**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-KSB**





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, 2008


OR


 ̈ 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  ̈





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





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





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





State
      issuer’s revenues for its most recent fiscal year: $4,051,714





As
      of
      November 13, 2008, there were 18,309,194 shares of the registrant’s Common Stock
      outstanding. The aggregate market value of the Common Stock held by
      non-affiliates was approximately $847,813 based on the closing sales price
      of
      the Common Stock of $.12 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  ̈ No x









**Versadial,
      Inc. and Subsidiaries**


**Form
      10-KSB for the Year Ended June 30, 2008**





**Table
      of Contents**





**PAGE****PART
                I****ITEM
                1.**
            **Description
                of Business**
            **1****ITEM
                2.**
            **Description
                of Properties**
            **15****ITEM
                3.**
            **Legal
                Proceedings**
            **16****ITEM
                4.**
            **Submission
                of Matters to a Vote of Security Holders**
            **16****PART
                II****ITEM
                5.**
            **Market
                for Common Equity and Related Stockholder Matters**
            **17****ITEM
                6.**
            **Management’s
                Discussion and Analysis or Plan of Operation**
            **17****ITEM
                7.**
            **Financial
                Statements**
            **33****ITEM
                8.**
            **Changes
                in and Disagreements with Accountants on
                Accounting****and
                Financial Disclosure**
            **34****ITEM
                8A.**
            **Controls
                and Procedures**
            **34****ITEM
                8B.**
            **Other
                Information**
            **36****PART
                III****ITEM
                9.**
            **Directors,
                Executive Officers, Promoters and Control Persons
                and****Corporate
                Governance; Compliance with Section 16(a) of the****Exchange
                Act**
            **37****ITEM
                10.**
            **Executive
                Compensation**
            **39****ITEM
                11.**
            **Security
                Ownership of Certain Beneficial Owners and****Management
                and Related Stockholder Matters**
            **40****ITEM
                12.**
            **Certain
                Relationships and Related Transactions and****Director
                Independence**
            **43****ITEM
                13.**
            **Exhibits**
            **49****ITEM
                14.**
            **Principal
                Accountant Fees and Services**
            **52****SIGNATURES**
            
            **53**










**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 manufacture of the dual dispensers are currently outsourced
      to
      third party subcontractors in the United States for our 40mm and 49mm size
      dispensers and in Germany for our 20mm size dispenser and are currently being
      utilized in the food, sun care, skincare, and cosmetic industries. We began
      manufacturing in the United States commencing in the fourth calendar quarter
      of
      2007. Prior to that time, all of our subcontractors were located in
      Germany.





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. On August
      11, 2006 in conjunction with the merger, SCG was paid $150,000 of the sublicense
      fee as per the terms of the agreement. 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 January
      15, 2008, the agreement was again amended to extend the payment dates of the
      remaining sublicense fee of $450,000, with $300,000 due on September 30, 2008
      and $150,000 due on December 31, 2008.





On
      June
      30, 2008, the agreement was further amended to extend the payment date of the
      remaining sublicense fee of $450,000 to July 1, 2009. In addition, the royalty
      due SCG at June 30, 2008 of approximately $141,000 was deferred to be payable
      on
      July 1, 2009 and additional royalties accruing for the period July 1, 2008
      through June 30, 2009 will be due and payable on July 1, 2009. No interest
      shall
      be due or payable in regard to past due royalties. 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.




2




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.





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.;






3




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.





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.




4




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, Playtex, owner of Banana Boat, Hawaiian
      Tropic, Sephora, and Revlon.





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 were to furnish to Avon, and Avon would purchase from us,
      seventeen million units of certain of our products. On October 2, 2008, the
      agreement was amended and Avon’s commitment to purchase certain of our products
      was reduced in number in return for certain price adjustments based on current
      market conditions. 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 of our new size 20mm
      dispenser.





Pursuant
      to the terms of the Credit Memo previously entered into with Avon, we were
      to
      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. On October 2, 2008, we
      were
      fully relieved of our obligation to repay the $1.7 million advance provided
      that
      we shall instead pay the tooling and mold contractor this amount pursuant to
      a
      payment schedule to be determined between us and the contractor as consideration
      for additional equipment costs and development costs related to the tooling
      and
      mold expenses. In the event of a default in payment to the contractor, the
      credit relief granted shall immediately be null and void to the extent of any
      unpaid balance, and Avon shall have the right to enforce against us collection
      of the full amount of such unpaid balance. Upon our payment to the tooling
      and
      mold contractor, we will recognize the credit relief granted by Avon. We
      anticipate production to begin in the fourth quarter of calendar
      2008.




Manufacturing





We
      own a
      number of sets of molds and assembly tables used in the production and assembly
      of the parts for our 20mm, 40mm, and 49mm size dispensers. We outsource the
      use
      of these assets to established manufacturers for both injection molding parts
      production and assembly of our dispensers. Currently, our injection molds and
      assembly equipment are located at Seidel GmbH & co. (“Seidel”) for our 20mm
      size dispenser in Marburg, Germany. Our injection molds and assembly equipment
      are located at Alltrista Plastics Corporation d/b/a Jarden Plastics Solutions
      (“Jarden”) in Reedsville, PA for our 40mm and 49mm size dispensers manufactured
      in the U.S. In addition, we have injections molds located at Poloplast GmbH
      in
      Germany and assembly tables located at the production facility of Holzmann
      Montague in Marktoberdorf, Germany for our 40mm and 49mm size dispensers. Since
      the fourth quarter of 2007, the majority of our production of the 40mm and
      49mm
      dispensers is subcontracted to Jarden in the U.S. Prior to that time, all of
      our
      production for the 40mm and 49mm dispensers was subcontracted to Poloplast
      and
      Holzmann Montague in Germany. We have retained injection molds and assembly
      equipment in Germany which are primarily being utilized for development
      projects, testing of new products, and for actual production of small foreign
      customer orders.





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.




5




On
      September 20, 2006, we entered into a 30-month manufacturing agreement with
      Seidel, an outside contractor located in Germany. The agreement calls for the
      contractor to develop certain production molds for us for our 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 lease which terminates
      in March 2009. The equipment is capable of producing fifteen (15) million units
      annually. We anticipate production to begin at Seidel in the fourth calendar
      quarter of 2008 under the terms of our Master Supply Agreement with Avon. We
      have an initial order from Avon for 2.5 million units subject to increase to
      4.0
      million units upon us delivering product in the timeframe specified by
      Avon.




On
      April
      24, 2007, we entered into a Supply Agreement and a related Tooling Amortization
      Agreement with 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 estimated $4.6 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 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. The facility became fully operational in calendar fourth quarter
      2007. As of October 31, 2008, we have manufactured and shipped approximately
      5.1
      million pumps at Jarden and have firm commitments from several customers for
      production of approximately 1.0 million of our 40 millimeter and 49 millimeter
      dual chambered dispensing pumps. We also 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.




6




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.




Principal
      Suppliers




Currently,
      we do utilize single source suppliers and manufacturers for our dispensers,
      and
      are dependent on single sets of molds and assembly tables. Production delays
      do,
      and have, occurred as a result of this dependency. Our 40mm and 49mm dispensers
      are molded and manufactured primarily at Jarden in the United States and our
      20mm dispensers will be molded and manufactured at Seidel in Germany. Because
      we
      have no direct control over our third-party manufacturers, 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. 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. Our
      production costs may increase as a result of the costs for these raw materials.
      Prior to retaining the services of Jarden in the United States, we had
      previously utilized two major injection molders in Germany, Poloplast GmbH
      and
      Gepe-Geimuplast GmbH and one assembly facility, Holzmann Montague, also located
      in Germany for the manufacture of our 40mm and 49mm dispensers. We had no
      written contracts with these suppliers. All orders were placed on an individual
      purchase order basis. During the fourth calendar quarter of 2007, the majority
      of our manufacturing, including both the injection molding and assembly
      functions, was outsourced to Jarden for the 40mm and 49mm dual chambered
      dispensing pumps. It is anticipated that the new 20mm dispensing pump production
      will begin in the fourth calendar quarter of 2008 at Seidel in Germany. We
      also
      will retain the services of Poloplast GmbH and Holzmann Montague in Germany
      for
      development projects with new and existing customers, and possibly for assembly
      of foreign orders or additional production of our 40mm and 49mm pumps if
      necessary.




Major
      Customers





Customers
      accounting for 10% or more of revenue for the years ended June 30, 2008 and
      2007
      are as follows:




**Year ending**
              **June 30, 2008**
            
            **Year ending**
              **June 30, 2007**Customer
                A
            
            $
            3,433,000Customer
                B
            
            
            
            
            $
            958,000Customer
                C
            
            
            -
            
            
            385,000$
            3,433,000
            
            $
            1,343,000





7




We
      generated revenues from one customer during fiscal 2008 and two customers during
      fiscal 2007 aggregating approximately 85% and 96% 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-license agreement
      with SCG, we agreed to make all payments due by the Licensee (SCG) to Licensor
      under the License Agreement.





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**2009
            
            $
            525,0002010
            
            
            575,0002011
            
            
            625,0002012
            
            
            675,0002013
            
            
            725,0002014
                and thereafter
            
            
            11,925,000$
            15,050,000





In
      addition to the minimum royalty payment, the Licensee will also pay to the
      Licensor $12,500 per month as long as 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.




8




Royalty
      and technical support expenses aggregated $600,000 and $500,000 for the years
      ended June 30, 2008 and 2007, respectively. All technical consulting payments
      were paid when due through June 30, 2008.  At
      June
      30, 2008, the Licensor was due approximately $809,000 in past due
      royalties.





On
      October 20, 2008 Innopump entered into an unsecured loan agreement with SCG.
      In
      order to provide such funds to Innopump, SCG entered into a loan transaction
      with a third party lender. The Licensor gave the third party lender his consent
      of a collateral assignment of the License by SCG to the lender and agreed that
      any outstanding indebtedness of SCG under the License Agreement, which
      aggregated approximately $907,000 at the date of the closing, would not be
      due
      prior to July 1, 2009. SCG, in consideration for the Licensor’s cooperation,
      agreed to provide cash collateral for its payment obligations under its License
      Agreement of $895,750, which Innopump agreed to fund out of the loan proceeds.
      Where Innopump complies with the terms of the loan agreement with SCG, this
      amount shall be a credit against its loan agreement obligations. No changes
      were
      made in the sublicense agreement between Innopump and SCG in connection with
      this loan.


****


*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. On August 11, 2006 in conjunction with the merger, SCG was paid
      $150,000 of the sublicense fee as the terms of the agreement . 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 January 15, 2008, the agreement was again amended to
      extend the payment dates of the remaining sublicense fee of $450,000, with
      $300,000 due on September 30, 2008 and $150,000 due on December 31,
      2008.





On
      June
      30, 2008, the agreement was further amended to extend the payment date of the
      remaining sublicense fee of $450,000 to July 1, 2009. In addition, the royalty
      due SCG at June 30, 2008 of approximately $141,000 was deferred to be payable
      on
      July 1, 2009 and additional royalties accruing for the period July 1, 2008
      through June 30, 2009 will be due and payable on July 1, 2009. No interest
      shall
      be due or payable in regard to past due royalties. On July 1, 2008, in
      consideration for the amendment of the terms of the sublicense between Innopump
      and SCG, we granted to SCG 250,000 warrants to purchase our common stock
      exercisable for five years from the date of issuance at an initial exercise
      price equal to $2.282 per share. SCG assigned 175,000 of these warrants to
      two
      related parties as consideration for debt extensions of SCG.





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.




9




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 6 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 and 3 part time consultants in the United
      States utilized for administration, finance, 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.




**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;




10




•
            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
      may 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 if required. We believe we may 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 if 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.





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, 2008 of approximately $20.0
      million.**





For
      the
      years ended June 30, 2008 and June 30 2007, we had net losses of $5.2 million
      and $7.9 million, respectively. For the years ended June 30, 2008 and June
      30,
      2007, we had negative cash flows from operations of $.0 million and $3.0 million
      respectively.





From
      our
      inception to June 30, 2008 our aggregate sales have been approximately $7.6
      million and we have incurred a net loss of approximately $20.0 million. While
      sales have started to increase 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.




11




**We
      have ongoing royalty payment obligations with respect to our technology that
      we
      have had to reschedule.**





At
      June
      30, 2008, Gerhard Brugger, the Licensor of the patented technology used in
      our
      products, was owed approximately $809,000 in past due royalties. On October
      20,
      2008 Innopump entered into an unsecured loan agreement with SCG. In order to
      provide funds to Innopump, SCG entered into a loan transaction with a third
      party lender. The Licensor gave the third party lender his consent of a
      collateral assignment of the License by SCG to the lender and agreed that any
      outstanding indebtedness of SCG under the License Agreement, which aggregated
      approximately $907,000 at the date of the closing, would not be due prior to
      July 1, 2009. SCG, in consideration for the Licensor’s cooperation, agreed to
      provide cash collateral for its payment obligations under its License Agreement
      of $895,750, which Innopump agreed to fund out of the loan proceeds. Where
      Innopump complies with the terms of the loan agreement with SCG, this amount
      shall be a credit against its loan agreement obligations. No changes were made
      in the sublicense agreement between Innopump and SCG in connection with this
      loan.





**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.





**Our
      business is presently dependent on orders from a limited number of
      customers.**




We
      generated revenues from one customer during fiscal 2008 and two customers during
      fiscal 2007 aggregating approximately 85% and 96% of total revenues,
      respectively. The loss of any of these customers could have a material adverse
      effect on our business, financial condition and results of
      operations.




12




**Our
      business is presently dependent on single sources of
      supply**





Currently,
      we do utilize single source suppliers and manufacturers for several of our
      components and dispensers, and are dependent on single sets of molds and
      assembly tables described further under “Description of Business- Manufacturing”
and “Description of Business- Principal Suppliers”. Production delays do, and
      have, occurred as a result of this dependency. If operations at a single source
      of supply are interrupted, it could materially and adversely affect our ability
      to supply our products to our customers in a timely manner. We are currently
      seeking to finalize additional multi-year agreements with established
      manufacturers in both the USA and Europe, in addition to the agreements in
      place
      to enable us to outsource production while retaining control over the production
      assets, molds and assembly tables.




**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 or if SCG defaults on its
      third party loan for which the lender has a collateral assignment of the License
      Agreement. We were in arrears, as of June 30, 2008, of royalty payments in
      the
      aggregate of $809,000 and $907,000 on October 20, 2008, the date of the closing
      of the third party loan. Mr. Brugger gave his consent to the lender that no
      past
      due royalties would be due prior to July 1, 2009 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.




13




**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;





·
            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.




14




**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.





**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-K for the fiscal year ending June 30, 2010.
      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 either own all the
      molds and assembly equipment utilized in our manufacturing process located
      at
      these vendors or will receive transfer of title upon completion of payment
      for
      the related molds and assembly equipment as required under the terms of
      amortization or capital lease obligation agreements with these
      subcontractors.




15




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 under
      the
      terms of certain debt agreements.




**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, 2008 to a vote of our security holders.




16





**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
              
              Low2008
              
              
              First
                  Quarter
              
              
              2.25
              
              
              1.25Second
                  Quarter
              
              
              2.25
              
              
              1.50Third
                  Quarter
              
              
              1.60
              
              
              1.05Fourth
                  Quarter
              
              
              1.05
              
              
              .512007
              
              
              First
                  Quarter
              
              
              3.60
              
              
              1.80Second
                  Quarter
              
              
              5.40
              
              
              1.35Third
                  Quarter
              
              
              4.05
              
              
              1.13Fourth
                  Quarter
              
              
              2.00
              
              
              1.10





(b)  As
      of
      November 3, 2008, we estimate that there are approximately 183 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.*




17





**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 manufacture of the dual dispensers are currently outsourced
      to
      third party subcontractors in the United States for our 40mm and 49mm size
      dispensers and in Germany for our 20mm size dispenser and are currently being
      utilized in the food, sun care, skincare, and cosmetic industries. We began
      manufacturing in the United States commencing in the fourth calendar quarter
      of
      2007. Prior to that time, all of our subcontractors were located in
      Germany.





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 2008 and 2007
      refer to the fiscal years ended June 30, 2008 and June 30, 2007, 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 two fiscal years and
      subsequent to June 30, 2008:




18




·
            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, as amended,
                on
                November 9, 2009 (“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% ($9.7 million at June 30,
                2008) of
                the outstanding principal plus accrued but unpaid interest, on the
                Maturity Date. The proceeds from the Convertible Debt were used for
                working capital, capital expenditures, mandatory debt repayment,
                and
                general corporate purposes.





·
            On
                September 20, 2006, we entered into a 30-month manufacturing agreement
                with Seidel GMBH, an outside contractor located in Germany. The agreement
                calls for the contractor to develop certain production molds for
                us for
                our 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 $5.3 million for the required production molds. As of June
                30,
                2008, 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. The total amount of
                the
                lease, including interest, is to be paid monthly in varying installments
                through March 2009. At June 30, 2008, we have an outstanding balance
                of
                approximately $84,000 due on the capital lease. As of June 30, 2008,
                we
                have made payments of approximately $3.1 million for the production
                molds
                and we have an outstanding current liability of approximately $1.1
                million
                due to the contractor.On
                October 2, 2008, we agreed to pay the contractor an aggregate of
                $1.7
                million for additional equipment to be purchased and for development
                costs
                related to the molds under the terms of an amortization agreement.
                The
                June 30, 2008 obligation due to the contractor for $1.1 million included
                in current liabilities represents the portion of development costs
                incurred prior to June 30, 2008. The remaining $.6 million is attributable
                to equipment and development costs incurred subsequent to June 30,
                2008.
                These costs in the aggregate of $1.7 million will be deferred and
                amortized over production on a per piece basis with any remaining
                unamortized balance due in monthly installments commencing July 2009
                through December 2009. Upon completion of construction of the production
                molds, the remaining balance due the contractor of approximately
                $520,000
                will be financed through a capital lease to be paid monthly through
                March
                2009. It is anticipated that production will commence in the fourth
                quarter of calendar 2008.





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 $.4 million as of June 30, 2008 for the
      equipment and have a current liability of approximately $.8 million for the
      balance which is included in deposits on production equipment and in current
      liabilities. The equipment was received in December 2007. It is anticipated
      that
      production will commence by the fourth calendar quarter of 2008. In October,
      2008, we reached an agreement with the vendor for the $.8 million due whereby
      we
      would pay approximately $275,000 in October 2008 and the remaining balance
      at a
      rate of approximately $75,000 per month including 7% interest on the past due
      amount until paid. The $275,000 was paid in October 2008 with the proceeds
      from
      a financing.




19




·
            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 was due on February 1,
                2008. At June 30, 2007, we 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 January 28, 2008, the Lender agreed to convert the remaining
                $2.0 million of the outstanding principal balance to equity at a
                conversion price of $1.60 per share, the offering price of our private
                placement, for an aggregate of 1,250,000
                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 $4.6 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. 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.





During
      the year ended June 30, 2008, all of the molds and equipment in the aggregate
      of
      approximately $4.6 million were completed, utilized in production and
      capitalized. Approximately $4.35 million of this cost is being amortized. For
      the year ended June 30, 2008, amortization of the molds and equipment
      approximated $662,000. The remaining balance is to be amortized over production
      with any remaining balance due 18 months from inception of production. We are
      currently in arrears at June 30, 2008 in the amount of approximately $619,000
      in
      amortization which is included in current liabilities. In October, 2008, we
      paid
      $500,000 of the past due amortization from the proceeds of a financing. We
      are
      in discussions with the contractor to restructure the current amortization
      program as to duration of term and amount per piece to be
      amortized.





·
            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. On October 2, 2008, the agreement
                was
                amended and Avon’s commitment to purchase certain of our products was
                reduced in number in return for certain price adjustments based on
                current
                market conditions.





Pursuant
      to the terms of a Credit Memo previously entered into with Avon, we were to
      repay Avon’s $1.7 million advances provided to assist us with capital equipment
      costs for our new 20mm size dispenser 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. On October
      2, 2008, we were fully relieved of our obligation to repay the $1.7 million
      advance provided that we shall instead pay Seidel, the tooling and mold
      contractor, this amount pursuant to a payment schedule to be determined between
      us and Seidel as consideration for additional equipment costs and development
      costs related to the tooling and mold expenses. In the event of a default by
      in
      payment to Seidel, the credit relief granted shall immediately be null and
      void
      to the extent of any unpaid balance, and Avon shall have the right to enforce
      against us collection of the full amount of such unpaid balance. Upon our
      payment to the tooling and mold contractor, we will recognize the credit relief
      granted by Avon. We anticipate production to begin in the fourth quarter of
      calendar 2008.




20




·
            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
                were due upon the earlier of (a) six months following the final closing
                date of November 27, 2007 (b) the date on which we received 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 closed on a rights
                offering. We have received net proceeds of approximately $2.4 million
                from
                the sale of the Notes of which $2.2 million was received from Richard
                Harriton, a related party who serves as a Director and is a major
                shareholder of the Company.





On
      January 28, 2008, we repaid an aggregate of $1.3 million of these notes with
      the
      proceeds from a private offering inclusive of interest and discount of which
      $1.2 million was repaid to Richard Harriton. On May 31, 2008, the holders of
      the
      notes agreed to extend the maturity date to the earlier of (a) March 31, 2009
      or
      (b) the date on which we receive gross proceeds in excess of $7.0 million from
      any debt or equity financing.





·
            Under
                the terms of a private placement, we offered for sale a maximum of
                3,437,500 units of our securities at $1.60 per unit with a minimum
                unit
                purchase of $80,000. Each unit consists of one share of common stock
                and
                20% warrant coverage. The warrants are exercisable for five years
                from the
                date of issuance at an initial exercise price equal to $2.00 per
                share
                subject to adjustment under certain events. The private placement
                was
                extended through a final closing date of May 31, 2008 for a maximum
                aggregate placement of $5,500,000.





On
      January 28, 2008 we received $2,800,000 for the purchase of 1,750,000 units
      of
      our securities consisting of 1,750,000 shares of common stock and stock purchase
      warrants (20% warrant coverage or an aggregate of 350,000 warrants) in
      connection with the private placement offering. The proceeds of the private
      placement were used primarily for working capital purposes including (i)
      repayment of outstanding current indebtedness including approximately $1.3
      million in bridge financing incurred with the Securities Purchase Agreement
      inclusive of accrued interest and discount, (ii) payment of other outstanding
      obligations, and (iii) funding working capital requirements including product
      development and the acquisition of tooling and molds.





We
      had
      received a letter from the Investor, the purchaser of 1,250,000 units in the
      private placement, committing the Investor subscribe and pay $2,000,000 for
      an
      additional 1,250,000 units by May 31, 2008. The Investor did not deliver the
      $2.0 million by May 31, 2008. We are presently in discussions with the Investor
      regarding this obligation.





·
            On
                October 20, 2008, our subsidiary, Innopump, entered into an unsecured
                loan
                agreement with SCG. SCG is an affiliate of ours as members of our
                Board of
                Directors own approximately 69% of the outstanding membership interests
                of
                SCG. SCG is the sublicensor of the patented technology used in the
                manufacture of our proprietary products. The loan is for a principal
                amount of $3,445,750, matures on June 29, 2009and
                bears interest at the rate of one and eighty three hundredths percent
                (1.83%) per month payable in arrears on the first day of each month
                or
                payable in kind at the option of Innopump with the interest being
                added to
                the principal balance. The agreement also obligates Innopump to pay
                a
                fully earned facility fee of $400,000 at maturity, a commitment fee
                of
                $250,000 upon execution of the loan and an in kind monitoring fee
                in the
                amount of $100,000 per month for five (5) consecutive months commencing
                on
                November 1, 2008 and terminating on March 1, 2009 payable at maturity.
                The
                loan is not prepayable before March 1,
                2009.




21




In
      order
      to provide such funds to Innopump, SCG entered into a loan transaction with
      a
      third party lender. Innopump’s payment obligations under the terms of its loan
      agreement with SCG are equivalent to SCG’s payment obligations to its lender
      with the consequence that all loan payments made by Innopump to SCG will in
      turn
      be paid by SCG to its lender. In addition, the third party lender was granted
      a
      warrant to purchase a 10% membership interest in SCG at an aggregate price
      equal
      to $1. The warrant expires on October 31, 2010. Innopump also executed a letter
      in favor of the third party lender to SCG providing an indemnity to such lender
      in the event the lender becomes subject to litigation commenced by our creditors
      on account of its having made such loan.




Gerhard
      Brugger, who is the licensor to SCG of the patented technology sublicensed
      to
      Innopump, gave the third party lender his consent of a collateral assignment
      of
      the License by SCG to the lender and agreed that any outstanding indebtedness
      of
      SCG under the License Agreement, which aggregated approximately $907,000 at
      the
      date of the closing, would not be due prior to July 1, 2009. SCG, in
      consideration for Mr. Brugger’s cooperation, agreed to provide cash collateral
      for its payment obligations to Mr. Brugger under its License Agreement of
      $895,750, which Innopump agreed to fund out of the loan proceeds. Where Innopump
      complies with the terms of the loan agreement with SCG, this amount shall be
      a
      credit against its loan agreement obligations. No changes were made in the
      sublicense agreement with SCG in connection with this loan.





The
      net
      proceeds from the loan after fees, aggregated approximately $3.1 million. The
      proceeds of the loan are to be used (i) to establish the required cash
      collateral account (ii) payment of current accounts payable and other
      outstanding obligations, and (iii) funding anticipated working capital
      requirements including product development and the acquisition of tooling and
      molds.





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 2008 and 2007
      refer to the fiscal years ended June 30, 2008 and June 30, 2007, respectively.





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 statements
      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.




22




*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
              2-7
                  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. We also reevaluate the periods of amortization
      to
      determine whether subsequent events and circumstances warrant revised estimates
      of useful lives. In the fourth quarter of 2008, we tested for impairment of
      our
      long lived assets as part of our annual long-lived asset impairment review.
      There were no impairment charges for the year ended June 30, 2008. There can
      be
      no assurance that there will not be impairment charges in subsequent periods
      as
      a result of our future periodic impairment reviews. To the extent that future
      impairment charges occur, they will likely have a material impact on our
      financial results.




23




*Foreign
      Currency Transactions*





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





*Fair
      Value of Financial Instruments*





The
      fair
      value of our assets and liabilities, which qualify as financial instruments
      under SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
      approximate the carrying amounts presented in the accompanying 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
      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 2008,
      FASB
      issued FASB Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement
      No. 157, which delayed the effective date of SFAS 157 for certain non-financial
      assets and non-financial liabilities to fiscal years beginning after November
      15, 2008, and interim periods within those fiscal years. We are in the process
      of evaluating the effect, if any, the adoption of FSP No. 157-2 will have on
      our
      results of operations or financial position.




24




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.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“FAS 141R”). FAS 141R establishes principles and requirements for
      how the acquirer in a business combination recognizes and measures in its
      financial statements the fair value of identifiable assets acquired, the
      liabilities assumed and any noncontrolling interest in the acquiree at the
      acquisition date. FAS 141R determines what information to disclose to enable
      users of the financial statements to evaluate the nature and financial effects
      of the business combination. FAS 141R is effective for fiscal years beginning
      after December 15, 2008. We are currently evaluating the impact of adopting
      FAS
      141R on our consolidated results of
      operations and financial condition and plans to adopt it as required in the
      first quarter of fiscal 2009.




In
      December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
      Consolidated Financial Statements” (“FAS 160”), an amendment of Accounting
      Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”). FAS
      160 establishes accounting and reporting standards for the noncontrolling
      interest in a subsidiary and for the deconsolidation of a subsidiary. Minority
      interests will be recharacterized as noncontrolling interests and will be
      reported as a component of equity separate from the parent’s equity, and
      purchases or sales of equity interests that do not result in a change in control
      will be accounted for as equity transactions. In addition, net income
      attributable to the noncontrolling interest will be included in consolidated
      net
      income on the face of the income statement and upon a loss of control, the
      interest sold, as well as any interest retained, will be recorded at fair value
      with any gain or loss recognized in earnings. This pronouncement is effective
      for fiscal years beginning after December 15, 2008. We are currently evaluating
      the impact of adopting FAS 160 on our consolidated results of operations and
      financial condition and plan to adopt it as required in the first quarter of
      fiscal 2009.




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities” (“FAS 161”). FAS 161requires enhanced disclosures about
      an entity’s derivative and hedging activities and thereby improves the
      transparency of financial reporting. The objective of the guidance is to provide
      users of financial statements with an enhanced understanding of how and why
      an
      entity uses derivative instruments; how derivative instruments and related
      hedged items are accounted for; and how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance, and
      cash flows. FAS 161 is effective for fiscal years beginning after November
      15,
      2008. We are currently evaluating the impact FAS 161 will have on our
      consolidated financial statements.




In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles”.  SFAS 162 identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles in the
      United States.  It is effective 60 days following the SEC’s approval of the
      Public Company Accounting Oversight Board amendments to AU Section 411, “The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles”.  The adoption of this statement is not expected to have a
      material effect on our financial statements.




25





**RESULTS
      OF OPERATIONS**





Executive
      Summary





The
      table
      below sets forth a summary of financial highlights for the two years ended
      June
      30, 2008:





Overall,
      our revenue grew substantially by 190% during the current year as our operations
      began to grow in the skincare and cosmetic sectors. Our direct costs were 76%
      and 114% of revenues for the respective years due to several factors, which
      were
      primarily the need for manual labor of certain functions in Germany which have
      started to decline and will continue to decline as U.S. production began in
      late
      2007, the unfavorable Euro/US Dollar currency exchange fluctuation which also
      will continue to decline as U.S. based production increases, the purchase of
      new
      assembly equipment for our new U.S. based facility which had some startup
      production problems, and high direct freight costs due mainly to component
      parts
      being produced in the U.S. and shipped to Germany for assembly prior to
      completion of the U.S. facility becoming fully operational. Our direct costs
      as
      a percentage of revenues should continue to decrease as our U.S. production
      facility commenced operations in late 2007 and became fully operational in
      February 2008. Our indirect costs increased by approximately $1.4 million in
      the
      current year due to higher depreciation expenses in the current year on capital
      acquisitions, costs for prototype samples for new customers and products, and
      high costs for testing of new equipment for the U.S. facility. Our revenues
      did
      not increase enough to cover these costs as our production capacity was limited
      due to the moving of equipment from Germany to the U.S. and the set-up time
      required for the transition. Our German facility is still operational but with
      a
      limited amount of equipment with less production capacity than previously as
      the
      newer higher cavity equipment shipped to the U.S. in September 2007. The
      equipment had to be retrofitted for U.S. production and became operational
      in
      November 2007. Our general and administrative expenses increased about 3% in
      the
      current fiscal year as related to the growth of our business. 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 transition to the
      U.S. has been completed for production of our 40mm and 49mm dispensers and
      our
      new 20mm dispenser product line is completed and manufacturing should begin
      in
      late calendar 2008 at Seidel in Germany. We estimate we will be able to produce
      approximately 15 million units annually of our 20mm dispenser. In addition,
      we
      believe the completion of our new U.S. based facility in February 2008 for
      our
      40 and 49mm product line will enable us to increase production with
      substantially all new automated molds and assembly equipment. 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 four (4) 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 and we will no longer need to purchase individual
      component parts and contract assembly labor separately. Additionally, we will
      retain the services of Holzmann Montague, our prior assembly manufacturer in
      Germany, for development projects with new and existing customers, and possibly
      for assembly of foreign orders or additional production use if necessary.




26


**For
                  the year ended June 30,**
              
              **2008**
              
              **2007**
              
              **CHANGE****Net
                  revenues**
              
              $
              4,051,714
              
              $
              1,396,251
              
              
              190
              %**Cost
                  of revenues**Direct
                  costs
              
              
              3,083,753
              
              
              1,592,462
              
              
              94
              %Indirect
                  costs
              
              
              2,234,049
              
              
              820,474
              
              
              172
              %5,317,802
              
              
              2,412,936
              
              
              120
              %**Gross
                  margin**
              
              
              (1,266,088
              )
              
              (1,016,685
              )
              
              25
              %**Operating
                  expenses**General
                  and administrative
              
              
              3,242,240
              
              
              3,153,936
              
              
              3
              %**Loss
                  from operations**
              
              
              (4,508,328
              )
              
              (4,170,621
              )
              
              8
              %**Other
                  income (expenses)**Sublease
                  income, affiliates
              
              
              47,660
              
              
              12,315
              
              
              287
              %Interest
                  and other expense
              
              
              (1,615,724
              )
              
              (1,391,166
              )
              
              16
              %Interest
                  expense, related parties
              
              
              (181,582
              )
              
              (101,655
              )
              
              79
              %Amortization
                  of debt discount
              
              
              (622,852
              )
              
              (778,137
              )Amortization
                  of financing costs
              
              
              (407,420
              )
              
              (485,706
              )
              
              -16
              %Loss
                  on derivative financial instruments
              
              
              2,351,077
              
              
              (991,916
              )Loss
                  on foreign currency exchange
              
              
              (255,144
              )
              
              (35,460
              )
              
              620
              %(683,985
              )
              
              (3,771,725
              )
              
              -82
              %**Net
                  loss**
              
              $
              (5,192,313
              )
              $
              (7,942,346
              )
              
              -35
              %




REVENUES.
      During the year ended June 30, 2008, we had revenues of $4,051,714 as compared
      to revenues of $1,396,251 during the year ended June 30, 2007, an increase
      of
      approximately 190%. In 2008, 85% of the revenue was attributable to one customer
      in the cosmetic industry. In 2007, 96% of the revenue was attributable to two
      customers in the suncare and skincare industry. 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 $3,083,753 (76% of revenues) for the year ended June
      30,
      2008 as compared to $1,592,462 (114% of revenues) for the year ended June 30,
      2007. The increase in dollars for 2008 is a result of the increase in revenues.
      The high percentage of direct costs as related to revenues in both periods
      is
      attributable to several factors which are discussed above and should begin
      to
      improve in the next year as the transition from Germany to the U.S. for both
      our
      40mm and 49mm product lines is now complete. Cost of revenues – indirect costs,
      which consist of indirect labor, quality control costs, factory maintenance,
      product development and depreciation, were $2,234,049 for the year ended June
      30, 2008 as compared to $820,474 for the year ended June 30, 2007. The increase
      was due primarily to increased depreciation of approximately $823,000 due to
      the
      purchase of more manufacturing equipment, for additional costs for runoff
      testing of parts of approximately $146,000 needed to validate the new U.S.
      equipment and the new 20mm equipment in Germany, and for additional labor for
      testing and development in 2008 as compared to 2007. Also included in indirect
      costs for the year ended June 30, 2008 is a charge of approximately $407,000
      for
      writedown of inventory and defective parts in Germany related to the 40mm and
      49mm product lines. As the majority of these operations are now U.S. based,
      these parts were no longer customer validated or considered compatible with
      U.S.
      resins or the manufacturing process. Gross margin was a deficit of $(1,266,088)
      for the year ended June 30, 2008 as compared to a deficit of $(1,016,685) for
      the year ended June 30, 2007, representing gross margins of approximately (31)
      %
      and (73) % of revenues, as a result of revenues insufficient to cover indirect
      operating costs. We believe that indirect costs, which are primarily related
      to
      depreciation and the testing and development of new automated equipment, will
      decrease both in amount and as a percent of revenues as the equipment is placed
      in service and revenues increase to cover these costs. We also believe direct
      costs should decrease on a percentage of revenue basis as discussed above as
      our
      new U.S. facility became fully operational in February 2008 and our new 20mm
      facility in Germany will become operational in fourth quarter 2008 and both
      our
      capacity and production capabilities will increase and we will become more
      cost
      efficient.




27




OPERATING
      EXPENSES. General and administrative expenses totaled $3,242,240 for the year
      ended June 30, 2008, as compared to $3,153,936 for the year ended June 30,
      2007,
      an increase of approximately 3%. This increase of approximately $88,000 is
      primarily attributable to an increase in the royalties due the licensor under
      contract of $100,000. 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 $5,192,313 for the year ended June 30, 2008 as compared
      to
      $7,942,346 for the year ended June 30, 2007, a decrease of approximately
      $2,750,000. The decrease in net loss is attributable to the increases in revenue
      and decrease in direct cost of revenues as a percentage of revenues as described
      above. This improvement to the gross margin was offset by increased indirect
      costs resulting in an actual decrease in gross margin in the current fiscal
      year
      by approximately $250,000. In addition, we recognized derivative income of
      approximately $2,351,000 for the year ended June 30, 2008 as compared to a
      derivative loss of approximately ($992,000) for the year ended June 30, 2007
      as
      a result of the decline of the market price of our shares in the current year
      as
      compared to the prior year. 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, 2008:


At June 30,2008Current
                  assets
              
              $
              1,091,497Current
                  liabilities
              
              
              10,547,637Working
                  capital deficit
              
              $
              (9,456,140
              )




At
      June
      30, 2008, we had incurred cumulative losses of approximately $20.0 million
      since
      inception and $5.2 million for the year ended June 30, 2008. We have a working
      capital deficit of approximately $9.5 million and a stockholders’ deficit of
      approximately $11.3 million as of June 30, 2008.




28




During
      the year ended June 30, 2008, we did not utilize cash for operating activities
      resulting in an increase in our accounts payable and accrued expenses of
      approximately $1.9 million due to the revenues not yet great enough to cover
      general and administrative expenses and indirect costs. We utilized net cash
      of
      approximately $3.9 million from investing and financing activities primarily
      to
      purchase molds and equipment. Our cash balance increased by approximately
      $80,000 for the year ended June 30, 2008.





At
      June
      30, 2008, current liabilities include accounts payable and accrued expenses
      of
      approximately $4.7 million of which approximately $1.9 million is for the
      purchase and development of new equipment due to two vendors in Germany. In
      October 2008, we reached an agreement with one of these vendors for the $1.1
      million due that vendor to amortize these costs over production on a per piece
      basis, which is scheduled to start in late fourth quarter 2008, with any
      remaining unamortized balance due in monthly installments commencing July 2009
      through December 2009. In October, 2008, we reached an agreement with the other
      vendor for the $0.8 million due that vendor whereby we would pay approximately
      $275,000 in October 2008 and the remaining balance at a rate of approximately
      $75,000 per month until paid. The $275,000 was paid in October 2008 with the
      proceeds from a financing as described below. Approximately $1.1 million
      included in accounts payable is due to a vendor in the United States for; (a)
      the amortization of purchased equipment under a capital lease obligation of
      approximately $0.6 million and; (b) start up costs and additional equipment
      at a
      new U.S. based facility of approximately $0.5 million. In October 2008, we
      paid
      approximately $0.5 million of the balance due the vendor for the amortization
      from the proceeds of a financing as described below and are in discussions
      with
      the vendor for deferred payment of the balance. Current capital lease
      obligations of approximately $3.7 million are to be repaid through amortization
      of production based on the number of units produced with any balance due 18
      months from the start of production which commenced in November 2007. We
      anticipate revenues from production may cover this obligation and that
      alternatively this obligation may be extended as to the term and amount of
      amortization per unit produced. In addition, approximately $1.2 million of
      current liabilities relates to bridge loans which will be repaid out of the
      proceeds from any new additional financings as described below.





On
      August
      30, 2007, 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 were
      due
      upon the earlier of (a) six months following the final closing date of November
      27, 2007, (b) the date on which we received 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 we closed on a rights offering. We received net proceeds of $2.4
      million in regards to the notes of which $2.2 million was received from a
      related party. On January 28, 2008, we repaid an aggregate of $1.3 million
      of
      these notes with the proceeds from a private offering inclusive of interest
      and
      discount of which $1.2 million was repaid to a related party. On May 31, 2008,
      the holders of the notes agreed to extend the maturity date to the earlier
      of
      (a) March 31, 2009 or (b) the date on which we receives gross proceeds in excess
      of $7.0 million from any debt or equity financing.





On
      January 28, 2008 we received $2.8 million for the purchase of 1,750,000 units
      of
      our securities consisting of 1,750,000 shares of common stock and stock purchase
      warrants (20% warrant coverage) in connection with a private placement offering.
      The proceeds of the private placement were used primarily for working capital
      purposes including (i) repayment of outstanding current indebtedness including
      approximately $1.3 million in bridge financing incurred with the Securities
      Purchase Agreement inclusive of accrued interest and discount, (ii) payment
      of
      other outstanding obligations, and (iii) funding anticipated working capital
      requirements including product development and the acquisition of tooling and
      molds. The private placement was extended through a final closing date of May
      31, 2008 for a maximum aggregate placement of $5.5 million. We received a letter
      from Fursa Master Global Event Driven Fund, L.P. (“Fursa”), the purchaser of
      1,250,000 units in the private placement, committing Fursa Master Global Event
      Driven Fund, L.P. to subscribe and pay $2.0 million for an additional 1,250,000
      units by May 31, 2008. Fursa did not deliver the $2.0 million by May 31, 2008.
      We are presently in discussions with Fursa regarding this obligation and are
      also seeking to obtain additional debt or equity financing from alternative
      sources.




29




On
      October 20, 2008, our subsidiary, Innopump entered into an unsecured loan
      agreement with Sea Change Group, LLC (“SCG”). SCG is the sublicensor of the
      patented technology used in the manufacture of the our proprietary products.
      The
      loan is for a principal amount of $3,445,750, matures on June 29, 2009 and
      bears
      interest at the rate of one and eighty three hundredths percent (1.83%) per
      month. The net proceeds from the loan, after fees and the required establishment
      of a cash collateral account, aggregated approximately $2.2 million. The
      proceeds of the loan are to be used primarily for working capital purposes
      including (i) payment of current accounts payable and other outstanding
      obligations, and (ii) funding anticipated working capital requirements including
      product development and the acquisition of tooling and molds .





We
      recognize that we must generate additional revenue and gross profits to achieve
      profitable operations. Management's plans to increase revenues include the
      continued building of its customer base and product lines. In regard to these
      objectives, we will commence production in connection with a supply agreement
      with Avon, a customer in the consumer products industry, as related to the
      manufacture of our new size (20mm) dispenser in fiscal 2009. We have an initial
      order from Avon for 2.5 million units subject to increase to 4.0 million units
      upon us delivering product in the timeframe specified by Avon. In addition,
      we
      are involved in development projects with new customers with the potential
      to
      manufacture more than twenty (20) million units for the combined 2009 and 2010
      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 have relocated our operations for the production of our two current
      product lines (the 40mm and 49mm size dispensers) from Germany to the United
      States. The manufacturing facility in the United States commenced operations
      in
      November 2007 and became fully operational in February 2008. This new facility
      will increase both production capacity and gross profit margins on these product
      lines. We have currently manufactured and shipped approximately 5.1 million
      dispensers to date and have firm orders on hand from several customers for
      production of approximately 1.0 million of our 40 millimeter and 49 millimeter
      dual chambered dispensing pumps. We believe we will have recurring orders with
      these customers as well as new orders in the coming fiscal year from several
      customers we are working with on new products. Management believes that the
      capital received to date from previous financings may not be sufficient to
      meet
      financial obligations in regard to the capital equipment commitments required
      to
      expand its product line and increase production capacity and to fund operations
      and repay debt during the next twelve months. Additional debt or equity
      financing may be required which may include receivables or purchase order
      financing, the issuance of new debt or equity instruments, additional
      amortization of a portion of construction costs through our production partners
      and possible restructuring of current amortization agreements.





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.




30




The
      following is a table summarizing our significant commitments as of June 30,
      2008, 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 2009**
            
            **FYE**
              **2010-2011**
            
            **FYE**
              **2012-2013**
            
            **FYE 2014 and**
              **Thereafter**Convertible
                Debt and interest
            
            $
            10.6
            
            $
            0.8
            
            $
            9.8
            
            $
            -
            
            $
            -Notes
                and interest - related parties
            
            
            2.7
            
            
            1.1
            
            
            1.6Other
                notes and interest
            
            
            0.2
            
            
            0.2Royalties
                including arrears
            
            
            15.8
            
            
            0.5
            
            
            2.0
            
            
            1.4
            
            
            11.9Equipment
                obligations and leases
            
            
            2.5
            
            
            2.5
            
            
            -Tooling
                Amortization
            
            
            3.8
            
            
            3.8
            
            
            -Operating
                lease
            
            
            0.1
            
            
            0.1
            
            
            -$
            35.7
            
            $
            9.0
            
            $
            13.4
            
            $
            1.4
            
            $
            11.9





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





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




31





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.




32





**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, 2008
              F-2Statements
                  of Operations for the Years ended June 30, 2008 and June 30,
                  2007
              F-3Statements
                  of Stockholders' Deficit for the Years ended June 30, 2008 and
                  June 30,
                  2007
              F-4Statements
                  of Cash Flows for the Years ended June 30, 2008 and June 30,
                  2007
              F5-F6Notes
                  to Consolidated Financial Statements
              F7-F32




33





**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, 2008 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, 2008. 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, 2008, and the results of its operations and cash flows for the each of
        the
        years in the two-year period ended June 30, 2008, 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 $20.0 million since inception and utilized cash of approximately
        $3.0 million for operating activities during the two years ended June 30,
        2008.
        The Company has a working capital deficit of approximately $9.5 million and
        a
        stockholders’ deficit of approximately $11.3 million as of June 30, 2008. 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
 November
        13, 200 8
  F-1
  **Item
        7. Financial Statements**
 
 **VERSADIAL,
        INC.**
 **CONSOLIDATED
        BALANCE SHEET**
 
 
 **June 30,****2008****ASSETS****Current
                  assets**Cash
              
              $
              216,705Due
                  from affiliates
              
              
              23,964Accounts
                  receivable
              
              
              550,554Sublease
                  and other receivable
              
              
              19,500Inventories
              
              
              261,349Prepaid
                  expenses and other current assets
              
              
              19,425Total
                  current assets
              
              
              1,091,497**Property
                  and equipment,**net
              
              
              5,692,425**Other
                  assets**Development
                  of production equipment in progress
              
              
              5,599,615Deferred
                  financing costs
              
              
              196,000Security
                  deposit
              
              
              34,155Total
                  other assets
              
              
              5,829,770$
              12,613,692**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****Current
                  liabilities**Secured
                  accounts receivable financing and interest, related party
              
              $
              108,705Notes
                  and interest payable
              
              
              233,439Notes
                  and interest payable, related party
              
              
              1,162,434Interest
                  payable on convertible note
              
              
              116,665Accounts
                  payable and accrued expenses
              
              
              4,679,186Capital
                  lease obligations
              
              
              3,772,599Due
                  to related parties
              
              
              275,775Deferred
                  revenue
              
              
              153,264Customer
                  deposits
              
              
              45,570Total
                  current liabilities
              
              
              10,547,637**Long-term
                  liabilities**Convertible
                  note and interest payable, net of debt discount of
                  $154,605
              
              
              9,017,266Notes
                  and interest payable, related parties
              
              
              1,595,381Due
                  to licensor
              
              
              809,027Customer
                  advance
              
              
              1,700,000Derivative
                  financial instruments
              
              
              235,203Sublease
                  security deposit, affiliate
              
              
              6,830Total
                  long-term liabilities
              
              
              13,363,707**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, 18,309,194
                  issued
                  and outstanding
              
              
              1,831Additional
                  paid-in-capital
              
              
              8,722,502Accumulated
                  deficit
              
              
              (20,021,985
              )Total
                  stockholders' deficit
              
              
              (11,297,652
              )$
              12,613,692
  *See
        accompanying notes to consolidated financial statements*
 
 F-2
 
 **VERSADIAL,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 
 **For
                    the year ended June 30,**
                
                **2008**
                
                **2007****Net
                    revenues**
                
                $
                4,051,714
                
                $
                1,396,251**Cost
                    of revenues**Direct
                    costs
                
                
                3,083,753
                
                
                1,592,462Indirect
                    costs
                
                
                2,234,049
                
                
                820,4745,317,802
                
                
                2,412,936**Gross
                    margin**
                
                
                (1,266,088
                )
                
                (1,016,685
                )**Operating
                    expenses**General
                    and administrative
                
                
                3,242,240
                
                
                3,153,936**Loss
                    from operations**
                
                
                (4,508,328
                )
                
                (4,170,621
                )**Other
                    income (expenses)**Sublease
                    income, affiliates
                
                
                47,660
                
                
                12,315Interest
                    expense
                
                
                (1,615,724
                )
                
                (1,391,166
                )Interest
                    expense, related parties
                
                
                (181,582
                )
                
                (101,655
                )Amortization
                    of debt discount
                
                
                (622,852
                )
                
                (778,137
                )Amortization
                    of financing costs
                
                
                (407,420
                )
                
                (485,706
                )Gain
                    (loss) on derivative financial instruments
                
                
                2,351,077
                
                
                (991,916
                )Loss
                    on foreign currency exchange
                
                
                (255,144
                )
                
                (35,460
                )(683,985
                )
                
                (3,771,725
                )**Net
                    loss**
                
                $
                (5,192,313
                )
                $
                (7,942,346
                )**Weighted
                    average common shares outstanding**Basic
                    and Diluted
                
                
                16,316,943
                
                
                13,138,355**Loss
                    per common share**Basic
                    and Diluted
                
                $
                (0.32
                )
                $
                (0.60
                )
  See
        accompanying notes to consolidated financial
        statements
 F-3
 
 **VERSADIAL,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' DEFICIT**
 
 
 **Years
        Ended June 30, 2008 and 2007**
 **Common Stock**
                
                **Additional**
                
                **Accumulated****Shares**
                
                **Amount**
                
                **Paid-In Capital**
                
                **Deficit**
                
                **Total****Balances,
                    July 1, 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
                    of interest due on convertible debt to common stock
                
                
                637,349
                
                
                64
                
                
                796,623
                
                
                
                
                
                796,687Conversion
                    of convertible debt to common stock
                
                
                2,382,375
                
                
                238
                
                
                3,999,761
                
                
                
                
                
                3,999,999Common
                    stock issued in connection with private placement, net of
                    costs
                
                
                1,750,000
                
                
                175
                
                
                2,512,340
                
                
                
                
                
                2,512,515Reclassification
                    of warrants issued in connection with private placement to derivative
                    liability
                
                
                
                
                
                
                
                
                (71,894
                )
                
                
                
                
                (71,894
                )Warrants
                    issued in connection with debt extensions
                
                
                
                
                
                
                
                
                5,305
                
                
                
                
                
                5,305Capital
                    distributions to members of SCG
                
                
                
                
                
                
                
                
                (8,514
                )
                
                
                
                
                (8,514
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                (5,192,313
                )
                
                (5,192,313
                )**Balances,
                    June 30, 2008**
                
                
                18,309,194
                
                $
                1,831
                
                $
                8,722,502
                
                $
                (20,021,985
                )
                $
                (11,297,652
                )
 
 *
        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,**
                
                **2008**
                
                **2007****Cash
                    flows from operating activities**Net
                    loss
                
                $
                (5,192,313
                )
                $
                (7,942,346
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                1,269,803
                
                
                447,216Amortization
                    of debt discount
                
                
                622,852
                
                
                778,137Amortization
                    of financing costs
                
                
                407,420
                
                
                485,706Write-down
                    of inventory
                
                
                407,538
                
                
                -(Gain)
                    loss on derivative financial instruments
                
                
                (2,351,077
                )
                
                991,916Compensation
                    expense for revaluation of warrants
                
                
                47,181
                
                
                -Changes
                    in operating assets and liabilities:Due
                    from affiliates
                
                
                5,575
                
                
                21,969Accounts
                    receivable
                
                
                (325,570
                )
                
                (116,605
                )Sublease
                    and other receivable
                
                
                (19,500
                )
                
                -Inventories
                
                
                (121,555
                )
                
                (433,437
                )Prepaid
                    expenses and other current assets
                
                
                44,863
                
                
                (13,852
                )Accounts
                    payable and accrued expenses
                
                
                3,048,648
                
                
                1,120,732Due
                    to related parties
                
                
                79,826
                
                
                36,767Deferred
                    revenue
                
                
                153,264
                
                
                -Customer
                    deposits
                
                
                26,659
                
                
                (10,618
                )Due
                    to licensor
                
                
                376,907
                
                
                152,046Interest
                    payable
                
                
                1,515,002
                
                
                1,494,953**Net
                    cash used in operating activities**
                
                
                (4,477
                )
                
                (2,987,416
                )**Cash
                    flows from investing activities**Purchase
                    of equipment
                
                
                (628,881
                )
                
                (1,425,489
                )Payment
                    of development of production equipment in progress
                
                
                (3,179,101
                )
                
                (2,212,213
                )Payments
                    of merger costs
                
                
                -
                
                
                (142,919
                )Payments
                    of registration costs
                
                
                (35,086
                )
                
                (25,015
                )Net
                    cash acquired from merger
                
                
                -
                
                
                95**Net
                    cash used in investing activities**
                
                
                (3,843,068
                )
                
                (3,805,541
                )**Cash
                    flows from financing activities**Proceeds
                    from issuance of convertible notes
                
                
                -
                
                
                1,706,846Proceeds
                    from secured accounts receivable financing, related party
                
                
                128,132
                
                
                -Proceeds
                    from issuance of notes, related parties
                
                
                2,225,000
                
                
                -Proceeds
                    from issuance of notes
                
                
                1,200,000
                
                
                3,000,000Proceeds
                    from customer advance
                
                
                -
                
                
                1,700,000Payment
                    on secured accounts receivable financing, related party
                
                
                (21,531
                )Payment
                    on notes payable, related parties
                
                
                (1,185,567
                )
                
                (30,000
                )Payment
                    on note payable
                
                
                (106,186
                )Payments
                    of financing costs
                
                
                (45,000
                )
                
                (317,702
                )Proceeds
                    from private placement
                
                
                2,800,000
                
                
                -Payments
                    of private placement costs
                
                
                (227,385
                )
                
                -Distributions
                    to investors
                
                
                (8,514
                )
                
                (49,122
                )Payments
                    on capital leases
                
                
                (829,060
                )
                
                -**Net
                    cash provided by financing activities**
                
                
                3,929,889
                
                
                6,010,022**Net
                    increase (decrease) in cash**
                
                
                82,344
                
                
                (782,935
                )**Cash,
                    beginning of year**
                
                
                134,361
                
                
                917,296**Cash,
                    end of year**
                
                $
                216,705
                
                $
                134,361
  See
        accompanying notes to consolidated financial
        statements
 F-5
 
 **VERSADIAL,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (CONTINUED)**
 
 **For
                    the year ended June 30,**
                
                **2008**
                
                **2007****Supplemental
                    disclosure of cash flow information,**cash
                    paid during the period for interest
                
                $
                238,140
                
                $
                549,308**Supplemental
                      disclosure of non-cash investing and financing,** **activities:**Convertible
                    debentures converted to common stock
                
                $
                4,000,000
                
                $
                1,200,000Interest
                    paid in common stock
                
                $
                796,687
                
                $
                -Interest
                    converted to principal on convertible debenture
                
                $
                576,680
                
                $
                -Debt
                    discount related to convertible note and secured line of
                    credit
                
                $
                -
                
                $
                1,475,289Purchase
                    of equipment financed by capital lease obligation
                
                $
                4,350,201
                
                $
                251,458Reclassification
                    of deposit on production equipment to equipment
                
                $
                147,493
                
                $
                -Shares
                    formerly subject to redemption converted to common stock
                
                $
                -
                
                $
                887,403Reclassification
                    of deferred financing cost payable to equity
                
                $
                -
                
                $
                42,588Issuance
                    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
        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")
        which resulted in the Innopump shareholders receiving approximately 93.25%
        of
        the outstanding stock and the CARS shareholders retaining approximately 6.75%
        or
        914,227 shares. As a result of the Merger, Innopump became a wholly-owned
        subsidiary of the Registrant and the holders of Innopump common stock and
        debt
        acquired a majority interest of the Company. The accounting of this transaction
        differs from its legal form, as Innopump is considered the accounting acquirer
        and the Registrant the acquired entity. The transaction has been accounted
        for
        as a reverse acquisition under the purchase method of accounting, whereby
        the
        assets of CARS 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.
        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 both Germany and the United States and are being utilized
        in the
        food, sun care, skincare, and cosmetic industries.
 
 **2.**
              **Going
                  concern and Management’s
                  Response**
 
 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, 2008,
        the Company has incurred cumulative losses of approximately $20.0 million
        since
        inception and utilized cash of approximately $3.0 million for operating
        activities during the two years ended June 30, 2008. The Company has a working
        capital deficit of approximately $9.5 million and a stockholders’ deficit of
        approximately $11.3 million as of June 30, 2008.
 
 At
        June
        30, 2008, current liabilities include accounts payable and accrued expenses
        of
        approximately $4.7 million of which approximately $1.9 million is for the
        purchase and development of new equipment due to two vendors in Germany.
        In
        October 2008, the Company reached an agreement with one of these vendors
        for the
        $1.1 million due that vendor to amortize these costs over production on a
        per
        piece basis, which is scheduled to start in late fourth quarter 2008, with
        any
        remaining unamortized balance due in monthly installments commencing July
        2009
        through December 2009. In October 2008, the Company reached an agreement
        with
        the other vendor for the $0.8 million due that vendor whereby the Company
        would
        pay approximately $275,000 in October 2008 and the remaining balance at a
        rate
        of approximately $75,000 per month until paid. The $275,000 was paid in October
        2008 with the proceeds from a financing as described below. Approximately
        $1.1
        million included in accounts payable is due to a vendor in the United States
        for; (a) the amortization of purchased equipment under a capital lease
        obligation of approximately $0.6 million and; (b) start up costs and additional
        equipment at a new U.S. based facility of approximately $0.5 million. In
        October
        2008, the Company paid approximately $0.5 million of the balance due the
        vendor
        for the amortization from the proceeds of a financing as described below
        and is
        in discussions with the vendor for deferred payment of the balance. Current
        capital lease obligations of approximately $3.7 million are to be repaid
        through
        amortization of production based on the number of units produced with any
        balance due 18 months from the start of production which commenced in November
        2007. The Company anticipates revenues from production may cover this obligation
        and that alternatively this obligation may be extended as to the term and
        amount
        of amortization per unit produced. In addition, approximately $1.2 million
        of
        current liabilities relates to bridge loans which will be repaid out of the
        proceeds from any new additional financings as described below. (See notes
        6,
        12, 20 and 23).
  F-7
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 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 were due upon the earlier of (a) six months following final closing
        date
        of November 27, 2007, (b) the date on which the Company received 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 closed on a rights offering.
        The Company received net proceeds of $2.4 million in regards to the notes
        of
        which $2.2 million was received from a related party. On January 28, 2008,
        the
        Company repaid an aggregate of $1.3 million of these notes with the proceeds
        from a private offering inclusive of interest and discount of which $1.2
        million
        was repaid to a related party (see Notes 9 and 11). On May 31, 2008, the
        holders
        of the notes agreed to extend the maturity date to the earlier of (a) March
        31,
        2009 or (b) the date on which the Company receives gross proceeds in excess
        of
        $7.0 million from any debt or equity financing.
 
 On
        January 28, 2008, the Company received $2.8 million for the purchase of
        1,750,000 units of its securities consisting of 1,750,000 shares of common
        stock
        and stock purchase warrants (20% warrant coverage) in connection with a private
        placement offering. The proceeds of the private placement were used primarily
        for working capital purposes including (i) repayment of outstanding current
        indebtedness of the Company including approximately $1.3 million in bridge
        financing incurred with the Securities Purchase Agreement inclusive of accrued
        interest and discount, (ii) payment of other outstanding obligations, and
        (iii)
        funding anticipated working capital requirements including product development
        and the acquisition of tooling and molds. The private placement was extended
        through a final closing date of May 31, 2008 for a maximum aggregate placement
        of $5.5 million. The Company had received a letter from Fursa Master Global
        Event Driven Fund, L.P. (“Fursa”), the purchaser of 1,250,000 units in the
        private placement, committing Fursa Master Global Event Driven Fund, L.P.
        to
        subscribe and pay $2.0 million for an additional 1,250,000 units by May 31,
        2008
        (see Note 11). Fursa did not deliver the $2.0 million by May 31, 2008. The
        Company is presently in discussions with Fursa regarding this obligation
        and is
        also seeking to obtain additional debt or equity financing from alternative
        sources.
 
 On
        October 20, 2008, Innopump entered into an unsecured loan agreement with
        Sea
        Change Group, LLC (“SCG”). SCG is the sublicensor of the patented technology
        used in the manufacture of the Company’s proprietary products. The loan is for a
        principal amount of $3,445,750, matures on June 29, 2009 and bears interest
        at
        the rate of one and eighty three hundredths percent (1.83%) per month. The
        net
        proceeds from the loan, after fees and the required establishment of a cash
        collateral account, aggregated approximately $2.2 million. The proceeds of
        the
        loan are to be used primarily for working capital purposes including (i)
        payment
        of current accounts payable and other outstanding obligations, and (ii) funding
        anticipated working capital requirements including product development and
        the
        acquisition of tooling and molds (see Notes 14 and 23).
 
 Management
        recognizes that the Company must generate additional revenue and gross profits
        to achieve profitable operations. Management's plans to increase revenues
        include the continued building of its customer base and product lines. In
        regard
        to these objectives, the Company will commence production in connection with
        a
        supply agreement with a customer in the consumer products industry as related
        to
        the manufacture of a new size (20mm) dispenser in fiscal 2009 (see Note 20).
        In
        addition, the Company has relocated its operations for the production of
        its two
        current product lines (the 40mm and 49mm size dispensers) from Germany to
        the
        United States. The manufacturing facility in the United States commenced
        operations in November 2007 and became fully operational in February 2008.
        This
        new facility will increase both production capacity and gross profit margins
        on
        these product lines (see Note 20). Management believes that the capital received
        to date from previous financings may not be sufficient to meet financial
        obligations in regard to the capital equipment commitments required to expand
        its product line and increase production capacity and to fund operations
        and
        repay debt during the next twelve months. Additional debt or equity financing
        may be required which may include receivables or purchase order financing,
        the
        issuance of new debt or equity instruments, additional amortization of a
        portion
        of construction costs through the Company’s production partners and possible
        restructuring of current amortization agreements.
  F-8
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 There
        can
        be no assurance that the Company will be successful in building its customer
        base and product line or that available capital will be sufficient to fund
        current operations and to meet financial obligations as it relates to capital
        expenditures and debt repayment until such time that the revenues increase
        to
        generate sufficient profit margins to cover operating costs and amortization
        of
        capital equipment. 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 consolidated
        financial statements do not include any adjustments that might be necessary
        if
        the Company is unable to continue as a going concern.
 
 **3.**
              **Summary
                  of significant accounting
                  policies**
 
 *Basis
        of Presentation*
 
 The
        Company’s fiscal year ends on June 30, and therefore references to fiscal 2008
        and 2007 refer to the fiscal years ended June 30, 2008 and June 30, 2007,
        respectively.
 
 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 Versadial subsequent to the
        acquisition date of August 9, 2006.
 
 The
        common stock and per share information in the consolidated financial statements
        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 17).
 
 *Principles
        of Consolidation*
 
 On
        May
        25, 2005, Innopump acquired all of the assets and assumed certain liabilities
        of
        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 Registrant, 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, 2008, consisting of approximately $7,000 in net income derived from an
        aggregate of $122,000 in royalty fees from the Company, net of interest and
        other operating expenses. 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, 2008 approximated $200,000 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, 2008 approximated $1,602,000 consisting
        primarily of loans due to members 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.
  F-9
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO 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.
  *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, 2008.
 
 *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
              2-7
                  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*
 
 In
        accordance with SFAS No. 128, “ *Earnings
        Per Share* ”
(“SFAS
        128”), net loss per common share amounts (“basic EPS”) are computed by dividing
        net loss by the weighted-average number of common shares outstanding and
        excluding any potential dilution. Net loss per common share amounts assuming
        dilution (“diluted EPS”) are generally computed by reflecting potential dilution
        from conversion of convertible securities and the exercise of stock options
        and
        warrants. However, because their effect is antidilutive, the Company has
        excluded stock warrants and the potential conversion of convertible securities
        aggregating 11,264,624 and 10,152,249 from the computation of diluted EPS
        for
        the years ended June 30, 2008 and June 30, 2007, respectively.
  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 accompanying balance sheet.
 
 *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. In the fourth
        quarter of 2008, we tested for impairment of our long lived assets as part
        of
        our annual long-lived asset impairment review. There were no impairment charges
        for the year ended June 30, 2008. There can be no assurance that there will
        not
        be impairment charges in subsequent periods as a result of our future periodic
        impairment reviews. To the extent that future impairment charges occur, they
        will likely have a material impact on our financial results.
 
 *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.
  F-11
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *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
        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 2008, FASB issued FASB Staff Position (“FSP”) No. 157-2, Effective Date
        of FASB Statement No. 157, which delayed the effective date of SFAS 157 for
        certain non-financial assets and non-financial liabilities to fiscal years
        beginning after November 15, 2008, and interim periods within those fiscal
        years. The Company is in the process of evaluating the effect, if any, the
        adoption of FSP No. 157-2 will have on its results of operations or financial
        position. On October 10, 2008, the FASB issued FSP FAS No. 157-3,
“Fair Value Measurements” (FSP FAS 157-3), which clarifies the application of
        SFAS No. 157 in an inactive market and provides an example to demonstrate
        how the fair value of a financial asset is determined when the market for
        that
        financial asset is inactive. FSP FAS 157-3 was effective upon issuance,
        including prior periods for which financial statements had not been
        issued.  The
        Company is in the process of evaluating the effect, if any, the adoption
        of FSP
        No. 157-3 will have on its results of operations or financial
        position.
 
 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.
  In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
        Combinations” (“FAS 141R”). FAS 141R establishes principles and requirements for
        how the acquirer in a business combination recognizes and measures in its
        financial statements the fair value of identifiable assets acquired, the
        liabilities assumed and any noncontrolling interest in the acquiree at the
        acquisition date. FAS 141R determines what information to disclose to enable
        users of the financial statements to evaluate the nature and financial effects
        of the business combination. FAS 141R is effective for fiscal years beginning
        after December 15, 2008. The Company is currently evaluating the impact of
        adopting FAS 141R on its consolidated results of
        operations and financial condition and plans to adopt it as required in the
        first quarter of fiscal 2009.
  In
        December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
        Consolidated Financial Statements” (“FAS 160”), an amendment of Accounting
        Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”). FAS
        160 establishes accounting and reporting standards for the noncontrolling
        interest in a subsidiary and for the deconsolidation of a subsidiary. Minority
        interests will be recharacterized as noncontrolling interests and will be
        reported as a component of equity separate from the parent’s equity, and
        purchases or sales of equity interests that do not result in a change in
        control
        will be accounted for as equity transactions. In addition, net income
        attributable to the noncontrolling interest will be included in consolidated
        net
        income on the face of the income statement and upon a loss of control, the
        interest sold, as well as any interest retained, will be recorded at fair
        value
        with any gain or loss recognized in earnings. This pronouncement is effective
        for fiscal years beginning after December 15, 2008. The Company is currently
        evaluating the impact of adopting FAS 160 on the consolidated results of
        operations and financial condition and plan to adopt it as required in the
        first
        quarter of fiscal 2009.
  F-12
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
  In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced disclosures about
        an entity’s derivative and hedging activities and thereby improves the
        transparency of financial reporting. The objective of the guidance is to
        provide
        users of financial statements with an enhanced understanding of how and why
        an
        entity uses derivative instruments; how derivative instruments and related
        hedged items are accounted for; and how derivative instruments and related
        hedged items affect an entity’s financial position, financial performance, and
        cash flows. FAS 161 is effective for fiscal years beginning after November
        15,
        2008. Management is currently evaluating the impact FAS 161 will have on
        the
        Company’s consolidated financial statements.
  In
        May
        2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
        Accounting Principles”.  SFAS 162 identifies the sources of accounting
        principles and the framework for selecting the principles to be used in the
        preparation of financial statements of nongovernmental entities that are
        presented in conformity with generally accepted accounting principles in
        the
        United States.  It is effective 60 days following the SEC’s approval of the
        Public Company Accounting Oversight Board amendments to AU Section 411, “The
        Meaning of Present Fairly in Conformity With Generally Accepted Accounting
        Principles”.  The adoption of this statement is not expected to have a
        material effect on the Company’s financial statements.
  **4.**
              **Inventories**
 
 Inventories
        consist of the following at June 30, 2008:
 
 Raw
                  materials
              
              $
              116,368Work-in-process
              
              
              3,303Finished
                  goods
              
              
              141,678$
              261,349
 
 During
        the fiscal year ended June 30, 2008, the Company took an inventory write-down
        of
        approximately $408,000 which is included in indirect costs of operations.
        Approximately $86,000 of the write-down was attributable to defective products
        returned due to quality issues and approximately $322,000 was attributable
        to
        parts and finished goods inventory write-downs that were for inventories
        deemed
        to be unusable for future production mainly due to the Company’s transition of a
        portion of its operations from Germany to the United States of America in
        the
        current fiscal year (see Notes 12 and 20).
 
 **5.**
              **Property
                  and equipment**
  Property
        and equipment consist of the following at June 30, 2008:
 Machinery
                  and equipment
              
              $
              3,056,518Molds
              
              
              4,903,676Computer
                  equipment
              
              
              11,3567,971,550Less
                  accumulated depreciation and amortization
              
              
              2,279,125$
              5,692,425
  F-13
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
  Depreciation
        and amortization amounted to approximately $1,270,000 and $447,000 for the
        years
        ended June 30, 2008 and 2007, respectively.
  At
        June 30, 2008, property and equipment with a cost basis of approximately
        $5,059,000 and accumulated depreciation of approximately $765,000 is recorded
        under a capital lease.
 
 **6.**
              **Development
                  of production equipment in
                  progress**
 
 Development
        of production equipment in progress consist of the following at June 30,
        2008:
 
 **Amount at June 30, 2008**
              
              **Total estimated cost**New
                  assembly equipment
              
              $
              141,409
              
              $
              425,000Assembly
                  equipment new size dispenser
              
              
              1,240,924
              
              
              1,240,924
              (a)Production
                  molds for new size dispenser
              
              
              4,217,282
              
              
              5,350,000
              (b)$
              5,599,615
              
              $
              7,015,924
 
 (a)
              Equipment
                  was received in December 2007 and a net obligation of approximately
                  $.8
                  million is included in currentliabilities.In
                  October 2008, the Company reached an agreement with the supplier
                  of the
                  equipment for the $0.8 million due whereby the Company would pay
                  approximately $275,000 in October 2008 and the remaining balance
                  at a rate
                  of approximately $75,000 per month including 7% interest on the
                  past due
                  amount until paid. The $275,000 was paid in October 2008 with the
                  proceeds
                  from a financing (see Notes 20 and 23).
  (b)
              Upon
                  completion of construction of molds, approximately $520,000 of
                  this
                  balance will be financed through a capital lease to be paid monthly
                  through March 2009. On October 2, 2008, the Company agreed to pay
                  the
                  contractor an aggregate of $1.7 million for additional equipment
                  to be
                  purchased and for development costs related to the molds. At June
                  30,
                  2008, the Company has an outstanding obligation to the contractor
                  for $1.1
                  million included in current liabilities which represents the portion
                  of
                  development costs incurred prior to June 30, 2008. The remaining
                  $.6
                  million is attributable to equipment and development costs incurred
                  subsequent to June 30, 2008. These costs in the aggregate of $1.7
                  million
                  will be deferred and amortized over production on a per piece basis
                  with
                  any unamortized balance due in monthly installments commencing
                  July 2009
                  through December 2009 (see Notes 15, 20 and
                  23).
  **7.**  **Secured
        Accounts Receivable and Purchase Order Financing, Related
        Party**
  Beginning
        in May 2008, the Company began raising short-term financing through financing
        its accounts receivable. Under this program, specific accounts receivable
        are
        sold at a discount and the Company retains the right to repurchase the accounts,
        subject to a 1.5% per month financing charge. The Company records this as
        a
        financing transaction in which the receivables sold are carried on the
        consolidated balance sheet and the amount to be repaid is reflected as a
        short-term debt. At June 30, 2008, this liability of approximately $109,000
        inclusive of interest was payable to an entity owned by Richard Harriton,
        a
        related party, who serves as a Director and is a major shareholder of the
        Company. All accounts receivable sold at June 30, 2008, were subsequently
        repurchased by the Company (see Note 23). Accrued interest approximated $2,000
        at June 30, 2008.
 
 **8.**  **Notes
        and interest payable**
  Notes
        and interest payable consist of the following
        as of June 30, 2008:
 
 Individual
                  lender under Securities Purchase Agreement
              
              
              (a)
              
              $
              106,466Individual
                  lender
              
              
              (b)
              
              
              126,973$
              233,439
  F-14
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 
 a)
              On
                  August 30, 2007, with the consent of the holder of the Company’s $7.5
                  million senior convertible debt, Fursa (referred to herein as 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 and interest were due
                  upon the
                  earlier of (a) six months following the final closing date on November
                  27,
                  2007 of the Notes, (b) the date on which the Company received 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 closed
                  on a rights
                  offering. The Company has received $2.4 million in net proceeds
                  of which
                  $2.2 million was received from Richard Harriton, a related party,
                  who
                  serves as a Director and is a major shareholder of the Company
                  and
                  $200,000 from an individual lender. Debt discount of approximately
                  $74,000
                  was charged to operations in the current fiscal year with a corresponding
                  increase to the debt. Interest expenses approximated $95,000 for
                  the year
                  ended June 30, 2008, of which approximately $86,000 related to
                  the related
                  party notes.
 
 On
        January 28, 2008, the Company repaid an aggregate of $1.3 million of these
        notes
        with the proceeds from the Company’s private offering inclusive of interest and
        discount of which $1.2 million was repaid to Richard Harriton and approximately
        $109,000 was paid to the individual lender. (see Notes 9 and 11).
 
 On
        May
        31, 2008, the holders of the notes agreed to extend the maturity date of
        the
        remaining notes to the earlier of (a) March 31, 2009 or (b) the date on which
        the Company receives gross proceeds in excess of $7.0 million from any debt
        or
        equity financing. On May 31, 2008, the date of the extension of the maturity
        date, the holders were granted warrants to purchase 80,000 shares of the
        Company’s common stock exercisable for five years from the date of issuance at
        an initial exercise price equal to $2.282 per share. These warrants were
        valued
        at the grant date at approximately $4,000. The fair value was calculated
        using
        the Black-Scholes model with an expected volatility of 49% and a risk free
        interest rate of 3.00%. The value of the additional warrants were treated
        as
        debt discount expense.
 
 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%
                  and is collateralized by the assets of the Company. On May 4, 2007,
                  the
                  date of the amended extension of the maturity date to December
                  31, 2007,
                  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 in the fiscal year
                  ended
                  June 30, 2007. The note was subsequently extended to a maturity
                  date of
                  May 31, 2008. On May 31, 2008, the lender agreed to extend the
                  maturity
                  date to the earlier of (a) March 31, 2009 or (b) the date on which
                  the
                  Company receives gross proceeds in excess of $7.0 million from
                  any debt or
                  equity financing. On May 31, 2008, the date of the extension of
                  the
                  maturity date, the lender was granted warrants to purchase 25,000
                  shares
                  of the Company’s common stock exercisable for five years from the date of
                  issuance at an initial exercise price equal to $2.282 per share.
                  These
                  warrants were valued at the grant date at approximately $1,000.
                  The fair
                  value was calculated using the Black-Scholes model with an expected
                  volatility of 49% and a risk free interest rate of 3.00%. 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 $23,000 at June 30, 2008. Interest expense approximated $8,000
        for
        each of the years ended June 30, 2008 and 2007, respectively.
  F-15
  **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, 2008:
 
 **Current:****June 30,****2008**Securities
                  Purchase Agreement, related party
              
              
              (a)
              
              $
              1,162,434$
              1,162,434
  **Long-term:****June 30,****2008**Related
                  party
              
              
              (b)
              
              $
              1,490,206Related
                  party
              
              
              (c)
              
              
              105,175$
              1,595,381
 
 a)
              See
                  Note 8a above for disclosure in regard to the related party note
                  due under
                  the terms of the Securities Purchase Agreement.
 
 b)
              SCG
                  has a $1,098,536, 8% per annum note with Richard Harriton, a related
                  party, which matured on June 30, 2008. On July 1, 2008, the lender
                  agreed
                  to extend the maturity date to December 31, 2009. On July 1, 2008,
                  the
                  lender was assigned 164,500 warrants, from SCG, to purchase the
                  Company’s
                  common stock exercisable for five years from the date of issuance
                  at an
                  initial exercise price equal to $2.282 per share (see Notes 14
                  and
                  23).
 
 c)
              SCG
                  has a $100,000, 8% per annum note with an outstanding balance of
                  $70,000
                  at June 30, 2008, with Matthew Harriton, a related party, which
                  matured on
                  June 30, 2008. On July 1, 2008, the lender agreed to extend the
                  maturity
                  date to December 31, 2009. On July 1, 2008, the lender was assigned
                  10,500
                  warrants, from SCG, to purchase the Company’s common stock exercisable for
                  five years from the date of issuance at an initial exercise price
                  equal to
                  $2.282 per share (see Notes 14 and
                  23).
 
 Accrued
        interest included in notes and interest payable to related parties, long-term
        approximated $426,000 at June 30, 2008. Interest expense as related to related
        parties, long-term approximated $93,000, and $94,000 for the years ended
        June
        30, 2008 and 2007, respectively.
 
 **10.**  **Convertible
        note and interest**
 
 Convertible
        note and interest consist of the following as of June 30, 2008:
 
 **June 30,****2008**Fursa
                  Master Global Event Driven Fund, LP
              
              $
              9,133,931Less:
                  current liabilities
              
              
              116,665$
              9,017,266
  F-16
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *General
        Terms*
 
 On
        August
        9, 2006, concurrent with the merger closing, Versadial 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, as amended, matures November 9, 2009 (“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 accrued 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% (approximately $9.7 million at June
        30,
        2008) 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, 2008 approximated
        $1,382,000 consisting of approximately $696,000 due in the current year which
        was not paid and has been added to the principal, approximately $117,000
        which
        is due on August 9, 2008, and $569,000 due upon maturity calculated using
        the
        effective interest method for the 20% premium due at Maturity. Interest expense
        for the year ended June 30, 2007 approximated $1,204,000 consisting of
        approximately $677,000 which was 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 through that date (see Note
        17).
 
 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 6.9 million shares upon
        conversion of the outstanding principal debt as of June 30, 2008 which
        approximated $8.1 million 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 which was 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 years ended June
        30,
        2008 and June 30, 2007, the amortization of financing costs approximated
        $336,000 and $308,000, respectively.
 
 *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 years ended June
        30,
        2008 and June 30, 2007, approximately $254,000 and $226,000 was charged to
        operations, respectively.
 
 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 and included as debt discount expense in the year
        ended
        June 30, 2007. 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%.
  F-17
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 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 expense in the year ended June 30, 2007.
 
 *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 conversion of senior convertible debt and
        exercise of the related warrants and have the registration statement declared
        effective by the Securities and Exchange Commission. 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 upon demand by the  Investor
        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 filed an amended SB-2A addressing the
        SEC
        comments and responded to the current comment letter by October 31, 2007.
        On
        October 24, 2007, the Company responded to the SEC comments and filed an
        amended
        SB-2A. On February 11, 2008, the Registration Statement was declared effective.
        The Company has incurred legal and other expenses in connection with the
        Registration Statement of approximately $60,000. These costs and the related
        fees were capitalized upon completion of the Registration
        Statement.
 
 If
        the
        additional required registration statements are not declared effective within
        the time frame described, or if the registrations are 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 138,000 shares.
        In
        addition, for each full thirty (30) day period after the date that the required
        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. The Investor has not made a demand for a subsequent Registration
        Statement filing.
 
 **11.**  **Private Placement**
 
 Under
        the
        terms of a private placement agreement, the Company offered for sale a maximum
        of 3,437,500 units of its securities at $1.60 per unit with a minimum unit
        purchase of $80,000. Each unit consists of one share of common stock and
        20%
        warrant coverage. The private placement was extended through a final closing
        date of May 31, 2008 for a maximum aggregate placement of $5.5 million.
 
 On
        January 28, 2008, the Company received $2.8 million for the purchase of
        1,750,000 units of its securities consisting of 1,750,000 shares of common
        stock
        and stock purchase warrants (20% warrant coverage or an aggregate of 350,000
        warrants) in connection with the private placement offering. The proceeds
        of the
        private placement were used primarily for working capital purposes including
        (i)
        repayment of outstanding current indebtedness of the Company including
        approximately $1.3 million in bridge financing incurred with the Securities
        Purchase Agreement inclusive of accrued interest and discount, (ii) payment
        of
        other outstanding obligations, and (iii) funding working capital requirements
        including product development and the acquisition of tooling and
        molds.
  F-18
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 The
        Company had received a letter from the Investor, the purchaser of 1,250,000
        units in the private placement, committing the Investor subscribe and pay
        $2.0
        million for an additional 1,250,000 units by May 31, 2008. The Investor did
        not
        deliver the $2.0 million by May 31, 2008. The Company is presently in
        discussions with the Investor regarding this obligation.
 
 A
        5%
        commitment fee is due to the Investor, calculated on its total $4.0 million
        commitment, concurrently with the Company’s receipt of its remaining $2.0
        million subscription commitment. The Company has accrued $100,000 fee payable
        to
        the Investor for its $2.0 million investment pending resolution of the remaining
        obligation of the Investor. A fee of 7% (aggregating $56,000) of the securities
        placed payable in cash, and (ii) a number of common stock purchase warrants
        (aggregating 25,000 warrants) equal to 5% of the number of units placed were
        paid to participating dealers in respect of the purchase of the Company’s
        securities by purchasers other than the Investor. The Company has incurred
        legal
        and other expenses in connection with the placement of approximately $71,000.
        These costs and the related fees were capitalized upon completion of the
        offering.
 
 The
        aggregate warrants issued to the investors and placement agents to purchase
        375,000 shares of the Company’s common stock were valued at the grant date at
        approximately $72,000. The fair value was calculated using the Black-Scholes
        model with an expected volatility of 39% and a risk free interest rate of
        2.50%.
        The warrants are exercisable for five years from the date of issuance at
        an
        initial exercise price equal to $2.00 per share subject to adjustment under
        certain events.
 
 The
        Company signed a Registration Rights Agreement whereby the Company is obligated
        to register to the extent permitted by applicable rules and regulations the
        resale of its shares of common stock and underlying warrants issuable within
        ninety (90) days following the final closing of the offering which may be
        extended by the Company for an additional ninety (90) days if in confidential
        business discussions. The Company is currently in confidential business
        discussions with regard to prospective additional financing opportunities.
        The
        registration statement is to be declared effective by the Securities and
        Exchange Commission within one hundred eighty (180) days following the filing
        date.
 
 **12.**  **Capital
        lease obligations**
 
 Capital
        lease obligations consists of the following as of June 30, 2008:
 
 **June 30,****2008**Capital
                  lease obligation
              
              
              a)
              
              $
              84,016Capital
                  lease obligation
              
              
              b)
              
              
              3,688,583$
              3,772,599
 
 a)  On
        September 20, 2006, the Company entered into a 30-month manufacturing agreement
        with an outside contractor located in Germany (see Note 20). The agreement
        calls
        for the Company to make payments in the aggregate of approximately $780,000
        for
        preproduction molds and $5.3 million for the required production molds. As
        of
        June 30, 2008, the preproduction molds were complete and placed in service.
        The
        production molds were not yet placed in service at June 30, 2008 and are
        included in deposits on equipment. 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. At June 30, 2008, the balance on the capital lease is
        approximately $84,000. The total amount of the lease, including interest,
        is to
        be paid monthly in varying installments beginning in July 2007 through March
        2009. Interest expense approximated $12,000 for the year ended June 30,
        2008.
 
 b)  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
        (see Note 20).
  F-19
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 
 These
        Agreements provide that the Supplier will fund the majority of the estimated
        $4.6 million cost of the injection molding, tooling and automated 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. The cost
        of
        the tooling and automated 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.
        If the
        Company fails to place orders within 18 months sufficient to cover the
        amortization, any remaining balance will be due in 18 months from the inception
        of the respective amortization period.
 
 During
        the year ended June 30, 2008, all of the molds and equipment in the aggregate
        of
        approximately $4.6 million were completed and utilized in production commencing
        in November 2007 and capitalized by the Company. Approximately $4.35 million
        of
        this cost is being amortized. For the year ended June 30, 2008, amortization
        of
        the molds and equipment approximated $662,000. The remaining balance is to
        be
        amortized over production with any remaining balance due 18 months from
        inception of production. Interest expense approximated $16,000 for the year
        ended June 30, 2008. The Company is currently in arrears at June 30, 2008
        in the
        amount of approximately $619,000 in amortization which is included in current
        liabilities. In October, 2008, the Company paid $500,000 of the past due
        amortization from the proceeds of a financing (see Notes 2, 20 and 23). The
        Company is in discussions with the contractor to restructure the current
        amortization program as to duration of term and amount per piece to be
        amortized.
 
 **13.**  ****  **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",
        certain warrants issued by the Company to the Investor 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 and maintain an effective
        registration (see Note 10).
 
 The
        Company has other outstanding warrants which provide for the Company to register
        the shares underlying the warrants and are silent as to the penalty to be
        incurred in the absence of the Company's ability to deliver registered shares
        to
        the warrant holders upon warrant exercise. Under EITF No. 00-19 "Accounting
        for
        Derivative Financial Instruments Indexed to, and Potentially Settled in,
        a
        Company's Own Stock" ("EITF No. 00-19"), registration of the common stock
        underlying the Company's warrants is not within the Company's control. As
        a
        result, the Company must assume that it could be required to settle the warrants
        on a net-cash basis, thereby necessitating the treatment of the potential
        settlement obligation as a liability. Further EITF No. 00-19, requires the
        Company to record the potential settlement liability at each reporting date
        using the current estimated fair value of the warrants, with any changes
        being
        recorded through the Company's statement of operations. The potential settlement
        obligation related to the warrants will continue to be reported as a liability
        until such time that the warrants are exercised, expire, or the Company is
        otherwise able to modify the registration requirements in the warrant agreement
        to remove the provisions which require this treatment. The fair value of
        the
        warrant liability is determined using the trading value of the
        warrants. ****
 
 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).
        The value of the warrants granted on January 28, 2008 ($72,000) as part of
        the
        private placement were treated as a component of equity and recorded as a
        liability (derivative financial instruments). The additional incremental
        fair
        value of the warrants reissued on January 28, 2008 ($47,000), as part of
        the
        antidilution requirements resulting from the private placement unit price,
        was
        recorded as compensation cost in the current period and recorded as a liability
        (derivative financial instruments) (see Note 17).
  F-20
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 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 $235,203 at June 30, 2008. The derivative gain
        (loss)
        for the year ended June 30, 2008 and the year ended June 30, 2007 approximated
        $2,351,000 and $(992,000), respectively.
 
 **14.**  ****  **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**2009
              
              $
              525,0002010
              
              
              575,0002011
              
              
              625,0002012
              
              
              675,0002013
              
              
              725,0002014
                  and thereafter
              
              
              11,925,000$
              15,050,000
 
 In
        addition to the minimum royalty payment, the Licensee will also pay to the
        Licensor $12,500 per month as long as 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 $600,000 and $500,000 for the years
        ended June 30, 2008 and 2007, respectively. All technical consulting payments
        were paid when due through June 30, 2008. **** At
        June
        30, 2008, the Licensor was due approximately $809,000 in past due
        royalties.
 
 On
        October 20, 2008 Innopump entered into an unsecured loan agreement with SCG.
        In
        order to provide such funds to Innopump, SCG entered into a loan transaction
        with a third party lender. The Licensor gave the third party lender his consent
        of a collateral assignment of the License by SCG to the lender and agreed
        that
        any outstanding indebtedness of SCG under the License Agreement, which
        aggregated approximately $907,000 at the date of the closing, would not be
        due
        prior to July 1, 2009. SCG, in consideration for the Licensor’s cooperation,
        agreed to provide cash collateral for its payment obligations under its License
        Agreement of $895,750, which Innopump agreed to fund out of the loan proceeds.
        Where Innopump complies with the terms of the loan agreement with SCG, this
        amount shall be a credit against its loan agreement obligations. No changes
        were
        made in the sublicense agreement between Innopump and SCG in connection with
        this loan (see Note 23).
  F-21
  **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 payable
        monthly. 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. On January 15, 2008, the agreement was again
        amended to extend the payment dates of the remaining sublicense fee of $450,000,
        with $300,000 due on September 30, 2008 and $150,000 due on December 31,
        2008.
 
 On
        June
        30, 2008, the agreement was further amended to extend the payment date of
        the
        remaining sublicense fee of $450,000 to July 1, 2009. In addition, the royalty
        due SCG at June 30, 2008 of approximately $141,000 was deferred to be payable
        on
        July 1, 2009 and additional royalties accruing for the period July 1, 2008
        through June 30, 2009 will be due and payable on July 1, 2009. No interest
        shall
        be due or payable in regard to past due royalties. On July 1, 2008, in
        consideration for the amendment of the terms of the sublicense, the Company
        granted SCG 250,000 warrants to purchase the Company’s common stock exercisable
        for five years from the date of issuance at an initial exercise price equal
        to
        $2.282 per share. SCG assigned 175,000 of the warrants to two related parties
        as
        consideration for debt extensions (see Notes 9 and 23).
 
 **15.**
              **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 was to be applied against future revenues as a credit against
        shipments commencing six months after the date of the first shipment, which
        is
        anticipated to begin in December 2008, and based on repayment at a rate of
        a
        certain amount per piece for all products shipped. On October 2, 2008, the
        Company was fully relieved of its obligation to repay the $1.7 million advance
        provided that the Company shall instead pay the tooling and mold contractor
        this
        amount pursuant to a payment schedule to be determined between the Company
        and
        the contractor as consideration for additional equipment costs and development
        costs related to the tooling and mold expenses. In the event of a default
        by the
        Company in payment to the contractor, the credit relief granted shall
        immediately be null and void to the extent of any unpaid balance, and the
        customer shall have the right to enforce against the Company collection of
        the
        full amount of such unpaid balance. Upon the Company’s payment to the tooling
        and mold contractor, the Company will recognize the credit relief granted
        by the
        customer. On July 10, 2007 Versadial entered into a two-year Master Supply
        Agreement with this customer which was also amended on October 2, 2008 (see
        Notes 6, 20 and 23).
 
 **16.**
              **Other
                  related party transactions**
 
 *Consulting
        Agreement*
 
 In
        April
        2005, the Company entered into a three-year consulting agreement with an
        entity
        owned by Richard Harriton, a Director and a major stockholder of the Company
        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 31 thereafter. In
        April
        2008, the agreement was extended for one year for an annual fee of $65,000
        with
        an additional $7,500 due upon the signing of the agreement. At June 30, 2008,
        the Company is in arrears in the amount of approximately $77,000 which is
        included in due to related parties.
  F-22
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *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 20, *Lease
        Agreement* ).
        As of
        June 30, 2008, the Company had sublease income receivable of approximately
        $25,000 due from an affiliate and approximately $20,000 due from a third
        party.
        This affiliate consists of an entity owned by Richard Harriton.
 
 *Due
        to Related Parties*
 
 Due
        to
        related parties of approximately $276,000 at June 30, 2008 consists of unpaid
        payroll, consulting fees and other miscellaneous expenses.
 
 *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 14). As of June 30, 2008, VDM owes approximately $24,000
        to
        the Company. VDM did not meet the minimum order quantity provision in 2007
        to
        maintain exclusivity. The parties are currently working on an amendment as
        to
        the terms of the agreement.
 
 **17.**
              **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 statements 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 Registrant, 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.
  F-23
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 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 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 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.
 
 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 on August 27, 2007, Fursa Alternative Strategies, LLC, the lender under
        the terms of a Secured Line of Credit Agreement with the Company (referred
        to
        herein as the “Lender”) agreed to convert $2.0 million in principal amount of
        the aggregate outstanding $4.0 million balance of the Company’s secured
        revolving credit notes 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 $7.5M senior 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. The value of
        the
        shares ($796,686) and amount of interest expense recorded by the Company
        was
        calculated based on the market price on August 9, 2007 of $1.25 per share
        (see
        Note 10).
 
 On
        January 28, 2008, a total of 1,250,000 shares of common stock were issued
        upon
        the conversion of debt.
 The
        Lender agreed to convert the remaining $2.0 million in principal amount of
        the
        Company’s secured revolving credit notes due under the Secured Line of Credit
        Agreement at a conversion price of $1.60 per share, the offering price of
        the
        Company’s private placement (see Note 11).
 
 On
        January 28, 2008 the Company received $2,800,000 for the purchase of 1,750,000
        units of its securities consisting of 1,750,000 shares of common stock and
        stock
        purchase warrants (20% warrant coverage or an aggregate of 350,000 warrants)
        in
        connection with a private placement offering. The shares were issued on January
        28, 2008. Each unit is priced at $1.60 with a minimum unit purchase of $80,000.
        The stock purchase warrants have a term of five years and are exercisable
        for
        shares of common stock at an initial exercise price of $2.00. (see Note 11).
 
 *Warrants
        Issued*
 
 In
        conjunction with the $4.0 million Secured Line of Credit Agreement, all of
        which
        has been converted to equity of the Company, 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 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. The debt discount
        will be charged to operations over the life of the underlying debt with a
        corresponding increase to the debt. For the years ended June 30, 2008 and
        June
        30, 2007, approximately $288,000 and $206,000 were charged to operations
        as
        amortization of debt discount, respectively.
 
 *Warrant
        Reissuance*
 
 On
        January 28, 2008, in connection with the Company’s private placement, the
        Company reissued certain warrants as required by the antidilution provisions
        contained in the warrants. An aggregate of 1,681,814 warrants with an original
        exercise price of $2.475 were reissued as new warrants in the aggregate of
        1,824,056 warrants with an exercise price of $2.282. The incremental fair
        value
        of the modification to the warrants of $47,181 has been recognized by the
        Company as additional compensation cost. The incremental fair value was
        calculated using the Black-Scholes model with an expected volatility of 40%
        and
        a risk free interest rate of 2.50%.
  F-24
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *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.
 
 At
        June
        30, 2008, the basic loss per common share does not include an aggregate of
        4,401,076 warrants outstanding and 6,863,548 shares issuable under the terms
        of
        convertible debt (see Note 10). 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. The effect
        of
        these securities would be antidilutive. These warrants are currently exercisable
        at prices that range between $.94-$2.282 and expire between August 9, 2011
        and
        May 31, 2013. At June 30, 2008 and June 30, 2007, diluted loss per common
        share
        includes –0- and1,350,652 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.
 
 **18.**
              **Stock
                  warrants**
 
 The
        following table summarizes the warrants for common stock granted for the
        period
        from July 1, 2006 through June 30, 2008:
 
 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
              
              
              3.25
                  yearsWarrants
                  outstanding at June 30, 2007
              
              
              
              
              
              3,778,834
              
              $
              1.75Warrants
                  cancelled
              
              
              (1)
              
              
              (1,681,814
              )
              $
              (2.48
              )
              
              3.58
                  yearsWarrant
                  reissued
              
              
              (1)
              
              
              1,824,056
              
              $
              2.28
              
              
              3.58
                  yearsNew
                  Warrants granted
              
              
              
              
              
              480,000
              
              $
              2.06
              
              
              4.66
                  yearsWarrants
                  outstanding at June 30, 2008
              
              
              
              
              
              4,401,076
              
              $
              1.73
              
              
              3.50
                  years
  F-25
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 (1)
        Represents additional warrants issued due to antidilution provisions (see
        Note
        17). The original warrants are included in the warrants outstanding at June
        30,
        2007 at an exercise price of $2.48.
 
 All
        warrants are exercisable at June 30, 2008.
 
 **19.**
              **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, 2008, Versadial had allowable net operating loss (“NOL”) carry-forwards for
        federal and state purposes approximating $13.3 million. These losses are
        available for future years and expire through June 2028. 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 $5.3 and $3.6 million at June 30,
        2008
        and 2007, respectively, due to the uncertainty of realizing the future tax
        benefits. The increase in valuation allowance of $1.7 million is primarily
        attributable to the Company’s net operating loss incurred during the year ended
        June 30, 2008, net of certain temporary differences.
 
 Ownership
        changes resulting from the Company’s issuance of capital stock (see Note 1) 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, if 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,****2008**
              
              **2007**Statutarory
                    federal income tax expense
              
              
              (34)
              %
              
              (34)
              %State
                    and local (net of federalbenefits) income tax
              
              
              (6
              )
              
              (6
              )Valuation
                  allowance
              
              
              33
              
              
              28Temporary
                  differences
              
              
              7
              
              
              12-
              %
              
              -
              %
  In
        July
        2006, the Financial Accounting Standards Board issued Interpretation
        No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48
        creates a single accounting and disclosure model for uncertain tax positions,
        provides guidance on the minimum threshold that a tax uncertainty is required
        to
        meet before it can be recognized in the financial statements and applies
        to all
        tax positions taken by a company, both those deemed to be routine as well
        as
        those for which there may be a high degree of uncertainty.
  F-26
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 FIN
        48
        establishes a two-step approach for evaluating tax positions. The first step,
        recognition, occurs when a company concludes (based solely on the technical
        aspects of the tax matter) that a tax position is more likely than not to
        be
        sustained on examination by a taxing authority. The second step, measurement,
        is
        only considered after step one has been satisfied and measures any tax benefit
        at the largest amount that is deemed more likely than not to be realized
        upon
        ultimate settlement of the uncertainty. Tax positions that fail to qualify
        for
        initial recognition are recognized in the first subsequent interim period
        that
        they meet the more likely than not standard, when they are resolved through
        negotiation or litigation with the taxing authority or upon the expiration
        of
        the statute of limitations. Derecognition of a tax position previously
        recognized would occur when a company subsequently concludes that a tax position
        no longer meets the more likely than not threshold of being sustained. FIN
        48
        also significantly expands the financial statement disclosure requirements
        relating to uncertain tax positions. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. The
        adoption of the provisions of FIN 48 did not have a material impact on the
        Company’s financial position, results of operations and cash flows. During the
        year ended June 30, 2008, the Company recognized no adjustments for uncertain
        tax provisions.
 
 **20.**
              **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**2009
              
              $
              114,000$
              114,000
 
 Gross
        rent expense aggregated approximately $139,000 and $143,000 for the years
        ended
        June 30, 2008 and 2007, 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 for each of the
        years ended June 30, 2008 and 2007, respectively.
  F-27
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *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
        approximately $5.3 million for the required production molds. As of June
        30,
        2008, 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 12). The total amount of the
        lease, including interest, is to be paid monthly in varying installments
        through
        March 2009. At June 30, 2008, the Company has an outstanding balance of
        approximately $84,000 due on the capital lease. As of June 30, 2008, the
        Company
        has paid an aggregate of approximately $3.1 million for the production molds
        which are included in deposits on production equipment and has an outstanding
        liability due the contractor for $1.1 million which is included in current
        liabilities (see Note 6). On
        October 2, 2008, the Company agreed to pay the contractor an aggregate of
        $1.7
        million for additional equipment to be purchased and for development costs
        related to the molds under the terms of an amortization agreement. The June
        30,
        2008 obligation due to the contractor for $1.1 million included in current
        liabilities represents the portion of development costs incurred prior to
        June
        30, 2008. The remaining $.6 million is attributable to equipment and development
        costs incurred subsequent to June 30, 2008. These costs in the aggregate
        of $1.7
        million will be deferred and amortized over production on a per piece basis
        with
        any remaining unamortized balance due in monthly installments commencing
        July
        2009 through December 2009. Upon completion of construction of the production
        molds, the remaining balance due the contractor of approximately $520,000
        will
        be financed through a capital lease to be paid monthly through March 2009.
        It is
        anticipated that production will commence by the fourth quarter of calendar
        2008
        (see Notes 6 and 23).
 
 In
        conjunction with the above manufacturing agreement, the Company also ordered
        related assembly equipment from a vendor in the amount of approximately $1.24
        million. The Company has made payments of approximately $401,000 for the
        equipment and has a current liability of approximately $.8 million for the
        balance which is included in deposits on production equipment and in current
        liabilities (see Note 6). The equipment was received in December 2007. It
        is
        anticipated that production will commence by the fourth calendar quarter
        of
        2008. In October, 2008, the Company reached an agreement with the vendor
        for the
        $.8 million due whereby the Company would pay approximately $275,000 in October
        2008 and the remaining balance at a rate of approximately $75,000 per month
        including 7% interest on the past due amount until paid. The $275,000 was
        paid
        in October 2008 with the proceeds from a financing (see Notes 6 and 23).
 
 *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”) for the manufacture of its 40mm and 49mm size dispensers which
        were previously manufactured in Germany. 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 majority of the estimated
        $4.6 million cost of the injection molding, tooling and automated equipment
        necessary to produce the products to be purchased by the Company (see note
        12).
        Although financed by the Supplier, the equipment will be owned by the Company.
        The Company will capitalize the related equipment at inception of production.
        The cost of the tooling and automated 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. If the Company fails to place orders within 18 months sufficient
        to
        cover the amortization, any remaining balance will be due in 18 months from
        the
        inception of the respective amortization period.
  F-28
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 During
        the year ended June 30, 2008, all of the molds and equipment in the aggregate
        of
        approximately $4.6 million were completed, utilized in production and
        capitalized by the Company. Approximately $4.35 million of this cost is being
        amortized. For the year ended June 30, 2008, amortization of the molds and
        equipment approximated $662,000. The remaining balance is to be amortized
        over
        production with any remaining balance due 18 months from inception of
        production. Interest expense approximated $16,000 for the year ended June
        30,
        2008. The Company is currently in arrears at June 30, 2008 in the amount
        of
        approximately $619,000 in amortization which is included in current liabilities.
        In October, 2008, the Company paid $500,000 of the past due amortization
        from
        the proceeds of a financing (see Notes 2, 12 and 23). The Company is in
        discussions with the contractor to restructure the current amortization program
        as to duration of term and amount per piece to be amortized.
 
 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.
 
 *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. On October 2, 2008, the agreement was amended
        and Avon’s commitment to purchase certain of the Company’s products was reduced
        in number in return for certain price adjustments based on current market
        conditions (see Note 23).
 
 Pursuant
        to the terms of the Credit Memo previously entered into with Avon, the Company
        was to repay Avon’s $1.7 million advances received in fiscal year 2007 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. On October 2, 2008, the Company was fully
        relieved of its obligation to repay the $1.7 million advance provided that
        the
        Company shall instead pay the tooling and mold contractor this amount pursuant
        to a payment schedule to be determined between the Company and the contractor
        as
        consideration for additional equipment costs and development costs related
        to
        the tooling and mold expenses. In the event of a default by the Company in
        payment to the contractor, the credit relief granted shall immediately be
        null
        and void to the extent of any unpaid balance, and the customer shall have
        the
        right to enforce against the Company collection of the full amount of such
        unpaid balance. Upon the Company’s payment to the tooling and mold contractor,
        the Company will recognize the credit relief granted by Avon (see Notes 15
        and
        23). The Company anticipates production to begin in the fourth quarter of
        calendar 2008.
  F-29
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *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.
 
 **21.**
              **Major
                  customers and segment
                  information**
 
 *Major
        customers*
 Customers
        accounting for 10% or more of revenue for the years ended June 30, 2008 and
        2007
        are as follows:
 
 **Year ending**
                **June 30, 2008**
              
              **Year ending**
                **June 30, 2007**Customer
                  A
              
              $
              3,433,000Customer
                  B
              
              
              
              
              $
              958,000Customer
                  C
              
              
              
              
              
              385,000$
              3,433,000
              
              $
              1,343,000
 
 Accounts
        receivable from customer A approximated $453,000 at June 30, 2008.
 
 *Segment
        information*
 
 Assets,
        classified by geographic location, are as follows at June 30, 2008:
 
 United
                  States
              
              $
              5,502,628Other
                  countries
              
              
              7,111,064$
              12,613,692
 
 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.
 
 Revenues,
        classified by the major geographic areas, were as follows:
 
 Year ending
              
              Year endingJune 30, 2008
              
              June 30, 2007United
                  States
              
              $
              3,954,820
              
              $
              1,367,571Other
                  countries
              
              
              96,894
              
              
              28,680$
              4,051,714
              
              $
              1,396,251
 
 **22.**
              **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-30
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 **23.**
              **Subsequent
                  events**
  *Secured
        Accounts Receivable and Purchase Order Financing, Related
        Party*
  Beginning
        in May 2008, the Company began raising short-term financing through financing
        its accounts receivable. Under this program, specific accounts receivable
        are
        sold at a discount and the Company retains the right to repurchase the accounts,
        subject to a 1.5% per month financing charge. The Company records this as
        a
        financing transaction in which the receivables sold are carried on the
        consolidated balance sheet and the amount to be repaid is reflected as a
        short-term debt. At June 30, 2008, this liability was payable to an entity
        owned
        by Richard Harriton, a related party, who serves as a Director and is a major
        shareholder of the Company. All accounts receivable sold at June 30, 2008,
        were
        subsequently repurchased by the Company. Subsequent to June 30, 2008, the
        Company financed approximately $363,000 of additional receivables. As of November
        13, 2008, approximately $163,000 of these receivables have been repurchased by the
        Company
        to date.
 
 *Warrants,
        Related Parties*
 
 On
        July
        1, 2008, in consideration for an amendment of the terms of the sublicense
        between the Company and SCG, the Company granted SCG 250,000 warrants to
        purchase the Company’s common stock exercisable for five years from the date of
        issuance at an initial exercise price equal to $2.282 per share. SCG assigned
        175,000 of these warrants to two related parties as consideration for debt
        extensions (see Notes 9 and 14).
 
 *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. On October 2, 2008, the agreement was amended
        for
        certain price adjustments based on current market conditions. T he
        Company also agreed to pay the contractor an aggregate of $1.7 million for
        additional equipment to be purchased and for development costs related to
        the
        molds under the terms of an amortization agreement. The June 30, 2008 obligation
        due to the contractor for $1.1 million included in current liabilities
        represents the portion of development costs incurred prior to June 30, 2008.
        The
        remaining $.6 million is attributable to equipment and development costs
        incurred subsequent to June 30, 2008. These costs in the aggregate of $1.7
        million will be deferred and amortized over production. Contemporaneously
        with
        this agreement, on
        October 2, 2008, the Company was fully relieved of its obligation to repay
        the
        $1.7 million advance from Avon provided that the Company shall instead pay
        the
        tooling and mold contractor this amount. The payment due the contractor is
        independent of the credit relief that Avon has provided the Company; however,
        if
        Avon does not forgive any or all of the $1.7 million advance, then the Company
        and the contractor shall promptly negotiate a mutually agreeable payment
        schedule for any balance due. The $1.7 million is to be paid to the contractor
        on a per piece amortization for all pieces produced through June 30, 2009,
        with
        any balance to be paid in six equal monthly payments from July 2009 through
        December 2009 (see Note 20). The Company anticipates production to start
        in the
        fourth quarter of calendar 2008.
 
 *Customer
        Master Supply Agreement*
 
 On
        July
        10, 2007 the Company entered into a two-year Master Supply Agreement with
        Avon,
        a consumer products company for seventeen million units of certain of the
        Company’s products. On October 2, 2008, the agreement was amended and Avon’s
        commitment to purchase certain of the Company’s products was reduced in number
        in return for certain price adjustments based on current market
        conditions.
 
 In
        addition, pursuant to the terms of the Credit Memo previously entered into
        with
        Avon, the Company was to repay Avon’s $1.7 million advances received in fiscal
        year 2007 by a credit against the purchase price of products sold to Avon.
        On
        October 2, 2008, the Company was fully relieved of its obligation to repay
        the
        $1.7 million advance provided that the Company shall instead pay the tooling
        and
        mold contractor this amount pursuant to a payment schedule to be determined
        between the Company and the contractor as consideration for additional equipment
        costs and development costs related to the tooling and mold expenses. In
        the
        event of a default by the Company in payment to the contractor, the credit
        relief granted shall immediately be null and void to the extent of any unpaid
        balance, and the customer shall have the right to enforce against the Company
        collection of the full amount of such unpaid balance. Upon the Company’s payment
        to the tooling and mold contractor, the Company will recognize the credit
        relief
        granted by Avon (see Notes 15 and 20). The Company anticipates production
        to
        begin in the fourth quarter of calendar 2008.
  F-31
  **VERSADIAL,
        INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  
 *Unsecured
        Loan Agreement with SCG*
 
 On
        October 20, 2008 Innopump entered into an unsecured loan agreement with SCG.
        SCG
        is an affiliate of the Company as members of the Board of Directors own
        approximately 69% of the outstanding membership interests of SCG. SCG is
        the
        sublicensor of the patented technology used in the manufacture of the Company’s
        proprietary products. The loan is for a principal amount of $3,445,750, matures
        on June 29, 2009 and bears interest at the rate of one and eighty three
        hundredths percent (1.83%) per month payable in arrears on the first day
        of each
        month or payable in kind at the option of Innopump with the interest being
        added
        to the principal balance. The agreement also obligates Innopump to pay a
        fully
        earned facility fee of $400,000 at maturity, a commitment fee of $250,000
        upon
        execution of the loan and an in kind monitoring fee in the amount of $100,000
        per month for five (5) consecutive months commencing on November 1, 2008
        and
        terminating on March 1, 2009 payable at maturity. The loan is not prepayable
        before March 1, 2009.
 
 In
        order
        to provide such funds to Innopump, SCG entered into a loan transaction with
        a
        third party lender. Innopump’s payment obligations under the terms of its loan
        agreement with SCG are equivalent to SCG’s payment obligations to its lender
        with the consequence that all loan payments made by Innopump to SCG will
        in turn
        be paid by SCG to its lender. In addition, the third party lender was granted
        a
        warrant to purchase a 10% membership interest in SCG at an aggregate price
        equal
        to $1. The warrant expires on October 31, 2010. Innopump also executed a
        letter
        in favor of the third party lender to SCG providing an indemnity to such
        lender
        in the event the lender becomes subject to litigation commenced by creditors
        of
        the Company on account of its having made such loan.
  Gerhard
        Brugger, who is the licensor to SCG of the patented technology sublicensed
        to
        Innopump, gave the third party lender his consent of a collateral assignment
        of
        the License by SCG to the lender and agreed that any outstanding indebtedness
        of
        SCG under the License Agreement, which aggregated approximately $907,000
        at the
        date of the closing, would not be due prior to July 1, 2009. SCG, in
        consideration for Mr. Brugger’s cooperation, agreed to provide cash collateral
        for its payment obligations to Mr. Brugger under its License Agreement of
        $895,750, which Innopump agreed to fund out of the loan proceeds. Where Innopump
        complies with the terms of the loan agreement with SCG, this amount shall
        be a
        credit against its loan agreement obligations. No changes were made in the
        sublicense agreement with SCG in connection with this loan.
 
 The
        net
        proceeds from the loan after fees, aggregated approximately $3.1 million.
        The
        proceeds of the loan are to be used (i) to establish the required cash
        collateral account (ii) payment of current accounts payable and other
        outstanding obligations, and (iii) funding anticipated working capital
        requirements including product development and the acquisition of tooling
        and
        molds.
  F-32




**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. 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. Subsequent
      to the reverse acquisition, we changed our fiscal year end to June 30 to conform
      to that of the accounting acquirer.





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 two recent fiscal years ending June 30, 2007 and June 30, 2008,
      respectively, 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 ended December 31, 2005 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 two recent fiscal years ending June 30, 2007 and June 30, 2008,
      respectively, 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**





Evaluation
      of Disclosure Controls and Procedures




We
      maintain a system of disclosure controls and procedures, as defined in Exchange
      Act Rule 13a-15(e), which is designed to provide reasonable assurance that
      information, which is required to be disclosed in our reports filed pursuant
      to
      the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is
      accumulated and communicated to management in a timely manner. At the end of
      the
      period covered by this report, 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 Rule 13a-15(b). Based upon
      that evaluation, our Chief Executive Officer and Controller concluded that
      our
      disclosure controls and procedures as of the end of the period covered by this
      report were not effective due to an insufficient number of resources in the
      accounting and finance department that does not allow for a thorough review
      process.




34




Changes
      in Internal Control over Financial Reporting




During
      the fourth quarter of the fiscal year ended June 30, 2008, there were no
      significant changes in our internal control over financial reporting or in
      other
      factors that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.




Management’s
      Report on Internal Control over Financial Reporting




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. Internal control over financial reporting,
      as
      defined in Exchange Act Rule 13a-15(f), is a process designed by, or under
      the supervision of, our principal executive and principal financial officers
      and
      effected by our Board of Directors, management and other personnel, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles and includes those policies and
      procedures that:




•
                Pertain to the maintenance of records that in reasonable detail accurately
                and fairly reflect the transactions and dispositions of our assets;





•
                Provide reasonable assurance that transactions are recorded as necessary
                to permit preparation of financial statements in accordance with
                generally
                accepted accounting principles, and that our receipts and expenditures
                are
                being made only in accordance with authorizations of our management
                and
                directors; and





•
                Provide reasonable assurance regarding prevention or timely detection
                of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on the financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate. All internal control systems, no matter
      how well designed, have inherent limitations. Therefore, even those systems
      determined to be effective can provide only reasonable assurance with respect
      to
      financial statement preparation and presentation. The scope of management’s
      assessment of the effectiveness of internal control over financial reporting
      includes all of our Company’s consolidated subsidiaries.




Our
      management assessed the effectiveness of our internal control over financial
      reporting as of June 30, 2008. In making this assessment, our management used
      the criteria set forth by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO) in “Internal Control-Integrated Framework.” Based on
      this assessment, management believes that, as of June 30, 2008, our internal
      control over financial reporting was not effective due to an insufficient number
      of resources in the accounting and finance department that does not allow for
      a
      thorough review process.





The
      material weakness will not be considered remediated until necessary remedial
      procedures are completed and tested and management has concluded that the
      procedures are operating effectively.




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.




35




**ITEM
      8-B. OTHER INFORMATION**





None.




36




**PART
      III**




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





As
      of
      November 13, 2008, the names, ages and positions of the directors and executive
      officers of the Company are as follows:


Name
              
              Age
              
              PositionGeoffrey
                  Donaldson
              
              65
              
              Chief
                  Executive and Financial Officer, Chairman of the Board,
                  DirectorKaren
                  Nazzareno
              
              51
              
              Controller
                  and SecretaryRobin
                  Bartosh
              
              65
              
              DirectorEdward
                  P. Bond
              
              74
              
              DirectorThomas
                  Coyle
              
              57
              
              DirectorRichard
                  Harriton
              
              72
              
              DirectorMichael
                  W. Hawthorne
              
              41
              
              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.





37





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.




38




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, 2008.





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 during the fiscal year ended June 30, 2008. 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, 2008 and 2007.





**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
              
              
              2008
              
              $
              312,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              312,500Chief
                  Executive
              
              
              2007
              
              $
              252,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              252,000Officer
                  (PEO)Karen
                  Nazzareno
              
              
              2008
              
              $
              125,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              125,000Controller
              
              
              2007
              
              $
              115,708
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              115,708Paul
                  Block,
              
              
              2008
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              41,668
              (1)
              $
              41,668Former
                  President (1)
              
              
              2007
              
              $
              66,668
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              58,332
              (1)
              $
              125,000




(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.




39




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, 2008, 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, 2008.


**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
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              60,000
              (2)
              $
              60,000Thomas
                  Coyle
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              58,500
              (3)
              $
              58,500—
              
              
              —
              
              
              —
              
              
              —
              
              
              ——
              
              
              —
              
              
              —
              
              
              —
              
              
              —


(2)In
      April 2005, we entered into a three-year business consulting agreement with
      an
      entity owned by Mr. Harriton which provided for an annual fee of $65,000 in
      the
      first year and $50,000 the following two years. In April 2008, the agreement
      was
      extended for one year for an annual fee of $65,000 with an additional $7,500
      due
      upon the signing of the agreement. At June 30, 2008, the Company is in arrears
      in the amount of approximately $77,000 to Mr. Harriton. 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
      MANAGEMENTAND RELATED STOCKHOLDER MATTERS**





The
      following table sets forth the beneficial ownership of shares of voting stock
      of
      the Company, as of November 3, 2008 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.




40


**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) (10)
              
              
              5,030,422
              
              
              
              
              
              27.5
              %Gerhard
                  Brugger(10)
              
              
              1,126,897
              
              
              
              
              
              6.2
              %Richard
                  Harriton (5)(10)
              
              
              1,909,299
              
              
              175,612
              
              
              10.3
              %Matthew
                  Harriton (6)(10)
              
              
              1,744,187
              
              
              10,500
              
              
              9.5
              %Karen
                  Nazzareno (7)
              
              
              56,866
              
              
              
              
              
              .3
              %Robin
                  Bartosh (5)
                1016
                  Grand Isle Terrace
                Palm
                  Beach Gardens, FL 33418
              
              
              130,027
              
              
              
              
              
              .7
              %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) (8)
                444
                  Merrick Road
                Suite
                  104
                Lynbrook,
                  NY 11563
              
              
              1,688
              
              
              
              
              
              .0
              %Fursa
                  Master (8)(10)
                Global
                  Event Driven Fund, L.P.
                444
                  Merrick Road
                Suite
                  104
                Lynbrook,
                  NY 11563
              
              
              14,476,557
              
              
              3,171,697
              
              
              50.8
              %Prospero
                Capital,
                  LLC (9)
                357
                  West Sunrise Highway
                Freeport,
                  NY 11520
              
              
              882,201
              
              
              882,201
              
              
              4.6
              %All
                  officers and directors as a group (7 persons)
              
              
              7,149,974
              
              
              175,612
              
              
              38.7
              %





(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 18,309,194 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.





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




41




(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)
      Includes 3,171,697 shares issuable upon the exercise of warrants and 7,035,136
      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.





(9)
      Prospero Capital, LLC is an affiliate of Fursa Alternative Strategies, LLC.
      Includes 882,201 shares issuable on exercise of warrants. Mickey Harley holds
      voting and investment control of Prospero Capital, LLC.





(10)
      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.




42





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


**** **DIRECTOR
      INDEPENDENCE**





Director
      Independence





The
      Board
      did not have any committees during the fiscal year ended June 30, 2008. 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 December 31, 2009 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. On July 1, 2008,
      Mr. Harriton was assigned 164,500 Versadial warrants, from SCG, in consideration
      of an extension granted of the maturity date of the $1,098,536 note due from
      SCG. The warrants are exercisable for five years from the date of issuance
      at an
      initial exercise price equal to $2.282 per share.





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 December 31, 2009 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. On July 1, 2008, Mr. Harriton was assigned 10,500 Versadial
      warrants, from SCG, in consideration of an extension granted of the maturity
      date of the $70,000 note due from SCG. The warrants are exercisable for five
      years from the date of issuance at an initial exercise price equal to $2.282
      per
      share.





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. In April 2008, the agreement was extended for one year for an annual
      fee of $65,000 with an additional $7,500 due upon the signing of the agreement.
      At June 30, 2008, the Company is in arrears in the amount of approximately
      $77,000 due Mr. Harriton.





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.




43




On
      June
      21, 2006, Innopump, entered into a Sublicense Agreement (the "Sublicense
      Agreement") with VDM Holdings, LLC (“VDM Holdings, LLC”), an entity majority
      owned by the stockholders and officers of Innopump. 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 remains in effect through
      December 31, 2024. VDM did not meet the minimum order quantity provision in
      2007
      to maintain exclusivity. The parties are currently working on an amendment
      as to
      the terms of the agreement





On
      October 20, 2008, Innopump entered into an unsecured loan agreement with SCG.
      SCG is an affiliate of the ours as members of the Board of Directors own
      approximately 69% of the outstanding membership interests of SCG. SCG is the
      sublicensor of the patented technology used in the manufacture of our
      proprietary products. The loan is for a principal amount of $3,445,750, matures
      on June 29, 2009 and bears interest at the rate of one and eighty three
      hundredths percent (1.83%) per month payable in arrears on the first day of
      each
      month or payable in kind at the option of Innopump with the interest being
      added
      to the principal balance. The agreement also obligates Innopump to pay a fully
      earned facility fee of $400,000 at maturity, a commitment fee of $250,000 upon
      execution of the loan and an in kind monitoring fee in the amount of $100,000
      per month for five (5) consecutive months commencing on November 1, 2008 and
      terminating on March 1, 2009 payable at maturity. The loan is not prepayable
      before March 1, 2009.





In
      order
      to provide such funds, SCG entered into a loan transaction with a third party
      lender. Innopump’s payment obligations under the terms of its loan agreement
      with SCG are equivalent to SCG’s payment obligations to its lender with the
      consequence that all loan payments made by Innopump to SCG will in turn be
      paid
      by SCG to its lender. In addition, the third party lender was granted a warrant
      to purchase a 10% membership interest in SCG at an aggregate price equal to
      $1.
      The warrant expires on October 31, 2010. Innopump also executed a letter in
      favor of the third party lender to SCG providing an indemnity to such lender
      in
      the event the lender becomes subject to litigation commenced by creditors of
      ours on account of its having made such loan.




Gerhard
      Brugger, who is the licensor to SCG of the patented technology sublicensed
      to
      Innopump, gave the third party lender his consent of a collateral assignment
      of
      the License by SCG to the lender and agreed that any outstanding indebtedness
      of
      SCG under the License Agreement, which aggregated approximately $907,000 at
      the
      date of the closing, would not be due prior to July 1, 2009. SCG, in
      consideration for Mr. Brugger’s cooperation, agreed to provide cash collateral
      for its payment obligations to Mr. Brugger under its License Agreement of
      $895,750, which Innopump agreed to fund out of the loan proceeds. Where Innopump
      complies with the terms of the loan agreement with SCG, this amount shall be
      a
      credit against its loan agreement obligations. No changes were made in the
      sublicense agreement with SCG in connection with this loan.




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.




44




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, as amended, on November 9, 2009 (“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% (approximately $9.7 million at June
      30,
      2008) 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. Subsequent to August 9,
      2007, all interest due has not been paid and has been added to the principal
      balance.





The
      Convertible Debt is convertible into approximately 6.9 million shares of our
      common stock as of June 30, 2008 inclusive of unpaid interest which has been
      added to principal. The price per share ($1.1768) 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.





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.




45




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 August 6, 2007, the
      Investor agreed to waive the Liquidated Damages Warrants which were to be issued
      for our 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 us to file two subsequent separate Registration
      Statements upon demand by the Investor 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 we filed an
      amended SB-2A addressing the SEC comments and responded to the current comment
      letter by October 31, 2007. On October 24, 2007, we responded to the SEC
      comments and filed an amended SB-2A. On February 11, 2008, the Registration
      Statement was declared effective. If the additional required registration
      statements are not declared effective within the time frame described, or if
      the
      registrations are 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 138,000
      shares. In addition, for each full thirty (30) day period after the date that
      the required registration statement has not been declared effective, we will
      be
      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 Investor has not made a demand for a subsequent
      Registration Statement filing.




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”) which matured on February 1, 2008. Prior to maturity,
      the line was converted to equity as described below.





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 were 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 were cancelled. On January 28, 2008, the
      issued warrants were cancelled and reissued due to anti-dilution provisions
      resulting from our private placement offering. The Lender and Prospero were
      each
      issued new warrants to purchase 882,201 shares of our common stock at an
      exercise price of $2.282.




46




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. Prior to maturity,
      the $4.0 million line was converted to equity as described below.





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
      January 28, 2008, we issued 1,250,000 shares of common stock upon the conversion
      by the Lender, acting on behalf of the Investor, of the remaining $2,000,000
      in
      principal amount of the Credit Agreement notes at a per share conversion price
      of $1.60, the offering price of our private placement.





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 were due upon the earlier of (a)
      six
      months following the final closing date of November 27, 2007, (b) the date
      on
      which we received 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
      closed on a rights offering. We received net proceeds of approximately $2.4
      million from the sale of the Notes of which $2.2 million was received from
      an
      entity owned by Richard Harriton, a related party who serves as a Director
      and
      is a major shareholder of ours. On
      January 28, 2008, we repaid an aggregate of $1.3 million of these notes with
      the
      proceeds from the our private offering inclusive of interest and discount of
      which $1.2 million was repaid to Richard Harriton and approximately $.1 million
      was paid to an individual lender. On May 31, 2008, the holders of the notes
      agreed to extend the maturity date of the remaining notes to the earlier of
      (a)
      March 31, 2009 or (b) the date on which we receive gross proceeds in excess
      of
      $7.0 million from any debt or equity financing. On May 31, 2008, the date of
      the
      extension of the maturity date, the holders were granted warrants to purchase
      80,000 shares of our common stock exercisable for five years from the date
      of
      issuance at an initial exercise price equal to $2.282 per share.




47




Under
      the
      terms of a private placement agreement, we offered for sale a maximum of
      3,437,500 units of our securities at $1.60 per unit with a minimum unit purchase
      of $80,000. Each unit consists of one share of common stock and 20% warrant
      coverage. The private placement was extended through a final closing date of
      May
      31, 2008 for a maximum aggregate placement of $5.5 million. On January 28,
      2008,
      we received $2.8 million for the purchase of 1,750,000 units of our securities
      consisting of 1,750,000 shares of common stock and stock purchase warrants
      (20%
      warrant coverage or an aggregate of 350,000 warrants) in connection with the
      private placement offering. The proceeds of the private placement were used
      primarily for working capital purposes including (i) repayment of outstanding
      current indebtedness including approximately $1.3 million in bridge financing
      incurred with the Securities Purchase Agreement (ii) payment of other
      outstanding obligations, and (iii) funding working capital requirements
      including product development and the acquisition of tooling and molds. We
      had
      received a letter from the Investor, the purchaser of 1,250,000 units in the
      private placement, committing the Investor subscribe and pay $2.0 million for
      an
      additional 1,250,000 units by May 31, 2008. The Investor did not deliver the
      $2.0 million by May 31, 2008. We are presently in discussions with the Investor
      regarding this obligation. Aggregate warrants issued to the investors and
      placement agents to purchase 375,000 shares of our common stock were issued
      in
      connection with the placement. We signed a Registration Rights Agreement whereby
      we are obligated to register to the extent permitted by applicable rules and
      regulations the resale of our shares of common stock and underlying warrants
      issuable within ninety (90) days following the final closing of the offering
      which may be extended by us for an additional ninety (90) days if we are in
      confidential business discussions. We are currently in confidential business
      discussions with regard to prospective additional financing opportunities.
      The
      registration statement is to be declared effective by the Securities and
      Exchange Commission within one hundred eighty (180) days following the filing
      date.




Beginning
      in May 2008, we began raising short-term financing through financing our
      accounts receivable. Under this program, specific accounts receivable are sold
      at a discount and we retain the right to repurchase the accounts, subject to
      a
      1.5% per month financing charge. We record this as a financing transaction
      in
      which the receivables sold are carried on the consolidated balance sheet and
      the
      amount to be repaid is reflected as a short-term debt. At June 30, 2008, we
      had
      a liability of $109,000 payable to an entity owned by Richard Harriton, a
      related party, who serves as a Director and is a major shareholder of the
      Company. All accounts receivable sold at June 30, 2008, were subsequently
      repurchased. Subsequent to June 30, 2008, we financed approximately $363,000
      of
      additional receivables from this related party.





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.




48


**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)4.20
              
              Agreement
                  dated February 28, 2008 between Versadial, Inc. and Fursa Master
                  Global
                  Event Driven Fund, L.P. (19)4.21
              
              Agreement
                  dated March 31, 2008 between Versadial, Inc. and Fursa Master Global
                  Event
                  Driven Fund, L.P. (20)4.22
              
              Agreement
                  dated April 30, 2008 between Versadial, Inc. and Fursa Master Global
                  Event
                  Driven Fund, L.P. (23)4.23
              
              Securities
                  Purchase Agreement dated as of January 11, 2008 between the Company
                  and
                  the Purchasers. *
  49
  4.24
              
              Form
                  of Common Stock Purchase Warrant issued in connection with the
                  Securities
                  Purchase Agreement. *4.25
              
              Registration
                  Rights Agreement dated January 11, 2008 among the Company and the
                  Investors in connection with the Securities Purchase
                  Agreement.*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)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. (18)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)10.18
              
              Credit
                  Memo dated May 8, 2007 between Versadial, Inc. and Avon Products,
                  Inc.
                  (21)10.19
              
              Amendment
                  No. 4 dated January 15, 2008 to the Sublicense, Development and
                  Technology
                  Transfer Agreement dated May 1, 2005 between Innopump, Inc. and
                  Sea Change
                  Group, LLC. (21)10.20
              
              Amendment
                  No. 3 as to Payment Terms dated March 14, 2008 to the Amended and
                  Restated
                  License Agreement dated January 1, 2003 between Sea Change Group,
                  LLC and
                  Gerhard Brugger. (22)10.21
              
              Amendment
                  No. 1 to the Consulting Agreement dated April 22, 2005 between
                  Innopump,
                  Inc. and Park Avenue Consulting.*10.22
              
              Amendment
                  No. 5 dated June 30, 2008 to the Sublicense, Development and Technology
                  Transfer Agreement dated May 1, 2005 between Innopump, Inc. and
                  Sea Change
                  Group, LLC. *10.23
              
              Loan
                  Agreement dated October 20, 2008 between Sea Change Group, LLC
                  and
                  Innopump, Inc. (24)
  50
  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.(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 Exhibits 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(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)
              Incorporated
                  by reference to same Exhibit No. on Form 10-KSB of the Company
                  filed on
                  October 15, 2007.(18)
              Incorporated
                  by reference to same Exhibit No. on Form 10-KSB (Amendment No.
                  3) of the
                  Company filed on February 7, 2008. A portion of Exhibit 10.10 has
                  been
                  omitted pursuant to a request for confidential
                  treatment.(19)
              Incorporated
                  by reference to Exhibit 1 of Form 8-K of the Company filed on March
                  4,
                  2008.(20)
              Incorporated
                  by reference to Exhibit 1 of Form 8-K of the Company filed on April
                  8,
                  2008.(21)
              Incorporated
                  by reference to same Exhibit No. on Form SB-2/A of the Company
                  filed on
                  January 23, 2008.(22)
              Incorporated
                  by reference to same Exhibit No. on Form 10-QSB of the Company
                  filed on
                  May 20, 2008.(23)
              Incorporated
                  by reference to Exhibit 1 of Form 8-K of the Company filed on May
                  7,
                  2008.(24)
              Incorporated
                  by reference to Exhibit 10.1 of Form 8-K of the Company filed on
                  October
                  24, 2008.
 
 51




**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, 2008 and 2007:


Fee
                  category
              
              2008
              
              2007Audit
                  fees
              
              $
              104,144
              
              $
              92,710Audit-related
                  fees
              
              
              4,950
              
              
              10,500Tax
                  fees
              
              
              -
              
              
              -All
                  other fees
              
              
              -
              
              
              -Total
                  fees
              
              $
              109,094
              
              $
              103,210




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.
  52




**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 13th day of November
      2008.


VERSADIAL,
                  INC./s/
                  Geoffrey DonaldsonBy:
              Geoffrey
                  Donaldson, Principal Executive and Financial
                Officer/s/
                  Karen NazzarenoBy:
              Karen
                  Nazzareno,Controller





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below on November 13th, 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
                  HarritonDirectorMichael
                  W. Hawthorne





53