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|        ILLINOIS                                                    |        36-4197173                               |
|-------------------------------------------------------------------------|------------------------------------------------------|
| (State      or Other Jurisdiction ofIncorporation      or Organization) |        (I.R.S. EmployerIdentification      No.) |

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|          |                                                                                |                      TABLE      OF CONTENTS |   |   |           |   |           |   |
|---------------|-------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------|--------|----------------|--------|
|          |                                                                                |                                                                                                                                                 |   |   |           |   |           |   |   |   |
|          |                                                                                | PART      I                                                                                                                                          |   |   |           |   |           |   | Page      No. |   |
| Item      1.  | Business                                                                            |                                                                                                                                                 |   |   |           |   |           |   | 3 |   |
| Item      2.  | Properties                                                                          |                                                                                                                                                 |   |   |           |   |           | 5      |   |
| Item      3.  | Legal      Proceedings                                                              |                                                                                                                                                 |   |   |           |   |           | 5      |   |
| Item      4.  | Submission      of Matters to a Vote of Security Holders                            |                                                                                                                                                 |   | 5      |           |
|          |                                                                                |                                                                                                                                                 |   |   |           |   |           |   |   |   |
|          |                                                                                | PART      II                                                                                                                                         |   |   |           |   |           |   |   |   |
| Item      5.  | Market      for Registrant’s Common Equity, Related StockholderMatters        |                                                                                                                                                 |   |   |
|          | and      Issuer Purchases of Equity Securities                                      |                                                                                                                                                 |   |   |           | 5      |           |
| Item      6.  | Selected      Financial Data                                                        |                                                                                                                                                 |   |   |           |   | 6              |   |
| Item      7.  | Management's      Discussion and Analysis of Financial Condition and Results        |                                                                                                                                                 |   |
|          | of      Operations                                                                  |                                                                                                                                                 |   |   |           |   |           | 7      |   |
| Item      7A. | Quantitative      and Qualitative Disclosures About Market Risk                     |                                                                                                                                                 |   |   |           |   |           | 9      |   |
| Item      8.  | Financial      Statements and Supplementary Data                                    |                                                                                                                                                 |   |   | 13             |   |
| Item      9.  | Changes      in and Disagreements with Accountants on Accounting and                |                                                                                                                                                 |   |   |
|          | Financial      Disclosure                                                           |                                                                                                                                                 |   |   |           |   |           | 13     |   |
| Itme      9A. | Controls      and Procedures                                                        |                                                                                                                                                 |   |   |           |   | 13             |   |
| Item      9B. | Other      Information                                                              |                                                                                                                                                 |   |   |           |   |           | 13     |   |
|          |                                                                                |                                                                                                                                                 |   |   |           |   |           |   |   |   |
|          |                                                                                | PART      III                                                                                                                                        |   |   |           |   |           |   |   |   |
| Item      10. | Directors,      Executive Officers and Corporate Governance                         |                                                                                                                                                 |   | 14     |           |
| Item      11. | Executive      Compensation                                                         |                                                                                                                                                 |   |   |           |   | 15             |   |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and             |                                                                                                                                                 |   |   |
|          | Related      Stockholder Matters                                                    |                                                                                                                                                 |   |   |           |   | 18             |   |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence | 18                                                                                                                                                   |   |
| Item      14. | Principal      Accounting Fees and Services                                         |                                                                                                                                                 |   |   |  19       |
|          |                                                                                |                                                                                                                                                 |   |   |           |   |           |   |   |
|          |                                                                                | PART      IV                                                                                                                                         |   |   |           |   |           |   |   |
| Item      15. | Exhibits,      Financial Statement Schedules                                        |                                                                                                                                                 |   |   |        20 |
|          |                                                                                |                                                                                                                                                 |   |   |           |   |           |   |   |
| Signatures    |                                                                                |                                                                                                                                                 |   |   |           |   |        20 |

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| ·   | Our      product development efforts; |
|--------------------|---------------------------------------|

| ·   | The      commercialization of our products; |
|--------------------|---------------------------------------------|

| ·   | Anticipated      operating losses and capitalexpenditures; |
|--------------------|------------------------------------------------------------|

| ·   | Our      estimates regarding our needs for additional  financing; |
|--------------------|-------------------------------------------------------------------|

| ·   | Our      estimates for future revenues and profitability;  and |
|--------------------|----------------------------------------------------------------|

| ·   | 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                    | Common Stock |
|-------------------------|--------------|
| Quarter Ended           | High         | Low |
| 2008                    |         |   |
| March      31, 2008     | $14.40       | $6.30 |
| June      30, 2008      | $10.80       | $3.60 |
| September      30, 2008 | $6.90        | $0.90 |
| December      31, 2008  | $4.50        | $0.60 |

| 2009                    |   |   |
|-------------------------|--------|--------|
| March      31, 2009     | $1.50  | $0.25  |
| June      30, 2009      | $2.20  | $0.99  |
| September      30, 2009 | $1.11  | $0.79  |
| December      31, 2009  | $2.00  | $0.62  |
| 2010                    |   |   |
| April      2, 2010      | $1.95  | $0.99  |

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| NUMBER      OF SHARES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND      RIGHTS               |   | WEIGHTED-AVERAGE      EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |   | REMAINIG      AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING      SECURITIES REFLECTED IN 1ST PLAN CATEGORY COLUMN |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                            |   |                                                                             |   |                                                                                                                                         |
| Equity      compensation plans approved by security holders (consisting of the 2004      Stock Incentive Plan): |
|                                                                                                            |   |                                                                             |   |                                                                                                                                         |
| 1,405,062                                                                                                       |   | $0.66                                                                            |   | 18,471,605      (1)                                                                                                                          |

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| •   | Sandi      Balco – VP/General Manager of Business  Development |
|---------------------|----------------------------------------------------------------------|

| •   | Ms.      Balco has an MBA and an MS in food science with 25 years experience in the      food industry. She has worked for companies such as Nabisco Brands, The      NutraSweet Company, and Givaudan Flavors Corporation where she was the      director of the global sales and marketing  division. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Kyle      Hanah – Director of PlantOperations |
|---------------------|-----------------------------------------------------|

| •   | Mr.      Hanah, a chemical engineer, has 20 years experience in the food industry.      He joined the company in late 2008 having previously worked at Kraft      Foods, Sara Lee Corporation and ConAgraFoods. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Lynda      Carroll – Director of Applications |
|---------------------|-----------------------------------------------------|

| •   | Ms.      Carroll has degrees in food science and in culinary arts with 25 years      experience in the food industry. She previously contributed to      applications and quality assurance for Campbell's Soup Company and Conway      Import Co., Inc., manufactures of Conway Salad Dressings and Sauces for      foodservice. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Dr.      Therese Malundo – VP Science andTechnology |
|---------------------|-----------------------------------------------------------|

| •   | Dr.      Malundo has a PhD in food science and an MBA with over 15 years      experience, working for such companies as Pernod Ricard Americas and US      Distilled Products, Co.  She brings product development, process      optimization, QA/QC and regulatory experience to our  team. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | developments      and resolution of current litigation that we are a party    to; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | our      cash resources and our ability to obtain additional    funding; |
|--------------------|--------------------------------------------------------------------------|

| ·   | announcements      of private or public sales ofsecurities |
|--------------------|------------------------------------------------------------|

| ·   | announcements      by us or a competitor of business development or exhibition      projects; |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | our      entering into or terminating strategic business    relationships; |
|--------------------|----------------------------------------------------------------------------|

| ·   | changes      in government regulations; |
|--------------------|-----------------------------------------|

| ·   | changes      in our revenue or expense levels; |
|--------------------|------------------------------------------------|

| ·   | fluctuations      in operating results and general economic and other external market      factors |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | negative      reports on us by security analysts; |
|--------------------|---------------------------------------------------|

| ·   | announcements      of new products or technologies by us or our  competitors. |
|--------------------|-------------------------------------------------------------------------------|

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| 1.   | As      of December 31, 2009, we did not maintain effective controls over the      control environment.  Specifically we have not developed and      effectively communicated to our employees our accounting policies and      procedures.  This has resulted in inconsistent      practices.   Since these entity level programs have a pervasive      effect across the organization, management has determined that these      circumstances constitute a materialweakness. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | As      of December 31, 2009, we did not maintain effective controls over      financial statement disclosure. Specifically, controls were not designed      and in place to ensure that all disclosures required were originally      addressed in our financial statements.   Accordingly, management      has determined that this control deficiency constitutes a material      weakness. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | As      of December 31, 2009, we did not maintain effective controls over      financial reporting. Specifically controls were not designed and in place      to ensure that the financial impact of certain complex equity and      derivative liability transactions were appropriately and correctly      reported. The transactions were identified by the auditors and calculated      and reported correctly as of December 31,2009. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| AGE    |   | NAME                  |   |   | POSITION                              |
|--------|--------|-----------------------|--------|--------|---------------------------------------|
|   |   |                  |   |   |                                  |
| 53     |   | Steve      J. Cohen   |   |   | Director      and President           |
|   |   |                  |   |   |                                  |
| 39     |   | Brian      Chaiken    |   |   | Chief      Financial Officer          |
|   |   |                  |   |   |                                  |
| 60     |   | Mark      Hershhorn   |   |   | Director                              |
|   |   |                  |   |   |                                  |
| 52     |   | Brian      Israel     |   |   | Director                              |
|   |   |                  |   |   |                                  |
| 34     |   | Edward      Smith III |   |   | Director                              |
|   |   |                  |   |   |                                  |
| 61     |   | Morris      Garfinkle |   |   | Director                              |
|   |   |                  |   |   |                                  |
| 66     |   | Triveni      Shukla   |   |   | Former      Director and Executive VP |

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| 1.   | Review      and approve corporate goals and objectives relevant to the compensation of      the Company’s Chief Executive Officer (“CEO”), evaluate the CEO’s      performance in light to those goals and objectives, and either as a      committee or together with the other independent directors (as directed by      the Board), determine, or recommend to the Board for determination, the      CEO’s compensation level based on this evaluation. In determining or      recommending the long-term incentive component of CEO compensation, the      Committee shall consider, among other factors, the Company’s performance      and relative shareholder return, the value of similar incentive awards to      CEO’s at comparable companies, the awards given to the CEO in past years,      and such other factors as the Committee shall so  determine. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Either      as a committee or together with the other independent directors (as      directed by the Board), determine, or recommend to the Board for      determination, the compensation of all other officers of the      Company. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Make      recommendations to the Board with respect to the Company’s incentive      compensation plans and equity-based plans, oversee the activities of the      individuals and committees responsible for administering these plans, and      discharge any responsibilities imposed on the Committee by any of these      plans. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | In      consultation with management, oversee regulatory compliance with respect      to compensation matters, including overseeing the Company’s policies on      structuring compensation programs to preserve tax deductibility, and, as      and when required, establishing performance goals and certifying that      performance goals have been attained for purposes of Section 162 (m) of      the Internal Revenue Code. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.   | To      review and approve any severance or similar termination payments proposed      to be made to any current or former officer of the  Company. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| 6.   | Prepare      an annual Report of the Compensation Committee on Executive Compensation      for inclusion in the Company’s annual proxy statement in accordance with      applicable SEC rules andregulations. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.   | Periodically      review and assess the adequacy of this charter and recommend any proposed      changes to the Board for approval, including changes concerning the      structure and operations of theCommittee. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8.   | Perform      any other duties or responsibilities expressly delegated to the Committee      by the Board from time to time relating to the Company’s compensation      programs. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                   |
|----------------------------------------|
| Brian      Israel (Committee Chairman) |
| Mark      Hershhorn                    |
|                                   |

Compensation Committee Interlocks and InsiderParticipation

|                         |   |     |                 |                 |                |   |
|------------------------------|--------|----------|----------------------|----------------------|---------------------|--------|
|                         |   |     |                 |                 |                |   |
| NAME      AND PRINCIPAL      |   |     |                 |                 |
| POSITION                     |   | YEAR     | SALARY               | BONUS                | OPTION      AWARDS  |
|                         |   |     |                 |                 |                |   |
| Steve      J. Cohen          |   | 2009     | $141,181             |    -- |   210,000 |
| Director      and President  | 2008   | $143,367 |    -- |   --       |
|                         |   |     |                 |                 |                |   |
|                         |   |     |                 |                 |                |   |
| Triveni      Shukla          |   | 2009     | $141,153             |    -- |   210,000 |
| Former      Director and VP  | 2008   | $137,100 |    -- |   --       |
|                         |   |     |                 |                 |                |   |
|                         |   |     |                 |                 |                |   |
| Brian      Chaiken           |   | 2009     | $114,751             |    -- |   210,000 |
| Chief      Financial Officer | 2008   | $113,000 |    -- |   --       |

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| Name                |    | Number      of securities underlying unexercised options (#)    exercisable | Option      Exercise Price | Option      expiration date |
|---------------------|---------|-----------------------------------------------------------------------------|----------------------------|-----------------------------|
|                |    |                                                                        |                       |                        |
| Steve      Cohen    | 210,000 | $0.475                                                                      | 2/18/2014                  |
|                |    |                                                                        |                       |                        |
| Triveni      Shukla | 210,000 | $0.45                                                                       | 2/18/2014                  |
|                |    |                                                                        |                       |                        |
| Brian      Chaiken  | 210,000 | $0.45                                                                       | 2/18/2014                  |

|                  | 2009 Compensation of Non-Employee      Directors |                                                                                                                                                                                                                                                                            |
|-----------------------|--------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Name                  | Fees      Earned                                 | Stock      Awards                                                                                                                                                                                                                                                               | All      Other | Total      ($) |
|                  | or      Paid in Cash ($)                         | ($)(1)                                                                                                                                                                                                                                                                          | Compensation      ($)(2) |   |
|                  |                                             |                                                                                                                                                                                                                                                                            |   |   |
| Morris      Garfinkle | $3,000                                           | $19,200                                             | $0 |   | $22,200 |
| Mark      Hershhorn   | $0                                               | $13,500                                                                                                                                                                                                                                                                         | $19,000 |   | $32,500 |
| Edward      Smith III | $1,500                                           | $0                                                                                                                                                                                                                                                                              | $0 |   | $1,500 |
| Brian      Israel     | $0                                               | $13,500                                                                                                                                                                                                                                                                         | $19,000 |   | $32,500 |

| (1)      Mark Hershhorn and Brian Israel received 30,000 shares of stock on      February 27, 2009, at which time the fair value of the stock was $0.45 per      share.  Morris Garfinkle received 30,000 shares of common stock      on March 24, 2009, at which time the fair value of the stock was $0.64 per      share.                                                                                                                                                                                                    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)      Mark Hershhorn and Brian Israel converted their respective $10,000 tax      gross ups plus an additional $9,000 in fees earned for attendance at      in-person meetings into investments in the Company's 2009 Convertible Debt      Private Placement Offering, as described in the Company’s April 21, 2009      Form 8-K.  The Company prepaid $1,000 in fees to each of these      Directors, which was used to purchase units in the Company’s 2009      Convertible Debt Private PlacementOffering. |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               | NUMBER      OF            |   | PERCENTAGE      OF |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------------------|---------------------------|--------|--------------------|
| NAME      OF                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |      | SHARES             |                      |   | SHARES             |
| BENEFICIAL OWNER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | BENEFICIALLY OWNED | BENEFECIALLY OWNED        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| BENEFICIAL      OWNERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |      |               |                      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| Brightline      Ventures I, LLC (1)1120      Avenue of the Americas, Suite 1505New      York, NY 10036                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 9,531,250 |               |                      | 75.00% |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| FORMER      DIRECTORS AND EXECUTIVE OFFICERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |      |               |                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| Sheldon      Drobny (2)1535      Lake Cook Rd., Suite 110Northbrook,      IL  60062                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |      |               |    382,852 |   |               | 10.74% |
| Triveni      Shukla (3)1011      Campus Dr., Mundelein, IL 60060                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | 290,000            |                      |   | 8.35%              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| CURRENT      DIRECTORS AND EXECUTIVE OFFICERSAll      such addresses are:1011      Campus Dr., Mundelein, IL 60060                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |      |               |                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| Steve      J. Cohen (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |      | 420,003            |                      |   | 11.66%             |
| Mark      Hershhorn (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |      | 271,056            |                      |   | 7.85%              |
| Brian      Israel (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |      | 123,332            |                      |   | 3.73%              |
| Mo      Garfinkle (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |      | 185,000            |                      |   | 5.50%              |
| Brian      Chaiken (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |      | 420,000            |                      |   | 11.66%             |
| Ed      Smith (1)(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      | 40,000             |                      |   | 1.24%              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| Total      of All Current Directors and Executive Officers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |      |               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               | 1,459,391                 |   |               | 41.64% |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |               |                      |   |               |   |
| (1)      Brightline Capital Management, LLC, a Delaware limited liability company      ("Brightline Capital"), Nick Khera,  and Brightline Ventures I,      LLC, a Delaware limited liability company ("Brightline Ventures"), each      are deemed to beneficially own 75.0% of the Company’s Common Stock, par      value $0.00005 per share (the "Shares"), and (ii) Edward B. Smith, III,      beneficially owns 1.24% of the Shares.  Messrs. Khera and Smith      are the managing members of Brightline Capital, an investment management      firm that serves as the investment manager of Brightline Ventures.      Brightline Venture holds promissory notes convertible into 3,812,500      shares of common stock initially at $1.00 per share and warrants to      purchase 9,531,250 shares of the company’s common stock at an exercise      price of $1.50 per share (the "Note Units").  Mr. Smith owns an      additional 40,000 Shares in a personal account. Messrs. Khera and Smith,      through their roles at Brightline Capital, exercise investment discretion      over Brightline Ventures. |
| (2)      Includes ownership of notes and warrants to purchase 382,852 shares of      common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (3)  Includes      290,000 options to purchase  shares of common    stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |      |
| (4)      Includes 420,000 options to purchase  shares of common      stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      |
| (5)      Includes ownership of notes convertible into 120,000 shares of common      stock and warrants to purchase 84,390 shares of common    stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (6)      Includes ownership of notes, warrants and options to purchase or      convertible into 56,666 shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (7)  Includes      ownership of notes convertible into 50,000 shares of common stock and      warrants to purchase 75,000 shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (8)      Includes ownership of notes and warrants convertible into 26,890 shares of      common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (9)      Mr. Smith is a Managing Partner of Brightline Ventures I, LLC -- see Note      (1) above                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

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| 3(i)      * | Restated      Articles of Incorporation of Z Trim Holdings,  Inc. |
|-------------|-------------------------------------------------------------------|

| 3(ii) | Bylaws      of Z Trim Holdings, Inc., as amended (filed as Exhibit 2.2 to the      Company’s Registration Statement on Form 10-SB, Exhibit 3(ii) to the      Company’s Form 8-K filed on November 2, 2007, and as Exhibit 3(ii) to the      Company’s Form 8-K filed on November 16, 2007, and incorporated herein by      reference). |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(iii) | Amendment      to Bylaws of Z Trim Holdings, Inc. (filed as Exhibit 3.2 to the Company’s      Form 8-K filed on September 23, 2008, and incorporated herein by      reference). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.1 | Specimen      Certificate for common stock (filed as Exhibit 3.1 to the Company's Form      10-SB filed on August 21, 2000, and incorporated herein by      reference). |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2 | Form      of Subscription Agreement (filed as Exhibit 4.1 to the Company's Form 8-K      filed on March 30, 2006 and incorporated herein by    reference). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.3 | Form      of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company's      Form 8-K filed on March 30, 2006 and incorporated herein by      reference). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.4 | Form      of Registration Rights Agreement (filed as Exhibit 4.3 to the Company's      Form 8-K filed on March 30, 2006 and incorporated herein by      reference). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

| 10.1 | Steve      Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form      10-QSB for the quarter ending June 20, 2006 and incorporated herein by      reference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.2 | Brian      Chaiken Employment Agreement, dated October 17, 2007 (filed as Exhibit      10.2 to the Company’s Form 10-KSB filed on April 14, 2008 and incorporated      herein by reference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.3 | Z      Trim Holdings, Inc. 2004 Equity Incentive Plan (filed as Appendix C to the      Z Trim's Proxy Statement for its Annual Meeting conducted on June 16, 2004      and approved by its Shareholders on that date and incorporated herein by      reference). |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 23.1* | Consent      of M&K CPAs, LLC. |
|-------|------------------------------------|

| 31.1* | Statement      Under Oath of Principal Executive Officer of the Company pursuant to      Section 302 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 31.2* | Statement      Under Oath of Principal Financial Officer of the Company pursuant to      Section 302 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 32.1* | Statement      Under Oath of Principal Executive Officer of the Company pursuant to      Section 906 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 32.2* | Statement      Under Oath of Principal Financial Officer of the Company pursuant to      Section 906 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   | Page   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Report      of Independent Registered Public Accounting      Firm                                                                                                                                                                                         |   | F-2    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated      Balance Sheets for the years ended December 31, 2009 and      2008                                                                                                                                                                                                    | F-3    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated      Statements of Operations for the years ended December 31, 2009 and      2008                                                                                                                                                                                                                             | F-5    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated      Statements of Stockholders' Equity (Deficit) for the years      ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |
|    December      31, 2009 and      2008                                                                                      |   |   | F-6    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated      Statements of Cash Flows for the years ended December 31, 2009 and      2008                                                                                                                                                                                                                                                                                                                                                          |   | F-7    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Notes      to Consolidated Financial      Statements                                                                                                                                |   |   | F-8    |

----

| /s/      M&K CPAs,PLLCHouston,      TexasApril      9, 2010 |
|-----------------------------------------------------------------|

----

| Z      TRIM HOLDINGS, INC.                                                                                                     |   |                                                                                                                                                                |   |                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      BALANCE SHEETS                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| DECEMBER  31, 2009 and      2008                                                                                     |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| ASSETS                                                                                                                         |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   | 12/31/2009                                                                                                                                                          |   | 12/31/2008                                                                                                         |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| Current      Assets                                                                                                            |   |                                                                                                                                                                |   |                                                                                                               |
| Cash      and cash equivalents                                                                                                 |   |  $            324,784                                                                              |   |  $            592,696                             |
| Accounts      receivable (net of allowance of  $0 and $10,067                                                        |   |                                                                                                                                                                |   |                                                                                                               |
|         as      of  December 31, 2009 and  December 31,      2008) |   |                   96,024                                                  |   | 206,231                                                                                                            |
| Inventory                                                                                                                      |   |                 118,979                                                             |   |                 182,971            |
| Prepaid      expenses and other assets                                                                                         |   |                   97,802                                                  |   |                   86,445 |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| Total      current assets                                                                                                      |   |                 637,589                                                             |   |             1,068,343                                  |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| Property      and equipment, net                                                                                               |   |             3,545,344                                                                                   |   |             4,061,436                                  |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| Long      Term Assets                                                                                                          |   |                                                                                                                                                                |   |                                                                                                               |
| Deposit      on Fixed Asset                                                                                                    |   |                            - |   |                 240,000            |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| Other      Assets                                                                                                              |   |                                                                                                                                                                |   |                                                                                                               |
|         Prepaid      Loan  Cost - Long Term, Net                             |   |                 368,171                                                             |   |                 880,650            |
| Deposits                                                                                                                       |   |                   15,003                                                  |   |                   14,453 |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| Total      other assets                                                                                                        |   |                 383,174                                                             |   |                 895,103            |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
| TOTAL      ASSETS                                                                                                              |   |  $         4,566,107                                                                                              |   |  $         6,264,882                                             |
|                                                                                                                           |   |                                                                                                                                                                |   |                                                                                                               |

----

|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Z      TRIM HOLDINGS, INC.                                                                                        |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| CONSOLIDATED      BALANCE SHEETS                                                                                  |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| DECEMBER  31, 2009 and      2008                                                                        |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| LIABILITIES      AND STOCKHOLDERS' EQUITY (DEFICIT)                                                               |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   | 12/31/2009                                                                                                                                          |                                                                   | 12/31/2008                                                                                                                                                          |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Current      Liabilities                                                                                          |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Accounts      payable                                                                                             |                                                                   |  $            373,841                                                              |                                                                   |  $            544,325                                                                              |
| Accrued      expenses and other                                                                                   |                                                                   |                 700,830                                             |                                                                   |                 335,718                                                             |
| Accrued      Liquidated Damages                                                                                   |                                                                   |                   80,100                                  |                                                                   |                            - |
|         Derivative      Liabilities                                       |                                                                   |           10,285,578                                                                              |                                                                   |                            - |
|              Convertible      Notes Payable, Net |                                                                   |             4,008,950                                                                   |                                                                   |             2,559,736                                                                                   |
| Total      Current Liabilities                                                                                    |                                                                   |           15,449,299                                                                              |                                                                   |             3,439,779                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Liabilities                                                                                            |                                                                   |           15,449,299                                                                              |                                                                   |             3,439,779                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Stockholders'      Equity (Deficit)                                                                               |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Common      stock, $0.00005 par value; authorized 200,000,000                                                     |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| shares;      issued and outstanding 2,806,878 and                                                                 |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| 2,597,879      shares, December 31, 2009 and December 31, 2008                                                    |                                                                   |                         140 |                                                                   |                         130                 |
| respectively                                                                                                      |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Additional      paid-in capital                                                                                   |                                                                   |           75,119,074                                                                              |                                                                   |           74,487,848                                                                                              |
| Accumulated      deficit                                                                                          |                                                                   |         (86,002,406)                                                                                        |                                                                   |         (71,662,875)                                                                                                        |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Stockholders' Equity (Deficit)                                                                         |                                                                   |         (10,883,192)                                                                                        |                                                                   |             2,825,103                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                         |  $         4,566,107 |                                                                                                                                                |  $         6,264,882 |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |

----

|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
|--------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Z      TRIM HOLDINGS, INC.                                   |                                                                                                                                                                                        |   |                                                                                                                                                          |
| CONSOLIDATED      STATEMENTS OF OPERATIONS                   |                                                                                                                                                                                        |   |                                                                                                                                                          |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| FOR      THE YEAR ENDED DECEMBER 31                          | 2009                                                                                                                                                                                        |   | 2008                                                                                                                                                          |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| REVENUES:                                                    |                                                                                                                                                                                        |   |                                                                                                                                                          |
|   Products                                         |  $           559,910                                                                                                            |   |  $           720,899                                                                              |
|   Services                                         |                           -                               |   |                           - |
|     Total      revenues                  |                559,910                                                                                           |   |                720,899                                                             |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| COST      OF REVENUES:                                       |                                                                                                                                                                                        |   |                                                                                                                                                          |
|   Products                                         |            1,679,148                                                                                                                 |   |            2,429,620                                                                                   |
|     Total      cost of revenues          |            1,679,148                                                                                                                 |   |            2,429,620                                                                                   |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| GROSS      MARGIN                                            |           (1,119,238)                                                                                                                     |   |           (1,708,721)                                                                                       |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| OPERATING      EXPENSES:                                     |                                                                                                                                                                                        |   |                                                                                                                                                          |
| Selling,      general and administrative                     |    4,729,683                                                                                                                                                                 |   |    4,245,405                                                                                                                                   |
| Impairment      of intangible assets                         |                                - |   |        136,668                                                                                                             |
| Amortization      of intangible assets                       |                                - |   |            3,333                                                                                       |
| Loss(Gain)      on asset disposals, net                      |        126,651                                                                                                                                           |   |        (74,987)                                                                                                            |
|     Total      operating expenses        |            4,856,334                                                                                                                 |   |            4,310,419                                                                                   |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| OPERATING      LOSS                                          |           (5,975,572)                                                                                                                     |   |           (6,019,140)                                                                                       |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| OTHER      INCOME (EXPENSES):                                |                                                                                                                                                                                        |   |                                                                                                                                                          |
| Rental      and other income                                 |                               3,826                                 |   |          24,451                                                                                                  |
| Interest      income                                         |                             901                 |   |          20,526                                                                                                  |
| Interest      expense                                        |                        (5,947)                                           |   |              (520)                                                                           |
| Interest      expense - Note Payable                         |                (2,426,032)                                                                                       |   |      (670,042)                                                                                                                       |
| Liquidated      Damages                                      |                     (80,100)                                                            |   |                   -                                                 |
| Derivative  (loss)      gain                       |                (3,623,519)                                                                                       |   |                   -                                                 |
| Settlement      (loss) gain                                  |                                 (103,137)                 |   |                   (772,202)                                         |
|     Total      other income (expenses)   |           (6,234,008)                                                                                                                     |   |           (1,397,787)                                                                                       |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| NET      LOSS                                                |  $    (12,209,580)                                                                                                                                                 |   |  $      (7,416,927)                                                                                                        |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| Deemed      Dividend                                         |                   -                                                                               |   | (74,863)                                                                                                                                                      |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| NET      LOSS  ATTRIBUTABLE TO COMMON STOCKHOLDERS |  $    (12,209,580)                                                                                                                                                 |   |  $      (7,491,790)                                                                                                        |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| NET      LOSS PER SHARE - BASIC AND DILUTED                  |  $                 (4.48)                                                                         |   |  $                 (2.95)                                           |
|                                                         |                                                                                                                                                                                        |   |                                                                                                                                                          |
| Weighted      Average Number of Shares Basic and Diluted     |            2,727,793                                                                                                                 |   |            2,540,032                                                                                   |

----

|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
|------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|
| Z      TRIM HOLDINGS, INC. AND SUBSIDIARIES                      |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |
| CONSOLIDATED      STATEMENTS OF STOCKHOLDERS' EQUITY             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
|                                                             | Shares      of                                                                             |                                                                                                                  | Additional                                                               |                                                                                                          |                                                                             |                                                                                                                      |
|                                                             | Common                                                                                     | Common                                                                                                                | Paid-In                                                                  | Unamortized                                                                                                   | Accumulated                                                                      |                                                                                                                      |
|                                                             | Stock                                                                                      | Stock                                                                                                                 | Capital                                                                  | Expenses                                                                                                      | Deficit                                                                          | Total                                                                                                                     |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
| Balance      at December 31, 2007 (Restated)                     |          2,401,879                            |  $             3,600                            |  $      69,603,639                                                  |  $               -            |  $  (64,171,085)                                                  |  $    5,436,154                                                                                  |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
|   Common      Stock issued for settlement loss         |             208,167            | 312                                                                                                                   |       1,353,388                            |                                                                                                          |                                                                             |        1,353,700                                                                       |
|   Stock      issued for directors fees                 |               33,333 | 50                                                                                                                    |          229,950            |                                                                                                          |                                                                             |           230,000                                                       |
|   Cancellation      of retired shares in process       |                                                                                       | 10                                                                                                                    | 149,990                                                                  |                                                                                                          |                                                                             |           150,000                                                       |
|   Rescinded      Shares                                | (45,500)                                                                                   | (68)                                                                                                                  |          (74,432)           |                                                                                                          |                                                                             |            (74,500)                                                |
|   Warrants      issued for settlement loss             |                                                                                       |                                                                                                                  |          524,665            |                                                                                                          |                                                                             |           524,665                                                       |
|   Warrants      issued for placement fees              |                                                                                       |                                                                                                                  |          309,547            |                                                                                                          |                                                                             |           309,547                                                       |
|    Discount      on convertible debt              |                                                                                       |                                                                                                                  |       2,247,784                            |                                                                                                          |                                                                             |        2,247,784                                                                       |
|    Deemed      Dividend                           |                                                                                       |                                                                                                                  |            74,863 |                                                                                                          |             (74,863) |                     - |
|    Stock      Based Compensation                  |                                                                                       |                                                                                                                  |            40,613 |                                                                                                          |                                                                             |             40,613                                            |
|    Options      issued for compensation           |                                                                                       |                                                                                                                  |            24,067 |                                                                                                          |                                                                             |             24,067                                            |
|    Net      loss                                  |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |        (7,416,927)                            |       (7,416,927)                                                                           |
| Balance      at December 31, 2008                                |          2,597,879                            |                 3,904                 |  $      74,484,074                                                  |  $               -            |  $  (71,662,875)                                                  |  $    2,825,103                                                                                  |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |
|   Common      Stock reduced due to split               |                                                                                       | (3,774)                                                                                                               | 3,774                                                                    |                                                                                                          |                                                                             |                     - |
|   Stock      issued for accounts payable               | 60,000                                                                                     | 2                                                                                                                     | 104,399                                                                  |                                                                                                          |                                                                             |           104,401                                                       |
|   Stock      issued for directors fees                 | 90,000                                                                                     | 5                                                                                                                     | 46,196                                                                   |                                                                                                          |                                                                             |             46,201                                            |
|   Exercised      warrants or options                   | 4,365                                                                                      | 0                                                                                                                     | 4,365                                                                    |                                                                                                          |                                                                             |               4,365                                 |
|   Exercised      cashless warrants                     | 51,927                                                                                     | 3                                                                                                                     | (3)                                                                      |                                                                                                          |                                                                             |                     - |
|   Stock      Based Compensation                        |                                                                                       |                                                                                                                  | 565,848                                                                  |                                                                                                          |                                                                             |           565,848                                                       |
|   Initial      valuation of the derivative liabilities |                                                                                       |                                                                                                                  | (89,579)                                                                 |                                                                                                          | (2,129,951)                                                                      |       (2,219,530)                                                                           |
|   Rounding      due to reverse stock split             | 2,707                                                                                      |                                                                                                                  | 0                                                                        |                                                                                                          |                                                                             |                     - |
|    Net      loss                                  |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          | (12,209,580)                                                                     | (12,209,580)                                                                                                              |
| Balance      at December 31, 2009                                |          2,806,878                            |                    140 |     75,119,074                                       |                   - |      (86,002,406)                                       |     (10,883,192)                                                                                      |
|                                                             |                                                                                       |                                                                                                                  |                                                                     |                                                                                                          |                                                                             |                                                                                                                      |

----

|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Z      TRIM HOLDINGS, INC.                                                                                             |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                                                             |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| FOR      THE YEARS ENDED DECEMBER 31                                                                                   | 2009                                                                                                                                                                                                    |   |  2008                                                                                                                                                                                              |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                              |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Net      loss                                                                                                          |                 (12,209,580)                                                                                            |   |                   (7,416,927)                                                                                 |
| Adjustments      to reconcile loss from continuing operations to                                                       |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| net      cash used in operating activities:                                                                            |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Depreciation                                                                                                           |                        922,321                                                       |   | 1,228,335                                                                                                                                                                                               |
| Loss      on asset disposal                                                                                            |                        128,416                                                       |   |                                  - |
| Change      in  Derivative Liability, net of bifurcation                                                     |                     3,623,519                                                                       |   |                                  - |
| Stock      based compensation                                                                                          |                        565,848                                                       |   |                          40,613                                            |
| Shares      issued for director fees                                                                                   |                          46,201                                            |   |                        230,000                                                       |
| Shares      issued for debt                                                                                            |                          44,401                                            |   |                                  - |
| Warrants      issued for services                                                                                      |                        632,982                                                       |   |                                  - |
| Warrants      issued for accounts payable                                                                              |                          62,547                                            |   |                                  - |
| Amortization      on discounts on debt                                                                                 |                     1,449,214                                                                       |   |                                  - |
| Loan      Cost Amortization                                                                                            |                        512,479                                                       |   |                                  - |
| Impairment      of intangible assets                                                                                   |                                  - |   |                        136,668                                                       |
| Stock      and warrant settlements                                                                                     |                                  - |   |                        582,219                                                       |
| BCF      Amortization                                                                                                  |                                                                                                                                                                                                    |   |                        350,520                                                       |
| Changes      in operating assets and liabilities                                                                       |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Accounts      receivable                                                                                               |                        110,207                                                       |   |                      (198,708)                                                                 |
| Inventory                                                                                                              |                          63,991                                            |   |                        409,695                                                       |
| Prepaid      expenses and other assets                                                                                 |                          (3,907)                                           |   |                          66,637                                            |
| Increase/(Decrease)      in:                                                                                           |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Accounts      payable and accrued expenses                                                                             |                        801,629                                                       |   |                      (548,082)                                                                 |
| Accrued      Liquidated Damages                                                                                        |                          80,100                                            |   |                                  - |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      USED FOR OPERATING ACTIVITIES                                                                                |                   (3,169,632)                                                                                 |   |                   (5,119,030)                                                                                 |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                              |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Purchase      of Fixed Assets                                                                                          |                      (389,145)                                                                 |   |                      (340,820)                                                                 |
| Proceeds      from asset disposals                                                                                     |                          94,500                                            |   |                                  - |
| CASH      USED FOR INVESTING ACTIVITIES                                                                                |                      (294,645)                                                                 |   |                      (340,820)                                                                 |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM FINANCING ACTIVITES                                                                               |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Loan      Costs                                                                                                        |                                  - |   |                      (766,535)                                                                 |
| Rescinded      Shares                                                                                                  |                                  - |   |                        (74,499)                                                      |
| Borrowing      on debt                                                                                                 |                     3,192,000                                                                       |   |                     4,457,000                                                                       |
| Exercise      of options and warrants for cash                                                                         |                            4,365                                 |   |                                  - |
| CASH      PROVIDED BY FINANCING ACTIVITIES                                                                             |                     3,196,365                                                                       |   |                     3,615,966                                                                       |
| NET      (DECREASE)INCREASE IN CASH                                                                                    |                      (267,912)                                                                 |   |                   (1,843,884)                                                                                 |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      AT BEGINNING OF YEAR                                                                                         |                        592,696                                                       |   |                     2,436,580                                                                       |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      AT THE YEARS ENDED DECEMBER 31                                                                               |                        324,784                                                       |   |                        592,696                                                       |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Supplemental      Disclosures of Cash Flow Information:                                                                |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Issuance      of common stock for issuance of stock                                                                    |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|         Deferred      Loan Costs                                               |                                                                                                                                                                                                    |   |                        309,547                                                       |
|         Discount      on Convertible Debentures                                |                     3,747,000                                                                       |   |                     2,247,784                                                                       |
|         Warrants      issued for settlement loss - Zaghi                       |                                                                                                                                                                                                    |   |                        368,822                                                       |
|         Common      Stock issued for settlement  - Zaghi             |                                                                                                                                                                                                    |   |                        839,850                                                       |
|         Warrants      issued for settlement loss-Basic Investors               |                                                                                                                                                                                                    |   |                          87,324                                            |
|         Common      Stock issued for stock payable                             |                                                                                                                                                                                                    |   |                        149,990                                                       |
|         Deemed      Dividend                                                   |                                                                                                                                                                                                    |   |                          74,863                                            |
|         Options      issued for compensation                                   |                                                                                                                                                                                                    |   |                          24,067                                            |
|         Transfer      from Deposit on Fixed Assets to Construction in Progress |                        240,000                                                       |   |                                                                                                                                                                                                    |
|         Cummulative      Effect - Adoption of EITF07-5                         |                     2,219,530                                                                       |   |                                                                                                                                                                                                    |
|         Convertible      Debt issued for Settlement of AP                      |                        555,000                                                       |   |                                                                                                                                                                                                    |

----

----

|   | · |     Level      one — Quoted market prices in active markets for identical assets or      liabilities; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   |          · |         Level two — Inputs other than level one inputs that are either directly or      indirectly observable; and |
|--------|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------|

|               · |    Level      three — Unobservable inputs developed using estimates and assumptions,      which are developed by the reporting entity and reflect those assumptions      that a market participant woulduse. |
|--------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                             | 12/31/2009                                                                    |   | 12/31/2008                                                                    |
|----------------------------------|-------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|
| Raw      materials               |  $      23,773                             |   |  $      35,471                             |
| Packaging                        |             1,010 |   |             1,114 |
| Work-in-process                  |             7,437 |   |             1,879 |
| Finished      goods              |          80,299                  |   |        133,649                             |
| Other      Inventory             |             6,461 |   |          10,858                  |
|   Total      inventory |  $    118,979                                        |   |  $    182,971                                        |
|                             |                                                                          |   |                                                                          |

----

|                                             |   |         |   |         |
|--------------------------------------------------|--------|--------------|--------|--------------|
|                                             |   | 12/31/2009   |   | 12/31/2008   |
| Production,      engineering and other equipment |   | $5,651,279   |   | $5,301,635   |
| Leasehold      improvements                      |   | $2,822,834   |   | $2,801,053   |
| Office      equipment and furniture              |   | $577,226     |   | $598,860     |
| Computer      equipment and related software     |   | $140,246     |   | $140,245     |
| Construction      in process - Equipment         |   | $72,177      |   | $53,361      |
| Construction      in process - Leasehold Impr    |   | $0           |   | $18,855      |
|                                             |   | $9,263,762   |   | $8,914,009   |
| Accumulated      depreciation                    |   | ($5,718,418) |   | ($4,852,573) |
| Property      and equipment, net                 |   | $3,545,344   |   | $4,061,436   |

| License      Rights to        |   |                                                                                                                                               |   |                                                                                                                       |
|-------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|
|  Website                 |   | 2009                                                                                                                                               |   | 2008                                                                                                                       |
|                          |   |                                                                                                                                               |   |                                                                                                                       |
| Gross      Carrying Amount    |   |  $                -                                           |   |  $         200,000                                                       |
|                          |   |                                                                                                                                               |   |                                                                                                                       |
| Accumulated      Amortization |   |            $                  - |   |         $        (200,000)                                               |
|                          |   |                                                                                                                                               |   |                                                                                                                       |
| Net                           |   |  $                -                                           |   |  $                   - |

|                                    | 12/31/2009                                                                                                                                        |   | 12/31/2008                                                                                               |
|-----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|
| Accrued      legal                      |  $                     -            |   |  $                - |
| Accrued      payroll and taxes          |                   4,787                                 |   |            31,795                                 |
| Accrued      settlements                |                         - |   |          100,000                                            |
| Accrued      Interest                   |               575,357                                                       |   |          124,090                                            |
| Accrued      expenses and other         |               120,686                                                       |   |            79,833                                 |
| Total      accrued expenses & other |  $           700,830                                                                  |   |  $      335,718                                                       |
|                                    |                                                                                                                                              |   |                                                                                                     |

----

----

----

|                                                           |   | December      31, 2009 |       | December      31, 2008 |
|----------------------------------------------------------------|--------|------------------------|------------|------------------------|
|                                                           |   |                   |       |                   |   |   |
| Common      stock warrants                                     |   |                   | 5,387,788  |                   |   | - |
| Embedded      conversion features –part of note discount |   |                   | 4,897,790  |                   |   | - |
|                                                           |   |                   |       |                   |   |   |
| Total                                                          |   | $                      | 10,285,578 |                   | $ | - |

|                                      |   | December      31, 2009            |   |
|-------------------------------------------|--------|-----------------------------------|--------|
|                                      |   |                              |   |
| Cumulative      Effect                    |   |        2,219,530             |   |
| Bifurcated      Amount                    |   |        3,747,000             |   |
|  Change      in Derivative Liability |   |               4,319,048 |   |
| Total                                     |   | $10,285,578                       |   |

----

|                                  |   | Year  Ended                                               |   |                                                        | Year  Ended |   |
|---------------------------------------|--------|---------------------------------------------------------------------|--------|-------------------------------------------------------------|-----------------------|--------|
|                                  |   | 12/31/2009                                                          |   |                                                        | 12/31/2008            |   |
|                                  |   | Number      of Warrants                                             |   | Weighted      Average Exercise Price                        |                  |   | Number      of Warrants |   | Weighted      Average Exercise Price |   |
| Outstanding      at beginning of year |   |      1,084,368                             |   |  $        7.55 |                  |   |      319,641 |   |  $      26.46 |   |
| Granted                               |   |           8,801,455                             |   |  $        1.46 |                  |   |   1,196,770 |   |  $        4.20 |   |
| Exercised      for cash               |   |           (4,365) |   |  $        1.00 |                  |   |                  - |   |  $            - |   |
| Cashless                              |   |         (57,051)            |   |  $        0.09 |                  |   |                  - |   |   |   |
| Expired      and Cancelled            |   |            (142,027)                       |   |  $        4.55 |                  |   |     (432,043) |   |  $      12.24 |   |
| Outstanding,      end of period       |   |      9,682,380                             |   |  $        1.61 |                  |   |   1,084,368 |   |  $        7.55 |   |
|                                  |   |                                                                |   |                                                        |                  |   |   |   |   |   |
| Unexercisable      at end of period   |   |         (87,500)            |   |  $        1.10 |                  |   |                     0 |   |   |   |
| Exercisable      at end of period     |   |      9,594,880                             |   |  $        1.61 |                  |   |   1,084,368 |   |  $        7.55 |   |

----

|                                  |   | 12/31/2009                                                                                                                |                                                                                               |   | 12/31/2008                                                                                                                |                                                                                               |
|---------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                  |   |                                                                                                                      | Weghted                                                                                            |   |                                                                                                                      | Weghted                                                                                            |
|                                  |   | Number                                                                                                                    | Average                                                                                            |   | Number                                                                                                                    | Average                                                                                            |
|                                  |   | of                                                                                                                        | Exercise                                                                                           |   | of                                                                                                                        | Exercise                                                                                           |
|                                  |   | Shares                                                                                                                    | Price                                                                                              |   | Shares                                                                                                                    | Price                                                                                              |
| Outstanding      at beginning of year |   |         431,073                                                                   |  $         32.04                                 |   |         553,184                                                                   |  $         31.20                                 |
| Granted                               |   |      1,320,000                                                                                   |  $           0.45                      |   |             3,333                                             |  $           8.10                      |
| Exercised                             |   |                     - |  $               - |   |                     - |  $               - |
| Expired      and Cancelled            |   |       (346,011)                                                                             |  $         31.24                                 |   |       (125,435)                                                                             |  $         27.71                                 |
| Outstanding      at end of period     |   |      1,405,062                                                                                   |  $           2.56                      |   |         431,082                                                                   |  $         32.04                                 |
|                                  |   |                                                                                                                      |                                                                                               |   |                                                                                                                      |                                                                                               |
| Exercisable      at end of period     |   |      1,405,062                                                                                   |  $           0.66                      |   |         429,415                                                                   |  $         32.13                                 |
|                                  |   |                                                                                                                      |                                                                                               |   |                                                                                                                      |                                                                                               |

|                                                | 2009                                                                                                                                                                                                                          |   | 2008                                                                                                                                                  |
|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| Weighted      average fair value per option granted |                   $                       0.43 |   |  $                       0.90 |
| Risk-free      interest rate                        |            1.99      - 2.99%                                                                                                                                           |   |             3      - 4.6 %                                                                |
| Expected      dividend yield                        | 0.00%                                                                                                                                                                                                                         |   | 0.00%                                                                                                                                                 |
| Expected      lives                                 |  1      - 2.5                                                                                                                                                                                                            |   |                 1      - 1.5                                          |
| Expected      volatility                            | 130.25      - 250.50%                                                                                                                                                                                                         |   |  86.32      - 130.22%                                                                                                                            |

|                  |   |                                                                                                                                                                                                                                                |   | Weighted                                                                                      |   |                                                                                                              |   |                                                                                                                                                                                          |
|-----------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                                                                                                                                                |   | Average                                                                                       |   | Weighted                                                                                                          |   |                                                                                                                                                                                          |
| Range      of         |   |                                                                                                                                                                                                                                                |   | Remaining                                                                                     |   | Average                                                                                                           |   |                                                                                                                                                                                          |
| Exercise              |   | Options                                                                                                                                                                                                                                             |   | Contractual                                                                                   |   | Exercise                                                                                                          |   | Options                                                                                                                                                                                       |
| Prices                |   | Outstanding                                                                                                                                                                                                                                         |   | Life                                                                                          |   | Price                                                                                                             |   | Exercisable                                                                                                                                                                                   |
| $0.01-$1.50           |   |                                        1,320,000 |   |                4.2 |   |            $       0.42 |   |                               1,320,000 |
| $3.01      & over |   |                  85,062                                                                                                                                        |   |                0.6 |   |  $       2.14                                                             |   |                  85,062                                                                                  |
|                  |   |             1,405,062                                                                                                                                                                   |   |                3.9 |   |  $       0.53                                                             |   |             1,405,062                                                                                                             |
|                  |   |                                                                                                                                                                                                                                                |   |                                                                                          |   |                                                                                                              |   |                                                                                                                                                                                          |

----

|        Year Ended | Rentals                                                                                                                                                             |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2010                   |                   252,000                                                 |
| 2011                   |                     63,000                                      |
| 2012                   |                            - |
| 2013                   |                            - |
|                   |  $               315,000                                                            |
|                   |                                                                                                                                                                |

----