**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      DC


20549





______________________________





**FORM
        10-QSB/A**


**(Amendment
        No. 1)**




______________________________





/X/
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007




/
      /
      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934





Commission
      file number: 001-32134




**Z
      TRIM HOLDINGS, INC.**


(Exact
      Name of Small Business Issuer as Specified in Its Charter)




ILLINOIS
            36-4197173(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            (I.R.S.
                Employer
              Identification
                No.)




1011
      CAMPUS DRIVE, MUNDELEIN, ILLINOIS 60060


(Address
      of Principal Executive Offices)





(847)
      549-6002


(Issuer's
      Telephone Number, Including Area Code)





Check
      whether the issuer: (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes / / No /X/





The
      registrant has a single class of common stock, par value $.00005 per share,
      of
      which there were 63,688,371 shares issued and outstanding as of May 4,
      2007.





Transitional
      Small Business Disclosure Format (Alternative 2): Yes / / No /X/














**Explanatory****Note**




*On
          October 31, 2007, we determined that our financial statements for the quarters
          ended March 31, 2007 and June 30, 2007 should no longer be relied upon
          because
          of accounting errors in those financial statements relating to specific
          equity
          transactions.  Accordingly, we have restated our previously issued
          financial statements for those periods. Restated financial information
          is
          presented in this report, as well as in our Amended Quarterly Report on
          Form 10-QSB for the quarter ended June 30, 2007. For a discussion of the
          errors and the adjustments made as a result of the restatement, see Note 2
          of Notes to Interim Unaudited Consolidated Financial Statements included
          in
“Part I — Item 1 — Financial Statements.” This amendment and
          restatement includes revisions to “Part I – Item 1 – Financial Statements”,
“Part I – Item 2 – Management’s Discussion and Analysis or Plan of Operation –
Summary of Financial Results – Results of Operations”,  “Part I – Item
          2 – Management’s Discussion and Analysis or Plan of Operation – Summary of
          Financial Results – Liquidity and Capital Resources”, and “Part I – Item 3 –
Controls and Procedures” only.  No attempt has been made in this Form
          10-QSB/A to modify or update other disclosures presented in the original
          report
          on Form 10-QSB except as required to reflect the corrections described
          above.
          The Form 10-QSB/A does not reflect events occurring after the filing of
          the Form
          10-QSB or modify or update those disclosures, including the exhibits to
          the Form
          10-QSB and notes to the financial statements, affected by subsequent events.
          Information not affected by the correction is unchanged and reflects the
          disclosures made at the time of the original filing of the Form 10-QSB
          on May 9,
          2007. Accordingly, this Form 10-QSB/A should be read in conjunction with
          our
          filings made with the Securities and Exchange Commission subsequent to
          the
          filing of the original Form 10-QSB, including any amendments to those filings.
          For convenience and ease of reference, we are filing our quarterly report
          in its
          entirety with the applicable changes.*








**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





See
      Consolidated Financial Statements beginning on page F-1.




**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





THE
      FOLLOWING DISCUSSION IS INTENDED TO ASSIST IN UNDERSTANDING THE FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS OF Z TRIM HOLDINGS, INC. YOU SHOULD READ
      THE
      FOLLOWING DISCUSSION ALONG WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES
      INCLUDED ELSEWHERE IN THIS FORM 10-QSB. THE FOLLOWING DISCUSSION CONTAINS
      FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
      ASSUMPTIONS. OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2007 AND BEYOND
      MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD
      LOOKING STATEMENTS.





**Overview**





Z
      Trim
      Holdings, Inc. which changed its name from Circle Group Holdings, Inc. in 2006,
      is an emerging growth company focused on the production, licensing, marketing
      and distribution of its proprietary and patented technology, Z Trim. Z Trim(R)
      is a natural food ingredient that is currently used by food manufacturers,
      restaurants, and consumers to replace up to 50% of fat and calories without
      changing taste, texture, appearance or digestive properties in baked goods,
      dairy products, snacks, deserts, sauces, dressings, processed meats and many
      other foods. Z Trim is dedicated to transforming the multi-billion dollar
      processed food industry in its fight to create healthier, lower-fat,
      lower-calorie products.





Z
      Trim is
      also available as an Appetite Control formula that is 100% natural dietary
      fiber
      made from the bran of grain and delivered in a cellulose capsule. The new
      breakthrough product has great absorption capacity resulting in a feeling of
      fullness and a reduction in appetite thus allowing consumers to continue
      enjoying eating without sacrifice. Z Trim Appetite Control was recently shown
      in
      clinical studies to improve weight loss without causing any gastrointestinal
      or
      other negative side effects.





2


For
      decades, the industry has taken steps to try to make foods with less calories
      for the dieting consumer. They have been able to replace sugar and other
      sweeteners with modest success but have had little success replacing fat,
      usually creating products that don't taste very good. Sugar replacements such
      as
      saccharin, NutraSweet(R) and Splenda(R) can be found everywhere in our foods
      and
      eating habits. These food technologies have made their way into our soft drinks,
      snacks, cookies and our home cooking. We believe that Z Trim, as a fat
      replacement, has the potential to become as commonplace in our eating as sugar
      substitutes, and it will do this while still maintaining the original taste
      of
      the foods.




As
      a
      marketing driven company with a unique technological base, Z Trim's mission
      is
      to establish a new paradigm in fiber rich, lower calorie, reduced saturated
      fat
      products that promote health beyond basic nutrition. By reducing the fat and
      calories from fat by up to 50% in foods without sacrificing taste or texture,
      Z
      Trim represents a quantum breakthrough in food science and
      technology.





After
      years of development, Z Trim is now commercialized. The Company currently
      manufactures and markets Z Trim as an affordable ingredient technology that
      dramatically improves the industry's nutritional promise. The Company's primary
      objective in 2007 is to build on Z Trim's early successes in various food
      products and studies, with the target goal of establishing it as an important
      ingredient in revolutionizing the food industry in a manner analogous to
      NutraSweet(R). The Company is targeting the end consumer through (i) proposing
      licensing agreements and direct sales to major food manufacturers and several
      small to mid size companies, (ii) direct sales to the consumer, and (iii) direct
      sales to large food institutions such as those that supply to restaurants,
      hospitals, schools and cafeterias.





**Plant
      Usage Sales Scenarios**





In
      a 12
      month period, the Mundelein Z Trim plant can currently produce an estimated
      one
      million pounds of finished Z Trim powder at 25x absorption. This could also
      equate to 25 million pounds of Z Trim Gel at 4% solids. The Company has no
      way
      at this time of knowing exact amounts of each product but anticipates it will
      produce a combination of 25x Z Trim Powder and 4% solids Z Trim Gel. Below
      are
      various uses of that available production capacity supply. The Company already
      sells to all 9 channels in varying percentages and expects that trend to
      continue as it grows however with little predictability of how much will be
      sold
      to each area in the future.





1)
      Industry Manufacturer sales of Z Trim Boxed Powder (22 pounds) at $120 (current
      price @ $5.5/lb) 45,454 boxes (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $5,500,000.





2)
      Industry Manufacturer sales of Z Trim Gel (one gallon) at $2.5 (current price
      @
      $0.3/lb) 3,000,000 gallons (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $7,500,000.





3)
      Institutional User sales of Z Trim Gel (one gallon) at $5.00 (current price
      @
      $0.6/lb) Schools, Universities, Hospitals, Hotels, Restaurants 3,000,000 gallons
      (assuming total utilization of all available production capacity supply for
      only
      this channel). Total Annual Potential Gross Revenue: $15,000,000.





4)
      Consumer Retail sales of Appetite Control Capsules at $29.95 (current bulk
      price
      at web site) 3,600,000 bottles (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $107,820,000.





5)
      Consumer Retail sales of Appetite Control Capsules at $14.00 (wholesale price
      to
      large retailers) 3,600,000 bottles (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $50,400,000.






3





6)
      Consumer Retail sales of Z Trim Fat Replacement at $3.99 (current bulk price
      at
      web site) 25,000,000 bottles (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $99,750,000.





7)
      Consumer Retail sales of Z Trim Fat Replacement at $2.00 (wholesale price to
      large retailers) 25,000,000 bottles (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $50,000,000.





8)
      Consumer Retail sales of Z Trim Fiber Supplement (8 ounce) at $34.95 (current
      price at web site) 2,000,000 packs (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $69,900,000.





9)
      Consumer Retail sales of Z Trim Fiber Supplement (8 oz) at $15.00 (wholesale
      price to large retailers) 2,000,000 packs (assuming total utilization of all
      available production capacity supply for only this channel). Total Annual
      Potential Gross Revenue: $30,000,000.





**Product
      Description**





Z
      Trim is
      an all natural ingredient made from plant fiber, essentially an amorphous
      cellulose gel. Based on a novel processing system that converts crude fiber
      grain components into cereal hydro-colloidal compositions, Z Trim is rich in
      soluble and insoluble fiber, devoid of fat and calories, neutral in taste and
      totally compatible in texture with foods that in which it is used. In concrete
      terms, this patented, proven ingredient system can significantly improve the
      health benefits of foods without compromising the taste delivery and mouth-feel
      properties of full-fat products that are critical to consumers and the market
      share belonging to the brands of every major food company.




Z
      Trim
      was developed at the U.S. Department of Agriculture by Dr. George Inglett.
      The
      goal was to create a zero-calorie healthy natural food ingredient utilizing
      grain bi-products that would replace a large portion of high calorie fats in
      processed foods. The Company holds the exclusive United States and international
      manufacturing and marketing rights to the technology for all fields of use.
      The
      Company spent the past five years and approximately 14 million dollars
      perfecting its patented and trade secret formulas, a state-of-the-art
      manufacturing facility and marketing rollout for production and use. The Company
      has dozens of U.S. and international patents issued and pending on the Z Trim
      composition and process as well as numerous trade secrets relating to this
      proprietary technology. Processes based upon the Company's intellectual property
      portfolio are now in use at the Z Trim plant located in Mundelein,
      Illinois.




Several
      consumer studies have been performed on Z Trim by independent focus groups,
      home
      use tests, state fairs and staged events at restaurants, and in the media that
      have been broadcast on NBC, CBS, WGN and FOX. All the results taken as a
      collective grouping have consistently demonstrated that people cannot tell
      the
      difference between a full fat food and the same recipe replacing up to 50%
      of
      the fat with Z Trim. Seven out of ten consumers consistently chose Z Trim as
      the
      full fat version or the better tasting version.




Z
      Trim
      adds water to recipes, so it improves textures resulting in creamier, moister,
      and juicier foods. The additional water also has the effect of cleansing the
      palette thereby diminishing aftertastes of fats such as greasiness and
      filminess. Lastly, Z Trim is healthy soluble and insoluble fiber. Fiber has
      been
      shown to improve satiety and contribute to other benefits such as weight loss,
      lowering of cholesterol and improvement of glycemic index.





4


We
      have
      four operating subsidiaries: Fiber-Gel Technologies, Inc., thebraveway.com,
      Inc.,(operating as The Brave Way Training Systems), On-Line Bedding Corp.,
      and
      Z-Amaize Technologies, Inc.




Z
      Trim
      Holdings has accumulated a substantial Intellectual Property Portfolio for
      its
      products and technologies including patents, trademarks, trade secrets and
      licensed rights. This portfolio will provide the company with the protection
      needed as it moves forward in the competitive business environment. Additional
      intellectual property will be added to the portfolio as advances in the existing
      technologies and new technologies are developed.





**Subsidiaries**





*Fibergel
      Technologies, Inc.*





FiberGel
      owned the exclusive, worldwide license for all fields of use to Z Trim, an
      all-natural, agricultural-based fat replacement developed by the Agricultural
      Research Service of the United States Department of Agriculture ("USDA"). The
      Company acquired FiberGel, formerly a wholly-owned subsidiary of Utek
      Corporation ("Utek"), on August 27, 2002. Under the terms of the acquisition,
      we
      issued 2,800,000 shares of our common stock to Utek valued at $504,000 using
      an
      average market price of $0.18 per share. We also issued a three year warrant
      to
      Utek to purchase 500,000 shares of our common stock at an exercise price of
      $0.36 per share of which such warrants were fully exercised in 2004. Z Trim
      Holdings, Inc. owns the exclusive U.S. and international rights to Z Trim,
      and Z
      Trim is currently our primary focus.





The
      Company is currently making and shipping product to satisfy its customers'
      orders and product sample requests. Swiss based conglomerate DKSH, the company's
      distributor under exclusive limited territorial rights in Europe, Asia,
      Australia and South America has been purchasing Z Trim and providing current
      and
      potential customers with product samples and other product related assistance
      for both Z Trim and their newly developed non-GMO (Genetically Modified
      Organisms) Oat versions of Z Trim. The raw material oats are being acquired
      through a distributor from Quaker Oats.





*Nat
      Tools For Good Health*





We
      acquired the worldwide exclusive license to the NAT Web, the Nutrition Analysis
      Tool ("NAT") website developed by the Department of Food Science and Human
      Nutrition at the University of Illinois. The University of Illinois' NAT website
      is an interactive, web-based system designed to empower individuals to select
      a
      nutrient-rich diet. This fully functional nutrient analysis program utilizes
      the
      USDA nutrient database, including over 6,000 foods as well as information from
      food companies. NAT provides information on the relative composition of food
      and
      could aid consumers in their quest to achieve or maintain good health via
      nutritious eating.





Pioneered
      and developed by Dr. James Painter at the University of Illinois in 1995, and
      a
      winner of several awards, the Nutritional Analysis Tools and System ("NATS")
      is
      based upon the behavioral scientific discoveries that keeping track daily of
      what we eat, plus how many calories we burn through fitness activities, are
      among the most critical components in achieving and sustaining long-term
      successful weight loss and health management. Using data provided by the USDA
      and most brand name food companies, NAT'S users can keep track every day of
      the
      foods, calories, fats, proteins, carbohydrates and other nutrients they consume.
      New members can join MyNATS for free and save all their menus on the NATS
      database. Non-members can use NATS 2.0 to save all their data to their own
      computers for free offline reference. NATS users can calculate calories burned
      during the day. The web site provides visitors the ability to enter a certain
      activity and the amount of calories they wish to burn, and then calculates
      how
      long the given activity needs to be done. Visitors can also enter how long
      they
      did an activity and the web site calculates how many calories they burned or
      which activities a person can do to burn a certain amount of calories in a
      given
      length of time.





The
      acquisition of the socially conscious NATS site is very significant to us
      because it has the potential to provide us with a large consumer audience,
      as it
      attracts as many as two million visitors per month from more than eighty
      countries. We are increasing awareness about our Z Trim products and their
      benefits to consumers who visit the NATS website. Visitors to the site can
      also
      purchase Z Trim products, a pedometer based diet program, and Palm OS software
      versions of the NATS site that they can use when on the go. We are planning
      to
      expand the number of products being offered on the web site in 2006 to include
      cooperative advertising and marketing of healthy, calorie and fat reduced Z
      Trim
      products launched by food industry partners.





5


*Brave
      Way Training Systems*





The
      Brave
      Way Training Systems, another of our wholly owned subsidiaries, is a security
      training and product company. The Brave Way offers proven, highly effective,
      low-cost self-defense courses and videos with a uniquely targeted curriculum
      focusing on personal safety and self-defense including rape prevention. Courses
      are offered for police officers and security personnel through The Brave Way's
      state certified law enforcement training for students and teachers, individuals,
      Airline Personnel, Hospital personnel, through park districts, clubs, churches
      and other organizations as well as corporations. The Brave Way instructors
      have
      experience in multiple martial arts, and backgrounds in martial arts, security,
      self-defense, and the military.




*On-Line
      Bedding Corp.*





On-Line
      Bedding Corp. ("On-Line Bedding"), another of our wholly-owned subsidiaries,
      founded in 1981, is a distributor of pillows, blankets and other bedding
      products to airlines, hospitals, government, and other commercial and
      institutional customers. On-Line Bedding subcontracts the production of pillows,
      blankets and other bedding products to manufacturers. On-Line Bedding's
      customers include hospitals, nursing homes, hotels and motels, and
      transportation-based companies such as airlines, railroads and motor coach
      companies. On-Line Bedding purchases its raw materials from various suppliers,
      and contracts production of its airline pillows and blankets with third party
      manufacturers. On-Line Bedding warehouses a limited inventory, and drop ships
      its products from manufacturers or wholesale suppliers in multiple locations
      throughout the United States to reduce freight costs for its customers. On-Line
      Bedding's primary accounts include AMTRAK, as well as certain domestic and
      international airlines. In addition, the United States Armed Forces regularly
      purchases a specialty pillow from On-Line Bedding through the United States
      military's electronic invoice system. On-Line Bedding is also an authorized
      pillow and related product vendor for a hospital purchasing group with over
      500
      members in eight states.





**Operating
      Segments**





We
      operate three reportable segments, food product development, defense product
      development, and e-tailer.





Our
      management reviews the operating companies' income to evaluate segment
      performance and allocate resources. Our operating companies' income for the
      reportable segments excludes income taxes and amortization of goodwill.
      Provision for income taxes is centrally managed at the corporate level and,
      accordingly, such items are not presented by segment since they are excluded
      from the measure of segment profitability reviewed by our
      management.




For
      financial data on the reportable segments, you should refer to the Consolidated
      Financial Statements and the notes thereto.





**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING INFORMATION**





Certain
      information set forth in this
      report contains "forward-looking statements" within the meaning of federal
      securities laws. Forward looking statements include statements concerning our
      plans, objectives, goals, strategies, future events, future revenues or
      performance, capital expenditures, and financing needs and other information
      that is not historical information. When used in this report, the words
      "estimates," "expects," "anticipates," "forecasts," "plans," "intends,"
      "believes" and variations of such words or similar expressions are intended
      to
      identify forward-looking statements. Additional forward-looking statements
      may
      be made by us from time to time. All such subsequent forward-looking statements,
      whether written or oral and whether made by us or on our behalf, are also
      expressly qualified by these cautionary statements.





Our
      forward-looking statements are
      based upon our current expectations and various assumptions. Our expectations,
      beliefs and projections are expressed in good faith and are believed by us
      to
      have a reasonable basis, including without limitation, our examination of
      historical operating trends, data contained in our records and other data
      available from third parties, but there can be no assurance that our
      expectations, beliefs and projections will result or be achieved or
      accomplished. Our forward-looking statements apply only as of the date made.
      We
      undertake no obligation to publicly update or revise forward-looking statements
      which may be made to reflect events or circumstances after the date made or
      to
      reflect the occurrence of unanticipated events.





6






There are a number of risks and uncertainties that could cause actual results
          to
          differ materially from those set forth in, contemplated by or underlying
          the
          forward-looking statements contained in this report. Those risks and
          uncertainties include, but are not limited to, the risk that we do not
          regain
          compliance with the continued listing standards of the American Stock Exchange,
          risks relating to our material weakness in internal controls overfinancial
          reporting, our history of operating losses, lack thus far of significant
          market
          acceptance of our products, the fact that we may dilute existing shareholders
          through additional stock issuances, our reliance on our intellectual property,
          and the potential negative effects of manipulation in the trading of our
          common
          stock. Those risks and certain other uncertainties are discussed in more
          detail
          in our 2006 Annual Report on Form 10-KSB and our subsequent filings with
          the
          SEC. There may also be other factors, including those discussed elsewhere
          in
          this report that may cause our actual results to differ from the forward-looking
          statements. Any forward-looking statements made by us or on our behalf
          should be
          considered in light of these factors.


**RECENT
      MATERIAL DEVELOPMENTS**





On
      February 22, 2007 we announced that this year's fiscal sales(calendar 2007)
      of Z
      Trim for January and the first 21 days of February surpassed the Z Trim product
      sales for calendar year 2006, which were $103,269.00 and the achievement of
      significant progress in its business plan implementation. The company attributes
      the improvement to strategic marketing coinciding with increased demand by
      consumers and growing use by food producers.





In
      the
      4th quarter of 2006, the Company surveyed its existing customer base and was
      provided projections of their anticipated utilization of Z Trim for the calendar
      year 2007. The total of those projections, if achieved, is estimated to consume
      the company's current plant capacity on a run-rate basis by year end 2007.
      With
      the potential for exceeding the existing plant capacity becoming a realistic
      late 2007 target, the Company is presently in various discussions with custom
      food ingredient companies to manufacture Z Trim in plants within the continental
      United States as well as internationally.





The
      Company now has three distinct venues it markets and sells to:





*
      1st
      Tier.....Food Processors & Manufacturers


*
      2nd
      Tier.....Food Service (Schools, Restaurants, Hospitals, Hotels)


*
      3rd
      Tier.....Direct to Consumers, Consumer Retail





These
      Tiers all present totally different opportunities, but each offer unique and
      substantial market leverage if maximized.





On
      May 4,
      2007, the Company announced that its Z Trim Appetite Control Capsules can now
      be
      purchased at select GNC retail stores and from the GNC web site. This is one
      of
      the important steps in the Company's planned retail rollout to make Z Trim
      products accessible to people everywhere. Many foods are engineered to break
      through our natural resistance to over-eating. Z Trim contributes to a
      satisfying feeling of fullness and provides a simple way to reduce caloric
      intake. Lowering calories is widely regarded as the key to successful weight
      management. This is why Z Trim Appetite Control is such a critical new product
      in gaining control over the battle between personal sacrifice and our eating
      enjoyment. With Z Trim, people can enjoy eating and still improve their
      health.




Z
      Trim
      Appetite Control® is 100% natural dietary fiber made from the bran of corn and
      delivered in a vegetarian cellulose capsule. This breakthrough product has
      superior absorption capacity resulting in a feeling of fullness and a reduction
      in appetite thus allowing consumers to continue enjoying eating without
      sacrifice. Z Trim Appetite Control has been shown in clinical studies to improve
      sustainable weight loss without lifestyle change and without causing any
      gastrointestinal or other negative side effects. Z Trim should be considered
      by
      people who are not maximizing success with their existing weight management
      approach, as well as for those who cannot take stimulant based products for
      various health reasons. Z Trim Appetite Control Capsules, are available as
      part
      of a healthy multi-disciplinary approach.





7






On
      May 3,
      2007, the Company reported that by letter dated April 27, 2007, the American
      Stock Exchange ("AMEX") notified Z Trim Holdings, Inc. (the "Company") pursuant
      to Section 1009(a)(i) of the AMEX Company Guide (the "Guide") that the Company
      was not in compliance with AMEX's continued listing standards as a result of
      the
      issuance of 879,996 shares of restricted common stock upon exercise of a warrant
      without prior listing approval, contrary to Section 301 of the Guide. The letter
      constitutes a "Warning Letter" and does not cause the initiation of a de-listing
      procedure or result in the suspension of trading in the Company's common stock.
      The Company has resolved the Section 301 violation by rescinding the transaction
      giving rise to the issuance of the shares in question.





On
      May 1,
      2007, Z Trim Holdings, Inc. hired Alan Orlowsky as the Company's Chief Financial
      Officer. Mr. Orlowsky has served as a member of the Company's Board of Directors
      since January 2004 and most recently was the Chairman of the Company's Audit
      Committee and a member of the Company’s Compensation Committee. Mr. Orlowsky
      resigned those positions as of April 30, 2007. Dana Dabney, the Company's prior
      CFO, remains employed as Vice President and remains on the Company's Board
      of
      Directors. Mr. Orlowsky is moving into the CFO position at an important time
      of
      growth and expanding opportunity for the Company and his hiring is seen by
      the
      Company as a strategic benefit to operations going forward.




Mr.
      Orlowsky, age 58, received his B.S. in accounting from the University of
      Illinois in Champaign and upon graduation passed the C.P.A. exam. He then earned
      his law degree at IIT Chicago-Kent College of Law and passed the Illinois bar
      exam in 1975. Following graduation from law school, Mr. Orlowsky worked at
      the
      I.R.S. in the Estate and Gift Tax Division. During his tenure with the I.R.S.,
      Mr. Orlowsky was also adjunct professor of Accounting, Taxation and Business
      Law
      at Northeastern Illinois School of Business. He left the IRS to accept a
      position with Deloitte & Touche as a tax professional and subsequently
      joined the faculty of Loyola University of Chicago School of Business where
      he
      taught Taxation and Accounting and opened his own practice. The Company's Board
      of Directors has appointed Brian Israel, age 49, to fill the vacancy created
      by
      Mr. Orlowsky's departure. In addition, Mr. Israel will serve as a member of
      the
      Compensation Committee and the Audit Committee, which he will Chair. Mr. Israel
      has spent more than 20 years in the real estate finance industry, during which
      he managed teams responsible for production, operations, risk management,
      product and policy development, technology and project management functions
      for
      a major national lender and a large regional commercial bank.




Mr.
      Israel has long been active in legislative and consumer advocacy, is a former
      President of the Illinois Mortgage Bankers Association and has served on a
      variety of mortgage-related advisory bodies including the Federal Home Loan
      Mortgage Corporation's Affordable Housing Advisory Council and Regional Lender
      Advisory Board, and the Illinois Department of Financial and Professional
      Regulation's Residential Mortgage Advisory Board.




Currently,
      Mr. Israel provides strategic planning, training and project management services
      to businesses and non-profit entities as an independent consultant. He also
      serves as President of North Shore Custom Homes, Ltd., as a Mentor with Big
      Brothers and Big Sisters of Metropolitan Chicago, as a member of the Chicago
      Hospitality Resource Partnership Advisory Council and as President of the River
      North Residents Association. Mr. Israel will stand re-election at the Company's
      2007 annual meeting of shareholders. By that time the Company also expects
      Mr.
      Orlowsky and an additional outside director will have joined the board; bringing
      the total number of Directors to eight.





On
      April
      16, 2007, the Company announced that at any of the 69 food service operations
      in
      the Volusia County, Florida Public School system's award-winning "School Way
      Cafe," students can choose from an assortment of baked goods made with or
      without Z Trim. Based on taste alone, they overwhelmingly prefer the reduced
      fat
      items with Z Trim.




Innovating
      for better tasting, healthier foods in the cafeterias of the 58th largest school
      district in the country has been a primary objective of Volusia County School
      Food Service Director Jon Dickl since he was hired by the district in early
      2007.




8






Since
      late January, school food service operations in Pennsylvania, Massachusetts,
      and
      Florida have begun actively using Z Trim gel in baked goods, dressings and
      mayo.
      Many more are testing the product, as are foodservice operations in
      hospitals.




Z
      Trim
      underwent a thorough review prior to use at Volusia schools. An evaluation
      phase
      was conducted by a certified research chef comparing Z Trim recipes to Control
      recipes. New and traditional menu items were prepared for tasting by school
      officials. A tasting panel consisting of students was formed as
      well.




Chef
      Costa Magoulas, CEC, CCE, Coordinator of Culinary Operations, reformulated
      all
      bakery items made on premises by replacing percentages of the butter, margarine
      and oil with natural Z Trim gel, enabling the food service operations throughout
      the district to offer fresh baked cakes, breads, icings, rolls, cookies,
      brownies, and muffins with reduced calories, more fiber, and all the taste
      of
      the full fat alternatives.




In
      addition to using Z Trim in baked goods and dressings, Volusia County
      foodservice personnel are also testing Z Trim in their savory category of menu
      offerings such as baked ziti, lasagna, chili, etc.




The
      next
      steps for the widespread transition to healthier favorites include many players.
      The product has been proven safe and effective in lowering fat while maintaining
      taste. The Company is talking to school districts, hospital nutritionists,
      and
      third party food service contractors across the country about incorporating
      Z
      Trim into their food programs.




Those
      sentiments are shared by the authors of the current best seller, "You On a
      Diet," (Free Press) Dr. Mehmet Oz and Dr. Michael Roizen. On page 90 of their
      book, under the heading of "Help is on the Way," the two Oprah show regulars
      tout the benefits of Z Trim, confirming its calorie reduction and taste benefits
      and noting that it "may eventually change the way we eat." That change is
      already underway, according to some school nutritionists. "We've established
      the
      dividing line between the old and the new ways," Lazzaro said. "As long as
      we're
      introducing more fresh produce into student diets, we can and should take major
      steps toward improving the nutritional profiles of the traditional favorites
      as
      well, with Z Trim. It's quite simply the new way to 'do food' going
      forward."




On
      March
      8, 2007, the Company announced the launching of its new Affiliate Sales Program.
      The program is designed to reward loyal users of its Z Trim product line and
      Z
      Trim shareholders who continue to refer customers to Z Trim products. They
      now
      will have the opportunity to benefit from their referrals by signing up for
      the
      Affiliate Program and earning a commission on sales brought in by them through
      simple referrals. The Company feels that this is one of the best ways to show
      that Z Trim is “The People's Company”.





Z
      Trim
      has seen increased coverage in the first quarter of 2007 on the web and in
      written media. The Company and its products have received coverage in Business
      Week, First For Women magazine and the best selling book “You On A Diet” in the
      written media, and About.com for low fat cooking, 3 Fat Chicks on a Diet, and
      Knobias on the web. The current First for Women cover story has a featured
      inset
      on Z Trim in the cover story, next to Oprah and Dr. Mehmet Oz. Z Trim has also
      been featured in a number of news stories around the country in newspapers
      and
      magazines, and on the radio and television during the first quarter of
      2007.




On
      March
      6, 2007, the Company announced that a signature brand is using Z Trim, its
      zero
      calorie natural fat replacement ingredient, in their refrigerated "heat &
serve" Italian entree. The ingredient list references "Z Trim (natural dietary
      fiber)". This is the Company’s first entry into the refrigerated and prepared
      food market. Z Trim brings binding and texture enhancements to refrigerated
      foods, as well as fat replacement and dietary fiber benefits. The Company looks
      to continue to expand Z Trim into other categories in the retail marketplace
      over the next year. The entrees are carried in the refrigerated section of
      Costco stores in the Midwest region.





In
      January 2007, a Pittsburgh area school district announced it was using Z Trim
      Mayo spread in its prepared salads, such as tuna fish salad, egg salad and
      potato salad and in its ranch dressing. Z Trim Mayo Spread has 25 calories
      per
      serving and 82% less fat then the regular leading brand mayonnaise, which has
      90
      calories per serving. The kids in the school thought they were eating regular
      mayonnaise. As a result of the announcement, stories about Z Trim being used
      in
      the school lunch program were carried by TV and radio stations, newspapers,
      magazines and online news services and other websites, nationally and
      internationally. They highlighted that the schools were using Z Trim for ten
      months and kids never knew the difference. The Associated Press released a
      feature on this situation that was the top AP health story for two
      days.





9






Consumers
      responded to the media coverage by requesting information and by ordering Z
      Trim
      products through the Internet and telephone. Several school districts around
      the
      country also responded by either contacting us directly or having their food
      service provider and food vendors contact us in order to get Z Trim into their
      school meal programs. Shipments have already been made to some of them. The
      media coverage further resulted in testing Z Trim in one of the nation's premier
      hospital-based, doctor-sponsored, large insurance company wellness programs.
      It
      also resulted in a major vitamin retailer approaching the Company with the
      possibility of carrying Z Trim products nationally in 2007-Q2.





In
      January 2007, the Company concluded the review of a six week preliminary
      clinical study by Zev Davis, M.D. at Edward Heart Hospital using Z Trim Appetite
      Control capsules. The results, which were statistically analyzed by Dr. Paul
      Rathouz, Ph.D. - University of Chicago, showed that approximately three out
      of
      four people lost 1 to 2 pounds per week without lifestyle modification.
      Commenced one week before Thanksgiving and concluding the week after Christmas
      2006, the study showed that Z Trim caused no gastrointestinal or other negative
      side affects. Sales in the Appetite Control capsules have increased consistently
      since the release of the results sparking interest from several other prominent
      clinicians seeking to assist in expanding the scope and duration of additional
      studies demonstrating Z Trim's special abilities.





In
      January 2007, the second order was received for Non-Dairy Cheese in the
      UK.





The
      Company has agreed to have a book authored by two well-known nutrition experts
      to be released in April 2007 along with an aggressive promotional tour. The
      work
      will be called the Pyramid Diet referring to the new Pyramid the USDA plans
      to
      heavily promote in the coming year. The book will provide significant coverage
      about the Z Trim Advantage and the "Live Life Better" lifestyle.





In
      December 2006, the Company hired former Atkins Nutritional Medical Director
      Stuart Trager, M.D. as its Director of Clinical Affairs. In this role Dr. Trager
      will promote Z Trim to the media from a medical and scientific perspective.
      Dr.
      Trager has been on many national news programs as a weight health expert and
      testified to congress on these issues for Tommy Thompson from the Department
      of
      Health and Human Services.




We
      have
      completed equipment and procedural modifications to increase efficiency in
      the Z
      Trim manufacturing facility and we have also added production areas for Z Trim
      gel bottling and Appetite Control capsule production. Starting January 6, 2007,
      the Z Trim manufacturing facility increased its production schedule to 24 hours,
      7 days a week. The Company is building inventory to support anticipated future
      demand.




We
      have
      made many additions and changes to our web site recently in order to continue
      to
      inform and educate the food industry and the public about the health benefits
      of
      and how to use Z Trim. These changes include:





-
      -
      -     Additional links and information for food industry
      professionals


-
      -
      -     A downloadable online Z Trim brochure


-
      -
      -     A Frequently Asked Questions (FAQ)
      section


-
      -
      -     Links to additional recipes and cooking
      tips


-
      -
      -     New online instructional "Cooking With Z Trim"
      videos


-
      -
      -     Educational and entertaining animated features for
      teachers, students, and parents


-
      -
      -     Videos with fitness experts Heather Hawk and Nikki
      Anderson


-
      -
      -     Updated plant pictures and a video tour of the Z Trim
      plant


-
      -
      -     Bios of our Expanded Advisory Panel members who have
      been selected to advise and assist the company in reaching its
      goals


-
      -
      -     Quotes about the benefits of Z Trim by Industry
      Experts




10




-
      -
      -     New videos and news links covering the Plum Borough,
      Pennsylvania  school district using Z Trim in their school meals
      program


-
      -
      -     The addition of the downloadable Z Trim Player which
      will allow people to stay informed of the latest news about Z Trim.


-
      -
      -     The linking of the NATS website directly to the Z Trim
      product online store to allow visitors to the NATS website to buy Z Trim
      products





We
      are
      working on many exciting projects that include:





-
      -
      -     Additional ongoing clinical Z Trim research
      studies


-
      -
      -    Internet traffic to the Nutritional Analysis and Tools
      System (NATS) website continues to remain strong, allowing us to inform and
      educate visitors to the website about the benefits of using Z Trim. It also
      provides the opportunity to market and sell Z Trim products to them as
      well.





**SUMMARY
      OF FINANCIAL RESULTS**





**RESULTS
      OF OPERATIONS**





**THREE
      MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THE SAME PERIOD ENDING MARCH 31,
      2006.**





Revenues





Revenues
      increased 179% for the three months ended March 31, 2007 from $115,443 for
      the
      three months ended March 31, 2006 to $322,164. The increase in revenues was
      primarily due to the increase in Z Trim product sales and in e-tailer segments.
      The following table provides a breakdown of the revenues for our divisions
      for
      the periods indicated:





Three
      months ended March 31,





2007
            
            
            2006Products
            
            $
            321,408
            
            
            $
            111,720Services
            
            
            756
            
            
            
            3,723Total
                Revenues
            
            $
            322,164
            
            
            $
            115,443




Operating
      expenses




Operating
      expenses consist of payroll and related costs, stock option expense, insurance,
      occupancy expenses, professional fees, and general operating expenses. Total
      operating expenses increased by $998,097 to $3,557,355 for the three months
      ended March 31, 2007 from $2,559,258 for the three months ended March 31, 2006.
      The increase in operating expenses was primarily due to the increase in
      consulting and payroll expenses, net of the decrease in investor and public
      relations, and stock option expenses.





The
      stock
      option expense for the three months ending March 31, 2007 was $306,955 compared
      to $1,093,500 for the three months ending March 31, 2006.





Stock
      options from the Company's stock option plan have been utilized in place of
      large salaries for management, staff, and plant employees, and as compensation
      for the advisory board members. Over the past year the Company has been building
      an Advisory Board of experts in the food industry, pharmaceutical industry,
      nutrition and fitness industry, medical profession, and other industries related
      to Z Trim's business. These current and former industry executives, doctors,
      chefs, food formulators, nutritionists, fitness experts, and others have been
      brought together to help Z Trim Holdings with its direction and contacts to
      help
      insure the growth and success of the Company. The Company has also significantly
      increased the size of its workforce over that time in the production, sales,
      and
      marketing areas of the Company to allow for the continued expansion and
      execution of its marketing, production, and sales plans. The incentive plan
      is
      based on three components, the amount of participation or attendance of the
      individual, the type, quality, and amount of service of the individual, and
      the
      results and value that the individuals provide to the Company with their service
      or participation. Each option grant is based on milestones that must be met
      in
      order for the options to be exercised. The Company feels strongly that the
      charge for the stock options under the new accounting rules is a wise investment
      in the Company's future.





11






Other
      income (expense)





Total
      other income for the three months ended March 31, 2007 was $10,367 compared
      to
      $5,697 for the three months ended March 31, 2006. The increase was primarily
      due
      to a combination of increase in interest income and decrease in interest
      expense.





Net
      loss





The
      Company reported a net loss for the first quarter of 2007 of $3,906,811 or
      $0.06
      per share, as compared with a net loss of $2,705,699 or $0.05 per share for
      the
      first quarter of 2006.





Assets





The
      Company reported a decrease in Assets for the first quarter of 2007 of
      $11,143,524 from $11,173,099 for the comparable period in fiscal 2006. The
      decrease was primarily due to the decrease in value for depreciation of the
      plant and other intangible assets less the increase in current
      assets.





**LIQUIDITY
      AND CAPITAL RESOURCES**





At
          March
          31, 2007, the Company had cash and cash equivalents of $4,046,845, an increase
          of $3,350,346 from December 31, 2006. The increase in cash is due to the
          proceeds of stock, exercise of options and warrants net capital lease payments,
          which totals $5,023,102, less cash used in operations of $1,541,727 and
          in the
          purchase of property and equipment of $131,029. The Company’s total capital
          lease obligations were $8,245 at March 31, 2007.
 
 Net
          cash
          used by operating activities increased by 66% to $1,541,727 for the three
          months
          ended March 31, 2007 as compared to $930,135 for the three months ended
          March
          31, 2006. The increased cash usage was composed of a net loss of $3,906,811
          adjusted for non-cash items, including depreciation and amortization of
          $162,091, stock option expense of $306,855, and non-cash expenses of
**$**2,302,279, and for the net cash used from the net increases
          in
          assets and decreases in liabilities of approximately
          $406,241.
 
 Net
        cash
        used by investing activities was $131,029 for the three months ended March
        31,
        2007, as compared to net cash used by investing activities of $1,960 for
        the
        three months ended March 31, 2006. The increase was due to increased
        acquisitions of property and equipment for our manufacturing plant in the
        current year.
 
 Net
          cash
          provided by financing activities was $5,023,102 for the three months ended
          March
          31, 2007 as compared to $4,908,893 for the three months ended March 31,
          2006.
          Net cash provided by financing activities for the three months ended March
          31,
          2007 was primarily from the proceeds received from the sale of stock, and
          the
          exercise of options and warrants, which total $5,028,931. Net cash provided
          by
          financing activities for the three months ended March 31, 2006 was primarily
          from the sale of our stock, and from the exercise of options and warrants
          of
          approximately $4,918,288.




12




**OFF-BALANCE
      SHEET ARRANGEMENTS**





The
        Company has no off-balance sheet arrangements as defined in Item 303(c) of
        Regulation S-B.





**ITEM
      3. CONTROLS AND PROCEDURES**





This
        report includes the certifications of our President and Chief Financial Officer
        required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange
        Act”). See Exhibits 31.1 and 31.2. This Item 3 includes information concerning
        the controls and control evaluations referred to in those
        certifications.





*Background*.  On
      October 31, 2007 we concluded that our previously issued financial statements
      for the first and second quarters of 2007 should no longer be relied upon
      because of certain accounting errors in those financial statements. Accordingly,
      we have restated our previously issued financial statements for those periods.
      See Note 2 of Notes to Interim Unaudited Consolidated Financial Statements
      included in “Part I — Item 1 — Financial Statements.”





In
          addition, on August 23, 2007, we announced we were conducting an
          internal investigation of our equity accounting and reporting
          practices in connection with our receipt of a deficiency letter from the
          American Stock Exchange (Amex).  That internal investigation
          identified deficiencies in our internal controls and procedures.  As a
          result of those findings, as well as the matters for which the restatement
          of
          this report is necessary, we have identified the following control deficiencies
          as of May 9, 2007 that constituted material weaknesses in our internal
          control
          over financial reporting:


•   Account
      reconciliations over equity transactions were not always properly and timely
      performed, and the reconciliations and their supporting documentation were
      not
      consistently reviewed for completeness, accuracy, and timely resolution of
      reconciling items; and





•   We
      did not design and maintain effective controls to ensure the completeness,
      accuracy, and timeliness of the recording and reporting of equity
      transactions.





Our
      management, under new leadership, has been actively engaged in the planning
      for,
      and implementation of, remediation efforts to address the material weaknesses.


13


We
          believe our remediation
          measureswill remediate the material weaknesses we have identified and strengthen
          our internal control over financial reporting. We are committed to continuing
          to
          improve our internal control processes and will continue to diligently
          review
          our financial reporting controls and procedures.


*Evaluation
      of Disclosure Controls and Procedures*.  Disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act)
      are designed to ensure that information required to be disclosed in reports
      filed or submitted under the Exchange Act is recorded, processed, summarized,
      and reported within the time periods specified in SEC rules and forms and that
      such information is accumulated and communicated to management, including the
      chief executive officer and the chief financial officer, to allow timely
      decisions regarding required disclosures.





In
          connection with the preparation of this amended Report, our President and
          Chief
          Financial Officer reassessed the effectiveness of the design and operation
          of
          our disclosure controls and procedures. Based on that evaluation, the
          restatement of previously issued financial statements described above,
          and the
          identification of certain material weaknesses in internal control over
          financial
          reporting (described above), which we view as
          an integral part of our disclosure controls and procedures, our President
          and
          Chief Financial Officer have concluded that our disclosure controls and
          procedures were not effective as of May 9, 2007. Nevertheless, based on
          a number
          of factors, including the completion of our internal investigation, our
          internal review that identified certain prior period adjustments, efforts
          to
          remediate the material weaknesses in internal control over financial reporting
          described above, and the performance of additional procedures by management
          designed to ensure the reliability of our financial reporting, we believe
          that
          the consolidated financial statements in this amended report fairly present,
          in
          all material respects, our financial position, results of operations and
          cash
          flows as of the dates, and for the periods, presented, in conformity with
          GAAP.
  *Changes
          in Internal Control Over Financial Reporting*.  There were no
          changes during the first quarter of 2007 that materially affected, or are
          reasonably likely to materially affect, our internal control over financial
          reporting.  During the third and fourth quarters of 2007, we have
          begun the implementation of some remedial measures as described in our
          Current Report on Form 8-K filed on November 16, 2007.





**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





The
      Company filed a lawsuit in the U.S. District Court in 2005 to collect the unpaid
      principal balance, default interest and attorney fees for a note receivable,
      in
      total an amount in excess of $1,200,000, for stock issued. The defendants have
      sold the shares purchased with the note receivable. In response, on December
      27,
      2005 those shareholders and a related hedge fund, Pac Bay Financial, filed
      a
      countersuit against the Company and its directors and officers. That lawsuit,
      which is being heard by the same Judge as in the Company's Note Default case
      listed above, alleges that oral misrepresentations were made to induce purchases
      of stock over an approximate one and one-half year period. Counter-plaintiffs
      seek $2 million in compensatory damages and $5 million in punitive damages.
      The
      basis for these damages claims is yet unknown. The company believes that they
      have meritorious defenses against this action, and will continue to vigorously
      defend it. The claim against the officers and directors is covered by directors
      and officers insurance to the extent that three of the individual officers
      and
      directors are covered. The insurance coverage pays for the defense costs only
      and provides no indemnity coverage. The parties are engaged in settlement
      negotiations which could result in the resolution of all pending claims.
      Subsequent to March 31, 2007, the Company received a payment of $100,000 from
      the plaintiff against the principal amount of the above said note
      receivable.




14






On
      November 23, 2005, the Company entered into Letter Agreement ("LOA") with George
      Foreman Enterprises, Inc. ("GFME") pursuant to which both parties would form
      a
      new limited liability company for the purpose of promoting the Company's zero
      calorie fat replacement food ingredient, Z Trim(R). The parties did not reach
      any definitive agreement as is required by the LOA. On May 9, 2006, the Company
      filed a lawsuit alleging breach of the Parties' nondisclosure agreement and
      trade secret misappropriation in the Circuit Court of the 19th Judicial
      District, Lake County, Illinois seeking damages and injunctive relief against
      GFME. On August 3, 2006 the court, based upon a finding that the Company has
      demonstrated a likelihood of success on the merits of the case, issued an order
      granting the Company a preliminary injunction enforcing the non-disclosure
      agreement between the parties. GFME subsequently appealed the preliminary
      injunction. The Appellate Court denied GFME's appeal, and the injunctive order
      remains in place.





On
      July
      17, 2006, George Foreman Enterprises, Inc. filed a complaint against Z Trim
      Holdings, Inc. in the U.S. District Court seeking damages in excess of
      $70,000,000 for specific performance, breach of contract, promissory estoppel
      and unjust enrichment. The basis for all such claims is the underlying LOA,
      set
      forth above. Management believes that the allegations are frivolous and wholly
      without merit and will vigorously defend the claim.





On
      July
      6, 2006, the Company filed a patent infringement suit in the United States
      District Court for the Western District of Wisconsin seeking unspecified damages
      and equitable relief against a manufacturer of a competing product. The case
      was
      dismissed by the court owing to a technicality and on March 20, 2007 the Company
      filed suit again. No trial date has been set as of yet.





On
      January 18, 2007, the Company was served with a complaint by Daniel Caravette
      for breach of contract and violation of the Illinois Wage Payment and Collection
      Act, seeking damages in excess of $1,000,000. Management believes that the
      allegations are frivolous and wholly without merit and will vigorously defend
      the claim.





The
      Company is also a party to various legal proceedings and claims, either asserted
      or unasserted, which arise in the ordinary course of business. While the outcome
      of these matters cannot be predicted with certainty, management does not believe
      that the outcome of any of these claims or any of the above mentioned legal
      matters will have a material adverse effect on the Company's consolidated
      financial position, results of operations, or cash flows.







**ITEM
      6.****EXHIBITS**







EXHIBIT
                NO.
            DESCRIPTION




3(i)
            Articles
                of Incorporation of Circle Group Holdings, Inc.(filed as Exhibit
                2.1 to
                Circle Group's Registration  Statement on Form 10-SB and incorporated
                herein by reference).





3(ii)
            Bylaws
                of Circle Group Holdings, Inc. (filed as Exhibit 2.2 to  Circle
                Group's Registration Statement on Form 10-SB and incorporated herein
                by
                reference).





4.1
            Form
                of Subscription Agreement (filed as Exhibit 4.1 to the Company's
                Form 8-K
                filed on March 30, 2006 and incorporated herein by
                reference).





4.2
            Form
                of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the
                Company's
                Form 8-K filed on March 30, 2006 and incorporated herein by
                reference).





4.3
            Form
                of Registration Rights Agreement (filed as Exhibit 4.3 to the Company's
                Form 8-K filed on March 30, 2006 and incorporated herein by
                reference).






15




4.7
            Form
                of Subscription Agreement (filed as Exhibit 4.5 to the Company’s Form
                10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





4.8
            Form
                of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the
                Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





4.9
            Form
                of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.1
            Gregory
                J. Halpern Employment Agreement (filed as Exhibit 10.1 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated  herein by
                reference).





10.2
            Michael
                J. Theriault Employment Agreement (filed as Exhibit 10.2 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.3
            Dana
                L. Dabney Employment Agreement (filed as Exhibit 10.3 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.4*
            Alan
                G. Orlowsky Employment Agreement dated May 1,
                2007.




10.5*
            Brian
                S. Israel Board of Directors appointment letter dated April 30,
                2007.





10.6
            Steve
                Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form
                10-QSB for the quarter ending June 20, 2006 and incorporated herein
                by
                reference).




10.7
            Circle
                Group Holdings,Inc. 1999 Stock Option Plan (filed as Exhibit 6.6
                to Circle
                Group’s Registration Statement on Form 10-SB and incorporated herein by
                reference).





10.8
            Circle
                Group Holdings, Inc. 2004 Equity Incentive Plan (filed as Appendix
                C to
                the Circle Group's Proxy Statement for its Annual Meeting conducted
                on
                June 16, 2004 and approved by its Shareholders on that date and
                incorporated herein by reference).





10.9
            Industrial
                Lease Agreement between CLO Enterprises and Circle Group Holdings,
                Inc.
                dated May 20, 1999 (filed as Exhibit 6.7 to Circle Group's Registration
                Statement on Form 10-SB and incorporated herein by
                reference).





10.10
            Industrial
                Lease Agreement between CLO Enterprises and Circle Group Holdings,
                Inc.
                dated June 18, 1999 (filed as Exhibit 6.8 to Circle Group's
                Registration Statement on Form 10-SB and incorporated herein by
                reference).





10.11
            Assignment
                of License Agreement between UTEK Corporation, Circle Group Holdings,
                Inc.
                and Brookhaven Science Associates dated March 26 2003 (filed as Exhibit
                10.14 to Circle Group's Form 10-QSB for the quarter ending September
                30, 2003 and incorporated herein by
                reference).




10.12
            Assignment
                of License Agreement between UTEK Corporation, Circle Group Holdings,
                Inc.
                and University of Illinois dated July 9, 2003 (filed as Exhibit 10.15
                to
                Circle Group's Form 10-QSB for  the quarter ending September 30, 2003
                and incorporated herein by
                reference).





10.13
            Assignment
                of License Agreement between Circle Group Holdings, Inc. and Brookhaven
                Science Associates dated July 22, 2003 (filed as Exhibit 10.16 to
                Circle
                Group's Form 10-QSB for the quarter ending September 30, 2003 and
                incorporated herein by reference).






16





31.1**
            Statement
                Under Oath of Principal Executive Officer of the Company Pursuant
                to
                Section 302 of Sarbanes-Oxley Act of
                2002





31.2**
            Statement
                Under Oath of Principal Financial Officer of the Company Pursuant
                to
                Section 302 of Sarbanes-Oxley Act of
                2002





32.1**
            Statement
                Under Oath of Principal Executive Officer of the Company Pursuant
                to
                Section 906 of Sarbanes-Oxley Act of
                2002





32.2**
            Statement
                Under Oath of Principal Financial Officer of the Company Pursuant
                to
                Section 906 of Sarbanes-Oxley Act of
                2002




*      Previously
      filed


**           Filed
      herewith








**SIGNATURES**





In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly authorized
        as of November 16 ,
        2007.




**Z
              TRIM HOLDINGS,
              INC.**By:
            /s/ Steven
              J.
              CohenSteven
              J. CohenPresident
              (Principal Executive
              Officer) By:
            /s/ Alan
              G. OrlowskyAlan
              G. Orlowsky,Chief
              Financial Officer (Principal Financial Officer)





17









**INDEX
      OF EXHIBITS**







EXHIBIT
                NO.
            DESCRIPTION




3(i)
            Articles
                of Incorporation of Circle Group Holdings, Inc.(filed as Exhibit
                2.1 to
                Circle Group's Registration  Statement on Form 10-SB and incorporated
                herein by reference).





3(ii)
            Bylaws
                of Circle Group Holdings, Inc. (filed as Exhibit 2.2 to  Circle
                Group's Registration Statement on Form 10-SB and incorporated herein
                by
                reference).





4.1
            Form
                of Subscription Agreement (filed as Exhibit 4.1 to the Company's
                Form 8-K
                filed on March 30, 2006 and incorporated herein by
                reference).





4.2
            Form
                of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the
                Company's
                Form 8-K filed on March 30, 2006 and incorporated herein by
                reference).





4.3
            Form
                of Registration Rights Agreement (filed as Exhibit 4.3 to the Company's
                Form 8-K filed on March 30, 2006 and incorporated herein by
                reference).




4.7
            Form
                of Subscription Agreement (filed as Exhibit 4.5 to the Company’s Form
                10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





4.8
            Form
                of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the
                Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





4.9
            Form
                of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.1
            Gregory
                J. Halpern Employment Agreement (filed as Exhibit 10.1 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated  herein by
                reference).





10.2
            Michael
                J. Theriault Employment Agreement (filed as Exhibit 10.2 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.3
            Dana
                L. Dabney Employment Agreement (filed as Exhibit 10.3 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.4*
            Alan
                G. Orlowsky Employment Agreement dated May 1,
                2007.




10.5*
            Brian
                S. Israel Board of Directors appointment letter dated April 30,
                2007.




10.6
            Steve
                Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form
                10-QSB for the quarter ending June 20, 2006 and incorporated herein
                by
                reference).




10.7
            Circle
                Group Holdings,Inc. 1999 Stock Option Plan (filed as Exhibit 6.6
                to Circle
                Group’s Registration Statement on Form 10-SB and incorporated herein by
                reference).





10.8
            Circle
                Group Holdings, Inc. 2004 Equity Incentive Plan (filed as Appendix
                C to
                the Circle Group's Proxy Statement for its Annual Meeting conducted
                on
                June 16, 2004 and approved by its Shareholders on that date and
                incorporated herein by reference).






18





10.9
            Industrial
                Lease Agreement between CLO Enterprises and Circle Group Holdings,
                Inc.
                dated May 20, 1999 (filed as Exhibit 6.7 to Circle Group's Registration
                Statement on Form 10-SB and incorporated herein by
                reference).





10.10
            Industrial
                Lease Agreement between CLO Enterprises and Circle Group Holdings,
                Inc.
                dated June 18, 1999 (filed as Exhibit 6.8 to Circle Group's
                Registration Statement on Form 10-SB and incorporated herein by
                reference).





10.11
            Assignment
                of License Agreement between UTEK Corporation, Circle Group Holdings,
                Inc.
                and Brookhaven Science Associates dated March 26 2003 (filed as Exhibit
                10.14 to Circle Group's Form 10-QSB for the quarter ending September
                30, 2003 and incorporated herein by
                reference).




10.12
            Assignment
                of License Agreement between UTEK Corporation, Circle Group Holdings,
                Inc.
                and University of Illinois dated July 9, 2003 (filed as Exhibit 10.15
                to
                Circle Group's Form 10-QSB for  the quarter ending September 30, 2003
                and incorporated herein by
                reference).





10.13
            Assignment
                of License Agreement between Circle Group Holdings, Inc. and Brookhaven
                Science Associates dated July 22, 2003 (filed as Exhibit 10.16 to
                Circle
                Group's Form 10-QSB for the quarter ending September 30, 2003 and
                incorporated herein by reference).





31.1**
            Statement
                Under Oath of Principal Executive Officer of the Company Pursuant
                to
                Section 302 of Sarbanes-Oxley Act of
                2002





31.2**
            Statement
                Under Oath of Principal Financial Officer of the Company Pursuant
                to
                Section 302 of Sarbanes-Oxley Act of
                2002





32.1**
            Statement
                Under Oath of Principal Executive Officer of the Company Pursuant
                to
                Section 906 of Sarbanes-Oxley Act of
                2002





32.2**
            Statement
                Under Oath of Principal Financial Officer of the Company Pursuant
                to
                Section 906 of Sarbanes-Oxley Act of
                2002




*      Previously
      filed


**    Filed
      herewith





19







**Z
      TRIM HOLDINGS, INC. AND SUBSIDIARIES**





Index
      to
      Financial Statements


_______________________





Consolidated
                Balance Sheet at
                March 31, 2007 (unaudited)
            
            
            F-1Consolidated
                Statement of
                Operations as of March 31, 2007(unaudited)
            
            
            F-2Consolidated
                Statements of Cash
                Flows as of March 31, 2007(unaudited)
            
            
            F-3Notes
                to Interim Unaudited
                Consolidated Financial Statements
            
            
            F-4






F-0






**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS (Unaudited)**
 
 **MARCH
        31, 2007 AND 2006**




**ASSETS**Current
                      Assets
                  
                  **2007**
                  
                  
                  2006**(Restated)**Cash
                      and cash equivalents
                  
                  **$**
                  **4,046,845**
                  
                  
                  $
                  4,001,797Accounts
                      receivable, net of allowance for doubtful accounts of $0 for
                      2007 and
                      2006
                  
                  ****
                  **124,369**
                  
                  
                  
                  73,506Inventory
                  
                  ****
                  **351,502**
                  
                  
                  
                  106,410Prepaid
                      expenses and other assets
                  
                  ****
                  **224,383**
                  
                  
                  
                  96,704**Total
                      current assets**
                  
                  ****
                  **4,747,099**
                  
                  
                  
                  4,278,417Property
                      and equipment, net
                  
                  ****
                  **6,235,321**
                  
                  
                  
                  6,363,245Other
                      AssetsIntangible
                      assets, net
                  
                  ****
                  **150,001**
                  
                  
                  
                  520,334Deposits
                  
                  ****
                  **11,103**
                  
                  
                  
                  11,103**Total
                      other assets**
                  
                  ****
                  **161,104**
                  
                  
                  
                  531,437**TOTAL
                      ASSETS**
                  
                  **$**
                  **11,143,524**
                  
                  
                  $
                  11,173,099**LIABILITIES
                      AND STOCKHOLDERS' EQUITY**
 **2007**
                  
                  
                  2006Current
                      LiabilitiesAccounts
                      payable
                  
                  **$**
                  **348,658**
                  
                  
                  $
                  804,137Accrued
                      expenses
                  
                  ****
                  **141,975**
                  
                  
                  
                  215,958Stock
                      options payable
                  
                  
                  -
                  
                  
                  
                  -Capital
                      lease obligations
                  
                  ****
                  **8,245**
                  
                  
                  
                  27,459**Total
                      current liabilities**
                  
                  ****
                  **498,878**
                  
                  
                  
                  1,047,554Long-Term
                      Liabilities, Capital lease obligations
                  
                  
                  -
                  
                  
                  
                  8,214**TOTAL
                      LIABILITIES**
                  
                  ****
                  **498,878**
                  
                  
                  
                  1,055,768Stockholders'
                      EquityCommon
                      stock, $0.00005 par value; authorized 200,000,000 shares; issued
                      and
                      outstanding 63,571,763 shares
                  
                  ****
                  **3,179**
                  
                  
                  
                  2,988Common
                      stock to be issued
                  
                  ****
                  **400**
                  
                  
                  
                  22Additional
                      paid-in capital
                  
                  ****
                  **67,431,153**
                  
                  
                  
                  46,943,528Unamortized
                      expenses
                  
                  
                  -
                  
                  
                  
                  (818,721
                  )Stock
                      subscription receivable, net
                  
                  ****
                  **(3,398,976**
                  **)**
                  
                  
                  (240,104
                  )Accumulated
                      Deficit
                  
                  ****
                  **(53,391,110**
                  **)**
                  
                  
                  (35,759,113
                  )Treasury
                      stock, at cost
                  
                  
                  -
                  
                  
                  
                  (11,269
                  )**TOTAL
                      STOCKHOLDERS' EQUITY**
                  
                  ****
                  **10,644,646**
                  
                  
                  
                  10,117,331**TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY**
                  
                  **$**
                  **11,143,524**
                  
                  
                  $
                  11,173,099




**See
        notes to interim unaudited consolidated financial
        statements**
    F-1
   **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
  **CONSOLIDATED
          STATEMENTS OF OPERATIONS (Unaudited)**
 **For
                      the Three Months Ended March 31,**
                  
                  **2007**
                  
                  
                  2006**REVENUES:**
                  
                  **(Restated)**Products
                  
                  **$**
                  **321,408**
                  
                  
                  $
                  111,720Services
                  
                  ****
                  **756**
                  
                  
                  
                  3,723**Total
                      revenues**
                  
                  ****
                  **322,164**
                  
                  
                  
                  115,443**COST
                      OF REVENUES:**Products
                  
                  ****
                  **681,987**
                  
                  
                  
                  267,581**Total
                      cost of revenues**
                  
                  ****
                  **681,987**
                  
                  
                  
                  267,581**GROSS
                      MARGIN**
                  
                  ****
                  **(359,823**
                  **)**
                  
                  
                  (152,138
                  )**OPERATING
                      EXPENSES:**Selling,
                      general and administrative
                  
                  ****
                  **3,247,067**
                  
                  
                  
                  1,457,175Stock
                      option expense
                  
                  ****
                  **306,955**
                  
                  
                  
                  1,093,500Amortization
                      of intangible assets
                  
                  ****
                  **3,333**
                  
                  
                  
                  8,583**Total
                      operating expenses**
                  
                  ****
                  **3,557,355**
                  
                  
                  
                  2,559,258**OPERATING
                      LOSS**
                  
                  ****
                  **(3,917,178**
                  **)**
                  
                  
                  (2,711,396
                  )**OTHER
                      INCOME (EXPENSES):**Rental
                      and other income
                  
                  ****
                  **10,500**
                  
                  
                  
                  11,065Interest
                      income
                  
                  ****
                  **1,243**
                  
                  
                  
                  -Interest
                      expense
                  
                  ****
                  **(1,376**
                  **)**
                  
                  
                  (5,368
                  )**Total
                      other income (expenses)**
                  
                  ****
                  **10,367**
                  
                  
                  
                  5,697**NET
                      LOSS**
                  
                  **$**
                  **(3,906,811**
                  **)**
                  
                  $
                  (2,705,699
                  )**Net
                      Loss per Share - Basic and Diluted**
                  
                  **$**
                  **(0.06**
                  **)**
                  
                  $
                  (0.05
                  )**Weighted
                      Average Number of Shares**
                  
                  ****
                  **65,678,054**
                  
                  
                  
                  54,473,170


**See
        notes to interim unaudited consolidated financial
        statements**
   F-2
   **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
  **CONSOLIDATED
          STATEMENTS OF CASH FLOWS (Unaudited)**
  **For
                      the Three Months Ended March 31,**
                  
                  **2007**
                  
                  
                  2006**Cash
                      Flows From Operating Activities:**
                  
                  **(Restated)**Net
                      loss
                  
                  **$**
                  **(3,906,811**
                  **)**
                  
                  $
                  (2,705,699
                  )Adjustments
                      to reconcile net loss to net cash used in operations:Depreciation
                      and amortization
                  
                  ****
                  **162,091**
                  
                  
                  
                  159,424Issuance
                      of common stock and warrants for services
                  
                  ****
                  **2,188,940**
                  
                  
                  
                  155,164Amortization
                      of noncash expenses
                  
                  ****
                  **113,339**
                  
                  
                  
                  618,176Stock
                      option expense
                  
                  ****
                  **306,955**
                  
                  
                  
                  1,093,500(Increase)
                      decrease in:Accounts
                      receivable
                  
                  ****
                  **(53,193**
                  **)**
                  
                  
                  (13,060
                  )Inventory
                  
                  ****
                  **(131,897**
                  **)**
                  
                  
                  (7,623
                  )Prepaid
                      expenses and other assets
                  
                  ****
                  **(129,966**
                  **)**
                  
                  
                  (11,034
                  )Decrease
                      in:Accounts
                      payable and accrued expenses
                  
                  ****
                  **(91,185**
                  **)**
                  
                  
                  (218,983
                  )**Cash
                      flows used in operating activities**
                  
                  ****
                  **(1,541,727**
                  **)**
                  
                  
                  (930,135
                  )**Cash
                      Flows From Investing Activities:**Purchase
                      of property and equipment
                  
                  ****
                  **(131,029**
                  **)**
                  
                  
                  (1,960
                  )**Cash
                      flows used in investing activities**
                  
                  ****
                  **(131,029**
                  **)**
                  
                  
                  (1,960
                  )**Cash
                      Flows From Financing Activities:**Net
                      proceeds from sales of stock
                  
                  
                  -
                  
                  
                  
                  4,845,488Exercise
                      of options and warrants
                  
                  ****
                  **1,469,907**
                  
                  
                  
                  72,800Net
                      payments on capital lease obligations
                  
                  ****
                  **(5,829**
                  **)**
                  
                  
                  (9,395
                  )Proceeds
                      from stock subscription receviable
                  
                  ****
                  **3,559,024**
                  
                  
                  ****
                  **-****Cash
                      flows provided by financing activities**
                  
                  ****
                  **5,023,102**
                  
                  
                  
                  4,908,893**Net
                      increase in cash and cash equivalents**
                  
                  ****
                  **3,350,346**
                  
                  
                  
                  3,976,798Cash
                      and cash equivalents, at beginning of period
                  
                  ****
                  **696,499**
                  
                  
                  
                  24,999**Cash
                      and cash equivalents, at end of period**
                  
                  **$**
                  **4,046,845**
                  
                  
                  $
                  4,001,797Supplemental
                      Disclosures of Cash Flow Information:Interest
                      paid
                  
                  **$**
                  **1,376**
                  
                  
                  $
                  5,368Supplemental
                      schedule of noncash investing and financing activities:Issuance
                      of common stock and warrants for services
                  
                  **$**
                  **2,188,940**
                  
                  
                  $
                  1,334,743Stock
                      subscriptions receivable incurred for issuance of stock
                  
                  **$**
                  **3,398,976**
                  
                  
                  $
                  55,104
   See
        notes to interim unaudited consolidated
        financial statements


F-3


**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**


**NOTE
      1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




Nature
      of Business





Z
      Trim
      Holdings, Inc. (the “Company”) manufactures a zero calorie fat substitute, Z
      Trim, and other Z Trim related products.  The company will continue
      exploring all available options for its other Z Trim technologies and related
      assets.





The
      Company has participated in several public and private offerings and has
      expanded its business.  In 2002, the Company acquired FiberGel
      Technologies, Inc. (“FiberGel”), which owns an exclusive license to Z Trim, an
      all-natural, agriculture-based fat replacement.





The
      Company has three reportable business unit segments: food product development,
      security product development and e-tailer.  The Company operates
      through its FiberGel, The Brave Way Training Systems, Inc., On-Line Bedding
      Corp., and Z-Amaize Technologies, Inc. divisions.





A
      summary
      of significant accounting policies follows.





Presentation
      of Interim Information





The
      financial information at March 31, 2007 and for the three months ended March
      31,
      2007 and 2006 is unaudited, but includes all adjustments (consisting only of
      normal recurring adjustments) that the Company considers necessary for a fair
      presentation of the financial information set forth herein, in accordance with
      accounting principles generally accepted in the United States (“U.S. GAAP”) for
      interim financial information, and with the instructions to Form 10-QSB and
      Item 310 (b) of Regulation S-B. Accordingly, such information does not
      include all of the information and footnotes required by U.S. GAAP for annual
      financial statements. For further information, refer to the consolidated
      financial statements and footnotes thereto included in the Company’s annual
      Report on Form 10-KSB for the year ended December 31, 2006.




The
      results for the three months ended March 31, 2007 may not be indicative of
      results for the year ending December 31, 2007 or any future
      periods.




Principle
      of Consolidation and Presentation





The
      accompanying consolidated financial statements include the accounts of Z Trim
      Holdings Inc. and its subsidiaries after elimination of significantly all
      intercompany accounts and transactions.  Certain prior period items
      have been reclassified from operating expenses to cost of goods sold for ease
      of
      comparison. This reclassification affects neither the net loss nor the
      accumulated deficit of the Company.




Use
      of
      estimates




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




F-4





**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**




**NOTE
      1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)**




Income
      (Loss) Per Common Share






Basic
      net
      income (loss) per share includes no dilution and is computed by dividing net
      income (loss) available to common stockholders by the weighted average number
      of
      common stock outstanding for the period. Diluted earnings per share is computed
      by dividing net income by the weighted average number of shares outstanding
      and,
      when, diluted, potential shares from options and warrants to purchase common
      stock using the treasury stock method. Diluted net loss per common share does
      not differ from basic net loss per common share since potential shares of common
      stock are anti-dilutive for all periods presented.






Cashless
      Exercise of Warrants






The
      Company has issued warrants to purchase common stock where the holder is
      entitled to exercise the warrant via a cashless exercise, when the exercise
      price is less than the fair value of the common stock. The Company accounts
      for






the
      issuance of common stock on the cashless exercise of warrants as a cost
      of capital.




Stock
      Based Compensation




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of FASB Statement No. 123(R), “Share-Based Payment” (SFAS 123R), using the
      modified-prospective-transition method. Under that transition method,
      compensation cost recognized in 2006 includes: (a) compensation cost for
      all share-based payments granted prior to, but not yet vested as of
      January 1, 2006 based on the grant date fair value calculated in accordance
      with the original provisions of SFAS 123, and (b) compensation cost for all
      share-based payments granted subsequent to December 31, 2005, based on the
      grant-date fair value estimated in accordance with the provisions of SFAS
      123(R).




As
      a
      result of adopting SFAS 123(R) on January 1, 2006, the Company recognized
      pre-tax compensation expense related to stock options of $306,955 and $1,093,500
      as of March 31, 2007 and 2006, respectively.  The March 31, 2007 stock
      option expense included an additional charge of $12,607 from the modification
      of
      45,000 out-of-money options. These options were granted two years
      extension.





New
      Accounting Pronouncements




In
      February 2007, the Financial Accounting Standards Board (“FASB’) issued
      Financial Accounting Standards (“FAS”) No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115*, which permits entities to choose to measure many
      financial instruments and certain other items at fair value at specified
      election dates. A business entity is required to report unrealized gains and
      losses on items for which the fair value option has been elected in earnings
      at
      each subsequent reporting date. This statement is expected to expand the use
      of
      fair value measurement. FAS No.159 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years.





In
      September 2006, the FASB issued FAS No. 157, *Fair Value Measurements*.
      FAS No. 157 defines fair value, establishes a framework for measuring fair
      value
      in generally accepted accounting principles, and expands disclosures about
      fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting pronouncements.
      Accordingly, this statement does not require any new fair value measurements.
      However, for some entities, the application of the statement will change current
      practice. FAS No. 157 is effective for the Company beginning January 1, 2008.
      The Company is currently evaluating the impact of this standard.





In
      September 2006, the Securities and Exchange Commission ("SEC") staff issued
      Staff Accounting Bulletin No. 108 ("SAB 108"), *Considering the Effects of
      Prior Year Misstatements when Quantifying Misstatements in Current Year
      Financial Statements.* The stated purpose of SAB 108 is to provide
      consistency between how registrants quantify financial statement
      misstatements.




F-5




**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**


**NOTE
      1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)**




Prior
      to
      the issuance of SAB 108, there have been two widely-used methods, known as
      the
      "roll-over" and "iron curtain" methods, of quantifying the effects of financial
      statement misstatements. The roll-over method quantifies the amount by which
      the
      current year income statement is misstated while the iron curtain method
      quantifies the error as the cumulative amount by which the current year balance
      sheet is misstated. Neither of these methods considers the impact of
      misstatements on the financial statements as a whole.




SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the Company's
      financial statements and the related financial statement disclosures. This
      approach is referred to as the "dual approach" as it requires quantification
      of
      errors under both the roll-over and iron curtain methods.




SAB
      108
      allows registrants to initially apply the dual approach by either retroactively
      adjusting prior financial statements as if the dual approach had always been
      used, or by recording the cumulative effect of initially applying the dual
      approach as adjustments to the carrying values of assets and liabilities as
      of
      January 1, 2006 with an offsetting adjustment recorded to the opening balance
      of
      retained earnings.




The
      Company will initially apply SAB 108 using the cumulative effect transition
      method in connection with the preparation of the annual financial statements
      for
      the year ending December 31, 2006. The Company does not believe the adoption
      of
      SAB 108 will have a significant effect on its consolidated financial
      statements.






**NOTE
      2 – RESTATEMENT**






On
      October 31, 2007, the Company determined that its financial statements for
      the
      quarters ended March 31, 2007 and June 30, 2007 should no longer be relied
      upon
      because of accounting errors in those financial statements relating to specific
      equity transactions.  Accordingly, the Company has restated its
      previously issued financial statements for those periods. Restated financial
      information is presented in this report, as well as in the Company’s Amended
      Quarterly Report on Form 10-QSB for the quarter ended June 30,
      2007.




The
      March
      31, 2007 consolidated financial statements have been restated to account for
      shares released from restrictions on March 9, 2007 (see Note 6 – ‘Release of
      common stock stop order’). The Company recognized an expense of $2,182,175
      related to the transaction. As a result of this correction, net loss for the
      three months ended March 31, 2007 has increased to $3,906,811 from $1,724,636,
      and net loss per share increased to $0.06 from $0.03.






**NOTE
      3-INVENTORY**




At
      March
      31, Inventory consists of the following:


2007
              
              
              2006Raw
                  materials
              
              $
              45,296
              
              
              $
              36,187Work-in-process
              
              
              9,449
              
              
              
              32,073Packaging
              
              
              20,955
              
              
              
              31,762Finished
                  goods
              
              
              275,802
              
              
              
              6,388Total
                  inventory
              
              $
              351,502
              
              
              $
              106,410






F-6




**Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**


**NOTE
      4-PROPERTY AND EQUIPMENT, NET**




At
      March
      31, Property and equipment, net consists of the following:




2007
              
              
              2006Production,
                  engineering and other equipment
              
              $
              4,976,871
              
              
              $
              4,505,143Leasehold
                  improvements
              
              
              2,745,917
              
              
              
              2,629,400Office
                  equipment and furniture
              
              
              601,067
              
              
              
              599,132Computer
                  equipment and related software
              
              
              336,143
              
              
              
              319,469Construction
                  in process - equipment
              
              
              -
              
              
              
              99,4878,659,998
              
              
              
              8,152,631Accumulated
                  depreciation
              
              
              (2,424,677
              )
              
              
              (1,789,386
              )Property
                  and equipment, net
              
              $
              6,235,321
              
              
              $
              6,363,245




**NOTE
      5 – INTANGIBLE ASSETS**






During
      the first three months of fiscal 2007, no significant identified intangible
      assets were acquired and no identified intangible assets were impaired. The
      following table present details of the Company’s purchased intangible
      assets:




Gross
                  Carrying Amount
              
              
              Accumulated
                  Amortization
              
              
              NetLicense
                    Rights toWebsite
              
              
              200,000
              
              
              
              (49,999
              )
              
              
              150,001Total
                  intangibles
              
              $
              200,000
              
              
              $
              (49,999
              )
              
              $
              150,001




Amortization
      of intangibles was $3,333 and $8,583 for the three months ended March 31, 2006
      and 2005, respectively.






Based
      on
      the carrying amount of the intangibles as of March 31, 2006, and assuming no
      impairment of the underlying assets, the estimated future amortization is as
      follows:




Years
                  ended December 31,2007
                  (April 1 to December 31)
              10,0002008
              13,3332009
              13,3332010
              13,3332011
              13,333Thereafter
              86,669Total
                  amortization
              $150,001
   F-7
   **Z
            TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
            TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2007**


**NOTE
      6- STOCKHOLDERS' EQUITY**






Private
      Placement Offerings






On
      February 2, 2007, the Company entered into an agreement with J.P. Turner &
Company, L.L.C. to raise between $4,000,000 and $8,000,000, using the Company’s
      common stock as security.  The purchase price was $1.00 per share,
      which was greater than 70% of the volume weighted average price of the Company’s
      common stock for the 90 days from the day prior to the closing date, which
      was
      March 29, 2007.  The investors also received a 25% stock warrant at an
      exercise price equal to 120% of the purchase price.  The warrants have
      a term of 5 years.




The
      Company will file a Registration Statement covering the resale of the common
      shares underlying the unit and warrant within 60 days of the closing date.
      The
      Company shall respond to all SEC comments within 10 calendar days of receipt
      of
      said comments and will use its best efforts to cause the Registration Statement
      to become effective within 120 days of the closing date.




J.P.
      Turner & Company, L.L.C received a placement fee of 10% of the gross
      proceeds and 15% warrant coverage with an exercise price equal to the purchase
      price.




The
      offering closed on March 29, 2007.  The Company has received stock
      subscriptions for 8,000,000 shares of its common stock and 2,000,000
      warrants.  As of April 3, 2007 the Company received $6,958,000 in
      proceeds, which is net of offering costs and commissions of
      $1,042,000.




On
      March
      24 through 30, 2006, the Company entered into private placement subscription
      agreements pursuant to which it sold unregistered shares of our common stock,
      par value $0.00005 per share (“Common Stock”), and warrants exercisable for
      Common Stock.  The Company sold approximately 205 units in the private
      placement, with each unit consisting of 40,323 shares of Common
      Stock.  In addition, investors who invested at least $500,000 in the
      private placement received a five-year warrant with an exercise price of $1.00
      per share to purchase a number of shares of Common Stock equal to 10% of the
      number of shares of Common Stock purchased (the “Warrants”).  In the
      aggregate the Company sold 8,245,368 shares of Common Stock, and Warrants to
      purchase an additional 161,292 shares of Common Stock.  Proceeds from the
      sale, net of commissions and fees of $521,865, totaled
      $4,536,433.  The Company also entered into a registration rights
      agreement in connection with the private placement pursuant to which it has
      agreed to file with the Securities and Exchange Commission a registration
      statement covering the resale of the Common Stock and Common Stock underlying
      the Warrants.




National
      Securities Corporation (“National Securities”) served as the lead placement
      agent in connection with the private placement. National Securities received
      cash fees in the aggregate of $521,865 and warrants to purchase 824,537 shares
      of Common Stock on terms which are identical to the Warrants included in the
      units except that the exercise price is $0.68 per share and they contain an
      assignment provision.  In addition, the placement agent’s warrant has
      registration rights that are the same as those afforded to investors in the
      private placement.




The
      Company determined that all of the securities sold and issued in the private
      placement were exempt from registration under the Securities Act of 1933, as
      amended (the “Act”) pursuant Section 4(2) of the Act and Rule 506 of Regulation
      D Promulgated under the Act.  The Company based this determination on
      the non-public manner in which it offered the securities and on the
      representations of the persons purchasing such securities, which included,
      in
      pertinent part, that such persons were “accredited investors” within the meaning
      of Rule 501 of Regulation D promulgated under the Act, and that such persons
      were acquiring such securities for investment purposes for their own respective
      accounts and not as nominees or agents, and not with a view to resale or
      distribution, and that each such persons understood such securities may not
      be
      sold to otherwise deposed of without registration under the Act or an applicable
      exemption there from.




In
      January 2006, the Company conducted a self-underwritten offering of the
      Company’s common stock up to $1.24 million.  The stock was sold for
      $31,000 per unit.  Each unit consisted of 50,000 shares of common
      stock and 50,000 warrants.  The warrants are exercisable at $1.00 per
      share and expire in three (3) years after purchase of the above-described
      unit.  The Company sold and issued 1,000,000 shares and received
      proceeds of $620,000 under the offering.




F-8




**Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**


**NOTE
      6- STOCKHOLDERS' EQUITY (CONTINUED)**




Exercising
      of Stock Warrants and Options




During
      the first three months of 2007 and 2006, stock warrants and options were
      exercised. The Company received total proceeds of $1,469,906 and $72,800,
      respectively.




Common
      Stock Issued on the Cashless Exercise of Warrants




During
      February 2007 the Company issued 11,578 shares of common stock on the cashless
      exercise of warrants.




Release
      of Common Stock Stop Order




On
      November 22, 2004, the Company entered into a two-year engagement with David
      Shemesh and Mordechai Tobian for investor relations services in consideration
      of
      2,250,000 shares of restricted common stock of the Company (the "Shemesh/Tobian
      Shares") and a warrant to purchase 275,000 shares of restricted common stock
      at
      $.80 per share through November 21, 2007.




Based
      on
      a closing price of the Company's common stock of $.79 on November 22, 2004,
      the
      Company recorded paid-in-capital of $1,777,500 as of that date and began to
      recognize investor relation expenses on a quarterly basis over the life of
      the
      two-year contract.




On
      August
      24, 2005, the Company took the position that Shemesh and Tobian had failed
      to
      perform as agreed and the Company purported to rescind the contract.
      Simultaneously, the Company placed a stop order on the Shemesh/Tobian Shares.
      Through that date, the Company had recognized $765,325 of expense relating
      to
      the contract. Accordingly, at September 30, 2005 the Company wrote off the
      remaining $1,012,175 against paid-in-capital.




Shemesh
      and Tobian disputed the Company's basis for rescinding the contract and because
      they were referred to the Company by Farhad Zaghi, the Company's purported
      rescission became an issue in the Company's ongoing litigation with Zaghi and
      his affiliates. In order to eliminate one of the issues of contention between
      the parties and facilitate further settlement negotiations, on March 9, 2007,
      the Company released the stop order on the Shemesh/Tobian Shares and allowed
      the
      shares to be traded. The Company recognized an expense to investor relations
      of
      $2,182,175, based on the closing price of the Company’s common stock on March 9,
      2007.  Restated financial information concerning this expense
      recognition is presented in this report, as well as in the Company’s Amended
      Quarterly Report on Form 10-QSB for the quarter ended June 30,
      2007.  (See Note 2 – ‘Restatement’.)




**NOTE
      7 - NET LOSS PER SHARE**




The
      following table sets forth the computation of basic and diluted net loss per
      share:




Three
                  months ended
                  June
                    30,Numerator:
              
              **2007**
              
              
              2006**(Restated)**Net
                  loss
              
              **$**
              **(3,906,811**
              **)**
              
              $
              (2,705,699
              )Denominator:Weighted
                  average number ofshares
                  outstanding
              
              ****
              **65,678,054**
              
              
              
              54,473,170Net
                  loss per share-basic and diluted
              
              **$**
              **(0.06**
              **)**
              
              $
              (0.05
              )







F-9


**Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**


**NOTE
      7 - NET LOSS PER SHARE (CONTINUED)**






As
      the
      Company incurred net losses for the three months ended March 31, 2007, the
      effect of dilutive securities totaling 5,816,461 equivalent shares has been
      excluded from the calculation of diluted loss per share because their effect
      was
      anti-dilutive.






As
      the
      Company incurred net losses for the three months ended March 31, 2006, the
      effect of dilutive securities totaling 2,453,404 equivalent shares has been
      excluded from the calculation of diluted loss per share because their effect
      was
      anti-dilutive.






**NOTE
      8 – STOCK OPTION PLAN**






The
      Company has a Stock Option Plan (the Plan) effective January 2, 1999 and amended
      in 2004, which provides for the issuance of qualified options to all employees
      and non-qualified options to consultants and other service
      providers.




A
      summary
      of the status of stock options issued by the Company as of March 31, 2007 and
      2006 is presented in the following table:




2007
              
              
              2006Number
                of
                Shares
              
              
              Weghted
                  Average Exercise
                Price
              
              
              Number
                of
                Shares
              
              
              Weghted
                  Average Exercise
                PriceOutstanding
                  at beginning of year
              
              
              20,285,749
              
              
              $
              0.99
              
              
              
              12,892,939
              
              
              $
              1.03Granted
              
              
              262,000
              
              
              
              1.22
              
              
              
              1,600,000
              
              
              
              1.05Exercised
              
              
              (254,210
              )
              
              
              0.76
              
              
              
              (141,955
              )
              
              
              0.46Expired
                  and Cancelled
              
              
              (470,000
              )
              
              
              1.15
              
              
              
              -
              
              
              
              -Outstanding
                  at end of period
              
              
              19,823,539
              
              
              $
              0.99
              
              
              
              14,350,984
              
              
              $
              1.04Exercisable
                  at end of period
              
              
              19,623,539
              
              
              $
              0.99
              
              
              
              14,350,984
              
              
              $
              1.04




The
      fair
      value of each stock option granted is estimated on the date of grant using
      the
      Black-Scholes option valuation model. This model uses the assumptions listed
      in
      the table below. Expected volatilities are based on the historical volatility
      of
      the Company’s stock. The risk-free rate for periods within the expected life of
      the option is based on the U.S. Treasury yield curve in effect at the time
      of
      grant.




2007
              
              
              2006Weighted
                  average fair value per option granted
              
              $
              0.85
              
              
              $
              0.68Risk-free
                  interest rate
              
              
              4.54
              %
              
              
              4.83
              %Expected
                  dividend yield
              
              
              0.00
              %
              
              
              0.00
              %Expected
                  lives
              
              
              3.00
              
              
              
              3.00Expected
                  volatility
              
              
              112.92
              %
              
              
              127.83
              %




As
      of March 31, 2007, there was $145,124 of total unrecognized compensation cost
      related to non-vested share-based compensation arrangements granted under the
      plan. The cost is expected to be recognized over a weighted average period
      of
      six months.






F-10




**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**




**NOTE
      8 – STOCK OPTION PLAN (CONTINUED)**






The
      following table sets forth additional information about stock options
      outstanding at March 31, 2007:




Range
                  of
                Exercise
              
              
              
              Options
                Outstanding
              
              Weighted
                Average
                Remaining
                Contractual
                  Life
              
              
              Weighted
                Average
                Exercise
                Price
              
              
              
              Options
                Exercise$
              0.01-$1.50
              
              
              
              19,228,539
              
              1.8
                  years
              
              $
              0.95
              
              
              
              19,028,539$
              1.51-$3.00
              
              
              
              595,000
              
              0.6
                  years
              
              $
              2.09
              
              
              
              595,00019,823,539
              
              1.8
                  years
              
              $
              0.99
              
              
              
              19,623,539




As
      of
      March 31, 2007 and 2006, the Company has warrants outstanding to purchase
      4,347,048 and 6,149,995 shares of the Company’s common stock, respectively, at
      prices ranging from $0.45 to $6.40 per share. These warrants expire at various
      dates through March 2011.




**NOTE
      9 – MAJOR CUSTOMERS AND CREDIT CONCENTRATION**




The
      Company’s principal customers are wholesale companies. One customer accounted
      for approximately 21% and 57% of the Food Product Development segment revenues
      for the three months ended March 31, 2007 and 2006, respectively.  Two
      other customers accounted for approximately 82% and 85% of the E-tailer segment
      revenues for the three months ended March 31, 2007 and 2006,
      respectively.  Management does not believe a significant credit risk
      exists at March 31, 2007.




The
      Company maintains cash deposits with major banks, which from time to time may
      exceed federally insured limits.  The Company periodically assesses
      the financial condition of the institutions and believes that the risk of any
      loss is minimal.




**NOTE
      10– PENDING LITIGATION**




The
      Company filed a lawsuit in the U.S. District Court in 2005 to collect the unpaid
      principal balance, default interest and attorney fees for a note receivable,
      in
      total an amount in excess of $1,200,000, for stock issued.  The
      defendants have sold the shares purchased with the note receivable. In response,
      on December 27, 2005 those shareholders and a related hedge fund, Pac Bay
      Financial, filed a countersuit against the Company and its directors and
      officers. That lawsuit, which is being heard by the same Judge as in the
      Company’s Note Default case listed above, alleges that oral misrepresentations
      were made to induce purchases of stock over an approximate one and one-half
      year
      period.  Counter-plaintiffs seek $2 million in compensatory damages
      and $5 million in punitive damages.  The basis for these damages
      claims is yet unknown.  The Company believes that they have
      meritorious defenses against this action, and will continue to vigorously defend
      it.  The claim against the officers and directors is covered by
      directors and officers insurance to the extent that three of the individual
      officers and directors are covered.  The insurance coverage pays for
      the defense costs only and provides no indemnity coverage.  The
      parties are engaged in settlement negotiations which could result in the
      resolution of all pending claims. Subsequent to March 31, 2007, the Company
      received a payment of $100,000 from the plaintiff against the principal balance
      of the said above note receivable.




On
      November 23, 2005, the Company entered into Letter Agreement ("LOA") with George
      Foreman Enterprises, Inc. ("GFME") pursuant to which both parties would form
      a
      new limited liability company for the purpose of promoting the Company's zero
      calorie fat replacement food ingredient, Z Trim®.  The parties did not
      reach any definitive Agreement as is required by the LOA.  On May 9,
      2006, the Company filed a lawsuit alleging breach of the Parties' nondisclosure
      agreement and trade secret misappropriation in the Circuit Court of the 19th
      Judicial District, Lake County, Illinois seeking damages and injunctive relief
      against GFME.  On August 3, 2006 the court, based upon a finding that
      the Company has demonstrated a likelihood of success on the merits of the case,
      issued an






F-11


**Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**




**NOTE
      10– PENDING LITIGATION (CONTINUED)**




order
      granting the Company a preliminary injunction enforcing the non-disclosure
      agreement between the parties.  GFME subsequently appealed the
      preliminary injunction.  The Appellate Court denied GFME’s appeal, and
      the injunctive order remains in place.




On
      July
      17, 2006, George Forman Enterprises, Inc. filed a complaint against Z Trim
      Holdings, Inc. in the U.S. District Court seeking damages in excess of
      $70,000,000 for specific performance, breach of contract, promissory estoppel
      and unjust enrichment.  The basis for all such claims is the
      underlying LOA, set forth above.  Management believes that the
      allegations are frivolous and wholly without merit and will vigorously defend
      the claim.




On
      July
      6, 2006, the Company filed a patent infringement suit in the United States
      District Court for the Western District of Wisconsin seeking unspecified damages
      and equitable relief against a manufacturer of a competing
      product.  The case was dismissed by the court owing to a technicality
      and on March 20, 2007, the Company filed suit again. No trial date has been
      set
      as of yet.  In response to the dismissal order, the manufacturer
      submitted a bill of costs seeking a total of $15,458 in taxable costs. The
      Company filed its objections to the bill of costs on March 5, 2007 and argued
      that the manufacturer is not legally entitled to any of the requested costs.
      The
      bill of costs is still pending and the Court has given no indication of when
      it
      will issue its ruling on the amount costs, if any, that will be taxed against
      the Company. The Company did not accrue any liability as the likelihood of
      the
      outcome is unpredictable.




On
      January 18, 2007, the Company was served with a complaint by Daniel Caravette
      for breach of contract and violation of the Illinois Wage Payment and Collection
      Act, seeking damages in excess of $1,000,000.  Management believes
      that the allegations are frivolous and wholly without merit and will vigorously
      defend the claim.




**NOTE
      11 – RELATED PARTY TRANSACTIONS**




As
      of
      March 31, 2006, the Company had an employee receivable of $9,000 from the Chief
      Executive Officer related to exercising his stock options in 2005. The amount
      was applied against a bonus pay in April 2006.




As
      of
      March 31, 2006, the Company had an employee receivable of $45,900 from the
      Chief
      Financial Officer.  In December 2005, the officer exercised 102,000 of
      his stock options at $.45 per share, or an aggregate of $45,900.  The
      amount was applied against the officer’s net pay in April 2006.




As
      of
      March 31, 2006, the Company had a stock subscription receivable of $20,000
      from
      the President related to exercising his stock options in 2005.  The
      stock subscription receivable was paid in full on September 30, 2006 including
      $675 of interest.




**NOTE
      12- GUARANTEES**




The
      Company from time to time enters into certain types of contracts that
      contingently require the Company to indemnify parties against third party
      claims. These contracts primarily relate to: (i) divestiture agreements, under
      which the Company may provide customary indemnifications to purchasers of the
      Company’s businesses or assets; (ii) certain real estate leases, under which the
      Company may be required to indemnify property owners for environmental and
      other
      liabilities, and other claims arising from the Company’s use of the applicable
      premises; and (iii) certain agreements with the Company's officers, directors
      and employees, under which the Company may be required to indemnify such persons
      for liabilities arising out of their employment relationship.  The
      terms of such obligations vary. Generally, a maximum obligation is not
      explicitly stated. Because the obligated amounts of these types of agreements
      often are not explicitly stated, the overall maximum amount of the obligations
      cannot be reasonably estimated. Historically, the Company has not been obligated
      to make significant payments for these obligations, and no liabilities have
      been
      recorded for these obligations on its consolidated balance sheet as of March
      31,
      2007.




In
      general, the Company offers a one-year warranty for most of the products it
      sold. To date, the Company has not incurred any material costs associated with
      these warranties.






F-12


**Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**


**NOTE
      13 – SEGMENT INFORMATION**






The
      Company evaluates its reporting segments in accordance with SFAS No. 131,
      Disclosures about Segments of an Enterprise and Related Information. The Chief
      Executive Officer has been identified as the Chief Operating Decision Maker
      as
      defined by SFAS No. 131. The Chief Executive Officer allocates resources to
      each
      segment based on their business prospects, competitive factors, net sales and
      operating results.






The
      Company’s structure includes three principal operating segments: (i) Food
      Product Development, (ii) Security Training and Products and (iii)
      E-tailer.  The food product development segment owns the exclusive,
      worldwide license to Z Trim(TM).  The Security training offers cost
      effective self-defense training courses and products with a uniquely targeted
      curriculum.  The e-tailer segment is a distributor of pillows,
      blankets, and other bedding products.  The Company also has other
      subsidiaries that do not meet the quantitative thresholds of a reportable
      segment.




The
      Company reviews the operating segments’ income to evaluate performance and to
      allocate resources. Operating companies' income for the reportable segments
      excludes income taxes, minority interest and amortization of goodwill. Provision
      for income taxes is centrally managed at the corporate level and, accordingly,
      such items are not presented by segment. The segments' accounting policies
      are
      the same as those described in the summary of significant accounting
      policies.




Intersegment
      transactions are recorded at cost.




Summarized
      financial information of the Company’s results by operating segment is as
      follows:




Three
                  Months ended
                March
                  31,**2007**
              
              
              ****2006Net
                  Revenue:
              
              **(Restated)**Food
                  Product Development
              
              **$**
              **213,076**
              
              
              $
              22,831Personal
                  Safety Training and Products
              
              ****
              **609**
              
              
              
              3,527E-tailer
              
              ****
              **108,332**
              
              
              
              88,889Net
                  Revenue by Reportable Segment
              
              **$**
              **322,017**
              
              
              $
              115,247All
                  Other Operating Revenue
              
              ****
              **147**
              
              
              
              196Consolidated
                  Net Revenue
              
              **$**
              **322,164**
              
              
              $
              115,443Operating
                  Income (Loss):Food
                  Product Development
              
              **$**
              **(765,909**
              **)**
              
              $
              (534,843
              )Personal
                  Safety Training and Products
              
              ****
              **533**
              
              
              
              3,456E-tailer
              
              ****
              **14,487**
              
              
              
              10,190Operating
                  Loss by Reportable Segment
              
              **$**
              **(750,889**
              **)**
              
              $
              (521,197
              )All
                  Other Operating Loss
              
              ****
              **(3,166,289**
              **)**
              
              
              (2,190,199
              )Consolidated
                  Operating Loss
              
              **$**
              **(3,917,178**
              **)**
              
              $
              (2,711,396
              )Net
                  Income (Loss):Food
                  Product Development
              
              **$**
              **(766,136**
              **)**
              
              $
              (535,626
              )Personal
                  Safety Training and Products
              
              ****
              **533**
              
              
              
              3,456E-tailer
              
              ****
              **14,487**
              
              
              
              10,190Net
                  Loss by Reportable Segment
              
              **$**
              **(751,116**
              **)**
              
              $
              (521,980
              )All
                  Other Net Loss
              
              ****
              **(3,155,695**
              **)**
              
              
              (2,183,719
              )Consolidated
                  Net Loss
              
              **$**
              **(3,906,811**
              **)**
              
              $
              (2,705,699
              )






F-13






**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**




**NOTE
      13 – SEGMENT INFORMATION (CONTINUED)**






June
                  30,Total
                  Assets:
              
              **2007**
              
              
              2006Food
                  Product Development
              
              **$**
              **6,365,973**
              
              
              $
              5,994,451Personal
                  Safety Training and Products
              
              ****
              **4,112**
              
              
              
              468E-tailer
              
              ****
              **98,407**
              
              
              
              64,609****
              **6,468,492**
              
              
              
              6,059,528All
                  other segments
              
              ****
              **4,675,032**
              
              
              
              5,113,571Consolidated
                  assets
              
              **$**
              **11,143,524**
              
              
              $
              11,173,099




**NOTE
      14 – SUBSEQUENT EVENTS**






On
      May 1,
      2007, the Board of Directors appointed Alan Orlowsky as the Company’s Chief
      Financial Officer (CFO). Mr. Orlowsky has served as a member of the Company’s
      Board of Directors and was the Chairman of the Company’s Audit Committee. He
      resigned those positions as of April 30, 2007. The former CFO resigned his
      position, and remained employed as the Company’s Vice President and on the
      Company’s Board of Directors.






The
      Board
      of Directors has appointed Brian Israel as the new audit committee chair of
      the
      Company to fill the vacancy created by Mr. Orlowsky’s departure.






F-14