U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                                   (Mark One)

       |X|    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                    For Fiscal Year Ended: December 31, 2004

                                       OR

       |_|    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934
              For the transition period from _______________ to _______________

                        Commission file number: 000-30158

                                Vitalstate, Inc.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

                New York                                   13-3935933
               ----------                                 ------------
     (State or other jurisdiction of                      (IRS Employer
     incorporation or organization)                    Identification No.)

          1499 High Ridge Road
             Boynton Beach, FL                               33426
(Address of principal executive offices)                  (Postal Code)

Issuer's telephone number:  (561) 375-6333
                            --------------

Securities registered under Section 12(b) of the Act:  None
                                                       ----

Securities registered under Section 12(g) of the Act:  Common Stock, par value
                                                       $0.000333 per share
                                                       ------------------------

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|

State registrant's revenues for its most recent fiscal year:  $282,036

As of April 4, 2005, there were 22,428,861 shares of the registrant's common
stock, par value $0.000333, issued and outstanding. Of these, 12,785,527 shares
are held by non-affiliates of the registrant. The market value of securities
held by non-affiliates is $3,364,329 based on the closing price of $.15 for the
registrant's common stock on April 4, 2005.

Transitional Small Business Disclosure Format (check one):   Yes |_|;  No |X|

                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933, as amended ("Securities Act").

   Not Applicable.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item Number and Caption                                                                                        Page
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<S>                                                                                                              <C>
Forward-Looking Statements........................................................................................1

                                                       PART I

1.      Description of Business...................................................................................1

2.      Description of Property...................................................................................7

3.      Legal Proceedings.........................................................................................8

4.      Submission of Matters to a Vote of Security Holders.......................................................8

                                                       PART II

5.      Market for Common Equity and Related Stockholder Matters..................................................8

6.      Plan of Operation........................................................................................11

7.      Financial Statements.....................................................................................12

8.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................12

8A.     Controls and Procedures..................................................................................15

                                                      PART III

9.      Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
        16(a) of the Exchange Act................................................................................12

10.     Executive Compensation...................................................................................14

11.     Security Ownership of Certain Beneficial Owners and Management...........................................17

12.     Certain Relationships and Related Transactions...........................................................19

13.     Exhibits.................................................................................................22

14.     Principle Accountant Fees and Services...................................................................27
</TABLE>

<PAGE>

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of U.S.
federal securities laws. The words "believe", "expect", "intend", "estimate" and
"anticipate" and similar expressions, as well as future or conditional verbs
such as "will", "should", "would" and "could", often identify forward-looking
statements. Specific forward looking statements contained in this document
include, among others, statements regarding business results, obligations of the
Company, and employment changes. You should not place undue reliance on our
forward looking statements, as we cannot assure you that the plans, assumptions,
intentions or expectations upon which they are based will be realized. By their
nature, forward looking statements involve numerous assumptions, risks and
uncertainties. Some of the risks and uncertainties that could affect our future
results or could cause our results to differ materially from those expressed in
our forward looking statements include overall reception of our Actijube
technology, current and future retailer viability, the financing of this
business while in its development stages, and such other factors detailed in our
Securities and Exchange Commission filings. We caution that the foregoing list
of important factors is not exhaustive. Events or circumstances could cause our
actual results to differ materially from those estimated or projected and
expressed in, or implied by, these forward-looking statements. Except as
required by law, we undertake no obligation to update publicly or otherwise
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, or the foregoing list of factors affecting this
information.

                                     PART I

                         ITEM 1. DESCRIPTION OF BUSINESS

Business Development

         We were formed on August 13, 1996 under the name Harmony Trading Corp.
We remained inactive until December 1998, when we became a direct seller for
Doncaster, a division of Tanner Companies. Doncaster is a manufacturer of
women's apparel and accessories. Direct selling is the sale of a consumer
product or service in a face-to-face manner away from a fixed retail location.
Through our independent contractors, we marketed the Doncaster line through
fashion shows and private appointments. On April 5, 2002 we reached agreement
with our independent contractors to discontinue our activities as a direct
seller of the Doncaster clothing line. In connection therewith, we assigned all
of our rights under our verbal agreement with Tanner to the contractors.

         On March 27, 2002 we entered into a Reorganization Agreement with Group
Intercapital Inc., a Canadian corporation and our principal shareholder, Nuvo
Way Inc., a Canadian corporation, Heather Baker and the shareholders of Nuvo Way
Inc. The Reorganization Agreement principally involved our acquisition of all of
Nuvo Way Inc.'s issued and outstanding capital stock, making Nuvo Way Inc. a
wholly owned subsidiary of ours, in exchange for 5,000,000 shares of our
restricted common stock and the cancellation by Group Intercapital Inc. of
2,980,000 shares of our common stock owned by it. 1,666,666 of the 5,000,000
shares of common stock were issued to the Nuvo Way Inc. shareholders as of April
3, 2002, the closing date under the Reorganization Agreement. 1,666,667 of the
5,000,000 shares of common stock were issued to the Nuvo Way Inc. shareholders
as of April 3, 2003, the first anniversary of the closing date. The remaining
1,666,667 of the 5,000,000 shares of common stock were issued to the Nuvo Way
Inc. shareholders as of April 3, 2004, the second anniversary of the closing
date. As of the closing date, the Nuvo Way Inc. shareholders also received an
aggregate of 3,333,334 shares of our Series A Preferred Stock. The Series A
Preferred Stock is pari passu with our common stock with respect to voting,
dividend and liquidation rights. It is automatically redeemable in direct
proportion to, and at the time of issuance of, the common stock issued or to be
issued to the Nuvo Way Inc. shareholders on the first and second anniversaries
of the closing date. Accordingly, as of April 3, 2003 1,666,667 of the 3,333,334
then outstanding shares of Series A Preferred Stock were cancelled, and on April
3, 2004 1,666,667 of the remaining balance of Series A Preferred Stock were
cancelled.


                                        1
<PAGE>

In connection with the Reorganization Agreement, as amended, on April 9, 2002,
our executive officers, Henry Yersh and Denis St. Hilaire, resigned and were
replaced by Heather Baker and James Klein, designees of the Nuvo Way, Inc.
shareholders. Heather Baker was appointed to the positions of president and
chief executive officer while James Klein was appointed to the positions of
treasurer, secretary and chief financial officer.

The Reorganization Agreement further provided for the establishment of a
non-statutory stock option plan, the issuance of 150,000 stock options under the
plan to certain persons designated by Nuvo Way Inc., the registration of the
shares underlying the stock options on a Form S-8 Registration Statement, the
execution of an employment agreement with Heather Baker, the issuance of 100,000
shares of our common stock under the Baker Employment Agreement as a signing
bonus, the registration of the Baker shares on a Form S-8 Registration
Statement, and the issuance of 100,000 shares of our restricted common stock to
two contractors with whom Nuvo Way, Inc. was doing business. In furtherance of
the Reorganization Agreement, on April 4, 2002 we changed the name of Nuvo Way,
Inc. to Vitalstate Canada Ltd. and on June 5, 2002 we changed our name to
Vitalstate Inc.

General

We are a technology innovation company formed to develop and commercialize
products utilizing our proprietary delivery systems for the general health,
sports performance, and weight management markets. Since the formation of our
operating subsidiary, Vitalstate Canada Ltd., in April 2001 we have concentrated
on developing products for humans and animals, including nutritional supplements
that can be marketed without prior U.S. Food and Drug Administration approval.
Our delivery systems have been designed to provide for the combination of active
ingredients that are not easily combined at effective levels and to control the
absorption of active ingredients into the body.

In April of 2003 we formed a US based subsidiary, Vitalstate US Inc., which
established its operational base in Boynton Beach Florida. We hired Terry Giles
to head our US base and act as our Chief Operating Officer and president of
Vitalstate US Inc. Mr. Giles is charged with the task of commercializing our
complete line of nutritional supplements, as well as establishing relationships
with pharmaceutical companies. Upon establishing our nutritional supplement
product line, we will market our delivery technology and new product concepts
for the OTC (over the counter) and nutritional supplements to established
pharmaceutical companies. Additionally we will investigate the application and
use of our delivery technology into the regulated pharmaceutical prescription
and veterinary prescription drug and companion pet supplements. With respect to
pharmaceutical products, we intend to license our delivery technology and new
product concepts to established pharmaceutical companies to avoid the
substantial resources required to commercialize these products. Our goal with
all of our products will be to develop safer, more effective and more convenient
ways to administer active ingredients. Our proprietary technology involves a
patent-pending confectionery-based delivery system. Our patent applications
cover the processes of manufacture and use of the delivery systems in both
supplement and pharmaceutical markets.

Nutritional supplements are taken for a wide variety of reasons: to enhance
fitness or sports programs, build muscle and strength, increase energy, feel
better, lose weight, and maintain health. Despite experiencing growth in recent
years, the supplement markets are dealing with a number of issues that we
believe we are ideally suited to address due to our proprietary technology. .
Customers are confused due to an absence of consumer education, the large
selection of product choices and brands, scant scientific confirmation to back
up product claims, mismatched expectations, lack of tangible results, and lack
of innovation in delivery forms. They have no confidence in product dosages,
material quality or label claims. Due to these factors, we believe there is a
solid and growing base of consumers who are frustrated and would welcome
products that have been carefully tested and developed and that are designed to
meet their specific needs. No assurance can be given however, that our products
will be perceived as meeting these needs or that our products will achieve our
anticipated level of market acceptance.


                                       2
<PAGE>

The initial target audience for our products has been North American health and
fitness consumers who are looking for higher performance and higher quality
energy, vitamin, weight-loss and supplement products. We are actively developing
products in this segment with the specific categories described below.

o    Sports supplements: This is a broad category with users ranging from
     athletes and bodybuilders to consumers with general fitness goals. The
     market is a rapidly shifting one with little or no product loyalty as
     consumers continue their search for products that will live up to their
     claims. Ranging from bars, nutrition, weight loss shakes; meal replacements
     and pills, to energy drinks, total U.S. sales in this category reached $10
     billion in 2001 and are predicted to grow 4.1% annually through 2005.

o    Weight management: Formerly confined to the diverse worlds of bodybuilders
     and the obese, this category now covers a much broader target. Catering to
     the consumer's desire for convenience, shakes, bars, weight-loss pills and
     meal replacements make up the second-fastest growing segment in the
     supplements industry, with estimated U.S. sales of $4 billion in 2002. A
     cross-cutting supplement category, weight-loss supplements include many
     products, generally formulas, specifically designed to facilitate the
     burning of fat and calories.

Another area we are currently pursuing is companion animal health care and
potential veterinarian applications of our technology. According to the APPMA
(American Pet Products manufacturing Association) Americans spent over $32
billion dollars on their pets in 2003, with supplements and OTC medications
representing over $7 billion dollars and Veterinarian Care representing nearly
$8 billion dollars. This means that pet related spending has nearly doubled in
the last ten years. In the U.S. alone, there are over 377 million household
pets, with over 142 million of those pets being dogs (65.0 million) and cats
(77.7 million).The pet population has also grown rapidly in Europe and in South
America. Distribution in the U.S. is largely through veterinarians, natural food
retailers and other direct channels, plus specialty pet stores, mass market and
natural pet retailers. No assurance can be given that we will successfully enter
the markets for pet supplements and veterinary pharmaceutical products.

We believe our delivery technologies also have significant pharmaceutical
applications, both human and veterinary, because they address a number of key
problems, allowing products to be ingested, digested, and absorbed more easily
and effectively, in consumer-friendly formats. Sales of human pharmaceuticals
reached $149 billion in the U.S. and $267 billion worldwide in 2002. The market
for new drug delivery technologies or systems (NNDS) stands to exceed $85
billion dollars in 2005 according to Drug Delivery Technology Magazine while
major pharmaceutical companies struggle to maintain market share and dominance
with new innovations and new delivery forms for their products. The competition
for these companies to constantly offer new delivery formats to their consumers
is fierce and pharmaceutical companies have begun to aggressively pursue new
delivery technologies from outside companies and to strategic alliances with
these smaller more "flexible" technology companies. This cuts down on the time
and dollars spent to develop new delivery technologies in house.


                                       3
<PAGE>

Despite the need and growing demand for innovation and improved delivery
technology for nutraceuticals, pharmaceuticals, and supplements, we believe
little has been done to render these products more conveniently packaged and
more easily ingested, digested, and absorbed. We further believe that the
advantages of our delivery technology over other difficult, and at times
complicated, modes of administration of active ingredients in the Rx, OTC,
veterinary, and supplement markets are substantial, although no assurance can be
given that we will secure any of these technology licensing agreements Some of
the advantages to our technology include:

o     Makes products easily portable

o     Our belief that it will enhance absorption (clinical evaluation in
      progress)

o     Allows for controlled and accurate dosages o Purity and stability is
      guaranteed

o     Allows for the combination of active ingredients at effective levels

            Enables the simplicity of unit doses rather than `a handful of
            pills'

o     Is easy to take and can be flavored to appeal to a waide range of tastes

            Enables oral delivery in traditionally hard to dose market segments
            (children, veterinary)

o     Our belief that it will enable oral delivery of injectable ingredients,
      for example, vaccines (experimental evaluations in progress)

We believe our initial product using our delivery system, creatine, demonstrates
significant advantages in its use over competitive creatine products presently
on the market. Creatine is a well-known sports supplement that has been used by
elite athletes since the mid-sixties. Its widespread use, with estimated U.S.
sales in excess of $400 million has put it at the top of the sports supplements
list. It is also one of the most extensively studied nutritional sports
supplements available to today's athlete. It works by increasing overall energy
level and improving recovery time. Its users include healthy athletes striving
to achieve maximum athletic benefit, middle-aged persons wanting to maintain
active lifestyles, and seniors working to overcome muscle atrophy or take
advantage of its cardio-protective qualities. Problems associated with most
existing creatine products including difficulty with absorption, side effects
due to the necessity of overloading, and lack of convenience resulting from the
need to mix powder and water, do not apply to our creatine product.


                                       4
<PAGE>

Sales and Marketing

We began commercialization of our branded nutritional supplements in September
2003, with the launch of our Russian Red creatine Actijubes, Command protein
bars, and Foundation protein powders. By December 31, 2003, we had also launched
our FitKids nutrition bars for children. In early 2004 we expanded our product
lines with our Ripped Quick Physique Kits, Command Performance Kits and Russian
Red Hardcore Bodybuilding Kits, all using our ActiJube technology, as well as
Wolverines Turkey Nuggets.

Our products are being sold in General Nutrition Centers ("GNC") across the
United States, through gyms and specialty stores via our distributors, and
directly through our web site.

For the year ended December 31, 2004, sales of our branded products totaled $
501,409, gross of returns for the same period. As we trialed our creatine and
other products in 2003 and 2004, the company was able to further its
understanding of major market drivers and reassess offerings for 2005 and
beyond.

Supplies and Suppliers

Our products are manufactured for us by third parties. Although we have selected
certain manufacturers for each different product form, several alternative
sources are available to us. Manufacturers will be chosen based on quality,
service and price. The raw materials necessary to make our products are also
available from several sources. We expect all required raw materials to be
readily available in sufficient quantities and to be of required quality.

Seasonal Aspects

We will experience some seasonal variation in our sales through the winter
months of November and December, as historically this has proven to be the
slowest sales period at both retail and wholesale due to Holiday activities and
preparation for year end audits and new store sets and merchandising for the
following New Year.

Research and Development

Most of our research and development activities are company sponsored. These
activities have related to the development of our delivery technology for
multiple applications and segments including our line of branded nutritional
supplements. During the fiscal year ended December 31, 2004 we spent
approximately $ 360,000 on research and development activities, whereas in 2003
we spent approximately $520,000.
Customers

Our current customer portfolio is made up of major retailers, distributors, and
private internet customers. During 2004, our largest customer was GNC. In late
2004, the Vitamin Shoppe also began purchasing company items for distribution.
We anticipate both of these relationships to continue into 2005.

Competition

We depend on our proprietary technology to differentiate our products from those
of our competitors. Our competitors include companies that provide delivery
systems such as gel caps, tablets, capsules, liquids and the like and companies
which compete directly with our final products. We compete with companies
engaged in both human and animal health, nutrition, and supplement product
categories , most of which are considerably larger than we are in total assets
and resources. This could enable them to bring their own products to advanced
stages of development and marketing with more speed and efficiency than we can.
There can be no assurance that our products will be able to successfully compete
with theirs.


                                       5
<PAGE>

Government Regulation

The U.S. Food and Drug Administration or FDA regulates nutritional supplements
under a different set of regulations than those covering conventional foods and
drug products (prescription and Over-the Counter). Under the Dietary Supplement
Health and Education Act of 1994, the nutritional supplement manufacturer is
responsible for ensuring that a nutritional supplement is safe before it is
marketed. Generally, manufacturers simply need to self register with the FDA and
file notice of intent to market specific nutritional supplements without having
to get written FDA approvals before producing or selling nutritional
supplements. Manufacturers must make sure that product label information is
truthful and not misleading. The FDA and the Federal Trade Commission regulates
nutritional supplement label claims and advertising.

Until we begin development of our proposed OTC, pharmaceutical line and
veterinarian application of our technology or product concepts, which may
subject us to strict FDA rules and regulations, there are no special or unusual
governmental laws or regulations that can be expected to materially impact on
the operation of our business. Once we have entered this stage of our company's
development, we will be relying on the resources of the particular
pharmaceutical company partner we are working with to invest in and manage this
part of the new product development process.

Costs and Effects of Compliance with Environmental Laws

There are no special or unusual environmental laws or regulations that will
require us to make material expenditures or that can be expected to materially
impact on the operation of our business.

Employees

As of March 1, 2005 we had 3 employees in our Montreal office, including our
Vice President of Intellectual Property, a Director of New Product Development
and one other Product Development personnel. . Our Florida office had 7
employees, including our CEO/President, , the CFO and other support staff. We
plan to add additional employees as required by the direction our business
dictates.

We have entered into confidentiality and invention assignment agreements with
our employees and consultants which limit access to, and disclosure or use of,
our technology. There can be no assurance, however, that the steps taken by us
to deter misappropriation or third party development of our technology or
processes will be adequate, that others will not independently develop similar
technologies or processes, or that secrecy will not be breached. In addition,
although we believe that our technology has been independently developed and
does not infringe on the proprietary rights of others, there can be no assurance
that our technology does not and will not so infringe or that third parties will
not assert infringement claims against us in the future. We believe that the
steps we have taken will provide some degree of protection and that the issuance
of patents pursuant to our applications will materially improve this protection.
However, no assurance can be given that this will be the case.

Patents, Trademarks and Licenses

We have a proprietary portfolio of patent applications. We have filed United
States and foreign applications directed to compositions of matter, processes of
preparation, or methods of use.


                                       6
<PAGE>

We plan to protect our proprietary technology by filing additional United States
and foreign patent applications related to the technology, inventions and
improvements that are important to the development of our business. The patent
position of nutraceutical and pharmaceutical companies involves complex legal
and factual questions. The enforceability of patents cannot be projected with
certainty. Patents, if issued, may be challenged, invalidated or circumvented,
and may fail to provide any protection against competitors. Our pending patent
applications, those which we may file in the future, or those which we may
license from third parties, may not result in patents being issued. If patents
are issued, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Competitors may
independently develop similar technologies or duplicate any technology that we
have developed. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States and Canada.

We also rely on trade secrets, know-how and technology, which we try to protect
by entering into confidentiality agreements with parties that have access to it,
which include corporate partners, collaborators, employees and consultants. Any
of these parties may breach their agreement and disclose our confidential
information. Our competitors might also learn of the information in some other
way.

We also have filed trademark applications primarily in the United States and
Canada on technology and products we deem important to us. These trademark
applications relate primarily to the branding of our products.

On January 1, 2005, the Patents, Trademarks, and Licenses of the company became
security instruments for the debt incurred by the company.

                         ITEM 2. DESCRIPTION OF PROPERTY

Our headquarters are currently located in a leased facility located at 1499 High
Ridge Road, Boynton Beach, Florida, consisting of a total of approximately
10,500 square feet of space. Our executive and administrative staff all work
from this location. The current monthly rent due under the lease, which expires
on April 30, 2008, is approximately US$12,000 per month plus utilities and
municipal taxes. We will continue to rent this space while we trial our products
in the retail arena and garner technology agreements with outside firms.

Our Montreal office is located in a leased facility at 3767 boul. Thimens, suite
268, in Saint-Laurent Quebec, consisting of a total of less than 1,000 square
feet of space. Our research, development, and intellectual property staff all
work from this location. The current monthly rent due under the lease, which
expires on September 30, 2007, is approximately CDN$900 per month inclusive of
utilities and municipal taxes. We believe this space is sufficient to handle our
present and immediate future needs.

In the event our lease is terminated for any reason or not renewed upon
expiration of the present lease terms, space sufficient to handle our then
present and expected future needs is available from several alternative sources
at slightly higher rental rates.


                                       7
<PAGE>

                            ITEM 3. LEGAL PROCEEDINGS

On May 7, 2004, the Company and DreamPak LLC ("DreamPak") settled their
lawsuits. As consideration for the settlement, the Company will retain its
exclusive right to market the Company's proprietary Creatine Actijube based
products and DreamPak will maintain its exclusive right to market its Soluflex
joint care product. In addition, the Company agreed to pay DreamPak $250,000 and
to issue to DreamPak 250,000 warrants, each of which is exercisable for the
purchase of one common share at a price of $0.50, for a maximum period of 3
years ending on April 30, 2007 and DreamPak has agreed to the withdrawal of
certain of its patents from the US Patent & Trademark office.

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

No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered by
this report.

                                     PART II

        ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is quoted on the OTC Bulletin Board of the National Association
of Securities Dealers, Inc. (the "NASD") under the symbol "VTST." The following
table sets forth, for the fiscal quarters or periods indicated, the high and low
closing bid prices per share of our common stock, as derived from quotations
provided by the OTC Bulletin Board. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.

Quarter Ended or Period Indicated               High Bid          Low Bid
---------------------------------               --------          -------
 March 31, 2003                                   .90              .54
 June 30, 2003                                    .77              .48
 September 30, 2003                               .63              .41
 December 31, 2003                                .77              .51
 March 31, 2004                                   .65              .41
 June 30, 2004                                    .65              .29
 September 30, 2004                               .38              .07
 December 31, 2004                                .20              .04

On April 4, 2005, the closing bid price for our common stock was $.15 per share.

Holders

As of April 4, 2005, there were approximately 51 record holders of our common
stock.

Dividends

We have never declared any cash dividends with respect to our common stock.
Future payment of dividends is within the discretion of our board of directors
and will depend on our earnings, capital requirements, financial condition and
other relevant factors. Although there are no material restrictions limiting, or
that are likely to limit, our ability to pay dividends on our common stock, we
presently intend to retain future earnings, if any, for use in our business and
have no present intention to pay cash dividends on our common stock.


                                       8
<PAGE>

Recent Sales of Unregistered Securities

On May 7, 2004, we issued 250,000 warrants as part of the consideration for the
DreamPak LLC legal settlement. Each warrant is exercisable for the purchase of
one common share at any time during the three year period ending on April 30,
2007 at a price of $0.50 per share.

In April 2004, we redeemed 1,666,667 shares of our Series A Preferred Stock and
issued 1,666,667 shares of our restricted common stock to the seven persons that
had owned the redeemed shares of Series A Preferred Stock. The common shares
were issued in reliance on the exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended.

On December 5, 2003, we issued 2,000,000 shares of our restricted common stock
to Scepter Holdings, Inc. in consideration of its exercise of 2,000,000 Special
Warrants at an exercise price of $.50 per share or $1,000,000 on an aggregate
basis. The shares were issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.

On September 9, 2003 we issued an aggregate of 137,499 common stock to five
employees. These shares were issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended.

Pursuant to the August 8, 2003 Technology Purchase Agreement among us, our
wholly owned subsidiary, Vitalstate Canada Ltd., 9103-3019 Quebec Inc., Michael
Farber and Jonathon Farber, in August, 2003 we issued to 9103-3019 Quebec Inc.
300,000 five year common stock purchase warrants, each to purchase one share of
our common stock at a price of $.50 per share. The warrants were issued in
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.

On August 21, 2003 we issued an aggregate of 220,000 stock options to three
persons. Each option is exercisable for the purchase of one share of our common
stock at a price of $.68 per share, any time during the period ending five years
from the date of grant. Each option was issued in reliance on Section 4(2) of
the Securities Act of 1933, as amended.

In April 2003, we redeemed 1,666,667 shares of our Series A Preferred Stock and
issued 1,666,667 shares of our restricted common stock to the seven persons that
had owned the redeemed shares of Series A Preferred Stock. The common shares
were issued in reliance on the exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended.

In May 2003, we issued 2,000,000 shares of our restricted common stock to
Scepter Holdings, Inc. in consideration of its exercise of 2,000,000 Special
Warrants at an exercise price of $.50 per share or $1,000,000 on an aggregate
basis. The shares were issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.

On February 28, 2003 we completed a private offering of 500,000 units to 3
persons at a price of $.50 per unit or $250,000 in the aggregate. Each unit
consists of 1 share of common stock and 1 common stock purchase warrant to
purchase 1 share of our common stock at a price of $.50 per share for a period
of 2 years commencing August 28, 2004. The units were issued in reliance on
Regulation S of the Securities Act of 1933, as amended.

On February 27, 2003 we completed a private offering of 4,000,000 units to 1
person at a price of $.50 per unit or $2,000,000 in the aggregate. Each unit
consists of 1 share of our common stock and 1 special common stock purchase
warrant to purchase 1 share of our common stock at a price of $.50 per share for
a period of 1 year from issuance. The units were issued in reliance on
Regulation S of the Securities Act of 1933, as amended.


                                       9
<PAGE>

On November 8, 2002 we completed a private offering of 1,800,000 units to 6
persons at a price of $.50 per unit or $900,000 in the aggregate. Each unit, as
amended, consists of 1 share of our common stock and 1 common stock purchase
warrant to purchase 1 share of our common stock at a price of $.50 per share for
a period of 2 years commencing May 8, 2004. The units were issued in reliance on
Regulation S of the Securities Act of 1933, as amended.

On October 10, 2002 we issued an aggregate of 2,085,000 stock options with an
exercise price of $.69 per share to 23 persons consisting of certain officers,
directors, employees and consultants. The option price was equal to the market
price for our common stock on the date of grant. The options were issued in
reliance on Section 4(2) of the Securities Act of 1933, as amended.

In October 2002 we issued 48,127 shares in consideration of the April 2002
cancellation of a CDN$27,500 loan. The shares were issued in reliance on Section
4(2) of the Securities Act of 1933, as amended.

On August 7, 2002 we issued 40,000 shares in settlement of marketing services
valued at approximately $30,000. The shares were issued in reliance on Section
4(2) of the Securities Act of 1933, as amended.

On June 6, 2002 we issued an aggregate of 150,000 stock options with an exercise
price of $.37 per share to seven employees. The option price was determined in
our March 27, 2002 Reorganization Agreement. The options were issued in reliance
on Section 4(2) of the Securities Act of 1933, as amended.

In April 2002, in furtherance of our March 27, 2002 Reorganization Agreement, we
issued an aggregate of 1,666,666 shares of our common stock and 3,333,334 shares
of our Series A Preferred Stock to the seven former shareholders of Nuvo Way
Inc. As part of the same agreement we issued an aggregate of 100,000 shares of
our common stock to 2 persons with whom Nuvo Way inc. was doing business. All of
the foregoing issuances were made in reliance on Section 4(2) of the Securities
Act of 1933, as amended.

          Equity Compensation Plan Information As At December 31, 2004

<TABLE>
<CAPTION>
-------------------------------------- ----------------------- --------------------- ---------------------------------
                                        Number of Securities
                                         to be issued upon       Weighted-average     Number of securities remaining
                                            exercise of         exercise price of     available for future issuance
                                        outstanding options,       outstanding       under equity compensation plans
                                        warrants and rights     options, warrants    (excluding securities reflected
                                                (a)               and rights (b)             in column (a)) (c)
-------------------------------------- ----------------------- --------------------- ---------------------------------
<S>                                           <C>                      <C>                      <C>
Equity compensation plans approved
by security holders                              0                     N/A                          0
-------------------------------------- ----------------------- --------------------- ---------------------------------
Equity compensation plans not
approved by security holders                  825,000                  $.68                     1,425,000
-------------------------------------- ----------------------- --------------------- ---------------------------------
         Total                                825,000                  $.68                     1,425,000
-------------------------------------- ----------------------- --------------------- ---------------------------------
</TABLE>


                                       10
<PAGE>

The Vitalstate, Inc., 2002 Non-Statutory Stock Option Plan hereinafter referred
to as the Plan is intended to advance our interests by inducing individuals, and
eligible entities of outstanding ability and potential to join, remain with, or
provide consulting or advisory services to us by encouraging and enabling
eligible employees, non-employee directors, consultants and advisors to acquire
proprietary interests in us, and by providing the participating employees,
non-employee directors, consultants and advisors with an additional incentive to
promote our success. The Plan is presently administered by our board of
directors but may subsequently be administered by a committee designated by our
board of directors.

The stock subject to options granted under the Plan consists of shares of our
common stock, par value $.000333 per share, whether authorized but unissued or
held in treasury. The maximum number of shares of common stock which may be
issued pursuant to options granted under the Plan shall not exceed in the
aggregate two million, two hundred fifty thousand (2,250,000) shares, subject to
adjustment in accordance with the provisions of Section 11 of the Plan. In the
event that our outstanding common stock is subsequently changed by reason of
combination of shares, reverse split, stock dividend or the like, an appropriate
adjustment will be made by the Plan administrator in the aggregate number of
shares available under the Plan, and in the number of shares and option price
per share subject to outstanding options. If we are reorganized, consolidated or
merged with another corporation, the holder of an option shall be entitled to
receive upon the exercise of his option the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the happening of any such corporate event as if he had
been, immediately prior to such event, the holder of the number of shares
covered by his option. We shall at all times while the Plan is in force reserve
such number of shares of our common stock as will be sufficient to satisfy the
requirements of all outstanding options granted under the Plan. In the event any
option granted under the Plan expires or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, the un-purchased shares subject thereto shall again be available for
options under the Plan.

The class of individual or entity that are eligible to receive options under the
Plan is all employees (including officers) and non-employee directors of, or
consultants and advisors to us or any subsidiary corporation of ours; provided,
however, that options cannot be granted to any consultants and advisors unless
(i) bona fide services have been or are to be rendered by the consultant or
advisor and (ii) the services are not in connection with the offer or sale of
securities in a capital raising transaction. The Plan administrator, in its sole
discretion, but subject to the provisions of the Plan, determines the employees
and non-employee directors of, and the consultants and advisors to, us and our
subsidiary corporations to whom options may be granted, and the number of shares
to be covered by each option, taking into account the nature of the employment
or services rendered by the individuals or entities being considered, their
annual compensation, their present and potential contributions to our success
and such other factors as the Plan administrator may deem relevant.

No option granted under the Plan is transferable by the individual or entity to
whom it was granted otherwise than by will or the laws of descent and
distribution, and, during the lifetime of such individual, is not be exercisable
by any other person, but only by him.

                            ITEM 6. PLAN OF OPERATION

We are a development stage company. We have begun commercializing our own line
of branded sports nutrition products and have gained some sales and distribution
of our products. . We have principally funded our operations to date through
private placements of our securities and through loans from affiliated persons.
It is our intention to raise additional funds during the next twelve months
through additional private placements or through institutional funding, as
required to supplement revenues earned from the sales of our products. These
funds will be used to pay back current debt instruments that satisfy current
working capital demands and future needs as requested/required outside of retail
trial and licensing proceeds.


                                       11
<PAGE>

      1.    We intend to continue our investment inadditional research and
            development over the next twelve months as we expand upon the
            application potential for our delivery technology into our segments,
            channels and categories.

Sales, Promotions and Marketing will represent a portion of our activities
during the next twelve months as we expand our distribution and sales. We
presently have no plans regarding purchases of plant or significant equipment.

We currently employ ten people. Subject to our rate of growth, we will hire
additional employees as needed or required to maintain and grow our company. .

Currently, we are working on establish our delivery technology, the "actijube"
in the sports nutrition marketplace and have gained some consumer and retailer
recognition. Through print advertising, tradeshows and sporting event
sponsorships as well as a substantial industry presence, the sports supplement
consumer is being made aware of the Vitalstate name, our technology and
products. Gaining shelf space at GNC,gyms, other retailers and specialty stores
was a crucial step in our transition from ideation to commercialization.

Our goal over the next year is to make the Actijube from Vitalstate a widely
recognized and accepted delivery form. Our longer term goal is to conclude
licensing arrangements for the use of our technology in pharmaceutical,
veterinarian, companion pet and Over The Counter nutritional and supplemental
products.

The company continues to discuss possible partnerships and has signed
confidentiality agreements with certain potential partners that would utilize
the company's intellectual property in their class of trade. Most partners
continue to review our current patent pending technology and await feedback from
the United States Patent and Trade Office (USPTO) on such technology. The
company hopes that once a response from the USPTO is received, most likely in
2005, that a partner will come forward to begin development of ActiJube products
in their product portfolio. Such efforts are being completed with current office
staff and it is not anticipated that additional resources will be required to
support such business initiatives.

Off Balance Sheet Arrangements

Not applicable.

                          ITEM 7. FINANCIAL STATEMENTS

The financial statements are included beginning immediately following the
signature page to this report. See Item 13 for a list of the financial
statements included.

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

There were no changes in and disagreements with accountants on accounting, and
financial disclosure during this reporting period.


                                       12
<PAGE>

                        ITEM 8A. CONTROLS AND PROCEDURES

Our principal executive and financial officer evaluated the effectiveness of our
disclosure controls and procedures as of a date within 90 days prior to the
filing of this report. Based on this evaluation, our principal executive and
financial officer concluded that our controls and procedures are effective in
providing reasonable assurance that the information required to be disclosed in
this report is accurate and complete and has been recorded, processed,
summarized and reported within the time period required for the filing of this
report. Subsequent to the date of this evaluation, there have not been any
significant changes in our internal controls or, to our knowledge, in other
factors that could significantly affect our internal controls.

Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for
listing the non-audit services approved by our Board of Directors to be
performed by RSM Richter LLP, Chartered Accountants, our external auditor.
Non-audit services are defined as services other than those provided in
connection with an audit or a review of our financial statements. Our Board of
Directors currently has not approved RSM Richter LLP, Chartered Accountants to
perform any non-audit services other than the filing of annual tax returns and
the transfer of the intellectual property value from the Company's Canadian
entity to the Company's US entity.

The company will review the needs for Sarbanes-Oxley Act of 2002, section 404,
during the 2005 fiscal year. The Securities and Exchange Commission has ruled on
March 3, 2005 that it has extended its compliance deadline for non-accelerated
filers (i.e., Vitalstate Inc) with regard to the internal control reporting
provisions of Section 404 until July 15, 2006.

                           ITEM 8B. OTHER INFORMATION

Not applicable.

                                    PART III

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

Executive Officers, Directors and Key Employees

Directors serve until the next annual meeting of the stockholders; until their
successors are elected or appointed and qualified, or until their prior
resignation or removal. Officers serve for such terms as determined by our board
of directors. Each officer holds office until such officer's successor is
elected or appointed and qualified or until such officer's earlier resignation
or removal. No family relationships exist between any of our present directors
and officers. On April 13, 2005, Christopher Luck was named as a director after
a vacancy was created due to the passing of Thomas Torokvei.

The following table sets forth certain information, as of April 4, 2005, with
respect to our directors and executive officers.


                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Date of Election
                                                                                               or Appointment
Name                         Positions Held                                        Age           as Director
----                         --------------                                        ---           -----------
<S>                          <C>                                                    <C>         <C>
Heather Baker                President, Chief Executive Officer                     60          April 9, 2002

Jonathan Farber              Vice President-Intellectual Property, Director         50          May 29, 2002

Robert S. Torokvei           Director, Chairman of the Board                        50          March 4, 2003

Terry Giles                  Chief Operating Officer, Director                      45          June 10, 2003

Gilles Cloutier              Director                                               60          June 10, 2003
</TABLE>

      The following is a brief account of the business experience of each of our
directors and executive officers during the past five years or more.

Heather Baker has served as our president and chief executive officer since
April 9, 2002. She has served in similar capacities for our wholly owned
operating subsidiary, Vitalstate Canada Ltd. since its formation in April 1002.
Ms. Baker has more than twenty years of experience in the management of medical
and scientific research. From July 1999 until April 2001 she served as president
for her own life sciences and business development consulting firm, HBaker
Consultants, in Montreal, Canada. From 1988 until July 1999 she worked for
Phoenix International Life Sciences in Montreal, Canada, a leading contract
research organization that she co-founded. From 1983 until 1988 she was employed
by Bio-Research Laboratories in Senneville, Canada, initially as the head of
their clinical research center and subsequently as the director in their
Clinical and Analytical division. Bio-Research Laboratories engages in contract
research in clinical studies, drug analysis, drug metabolism and toxicology.
Prior to engaging in medical and scientific research, Ms. Baker was engaged in
academic research at the University of Tasmania Medical School in Australia. Ms.
Baker received a B.A. degree from the University of Tasmania in 1968.

Jonathan Farber has served as a director of ours since May 29, 2002 and as our
chief scientific officer from June 2002 until May 2003, at which time he assumed
the role of Vice-President, Intellectual Property. Mr. Farber is responsible for
the management of our portfolio of patents and trademarks. From 1995 through May
2002, Mr. Farber worked as a Technology Transfer Officer for McGill University's
Office of Technology Transfer, where he was responsible for promoting the
university's research capabilities to industry, evaluating the patent potential
of inventions, and negotiating contract licenses and other agreements with both
the private sector and government. From January 1994 until joining McGill, Mr.
Farber worked as an Industrial Technology Advisor in the National Research
Council of Canada's Industrial Research Assistance Program. From 1990 through
1993 Mr. Farber was concurrently a quality assurance supervisor and a production
supervisor for the Hostess Frito-Lay Division of Pepsico. From 1988 until 1990
Mr. Farber was employed by Catelli Inc. as a Research Scientist in Montreal and
subsequently as Production Supervisor in Toronto, Canada. Mr. Farber holds both
B.Sc. and M.Sc. degrees from McGill University and a M.B.A. from Concordia
University.

Robert S. Torokvei has served as a director of ours since March 4, 2003 and
Chairman of our Board of Directors since February 3, 2004. During the past five
years Mr. Torokvei has served as the president of Scepter Corporation, a
manufacturer of plastic products and wholly owned subsidiary of Scepter
Holdings, Inc. During such period he has also served as president of Scepter
Holdings, Inc., a holding and venture capital investment company.


                                       14
<PAGE>

Robert S. Torokvei is a designee of Scepter Holdings, Inc. Scepter Holdings,
Inc. has the right to designate certain individuals to our board of directors.
See "Certain Relationships and Related Transactions."

Gilles Cloutier, Ph.D. Dr. Cloutier served as Chief Business Officer, Chairman
of the Board and a director of MoliChem Medicines and MRD from January 2001
until December 2002. He was the Executive Vice President of Business Development
of United Therapeutics Corporation, and one of its founders from 1997 to 2001.
Dr. Cloutier has over thirty years of experience in the pharmaceutical industry
and contract research organizations providing strategic support to the
biotechnology and pharmaceutical industries. As Vice President of Cato Research
(1992-1997), Dr. Cloutier founded Cato Pharma Canada and led his team to the
successful preparation of numerous orphan drug applications, investigational new
drug applications, new drug applications, and a new drug study. At Quintiles,
Inc. (1990-1992), he served as Vice President of Clinical Operations. During his
13 years at Burroughs Wellcome Co. (1976-1990), Dr. Cloutier headed the
Department of Medical Services, after leading the Neurology/Anesthesiology
Section. He has served as Professor at the University of Montreal, the
University of North Carolina, and the University of Colorado Medical Center. Dr.
Cloutier has served as President and Trustee of the Associates of Clinical
Pharmacology and is on the Board of Directors of the Epilepsy Foundation of
America. Dr. Cloutier graduated from the University of Montreal with a Ph.D. in
Pharmacology and has made numerous presentations and has 33 publications.

Terry A. Giles was hired as our Chief Operating Officer and President of
Vitalstate US Inc. to head up sales, marketing, manufacturing, new product
development, market strategies, new business development, operations,
distribution and logistics. With a vast background and experience in the sports
nutrition industry serving as a consultant and industry leader and has been
widely regarded as an innovator in the field for over 28 years. Mr. Giles has
been responsible for some of the largest and most successful companies in the
nutritional industry having served as Vice President of Cybergenics from 1995
through 1998, where he was in charge of product development and marketing,
creating new product concepts and executing market strategies. He was co-founder
and from 1998 to 2000 COO of Iron-Tek Nutrition and was responsible for creating
their entire product line and marketing strategy. From 2000 until joining
Vitalstate. In 2003 he was acting as Vice President of Product Development for
MET-Rx and Worldwide Sports Nutrition under the ownership of Royal Numico. His
expertise in this industry has also garnered him respect as a published writer
and author in the realm of sports nutrition and sports training. Mr. Giles has
served as a director on our Board since June 10, 2003

Board of Directors

Our directors presently receive no cash remuneration for acting as such.
Directors may however be reimbursed their expenses, if any, for attendance at
meetings of the Board of Directors. Certain Directors may qualify for
participation in the Company's stock option plan. Our Board of Directors may
designate from among its members an executive committee and one or more other
committees. To date we have formed a compensation committee consisting of Gilles
Cloutier and Terry Giles and an audit committee consisting of Christopher Luck.
Christopher Luck was named to replace Thomas Torokvei at the April 13, 2005
meeting. (Thomas Torokvei passed away in March 2005.)

Code of Ethics

Our company's statement of code of ethics has been communicated both internally
as well as externally on the company's website, www.vitalstate.com. If you
cannot access our website, a copy will be provided to you upon request, without
charge. Please send all requests to Vitalstate Inc., Code of Ethics, 1499 High
Ridge Road, Boynton Beach, FL 33426.


                                       15
<PAGE>

                         ITEM 10. EXECUTIVE COMPENSATION

      The following table sets forth information concerning the total
compensation paid or accrued by us during the three fiscal years ended December
31, 2004 to (i) all individuals that served as our chief executive officer or
acted in a similar capacity for us at any time during the fiscal year ended
December 31, 2004 and (ii) all individuals that served as executive officers of
ours at any time during the fiscal year ended December 31, 2004 that received
annual compensation during the fiscal year ended December 31, 2004 in excess of
$100,000.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                            Annual Compensation                              Long-Term Compensation
                            Fiscal Year
Name and                       Ended                                 Other       Options/    Restricted                  All Other
Principal Position          December 31,    Salary       Bonus    Compensation     SARs     Stock Awards  LTIP Payouts  Compensation
------------------          ------------    ------       -----    ------------     ----     ------------  ------------  ------------
<S>                             <C>        <C>       <C>           <C>          <C>             <C>           <C>           <C>
Heather Baker                   2004       $153,666       0            0            0            0             0             0
   Vice-Chairman                2003       $137,300       0            0            0            0             0             0
   of the Board (1)             2002       $ 43,200  $110,000(2)       0        300,000(3)       0             0             0

Terry Giles                     2004       $200,000       0            0            0            0             0             0
   President and Chief          2003       $133,333  180,500(4)    50,000(5)        0            0             0             0
   Executive Officer            2002              0       0            0            0            0             0             0

James Klein                     2004       $155,587       0            0            0            0             0             0
   Previous Chief               2003       $103,000       0            0            0            0             0             0
   Financial Officer,           2002       $ 60,000       0            0        200,000(7)       0             0             0
   Secretary, Treasurer
   (6)

Jonathan Farber                 2004        122,888       0            0            0            0             0             0
    Vice-President,
    Intellectual Property
</TABLE>

----------

(1)   Ms. Baker served as our president and chief executive officer from April
      9, 2002, until May 19,2004. Since May 19, 2004, Ms. Baker has served as
      Vice-Chairman of the Board.

(2)   Pursuant to Ms. Baker's June 1, 2002 Executive Employment Agreement, Ms.
      Baker received 100,000 shares of our common stock in December 2002 as a
      bonus. See "Certain Transactions." The value of the shares on the date of
      issuance was approximately $110,000.

(3)   Consists of 300,000 options issued to Ms. Baker on October 10, 2002 with
      an exercise price of $.69 per share. See "Certain Transactions. Excludes
      25,000 options issued to Ms. Baker with an exercise price of $.37 per
      share pursuant to our March 27, 2002 Reorganization Agreement. See
      "Certain Transactions."

(4)   Pursuant to Mr. Giles May 1, 2003 Employment Agreement, Mr. Giles received
      $180,500 in cash bonus, in two installments during 2003..

(5)   Pursuant to Mr. Giles May 1, 2003 Employment Agreement, Mr. Giles received
      83,333 shares of our common stock as a signing bonus on September 9, 2003.
      The value of the shares on the date of issuance was approximately $50,000.

(6)   Mr. Klein served as Chief Financial Officer, Secretary, and Treasurer
      until September 1, 2004.

(7)   Consists of 200,000 options issued to Mr. Klein on October 10, 2002 with
      an exercise price of $.69 per share. See "Certain Transactions. Excludes
      25,000 options issued to Mr. Klein with an exercise price of $.37 per
      share pursuant to our March 27, 2002 Reorganization Agreement. See
      "Certain Transactions." In 2004, all of these options were cancelled after
      Mr. Klein's departure.

Option/SAR Grants In Last Fiscal Year (Individual Grants)

None of the named executives received options or SAR grants in 2004. On April
13, 2005, the directors of the company ratified a stock option grant as outlined
below.

Stock Appreciation Rights

The named executives did not receive any stock appreciation rights from us
during the fiscal year ended December 31, 2004.


                                       16
<PAGE>

Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values

We made no option/SAR awards to the named executive officers during the fiscal
year ended December 31, 2004. At the April 13, 2005 board meeting, the directors
approved the following additional option awards as follows:

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                                                          Value of Options at Grant
Name                            Number of Options Granted    Vesting Period               Date
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
Terry Giles, Chief Executive    450,000                      33.3% 4/05, 33.3% 4/06,      $36,000 @ $.08
Officer                                                      33.3% 4/07
------------------------------- ---------------------------- ---------------------------- ----------------------------
Lisa Dalberth, Chief            225,000                      33.3% 4/05, 33.3% 4/06,      $18,000 @ $.08
Financial Officer                                            33.3% 4/07
------------------------------- ---------------------------- ---------------------------- ----------------------------
Jonathan Farber, VP             225,000                      55.5% 4/05, 22.2% 4/06,      $18,000 @ $.08
Intellectual Property                                        22.3% 4/07
------------------------------- ---------------------------- ---------------------------- ----------------------------
All Other Employees of          325,000                      33.3% 4/05, 33.3% 4/06,      $26,000 @ $.08
Vitalstate                                                   33.3% 4/07
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

Long Term Incentive Plan Awards

We made no long-term incentive plan awards to the named executive officers
during the fiscal year ended December 31, 2004.

Employment Contracts, Termination of Employment,
and Change-in-Control Arrangements

Effective June 1, 2002 we entered into a one-year employment agreement with
Heather Baker pursuant to which we pay Ms. Baker a base annual salary of
CDN$90,000. In May 2003, we extended the term of the agreement through May 31,
2004 and increased Ms. Baker's base annual salary to CDN$300,000. In May 2004,
Ms. Baker became Vice-Chairman of the Board and her salary was decreased to
CDN$200,000.

Effective May 1, 2003 we entered into a three-year employment agreement with
Terry Giles pursuant to which we pay Mr. Giles a base annual salary of
US$200,000. We also agreed to issue an aggregate of 250,000 restricted shares to
Mr. Giles as a signing bonus, 83,333 of which were issued in September 2003. The
remaining bonus shares will be issued in proportional amounts on the first and
second anniversaries of the employment agreement. Mr. Giles also received cash
signing bonus in the amount of $180,500 in 2003. In the event we terminate Mr.
Giles' employment without cause we are obligated to pay Mr. Giles the balance of
his salary due to him for the remainder of the contract. In the event such
termination occurs during the final twelve months of the contract, we are
obligated to pay him his salary for the remainder of the contract plus an
additional twelve months. In the event we terminate Mr. Giles' employment
pursuant to a change in control we are obligated to pay Mr. Giles the equivalent
of two years of his base annual salary. (See "Certain Transactions").

Effective June 1, 2002 we entered into a one-year consulting agreement with
Kleinsult Inc., a corporation wholly owned by James Klein pursuant to which we
pay Mr. Klein a base annual salary of CDN$90,000. In the event Mr. Klein's
employment is terminated by us without case we are obligated to pay Mr. Klein
the equivalent of one year of his base annual salary. In the event Mr. Klein's
employment is terminated pursuant to a change in control of our corporation, we
are obligated to pay Mr. Klein the equivalent of two years of his base annual
salary. (See "Certain Transactions"). In May 2003, we extended the term of the
agreement through May 31, 2004 and increased Mr. Klein's base annual salary to
CDN$202,500. In September 2004, Mr. Klein resigned from the company and received
a ten month consulting agreement with paid healthcare benefits.


                                       17
<PAGE>

Compensation of Directors

For the year ended December 31, 2002, our non-employee directors receive 50,000
stock options per year for serving as directors. The options are exercisable for
shares of our common stock at a price per share equal to the market value for
our common stock on the date of grant. We did not grant options to any of our
directors for the year ended December 31, 2003. During the fiscal year ended
December 31, 2003 there were no other arrangements between us and our directors
that resulted in our making payments to any of our directors for any services
provided to us by them as directors. We did not grant options to any of our
directors for the year ended December 31, 2004. In April 2005, two non-employee
directors received option grants in consideration for support given to the
company.

Report on Repricing of Options/SARs

During the fiscal year ended December 31, 2004 we did not adjust or amend the
exercise price of any stock options or SARs owned by the named executives.

     ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial
ownership of our common stock and Series A Preferred Stock known by us as of
April 4, 2005 by (i) each person or entity known by us to be the beneficial
owner of more than 5% of our common stock or 5% of our Series A Preferred Stock,
(ii) each of our directors, (iii) each of our executive officers, and (iv) all
of our directors and executive officers as a group. The percentages in the table
have been calculated on the basis of treating as outstanding for a particular
person, all shares of our common stock outstanding on such date and all shares
of our common stock issuable to such holder in the event of exercise of
outstanding options, warrants, rights or conversion privileges owned by such
person at said date which are exercisable within 60 days of such date. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse.


                                       18
<PAGE>

<TABLE>
<CAPTION>
------------------------------------ ------------------------------------- ------------------------- ---------------
         Name and Address                                                     Amount and Nature        Percentage
        of Beneficial Owner                     Title of Class             of Beneficial Ownership   of Class (13)
        -------------------                     --------------             -----------------------   -------------
------------------------------------ ------------------------------------- ------------------------- ---------------
<S>                                  <C>                                      <C>                         <C>
Scepter Holdings, Inc. (1)           Common stock, par value $.000333         8,000,000 shares            35.7%
170 Midwest Road                     per share                                Direct
Toronto, Ontario  M1P 3A9
Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
Heather Baker                        Common stock, par value $.000333         1,075,000 shares (2)         4.8%
7 Cedar Avenue                       per share
Pointe-Claire, Quebec  H9S 4X9
Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
3073815 Canada Inc. (5)              Common stock, par value                  1,075,000 shares (2)         4.8%
4625 Dobrin Street                   $.000333 per share                       Direct
St. Laurent, Quebec H4R 2P7 Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
3949559 Canada Inc. (7)              Common stock, par value                  385,001 shares (3)           1.7%
3884 Ernest Savignac                 $.000333 per share                       Direct
Montreal, Quebec  H2M 2M3
Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
Jonathan Farber                      Common stock, par value                  385,001 shares (3)           1.7%
8804 Ernest Savignac                 $.000333 per share                       Indirect
Montreal, Quebec  H2M 2M3
Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
Robert S. Torokvei                   Common stock, par value                  8,000,000 shares (1)        35.7%
170 Midwest Road                     $.000333 per share                       Indirect
Toronto, Ontario  M1P 3A9
Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
Estate of Thomas E. Torokvei         Common stock, par value                  8,000,000 shares (1)        35.7%
170 Midwest Road                     $.000333 per share                       Indirect
Toronto, Ontario  M1P 3A9
Canada
------------------------------------ ------------------------------------- ------------------------- ---------------
Terry Giles                          Common stock, par value                  83,333 shares                .37%
2191 Hampton Avenue                  $.000333 per share                       Direct
Montreal, Quebec H4A 2K5
------------------------------------ ------------------------------------- ------------------------- ---------------
Gilles Cloutier                      Common stock, par value                  100,000 shares               .45%
100 Chestnut Road                    $.000333 per share                       Direct
Chapel Hill, NC 27517
------------------------------------ ------------------------------------- ------------------------- ---------------
All officers and directors as a      Common stock, par value                  9,643,334 shares              43%
    group (6 persons)                $.000333 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
</TABLE>

(1)   Robert Torokvei and the estate of Thomas Torokvei are the beneficial
      owners of Scepter Holdings, Inc. The named individuals own substantially
      all of the securities of Scepter Holdings, Inc. Scepter Holdings, Inc. is
      the owner of 8,000,000 shares.

(2)   Represents shares owned by 3073815 Canada, Inc., a Canadian corporation
      owned by Heather Baker.

(3)   Represents shares owned by 3949559 Canada Inc., a Canadian corporation
      owned by Jonathan Farber.


                                       19
<PAGE>

Changes in Control

      Not Applicable.

             ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Effective June 1, 2002 we entered into a 1-year employment agreement with
Heather Baker for Ms. Baker to serve as president and chief executive officer
for both us and our wholly owned operating subsidiary, Vitalstate Canada Ltd.
Ms. Baker received 100,000 shares of our common stock as a signing bonus under
the agreement. The agreement provided for an initial base annual salary of
CDN$90,000. Ms. Baker is eligible to receive an annual bonus under the agreement
payable in cash or shares of our common stock. In the event Ms. Baker's
employment is terminated by us without cause we are obligated to pay Ms. Baker
the equivalent of her base annual salary. In the event Ms. Baker's employment is
terminated pursuant to a change in control of our corporation, we are obligated
to pay Ms. Baker the equivalent of two years of her base annual salary. In May
2003, the term of the agreement was extended through May 31, 2004 and Ms.
Baker's base annual salary was increased to CDN$300,000. In May 2004, Ms. Baker
became Vice-Chairman of the Board and her salary decreased to CDN$200,000. This
will be paid through May 2005.

Effective June 1, 2002 we entered into a one-year consulting agreement with
Kleinsult Inc., a corporation wholly owned by James Klein. Thereunder, Mr. Klein
serves as secretary, treasurer and chief financial officer for both us and our
wholly owned operating subsidiary, Vitalstate Canada Ltd. The agreement provided
for an initial base salary of CDN$90,000. Mr. Klein is eligible to receive an
annual bonus under the agreement payable in cash or shares of our common stock.
In the event Mr. Klein's employment is terminated by us without case we are
obligated to pay Mr. Klein the equivalent of his base annual salary. In the
event Mr. Klein's employment is terminated pursuant to a change in control of
our corporation, we are obligated to pay Mr. Klein the equivalent of two years
of his base annual salary. In May 2003, the term of the agreement was extended
through May 31, 2004 and Mr. Klein's base annual salary was increased to
CDN$202,500. In September 2004, Mr. Klein resigned from the company and was
given a ten month consulting agreement with paid healthcare benefits.

Effective February 27, 2003 we completed a private offering with a single
investor, Scepter Holdings, Inc., an Ontario corporation. The offering involved
the sale of 4,000,000 units at a price of $.50 per unit. Each unit consisted of
one share of our common stock and a Special Warrant to purchase an additional
share of our common stock at a price of $.50 per share during the one year
period that commenced on February 27, 2003. Exercise of 2,000,000 of the Special
Warrants by the holder is required however, in the event we receive from and
after February 27, 2003 but prior to February 27, 2004, bona fide orders for our
Actijube products from unaffiliated third parties, which orders have a wholesale
selling price in excess of $500,000 in the aggregate. Exercise of the other
2,000,000 Special Warrants by the holder is required, however, upon our
shipment, from and after February 27, 2003 but prior to February 27, 2004, to
unaffiliated third parties, of protein energy/meal replacement bars made by us
or our subsidiaries having a wholesale selling price of at least $200,000 in the
aggregate.

As part of the financing with Scepter Holdings, Inc., we agreed that as long as
Scepter Holdings, Inc. owns a minimum of 5% of our outstanding common stock, it
shall have the right to designate to our board of directors up to the number of
directors, as a percentage of our whole board, as shall be equal to Scepter
Holdings, Inc.'s percentage ownership of our outstanding common stock. This
provision resulted in the appointments of Robert Torokvei and Thomas Torokvei to
our board of directors effective March 4, 2003. Shareholders owning more than
50% of our outstanding common stock have agreed to vote their shares, in all
future board of director elections, in favor of Scepter Holdings, Inc.'s future
designees. In March 2005, Thomas Torokvei passed away, leaving a board vacancy
that will be filled by a designee of Scepter Holdings, Inc.


                                       20
<PAGE>

We also granted Scepter Holdings, Inc. a right of first refusal, while it owns
any shares of our common stock, to purchase additional shares of our common
stock or debt instruments of ours, in the event that we offer to sell common
stock or debt instruments to third parties in the future, in such amounts that
are in proportion to Scepter Holdings, Inc.'s then existing percentage ownership
in our outstanding common stock.

Effective May 1, 2003 we entered into a three year employment agreement with
Terry Giles pursuant to which we pay Mr. Giles a base annual salary of $200,000.
Mr. Giles is also eligible to receive an annual bonus under the agreement
payable in cash or shares of our common stock. (See Item 10. Executive
Compensation Employment Contracts, Termination of Employment, and Change in
Control Arrangements). In June and September of 2003, Mr. Giles received two
$90,250 bonus payments.

On September 9, 2003 we issued 83,333 shares of our common stock to Terry Giles
as a signing bonus under his employment agreement. (See Item 10. Executive
Compensation Employment Contracts, Termination of Employment, and Change in
Control Arrangements).

On December 5, 2003, we issued 2,000,000 shares of our restricted common stock
to Scepter Holdings Inc. in consideration of its exercise of 2,000,000 Special
Warrants at an exercise price of $.50 per share or $1,000,000 on an aggregate
basis.

Effective February 10, 2004 we entered into a Loan Agreement, Security
Agreement, Guaranty Agreement, and Movable Hypothecs with Scepter Holdings, Inc.
pursuant to which Scepter agreed to periodically make loans to us up to an
aggregate principal amount of $2,000,000. All such loans, including all accrued
interest due thereon, are payable on demand and in all events not later than
December 31, 2005. The loans, which are represented by promissory notes, bear
interest at the rate of 8% and are secured by our intellectual property,
accounts receivable and inventory, and the guarantees, accounts receivable and
inventory of our wholly owned subsidiaries, Vitalstate Canada Ltd., and
Vitalstate US Inc.

During 2004, Scepter Holdings, Inc. agreed to fund the company for working
capital and overhead needs in the form of debt. During 2004, Scepter Holdings,
Inc. loaned us $3,400,000 and has secured this investment with all working
capital and intellectual property of the company. Additionally, Scepter
Holdings, Inc. has agreed to loan the company an additional $3,000,000 in 2005.
The total amount of $6,400,000 is due on December 31, 2005 or sooner. The
company will be actively pursuing private placement in order to repay this loan
and operate in future periods.

Such funding amounts have been outlined in Note 6 of the Consolidated Financial
Statements included herein.

                                ITEM 13. EXHIBITS

<TABLE>
<CAPTION>
Financial Statements                                                             Page
--------------------                                                             ----
<S>                                                                              <C>
Report of Independant Registered Public Accounting Firm -
RSM Richter LLP ..............................................................   F-1

Consolidated Balance Sheets as at December 31, 2004 and 2003 .................   F-2

Consolidated Statements of Shareholders' Deficiency for
the years ended December 31, 2004 and December 31, 2003 and for the period
from inception (April 18, 2001) through December 31, 2004 ....................   F-3

Consolidated Statements of Operations and Comprehensive Income for
the years ended December 31, 2004 and December 31, 2003, and for the
period from inception (April 18, 2001) through December 31, 2004 .............   F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2004
and December 31, 2003 and for the
period from inception (April 18, 2001) through December 31, 2004 .............   F-8

Notes to Consolidated Financial Statements ...................................   F-9
</TABLE>


                                       21
<PAGE>

Exhibits

         The following exhibits are included as part of this report:

<TABLE>
<CAPTION>
                  SEC Report
                  Reference
   Exhibit No.      Number                                                  Description
   -----------      ------                                                  -----------
<S>                <C>          <C>
    2.1            2.1          Reorganization Agreement dated March 27, 2002 by and among Registrant, Group
                                Intercapital Inc., Nuvo Way Inc., Heather Baker and the shareholders of Nuvo Way Inc.
                                (1)

    2.2            2.2          Addendum to Reorganization Agreement dated April 3, 2002 by and among Registrant,
                                Group Intercapital Inc., Nuvo Way Inc., Heather Baker and the shareholders of Nuvo
                                Way Inc. (1)

    3.1            3.1(a)       Certificate of Incorporation of Registrant filed August 13, 1996 (2)

    3.2            3.1(b)       Certificate of Amendment to the Certificate of Incorporation filed April 7, 1997 (2)

    3.3            3(i)         Certificate of Amendment to the Certificate of Incorporation filed September 20, 1999
                                (3)

    3.4            3.1          Certificate of Amendment to the Certificate of Incorporation filed November 20, 2000
                                (4)

    3.5                         Certificate of Amendment to the Certificate of Incorporation filed January 29, 2001
                                (5)

    3.6            3.2(e)       Certificate of Amendment to the Certificate of Incorporation filed March 29, 2002 (6)

    3.7            3.2(f)       Certificate of Amendment to the Certificate of Incorporation filed June 5, 2002 (7)

    3.8            3.2          By-Laws of Harmony (2)

    4.1            4            Vitalstate Inc. 2002 Non-Statutory Stock Option Plan (7)
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
                  SEC Report
                  Reference
   Exhibit No.      Number                                                  Description
   -----------      ------                                                  -----------
<S>                <C>          <C>
    4.2            3            Special Warrant dated February 27, 2003 issued by Registrant to Scepter Holdings,
                                Inc. (9)

    10.1           2            Fashion Consultant Agreement dated as of December 7, 1998, by and between Tanner
                                Companies Limited Partnership and Falene R. Gottbetter (2)

    10.2           10.1         Termination of Independent Contractor Relationship Agreement dated April 5, 2002
                                among Registrant, Falene Gottbetter, Roberta Winley and Judy Cohen (7)

    10.3           4            Executive Employment Agreement dated as of June 1, 2002 between Registrant and
                                Heather Baker (8)

    10.4           10.4         Form of Indemnity Agreement between Registrant and its directors  (9)

    10.5           2            Subscription Agreement dated February 27, 2003 between Registrant and Scepter
                                Holdings, Inc. (10)

    10.6           4            Registration Rights Agreement dated February 27, 2003 between Registrant and Scepter
                                Holdings, Inc. (10)

    10.7           10.1         License Agreement dated November 7, 2001 between Vitalstate Canada Ltd. (formerly
                                known as Nuvo Way Inc.) and 9103-3019 Quebec Inc. (11)

    10.8           10.2         Amendment to November 7, 2001 License Agreement dated September 25, 2002 between
                                Vitalstate Canada Ltd. (formerly known as Nuvo Way Inc.) and 9103-3019 Quebec Inc.
                                (11)

    10.9           10.3         Technology Purchase Agreement made as of August 8, 2003 among Vitalstate Canada Ltd.
                                (formerly known as Nuvo Way Inc.), 9103-3019 Quebec Inc., Michael Farber, Jonathan
                                Farber and Registrant (11)

    10.10          10.10        Executive Employment Agreement between Registrant and Terry Giles dated as of May 1, 2003
                                (12)

    10.11          10.2         Executive Employment Agreement between Registrant and Lisa Dalberth dated as of November
                                1, 2004 (13)

    10.12          10 a/b/c     Loan Agreement, Guaranty, and Security Agreement, dated as of February 10, 2004, among
                                Vitalstate, Inc., Vitalstate Canada Ltd., Vitalstate US, Inc. and Scepter Holdings Inc.
                                (14)

    10.13          10 f         Amendment 1 to Loan Agreement, dated as of February 10, 2004, among Vitalstate Inc,
                                Vitalstate Canada Ltd, Vitalstate US, Inc and Scepter Holdings Inc. (15)
</TABLE>


                                       24
<PAGE>

<TABLE>
<CAPTION>
                  SEC Report
                  Reference
   Exhibit No.      Number                                                  Description
   -----------      ------                                                  -----------
<S>                <C>          <C>
    10.14          10.1         Amendment 2 to Loan Agreement, dated as of February 10, 2004, among Vitalstate Inc,
                                Vitalstate Canada Ltd, Vitalstate US, Inc and Scepter Holdings Inc. (13)

    10.15                       Amendment 3 to Loan Agreement, dated as of February 10, 2004, among
                                Vitalstate Inc, Vitalstate Canada Ltd, Vitalstate US, Inc and Scepter Holdings Inc.

    10.16                       Security Agreements dated January 1, 2005, among Vitalstate Inc, Vitalstate Canada Ltd,
                                Vitalstate US, Inc and Scepter Holdings Inc.

    10.17                       Consulting agreement between James Klein and Vitalstate Inc, dated September 18, 2004

    21                              Subsidiaries of Registrant

    31.1                            Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer(6)

    31.2                            Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial Officer(6)

    32.1                            Rule 1350 Certification of Chief Executive Officer(6)

    32.2                            Rule 1350 Certification of Chief Financial Officer(6)
</TABLE>

----------
(1)   Filed with the Securities and Exchange Commission on April 11, 2002 as an
      exhibit numbered as indicated above, to the Registrant's Current Report on
      Form 8-K dated March 27, 2002 which exhibit is incorporated herein by
      reference.

(2)   Filed with the Securities and Exchange Commission on July 22, 1999 as an
      exhibit, numbered as indicated above, to the Registrant's registration
      statement on Form 10-SB, which exhibit is incorporated herein by
      reference.

(3)   Filed with the Securities and Exchange Commission on November 15, 1999 as
      an exhibit, numbered as indicated above, to the Registrant's Quarterly
      Report on Form 10-QSB for the quarterly period ended September 30, 1999,
      which exhibit is incorporated herein by reference.

(4)   Filed with the Securities and Exchange Commission on December 4, 2000 as
      an exhibit, numbered as indicated above, to the Registrant's Current
      Report on Form 8-K dated November 22, 2000, which exhibit is incorporated
      herein by reference.

(5)   Filed with the Securities and Exchange Commission on January 5, 2001 as an
      exhibit to the Registrant's Definitive Information Statement under
      Schedule 14C, which exhibit is incorporated herein by reference.


                                       25
<PAGE>

(6)   Filed with the Securities and Exchange Commission on April 9, 2002 as an
      exhibit, numbered as indicated above, to the Registrant's Annual Report on
      Form 10-KSB for the fiscal year ended December 31, 2001, which exhibit is
      incorporated herein by reference.

(7)   Filed with the Securities and Exchange Commission on June 19, 2002 as an
      exhibit numbered as indicated above, to the Registrant's Registration
      Statement on Form S-8 dated June 19, 2002, which exhibit is incorporated
      herein by reference.

(8)   Filed with the Securities and Exchange Commission on December 3, 2002 as
      an exhibit numbered as indicated above, to the Registrant's Registration
      Statement on Form S-8 dated December 3, 2002, which exhibit is
      incorporated herein by reference.

(9)   Filed with the Securities and Exchange Commission on March 31, 2003 as an
      exhibit numbered as indicated above, to the Registrant's Annual Report on
      Form 10-KSB for the fiscal year ended December 31, 2003, which exhibit is
      incorporated by reference.

(10)  Filed with the Securities and Exchange Commission on March 10, 2003, as an
      exhibit numbered as indicated above, to Schedule 13D, which exhibit is
      incorporated herein by reference.

(11)  Filed with the Securities and Exchange Commission on October 3, 2003 as an
      exhibit numbered as indicated above, to the Registrant's Current Report on
      Form 8-K dated August 8, 2003, which exhibit is incorporated herein by
      reference.

(12)  Filed with the Securities and Exchange Commission on March 22, 2004, as an
      exhibit numbered as indicated above, to the Registrant's Annual Report on
      Form 10-KSB for the fiscal year ended December 31, 2004, which exhibit is
      incorporated by reference.

(13)  Filed with the Securities and Exchange Commission on November 15, 2004, as
      an exhibit numbered as indicated above, to the Registrant's 10-QSB for the
      quarter ended September 30, 2004, which exhibit is incorporated by
      reference.

(14)  Filed with the Securities and Exchange Commission on May 12, 2004, as
      exhibits numbered as indicated above, to the Registrant's 10-QSB for the
      quarter ended March 31, 2004, which exhibits are incorporated by
      reference.

(15)  Filed with the Securities and Exchange Commission on August 13, 2004, as
      an exhibit numbered as indicated above, to the Registrant's 10-QSB for the
      quarter ended June 30, 2004, which exhibit is incorporated by reference.


                                       26
<PAGE>

                 ITEM 14 PRINCIPLE ACCOUNTANT FEES AND SERVICES

Audit Fees

For the fiscal periods ending December 31, 2004 and December 31, 2003, the
company paid RSM Richter LLP $25,000 and $25,000, respectively for the audit of
financial statements for all SEC reporting (i.e., 10K annual filing).

Audit-Related Fees

For the fiscal periods ending December 31, 2004 and December 31, 2003, the
company paid RSM Richter LLP $15,000 and $12,500, respectively for related
services to performance of an audit that are not disclosed under the heading
"Audit Fees" above.

Tax Fees

For the fiscal periods ending December 31, 2004 and December 31, 2003, the
company paid RSM Richter LLP $17,000 and $8,500, respectively for professional
services rendered for tax compliance, tax advice, and tax planning. This is
inclusive of the preparation and filing of all required federal and state tax
reports.

All Other Fees

For the fiscal periods ending December 31, 2004 and December 31, 2003, the
company paid RSM Richter LLP $0 and $0, respectively for professional services
rendered for products and services provided that are not disclosed above.

Other

All policies and procedures as utilized by the company are approved by the Audit
Committee. These polices were reviewed and approved by the Audit committee
during quarterly scheduled board meetings and are reviewed periodically for
update. All principle accounting fees were reviewed and approved by the Audit
Committee and 100% of all fees were paid to RSM Richter LLP during the 2004
fiscal year ending December 31.


                                       27
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.

                                       VITALSTATE, INC.

Dated:  April 15, 2005                 By:   /s/ Terry Giles
                                             -----------------------------------
                                             Terry Giles
                                             President & Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 15 day of April, 2005.

                                     /s/ Heather Baker
                              -------------------------------------------------
                              Heather Baker, Vice-
                                 Chairman of the Board

                                     /s/ Jonathan Farber
                              -------------------------------------------------
                              Jonathan Farber, Director

                                     /s/ Rober J. Torokvei
                              -------------------------------------------------
                              Robert J. Torokvei, Chairman of the Board

                                     /s/ Terry Giles
                              -------------------------------------------------
                              Terry Giles, Director and Chief Executive Officer

                                     /s/ Gilles Cloutier
                              -------------------------------------------------
                              Gilles Cloutier, Director


                                       28
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)

Consolidated Financial Statements
December 31, 2004
(Expressed in U.S. Funds)


<PAGE>


Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Financial Statements
December 31, 2004
(Expressed in U.S. Funds)



Contents


Report of Independent Registered Public Accounting Firm                      F-1

Balance Sheets                                                               F-2

Statements of Shareholders' Deficiency                                 F-3 - F-6

Statements of Operations and Comprehensive Income                            F-7

Statements of Cash Flows                                                     F-8

Notes to Financial Statements                                         F-9 - F-25


<PAGE>


                                     RSM Richter S.E.N.C.R.L.
                                     Comptables agrees
                                     Chartered Accountants
                                     2, Place Alexis Nihon
                                     Montreal (Quebec) H3Z 3C2
                                     Telephone / Telephone : (514) 934-3400
                                     Telecopieur / Facsimile :  (514) 934-3408
                                     www.rsmrichter.com


Report of Independent Registered Public Accounting Firm


To the Shareholders of
Vitalstate, Inc.
   (A Company in the Development Stage)


We have audited the accompanying consolidated balance sheets of Vitalstate, Inc.
(a company in the development stage) as at December 31, 2004 and December 31,
2003 and the related consolidated statements of operations and comprehensive
income, shareholders' deficiency and cash flows for the years ended December 31,
2004, December 31, 2003 and for the period from April 18, 2001 (inception) to
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 2004 and December 31, 2003 and the results of its operations and
its cash flows for the years ended December 31, 2004, December 31, 2003 and for
the period from April 18, 2001 (inception) to December 1, 2004 in conformity
with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in note 2 to the
financial statements, the Company has experienced operating losses that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As discussed in note 3 to the financial statements, the Company changed its
method of accounting for stock-based employee compensation in 2003.


RSM Richter LLP

Chartered Accountants
General Partnership

Montreal, Quebec
January 28, 2005
(Except for note 15, which is
  dated April 13, 2005)


                                      F-1
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Balance Sheets
As At December 31, 2004
(Expressed in U.S. Funds)
<TABLE>
<CAPTION>
                                                                     2004            2003
---------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
Assets
Current
      Cash                                                        $   163,034     $   467,812
      Term deposits                                                        --         107,612
      Accounts receivable (net of allowance for doubtful
        accounts of $Nil (2003 - $Nil))                               264,963         763,783
      Inventories                                                     218,308         382,998
      Deposits and prepaid expenses                                    33,394         344,318
      Investment tax credits receivable                               113,671         110,025
---------------------------------------------------------------------------------------------

                                                                      793,370       2,176,548
Fixed Assets (note 5)                                                 210,870         274,247
Patent and Intellectual Property Rights (net of accumulated
  amortization of $22,710 (2003 - $4,542))                            249,799         267,967
---------------------------------------------------------------------------------------------
                                                                  $ 1,254,039     $ 2,718,762
=============================================================================================
Liabilities
Current
      Accounts payable related parties and accrued liabilities        238,318         699,450
      Loans payable, related parties (note 6)                       3,544,099              --
---------------------------------------------------------------------------------------------
                                                                    3,782,417         699,450
---------------------------------------------------------------------------------------------
Commitments (note 7)
Shareholders' Deficiency

Capital Stock (note 8)                                                  3,735           3,735

Preferred Stock (note 8)                                                   --           1,667

Additional Paid-In Capital                                          7,221,323       6,970,459

Warrants                                                               70,760          37,410

Cumulative Foreign Currency Translation Adjustment                    (28,138)        (28,138)

Deficit Accumulated During the Development Stage                   (9,796,058)     (4,965,821)
---------------------------------------------------------------------------------------------
                                                                   (2,528,378)      2,019,312
---------------------------------------------------------------------------------------------
                                                                  $ 1,254,039     $ 2,718,762
=============================================================================================
</TABLE>

See accompanying notes


                                      F-2
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Statements of Shareholders' Deficiency
For the Year Ended December 31, 2004
(Expressed in U.S. Funds)

<TABLE>
<CAPTION>
                                         Common and Preferred Shares                        Deficit      Cumulative
                                         ---------------------------                      Accumulated      Foreign
                                                                  Additional              during the      Currency         Total
                                                      Stated        Paid-in               Development    Translation   Shareholders'
                                      Number          Value         Capital    Warrants      Stage        Adjustment     Deficiency
------------------------------------------------------------------------------------------------------------------------------------

Balance - April 18, 2001
<S>                                 <C>            <C>            <C>            <C>      <C>             <C>            <C>
(date of inception)                        --      $       --     $       --     $ --     $       --      $       --     $       --

April 18, 2001 - issue of
  common shares                     5,000,000              64             --       --             --              --             64

Foreign currency
  translation adjustment
  for the period April
  18, 2001 to
  December 31, 2001                        --              --             --       --             --           5,212          5,212

Net loss for the period
  April 18, 2001 to
  December 31, 2001                        --              --             --       --       (137,610)             --       (137,610)

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

Balance - December 31, 2001         5,000,000              64             --       --       (137,610)          5,212       (132,334)

April 3, 2002 - eliminate
  shares issued of legal
  subsidiary as per
  reverse takeover
  accounting (note 4)              (5,000,000)             --             --       --             --              --             --

April 3, 2002 - use
  shares issued of legal
  parent as per reverse
  takeover accounting
  (note 4)                          9,380,000              --             --       --             --              --             --

April 3, 2002 - delivery
  and cancellation of
  shares (note 4)                  (2,980,000)             --             --       --             --              --             --

April 3, 2002 - issue of
  common shares for
  acquisition (note 4)              1,666,666              --             --       --             --              --             --

April 3, 2002 - issue of
  preferred shares (note 4)         3,333,334           3,333             --       --             --              --          3,333

April 3, 2002 - issue of
  common shares for
  marketing services and
  royalties (note 4)                  100,000              33         99,967       --             --              --        100,000

</TABLE>


                                      F-3
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Statements of Shareholders' Deficiency
For the Year Ended December 31, 2004
(Expressed in U.S. Funds)

<TABLE>
<CAPTION>
                                         Common and Preferred Shares                      Deficit      Cumulative
                                         ---------------------------                    Accumulated      Foreign
                                                                 Additional              during the      Currency         Total
                                                    Stated        Paid-in               Development    Translation    Shareholders'
                                      Number        Value         Capital    Warrants      Stage        Adjustment     Deficiency
------------------------------------------------------------------------------------------------------------------------------------

<S>                                <C>           <C>            <C>            <C>     <C>             <C>             <C>
April 3, 2002 - assignment of
  receivables as a
  contribution to capital
  (note 4)                                 --    $        --    $   584,615    $ --    $        --     $        --     $   584,615

June 6, 2002 to August 3, 2002 -
  issue and vesting of
  stock options to employees               --             --        132,000      --             --              --         132,000

July 25, 2002 - stock options
  exercised                            15,000              5          5,545      --             --              --           5,550

August 7, 2002 - issue of
  common shares for marketing
  services                             40,000             13         29,987      --             --              --          30,000

September 11, 2002 - issue of
  common shares for legal
  services                            150,000             50         74,950      --             --              --          75,000

October 8, 2002 - issue of
  common shares as settlement
  of loan payable                      48,127             16         17,984      --             --              --          18,000

October 10, 2002 - issue of
  stock options to
  non-employees                            --             --        117,500      --             --              --         117,500

October 22, 2002 - stock
  options exercised                    10,000              3          3,697      --             --              --           3,700

November 8, 2002 - issue of
  common shares for private
  placement                         1,800,000            599        899,401      --             --              --         900,000

December 9, 2002 - issue of
  common shares due to a
  director                            100,000             33         47,967      --             --              --          48,000

Foreign currency translation
  adjustment for the year
  ended December 31, 2002                  --             --             --      --             --         (57,354)        (57,354)

Net loss for the year ended
  December 31, 2002                        --             --             --      --     (1,793,179)             --      (1,793,179)

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

Balance - December 31, 2002        13,663,127    $     4,149    $ 2,013,613    $-      $(1,930,789)    $   (52,142)    $    34,831
</TABLE>


                                      F-4
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Statements of Shareholders' Deficiency
For the Year Ended December 31, 2004
(Expressed in U.S. Funds)


<TABLE>
<CAPTION>
                                         Common and Preferred Shares                      Deficit      Cumulative
                                         ---------------------------                    Accumulated      Foreign
                                                                 Additional              during the      Currency         Total
                                                    Stated        Paid-in               Development    Translation    Shareholders'
                                      Number        Value         Capital    Warrants      Stage        Adjustment     Deficiency
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>             <C>           <C>         <C>           <C>            <C>
February 28, 2003 - issue
  of common shares                4,000,000   $     1,332     $ 1,998,668   $       --  $        --   $         --   $  2,000,000
March 13, 2003 -  issue of
  common shares                     500,000           167         249,833           --           --             --        250,000
April 3, 2003 - redemption
  of preferred shares
  (note 4)                       (1,666,667)       (1,666)             --           --           --             --         (1,666)
April 3, 2003 - issue of
  common shares for
  acquisition of
  April 3, 2002 (note 4)          1,666,667            --              --           --           --             --             --
April 14, 2003 - stock
  options exercised                  15,000             5           5,545           --           --             --          5,550
May 13, 2003 - issue of
  common shares related to
  exercise of warrants            2,000,000           666         999,334           --           --             --      1,000,000
May 15, 2003 - stock
  options exercised                  25,000             8           9,242           --           --             --          9,250
August 8, 2003 - issue of
  warrants for acquisition
  of intellectual property               --            --              --       37,410           --             --         37,410
August 21, 2003 - issue of
  stock options to
  non-employees                          --            --          36,938           --           --             --         36,938
September 9, 2003 - issue
  of common shares for
  signing bonuses                   137,499            46          82,454           --           --             --         82,500
October 30, 2003 - issue of
  common shares for
  consulting services                88,235            29          61,736           --           --             --         61,765
December 5, 2003 - issue of
  common shares related to
  exercise of warrants            2,000,000           666         999,334           --           --             --      1,000,000
Change in accounting policy
  - stock based
  compensation (note 3)                  --            --         513,762      250,864           --             --        513,762
Foreign currency
  translation adjustment
  for the year ended
  December 31, 2003                      --            --              --           --           --         24,004         24,004
Net loss for the year ended
  December 31, 2003                      --            --              --           --   (3,035,032)            --     (3,035,032)
------------------------------------------------------------------------------------------------------------------------------------

Balance - December 31, 2003       22,428,861  $     5,402     $ 6,970,459  $    37,410  $(4,965,821)  $    (28,138)   $ 2,019,312
</TABLE>


                                      F-5
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Statements of Shareholders' Deficiency
For the Year Ended December 31, 2004
(Expressed in U.S. Funds)

<TABLE>
<CAPTION>
                                         Common and Preferred Shares                      Deficit        Cumulative
                                         ---------------------------                    Accumulated       Foreign
                                                                 Additional               during the      Currency         Total
                                                    Stated        Paid-in                 Development    Translation   Shareholders'
                                      Number        Value         Capital     Warrants      Stage         Adjustment     Deficiency
------------------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>           <C>          <C>           <C>          <C>            <C>            <C>
April 3, 2004 - redemption
  of preferred shares (note 4)      (1,666,667)   $  (1,667)   $        --   $       --   $        --    $        --    $    (1,667)

April 3, 2004 - issue of common
  shares for acquisition of
  April 3, 2002 (note 4)             1,666,667           --             --           --            --             --             --

May 7, 2004 - issue of warrants
  as consideration for legal
  settlement                                --           --             --       33,350            --             --         33,350

Stock-based compensation expense
  for the year ended                        --           --        250,864           --            --             --        250,864
  December 31, 2004

Net loss for the year ended
  December 31, 2004                         --           --             --           --    (4,830,237)            --     (4,830,237)
------------------------------------------------------------------------------------------------------------------------------------

Balance - December 31, 2004         22,428,861    $   3,735    $ 7,221,323   $   70,760   $(9,796,058)   $   (28,138)   $(1,557,648)
====================================================================================================================================
</TABLE>

See accompanying notes


                                      F-6
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2004
(Expressed in U.S. Funds)

<TABLE>
<CAPTION>
                                                                                           From Inception
                                                                                          (April 18, 2001)
                                                                                                  to
                                                           2004              2003        December 31, 2004
----------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>                <C>
Revenue

      Sales                                            $    282,036       $    791,036       $  1,073,072
      Contract cancellation (note 11)                            --            787,500            787,500
----------------------------------------------------------------------------------------------------------
                                                            282,036          1,578,536          1,860,572
----------------------------------------------------------------------------------------------------------

Expenses

      Cost of sales                                         745,491            374,780          1,120,271
      Research and development                              360,737            522,968          1,175,841
      Office and administration                             219,871            116,364            508,241
      Travel                                                 58,566            125,157            277,505
      Computer                                               11,791             10,490             28,124
      Consulting                                                 --             61,765            195,333
      Donations                                                  --                 --                129
      Insurance                                             128,338             26,873            159,503
      Marketing                                             705,039            172,842          1,199,185
      Rent                                                  144,436             83,039            242,165
      Salaries                                            1,360,947          1,341,755          3,071,283
      Professional fees                                     539,266          1,141,250          1,956,580
      Investor relations                                     40,119             31,704            112,234
      Interest and bank charges                             152,059             11,952            175,118
      Amortization and depreciation                         101,594             78,867            208,107
      Foreign exchange                                        9,805                 --              9,805
      Write-down of goodwill                                     --                 --             37,230
      Stock-based compensation expense                      250,864            513,762            896,626
      Legal settlement                                      283,350                 --            283,350
----------------------------------------------------------------------------------------------------------
                                                          5,112,273          4,613,568         11,656,630
----------------------------------------------------------------------------------------------------------
Net Loss                                                 (4,830,237)        (3,035,032)        (9,796,058)

Foreign currency translation adjustment                          --             24,004            (28,138)
----------------------------------------------------------------------------------------------------------
Comprehensive Income                                   $ (4,830,237)      $ (3,011,028)      $  9,824,196
==========================================================================================================
Basic Weighted Average Number of Shares Outstanding      22,428,861         18,939,671         14,875,055

----------------------------------------------------------------------------------------------------------
Basic and Diluted Loss Per Common Share (note 11)      $      (0.22)      $      (0.16)      $      (0.66)
==========================================================================================================
</TABLE>

See accompanying notes


                                      F-7
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Consolidated Statements of Cash Flows
For the Year Ended December 31, 2004
(Expressed in U.S. Funds)

<TABLE>
<CAPTION>
                                                                                                 From Inception
                                                                                                (April 18, 2001)
                                                                                                       to
                                                                     2004            2003       December 31, 2004
-----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>              <C>
Funds Provided (Used) -

    Operating Activities

        Net loss                                                  $(4,830,237)     $(3,035,032)     $(9,796,058)
        Amortization and depreciation                                 101,594           78,867          208,107
        Write-down of goodwill                                             --               --           37,230
        Stock-based compensation expense                              250,864          513,762          896,626
        Issue of stock options to non-employees                            --           36,938          154,438
        Issue of common shares for marketing and consulting
         services, royalties, legal fees and signing bonuses               --          144,265          349,265
        Issue of warrants for legal settlement                         33,350               --           33,350
        Foreign currency translation adjustment                            --           24,004          (28,138)
-----------------------------------------------------------------------------------------------------------------
                                                                   (4,444,429)      (2,237,196)      (8,145,180)
        Changes in non-cash operating elements
         of working capital (note 12)                                 509,656         (859,790)        (363,248)
-----------------------------------------------------------------------------------------------------------------
                                                                   (3,934,773)      (3,096,986)      (8,508,428)
-----------------------------------------------------------------------------------------------------------------

    Financing Activities

        Loans payable                                               3,544,099         (172,402)       4,128,714
        Issue of capital stock                                             --        4,264,800        5,177,447
        Redemption of preferred shares                                 (1,667)          (1,666)          (3,333)
-----------------------------------------------------------------------------------------------------------------
                                                                    3,542,432        4,090,732        9,302,828
-----------------------------------------------------------------------------------------------------------------

    Investing Activities

        Term deposits                                                 107,612         (107,612)              --
        Additions to fixed assets                                     (20,049)        (203,873)        (396,267)
        Acquisition of patent and intellectual property rights             --         (235,099)        (235,099)
-----------------------------------------------------------------------------------------------------------------
                                                                       87,563         (546,584)        (631,366)
-----------------------------------------------------------------------------------------------------------------

Increase (Decrease) in Cash                                          (304,778)         447,162          163,034

Cash
    Beginning of Period                                               467,812           20,650               --
-----------------------------------------------------------------------------------------------------------------
    End of Period                                                 $   163,034      $   467,812      $   163,034
=================================================================================================================
</TABLE>

See accompanying notes


                                      F-8
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)



1.    Financial Statements Presentation

      Vitalstate, Inc. (the "Company") is based in Boynton Beach, Florida and
      Montreal, Canada and is dedicated to the development, production and sales
      of nutritional supplements. It has identified opportunities to
      de-commoditize nutritional supplements and render therapeutic ingredients
      more accessible. In addition, the Company has developed proprietary,
      patent-pending technology that allows active ingredients to be easier to
      use, mix and absorb more effectively. Although there can be no assurance
      that patents will ever be issued, management feels the likelihood of
      issuance is probable due to the positive test results attained in clinical
      studies.

      The Company's initial objective is to target health and fitness consumers
      that demand higher performance and higher quality energy, vitamin,
      weight-loss and supplement products.

      Although the Company has begun development and commenced selling its
      products, there can be no assurance that it will be able to continue to
      sell, license or market its products to third parties to generate
      sufficient recurring revenues to pay its operating costs and complete the
      development of its products.

      The Company is a development stage enterprise as defined by Financial
      Accounting Standards Board (FASB) Statements of Financial Accounting
      Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage
      Enterprises". The Company's main activities to date have been its
      formation, raising capital and the development and marketing of its
      products. Because the Company is in the development stage, the
      accompanying consolidated financial statements should not be regarded as
      typical for normal operating periods.

      Vitalstate, Inc. prepares its consolidated financial statements in
      accordance with generally accepted accounting principles in the United
      States. This basis of accounting involves the application of accrual
      accounting and consequently, revenues and gains are recognized when
      earned, and expenses and losses are recognized when incurred.

      The consolidated financial statements include the accounts of Vitalstate,
      Inc. and its legal subsidiaries, Vitalstate Canada Ltd. and Vitalstate US
      Inc. All intercompany transactions and balances have been eliminated.

      On June 5, 2002, the Company changed its name from Harmony Trading Corp.
      to Vitalstate, Inc.

      The financial statements are expressed in U.S. funds.


                                      F-9
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)



2.    Going Concern

      The accompanying financial statements have been prepared assuming the
      Company will continue as a going concern. The Company has reported a net
      loss of $9,796,058 from inception (April 18, 2001) to December 31, 2004.
      As reported on the statement of cash flows, the Company has reported
      deficient cash flows from operating activities of $8,508,428 from
      inception to December 31, 2004. To date, these losses and cash flow
      deficiencies have been financed principally through the raising of capital
      and issue of common shares and from loans payable to a shareholder.
      Additional capital and/or borrowings will be necessary in order for the
      Company to continue in existence until attaining and sustaining profitable
      operations. Should the Company be unable to continue as a going concern,
      it may be unable to realize the carrying value of its assets and to meet
      its obligations as they become due.

      Management has continued to develop a strategic plan to develop a
      management team, maintain reporting compliance and establish long-term
      relationships with other major organizations to develop and distribute its
      products. The major shareholders of the Company have indicated commitment
      to fund the operations of the Company during the next year with an
      additional loan of up to $3,000,000 until the Company can generate
      sufficient cash flow from operations to meet current operating expenses
      and overhead.


3.    Summary of Significant Accounting Policies

      Use of Estimates

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States requires management to
      make estimates and assumptions that affect the reported amounts of assets
      and liabilities, disclosure of contingent assets and liabilities at the
      date of the financial statements, and the reported amounts of revenues and
      expenses during the reporting period. The consolidated financial
      statements include estimates based on currently available information and
      management's judgement as to the outcome of future conditions and
      circumstances.

      Changes in the status of certain facts or circumstances could result in
      material changes to the estimates used in the preparation of financial
      statements and actual results could differ from the estimates and
      assumptions.

      Revenue Recognition

      The Company's policy is to recognize revenues from product sales when
      earned. Specifically, revenue is recognized when persuasive evidence of an
      arrangement exists, delivery has occurred, the price is fixed or
      determinable, and collectibility is reasonably assured. Revenue is not
      recognized until title and risk of loss have transferred to the customer,
      which is upon delivery of products. Provisions for returns are made for at
      the time the related sales are recorded, and are reflected as a reduction
      of sales.


                                      F-10
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


3.    Summary of Significant Accounting Policies (Cont'd)

      Accounts Receivable

      The Company accounts for trade receivables at original invoice amount less
      an estimate made for doubtful receivables based on a review of all
      outstanding amounts on a monthly basis. Management determines the
      allowance for doubtful accounts by regularly evaluating individual
      customer receivables and considering a customer's financial condition,
      credit history and current economic conditions. The Company writes off
      trade receivables when they are deemed uncollectible. The Company records
      recoveries of trade receivables previously written-off when they receive
      them. The Company considers a trade receivable to be past due if any
      portion of the receivable balance is outstanding for more than 90 days.
      Management considers the reserve for doubtful accounts of $Nil to be
      adequate to cover any exposure to loss in its December 31, 2004 accounts
      receivable.

      Fair Value of Financial Instruments

      The carrying amounts of cash, accounts receivable, and accounts payable
      and accrued liabilities approximate their fair values because of the
      short-term nature of these instruments.

      It is not practical to determine the fair value of the loans payable due
      to their related party nature and the absence of a market for such
      instruments.

      Impairment of Long-Lived Assets

      Long-lived assets held and used by the Company are reviewed for possible
      impairment whenever events or changes in circumstances indicate the
      carrying amount of an asset may not be recoverable. Recoverability of
      assets to be held and used is measured by a comparison of the carrying
      amount of the assets to the estimated undiscounted cash flows expected to
      be generated by the asset. If such assets are considered to be impaired,
      the impairment to be recognized is measured by the amount by which the
      carrying amount of the asset exceeds the fair value thereof.

      Cash and Cash Equivalents

      The Company considers all highly liquid investments with original
      maturities of ninety days or less to be cash and cash equivalents. Highly
      liquid investments are valued at quoted market prices.

      Valuation of Inventories

      Inventories are stated at the lower of cost (first-in, first-out method)
      or market value and consist entirely of finished goods.


                                      F-11
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


3.    Summary of Significant Accounting Policies (Cont'd)

      Amortization and Depreciation

      On the declining balance method -

         Computer hardware                             30%
         Computer software                             30%
         Furniture and fixtures                        20%
         Laboratory and production equipment           30%

      On the straight-line method -

         Leasehold improvements                        over the lease term
         Domain names                                  over 3 years

      Investment Tax Credits

      Refundable investment tax credits relating to qualifying expenditures are
      accounted for by the cost reduction method, whereby the amount of tax
      credits are accounted for as a receivable and are applied as a reduction
      of the cost of the related expenditures. During the year, investment tax
      credits of approximately $61,000 were applied as a reduction of research
      and development expenses.

      Patent and Intellectual Property Rights

      Patent and intellectual property rights have a finite life and are
      recorded at cost less accumulated amortization. Amortization is determined
      using the straight-line method over 15 years.

      Patents and intellectual property rights are reviewed for impairment
      whenever events or circumstances indicate that the carrying amount of the
      asset may not be recoverable. Impairment is assessed by comparing the
      carrying amount of the asset with the expected future net undiscounted
      cash flows from its regular use. If the asset is considered to be
      impaired, the impairment to be recognized is measured by the amount by
      which the carrying amount of the asset exceeds its fair value.

      Goodwill

      Goodwill represents the excess of the purchase price over the fair value
      of the net assets acquired. A goodwill impairment loss is recognized when
      the carrying amount of a reporting unit exceeds its fair value. On an
      annual basis, management reviews the carrying amount of goodwill for
      possible permanent impairment. The goodwill is recorded in accordance with
      the Statements of Financial Accounting Standards No.141 and No.142.

      In 2002, the balance of goodwill of $37,230 was written-off.


                                      F-12
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


3.    Summary of Significant Accounting Policies (Cont'd)

      Foreign Currency Translation

      The Company's reporting currency is the U.S. dollar. From inception (April
      18, 2001) to June 30, 2003, the Company's functional currency was the
      Canadian dollar. As of July 1, 2003, the Company's functional currency
      became the U.S. dollar and, at all times, reporting of financial
      statements has been in U.S. dollars. Prior to July 1, 2003, the financial
      statements were translated into U.S. dollars in accordance with Statements
      of Financial Accounting Standards No. 52, "Foreign Currency Translation".
      Asset and liability accounts were translated at the rate of exchange
      prevailing at the balance sheet date. Shareholders' equity accounts were
      translated at the applicable historical rate. Revenue and expense accounts
      were translated at the average rate of exchange for the period. The
      cumulative foreign currency translation adjustment was reported as a
      component of shareholders' equity. The change in the cumulative foreign
      currency translation adjustment in the prior periods was primarily due to
      fluctuations in the exchange rates between the Company's reporting
      currency and the Canadian dollar.

      During the current period, accounts in foreign currencies have been
      translated as follows:

            Monetary items - at exchange rates in effect at the balance sheet
            date;

            Non-monetary items - at exchange rates in effect on the dates of the
            transactions;

            Revenue and expenses - at average exchange rates prevailing during
            the year, except for inventories and amortization which are
            translated at rates prevailing when the assets were acquired.

      Gains and losses arising from foreign currency translation are included in
      income.

      Stock-Based Compensation

      In 2002, the Company used the intrinsic-value method prescribed in APB No.
      25 "Accounting for Stock Issued to Employees" to account for employee
      stock options. Under the intrinsic method, compensation cost for stock
      options was measured as the excess, if any, of the quoted market price of
      the Company's stock at the date of the grant over the amount an employee
      paid to acquire the stock.

      The Company uses the provisions under SFAS No. 123, "Accounting for
      Stock-Based Compensation" to account for equity instruments granted to
      non-employees in payment of services rendered. Such services are accounted
      for based on the fair value of the consideration received or the fair
      value of the equity instruments issued, whichever is more reliably
      measurable.


                                      F-13
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


3.    Summary of Significant Accounting Policies (Cont'd)

      In December 2002, the Financial Accounting Standards Board (FASB) issued
      SFAS NO. 148, "Accounting for Stock-Based Compensation - Transition and
      Disclosure". SFAS NO. 148 amends SFAS No. 123 to provide alternative
      methods of transition for an entity that voluntarily changes to the fair
      value method of accounting which under SFAS No. 123 measures compensation
      based on the fair value of the award at the grant date and recognized over
      the service period. The Company elected to use the modified prospective
      method of transition. Under this method, stock-based employee compensation
      cost was recognized from the beginning of 2003 as if the fair value method
      of accounting had been used to account for all employee awards granted,
      modified, or settled from inception on April 18, 2001. Piror period
      financial statements were not restated.

      The fair value of the options is estimated at the date of grant using the
      Black-Scholes option pricing model. The Black-Scholes option valuation
      model was developed for use in estimating the fair value of traded options
      which have no vesting restrictions and are fully transferable. In
      addition, option valuation models require the input of highly subjective
      assumptions including the expected stock price volatility. Because the
      Company's options and rights have characteristics significantly different
      from those of traded options, and because changes in the subjective input
      assumptions can materially affect the fair value estimate, in management's
      opinion, the existing models do not necessarily provide a reliable single
      measure of the fair value of its employees' stock options and rights.

      Assumptions used in Black-Scholes options pricing model:

                                              2004          2003          2002
--------------------------------------------------------------------------------
Expected dividend yield                            0.00%       0.00%       0.00%
Expected volatility                              109.19      109.19      117.00
Risk-free interest rate                            3.63        3.63        3.85
Expected life (years)                              2.98        2.98        3.20
--------------------------------------------------------------------------------

      The grant-date fair value of options granted from inception is as follows:

         For options with an exercise price less
           than the market price of the stock on
           grant date                                $  1.24   $  1.24   $  1.24
         For options with an exercise price equal
            to the market price of the stock on
            grant date                                  0.47      0.47      0.47
         For options with an exercise price greater
            than the market price of the stock
            on grant date                               0.17      0.17        --

      In 2002, the Company recorded a stock-based compensation expense under the
      intrinsic method in the amount of $132,000.


                                      F-14
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


3.    Summary of Significant Accounting Policies (Cont'd)

      The following outlines the impact if the December 31, 2002 compensation
      cost for all the Company stock options was determined under the fair-value
      based method using the Black-Scholes option pricing model:

--------------------------------------------------------------------------------
Net loss, as reported                                              $ (1,850,533)
Pro forma impact                                                       (212,600)
--------------------------------------------------------------------------------
Pro Forma Net Loss                                                 $ (2,063,133)
--------------------------------------------------------------------------------
Pro Forma Basic Loss Per Share                                     $      (0.20)
--------------------------------------------------------------------------------
Basic Loss Per Share As Reported                                   $      (0.18)
--------------------------------------------------------------------------------

      New Accounting Pronouncements

      In November 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement No. 151 (SFAS 151), "Inventory Costs an amendment of ARP No. 43,
      Chapter 4". This Statement amends ARB 43, Chapter 4, to clarify that
      abnormal amounts of idle facility expense, freight, handling costs, and
      wasted materials (spoilage) should be recognized as current-period
      charges. In addition, this Statement requires that allocation of fixed
      production overheads to the costs of conversion be based on the normal
      capacity of production facilities. The adoption of SFAS 151 is not
      expected to have a material impact on the results of operations or
      financial condition.

      In December 2004, the Financial Accounting Standards Board ("FASB")
      revised Statement 123 (SFAS 123), "Accounting for Stock-Based
      Compensation". The Statement supersedes APB Opinion No. 25, "Accounting
      for Stock Issued to Employees", and its related implementation guidance.
      This Statement requires a public entity to measure the cost of employee
      services received in exchange for an award of equity instruments based on
      the grant-date fair value of the award (with limited expectations). That
      cost will be recognized over the period during which an employee is
      required to provide service in exchange for the award - the requisite
      service period (usually the vesting period). A public entity will
      initially measure the cost of employee services received in exchange for
      an award of liability instruments based on its current fair value; the
      fair value of that award will be remeasured subsequently at each reporting
      date through the settlement date. Changes in fair value during the
      requisite service period will be recognized as compensation cost over that
      period. The provisions of this Statement shall be effective for public
      entities that file as small business issuers as of the beginning of the
      first interim or annual reporting period that begins after December 15,
      2005. The Company is currently evaluating the impact of this statement on
      its financial statements.


                                      F-15
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


3.    Summary of Significant Accounting Policies (Cont'd)

      In December, 2004, the Financial Accounting Standards Board ("FASB")
      issued Statement No. 153 (SFAS 153), "Exchanges in Nonmonetary Assets - an
      amendment of APB Opinion No. 29". The guidance in APB Opinion 29,
      "Accounting for Nonmonetary Transactions", is based on the principle that
      exchanges of nonmonetary assets should be measured based on the fair value
      of the assets exchanged. The guidance in that Opinion, however, included
      certain exceptions to that principle. This Statement amends Opinion 29 to
      eliminate the exception for nonmonetary exchanges of similar productive
      assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. A nonmonetary
      exchange has commercial substance of the future cash flows of the entity
      are expected to change significantly as a result of the exchange. The
      provisions of the Statement shall be effective for nonmonetary asset
      exchanges occurring in fiscal periods beginning after June 15, 2005. The
      adoption of SFAS 153 is not expected to have a material impact on the
      results of operations or financial condition.

4.    Business Acquisition

      On April 3, 2002, the Company (formerly Harmony Trading Corp.), a New York
      corporation, acquired all of the issued and outstanding capital stock of
      Vitalstate Canada Ltd. (formerly Nuvo Way Inc.), making Vitalstate Canada
      Ltd. a wholly-owned subsidiary of the Company, in exchange for 5,000,000
      shares of the Company's $0.000333 par value restricted common stock.
      1,666,666 shares of the Company's common stock were delivered to the
      shareholders of Vitalstate Canada Ltd. on April 3, 2002 (the "Closing
      Date"), the closing date under this reorganization agreement. 1,666,667
      shares of the Company's common stock were issued to the shareholders of
      Vitalstate Canada Ltd. on the first anniversary of the Closing Date and
      1,666,667 shares of the Company's common stock were issued to the
      shareholders of Vitalstate Canada Ltd. on the second anniversary of the
      Closing Date. On the Closing Date, the shareholders of Vitalstate Canada
      Ltd. also purchased an aggregate of 3,333,334 shares of Series A Preferred
      Stock. The Series A Preferred Stock rank pari passu with the common stock
      with respect to voting, dividend and liquidation rights and was
      automatically redeemed (at the par value) on a one-for-one basis with, and
      at the time of issuance of, the Company's common stock issued on the first
      and second anniversaries of the Closing Date.

      This business acquisition was accounted for using the reverse takeover
      accounting principles as follows:

            i)    the consolidated financial statements of the combined entities
                  are issued under the name of the legal parent (Vitalstate,
                  Inc.) but are considered a continuation of the financial
                  statements of the legal subsidiary (Vitalstate Canada Ltd.);

            ii)   as Vitalstate Canada Ltd. was deemed to be the acquirer, its
                  assets and liabilities are included in the consolidated
                  financial statements at their historical carrying value in the
                  accounts of Vitalstate, Inc.;

            iii)  Vitalstate, Inc. was deemed to be acquired by Vitalstate
                  Canada Ltd. for a consideration of $1 and this was ascribed to
                  the 9,380,000 outstanding common shares prior to the
                  acquisition;

            iv)   the number of shares outstanding for the periods prior to the
                  reverse takeover was deemed to be the number of shares issued
                  by Vitalstate, Inc. to conclude the business acquisition.


                                      F-16
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


4.    Business Acquisition (Cont'd)

      The accounting for the business combination can be summarized as follows:
      --------------------------------------------------------------------------

      Deemed consideration                                          $      1
      Assigned value of the net assets, consisting
      primarily of accounts payable, of Vitalstate, Inc.             (37,229)
      --------------------------------------------------------------------------

      Excess of deemed consideration over the tangible
      net assets - allocated to goodwill                            $ 37,230
      --------------------------------------------------------------------------

      In connection with this business acquisition, the following transactions
      also occurred on April 3, 2002:

            i)    Group Intercapital Inc., a Canadian corporation, delivered
                  2,980,000 of the 5,205,000 common shares of the Company owned
                  by it to the Company for cancellation;

            ii)   Holders of receivables from Vitalstate Canada Ltd. assigned
                  these receivables, totalling $584,615, to the Company which
                  treated the assignment as a contribution to capital;

            iii)  The Company issued 100,000 common shares in settlement of
                  marketing services of $40,000 and royalties of $60,000.


5.    Fixed Assets

<TABLE>
<CAPTION>
                                                                 Accumulated            2004
                                                                 Amortization       Net Carrying
                                                    Cost       and Depreciation        Amount
      ------------------------------------------------------------------------------------------
      <S>                                       <C>               <C>               <C>
      Computer hardware                         $   107,825       $   52,675        $   55,150
      Computer software                              83,069           45,085            37,984
      Furniture and fixtures                         84,524           28,776            55,748
      Laboratory and production equipment            57,086           26,471            30,615
      Leasehold improvements                         58,957           31,222            27,735
      Domain names                                    9,305            5,667             3,638
      ------------------------------------------------------------------------------------------
                                                $   400,766       $  189,896        $  210,870
      ------------------------------------------------------------------------------------------
</TABLE>


                                      F-17
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


5.    Fixed Assets (Cont'd)

<TABLE>
<CAPTION>
                                                                  Accumulated          2003
                                                                 Amortization       Net Carrying
                                                    Cost       and Depreciation        Amount
      ------------------------------------------------------------------------------------------
      <S>                                       <C>               <C>               <C>
      Computer hardware                         $   108,426       $   28,911        $   79,515
      Computer software                              79,922           29,481            50,441
      Furniture and fixtures                         75,764           15,350            60,414
      Laboratory and production equipment            53,664           14,084            39,580
      Leasehold improvements                         54,086           16,060            38,026
      Domain names                                    8,855            2,584             6,271
      ------------------------------------------------------------------------------------------
                                                $   380,717       $  106,470        $  274,247
      ------------------------------------------------------------------------------------------
</TABLE>

6.    Loans Payable, Related Parties

      The Company borrowed from a shareholder the following amounts:

      --------------------------------------------------------------------------
      February 10, 2004                                             $    200,000
      March 2, 2004                                                      800,000
      April 14, 2004                                                     400,000
      May 11, 2004                                                       300,000
      June 10, 2004                                                      100,000
      July 22, 2004                                                      200,000
      August 26, 2004                                                    300,000
      October 21, 2004                                                 1,100,000
      --------------------------------------------------------------------------
                                                                       3,400,000

      Accrued interest                                                   144,099
      --------------------------------------------------------------------------
                                                                    $  3,544,099

      The loans, bearing interest at 8% per annum, are due on demand no later
      than December 2005. As security for the loans, the Company has pledged its
      current assets and its intellectual property.

      On January 1, 2005, the Company borrowed an additional $500,000 from the
      shareholder under the same terms and conditions.


                                      F-18
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


7.    Commitments

      The minimum rental, exclusive of occupancy charges, payable under the
      leases for the Company's premises, which terminate in April 2008, is as
      follows:

      2005                                      $    146,000
      2006                                           152,000
      2007                                           155,000
      2008                                            50,000

      For the year ended December 31, 2004, the total rent expense amounted to
      approximately $144,000 (2003 _ $83,000; 2002 _ $7,000).


8.    Capital Stock
<TABLE>
<CAPTION>

                                                                                      2004              2003
-------------------------------------------------------------------------------------------------------------

<S>                                                                                 <C>              <C>
      Authorized -

         1,666,666    preferred shares of $0.001 par value
         3,333,334    redeemable (at the par value), voting Series A preferred
                       shares of $0.001 par value, ranking
                       pari passu with the common shares
       200,000,000    common shares of $0.000333 par value

      Issued and outstanding -

               Nil    (2003 - 1,666,667) Series A preferred shares                  $     --         $   1,667
        22,428,861    (2003 - 20,762,194) common shares                                3,735             3,735
-------------------------------------------------------------------------------------------------------------
                                                                                    $  3,735         $   5,402
-------------------------------------------------------------------------------------------------------------
</TABLE>

      On April 18, 2001, the Company (formerly Nuvo Way Inc.) issued 10,000
      common shares for cash consideration of $64.

      On March 19, 2002, the Company's (formerly Nuvo Way Inc.) common shares
      split on a 500 to 1 basis.

      On April 3, 2002, the Company received for cancellation 2,980,000 common
      shares as described in note 4.

      On April 3, 2002, the Company issued 1,666,666 common shares in exchange
      for 5,000,000 common shares of Vitalstate Canada Ltd. as described in note
      4.


                                      F-19
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


8.    Capital Stock (Cont'd)

      On April 3, 2002, the Company issued 3,333,334 Series A preferred shares
      at a price of $0.001 per share as described in note 4.

      On April 3, 2002, the Company issued 100,000 common shares in settlement
      of marketing services of $40,000 and royalties of $60,000 as described in
      note 4. The Company's shares at that date were trading on the OTC Bulletin
      Board at $1.15 per share. The transaction for marketing services was with
      third parties and the transaction for royalties was with a shareholder.

      On July 25, 2002, the Company issued 15,000 common shares upon the
      exercise of 15,000 stock options for an aggregate exercise price of
      $5,550.

      On August 7, 2002, the Company issued 40,000 common shares in settlement
      of marketing services. The Company's shares at that date were trading on
      the OTC Bulletin Board at $0.75 per share.

      On September 11, 2002, the Company issued 150,000 common shares in
      settlement of legal services. The Company's shares at that date were
      trading on the OTC Bulletin Board at $0.50 per share.

      On October 8, 2002, the Company issued 48,127 common shares as settlement
      of a loan payable of $18,000. The Company's shares at that date were
      trading on the OTC Bulletin Board at $0.55 per share.

      On October 22, 2002, the Company issued 10,000 common shares upon the
      exercise of 10,000 stock options for an aggregate exercise price of
      $3,700.

      On November 8, 2002, the Company issued 1,800,000 common shares at $0.50
      per share as part of a Private Placement. The Company's shares at that
      date were trading on the OTC Bulletin Board at $0.75 per share.

      On December 9, 2002, the Company issued 100,000 common shares due to a
      director which had previously been accounted for as a bonus payable of
      $48,000. The Company's shares at that date were trading on the OTC
      Bulletin Board at $1.18 per share.

      On February 28, 2003, the Company issued 4,000,000 shares at $0.50 per
      share as part of an equity financing. The Company's shares at that date
      were trading on the OTC Bulletin Board at $0.80 per share.

      On March 13, 2003, the Company issued 500,000 shares at $0.50 per share as
      part of a debt conversion. The Company's shares at that date were trading
      on the OTC Bulletin Board at $0.80 per share.

      On April 3, 2003, the Company redeemed 1,666,667 Series A preferred shares
      for cash consideration of $1,667 and subsequently issued 1,666,667 common
      shares as part of an acquisition on April 3, 2002, as described in note 4.


                                      F-20
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


8.    Capital Stock (Cont'd)

      On April 14, 2003, the Company issued 15,000 common shares upon the
      exercise of 15,000 stock options for an aggregate exercise price of
      $5,550.

      On May 13, 2003, the Company issued 2,000,000 common shares, related to
      the exercise of special warrants, for cash consideration of $1,000,000.

      On May 15, 2003, the Company issued 25,000 common shares upon the exercise
      of 25,000 stock options for an aggregate exercise price of $9,250.

      On September 9, 2003, the Company issued 137,499 common shares to
      employees as signing bonuses. The Company's shares at that date were
      trading on the OTC Bulletin Board at $0.60 per share.

      On October 30, 2003, the Company issued 88,235 common shares to a
      non-employee as compensation for consulting services provided. The
      Company's shares at that date were trading on the OTC Bulletin Board at
      $0.70 per share.

      On December 5, 2003, the Company issued 2,000,000 common shares, related
      to the exercise of special warrants, for cash consideration of $1,000,000.

      On April 3, 2004, the Company redeemed 1,666,667 Series A preferred shares
      for cash consideration of $1,667 and subsequently issued 1,666,667 common
      shares as part of the acquisition on April 3, 2002 as described in note 4.

      The legal paid-up capital of the Company differs from the recorded value
      due to the application of reverse takeover accounting on April 3, 2002.

      Warrants

      On November 8, 2002, the Company issued 1,800,000 share purchase warrants
      as part of a Private Placement. Each warrant is exercisable for the
      purchase of one common share at any time during the two year period
      commencing on May 8, 2004 at a price of $0.50 per share.

      On February 28, 2003, the Company issued 4,000,000 special warrants as
      part of an equity financing. Each special warrant is exercisable for the
      purchase of one common share at a price of $0.50, for a maximum period of
      1 year commencing on February 28, 2003. Exercise of the special warrants
      is required to be made by the holder in the event the Company reaches
      certain milestones relating to product orders and shipments prior to
      February 27, 2004. These warrants were fully exercised on May 13, 2003 and
      December 5, 2003, as described above.

      On March 13, 2003, the Company issued 500,000 warrants as part of a debt
      conversion. Each warrant is exercisable for the purchase of one common
      share at a price of $0.50, for a maximum period of 2 years commencing on
      August 28, 2004.


                                      F-21
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


8.    Capital Stock (Cont'd)

      On August 8, 2003, the Company issued 300,000 warrants as part of the
      acquisition of intellectual property. Each warrant is exercisable for the
      purchase of one common share at any time during the five year period
      commencing on August 8, 2003 at a price of $0.50 per share. The warrants
      were valued using the Black-Scholes pricing model assuming an expected
      dividend yield of 0.00%, an expected volatility of 62.58%, a risk-free
      interest rate of 1.75% and an expected life of 2 years.

      On May 7, 2004, the Company issued 250,000 warrants as part of the
      consideration for the DreamPak LLC legal settlement. Each warrant is
      exercisable for the purchase of one common share at any time during the
      three year period ending on April 30, 2007 at a price of $0.50 per share.
      The warrants were valued using the Black-Scholes pricing model assuming an
      expected dividend yield of 0.00%, an expected volatility of 45.00%, a
      risk-free interest rate of 2.25% and an expected life of 2 years.

      Stock Option Plan

      By virtue of a stock option plan which was created in 2002, the Company
      may grant options to employees, non-employee directors, consultants and
      advisors of the Company or any subsidiary company to purchase common
      shares. In the case of consultants and advisors of the Company, options
      are only granted if bona fide services have been or are to be rendered by
      such consultant or advisor and such services are not in connection with
      the offer of sale of securities in a capital raising transaction. The
      maximum number of common shares which may be issued pursuant to the stock
      option plan shall not exceed 2,250,000 shares. The option price shall be
      determined by the Board of Directors of the Company or by a committee
      chosen by the Board of Directors at the time of the grant of the options.
      The term and vesting period of the options granted shall be determined by
      the Board of Directors or by its chosen committee.

      On June 6, 2002, the Company granted options to seven employees to
      purchase up to 150,000 common shares, in aggregate, of the Company. The
      exercise price of the options is $0.37 per common share which is below the
      market price of $1.25 on the date of grant. The expiration date of the
      options is five years from the date of grant and the options vested 50% on
      the grant date, 25% on July 3, 2002 and 25% on August 3, 2002.

      On October 10, 2002, the Company granted options to twenty-three
      employees, non-employee directors, advisory board members and consultants
      to purchase up to 2,085,000 common shares, in aggregate, at an exercise
      price of $0.69 per common share which is equal to the market price on the
      date of grant. The expiration date of the options is five years from the
      date of grant and the options vested 25% on April 10, 2003, 25% on October
      10, 2003, 25% on April 10, 2004 and 25% on October 10, 2004 except for
      125,000 options which vested 100% on the grant date.


                                      F-22
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


8.    Capital Stock (Cont'd)

      On August 21, 2003, the Company granted options, outside of its stock
      option plan, to three non-employees to purchase up to 220,000 common
      shares in aggregate, at an exercised price of $0.68 per common share which
      is above the market price of $0.55 on the date of grant. The expiration
      date of the options is five years from the date of grant and the options
      vested 100% on the grant date. These options were valued using the
      Black-Scholes option pricing model assuming an expected dividend yield of
      0.00%, an expected volatility of 66.29%, a risk-free interest rate of
      1.75% and an expected life of 2 years. The related expense recognized
      amounted to $36,938.

      As at December 31, 2004, 825,000 (2003 - 2,227,000) options were
      outstanding of which 825,000 (2003 _ 1,335,000) were exercisable and the
      weighted average remaining contractual life of all options outstanding was
      approximately two years and eleven months (2003 - three years and ten
      months). The exercise prices of the options outstanding at December 31,
      2004 was between $0.37 and $0.69.

      The number of options has varied as follows:

                                                                     Weighted
                                                                     Average
                                                    Shares        Exercise Price
--------------------------------------------------------------------------------

Balance Outstanding - January 1, 2002                      --      $         --
Granted                                             2,235,000              0.67
Exercised                                              25,000              0.37
--------------------------------------------------------------------------------

Balance Outstanding - December 31, 2002             2,210,000             $0.67
================================================================================

Balance Exercisable - December 31, 2002               250,000             $0.53
================================================================================

Balance Outstanding - January 1, 2003               2,210,000              0.67
Granted                                               220,000              0.68
Cancelled                                            (162,500)             0.69
Exercised                                             (40,000)             0.37
--------------------------------------------------------------------------------

Balance Outstanding - December 31, 2003             2,227,500             $0.68
================================================================================

Balance Exercisable - December 31, 2003             1,335,000      $       0.67
================================================================================


                                      F-23
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


8.    Capital Stock (Cont'd)

                                                                     Weighted
                                                                     Average
                                                    Shares        Exercise Price
--------------------------------------------------------------------------------

Balance outstanding - January 1, 2004               2,227,500              $0.68
Cancelled                                          (1,402,500)              0.68
--------------------------------------------------------------------------------

Balance outstanding - December 31, 2004               825,000              $0.68
================================================================================

Balance exercisable - December 31, 2004               825,000              $0.68
================================================================================


9.    Contract Cancellation

      In 2003, the Company entered into an agreement to sell its product and
      received a prepayment of $1,050,000 of which $787,500 was forfeited by the
      customer and recognized as revenue upon cancellation of the contract.


10.   Advertising Expense

      Advertising is expensed as incurred and amounted to approximately $439,000
      (2003 _ $18,000; 2002 _ $Nil).


11.   Loss Per Share

      Basic loss per share is calculated based on the weighted average number of
      shares outstanding during the period. The diluted loss per share has not
      been calculated as it would be anti-dilutive.

      As at December 31, 2004, the 825,000 options outstanding were
      anti-dilutive.


                                      F-24
<PAGE>

Vitalstate, Inc.
  (A Company in the Development Stage)


Notes to Consolidated Financial Statements
From Inception (April 18, 2001) to December 31, 2004
(Expressed in U.S. Funds)


12.   Statement of Cash Flows Additional Information

      Changes in non-cash operating elements of working capital:

                                                          2004           2003
--------------------------------------------------------------------------------

      Accounts receivable                              $ 498,820      $(745,186)
      Inventories                                        164,690       (321,853)
      Deposits and prepaid expenses                      310,924       (220,820)
      Investment tax credits receivable                   (3,646)         2,556
      Accounts payable and accrued liabilities          (461,132)       425,513
--------------------------------------------------------------------------------

                                                       $ 509,656      $(859,790)
================================================================================

      Non-cash investing and financing activities are as follows:

            On August 8, 2003, the Company issued 300,000 warrants as part of
            the acquisition of patent and intellectual property rights.

13.   Income Taxes

      The Company did not provide any current or future United States federal,
      state or foreign income tax provision or benefit for the periods presented
      because it has experienced operating losses since inception. The Company
      has provided a full valuation allowance on the deferred tax asset,
      consisting primarily of net operating loss carry forwards, because of
      uncertainty regarding its ability to be realized.

      As at December 31, 2004, there were tax losses of approximately $8,000,000
      that may be applied against earnings of future years.

14.   Major Customers

      One customer accounts for more than 10% of the Company's sales. Sales to
      this customer represent approximately 79% of the Company's sales.

15.   Subsequent Events

      On April 13, 2005, the Company granted options to nine employees to
      purchase up to 1,225,000 common shares, in aggregate, at an exercise price
      of $0.08 per common share which is equal to the market price on the date
      of grant. The expiration date of the options is five years form the date
      of grant and the options vest 33 1/3% on the grant date, 33 1/3% on April
      13, 2006 and 33 1/3% on April 13, 2007.

16.   Comparative Figures

      Certain reclassifications of prior period amounts have been made to
      facilitate comparison with the current year.

                                      F-25