**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-KSB/A**


**Amendment
      no. 2**





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 of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)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). Yeso 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 (Amendment no. 2) 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. 2), in
      response to comments from the Securities and Exchange Commission related to
      our
      Amendment no. 1 to the Annual Report on Form 10-KSB for the fiscal year ended
      June 30, 2007 filed on January 23, 2008.









**Versadial,
      Inc. and Subsidiaries**


**Form
      10-KSB for the Year Ended June 30, 2007**





**Table
      of Contents**





****
            **PAGE****PART
                I**
            ****
            ****
            ****
            ********
            ****
            ****
            ****
            ********
            **ITEM
                1**
            **Description
                of Business**
            **1**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                2**
            **Description
                of Properties**
            **14**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                3**
            **Legal
                Proceedings**
            **14**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                4**
            **Submission
                of Matters to a Vote of Security Holders**
            **14**
            ********
            ****
            ****
            ****
            ********
            **PART
                II**
            ****
            ****
            ********
            ****
            ****
            ****
            ********
            **ITEM
                5**
            **Market
                for Common Equity and Related Stockholder Matters**
            **15**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                6**
            **Management’s
                Discussion and Analysis or Plan of Operation**
            **15**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                7**
            **Financial
                Statements**
            **27**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                8.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure**
            **28**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                8A.**
            **Controls
                and Procedures**
            **28**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                8B.**
            **Other
                Information**
            **29**
            ********
            ****
            ****
            ****
            ********
            **PART
                III**
            ****
            ****
            ********
            ****
            ****
            ****
            ********
            **ITEM
                9.**
            **Directors,
                Executive Officers, Promoters and Control Persons and Corporate
                Governance; Compliance with Section 16(a) of the Exchange
                Act**
            **30**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                10.**
            **Executive
                Compensation**
            **32**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                11.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**
            **33**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                12.**
            **Certain
                Relationships and Related Transactions and Director
                Independence**
            **36**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                13.**
            **Exhibits**
            **40**
            ********
            ****
            ****
            ****
            ********
            **ITEM
                14.**
            **Principal
                Accountant Fees and Services**
            **42**
            ********
            ****
            ****
            ****
            ******SIGNATURES**
            ****
            **43**










**PART
      I**


**Item
      1.**  **** **DESCRIPTION
      OF BUSINESS**





FORWARD-LOOKING
      STATEMENTS





All
      statements other than statements of historical fact included in this report
      on
      Form 10-KSB (“report”) including, without limitation, statements under,
“Management’s Discussion and Analysis or Plan of Operation” regarding our
      financial position, business strategy and the plans and objectives of management
      for future operations, are forward-looking statements. When used in this report,
      words such as "anticipates", "believes", "could", "estimates", "expects", "may",
      "plans", "potential" and "intends" and similar expressions, as they relate
      to
      the Company or its management, identify forward-looking statements. Such
      forward-looking statements are based on the beliefs of the Company's management,
      as well as assumptions made by and information currently available to the
      Company's management. Among the factors that could cause actual results to
      differ materially are the following: the  effect
      of
      business and economic conditions; the impact of competitive products and their
      pricing; unexpected manufacturing or supplier problems; unforeseen difficulties
      and delays in the production of molds and other product development programs;
      and the risk factors reported from time to time in the Company's SEC reports.
      The Company undertakes no obligation to update forward-looking statements as
      a
      result of future events or developments.




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. On August
      9,
      2006, Innopump, Inc. d/b/a Versadial, a Nevada Corporation (“Innopump”) and
      certain of Innopump’s shareholders executed and closed on an Agreement and Plan
      of Merger (“Merger Agreement”) by and among those parties, us and our
      subsidiary, Pump Acquisition Corp., ("PAC"). Pursuant to the Merger Agreement,
      we issued 12,625,243 shares of our common stock to Innopump’s shareholders in
      consideration of Innopump merging with and into PAC and becoming a wholly-owned
      subsidiary of ours ("Merger"). The issuance of the 12,625,243 shares (as rounded
      up) of our common stock resulted in our stockholders retaining approximately
      6.75% (914,228 shares) of the outstanding stock and Innopump stockholders
      receiving approximately 93.25% of the outstanding stock on a pre-diluted basis.
      The Merger was accounted for as a reverse merger (recapitalization) with
      Innopump deemed to be the accounting acquirer, and us as the legal acquirer.
      Accordingly, the historical financial information presented in our financial
      statements is that of Innopump as adjusted to give effect to any difference
      in
      the par value of ours and Innopump’s stock with an offset to capital in excess
      of par value. The basis of the assets, liabilities and retained earnings of
      Innopump, the accounting acquirer, have been carried over in the
      recapitalization. Upon the closing of the Merger, we became a manufacturer,
      developer and seller of proprietary, variable blend pump dispensers. On March
      2,
      2007, we changed our name to Versadial, Inc. to capitalize on the awareness
      of
      our trademarked name for our products in the marketplace. As used in this
      report, the term “Versadial” or “Company” includes us and our Innopump
      subsidiary.





Prior
      to
      the transaction, we were a development stage company with limited operations
      and
      revenues and only nominal assets. Our intended purpose was to provide website
      users with the ability to search a database that contained detailed information
      about the automobile industry, new and used car sales as well as a parts
      database and extended warranty information from around the world. The service
      was intended to offer Internet users a quick and easy way to search for
      automobile related needs according to their interests via the Internet. That
      business was discontinued as of the closing of the Merger.




1




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.





Innopump,
      our wholly owned subsidiary, holds the exclusive worldwide license for a
      patented dual-chambered variable dispensing system for all categories of use,
      marketed under the registered trademark "Versadial ® ".
      The
      patented system utilizes multiple volumetric pumps, controlled by a rotating
      head and disc system, providing for the dispensing of precise fixed or variable
      ratios of two 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.




History
      and Background





Innopump
      was incorporated under the laws of the State of Nevada on April 1, 2005. On
      May
      1, 2005, Sea Change Group, LLC, a privately held New York limited liability
      company (“SCG”) (the “Sub-licensor”) entered into a sub-license agreement with
      Innopump (the “Sub-licensee”) whereby SCG assigned to Innopump 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 (the
      “License Agreement”). In consideration for the assignment and patent rights
      thereunder, Innopump agreed to pay SCG a sublicense fee of $600,000. In
      addition, Innopump agreed to pay the royalties due under the original Amended
      and Restated License Agreement either directly to the original licensor or
      to
      SCG. Innopump 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 of $450,000, with $300,000 due on December 31, 2007, and $150,000
      due on May 1, 2008. On August 11, 2006 in conjunction with the merger, SCG
      was
      paid $150,000 as per the terms of the agreement. The Sub License is further
      described below under “Intellectual Property.”





On
      May
      25, 2005, Innopump acquired all of the assets and assumed certain liabilities
      of
      SCG.


This
      transaction between Innopump and SCG, which are 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 us, Innopump’s financial statements were
      prepared as if the transaction had occurred at the beginning of the periods
      and
      present the financial data of previously separate entities.





We
      maintain our principal offices at 305 Madison Avenue, Suite 4510, New York,
      New
      York 10165. Our telephone number at that address is (212) 986-0886 and our
      internet address is www.versadialworld.com.




2




Our
      Current Business





Innopump
      holds the exclusive worldwide license for a patented dual-chambered variable
      dispensing system for all categories of use, 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 two 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 two different lotions, gels,
      creams, and liquids, or any combination thereof. Please refer to “Intellectual
      Property” below for a description of the License and Sub-License
      Agreement.





For
      many
      years, consumer packaged goods marketers and manufacturers have been pursuing
      packaging techniques that offered greater functionality. In particular, many
      manufacturers attempted to develop products that would provide “customizable”
formulas as a means for differentiation and claimed competitive superiority.





In
      addition to customizable packaging there has been an increasing demand for
      dual
      chamber dispensers that segregate ingredients and keep “active ingredients” and
“activators” separate until application (hair color, adhesives, etc.). Although
      there have been several entries into the fixed ratio market, management believes
      none have offered the features of flexibility and cost advantage of
      Versadial’s ® package.





We
      believe that there are no known manufacturers of affordable, precision, variable
      strength dispensers for consumer packages that are competitive to
      Versadial’s ® .
      Conventional fixed ratio dispensers are not able to satisfy consumer and
      marketer desire for customization and ingredient segregation. We believe the
      “fixed ratio” dispensers currently in the market limit the marketer’s ability to
      present a package customized to line image, lack comparable accuracy in
      dispensing and do not provide variable dispensing. Versadial ® packages
      meet these requirements.





Currently,
      we have many variations of the Versadial ® product
      varying in size, nozzle and formula selector:




·
            Dispensers:
                Dispensing heads currently come in three sizes, each size providing
                different dosage per stroke. Additional sizes can be developed. Examples
                of applications are listed but are not intended to be comprehensive,
                as
                Versadial technology is suitable to any product category within which
                a
                blending of different ingredients upon application, or usage, is
                desired:





o
            Small
                (20mm in diameter) – dosage per stroke .015ml to .030 ml; suitable
                for lipstick, eye shadow, make-up, skincare, oral care, sun care,
                adhesives, etc.;


o
            Medium
                (40mm in diameter) – dosage per stroke .2ml to .25ml; suitable for
                skin care, make-up, sun care, oral care, lubricants, adhesives,
                etc.;


o
            Large
                (49mm in diameter) – dosage per stroke .65ml to 1.0ml; suitable for
                hair care, sun care, body care, food products, skin care,
                etc.





3




The
      following table reflects a sample of broad ranges of applications which are
      not
      all inclusive:





**VARIABLE**
              **STRENGTH**
            
            **VARIABLE**
              **SHADES**
            
            **VARIABLE**
              **SENSORY**
            
            **INGREDIENT**
              **SEGREGATION****BATH&BODY**
            Fragrance
                free
              to
              Scented
                Lotion
            
            Tinted
                Body
              Lotion
            
            Fresh
                to
              Sensual
              Scents
            
            Exfoliator/Moisturizer**SKIN
                CARE**
            Mild
                to Maximum
              Acne
                Care
            
            Tinted
              Moisturizer
            
            Cooling
                to
              Warming
            
            Fresh/Catalytic
              Actives**SUN
                CARE**
            SPF
                2 to 30+
            
            Tinted
              Bronzer
            
            Cooling
                Gel
            
            Self
                Tanner
              Activator**COLOR**
              **COSMETICS**
            Sheer
                to Opaque
            
            Foundation
              Light
                to Dark
            
            Multiple
              Fruit
                Flavors
            
            Lip
                Color/Fixative**HAIR
                COLOR**
            Demi
                to
              Permanent
            
            Tints
                and
              Rinses
            
            Heat
                Activated
            
            Developer/Pigment**HAIR
                CARE**
            Light
                to Firm
              Styling
            
            Purify
                to
              Moisturize
            
            Warming
              Treatment
            
            Shampoo/Conditioner**ORAL
                CARE**
            Mild
                to Strong Mouthwash
            
            Toothpaste
              Colors
            
            Peppermint
                to Spearmint
            
            Baking
                Soda/Peroxide**OTC**
            Gentle
                to Maximum
              Pain
                Relief
            
            Color
                Coded
              Cold
                Medicine
            
            Hot
                to Cold
            
            Menthol/Capsaicin**FOOD**
            Mild
                to Spicy
            
            Color
                Change
            
            Sweet
                to Sour
            
            Oil/Vinegar




·
            Nozzle
                options: The Medium and Large size dispensers come with options for
                single
                nozzle, dual nozzle, spray nozzle or extended
                spout;





·
            Dispensing
                Option Selector – Variable Ratio, Fixed Ratio and Multi Fixed
                Ratio.





We
      believe our products have applications in a variety of industries, including:





·
            Personal
                Care


·
            Over
                the Counter medications


·
            Household


·
            Pharmaceutical


·
            Automotive


·
            Industrial


·
            Home
                Improvement


·
            Food
                Packaging




Marketing
      and Distribution





We
      are
      engaged in the direct selling and marketing of our products and technology to
      large and small, global, national and regional consumer packaged goods
      companies.





Throughout
      the world, we call on major multi-nationals on a direct basis. We supplement
      our
      marketing efforts with distribution agreements and with agreements with
      different sales agents throughout the world.





Our
      marketing strategy is to introduce our products through major multi-nationals
      worldwide. Currently our products are used in products sold by Aveeno, a
      division of Johnson & Johnson; and Playtex, owner of Banana Boat, a suncare
      brand.




4




On
      July
      10, 2007 we entered into a Master Supply Agreement with Avon Products, Inc.
      (“Avon”). Pursuant to the Master Supply Agreement, over the term of the
      Agreement, we will furnish to Avon, and Avon will purchase from us, seventeen
      million units of certain of our products. The Agreement shall remain in effect
      through the second anniversary of the first shipment of such products in
      commercial production quantities.





Avon
      previously had advanced $700,000 to our subsidiary, Innopump, Inc., on September
      26, 2006 and an additional $1,000,000 to Innopump, Inc. on May 14, 2007 for
      funding pre-production tooling and mold expenses so that we could deliver
      pre-production samples to Avon for its inspection.





Pursuant
      to the terms of the Credit Memo previously entered into with Avon, we will
      repay
      Avon’s 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 us and Avon, commencing six months after the date
      of
      the first shipment of our products to Avon.




Manufacturing





We
      own a
      number of sets of molds and assembly tables used in the production and assembly
      of the parts for each size dispenser. We outsource the use of these assets
      to
      established injection molding parts manufacturers for parts production.
      Currently, all of the injection molders are located in Germany. Our assembly
      tables are located at an assembly production facility of Holzmann Montague
      in
      Marktoberdorf, Germany.





As
      a
      matter of corporate policy, we are seeking to enter into multi-year agreements
      with established manufacturers in both the USA and Europe, to enable us to
      outsource production while retaining control over the production assets, molds
      and assembly tables. In furtherance of this objective, we have already entered
      into the following agreements.





On
      September 20, 2006, we entered into a 30-month manufacturing agreement with
      Seidel GmbH & Co. (“Seidel”), 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 have agreed to 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 molds are being financed by the
      contractor pursuant to a lease agreement. We have agreed to pay the lease
      payments or reimburse the contractor for such payments based on the production
      schedule and lease term. Title to the molds will transfer to us upon final
      payment. The equipment is capable of producing fifteen (15) million units
      annually. We anticipate production to begin at Seidel in the fourth calendar
      quarter of 2007.




5




On
      April
      24, 2007, we entered into a Supply Agreement and a related Tooling Amortization
      Agreement with Alltrista Plastics Corporation d/b/a Jarden Plastics Solutions
      (“Jarden”), a contractor located in the United States. The Supply Agreement
      provides, among other things, that, over the five year term of the Agreement,
      we
      shall purchase from the Supplier no less than 100 million units of our 40
      millimeter and 49 millimeter dual chambered dispensing pumps and the Supplier
      will supply no less than twenty (20) million units annually. These Agreements
      provide that the Supplier will fund the 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 us. 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 pumps
      purchased and delivered to us pursuant to the Supply Agreement, with a per
      unit
      amortization cost included in the cost price for the pumps. We anticipate the
      facility becoming fully operational in calendar fourth quarter 2007. In
      September, 2007, Jarden began to manufacture molded parts but has not yet
      completed the construction of assembly equipment. We have received firm
      commitments from several customers for initial production of our 40 millimeter
      and 49 millimeter dual chambered dispensing pumps and we are currently involved
      in several development projects with multi-national companies which we believe
      will result in future orders or supply agreements during the next fiscal year.




We
      are
      currently seeking to finalize additional multi-year agreements with established
      manufacturers in both the USA and Europe, in addition to the agreements referred
      to above to enable us to outsource production while retaining control over
      the
      production assets, molds and assembly tables.





Competition




Although,
      we are not aware of any direct competition for our type of dual chamber variable
      dispensing product, there are other dispensing solutions available.




Other
      manufacturers within the sub-sector of dispensing valves, pumps and other
      dispensing systems are large multinational companies offering a range of
      products to all major personal care, pharmaceutical, OTC and food sectors.
      They
      include but are not limited to Owens-Illinois, Rexam plc., Aptar, Bespak, 3M,
      Calmar, Precision, Summit, Coster, Lindal and PAI Partners.




Other
      manufacturers within the personal care and food packaging sectors are large,
      well-financed, national and international manufacturers of caps, jars and
      bottles well as pumps and valves including but not limited to Owen-Illinois,
      Tetra Pak, Crown, Cork and Seal, Alcan, Rexam plc., Amcor Limited, Toyo Seikan,
      Ball, Compagnie de Saint-Gobain, and Alcoa.




Nearly
      all of the other manufacturers have longer operating histories, greater
      experience, greater name recognition, larger customer bases, greater
      manufacturing capabilities, and significantly greater financial, technical
      and
      marketing resources than we do. Because of their greater resources, other
      manufacturers are able to undertake more extensive marketing campaigns for
      their
      brands and products, and make more attractive offers to potential employees,
      retail affiliates, and others. Although, we believe our products are superior
      to
      any other product currently on the market, we cannot assure you that we will
      be
      able to compete successfully against our current or future competitors or that
      our business and financial results will not suffer from
      competition.




6




Principal
      Suppliers




Currently,
      we do utilize single source suppliers and manufacturers for several of our
      components, and are dependent on single sets of molds and assembly tables.
      Production delays do, and have, occurred as a result of this dependency. We
      are
      aggressively acting to expand capacity and eliminate dependency on single source
      assets, actions we plan to have in place shortly, including the manufacturing
      agreement described above with Seidel and the Supply Agreement described above
      with Jarden. Because we have no direct control over our third-party suppliers,
      interruptions or delays in the products and services provided by these third
      parties may be difficult to remedy in a timely fashion. In addition, if such
      suppliers are unable or unwilling to deliver the necessary components or
      products, we may be unable to redesign or adapt our technology to work without
      such raw materials or products or find alternative suppliers or manufacturers.
      In such events, we could experience interruptions, delays, increased costs,
      or
      quality control problems. Innopump presently designs, creates prototypes and
      assembles its products at subcontractor facilities located in Germany. Our
      principal raw materials include plastic resins (polypropylene, high density
      polyethylene, etc.) The prices for these raw materials are subject to market
      forces largely beyond our control, including energy costs, market demand, and
      freight costs. The prices for these raw materials have varied significantly
      in
      the past and may vary significantly in the future. We currently utilitze two
      major injection molders in Germany, Poloplast GmbH and Gepe-Geimuplast GmbH
      and
      one assembly facility, Holzmann Montague, also located in Germany. We have
      no
      written contracts with these suppliers. All orders are placed on an individual
      purchase order basis. We anticipate that during the fourth calendar quarter
      of
      2007, the majority of our manufacturing, including both the injection molding
      and assembly functions, will be outsourced to Jarden in the United States for
      the 40 millimeter and 49 millimeter dual chambered dispensing pumps and to
      Seidel in Germany for the new 20 millimeter dispensing pump. We also will retain
      the services of Holzmann Montague for development projects with new and existing
      customers, and possibly for assembly of foreign orders or additional production
      use if necessary.




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




We
      generated revenues from two customers during fiscal 2007 and four customers
      during fiscal 2006 aggregating approximately 96% and 86% of total revenues,
      respectively.




Intellectual
      Property





We
      rely
      on a combination of patent, trademark, copyright and trade secret protection
      laws in the United States and other jurisdictions, as well as confidentiality
      procedures and contractual provisions to protect our intellectual property
      and
      our brand. Our licensed product was issued U.S. Patent No. 6,464,107 on October
      15, 2002. The patent is owned by Gerhard Brugger, from whom through our
      sublicense we hold an exclusive license. We have the rights to any extensions
      or
      improvements to the patent under the terms of the license agreement to protect
      our core technologies. We also enter into confidentiality, non-compete and
      invention assignment agreements with our employees and consultants and
      nondisclosure agreements with third parties. “Versadial ® ”
is
      a
      registered trademark in the United States.




*License
      between SCG and Brugger*





In
      August
      2001, SCG entered into the 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 and Gerhard Brugger,
      the
      son of Anton Brugger (the “Licensor”). The term of the amended and restated
      license agreement remains in effect through December 31, 2024. Gerhard Brugger
      is also one of our major stockholders. Pursuant to our Sub-licence agreement
      with SCG, we agreed to make all payments due by the Licensee (SCG) to Licensor
      under the License Agreement.




7




The
      License Agreement calls for royalties to be paid to the Licensor of 30% of
      our
      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
      converted into the capital raise shall not be deemed to be proceeds. We shall
      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
      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.




8




*Sublicense
      Agreement with SCG*





On
      May 1,
      2005, SCG (the “Sub-licensor”) entered into a sub-license agreement with
      Innopump (the “Sub-licensee”) whereby SCG assigned to Innopump 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. The
      sub-license agreement transferred to Innopump the right to manufacture and
      distribute the dual dispenser. The sub-license agreement remains in effect
      through December 31, 2024. In consideration for the assignment and patent rights
      thereunder, Innopump agreed to pay SCG a sublicense fee in the aggregate of
      $600,000. In addition Innopump agreed to pay the royalties due under the
      original Amended and Restated License Agreement either directly to the original
      licensor or to SCG. Innopump 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 of $450,000, with $300,000 due on December 31,
      2007, and $150,000 due on May 1, 2008. On August 11, 2006 in conjunction with
      the merger, SCG was paid $150,000 as per the terms of the agreement .





We
      may at
      times be involved in litigation based on allegations of infringement or other
      violations of intellectual property rights. Furthermore, the application of
      laws
      governing intellectual property rights in foreign countries is uncertain and
      evolving and could involve substantial risks to us.




Government
      approval and regulation of the registrant’s principal products or
      services





There
      is
      no required government regulation with respect to our products at this time.
      While some applications which utilize our dispensing system may fall under
      the
      jurisdiction of the Food and Drug Administration (“FDA”), we are not currently
      manufacturing any such finished product and are thereby exempt from the FDA
      filing of any regulatory submissions and/or pre-market notification requirements
      (this would include 510K, NDA and PMA submission). With respect to registering
      the manufacturing facility with the FDA under the Code of Federal Regulations,
      21 CFR 820.1, Scope: Part A, it is stated that the regulation does not apply
      to
      manufacturers of component parts of finished devices. If at any time in the
      future we manufacture products which would require such filings or registration,
      we will take the appropriate steps to comply.





Costs
      and effects of compliance with environmental laws




We
      incurred no capital or other expense with respect to compliance with
      environmental laws to date.




Employees




Currently,
      we have 7 employees in the U.S., all of which are full time employees.
      Management believes that relations with its employees are good. In addition,
      we
      have 3 full time consultants overseas utilized for administration, operations
      and technical consulting.




RISK
      FACTORS





You
      should carefully consider the factors described below and other information
      contained in this report on Form 10-KSB (“Report”). If any of the following
      risks actually occurs, our business, financial condition or results of
      operations could be materially and adversely affected. In such case, the trading
      price of our common stock could decline, and you may lose all or part of your
      investment. This report also contains forward-looking statements that involve
      risks and uncertainties. Please refer to “Special Note Regarding Forward-Looking
      Statements” included elsewhere in this report.




9




**Our
      limited operating history makes it difficult to evaluate our future prospects
      and results of operations.**





We
      have a
      limited operating history. Our dispenser business conducted under the trademark
      Versadial ® commenced operations in 2002 and has yet to achieve profitability. Accordingly,
      you should consider our future prospects in light of the risks and uncertainties
      experienced by early stage companies in evolving industries. Some of these
      risks
      and uncertainties relate to our ability to:




•
            gain
                market acceptance for our products, including educating potential
                clients
                about the advantages of packaging their liquid products in our
                dispensers;





•  upgrade
      our technology to support additional research and development of new
      products.





•  respond
      to competitive market conditions;





•  respond
      to changes in our regulatory environment;





•  manage
      risks associated with intellectual property rights;





•  maintain
      effective control of our costs and expenses;





•  raise
      sufficient capital to sustain and expand our business; and





•  attract,
      retain and motivate qualified personnel.





If
      we are
      unsuccessful in addressing any of these risks and uncertainties, our business
      may be materially and adversely affected. We may not be successful in building
      our customer base and product line or the capital available to us may not be
      sufficient to fund current operations and the necessary capital expenditures
      until such time that our revenues increase. If we are unsuccessful in building
      our customer base or are unable to obtain additional financing on favorable
      terms there could be a material adverse effect on our financial position,
      results of operations and cash flows.





**We
      will need additional capital in order to continue our operations, which may
      not
      be available to us.**





For
      the
      foreseeable future, we intend to fund our operations and capital expenditures
      from limited cash flow from operations, our cash on hand, the net proceeds
      from
      our recent financings, including supplier financed equipment, and from
      additional financings. We believe we will need additional funds to continue
      our
      operations until such time revenues increase, for capital expenditures, to
      pursue business opportunities (such as expansion, acquisitions of complementary
      businesses or the development of new products or services), to react to
      unforeseen difficulties or to respond to competitive pressures. If additional
      financing is not available when required or is not available on acceptable
      terms, we may be unable to fund our expansion, successfully promote our current
      products, license new products or enhance our products and services, take
      advantage of business opportunities, or respond to competitive pressures, any
      of
      which could have a material adverse effect on our business and the value of
      your
      shares. If we choose to raise additional funds through the issuance of equity
      securities, you may experience significant dilution of your ownership interest,
      and holders of the additional equity securities may have rights senior to those
      of the holders of our common stock. If we obtain additional financing by issuing
      debt securities, the terms of these securities could substantially limit our
      flexibility in making business decisions, including the payment of
      dividends.




10




In
      order
      to purchase equipment or fund operations, we may issue additional debt
      instruments or preferred stock, which will have a senior claim on our assets
      in
      the event of a sale of assets. Debt service may cause a strain on our cash
      flow
      and impair our business operations.





**Our
      activities have not yet resulted in significant sales and have resulted in
      an
      accumulated deficit from inception to June 30, 2007 of approximately $14.8
      million.**





For
      the
      years ended June 30, 2007 and June 30 2006, we had net losses of $7.9 million
      and $3.2 million, respectively. For the years ended June 30, 2007 and June
      30,
      2006, we had negative cash flows from operations of $3.0 million and $2.1
      million respectively.





From
      our
      inception to June 30, 2007 our aggregate sales have been approximately $3.5
      million and we have incurred a net loss of approximately $14.8 million. While
      we
      have commenced sales of our products, in order to achieve and maintain
      profitability, we must, among other things, maintain and increase our customer
      base, increase our rate of growth, implement and successfully execute our
      business and marketing strategies, continue to develop and upgrade our
      technology, provide superior customer service, respond to competitive
      developments and attract, retain and motivate qualified personnel. We may not
      be
      successful in accomplishing all or some of these goals and our failure to do
      so
      could have a material adverse effect on our business, results of operations
      and
      financial condition.





**Our
      independent auditors have issued a qualified report with respect to our ability
      to continue as a going concern.**





Our
      independent public accountants have issued a report relating to our audited
      financial statements which contains a qualification with respect to our ability
      to continue as a going concern because, among other things, such ability is
      dependent upon our generating profits or obtaining the necessary financing
      to
      meet our obligations and repay our liabilities from normal business operations.
      Our Versadial ® product
      may not be accepted or provide a marketable advantage, and therefore, the
      commercialization of our product may not be sufficient to sustain our business.





**We
      could fail to retain or attract key personnel.**





Our
      future success depends, in significant part, on the continued services of
      Geoffrey Donaldson, our Chief Executive Officer, and Gerhard Brugger, the
      inventor of the dual chamber dispenser technology, who serves as a technical
      consultant, both of whom possess extensive expertise in various aspects of
      the
      packaging, cosmetic and dispenser industry. We may not be able to find
      appropriate replacements for any of our key personnel. Any loss or interruption
      of the services of our key personnel could adversely affect our ability to
      develop and execute our business plan. It could also result in our failure
      to
      create and maintain relationships with strategic partners that may be critical
      to our success. We intend to enter into an employment agreement with Mr.
      Donaldson but have yet to do so. We presently maintain a key-man life insurance
      policy on Mr. Brugger in the amount of $3 million.




11




**Our
      business is dependent upon intellectual property rights licensed from third
      parties.**





We
      do not
      own the patent rights that cover our Versadial ® product.
      We sublicense these patent rights from our affiliate, Sea Change Group, LLC
      (“SCG”), which in turn licenses the patent from Gerhard Brugger. Our license
      rights could be terminated if we fail to meet our obligations under the license
      agreement with Mr. Brugger as to royalty payments. We were in arrears, as of
      June 30, 2007, of royalty payments in the aggregate of $432,000 for which we
      have received a waiver as described above under “Intellectual Property”. In
      addition, our license rights may be diluted or compromised if Mr. Brugger fails
      to vigorously pursue patent infringement actions. Our competitive advantage
      would be lost if these patents were found to be invalid in the jurisdictions
      in
      which we sell or plan to sell our products. In addition, our revenues would
      be
      materially adversely affected if our licensed intellectual property were found
      to infringe the intellectual property rights of others, in which event we may
      be
      prevented from marketing our products. Any measures we implement may not be
      sufficient to protect our intellectual property rights.





**We
      may not be able to effectively protect our intellectual property
      rights.**





We
      regard
      certain aspects of our products and technology as proprietary. We have taken
      steps to protect them with patents and restrictions on disclosure and other
      methods. Despite these precautions, we cannot be certain that third parties
      will
      not infringe or misappropriate our proprietary rights or that third parties
      will
      not independently develop similar products, services and technology. Any
      infringement, misappropriation or independent development could harm our
      business and future financial results.





We
      may
      file patent applications for certain other aspects of our technology and
      processes other than the dual chambered dispenser, but these may not be issued
      to us, and if issued, may not protect our intellectual property from competition
      which could seek to design around or invalidate these patents. Our failure
      to
      adequately protect our proprietary rights in our products, services and
      technology could harm our business by making it easier for our competitors
      to
      duplicate our products.





We
      may
      have to resort to litigation to enforce our intellectual property rights,
      protect our trade secrets, determine the validity and scope of the proprietary
      rights of others, or defend ourselves from claims of infringement, invalidity
      or
      unenforceability. Litigation may be expensive and divert resources even if
      we
      win. This could adversely affect our business, financial condition and operating
      results.




**We
      may encounter difficulties in manufacturing our products.**




Before
      our products can be profitable, they must be produced in commercial quantities
      in a cost-effective manufacturing process that complies with regulatory
      requirements, including production and quality control regulations.  If we
      cannot arrange for or maintain commercial-scale manufacturing on acceptable
      terms, or if there are delays or difficulties in the manufacturing process,
      we
      may not be able to obtain regulatory approval or meet demand for our products.
      Production of our products could require raw materials which are scarce or
      which
      can be obtained only from a limited number of sources.  If our
      manufacturers were unable to obtain adequate supplies of such raw materials,
      the
      development, regulatory approval and marketing of our products could be
      delayed.





**Increasing
      competition could adversely affect our market share and financial
      performance.**





We
      expect
      competition from various other companies to occur and grow. Many of our
      potential competitors are more established than we are and have greater
      financial resources than we do. Some of our competitors have greater marketing
      capabilities and technological and personnel resources than we do. As a result,
      compared to us, these competitors may:





·
            develop
                and expand their offerings more
                quickly;




12




·
            adapt
                more swiftly to new or emerging
                technologies;





·
            take
                advantage of acquisitions and other opportunities more
                effectively;





·
            devote
                more resources to sales and marketing;
                and





·
            more
                effectively use existing relationships with clients and strategic
                partners
                with recognized brand names to market and sell their
                products.





**We
      may not be able to keep up with rapid technological changes, which could
      adversely affect the sales of our products .**





The
      packaging industry is characterized by varying usage and client requirements
      and
      preferences, frequent introduction of products embodying new technologies and
      the emergence of new industry standards and practices that could render our
      existing technology obsolete. Our future success will depend on our ability
      to
      enhance and improve the responsiveness, functionality, accessibility and
      features of our products. We may not be able to expand and upgrade our
      technology or successfully integrate new technologies we develop in the future
      to accommodate such increases in a timely manner. The failure to upgrade our
      technology or successfully integrate new technologies could adversely effect
      the
      sale of our products.





**We
      may not effectively manage our growth, and failure to do so could have a
      material adverse effect on our business, financial condition and operating
      results.**





In
      order
      to achieve the critical mass of business activity necessary to successfully
      execute our business plan, we must significantly increase the number of
      customers that use our products. This growth will place significant strain
      on
      our personnel, systems and resources. We cannot be sure that we will manage
      our
      growth effectively, and our failure to do so could have a material adverse
      effect on our business, financial condition and operating results. Growth will
      require us to improve management, technical information and accounting systems,
      controls and procedures. We may not be able to maintain the quality of our
      operations, control our costs, continue complying with all applicable
      regulations and expand our internal management, technical information and
      accounting systems in order to support our desired growth. If we do not maintain
      the quality of our operations, control our costs, continue complying with all
      applicable regulations and expand our internal management, technical information
      and accounting systems in order to support our desired growth, we may not be
      able to deliver our products in compliance with their specifications or
      manufacture and distribute them at prices that are profitable for
      us.





**If
      we were successfully sued for product liability, we could face substantial
      liabilities that may exceed our resources.**




We
      may be
      held liable if any of our Versadial ® products
      or any other product we develop, causes injury during manufacturing, marketing,
      sale or use. These risks are inherent in the development of consumer-oriented
      products. We currently have $1 million in product liability insurance and an
      additional $10 million of insurance coverage under an umbrella policy. This
      may
      not be sufficient with respect to potential product liability. If we choose
      to
      obtain additional product liability insurance but cannot obtain sufficient
      coverage to protect against potential product liability claims, the
      commercialization of products that we develop may be prevented or inhibited.
      If
      we are sued for any injury caused by our products, our liability could exceed
      our total assets.




13





**If
      we fail to maintain an effective system of internal controls, we may not be
      able
      to accurately report our financial results or prevent fraud.**




We
      are
      subject to reporting obligations under federal securities laws. The Securities
      and Exchange Commission (the “SEC”), as required by Section 404 of the
      Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to
      include a management report on such company’s internal controls over financial
      reporting in its annual report, which contains management’s assessment of the
      effectiveness of the Registrant’s internal controls over financial reporting. In
      addition, an independent registered public accounting firm must attest to and
      report on management’s assessment of the effectiveness of the Registrant’s
      internal controls over financial reporting. These requirements will first apply
      to our annual report on Form 10-KSB for the fiscal year ending June 30, 2009.
      We
      may conclude that our internal controls over our financial reporting are not
      effective. Moreover, even if we conclude that our internal controls over
      financial reporting are effective, our independent registered public accounting
      firm may still decline to attest to our assessment or may issue a report that
      is
      qualified if it is not satisfied with our controls or the level at which our
      controls are documented, designed, operated or reviewed, or if it interprets
      the
      relevant requirements differently from us. Our reporting obligations as a public
      company will place a significant strain on our operational and financial
      resources and systems for the foreseeable future. Effective internal controls,
      particularly those related to revenue recognition, are necessary for us to
      produce reliable financial reports and are important to help prevent fraud.
      As a
      result, our failure to achieve and maintain effective internal controls over
      financial reporting could result in the loss of investor confidence in the
      reliability of our financial statements, which in turn could harm our business
      and negatively impact the trading price of our stock. Furthermore, we anticipate
      that we will incur considerable costs and use significant management time and
      other resources in an effort to comply with Section 404 and other requirements
      of the Sarbanes-Oxley Act.




**Item
      2.**  **** **DESCRIPTION
      OF PROPERTY**





Our
      headquarters are currently located in approximately 4,500 square feet of leased
      office space at 305 Madison Avenue, New York, New York 10165. The balance of
      our
      operations are conducted by third party subcontractors. We own all the molds
      and
      assembly equipment utilized in our manufacturing process located at these
      vendors.





In
      the
      opinion of management, our property is adequately covered by insurance. The
      molds and manufacturing equipment utilized in our operations are in good working
      order, normal wear and tear excepted. Our property is subject to liens in favor
      of the Investor and Lender.




**Item
      3.**   **LEGAL
      PROCEEDINGS**





We
      are
      not currently involved in any legal or regulatory proceeding, or arbitration,
      the outcome of which is expected to have a material adverse effect on our
      business.




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





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


14





**PART
      II**





**Item
      5.**   **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES**




(a)
            Market
                Information





Our
      common stock is traded on the Over-The-Counter Bulletin Board under the symbol
      VSDL since March 2, 2007. Previously our stock traded under the symbol CAUL
      on
      the Over-The-Counter Bulletin Board. The following table sets forth the high
      and
      low sales prices for our common stock for the fiscal quarter indicated. The
      bid
      prices reflect inter-dealer quotations, do not include retail mark-ups,
      markdowns or commissions and do not necessarily reflect actual transactions.
      The
      prices reflect the one for forty-five reverse stock split that took effect
      on
      March 2, 2007.





High
            Low2006
            First
                Quarter
              Second
                Quarter
              Third
                Quarter
              Fourth
                Quarter
            4.50
              5.40
              4.95
              4.50
            2.25
              2.25
              2.25
              2.252007
            First
                Quarter
              Second
                Quarter
              Third
                Quarter
              Fourth
                Quarter
            3.60
              5.40
              4.05
              2.00
            1.80
              1.35
              1.13
              1.10





(b)  As
      of
      October 12, 2007, we estimate that there are approximately 178 shareholders
      of
      record, including shareholders whose shares are held in the name of their
      brokers or stock depositories.





(c)  We
      have
      never paid any dividends on our common stock or preferred stock. We do not
      anticipate paying any dividends on any class of stock in the foreseeable
      future.




**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.*




15




OVERVIEW





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





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





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





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





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





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





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





Recent
      Developments





The
      following developments took place during the past fiscal year 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.




16




·
            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.





·
            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.




17




·
            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.





*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.




18




*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.





*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.




19




*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.





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.




20




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.





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.




21




**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.





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.




22




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.





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.




23




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.





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.




24




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





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.




25




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.





26




**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







**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


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


On
      September 13, 2006, we dismissed Sherb & Co. LLP as our principal
      independent public accountant, and engaged Rothstein, Kass & Company, P.C.
      as our new principal independent accountant. This decision was approved by
      the
      Board of Directors of Registrant. Sherb & Co LLP audited our financial
      statements for the fiscal year ending December 31, 2005. Bloom & Co. LLP was
      the our principal independent public accountant for the fiscal year ending
      December 31, 2004. Rothstein, Kass & Company, P.C. was the public accounting
      firm for Innopump, the accounting acquirer as a result of the reverse
      acquisition, for the years ending June 30, 2005 and 2006 and was retained as
      our
      auditors on September 13, 2006.





Our
      financial statements for the year ended December 31, 2005 were prepared assuming
      that we will continue as a going concern. As described in Note 4 to those
      financial statements, we have suffered recurring losses from operations and
      have
      a net capital deficiency that raises substantial doubt about our ability to
      continue as a going concern. The financial statements did not include any
      adjustments that might result from the outcome of this uncertainty.




During
      our most recent fiscal year and the six month period ended June 30, 2006, there
      have been no disagreements or reportable events with Sherb & Co. LLP on any
      matter of accounting principles, or practices, financial statement disclosure
      or
      auditing scope or procedure, which disagreements if not resolved to the
      satisfaction of Sherb & Co. LLP would have caused them to make reference
      thereto in their reports on the financial statements for such year. Sherb &
Co. LLP’s report on the Registrant’s financial statements for the Registrant’s
      last fiscal year did not contain an adverse opinion or disclaimer of opinion,
      and was not modified as to uncertainty, audit scope, or accounting
      principles.





During
      the Registrant’s most recent fiscal year and the six month period ended June 30,
      2006, the Registrant has not consulted with Sherb & Co. LLP regarding any
      matters or reportable events described in Items 304 (a)(2)(i) and (ii) of
      Regulation S-B.





ITEM
      8 A
      - CONTROLS AND PROCEDURES





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




28




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




ITEM
      8-B
      OTHER INFORMATION





None.




29


**PART
        III**




**Item
      9.**   **DIRECTORS,
      EXECUTIVE OFFICERS PROMOTERS CONTROL PERSONS AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**





As
      of
      October 12, 2007, the names, ages and positions of the directors and executive
      officers of the Company are as follows:





Name
            
            Age
            
            PositionGeoffrey
                Donaldson
            
            64
            
            Chief
                Executive and Financial Officer, Chairman of the Board,
                DirectorKaren
                Nazzareno
            
            50
            
            Controller
                and SecretaryRobin
                Bartosh
            
            64
            
            DirectorEdward
                P. Bond
            
            73
            
            DirectorThomas
                Coyle
            
            56
            
            DirectorRichard
                Harriton
            
            72
            
            DirectorMichael
                W. Hawthorne
            
            40
            
            Director




Geoffrey
      Donaldson, Chief Executive Officer and Chairman of the Board





Geoffrey
      Donaldson has been our Chief Executive and Financial Officer and Chairman of
      the
      Board since August 9, 2006, the date of the Merger. From 1999 to the present
      he
      served as the Managing Member of Sea Change Group, LLC, the sub-licensor to
      Innopump. Prior to that, Mr. Donaldson was President of the Revlon Department
      Store Group and Chief Executive Officer of Asian American Partners. He is a
      graduate of L.I. University.





Karen
      Nazzareno, Secretary and Controller





Karen
      Nazzareno became our Secretary in September 2006. Ms. Nazzareno also has served
      as our Controller since August 9, 2006, the date of the Merger. Ms. Nazzareno
      has been the Controller of our subsidiary, Innopump since January 2006. Prior
      to
      that time, she served as Chief Financial Officer of Hydrogel Design Systems
      (“HDS”), a hydrogel manufacturer. Prior to joining HDS in 1997, Ms. Nazzareno’s
      professional experience included positions as Assistant Controller at Fischbach
      Corporation, and audit supervisor at Holtz Rubenstein, a public accounting
      firm.
      She is a graduate of Dowling College and a licensed CPA in the State of New
      York.





Robin
      Bartosh, Director





Robin
      Bartosh is the retired founder and CEO of The Cosmetics Plus Group, a nationally
      recognized retail chain of specialty cosmetic stores. He now resides in Palm
      Beach Gardens, Florida. He became a Director of the Company on February 1,
      2007.





30





Edward
      P. Bond, Director





Edward
      Bond is the Chairman of Bederson & Co., a mid-sized accounting firm with
      over 80 professionals. Mr. Bond has been Chairman of Bederson & Co. for more
      than the past five years, and oversees that firm’s bankruptcy and forensic
      accounting department. Mr. Bond is a graduate of Seton Hall University and
      has
      attended New York University and the New York School of Finance and is a
      licensed CPA in New York and New Jersey as well as a Certified Fraud Examiner
      (CFE) and a Certified Insolvency and Restructuring Advisor (CIRA). Mr. Bond
      resides in Convent Station, New Jersey. He became a Director of the Company
      on
      February 1, 2007.





Thomas
      Coyle, Director





Thomas
      Coyle is a retired Vice President and General Manager of Owens-Illinois Inc.
      (“OI”). Mr. Coyle’s career has been devoted to the packaging industry. Prior
      responsibilities with OI have included General Manager Prescription Products,
      Director of Marketing and Business Development for Plastic Products, Business
      Manager for Personal Care, Industry Manager Healthcare and Sales Manager. Mr.
      Coyle is a 1973 graduate of Bowling Green State University where he received
      a
      Bachelor of Science Degree in Business Administration. Mr. Coyle resides in
      Sylvania, OH. He became a Director of the Company on February 1,
      2007.





Richard
      Harriton, Director





For
      the
      last five years Richard Harriton has served as the President of Park Avenue
      Consulting, a privately owned consulting firm which provides business and
      general consulting services. He became a Director of the Company on August
      9,
      2006.





Michael
      W. Hawthorne, Director





Michael
      W. Hawthorne, is an affiliate of Fursa Alternative Investments, LLC. Prior
      to becoming
      an affiliate of Fursa, for more than the past five years, he was Managing
      Director and Portfolio Manager of Mellon HBV Alternative Investments and
      assisted in the investment decisions of the Global Event Driven Fund. Prior
      to
      Mellon HBV, Mr. Hawthorne was a senior analyst at Milton Partners, L.P.
      (“Milton”), and a telecommunications industry research analyst at UBS
      Securities. Mr. Hawthorne graduated with a Masters
      in Business Administration from
      the
      University of North Carolina Graduate School of Business in 1993 and with a
      Bachelor of Arts degree in economics from Yale University (“Yale”) in 1988. He
      became a Director of the Company on February 1, 2007.





Term
      of Office and Family Relationships




All
      directors hold office until the next annual meeting of shareholders or until
      their respective successors are elected or until their earlier death,
      resignation or removal. Executive officers are appointed by and serve at the
      discretion of our Board of Directors. There are no family relationships among
      our executive officers and directors.





Section
      16(a) Beneficial Ownership Reporting Compliance





Section
      16(a) of the Exchange Act requires our executive officers, directors and persons
      who own more than ten percent of a registered class of our equity securities
      ("Reporting Persons") to file reports of ownership and changes in ownership
      on
      Forms 3, 4 and 5 with the Securities and Exchange Commission (the "SEC") and
      the
      National Association of Securities Dealers, Inc. (the "NASD"). These Reporting
      Persons are required by SEC regulation to furnish us with copies of all Forms
      3,
      4 and 5 they file with the SEC and the NASD. Based solely upon our review of
      the
      copies of the forms we have received, we believe that all Reporting Persons
      complied on a timely basis with all filing requirements applicable to them
      with
      respect to the fiscal year ended June 30, 2007.




31


Code
      of Ethics





Versadial
      adopted a Code of Ethics (the “Code”) in 2007 that applies to our principal
      executive officer, principal financial officer and principal accounting officer
      or controller. It constitutes a “code of ethics” within the meaning of the
      Sarbanes-Oxley law and regulations. Upon request, we will provide, without
      charge, to any person a copy of our Code of Ethics. Requests for a copy should
      be directed to our corporate Secretary at our offices, 305 Madison Avenue,
      Suite
      4510, New York, NY 10165.





Director
      Independence





The
      Board
      has affirmatively determined that three of our directors, Robin Bartosh, Edward
      P. Bond and Thomas Coyle are independent, as the term is defined by applicable
      Securities and Exchange Commission (“SEC”) rules.





Committees





The
      Board
      has not formed any committees. The Board, acting as a whole, believes that
      it
      has effectively participated in the consideration of any action that a committee
      may take.





**Item
      10.**  **EXECUTIVE
      COMPENSATION**





The
      following table sets forth the annual and long-term compensation with respect
      to
      our Principal Executive Officer (“PEO”) and Controller and each of the other
      executive officers of the Company who received more than $100,000 for services
      rendered for the year ended June 30, 2007 and 2006.





**Summary
      Compensation Table**


Name and Principal
                Position
              
              Year
              
              Salary ($)
              
              Bonus ($)
              
              Stock
                  Awards ($)
                (4)
              
              Option
                  Awards ($)
                (4)
              
              Non-Equity
                  Incentive Plan Compensation
                ($)
              
              Nonqualified
                  Deferred Compensation Earnings
                ($)
              
              All
                  Other Compensation ($)
              
              Total
                ($)Geoffrey
                  Donaldson
              
              2007
              
              $
              252,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              252,000Chief
                  Executive Officer (PEO)
              
              2006
              
              $
              237,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              237,500Karen
                  Nazzareno
              
              2007
              
              $
              115,708
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              115,708Controller
              
              2006
              
              $
              65,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              65,000Paul
                  Block,
              
              2007
              
              $
              66,668
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              58,332
              (1)
              $
              125,000Former
                  President (1)
              
              2006
              
              $
              66,668
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              66,668






(1)
            Mr.
                Block resigned in December 2006 and was granted a 1 year consulting
                agreement at $100,000 to be paid at $8,333 per month through November
                2007.




32


Outstanding
      Equity Awards at Fiscal Year End





We
      do not
      currently maintain any stock or other equity compensation plans.





Directors
      Compensation





During
      the fiscal year ended June 30, 2007, no Director received any compensation
      for
      services provided in such capacity. Directors are reimbursed for reasonable
      expenses incurred in attending board and committee meetings.





The
      following table provides the compensation earned by our non-employee directors
      for the year ended June 30, 2007.





**Director
      Compensation**


Name
              
              Fees
                Earned or
                Paid in
                Cash ($)
                (1)
              
              Stock
                Awards
                $
              
              Option
                Awards
                ($)
              
              Non-equity
                Incentive Plan
                Compensation
                ($)
              
              Nonqualified
                Deferred
                Compensation
                Earnings
                ($)
              
              All Other
                Compensation
                ($)
              
              Total
                ($)Richard
                  Harriton
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              50,000
              (2)
              $
              50,000Thomas
                  Coyle
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              21,500
              (3)
              $
              21,500—
              
              
              —
              
              
              —
              
              
              —
              
              
              ——
              
              
              —
              
              
              —
              
              
              —
              
              
              —




(2)
            In
                April 2005, we entered into a three-year business consulting agreement
                with an entity owned by Mr. Harriton which provides for an annual
                fee of
                $65,000 in the first year and $50,000 the following two years. The
                fees
                are payable quarterly.


(3)
            Mr.
                Coyle provides consulting services as related to sales and manufacturing
                as requested by us. Mr. Coyle has no written agreement in relation
                to
                these services.





Employment
      Agreements





The
      Company does not have an employment agreement with its Chief Executive Officer
      or any other officer.





**Item
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**





The
      following table sets forth the beneficial ownership of shares of voting stock
      of
      the Company, as of October 12, 2007 of (i) each person known by the Company
      to
      beneficially own 5% or more of the shares of outstanding common stock, based
      solely on filings with the Securities and Exchange Commission, (ii) each of
      the
      Company’s executive officers and directors and (iii) all of the Company’s
      executive officers and directors as a group. Except as otherwise indicated,
      all
      shares are beneficially owned, and the persons named as owners hold investment
      and voting power.




33




**Name of Beneficial Owner (1)**
            
            **Common Stock**
              **Beneficially**
              **Owned (3)**
            
            **Rights to Acquire Beneficial Ownership**
              **Through Exercise of Options and**
              **Warrants Within 60 Days**
            
            **Total Beneficially**
              **Owned as % of**
              **Outstanding Shares (2)**Geoffrey
                Donaldson (4) (5) (11)
            
            
            5,030,422
            
            
            
            
            
            32.9
            %Gerhard
                Brugger(11)
            
            
            1,126,897
            
            
            
            
            
            7.4
            %Richard
                Harriton (5)(11)
            
            
            1,744,799
            
            
            11,112
            
            
            11.4
            %Matthew
                Harriton (6)(11)
            
            
            1,733,687
            
            
            
            
            
            11.3
            %Karen
                Nazzareno (7)
            
            
            56,866
            
            
            
            
            
            .3
            %Robin
                Bartosh (5)
              1016
                Grand Isle Terrace
              Palm
                Beach Gardens, FL 33418
            
            
            130,027
            
            
            
            
            
            .8
            %Edward
                P. Bond (5)
              17
                Boxwood Drive
              Convent
                Station, NJ
            
            
            21,672
            
            
            
            
            
            .1
            %Thomas
                Coyle (5)
              2254
                Big Hickory Run
              Sylvania,
                OH 43560
            
            
            -0-
            
            
            
            
            
            .0
            %Michael
                W. Hawthorne (5) (9)
              444
                Merrick Road
              Suite
                104
              Lynbrook,
                NY 11563
            
            
            1,688
            
            
            
            
            
            .0
            %Paul
                Block(8)
              1075
                Park Avenue, Suite 14C
              New
                York, NY 10128
            
            
            866,844
            
            
            
            
            
            5.7
            %Fursa
                Master (9)(11)
              Global
                Event Driven Fund, L.P.
              444
                Merrick Road
              Suite
                104
              Lynbrook,
                NY 11563
            
            
            10,996,042
            
            
            2,852,903
            
            
            44.8
            %Prospero
              Capital,
                LLC (10)
              357
                West Sunrise Highway
              Freeport,
                NY 11520
            
            
            813,407
            
            
            813,407
            
            
            5.0
            %All
                officers and directors as a group (7 persons)
            
            
            6,985,474
            
            
            11,112
            
            
            45.6
            %





(1)
      Unless otherwise noted, the address for each of the named beneficial owners
      is
      305 Madison Avenue, New York, NY 10165.





(2)
      The
      number of outstanding shares of common stock is based upon 15,309,194 shares
      issued and outstanding on a non-fully diluted basis. The number of outstanding
      shares as calculated for each beneficial owner includes any shares that are
      potentially issuable to that owner under the terms of convertible debt and
      warrants as noted.




34


(3)
      Includes right to acquire shares through exercise of warrants and convertible
      debt.





(4)
      Mr.
      Donaldson is the current CEO, Director and Chairman of the Board of
      Company.





(5)
      Director of the Company.





(6)
      Mr.
      Matthew Harriton is a related party to Mr. Richard Harriton who serves as a
      Director of the Company.





(7)
      Ms.
      Nazzareno is the Secretary, and Controller of the Company.





(8)
      Mr.
      Paul Block is the former President of the Company. Mr. Block resigned in
      December 2006.





(9)
      Includes 2,852,903 shares issuable upon the exercise of warrants and 6,373,415
      shares issuable upon the
      conversion of debt. Fursa Alternative Strategies, LLC holds voting and
      investment control
      of the shares held by Fursa Master Global Event Driven Fund, L.P. William Harley
      holds voting
      and investment control of Fursa Alternative Strategies, LLC. Michael W.
      Hawthorne, Director, is
      an
      affiliate of Fursa Alternative Strategies, LLC.





(10)
      Prospero Capital, LLC is an affiliate of Fursa Alternative Strategies, LLC.
      Includes 813,407 shares issuable on exercise of warrants. Mickcy Harley holds
      voting and investment control of Prospero Capital, LLC.





(11)
      The
      shares owned by Messrs. Donaldson and Brugger and the Messrs. Harriton are
      subject to a lock-up agreement in favor of Fursa Master Global Event Driven
      Fund, L.P. that restricts the disposition of such shares so long as the 10%
      senior redeemable convertible debt remains outstanding.




35




**Item
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**





Director
      Independence





The
      Board
      does not have any committees. The Board has affirmatively determined that three
      of our directors, Robin Bartosh, Edward P. Bond and Thomas Coyle, are
      independent, as the term is defined by applicable Securities and Exchange
      Commission (“SEC”) rules.





Transactions
      ofInnopump





There
      were three outstanding notes with Richard Harriton, a director and major
      shareholder of the Company reflected on the financial statements prior to the
      merger with CARS: an 8% per annum note in the principal amount of $1,098,536
      due
      from SCG which matures, as amended, on October 31, 2007 and a $300,000 8% per
      annum note with Innopump which matured on the earlier of October 30, 2006 or
      the
      date of the merger of Innopump with CARS. The $300,000 note was paid at the
      closing of the merger on August 9, 2006. On April 22, 2005, Innopump signed
      a
      $250,000 promissory note with Richard Harriton. The 8% note was collateralized
      by the assets of Innopump, and was due with interest on October 22, 2005. This
      note was paid at the closing of the merger on August 9, 2006.





There
      were two outstanding notes with Matthew Harriton reflected on the financial
      statements prior to the merger with CARS: a $100,000 8% per annum note due
      from
      SCG which matures, as amended, on October 31, 2007 and has a remaining balance
      of $70,000, and a $100,000 8% per annum note with Innopump which matured on
      the
      earlier of October 30, 2006 or the date of the merger of Innopump with CARS.
      Mr.
      Matthew Harriton is a consultant of Innopump and the son of Richard Harriton.
      The $100,000 outstanding note due from Innopump was paid at the closing on
      August 9, 2006.





In
      April
      2005, Innopump entered into a three-year consulting agreement with an entity
      owned by Richard Harriton 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.





Effective
      May 1, 2004, SCG entered into a lease agreement for its corporate offices and
      started to sublease office space, on a month to month basis, to various related
      entities including Innopump. Innopump’s monthly rental payments to SCG are
      approximately $12,000.





On
      June
      21, 2006, Innopump, entered into a Sublicense Agreement (the "Sublicense
      Agreement") with VDM Holdings, LLC , an entity majority owned by the
      stockholders and officers of Innopump. The Sublicense Agreement grants VDM
      Holdings, LLC 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 remains in effect through
      December 31, 2024.





36




We
      believe that the terms of the transactions listed above were equivalent to,
      or
      as favorable as, terms in transactions with non-affiliates.





Transactions
      of CARS prior to merger





Set
      forth
      below are the related party transactions between CARS’s shareholders, officers
      and/or directors, and CARS.





ODC
      Partners, LLC on July 1, 2003, entered into a Revolving Convertible Credit
      Facility with CARS, which requires ODC to lend CARS up to $100,000 during the
      credit period. Daniel Myers, the Chairman and President of CARS prior to the
      merger with Innopump, is the manager of ODC Partners, LLC. As of July 31, 2006
      the balance of the loan payable was $100,000. On July 31, 2006 ODC Partners
      converted the Revolving Convertible Credit Facility into 222,223 shares of
      common stock.





We
      believe that the terms of the transactions listed above were equivalent to,
      or
      as favorable as, terms in transactions with non-affiliates.





Transactions
      of Versadial Subsequent to Merger





On
      August
      9, 2006, in connection with the Merger, we sold 10% senior redeemable
      convertible debt (“Convertible Debt”) under the terms of a Securities Purchase
      Agreement (the “August 9 Agreement”) in the principal amount of $7.5 million to
      Mellon HBV Master U.S. Event Driven Fund and Mellon HBV Master Global Event
      Driven Fund (now known as Fursa Master Global Event Driven Fund, LP, and
      referred to herein as the “Investor”) in exchange for $7.5 million in cash. The
      proceeds from the Convertible Debt were used for working capital, capital
      expenditures, mandatory debt repayment, and general corporate purposes.
      Contemporaneously, we entered into a Registration Rights Agreement with the
      Investor.





Interest
      accrues at 10% per annum, payable in cash or paid in kind (“PIK”) at our 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 Convertible Debt matures 30 months after the date of issuance
      (“Maturity Date”). We do not have the option to prepay the Convertible Debt
      prior to the Maturity Date. We must redeem 100% of the Convertible Debt, unless
      earlier converted, for an amount equal to 120% of the outstanding principal
      plus
      accrued interest, on the Maturity Date. On August 9, 2007, the Investor agreed
      to convert $750,000 in interest due on August 9, 2007 on our Convertible Debt
      at
      a conversion price of $1.1768, equal to the conversion price of the underlying
      convertible notes for an aggregate 637,349 shares which were issued on August
      27, 2007.





The
      Convertible Debt is convertible into 6,373,415 shares of our common stock.
      The
      price per share is equal to $16 million divided by the number of outstanding
      shares of the Surviving Company on a fully-diluted basis (“Original Purchase
      Price”). This conversion price is subject to weighted-average, anti-dilution
      protection on all subsequent financings by us. The Investor has the right at
      any
      time and from time to time prior to the Maturity Date, to convert, in whole
      or
      in part, outstanding Convertible Debt and any accrued interest into our common
      stock at the Investor’s discretion.




The
      Investor also received warrants aggregating 22% of the shares issuable on
      conversion to purchase 1,402,153 shares of common stock at an exercise price
      of
      $1.17675 per share. The warrants have a five (5) year term expiring on August
      9,
      2011. The warrants are exercisable for our common stock at any time prior to
      expiration and permit cashless exercise.




37




On
      October 17, 2006, we entered into an Amendment with the Investor (the
“Amendment”) to the August 9 Agreement. In consideration of the deletion of the
      EBITDA targets set forth in the August 9 Agreement, we issued to the Investor,
      additional warrants, for an aggregate of 318,672 shares of our common stock
      at
      an initial exercise price of $1.17675 per share, with an expiration date of
      August 9, 2011.





As
      we did
      not meet certain product testing requirements of a prospective customer by
      March
      31, 2007, we were required to issue to the Investor further additional warrants
      for an aggregate of 318,671 shares of our common stock at an initial exercise
      price of $1.17675 per share, with an expiration date of August 9, 2011. On
      March
      31, 2007, these warrants were issued as the testing requirements were not met
      until May 2007.





We
      signed
      a Registration Rights Agreement with the Investor on August 9, 2006 whereby
      we
      are 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 we file an amended SB-2A addressing the SEC comments
      and respond to the current comment letter by October 31, 2007. If the
      registration statement is not declared effective within the time frame
      described, or if the registration is suspended, we will be obligated to issue
      additional warrants (“Liquidated Damages Warrants”) to the Investor. Initially,
      we 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,
      we are 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.




The
      agreement also required us to meet certain requirements such as effecting a
      reverse stock split and redomiciling in Delaware. The reverse stock split was
      completed in March 2007. The requirement to redomicile was extended until within
      (45) days following demand at any time commencing on the first anniversary
      of
      the Closing Date of the merger and ending on the third anniversary of the
      Closing Date.





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).
      Upon
      a default under the terms of the note, the Interest Rate will increase by 4%.
      In
      addition, on the maturity date, we will incur a non-refundable fee equal to
      .75%
      on the average monthly undrawn portion of the maximum borrowings. At June 30,
      2007, we had drawn an aggregate of $3.0 million of the available line.





In
      conjunction with the Credit Agreement, we 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, we secured certain purchase orders as defined in the Credit Agreement
      which entitled us 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 our common stock 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. The initial
      warrants granted under the agreement in the aggregate of 1,084,543 to each
      of
      Lender and Prospero were replaced with new warrants reflecting the redemption.




38




Upon
      the
      expiration or termination of the credit facility under the Agreement, whichever
      occurs first, we have the option to purchase an additional 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
      Credit Agreement dated February 1, 2007 was amended on July 9, 2007 to reflect
      the increased amount of the line of credit available to us from $3.0 million
      to
      $4.0 million. On July 10, 2007, we drew down the additional $1.0 million
      available under the terms of the amended Credit Agreement.





We
      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 our failure to appoint
      a
      chief operating officer and meet certain financial covenants, as referred to
      in
      the amended Credit Agreement. The waiver also required us, no later than
      September 30, 2007, to establish a comprehensive financing plan that addresses
      our funding needs for at least 18 months following September 30,
      2007.





On
      September 28, 2007, we 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 for us to appoint a chief operating
      officer.





On
      August
      27, 2007, we issued 1,132,375 shares of common stock upon the conversion by
      the
      Lender, acting on behalf of the Investor, of $2,000,000 in principal amount
      of
      the Credit Agreement notes at a per share conversion price of $1.7662.





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 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 an entity owned by Richard Harriton.





On
      March
      2, 2007, we changed our corporate name to Versadial, Inc., and effected a one
      for forty-five reverse stock split. References in this report to numbers of
      outstanding shares of common stock give effect to this reverse stock
      split.




39




**Item
      13.**





**EXHIBITS**





Exhibit No.
            
            Description3.1
            
            Articles
                of Incorporation, as amended. (1)3.2
            
            By-Laws.
                (2)4.1
            
            Form
                of Common Stock Certificate. (15)4.2
            
            Registration
                Rights Agreement dated August 9, 2006 among the Company and Mellon
                HBV
                Master US Event Driven Fund, LP and Mellon HBV Master Global Event
                Driven
                Fund, LP (together, now named Fursa Master Global Event Driven Fund,
                L.P.). (3)4.3
            
            Securities
                Purchase Agreement dated August 9, 2006 between the Company and Fursa
                Master Global Event Driven Fund, LP (16)4.4
            
            Security
                Agreement dated August 9, 2006 from the Company to Fursa Master Global
                Event Driven Fund, L.P. (16)4.5
            
            Guaranty
                from Innopump, Inc. to Fursa Master Global Event Driven Fund, L.P.
                (16)4.6
            
            Security
                Agreement from Innopump, Inc. to Fursa Master Global Event Driven
                Fund,
                L.P. (15)4.7
            
            Amendment
                No. 1. to Securities Purchase Agreement dated October 17, 2006 between
                the
                Company and Fursa Master Global Event Driven Fund, L.P.
                (4)4.8
            
            Amendment
                Agreement dated November 10, 2006 between the Company and Fursa Master
                Global Event Driven Fund, L.P. (5)4.9
            
            Amendment
                Agreement dated February 16, 2007 between the Company and Fursa Master
                Global Event Driven Fund, L.P. (7)4.10
            
            Form
                of Convertible Note. (3)4.11
            
            Form
                of Common Stock Purchase Warrant issued in connection with Convertible
                Note (3)4.12
            
            Form
                of Common Stock Purchase Warrant issued in connection with the Merger
                between the Company and Innopump, Inc. (3)4.13
            
            Line
                of Credit Agreement dated February 1, 2007 between the Company and
                Fursa
                Alternative Strategies, LLC. (6)4.14
            
            Form
                of Common Stock Purchase Warrant issued in connection with the Line
                of
                Credit (6)4.15
            
            Form
                of Note issued in connection with the Line of Credit
                (6)4.16
            
            Lock-up
                Agreement dated as of August 9, 2006 among Gerhard Brugger, Geoffrey
                Donaldson, Matthew Harriton, Richard Harriton and Fursa Master Global
                Event Driven Fund, L.P. (17)4.17
            
            Amendment
                No. 1 dated July 9, 2007 to the Line of Credit Agreement between
                the
                Company and Fursa Alternative Strategies, LLC. (12)4.18
            
            Form
                of Note issued in connection with Amendment No. 1 to the Line of
                Credit
                (12)4.19
            
            Securities
                Purchase Agreement dated as of August 30, 2007 between the Company
                and the
                Lenders Named Herein. (17)10.1
            
            Consulting
                Agreement dated April 22, 2005 between Innopump, Inc. and Park Avenue
                Consulting. (16)10.2
            
            Amended
                and Restated License Agreement dated January 1, 2003 between Sea
                Change
                Group, LLC and Gerhard Brugger. (15)10.3
            
            Sublicense,
                Development and Technology Transfer Agreement dated May 1, 2005 between
                Innopump, Inc. and Sea Change Group, LLC. (16)10.4
            
            Sublicense
                Agreement dated June 2, 2006 between Innopump, Inc. and VDM Holdings,
                LLC
                . (16)10.5
            
            Asset
                Purchase Agreement dated May 25, 2005 between Sea Change Group, LLC
                and
                Innopump, Inc. (16)




40




10.6
            
            Agreement
                and Plan of Merger dated August 9, 2006 among Carsunlimited.com,
                Inc.,
                Pump Acquisition Corp. and Innopump, Inc. (3)10.7
            
            Amendment
                No. 1 dated July 13, 2006 to the Sublicense, Development and Technology
                Transfer Agreement dated May 1, 2005 between Innopump, Inc. and Sea
                Change
                Group, LLC. (16)10.8
            
            Amendment
                No. 1 dated July 10, 2006 to the Asset Purchase Agreement dated May
                25,
                2005 between Sea Change Group, LLC and Innopump, Inc.
                (16)10.9
            
            Amendment
                as to Payment Terms dated June 16, 2006 to the Amended and Restated
                License Agreement dated January 1, 2003 between Sea Change Group,
                LLC and
                Gerhard Brugger. (16)10.10
            
            Manufacturing
                Agreement dated September 20, 2006 between Innopump, Inc. and Seidel
                GmbH
                & Co.
                *10.11
            
            Amendment
                No. 2 dated April 1, 2007 to the Sublicense, Development and Technology
                Transfer Agreement dated May 1, 2005 between Innopump, Inc. and Sea
                Change
                Group, LLC. (17)10.12
            
            Supply
                Agreement dated as of April 20, 2007 effective upon execution of
                the
                Agreement to License, between Alltrista Plastics Corporation d/b/a
                Jarden
                Plastic Solutions and Innopump, Inc. (8)10.13
            
            Tooling
                Amortization Agreement dated as of April 20, 2007, effective upon
                execution of the Agreement to License, between Alltrista Plastics
                Corporation d/b/a Jarden Plastic Solutions and Innopump, Inc.
                (9)10.14
            
            Agreement
                to License dated as of April 20, 2007, effective April 30, 2007 by
                and
                between Gerhard Brugger, Sea Change Group, LLC and Alltrista Plastics
                Corporation, d/b/a Jarden Plastic Solutions. (10)10.15
            
            Master
                Supply Agreement dated July 10, 2007 between Versadial, Inc. and
                Avon
                Products, Inc. (11)10.16
            
            Amendment
                No. 3 dated September 18, 2007 to the Sublicense, Development and
                Technology Transfer Agreement dated May 1, 2005 between Innopump,
                Inc. and
                Sea Change Group, LLC. (17)10.17
            
            Amendment
                No. 2 as to Payment Terms dated September 18, 2007 to the Amended
                and
                Restated License Agreement dated January 1, 2003 between Sea Change
                Group,
                LLC and Gerhard Brugger. (17)14
            
            Code
                of Ethics of Versadial, Inc.(17)16.1
            
            Letter
                from Sherb & Co. LLP re: Change in Registrant’s Certifying Accountant
                (13)99.1
            
            Audited
                financial statements of Innopump, Inc. for the years ended June 30,
                2006
                and 2005. (14)31
            
            Certification
                of Principal Executive and Financial Officer and Principal Accounting
                Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002*32
            
            Certification
                of Principal Executive and Financial Officer and Principal Accounting
                Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002*







*
            Filed
                herewith. A portion of Exhibit 10.10 has been omitted pursuant to
                a
                request for confidential treatment.(1)
            Incorporated
                by reference to the Company’s Registration Statement filed on May 9, 2001
                as Exhibit 3.1, to the Amendment filed with the Company’s Report on Form
                8-K filed on August 2, 2006 as Exhibit 3.2, Amendment filed with
                the
                Company’s Report on Form 8-K filed on August 9, 2006 as Exhibit 3.1, and
                Amendment filed with the Company’s Report on Form 8-K filed on March 2,
                2007 as Exhbits 3.1(1) and (2).(2)
            Incorporated
                by reference to Exhibit 3.2 of the Company’s Registration Statement filed
                on May 9, 2001(3)
            Incorporated
                by reference to Exhibits 2.1, 4.1, 4.2 and 4.3 of Form 8-K of the
                Company
                filed on August 11, 2006.(4)
            Incorporated
                by reference to Exhibit 10.1 of Form 8-K of the Company filed on
                October
                23, 2006.(5)
            Incorporated
                by reference to Exhibit 10.1 of Form 8-K of the Company filed on
                November
                15, 2006(6)
            Incorporated
                by reference to Exhibit 4.1 of Form 8-K of the Company filed on February
                7, 2007(7)
            Incorporated
                by reference to Exhibit 10.1 of Form 8-K of the Company filed on
                February
                22, 2007(8)
            Incorporated
                by reference to Exhibits 10.1 of Form 8-K of the Company filed on
                May 4,
                2007(9)
            Incorporated
                by reference to Exhibit 10.2 of Form 8-K of the Company filed on
                May 4,
                2007(10)
            Incorporated
                by reference to Exhibit 10.3 of Form 8-K of the Company filed on
                May 4,
                2007




41




(11)
            Incorporated
                by reference to Exhibit 10.1 of Form 8-K of the Company filed on
                July 16,
                2007(12)
            Incorporated
                by reference to Exhibit 10.1 and Exhibit 10.2 of Form 8-K of the
                Company
                filed on July 12, 2007.(13)
            Incorporated
                by reference to Exhibit 16.1 of Form 8-K/A of the Company filed on
                September 26, 2006.(14)
            Incorporated
                by reference to Exhibit 99.5 of Form 8-K/A of the Company filed on
                October
                13, 2006.(15)
            Incorporated
                by reference to same Exhibit No. on Form SB-2 of the Company filed
                on
                March 16, 2007.(16)
            Incorporated
                by reference to same Exhibit No. on Form SB-2/A of the Company filed
                on
                August 13, 2007.(17)
            Previously
                  filed with the Annual Report of the Company on October 15,
                  2007.





**Item
      14.**  PRINCIPAL
      ACCOUNTANT FEE AND SERVICES





The
      following is a summary of the fees billed to the Company by its independent
      accountants, Rothstein Kass & Company, P.C. applicable to the fiscal years
      ended June 30, 2007 and 2006:




Fee
                category
            
            2007
            
            2006Audit
                fees
            
            $
            92,710
            
            $
            131,000Audit-related
                fees
            
            
            10,500
            
            
            -Tax
                fees
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -Total
                fees
            
            $
            103,210
            
            $
            131,000




Audit
        fees: Consists of fees for professional services rendered by our principal
        accountants for the annual audit of the Company's financial statements and
        the
        review of quarterly financial statements or services that are normally provided
        by our principal accountants in connection with statutory and regulatory
        filings
        or engagements.
  Audit-related
        fees: Consists of fees for assurance and related services by our principal
        accountants that are reasonably related to the performance of the audit or
        review of the Company's financial statements and are not reported under "Audit
        fees."
  Tax
        fees:
        Consists of fees for professional services rendered by our principal accountants
        for tax advice.
  All
        other
        fees: Consists of fees for products and services provided by our principal
        accountants, other than the services reported under "Audit fees," "Audit-related
        fees" and "Tax fees" above.
 
 42




**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 28th day of January
      2008.




VERSADIAL,
                INC.By:
            /s/
                Geoffrey DonaldsonGeoffrey
                Donaldson, Principal Executive and Financial
              Officer




By:
            /s/
                  Karen NazzarenoKaren
                  Nazzareno,
                  Controller




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below on January 28th, 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




43