**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-KSB**




(Mark
      One)




**x**
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**
              **For
                the fiscal year ended****December
                31, 2007****o**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
                OF
                1934**
              **For
                the transition period
                from                                                    to**




**0-51313**Commission
                file number




**SKINNY
                NUTRITIONAL CORP.**(Exact
                name of small business issuer as specified in its
                charter)




**Nevada**
            
            **23-3100268**(State
                of incorporation)
            
            (IRS
                Employer Identification Number)




**3
                Bala Plaza East, Suite 117**
              **Bala
                Cynwyd, PA 19004**(Address
                of principal executive office)




**(610)
                  784-2000**(Issuer’s
                  telephone number)




Securities
      registered under Section 12(b) of the Exchange Act: **NONE**




Securities
      registered under Section 12(g) of the Exchange Act: **Common
      Stock, par value $0.001 per share**





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





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**  o




1




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of the registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. x





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





The
      issuer had revenues of $752,825 for the
      fiscal year ended December
      31, 2007 .





The
      aggregate market value of the voting stock held by non-affiliates on December
      31 ,
      2007 was
      approximately $5,214,025 based on
      the average bid and asked prices of the issuer’s common stock on such date.





As
      of April
      11,
      2008, the
      issuer had 105,113,069  shares
      of
      common stock outstanding.




2





**DOCUMENTS
      INCORPORATED BY REFERENCE**


NONE




Transitional
      Small Business Disclosure Format: **Yes**  o  **No**  x











**SKINNY
      NUTRTIONAL CORP.**


**INDEX
      TO ANNUAL REPORT ON FORM 10-KSB**








PAGEPart
                IItem
                1.
            Description
                of Business
            4Item
                2.
            Description
                of Property
            27Item
                3.
            Legal
                Proceedings
            28Item
                4.
            Submission
                Of Matters To A Vote Of the Security Holders
            28Part
                II
            
            29Item
                5.
            Market
                For Common Equity, Related Stockholder Matters And Small Business
                Issuer
                Purchases Of Equity Securities
            29Item
                6.
            Management's
                Discussion And Analysis Or Plan Of Operation
            30Item
                7.
            Financial
                Statements
            39Item
                8.
            Changes
                In And Disagreements With Accountants On Accounting And Financial
                Disclosure
            39Item
                8A.
            Controls
                And Procedures
            39Part
                III
            
            40Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance With
                Section
                16(a) Of the Exchange Act
            40Item
                10.
            Executive
                Compensation
            43Item
                11.
            Security
                Ownership Of Certain Beneficial Owners And Management And Related
                Stockholder Matters
            46Item
                12.
            Certain
                Relationships And Related Transactions
            47Item
                13.
            Exhibits
            48Item
                14.
            Principal
                Accountant Fees And Services
            50Signatures




3




iii





**PART
      I**




**Item
      1.  Description of Business**




***Forward
      Looking Statements***





*This
      Report contains statements which constitute forward-looking statements within
      the meaning of Section 27A of the Securities Act of 1933 and the Securities
      Exchange Act of 1934. We have based these forward-looking statements largely
      on
      our current expectations and projections about future events and financial
      trends that we believe may affect our financial condition, results of
      operations, business strategy and financial needs. These forward-looking
      statements are subject to a number of risks, uncertainties and assumptions,
      including those described in “Risk factors.” No forward-looking statement is a
      guarantee of future performance and you should not place undue reliance on
      any
      forward-looking statement. Our actual results may differ materially from those
      projected in any forward-looking statements, as they will depend on many factors
      about which we are unsure, including many factors which are beyond our control.
      The words “may,” “would,” “could,” “will,” “expect,” “anticipate,” “believe,”
“intend,” “plan,” and “estimate,” as well as similar expressions, are meant to
      identify such forward-looking statements. Forward-looking statements contained
      herein include, but are not limited to, statements relating to:*





*•*
            *Our
                future financial results;*





*•*
            *Our
                future growth and expansion into new markets;
                and*




*•*
            *Our
                future advertising and marketing activities.*




*Except
      as otherwise required by law, we undertake no obligation to update or revise
      any
      forward-looking statement contained in this Annual Report. The safe harbors
      for
      forward-looking statements provided by the Securities Litigation Reform Act
      of
      1995 are unavailable to issuers not previously subject to the reporting
      requirements set forth under Section 13(a) or 15(d) of the Securities Exchange
      Act of 1934, as amended, and whose securities are considered to be a “penny
      stock” and accordingly may not be available to us.*




*As
      used in this Report, references to the “we,” “us,” “our” refer to Skinny
      Nutritional Corp. unless the context indicates otherwise.*





**(a)**  **Business
      Development**





Skinny
      Nutritional Corp. (“Skinny”), formerly known as Creative Enterprises
      International, Inc., is the exclusive worldwide licensee of several trademarks
      for the use of the term “Skinny.” We develop a line of functional beverages, all
      branded with the name “Skinny” that are marketed and distributed primarily to
      weight conscious consumers. Our business strategy is to develop a variety of
      functional beverages utilizing our licensed Skinny trademarks. These trademarks
      include Skinny Water, Skinny Tea, Skinny Shakes, Skinny Java and others.
 In 2004 we began implementing our business plan of marketing and
      distributing Skinny Water as a dietary supplement. As described in greater
      detail below, in October 2006 we restructured our supplier relationships and
      changed our corporate name to Skinny Nutritional Corp. to evidence our focus
      on
      marketing and distributing nutritional products branded “Skinny” designed to
      assist consumers in their weight-management efforts.




4




We
      were
      originally incorporated on June 20, 1984, in the State of Utah as Parvin Energy,
      Inc. Our name was later changed to Sahara Gold Corporation and on July 26,
      1985
      we changed our corporate domicile to the State of Nevada and on January 24,
      1994
      we changed our name to Inland Pacific Resources, Inc. On December 18, 2001,
      we
      entered into an agreement and plan of reorganization with Creative Enterprises,
      Inc., a Delaware corporation, and changed our name to Creative Enterprises
      International, Inc. This agreement provided that all shares of common stock
      of
      the Delaware corporation issued and outstanding on that date be exchanged for
      shares of common stock issued by the Nevada corporation, which changed its
      name
      after the reorganization to Creative Enterprises International, Inc. Prior
      to
      the reorganization, we had 32,659,591 shares of common stock outstanding and
      pursuant to the agreement, we effected a 1 for 16.33 reverse stock split. This
      reduced the number of outstanding shares to 2,000,000. We then issued an
      additional 2,500,000 post-split common shares in the acquisition. On September
      18, 2002 we filed a registration statement on Form SB-2 with the Securities
      and
      Exchange Commission. This registration statement was amended on five occasions
      and ultimately withdrawn on September 30, 2004 prior to being declared effective
      by the SEC. The registration statement was filed solely on behalf of certain
      of
      our security holders and in conjunction with an offering of warrants to our
      then-current stockholders and did not attempt to register shares to be sold
      directly by our company. This filing was withdrawn for a number of reasons.
      First, the shares of common stock held by the proposed selling security holders
      became eligible to be resold pursuant to Rule 144(k) and accordingly did not
      require us to further prosecute the registration statement. In addition, as
      we
      were entering into a new line of business shortly after filing the final
      amendment to the registration statement, the additional expense and effort
      required was not justified in light of availability of the exemption provided
      by
      Rule 144(k). We decided to change our line of business as management
      subsequently determined that it would not be cost-effective for us to continue
      to attempt to develop a market in the United States for the products described
      in that registration statement. In 2004, management was able to negotiate
      license agreements with Peace Mountain Natural Beverage Corporation (as
      described below) in order to provide us with the rights to various Skinny
      trademarks necessary to engage in our present business line. On November 15,
      2006, holders of approximately 53% of our issued and outstanding common stock
      consented in writing to the adoption of resolutions approving, among other,
      things, the change in our corporate name to “Skinny Nutritional Corp.”





For
      our 2007 fiscal
      year, we generated revenues of $ 752,825 and
      incurred a net loss of
      $2,828,745 . Since
      our formation and prior to 2005, our operations were devoted primarily to
      startup and development activities, including obtaining start-up capital;
      developing our corporate hierarchy, including establishing a business plan;
      and
      identifying and contacting suppliers and distributors of functional beverages
      and dietary supplements.





Starting
      in our 2006 fiscal year, we have been able to devote increasing amounts of
      resources to marketing and sales activities regarding our consumer products,
      including the procurement of a number of purchase orders from distributors
      and
      retailers. This trend continued in our 2007
      fiscal year.





**(b)**  **Business
      of the Issuer**




**Overview**





We
      operate our business in the rapidly evolving weight loss and beverage industries
      and are currently focused on developing, distributing and marketing
      nutritionally enhanced functional beverages.





Our
      Skinny Water product, which we originally introduced in 2005, has been
      reformulated to include three new flavors: Peach, Lemon and Raspberry, and we
      expect to launch new flavors and new formulations in our second fiscal quarter
      of 2008.




We
      are
      currently developing new product extensions and formulations of new functional
      beverages. Our current business strategy is to develop and maintain our current
      distribution relationship with Target Corporation, focus in establishing a
      market for the Skinny Beverages in the United States and generate sales and
      brand awareness through sampling, street teams, radio, print, television
      advertising and internet sales as well as building a national sales and
      distribution network to take our products into retail and direct store delivery
      (DSD) distribution channels.




5





Our
      principal executive offices are located at 3 Bala Plaza East, Suite 117, Bala
      Cynwyd, Pennsylvania. Our telephone number is (610) 784-2000.





**Business
      Developments in** **2007**





*Financing
      Activities*





As
      described in greater detail below under the caption “Liquidity and Capital
      Resources” during the twelve months ended December 31, 2007 we have raised a
      total of $1,188,063 in gross proceeds from private transactions with accredited
      investors. There were three private offerings made during the year; the first,
      which commenced in December 2006, raised $482,610 during calendar 2007 with
      6,435,004 shares being issued. The second offering, which commenced in March
      2007, raised $502,202 during calendar 2007 with 6,696,509 shares being issued.
      The third placement, which commenced in September 2007, raised $203,251 with
      2,716,666 shares issued. There were 2,759,390 warrants issued to “Selling
      Agents” for the private placements of common stock during calendar year 2007.





Selling
      agents received $106,954 dollars in commissions for private placement of common
      shares leaving the company with $1,081,109 dollars in net proceeds from private
      placements. In addition, a total of 9,809,332 shares were also issued to
      shareholders from prior subscriptions in the form of reset shares required
      by
      the convents established in the previous subscription agreements. . We
      have
      used the proceeds from these transactions for working capital and the repayment
      of debt owed to third parties. The securities sold in this financing have not
      been registered under the Securities Act of 1933, as amended, and were offered
      and sold in reliance upon the exemption from registration set forth in Section
      4(2) thereof and Regulation D, promulgated under the Securities Act. We believe
      that the investors are “accredited investors” as such term is defined in Rule
      501(a) promulgated under the Securities Act.





On
      March
      23, 2007, the holder of a debenture with an outstanding principal amount of
      $100,000 and $4,274 in accrued interest converted its debt into 2,011,020
      shares of common stock. In addition, the holder of a convertible debenture
      in
      the aggregate principal amount of $25,000 converted such debenture into common
      stock in two transactions: in January 2007, such holder converted $12,500 in
      principal and $1,171 in interest into 273,425 shares of common stock.
      Thereafter, in April 2007, this holder converted the remaining $12,500 in
      principal into 250,000 in common shares of stock. Interest
      of $5,513 was converted to 110,270 common shares on 1/17/07. There were other
      transactions the converted debt to 14,995 shares of common
      stock .





In
      addition, holders of an aggregate principal amount of $2,065,000 of convertible
      debentures converted such amount into shares of common stock as follows. In
      the
      first quarter, holders of principal of $1,750,000 converted such amount into
      17,500,000 shares of common stock. Also in the first quarter one debt holder
      converted $20,000 in debt to 40,000 shares of common stock. In the second
      quarter two debt holders converted their debt into 400,000 common shares
      reducing the principal balance by $40,000 dollars . During
      the fourth quarter an additional conversion of $188,333 in principal and $37,667
      in interest were converted into 3,013,333 shares of common stock at a conversion
      rate of $.075 a share . During
      December 2007, in a fourth conversion 1,600,000 shares of common stock were
      issued upon conversion of $66,667 in principal and $13,333 in interest at a
      conversion rate of $.05 per share. One investor was paid $20,000 dollars in
      principal and $4,000 dollars in interest to retire his debenture. In addition,
      we issued an aggregate of 765,000 common stock purchase warrants upon the
      conversion of outstanding debentures in 2007. Of these warrants, 225,000
      warrants are exercisable at $0.20 per share and the remainder are exercisable
      at
      $0.50 per share. All warrants expire three years from the date of issuance.





The
      securities issued upon the conversion of debentures were not registered under
      the Securities Act of 1933, as amended, and were issued in reliance upon the
      exemption from registration set forth in Section 3(a)(9) thereof.





*Reorganization*





In
      October 2006, we began to reorganize our business operations to completely
      focus
      on our “Skinny” brand, including a change in our company name to “Skinny
      Nutritional Corp.”, a change in management, modification of certain of our
      contractual relationships, conducting financing activities and restructuring
      our
      debt.




6





On
      October 4, 2006, we entered into an agreement with Mr. James Robb, at the time
      a
      member of our board of directors, modifying the convertible note issued in
      June
      2006. Pursuant to this agreement, we modified the repayment terms of the note
      by
      paying to Mr. Robb an amount of $10,000 upon the initial closing of our October
      2006 financing and the balance of the principal and accrued and unpaid interest
      within 60 days thereafter. Following a further modification of the repayment
      obligation, the principal of this note was paid on March 13, 2007. On October
      4,
      2006, we entered into a Separation Agreement with Mr. Christopher Durkin, our
      former President, Chief Executive Officer and a director. Pursuant to this
      agreement, Mr. Durkin agreed to resign from all positions with us effective
      upon
      his receipt of payment of $32,500 as payment of accrued but unpaid compensation
      and expenses. Mr. Durkin also agreed to provide us with a general release of
      claims in the separation agreement. We made the cash payment to Mr. Durkin
      on
      October 5, 2006 and his resignation is effective as of such date. As additional
      severance compensation, we agreed to issue Mr. Durkin 300,000 shares of Common
      Stock.





Further,
      on October 4, 2006, Mr. Michael R. Reis was appointed as our interim Chief
      Operating Officer and also elected him as a director. In addition, on October
      6,
      2006, we appointed Mr. Donald J. McDonald to serve as our new Chief Executive
      Officer, President and as a member of our board of directors.





On
      October 4, 2006, we also entered into an amendment to our License and
      Distribution Agreement with Peace Mountain Natural Beverages Corporation.
      Pursuant to this amendment, we agreed to pay Peace Mountain an amount of $30,000
      in two equal monthly installments commencing on the date of the amendment in
      satisfaction of allegations of non-performance by Peace Mountain. In addition,
      the parties agreed to amend and restate our royalty obligation to Peace Mountain
      and we now have a minimum royalty obligation to Peace Mountain based on a
      percentage of wholesale sales with a quarterly minimum of $15,000.





On
      October 10, 2006, we entered into an agreement with Jamnica, d.d. and Jana
      North
      America, Inc., which agreement is effective as of September 20, 2006, pursuant
      to which the parties confirmed the termination of the distribution agreement
      dated July 21, 2004, between Skinny and Jamnica. In the new agreement, the
      parties agreed to the following arrangements: (a) our obligation to Jamnica,
      in
      an amount of $207,321, is eliminated; (b) Jamnica and Jana North American shall
      pay an amount of $23,125 on our behalf in satisfaction of storage and
      warehousing fees; (c) receivables due to us from select accounts shall be
      transferred to Jana North America; and (d) we shall make available to Jana
      North
      America all inventory of Jana bottled waters in our possession. In addition,
      the
      parties agreed that we will cease use of the Jana trademarks and logos and
      Jamnica and Jana North America agreed not to use any of our licensed trademarks
      or logos concerning the our ‘‘Skinny’’ product line. Pursuant to the agreement,
      we will also provide additional assistance to Jamnica and Jana North America
      in
      the transition for the marketing and distribution of the Jana bottled waters.
      Each of the parties also agreed to release the other from any obligations or
      claims arising from the distribution agreement.




On
      November 15, 2006, holders of approximately 53% of our issued and outstanding
      common stock consented in writing to the adoption of resolutions approving
      (1)
      amendments to our Articles of Incorporation to (a) change our corporate name
      to
“Skinny Nutritional Corp.” and (b) increase the number of authorized shares of
      common stock 250,000,000 shares and (2) an amendment to our Employee Stock
      Option Plan to increase the number of shares of common stock available to be
      issued there under to 20,000,000 shares. These actions became effective as
      of
      December 27, 2006. Also effective as of such date, we granted an aggregate
      of
      10,650,000 options to certain of our employees under our Employee Stock Option
      Plan.




**General
      Business Developments**





**Recent
      Private Offering of Securities:** The
      Company has commenced a private offering of up to $2,000,000 of shares of Common
      Stock at a per share price of $0.04. The shares are being offered to accredited
      investors only. The shares being offered will not be registered under the
      Securities Act of 1933, as amended (the “Act”) and will be offered in reliance
      upon the exemption from registration set forth in Section 4(2) and Regulation
      D,
      promulgated under the Act. Such shares may not be offered or sold in the United
      States absent registration or an applicable exemption from registration
      requirements.




7


The
      Company intends to engage registered broker-dealers to serve as selling agents
      (the “Selling Agents”), for the sale of the Units and pay commissions and other
      compensation to the Selling Agents who procure purchasers of the Units. We
      will
      pay and issue to each Selling Agent a warrant (the “Agent Warrants”) to purchase
      such number of Shares as equals 10% of the total number of Shares actually
      sold
      in the Offering to Purchasers procured by each Selling Agent. Agent Warrants
      shall be exercisable at the per share price of $0.09 for a period of five years
      from the date of issuance. The Company intends to use the proceeds from the
      offering for working capital and payment of accrued compensation.





There
      can
      be no assurance that the Company will complete the offering on the anticipated
      terms, or at all. The Company’s ability to complete the offering will depend,
      among other things, on market conditions. In addition, the Company's ability
      to
      complete this offering and its business are subject to risks described in the
      Company's filings with the Securities and Exchange Commission. This disclosure
      does not constitute an offer to sell or the solicitation of an offer to buy
      any
      the Company’s securities, nor will there be any sale of these securities by the
      Company in any state or jurisdiction in which the offer, solicitation or sale
      would be unlawful. The disclosure is being issued pursuant to and in accordance
      with Rule 135c of the Act.




**Compensation
      Matters:** On
      January 12, 2007, our Board of Directors approved modifications in the monthly
      compensation rates, effective as of January 1, 2007, payable to each of our
      Chairman and Chief Executive Officer. Each of these executives will now receive
      a monthly fee of $7,500, plus reimbursement of approved corporate expenses.
      In
      addition, on such date, the Board granted to our Chairman options to purchase
      3,000,000 shares of common stock pursuant to our Employee Stock Option Plan.
      These options are exercisable for a period of five years at a per share exercise
      price of $0.26. Of the options granted, 20% of the total grants amount vest
      immediately and the balance vests in equal annual installments of 20% on the
      each anniversary date of the date of grant. On
      November 28, 2007, our Board of Directors approved additional modifications
      in
      the monthly compensation rates, effective December 1, 2007, payable to each
      our
      Chairman and Chief Executive Officer. Michael Salaman will receive a monthly
      fee
      of $12,500, plus reimbursement of approved corporate expenses including a
      monthly automobile allowance of $700 dollars. Donald McDonald will receive
      a
      monthly fee of $11,667 dollars, plus reimbursement of approved corporate
      expenses including a monthly automobile allowance of $700 dollars. The Board
      granted to our Chairman options to purchase 3,000,000 shares of common stock
      pursuant to our Employee Stock Option Plan. These options are exercisable for
      a
      period of three years at a per share exercise price of $0.08. The Board granted
      to our CEO options to purchase 2,500,000 shares of common stock pursuant to
      our
      Employee Stock Option Plan. These options are exercisable for a period of three
      years at a per share exercise price of $0.08 .
      Also,
      on this date, our Board authorized an issuance of 2,000,000 restricted shares
      of
      common stock to Michael Salaman in consideration for his agreement to personally
      guarantee the Company’s loan facility from Valley Green Bank.




**Distribution
      Agreement:** On
      February 27, 2007, we entered into a Marketing and Distribution Agreement
      with Geltech Sales, LLC for the national distribution of our Skinny-branded
      products. The initial term of the Agreement was for three years, and it is
      renewable in one-year increments. Under the Agreement, Geltech agreed to solicit
      orders for our products through its distribution channels, which includes mass
      merchandisers, supermarkets, convenience stores, mass drug stores, as well
      as
      establishing distribution agreements with local, regional, and national direct
      store delivery (DSD) companies. The Agreement is exclusive subject to certain
      contractually-specified exceptions. Either party may terminate the Agreement
      upon written notice if the other party is in material breach of any provision
      thereof, subject to applicable cure periods. Moreover, we may elect to terminate
      the Agreement if Geltech fails to meet its performance obligations or terminate
      the Agreement without cause upon sixty (60) days prior written notice. In
      consideration for Geltech’s services, we agreed to pay Geltech a commission
      based on the quantity of product sold through its network and agreed to issue
      to
      Geltech, or its designees, an aggregate of 1,500,000 common stock purchase
      warrants. The warrants are exercisable for a seven year period at a price of
      $0.24 per share. We will have the right to redeem up to 750,000 of the warrants
      in the event that Geltech does not satisfy the performance requirement of
      assisting us place product in 20,000 stores within two years from the date
      we
      commence selling products under our distribution agreement. In addition, on
      February 27, 2007, we issued an additional total of 300,000 warrants to two
      consultants in consideration of the services rendered by such persons in
      connection with the negotiation and execution of the Agreement. On
      October 16, 2007, we notified Geltech that we elected to terminate this
      agreement with Geltech based on performance obligations; resulting in a
      cancellation of 1,075,000 warrants.




8





**Subsequent
      Events** On March
      20, 2008, the Company announced it established an advisory board to provide
      advice on matters relating to the Company’s products. The Company will seek to
      appoint up to five individuals to its advisory board. On such date, the Company
      appointed the following individuals to its advisory board: Pat Croce, Ron Wilson
      and Michael Zuckerman. The Company also entered into a consulting agreement
      with
      Mr. Croce, pursuant to which the Company agreed to issue warrants to purchase
      3,000,000 shares of common stock at $.05 per share consideration of his
      agreement to serve on the Company’s Advisory Board and for providing the
      marketing services for the Company’s products. In addition to serving on the
      Advisory Board, Croce agreed to endorse and advertise, through
      an affiliate, the Company’s products. In additional consideration for
      his  agreement
      to provide the endorsement and marketing services, the Company agreed to pay
      a
      royalty with respect to the sale of its products that he endorses for the
      duration of his endorsement services. The Company issued each of the other
      initial members of its advisory board warrants to purchase 1,500,000 shares
      of
      Common Stock, exercisable for a period of five years at a price of $0.05. The
      securities sold in or issued in connection with the financing have not been
      registered under the Securities Act of 1933, as amended, and were offered and
      sold in reliance upon the exemption from registration set forth in Section
      4(2)
      thereof. We believe that the investors and the selling agent are “accredited
      investors”; as such term is defined in Rule 501(a) promulgated under the
      Securities Act.





During
      the 2008 fiscal year, we have converted additional convertible debt securities
      into equity as follows. On January 25, 2008, the Company issued 900,000 shares
      of common stock and 112,500 common stock purchase warrants upon the conversion
      of an aggregate amount of $45,000 (inclusive of accrued interest of $15,000)
      of
      outstanding convertible debentures. The warrants issued upon conversion of
      these
      debentures are exercisable for a period of three years at an exercise price
      of
      $0.50 per share. On March 3, 2008, the Company issued 300,000 shares of common
      stock upon the conversion of an aggregate amount of $15,000 of outstanding
      convertible debentures. On March 20, 2008, the Company issued 1,125,000 shares
      of common stock and 112,500 common stock purchase warrants upon the conversion
      of an aggregate amount of $45,000 (inclusive of accrued interest of $7,500)
      of
      outstanding convertible debentures. The warrants issued upon conversion of
      these
      debentures are exercisable for a period of three years at an exercise price
      of
      $0.50 per share. These securities have not been registered under the Securities
      Act of 1933, as amended, and are being issued in reliance upon the exemption
      for
      registration set forth in Section 3(a)(9) thereof.




**Our
      Industry**





Weight
      management is a challenge for a significant portion of the U.S. population.
      The
      2003-2004 National Health and Nutrition Examination Study estimated that 66%
      of
      the adult population is overweight and 33% is obese, an increase from 47% and
      15%, respectively, in 1976.  According to the U.S. Department of Health and
      Human Services, overweight or obese individuals are increasingly at risk for
      diseases such as diabetes, heart disease, certain types of cancer, stroke,
      arthritis, breathing problems and depression. However, there is evidence that
      weight loss may reduce the risk of developing these diseases.





In
      addition to the health risks, there are also cultural implications for those
      who
      are overweight or obese. U.S. consumers are inundated with imagery in media,
      fashion, and entertainment that depicts the thin body as the ideal type. Despite
      the high percentage of overweight or obese individuals in the U.S., the
      popularity of dieting would seem to indicate consumers’ desire to be thin.
      According to Gallup surveys, approximately 62 million people in the United
      States were on a diet during 2006. Approximately 6 million participated in
      commercial weight loss programs and 49 million conducted some form of
      self-directed diet. We believe our products are well positioned to attract
      both
      types of dieters.




Our
      products compete in the dietary supplement market and in the case of Skinny
      Water also as functional beverages. The functional beverage market includes
      a
      wide variety of beverages with one or more added ingredients to satisfy a
      physical or functional need. This category includes: vitamin and herbal enhanced
      flavored waters, ready-to-drink (RTD) teas, sports drinks, energy drinks, and
      single-serve (SS) fresh juice. These industries are highly competitive and
      are
      subject to continuing changes with respect to the manner in which products
      are
      provided and how products are selected. Pressures to reduce the cost of our
      products because of market forces could adversely impact our revenues.


9





Dietary
      supplements are sold in a variety of forms other than liquids, including
      tablets, capsules, bars, etc., and consist of vitamins, minerals, hormonal
      supplements, herbal products and specialty combination formulas. Dietary
      supplements are also marketed through various channels, including health food
      stores and mass-market (which may include retail and grocery store chains).
      As a
      product, Skinny Water competes with dietary supplements in each of product
      types
      mentioned above as well as all of the functional beverages mentioned above.





**Our
      Products**





Our
      line
      of products currently consists of three flavors of Skinny Water. Skinny Water,
      which was introduced in 2005, has been reformulated and was launched in our
      second fiscal quarter of 2007. Management intends to release additional Skinny
      Water flavors and formulas in our second quarter of 2008. The company intends
      to
      market additional “Skinny” beverages in the future, when it believes that market
      conditions are favorable.





*Skinny
      Water* *(R)*





Skinny
      Water is water containing a proprietary, natural appetite suppressant, available
      in 3 flavors with a natural water appearance. We initially introduced Skinny
      Water *(R)* under
      the
“Jana” brand. However, we now currently offer it under its own brand - “Skinny”.
      To market this product, we rely on the licenses from Peace Mountain and
      Interhealth. We worked closely with these companies to agree upon the ingredient
      blend utilized in Skinny Water. We have reformulated Skinny Water in 3 flavors
      and launched it in our second quarter of 2007. Skinny Water is being bottled
      at
      Adirondacks Beverages in upstate New York, a co-packer of functional beverages.
      We purchase finished product in 24 bottle cases ready for shipment to retailers
      and distributors anywhere in the U.S.





Skinny
      Water’s main dietary ingredient, “SuperCitriMax,” is available for use in
      beverages and foods in the U.S. and a number of other countries. Super CitriMax
      has been affirmed GRAS (Generally Recognized as Safe) for use in functional
      beverages by the Burdock Group, a toxicology specialist that evaluates the
      safety of food and beverage ingredients. This process involved an intensive
      review of all safety and toxicology data by a panel of scientific experts.
      (Source: Interhealth Nutraceuticals, Inc.). Further, human clinical studies
      of
      Super Citrimax, conducted through Georgetown University Medical Center resulted
      in findings that included, weight loss, reduction in appetite, and an increase
      in fat burning and metabolism when used in conjunction with diet and exercise.
      The results of their findings are published in the peer-reviewed journal,
      Nutrition Research (24(1): 45-58, 2004).





Skinny
      Water is ephedrine-free and contains no caffeine or sugar. Skinny Water’s
      formula features the all natural, clinically tested ingredient, Hydroxycitric
      Acid (“Super CitriMax”) plus a combination of calcium and potassium. Super
      CitriMax has been shown to suppress appetite and increase fat burning, without
      stimulating the nervous system when used in conjunction with diet and exercise.
      Skinny Water also includes Chromate (R) **** which
      is
      a patented form of biologically active niacin-bound chromium called chromium *nicotinate* or *polynicotinate* that
      we
      also obtain from Interhealth.





On
      August
      1, 2004 we entered into a three year license agreement with Peace Mountain
      Natural Beverages Corporation pursuant to which we license the exclusive right
      to bottle and distribute the “Skinny Products” worldwide. Under this agreement,
      Skinny Products include “Skinny Water”, “Diet Water”, “Skinny Tea”, “Skinny
      Juice” and “Skinny Shake”. Skinny Water’s proprietary formula has an all-natural
      appetite suppressant that helps people lose weight when taken in conjunction
      with diet and exercise. Pursuant to this agreement, we must utilize only
      ingredients that are generally recognized as safe and must use concentrate
      and
      formulations agreed to by Peace Mountain. Our license agreement with Peace
      Mountain Natural Beverages Corporation is for a three year term and
      automatically renews for additional one year periods unless terminated, provided
      that we satisfy the minimum purchase amount specified in the contract or make
      a
      $10,000 monthly payment.





On
      October 4, 2006, we entered into an amendment to our License and Distribution
      Agreement with Peace Mountain Natural Beverages Corporation. Pursuant to this
      amendment, we agreed to pay Peace Mountain an amount of $30,000 in two equal
      monthly installments commencing on the date of the amendment in satisfaction
      of
      allegations of non-performance by Peace Mountain. In addition, the parties
      further agreed to amend and restate the company’s royalty obligation to Peace
      Mountain, pursuant to which amendment, we will have a minimum royalty obligation
      to Peace Mountain based on a percentage of wholesale sales with a quarterly
      minimum of $15,000. Skinny’s rights to the trademarks are in perpetuity as long
      as it satisfies the quarterly minimum payment of $15,000.


10





On
      June
      7, 2004 we entered into an agreement with Interhealth Nutraceuticals
      Incorporated and obtained the right to sell, market, distribute and package
      Super CitriMax (R) in
      bottled liquid dietary supplement products. This right was granted by
      Interhealth on a non-exclusive basis. We use Super CitriMax (R) in our
      Skinny Water products Further; we must purchase quantities of Super
      CitriMax (R) from the
      manufacturer and are licensed to use InterHealth’s trademarks and logos in
      marketing products containing Super CitriMax (R) .
      Our
      agreement with Interhealth will continue unless terminated by either
      party.





**Planned
      Products**





We
      intend
      to expand our product line to introduce the following products at such times
      as
      management believes that market conditions are appropriate. Products under
      development or consideration include Java’s, Smoothies and Teas.





**Distribution,
      Sales and Marketing**





*Marketing
      and Sales Strategy*





Our
      primary marketing objective is to cost-effectively promote our brand and to
      build sales of our products through our retailer accounts, distributor
      relationships, and electronic media. We will use a combination of sampling,
      radio, online advertising, public relations and promotional/event strategies
      to
      accomplish this objective. Management believes that proper in-store
      merchandising is a key element to providing maximum exposure to its brand and
      that retailer’s focus on effective shelf and display merchandising in order to
      yield increased revenue per shopping customer.





Through
      our arrangement with Target Corporation we continue to sell Skinny Water through
      approximately 1,200 stores around the country. The company has initiated contact
      with several retailers who are reviewing our Skinny Waters .
      These retailers include convenience stores, supermarkets, drug stores and club
      stores. As described below, we are also developing a National Direct Store
      Delivery (DSD) network of distributors in local markets.





*Distribution
      Strategy*





The
      company’s distribution strategy is to build out a national direct store delivery
      (DSD) network of local distributors, creating a national distribution system
      to
      sell our products. Distributors include beer wholesalers, Non alcoholic
      distributors, and energy beverage distributors. The company’s products are being
      reviewed by several DSD’s and we plan to enter into agreements with several
      DSD’s in 2008.




We
      also
      distribute our products directly to select national retail accounts based on
      purchase order relationships. Distribution will target category leaders in
      grocery, convenience, health clubs, retail drug, and health food establishments.
      We will contract with independent trucking companies or arrange pick up by
      the
      retailer from contract packers to independent warehouses, and then on to
      distributors or retail outlets. Distributors will then sell and deliver our
      products either to sub-distributors or directly to retail outlets, and such
      distributors or sub-distributors stock the retailers’ shelves with the products.
      We are responsible for managing our network of distributors and brokers and
      the
      hiring of sales managers, who are responsible for their respective specific
      channel of sales distribution.




11




**Sources
      and Availability of Raw Materials; Manufacturing**





We
      exclusively license a variety of trademarks from Peace Mountain and some of
      the
      ingredients that make up our formulas from Interhealth. We license Skinny Water
      from Peace Mountain on an exclusive basis and we purchase the ingredient of
      Super CitriMax and Chromemate from Interhealth on a non-exclusive basis. Super
      CitriMax and Chromemate are utilized in Skinny Water. Skinny Water requires
      bottles, labels, caps, water, and other ingredients, including Super CitriMax
      and Chromemate. We fulfill these requirements through purchases from various
      sources, including purchases from Interhealth. Other than Super CitriMax and
      Chromemate, we believe there are adequate suppliers of the aforementioned
      products at the present time, but cannot predict future availability or prices
      of such products and materials. Since Super CitriMax is only available from
      Interhealth, the termination of that agreement may have a materially adverse
      impact on our business and results of operations. We also expect the above
      referenced supplies to experience price fluctuations. The price and supply
      of
      materials will be determined by, among other factors, demand, government
      regulations and legislation.





Skinny
      Water is produced through a packing, or co-pack, facility in the United States.
      The co-pack facility assembles our products and charges us a fee, by the case.
      We follow a “fill as needed” manufacturing model to the best of our ability and
      we have no significant backlog of orders. Substantially all of the raw materials
      used in the preparation, bottling and packaging of our products are purchased
      by
      us or by our contract packers in accordance with our
      specifications.





Generally,
      we obtain the ingredients used in our products from domestic suppliers and
      each
      ingredient has several reliable suppliers; however, as described above, we
      rely
      on InterHealth Nutraceuticals for Super CitriMax and Chromemate. We have no
      major supply contracts with any of our suppliers. As a general policy, we select
      ingredients in the development of our products that have multiple suppliers
      and
      are common ingredients. This provides a level of protection against a major
      supply constriction or calamity.





We
      believe that as we continue to grow, we will be able to keep up with increased
      production demands. We believe that our current co-packing arrangement has
      the
      capacity to handle increased business we may face in the next twelve months.
      To
      the extent that any significant increase in business requires us to supplement
      or substitute our current co-packer, we believe that there are readily available
      alternatives, so that there would not be a significant delay or interruption
      in
      fulfilling orders and delivery of our products. In addition, we do not believe
      that growth will result in any significant difficulty or delay in obtaining
      raw
      materials, ingredients or finished product.





**Competition**





The
      weight loss industry consists of pharmaceutical products and weight loss
      programs, as well as a wide variety of diet foods, meal replacement bars, shakes
      appetite suppressants, and nutritional supplements. The weight loss market
      is
      served by a diverse array of competitors. Potential customers seeking to manage
      their weight can turn to traditional center-based competitors such as
      NutriSystems, Weight Watchers, Jenny Craig and LA Weight Loss, online
      diet-oriented sites such as eDiets.com and WeightWatchers.com, self-administered
      products and programs such as Atkins and the South Beach Diet and medically
      supervised programs. These competitors are greater in size and financial,
      personnel, distribution and other resources than we are and sell broader product
      lines than we do. These brands have the advantage of being seen widely in the
      national market and being commonly well known for years through well-funded
      ad
      campaigns. We believe that the principal competitive factors in the functional
      beverage and weight loss market are:





•
            
            brand
                recognition and trustworthiness;




•
            
            functionality
                of product formulations;




•
            
            pricing;




12




•
            
            new
                flavors;•
            
            attractive
                packaging; and




•
            
            The
                ability to attract and retain customers through promotion and personal
                referral.





The
      market for functional beverages is also highly competitive. In order to compete
      effectively, we believe that we must convince independent distributors that
      our
      products have the potential to be a leading brand in the segments in which
      we
      compete. Pricing of the products is an important component of our competitive
      strategy. We will seek to ensure that the price for our products is competitive
      with the other products with which we compete.





We
      compete with other companies not only for consumer acceptance but also for
      shelf
      space in retail outlets and for marketing focus by distributors, most of whom
      also distribute other brands with which our products compete. The principal
      methods of competition include product quality, trade and consumer promotions,
      pricing, packaging and the development of new products. We expect our
      distributors to assist us in generating demand for our products.





Significant
      competitors for Skinny Water in the functional beverage category are product
      lines sold by Fuze, Enviga, Trimspa, SoBe, and Vitamin Water . Skinny Water
      will
      also compete more broadly with all beverages available to consumers. The
      beverage market is highly competitive, and includes international, national,
      regional and local producers and distributors, many of whom have greater
      financial, management and other resources than us. These brands have enjoyed
      broad, well-established national recognition for years, through well-funded
      ad
      and other branding campaigns. In addition, the companies manufacturing these
      products generally are greater in size and have greater financial, personnel,
      distribution and other resources than we do and have greater access to
      additional financing.




Based
      on
      these key competitive factors, we believe that we can compete effectively in
      the
      weight management industry. We, however, have no control over how successful
      competitors will be in addressing these factors. By providing a well-recognized
      program using the direct and electronic marketing and distribution channels,
      we
      believe that we have a competitive advantage in our market.





**Research
      and Development**





We
      undertake research and development activities in order to monitor developments
      within the dietary supplement industry and to identify or develop new,
      marketable products. These activities include reviewing periodicals, scientific
      research and relevant clinical studies and working with suppliers such as wild
      flavors. We must review the safety and efficacy of ingredients, production
      standards, labeling information, label claims and potential patent, trademark,
      legal or regulatory issues. Research and development expenses in the last two
      years have not been material. Although we may undertake research studies
      regarding our products, we do not expect to incur significant increases in
      research and development expenses in the near term. Throughout we will focus
      our
      efforts on Skinny Water, Skinny Teas, Skinny Java and Skinny Smoothies.





**Proprietary
      Rights, Brand Names and Trademarks**




We
      regard
      consumer recognition of and loyalty to all of our brand names and trademarks
      as
      extremely important to the long-terms success of our business. We license the
      trademarks to our products from Peace Mountain and Interhealth. Management
      considers these licenses as material to our business. We license the trademarks
      “Skinny Water,” “Skinny Tea,” “Skinny Juice,” “Skinny Shake,” and “Diet Water”
from Peace Mountain Natural Beverages. We license the trademark “Super CitriMax
      Clinical Strength” from Interhealth Nutraceuticals. The terms of our trademark
      licenses are discussed under the caption “Our Products.” The proprietary rights
      to our products are held by the manufacturer and are licensed to us for purposes
      of bottling and distribution.  Since we are not the owner of these rights,
      our ability to continue using them is subject to the terms and conditions of
      the
      license agreements we have entered into with the licensors. The termination
      of
      our license agreements with Peace Mountain and Interhealth would likely have
      a
      material adverse effect on our consolidated financial position and results
      of
      operations.  We use non-disclosure agreements with employees and
      distributors to protect our rights and those of our suppliers.




13





**Government
      Regulation**




The
      production and marketing of our products are governed by the rules and
      regulations of various federal, state and local agencies, including, but not
      limited to the United States Food and Drug Administration (“FDA”), the Federal
      Trade Commission (“FTC”), and all fifty state Attorneys General. This regulatory
      regime serves to ensure that the product is safe, our claims are truthful and
      substantiated and that our products meet defined quality standards. We have
      not
      encountered any regulatory action as a result of our operations to date,
      however, since we have recently commenced operations no assurance can be given
      that we will not encounter regulatory action in the future. The FDA, pursuant
      to
      the Federal Food, Drug, and Cosmetic Act (“FFDCA”), regulates the formulation,
      manufacturing, packaging, labeling, distribution and sale of dietary
      supplements, while the FTC regulates the advertising of these products. In
      addition, all states regulate product claims through various forms of consumer
      protection statutes.




The
      FDA
      has broad authority to enforce the provisions of the FFDCA applicable to bottled
      water and dietary supplements, including powers to issue a public “Warning
      Letter” to a company, to publicize information about illegal products, to
      request a voluntary recall of illegal products from the market, and to request
      the Department of Justice to initiate civil seizure and/or injunction actions,
      and civil and criminal penalty proceedings in the United States Federal courts.
      The FTC exercises jurisdiction over the advertising of dietary supplements
      and
      foods and has the authority over both “deceptive” and “unfair” advertising and
      other marketing practices.





In
      addition to its broad investigative powers, the FTC has the power to initiate
      administrative and judicial proceedings against a company and may also seek
      a
      temporary restraining order or preliminary injunction against a company pending
      the final determination of an action The FTC’s remedies also include consumer
      redress, civil and criminal penalties. Weight loss products in particular are
      subject to increased regulatory scrutiny due to intensified campaigns by FDA,
      FTC and states’ attorneys general. Any type of investigation or enforcement
      action either by the FDA, FTC or any other federal, state or local agency would
      likely have a material adverse effect on our consolidated financial position
      or
      results of operations.




We
      are
      subject to the food labeling regulations required by the Nutritional Labeling
      Education Act of 1991 (“NLEA”). These regulations require all companies which
      offer food for sale and have annual gross sales of more than $500,000 to place
      uniform labels in specified formats disclosing the amounts of specified
      nutrients on all food products intended for human consumption and offered for
      sale. This regulation would apply to all of our products. The FFDCA contains
      exemptions and modifications of labeling requirements for certain types of
      food
      products, such as in this case foods containing insignificant amounts of
      nutrients. The FFDCA also establishes the circumstances in which companies
      may
      place nutrient content claims or health claims on labels.





Our
      Skinny Water and other dietary supplements are subject to the Dietary Supplement
      Health and Education Act of 1994 labeled (“DSHEA”). In 1994, the FFDCA was
      amended by DSHEA, which establishes a new framework governing the composition
      and labeling of dietary supplements. With respect to composition, DSHEA defines
      “dietary supplements” as “a vitamin; a mineral; an herb or other botanical; an
      amino acid; a dietary substance for use by man to supplement the diet by
      increasing total dietary intake; or a concentrate, metabolite, constituent,
      extract, or combination of any of the above dietary ingredients.” The provisions
      of DSHEA define dietary supplements and dietary ingredients; establish a new
      framework for assuring safety; outline guidelines for literature displayed
      where
      supplements are sold; provide for use of claims and nutritional support
      statements; require ingredient and nutrition labeling; and grant FDA the
      authority to establish regulations concerning good manufacturing practices
      (“GMPs”). We believe that our contract manufacturers meet the current
      regulations of the FDA specifically with regard to bottled water including
      good
      manufacturing practices (“GMPs”).




14




*Government
      Regulation of Dietary Supplements*




It
      is our
      intent that Skinny Water be regulated as a dietary supplement by FDA under
      DSHEA. Generally, under DSHEA, dietary ingredients that were on the market
      before October 15, 1994 may be used in dietary supplements without notifying
      the
      FDA. However, a “new” dietary ingredient (i.e., a dietary ingredient that was
“not marketed in the United States before October 15, 1994”) must be the subject
      of a new dietary ingredient notification submitted to the FDA, unless the
      ingredient has been “present in the food supply as an article used for food”
without being “chemically altered.” A new dietary ingredient notification must
      provide the FDA evidence of a “history of use or other evidence of safety”
establishing that use of the dietary ingredient “will reasonably be expected to
      be safe.” We believe that the dietary ingredient presently utilized in Skinny
      Water is not a new dietary ingredient. However, should the FDA disagree at
      any
      time in the future, we may need to cease marketing our dietary supplement
      products that contain such ingredient and promptly file (or have the supplier
      of
      this ingredient file) a new dietary ingredient notification with FDA. There
      can
      be no assurance that the FDA will accept the evidence of safety for any new
      dietary ingredients that we may market now or in the future, and the FDA’s
      refusal to accept such evidence could prevent the marketing of such dietary
      ingredients and would have a material adverse effect on our consolidated
      financial position or results of operations.





In
      addition, DSHEA permits “statements of nutritional support” to be included in
      labeling for dietary supplements without FDA pre-approval. Such statements
      may
      describe how a particular dietary ingredient affects the structure, function
      or
      general well being of the body, or the mechanism of action by which a dietary
      ingredient may affect body structure, function or well-being. A dietary
      supplement may not claim to diagnose, cure, mitigate, treat, or prevent a
      disease unless such claim has been reviewed and approved by the FDA as a “health
      claim” or “qualified health claim.”





A
      company
      that uses a statement of nutritional support in labeling must possess evidence
      substantiating that the statement is truthful and not misleading. The label
      and
      labeling of our products do contain statements of nutritional support, however,
      and we have no assurance that FDA will find the company’s substantiation
      adequate to support the statements of nutritional support being made for our
      Skinny products. If the statement of nutritional support appears on a product
      label or labeling of a dietary supplement, there must also appear on such label
      and labeling a FDA disclaimer statement, which is as follows: “This statement
      has (or these statements have) not been evaluated by the Food and Drug
      Administration.





This
      product is not intended to diagnose, treat, cure, or prevent any disease.”
Pursuant to DSHEA, we are also required to notify the FDA about our use of
      the
      statement(s) within 30 days of marketing the product (the “30 Day Letter”). Upon
      receiving the 30 Day Letter and thereafter if FDA were to determine that a
      particular statement of nutritional support is an unacceptable drug claim,
      an
      unauthorized version of a “health claim,” or unsubstantiated, a company may be
      prevented from using the claim and may face further regulatory action. There
      is
      no assurance that FDA will not make any of the aforementioned determinations
      with regard to the claims made for any of the company’s products and no
      assurance that FDA will find the company’s substantiation evidence for Skinny
      Water or on any other of our products, if ever requested, adequate to support
      the claims being made for the company’s products.





FDA
      has
      already stated in a Courtesy Letter dated September 22, 2005, that the use
      of
      the term “water” in the name of our “Skinny Water” product appears to cause our
      product to be a bottled water, which is a standardized, conventional food,
      not a
      dietary supplement. A “Courtesy Letter” is the term commonly used to describe
      the written letter sent by FDA in response to a 30 Day Letter - it is not a
      Warning Letter. We disagree with the position taken by FDA that Skinny Water
      is”bottled water,” a conventional food. In response to the Courtesy Letter, we
      submitted a written response to FDA stating our position and have not received
      a
      reply from FDA to our response.




Recently,
      the FDA proposed GMPs specifically for dietary supplements. These new GMP
      regulations, if finalized, would be more detailed than the GMPs that currently
      apply to dietary supplements and may, among other things, require dietary
      supplements to be prepared, packaged and held in compliance with certain rules,
      and might require quality control provisions similar to those in the GMP
      regulations for drugs. There can be no assurance that, if the FDA adopts GMP
      regulations for dietary supplements, we or our suppliers will be able to comply
      with the new rules without incurring substantial expense that might have a
      have
      a material adverse effect on our consolidated financial position or results
      of
      operations.




15




Our
      advertising and sale of our dietary supplement products are subject to
      regulation by the FTC under the FTCA. The Federal Trade Commission Act (“FTCA”)
      prohibits unfair methods of competition and unfair or deceptive acts or
      practices in or affecting commerce. The FTCA provides that the dissemination
      or
      the causing to be disseminated of any false advertisement pertaining to drugs
      or
      foods, which would include dietary supplements, is an unfair or deceptive act
      or
      practice. Under the FTC’s “substantiation doctrine”, an advertiser is required
      to have a “reasonable basis” for all objective product claims before the claims
      are made. Failure to adequately substantiate claims may be considered either
      deceptive or unfair practices. Pursuant to this FTC requirement, we are required
      to have adequate substantiation for all advertising claims made for our products
      at the time such claims are made.





In
      recent
      years, the FTC has instituted numerous enforcement actions against dietary
      supplement companies for failure to adequately substantiate claims made in
      advertising or for the use of false or misleading advertising claims. The FTC
      has specifically launched a nationwide law enforcement sweep called “Project
      Waistline” against companies making false and/or unsubstantiated weight loss
      claims. The initiative was created to stop deceptive advertising, provide
      refunds to consumers harmed by unscrupulous weight-loss advertisers, and
      encourage media outlets not to carry advertisements containing bogus weight
      loss
      claims and to educate consumers to be on their guard against companies promising
      weight loss without diet or exercise. These enforcement actions have often
      resulted in consent decrees and the payment of substantial civil penalties
      and/or restitution by the companies involved. Since our dietary supplement
      product, Skinny Water makes weight loss claims on its label, labeling and
      advertising, there can be no assurance that FTC (or FDA) will not investigate
      our products. Should FTC choose to investigate, we have no assurance that the
      company’s substantiation evidence for the claims made on Skinny Water or on any
      other of our products will be adequate and as a result enforcement
      actions/remedies could ensue.





*Other
      Regulatory Considerations*





Our
      products are subject to state regulation. Under state consumer protection laws,
      state attorneys general, like the FTC can bring actions against us should they
      believe that the claims being made for any of our products are not truthful,
      are
      misleading and/or if they believe that the claims are not substantiated. States
      have also obtained significant monetary penalties against companies that have
      sold products with false, misleading or unsubstantiated weight loss claims.





We
      may be
      subject in the future to additional laws or regulations administered by federal,
      state, local regulatory authorities, the repeal or amendment of laws or
      regulations which we consider favorable, such as DSHEA, or more stringent
      interpretations of current laws or regulations. We cannot predict the nature
      of
      future laws, regulations, interpretations or applications, nor can we predict
      what effect additional governmental regulations or administrative orders, when
      and if promulgated, would have on our business in the future. Such future laws
      and regulations could, however, require the reformulation of products to meet
      new standards, the recall or discontinuance of product that cannot be
      reformulated, the imposition of additional record keeping requirements, expanded
      documentation of product efficacy, expanded or modified labeling and scientific
      substantiation, including health warnings or restrictions on benefits described
      for our products. Any or all of such requirements could negatively impact sales
      of our products or increase our cost, resulting in a material adverse impact
      on
      our operations, consolidated financial position or results of
      operations.





*Environmental
      Protection*





We
      are
      operating within existing federal, state and local environmental laws and
      regulations and are taking action aimed at assuring compliance therewith.
      Compliance with such laws and regulations is not expected to materially affect
      our capital expenditures, earnings or competitive position.




16




**Seasonality**




Typically
      in the weight loss industry, revenue is strongest in the first quarter and
      lowest in the fourth calendar quarter. Typically in the functional water
      industry, revenue is strongest in the 2 nd and
      3 rd quarters
      of the year. We believe our business experiences seasonality, driven by the
      predisposition of dieters to initiate a diet and the placement of our
      advertising based on the price and availability of certain media. We believe
      the
      overall impact of seasonality on revenue is difficult to predict at this time.





**Number
      of Employees**





As
      of
      December 31, 2007, we had a
      total of four employees. Our independent contractors provide services to us on an at-will
      basis. Our employees are not subject to any collective bargaining agreement.
      We
      believe that employee relations are good.








**RISK
      FACTORS**





*The
      following discussion should be read together with our financial statements
      and
      related notes appearing elsewhere in this Annual Report. This discussion
      contains forward-looking statements based upon current expectations that involve
      numerous risks and uncertainties. Our actual results could differ materially
      from those anticipated in these forward-looking statements for many reasons,
      including but not limited to those set forth under “Risk factors” and elsewhere
      in this Annual Report. We undertake no obligation to update any information
      contained in these forward-looking statements.*




General
      Risks Related to Our Business




**We
      have a limited operating history and our business model is highly speculative
      at
      the present time.**





We
      only
      have a limited operating history upon which potential investors may base an
      evaluation of our prospects. To date, we have only had limited revenues and
      our
      business model is subject to a high degree of risk. For the year ended December
      31, 2007, we had revenues of $752,825. There can be no assurance that we will
      be
      able to continue to generate revenues or that we will ever be profitable.
      Prospective investors may lose all or a portion of their investment. Our
      prospects must be considered in light of the risks, expenses and difficulties
      frequently encountered by companies in their early stages of development,
      particularly companies in a highly competitive market, such as the market in
      which we compete. Such risks include, but are not limited to, our ability to
      obtain and retain customers and attract a significant number of new customers,
      the growth of the markets we intend to pursue, our ability to implement our
      growth strategy, especially the sales and marketing efforts, and the
      introduction of new products by us and our competitors.





**We
      have a history of operating losses. If we continue to incur operating losses,
      we
      eventually may have insufficient working capital to maintain operations.**




As
      of
      December 31, 2007, we had an accumulated deficit of $13,127,636. For the years
      ended December 31, 2007 and 2006, we incurred losses from operations of
      $2,828,745 and $2,303,446 respectively. If we are not able to begin to earn
      an
      operating profit at some point in the future, we will eventually have
      insufficient working capital to maintain our operations as we presently intend
      to conduct them.




17





**We
      have limited working capital and will need to raise additional capital in the
      future and our independent auditors have included a “going concern” opinion in
      their report.**




At
      December 31, 2007, our cash and cash equivalents was approximately $15,043.
      We
      have been substantially reliant on capital raised from private placements of
      our
      securities to fund our operations. For instance, during the 2007 fiscal year,
      we
      raised an aggregate amount of $1,188,063 from
      the
      sale of securities to accredited investors in private transactions pursuant
      to Rule 506 of Regulation D under the Securities Act of 1933, as amended. We
      believe that net cash on hand as of the date of this report and cash anticipated
      from operations and to be raised in private placements of our securities will
      only be sufficient to meet our expected cash needs for working capital and
      capital expenditures for a period twelve months. Accordingly, we have an
      immediate need for additional cash which we must satisfy either by immediately
      developing a market for our products, selling additional securities in private
      placements or by negotiating for an extension of credit from third party
      lenders. If we are unable to obtain additional capital, we will need to reduce
      costs and operations substantially. Our independent auditors have included
      a
“going concern” explanatory paragraph in their report to our financial
      statements for the year ended December
      31, 2007, citing
      recurring losses from operations. Our capital needs in the future will depend
      upon factors such as market acceptance of our products and any other new
      products we launch, the success of our independent distributors and our
      production, marketing and sales costs. None of these factors can be predicted
      with certainty.




If
      we are
      unable to achieve sufficient levels of sales to break-even, we will need
      substantial additional debt or equity financing in the future for which we
      currently have no commitments or arrangement. We cannot assure you that any
      additional financing, if required, will be available or, even if it is available
      that it will be on terms acceptable to us. If we raise additional funds by
      selling stock or convertible securities, the ownership of our existing
      shareholders will be diluted.





Further,
      if additional funds are raised though the issuance of equity or debt securities,
      such additional securities may have powers, designations, preferences or rights
      senior to our currently outstanding securities and, in the case of additional
      equity securities, the ownership of our existing shareholders will be diluted.
      Any inability to obtain required financing on sufficiently favorable terms
      could
      have a material adverse effect on our business, results of operations and
      financial condition. If we are unsuccessful in raising additional capital and
      increasing revenues from operations, we will need to reduce costs and operations
      substantially. Further, if expenditures required to achieve our plans are
      greater than projected or if revenues are less than, or are generated more
      slowly than, projected, we will need to raise a greater amount of funds than
      currently expected.





**Issuances
      of our securities are subject to federal and state securities laws and certain
      holders of convertible debentures issued by us may be entitled to rescind their
      purchases and we may have ongoing liability to these purchasers under federal
      law.**





From
      September 2004 to December 2004 and from June 2005 through August 2005, we
      offered and sold convertible debentures to investors in various states. These
      sales of convertible debentures were subject to federal and state securities
      laws and by reason of our failure to file blue sky notices in connection with
      the sales we elected, after consultation with legal counsel, to offer these
      purchasers the opportunity to rescind their investment. In such situations,
      a
      number of remedies may be available to regulatory authorities and the investors
      who purchased securities in those offerings, including, without limitation,
      a
      right of rescission, civil penalties, seizure of our assets, a restraining
      order
      or injunction, and a court order to pay restitution and costs. As of the date
      hereof, no state regulatory authority has commenced legal action against us.
      These investors may have been entitled to return their securities to us and
      receive from us the full price they paid, which we estimated to be an aggregate
      amount of approximately $2.4 million, plus interest. The rescission offer was
      made pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated
      there under and in accordance with applicable state securities laws. We relied
      on these exemptions in that the investors are accredited and we did engage
      in
      general solicitation concerning the offering. We conducted this rescission
      offer
      through the efforts of our management. We offered to repurchase the debentures
      subject to our rescission offer for the original purchase price plus interest
      from the date of purchase, at the current statutory rate per year mandated
      by
      the state in which the investors reside. This offer expired as of October 31,
      2005. Holders of an aggregate of $160,000 of debentures elected to accept this
      rescission offer and we repaid these investors out of working capital.


18


**Our
      letter of credit was supported by a demand loan and we may be required to repay
      this amount on the demand of the lender.**





On
      April
      4, 2007, we closed on a secure loan arrangement with Valley Green Bank pursuant
      to which we received funds in the amount of $350,000. We have applied these
      funds to satisfy our obligations to Madison Bank. Interest will be charged
      on
      the unpaid principal of this new loan arrangement until the full amount of
      principal has been paid at the rate of 8.25% per annum. We were obligated to
      repay this new loan in full immediately on the bank’s demand, but in no event
      later than March 20, 2008. We are currently in discussions with the bank to
      extend the term of the loan and to date, the bank has not demanded repayment.
      No
      assurances, however, can be given that the bank will ultimately extend the
      term
      of this loan for any specific duration, if at all. Interest payments are
      due on a monthly basis. The loan is secured by collateral consisting of a
      perfected first priority pledge of certain marketable securities held by our
      Chairman and entities with which he is affiliated. We also agreed to a
      confession of judgment in favor of the bank in the event we default under the
      loan agreements. The loan agreements also require the consent of the bank for
      certain actions, including incurring additional debt and incurring certain
      liens.





**We
      entered into a secured financing arrangement based on our accounts receivable
      and if we are unable to make the scheduled payments on this facility or maintain
      compliance with other contractual covenants, we may default on this agreement.**





On
      November 23, 2007, we entered into a one-year factoring agreement with United
      Capital Funding of Florida (“UCF”). The agreement provides for an initial
      funding limit of $300,000. On November 23, 2007 we received an initial funding
      through this arrangement of $124,269 and as of the date of this report, we
      have
      received an aggregate of $485,058 through this arrangement. Under this
      arrangement, all accounts submitted for purchase must be approved by UCF. The
      applicable factoring fee is 0.45% of the face amount of each purchased account
      and the purchase price is 80% of the face amount. UCF will retain the balance
      as
      a reserve, which it holds until the customer pays the factored invoice to UCF.
      In the event the reserve account is less than the required reserve amount,
      we
      will be obligated to pay UCF the shortfall. In addition to the factoring fee,
      we
      will also be responsible for certain additional fees upon the occurrence of
      certain contractually-specified events. As collateral securing the obligations,
      we granted UCF a continuing first priority security interest in all accounts
      and
      related inventory and intangibles. In addition, upon the occurrence of certain
      contractually-specified events, UCF may require us to repurchase a purchased
      account on demand. In connection with this arrangement, each of our Chairman
      and
      Chief Executive Officer agreed to personally guarantee our obligations to UCF.
      The agreement will automatically renew for successive one year terms until
      terminated. Either party may terminate the agreement on three month’s prior
      written notice. We are liable for an early termination fee in the event we
      fail
      to provide UCF with the required written notice.  In
      case
      of an uncured default, the following actions may be taken against us:




·
            
            All
                outstanding obligations would be immediately due and payable;




·
            
            Any
                future advancement of funds facility would cease;
                and





·
            
            All
                collateral, as defined in the agreement, could be seized and disposed
                of.





**Fluctuations
      in our quarterly revenue and results of operations may lead to reduced prices
      for our stock.**





Our
      quarterly net revenue and results of operations can be expected to vary
      significantly in the future. The business in which we compete experiences
      substantial seasonality caused by the timing of customer orders and fluctuations
      in the size and rate of growth of consumer demand. In other particular fiscal
      quarters, our net revenues may be lower and vary significantly. As a result,
      we
      cannot assure you that our results of operations will be consistent on a
      quarterly or annual basis. If our results of operations in a quarter fall below
      our expectations or those of our investors; the price of our common stock will
      likely decrease.




19





**Our
      revenues will decline and our competitive position will be adversely affected
      if
      we are unable to introduce successful products on a timely
      basis.**





Our
      business performance depends on the timely introduction of successful products
      or enhancements of existing products. Our inability to introduce products or
      enhancements, or significant delays in their release, could materially and
      adversely affect the ultimate success of our products and, in turn, our
      business, results of operations and financial condition. The process of
      introducing products or product enhancements is extremely complex, time
      consuming and expensive.





**Our
      business is subject to many regulations and noncompliance is costly.**




The
      production, marketing and sale of our beverages and dietary supplement product,
      including contents, labels, caps and containers, and claims made for our
      products are subject to the rules and regulations of various federal,
      provincial, state and local health agencies, including the U.S. Food and Drug
      Administration and the Federal Trade Commission. If a regulatory authority
      or
      any state attorney general were to find that a current or future product or
      production run is not in compliance with any of these regulations or that any
      of
      the claims made for our products are false, misleading or not adequately
      substantiated, we may be fined, production may be stopped or we may be forced
      to
      make significant changes to the products or claims made for them, thus adversely
      affecting our financial conditions and operations. Similarly, any adverse
      publicity associated with any noncompliance may damage our reputation and our
      ability to successfully market our products. The rules and regulations of FDA,
      FTC and other federal, provincial, state and local agencies are subject to
      change from time to time and while we closely monitor developments in this
      area,
      we have no way of anticipating whether changes in these rules and regulations
      will impact our business adversely. Additional or revised regulatory
      requirements, whether labeling, environmental, tax or otherwise, could have
      a
      material adverse effect on our financial condition and results of operations.





**The
      dietary supplement industry is highly regulated at both the state and federal
      level.**





The
      manufacture, packaging, labeling, advertising, promotion, distribution and
      sale
      of our products are subject to regulation by numerous governmental agencies
      which regulate our products. Our products are subject to regulation by, among
      other regulatory entities, the Food and Drug Administration (“FDA”) and the
      Federal Trade Commission (“FTC”). Advertising and other forms of promotion and
      methods of marketing of our products are subject to regulation by the FTC which
      regulates these activities under the Federal Trade Commission Act (“FTCA”).




The
      manufacture, labeling and advertising of our products are also regulated by
      various state and local agencies as well as those of each foreign country to
      which we distribute our products. If we are unable to comply with applicable
      regulations and standards in any jurisdiction, we might not be able to sell
      our
      products in that jurisdiction, and our business could be seriously
      harmed.





Our
      products are regulated as a dietary supplement under the Federal Food, Drug
      and
      Cosmetic Act (“FFDCA”), and are, therefore, not subject to pre-market approval
      by the FDA. However, our products are subject to extensive regulation by the
      FDA
      relating to adulteration and misbranding.





For
      instance, we are responsible for ensuring that all dietary ingredients in a
      supplement are safe, and must notify the FDA in advance of putting a product
      containing a new dietary ingredient (i.e., an ingredient not present in the
      U.S.
      food supply as an article used for food before October 15, 1994) on the
      market and furnish adequate information to provide reasonable assurance of
      the
      ingredient’s safety. Furthermore, if we make statements about the supplement’s
      effects on the structure or function of the body, we must, among other things,
      have adequate substantiation that the statements are truthful and not
      misleading. In addition, our product labels must bear proper ingredient and
      nutritional labeling and our products must be manufactured in accordance with
      current good manufacturing practices or “GMPs” for foods. The FDA has published
      notice of its intention to issue new GMPs specific to dietary supplements,
      which, when finally adopted may be more expensive to follow than prior GMPs.
      A
      dietary supplement product can be removed from the market if it is shown to
      pose
      a significant or unreasonable risk of illness or injury. Moreover, if the FDA
      determines that the “intended use” of any of our products is for the diagnosis,
      cure, mitigation, treatment or prevention of disease, the product would meet
      the
      definition of a drug and could not be sold as a dietary supplement until such
      time that the “intended use” of the product is not for the diagnosis, cure,
      mitigation, treatment or prevention of disease. Our failure to comply with
      applicable FDA regulatory requirements may result in, among other things,
      injunctions, product withdrawals, recalls, product seizures, fines and criminal
      prosecutions.




20


Our
      advertising is subject to regulation by the FTC under the FTCA, which prohibits
      unfair methods of competition and unfair or deceptive acts or practices in
      or
      affecting commerce. Further, the FTCA provides that the dissemination or the
      causing to be disseminated of any false or misleading advertisement pertaining
      to, among other things, drugs or foods, which includes dietary supplements,
      is
      an unfair or deceptive act or practice. Under the FTC’s “substantiation
      doctrine,” an advertiser is required to have a “reasonable basis” for all
      product claims at the time the claims are first used in advertising or other
      promotions. Failure to adequately substantiate claims may be considered either
      as a deceptive or unfair practice. Pursuant to this FTC requirement, we are
      required to have adequate substantiation for all advertising claims made about
      our products. The type of substantiation will be dependent upon the product
      claims made. For example, a health claim normally would require competent and
      reliable scientific evidence, while a taste claim may only require competent
      and
      reliable survey evidence.





In
      recent
      years the FTC has initiated numerous investigations of dietary supplement and
      weight loss products and companies. The FTC has specifically launched a
      nationwide law enforcement sweep called “Project Waistline” against companies
      making false and/or inadequately substantiated weight loss claims. The
      initiative was created to stop deceptive advertising, provide refunds to
      consumers harmed by unscrupulous weight-loss advertisers, and encourage media
      outlets not to carry advertisements containing bogus weight loss claims and
      to
      educate consumers to be on their guard against companies promising weight loss
      without diet or exercise. These enforcement actions have often resulted in
      consent decrees and the payment of substantial civil penalties and/or
      restitution by the companies involved. If the FTC has reason to believe the
      law
      is being violated (e.g., we do not possess adequate substantiation for product
      claims), it can initiate enforcement action. The FTC has a variety of processes
      and remedies available to it for enforcement, both administratively and
      judicially, including compulsory process authority, cease and desist orders,
      and
      injunctions. FTC enforcement could result in orders requiring, among other
      things, limits on advertising, consumer redress, and divestiture of assets,
      rescission of contracts and such other relief as may be deemed necessary.
      Violation of such orders could result in substantial financial or other
      penalties. Any such action by the FTC would materially adversely affect our
      ability to successfully market our products.




**If
      we lose key personnel or fail to integrate replacement personnel successfully,
      our ability to manage our business could be impaired.**





Our
      future success depends upon the continued service of our key management as
      well
      as upon our ability to attract, motivate and retain highly qualified employees
      with management, marketing, sales, creative and other skills. Currently, all
      of
      our employees are at-will and we cannot assure you that we will be able to
      retain them. The loss of any key employee could result in significant
      disruptions to our operations, including adversely affecting the timeliness
      of
      product releases, the successful implementation and completion of company
      initiatives, the effectiveness of our disclosure controls and procedures and
      our
      internal control over financial reporting, and the results of our operations.
      In
      addition, hiring, training, and successfully integrating replacement sales
      and
      other personnel could be time consuming, may cause additional disruptions to
      our
      operations, and may be unsuccessful, which could negatively impact future
      revenues. Further, our business, operating results and financial condition
      could
      also be materially and adversely affected if we fail to attract additional
      highly qualified employees. In our industry, competition for highly skilled
      and
      creative employees is intense and costly. We expect this competition to continue
      for the foreseeable future, and we may experience increased costs in order
      to
      attract and retain skilled employees. We cannot assure you that we will be
      successful in attracting and retaining skilled personnel.





**Significant
      competition in our industry could adversely affect our
      business.**




Our
      market is highly competitive and relatively few products achieve significant
      market acceptance. Further, the market for dietary supplements is also highly
      competitive and our competitors in the functional beverage segment include
      well
      known brands such as Vitamin Water and Life Water. These current and future
      competitors may also gain access to wider distribution channels than we do.
      As a
      result, these current and future competitors may be able to:




•
            respond
                more quickly to new or emerging technologies or changes in customer
                preferences;•
            carry
                larger inventories;•
            undertake
                more extensive marketing campaigns; and•
            adopt
                more aggressive pricing policies.


21
 We
        may
        not have the resources required for us to respond effectively to market or
        technological changes or to compete successfully with current and future
        competitors. Increased competition may also result in price reductions, reduced
        gross margins and loss of market share, any of which could have a material
        adverse effect on our business, results of operations or financial condition.
        We
        cannot assure you that we will be able to successfully compete against our
        current or future competitors or that competitive pressures will not have
        a
        material adverse effect on our business, results of operations and financial
        condition.





**We
      must rely on the performance of distributors, major retailers and chains for
      the
      success of our business and their performance may adversely affect our
      operations and financial condition.**





We
      must
      engage distributors to sell our products principally to major retailers and
      chains including supermarkets and grocery and convenience stores. These
      relationships are typically on a purchase-order basis we do not have any
      relationships with distributors that are subject to significant minimum purchase
      commitments. Accordingly, we cannot assure any given level of performance by
      our
      distributors and we do not have any assurance that these accounts will result
      in
      recurring orders. The poor performance of our distributors, retailers or chains
      or our inability to collect accounts receivable from our distributors, retailers
      or chains could materially and adversely affect our results of operations and
      financial condition.





In
      addition, distributors and retailers of our products offer products which
      compete directly with our products for retail shelf space and consumer
      purchases. Accordingly, there is a risk that distributors or retailers may
      give
      higher priority to products of our competitors. In the future, our distributors
      and retailers may not continue to purchase our products or provide our products
      with adequate levels of promotional support. Accordingly, there can be no
      assurance that we will be able successfully to sell, market, commercialize
      or
      distribute our products at any time in the future.




**We
      will rely heavily on independent distributors, and this could affect our ability
      to efficiently and profitably distribute and market our products, maintain
      our
      existing markets and expand our business into other geographic markets.**





Our
      ability to establish a market for our unique brands and products in new
      geographic distribution areas, as well as maintain and expand our existing
      markets, is dependent on our ability to establish and maintain successful
      relationships with reliable independent distributors strategically positioned
      to
      serve those areas. Although we had established relationships with distributors
      in a number of markets across the United States for our products, we currently
      do not have any long-term, written distribution agreements with significant
      minimum purchase commitments. Further, we expect that any distributor we engage
      with will sell and distribute competing products, and our products may represent
      a small portion of their business. To the extent that our distributors are
      distracted from selling our products or do not employ sufficient efforts in
      managing and selling our products, our sales and profitability will be adversely
      affected. Our ability to maintain our distribution network and attract
      additional distributors will depend on a number of factors, many of which are
      outside our control. Some of these factors include:




•
            
            the
                level of demand for our brands and products in a particular distribution
                area,




•
            
            our
                ability to price our products at levels competitive with those offered
                by
                competing products, and




•
            
            our
                ability to deliver products in the quantity and at the time ordered
                by
                distributors.


22


We
      cannot
      ensure that we will be able to meet all or any of these factors in any of our
      current or prospective geographic areas of distribution. Our inability to
      achieve any of these factors in a geographic distribution area will have a
      material adverse effect on our relationships with our distributors in that
      particular geographic area, thus limiting our ability to expand our market,
      which will likely adversely effect our revenues and financial results.




**We
      will incur significant time and expense in attracting additional distributors
      for our products.**




Our
      marketing and sales strategy presently, and in the future, will rely on the
      availability and performance of independent distributors. We currently do not
      have any long-term, written distribution agreements with significant minimum
      purchase commitments. We intend to enter into written agreements with key
      distributors for varying terms and duration; however, many distribution
      relationships may be based solely on purchase orders and terminable by either
      party at will. We do not anticipate that in the future we will be able to
      establish, long-term contractual commitments from many of our distributors.
      In
      addition, we cannot provide any assurance as to the level of performance by
      our
      distributors under such agreements, that these agreements will include minimum
      purchase commitments by the distributors or that those agreements will not
      be
      terminated early. Moreover, there is the possibility that we may have to incur
      significant additional expenditures or agree to additional obligations to
      attract and maintain key distributors in one or more of our geographic
      distribution areas in order to profitably exploit our geographic markets,
      including the granting of exclusive rights for a defined territory or imposition
      of termination payments. There is no assurance that we will be able to establish
      distribution relationships or maintain successful relationships with
      distributors in our geographic distribution areas. If we are unable to establish
      or maintain successful distribution relationships, our business, financial
      condition, results of operations and cash flows will be adversely
      affected.





**We
      need to effectively manage our growth and execution of our business plan. Any
      failure to do so would negatively impact our profitability.**




To
      manage
      operations effectively and maintain profitability, we must continue to improve
      our operational, financial and other management processes and systems. Our
      success also depends largely on our ability to maintain high levels of employee
      utilization, to manage our production costs and general and administrative
      expense, and otherwise to execute on our business plan. We need to maintain
      adequate operational controls and focus as we add new brands and products,
      distribution channels, and business strategies. There are no assurances that
      we
      will be able to effectively and efficiently manage our growth. Any inability
      to
      do so could increase our expenses and negatively impact our profit margin.





**We
      rely on our agreements with Peace Mountain and Interhealth Nutraceuticals for
      our Skinny Water product.**




Our
      Skinny Water product is available to us through our license agreement with
      Peace
      Mountain. Peace Mountain holds the proprietary rights to the Skinny Water brand
      and grants us the exclusive right to distribute the Skinny Water product
      pursuant to the terms of an exclusive license agreement. Our Skinny Water
      product is an important element of our business strategy and we expect to derive
      a substantial amount of business from this product. We cannot provide assurance
      that we will achieve expected sales levels from this relationship. Further,
      Peace Mountain may each terminate their agreements with us due to our failure
      to
      comply with its contractual obligations. If Peace Mountain terminates the
      agreement, we will not be able to successfully market Skinny Water. In the
      event
      Peace Mountain elects to terminate its relationship with us, our business,
      financial condition, results of operations and cash flows will be significantly
      harmed.


23





**We
      have limited the liability of our directors.**





The
      General Corporation Law of Nevada permits provisions in the articles, by-laws
      or
      resolutions approved by stockholders which limit liability of directors for
      breach of fiduciary duty to certain specified circumstances, namely, breach
      of
      their duties of loyalty, acts or omissions not in good faith or which involve
      intentional misconduct or knowing violation of law; acts involving unlawful
      payment of dividends or unlawful stock purchases or redemptions, or any
      transaction from which a director derived an improper personal benefit. Our
      Amended and Restated By-laws indemnify the Officers and Directors to the full
      extent permitted by Nevada law. The By-laws (with these exceptions) eliminates
      any personal liability of a Director to the stockholders for monetary damages
      for breach of a Director's fiduciary duty.





Therefore,
      a Director cannot be held liable for damages to the shareholders for gross
      negligence or lack of due care in carrying out his fiduciary duties as a
      Director. Our Articles may provide for indemnification to the full extent
      permitted under law, which includes all liability, damages and costs or expenses
      arising from or in connection with service for, employment by, or other
      affiliation with the company to the full extent and under all circumstances
      permitted by law. Indemnification is permitted under Nevada law if a director
      or
      officer acts in good faith in a manner reasonably believed to be in, or not
      opposed to, the best interests of the corporation. A director or officer must
      be
      indemnified as to any matter in which he successfully defends himself.
      Indemnification is prohibited as to any matter in which the director or officer
      is adjudged liable to the corporation. Insofar as indemnification for
      liabilities arising under the Securities Act may be permitted to directors,
      officers, and controlling persons pursuant to the foregoing provisions or
      otherwise, management has been advised that in the opinion of the Commission
      such indemnification is against public policy as expressed in the Securities
      Act
      and will be governed by the final adjudication of such issue.





Certain
      Factors Relating to Our Industry




**We
      compete in an industry that is brand-conscious, so brand name recognition and
      acceptance of our products are critical to our success.**




Our
      business is substantially dependent upon awareness and market acceptance of
      our
      products and brands by our targeted consumers. In addition, our business depends
      on acceptance by our independent distributors of our brands as beverage brands
      that have the potential to provide incremental sales growth rather than reduce
      distributors’ existing beverage sales. It is too early in the product life cycle
      of our brands to determine whether our products and brands will achieve and
      maintain satisfactory levels of acceptance by independent distributors and
      retail consumers. We believe that the success of our brands will be
      substantially dependent upon acceptance of our brand by consumers, distributors
      and retailers. Accordingly, any failure of our brand to maintain or increase
      acceptance or market penetration would likely have a material adverse affect
      on
      our revenues and financial results.





**Competition
      from traditional non-alcoholic beverage manufacturers may adversely affect
      our
      distribution relationships and may hinder development of our existing markets,
      as well as prevent us from expanding our markets** *.*




The
      functional beverage industry is highly competitive. We compete with other
      beverage companies not only for consumer acceptance but also for shelf space
      in
      retail outlets and for marketing focus by our distributors, all of who also
      distribute other beverage brands. Our products compete with all non-alcoholic
      beverages, most of which are marketed by companies with greater financial
      resources than what we have. Some of these competitors are placing severe
      pressure on independent distributors not to carry competitive functional
      beverage brands such as ours. We also compete with national beverage
      producers.





Some
      of
      our direct competitors include Vitamin Water, Life Water, Fuze and Sobe.
      Increased competitor consolidations, market place competition, particularly
      among branded beverage products, and competitive product and pricing pressures
      could impact our earnings, market share and volume growth. If, due to such
      pressure or other competitive threats, we are unable to sufficiently maintain
      or
      develop our distribution channels, we may be unable to achieve our current
      revenue and financial targets. As a means of maintaining and expanding our
      distribution network, we intend to introduce product extensions and additional
      brands. There can be no assurance that we will be able to do so or that other
      companies will not be more successful in this regard over the long term.
      Competition, particularly from companies with greater financial and marketing
      resources than us, could have a material adverse affect on our existing markets,
      as well as our ability to expand the market for our products.


24





**We
      may face intellectual property infringement claims and other litigation which
      would be costly to resolve.**




We
      are
      not aware that any of our products infringe on the proprietary rights of third
      parties. However, we cannot assure you that third parties will not assert
      infringement claims against us in the future with respect to current or future
      products. There has been substantial litigation in the industry regarding
      copyright, trademark and other intellectual property rights. Whether brought
      by
      or against us, these claims can be time consuming, result in costly litigation
      and divert management’s attention from our day-to-day operations, which can have
      a material adverse effect on our business, operating results and financial
      condition. Further, similar to our competitors, we will likely become subject
      to
      litigation. Such litigation may be costly and time consuming and may divert
      management’s attention from our day-to-day operations. In addition, we cannot
      assure you that such litigation will be ultimately resolved in our favor or
      that
      an adverse outcome will not have a material adverse effect on our business,
      results of operations and financial condition.





**We
      may face increased competition and downward price pressure if we are unable
      to
      protect our intellectual property rights.**





Our
      business is heavily dependent upon our confidential and proprietary intellectual
      property. We rely primarily on a combination of confidentiality and
      non-disclosure agreements, patent, copyright, trademark and trade secret laws,
      as well as other proprietary rights laws and legal methods, to protect our
      proprietary rights. However, current U.S. and international laws afford us
      only limited protection. Despite our efforts to protect our proprietary rights,
      unauthorized parties may attempt to copy our products or obtain and use
      information that we regard as proprietary. Furthermore, the laws of some foreign
      countries may not protect our proprietary rights to as great an extent as
      U.S. law. Our business, results of operations and financial condition could
      be adversely affected if a significant amount of unauthorized copying of our
      products were to occur or if other parties develop products substantially
      similar to our products. We cannot assure you that our attempts to protect
      our
      proprietary rights will be adequate or that our competitors will not
      independently develop similar or competitive products.





**We
      compete in an industry characterized by rapid changes in consumer preferences,
      so our ability to continue developing new products to satisfy our consumers’
changing preferences will determine our long-term success.**




Our
      current market distribution and penetration may be limited with respect to
      the
      population as a whole to determine whether the brand has achieved initial
      consumer acceptance, and there can be no assurance that this acceptance will
      ultimately be achieved. Based on industry information and our own experience,
      we
      believe that in general alternative or New Age beverage brands and products
      may
      be successfully marketed for five to nine years after the product is introduced
      in a geographic distribution area before consumers’ taste preferences change,
      although some brands or products have longer lives. In light of the limited
      life
      for alternative or New Age beverage brands and products, a failure to introduce
      new brands, products or product extensions into the marketplace as current
      ones
      mature could prevent us from achieving long-term profitability. In addition,
      customer preferences are also affected by factors other than taste, such as
      the
      recent media focus on obesity in youth. If we do not adjust to respond to these
      and other changes in customer preferences, our sales may be adversely affected.




**We
      could be exposed to product liability claims for personal injury or possibly
      death.**




Although
      we have product liability insurance in amounts we believe are adequate, we
      cannot assure that the coverage will be sufficient to cover any or all product
      liability claims. To the extent our product liability coverage is insufficient;
      a product liability claim would likely have a material adverse affect upon
      our
      financial condition. In addition, any product liability claim successfully
      brought against us may materially damage the reputation of our products, thus
      adversely affecting our ability to continue to market and sell that or other
      products.


25




Certain
      Factors Related to Our Common Stock




**Because
      our common stock is traded on the OTC Bulletin Board, a shareholder’s ability to
      sell shares in the secondary trading market may be limited.**




Our
      common stock is currently listed for trading in the United States on the OTC
      Bulletin Board. As a result, an investor may find it more difficult to dispose
      of or to obtain accurate quotations as to the price of our securities than
      if
      the securities were traded on the NASDAQ Stock Market or another national
      exchange, like The New York Stock Exchange or American Stock Exchange.





**Because
      our common stock is considered a “penny stock,” a shareholder may have
      difficulty selling shares in the secondary trading market.**




In
      addition, our common stock is subject to certain rules and regulations relating
      to “penny stock” (generally defined as any equity security that is not quoted on
      the NASDAQ Stock Market and that has a price less than $5.00 per share, subject
      to certain exemptions). Broker-dealers who sell penny stocks are subject to
      certain “sales practice requirements” for sales in certain nonexempt
      transactions (i.e., sales to persons other than established customers and
      institutional “accredited investors”), including requiring delivery of a risk
      disclosure document relating to the penny stock market and monthly statements
      disclosing recent price information for the penny stock held in the account,
      and
      certain other restrictions. For as long as our common stock is subject to the
      rules on penny stocks, the market liquidity for such securities could be
      significantly limited. This lack of liquidity may also make it more difficult
      for us to raise capital in the future through sales of equity in the public
      or
      private markets.





**The
      price of our common stock may be volatile, and a shareholder’s investment in our
      common stock could suffer a decline in value.**




There
      has
      been significant volatility in the volume and market price of our common stock,
      and this volatility may continue in the future. In addition, there is a greater
      chance for market volatility for securities that trade on the OTC Bulletin
      Board
      as opposed to a national exchange. This volatility may be caused by a variety
      of
      factors, including the lack of readily available quotations, the absence of
      consistent administrative supervision of “bid” and “ask” quotations and
      generally lower trading volume. In addition, factors such as quarterly
      variations in our operating results, changes in financial estimates by
      securities analysts or our failure to meet our or their projected financial
      and
      operating results, litigation involving us, general trends relating to the
      beverage industry, actions by governmental agencies, national economic and
      stock
      market considerations as well as other events and circumstances beyond our
      control could have a significant impact on the future market price of our common
      stock and the relative volatility of such market price. The price of our common
      stock has been and could continue to be subject to wide fluctuations in response
      to certain factors, including, but not limited to, the following:





•
            quarter
                to quarter variations in results of operations;•
            our
                announcements of new products;•
            our
                competitors’ announcements of new products;•
            general
                conditions in the beverage industry; or•
            investor
                and customer perceptions and expectations regarding our products,
                plans
                and strategic position and those of our competitors and
                customers.




26




Additionally,
      the public stock markets experience extreme price and trading volume volatility.
      This volatility has significantly affected the market prices of securities
      of
      many companies for reasons often unrelated to the operating performance of
      the
      specific companies. These broad market fluctuations may adversely affect the
      market price of our common stock.




**There
      are outstanding a significant number of shares available for future sales under
      Rule 144.**





As
      of December
      31, 2007, of the 94,972,225 issued
      and outstanding shares of our Common Stock, approximately 77,588,556 shares
      may be deemed “restricted shares” and, in the future, may be sold in compliance
      with Rule 144 under the securities Act of 1933, as amended. Rule 144 provides
      that a person holding restricted securities for a period of one year may sell
      in
      brokerage transactions an amount equal to 1% of our outstanding Common Stock
      every three months. A person who is a “non-affiliate” of our Company and who has
      held restricted securities for over two years is not subject to the aforesaid
      volume limitations as long as the other conditions of the Rule are met. Possible
      or actual sales of our Common Stock by certain of our present shareholders
      under
      Rule 144 may, in the future, have a depressive effect on the price of our Common
      Stock in any market which may develop for such shares. Such sales at that time
      may have a depressive effect on the price of our Common Stock in the open
      market.





**There
      are a significant number of outstanding securities convertible or exercisable
      into shares of common stock, the conversion or exercise of which may have a
      dilutive effect on the price of our common stock.**




As
      of
      December 31, 2007 ,
      there
      were outstanding and immediately exercisable options to purchase 3,208,000
      shares of
      Common
      Stock and other warrants to purchase 9,814,890 shares
      of Common Stock. In addition, as of December 31, 2007, there remains outstanding
      an aggregate principal amount of $310,000
      of debentures. The
      shares underlying warrants (including the warrants that are granted upon
      conversion of the debentures) represent approximately 11.6% of our
      common stock, and the shares underlying our currently outstanding options
      represent approximately 3.4% of our
      common stock. The conversion or exercise of these securities will cause dilution
      to our shareholders and the sale of the underlying Common Stock (or even the
      potential of such exercise or sale) may have a depressive effect on the market
      price of our securities. Moreover, the terms upon which we will be able to
      obtain additional equity capital may be adversely affected, since the holders
      of
      the outstanding options and warrants can be expected to exercise them at a
      time
      when we would, in all likelihood, be able to obtain any needed capital on terms
      more favorable to us than the exercise terms provided by the outstanding options
      and warrants.





**Our
      Board of Directors has the ability to issue “blank check” Preferred
      Stock.**





Our
      Certificate of Incorporation authorizes the issuance of up to 1,000,000 shares
      of “blank check” preferred stock, with such designation rights and preferences
      as may be determined from time to time by the Board of Directors. Currently,
      there are no shares of preferred stock are issued and outstanding. The Board
      of
      Directors is empowered, however, without shareholder approval, to issue shares
      of preferred stock with dividend, liquidation, conversion, voting or other
      rights which could adversely affect the voting power or other rights of the
      holders of our common stock. In the event of such issuances, the preferred
      stock
      could be utilized, under certain circumstances, as a method of discouraging,
      delaying or preventing a change in control of our company. Although we have
      no
      present intention to issue any additional shares of our preferred stock, there
      can be no assurance that we will not do so in the future.




**Item
      2:  Description of Property.**





Effective
      November 1, 2006, we have relocated our corporate offices to 3 Bala Plaza East,
      Suite 117, Bala Cynwyd, Pennsylvania. This space consists of approximately
      5,000
      square feet of office space and we have a rent-free arrangement to utilize
      this
      space until further notice.




27




**Item
      3:  Legal Proceedings.**





Except
      as
      described below, we are not currently a party to any lawsuit or proceeding
      which, in the opinion of our management, is likely to have a material adverse
      effect on us.




In
      a
      complaint dated April 20, 2006, plaintiff News Broadcast Network, Inc. commenced
      an action in the Supreme Court of the State of New York for the County of New
      York (Index No. 601399/06) against us. The complaint claims that we failed
      to
      pay NBN for video/audio production services it rendered in 2005 and seeks
      $29,350 in compensatory damages based on causes of action for breach of
      contract, for goods sold and delivered, for account stated and for unjust
      enrichment. In an answer dated July 25, 2006, we denied the allegations and
      any
      liability to plaintiff. Discovery is currently taking place. We vigorously
      contest any liability to plaintiff in this action and based on the facts of
      which we are currently aware; management believes that the resolution of this
      claim will not have a materially adverse effect on our financial condition.
      However, no assurances can be given that such belief will ultimately prove
      to be
      accurate or that other facts adverse to our position currently not known to
      management will not be uncovered, in which case the ultimate resolution of
      this
      claim could potentially ** have
      a
      material adverse effect **** on
      our
      financial condition.





In
      addition, we are subject to other claims and litigation arising in the ordinary
      course of business. Our management considers that any liability from any
      reasonably foreseeable disposition of such other claims and litigation,
      individually or in the aggregate, would not have a material adverse effect
      on
      our consolidated financial position, results of operations or cash flows.




**Item
      4:  Submission of Matters to a Vote of Security
      Holders.**




No
      matters were submitted to a vote of security holders during the fourth quarter
      ended December 31, 2007.




28




**PART
      II**




**Item
      5:  Market for Common Equity and Related Stockholder
      Matters**





Following
      our name change, our common stock has traded on the OTC Bulletin Board since
      December 27, 2006 under the symbol SKNY.OB. Our common stock previously traded
      on the OTC Bulletin Board under the symbol CEII.OB from June 21, 2006 until
      December 26, 2006. Previously, our common stock traded on the OTC Pink Sheets
      under the symbol CEII.PK. The table set forth below shows the high and
      low bid information for the past two years.  These
      quotations reflect inter-dealer prices, without retail mark-up,
      mark-down or commission and may not represent actual transactions. According
      to
      our stock transfer agent records, we had approximately 491 shareholders of our common stock as of December
      31, 2007 holding 94,972,225 common
      shares.





**High
                Bid**
            
            **Low
                Bid****Fiscal
                2007**March
                31, 2007
            
            $
            0.43
            
            $
            0.17June
                30, 2007
            
            $
            0.28
            
            $
            0.15September
                30, 2007
            
            $
            0.19
            
            $
            0.10December
                31, 2007
            
            $
            0.14
            
            $
            0.06**Fiscal
                2006**March
                31, 2006
            
            $
            0.65
            
            $
            0.34June
                30, 2006
            
            $
            0.20
            
            $
            0.20September
                30, 2006
            
            $
            0.12
            
            $
            0.12December
                31, 2006
            
            $
            0.18
            
            $
            0.16





*Dividends
      and Dividend Policy*





There
      are
      no restrictions imposed on us that limit our ability to declare or pay
      dividends on our common stock, except as limited by state corporate law. During
      the year ended December 31, 2007, no cash or stock dividends  were
 declared  or  paid  and  none  are  expected
      to be paid in the foreseeable future. We expect to continue to retain all
      earnings generated by our future operations for the development and growth
      of
      our business. The board of directors will determine whether or not to pay
      dividends in the future in light of our earnings, financial condition, capital
      requirements and other factors.





*Transfer
      Agent*





The
      transfer for our Common Stock is Interwest Transfer Agency, Salt Lake City,
      UT.




29





*Securities
      authorized for issuance under equity compensation plans*




The
      following table provides information about our common stock that may be issued
      upon the exercise of options and rights under all of our existing equity
      compensation plans as of December
      31, 2007, which
      consists of our Stock Option Plan.




**Plan
                Category**
            
            **Number
                of Securities to be**
              **Issued
                upon Exercise of**
              **Outstanding
                Options and Rights**
              **(a)**
            
            **Weighted
                Average Exercise**
              **Price
                of Outstanding Options**
              **(b)**
            
            **Number
                of Securities Remaining Available for Future Issuance Under Equity
                Compensation Plans Excluding Securities**
              **Reflected
                in Column (a)**
              **(c)****Equity
                Compensation Plans Approved by Stockholders**
            
            
            12,325,000
            
            $
            0.143
            
            
            7,675,000**Equity
                Compensation Plans Not Approved by Stockholders
                (1)**
            
            
            3,059,390
            
            $
            0.08
            
            
            N/A**Total**
            
            
            15,384,390
            
            
            -
            
            
            7,675,000


__________________


(1)
      Consists of warrants issued to third parties for services rendered and shares
      of
      restricted stock awarded to certain of our executives.





*Recent
      Sales of Unregistered Securities*





Except
      as
      described elsewhere in this report, we did not issue any securities that were
      not registered under the Securities Act of 1933, as amended (the “Securities
      Act”) during the fiscal year ended December 31,
      2007 or
      during the current fiscal year, other than those disclosed in previous SEC
      filings.




*Stock
      Repurchases*




During
      fiscal 2007, we did not repurchase any shares of our common stock.





**Item
      6:   Management’s Discussion and Analysis**




***Overview***




*This
      management’s discussion and analysis of financial condition and results of
      operations contains forward-looking statements that involve risks and
      uncertainties. Please see “Item 1—Business—Forward-Looking Statements” for a
      discussion of the uncertainties, risks and assumptions associated with these
      statements. You should read the following discussion in conjunction with our
      audited consolidated financial statements and the notes to our audited
      consolidated financial statements included elsewhere in this report. Our actual
      results may differ materially from those discussed in the forward-looking
      statements as a result of various factors, including but not limited to those
      listed under “Item 1—Business—Risk Factors” and included in other portions of
      this report.*





**Nature
      of Operations**





We
      were
      originally incorporated in the State of Utah on June 20, 1984 as Parvin Energy,
      Inc. Our name was later changed to Sahara Gold Corporation and on July 26,
      1985
      we changed our corporate domicile to the State of Nevada and on January 24,
      1994
      we changed our name to Inland Pacific Resources, Inc. On December 18, 2001,
      we
      entered into an agreement and plan of reorganization with Creative Enterprises,
      Inc. and changed our name to Creative Enterprises International, Inc. This
      discussion relates solely to the operations of Creative Enterprises
      International, Inc. On November 15, 2006, a majority of our common stockholders
      provided written consent to change the name of the company to Skinny Nutritional
      Corp. to more accurately describe our evolving operations. This change became
      effective December 27, 2006. See “Our Products and Strategy” below.


30





We
      have
      had limited operations to date and until 2005 our efforts were focused primarily
      on the development and implementation of our business plan. Since the middle
      of
      2005 we have engaged in significant marketing and sales activities related
      to
      our business plan of selling functional beverages and dietary supplements.
      We
      have generated revenues of $752,825 for fiscal
      2007 and
      incurred a net loss of $2,303,446 for
      fiscal 2006 and 2,828,745 for
      year
      ended December 31, 2007. The net loss includes general and administrative
      expenses related to the costs of start-up operations and a significant amount
      of
      marketing expenses related to establishing our brand in the market.  In
      addition, the net loss includes a significant amount of public company expenses
      incurred to become a reporting company and transition the company from the
      pink
      sheets to the OTC Bulletin Board. Since the date of the merger and
      reorganization, we have raised capital through private sales of our common
      equity and debt securities.





*Our
      Products and Strategy*





Through
      the year ended December
      31, 2007 ,
      we have
      operated our business in the rapidly evolving functional beverage and dietary
      supplement industries. More recently we have determined to focus on marketing
      and distributing our dietary supplement product, “Skinny Water” and developing
      other functional beverages.




In
      July
      2004, we entered into a license and distribution agreement with Jamnica, d.d.
      that granted us an exclusive license to distribute Jamnica’s bottled waters in
      North America. Our agreement with Jamnica was for an initial term commencing
      on
      the date we received government approvals to distribute the products in the
      sales territory and continuing for a period of one year from the date the
      approvals are received. We received approval from the State of New York in
      April
      2005 and the State of California in June 2005. The agreement would have
      automatically renewed for additional one year terms provided we satisfied
      certain sales volume targets. If we were unable to satisfy these targets,
      Jamnica had the right to either terminate the agreement or to appoint additional
      distributors in the territory. Based on the sales of Jana Water and Jana Skinny
      Water through the quarter ended September 30, 2006, we did not satisfy these
      targets.





On
      October 10, 2006, we entered into an agreement with Jamnica, d.d. and Jana
      North
      America, Inc. (the “Modification Agreement”), which agreement is effective as of
      September 20, 2006, pursuant to which the parties confirmed the termination
      of
      our distribution agreement with Jamnica. Under the Modification Agreement,
      the
      parties agreed to the following arrangements: (a) our obligation to Jamnica
      of
      $207,321 is eliminated; (b) Jamnica and Jana North American shall pay an amount
      of $23,125 on our behalf in satisfaction of storage and warehousing fees; (c)
      receivables due to us from select accounts shall be transferred to Jana North
      America; and (d) we shall make available to Jana North America all inventory
      of
      Jana bottled waters in our possession. In addition, the parties agreed that
      we
      will cease use of the Jana trademarks and logos and Jamnica and Jana North
      America agreed not to use any of our licensed trademarks or logos concerning
      our
“Skinny” product line. Pursuant to the Modification Agreement, we will also
      provide additional assistance to Jamnica and Jana North America in the
      transition for the marketing and distribution of the Jana bottled waters. Each
      of the parties also agreed to release the other from any obligations or claims
      arising from the distribution agreement.





We
      have
      also obtained the exclusive rights from Peace Mountain Natural Beverages
      Corporation to bottle and distribute a dietary supplement called Skinny
      Water (R) .
      Skinny
      Water’s proprietary formula has an all-natural appetite suppressant that helps
      people maintain and lose weight when taken in conjunction with diet and
      exercise. On October 4, 2006, we entered into an amendment to our License and
      Distribution Agreement with Peace Mountain Natural Beverages. Pursuant to this
      amendment, we agreed to pay Peace Mountain an amount of $30,000 in two equal
      monthly installments commencing on the date of the amendment in satisfaction
      of
      allegations of non-performance by Peace Mountain. In addition, the parties
      further agreed to amend and restate our royalty obligation to Peace Mountain,
      pursuant to which amendment, we will have a minimum royalty obligation to Peace
      Mountain based on a percentage of wholesale sales with a quarterly minimum
      of
      $15,000. Our agreement with Peace Mountain will renew automatically provided
      that we satisfy the minimum quarterly payment of $15,000 specified in the
      contract.




31





On
      February 27, 2007, we entered into a Marketing and Distribution Agreement
      with Geltech Sales, LLC for the national distribution of our Skinny-branded
      products. The initial term of the Agreement is three years, and it is renewable
      in one-year increments. Under the Agreement, Geltech agreed to solicit orders
      for our products through its distribution channels, which includes mass
      merchandisers, supermarkets, convenience stores, mass drug stores, as well
      as
      establishing distribution agreements with local, regional, and national direct
      store delivery (DSD) companies.





In
      consideration for Geltech’s services, we agreed to pay Geltech a commission
      based on the quantity of product sold through its network and agreed to issue
      to
      Geltech, or its designees, an aggregate of 1,500,000 common stock purchase
      warrants. The warrants are exercisable for a seven year period at a price of
      $0.24 per share. We had the right to redeem up to 750,000 of the warrants in
      the
      event that Geltech does not satisfy the required performance metrics. In
      addition, on February 27, 2007, we issued an additional total of 300,000
      warrants to two consultants in consideration of the services rendered by such
      persons in connection with the negotiation and execution of the Agreement. October
      16, 2007, we notified Geltech that we elected to terminate this agreement with
      Geltech based on performance obligations; resulting in a cancellation of
      1,075,000 warrants.





We
      will
      principally generate revenues, income and cash by introducing, marketing,
      selling and distributing finished products in the beverage, health and nutrition
      industries. We will sell these products through national retailers and local
      distributors. We have been focused on, and will continue to increase our
      existing product lines and further develop our markets. We have established
      relationships with national retailers, including Target for the distribution
      of
      Skinny Water. We have reformulated Skinny Water in response to consumer
      preferences. We expect to continue our efforts to distribute Skinny Water
      through the distributors and retailers. However, these distributors and
      retailers were not bound by significant minimum purchase commitments and we
      do
      not expect that this will change in the near future. Accordingly, we must rely
      on recurring purchase orders for product sales and we cannot determine the
      frequency or amount of orders any retailer or distributor may make.





Our
      primary operating expenses include the following: direct operating expenses,
      such as transportation, warehousing and storage, overhead, fees and royalties
      to
      our suppliers and licensors and marketing costs. We have and will continue
      to
      incur significant marketing expenditures to support our brands including
      advertising costs, sponsorship fees and special promotional events. We have
      focused on developing brand awareness and trial through sampling both in stores
      and at events. Retailers and distributors may receive rebates, promotions,
      point
      of sale materials and merchandise displays. We seek to use in-store promotions
      and in-store placement of point-of-sale materials and racks, price promotions,
      sponsorship and product endorsements. The intent of these marketing expenditures
      is to enhance distribution and availability of our products as well as awareness
      and increase consumer preference for our brand, greater distribution and
      availability, awareness and promote long term growth.





*Management
      Changes*





In
      October 2006, we reorganized our executive management team. On October 4, 2006,
      our board of directors elected Mr. Ken Brice as a member of our board of
      directors and appointed Mr. Michael R. Reis as its interim Chief Operating
      Officer and also elected him as a director. Further, on October 5, 2006, Mr.
      Christopher Durkin Chief Executive Officer, President and a director, resigned
      from such positions with us. In addition, on October 6, 2006, we appointed
      Mr.
      Donald J. McDonald to serve as our new Chief Executive Officer, President and
      as
      a member of our board of directors. Also, on October 6, 2006, Mr. James Robb
      notified us that effective on such date he resigned from our board of
      directors.





On
      June
      11, 2007, Kenneth Brice, the Company’s Chief Financial Officer and a member of
      its board of directors, tendered his resignation from his service with the
      Company, effective as of June 30, 2007. The Company’s Chief Executive Officer,
      Donald J. McDonald, will serve as its Chief Financial Officer until such time
      as
      the Company appoints another individual to serve in such capacity.




32





*Reorganization*





On
      November 15, 2006, holders of approximately 53% of our issued and outstanding
      common stock consented in writing to the adoption of resolutions approving
      (1)
      amendments to our Articles of Incorporation to (a) change our corporate name
      to
“Skinny Nutritional Corp.” and (b) increase the number of authorized shares of
      common stock 250,000,000 shares and (2) an amendment to our Employee Stock
      Option Plan to increase the number of shares of common stock available to be
      issued there under to 20,000,000 shares. These actions became effective as
      of
      December 27, 2006. Also effective as of such date, we granted an aggregate
      of
      10,650,000 options under its Employee Stock Option Plan, including a total
      of
      5,500,000 options granted to certain of our executive officers.





On
      December 22, 2006, we began an offering to the holders of an aggregate principal
      amount of $2,515,000 of convertible debentures the ability to convert such
      securities at a reduced conversion rate. The convertible debentures are
      scheduled to mature at various dates between December 2006 and October 2007
      and
      were initially convertible at the conversion rate of $0.40 into (a) an aggregate
      of 6,287,500 shares of our common stock and (b) 6,287,500 common stock purchase
      warrants (the ‘‘Conversion Warrants’’). We determined to offer the debenture
      holders the option to convert the outstanding principal amount of their
      debentures into shares of common stock only at a conversion rate of $0.10
      provided that the holders agree to the following: (i) convert the outstanding
      principal amount of its convertible debentures no later than January 31, 2007,
      (ii) acknowledge the surrender of the right to receive the Conversion Warrants
      and (iii) forfeit the unpaid interest that has accrued on such debentures,
      which
      was approximately $337,000, in the aggregate. To the extent that any holders
      decline this offer, such holders would continue to hold their convertible
      debentures and could elect to either convert such debentures on the original
      terms thereof or receive repayment of the principal and accrued and unpaid
      interest thereon, on the stated maturity date of such debentures. During
      calendar year 2007, an aggregate amount of debenture principal of $2,065,000 was
      converted into 22,553,333 shares
      of common stock. In addition o ne
      investor was repaid in cash for $20,000 in principal and $4,000 in
      interest.





**Going
      Concern and Management Plans**





To
      date,
      we have needed to rely upon selling equity and debt securities in private
      placements to generate cash to implement our plan of operations. We have an
      immediate need for cash to fund our working capital requirements and business
      model objectives and we intend to either undertake private placements of our
      securities, either as a self-offering or with the assistance of registered
      broker-dealers, or negotiate a private sale of our securities to one or more
      institutional investors. However, except as discussed below under the caption
      “Liquidity and Capital Resources” we currently have no firm agreements with any
      third-parties for such transactions and no assurances can be given that we
      will
      be successful in raising sufficient capital from any of these proposed
      financings.





As
      described in greater detail below under the caption “Liquidity and Capital
      Resources,” during the twelve months ended
      December 31, 2007, we
      have
      raised a total of $1,118,063 in gross
      proceeds from private transactions with accredited investors and current or
      former members of our executive management team.




Based
      on
      our current levels of expenditures and our business plan, we believe that our
      existing cash and cash equivalents (including the proceeds received from our
      recent private placement), will only be sufficient to fund our anticipated
      levels of operations for a period of six months. Accordingly, generating sales
      in that time period is important to support our business. However, we cannot
      guarantee that we will generate such growth.  If we do not generate
      sufficient cash flow to support our operations during that time frame, we will
      need to raise additional capital and may need to do so sooner than currently
      anticipated. Our independent auditors have included a “going concern”
explanatory paragraph in their report to our financial statements for the year
      ended December
      31, 2007, citing
      recurring losses and negative cash flows from operations. We can not assure
      you
      that any financing can be obtained or, if obtained, that it will be on
      reasonable terms.





If
      we
      raise additional funds by selling shares of common stock or convertible
      securities, the ownership of our existing shareholders will be diluted. Further,
      if additional funds are raised though the issuance of equity or debt securities,
      such additional securities may have powers, designations, preferences or rights
      senior to our currently outstanding securities. Further, if expenditures
      required to achieve our plans are greater than projected or if revenues are
      less
      than, or are generated more slowly than, projected, we will need to raise a
      greater amount of funds than currently expected. Without realization of
      additional capital, it would be unlikely for us to continue as a going
      concern.




33





*Critical
      Accounting Policies*





The
      application of the following accounting policies, which are important to our
      financial position and results of operations, requires significant judgments
      and
      estimates on the part of management. For a summary of all of our accounting
      policies, including the accounting policies discussed below, see note 3 to
      our audited consolidated financial statements.





Revenue
      Recognition





We
      sell
      products through multiple distribution channels including resellers and
      distributors. Revenue is recognized when the product is shipped to the customer
      and is recognized net of discounts and returns.





Use
      of
      Estimates in the Preparation of Financial Statements




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




**Management
      Discussion and Analysis:**





***Results
      of Operations: Year Ended*** ***December
      31, 2007*** ***compared to Year Ended*** ***December
      31, 2006***





For
      the
      twelve months ended December 31, 2007, our revenues were $752,825 as
      compared to $628,380 for the
      same period last year. This increase in revenues for the twelve months ended
      December 31, 2007 is due primarily to the increased sales recorded in the fourth
      quarter of 2007. Cost of goods sold was $530,312 for
      the
      year ended December 31, 2007 as compared to $576,882 incurred during the same
      period last year. In addition, we decided to focus on new products during the
      fourth quarter of the 2007 fiscal year. Marketing and advertising costs were $721,442 for the
      year ended December 31, 2007 as compared to $ 394,949 for
      the
      same period last year, or a increase of 83%. This increase is attributable
      to
      product design and increased advertising expenses.





General
      and administrative costs (which include salaries, rent, office overhead, and
      public company expenses) were $2,220,492 for the twelve months ended December
      31, 2007 as compared to $1,894,768 over the
      same period in 2006 .
      This
      Increase of 17.2% is primarily due to costs associated with private placements
      of stock. For the twelve months ended December 31, 2007, we also incurred
      additional expenses in connection with operating as a reporting company, which
      began in December 2005.





Interest
      expense was $119,806 for the year ended December 31, 2007 as compared to $32,932
      for the same period last year.





Net
      loss
      for the twelve month period was $2,828,745 as compared to $2,303,446 for the
      same period last year.


34
 **Liquidity
        and Capital Resources**





*Satisfaction
      of Cash Requirements and Financing Activities*





We
      have
      historically primarily been funded through the issuance of common stock, debt
      securities and external borrowings. During the calendar year 2007 the company’s
      primary means of raising capital was through the sale of common stock through
      private placements made pursuant to Rule 506 of Regulation D under the
      Securities Act of 1933. There were three private offerings made during the
      year.
      The first offering had an offering period starting on December 8, 2006 and
      was
      completed February 2007 with 10,000,000 shares being offered and an aggregate
      offering amount of $750,000. The offering raised $482,610 dollars during
      calendar year 2007 with 6,435,004 shares of common stock being issued. The
      second offering had an offering period of March 19, 2007 to September 6, 2007;
      with 13,333,333 shares being offered and an aggregate offering amount of
      $1,000,000 dollars. The offering raised $502,203 dollars with 6,696,509 shares
      being issued. The third offering had an offering period starting September
      7,
      2007 and ending November 7, 2007; with 13,333,333 shares being offered for
      and
      aggregate offering amount of $1,000,000 dollars. The offering raised 203,251
      dollars with 2,716,666 shares being issued. There were 2,759,390 warrants issued
      to “Selling Agents” for the private placements of common stock during calendar
      year 2007. Selling agents received $106,954 dollars in commissions for private
      placement of common shares leaving the company with $1,011,109 dollars in net
      proceeds from private placements. Common shares totaling 9,809,332 shares were
      also issued to shareholders from prior subscriptions in the form of reset shares
      required by the covenants established in the pervious subscription agreements.





The
      securities sold in the above private placements have not been registered under
      the Securities Act of 1933, as amended, and were offered and sold in reliance
      upon the exemption from registration set forth in Section 4(2) thereof and
      Regulation D, promulgated under the Securities Act. We believe that the
      investors and the selling agent are ‘‘accredited investors’’, as such term is
      defined in Rule 501(a) promulgated under the Securities Act.





There
      were two holders of notes payable that converted their debt into common shares.
      On March 23, 2007; principal of $100,000 dollars and $4,274 dollars worth of
      interest were converted into 2,011,020 shares of common stock. The second
      conversion took place in two transactions; the first occurred on January 17,
      2007 in which fifty-percent of the debt consisting of $ 12,500 dollars in
      principal and $1,171 dollars in interest were converted into 273,425 shares
      of
      common stock. The second transaction occurred during April 12, 2007 in which
      $12,500 dollars in principal was converted into 250,000 in common shares of
      stock. Interest
      of $5,513 was converted to 110,270 common shares on 1/17/07. There were other
      transactions the converted debt to 14,995 shares of common
      stock .





In
      addition, holders of an aggregate principal amount of $2,065,000 of convertible
      debentures converted such amount into shares of common stock as follows. In
      the
      first quarter, holders of principal of $1,750,000 converted such amount into
      17,500,000 shares of common stock. Also in the first quarter one debt holder
      converted $20,000 in debt to 40,000 shares of common stock. In the second
      quarter two debt holders converted their debt into 400,000 common shares
      reducing the principal balance by $40,000 dollars . During
      the fourth quarter an additional conversion of $188,333 in principal and $37,667
      in interest were converted into 3,013,333 shares of common stock at a conversion
      rate of $.075 a share . During
      December 2007, in a fourth conversion 1,600,000 shares of common stock were
      issued upon conversion of $66,667 in principal and $13,333 in interest at a
      conversion rate of $.05 per share. One investor was paid $20,000 dollars in
      principal and $4,000 dollars in interest to retire his debenture. In addition,
      we issued an aggregate of 765,000 common stock purchase warrants upon the
      conversion of outstanding debentures in 2007. Of these warrants, 225,000
      warrants are exercisable at $0.20 per shares and the remainders are exercisable
      at $0.50 per share. All warrants expire three years from the date of issuance.




The
      securities sold in the above transactions were not registered under the
      Securities Act of 1933, as amended, and were offered and sold in reliance upon
      the exemption from registration set forth in Section 3(a)(9) thereof.




35





We
      believe that net cash on hand as of the date of this Annual Report is only
      be
      sufficient to meet our expected cash needs for working capital and capital
      expenditures for a period of six months. Accordingly, we have an immediate
      need
      for additional capital. To raise additional funds, we intend to either undertake
      private placements of our securities, either as a self-offering or with the
      assistance of registered broker-dealers, or negotiate a private sale of our
      securities to one or more institutional investors. We currently have no firm
      agreements with any third-parties for additional transactions and no assurances
      can be given that we will be successful in raising sufficient capital from
      any
      of these proposed financings. Further, we cannot be assured that any additional
      financing will be available or, even if it is available that it will be on
      terms
      acceptable to us. Any inability to obtain required financing on sufficiently
      favorable terms could have a material adverse effect on our business, results
      of
      operations and financial condition. If we are unsuccessful in raising additional
      capital and increasing revenues from operations, we will need to reduce costs
      and operations substantially. Further, if expenditures required to achieve
      our
      plans are greater than projected or if revenues are less than, or are generated
      more slowly than, projected, we will need to raise a greater amount of funds
      than currently expected. Without realization of additional capital, it would
      be
      unlikely for us to continue as a going concern.





We
      have
      developed operating plans (forecasts) that project profitability based on known
      assumptions of units sold, retail and wholesale pricing, cost of goods sold,
      operating expenses as well as the investment in advertising and marketing.
      These
      operating plans are adjusted monthly based on actual results for the current
      period and projected into the future and include statement of operations,
      balance sheets and sources and uses of cash. If we are able to meet our
      operating targets, however, we believe that we will be able to satisfy our
      working capital requirements. No assurances can be given that our operating
      plans are accurate nor can any assurances be provided that we will attain any
      such targets that we may develop.





*Other
      Transactions Impacting our Capital Resources*





On
      October 4, 2006, we entered into an agreement with Mr. James Robb, at the time
      a
      member of our board of directors, modifying the convertible note issued to
      Mr.
      Robb in June 2006. Pursuant to this agreement, we agreed to modify the repayment
      terms of the note by paying Mr. Robb an amount of $10,000 upon the initial
      closing of the October financing and the balance of the principal and accrued
      and unpaid interest within 60 days thereafter. The principal amount due to
      Mr.
      Robb is $50,000, which includes the assignment of a $25,000 convertible note
      to
      Mr. Robb in a private transaction, which note we originally issued to Mr.
      Christopher Durkin, our former Chief Executive Officer and a former director.
      Following a further modification of the repayment obligation, this note was
      paid
      in full on March 13, 2007.





On
      October 4, 2006, we entered into a Separation Agreement with Mr. Christopher
      Durkin, who was our President, Chief Executive Officer and a director. Pursuant
      to this agreement, Mr. Durkin agreed to resign from all positions with us
      effective upon his receipt of payment of $32,500 as payment of accrued but
      unpaid compensation and expenses. Mr. Durkin also agreed to provide us with
      a
      general release of claims in the separation agreement. We made the cash payment
      to Mr. Durkin on October 5, 2006 and his resignation is effective as of such
      date. In addition, and as additional severance compensation, we agreed to issue
      Mr. Durkin 300,000 shares of Common Stock.





In
      August
      2005 we commenced an offering to sell an additional $3.4 million of convertible
      debentures to additional accredited investors under Rule 506, promulgated under
      the Securities Act of 1933. The convertible debentures subject to this offering
      are identical to the debentures we sold in a private placement that we commenced
      in January 2005. Up to approximately $2.4 million of this amount, plus interest,
      was subject to a rescission offer to certain investors that previously purchased
      convertible debentures from the periods September 2004 to December 2004 and
      from
      June 2005 through August 2005. In the rescission offer, we offered to repurchase
      these debentures for the original purchase price plus interest from the date
      of
      purchase at the current statutory rate per year mandated by the state in which
      the investor resides. This offer expired as of October 31, 2005. Holders of
      an
      aggregate of $160,000 of debentures elected to accept this rescission offer,
      with the balance confirming their prior investment. The full amount of the
      debentures rescinded was repaid on October 7, 2005 out of working
      capital.





In
      December 2004, we entered into an exclusive five year agreement with Big Geyser,
      Inc., to distribute our products in the New York City market. However, as
      described above, we terminated this agreement in January 2006. We do not believe
      that the termination of our agreement with Big Geyser will have a material
      adverse impact on our operations. However, Big Geyser disputed our ability
      to
      terminate the agreement for cause and commenced an arbitration proceeding
      against us with the American Arbitration Association seeking damages. We agreed
      to a settlement of this matter and it was paid in full in accordance with its
      terms in February 2007.




36




We
      were
      the co-defendant along with our Chairman in a civil suit filed in Miami-Dade
      County Circuit Court under the caption *Swan
      v. Salaman and Creative Enterprises International, Inc.* This
      case was settled in August 2007.





On
      or
      about May 8, 2006 a default judgment was entered against us in the Supreme
      Court
      of the State of New York for the County of New York (Index No. 600618/06) in
      the
      amount of $43,835.06 in an action brought against it by Evins Communications,
      Ltd. (“Evins”) purportedly commenced in February 2006 (and with respect to which
      complaint we do not believe it was served). The basis for such action is not
      known to the company. That judgment was later domesticated in Pennsylvania
      on or
      about August 3, 2006 On May 7, 2007 an order to show cause was signed by Justice
      York in the State Supreme Court ordering Evins to show cause why the default
      should not be vacated. On May 29, 2007, the court decided not to vacate the
      default, but scheduled further hearings on this issue. This case was settled
      in
      September 2007.





In
      December 2007, the Board of Directors authorized the issuance of 125,000 shares
      to a consultant in consideration for investor relation services provided to
      the
      company.




*Break
      Even and Profitability* ****





As
      discussed in the overview to this analysis, we are developing a new product
      line
      based on our Skinny brand which we began selling in the first quarter of 2007
      in
      addition to our current retail business for Skinny water. We have developed
      a
      financial plan that shows that if our assumptions for the cost of marketing
      and
      distribution are correct, we will be at breakeven in the third quarter of
      calendar 2008 if we generate meaningful sales of our products. However, our
      expectations may not be correct, our expenses may increase, our business
      arrangements may not result in the level of sales that we anticipate and we
      cannot offer any assurance that we will be able to achieve sufficient sales
      to
      realize this target during next year.





*Product
      Research and Development* ****





We
      intend
      to expand our line of products, as described in the “Overview” section of this
      Management’s Discussion and Analysis, at such time as management believes that
      market conditions are appropriate. Management will base this determination
      on
      the rate of market acceptance of the products we currently offer. We do not
      engage in material product research and development activities. New products
      are
      formulated based on our license arrangements with our suppliers and
      licensors.





*Marketing/Advertising* ****





In
      2007,
      the company focused its marketing efforts in the development of new Skinny
      Water
      flavors, new bottle labels, and outer shrink wrap packaging to merchandise
      Skinny Water in 6 packs at the Target Stores around the country. The company’s
      primary marketing and advertising budget was spent executing an aggressive
      public relations campaign in coordination with a PR firm the company has
      retained. The company was able to built its brand and build product awareness
      through articles and mentions of Skinny Water in various print, radio, TV,
      and
      internet media channels. The company attended several trade shows including
      where it presented Skinny Water to beer wholesalers at their national trade
      show
      as well as the national trade shows for all convenience and drug store
      retailers.





Further,
      the company developed print ads that ran in national and local publications
      and
      further developed its online presence at its website www.skinnywater.com. In
      2008, the company is focusing on in store merchandising and marketing support
      materials for all of its distributors, and establishing sampling teams in
      multiple locations at targeted events.




37





Additional
      product development was started in late 2007 in the area of developing new
      flavors, new functional formulas, and the development of Skinny Teas, Energy,
      Sport, Antioxidant, and Vitamin Categories as part of the Skinny line of
      functional beverages.





In
      connection with our recent marketing campaign, we have invested over $721,442
      of
      our working capital during the 2007. These programs have included developing
      marketing strategies and collateral material, conducting advertising initiatives
      and investing in initial store placements. We expect to incur significant
      marketing and advertising expenditures during 2008 to bring our new line of
      products to market. We believe that marketing and advertising are critical
      to
      our success.





*Purchase
      or sale of plant or significant equipment* ****





As
      of the
      date of this Report, we do not have any plans to purchase plant or significant
      equipment.





*Expected
      changes in the number of employees* ****





As
      of
      December 31, 2007 we have 4 employees including, our executive officers. We
      expect to hire an additional 10 employees in 2008.





*Off-Balance
      Sheet Arrangements*





We
      have
      not created, and are not party to, any special-purpose or off-balance sheet
      entities for the purpose of raising capital, incurring debt or operating parts
      of our business that are not consolidated into our financial statements and
      do
      not have any arrangements or relationships with entities that are not
      consolidated into our financial statements that are reasonably likely to
      materially affect our liquidity or the availability of our capital resources.





We
      have
      entered into various agreements by which we may be obligated to indemnify the
      other party with respect to certain matters. Generally, these indemnification
      provisions are included in contracts arising in the normal course of business
      under which we customarily agree to hold the indemnified party harmless against
      losses arising from a breach of the contract terms. Payments by us under such
      indemnification clauses are generally conditioned on the other party making
      a
      claim. Such claims are generally subject to challenge by us and to dispute
      resolution procedures specified in the particular contract. Further, our
      obligations under these arrangements may be limited in terms of time and/or
      amount and, in some instances, we may have recourse against third parties for
      certain payments made by us. It is not possible to predict the maximum potential
      amount of future payments under these indemnification agreements due to the
      conditional nature of our obligations and the unique facts of each particular
      agreement. Historically, we have not made any payments under these agreements
      that have been material individually or in the aggregate. As of December 31,
      2007, we were not aware of any obligations under such indemnification agreements
      that would require material payments.





*Recent
      Accounting Pronouncements*





In
      September 2006, the Financial Accounting Standards Board issued SFAS No. 157,
      Fair Value Measurements. This Statement defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      (GAAP), and expands disclosures about fair value measurements. This Statement
      applies under other accounting pronouncements that require or permit fair value
      measurements, the Board having previously concluded in those accounting
      pronouncements that fair value is the relevant measurement attribute.




Accordingly,
      this Statement does not require any new fair value measurements. However, for
      some entities, the application of this Statement will change current practice.
      This Statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. Earlier application is encouraged, provided that the reporting entity
      has
      not yet issued financial statements for that fiscal year, including financial
      statements for an interim period within that fiscal year. The adoption of this
      Statement is not expected to have a material impact on the Company’s financial
      statements.




38




**Item
      7:  Financial Statements.**




Our
      audited financial statements for the fiscal year ended December 31, 2007 follows
      Item 14 of this Annual Report on Form 10-KSB, beginning at page 52.




**Item
      8:  Changes In and Disagreements with Accountants on Accounting and
      Financial Disclosure.**




*None*





**Item
      8A Controls and Procedures**




*Disclosure
      Controls*




As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of our management, including the
      chief executive officer and chief financial officer, of the effectiveness of
      our
      disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).
      In
      designing and evaluating the disclosure controls and procedures, management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives, and management is required to apply its judgment in evaluating
      the
      cost-benefit relationship of possible controls and procedures.




Based
      on
      that evaluation, our chief executive officer and chief financial officer
      concluded that our disclosure controls and procedures were effective as of
      the
      end of the year to provide reasonable assurance that information we are required
      to disclose in reports that we file or submit under the Securities Exchange
      Act
      of 1934, as amended, is accurately recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms, and that such information is accumulated and communicated to our
      management, including our chief executive officer and chief financial officer,
      as appropriate, to allow timely decisions regarding required disclosure.




*Management’s
      Report on Internal Control over Financial Reporting*




The
      Company’s management is responsible for establishing and maintaining adequate
      internal controls over financial reporting and disclosure controls and
      procedures. Internal controls over financial reporting are designed to provide
      reasonable assurance that the books and records reflect the transactions of
      the
      Company and that established policies and procedures are carefully
      followed.




Management
      has conducted an evaluation of the Company’s internal control over financial
      reporting using the Internal Control-Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission as a basis
      to
      evaluate effectiveness and determined that internal control over financial
      reporting was effective as of the end of the fiscal year ended December 31,
      2007.




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




39





*Changes
      in Internal Control over Financial Reporting*




There
      were no changes in our internal controls over financial reporting during the
      quarterly period ended December 31, 2007 that have materially affected, or
      are reasonably likely to materially affect, our internal control over financial
      reporting.




*Inherent
      Limitations on Effectiveness of Controls*




We
      do not
      expect that disclosure controls or internal controls over financial reporting
      will prevent all errors or all instances of fraud. A control system, no matter
      how well designed and operated, can provide only reasonable, not absolute,
      assurance that the control system’s objectives will be met. Further, the design
      of a control system must reflect the fact that there are resource constraints,
      and the benefits of controls must be considered relative to their costs. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, within its company have been detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of simple error or mistake. Controls can also
      be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, or by management override of the controls. The design of any system
      of
      controls is based in part upon certain assumptions about the likelihood of
      future events, and any design may not succeed in achieving its stated goals
      under all potential future conditions. Over time, controls may become inadequate
      because of changes in conditions or deterioration in the degree of compliance
      with policies or procedures. Because of the inherent limitation of a
      cost-effective control system, misstatements due to error or fraud may occur
      and
      not be detected.




Item
      8B.  Other Information




The
      disclosure of the Company's current private placement contained in Item 1 of
      this report is incorporated by reference herein.




**PART
      III**




**Item
      9 Directors, Executive Officers, Promoters and Control Persons; Compliance
      with Section 16(a) of the Exchange Act.**





The
      following table summarizes the name, age and title of each of our current
      directors and executive officers. Directors are elected annually by our
      stockholders and hold office until their successors are elected and qualified,
      or until their earlier resignation or removal. Our Board of Directors currently
      consists of three members. On June 11, 2007, Kenneth Brice, the Company's
      former Chief Financial Officer and a member of its board of directors, tendered
      his resignation from his service with the Company, effective as of June 30,
      2007. The Company's Chief Executive Officer, Donald
      J.
      McDonald, will serve as its Chief Financial Officer until such time
      as the Company appoints another individual to serve in such capacity. There
      are no family relationships among our current executive officers and directors.
      Officers are elected by and serve at the discretion of the Board of
      Directors.








Our
      directors and officers are currently as follows:





**Name**
            
            **Age**
            
            **Position**Donald
                J. McDonald
            
            55
            
            Chief
                Executive Officer, President and DirectorMichael
                Salaman
            
            46
            
            Chairman
                of the BoardMichael
                Reis
            
            63
            
            Interim
                Chief Operating Officer and
                Director




40




**Business
      Experience**





**Donald
      J. McDonald.** Donald
      J. McDonald has over 25 years of experience as a senior executive and 19 years
      experience in the cable television, broadcast and video production industries
      with expertise in financial management, sales, marketing and corporate
      governance. Since April 2002, Mr. McDonald has served as the President of Summit
      Corporate Group, Inc., providing executive management and corporate advisory
      services to a number of companies. Prior to that, from March 1999 to March
      2002,
      Mr. McDonald was the President of Directrix, Inc., a publicly-traded company
      providing media production and distribution services. Prior to that, Mr.
      McDonald was in an executive capacity for a number of companies including
      National Media Corp., LSI Communications, Inc. and Spice Direct Entertainment
      Co. Mr. McDonald graduated with a B.S. from Villanova University in 1974.





**Michael
      Salaman.** Michael
      Salaman has served as our Chairman since January 2002 and was our Chief
      Executive Officer from that date until March 8, 2006. Mr. Salaman has over
      20
      years experience in the area of new product development and mass marketing.
      Mr.
      Salaman began his business career as Vice President of Business Development
      for
      National Media Corp., an infomercial marketing Company in the United States
      from
      1985-1993. From 1995-2001, Mr. Salaman started an Internet company called
      American Interactive Media, Inc., a developer of set-top boxes and ISP services.
      In 2002, Mr. Salaman founded Creative as a marketing and distribution company.





**Michael
      Reis.** Since
      April 2003, Mr. Reis operates a consulting practice through M.R. Reis Co.,
      pursuant to which he provides business and accounting consulting services.
      Prior
      to that, Mr. Reis was the Chief Financial Officer of Weaver Nut Co., a position
      he held from June 2001 through April 2003. Prior to that, Mr. Reis began his
      career as an accountant with Deloitte & Touche and thereafter held executive
      positions with a number of companies including serving as the Chief Financial
      Officer of Public Gas Co., the Chief Financial Officer of Waste Masters, Inc.,
      the President of Pollution Control Industries and a Senior Vice President of
      ENSI. Mr. Reis graduated from Bloomfield College & Seminary in 1973 with a
      B.A. in Accounting and Mathematics.





Except
      as
      described below, none of our directors, officers, promoters or control persons,
      if any, during the past five years was, to the best of our knowledge:





•  A
      general
      partner or executive officer of a business that had a bankruptcy petition filed
      by or against it either at the time of the bankruptcy or within the two years
      before the bankruptcy;





•  Convicted
      in a criminal proceeding or been subject to a pending criminal proceeding
      (excluding traffic violations and other minor offenses);





•  Subject
      to any order, judgment, or decree, not subsequently reversed, suspended or
      vacated, of any court of competent jurisdiction, permanently or temporarily
      enjoining, barring, suspending or otherwise limiting his or her involvement
      in
      any type of business, securities or banking activities





•  Found
      by
      a court of competent jurisdiction (in a civil action), the Securities and
      Exchange Commission or the Commodity Futures Trading Commission to have violated
      a federal or state securities or commodities law, and the judgment has not
      been
      reversed, suspended or vacated.




41




**Meetings
      of Directors; Committees of the Board; Audit Committee Financial
      Expert**





Our
      Board
      of Directors currently consists of three individuals. One of our current
      directors is independent as defined in the Marketplace Rules of The NASDAQ
      Stock
      Market.




During
      the fiscal year ended December 31, 2007, our board of directors held three
      meetings and acted by unanimous written consent on 16 occasions.




Due
      to
      the fact that our Board currently consists of three persons, none of whom are
      independent, we have not formally constituted any Board committees, including
      an
      audit committee. None of our current directors qualifies as an “audit committee
      financial expert” as defined in Item 401 under Regulation S-B of the Securities
      Act of 1933. In connection with our transition to being a reporting company
      we
      are actively seeking to expand our Board membership to include a majority of
      independent directors, including at least one person that satisfies the
      definition of “financial expert.”




The
      board
      did not adopt any modifications to the procedures by which security holders
      may
      recommend nominees to its board of directors.




**Compliance
      with Section 16(a) of the Securities Exchange Act**




Section
      16(a) of the Securities Exchange Act of 1933, as amended, requires our directors
      and executive officers, and persons who own more than 10% of our outstanding
      Common Stock (collectively, “Reporting Persons”) to file with the Securities and
      Exchange Commission initial reports of ownership and reports of changes in
      ownership of our Common Stock. Reporting Persons are also required by SEC
      regulations to furnish us with copies of all such ownership reports they file.
      Based solely on our review of the copies of such reports received or written
      communications from certain Reporting Persons, we believe that, during the
      2006
      fiscal year, all Reporting Persons complied with all Section 16(a) filing
      requirements.




**Code
      of Ethics**




Due
      to
      the fact that we are currently seeking to expand our board of directors to
      include independent directors on our board members, we have not currently
      adopted a Code of Ethics. We intend to adopt a Code of Ethics, as defined by
      Rule 406 of Regulation S-B, promptly upon the election of additional independent
      members to our board of directors.




**Board
      of Advisors**





On
      March
      20, 2008, the Company established an advisory board to provide advice on matters
      relating to the Company’s products. The Company will seek to appoint up to five
      individuals to its advisory board. On March 20, 2008, the Company appointed
      the
      following individuals to its advisory board: Pat Croce, Ron Wilson and Michael
      Zuckerman.





The
      Company also entered into a consulting agreement with Mr. Croce, pursuant to
      which the Company agreed to issue Croce an aggregate of 2,000,000 shares of
      its
      common stock in consideration of his agreement to serve on the Company’s
      Advisory Board and for providing the marketing services for the Company’s
      products. In addition to serving on the Advisory Board, Croce agreed to endorse
      and advertise the Company’s products through a newly formed company. In
      additional consideration for his agreement to provide the endorsement and
      marketing services, the Company agreed to pay a royalty with respect to the
      sale
      of its products that he endorses for the duration of his endorsement services.
      The Company issued each of the other initial members of its advisory board
      warrants to purchase 1,500,000 shares of Common Stock, exercisable for a period
      of five years at a price of $0.05.




42




**Item
      10.  Executive Compensation**




**Summary
      of Cash and Certain Other Compensation**





The
      following table sets forth information concerning the total compensation that
      we
      have paid or that has accrued on behalf of each person who served as our
      Chairman and Chief Executive Officer during the fiscal year ended December
      31, 2007 .








**Summary
      Compensation Table**




**Name
                and Principal Position**
            
            
            **Year**
            
            
            **Salary**
              **($)**
            
            
            **Bonus**
              **($)**
            
            
            **Stock
                Awards**
              **($)**
            
            
            **Option
                Awards**
              **($)**
            
            
            **All
                Other Compensation**
              **($)**
            
            
            **Total
                ($)**(a)
            
            
            (b)
            
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (i)
            
            
            (j)Donald
                J. McDonald
              Chief
                Executive Officer, Chief Financial Officer and President (1)
            
            
            2007
            
            $
            98,333
            
            $
            0
            
            
            0
            
            
            136,931
            
            
            0
            
            
            235,2642006
            
            
            $20,000
            
            
            0
            
            
            0
            
            
            75,000
            
            
            0
            
            
            $95,000Michael
                Salaman,
              Chairman
            
            
            2007
            
            $
            100,000
            
            $
            0
            
            
            0
            
            
            202,500
            
            
            
            
            
            302,5002006
            
            
            28,605
            
            
            0
            
            
            0
            
            
            0
            
            
            5,000
            
            
            33,065


____________


(1)
      Mr.
      McDonald became our Chief Executive Officer and President on October 6, 2006
      and
      assumed the position of Chief Financial Officer as of June 30, 2007 following
      the resignation of Mr. Kenneth Brice as Chief Financial Officer.




**Director
      Compensation**





We
      do not
      pay any fees or other compensation to our directors for service as a director
      or
      attendance at board meetings. We have not adopted any retirement, pension,
      profit sharing, or other similar programs.





**Employment
      Agreements**





We
      have
      not entered into written employment agreements with any of our executive
      officers. During the first 10 months for 2007 our Chairman and CEO were
      compensated at a rate of $7,500 per month. On November 28, 2007, the Board
      of
      Directors of the Company approved increases in the monthly compensation rates,
      effective as of November 2007, payable to each of its Chairman, Chief Executive
      Officer. The Chairman will receive compensation of $12,500 per month and a
      $700
      dollar monthly automobile allowance; the CEO will receive compensation of
      $11,667 dollars per month and a $700 monthly automobile allowance.





We
      also
      agreed to negotiate employment agreements with both executives to reflect these
      arrangements. We anticipate that these agreements will include a discretionary
      bonus opportunity, a monthly automobile allowance, reimbursement for health
      and
      life insurance policies, and certain additional benefits, including a severance
      benefit of an amount to be determined which would be operative upon the
      occurrence of a change in control of the Company and in the event that either
      of
      the executives are terminated from their employment without cause. The Company
      has not yet entered into employment agreements with these
      individuals.




43




**Outstanding
      Equity Awards at Fiscal Year-End**





The
      following table sets forth certain information concerning outstanding equity
      awards held by our Named Executive Officers as of the year ended December
      31, 2007.





**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number**
              **of**
              **Securities
                Underlying Unexercised Options**
              **(#)**
              **Exercisable**
            
            **Number**
              **of**
              **Securities
                Underlying Unexercised Options**
              **(#)**
              **Unexercisable**
            
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options**
              **(#)**
            
            **Option
                Exercise Price**
              **($)**
            
            **Option
                Expiration Date**
            
            **Number
                of Shares or Units of Stock That Have Not Vested**
              **(#)**
            
            **Market
                Value of Shares or Units of Stock That Have Not
                Vested**
              **($)**
            
            **Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                That Have Not Vested**
              **(#)**
            
            **Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or
                Other Rights That Have Not Vested**
              **($)**(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)
            
            (g)
            
            (h)
            
            (i)
            
            (j)Donald
                J. McDonald
            
            
            855,625
            
            
            1,644,375
            
            
            
            
            
            .17
            
            
            10/6/11
            
            
            __
            
            
            __
            
            
            __
            
            
            __625,000
            
            
            1,875,000
            
            
            
            
            
            .08
            
            
            11/28/12
            
            
            __
            
            
            __
            
            
            __
            
            
            __Michael
                Salaman
            
            
            600,000
            
            
            2,400,000
            
            
            
            
            
            .25
            
            
            1/12/12
            
            
            __
            
            
            __
            
            
            __
            
            
            __750,000
            
            
            2,250,000
            
            
            
            
            
            .08
            
            
            11/28/12
            
            
            __
            
            
            __
            
            
            __
            
            
            __




**Stock
      Option Plan**





Our
      Board
      of Directors initially adopted our Employee Stock Option Plan (the “Plan”) on
      November 16, 1998 and it was approved by our stockholders on December 21, 2001.
      The Plan will terminate ten years from the date of its adoption by the Board,
      unless sooner terminated. Our Board of Directors, on October 6, 2006,
      unanimously approved and recommended for shareholder approval the amendment
      of
      the Plan to increase the number of shares authorized for issuance there under
      from 1,000,000 shares to 20,000,000 shares. The requisite vote of our
      shareholders was obtained on November 15, 2006. Under our stock option plan,
      we
      may grant incentive (“ISOs”) and non-statutory (“Non-ISOs”) options to
      employees, non employee members of the Board of Directors and consultants and
      other independent advisors who provide services to us. The maximum shares of
      common stock which may be issued over the term of the plan shall not exceed
      20,000,000 shares. As of
      December 31, 2007 , 12,325,000 options
      were issued and outstanding.





*Administration* :
      The
      Plan is administered by a committee delegated by the Board of Directors, or
      by
      the Board of Directors itself (the “Committee”). Subject to the provisions of
      the Plan, the Committee has discretion to determine the employee, consultant
      or
      director to receive an award, the form of award and any acceleration or
      extension of an award. Further, the Committee has complete authority to
      interpret the Plan, to prescribe, amend and rescind rules and regulations
      relating to it, to determine the terms and provisions of the respective award
      agreements (which need not be identical), and to make all other determinations
      necessary or advisable for the administration of the Plan.





*Eligibility* :
      Awards
      may be granted to any of our employees or consultants or to non-employee members
      of the Board of Directors or of any board of directors (or similar governing
      authority) of any of our affiliates.




44





*Types
      of Awards* :
      Awards
      under the Plan include incentive stock options and non-statutory stock options.
      Each award will be evidenced by an instrument in such form as the Committee
      may
      prescribe, setting forth applicable terms such as the exercise price and term
      of
      any option or applicable forfeiture conditions or performance requirements
      for
      any restricted stock grant. Except as noted below, all relevant terms of any
      award will be set by the Committee in its discretion. Incentive stock options
      may be granted only to eligible employees of the Company or any parent or
      subsidiary corporation and must have an exercise price of not less than one
      hundred percent (100%) of the fair market value of the Common Stock on the
      date of grant (one hundred ten percent (110%) for incentive stock options
      granted to any ten-percent (10%) shareholder). In addition, the term of an
      incentive stock option may not exceed ten (10) years. Non-statutory stock
      options must have an exercise price of not less than one hundred percent
      (100%) of the fair market value of the Common Stock on the date of grant
      and the term of any Non-statutory Stock Option may not exceed ten
      (10) years. In the case of an incentive stock option, the amount of the
      aggregate fair market value of Common Stock (determined at the time of grant)
      with respect to which incentive stock options are exercisable for the first
      time
      by an employee during any calendar year (under all such plans of his or her
      employer corporation and its parent and subsidiary corporations) may not exceed
      $100,000.





*Effect
      of Significant Corporate Events* :
      In the
      event of a change in control, the Board shall have the discretion to provide
      for
      any or all of the following: (i) the acceleration, in whole or in part, of
      outstanding Stock Options, (ii) the assumption of outstanding Stock
      Options, or substitution thereof, by the acquiring entity and (iii) the
      termination of all Stock Options that remaining outstanding at the time of
      the
      change of control. In the event of any change in the outstanding shares of
      Common Stock through merger, consolidation, sale of all or substantially all
      our
      property, or organization, an appropriate and proportionate adjustment will
      be
      made in (i) the maximum numbers and kinds of shares subject to the Plan,
      (ii) the numbers and kinds of shares or other securities subject to the
      then outstanding awards, and (iii) the exercise price for each share
      subject to then outstanding Stock Options. Should any change be made to the
      common stock by reason of any stock split, stock dividend, recapitalization,
      combination of shares, exchange of shares or other change affecting the
      outstanding common stock as a class, appropriate adjustments shall be made
      to
      (i) the maximum number and/or class of securities that can be issued under
      the
      Plan, and (ii) the number and/or class of securities and the exercise price
      in
      effect under each outstanding option.





*Amendments
      to the Plan* :
      The
      Board of Directors may amend or modify the Plan at any time subject to the
      rights of holders of outstanding awards on the date of amendment or
      modification; provided, however, that the Board may not, without the consent
      of
      the participant, reduce the number of shares subject to the award, change the
      price of outstanding awards or adversely effect the provisions relating to
      an
      award’s vesting and exercise rights.




45




**Item
      11.  Security Ownership**




The
      following table sets forth the beneficial ownership of our Common Stock as
      of
      December 31, 2007, by (i) each director and each executive officer, (ii) and
      all
      directors and executive officers as a group, and (iii) persons (including any
      “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act
      of l934), known by us to be the beneficial owner of more than five percent
      of
      its common stock. Shares of Common Stock subject to options exercisable within
      60 days from the date of this table are deemed to be outstanding and
      beneficially owned for purposes of computing the percentage ownership of such
      person but are not treated as outstanding for purposes of computing the
      percentage ownership of others. As of December 31, 2007, there were 94,972,225
      shares issued and outstanding.








**Shares
                of Common Stock**
              **Beneficially
                Owned****Name
                and Address of Owner**
            
            **Number**
            
            **Percent (%)***Officers
                and Directors*Michael
                Salaman (1)
              c/o
                Skinny Nutritional Corp.
              3
                Bala Plaza East, Suite 117, Bala Cynwyd, PA 19004
            
            
            10,862,657
            
            
            12.4
            %Donald
                McDonald (2)c/o
                Skinny Nutritional Corporation3
                Bala Plaza East Suite # 117 Bala Cynwyd PA 19004
            
            
            2,250,000
            
            
            2.3
            %Michael
                Reis (3)
              c/o Skinny Nutritional
                Corp.
              3
                Bala Plaza East, Suite 117, Bala Cynwyd, PA 19004
            
            
            521,125
            
            
            *All
                Directors and Officers as a Group (3 Persons)
            
            
            13,633,782
            
            
            13.6*Other
                Beneficial Owners*Charles
                Hallinan
              P.O.
                Box 915, Bala Cynwyd, PA 19004
            
            
            5,011,015
            
            
            5.3
            %Yehuda
                Dachs
              P.O.
                Box 495, Lakewood, NJ 08701
            
            
            7,619,974
            
            
            7.9
            %


_____________________


*
            Denotes
                ownership percentage of less than 1%.(1)
            Based
                on information set forth in a Schedule 13D filed with the SEC on
                October
                16, 2006. Includes vested options to purchase1,950,000
                sharesof
                common stock. Excludes unvested options to purchase4,050,000shares of common stock. Excludes 2,075,000 shares of restricted common
                stock granted on March 24, 2008.(2)
            Includes
                options to purchase 2,250,000 shares of Common Stock and excludes
                2,750,000unvested
                options Excludes 2,075,000 shares of restricted common stock granted
                on
                March 24, 2008.




46





**Item
      12:  Certain Relationships and Related
      Transactions.**




For
      information concerning employment agreements with, and compensation of, our
      executive officers and directors, see the disclosure in the section of this
      Annual Report on Form 10-KSB captioned “Executive Compensation.”





We
      had
      obtained a $500,000 letter of credit with Wachovia Bank to secure our purchase
      orders with Agrokor, a former supplier. This letter of credit was secured by
      personal assets of our Chairman and bore interest at a rate of 7.5% per annum.
      We borrowed $314,000 against this letter of credit in placing our initial order
      with Agrokor for 1,200,000 bottles of product. The letter of credit was
      originally supported by a $500,000 demand note (line of credit) issued to
      Wachovia through Madison Bank. On June 1, 2005, our obligations were transferred
      to Madison Bank. The interest on the demand note is one percent above the prime
      rate and the outstanding balance is due on the bank’s demand. On January 4,
      2007, we entered into a Forbearance Agreement with Madison Bank concerning
      the
      repayment of this obligation. Pursuant to the Forbearance Agreement, we and
      the
      Bank agreed to the following repayment schedule for the outstanding balance
      due:
      (a) an initial amount of $17,000 was paid upon execution of the Agreement;
      (b)
      monthly installments of $5,000 will be payable by the first day of each month
      through May 2007; and (c) a final payment of the remaining outstanding balance
      due will be due on or before May 31, 2007. Interest will continue to accrue
      on
      the note at the rate of 1% above the Wall Street Journal Prime Rate. In
      addition, in order to secure the repayment of the note and our obligations
      under
      the Agreement, our Chairman pledged certain shares of common stock of other
      publicly traded companies held by him, we granted the Bank a first priority
      security interest in its accounts and other assets and our Chairman and certain
      of his affiliates provided personal guarantees for the loan amount. In the
      event
      the aggregate market value of the pledged securities is less than $350,000,
      then
      the Bank may exercise its rights to accelerate repayment of the note and
      otherwise take such actions as is permitted under the Agreement to protect
      its
      security interest in the collateral.




On
      April
      4, 2007, the Company closed on a secure loan arrangement with Valley Green
      Bank
      pursuant to which it will receive funds in the amount of $350,000. The Company
      has applied this amount to satisfy its obligations to Madison Bank. Interest
      will be charged on the unpaid principal of this new loan arrangement until
      the
      full amount of principal has been paid at the rate of 8.25% per annum. The
      Company was obligated to repay this new loan in full immediately on the bank’s
      demand, but in no event later than March 20, 2008. Since that date we have
      been
      in discussions with the bank to extend the term of the loan. No assurances,
      however, can be given that the bank will extend the loan. Interest payments
      are
      due on a monthly basis. Pursuant to this arrangement with Valley Green Bank,
      the
      loan is secured by collateral consisting of a perfected first priority pledge
      of
      certain marketable securities held by the Company’s Chairman and entities with
      which he is affiliated. The Company also agreed to a confession of judgment
      in
      favor of the bank in the event it defaults under the loan agreements. The loan
      agreements also require the consent of the bank for certain actions, including
      incurring additional debt and incurring certain liens.




On
      November 23, 2007, the Company entered into a one-year factoring agreement
      with
      United Capital Funding of Florida (“UCF”). The agreement provides for an initial
      funding limit of $300,000. As of December 31, 2007, we had received $485,058
      of
      funding through this arrangement. All accounts submitted for purchase must
      be
      approved by UCF. The applicable factoring fee is 0.45% of the face amount of
      each purchased account and the purchase price is 80% of the face amount. UCF
      will retain the balance as a reserve, which it holds until the customer pays
      the
      factored invoice to UCF. In the event the reserve account is less than the
      required reserve amount, we will be obligated to pay UCF the shortfall. In
      addition to the factoring fee, we will also be responsible for certain
      additional fees upon the occurrence of certain contractually-specified events.
      As collateral securing the obligations, we granted UCF a continuing first
      priority security interest in all accounts and related inventory and
      intangibles. Upon the occurrence of certain contractually-specified events,
      UCF
      may require us to repurchase a purchased account on demand. In connection with
      this arrangement, each of our Chairman and Chief Executive Officer agreed to
      personally guarantee our obligations to UCF. The agreement will automatically
      renew for successive one year terms until terminated. Either party may terminate
      the agreement on three month’s prior written notice. We are liable for an early
      termination fee in the event we fail to provide them with the required written
      notice.




47





**Item
      13.  Exhibits**





The
      exhibits designated with an asterisk (*) are filed herewith. Certain portions
      of
      exhibits marked with the symbol (#) have been granted confidential treatment
      by
      the Securities and Exchange Commission. Such portions have been omitted and
      filed separately with the Commission. Certain portions of exhibits marked with
      the symbol (##) have been omitted and are subject to our request for
      confidential treatment by the Securities and Exchange Commission. Such portions
      have been omitted and filed separately with the Commission. All other exhibits
      have been previously filed with the Commission and, pursuant to 17 C.F.R.
      Sec.230.411, are incorporated by reference to the document referenced in
      brackets following the descriptions of such exhibits.





*Exhibit
                No.*
            *Description*3.1
            Certificate
                of Incorporation, as amended (filed as Exhibit 3.1 to Registration
                Statement on Form SB-2 filed with the Commission on September 18,
                2002)3.1.1
            Certificate
                of Amendment to Articles of Incorporation (filed as Exhibit 3.1 to
                Current
                Report on Form 8-K filed on December 28, 2006).3.2
            Amended
                By-laws (filed as Exhibit 3.2 to Current Report on Form 8-K filed
                on
                November 13, 2006).4.1
            Specimen
                of Common Stock Certificate (filed as Exhibit 4.1 to Registration
                Statement on Form SB-2 filed with the Commission on September 18,
                2002).4.2
            Form
                of Warrants Issued March 30, 2004 (filed as Exhibit 4.2 to Registration
                Statement on Form 10-SB filed with the Commission on May 13,
                2005).4.3
            Form
                of Convertible Debentures issued during 2005 fiscal year (filed as
                Exhibit
                4.3 to Registration Statement on Form 10-SB filed with the Commission
                on
                October 19, 2005).4.4
            Form
                of Warrant granted upon conversion of Convertible Debentures (filed
                as
                Exhibit 4.4 to Registration Statement on Form 10-SB filed with the
                Commission on October 19, 2005).4.5
            Form
                of Warrant issued in Private Sales of Securities (filed as Exhibit
                4.5 to
                Registration Statement on Form 10-SB/A filed with the Commission
                on
                February 8, 2006).4.6
            Form
                of Convertible Note issued to our Chairman and certain other individuals
                as of March 20, 2006 (filed as Exhibit 4.6 to Registration Statement
                on
                Form 10-SB/A filed with the Commission on March 23, 2006).4.7
            Form
                of Convertible Note issued June 5, 2006 (filed as Exhibit 4.1 to
                Current
                Report on Form 8-K dated June 9, 2006.4.8
            Note
                Modification Agreement between the Company and James Robb (filed
                as
                Exhibit 4.1 to Quarterly Report on Form 10-QSB for the quarter ended
                September 30, 2006).4.9
            Form
                of Convertible Note issued in October 2006 (filed as Exhibit 4.9
                to Annual
                Report on Form 10-KSB for the year ended December 31,
                2006.4.10
            Form
                of Warrant issued in February 2007 pursuant to Distribution Agreement
                (filed as Exhibit 4.10 to Annual Report on Form 10-KSB for the year
                ended
                December 31, 2006.4.11
            Secured
                Note payable to Valley Green Bank (filed as Exhibit 4.11 to Quarterly
                Report on Form 10-QSB for the quarter ended March 31,
                2007).




48




10.1
            Agreement
                and Plan of Reorganization with Inland Pacific Resources, Inc. (filed
                as
                Exhibit 10.2 to Registration Statement on Form SB-2/A filed with
                the
                Commission on January 29, 2003).10.2#
            Agreement
                with Jamnica, d.d., as amended, dated July 21, 2004 (filed as Exhibit
                10.2
                to Registration Statement on Form 10-SB/A filed with the Commission
                on
                February 8, 2006).10.3#
            Agreement
                with Peace Mountain Natural Beverages Corporation, dated August 1,
                2004
                (filed as Exhibit 10.3 to Registration Statement on Form 10-SB/A
                filed
                with the Commission on February 8, 2006).10.4#
            Agreement
                with Interhealth Nutraceuticals, Inc., dated June 9, 2004 (filed
                as
                Exhibit 10.4 to Registration Statement on Form 10-SB/A filed with
                the
                Commission on February 8, 2006).10.5#
            Agreement
                with Big Geyser, Inc., dated December 14, 2004 (filed as Exhibit
                10.5 to
                Registration Statement on Form 10-SB/A filed with the Commission
                on
                February 8, 2006).10.6
                (1)
            Amended
                Stock Option Plan and Form of Option Award (filed as Exhibit B to
                definitive Information Statement dated December 5, 2006).10.7
            Demand
                Note held by Madison Bank (filed as Exhibit 10.7 to Registration
                Statement
                on Form 10-SB/A filed with the Commission on December 16,
                2005).10.8
            Lease
                Agreement dated September 12, 2005 between the Company and Rose Hill
                Property Assoc., Inc. (filed as Exhibit 10.8 to Registration Statement
                on
                Form 10-SB filed with the Commission on October 19,
                2005).10.9#
            Agreement
                with Exclusive Beverage Distributors dated March 20, 2006 (filed
                as
                Exhibit 10.9 to our Annual Report on Form 10-KSB for the year ended
                December 31, 2005).10.10
            Separation
                Agreement between the Company and Christopher Durkin (filed as Exhibit
                10.1 to Current Report on Form 8-K filed October 11,
                2006).10.11##
            Amendment
                Agreement between the Company and Peace Mountain Natural Beverages
                Corp.
                (filed as an Exhibit to Annual Report on Form 10-KSB for
                the year ended December 31, 2006).10.12
            Termination
                Agreement between the Registrant, Jamnica, d.d. and Jana North America,
                Inc. (filed as an Exhibit to Annual Report on Form
                10-KSB for the year ended December 31, 2006).10.13
            Forbearance
                Agreement between the Company and Madison Bank (filed as Exhibit
                10.1 to
                Current Report on Form 8-K filed on January 10, 2007).10.14##
            Distribution
                Agreement with Geltech LLC dated February 27, 2007. (filed as an
                Exhibit to Annual Report on Form 10-KSB for the year
                ended December 31, 2006).10.15*##
            Letter
                Agreement with Pasqual Croce21
            Subsidiaries
                of Small Business Issuer. (filed as Exhibit 21 to Annual Report on
                Form
                10-KSB for the year ended December 31, 2007).31.1*
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant
                to Exchange Act Rules 13a-14(a) and 15(d) -14(a), adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200232.1*
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant
                to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.


____________


(1)  Indicates
      a management plan or contract.


49




**Item
      14.  Principal Accountant Fees and Services.**




We
      have
      selected Connolly, Grady & Cha, PC, as our independent accountants for the
      current fiscal year. The audit services to be provided by Connolly, Grady &
Cha consist of examination of financial statements, services relative to filings
      with the Securities and Exchange Commission, and consultation in regard to
      various accounting matters. The financial statements included with this Annual
      Report have been audited by Connolly, Grady & Cha. The following table
      presents fees for professional audit services rendered by Connolly, Grady &
Cha for each of the two fiscal years set forth below, and fees billed for other
      services performed for the years ended December 31, 2007 and 2006. Fees for
      professional services by our independent auditors for the fiscal years 2007
      and
      2006 in each of the following categories are as follows:




**Year
                Ended**
              **December
                31, 2007**
            
            **Year
                Ended**
              **December
                31, 2006****Audit
                Fees (1)**
            
            $
            25,000
            
            $
            25,000**Audit-Related
                Fees (2)**
            
            
            0
            
            
            0**Tax
                Fees (3)**
            
            
            10,000
            
            
            10,000**All
                Other Fees (4)**
            
            
            0
            
            
            0**Total**
            
            $
            35,000
            
            $
            35,000


**______________**


(1)
            Audit
                services consist of audit work performed in the preparation of financial
                statements for the fiscal year and for the review of financial statements
                included in Quarterly Reports on Form 10-Q during the fiscal year,
                as well
                as work that generally only the independent auditor can reasonably
                be
                expected to provide, including consents for registration statement
                flings
                and responding to SEC comment letters on annual and quarterly
                filings.




(2)
            Audit-related
                services consist of assurance and related services that are traditionally
                performed by the independent auditor, including due diligence related
                to
                mergers and acquisitions, agreed upon procedures report and accounting
                and
                regulatory consultations.




(3)
            Tax
                services consist of all services performed by the independent auditor’s
                tax personnel, except those services specifically related to the
                audit of
                the financial statements, and includes fees in the areas of tax
                compliance, tax planning, and tax
                advice.




(4)
            Other
                services consist of those service not captured in the other
                categories.




We
      have
      determined that the services provided by our independent auditors and the fees
      paid to them for such services has not compromised the independence of our
      independent auditors.




As
      our
      Board of Directors currently consists solely of three individuals, only one
      of
      whom is independent, the engagement of our independent accountants and auditors
      is approved by our Board of Directors acting as the audit committee.
      Accordingly, our entire Board, he has responsibility for appointing, setting
      compensation and overseeing the work of the independent auditor.





Pursuant
      to Section 10A(i) (2) of the Securities Exchange Act of 1934, we are
      responsible for listing the non-audit services approved by our Board (acting
      as
      the Audit Committee) to be performed by our independent registered public
      accounting firm. During the fourth quarter of fiscal 2005, we did not
      pre-approve the performance of any non-audit services by our independent
      registered public accounting firm.




50










Skinny
      Nutritional Corp


and
      Subsidiary


December
      31, 2007





Contents





PageIndependent
                Auditor's Report
            52Financial
                StatementsConsolidated
                Balance Sheet, December 31, 2007
            53-54Consolidated
                Statements of OperationsFor
                the Years Ended December 31, 2007, 2006 and 2005
            55Consolidated
                Statements of Stockholders' Equity (Deficit)For
                the Year Ended December 31, 2007 and 2006
            56-57Consolidated
                Statements of Cash FlowsFor
                the Years Ended December 31, 2007 and 2006 and 2005
            58-59Notes
                to Consolidated Financial Statements
            60-75







51
 
 REPORT
          OF
          INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
          the
          Board of Directors and Stockholders of
 Skinny
          Nutritional Corp and Subsidiary
 3
          Bala
          Plaza - Suite 117
 Bala
          Cynwyd, PA 19004
 
 We
          have
          audited the accompanying consolidated balance sheets of Skinny Nutritional
          Corp
          (a Nevada Corporation) and Subsidiary as of December 31, 2007 and 2006
          and the
          related consolidated statements of operations, stockholders’ equity (deficit)
          and cash flows for each of the years in the three year period ended December
          31,
          2007. These consolidated financial statements are the responsibility of
          the
          Company’s management. Our responsibility is to express an opinion on these
          consolidated financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. The company is not required
          to
          have, nor were we engaged to perform, an audit of its internal control
          over
          financial reporting. Our audit included consideration of internal control
          over
          financial reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the company’s internal control over financial
          reporting. Accordingly, we express no such opinion. An audit includes examining,
          on a test basis, evidence supporting the amounts and disclosures in the
          consolidated financial statements, assessing the accounting principles
          used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audit provides a
          reasonable basis for our opinion.
 
 As
          more
          fully described in Note 20 to the financial statements, the Company has
          not
          valued their stock options and warrants as described by generally accepted
          accounting principles. In our opinion, the accounting principles generally
          accepted in the United States of America require that these instruments
          be
          valued using option-pricing models adjusted for the unique characteristics
          of
          those instruments.
 
 In
          our
          opinion except for the matters discussed in the preceding paragraph, the
          consolidated financial statements referred to above present fairly, in
          all
          material respects, the financial position of Skinny Nutritional Corp and
          Subsidiary as of December 31, 2007 and 2006 and the results of their operations
          and their cash flows for each of the years in the three year period ended
          December 31, 2007 in conformity with accounting principles generally accepted
          in
          the United States of America.
 
 The
          accompanying financial statements have been prepared assuming the Company
          will
          continue as a going concern. As discussed in Note 2 to the financial statements,
          the Company has incurred losses since inception and has not yet been successful
          in establishing profitable operations. Further, the Company has current
          liabilities in excess of current assets. These factors raise substantial
          doubt
          about the ability of the Company to continue as a going concern. Management’s
          plans in regards to these matters are also described in Note 2. The financial
          statements do not include any adjustments that might result from the outcome
          of
          these uncertainties.
 
  /s/
          Connolly, Grady & Cha, P.C.
  Certified
          Public Accountants
 
 Philadelphia,
          Pennsylvania
 
 April
          14,
          2008


52




Skinny
      Nutritional Corp and Subsidiary





Consolidated
      Balance Sheet





December
      31, 2007




ASSETS




December31,2007
            
            2006CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            15,043
            
            $
            118,683Cash
                - escrow, restricted
            
            
            3,697
            
            
            56,485Accounts
                receivable
            
            
            401,487
            
            
            3,406Inventory
            
            
            86,575Prepaid
                expenses
            
            
            23,795
            
            
            46,460Total
                current assets
            
            
            530,597
            
            
            225,034FIXED
                ASSETSFixed
                assets
            
            
            0
            
            
            9,973Accumulated
                depreciation
            
            
            0
            
            
            (3,699
            )Total
                fixed assets
            
            
            0
            
            
            6,274OTHER
                ASSETSSecurity
                deposits
            
            
            0
            
            
            0TOTAL
                ASSETS
            
            $
            530,597
            
            $
            231,308





53




Skinny
      Nutritional Corp and Subsidiary


Consolidated
      Balance Sheet








LIABILITIES
      AND STOCKHOLDERS’ DEFICIT




December
                31,2007
            
            2006CURRENT
                LIABILITIESCurrent
                maturities of long term debt
            
            $
            
            
            $
            $300,283Line
                of credit
            
            
            340,000
            
            
            314,533Accounts
                payable
            
            
            610,256
            
            
            296,596Accrued
                expenses
            
            
            57,500
            
            
            30,000Accrued
                Interest Payable
            
            
            84,563
            
            
            118,906Revolving
                Line of Credit
            
            
            317,560Notes
                Payable
            
            
            220,936Current
                portion of convertible notes
            
            
            310,000
            
            
            2,395,000Settlements
                payable
            
            
            120,000
            
            
            180,000Total
                current liabilities
            
            
            2,060,815
            
            
            3,635,318LONG
                TERM LIABILITIESLong-term
                debt, net of current portionConvertible
                notes payable, net of current portionTotal
                long term liabilitiesSTOCKHOLDERS’
                DEFICITPreferred
                stock, $.001 par value, 1,000,000 sharesauthorized,
                none issued and outstandingCommon
                stock, $.001 par value, 250,000,000 sharesauthorized,
                94,972,225 shares issued and outstandingat
                December 31, 2007 and 42,673,327 issued andoutstanding
                at December 31, 2006
            
            
            94,972
            
            
            42,673Additional
                paid-in capital
            
            
            11,502,446
            
            
            6,852,208(Deficit)
                accumulated during the development stage
            
            
            (13,127,636
            )
            
            (10,298,891
            )Total
                stockholders’ deficit
            
            
            (1,530,218
            )
            
            (3,404,010
            )TOTAL
                LIABILITIES ANDSTOCKHOLDERS’
                DEFICIT
            
            $
            530,597
            
            $
            231,308





See
      accompanying notes and accountant’s report.




54




Skinny
      Nutritional Corp and Subsidiary


Consolidated
      Statements of Operations








For
                the Years Ended December 31,2007
            
            2006
            
            2005Revenue
                - net
            
            $
            752,825
            
            $
            628,380
            
            $
            514,146Cost
                of goods sold
            
            
            530,312
            
            
            576,882
            
            
            456,270Gross
                profit
            
            
            222,513
            
            
            51,498
            
            
            57,876ExpensesMarketing
                and advertising
            
            
            721,442
            
            
            394,949
            
            
            1,307,186General
                and administrative
            
            
            2,220,492
            
            
            1,894,768
            
            
            1,950,320Total
                expenses
            
            
            2,941,934
            
            
            2,289,717
            
            
            3,257,506Net
                (loss) from operations
            
            
            (2,719,421
            )
            
            (2,238,219
            )
            
            (3,199,630
            )Other
                income (expense)Loss
                from disposition of fixed assets
            
            
            (9,690
            )
            
            (114,887
            )Other
                Income
            
            
            20,172Interest
                expense
            
            
            (119,806
            )
            
            (32,932
            )
            
            (230,216
            )Interest
                income
            
            
            
            
            
            82,592Total
                other expenses
            
            
            (109,324
            )
            
            (65,227
            )
            
            (230,216
            )Income
                TaxesCurrent
            
            
            -0-
            
            
            -0-
            
            
            -0-Deferred
            
            
            -0-
            
            
            -0-
            
            
            -0-Total
                income taxes
            
            
            -0-
            
            
            -0-
            
            
            -0-Net
                (Loss)
            
            
            (2,828,745
            )
            
            ($2,303,446
            )
            
            ($3,429,846
            )(Loss)
                per common share
            
            
            ($.03
            )
            
            ($
                .10
            )
            
            ($
                .26
            )




See
      accompanying notes and accountant’s report.




55




Skinny
      Nutritional Corp and Subsidiary


Statement
      of Stockholders’ Equity (Deficit)


For
      The Years Ended December 31, 2007 and 2006




Additional
            
            StockCommon
                Stock
            
            Paid-In
            
            Subscription
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Receivable
            
            DeficitBalance,
                December 31, 2005
            
            
            15,115,000
            
            $
            15,115
            
            $
            4,754,303
            
            $
            
            
            $
            (7,995,445
            )Conversion
                of convertible debt intocommon
                shares at $.40 per share
            
            
            302,500
            
            
            303
            
            
            120,697Issuance
                of common stockfor
                cash at $.40 per share
            
            
            687,500
            
            
            687
            
            
            274,313Issuance
                of common stockfor
                cash at $.05 per share
            
            
            8,000,000
            
            
            8,000
            
            
            392,000Issuance
                of common stockfor
                cash at $.075 per share
            
            
            3,558,467
            
            
            3,558
            
            
            263,345Issuance
                of common stock forservices
                at $.01 per share
            
            
            900,000
            
            
            900
            
            
            8,100Conversion
                of loans intocommon
                shares at $.05per
                share
            
            
            12,840,000
            
            
            12,840
            
            
            629,160Interest
                shares on aboveconversion
                at $.144 per share
            
            
            69,861
            
            
            70
            
            
            9,990Issuance
                of common stock inexchange
                for convertibledebentures
                at $.10
            
            
            1,200,000
            
            
            1,200
            
            
            118,800Warrants
                issued in exchangefor
                services
            
            
            
            
            
            
            
            
            85,200Options
                issued in exchangefor
                services
            
            
            
            
            
            
            
            
            196,300Net
                Loss for year endedDecember
                31, 2006
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,303,446
            )Balance,
                December 31, 2006
            
            
            42,673,328
            
            
            42,673
            
            
            6,852,208
            
            
            
            
            $
            (10,298,891
            )





(Continued)




56




Skinny
      Nutritional Corp and Subsidiary


Statement
      of Stockholders’ Equity (Deficit)


For
      The Years Ended December 31, 2007 and 2006




Common
                Stock
            
            Additional
              Paid-In
            
            Stock
              Subscription
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Receivable
            
            DeficitBalance,
                December 31, 2006
            
            
            42,673,328
            
            
            42,673
            
            $
            6,852,208
            
            $
            
            
            $
            (10,298,891
            )Issuance
                of Common Stock for CashAt
                .075 Cents per Share
            
            
            15,848,179
            
            
            15,849
            
            
            1,172,214Conversion
                of convertible debt intoCommon
                shares at $.40 per share
            
            
            40,000
            
            
            40
            
            
            19,960Conversion
                of convertible debt intoCommon
                shares at $.10 per share
            
            
            17,900,000
            
            
            17,900
            
            
            1,772,100Conversion
                of convertible debt intoCommon
                shares at $.075 per share
            
            
            3,013,333
            
            
            3,013
            
            
            222,987Conversion
                of convertible debt intoCommon
                shares at $.05 per share
            
            
            1,600,000
            
            
            1,600
            
            
            78,400Issuance
                of Common StockFor
                Note and Interest
            
            
            2,629,720
            
            
            2,630
            
            
            133,314Issuance
                of Common StockIn
                Exchange of Services @.075
            
            
            1,333,333
            
            
            1,333
            
            
            98,670Issuance
                of Common StockIn
                Exchange of Services @.006
            
            
            125,000
            
            
            125
            
            
            9,250Issuance
                of Common StockPer
                Reset Agreement
            
            
            9,809,332
            
            
            9,809
            
            
            (9,809
            )Options
                Issued on Exchange ofServices
            
            
            
            
            
            
            
            
            366,043Capitalize
                Inventory Balances
            
            
            
            
            
            
            
            
            18,604Warrants
                Issued for Services
            
            
            
            
            
            
            
            
            768,505Net
                loss for the year endedDecember
                31, 2007
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,828,745
            )Balance,
                December 31, 2007
            
            
            94,972,225
            
            
            94,972
            
            
            11,502,446
            
            
            
            
            $
            (13,127,636
            )




See
      accompanying notes and accountant's report.




57




Skinny
      Nutritional Corp and Subsidiary


Statements
      of Cash Flows





Increase
      (Decrease) in Cash and Cash Equivalents





For
                the Years Ended December 31,2007
            
            2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (2,828,745
            )
            $
            (2,303,446
            )
            $
            (3,429,846)Adjustments
                to reconcile net loss to net cashused
                by operating activities:Loss
                from disposition of fixed assets
            
            
            6,274
            
            
            114,887Stock
                based compensation
            
            
            
            
            
            9,000Stock
                issued for service
            
            
            109,378Warrants
                issued for services
            
            
            768,505
            
            
            85,200Stock
                options issued for services
            
            
            366,043
            
            
            196,300Changes
                in operating assets and liabilities:(Increase)
                decrease in:Depreciation
            
            
            
            
            
            2,740
            
            
            13,904Accounts
                receivable
            
            
            (398,081
            )
            
            68,471
            
            
            (71,877
            )Inventories
            
            
            (67,971
            )
            
            193,082
            
            
            (193,082
            )Prepaid
                expenses
            
            
            22,665
            
            
            51,418
            
            
            (97,878
            )Other
                assets
            
            
            
            
            
            11,790
            
            
            (11,790
            )Increase
                (decrease) in:Accounts
                payable
            
            
            313,660
            
            
            (219,659
            )
            
            342,588Accrued
                expenses
            
            
            27,500
            
            
            30,000Revolving
                Line of Credit
            
            
            317,560Line
                of Credit
            
            
            25,467Notes
                Payable
            
            
            220,936Current
                Maturities of Long Term Debt
            
            
            (300,283
            )Accrued
                interest
            
            
            (34,343
            )
            
            (85,598
            )
            
            202,134Settlements
                payable
            
            
            (60,000
            )
            
            180,000Net
                cash used in operating activities
            
            
            (1,511,435
            )
            
            (1,665,815
            )
            
            (3,245,847
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchase
                of fixed assets
            
            
            
            
            
            (3,507
            )
            
            (121,342
            )Net
                cash used in investing activities
            
            
            
            
            
            (3,507
            )
            
            (121,342
            )





(Continued)




58




Skinny
      Nutritional Corp and Subsidiary


Statements
      of Cash Flows





Increase
      (Decrease) in Cash and Cash Equivalents





For
                the Years Ended December 31,2007
            
            2006
            
            2005CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                (payments) from stockholders loans (net)
            
            $
            
            
            $
            
            
            $
            25,324Contributed
                capital
            
            
            
            
            
            
            
            
            906,670Proceeds
                (payments) from convertible debenture,net
                of conversions
            
            
            (20,000
            )
            
            (241,000
            )
            
            2,636,000Proceeds
                (payments) from advances
            
            
            
            
            
            
            
            
            (507,750
            )Issuance
                of Common Stock for Note and Interest
            
            
            135,944Debenture
                Interest Capitalized on Conversion
            
            
            51,000Proceeds
                from long-term debt
            
            
            
            
            
            173,747
            
            
            64,036Proceeds
                from Line of Credit
            
            
            
            
            
            
            
            
            314,533Issuance
                of common stock
            
            
            1,188,063
            
            
            1,834,963
            
            
            1,830Net
                cash provided in financing activities
            
            
            1,355,007
            
            
            1,767,710
            
            
            3,440,643NET
                INCREASE (DECREASE) IN CASH
            
            
            (156,428
            )
            
            98,388
            
            
            73,454Cash
                and cash equivalents, beginning of period
            
            
            175,168
            
            
            76,780
            
            
            3,326CASH
                AND CASH EQUIVALENTS,END
                OF PERIOD
            
            $
            18,740
            
            $
            175,168
            
            $
            76,780SUPPLEMENTAL
                DISCLOSUREINVESTING
                AND FINANCING ACTIVITIESCash
                paid during the year for interest
            
            $
            20,035
            
            $
            32,932
            
            $
            174,756







See
      accompanying notes and accountant's report.




59




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007








1.
            ORGANIZATION
                AND OPERATIONS




Skinny
                    Nutritional Corp (the “Company”), formerly Creative Enterprises
                    International, Inc., Inland Pacific Resources, Inc., Sahara Gold
                    Corporation and Parvin Energy, Inc., was organized June 20, 1984
                    as a Utah
                    corporation. On July 26, 1985, the Company changed its domicile
                    to a
                    Nevada corporation.




The
                Company has one wholly owned subsidiary, Creative Enterprises, Inc.
                formed
                in fiscal 2001. Creative Enterprises, Inc. owns Creative Partners
                International, LLC formed in fiscal
                2001.





On
                November 15, 2006, holders of approximately 53% of the Company’s issued
                and outstanding Common Stock consented in writing to the adoption
                of
                resolutions approving (1) amendments to the Company’s Articles of
                Incorporation to (a) change the Company’s corporate name to “Skinny
                Nutritional Corp.” and (b) increase the number of authorized shares of
                common stock 250,000,000 shares and (2)an
                amendment to the Company’s Employee Stock Option Plan to increase the
                number of options in the plan to 20,000,000.





The
                Company had secured an exclusive North American license and distributor
                agreement with Jamnica, d.d. for Jana water and has obtained the
                exclusive
                licensing rights to Skinny Water. The term of the agreement with
                Jamnica
                was for an initial term of one year from the date the Company receives
                certain government approvals; this agreement automatically renews
                thereafter subject to the Company’s achievement of revenue targets. During
                the quarter ended December 31, 2006, the Company ended its agreement
                with
                Jamnica by returning the unsold inventory and settling with Jamnica
                for
                receivables owed the Company and certain accounts payable.





The
                Company has obtained the exclusive licensing rights to Skinny Water
                from
                Peace Mountain Natural Beverages Corp., along with certain associated
                trademarks. The term of the agreement with Peace Mountain is for
                three
                years and self renews unless terminated. The Company has an agreement
                with
                Interhealth Nutraceuticals, on a non-exclusive basis to sell, market,
                distribute and package Super Citrimax, the active ingredient in Skinny
                Water. The term of this agreement is in perpetuity unless terminated
                by
                either party.




60




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007








2.
            GOING
                CONCERN




The
                accompanying financial statements have been prepared in conformity
                with
                generally accepted accounting principles, which contemplate continuation
                of the Company as a going concern. However, the Company has incurred
                losses since its inception and has not yet been successful in establishing
                profitable operations. Further, the Company has current liabilities
                in
                excess of current assets. These factors raise substantial doubt about
                the
                ability of the Company to continue as a going concern. In this regard,
                management is proposing to raise any necessary additional funds through
                sales of its common stock or through loans from shareholders. There
                is no
                assurance that the Company will be successful in raising additional
                capital or achieving profitable operations. The financial statements
                do
                not include any adjustments that might result from the outcome of
                these
                uncertainties.





3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





Accounting
                Method





The
                Company’s financial statements are prepared on the accrual method of
                accounting.





Basis
                of Consolidation





The
                consolidated financial statements include the accounts of Skinny
                Nutritional Corp. (formerly Creative Enterprises International, Inc.
                and
                Creative Enterprises, Inc. All inter-company accounts and transactions
                have been eliminated in
                consolidation.





Revenue
                Recognition





The
                Company sells products through multiple distribution channels including
                resellers and distributors. Revenue is recognized when the product
                is
                shipped to the customer and is recognized net of discounts and returns.
                Revenues generated up toDecember
                31, 2007are
                related to product lines that have been
                discontinued.





Cash
      and Cash Equivalents





For
                purposes of reporting the statement of cash flows, the Company includes
                all cash accounts, which are not subject to withdrawal restrictions
                or
                penalties, and all highly liquid debt instruments purchased with
                a
                maturity of three months or less as cash and cash equivalents. The
                carrying amount of financial instruments
                included in cash and cash equivalents approximate fair value because
                of
                the short maturities for the instruments
                held.





61




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007








3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)










Cash
                - Restricted





At
                December 31, 2007,
                the Company had$3,697in
                restricted escrow cash all of which cleared in January,
                2008.





Depreciation





Property
                and equipment are recorded at cost and depreciated over the estimated
                useful lives of the related assets, which range from five to seven
                years.
                Depreciation is computed on the straight line method for financial
                reporting and income tax purposes.





Accounts
                Receivable





The
                Company considers accounts receivable to be fully collectable;
                accordingly, no allowance for doubtful accounts is required. If amounts
                become uncollectible, they will be charged to operations when that
                determination is made.Bad
                debt write-offs of $ 0 and $35,507.19 recorded for the years ended
                December 31, 2007and 2006
                respectfully.





Inventories





Inventory
                consists of finished goods and is stated at the lower of cost or
                market
                determined by the first-in, first-out method.





Loss
                Per Share





Basic
                net loss per share is computed by dividing net loss available for
                common
                stock by the weighted average number of common shares outstanding
                during
                the period.





Stock
                Based Compensation





The
                Company measures compensation cost to employees from our equity incentive
                plan in accordance with Statement of Financial Accounting Standards
                No.
                123 (R) (“SFAS 123 (R)”). SAF 123(R) requires an issuer to measure the
                cost of employee services received in exchange for an award of equity
                instruments based on the grant date fair value of the award and eliminated
                the exception to account for such awards using the intrinsic method
                previously allowable under APB No. 25. SFAS 123 (R) requires equity
                compensation issued to employees to be expensed over the requisite
                service
                period (usually the vesting
                period).




62




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007




3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)




equity
                compensation issued to employees to be expensed over the requisite
                service
                period (usually the vesting period).





The
                Company measures compensation cost issued to non employees in accordance
                with Emerging Issues Task Force 96 18, “Accounting for Equity Instruments
                That Are Issued to Other Employees for Acquiring, or in Conjunction
                with
                Selling, Goods or Services”, and Emerging Issues Task Force 00 18,
                Accounting Recognition for Certain Transactions Involving Equity
                Instruments Granted to Other Than
                Employees.





Use
                of Estimates in the Preparation of Financial
                Statements





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





4.
            RECENT
                ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the Financial Accounting Standards Board issued SFAS No. 157,
      Fair Value Measurements. This Statement defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      (GAAP), and expands disclosures about fair value measurements. This Statement
      applies under other accounting pronouncements that require or permit fair value
      measurements, the Board having previously concluded in those accounting
      pronouncements that fair value is the relevant measurement attribute.
      Accordingly, this Statement does not require any new fair value measurements.
      However, for some entities, the application of this Statement will change
      current practice. This Statement is effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. Earlier application is encouraged, provided that the
      reporting entity has not yet issued financial statements for that fiscal year,
      including financial statements for an interim period within that fiscal year.
      The adoption of this Statement is not expected to have a material impact on
      the
      Company’s financial statements.




63




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007





5.    
      RELATED PARTY TRANSACTIONS





In
      March
      and April 2006, the Company received an aggregate amount of $642,000 in loans
      made by its Chairman and former Chief Executive Officer and four additional
      accredited investors. The amount of the loan from our Chairman was $242,000.
      In
      connection with the Company’s private placement in October 2006, the holders of
      these convertible debentures converted the entire principal amount and accrued
      but unpaid interest into an aggregate of 12,909,860 shares of the Company’s
      Common Stock at a conversion rate of $0.05 applicable to the principal
      outstanding.





On
      October 4, 2006, the Company restructured a loan from a former director in
      the
      amount of $50,000. The principle amount of the note was paid in full on March
      16, 2007.




As
      of
      December 31, 2007, we compensate our Chairmen at a rate of $12,500 per month
      and
      our Chief Executive Officer at the rate of $11,667 per month based on a
      consulting arrangement. We have not entered into a written agreement with these
      persons. The Chief Executive Officer and Chairman receive an automobile
      allowance of $700 dollars.




6.    
        PENDING
        CLAIMS





On
      January 19, 2006, the Company received a demand for arbitration filed by our
      New
      York distributor. The Company has settled this demand with this distributor
      and
      has reflected the $40,000 settlement in the attached financial statements.
      The
      settlement is payable in 1 payment of $10,000 and 6 equal installments of $5,000
      starting August 10, 2006. This settlement was paid in full in February 2007,
      as
      agreed.





The
      Company was the co-defendant, along with its Chairman, in a civil suit filed
      in
      Miami-Dade County Circuit Court under the caption *Swan
      v. Salaman and Creative Enterprises International, Inc.* Plaintiff claims that we breached an oral agreement of employment and is seeking
      compensatory damages. This
      case
      was settled in August 2007.





In
      addition, we may be subject to other claims and litigation arising in the
      ordinary course of business. Management considers that any liability from any
      reasonably foreseeable disposition of such other claims and litigation,
      individually or in the aggregate, would not have a material adverse effect
      on
      our consolidated financial position, results of operations or cash
      flows.




64




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007





7.    
      CONVERTIBLE DEBENTURES





The
      Company raised an aggregate amount of $3,201,200 ($2,693,450 was raised during
      fiscal year 2005, $507,750 was raised during fiscal year 2004) from the sale
      of
      our convertible debentures to accredited investors in a private placement
      pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as
      amended. Each $40,000 debenture was convertible into a conversion unit
      consisting of 100,000 shares of the Company’s common stock and 100,000 common
      stock purchase warrants. Both the common stock and the warrants are issued
      only
      upon the conversion of the convertible debenture into the appropriate number
      of
      common shares. Accordingly, APB 14 does not apply. The conversion price was
      $0.40 per share. Each debenture will mature two years from the date of issuance
      unless previously converted. Interest is earned on each debenture at the rate
      of
      10% per annum. Interest shall be paid in full at the maturity date or such
      earlier date on which the principal is paid to the holder or on which the
      debenture is converted or exchanged pursuant to its terms. The accrued but
      unpaid interest on each debenture shall be payable in cash or in interest
      shares, at the option of the Company, so long as there is an effective
      registration statement providing for the resale of
      the
      interest shares. The Company may, at its option, prepay some or all of the
      debentures upon not less than thirty (30) days nor more than sixty (60) days
      prior written notice at a prepayment price equal to the principal amount of
      the
      debentures to be prepaid, together with accrued and unpaid interest thereon
      through the date of prepayment.





On
      December 22, 2006, the Company determined to offer the holders of the
      outstanding convertible debentures the ability to convert such securities at
      a
      reduced conversion rate. The convertible debentures were scheduled to mature
      at
      various dates between December 2006 and October 2007 and are currently
      convertible at the conversion rate of $0.40 into (a) an aggregate of 6,287,500
      shares of the Registrant’s common stock and (b) 6,287,500 common stock purchase
      warrants (the “Conversion Warrants”). The Company offered the debenture holders
      the option to convert the outstanding principal amount of their debentures
      into
      shares of the Company’s common stock only at a conversion rate of $0.10 provided
      that the holders agree to the following: (i) convert the outstanding principal
      amount of its convertible debentures no later than January 31, 2007, (ii)
      surrender of the right to receive the Conversion Warrants and (iii) forfeit
      the
      unpaid interest that has accrued on such debentures, which was approximately
      $337,000, in the aggregate.




In
      addition, holders of an aggregate principal amount of $2,065,000 of convertible
      debentures converted such amount into shares of common stock as follows. In
      the
      first quarter, holders of principal of $1,750,000 converted such amount into
      17,500,000 shares of common stock. Also in the first quarter one debt holder
      converted $20,000 in debt to 40,000 shares of common stock. In the second
      quarter two debt holders converted their debt into 400,000 common shares
      reducing the principal balance by $40,000 dollars . During
      the fourth quarter an additional conversion of $188,333 in principal and $37,667
      in interest were converted into 3,013,333 shares of common stock at a conversion
      rate of $.075 a share . During
      December 2007, in a fourth conversion 1,600,000 shares of common stock were
      issued upon conversion of $66,667 in principal and $13,333 in interest at a
      conversion rate of $.05 per share. One investor was paid $20,000 dollars in
      principal and $4,000 dollars in interest to retire his debenture. In addition,
      we issued an aggregate of 765,000 common stock purchase warrants upon the
      conversion of outstanding debentures in 2007. Of these warrants, 225,000
      warrants are exercisable at $0.20 per shares and the remainders are exercisable
      at $0.50 per share. All warrants expire three years from the date of issuance.




65




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007








7.    
      CONVERTIBLE DEBENTURES (Continued)








The
      holders that declined this offer continue to hold their convertible debentures
      and could elect to either convert such debentures on the original terms thereof
      or receive repayment of the principal, and accrued and unpaid interest thereon,
      on the stated maturity date of such debentures. Should the remaining investors
      not convert their remaining debentures, the Company will have to pay the holders
      as follows upon maturity:





Year
      1  $310,000





8. SALE
          OF
          EQUITY SECURITIES





We
      have
      historically primarily been funded through the issuance of common stock, debt
      securities and external borrowings. During the calendar year 2007 the company’s
      primary means of raising capital was through the sale of common stock through
      private placements made pursuant to Rule 506 of Regulation D under the
      Securities Act of 1933. There were three private offerings made during the
      year.
      The first offering commenced in December 2006 and expired in March 2007, with
      10,000,000 shares being offered and an aggregate offering amount of $750,000.
      The offering raised $482,610 during calendar year 2007 with 6,435,004 shares
      of
      common stock being issued. The second offering commenced in March 2007 and
      expired in September 2007; with 13,333,333 shares being offered for an aggregate
      offering amount of $1,000,000 dollars. We received proceeds of $502,202 with
      6,696,509 shares being issued. The third offering commenced in September 2007
      and ended in November 2007; with 13,333,333 shares being offered for an
      aggregate amount of $1,000,000 dollars. We received proceeds of $203,250 in
      this
      offering with 2,716,666 shares being issued. There were 2,759,390 warrants
      issued to “Selling Agents” for the private placements of common stock during
      calendar year 2007. Selling agents received $106,954 dollars in commissions
      for
      private placement of common shares leaving the company with $1,081,108 in net
      proceeds from private placements. A total of 9,809,332 shares of common stock
      were also issued to shareholders from prior subscriptions in the form of reset
      shares required by the convents established in the pervious subscription
      agreements.




66




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007








9.    
      LINE OF CREDIT





On
      April
      4, 2007, we closed on a secure loan arrangement with Valley Green Bank pursuant
      to which we received funds in the amount of $350,000. We have applied these
      funds to satisfy our obligations to Madison Bank. Interest will be charged
      on
      the unpaid principal of this new loan arrangement until the full amount of
      principal has been paid at the rate of 8.25% per annum. We were obligated to
      repay this new loan in full immediately on the bank’s demand, but in no event
      later than March 20, 2008. Since that date we have been in discussions with
      the
      bank to extend the term of the loan. Interest payments are due on a monthly
      basis. The loan is secured by collateral consisting of a perfected first
      priority pledge of certain marketable securities held by our Chairman and
      entities with which he is affiliated. We also agreed to a confession of judgment
      in favor of the bank in the event we default under the loan agreements. The
      loan
      agreements also require the consent of the bank for certain actions, including
      incurring additional debt and incurring certain liens.





10.   LONG-TERM
      DEBT





Long-term
      debt consisted of the following at December 31, 2007 and 2006.





2007
            
            2006Notes
                payable to an individual unsecured,payable
                on demand, including interestat
                12% due September 1, 2008
            
            $
            
            
            $
            145,283Notes
                payable to accredited investor,convertible
                into shares of theCompany’s
                stock at $.05 per shareinterest
                at 10% annum convertedJanuary
                2007
            
            $
            
            
            $
            125,000Note
                payable, convertible into theCompany’s
                stock unsecured,interest
                at 10% per year, due 2/07
            
            $
            
            
            $
            30,000$
            
            
            $
            300,283Less
                current
            
            
            
            
            
            300,283$
            0
            
            $
            0




67




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007





10.  
      LONG-TERM DEBT (Continued)








Skinny
                Nutritional Corp , Inc. and Subsidiary paid interest of $0 and $27,551
                for
                the years ended December 31, 2007 and 2006,
                respectively.





11.  
      LICENSING AND AGREEMENTS





On
      October 4, 2006, the Company entered into an amendment to its License and
      Distribution Agreement with Peace Mountain Natural Beverages Corporation.
      Pursuant to this amendment, the Company agreed to pay Peace Mountain an amount
      of $30,000 in two equal monthly installments commencing on the date of the
      amendment in satisfaction of allegations of non-performance by Peace Mountain.
      In addition, the parties further agreed to amend and restate the Company's
      royalty obligation to Peace Mountain, pursuant to which amendment, the Company
      will have a minimum royalty obligation to Peace Mountain based on a percentage
      of wholesale sales with a quarterly minimum of $15,000.





On
      October 10, 2006, the Company entered into an agreement with Jamnica, d.d.
      and
      Jana North America, Inc., which agreement is effective as of September 20,
      2006,
      pursuant to which the parties confirmed the termination of the distribution
      agreement dated July 21, 2004, between the Company and Jamnica. In the new
      agreement, the parties agreed to the following arrangements: (a) in
      consideration for the agreement by the Company to the terms of the agreement,
      the Company's obligation to Jamnica, in an amount of $207,321, is eliminated;
      (b) Jamnica and Jana North American shall pay an amount of $23,125 on the
      Company's behalf in satisfaction of storage and warehousing fees; (c)
      receivables due to the Company from select accounts shall be transferred to
      Jana
      North America; and (d) the Company shall make available to Jana North America
      all inventory of Jana bottled waters in the Company's possession. In addition,
      the parties agreed that the Company will cease use of the Jana trademarks and
      logos and Jamnica and Jana North America agreed not to use any of the Company's
      licensed trademarks or logos concerning the Company's ‘‘Skinny’’ product line.
      Pursuant to the agreement, the Company will also provide additional assistance
      to Jamnica and Jana North America in the transition for the marketing and
      distribution of the Jana bottled waters.




11.  
      LICENSING AND AGREEMENTS (Continued)





Each
      of
      the parties also agreed to release the other from any obligations or claims
      arising from the distribution agreement.




12.  
      CASH DEPOSITED IN FINANCIAL INSTITUTIONS





The
      Company maintains its cash in bank deposit accounts and financial institutions.
      Accounts at each institution are insured by the Federal Deposit Insurance
      Corporation up to $100,000. The bank accounts at times exceed federally insured
      limits. The Company has not experienced any losses on such
      accounts.





13.  
      INCOME TAXES





The
                Company accounts for income taxes in accordance with Statement of
                Financial Accounting Standards (“SFAS”) No 109 Accounting for Income
                Taxes”. SFAS 109 requires the Company to provide a net deferred tax
                asset/liability equal to the expected future tax benefit/expense
                of
                temporary reporting differences between book and tax accounting methods
                and any available operating loss or tax credit carry forwards. AtDecember
                31, 2007,
                the Company has available unused operating loss carry forwards of
                approximately$9,911,484which
                may be applied against future taxable income and which expires in
                various
                years through 2020.


68


The
                amount of and ultimate realization of the benefits from the operating
                loss
                carry forwards for income tax purposes is dependent, in part, upon
                the tax
                laws in effect, the future earnings of the Company, and other future
                events, the effects of which cannot be determined because of the
                uncertainty surrounding the realization of the loss carry forwards
                the
                Company has established a valuation allowance equal to the tax effect
                of
                the loss carry forwards and, therefore, no deferred tax asset has
                been
                recognized for the loss carry forwards





14.  
      STOCKHOLDERS' EQUITY




At
                December 31, 2007, the Company had 250,000,000 shares of common stock
                authorized par value $.001. Shares outstanding at December 31, 2007
                were
                94,972,225.





15.  
      STOCK OPTIONS





Under
                the Company's stock option plan the Company may grant incentive and
                non
                statutory options to employees, non employee members of the Board
                and
                consultants and other independent advisors who provide services to
                the
                Corporation.




The
                maximum shares of common stock which may be issued over the term
                of the
                plan shall not exceed 20,000,000 shares, as amended on October 6,
                2006.
                Awards under this plan are made by the Board of Directors or a committee
                of the Board.





Under
                the plan options that are granted at the market price of the stock
                on the
                day of the grant. Options granted 10% or more stockholders are granted
                at
                110% of the fair market price on the day of the grant. Each option
                exercisable at such time or times, during such period and for such
                numbers
                of shares shall be determined by the Plan Administrator. However,
                no
                option shall have a term in excess of 10 years from the date of the
                grant.





On
                January 18, 2002, the Company granted stock options exercisable for
                450,000 shares of its common stock. These options were issued without
                cash
                consideration. All the options were exercisable immediately at .50
                per
                share. 300,000 options were later returned to the Company and cancelled.




On
                October 12, 2006, the Company granted 10,500,000 stock options to
                employees and officers of the Company under the 2006 Plan. The options
                granted have a 5 year contractual life. 1,300,000 of the options were
                granted for prior services and vested immediately. The remaining
                9,200,000
                options were issued for future services and will vest 25% on each
                anniversary date of the grant until fully
                vested.





On
                January 12, 2007, the Board approved the grant of an additional 3,000,000
                options to the Company’s Chairman under the same terms as the October 6,
                2006 grant where 20% of the options vest immediately and 20 % on
                each
                anniversary date for the next 4 years. The exercise price of these
                options
                is .25 cents a share.




On
                November 28, 2007, the Company granted 6,325,000 stock options to
                employees and officers of the Company under the 2006 Plan. The options
                granted have a 5 year contractual life. 1,581,250 of the options were
                granted for prior services and vested immediately. The remaining
                4,743,750
                options were issued for future services and will vest 25% on each
                anniversary date of the grant until fully vested.





Each
                stock option award is estimated as of the date of grant using a
                Black-Scholes option valuation model that uses the assumptions noted
                in
                the table below. To address the lack of historical volatility data
                for the
                Company, expected volatility is based on the volatilities of peer
                companies. The risk-free rate for the expected term of the option
                is based
                on the U.S. Treasury yield curve in effect at the time of
                grant.





As
                of December 31, 2007, there were 12,325,000 options issued and outstanding
                under the plan.




Expected
                volatility
            144%Expected
                dividends
            0%Expected
                terms
            4
                yearsRisk-free
                rate
            4.78%




69


Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007








15.  
      STOCK OPTIONS (Continued)





A
                summary of option activity as of December 31,
                2007.





Weighted-Weighted-Average
            
            Average
              RemainingOptions
            
            Shares
            
            Exercise
                Price
            
            Contractual
                TermOutstanding
                at January 1, 2006
            
            
            150,000
            
            $
            0.50
            
            
            8Granted
            
            
            10,500,000
            
            
            0.17ExercisedForfeited
                or expired
            
            
            (7,650,000
            )
            
            (0.18)Outstanding
                at January 1, 2007
            
            
            3,000,000
            
            $
            0.17
            
            
            7Granted
            
            
            9,325,000
            
            
            .14
            
            
            10ExercisedForfeited
                or expiredOutstanding
                at December 31, 2007
            
            
            12,325,000
            
            
            0.14
            
            
            10




A
      summary
      of the status of the Company’s non-vested shares as of December 31, 2006 and
      changes during the period then ended is presented below:





Weighted-AverageGrant
                DateNon-vested
                shares
            
            Shares
            
            Fair
                ValueNon-vested
                at January 1, 2006
            
            
            150,000
            
            
            0.50Granted
            
            
            10,500,000
            
            
            0.17VestedForfeited
            
            
            (7,650,000)
            
            
            (0.18)Non-vested
                at January 1, 2007
            
            
            3,000,000
            
            
            0.17Granted
            
            
            9,325,000
            
            
            0.13Vested
            
            
            (3,958,000)
            
            
            0.14ForfeitedNon-vested
                at January 1, 2008
            
            
            8,367,000
            
            
            0.13




70




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007





15.  
      STOCK OPTIONS (Continued)




There
        was $1,132,515 of
        unrecognized compensation cost related to the non-vested stock granted under
        the
        plan as of December 31, 2007. The unrecognized compensation cost is expected
        to
        be recognized using the straight-line method over the requisite service period
        (October 12, 2006 through November 28, 2012).





In
      January 2007, 150,000 stock options issued in January 2002 expired. On March
      26,
      2007, 4,000,000 options expired from terminated employees.





16.  STOCK
      PURCHASE WARRANTS





In
      March
      2004, the company granted 1,000,000 warrants to purchase its common stock for
      a
      purchase price of $.20 cents per share to an investor in connection with an
      investment in the company. The warrants grant the holder the right to purchase
      common stock from the date of the grant to March 2012. Subsequently these
      warrants were surrendered and reissued to five new investors. In February 2005,
      and additional 100,000 warrants were granted to a distributor for a purchase
      price of $.40 cents as an incentive to enter into an exclusive marketing
      agreement for New York. The warrants can be exercised at the purchase price
      of
      $.40 cents any time from the date of the grant through February 2010.During
      November and December 2005 the company granted 512,500 warrants to investors
      who
      purchased common shares through a private placement of common stock. These
      warrants are exercisable for a period of five years with an exercise price
      of
      .75 cents.





During
      the last quarter of 2005 and the first two quarters of 2006 the company granted
      1,978,000 warrants to holders of convertible debt who converted their debentures
      into common shares. These warrants are exercisable for a period of three years
      with an exercise price of .75 cents.





In
      the
      months of January and February 2006 the company granted 750,000 warrants to
      investors in a private placement of common shares. These warrants are
      exercisable for a period of five years with an exercise price of .75 cents.
      In
      October 2006, the company approved a grant of warrants to purchase 600,000
      shares of common stock to a law firm in consideration of services rendered.
      These warrants are exercisable for a period of five years at an exercise price
      of .05 cents per share.




In
      February 2007, the company granted 1,800,000 warrants to Geltech Sales LLC
      with
      an exercisable period of seven years with an exercise price of .24 cents. On
      October 16, 2007, we notified Geltech that we elected to terminate this
      agreement with Geltech based on performance obligations; resulting in a
      cancellation of 1,075,000 warrants.




During
      November 2006, the company granted 200,000 warrants to consultants for services
      rendered. These warrants have an exercisable period of five years at an exercise
      price of .10 cents. In addition the company granted 125,000 warrants to
      consultants for services rendered during January 2007. These warrants have
      an
      exercisable period of five years at an exercise price of .40 cents.




During
      the 2007 calendar year 2,959,390 warrants were issued to “Selling Agents” for
      private placement of common shares. These warrants have an exercisable period
      of
      five years with an exercise prices ranging between .06 cents to .11 cents per
      share. During the third and forth quarter of 2007 the company granted 690,000
      warrants to investors who purchased convertible debt which was then converted
      into common shares these warrants have a three year exercise period with an
      exercise price of .50 cents.




71





In
      November 2007, the Company issued 100,000 warrants to a sales representative
      for
      services rendered. These warrants are exercisable for a period of seven years
      with an exercise price of .08 cents per share.





The
      issuance of these securities was exempt from registration under the Securities
      Act of 1933, as amended, under Section 4(2) thereof inasmuch as the securities
      were issued without any form of general solicitation or general advertising
      and
      the acquirers were provided with access to material information concerning
      the
      company.





A
      summary
      of the status of the Company’s outstanding stock warrants as of December 31,
      2007 is as follows:





Shares
            
            Weighted-Average
              Exercise
                PriceOutstanding
                at January 1, 2005
            
            
            1,000,000
            
            
            0.20Granted
            
            
            1,950,500
            
            $
            0.73ExercisedForfeitedOutstanding
                at January 1, 2006
            
            
            2,950,500
            
            
            0.55Granted
            
            
            2,190,000
            
            
            0.50ExercisedForfeitedOutstanding
                at January 1, 2007
            
            
            5,140,500
            
            
            0.53Granted
            
            
            5,749,390
            
            
            0.19ExercisedForfeited
            
            
            (1,075,000
            )
            
            (0.24
            )Outstanding
                atDecember
                31, 2007
            
            
            9,814,890
            
            
            0.36Exercisable
                atDecember
                31, 2007
            
            
            9,814,890
            
            
            0.36





17.  
      LOSS PER SHARE





Loss
                per share is based on the weighted average number of common shares.
                Dilutive loss per share was not presented, as the Company as of December
                31, 2007 and 2006 issued 12,325,000 options and 9,814,890 warrants
                which
                would have an antidilutive effect on earnings.




December
                31,2007
            
            2006Loss
                from continuing operations availableto
                common stockholders
            
            $
            (2,828,745
            )
            $
            (2,303,446
            )Weighted
                average of common shares outstandingused
                in earnings per share during the period
            
            
            82,706,893
            
            
            22,634,500Loss
                per common shares
            
            $
            (.03
            )
            $
            (.10
            )





72




Skinny
      Nutritional Corp and Subsidiary


Notes
      to Consolidated Financial Statements


December
      31, 2007




18.   DISCLOSURE
      ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS




The
      following methods and assumptions were used to estimate the fair value of each
      class of financial instrument:





For
      cash
      the carrying amount is assumed to be a reasonable estimate of fair
      value.


For
      accrued interest, amounts are assumed to be a reasonable estimate of fair
      value.


Based
      on
      current borrowing rates, the fair value of convertible notes, notes payable
      and
      line of credit approximates their carrying value.




19.   SUBSEQUENT
      EVENTS





In
      December 2007, the Company commenced a private offering of up to $2,000,000
      of
      shares of Common Stock at a per share price of $0.04. The shares are being
      offered to accredited investors only. The shares being offered will not be
      registered under the Securities Act of 1933, as amended (the “Act”) and will be
      offered in reliance upon the exemption from registration set forth in Section
      4(2) and Regulation D, promulgated under the Act. Such shares may not be
      offered or sold in the United States absent registration or an applicable
      exemption from registration requirements. The Company intends to engage
      registered broker-dealers to serve as selling agents (the “Selling Agents”), for
      the sale of the Units and pay commissions and other compensation to the Selling
      Agents who procure purchasers of the Units. We will pay and issue to each
      Selling Agent a warrant (the “Agent Warrants”) to purchase such number of Shares
      as equals 10% of the total number of Shares actually sold in the Offering to
      Purchasers procured by each Selling Agent. Agent Warrants shall be exercisable
      at the per share price of $0.09 for a period of five years from the date of
      issuance. The Company intends to use the proceeds from the offering for working
      capital and payment of accrued compensation.





There
      can
      be no assurance that the Company will complete the offering on the anticipated
      terms, or at all. The Company’s ability to complete the offering will depend,
      among other things, on market conditions. In addition, the Company's ability
      to
      complete this offering and its business are subject to risks described in the
      Company's filings with the Securities and Exchange Commission. This disclosure
      does not constitute an offer to sell or the solicitation of an offer to buy
      any
      the Company’s securities, nor there any sale of these securities by the Company
      in any state or jurisdiction in which the offer, solicitation or sale would
      be
      unlawful. The disclosure is being issued pursuant to and in accordance with
      Rule
      135c of the Act.





During
      the 2008 fiscal year, the Company converted additional convertible debt
      securities into equity as follows. On January 25, 2008, the Company issued
      900,000 shares of common stock and 112,500 common stock purchase warrants upon
      the conversion of an aggregate amount of $45,000 (inclusive of accrued interest
      of $15,000) of outstanding convertible debentures. The warrants issued upon
      conversion of these debentures are exercisable for a period of three years
      at an
      exercise price of $0.50 per share. On March 3, 2008, the Company issued 300,000
      shares of common stock upon the conversion of an aggregate amount of $15,000
      of
      outstanding convertible debentures. On March 20, 2008, the Company issued
      1,125,000 shares of common stock and 112,500 common stock purchase warrants
      upon
      the conversion of an aggregate amount of $45,000 (inclusive of accrued interest
      of $7,500) of outstanding convertible debentures. The warrants issued upon
      conversion of these debentures are exercisable for a period of three years
      at an
      exercise price of $0.50 per share. These securities have not been registered
      under the Securities Act of 1933, as amended, and are being issued in reliance
      upon the exemption for registration set forth in Section 3(a)(9)
      thereof.




73





The
      Company authorized an issuance of 2,000,000 restricted shares of common stock
      to
      Michael Salaman in consideration for his agreement to personally guarantee
      the
      Company’s loan facility from Valley Green Bank. This issuance was initially
      approved by our board of directors in November 2007.





On
      March
      20, 2008, the Company announced that it had established an advisory board to
      provide advice on matters relating to the Company’s products. The Company will
      seek to appoint up to five individuals to its advisory board. On such date,
      the
      Company appointed the following individuals to its advisory board: Pat Croce,
      Ron Wilson and Michael Zuckerman. The Company also entered into a consulting
      agreement with Mr. Croce, pursuant to which the Company agreed to issue warrants
      to purchase 3,000,000 shares of stock at $.05 in consideration of his agreement
      to serve on the Company’s Advisory Board and for providing the marketing
      services for the Company’s products. In addition to serving on the Advisory
      Board, Croce agreed through an affiliated entity, to endorse and advertise
      the
      Company’s products. In additional consideration for his  agreement
      to provide the endorsement and marketing services, the Company agreed to pay
      a
      royalty with respect to the sale of its products that he endorses for the
      duration of his endorsement services. The Company issued each of the other
      initial members of its advisory board warrants to purchase 1,500,000 shares
      of
      Common Stock, exercisable for a period of five years at a price of $0.05. The
      securities sold in or issued in connection with the financing have not been
      registered under the Securities Act of 1933, as amended, and were offered and
      sold in reliance upon the exemption from registration set forth in Section
      4(2)
      thereof. We believe that the investors and the selling agent are “accredited
      investors”; as such term is defined in Rule 501(a) promulgated under the
      Securities Act.




20.   Departure
        of Generally Accepted Accounting Principle
  In
        accordance with generally accepted accounting principles the grant date fair
        value of employee stock options and simular instruments will be estimated
        using
        option -pricing models adjusted for the unique characteristics of those
        instruments. The Company measured it's stock options using the option exercise
        price and valued the warrants at the lower of the exercise price or the market
        value . The method the Company used to measure these instruments is not in
        accordance with generally accepted accounting principles.




74


**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, Skinny Nutritional
      Corp., Inc. has caused this Report to be signed on its behalf by the
      undersigned, thereunto duly authorized.




Date:
                April 14, 2008
            
            **SKINNY
                NUTRITIONAL CORP.**By:
            /s/
                Donald J. McDonaldDonald
                J. McDonald
              President
                and Chief Executive Officer






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




**Name**
            **Title**
            **Date**/s/
                Donald J. McDonald
              
              Donald
                J. McDonald
            Chief
                Executive Officer, President and Director
            April
                14, 2008/s/
                Michael Salaman
              
              Michael
                Salaman
            Chairman
                of the Board of Directors
            April
                14, 2008/s/
                Michael Reis
              
              Michael
                Reis
            Director
            April
                14, 2008







75