Maturity Date and must redeem 100% of the Convertible Debt, unless earlier
      converted, for an amount equal to 120% ($9.0 million) of the outstanding
      principal plus accrued but unpaid interest, on the Maturity Date. The proceeds
      from the Convertible Debt were used for working capital, capital expenditures,
      mandatory debt repayment, and general corporate purposes. Interest expense
      for
      the year ended June 30, 2007 approximated $1,204,000 consisting of approximately
      $677,000 currently due on August 9, 2007 and $527,000 due upon maturity
      calculated using the effective interest method for the 20% premium due at
      maturity. On August 9, 2007, the Investor consented to receive common stock
      in
      lieu of cash as payment for the interest due on that date (see Note
      22).




F-15




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**









The
      Convertible Debt is convertible into shares of the Company’s common stock at the
      fully diluted, post-reverse merger valuation at Closing of $16 million. The
      price per share is equal to $16 million divided by the number of outstanding
      shares (13,596,998) of the post reverse-merger on a fully-diluted basis
      (“Original Purchase Price”). This conversion price of approximately $1.17675 per
      share would result in the issuance of approximately 6.4 million shares upon
      conversion of the debt and is subject to weighted-average, anti-dilution
      protection on all subsequent financings by the Company.





The
      agreement also required the Company to meet certain requirements such as
      effecting a reverse stock split and redomiciling the Company in Delaware which
      were completed in March 2007.





Financing
      fees in connection with this debt approximated $840,000 which are being
      amortized over the term of the convertible debt. For the year ended June 30,
      2007, the amortization of financing costs approximated $308,000.





*Warrants*





In
      addition, the Investor received warrants aggregating 22% of the shares issuable
      on conversion to purchase 1,402,153 shares of common stock at an exercise price
      of approximately $1.17675 per share. The warrants have a five year term which
      were valued at the grant date at approximately $635,000 and were recorded as
      a
      debt discount. The fair value was calculated using the Black-Scholes model
      with
      an expected volatility of 40% and a risk free interest rate of 4.91%. The debt
      discount will be charged to operations over the life of the underlying debt
      with
      a corresponding increase to the Convertible Debt. For the year ended June 30,
      2007, approximately $226,000 was charged to operations.





On
      October 17, 2006, the Company issued additional warrants to purchase an
      aggregate of 318,672 shares of the Company’s common stock to the Investor at an
      exercise price of approximately $1.17675 per share. The warrants expire on
      August 9, 2011. These warrants were issued in exchange for the Investor deleting
      a provision in the original Securities Purchase Agreement whereby the Investor
      would be granted additional future warrants based on the Company not meeting
      certain earnings targets. The warrants were valued at the grant date at
      approximately $161,000. The fair value was calculated using the Black-Scholes
      model with an expected volatility of 42% and a risk free interest rate of
      4.70%.





In
      addition, the Investor was granted the right to receive potential further
      additional warrants to purchase an aggregate of 318,672 shares of the Company’s
      common stock at an exercise price of $1.17675 per share if the Company did
      not
      pass the testing requirements of a prospective customer by March 31, 2007.
      On
      March 31, 2007, these warrants were issued as the testing requirements were
      not
      met until May 2007. These warrants will expire on August 9, 2011. These warrants
      were valued at the grant date at approximately $166,000. The fair value was
      calculated using the Black-Scholes model with an expected volatility of 41%
      and
      a risk free interest rate of 4.50%. The value of the additional warrants was
      included as debt discount amortization expense.





*Registration
      Rights*





The
      Company signed a Registration Rights Agreement with the Investor on August
      9,
      2006 whereby the Company is obligated to register the resale of its shares
      of
      common stock issuable upon the exercise of the warrants and have the
      registration statement declared effective by the Securities and Exchange
      Commission. On September 28, 2007, the Investor agreed to extend the required
      date for the initial registration statement to be declared effective from
      October 1, 2007 to a date to be established as long as the Company files an
      amended SB-2A addressing the SEC comments and responds to the current comment
      letter by October 31, 2007 (see Note 22). If the registration statement is
      not
      declared effective within the time frame described, or if the registration
      is
      suspended, the Company will be obligated to issue additional warrants
      (“Liquidated Damages Warrants”) to the Investor. Initially, the Company will be
      obligated to issue to the Investor 2% of the number of shares of common stock
      issuable to the Investor upon conversion of the Convertible Debt or
      approximately 127,000 shares. In addition, for each full thirty (30) day period
      after the date that the registration statement has not been declared effective,
      the Company is obligated to issue to the Investor warrants exercisable for
      a
      number of shares of common stock equal to 2% percent of the number of shares
      of
      common stock issuable to the Investor (see Note 22).




F-16




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**










**11.**
            **Capital
                lease obligation**





Capital
      lease obligation consists of the following as of June 30, 2007:





**June
                  30,**
                **2007**Capital
                lease obligation
            
            $
            251,458Less:
                current liabilities
            
            
            167,442$
            84,016




On
      September 20, 2006, the Company entered into a 30-month manufacturing agreement
      with an outside contractor located in Germany (see Note 19). The agreement
      calls
      for the Company to make payments in the aggregate of approximately $780,000
      for
      preproduction molds and $3.2 million for the required production molds. Title
      of
      the molds will transfer to the Company upon final payment. As of June 30, 2007,
      the preproduction molds were complete and placed in service. The Company paid
      an
      aggregate of approximately $529,000 for the preproduction molds prior to their
      completion and financed the balance of approximately $251,000 under the terms
      of
      a capital lease obligation. The total amount of the lease, including interest,
      is to be paid monthly in varying installments beginning in July 2007 through
      March 2009.




**12.**
            **Derivative
                financial instruments**





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





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





Using
      the
      Black-Scholes option-pricing method, the value of the derivative financial
      instruments are reassessed at each balance sheet date and marked to market
      as a
      derivative gain or loss until exercised or expiration. Upon exercise of the
      derivative financial instruments, the related liability is removed by recording
      an adjustment to additional paid-in-capital. The derivative financial
      instruments had a value of approximately $2,467,000 at June 30, 2007. The
      derivative loss for the year ended June 30, 2007 approximated
      $992,000.




F-17




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







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





*License
      Agreement*





In
      August
      2001, SCG entered into a license agreement (“License Agreement”) with Anton
      Brugger for the exclusive right to manufacture and sell the dual dispenser.
      In
      January 2003, the License Agreement was amended and restated between SCG (the
      “Licensee”) and Gerhard Brugger (the “Licensor”, an assignee of Anton Brugger).
      The term of the license will be in effect for the next twenty two years. Gerhard
      Brugger is also one of the Company’s major stockholders.





The
      License Agreement calls for royalties to be paid to the Licensor 30% of all
      gross revenues with respect to sublicensing agreements in which the Licensee
      does not manufacture the dispenser. With respect to the sale of the dispenser
      and products derived thereof, rates will vary between 5% and 8.5%.





To
      maintain its exclusive rights, the Licensee will also be obligated to pay a
      “Minimum Royalty” which is paid in monthly equal installments in advance.
      Aggregate future minimum royalty payments are as follows:





**For the year**
              **ending June 30,**
            
            **Minimum**
              **Royalty**2008
            
            $
            450,0002009
            
            
            525,0002010
            
            
            575,0002011
            
            
            625,0002012
            
            
            675,0002013
                and thereafter
            
            
            12,650,000$
            15,500,000





In
      addition to the minimum royalty payment, the Licensee will also pay to the
      Licensor $7,000 per month from inception of the License Agreement through June
      2004 and $12,500 per month from July 2004 through the duration time that
      technical support is required by the Licensee. The payments for technical
      support may be terminated at any time by either party upon written notice
      delivered at least three months prior to termination.





Royalty
      and technical support expenses aggregated $500,000 and $400,000 for the years
      ended June 30, 2007 and 2006, respectively. **** At
      June
      30, 2007, the Licensor was due approximately $432,000 in past due
      royalties.





On
      September 18, 2007, the Licensor signed a waiver of defaults whereby royalty
      payments in arrears due through June 30, 2007 of $432,000 would be paid as
      follows: 5% of any proceeds received from a capital raise between $1 million
      and
      $2 million and 10% of everything over $2 million in proceeds until the entire
      amount of the past due royalty is paid in full. In calculating the proceeds
      of a
      capital raise, (i) any bridge loans raised prior to completion of a capital
      raise and to be and actually paid out of the capital raise, and (ii) any debt
      of
      the Company converted into the capital raise will not be deemed to be proceeds.
      The Company will have the right to pre-pay any of the past due royalties at
      any
      time without premium or penalty (see Note 22).





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




F-18




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







*Sublicense
      Agreement*





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




**14.**
            **Customer
                advance**





On
      September 29, 2006, the Company received $700,000 from a customer in the
      consumer products industry in exchange for the Company’s undertaking to deliver
      pre-production samples of a specially designed dispenser and to fund
      pre-production tooling and mold expenses. The Company had no obligation to
      repay
      the advance, if the samples did not satisfy the customer’s requirements. In May,
      2007, the customer approved the pre-production samples and on May 14, 2007
      advanced the Company an additional $1.0 million to fund pre-production tooling
      and mold expenses.





The
      $1.7
      million advance will be applied against future revenues as a credit against
      shipments commencing six months after the date of the first shipment and based
      on repayment at a rate of a certain amount per piece for all products shipped.
      In the event of a default by the Company, the customer may, at its discretion,
      recover the remaining amount of the advance as a credit against other product
      purchases from the Company or will be due from the Company under the terms
      of a
      promissory note to be issued at the time of default. On July 10, 2007 Versadial
      entered into a two-year Master Supply Agreement with this customer (see Note
      22).




**15.**
            **Other
                related party transactions**





*Consulting
      Agreement*





In
      April
      2005, the Company entered into a three-year consulting agreement with an entity
      owned by a stockholder which provides for an annual fee of $65,000 in the first
      year and $50,000 the following two years. The fees are payable as follows:
      $15,000 upon execution of the agreement and quarterly thereafter commencing
      with
      equal installments payable on June 30, September 30, December 31 and March
      30
      thereafter.





*Leases*





Effective
      May 1, 2004, the Company entered into a lease agreement for its corporate
      offices and started to sublease office space to various related entities (See
      Note 19, *Lease
      Agreement* ).
      As of
      June 30, 2007, the Company had sublease income receivable of approximately
      $9,000 due from an affiliate. This affiliate consists of an entity owned by
      a
      stockholder and director of the Company.





*Due
      to Related Parties*





Due
      to
      related parties of approximately $196,000 at June 30, 2007 consists of unpaid
      payroll, consulting fees and other miscellaneous expenses.




F-19




**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







*Sublicense
      Agreement*





On
      June
      21, 2006, the Company, entered into a Sublicense Agreement (the "Sublicense
      Agreement") with VDM Holdings, LLC (“VDM”), an entity majority owned by the
      stockholders and officers of the Company. The Sublicense Agreement grants VDM
      the exclusive right to exploit and market the dispensers through direct response
      marketing and non-exclusively through other selected channels of distribution
      in
      consideration of a 3.5% royalty based on sales and the purchase of certain
      minimum quantities on an annual basis. The minimum order quantities to maintain
      exclusivity are 40,000 dispensers for the period of inception through December
      31, 2006, 75,000, and 115,000 for the calendar years 2007 and 2008 respectively
      and a 5% increase annually thereafter for the term of the Sublicense Agreement.
      The Sublicense Agreement has a term which is identical to the term of that
      certain Amended and Restated License Agreement dated as of January 1, 2003
      between Gerhard Brugger and SCG which was subsequently sublicensed to the
      Company (see Note 13). As of June 30, 2007, VDM owes approximately $50,000
      to
      the Company.




**16.**
            **Stockholders’
                deficit**





*Capitalization*





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





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





*Issuance
      of Common Stock*





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





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




*Loss
      Per Share*





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




F-20


**VERSADIAL,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







At
      June
      30, 2006, basic loss per share does not include approximately 715,154 shares
      which were redeemable by the shareholders as described below. At June 30, 2007,
      the basic loss per common share does not include an aggregate of 3,778,834
      warrants outstanding and 6,373,415 shares issuable under the terms of
      convertible debt (see Note 10). The effect of these securities would be
      antidilutive. These warrants are currently exercisable at prices that range
      between $.94-$2.475 and expire between August 9, 2011 and February 1, 2012.
      At
      June 30, 2007, diluted loss per common share includes 1,350,652 shares as
      calculated using the treasury stock method for proceeds that would have been
      received from the exercise of convertible debt and warrants as if they were
      used
      to purchase common stock at the average market price during the
      period.





*Common
      Stock Subject to Redemption*





In
      April
      2005, $825,000 of SCG convertible debt was converted into 8.25 membership
      interests at a conversion ratio of 1 interest for each $100,000 of convertible
      debt. The debt holders were also issued an additional 16,500 common shares
      of
      Innopump stock in connection with the convertible notes. On August 9, 2006,
      the
      date of the merger, these shares were exchanged for 715,154 shares of the
      Company’s common stock.





A
      provision in the May 25, 2005 Asset Purchase Agreement between Innopump and
      SCG
      provided the prior debt holders a put option whereby they could sell their
      Innopump shares, which were subsequently exchanged for the Company’s shares,
      back to the Company between September 30, 2006 and October 30, 2006, at an
      amount equal to the principal and interest which would have been due upon
      conversion of the original debt. The aggregate amount of $887,403 (which
      includes $62,403 in accrued interest through the conversion date) was included
      on the balance sheet as a liability through the quarter ended September 30,
      2006. The put options expired on October 30, 2006 and none of the shares were
      redeemed. The aggregate amount of the put options is included in additional
      paid-in capital subsequent to October 30, 2006.




**17.**
            **Stock
                warrants**





The
      following table summarizes the warrants for common stock granted for the period
      from July 1, 2006 through June 30, 2007:


Weighted
                  AverageTotal number of
              
              Weighted average
              
              Remaining Contractualcommon shares
              
              Exercise Price Per Share
              
              LifeWarrants
                  outstanding at July 1, 2006
              
              
              -
              
              
              -Warrants
                  granted
              
              
              3,778,834
              
              $
              1.75
              
              
              4.25
                  yearsWarrants
                  outstanding at June 30, 2007
              
              
              3,778,834
              
              $
              1.75




All
      warrants are exercisable at June 30, 2007.





F-21




**VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**18.**
            **Income
              taxes**




Income
      taxes have been recorded under SFAS No. 109, "Accounting for Income Taxes."
      Deferred income taxes reflect the net tax effects of (a) temporary differences
      between the carrying amounts of assets and liabilities for financial reporting
      purposes and the amounts used for income tax purposes, and (b) operating loss
      carry forwards.





At
      June
      30, 2007, Versadial had allowable net operating loss (“NOL”) carry-forwards for
      federal and state purposes approximating $8.9 million. These losses are
      available for future years and expire through June 2027. Utilization of these
      losses may be limited if the Company undergoes an ownership change pursuant
      to
      Internal Revenue Code Section 382.





The
      Company has taken a 100% valuation allowance against the deferred tax asset
      attributable to the NOL carry-forwards of $3.6 and $1.4 million at June 30,
      2007
      and 2006, respectively, due to the uncertainty of realizing the future tax
      benefits. The increase in valuation allowance of $2.2 million is primarily
      attributable to the Company’s net operating loss incurred during the year ended
      June 30, 2007, net of certain temporary differences.





Ownership
      changes resulting from the Company’s issuance of capital stock (see Note 2) may
      limit the amount of net operating loss carryforwards that can be utilized
      annually to offset future taxable income. The amount of the annual limitation
      is
      determined based upon the Company’s value immediately prior to the ownership
      change. Subsequent significant changes in ownership could further affect the
      limitation in future years. The amount of such limitation, is any, has not
      been
      determined.





A
      reconciliation of income tax expense computed at the U.S. federal, state and
      local statutory rates and the Company’s effective tax rate is as
      follows:





**Year
                Ended**
            
            **Year
                Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**Statutarory
                federal income tax expense
            
            
            (34
            )%
            
            (34
            )%State
                and local (net of federal benefits) income tax
            
            
            (6
            )
            
            (6
            )Valuation
                allowance
            
            
            28
            
            
            40Temporary
                differences
            
            
            12-
            %
            
            -
            %




F-22




**VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**







**19.**
            **Commitments
              and contingencies**




*Lease
      Agreement*





In
      April
      2004, the Company entered into a five-year lease agreement through April 30,
      2009 for rental of office facilities. The lease provides for annual rent of
      approximately $137,000 commencing August 1, 2004 and escalations for cost of
      living adjustments and for the Company’s proportionate share of increases in
      real estate taxes and maintenance costs.





Aggregate
      future minimum rental payments are as follows:





**Year
                ending June**
              **30,**
            
            **Minimum Rent
                Payments**2008
            
            
            137,0002009
            
            
            114,000$
            251,000




Gross
      rent expense aggregated approximately $147,000 and $143,000 for the years ended
      June 30, 2007 and 2006, respectively.





The
      Company subleases on a monthly basis a portion of the facility to an entity
      affiliated with a director and stockholder of the Company. Sublease income,
      inclusive of utilities reimbursements approximated $28,000 and $29,000 for
      the
      years ended June 30, 2007 and 2006, respectively.





*Manufacturing
      Agreement and Equipment Purchase*





On
      September 20, 2006, the Company entered into a 30-month manufacturing agreement
      with an outside contractor located in Germany. The agreement calls for the
      contractor to develop certain production molds for the Company for a new size
      (20 millimeter) dispenser. The Company will place all customer orders relating
      to the product with the contractor until at least eighty percent (80%) of the
      manufacturer’s production capacity is utilized based on five (5) days per week,
      three (3) shifts per day. The agreement calls for the Company to make payments
      in the aggregate of approximately $780,000 for preproduction molds and $3.2
      million for the required production molds. Title of the molds will transfer
      to
      the Company upon final payment. As of June 30, 2007, the preproduction molds
      were complete and placed in service. The Company paid an aggregate of
      approximately $529,000 for the preproduction molds prior to their completion
      and
      financed the balance of approximately $251,000 under the terms of a capital
      lease obligation (see Note 11). The total amount of the lease, including
      interest, is to be paid monthly in varying installments beginning in July 2007
      through March 2009. As of June 30, 2007, the Company has made payments of
      approximately $1.9 million for the production molds which is included in
      deposits on production equipment (see Note 7 and 11). Upon
      completion of construction of the production molds, approximately $1.2 million
      of balance will be financed through a capital lease to be paid monthly through
      March 2009.





In
      conjunction with the above manufacturing agreement, the Company also ordered
      related assembly equipment from a vendor in the amount of approximately $1.2
      million. The Company has made payments of approximately $401,000 for the
      equipment which is included in deposits on production equipment (see Note
      7).





F-23




**VERSADIAL,
          INC.**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**







*Supply
      and Tooling Amortization Agreement*





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





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





These
      Agreements provide that the Supplier will fund the estimated $4.0 million cost
      of the injection molding, tooling and automatic equipment necessary to produce
      the products to be purchased by the Company. Although financed by the Supplier,
      the equipment will be owned by the Company. The Company will capitalize the
      related equipment at inception of production which is anticipated to begin
      in
      the fourth calendar quarter of 2007.





The
      cost
      of the tooling and automatic equipment, with a three (3%) percent per annum
      interest factor, will be amortized over a period of 18 months against dispensers
      purchased and delivered to the Company pursuant to the Supply Agreement, with
      a
      per unit amortization cost included in the cost price for the dispensers. The
      Supply Agreement also contains normal commercial terms, including a
      representation by the Supplier as to the dispensers being produced in accordance
      with specifications, indemnification of the Supplier by the Company against
      intellectual property infringement claims of third parties, insurance,
      confidentiality and termination provisions, including a right of optional
      termination by Company upon payment of all unamortized tooling and equipment
      costs plus a penalty, the amount of which varies based on the date of
      termination.





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




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





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





*Concentrations
      of Credit Risk*





Financial
      instruments which potentially subject the Company to concentrations of credit
      risk consist of the Company’s cash and accounts receivable arising from its
      normal business activities. The Company routinely assesses the financial
      strength of its customers and third party payers and, believes that its accounts
      receivable credit risk exposure is limited. The Company places its cash with
      high credit quality financial institutions. The amount on deposit in any one
      institution that exceeds federally insured limits is subject to credit risk.
      The
      Company does not require collateral or other security to support financial
      instruments subject to credit risk.





F-24




**VERSADIAL,
          INC.**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**







**20.**
            **Major
              customers and segment
              information**




*Major
      customers*





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





**Year
                ending**
              **June
                30, 2007**
            
            **Year
                ending**
              **June
                30, 2006**Customer
                A
            
            $
            958,000
            
            $
            72,000Customer
                B
            
            
            385,000
            
            
            67,000Customer
                C
            
            
            
            
            
            27,000Customer
                D
            
            
            
            
            
            26,000$
            1,343,000
            
            $
            192,000





Accounts
      receivable from one customer for 2007 aggregated approximately $44,000 at June
      30, 2007.





*Segment
      information*





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




United
                  States
              
              $
              1,070,762Other
                  countries
              
              
              4,950,992$
              6,021,754


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





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




Year
                  ending
              
              Year
                  endingJune
                  30, 2007
              
              June
                  30, 2006United
                  States
              
              $
              1,367,571
              
              $
              144,617Other
                  countries
              
              
              28,680
              
              
              78,787$
              1,396,251
              
              $
              223,404




**21.**
            **Employee
                benefit plan**





The
      Company maintains a 401(k) plan that allows all full-time employees to
      participate immediately in the plan. The plan is funded 100% by employee
      contributions as the Company does not make any matching
      contributions.




F-25


**VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**







**22.**
            **Subsequent
              events**




*Amendment
      to the Credit Agreement*





The
      Credit Agreement dated February 1, 2007 (see Note 9) was amended on July 9,
      2007
      to reflect the increased amount of the line of credit available to the Company
      from $3.0 million to $4.0 million. On July 10, 2007, Versadial drew down the
      additional $1.0 million available under the terms of the amended Credit
      Agreement





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





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





*Debt
      and Interest Conversions*





In
      August, 2007, a total of 1,769,724 shares of common stock were issued upon
      the
      conversion of debt and interest payments based upon the following transactions.
      First, the Lender agreed to convert $2.0 million in principal amount of the
      Company’s secured revolving credit notes (see Note 9) at a conversion price of
      $1.7662 per share for an aggregate of 1,132,375 shares. Second, the Investor
      agreed to convert $750,000 in interest due on August 9, 2007 on the Company’s
      Convertible Debt (see Note 10) at a conversion price of $1.1768, equal to the
      conversion price of the underlying convertible notes for an aggregate 637,349
      shares.





*Securities
      Purchase Agreement*





On
      August
      30, 2007, with the consent of the Investor, the Company entered into a
      Securities Purchase Agreement whereby it could sell 8% promissory notes
      (“Notes”) in the principal amount of up to $2.5 million at a price of ninety
      seven (97%) percent of the principal amount of Notes. The Notes are due upon
      the
      earlier of (a) six months following the final closing of the Notes, (b) the
      date
      on which the Company receives no less than $4.0 million in gross cash proceeds
      from the closing of a private offering of its equity securities or (c) on the
      date the Company closes on a rights offering. As of October 4, 2007, the Company
      has received net proceeds of $1.1 million in regard to the Notes of which
      $900,000 was received from a related party.





*Registration
      Rights Agreement*





On
      August
      6, 2007, the Investor agreed to waive the Liquidated Damages Warrants which
      were
      to be issued for the Company’s failure to have the Registration Statement
      declared effective by the original due date and failure to include all of the
      Investor’s securities in the Registration Statement. The Investor agreed to
      extend the effective date to October 1, 2007 and to allow the Company to file
      two subsequent separate Registration Statements no earlier than six months
      after
      the initial effective date of the first filing. On September 28, 2007, the
      Investor agreed to extend the required date for the initial Registration
      statement to be declared effective again to a date to be established as long
      as
      the Company files an amended SB-2A addressing the SEC comments and responds
      to
      the current comment letter by October 31, 2007.





F-26




**VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


*License
      Agreement*





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





In
      addition, the licensor agreed to accept royalties as calculated on actual
      shipments after June 30, 2007 through June 30, 2008 to be paid monthly and
      the
      cumulative difference between minimum monthly royalties and actual monthly
      royalties to be paid no later than June 30, 2008 unless the Licensor and the
      Company have entered into a written agreement prior to that date providing
      for
      an alternate payment schedule; and if the past due royalties are not fully
      paid
      prior to June 30, 2008, then the parties agree to, in good faith negotiations,
      negotiate a further arrangement to fully repay any such balance based on cash
      flow projections prior to June 30, 2008 as long as the technical consultant
      payments are made in accordance with the License Agreement (see Note
      13).





*Sublicense
      Agreement*





On
      September 18, 2007 the sublicense agreement between SCG and the Company was
      amended as to the payment date of the sublicense fee in the aggregate payment
      of
      $300,000 due on September 30, 2007. The due date was extended to December 31,
      2007 (see Note 13).





*Customer
      Master Supply Agreement*





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





Pursuant
      to the terms of the Credit Memo previously entered into with Avon, the Company
      will repay Avon’s $1.7 million advances (see Note 14) by a credit against the
      purchase price of products sold to Avon pursuant to the Master Supply Agreement
      and pursuant to other agreements that may be entered into between Versadial
      and
      Avon, commencing six months after the date of the first shipment of products
      to
      Avon. In the event of a default by the Company, Avon may, at its discretion,
      recover the remaining amount of the advance as a credit against other product
      purchases from us or the amount will be due under the terms of a promissory
      note
      to be issued at the time of default. The Company anticipates that the exclusive
      supply relationship with Avon will consume all available manufacturing capacity
      of the specially designed pump through the first year. The Company anticipates
      production to begin in late 2007.




F-27




**SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the Company has duly caused this report to be signed on its behalf
        by the
        undersigned, thereunto duly authorized on the 23rd day of January
        2008.
  VERSADIAL,
                    INC./s/
                    Geoffrey DonaldsonBy:
                Geoffrey
                    Donaldson, Principal Executive and Financial
                    Officer/s/
                    Karen NazzarenoBy:
                Karen
                    Nazzareno,Controller
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below on January 23rd, 2008 by the following persons in the capacities
        indicated:
  /s/
                    Geoffrey Donaldson
                
                Chairman
                    of the BoardGeoffrey Donaldson
                
                Chief
                    Executive Officer/s/ Robin BartoshRobin Bartosh
                
                Director/s/ Edward P. BondEdward P. Bond
                
                Director/s/
                    Thomas Coyle
                
                DirectorThomas
                    Coyle/s/
                    Richard Harriton
                
                DirectorRichard
                    Harriton/s/
                    Michael W. Hawthorne
                
                DirectorMichael
                    W. Hawthorne
  15