SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-KSB

     ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

                   For the fiscal year ended December 31, 2006

                                       OR

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


                        COMMISSION FILE NUMBER: 001-32134

                              Z TRIM HOLDINGS, INC.
                 (Name of Small Business Issuer in its Charter)

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

               1011 CAMPUS DRIVE                       (847) 549-6002
           MUNDELEIN, ILLINOIS 60060           (Registrant's Telephone Number,
  (Address of Principal Executive Offices,         Including Area Code)
             including Zip Code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                            Name of Each Exchange on
Title of Each Class                         Which Registered
--------------------------------            ---------------------------
Common Stock, $.00005 par value             American Stock Exchange


           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

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

Check  whether  the  issuer:  (1)  filed  all  reports  required  to be filed by
Section13 of 15(d) of the Securities  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
                                -----    ------
<PAGE>
Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B, and no disclosure will be contained, to the best of registrant's
knowledge,  in  definitive  proxy  or  information  statements  incorporated  by
reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB.

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

The issuer's revenues for its most recent fiscal year were: $601,544

The  aggregate  market  value  of  the  voting  stock  of  the  issuer  held  by
non-affiliates  of the  issuer  as of  March  27,  2007  was  $57,135,653  These
aggregate market values are estimated solely for purposes of this report and are
based on the closing price for the issuer's  common stock,  $.00005 par value on
March 27, 2007 as reported on the American  Stock  Exchange.  For the purpose of
this report,  it has been assumed that all officers and directors of the issuer,
as well as all  stockholders  holding  10% or more of the  issuer's  stock,  are
affiliates of the issuer.  The statements  made herein shall not be construed as
an admission for determining the affiliate status of any person.

The number of shares of the  registrant's  common stock  outstanding as of March
27, 2007 was 63,571,763.

Transitional Small Business Disclosure Format:

                                Yes      No  X
                                -----    ------

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

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

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

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


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

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

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

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

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

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

We   have   four   operating    subsidiaries:    Fiber-Gel    Technologies,Inc.;
thebraveway.com,  Inc.,  operating  as The Brave Way Training  Systems;  On-Line
Bedding Corp.; and Z-Amaize Technologies,  Inc.; and we have exclusive worldwide
licenses to the Nutrition  Analysis Tool website,  Mini-Raman Lidar System,  and
ThraxVac technology.


                                       3
<PAGE>

Z Trim can play a critical role in the obesity epidemic.

Z Trim is a USDA-developed, all-natural, zero calorie fat replacement ingredient
made from the healthy fiber of cereal grains. Currently corn or oats is used but
Z Trim  production  can be derived  from most  economic  agricultural  products.
Current Z Trim products  include gel or powder used to replace  portions of fat,
gums,  starches and  carbohydrates  in foods and as a nutritional  supplement to
control  appetite.  In a recent clinical study for weight  management Z Trim was
proven safe and effective where three out of four participants lost weight on an
average of one pound per week with no lifestyle modification.

When used in foods as a gel with the consistency of fats like butter, Z Trim can
replace  up to 50% of the fat and  calories  without  changing  taste  and while
improving  texture.  In several  consumer  tests,  nearly all of those  surveyed
determined  that Z Trim foods taste better than,  or at least as good,  as their
full-fat counterparts.

Dr.  James  Painter,  PhD,  RD and Chair of the  School of Family  and  Consumer
Sciences,  performed blind taste studies at Eastern Illinois University with the
purpose of determining consumer  acceptability of dessert products prepared with
varying levels of Z Trim as a fat  substitute.  All products were prepared using
standardized  recipes with the  exception  of varying  levels of Z Trim as a fat
substitute  replacing  fat, gram for gram at 25%,  50%, 75% and 100%.  Each food
product was assessed on four characteristics;  appearance,  flavor,  texture and
over all acceptability.

The conclusions were as follows -

o    Z Trim may be  substituted  in all food  products  that were  tested at 25%
     without showing a significant decrease in consumer liking in any category.

o    Z Trim  may be  substituted  at 50% in all  food  products  tested  without
     showing a significant decrease in overall acceptability

o    Z Trim may be  substituted  at 75% in chocolate  and cheese  cakes  without
     showing a significant decrease in consumer liking in any category

o    Z Trim may be  substituted  at 100% in  chocolate  cake  without  showing a
     significant decrease in consumer liking in any category

o    Z Trim may be  substituted  at 100% in chocolate  and cheese cakes  without
     showing a decrease in overall acceptability.

o    At 25%  substitution  texture  increased  significantly  with  soft  raisin
     cookies and appearance increase significantly in chocolate and cheese cakes


Whether  replacing fat in foods, or as an appetite  control  supplement,  Z Trim
consistently   creates  a  feeling   of   non-bloated   fullness   without   any
gastrointestinal (G.I.) or other negative side effects.

The ever-expanding  interest by consumers in nutrition and their on-going search
to find an effective  and healthy  weight  management  solution  that works in a
majority  of cases,  without  lifestyle  modification,  is  helping to drive the
increase  in our  sales.  Z Trim makes  most  foods  healthier,  whether in home
kitchens, on grocery shelves or via institutional food service.

Z Trim is great news, and the media is picking up on the story.


                                       4
<PAGE>

"You On a Diet" (Free Press) authors Dr. Mehmet Oz and Dr. Michael  Roizen,  who
appear  frequently on Oprah  Winfrey's day time talk show,  acknowledge in their
current  chart  topping  bestseller  that  foods  made  with Z Trim have all the
"taste"   benefits   of   fat   (better   taste,    more   creaminess,    better
mouth-feel)without  the caloric load. In a section headed "Help on the Horizon!"
the authors note that their tasters  reported that foods with Z Trim had all the
flavor of the full-fat food, and conclude that Z Trim may eventually  change the
way we eat.  The  authors  have a show of the  same  name  on  Discovery  Health
Channel.  It is notable  that the authors saw fit to discuss Z Trim as a product
and by name due to the fact they have not to our  knowledge  previously  done so
with other products.

The  Company  owns one of the top  nutritional  analysis  web sites  Nutritional
Analysis Technology Site according to Google Search results. Internet traffic to
the Nutritional Analysis Technology Site (NATS)(http://nat.crgq.com/) provides a
steady stream of new health seekers, allowing us to spread the message about the
benefits  of our  marketing  message  LIVE  LIFE  BETTER(TM)  with Z Trim  to an
audience interested in health and nutrition.  Visitors to the NATS site can also
buy Z Trim products.

The company  continues the expansion of the ZTM  shareholder  base by developing
new investment banking relationships, and by contacting the investment community
at the broker,  MicroCap Fund, and individual  levels to inform and educate them
about Z Trim Holdings,  Inc. and the company's USDA developed Z Trim technology,
what we feel is the "Answer to the Obesity  Epidemic".  Every customer becomes a
potential product spokesperson as well as a potential shareholder. We won't rest
until every American embraces Z Trim.

Cornell  Students  were awarded  third place in the Research  Chefs  Association
National Culinology Competition using Z Trim.

We are  continuing to expand our marketing and publicity  programs to inform and
educate  the world  about the  intersecting  Pandemic of Obesity and Z Trim as a
solution  available  now. This  includes a video with Dr. Stuart Trager  talking
about the health benefits of Z Trim and the clinical study

Z Trim is the right product, in the right place at the right time

According  to the  World  Health  Organization,  over  one  billion  people  are
overweight across the globe, and that number is steadily rising. Various medical
studies show that overweight persons are physiologically  predisposed to advance
into clinical  obesity.  The U.S.  Centers for Disease  Control has now formally
labeled  obesity an  epidemic,  recognizing  its erosive  effect on the national
economy in terms of lost  productivity  and wages,  increasing costs of benefits
programs and publicly funded health programs,  increased  diversionary  spending
and the proliferation of avoidable disease. The Center for Science in the Public
Interest is  constantly  challenging  the food  industry to reduce fats, to stop
marketing to children and to make other meaningful changes. The American Medical
Association,  the American  Cancer Society,  the American Heart  Association and
even the USDA are devoting more of their resources to re-educating the public on
how healthy lifestyles can help to curtail the obesity epidemic.

We believe there is a convergence of interests  today among  consumers who would
like to be healthier without sacrificing delicious foods, the food companies who
are  interested  in a solution,  and  governments  who have declared the need to
legislate  consumers'  fat intake.  This is creating a market  driven  force for
change within the food industry. The World Health Organization recently declared
obesity as the  biggest and most costly  health  problem on earth and yet,  even
though  the  media  covers  this  topic  extensively,  we know of no  legitimate
contender  to solve the  dilemma.  We  believe  that Z Trim is the  first  major
contender.


                                       5
<PAGE>

Over fifty  ingredients  that replace fat have been  introduced  during the past
quarter century and today represent a large growth opportunity. Several of these
ingredients  exist today in products  labeled as "low fat",  "no fat" "less fat"
and "reduced fat", but foods containing  these  ingredients are often considered
by consumers to have bad taste and texture. A few ingredients,  such as Olestra,
are frequently cited as having a negative impact on digestive health.

Recently,  certain  large food  companies  suggested  the  solution was to lower
portion sizes. History shows that this actually results in consumers eating more
than they ate  previously.  Another recent report showed that trans fats,  which
are nine  calories  per gram,  can be removed  in favor of palm oil,  (also nine
calories  per gram),  which years ago was  replaced  by tran's fats  because the
industry said it was  unhealthy at the time. Z Trim(R),  developed by the United
States   Department   of   Agriculture   (USDA),   is  a  natural  zero  calorie
fat-substitute  made from the bran and hulls of cereal grains that lowers 25% to
50% of calories from fats in most foods without  negatively  affecting  taste or
texture.  Z Trim  generally  can't be  detected  by  consumers  when  formulated
correctly in dairy, dressings, dips, sauces, baked goods, processed meats, snack
foods, cookies, pies, cakes, icings,  brownies, bars, ice cream, milk shakes and
many other foods. It improves texture significantly;  makes meats juicier, baked
goods moister,  dips creamier. Z Trim lets you to eat more of the foods you love
without fear of weight gain and allows you to lose weight  without giving up the
foods you love.  Z Trim adopts the flavor and mouth feel of most recipes and has
been  proven in studies  that a majority of  consumers  prefer Z Trim foods over
their full-fat  counterparts.  Z Trim can substantially reduce harmful trans and
saturated fats and adds healthy insoluble and soluble dietary fiber which can be
beneficial to heart patients and diabetics. Z Trim can improve digestion without
any negative side effects sometimes associated with other fat substitutes and is
generally recognized as safe (GRAS) by the Food and Drug  Administration.  Fiber
has been shown to improve  satiety  and  contribute  to other  benefits  such as
weight loss, lowering of cholesterol and improvement of glycemic index.

MARKETING AND DISTRIBUTION

The  needs of the  public,  the food  industry  and the  regulatory  bodies  are
converging to deliver a tremendous  market demand for a healthy  solution to the
obesity epidemic.  "Added fats" are used in cooking, as table spreads and in the
manufacture of food products,  such as baked goods, salad dressings,  and potato
chips. Added fats represent approximately half of the total fats we consume. The
replacement of 1/3 of added fats with Z Trim is one of the Company's goals.

The Company has a co-branding  campaign,  themed on the  Company's  trademarks Z
TRIM(R)  and LIVE  LIFE  BETTER(TM).  This  theme is aimed at  marketing  Z Trim
simultaneously  to the packaged food industry,  to the restaurant  industry,  to
institutional food providers (hospitals,  schools,  prisons,  etc.),  nutrition,
fitness and healthfood companies, and to consumers who use it at home as well as
seeking  it out in the  products  they  buy off of  grocery  store  shelves  and
restaurant  menus.  Recognizable  "Z Trim" and "Live Life Better"  logos on food
packaging,  or adjacent to menu items,  in our  estimation,  will signify a food
product made better and healthier.

Our marketing  strategy for Z Trim and the Z Trim line of products  includes the
use of a variety of  consumer  media in pursuit  of a brand  awareness  campaign
targeted  to the  consumer,  and a  business-to-business  campaign  focusing  on
product education,  sales,  promotional and distribution  strategies targeted to
the food manufacturing and dining industries.  Z Trim product sales are targeted
to the manufacturers of dairy, bakery,  cereal,  confectionary,  processed meat,
sauces, snack food, beverage,  consumer-packaged and frozen foods, delicatessen,
and private label foods, as well as to institutional food service,  restaurants,
catering, food solutions and "meal-makers" meal preparation outlets.


                                       6
<PAGE>
PRINCIPAL PRODUCTS AND SERVICES

     Z Trim is currently our principal  product.  As more fully described above,
we own the  exclusive  license  for all  fields  of use  both  domestically  and
internationally to Z Trim, an all-natural,  agriculturally-based fat replacement
developed  by USDA. Z Trim can be used to decrease fat and calories and increase
insoluble healthy fiber in foods.


EMPLOYEES AND LABOR RELATIONS

     As of December  31, 2006 we employed  thirty  three  persons on a full-time
basis and one person on a  part-time  basis.  While we believe  that the current
number  of  employees  is  sufficient  to carry  on our  business  as  currently
conducted,  we may need to hire additional  employees to meet future operational
requirements.  None of our employees are represented by a labor union and we are
not governed by any collective bargaining agreements.  We believe that relations
with our employees are good.

COMPETITION

     Although we compete with other food specialty firms  providing  products in
the same ingredient categories, we believe that Z Trim represents a better, more
comprehensive fat replacement solution than those of other companies.

ADVISORY PANEL OF EXPERTS

William  Smithburg - joined The Quaker Oats Company in 1966 as a Brand  Manager,
after  five years with two  advertising  agencies.  Mr.  Smithburg  became  Vice
President  and General  Manager of the Cereals  division in 1970.  In 1976,  Mr.
Smithburg became Executive Vice President - U.S. Grocery  Products,  the largest
division  of The Quaker Oats  Company.  He was named to The Quaker Oats Board of
Directors in 1978, and in 1979 was named President and Chief Operating  Officer.
Two years later, in 1981, he became Quaker's Chief Executive Officer and assumed
the  position  of  Chairman of the Board in 1983.  He held that  position  until
retiring  in  November,  1997.  Mr.  Smithburg  is  also a  Director  of  Abbott
Laboratories, Corning Incorporated, The Northern Trust Company and Smurfit-Stone
Container  Corporation.  He  served  on the Board of  Directors  of the  Grocery
Manufacturers  of  America  from 1981 to 1997 and was  Chairman  of the  Grocery
Manufacturers  of America's Board of Directors from 1993 to 1995. He also serves
on the Board of Trustees of  Northwestern  University and has served as a member
of the Civic  Committee  of the  Commercial  Club of Chicago  and a director  of
Northwestern  Memorial  Hospital where he was Chairman of the Board from 1992 to
1993.

George A.  Naddaff - is the  current  Chairman  and co-CEO of KnowFat  Lifestyle
Grills.  Mr. Naddaff is considered by many to be the "Guru of  Franchising".  He
developed Boston  Chicken/Boston  Market into a national  franchise brand and in
1992 sold it to a group of Blockbuster  Video  executives.  In 1993 he shared in
its  record-setting  IPO (143% first-day  increase).  Naddaff has founded and/or
been significantly  involved with several other successful  concepts  including:
Mulberry Child Care Centers,  which had over 90 company-owned  childcare centers
when it was sold to KinderCare;  Sylvan Learning  Centers,  the nation's leading
after-school  learning  facilities;  Ranch*1,  a New York-based chain of grilled
chicken sandwich restaurants;  Living and Learning Schools,  which operated more
than 50 upscale childcare facilities and was sold to KinderCare; and VR Business
Brokers,  the  nation's  largest  business  brokerage  franchise  with  over 350
offices,  which was acquired in 1986 by  Christies,  London.  Naddaff  began his
career in food service when he co-founded International Foods, which operated 19
KFC franchises in the Boston area and was sold in 1970.


                                       7
<PAGE>
Nicki Anderson - has spent the last 10 years trying to shift the way people view
diet and exercise.  Nicki  believes that exercise has become  punishment  for an
imperfect  body. It seems that exercise is perceived to be for the elite athlete
or  thin  person.  As  a  fitness  professional,   she  feels  that  it  is  her
responsibility  to  introduce  exercise as  something  that is positive and life
enhancing.  Ms Anderson  believes that more often than not, people view exercise
and sound nutrition as an all or nothing proposition.  Ms. Anderson, IDEA Master
Trainer,  is the author of  "Reality  Fitness:  Inspiration  for Your Health and
Well-being".  She is the health  and  fitness  columnist  for  Suburban  Chicago
Newspapers  as  well  as a  family  fitness  contributor  for  eDiets.  She is a
certified  personal  trainer  through the  National  Academy of Sports  Medicine
(NASM).  Nicki sits on the IHRSA  Entrepreneurial  Advisory Board,  the Personal
Training Committee for IDEA, and USA Today's Entrepreneurial Advisory Board.

Basil J. Falcone - At the time of its sale in 1997,  Mr.  Falcone was the former
co-owner and Vice  Chairman of General  Drug,  the 11th  largest  pharmaceutical
distributor in the United States. Shortly thereafter,  he acquired Omaha Vaccine
& American  Veterinary  Pharmaceutical  Co.  which he sold in 2004.  Acting in a
broad strategic  advisory role, Mr. Falcone currently has significant  interests
in human vaccine,  nutraceutical and functional food companies. In his forty-six
years of business and entrepreneurial experience, Mr. Falcone began as a 21-year
old college  graduate  management  trainee at General  Motors and since has held
management  positions in large and middle size  companies,  commencing his first
turnaround  acquisition  at age 37. Mr. Falcone has a Bachelor of Science degree
in Sociology,  Fordham  University,  N.Y. 1960 and MBA Graduate Studies,  Baruch
Graduate School of Management  (City  University of New York). He is a Member of
the Economic  Club of Chicago and a Board member of Bastyr  University,  Seattle
Washington.

Triveni P. Shukla, Ph.D - Vice President, Technology Development for Z Trim. Dr.
Shukla is in charge of  accelerating Z Trim's  manufacturing  process and market
development.  He has a distinguished  international  background in food science.
For ten years,  he was head of R&D and  Engineering  at Krause  Milling Co. (now
ADM),  and has spent  almost two  decades  as a  consultant  to the global  food
processing industries. Dr. Shukla is a scientist of vast and varied business and
technical  experience  in the  cereal  foods and allied  industries,  commercial
development   and  R&D.  His  activities  and  expertise  cover  a  wide  range:
post-harvest  technology  assessment  and  forecasting,   contract  R&D,  market
research,  development  and  improvement  strategies,   technical  and  economic
feasibility  studies,  competitive  analysis and market  intelligence,  facility
planning,  sub-sector  analysis and  privatization,  joint-venture  analysis and
international technology transfer. He is an internationally recognized expert in
dry and wet corn milling.  Dr. Shukla's  association with Cargill,  A.E. Staley,
American Maize Co., U.S. Feed Grains Council,  Winrock  International,  Monsanto
and many other  multi-national  food processing  clients  constitutes a valuable
body of  experience.  The list of companies that Dr. Shukla has worked with also
includes:   Anheuser-Busch,   Bimbo  (Mexico),  Cedarburg  Dairy/Kemp,  ConAgra,
Experience  Inc.,  Frigo  Cheese  Co./Unigated  Ltd.,  Grupo  Minsa s.a. de c.v.
(Mexico),  Heinz Co./Ore-Ida  Foods,  Heinz  Co./Foodways  Natl.,  Hershey Foods
Corporation,  Illinois  Cereal  Mills,  Kraft-General  Foods,  Labbat  Anderson,
Mexican Accent Inc.,  Monsanto  Company,  Nabisco Brands,  National Honey Board,
Oscar  Meyer  Foods/Philip  Morris,   Procter  &  Gamble,   Quaker  Oats,  Sigma
Alimentos/Grupo  Alpha  (Mexico),  Group  Minsa of Mexico  and  Matrix  Group of
Malaysia,  as well as four  companies  in  Japan,  two in India  and two more in
Korea.

Eric Carre - Research & Development  Chef/Expert in Global Cuisine.  Chef Eric's
prior 25+ years of  industry  experience  encompasses  restaurant,  R&D and food
manufacturing both in the US and abroad and includes being the Executive Chef/VP
of R&D for Culinary Foods, Inc. (a wholly owned subsidiary of Tyson Foods, Inc.)
where he  increased  sales from $34 million to $142  million in 6 years.  He has
also served as  Executive  Chef/VP R&D at Culinary  Brands,  Inc., a division of
Nestle and a pioneer in the use of sous vide  cooking in the United  States.  In
collaboration  with UC Davis, Mr. Carre developed,  pasteurized  fully prepared,


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<PAGE>
fresh  refrigerated food using the cook-chill and Cook-in-Pack sous vide method.
Eric  was  a  2005  Nominee  for  Award  of  Excellence  -  IACP  (International
Association of Culinary Professionals) and has been an editorial contributor and
speaker to numerous major industry publications,  seminars and conferences.  His
client's include Devanco Foods (frozen  shawarma & cold sauces),  Harbor Seafood
(frozen lobster,  fish & other seafood),  Smithfield  Innovations  (Frozen Sauce
Program),  Distinctive  Foods LLC (Chicago  Flatbread & Texas Flatbread  product
lines;  Pie Piper  (Sweets  Program),  Alfa Gamma  Seafood  (Fish and  Seafood),
Newhall  Klein  Inc.  Marketing  Communications  (Culinary  Ideation,  Editorial
Newsletter  Services & Food  Service  Recipe  Development),  Gage Foods  (School
Feeding Program),  Costco Club Stores Wholesale,  National distribution,  United
Airlines, British Airways, Lufthansa,  Wyndham Hotels, Casino Morongo, CA, Whole
Foods'  Trader Joes,  Perdue  Farms,  White Toque,  and Little Lady Foods (Sauce
Program).

Dari Carre - is a renowned Research & Development Chef-Consultant. Dari's career
in food began in 1988 upon  completion  of a  Professional  Diploma in Classical
French Cooking at New York City's Institute for Culinary Education. Remaining in
New York, she apprenticed at Rockefeller  Center's 3-Star French restaurant,  La
Reserve,  and then went on to work as a private  chef,  food stylist and cooking
instructor.  Dari develops  recipes and food products with  manufacturing,  food
service and consumer  applications.  Her clients include New Zealand Green Shell
Mussel Marketing Board  (manufacturing  and consumer),  Culinary Foods,  Inc., a
subsidiary of Tyson Foods,  Inc.  (foodservice)  Better Homes & Gardens Magazine
(savory   &  dessert   for   consumer),   Barilla   America   (manufacturing   &
back-of-the-box  consumer),  Uncle  Ben's Rice  (savory for  children  and adult
consumer) and Starbucks Coffee Company (foodservice). As a Product Marketer, she
creates  product-marketing  strategies and delivers product  demonstrations  for
Chef  Demonstrations  of new specialty  cheese product  launches by Kraft Foods,
Inc,  served as  Spokesperson  for the National Pork Producers  Council in their
MTV-inspired  educational  video targeted toward high school students,  and Food
Stylist for such media as cable TV's Home Shopping Network (HSN). Dari serves as
Contributing  Editor  to  various  trade  and  consumer  publications  including
Prepared Foods Magazine, Better Homes & Gardens, and Food Distribution Magazine,
among many others.

Juan-Carlos  Cruz - began his culinary  career at  California  Culinary  Academy
(class of 93).  He went on to become  one of L.A.'s  most  sought  after  pastry
experts, working at some of California's finest hotels and creating desserts for
Gary Oldman,  Jack  Nicholson,  Nancy Reagan,  Will Smith,  Oprah  Winfrey,  Jim
Carrey,  Joe Namath,  Prince  Phillip,  Julia Roberts,  Russell Crowe,  and many
others.  Juan-Carlos was part of the team that represented the illustrious Hotel
Bel-Air at the James Beard House and received such high praise for his work that
in 2001 he  decided  to spin  off on his  own and  begin  Pastrydude.com  in Los
Angeles.  Pastrydude.com  is now  one  of Los  Angeles'  premiere  wedding  cake
destinations for decadent made-to-order creations.  After appearing on Discovery
Health  Network's  Body  Challenge (six episodes) on which he lost a total of 43
pounds (with an  additional  17 lbs lost after the show  wrapped),  Juan-Carlos'
attitude  towards food  expanded to include  recipes for the calorie  conscious.
Alongside  his other  businesses,  Juan-Carlos  began running  Calorie  Commando
Catering  with the  mission  of  providing  the best  heart-healthy  food in Los
Angeles.

Juan-Carlos  also appeared on Discovery  Health  Network's  Body  Challenge 2 as
"Calorie  Commando."  Juan-Carlos  then appeared on the Body  Challenge 3 as the
host/weigh in coordinator.  Other recent appearances include Soap Center for the
Soap Opera Network,  The Modern Girls Guide to Life for the Style  Network,  and
Cooking School Stories on the Food Network.  He has also made appearances on the
Countdown to the Academy Awards on E!,  Celebrity  Diets on VH1, and is the host
of Calorie Commando.


                                       9
<PAGE>
Zev  Davis,  M.D. - is  Director,  Cardiovascular  Surgery  at the Edward  Heart
Hospital in Naperville, Illinois. He is a partner in Cardiac Surgery Associates,
one of the larger cardiac surgical practices in the country.  Born and raised in
New York City, he moved with his family to Israel for ten years, completing high
school,  university  and  medical  school at the Hebrew  University/Hadassah  in
Jerusalem,  Israel.  After  a  general  surgical  residency  and  cardiovascular
fellowship  at the Mayo Clinic,  Dr. Davis trained  additionally  at the Hektoen
Institute for Congenital Heart Disease (Chicago), and Johns Hopkins and Hospital
Broussais  (Paris,  France).  While  performing  all  aspects of adult  cardiac,
thoracic and vascular surgery,  Dr. Davis'  particular  interest is mitral valve
repair,   treatment  of  heart  failure  by  left  ventricular   remodeling  and
reconstruction,  and endoscopic (minimally invasive) vein and artery harvest. He
is a member of many scientific  societies,  and has published  multiple articles
with frequent national presentations. Dr. Davis is involved in medical volunteer
projects  around  the  world,  including  Russia  (Siberia),  Pakistan,  Israel,
Honduras and Kenya.

Mark DeMeo, M.D. - is Board Certified in Gastroenterology and Internal Medicine.
He received his medical  degree at  UMDNJ-Rutgers  Robert Woods Johnson  Medical
School in Piscatawa,  New Jersey.  His special  interests are:  celiac  disease,
pancreatic  disease,  obesity,   nutrition  and  gastrointestinal  disease,  and
functional bowel disease.  His research  interests are pancreatic  disease,  the
role of nutrition in  gastrointestinal  disease,  celiac disease,  obesity,  gut
immunology, and functional bowel disease.

James  Painter,  Ph.D is a  Registered  Dietitian,  who earned a Ph.D.  from the
University of Illinois in Human Resource and Family Studies,  a MS from Oklahoma
State University in Food, Nutrition and Institution Administration and a BS from
Southern Illinois University, Carbondale in Food and Nutrition. His professional
experiences  include  serving on the  faculty  at the  University  of  Illinois,
Nutrition Consultant and Senior Food Service Director with Marriott Corporation.
His  professional  affiliations  include  American  Association  of  Family  and
Consumer Sciences,  Society for Nutrition  Education,  Gamma Sigma Delta and the
American  Dietetic  Association.  He has over 60 professional  and peer reviewed
publications  to his credit.  He serves on the editorial  board for  Foodservice
Research  International and is a reviewer for Journal of Nutrition Education and
Journal of Food  Composition and Analysis.  His expertise is recognized  through
his 100-plus  professional lectures and presentations along with numerous public
presentations,   articles   and   interviews.   He  has   served  as   principal
investigator/co-principal investigator on more than 3 dozen grants. Currently he
is  Chairperson  of  the  Family  and  Consumer  Sciences  at  Eastern  Illinois
University.

Heather Hawk - is a national health and fitness correspondent for television and
radio.  As  a  spokesperson,   consultant,  and  fitness  advisor  for  numerous
corporations  and  organizations  in the health  and  fitness  industry,  she is
involved in all  aspects of the  business  including:  product  development  and
evaluation,  program development,  training, industry and consumer seminars, and
scripting,  hosting and producing  instructional and promotional videos.  Having
been  involved in fitness since the age of 15,  Heather's  passion is to educate
and motivate all ages on the numerous benefits of a healthy  lifestyle.  This is
accomplished  through  her  media  endeavors,   video  projects,  and  corporate
affiliations. Heather has been seen on all the major networks as well as various
cable stations  including  ESPN,  ESPN 2, and QVC to name a few.  Heather can be
seen hosting "Get Hooked On Health",  a 30-minute  television  program airing on
the Charter  Network that was launched as part of a national  health and fitness
campaign.  She has  hosted  the  popular  news  segment  "Fit on Fox" on the Fox
network for 6 years. She teaches listeners how to eat well, train properly,  and
create a healthier lifestyle through her nationally  syndicated radio show "Hawk
On Health".


                                       10
<PAGE>
Heather  serves as the  Director  of Fitness  Programming  for  Danskin  Fitness
Accessories for Women as well as Empower Fitness Equipment for Women. She serves
on the  Advisory  Board for several  companies.  As an advocate for the American
Liver   Foundation,   National  Down  Syndrome   Society,   Muscular   Dystrophy
Association, Life Skills Foundation and the Spina Bifida Association of America,
Hawk  speaks  publicly  to  raise  awareness  for  these  important  groups.  In
recognition  of her efforts,  the  American  Liver  Foundation  named Hawk Media
Person of the Year in 2000. Hawk graduated from Washington  University's John M.
Olin  School of Business  with a bachelor of science in business  administration
and  marketing.  Together  with her  personal  training  certification  from the
American  Council for Exercise  (ACE),  Hawk  combined  her  business  savvy and
passion  for health and fitness to build Hawk on Health,  LLC.  Founded in 2002,
Hawk on Health, LLC., promotes the significance of fitness, nutrition,  wellness
and medical issues encompassing every aspect of the Health and Fitness industry.

PLANT USAGE SALES SCENARIOS

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

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

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

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

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

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

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

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


                                       11
<PAGE>
8) Consumer Retail sales of Z Trim Fiber Supplement (8 ounce) at $34.95 (current
price at web site) 2,000,000 packs (assuming total  utilization of all available
production  capacity supply for only this channel) Total Annual  Potential Gross
Revenue $69,900,000.

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



SUBSIDIARIES

FIBERGEL TECHNOLOGIES, INC.

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



     Z Trim is a  natural  zero  calorie  fat-substitute  made from the hulls of
corn,  oats,  soy, rice,  barley that lowers 25% to 50% of calories from fats in
most foods without negatively affecting taste or texture. Z Trim generally can't
be detected by consumers when formulated  correctly in dairy,  dressings,  dips,
sauces, baked goods, processed meats, snack foods, cookies, pies, cakes, icings,
brownies, bars, ice cream, milk shakes and many other foods. It improves texture
significantly;  makes meats juicier,  baked goods moister, dips creamier. Z Trim
lets you to eat more of the  foods  you love  without  fear of  weight  gain and
allows you to lose weight  without  giving up the foods you love.  Z Trim adopts
the flavor and mouth feel of most recipes and reduces  aftertaste in most foods.
It has been proven in studies that a majority of  consumers  prefer Z Trim foods
over their full-fat counterparts.  Z Trim can substantially reduce harmful Trans
and saturated  fats and adds healthy  insoluble and soluble  dietary fiber which
can be beneficial to heart patients and diabetics.  Z Trim can improve digestion
without  any  negative  side  effects   sometimes   associated  with  other  fat
substitutes.   Z  Trim's  proprietary   process  turns  worthless   agricultural
bi-products  into  a  valuable  and  highly   functional  food  ingredient  with
significant  economic and health  advantages  over the fat it  replaces.  Z Trim
provides a competitive  industry  advantage,  reduces  environmental  management
costs, and delivers a novel and substantial profit center to manufacturers.

     Z Trim is protected by an extensive  intellectual  property  portfolio with
dozens of patents  issued and pending  throughout  the world,  as well as myriad
associated trade secrets and know how, copyrighted works and trademarks.  Z Trim
has been  featured on Fox News "Your World w/ Neil Cavuto";  USA Today,  Chicago
Tribune, as well as local affiliates of NBC, FOX and CBS.


                                       12
<PAGE>
     The  Company  has been  responding  to  industry  inquiries  and  initiated
exclusive   partnership   discussions  with  major  domestic  and  international
companies  representing  several  food  applications.  As a result of new Z Trim
product  developments  presented by the our  technology  team, led by Triveni P.
Shukla,  Ph.D., Vice President of Technology  Development,  we have been able to
expand the scope of our  marketing  partnership  programs  to  include  numerous
applications under the following major SIC classifications:

     o    311.200 Grains and oil seeds;

     o    311.300 Sugar and confectionary;

     o    311.400 Fruits and vegetables;

     o    311.500 Dairy products; o 311.600 Processed meat; and

     o    311.800 Bakeries and tortillas.

     The Company  currently  provides samples of Z Trim worldwide for testing to
large,  medium and small food companies as well as  institutional  food services
along with technological  support. There are many current customers using Z Trim
in  products  being sold  commercially  and in  restaurants  along with  several
potential short, medium and long-term customers currently  purchasing Z Trim for
pilot testing of several different product applications.

The  Company  has  received   numerous   inquiries  in  the  United  States  and
internationally  relating  to the  manufacture,  food  processing,  distribution
licensing and sale of Z Trim,  which we have the right to produce pursuant to an
exclusive license from the USDA.

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

     The Company has been  shipping Z Trim product  samples to many domestic and
international food companies and has provided them with technical literature and
assisted them with their product formulations. In addition, we have been selling
Z Trim powder and Z Trim Gel directly to  consumers  for use in home cooking and
has expanded  its product  offerings to include  gourmet  cookies,  brownies and
salad dressing.

     The Company  completed  the  refinement  of its  proprietary Z Trim process
during 2005 in its  manufacturing  plant  adjacent to its  corporate  offices in
Mundelein,  Illinois.  Now, in 2006,  the Company has  retained a renowned  food
formulation team to work directly with  manufacturers  and institutions on their
formulations  that  require  lowering  fat.  The Company also hired a well known
marketing company to develop awareness of the Z Trim Brand.

NAT TOOLS FOR GOOD HEALTH

     We acquired the worldwide  exclusive  license to the NAT Web, the Nutrition
Analysis Tool ("NAT")  website  developed by the  Department of Food Science and
Human  Nutrition at the University of Illinois.  The University of Illinois' NAT
website is an interactive,  web-based system designed to empower  individuals to
select a nutrient-rich  diet. This fully  functional  nutrient  analysis program


                                       13
<PAGE>
utilizes  the USDA  nutrient  database,  including  over 6,000  foods as well as
information  from food  companies.  NAT  provides  information  on the  relative
composition  of food and  could  aid  consumers  in their  quest to  achieve  or
maintain good health via nutritious eating.

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

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


BRAVE WAY TRAINING SYSTEMS

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

ON-LINE BEDDING CORP.

     On-Line  Bedding Corp.  ("On-Line  Bedding"),  another of our  wholly-owned
subsidiaries,  founded in 1981, is a distributor of pillows,  blankets and other
bedding products to airlines,  hospitals,  government,  and other commercial and
institutional customers. On-Line Bedding subcontracts the production of pillows,
blankets  and  other  bedding  products  to  manufacturers.   On-Line  Bedding's
customers   include   hospitals,   nursing   homes,   hotels  and  motels,   and
transportation-based  companies  such as  airlines,  railroads  and motor  coach
companies.  On-Line Bedding purchases its raw materials from various  suppliers,
and contracts  production  of its airline  pillows and blankets with third party


                                       14
<PAGE>
manufacturers.  On-Line Bedding warehouses a limited  inventory,  and drop ships
its products from  manufacturers  or wholesale  suppliers in multiple  locations
throughout the United States to reduce freight costs for its customers.  On-Line
Bedding's  primary  accounts  include  AMTRAK,  as well as certain  domestic and
international  airlines.  In addition,  the United States Armed Forces regularly
purchases a specialty  pillow from  On-Line  Bedding  through the United  States
military's  electronic  invoice  system.  On-Line  Bedding is also an authorized
pillow and related product vendor for a hospital  purchasing group with over 500
members in eight states.

OPERATING SEGMENTS

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

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

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


            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     This  Annual  Report on Form  10-KSB  contains  forward-looking  statements
within the meaning of Section  27A of the  Securities  Act of 1933  ("Securities
Act"),  as amended,  and Section 21E of the Securities  Exchange Act of 1934, as
amended. The forward-looking statements are principally contained in the section
entitled  "Description of Business." These statements  involve known and unknown
risks,  uncertainties  and other  factors  that may cause  our  actual  results,
performance  or  achievements  to differ,  perhaps  materially,  from any future
results, performance or achievements expressed or implied by the forward-looking
statements.   Forward-looking  statements  include,  but  are  not  limited  to,
statements about:

     o    Our product development efforts;

     o    The commercialization of our products;

     o    Anticipated operating losses and capital expenditures;

     o    Our estimates regarding our needs for additional financing;

     o    Our estimates for future revenues and profitability; and

     o    Sources of revenues and anticipated revenues,  including contributions
          from   corporate   collaborations,   license   agreements   and  other
          collaborative efforts for the development and commercialization of our
          product candidates,  and the continued viability and duration of those
          agreements and efforts.

In some cases,  you can  identify  forward-looking  statements  by terms such as
"may,"  "will,"  "should,"  "could,"  "would,"  "expect,"  "plan,"  anticipate,"
"believe,"  "estimate,"  "project,"  "predict," "intend," potential" and similar
expressions intended to identify  forward-looking  statements.  These statements
reflect  our  current  views  with  respect  to future  events  and are based on
assumptions and subject to risks and uncertainties.  Given these  uncertainties,


                                       15
<PAGE>
you should not place undue  reliance  on these  forward-looking  statements.  We
discuss many of these risks in greater detail in the foregoing section under the
heading "Risk Factors." Also,  these  forward-looking  statements  represent our
estimates and assumptions only as of the date of this Annual Report.

     You should read this Annual Report and the  documents  that we reference in
this Annual Report with the understanding  that our actual future results may be
materially  different  from what we  expect.  We do not  intend to update any of
these  statements or to publicly  announce the result of any revisions to any of
these  forward-looking   statements.  We  qualify  all  of  our  forward-looking
statements by these cautionary statements.


ITEM 2.  DESCRIPTION OF PROPERTY.

     We occupy  approximately  44,000 square feet of leased space at 1011 Campus
Drive, Mundelein,  Illinois. This space is leased for $26,500 per month pursuant
to  non-cancelable  operating leases that expire in 2007. The current lease term
is through  2010.  We have the option to extend our  current  lease for two more
years at the  current  rate and to extend it for five more  years  after the two
year period with a 10%  increase.  All of our  subsidiaries  and  divisions  are
operated out of this space.

ITEM 3.  LEGAL PROCEEDINGS.

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

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


                                       16
<PAGE>
On July 17, 2006, George Foreman  Enterprises,  Inc. filed a complaint against Z
Trim  Holdings,  Inc. in the U.S.  District  Court seeking  damages in excess of
$70,000,000 for specific  performance,  breach of contract,  promissory estoppel
and unjust enrichment.  The basis for all such claims is the underlying LOA, set
forth above.  Management  believes that the allegations are frivolous and wholly
without merit and will vigorously defend the claim.

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

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

In October  2006,  the  Company  settled  litigation  with two  former  investor
relation consultants and issued total of 275,000 shares of its common stock at a
fair  value  of  $341,000  based on the  closing  market  price at the  dates of
settlements.

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


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted to the vote of the  stockholders  during the last
quarter of fiscal year 2006.

                                     PART II

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

     The following table sets forth, for the periods indicated, the high and low
closing prices for our common stock, as quoted for trading on the American Stock
Exchange  under the symbol "ZTM." Our common stock began trading on the American
Stock  Exchange on March 31, 2004.  The last  reported  sale price of our common
stock on December 31, 2006 was $0.94 per share.

2005                                                     HIGH         LOW
-------                                                ------       -----
1st Quarter*                                            $2.02        $0.68
2nd Quarter                                             $1.49        $0.35
3rd Quarter                                             $1.41        $0.86
4th Quarter                                             $1.56        $0.73

2006                                                     HIGH         LOW
-------                                                -----        -----
1st Quarter                                             $1.42        $0.74
2nd Quarter                                             $1.94        $1.00
3rd Quarter                                             $1.47        $1.00
4th Quarter                                             $1.35        $0.76


2007                                                     HIGH         LOW
-------                                                -----        -----
1st Quarter (through March 30, 2007)                    $1.76        $0.87


                                       17
<PAGE>

*Our common stock was traded in the over-the-counter  market until the March 31,
2004.  As such,  the prices for the  quarters  prior to March 31, 2004 set forth
above  reflect  inter-dealer  prices,  without  retail  mark-up,   mark-down  or
commission, and may not represent actual transactions.

     As of March 27, 2007,  there were 411 record  holders of the common  stock.
This number does not include  shareholders  whose shares are held in  securities
position  listings.  We have never paid any dividends on its common stock and do
not anticipate paying any dividends in the foreseeable future.


                   EQUITY COMPENSATION PLAN INFORMATION
                            (AS OF DECEMBER 31, 2006)


                        NUMBER OF SHARES
                       REMAINING AVAILABLE
WEIGHTED-AVERAGE       FOR FUTURE ISSUANCE
EXERCISE PRICE OF         UNDER EQUITY
OUTSTANDING             COMPENSATION PLANS          NUMBER OF SHARES TO BE
OPTIONS,              (EXCLUDING SECURITIES         ISSUED UPON EXERCISE OF
WARRANTS AND             REFLECTED IN 1ST             OUTSTANDING OPTIONS,
RIGHTS                    PLAN CATEGORY                WARRANTS AND RIGHTS
                             COLUMN)
- -------------        ----------------------        -----------------------
Equity compensation plans approved by security holders (1)

$0.99                         84,913                              19,915,087


Equity compensation plans not approved by security holders (2)


Total...........................................................................

$0.99                         84,913                              19,915,087

(1) These plans consist of the 2004 Stock Incentive Plan.

(2) We do not maintain any equity compensation plans that have not been approved
by the stockholders.

On March 27, 2007,  we entered into private  placement  subscription  agreements
pursuant to which we sold  unregistered  shares of our common  stock,  par value
$0.00005 per share ("Common Stock"),  and warrants exercisable for Common Stock.
We sold 80 units in the private  placement at a price of $100,000 per unit, with
each unit  consisting of 100,000 shares of Common Stock and a five-year  warrant
with an exercise  price of $1.20 per share to purchase  25,000  shares of Common
Stock (the  "Warrants").  In the  aggregate we sold  8,000,000  shares of Common
Stock, and Warrants to purchase an additional  2,000,000 shares of Common Stock.
We will receive gross proceeds of $8,000,000  from these sales.  We also entered
into a registration  rights  agreement in connection with the private  placement
pursuant  to which we have  agreed  to file  with the  Securities  and  Exchange
Commission a registration  statement covering the resale of the Common Stock and
Common Stock underlying the Warrants.

JP Turner & Company,  LLC ("JP Turner")  served as the lead  placement  agent in
connection with the private  placement.  JP Turner,  together with any affiliate
placement  agents,  will receive cash fees in the  aggregate of  $1,040,000  and
warrants  to  purchase  1,200,000  shares  of  Common  Stock on terms  which are


                                       18
<PAGE>
identical to the Warrants  included in the units except that the exercise  price
is $1.00 per share. In addition,  the placement agent's warrant has registration
rights  that  are  the  same as  those  afforded  to  investors  in the  private
placement.

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

The description of the terms of sale of the securities  described in this report
is qualified  in its  entirety by  reference to the full text of the  underlying
documents which have been filed as exhibits to this report.

On March 27, 2007, the Company entered into an agreement with former consultants
to the  Company  (Farhad  Zaghi and  Nurieel  Akhamzadeh)  and  related  parties
pursuant  to which  the  consultants  agreed  to cancel  previously  issued  and
outstanding  warrants to purchase 1,491,666 shares of the Company's common stock
in exchange for the Company's  agreement to issue one or more warrants for up to
2,266,666  shares of the  Company's  common  stock.  The new  warrants are to be
issued upon demand of the warrant holders no sooner than 8 months nor later than
24  months  from  the date of the  agreement.  Any  demand  must be for at least
150,000 shares.  Once issued, the warrants will have a 2-year term. The exercise
price per share of the  warrants,  if issued,  with respect to 1,604,166  shares
will be  equal  to the  45-trading-day  trailing  average  closing  price of the
Company's  common stock as of the date of demand (the "45-Day  Average  Price"),
but not greater  than  $1.25.  With  respect to the other  662,500  shares,  the
exercise  price per share of the  warrants  shall be equal to 95% of the  45-Day
Average Price,  but not greater than $1.25.  If issued,  the warrants will carry
with them a lock-up  provision  prohibiting  the holder from  selling any shares
received upon exercise prior to the expiration of 14 months from the date of the
agreement. Within 6 months of issuance of any warrant pursuant to the agreement,
the Company has the obligation to register the shares underlying the warrant.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

     THE  FOLLOWING  DISCUSSION  IS  INTENDED  TO  ASSIST IN  UNDERSTANDING  THE
FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS  OF Z TRIM  HOLDINGS,  INC. YOU
SHOULD READ THE FOLLOWING  DISCUSSION  ALONG WITH OUR FINANCIAL  STATEMENTS  AND
RELATED NOTES INCLUDED ELSEWHERE IN THIS FORM 10-KSB.  THE FOLLOWING  DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS. OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2006 AND BEYOND
MAY DIFFER  MATERIALLY  FROM THOSE  EXPRESSED  IN, OR IMPLIED BY, THESE  FORWARD
LOOKING STATEMENTS.


OVERVIEW

     In 2005 we refined  our  direction  from a pioneer of  emerging  technology
companies  where  we  provided  small  business   infrastructure,   funding  and
substantial  intellectual  capital to bring  important and timely  life-changing
technologies  to the  marketplace  through  all phases of the  commercialization
process,   to  a  company  that  will  focus  its  resources  primarily  on  the


                                       19
<PAGE>
manufacture,  marketing and sale of Z Trim,  our zero calorie fat substitute and
other Z Trim related products. The company will continue exploring all available
options for its other non-Z Trim technologies and related assets.

Z Trim Holdings,  Inc. was founded in May 1994 under the original  name,  Circle
Group Entertainment Ltd. and changed its name to Circle Group Internet,  Inc. in
1997, to Circle Group  Holdings,  Inc. in 2003, and to Z Trim Holdings,  Inc. in
2006.  We had  no  business  operations  except  for  research  and  development
activities  between May 1994 and  January  1997.  In 2002,  we  reorganized  our
business  units  into  three  reportable  segments:  food  product  development,
security product development, and e-tailor, and acquired Fiber-Gel Technologies,
Inc.,   which  owned  the  exclusive   license  to  Z  Trim,   an   all-natural,
agricultural-based  fat replacement.  Z Trim Holdings,  Inc.  currently owns the
license.

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

RECENT MATERIAL DEVELOPMENTS

     On June 21, 2006, at a Special Shareholder  Meeting,  shareholders voted to
change the name from Circle Group  Holdings,  Inc. to Z Trim Holdings,  Inc. The
trading  symbol was also changed  from CXN to ZTM trading on the American  Stock
Exchange (AMEX).

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

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

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

* 1st Tier.....Food Processors & Manufacturers
* 2nd Tier.....Food Service (Schools, Restaurants, Hospitals, Hotels)
* 3rd Tier.....Direct to Consumers, Consumer Retail

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

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


                                       20
<PAGE>
Consumers  responded  to the media  coverage by  requesting  information  and by
ordering Z Trim  products  through the Internet and  telephone.  Several  school
districts around the country also responded by either  contacting us directly or
having their food service provider and food vendors contact us in order to get Z
Trim into their school meal  programs.  Shipments have already been made to some
of them.  The media  coverage  further  resulted in testing Z Trim in one of the
nation's  premier  hospital-based,  doctor-sponsored,  large  insurance  company
wellness programs.  It also resulted in a major vitamin retailer approaching the
Company with the possibility of carrying Z Trim products nationally in 2007-Q2.

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

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

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

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

Z Trim achieved  international  recognition  at the 2006 (FISA) Food  Ingredient
South  America  show held in Brazil.  The FISA show is one of the  largest  food
ingredient  shows in the world.  Z Trim was  awarded  the most  innovative  food
ingredient  of 2006,  beating out  several  inventive  entries  from some of the
world's most prominent food ingredient companies.

The award  sparked new  interest in Z Trim  throughout  the  industry and led to
preliminary  testing by several major food  companies.  One of several  positive
results  now coming out of those  tests led Z Trim,  through  our  international
marketing  partners DKSH, to one of the largest food  companies in Brazil.  This
company makes and markets over 2500  different  products  from chicken,  turkey,
pork, and beef,  not to mention pasta,  margarines and desserts with over 70,000
direct  points of sale in Brazil  and  around  200  foreign  clients in the four
corners of Europe. The initial order of five tons has been shipped.

With the  expected  growth  in South  America,  the  Company  is in  preliminary
partnership  talks  with a  Brazilian  company to build a Z Trim plant in Brazil
that proposes high volume manufacturing of Z Trim.

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


                                       21
<PAGE>
We have made many  additions  and  changes to our web site  recently in order to
continue to inform and educate the food industry and the public about the health
benefits of and how to use Z Trim. These changes include:

- -     Additional links and information for food industry professionals
- -     A downloadable online Z Trim brochure
- -     A Frequently Asked Questions (FAQ) section
- -     Links to additional recipes and cooking tips
- -     New online instructional "Cooking With Z Trim" videos
- -     Educational and entertaining  animated features for teachers,  students,
        and parents
- -     Videos with fitness experts Heather Hawk and Nikki Anderson
- -     Updated plant pictures and a video tour of the Z Trim plant
- -     Bios of our Expanded  Advisory  Panel  members who have been selected to
        advise and assist the company in reaching its goals
- -     Quotes about the benefits of Z Trim by Industry Experts
- -     New videos and news links covering the Plum Borough, Pennsylvania school
        district using Z Trim in their school meals program
- -     The addition of the  downloadable  Z Trim Player which will allow people
        to stay informed of the latest news about Z Trim.
- -     The linking of the NATS website  directly to the Z Trim  product  online
        store to allow  visitors to the NATS  website to buy Z Trim  products

We are working on many exciting projects that include:

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


                                       22
<PAGE>
RESULTS OF OPERATIONS

YEAR ENDING DECEMBER 31, 2006 COMPARED TO THE YEAR ENDING DECEMBER 31, 2005

Revenues

Revenues  increased  17% for the year ended  December 31, 2006 from $514,608 for
the year ended  December 31, 2005 to  $601,544,  as a result of increase in both
product and service revenues.  The increase in product revenue was primarily due
to increase in Z Trim  products  sales as well as  increased  demand by e-tailer
customers,  as a result of a recovery by the airline  industry.  The increase in
service  revenue was primarily  due to increase in demand for security  training
service.  The  following  table  provides a breakdown  of the  revenues  for our
divisions for the periods indicated:


                                                 Year ended December 31,
                                                  2006           2005
                                                ---------      --------
           Products                             $ 594,383      $510,947
           Services                                 7,161         3,661
                                                ---------      --------
        Total Revenues                          $ 601,544      $514,608
                                                =========      ========

Operating expenses

Operating  expenses consist of payroll and related costs,  stock option expense,
insurance,   occupancy  expenses,   professional  fees,  and  general  operating
expenses.   Total  operating  expenses  increased  by  $11,198,850  or  225%  to
$16,173,781  for the year ended  December 31, 2006 from  $4,974,931 for the year
ended December 31, 2005. The increase in operating expenses was primarily due to
the change in the accounting  treatment for stock option expense,  an impairment
charge of  intangible  asset of  $341,250,  and  increase in public and investor
relation and payroll expenses.

The stock option  expense for the year ended  December 31, 2006 was  $9,419,028.
There was no stock option expense for the year ended December 31, 2005.

Other income

Total other income for the year ended December 31, 2006 was $126,314 compared to
expense of $935,218  for the year ended  December 31,  2005.  The increase  from
other  expense  to  other  income  was  primarily  due  to  a  provision  of  an
uncollectible  note  receivable of $965,000 in 2005 and the increase in interest
income in 2006.

Net loss

The Company  incurred a net loss of $16,430,884  for the year ended December 31,
2006 or $0.28 per share,  a 172%  increase  from the net loss of  $6,025,585  or
$0.13 per share for year ended December 31, 2005.  This was due primarily to the
implementation  of the change in  accounting  for stock option  expense,  net of
increase in revenues.

YEAR ENDING DECEMBER 31, 2005 COMPARED TO THE YEAR ENDING DECEMBER 31, 2004

Revenues

Revenues  decreased 22.6% for the year ended December 31, 2005 from $665,453 for
the year ended  December 31, 2004 to  $514,608,  as a result of decrease in both
product and service revenues.  The decrease in product revenue was primarily due
to slower demand in e-tailer customers, as a result of the budget cut in airline
and train industry. The decrease in service revenue was primarily due to phasing
out of our business consulting service. The following table provides a breakdown
of the revenues for our divisions for the periods indicated:


                                                   Year ended December 31,
                                                  2005               2004
                                                ---------          --------
           Products                             $ 510,947          $634,456
           Services                                 3,661            30,997
                                                ---------          --------
        Total Revenues                          $ 514,608          $665,453
                                                =========          ========

Operating expenses

Operating  expenses consist of payroll and related costs,  insurance,  occupancy
expenses,  professional  fees, and general operating  expenses.  Total operating
expenses  decreased by $201,697 or 4% to $4,974,931  for the year ended December
31, 2005 from  $5,176,628  for the year ended December 31, 2004. The decrease in
operating expenses was primarily due to the decrease in legal expense, partially
offset by the introduction and promotion of Z-trim products, and the increase in
investor and public relation and payroll expenses.


                                       23
<PAGE>
Other income

Total  other  income  for the year  ended  December  31,  2005 was a deficit  of
$935,218,  compared to  $1,002,413  for the year ended  December 31,  2004.  The
decrease in other income was  primarily  due to a provision of an  uncollectible
note receivable of $965,000 and the decrease in rental income.  Other income for
the year ended December 31, 2004 included a settlement of $950,000 received from
a former attorney.

Net loss

The Company  reported a net loss of $6,025,585  for the year ended  December 31,
2005 or $0.13 per share, a 46% increase from the net loss of $4,117,775 or $0.11
per share for year ended December 31, 2004. This was due to a combination of the
decrease in revenues,  the introduction  and promotion of Z-trim  products,  the
increase  in  investor  and public  relation  expenses,  and a  provision  of an
uncollectible note receivable.

LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDING DECEMBER 31, 2006 COMPARED TO THE YEAR ENDING DECEMBER 31, 2005

At December 31, 2006, we had cash and cash equivalents of $696,499,  compared to
$24,999 at December 31, 2005.  The Company  raised  approximately  $5,799,831 in
additional  equity  capital  through equity  transactions  during the year ended
December 31, 2006.

Net cash used by operating  activities  increased by 34% to  $4,904,043  for the
year ended  December  31,  2006 as  compared  to  $3,662,280  for the year ended
December  31,  2005.  The  increase  resulted  primarily  from  our net  loss of
$16,414,503, adjusted for non-cash items including depreciation and amortization
of $661,703,  reduction of intangible asset of $341,250, stock option expense of
$9,419,028,  and non-cash services of $1,902,416, and for the net cash used from
the net  increases  and  decreases in assets and  liabilities  of  approximately
$813,937.

Net cash used by investing  activities  was $378,294 for the year ended December
31, 2006,  as compared to net cash used by investing  activities of $181,186 for
the year ended  December 31, 2005. The increase was due to additions of property
and equipment for our manufacturing plant in current year.

Net cash  provided by financing  activities  was  $5,983,837  for the year ended
December 31, 2006,  as compared to  $3,774,717  for the year ended  December 31,
2005. Net cash provided by financing  activities for the year ended December 31,
2006 was primarily  from the proceeds  received from the sale of stock,  options
and  warrants  exercised  and  notes  receivable  for  stock   subscriptions  of
$5,984,831.  Net cash  provided  by  financing  activities  for the  year  ended
December 31, 2005 was primarily from the proceeds received from notes receivable
for stock subscriptions of $2,350,000 and from sale of our stocks and exercising
of options and warrants of $1,453,567.

YEAR ENDING DECEMBER 31, 2005 COMPARED TO THE YEAR ENDING DECEMBER 31, 2004

At December 31, 2005, we had cash and cash  equivalents of $24,999,  compared to
$93,748 at December 31, 2004. The Company has generated approximately $3,803,567
in additional  operating  capital  through equity  transactions  during the year
ended December 31, 2005.

Net cash used by operating  activities  increased by 243% to $3,662,280  for the
year ended  December  31,  2005 as  compared  to  $1,067,593  for the year ended
December  31,  2004.  The  increase  resulted  primarily  from  our net  loss of
$6,025,585,  adjusted for non-cash items including depreciation and amortization


                                       24
<PAGE>
of  $657,081,  provision  for loan loss of $965,000,  and  non-cash  services of
$1,401,233,  and for the decrease from the change in liabilities  over assets of
approximately of $587,021.

Net cash used by investing  activities  was $181,186 for the year ended December
31, 2005, as compared to net cash used by investing activities of $6,465,265 for
the year ended  December 31, 2004.  The decrease was due to lesser  additions of
property and equipment for our manufacturing plant in current year.

Net cash  provided by financing  activities  was  $3,774,717  for the year ended
December 31, 2005,  as compared to  $6,242,888  for the year ended  December 31,
2004. Net cash provided by financing  activities for the year ended December 31,
2005 was primarily  from the proceeds  received from notes  receivable for stock
subscriptions  of  $2,350,000  and from sale of our  stocks  and  exercising  of
options and warrants of  $1,453,567.  Net cash provided by financing  activities
for the year ended  December 31, 2004 was primarily  from sale of our stocks and
from exercising of options and warrants of $6,269,840.

To successfully  grow the individual  segments of our business,  we must improve
our cash position,  and the revenue base of each segment, as well as continue to
succeed in our ability to raise  additional  capital  through a  combination  of
public or private  equity  offerings or strategic  alliances.  We also depend on
certain important employees, and the loss of any of those employees may harm the
business and its prospects.

RISK FACTORS

     The  following  risks  are  material  risks  that  we  face.  If any of the
following  risks occur,  the business of the Company and its  operating  results
could be seriously harmed.

WE HAVE A HISTORY OF OPERATING LOSSES AND CANNOT GUARANTEE PROFITABLE OPERATIONS
IN THE FUTURE. ANY FAILURE ON OUR PART TO ACHIEVE  PROFITABILITY MAY CAUSE US TO
REDUCE OR EVENTUALLY CEASE OPERATIONS.

     We reported a net loss of $16,414,503 for the twelve months ending December
31, 2006 and a net loss of $6,025,585 for the twelve months ending  December 31,
2005.  At December  31,  2006 and 2005,  respectively,  we reported  accumulated
deficits of $49,467,918  and  $33,053,415.  If we continue to incur  significant
losses our cash reserves may be depleted earlier than currently anticipated, and
we may be required to limit our future growth objectives to levels corresponding
with our then available cash reserves.

OUR SUCCESS IS DEPENDENT ON MARKET ACCEPTANCE OF OUR PRODUCT.

     We have not  conducted,  nor have others made  available to us,  results of
market  research  indicating  how much market demand exists for Z Trim,  our fat
replacement  product.  We are  relying on the  current  concerns  over  obesity,
weight-health  issues,  and the rising cost of health care to drive demand for Z
Trim in the  marketplace.  We cannot assure you that we will be able to gain the
market acceptance necessary to achieve profitability.

WE MAKE NO PROJECTIONS  REGARDING THE VIABILITY OF OUR FAT  REPLACEMENT  PRODUCT
AND WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE THE RESULTS DESCRIBED.

     We  make no  projection  with  respect  to our  future  income,  assets  or
business.   No  expert  has  reviewed   our   business   plan  for  accuracy  or
reasonableness.  It is likely that our actual business and results of operations
will differ from those presented herein.

WE MAY NEED  ADDITIONAL  FUNDING AND SUCH FUNDING MAY NOT BE AVAILABLE.  IF SUCH
FUNDING IS AVAILABLE, IT MAY NOT BE OFFERED ON SATISFACTORY TERMS.


                                       25
<PAGE>

     We may require additional financing to fund ongoing operations if our sales
and revenue growth are  insufficient to meet our operating  costs. Our inability
to obtain  necessary  capital or  financing  to fund these needs will  adversely
affect our  ability to fund  operations  and  continue as a going  concern.  Our
inability  to obtain  necessary  capital or  financing to fund these needs could
adversely  affect our business,  results of operations and financial  condition.
Additional financing may not be available when needed or may not be available on
terms acceptable to us. If adequate funds are not available,  we may be required
to delay,  scale back or eliminate one or more of our business  segments,  which
may affect our overall business results of operations and financial condition.

THE LOSS OF  SERVICE  OF KEY  MANAGEMENT  COULD  HAVE A  NEGATIVE  IMPACT ON OUR
PERFORMANCE.

     Our success  depends to a significant  degree upon the  performance  of our
founder and Chief Executive  Officer Gregory J. Halpern.  The loss of service of
Mr. Halpern could have a material  adverse  effect on our operating  performance
and viability as a going concern.


OUR  MANAGEMENT  CURRENTLY  BENEFICIALLY  OWNS A  SIGNIFICANT  PERCENTAGE OF OUR
COMMON STOCK.

     Ownership of our common stock is  concentrated  in  management.  Gregory J.
Halpern,  our Chairman  and Chief  Executive  Officer,  owns 26.3% of our common
stock and all of the directors and officers collectively own 41.23%.  Holders of
our common  stock can be  out-voted  by  management  in most  circumstances  and
thereby management can control the composition of our board of directors and our
policies.


WE MAY EXPAND OUR OPERATIONS BY MAKING  ACQUISITIONS WHICH COULD SUBJECT US TO A
NUMBER OF OPERATIONAL RISKS.

     In order to grow our  business,  we may expand our  operations by acquiring
other  businesses  in  the  future.  We  cannot  predict  whether  or  when  any
acquisitions  will occur.  Acquisitions  commonly  involve certain risks, and we
cannot  assure you that any acquired  business will be  successfully  integrated
into our operations or will perform as we expect. Any future  acquisitions could
involve certain other risks, including the assumption of additional liabilities,
potentially   dilutive   issuances  of  equity   securities   and  diversion  of
management's attention from other business concerns We may also enter into joint
venture  transactions.  Joint  ventures have the added risk that the other joint
venture  partners may have economic,  business or legal  interests or objectives
that are inconsistent with our interests and objectives.

OUR  INABILITY  TO SECURE AND PROTECT OUR  INTELLECTUAL  PROPERTY  MAY RESULT IN
COSTLY AND  TIME-CONSUMING  LITIGATION  AND COULD IMPEDE US FROM EVER  ATTAINING
MARKET SUCCESS.

     We hold several  patents as well as copyrights and trademarks  with respect
to our products and expect to continue to file  applications  in the future as a
means of protecting our intellectual  property.  In addition, we seek to protect
our  proprietary  information  and  know-how  through the use of trade  secrets,


                                       26
<PAGE>
confidentiality  agreements and other similar security measures. With respect to
patents,  there can be no assurance that any applications for patent  protection
will be granted, or, if granted, will offer meaningful protection.

Additionally,  there can be no  assurance  that  competitors  will not  develop,
patent or gain access to similar  know-how and technology,  or reverse  engineer
our  products,  or that any  confidentiality  agreements  upon  which we rely to
protect our trade secrets and other proprietary  information will be adequate to
protect our proprietary technology. The occurrence of any such events could have
a material adverse effect on our results of operations and financial condition.


OUR STOCK PRICE MAY DROP  UNEXPECTEDLY  DUE TO SHORT SELLING OF OUR COMMON STOCK
IN THE MARKET.

Regulation  SHO began on  January 3, 2005 and was  adopted to update  short sale
regulation in light of numerous market  developments since short sale regulation
was first  adopted in 1938. We have  experienced  and may continue to experience
unexpected  declines  in our stock  price due to  manipulation  of the market by
individuals  who profit by short selling our common stock.  Short selling occurs
when an  individual  borrows  shares from an investor  through a broker and then
sells those  borrowed  shares at the current  market price.  The "short  seller"
profits when the stock price falls because he or she can repurchase the stock at
a lower  price and pay back the  person  from whom he or she  borrowed,  thereby
making a profit.  We cannot  assure you that short  sellers will not continue to
drive the stock price down in the future,  causing  decline in the value of your
investment.

THE  FLUCTUATION IN OUR STOCK PRICE MAY RESULT IN A DECLINE IN THE VALUE OF YOUR
INVESTMENT.

     The price of our common stock may  fluctuate  widely,  depending  upon many
factors,  including the differences  between our actual  financial and operating
results and those  expected by  investors  and  analysts,  changes in  analysts'
recommendations  or  projections,  short  selling  of our  stock in the  market,
changes in general economic or market conditions and broad market  fluctuations.
Companies  that  experience  volatility in the market price of their  securities
often  are  subject  to  securities  class  action  litigation.   This  type  of
litigation,  if  instituted  against us, could result in  substantial  costs and
divert management's attention and resources away from our business.

ITEM 7.  FINANCIAL STATEMENTS

     See consolidated  financial statements starting on page F-1 and the related
footnotes thereto.

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

     None.

ITEM 8A. CONTROLS AND PROCEDURES.


                                       27
<PAGE>

     Our Chief Executive Officer and Chief Financial Officer have concluded that
our disclosure controls and procedures (as defined pursuant to Rule 13a-15(e) or
15d-15(e) under the Securities  Exchange Act of 1934), based on their evaluation
of such  controls  and  procedures  as of the end of the period  covered by this
report, are effective to ensure that information  required to be disclosed by us
in the reports it files under the  Securities  Exchange Act of 1934, as amended,
is  recorded,  processed,  summarized  and  reported  within  the  time  periods
specified in the rules and forms of the Securities  and Exchange  Commission and
that  such  information  is  accumulated  and  communicated  to our  management,
including  its  Chief  Executive  officer  and  Chief  Financial   Officer,   as
appropriate to allow timely decisions regarding required disclosure.

     There  have  been  no  changes  in our  internal  controls  over  financial
reporting  identified in connection with  management's  evaluation that occurred
during our last fiscal  quarter that has materially  affected,  or is reasonably
likely to materially affect, our internal control over financial reporting.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a)OF THE ACT.


         AGE              NAME                               POSITION
         ---              ----                               --------

         48          Gregory J. Halpern               Chief Executive Officer
                                                      and Chairman of the
                                                      Board of Directors

         51          Steve J. Cohen                   Director and President


         54          Michael J. Theriault             Chief Operating Officer

         56          Dana L. Dabney                   Director, Secretary and
                                                      Chief Financial Officer

         54          Steve H. Salgan                  Director

         54          Stanford J. Levin                Director

         57          Alan G. Orlowsky                 Director



     GREGORY J.  HALPERN.  Since  founding Z Trim  Holdings,  Inc. in 1994,  Mr.
Halpern has served as its Chairman and Chief  Executive  Officer.  From May 1994
until March 1999, Mr. Halpern also served as our President. Mr. Halpern has over
25  years  of  experience  in  computer   programming  and  pioneering  emerging
technologies.  In  1983,  Mr.  Halpern  developed  a  computer-animated  imaging
application to stimulate the immune system for treatment of chronic  illness and
founded  Health  Imaging  Corporation  to  distribute  the  application  to  the


                                       28
<PAGE>
healthcare  delivery market.  In 1984, he developed and patented a technique for
using electronic  stimulation to stop pain and founded Pain Prevention,  Inc. to
market the  technology as an  electronic  anesthesia  for the dental  healthcare
community.  Mr.  Halpern  has served as an officer  and  director of PPI Capital
since its inception in 1984.

     STEVE J. COHEN.  Mr.  Cohen has been  employed by Z Trim since 2002 when he
was  hired as its  director  of  investor  relations.  He was  promoted  to Vice
President of Corporate  Development in 2003.  Prior to joining Z Trim, Mr. Cohen
had 25 years' experience at the Chicago  Mercantile  Exchange where he worked in
various trading pit and back office positions. Mr. Cohen attended college at the
University of Illinois and Oakton Community College.

     MICHAEL J.  THERIAULT.  Mr.  Theriault  has  served as our Chief  Operating
Officer  since June  1999.  His  professional  experience  includes  progressive
operations,  programming,  design, support, consulting,  project management, and
department   management   experience  in  manufacturing,   insurance,   medical,
consulting,  and mortgage  banking  industries  on both  mainframe  and personal
computer  equipment.  From  September  1989 until May 1999,  Mr.  Theriault  was
employed  by Recon  Optical,  Inc.,  where he served as  Supervisor  of Business
Systems  from June 1997  until May 1999,  and  Senior  Systems  and  Programming
Specialist and Senior Project Leader of Manufacturing  from September 1989 until
June 1997.

     DANA L. DABNEY. Mr. Dabney has been a member of our board of directors, and
has held various  offices,  including  vice president of sales and marketing and
secretary,  since  January  1997.  Currently  Mr. Dabney serves as the Company's
Chief Financial Officer.  From 1994 until December 1997, Mr. Dabney was employed
by State  Financial  Bank in  Richmond,  Illinois,  and from  January 1998 until
December 1998 he was employed by Mortgage Market Corporation in Illinois.

     STEVE H. SALGAN,  M.D. Dr. Salgan has been member of our board of directors
since March 2000. Since January 1998, Dr. Salgan has been president of Steven H.
Salgan,  M.D., Ltd., a practice  specializing in primary care internal  medicine
and general/family medicine. He has been a member of the American Association of
Professional  Ringside  Physicians  since  1997  and a  member  of the  Internal
Medicine  Subcommittee for Quality Assurance of Saint Margaret Mercy Hospital in
Hammond, Indiana since 1996.

     STANFORD J. LEVIN.  Mr.  Levin has been a member of our board of  directors
since  March  2000.  Since  1988,  Mr.  Levin has been the  proprietor  of Levin
Enterprises,  an auto brokerage  company  located in Indiana.  From January 1986
until June 1988, Mr. Levin was a public school teacher.  From May 1981 until May
1985, he was employed by Hohman  Professional  Corp., a real estate  development
and  management  company  where  his  duties  included  commercial  real  estate
management and overseeing renovations.

     ALAN G. ORLOWSKY,  J.D., C.P.A. has been a member of our board of directors
since January 2004. Mr. Orlowsky has been the president of A.G Orlowsky,  Ltd, a
law firm  specializing in tax,  financial,  and estate  planning  services since
1980. Alan worked for the I.R.S. and Deloitte & Touche as a tax professional and
he taught  Accounting,  Taxation,  and  Business  Law at  Northeastern  Illinois
University  School of  Business  and  Loyola  University  of  Chicago  School of
Business.


                                       29
<PAGE>
     The term of office of each  director  expires  at each  annual  meeting  of
stockholders and upon the election and qualification of his successor. There are
no  arrangements  with any  director  or officer  regarding  their  election  or
appointment.  There is no family  relationship  between any of our  directors or
executive officers.

AUDIT COMMITTEE

     The Board of Directors has an Audit Committee  composed of three directors,
Steve H. Salgan, Stanford J. Levin and Alan G. Orlowsky, each whom is considered
an "independent director" under the rules of the American Stock Exchange and the
Securities and Exchange  Commission.  The Board of Directors has determined that
Alan G. Orlowsky  qualifies as an "audit committee  financial  expert" under SEC
rules.  The function of the Audit  Committee is to assist the Board of Directors
in  preserving  the  integrity  of the  financial  information  published by the
Company  through the review of financial and  accounting  controls and policies,
financial  reporting systems,  alternative  accounting  principles that could be
applied and the quality and effectiveness of the independent public accountants.

COMPENSATION OF DIRECTORS

Our  directors  currently  do not  receive,  and  have  not  received,  any cash
compensation  for serving on our board,  but are eligible to receive options and
restricted  shares and units of our common stock under our 2004 Stock  Incentive
Plan. In 2006,  Mr. Gregory J. Halpern  received  800,000  options,  Mr. Dana L.
Dabney received  600,000  options,  Mr. Steve J. Cohen received 600,000 options,
Mr. Steven H. Salgan received  250,000  options,  Mr. Stanford J. Levin received
250,000 options and Mr. Alan G. Orlowsky received 300,000 options.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

     Section  16(a) of the  Securities  Exchange Act of 1934,  as amended,  (the
"Exchange Act") requires the Company's executive officers, directors and persons
who  beneficially  own  greater  than 10% of a  registered  class of our  equity
securities ("Reporting Persons") to file certain reports with the Securities and
Exchange  Commission  with respect to ownership  and changes in ownership of our
common stock and other equity securities  ("Section 16 Reports").  The Reporting
Persons are required by  regulation  to furnish us with copies of all Section 16
Reports they file.

CODE OF ETHICS

     We have adopted a code of ethics,  known as our Code of Ethics and Business
Conduct, that applies to all employees.  This code of ethics can be found on our
website at  www.ztrim.com.  Stockholders  may also  obtain a copy of the Code of
Ethics and  Business  Conduct by  submitting  a request  for such copy to Z Trim
Holdings, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.


                                       30
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.

     The following table summarizes the compensation  earned in the fiscal years
ended December 31, 2004,  2005 and 2006 by our chief  executive  officer and the
other four most  highly paid  executive  officers  whose total  salary and bonus
awards  exceeded  $100,000 for the fiscal year ended  December 31, 2006. In this
document, we refer to these individuals as our "named executive officers."
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                             LONG-TERM COMPENSATION

                                ANNUAL COMPENSATION              AWARDS
SHARES
NAME AND PRINCIPAL                                OTHER        UNDERLYING   RESTRICTED
POSITION                YEAR  SALARY    BONUS  COMPENSATION    OPTIONS     STOCK AWARDS
<S>                      <C>    <C>       <C>      <C>            <C>           <C>
Gregory J. Halpern      2006  $142,537  $ --       $--          800,000        $--
Chairman and            2005  $119,711  $ --       $--        1,000,000        $--
Chief Executive Officer 2004  $ 86,200  $ --       $--        1,230,000        $--

Steve J. Cohen          2006  $132,175  $ --       $--          600.000        $--
Director and President

Dana L Dabney           2006  $115,386  $ --       $--          600,000        $--
Director and
Chief Financial Officer

Michael J. Theriault    2006  $ 99,200  $ --       $--          600,000        $--
Chief Operating Officer

</TABLE>

OPTION GRANTS

     The following table contains information concerning the grant of options to
purchase  shares of our  common  stock to each of the named  executive  officers
during the fiscal year ended  December 31, 2006. The percentage of total options
granted to  employees  set forth below is based on an  aggregate  of  10,526,337
shares  subject to options  granted in 2006.  All options  are fully  vested and
exercisable.



                        OPTION GRANTS IN LAST FISCAL YEAR
                                INDIVIDUAL GRANTS
-----------------------------------------------------------------------
                                  PERCENT OF
                    NUMBER OF      TOTAL
                    SECURITIES    OPTIONS
                    UNDERLYING     GRANTED   TO EXERCISE OR
                     OPTIONS      EMPLOYEES    BASE PRICE   EXPIRATION
NAME                 GRANTED       IN 2006      ($/SHARE)     DATE
-----------------------------------------------------------------------
Gregory J. Halpern   800,000        7.6%        $1.17        8/14/09
Steve J. Cohen       600,000        5.7%        $1.06        8/14/09
Dana L. Dabney       600,000        5.7%        $1.06        8/14/09
Michael J. Theriault 600,000        5.7%        $1.06        8/14/09


                                       31
<PAGE>
      OPTIONS EXERCISED DURING 2006 AND OPTIONS VALUES AT DECEMBER 31, 2006

     The following table contains information regarding options exercised during
2006 and  unexercised  options held at December 31, 2006, by the named executive
officers. All of the unexercised options are exercisable.

                            EXERCISED AND UNEXERCISED
                                OPTIONS FOR 2006

                                              IN-THE-MONEY     OUT-OF-MONEY
                                               OPTIONS AT        OPTIONS
                       SHARES               DECEMBER 31,2006  DECEMBER 31, 2006
                     AQUIRED ON     VALUE     EXERCISABLE/     EXERCISABLE/
NAME                  EXERCISE     REALIZED   UNEXERCISABLE    UNEXERCISABLE
Gregory J. Halpern       0           $--        2,848,182            -
Steve J. Cohen           0           $--        1,334,309            -
Dana L. Dabney           0           $--        1,935,000            -
Michael J. Theriault     0           $--        1,755,000            -


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

     The  following  table  sets  forth  information  regarding  the  beneficial
ownership  of  our  common  stock  as  of  March  27,  2006,  by  the  following
individuals, entities or groups:

     o    each  person or entity  who we know  beneficially  owns more than five
          percent of our outstanding common stock;

     o    each of the named executive officers;

     o    each director and nominee; and

     o    all directors and executive officers as a group.

     Beneficial  ownership is  determined  in  accordance  with the rules of the
Securities and Exchange  Commission and includes voting or investment power with
respect to the shares. In computing the number of shares beneficially owned by a
person and the  percentage  ownership  of that  person,  shares of common  stock
subject  to  options  and  warrants  held  by that  person  that  are  currently
exercisable or convertible or will become  exercisable or convertible  within 60
days  after  March 27,  2006 are  deemed  outstanding,  while the shares are not
deemed outstanding for purposes of computing  percentage  ownership of any other
person.  Except as  otherwise  indicated,  and subject to  applicable  community
property  laws,  the persons named in the table have sole voting and  investment
power with respect to all shares of common stock held by them.

     Applicable  percentage  ownership  in  the  following  table  is  based  on
63,571,763  shares of common  stock  outstanding  as of March 27,  2006.  Unless
otherwise indicated, the address for each stockholder listed in the table is c/o
Z Trim Holdings, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.


                                                                  PERCENTAGE OF
                                            NUMBER OF SHARES          SHARES
NAME OF                                      BENEFICIALLY          BENEFICIALLY
BENEFICIAL OWNER                                 OWNED                OWNED
----------------                             ------------        ---------------

DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Gregory J. Halpern(1)                           16,746,282            26.30%
Steve J. Cohen(2)                                1,349,309             2.12%
Dana L. Dabney(3)                                3,593,000             5.65%
Michael J. Theriault (4)                         1,974,000             3.11%
Stan J. Levin(5)                                   703,300             1.10%
Steven H. Salgan(6)                              1,076,915             1.69%
Alan G. Orlowsky(7)                                770,900             1.21%
Total of all Directors and Executive Officers   26,213,706            41.23%

-----------------------

(1) Includes 2,848,182 options exercisable within 60 days of March 27, 2007.

(2) Includes 1,334,309 options exercisable within 60 days of March 27, 2007.

(3) Includes 1,935,000 options exercisable within 60 days of March 27, 2007.

(4) Includes 1,755,000 options exercisable within 60 days of March 27, 2007.

(5) Includes   575,000 options exercisable within 60 days of March 27, 2007.

(6) Includes   475,000 options exercisable within 60 days of March 27, 2007.

(7) Includes   720,000 options exercisable within 60 days of March 27, 2007.


                                       32
<PAGE>
ITEM  12.  CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
INDEPENDENCE.


The Company's independent directors are Stan J. Levin, Steven H. Salgan and Alan
G. Orlowsky.  In compliance with the small business exception under the American
Stock Exchange's rules for director independence, 50% of the Company's directors
are independent.


ITEM 13.  EXHIBIT LIST AND REPORTS ON FORM 8-K.

EXHIBIT  DESCRIPTION
NO.
3.1     Articles of  Incorporation  of Z Trim Holdings,  Inc.  [Incorporated  by
        reference  to Exhibit 2.1 to Z Trim's Form 10-SB,  as amended,  filed on
        August 21, 2000]

3.2     Bylaws of Z Trim Holdings,  Inc.  [Incorporated  by reference to Exhibit
        2.2 to Z Trim's Form 10-SB, as amended, filed on August 21, 2000]

3.3     Amendment to Articles of Incorporation of Z Trim Holdings, Inc. filed on
        June 25, 2004 [Incorporated by reference to Exhibit 3.3 to Z Trim's Form
        10-QSB filed on August 16, 2004]

4.1     Specimen  Certificate  for common  stock  [Incorporated  by reference to
        Exhibit  3.1 to Z Trim's Form  10-SB,  as  amended,  filed on August 21,
        2000]

4.2     Form of  Subscription  Agreement  [Incorporated  by  reference to Circle
        Group's Form 8-K filed on March 30, 2006]

4.3     Form of Warrant to Purchase Common Stock [Incorporated by reference to Z
        Trim's Form 8-K filed on March 30, 2006]

4.4     Form of Registration  Rights  Agreement  [Incorporated by reference to Z
        Trim's Form 8-K filed on March 30, 2006]

4.5*    Form of Subscription Agreement

4.6*    Form of Warrant to Purchase Common Stock

4.7*    Form of Registration Rights Agreement

10.1*   Gregory J. Halpern Employment Agreement, dated January 2, 2007

10.2*   Michael Theriault Employment Agreement, dated January 2, 2007

10.3*   Dana Dabney Employment Agreement, dated January 2, 2007


                                       33
<PAGE>
10.5    Z Trim  Holdings,  Inc.  2004 Equity  Incentive  Plan  [Incorporated  by
        reference to Exhibit  10.5 to Circle  Group's Form S-3 filed on June 25,
        2004]

10.6    Industrial Lease Agreement  between CLO Enterprises and Z Trim Holdings,
        Inc., dated May 20, 1999  [Incorporated by reference to Exhibit 6.6 to Z
        Trim's Form 10-SB, as amended, filed on August 21, 2000]

10.7    Industrial Lease Agreement  between CLO Enterprises and Z Trim Holdings,
        Inc.,  dated June 18, 1999  [Incorporated by reference to Exhibit 6.7 to
        Circle Group's Form 10-SB, as a amended, filed on August 21, 2000]

10.8    Promissory Note, Dated November 30, 2002,  delivered by Z Trim Holdings,
        Inc. in favor of Edward L. Halpern [Incorporated by reference to Exhibit
        6.11 to Circle Group's 10-KSB filed on April 14, 2003]

10.9    Letter Agreement between Circle Group Holdings,  Inc. and George Foreman
        Enterprises,  Inc. dated November 23, 2005 [Incorporated by reference to
        Z Trim's Form 8-K filed on November 29, 2005]

10.10*  Steve Cohen Employment Agreement, dated January 2, 2007

14*     Code of Ethics

21*     Subsidiaries

23.1*   Consent of Spector & Wong LLP

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

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

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

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

----------------------
*Filed herewith


                                       34
<PAGE>
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     The following is a summary of the fees billed to us by Spector & Wong,  LLP
for professional  services  rendered for the fiscal year ended December 31, 2006
and December 31, 2005, respectively:

              FEE CATEGORY                2006              2005
         -------------------------- ----------------- -----------------

         -------------------------- ----------------- -----------------
         Audit Fees(1)                   $40,000           $37,000
         -------------------------- ----------------- -----------------
         Audit-Related Fees(2)           $45,500           $45,500
         -------------------------- ----------------- -----------------
         Tax Fees(3)                        --              --
         -------------------------- ----------------- -----------------
         All Other Fees(4)                  --              --
         -------------------------- ----------------- -----------------
         Total Fees                      $85,500           $82,500
         -------------------------- ----------------- -----------------

----------------------

(1) Audit Fees consist of fees billed for professional services rendered for the
audit of our  financial  statements  and for  reviews of the  interim  financial
statements included in our quarterly reports on Form 10-QSB.

(2) Audit-Related Fees consist of fees billed for professional services rendered
for  audit-related  services,  including  consultation  on SEC  filings  and the
issuance  of  consents  and  consultations  on other  financial  accounting  and
reporting related matters.

(3) Tax Fees consists of fees billed for professional  services  relating to tax
compliance and other tax advice.

(4) All Other Fees consist of fees billed for all other services.

PRE-APPROVAL POLICY

     Our  Audit  Committee  Charter  provides  that the  Audit  Committee  shall
pre-approve  all  auditing  services,   internal  control-related  services  and
permitted  non-audit services  (including the terms thereof) to be performed for
us by  our  independent  auditor,  subject  to  the de  minimis  exceptions  for
non-audit services described in Section  10A(i)(1)(B) of the Securities Exchange
Act of 1934,  as  amended,  which are  approved  by the  Committee  prior to the
completion of the service. The Committee may also form and delegate authority to
sub-committees consisting of one or more members when appropriate, including the
authority to grant  pre-approvals  of audit and  permitted  non-audit  services,
provided that decisions of such  subcommittee  to grant  pre-approvals  shall be
presented to the full  Committee at its next  scheduled  meeting.  In accordance
with the pre-approval policy, the Audit Committee has approved certain specified
audit and  non-audit  services  to be  provided  by Spector & Wong LLP for up to
twelve (12) months from the date of the pre-approval. Any additional services to
be provided by our independent auditors following such pre-approval requires the
additional pre-approval of the Audit Committee.


                                       35
<PAGE>
                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized as of April 2, 2007.

                                Z TRIM HOLDINGS, INC.

                                By: /s/ Gregory J. Halpern
                                --------------------------
                                Gregory J. Halpern
                                Chairman of the Board, 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 as of
April 2, 2007.


/S/GREGORY J. HALPERN
----------------------
Gregory J. Halpern
Director and Chief Executive Officer
(principal executive officer)

/S/ DANA L. DABNEY
--------------------
Dana L. Dabney
Director, Chief Financial Officer and
Vice President (principal financial
or accounting officer)

/S/ STEVE J. COHEN
----------------------
Steve J. Cohen
Director and President

/S/ STEVE H. SALGAN
---------------------
Steve H. Salgan
Director

/S/ STANFORD J. LEVIN
----------------------
Stanford J. Levin
Director

/S/ ALAN G. ORLOWSKY
----------------------
Alan G. Orlowsky
Director


                                       36
<PAGE>
                                INDEX OF EXHIBITS

EXHIBIT NO.                       DESCRIPTION

3.1     Articles of  Incorporation  of Z Trim Holdings,  Inc.  [Incorporated  by
        reference  to Exhibit 2.1 to Z Trim's Form 10-SB,  as amended,  filed on
        August 21, 2000]

3.2     Bylaws of Z Trim Holdings,  Inc.  [Incorporated  by reference to Exhibit
        2.2 to Z Trim's Form 10-SB, as amended, filed on August 21, 2000]

3.3     Amendment to Articles of Incorporation of Z Trim Holdings, Inc. filed on
        June 25, 2004  Incorporated by reference to Exhibit 3.3 to Z Trim's Form
        10-QSB filed on August 16, 2004]

4.1     Specimen  Certificate  for common  stock  [Incorporated  by reference to
        Exhibit  3.1 to Z Trim's Form  10-SB,  as  amended,  filed on August 21,
        2000]

4.2     Form of  Subscription  Agreement  [Incorporated  by  reference to Circle
        Group's Form 8-K filed on March 30, 2006]

4.3     Form of Warrant to Purchase Common Stock [Incorporated by reference to Z
        Trim's Form 8-K filed on March 30, 2006]

4.4     Form of Registration  Rights  Agreement  [Incorporated by reference to Z
        Trim's Form 8-K filed on March 30, 2006]

4.5*    Form of Subscription Agreement

4.6*    Form of Warrant to Purchase Common Stock

4.7*    Form of Registration Rights Agreement

10.1*   Gregory J. Halpern Employment Agreement, dated January 2, 2007

10.2*   Michael Theriault Employment Agreement, dated January 2, 2007

10.3*   Dana Dabney Employment Agreement, dated January 2, 2007

10.5    Z Trim  Holdings,  Inc.  2004 Equity  Incentive  Plan  [Incorporated  by
        reference to Exhibit  10.5 to Circle  Group's Form S-3 filed on June 25,
        2004]

10.6    Industrial Lease Agreement  between CLO Enterprises and Z Trim Holdings,
        Inc., dated May 20, 1999  [Incorporated by reference to Exhibit 6.6 to Z
        Trim's Form 10-SB, as amended, filed on August 21, 2000]


                                       37
<PAGE>

10.7    Industrial Lease Agreement  between CLO Enterprises and Z Trim Holdings,
        Inc., dated June 18, 1999 [Incorporated by reference to Exhibit 6.7 to Z
        Trim's Form 10-SB, as amended, filed on August 21, 2000]

10.8    Promissory Note, Dated November 30, 2002,  delivered by Z Trim Holdings,
        Inc. in favor of Edward L. Halpern  Incorporated by reference to Exhibit
        6.11 to Z Trim's 10-KSB filed on April 14, 2003]

10.9    Letter Agreement between Circle Group Holdings,  Inc. and George Foreman
        Enterprises,  Inc. dated November 23, 2005 [Incorporated by reference to
        Z Trim's Form 8-K filed on November 29, 2005]

10.10*  Steve Cohen Employment Agreement, dated January 2, 2007


14*     Code of Ethics

21*     Subsidiaries

23.1*   Consent of Spector & Wong LLP

31.1*   Statement Under Oath of Principal  Executive Officer of Z Trim Holdings,
        Inc. Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*   Statement Under Oath of Principal  Financial Officer of Z Trim Holdings,
        Inc. Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*   Statement Under Oath of Principal  Executive Officer of Z Trim Holdings,
        Inc. Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2*   Statement Under Oath of Principal  Financial Officer of Z Trim Holdings,
        Inc. Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

-----------------------
*Filed herewith


                                       38
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                          PAGE
                                                                          ----

Report of Independent Auditors.........................................   F-2

Consolidated Balance Sheets............................................   F-3

Consolidated Statements of Operations..................................   F-4

Consolidated Statements of Stockholders'
Equity (Deficit) and Comprehensive Income (Loss).......................   F-5

Consolidated Statements of Cash Flows..................................   F-6

Notes to Consolidated Financial Statements.............................   F-7


<PAGE>
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and
Stockholders of Z Trim Holdings, Inc.


We have audited the accompanying consolidated balance sheets of Z Trim Holdings,
Inc. as of December 31, 2006 and 2005, and the related  consolidated  statements
of operations, changes in stockholders' equity and cash flows for the years then
ended.  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 also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principals  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Z Trim Holdings,  Inc. as of
December 31, 2006 and 2005, and the results of its operations and its cash flows
for the years then ended in  conformity  with  accounting  principals  generally
accepted in the Unites States of America.


/s/ Spector & Wong, LLP
-------------------------
Spector & Wong LLP
Passadena, California
March 30, 2007


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31
-------------------------------------------------------------------------------------------------

                                     ASSETS
  Current Assets                                                   2006                 2005
                                                             --------------         -------------
<S>                                                               <C>                    <C>
     Cash and cash equivalents                               $      696,499         $      24,999
      Accounts receivable, net of allowance for doubtful
      accounts of $0 for 2006 and 2005                               71,176                60,446
  Inventory                                                         219,605                98,787
  Prepaid expenses and other assets                                  94,417                85,670
                                                             --------------         --------------
   Total current assets                                           1,081,697               269,902
                                                             --------------         --------------
 Property and equipment, net                                      6,263,050             6,512,126
                                                             --------------         --------------
 Other Assets                                                       153,334               528,917
  Intangible assets, net
  Deposits                                                           11,103                11,103
                                                             --------------         --------------
   Total other assets                                               164,437               540,020
                                                             --------------         --------------
               TOTAL ASSETS                                  $    7,509,184         $   7,322,048
                                                             --------------         --------------

</TABLE>
                 See notes to consolidated financial statements

                                       F-2


<PAGE>
<TABLE>
<CAPTION>

Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31
--------------------------------------------------------------------------------------------------------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                              2006                  2005
                                                                        ---------------        ---------------
   Current Liabilities
<S>                                                                         <C>                     <C>
   Accounts payable                                                    $        419,318        $       892,596
  Accrued expenses                                                              162,500                346,483
  Capital lease obligations                                                      14,074                 30,994
                                                                        ---------------        ---------------
Total current liabilities                                                       595,892              1,270,073
 Long-Term Liabilities,
  Capital lease obligations                                                           -                 14,074
                                                                        ---------------        ---------------
TOTAL LIABILITIES                                                               595,892              1,284,147
                                                                        ---------------        ---------------
 Stockholders' Equity
  Common stock, $0.00005 par value; authorized 200,000,000 shares;
issued and outstanding 61,984,484 shares                                          3,096                  2,503
  Common stock to be issued                                                           -                     22
  Additional paid-in capital                                                 56,507,834             39,542,378
  Unamortized expenses                                                         (113,339)              (257,318)
  Notes receivable for issuance of stock, net                                         -               (185,000)
  Accumulated Deficit                                                       (49,484,299)           (33,053,415)
  Treasury stock, at cost                                                             -                (11,269)
                                                                        ---------------        ---------------
TOTAL STOCKHOLDERS' EQUITY                                                    6,913,292              6,037,901
                                                                        ---------------        ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $     7,509,184        $     7,322,048
                                                                        ---------------        ---------------
</TABLE>

                 See notes to consolidated financial statements

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

--------------------------------------------------------------------------------------------------------------



     For the years ended December 31,                                         2006                 2005
--------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                    <C>
     REVENUES:                                                          $       594,383        $      510,947
      Products
      Services                                                                    7,161                 3,661
--------------------------------------------------------------------------------------------------------------
       Total revenues                                                           601,544               514,608
--------------------------------------------------------------------------------------------------------------
     COST OF REVENUES:                                                          984,961               679,425
      Products
      Services                                                                        -                23,607
--------------------------------------------------------------------------------------------------------------
       Total cost of revenues                                                   984,961               703,032
--------------------------------------------------------------------------------------------------------------
     OPERATING EXPENSES:                                                      6,379,170             4,940,598
      Selling, general and administrative
      Stock option expense                                                    9,419,028                     -
      Reduction of intangible assets                                            341,250                     -
      Amortization of intangible assets                                          34,333                34,333
--------------------------------------------------------------------------------------------------------------
       Total operating expenses                                              16,173,781             4,974,931
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
     OPERATING LOSS                                                         (16,557,198)           (5,163,355)
--------------------------------------------------------------------------------------------------------------
     OTHER INCOME (EXPENSES):                                                    42,000                45,355
      Rental and other income
      Interest income                                                            90,873                 4,425
      Provision for loan loss                                                         -             (965,000)
      Settlment gain                                                              7,500                     -
      Interest expense                                                          (14,059)              (19,998)
--------------------------------------------------------------------------------------------------------------
       Total other income (expenses)                                            126,314             (935,218)
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
     NET LOSS BEFORE MINORITY INTEREST                                  $   (16,430,884)     $     (6,098,573)
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
     Minority interest in subsidiaries' loss                                          -                72,988
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
     NET LOSS                                                           $   (16,430,884)     $     (6,025,585)
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
     Net Loss per Share - Basic and Diluted                             $         (0.28)     $          (0.13)
--------------------------------------------------------------------------------------------------------------
     Weighted Average Number of Shares                                       59,635,899            46,653,242


</TABLE>
                 See notes to consolidated financial statements

                                      F-4


<PAGE>
<TABLE>
<CAPTION>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

-----------------------------------------------------------------------------------------------------------------------------------
                                                     Common
                                                    Stock and                     Notes
                                     Shares of     Additional                  Receivable
                                      Common         Paid-in     Unamortized   issued for    Accumulated    Treasury
                                       Stock         Capital       Expenses       Stock        Deficit       Stock        Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>            <C>          <C>           <C>            <C>          <C>
   Balance at December 31, 2004      44,396,469  $  38,187,646  $(1,849,589) $ (3,465,000) $ (27,027,830) $   (11,269) $  5,833,958

Stock issued for services               730,737        612,077     (484,840)                                                127,237
Stock issued for cash                 1,187,500        525,000                                                              525,000
Stock issued for equipment              149,265        186,582                                                              186,582
Exercise of stock warrants and optio  2,452,811      1,146,427                    (35,000)                                1,111,427
Warrants issued for services                            51,200      (51,200)                                                      -
Proceeds from notes receivable                                                  2,350,000                                 2,350,000
Reserve for uncollectible notes receivable                                        965,000                                   965,000
Exchange of stock to eliminate
minority interest                     1,100,000       (151,854)                                                            (151,854)
Amortization of services                            (1,012,175)   2,128,311                                               1,116,136
Net loss                                                                                      (6,025,585)                (6,025,585)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance at December 31, 2005      50,016,782  $  39,544,903  $  (257,318) $   (185,000) $ (33,053,415) $   (11,269) $  6,037,901

Stock issued for services             1,356,871      1,312,731     (744,600)                                               568,131
Stock issued for cash                 9,487,304      5,156,433                                                           5,156,433
Exercise of stock warrants and option 1,123,527        652,025                                                             652,025
Warrants issued for services                           437,079     (437,079)                                                     -
Proceeds from notes receivable                                                    185,000                                  185,000
Stock options issued expense                         9,419,028                                                           9,419,028
Amortization of services                                          1,325,658                                              1,325,658
Treasury stock retired                                 (11,269)                                                11,269           -
Net loss                                                                                     (16,430,884)              (16,430,884)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance at December 31, 2006      61,984,484  $  56,510,930  $  (113,339) $          -  $ (49,484,299) $         -  $ 6,913,292
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                 See notes to consolidated financial statements

                                      F-5
<PAGE>
<TABLE>
<CAPTION>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,                                                2006                    2005
-----------------------------------------------------------------------------------------       ----------------
<S>                                                                               <C>                    <C>
Cash Flows From Operating Activities:                                       $(16,430,884)          $ (6,025,585)
Net loss
Adjustments to reconcile net loss to net cash used in operations:
Minority deficit                                                                      --                (72,988)
Depreciation and amortization                                                    661,707                657,081
Issuance of common stocks and warrants for services                              576,758                285,097
Amortization of noncash expenses                                               1,325,658              1,116,136
Provision for uncollectible loan loss                                                 --                965,000
Reduction of intangible assets                                                   341,250                     --
Stock option expense                                                           9,419,028                     --
(Increase) decrease in:
Accounts receivable                                                              (10,730)                26,019
Inventory                                                                       (120,818)                16,955
Prepaid expenses and other assets                                                 (8,747)                14,878
Decrease in:
Accounts payable and accrued expenses                                           (657,261)              (644,873)
                                                                            ------------           ------------
Cash flows used in operating activities                                       (4,904,039)            (3,662,280)
                                                                            ------------           ------------
Cash Flows From Investing Activities:                                           (378,298)              (181,186)
Purchase of property and equipment                                          ------------           ------------
Cash flows used in investing activities                                         (378,298)              (181,186)
                                                                            ------------           ------------
Cash Flows From Financing Activities:                                          5,156,433                525,000
Net proceeds from sales of stock
Exercise of options and warrants                                                 643,398                928,567
Net payments on capital lease obligations                                        (30,994)               (28,850)
Proceeds from stock subscription receviable                                           --              2,350,000
Decrease in note receivable for stock                                            185,000                     --
                                                                            ------------           ------------
Cash flows provided by financing activities                                    5,953,837              3,774,717
                                                                            ------------           ------------
Net increase in cash and cash equivalents                                        (68,749)               671,500
Cash and cash equivalents, at beginning of period                                 24,999                 93,748
                                                                            ------------           ------------
Cash and cash equivalents, at end of period                                 $    696,499           $     24,999
                                                                            ------------           ------------

Supplemental Disclosures of Cash Flow Information:
Interest paid                                                               $     14,059           $     16,463
Supplemental schedule of noncash investing and financing activities:                  --
Issuance of common stock and warrants for services                          $  1,758,437                      $
Stock subscriptions and notes receivable incurred for issuance of stock     $         --           $     35,000
Retirement of treasury stock                                                $     11,269           $         --
Shares to be retired for unamortized expenses                               $         --           $  1,012,175
Exchange of common stock to eliminate minority interest                     $         --           $   (151,854)
Issuance of common stock for liabilities incurred for equipment purchases   $         --           $    186,582
Issuance of credit memos for liabilities incurred for equipment purchases   $         --           $     32,865

</TABLE>

                 See notes to consolidated financial statements

                                      F- 6
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF BUSINESS
--------------------------

Nature of Business
------------------

In 2005, Z Trim  Holdings,  Inc.  (formerly  Circle Group  Holdings,  Inc.,  the
"Company") refined its direction from a pioneer of emerging technology companies
where  it  provided  small  business  infrastructure,  funding  and  substantial
intellectual capital to bring important and timely life-changing technologies to
the  marketplace  through  all  phases of the  commercialization  process,  to a
company that will focus its resources  primarily on the  manufacture,  marketing
and sale of Z Trim,  its zero  calorie fat  substitute  and other Z Trim related
products.  The company will continue  exploring  all  available  options for its
other non Z Trim technologies and related assets.

The Company has  participated  in several  public and private  offerings and has
expanded its business. In 2002, the Company acquired FiberGel Technologies, Inc.
("FiberGel"),  which  owns  an  exclusive  license  to Z Trim,  an  all-natural,
agriculture-based  fat replacement.  The Company  reorganized its business units
into three  reportable  segments:  food  product  development,  personal  safety
training and products and e-tailer.

The Company  operates  through its FiberGel  Technologies,  Inc.,  The Brave Way
Training Systems, Inc., On-Line Bedding Corp., and Z-Amaize  Technologies,  Inc.
divisions.

NOTE 2 - SUMMARY OF SIGNIFICANT  ACCOUNTING  POLICIES
-----------------------------------------------------

Principle of Consolidation and Presentation
--------------------------------------------

The accompanying  consolidated  financial  statements  include the accounts of Z
Trim Holdings,  Inc. and its subsidiaries  after elimination of all intercompany
accounts and transactions.  Certain prior period balances have been reclassified
to conform to the current period presentation.

Use of Estimates
-----------------

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

Revenue recognition
-------------------

The Company generally  recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectibility  is probable.  In  instances  where the final  acceptance  of the
product is specified by the customer,  revenue is deferred  until all acceptance
criteria have been met. No provisions  were  established  for estimated  product
returns and allowances based on the Company's historical experience.

Allowance for doubtful accounts
-------------------------------

Management  of  the  Company  makes  judgments  as to  its  ability  to  collect
outstanding  receivables  and provide  allowances for the portion of receivables
when  collection  becomes  doubtful.  Provisions  are made based upon a specific
review  of  all  significant   outstanding  invoices.  For  those  invoices  not
specifically  reviewed,  provisions are provided at differing rates,  based upon
the age of the receivable. In determining these percentages, management analyzes
its  historical  collection  experience  and  current  economic  trends.  If the
historical  data the  Company  uses to  calculate  the  allowance  for  doubtful
accounts does not reflect the future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and the future results
of operations could be materially affected. As of December 31, 2006 and 2005, no
allowance  for doubtful  accounts was provided as  management  believes that all
accounts as of those dates are fully collectible.


                                      F-7
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------

Cash and cash equivalents
-------------------------

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  investments  with  a  maturity  of  three  months  or  less  to be  cash
equivalents.

Fair value of financial instruments
------------------------------------

All financial instruments are carried at amounts that approximate estimated fair
value.  Concentrations  Cash and cash  equivalents  are maintained  with several
financial  institutions.  Deposits  held with  banks may  exceed  the  amount of
insurance provided on such deposits.  Generally,  these deposits may be redeemed
upon demand and therefore bear minimal risk.

Inventory
-----------

Inventory  consist of raw  materials,  finished goods and packaging and displays
and are stated at the lower of cost or  market,  using the  first-in,  first-out
method.

Property and equipment
-----------------------

Property  and  equipment  are stated at cost.  Maintenance  and repair costs are
expensed  as  incurred.  Depreciation  is  calculated  on  the  accelerated  and
straight-line  methods over the estimated useful lives of the assets.  Estimated
useful lives of five to ten years are used for machinery and  equipment,  office
equipment and furniture,  and automobile.  Estimated  useful lives of up to five
years are used for computer  equipment and related  software.  Depreciation  and
amortization of leasehold improvements are computed using the term of the lease.

Intangible assets
------------------

Intangible   assets  are  carried  at  the  purchased   cost  less   accumulated
amortization.  Amortization  is computed over the estimated  useful lives of the
respective assets, generally from fifteen to twenty years.

Impairment of Long-Lived Assets
-------------------------------

Long-lived assets and certain identifiable intangible assets to be held and used
are reviewed for impairment whenever events or changes in circumstance  indicate
that the carrying amount of such assets may not be recoverable. Determination of
recoverability  is  based on an  estimate  of  undiscounted  future  cash  flows
resulting from the use of the asset and its eventual disposition. Measurement of
an impairment  loss for long-lived  assets and certain  identifiable  intangible
assets that management expects to hold and use is based on the fair value of the
asset.  Long-lived  assets  and  certain  identifiable  intangible  assets to be
disposed of are reported at the lower of carrying  amount or fair value costs to
sell.

                                      F-8
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)
------------------------------------------------------------------

Income (Loss) Per Common Share
------------------------------

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

Income taxes
------------

The Company and its subsidiaries are included in the consolidated federal income
tax return filed by the Parent.  Federal  income taxes are  calculated as if the
companies  filed on a separate  return  basis,  and the  amount of  current  tax
expense or benefit calculated is either remitted to or received from the Parent.
The amount of current and deferred  taxes payable or refundable is recognized as
of the date of the financial  statements,  utilizing  currently enacted tax laws
and rates.  Deferred tax expenses or benefits are  recognized  in the  financial
statements for the changes in deferred tax liabilities or assets between years.

Advertising costs
-----------------

The Company expenses all advertising costs as incurred.

Stock Based Compensation
------------------------

Prior to January 1, 2006,  the Company's  stock option plans were  accounted for
under the recognition and measurement provisions of APB Opinion No. 25 ("Opinion
25"), Accounting for Stock Issued to Employees, and related Interpretations,  as
permitted by FASB  Financial  Accounting  Standards  ("FAS")  Statement No. 123,
Accounting for Stock-Based  Compensation (as amended by FAS No. 148,  Accounting
for Stock-Based Compensation Transition and Disclosure)  (collectively FAS 123).
No  stock-based  employee  compensation  cost was  recognized  in the  Company's
consolidated  statements of operations through December 31, 2005, as all options
granted  under the plans had an exercise  price equal to the market value of the
underlying  common stock on the date of grant.  Effective  January 1, 2006,  the
Company  adopted the fair value  recognition  provisions  of FASB  Statement No.
123(R),       Share-Based      Payment      (FAS      123R),      using      the
modified-prospective-transition    method.   Under   that   transition   method,
compensation  cost recognized in 2006 includes:  (a)  compensation  cost for all
share-based  payments granted prior to, but not yet vested as of January 1, 2006
based on the grant date fair value  calculated in  accordance  with the original
provisions of FAS 123, and (b)  compensation  cost for all share-based  payments
granted  subsequent  to December 31, 2005,  based on the  grant-date  fair value
estimated in accordance with the provisions of FAS 123(R).

During the year ended  December 31, 2006,  as a result of adopting FAS 123(R) on
January 1, 2006, the Company recognized pre-tax  compensation expense related to
stock options of $9,419,028,  which included an additional  charge of $1,199,402
from the modification of 1,620,000 out-of-money options. The Company reduced the
exercise  price  ranging  between $2.00 and $4.61 to $1.06 which was the closing
market price on date of approval,  and extended two more years from the original
expiration dates. The following table illustrates the effect on net loss and net
loss per share if the Company had applied the fair value recognition  provisions
of FAS 123 to options granted under the Company's stock option plan for the year
ended December 31, 2005. For purposes of this pro forma disclosure, the value of
the options is estimated  using the  Black-Scholes  option-pricing  model and is
being amortized to expense over the options' vesting periods.


                                      F-9
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
----------------------------------------------------------------

                                                             2005
 ----------------------------------------------------------------------
  Net loss, as reported                                  $  (6,025,585)
 Deduct: Total stock-based employee compensation
 expense determined under the fair value of awards
 net of tax related effects                                  2,597,883
                                                         --------------
 Pro forma net loss                                      $  (8,623,468)
                                                         --------------
 Reported net loss per share-basic and diluted           $       (0.13)
                                                         --------------
  Pro forma net loss per share-basic and diluted         $       (0.18)
                                                         --------------



New Accounting Pronouncements
------------------------------

In  June  2006,  the  Financial   Accounting  Standards  Board  ("FASB")  issued
Interpretation  No. 48, Accounting for Uncertainty in Income Taxes,  ("FIN 48").
This  Interpretation  clarifies the accounting  for  uncertainty in income taxes
recognized in an  enterprise's  financial  statements  in  accordance  with FASB
Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  This  Interpretation  also  provides  guidance  on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006.  The Company does not expect the adoption of FIN 48 to have a
material impact on its consolidated financial statements.

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

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

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

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


                                      F-10
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------

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

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

The FASB has also  issued  FAS 155,  Accounting  for  Certain  Hybrid  Financial
Instruments-an amendment of FASB Statements No. 133 and 140, FAS 156, Accounting
for Servicing of Financial  Assets-an  amendment of FASB  Statement No. 140, and
FAS  158,   Employers'   Accounting  for  Defined   Benefit  Pension  and  Other
Postretirement  Plans, but they will not be applicable to the current operations
of the  Company.  Therefore  a  description  and  the  impact  on the  Company's
operations and financial position for each of the pronouncements  above have not
been disclosed.


NOTE 3 - INVENTORY
------------------

At December 31, inventory consists of the following:

                                                 2006              2005
                                          ----------------------------------
 Raw materials                            $      33,798       $       47,211
 Work-in-process                                 11,414                3,574
 Packaging                                       18,691               35,269
 Finished goods                                 155,702               12,733
                                          ----------------------------------
      Total inventory                     $     219,605       $       98,787
                                          ----------------------------------

                                      F-11
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


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

At December 31, property and equipment, net consists of the following:


                                                     2006              2005
                                                --------------------------------
Production, engineering and other equipment     $    4,717,341    $   4,505,656
Leasehold improvements                               2,745,917        2,629,400
Office equipment and furniture                         601,067          599,132
Computer equipment and related software                331,112          319,468
Construction in process - equipment                    133,532           97,015
                                                --------------------------------
                                                     8,528,969        8,150,671
Accumulated depreciation                            (2,265,919)      (1,638,545)
                                                --------------------------------
      Property and equipment, net               $    6,263,050    $   6,512,126
                                                --------------------------------



NOTE 5 - INTANGIBLE ASSETS
--------------------------

During 2006, no significant  identified  intangible assets were acquired and the
Company recorded  $341,250 of reduction in the carrying value of a license right
to a  developed  technology  as a result of  impairment  analyses  performed  in
accordance  with SFAS 144. The following  table present details of the Company's
purchased intangible assets:

                                  Gross
                                 Carrying         Accumulated
                                  Amount         Amortization        Net
 ---------------------------------------------------------------------------
      License Rights to           200,000            (46,666)        153,334
      Website
                             ------------------------------------------------
      Total intangibles         $ 200,000    $       (46,666)      $ 153,334
                             ------------------------------------------------



Amortization  of  intangibles  was $34,333 for the years ended December 31, 2006
and 2005, respectively.

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


                            Years ended December 31,
                            ---------------------------------------------------
                            2007                                  $      13,333
                            2008                                         13,333
                            2009                                         13,333
                            2010                                         13,333
                            Thereafter                                  100,002
                                                                  -------------
                                     Total amortization           $     153,334
                                                                  -------------

                                      F-12
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 6 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
-------------------------------------------------------

At December 31, accrued expenses and other current liabilities consist of the
following:


                                                         2006           2005
                                                      ----------    ------------
Accrued legal                                         $  109,513   $     190,357
Accrued payroll and taxes                                      -         110,322
Other accrued expenses                                    52,987          45,804
                                                      ----------   -------------
Total accrued expenses and other current liabilities  $  162,500   $     346,483
                                                      ==========   =============


NOTE 7 - CAPITAL LEASE OBLIGATION
----------------------------------

In August 2002, the Company sold certain  property and equipment to an unrelated
party for  $121,500  and leased the  equipment  back from the party  under three
lease  agreements that were classified as capital leases in accordance with SFAS
13,  "Accounting  for  Leases."  These assets are being  depreciated  over their
estimated useful economic lives and are included in the depreciation expense for
the years ended December 31, 2006 and 2005.

The following table presents the future minimum lease payments under the capital
leases  together  with the  present  value of the minimum  lease  payments as of
December 31, 2006.



             Year Ending December 31,
             -------------------------------------------------------------------
             2007                                                   $    14,895
                                                                    ------------
             Total minimum lease payments                                14,895
             Lease amount representing interest                             821
                                                                    ------------
             Present value of minimum lease payments                     14,074
             Less: current portion                                       14,074
                                                                    ------------
             Non-current portion                                    $         -
                                                                    ------------


The leases bear interest rates ranging from 17.29% to 20.88%.

NOTE 8 - STOCKHOLDERS' EQUITY
-----------------------------

Private Placement Offering
--------------------------

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


                                      F-13
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------

NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
-----------------------------------------

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

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

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

In  June  2005,  the  Company  conducted  a  self-underwritten  offering  of the
Company's  common stock up to $1.6  million.  The stock was sold for $12,500 per
unit.  Each unit consists of 31,250 shares of common stock and 31,250  warrants.
The  warrants are  exercisable  at $1.00 per share and expire in three (3) years
after purchase of the above-described unit. As of December 31, 2005, the Company
sold and  issued  1,187,500  shares  received  $525,000  in  proceeds  under the
offering.

Exercising of stock warrants and options
----------------------------------------

During 2006,  there were  1,273,527  stock warrants and options  exercised.  The
Company  received  total  proceeds of $643,398.  The Company  applied  $8,627 of
proceeds  due from a  consultant  exercising  options  during  2006  against her
service rendered.

During 2005,  there were  2,302,811  stock warrants and options  exercised.  The
Company received total proceeds of $996,427,  of which,  $35,000 was received in
2006. The Company  applied  $127,960 of proceeds due from  employees  exercising
options during 2005 against the employees' net pay and a note payable to related
party.

Elimination of Minority Deficit in FiberGel
--------------------------------------------

Between September 1, 2003 and September 30, 2005, the FiberGel  subsidiary had a
minority  deficit.  The minority deficit was eliminated  through an exchange for
1,100,000 shares of the Company's common stock on December 1, 2005.

Prior to  September  1,  2003,  FiberGel  had been  the  Company's  wholly-owned
subsidiary.  In  September  2003,  the  Company  conducted  a private  placement
offering of  FiberGel's  common stock and sold  1,100,000  shares of  FiberGel's
common stock for $1,100,000.  As a result, the Company's ownership percentage of
FiberGel's  common stock declined to  approximately  94.5%. The Company complies
with the requirement of SEC Staff  Accounting  Bulletin No. 51,  "Accounting for
Sales of Stock by a Subsidiary, " which requires that the difference between the
carrying  amount of parent's  investment in a subsidiary  and the underlying net
book value of the  subsidiary  after the issuance of stock by the  subsidiary be
reflected as either a gain or loss in the  statement of  operations or reflected
as an equity  transaction.  The Company  has  elected to record  gains or losses
resulting from the sale of subsidiary's stock as equity transactions.

On October 1, 2005,  the Board of Directors  approved to eliminate  the minority
deficit through an exchange of the FiberGel minority  shareholder interest for a
similar  interest in the  Company.  The  elimination  of the  minority  interest
through  the   issuance  of   Company's   common   stocks  was   recorded  as  a
recapitalization  adjustment  since no gain or loss was recorded  initially when
the FiberGel's  stocks were sold in 2003.  Accordingly,  the  elimination of the
$151,854 minority deficit balance was recorded,  offset by an increase in common
stock of $55 and a decrease in additional paid-in-capital of $151,909.

                                      F-14
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
--------------------------------------------

The consolidated  financial statements for periods prior to October 1, 2005, the
approval date of the exchange,  reflected a minority  deficit  adjustment of the
losses of  FiberGel  attributable  to the  minority  ownership.  For the  period
January  1,  2005  through   September  30,  2005  the  Company   reported  loss
attributable to minority  interest of $72,988 in the  consolidated  statement of
operations.

NOTE 9 - NET LOSS PER SHARE
---------------------------

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

                                                           Years ended
                                                           December 31,
                                                    2006              2005
 -------------------------------------------------------------------------------
 Numerator:
 -------------------------------------------------------------------------------
 Net loss                                        (16,430,884)   $   (6,025,585)
 -------------------------------------------------------------------------------
 Denominator:
 -------------------------------------------------------------------------------
 Weighted average number of shares outstanding    59,635,899        46,653,242
 -------------------------------------------------------------------------------

 -------------------------------------------------------------------------------
 Net loss per share-basic and diluted                  (0.28)   $        (0.13)
 -------------------------------------------------------------------------------


As the Company  incurred  net losses for the years ended  December  31, 2006 and
2005,  the  effect of  dilutive  securities  totaling  4,178,620  and  2,084,072
equivalent  shares,  respectively,  has been  excluded from the  calculation  of
diluted loss per share because their effect was anti-dilutive.

NOTE 10 - STOCK OPTION PLAN AND WARRANTS
-----------------------------------------

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

A summary of the status of stock  options  issued by the  Company as of December
31, 2006 and 2005 is presented in the following table.

<TABLE>
<CAPTION>
                                            2006                        2005
--------------------------------------------------------------------------------------
                                        Number    Weghted                    Weghted
                                                  Average         Number     Average
                                          of      Exercise          of       Exercise
                                        Shares     Price          Shares      Price
--------------------------------------------------------------------------------------
<S>                                  <C>             <C>            <C>        <C>
Outstanding at beginning of year     12,892,939   $    1.03      7,496,750  $   1.15
Granted                              10,826,337        1.05      8,677,000      0.78
Exercised                            (1,113,527)       0.46     (2,230,811)     0.43
Expired and Cancelled                (2,320,000)       1.00     (1,050,000)     1.06
-----------------------------------------------               ------------
Outstanding at end of period         20,285,749   $    0.99     12,892,939  $   1.03
-----------------------------------------------               ------------
Exercisable at end of period         19,985,749   $    0.98     12,892,939  $   1.03
-----------------------------------------------               ------------
</TABLE>

                                      F-15
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 10 - STOCK OPTION PLAN AND WARRANTS (CONTINUED)
----------------------------------------------------

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


                                                          2006        2005
                                                      -------------------------
    Weighted average fair value per option granted    $     0.76   $     0.61
    Risk-free interest rate                                 4.73%        2.59%
    Expected dividend yield                                 0.00%        0.00%
    Expected lives                                          3.00         3.00
    Expected volatility                                   120.08%      161.71%


As of December 31, 2006, there was $217,686 of total  unrecognized  compensation
cost related to nonvested  share-based  compensation  arrangements granted under
the Plan. The cost is expected to be recognized  over a weighted  average period
of nine months.

The  following  table sets forth  additional  information  about  stock  options
outstanding at December 31, 2006:

                                    Weighted
                                    Average         Weighted
 Range of                         Remaining          Average
 Exercise            Options      Contractual       Exercise      Options
 Prices            Outstanding       Life             Price       Exercisable
 -----------------------------------------------------------------------------
  $0.01 -$1.50        19,640,749        2.0 years  $      0.95      19,340,749
  $1.51-$3.00            645,000        0.7 years  $      2.08         645,000
 -----------------------------------------------------------------------------
                      20,285,749        2.0 years  $      0.99      19,985,749
 -----------------------------------------------------------------------------


As of December  31,  2006 and 2005,  the Company  has  warrants  outstanding  to
purchase   5,931,824  and  4,259,476  shares  of  the  Company's  common  stock,
respectively,  at prices  ranging from $0.45 to $6.40 per share.  These warrants
expire at various dates through March 2011.

NOTE 11 - INCOME TAXES
----------------------

The deferred net tax assets consist of the following at December 31:

                                                             2006     2005
                                                     ---------------------------
Tax Benefit on net operating loss carryforward       $  12,392,473  $10,048,096
Temporary differene in depreciation and amortization      (523,440)    (790,575)
Tax credits and carryforwards                              229,802      230,536
Others                                                     398,545            -
Less: valulation allowance                             (12,497,380)  (9,488,057)
                                                     ---------------------------
 Net deferred tax assets                             $           -  $         -
                                                     ---------------------------


At December 31, 2006, net federal and state  operating  losses of  approximately
$32 million and $18  million,  respectively,  are  available  for  carry-forward
against  future years'  taxable  income and expire  through 2026.  The Company's
ability to utilize its net operating loss  carryforwards is uncertain and thus a
valuation  reserve has been  provided  against the  Company's  net  deferred tax
assets.

                                      F-16
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 12 - DISSOLVED SUBSIDIARIES
---------------------------------

In 2006, the Board of Directors approved to dissolve two inactive  subsidiaries,
CGI  Capital,  Inc.  and  Veridisc  Corporation,  both of which had no assets or
liabilities as of December 31, 2006.

NOTE 13 - DEPARTURE OF DIRECTOR; APPOINTMENT OF PRINCIPAL OFFICER
-----------------------------------------------------------------

On March 27, 2006, Edward L. Halpern,  the founder of Online Bedding Corporation
announced his retirement from the Board of Directors.

Also, at its meeting on March 22, 2006,  the Board of Directors  promoted  Steve
Cohen, formerly Vice-President of Corporate Development, to President, an office
previously  held by Greg Halpern.  Greg Halpern  continues to hold the office of
Chief Executive Officer.  Mr. Cohen was also elected as a member of the Board of
Directors subsequently.

NOTE 14 - NAME CHANGE
---------------------

On February 6, 2006, the Board of Directors has approved a change of the company
name from Circle Group  Holdings,  Inc. to Z Trim Holdings,  Inc. The change was
approved by the shareholders.  On June 21, 2006 the Company  effectively changed
the name to Z Trim Holdings, Inc.

NOTE 15 - COMMITTMENTS
----------------------

Building Lease
--------------

The  Company  leases its  executive  offices  and  factory  space in  Mundelein,
Illinois.  The lease  requires  monthly  rental  payments of $20,000 plus taxes,
insurance  and  maintenance,  and the lease  expires in March 2007.  The Company
extended the lease until March 2010 and the  required  monthly  rental  payments
increased to $21,000. Taxes, insurance and maintenance are billed when due.

The future minimum annual rental payments under the leases are as follows:


                            Year ended December 31,                 Amount
                          -----------------------------------------------------
                                     2007                        $     250,000
                                     2008                              252,000
                                     2009                              252,000
                                     2010                               42,000
                                                                 --------------
                                                                 $     796,000
                                                                 --------------


Royalties
----------

In  accordance  with the  licensing  agreement  to a website  (see Note 5),  the
Company payment of $5,000 per year beginning July 1, 2005 for fourteen years.

The future minimum annual royalty payments under the agreement are as follows:

                            Year ended December 31,                 Amount
                          -----------------------------------------------------
                                     2007                        $       5,000
                                     2008                                5,000
                                     2009                                5,000
                                     2010                                5,000
                                  Thereafter                            40,000
                                                                 --------------
                                                                 $      60,000
                                                                 --------------

                                      F-17
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 16- LEGAL PROCEEDINGS/ SUBSEQUENT EVENT
---------------------------------------------

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

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

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

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

In October  2006,  the  Company  settled  litigation  with two  former  investor
relation consultants and issued total of 275,000 shares of its common stock at a
fair  value  of  $341,000  based on the  closing  market  price at the  dates of
settlements.

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


                                      F-18
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------

NOTE 17 - RELATED PARTY TRANSACTIONS
--------------------------------------

In October 2006, a related party was granted  200,000 stock options at $0.75 per
share for services  rendered.  The exercise  price was below the closing  market
price of $1.25 at date of grant.  All  200,000  options  had been  exercised  at
December 31, 2006.

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

On April 12, 2006, the Company advanced $2,500 to the President. The advance was
repaid on July 31, 2006.  In June 2005, a related party  exercised  83,333 stock
options at $0.30 per share.  The total proceeds of $25,000 were applied  against
the note payable owed to the related party.  The note carries interest at 5% per
annum, and is due on demand.

In June 2005, the Chief Executive Officer exercised 148,333 of his stock options
at $.30 per share, or an aggregate of $44,500.  The Company  received $20,000 in
cash and the balance of $24,500 was applied against the officer's net pay.

In December 2005, the Chief  Financial  Officer  exercised  102,000 of his stock
options at $.45 per share, or an aggregate of $45,900, which was applied against
the officer's net pay in 2006.

NOTE 18- GUARANTEES
--------------------

The Company  from time to time  enters  into  certain  types of  contracts  that
contingently  require  the  Company to  indemnify  parties  against  third party
claims. These contracts primarily relate to: (i) divestiture  agreements,  under
which the Company may provide  customary  indemnifications  to purchasers of the
Company's businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities,  and other claims  arising from the Company's use of the applicable
premises;  and (iii) certain agreements with the Company's  officers,  directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship.  The terms of such
obligations  vary.  Generally,  a maximum  obligation is not explicitly  stated.
Because  the  obligated  amounts  of these  types of  agreements  often  are not
explicitly  stated,  the overall  maximum  amount of the  obligations  cannot be
reasonably estimated.  Historically,  the Company has not been obligated to make
significant  payments  for  these  obligations,  and no  liabilities  have  been
recorded for these obligations on its consolidated  balance sheet as of December
31, 2006.

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

NOTE 19 - MAJOR CUSTOMERS AND CREDIT CONCENTRATION
---------------------------------------------------

The  Company's  principal  customers  are  wholesale  companies.  Two  customers
accounted for approximately 48% of the Food Product Development segment revenues
for the year  ended  December  31,  2006.  Two  other  customers  accounted  for
approximately  85% of the E-tailer  segment revenues for the year ended December
31,  2006.  One  client  accounted  for  approximately  34% of the Food  Product
Development  segment  revenues for the year ended  December  31,  2005.  Another
client accounted for  approximately 66% of the E-tailer segment revenues for the
year ended December 31, 2005.  Management does not believe a significant  credit
risk exists at December 31, 2006.

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


                                      F-19
<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 20 - SEGMENT INFORMATION
------------------------------

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

During the third  quarter of 2005,  the  Company  changed the  structure  of its
internal  organization to include three principal operating  segments:  (i) Food
Product  Development,  (ii)  Personal  Safety  Training  and  Products and (iii)
E-tailer.  The food product  development  segment owns the exclusive,  worldwide
license to Z Trim(TM).  The personal safety training and products segment offers
cost  effective  self-defense  training  courses  and  products  with a uniquely
targeted curriculum. The e-tailer segment is a distributor of pillows, blankets,
and other bedding products.  The Company also has other subsidiaries that do not
meet the quantitative thresholds of a reportable segment.

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

Summarized  financial  information of the Company's results by operating segment
is as follows:
<TABLE>
<CAPTION>

                                                                           Years ended
                                                                           December 31,
                                                                      2006              2005
--------------------------------------------------------------   --------------    ---------------
<S>                                                                    <C>               <C>
Net Revenue:
 Food Product Development                                        $      103,269    $        43,339
 Personal Safety Training and Products                                    6,426              3,232
 E-tailer                                                               491,114            467,608
                                                                 --------------    ---------------
Net Revenue by Reportable Segment                                $      600,809    $       514,179
 All Other Operating Revenue                                                735                429
--------------------------------------------------------------   --------------    ---------------
 Consolidated Net Revenue                                        $      601,544    $       514,608
--------------------------------------------------------------   --------------    ---------------
Operating Income (Loss):
 Food Product Development                                        $   (2,899,880)   $    (1,887,254)
 Personal Safety Training and Products                                    5,866              2,422
 E-tailer                                                                14,769            (65,536)
Operating Loss by Reportable Segment                             $   (2,879,245)   $    (1,950,368)
All Other Operating Loss                                            (13,677,953)        (3,212,987)
                                                                 --------------    ---------------
Consolidated Operating Loss                                      $  (16,557,198)   $    (5,163,355)
--------------------------------------------------------------   --------------    ---------------
Net Income (Loss) Before Minority Interest:
Food Product Development                                         $   (2,904,646)   $    (1,889,286)
Personal Safety Training and Products                                     5,866              2,422
 E-tailer                                                                14,234            (65,030)
                                                                 --------------    ---------------
Net Loss by Reportable Segment                                   $   (2,884,546)   $    (1,951,894)
All Other Net Loss                                                  (13,546,338)        (4,146,679)
                                                                 --------------    ---------------
Consolidated Net Loss Before Minority Interest                   $  (16,430,884)   $    (6,098,573)
                                                                 --------------    ---------------
</TABLE>

                                      F-20

<PAGE>
Z TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006
--------------------------------------------------------------------------------


NOTE 20- SEGMENT INFORMATION (CONTINUED)
-----------------------------------------------

                                                       December 31,
Total Assets:                                    2006               2005
-----------------------------------------------------------------------------
Food Product Development                  $     6,036,440     $     6,090,962
Personal Safety Training and Products               3,102                 135
E-tailer                                           92,733              75,407
                                          -----------------------------------
                                                6,132,275           6,166,504
All other segments                              1,376,909           1,155,544
-----------------------------------------------------------------------------
Consolidated assets                       $     7,509,184     $     7,322,048
-----------------------------------------------------------------------------

NOTE 21- SUBSEQUENT EVENT
-------------------------

On February 2, 2007, the Company  entered into an agreement  with J.P.  Turner &
Company, L.L.C. to raise between $4,000,000 and $8,000,000,  using the Company's
common  stock as security.  The  purchase  price will equal to 70% of the volume
weighted  average price of the  Company's  common stock for the 90 days from the
day prior to the closing date, but no less than $1.00. Should the purchase price
be estimated or calculated  to be less than $1.00,  the Company has the right to
cancel the proposed offering.  The investors will also receive 25% stock warrant
coverage at an exercise price equal to 120% of the purchase price.  The warrants
shall have a term of 5 years.

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

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

The  offering  closed on March 29,  2007.  As of March 29,  2007 the Company has
received  stock  subscriptions  for  8,000,000  shares of its  common  stock and
2,000,000  warrants.  As of March 28, 2007 the Company  received  $3,571,524  in
proceeds,  which is net of  offering  costs and  commissions  of  $533,676.  The
Company anticipates receipt of the balance of the proceeds by April 4, 2007.


                                      F-21