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, 2003

                                       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.)


               2191 HAMPTON AVENUE
            MONTREAL, QUEBEC, CANADA                             H4A 2K5
            ------------------------                             -------
    (Address of principal executive offices)                  (Postal Code)

Issuer's telephone number:  (514) 369-4221
                            --------------
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. |_|

State registrant's revenues for its most recent fiscal year:  $1,578,536

As of March 22, 2004, there were 20,762,194 shares of the registrant's common
stock, par value $0.000333, issued and outstanding. Of these, 10,795,527 shares
are held by non-affiliates of the registrant. The market value of securities
held by non-affiliates is $5,397,764 based on the closing price of $.50 for the
registrant's common stock on March 22, 2004.

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.

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION                                                                    PAGE
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FORWARD-LOOKING STATEMENTS....................................................................3

                                     PART I
<S>                                                                                          <C>
1.      DESCRIPTION OF BUSINESS...............................................................3

2.      DESCRIPTION OF PROPERTY..............................................................10

3.      LEGAL PROCEEDINGS....................................................................10

4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................11

                                     PART II
11

5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................11

6.      PLAN OF OPERATION....................................................................15

7.      FINANCIAL STATEMENTS.................................................................16

8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE...........................................................................16

8A.     CONTROLS AND PROCEDURES..............................................................18

                                    PART III

9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
        SECTION 16(A) OF THE EXCHANGE ACT....................................................19

10.     EXECUTIVE COMPENSATION...............................................................21

11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................24

12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................27

13.     EXHIBITS, LIST AND REPORTS ON FORM 8-K...............................................29

14.     PRINCIPAL ACCOUNTANT FEES & SERVICES.................................................33
</TABLE>

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                           FORWARD-LOOKING STATEMENTS

Except for historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses. Such forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Plan of Operation". You should carefully review the risks
described in other documents we file from time to time with the Securities and
Exchange Commission. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this report. We
undertake no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.

                                     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 are to be 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
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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.

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 research-based 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 fully establishing our nutritional
supplement product line, we intend to enter into the regulated pharmaceutical
prescription and over-the-counter drug markets, including markets for veterinary
prescription drugs. With respect to pharmaceutical products, we intend to
license our products 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

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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 supplements market is dealing with a number of issues that we believe
we are ideally suited to address due to our proprietary technology, the
extensiveness of our clinical testing, and our approach to marketing. Presently,
a large part of the supplements market consists of products which contain a
single active ingredient, products which are difficult to use, and products
which are sold with little or no reliable information. 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, and lack of tangible results. 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.

We believe our delivery systems 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
veterinary side is smaller, but demonstrating even stronger growth within the
U.S. market at $4.5 billion, according to a 2001 Theta report. This includes
pharmaceuticals, vaccines, diagnostics and feed additives for both livestock and
companion animals. Demand for animal health chemicals in the U.S. is forecast to
advance to more than $8 billion in 2006, supported by the continuing emergence
and threat of animal disease, changes in animal production practices, new
product introductions, and ongoing food safety concerns. Globally,
pharmaceuticals accounted for just over one half of total $18.4 billion animal
health market in 1999 and it is forecast to hit sales of $22 billion by 2005.
Other trends in the pharmaceutical industry, such as the move to forming
strategic alliances and a growing reliance on direct-to-consumer advertising fit
favorably into to our plans to develop strategic alliances and distribution
agreements with industry leaders.

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 all of these categories as more fully 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.

                                       5
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o    BARS: Originally targeted to athletes, bars are now marketed to consumers
     concerned with lifestyle and energy issues. Convenient for people on the
     go, bars are marketed as health snacks, meal replacements, and weight-loss
     aids, although approximately 60% of 30 bars tested failed to substantiate
     their label claims in ConsumerLab.com tests in 2001. This category shows
     steady growth, up 21% in 2001, now representing U.S. sales of approximately
     $1.38 billion.

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 consider ripe for future product development is that of
veterinary pharmaceutical products which in 2001 had sales in excess of $3
billion in the U.S., showing a 20% annual growth rate. The market for animal
supplements has also been growing rapidly for the past ten years, reaching $350
million, according to 2001 U.S. sales figures. The pet supplements market runs
the gamut from natural pet food, dietary supplements, and herbal formulas to
specific products. Many human supplements such as antioxidants, vitamins, amino
acids, and Echinacea are beneficial for pets as well. It seems logical that pet
owners who take supplements themselves would consider supplements for the
benefit of their pets. In the U.S., an estimated 61% of households own pets,
which translates to over 61 million pet households. A market research firm,
Business Communications Company, released a report predicting pet supplement
sales in the U.S. will reach $1 billion by 2005. These patterns are not confined
to the U.S. 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.

Despite the need and growing demand 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 platforms 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 this will prove to be the case. Some of
these advantages are:

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

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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 cardioprotective 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.

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.

From mid-October 2003 to December 31, 2003 sales of our branded products totaled
$ 791,036.

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 are 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.

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RESEARCH AND DEVELOPMENT

All of our research and development activities are company sponsored. All of
these activities have related to the development of our delivery platforms and
our nutritional supplements. During the fiscal year ended December 31, 2003 we
spent approximately $ 520,000 on research and development activities, whereas in
2002 we spent approximately $235,000.

CUSTOMERS

As at December 31, 2003 four of our customers each accounted for more than 10%
of our sales. Sales to these customers represented approximately 46% (GNC), 12%,
12% and 11% respectively of our sales. We do not believe the loss of any one of
these customers other than GNC would have a material adverse effect on our
operations. Further, with respect to GNC, we do not believe losing them as a
customer would have a long term detrimental effect on our operations.

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 the health, nutrition, and fitness products field, 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.

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 pharmaceutical line of products,
which will 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.

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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 10, 2004 we had 6 employees in our Montreal office, including two
executive officers, a Vice President of Intellectual Property, a Director of New
Product Development and other support staff. Our Florida office has 11
employees, including one executive officer, a Vice-President of Finance, a
Director of Operations and other support staff. We plan to add additional
employees as required for the expanded operation of our business including those
required for sales and marketing, product development and support. We presently
estimate hiring 2 employees within the next 3 months and an additional 3 to 10
employees during the following 12 month period.

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 7 United
States, and 3 international or foreign patent applications directed to the
composition of matter, processes of preparation, or methods of use.

We plan to protect our proprietary technology by filing additional United
States, Canadian 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 were 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.

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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 32 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. The major
trademarks include Vitalstate, ActiJube, Russian Red, Command Performance,
Ripped Quick, Foundation, Wolverines and Fit Kids.

                         ITEM 2. DESCRIPTION OF PROPERTY

Our headquarters are currently located in a leased facility located at 2191
Hampton Avenue, Montreal, Quebec H4A 2K5, Canada, consisting of a total of
approximately 3,000 square feet of space. Our administrative and research staff
all work from this location. The current monthly rent due under the lease, which
expires on April 30, 2004, is approximately CDN$1,500 per month plus our
proportionate share of utilities and municipal taxes. We will continue to rent
this space on a month-to-month basis after April 30, 2004. We believe this space
is sufficient to handle our present and immediate future needs.

Our Florida office is located in a leased facility at 1499 High Ridge Road,
Boynton Beach Florida, 33426, consisting of a total of approximately 12,000
square feet of space. Our sales, marketing and operational 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 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 term, space sufficient to handle our then
present and expected future needs is available from several alternative sources
at slightly higher rental rates.

                            ITEM 3. LEGAL PROCEEDINGS

On April 9, 2003 Dreampak LLC ("Dreampak") filed an action against us in the US
District Court for the Eastern District of Wisconsin (the "Wisconsin Action")
seeking a declaratory judgment that Dreampak was not in violation of a May 13,
2002 confidentiality agreement ( the "Confidentiality Agreement") between the
parties. On April 22, 2003, we filed an action in the US District Court for the
District of New Jersey (the "New Jersey Action") asserting claims for breach of
the Confidentiality Agreement, misappropriation of trade secrets, breach of
fiduciary duty and tortious interference with prospective business relations.
Following the filing of the New Jersey action, Dreampak filed an amended
complaint in the Wisconsin action alleging that we had misappropriated
Dreampak's trade secrets by incorporating information learned from Dreampak into
our creatine based nutritional supplement product. Dreampak also asserted these
claims as counterclaims in the New Jersey Action. On May 6, 2003, we filed an
amended

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complaint in the New Jersey action (i) seeking a declaratory judgment that we
are not violating any rights of Dreampak, and (ii) making a business
disparagement claim based on Dreampak's false assertion to our contract
manufacturer that their manufacture of our "Actijube" products involves them in
a theft of trade secrets. We succeeded in dismissing the Wisconsin Action
leaving only the New Jersey Action for resolution.


On April 22, 2003, we obtained a temporary restraining order in the New Jersey
Action enjoining Dreampak from marketing and producing any products utilizing
information disclosed to Dreampak pursuant to the Confidentiality Agreement. In
December 2003, the Court denied both parties' motions for preliminary
injunctions, vacated the temporary restraining order, and directed discovery to
ensue.

Commencing in February 2004, we started substantive settlement discussions with
Dreampak which resulted in a settlement in principal in March 2004. Attorneys
for both sides are currently negotiating a written settlement agreement. As a
result, we believe that the Dreampak litigation will be settled within thirty
(30) days.

In the event the parties are unable to agree on a form of settlement agreement,
we intend to vigorously pursue enforcement of our claims and defend against
those asserted by Dreampak.

No other material legal proceedings are pending to which we or any of our
property is subject, nor to our knowledge are any such proceedings threatened.

           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." From July 3,
2000 until June 5, 2002, the date we changed our name from Harmony Trading Corp.
to Vitalstate, Inc., our stock was quoted under the symbol "HRMY." 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 Pink Sheets, LLC. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions. The prices set forth below reflect the 3:1 forward stock split
which took place on December 5, 2000.

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     QUARTER ENDED OR PERIOD INDICATED        HIGH BID          LOW BID
     ---------------------------------        --------          -------
     March 31, 2001                             1.75              .375
     June 30, 2001                              1.25              .625
     September 30, 2001                         1.15              .55
     December 31, 2001                          1.35              .35
     March 31, 2002                             1.60             1.10
     June 30, 2002                              1.35              .77
     September 30, 2002                          .80              .37
     December 31, 2002                          1.15              .42
     March 31, 2003                              .90              .54
     June 30, 2003                               .77              .48
     September 30, 2003                          .63              .41
     December 31, 2003                           .77              .51

On March 22, 2004, the closing bid price for our common stock was $.50 per
share.

HOLDERS

As of March 22, 2004, there were approximately 53 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.

RECENT SALES OF UNREGISTERED SECURITIES

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 Jonathan 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.

                                       12
<PAGE>

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.

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

                                       13
<PAGE>

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.

<TABLE>
<CAPTION>
                           EQUITY COMPENSATION PLAN INFORMATION AS AT DECEMBER 31, 2003

-------------------------------------- ----------------------- --------------------- ---------------------------------
                                        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               0                     N/A                          0
by security holders
-------------------------------------- ----------------------- --------------------- ---------------------------------
Equity compensation plans not             2,007,500(1)(2)              $.67                      177,500
approved by security holders
-------------------------------------- ----------------------- --------------------- ---------------------------------
         Total                            2,007,500(1)(2)              $.67                      177,500
-------------------------------------- ----------------------- --------------------- ---------------------------------
</TABLE>
(1)  Excludes 220,000 five year options issued outside the 2002 Non-Statutory
     Stock Option Plan to 3 non-employees on August 21, 2003 with an exercise
     price of $.68 per share.
(2)  Effective February 11, 2004, 400,000 of the Plan Options were cancelled.

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

                                       14
<PAGE>

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 products
and have gained sales and distribution of our product lines. 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 the following items in the following categories:

     1.   Sports supplements
     2.   Protein bars
     3.   Weight management products
     4.   Functional foods

                                       15
<PAGE>

We intend to continue our investment in limited additional research and
development over the next twelve months, and plan to further the development of
products in the following categories:

     1.   Functional foods
     2.   New technologies

Sales, promotions and marketing are expected to represent the significant
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 seventeen people. Subject to our rate of growth, we expect
to hire approximately two additional employees within the next three months and
an additional three to ten employees during the following twelve-month period.

Currently, we are working on establishing our branded sports supplements in the
marketplace and gaining continued consumer acceptance. 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 and in
gyms and specialty stores was a crucial step in our transition from ideation to
commercialization.

Our goal over the next year is to make Vitalstate a widely recognized and
significant player in the sport supplement market. Our longer term goal is to
conclude licensing arrangements for pharmaceutical and Over The Counter
products.

                          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

Rogoff & Company, P.C. was retained in May 2002 to be our independent certifying
accountant for the fiscal year ended December 31, 2002. On March 24, 2003, we
terminated their appointment and subsequently engaged Richter Usher & Vineberg,
Chartered Accountants, 2 Place Alexis Nihon, Montreal, Quebec H3Z 3C2, as our
certifying accountant for the fiscal year ended December 31, 2002. The
termination of Rogoff & Company, P.C. and appointment of Richter Usher &
Vineberg was approved by our board of directors.

During the period of their engagement, Rogoff & Company, P.C. did not conduct
any audits of us. During such period, there were no disagreements between us and
Rogoff & Company, P.C. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to their satisfaction, would have caused Rogoff &
Company, P.C. to make reference to the subject matter of the disagreement in
connection with their reports.

                                       16
<PAGE>

During the period of their engagement, Rogoff & Company, P.C. did not advise us
that:

     o    internal controls necessary for us to develop reliable financial
          statements did not exist;

     o    information had come to their attention that led them to no longer to
          be able to rely on our management's representations or made them
          unwilling to be associated with the financial statements prepared by
          our management;

     o    information had come to their attention during such time period that
          if further investigated might: (i) materially impact the fairness or
          reliability of the financial statements to be issued covering the
          fiscal periods subsequent to the date of the most recent financial
          statements covered by an audit report, or (ii) cause them to be
          unwilling to rely on our managements representations or be associated
          with our financial statements;

     o    information had come to their attention that they had concluded
          materially impacted the fairness or reliability of the financial
          statements to be issued covering the fiscal periods subsequent to the
          date of the most recent financial statements covered by an audit
          report.

Thomas Monahan, CPA was our independent certifying accountant for the fiscal
years ended December 31, 2001, 2000, 1999 and 1998. On May 16, 2002, we
terminated his appointment and subsequently engaged Rogoff & Company, 275
Madison Avenue, New York, NY 10017, as our certifying accountant for the fiscal
year ending December 31, 2002. The termination of Thomas Monahan, CPA and
appointment of Rogoff & Company, P.C. was approved by our board of directors.

The reports of Thomas Monahan, CPA on our financial statements for the fiscal
years ended December 31, 2001 and 2000 contained no adverse opinion or
disclaimer of opinion, nor was either qualified or modified as to uncertainty,
audit scope or accounting principle except that such reports were modified with
respect to our ability to continue as a going concern.

In connection with the audits of the fiscal years ended December 31, 2001 and
2000 and during the subsequent interim period preceding his dismissal, there
were no disagreements between us and Thomas Monahan, CPA on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to his satisfaction,
would have caused Thomas Monahan to make reference to the subject matter of the
disagreement in connection with his reports.

In connection with the audits of the fiscal years ended December 31, 2001 and
2000 and during the subsequent interim period preceding his dismissal, Thomas
Monahan did not advise us that:

     o    internal controls necessary for us to develop reliable financial
          statements did not exist;

                                       17
<PAGE>

     o    information had come to his attention that led him to no longer to be
          able to rely on our management's representations or made him unwilling
          to be associated with the financial statements prepared by our
          management;

     o    there was a need to expand significantly the scope of his audit, or
          that information had come to his attention during such time periods
          that if further investigated might: (i) materially impact the fairness
          or reliability of either a previously issued audit report or the
          underlying financial statement; or the financial statements issued or
          to be issued covering the fiscal periods subsequent to the date of the
          most recent financial statements covered by an audit report, or (ii)
          cause him to be unwilling to rely on our management's representations
          or be associated with our financial statements;

     o    information had come to his attention that he had concluded materially
          impacted the fairness or reliability of either (i) a previously issued
          audit report or the underlying financial statements, or (ii) the
          financial statements issued or to be issued covering the fiscal
          periods subsequent to the date of the most recent financial statements
          covered by an audit report.

                        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 Richter Usher & Vineberg, 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 Richter Usher & Vineberg, Chartered
Accountants to perform any non-audit services other than tax services related to
compliance, advice, and preparation of returns.

                                       18
<PAGE>

                                    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 other than Robert Torokvei and Thomas Torokvei, who are brothers.

The following table sets forth certain information, as of March 22, 2004, with
respect to our directors and executive officers.

<TABLE>
<CAPTION>
                                                                                             Date of Election
                                                                                              or Appointment
Name                         Positions Held                                        Age          as Director
----                         --------------                                        ---          -----------
<S>                          <C>                                                   <C>          <C>
Heather Baker                President, Chief Executive Officer                     59          April 9, 2002

James Klein                  Treasurer, Secretary, Chief Financial Officer,         42          April 9, 2002
                             Director

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

Robert S. Torokvei           Director, Chairman of the Board                        49          March 4, 2003

Thomas E. Torokvei           Director                                               60          March 4, 2003

Terry Giles                  Chief Operating Officer, Director                      44          June 10, 2003

Gilles Cloutier              Director                                               59          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. Phoenix International engaged in
contract research for the pharmaceutical industry with special expertise in
clinical studies, drug analysis, drug metabolism and toxicology. Prior to

                                       19
<PAGE>

engaging in contract, medical and scientific research, Ms. Baker was engaged in
academic medical research at the University of Tasmania Medical School in
Australia. Ms. Baker received a B.A. degree from the University of Tasmania in
1968.

JAMES KLEIN has served as our secretary, treasurer, chief financial officer and
a director since April 9, 2002. He has served in similar capacities for our
wholly owned operating subsidiaries, Vitalstate Canada Ltd. and Vitalstate US
Inc. since their respective formations. Mr. Klein has more than 20 years of
management experience in the areas of finance, sales, marketing and technology
development. From 1996 to 2002, Mr. Klein worked as the chief executive officer
for Avocation Legal Systems, a software company founded by Mr. Klein that
specializes in software applications for law firms. From 2001 to the present,
Mr. Klein has worked for Kleinsult Inc., a company owned and founded by Mr.
Klein that provides financial and information technology consulting services to
small and medium businesses.

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. 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.

THOMAS E. TOROKVEI has served as a director of ours since March 4, 2003. During
the past five years Mr. Torokvei has served as the chief executive officer of
Ipex Inc., a manufacturer of plastic pipes and fittings. Mr. Torokvei is also
the Chairman of Scepter Holdings, Inc., a holding and venture capital investment
company.

Robert S. Torokvei and Thomas E. Torokvei are designees 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

                                       20
<PAGE>

(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 as President of
Vitalstate US Inc. to head up sales, marketing, manufacturing, new product
development, market strategies, new business development, operations,
distribution and logistics. With an extensive background and experience in the
sports nutrition industry serving as a consultant and industry leader he has
been widely regarded as an innovator in the field for over 28 years. Mr. Giles
has been associated with 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 to early 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. 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 Robert Torokvei,
Gilles Cloutier, Terry Giles and James Klein and an audit committee consisting
of Thomas Torokvei.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Heather Baker, James Klein, Jonathan Farber Terry Giles and Gilles Cloutier
failed to file required Forms 3 and Forms 4 during 2003. All of such persons
have however, made filings of Forms 5, on a delinquent basis, with respect to
their 2003 securities transaction.

                         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, 2003 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

                                       21
<PAGE>

ended December 31, 2003 and (ii) all individuals that served as executive
officers of ours at any time during the fiscal year ended December 31, 2003 that
received annual compensation during the fiscal year ended December 31, 2003 in
excess of $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                       Annual Compensation                            Long-Term Compensation

                          Fiscal Year                                                  Restricted
Name and                     Ended                              Other       Options/     Stock        LTIP       All Other
Principal Position       December 31,   Salary     Bonus    Compensation      SARs       Awards      Payouts    Compensation
------------------       ------------   ------     -----    ------------      ----       ------      -------    ------------
<S>                          <C>      <C>        <C>             <C>      <C>              <C>         <C>           <C>
Heather Baker                2003      $137,300       0           0            0            0           0             0
  Chief Executive            2002       $43,200  $110,000 (2)     0       300,000 (3)       0           0             0
  Officer, President (1)     2001             0       0           0            0            0           0             0

Terry Giles                  2003      $133,333  $50,000 (4)      0            0            0           0             0
  Chief Operating Officer    2002             0       0           0            0            0           0             0
                             2001             0       0           0            0            0           0             0

James Klein                  2003     $ 103,000       0           0            0            0           0             0
  Chief Financial            2002      $ 60,000       0           0       200,000 (5)       0           0             0
  Officer, Secretary,        2001             0       0           0            0            0           0             0
  Treasurer
</TABLE>

(1)  Ms. Baker has served as our president and chief executive officer since
     April 9, 2002.

(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
     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.

(5)  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."

OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
None of the named executives received options or SAR grants in 2003.
STOCK APPRECIATION RIGHTS

The named executives did not receive any stock appreciation rights from us
during the fiscal year ended December 31, 2003.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                              Number of Securities
                                Shares                       Underlying Unexercised        Value of Unexercised
                               Acquired                           Options/SARs           In-the-Money Options/SARs
                                  On            Value        at Fiscal Year End (#)       at Fiscal Year End ($)
                               Exercise       Realized           Exercisable/                 Exercisable/
Name                              (#)            ($)             Unexercisable                Unexercisable
---------------------------    --------       ---------      ----------------------      -------------------------
<S>                               <C>           <C>           <C>                           <C>
Heather Baker                     N/A           N/A                 325,000
     Chief Executive Officer                                  175,000 Exercisable           $3,500 Exercisable
                                                              150,000 Unexercisable                N/A

                                       22
<PAGE>

Terry Giles                       N/A           N/A                   N/A                          N/A
     Chief Operating Officer
James Klein                       N/A           N/A                 225,000
     Chief Financial Officer                                  125,000 Exercisable           $3,500 Exercisable
                                                              100,000 Unexercisable                N/A
</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, 2003.

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 the event we terminate Ms. Baker's employment without cause we
are obligated to pay Ms. Baker the equivalent of one year of her base annual
salary. In the event we terminate Ms. Baker's employment pursuant to a change in
control, we are obligated to pay Ms. Baker the equivalent of two years of her
base annual salary. (See "Certain Transactions".) 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.

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. 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.

                                       23
<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.

REPORT ON REPRICING OF OPTIONS/SARS

During the fiscal year ended December 31, 2003 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
March 22, 2004 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.

                                       24
<PAGE>

<TABLE>
<CAPTION>
------------------------------------ ------------------------------------- ------------------------- ---------------
         Name and Address                                                     Amount and Nature        Percentage
        of Beneficial Owner                     Title of Class             of Beneficial Ownership   of Class (14)
------------------------------------ ------------------------------------- ------------------------- ---------------
<S>                                  <C>                                   <C>                       <C>
Scepter Holdings, Inc. (1)           Common stock, par value $.000333         8,000,000 shares            38.5%
170 Midwest Road                     per share                                Direct
Toronto, Ontario  M1P 3A9
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      0 shares                     0%
                                     $.001 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
Heather Baker                        Common stock, par value $.000333         1,266,667 shares (2)         5.99%
7 Cedar Avenue                       per share                                (350,000 Direct)
Pointe-Claire, Quebec  H9S 4X9                                                (916,667 Indirect)(3)
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      308,333 shares (3)          18.5%
                                     $.001 per share                          Indirect
------------------------------------ ------------------------------------- ------------------------- ---------------
James Klein                          Common stock, par value                  725,000 shares (4)           3.48%
4057 Vendome Avenue                  $.000333 per share                       Direct
Montreal, Quebec  H4A 3N2
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      275,000 shares              16.5%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
3073815 Canada Inc. (5)              Common stock, par value                  916,667 shares (6)           3.7%
4625 Dobrin Street                   $.000333 per share                       Direct
St. Laurent, Quebec H4R 2P7 Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      308,333 shares              18.5%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
3949559 Canada Inc. (7)              Common stock, par value                  276,667 shares               1.33%
3884 Ernest Savignac                 $.000333 per share                       Direct
Montreal, Quebec  H2M 2M3
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      108,333 shares               6.5%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
9103-3019 Quebec Inc. (8)            Common stock, par value                  796,152 (9) shares           3.78%
147 Dufferin Road                    $.000333 per share                       Direct
Hampstead, Quebec  H3X 2Y2
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      358,333 shares              21.5%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
Ross Harvey                          Common stock, par value                  233,332 shares               1.12%
6505 Cote St. Luc, App. 7            $.000333 per share                       Direct
Cote St. Luc, Quebec  H4V 1G3
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      116,668 shares               7%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
Tommy Kane                           Common stock, par value                  450,000 shares               2.17%
13125 Ancourt Street                 $.000333 per share                       Direct
Pierrefonds, Quebec  H8Z 1R5
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      225,000 shares              13.5%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
------------------------------------ ------------------------------------- ------------------------- ---------------
         Name and Address                                                     Amount and Nature        Percentage
        of Beneficial Owner                     Title of Class             of Beneficial Ownership   of Class (14)
------------------------------------ ------------------------------------- ------------------------- ---------------
<S>                                  <C>                                   <C>                       <C>
Steven Leroux                        Common stock, par value                  654,000 shares (10)          3.13%
571 Donegani                         $.000333 per share                       Direct
Pointe Claire, Quebec  H9R 5S1
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      275,000 shares              16.5%
                                     $.001 per share                          Direct
------------------------------------ ------------------------------------- ------------------------- ---------------
Jonathan Farber                      Common stock, par value                  426,667 shares (11)(12)      2.04%
8804 Ernest Savignac                 $.000333 per share                       (150,000 Direct)
Montreal, Quebec  H2M 2M3                                                     (276,667 Indirect)
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      108,333 shares (11)          6.5%
                                     $.001 per share                          Indirect
------------------------------------ ------------------------------------- ------------------------- ---------------
Robert S. Torokvei                   Common stock, par value                  8,000,000 shares (13)       38.5%
170 Midwest Road                     $.000333 per share                       Indirect
Toronto, Ontario  M1P 3A9
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      0 shares                     0%
                                     $.001 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
Thomas E. Torokvei                   Common stock, par value                  8,000,000 shares (13)       38.5%
170 Midwest Road                     $.000333 per share                       Indirect
Toronto, Ontario  M1P 3A9
Canada
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      0 shares                     0%
                                     $.001 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
Terry Giles                          Common stock, par value                  83,333 shares                 .4%
2012 White Coral Court               $.000333 per share                       Direct
Wellington, Florida 33414
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      0 shares                     0%
                                     $.001 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
Gilles Cloutier                      Common stock, par value                  100,000 shares                .48%
100 Chestnut Road                    $.000333 per share                       Direct
Chapel Hill, NC 27517
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      0 shares                     0%
                                     $.001 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
All officers and directors as a      Common stock, par value                  10,601,667 shares           49.28%
    group (7 persons)                $.000333 per share
                                     ------------------------------------- ------------------------- ---------------
                                     Series A preferred stock, par value      691,666 shares              41.5%
                                     $.001 per share
------------------------------------ ------------------------------------- ------------------------- ---------------
</TABLE>

(1)  Robert Torokvei and Thomas Torokvei are the beneficial owners of Scepter
     Holdings, Inc.

(2)  Includes 766,667 shares owned by 3073815 Canada, Inc., a Canadian
     corporation owned by Heather Baker. Also includes 250,000 shares underlying
     outstanding options owned by Heather Baker and 150,000 shares underlying
     outstanding warrants owned by 3073815 Canada Inc.

(3)  Represents shares owned by 3073815 Canada Inc.

(4)  Includes 175,000 shares underlying outstanding options.

(5)  Heather Baker is the owner of 3073815 Canada Inc.

(6)  Includes 150,000 shares underlying outstanding warrants.

(7)  Jonathan Farber is the owner of 3949559 Canada Inc.

(8)  Miriam Farber is the owner of 9103-3019 Quebec Inc.

                                       26
<PAGE>

(9)  Includes 300,000 presently exercisable warrants.

(10) Includes 160,000 shares underlying outstanding options.

(11) Represents shares owned by 3949559 Canada Inc.

(12) Includes 150,000 shares underlying outstanding options.

(13) The named individuals own substantially all of the securities of Scepter
     Holdings, Inc. Scepter Holdings, Inc. is the owner of 8,000,000 shares.

(14) For each beneficial owner, the "Percentage of Class" equals each owner's
     actual holdings of shares in that class plus shares underlying unexercised
     options and warrants held that are exercisable by the owner within 60 days
     of March 23, 2004, divided by total shares of that class outstanding on
     March 23, 2004, plus the above-referenced unexercised options and warrants
     of the referenced holder only. As at March 23, 2004, without taking into
     consideration the effect of exercisability of outstanding options or
     warrants, we had 20,762,194 shares of our common stock and 1,666,667 shares
     of our Series A Preferred Stock issued and outstanding.

CHANGES IN CONTROL

     Not Applicable.

     ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In furtherance of our March 27, 2002 Reorganization Agreement, on April 3, 2002
Group Intercapital Inc. entered into an Assignment Agreement with Nuvo Way Inc.
and us whereby Group Intercapital Inc. assigned a CDN$800,000 account receivable
it had from Nuvo Way Inc. to us. We treated the assignment of the receivable to
us as a contribution to capital by Group Intercapital Inc.

In furtherance of our March 27, 2002 Reorganization Agreement, on April 3, 2002
3073815 Canada Inc., a corporation owned by Heather Baker, entered into an
Assignment Agreement with Nuvo Way Inc. and us whereby 3073815 Canada Inc.
assigned a CDN$75,000 account receivable it had from Nuvo Way, Inc. to us. We
treated the assignment of the receivable to us as a contribution to capital by
3073815 Canada Inc.

Pursuant to the March 27, 2002 Reorganization Agreement among us, Group
Intercapital Inc., Nuvo Way, Inc., Heather Baker, and the shareholders of Nuvo
Way Inc. we issued 308,334 shares of our common stock and 616,666 shares of our
Series A Preferred Stock to 3073815 Canada Inc., a corporation owned by Heather
Baker; 108,333 shares of our common stock and 216,667 shares of our Series A
Preferred Stock to 3949559 Canada Inc., a corporation owned by Jonathan Farber;
and 275,000 shares of our common stock and 550,000 shares of our Series A
Preferred Stock to James Klein. We also issued 25,000 5-year stock options to
each of Heather Baker and James Klein with an exercise price of $.37 per share.

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

                                       27
<PAGE>

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.

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.

On October 10, 2002 we issued 300,000 stock options to Heather Baker, 200,000
stock options to James Klein, and 200,000 stock options to Jonathan Farber. Each
option is exercisable, upon vesting, during the 5-year period that commenced on
the date of grant at an exercise price of $.69 per share. 25% of the options
vest on each of April 10, 2003; October 10, 2003; April 10, 2004; and October
10, 2004.

On November 8, 2002 we completed a private offering of 1,800,000 units at a
price of $.50 per unit. Each unit consists of one share of our common stock and
one warrant. Each warrant, as amended, is exercisable to purchase one share of
our common stock at a price of $.50 per share for a period of two years
commencing May 8, 2004. 3073815 Canada Inc., a corporation owned by Heather
Baker, purchased 150,000 units in the offering by converting a $75,000 loan it
had made to us in September 2002 into units.

In December 2002 we issued 100,000 common shares to Heather Baker. These shares
were issued as a signing bonus under Mr. Baker's Employment Agreement and were
registered on a Form S-8 Registration Statement.

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.

                                       28
<PAGE>

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.

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).

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, 2004. Pursuant thereto, Scepter loaned us $200,000 on February 10,
2004 and $800,000 on March 2, 2004. The loans, which are represented by
promissory notes, bear interest at the rate of 8% and are secured by our
accounts receivable and inventory and the guarantees, accounts receivable and
inventory of our wholly owned subsidiaries, Vitalstate Canada Ltd. and
Vitalstate US Inc.

                 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

Financial Statements                                                        Page
--------------------                                                        ----

Independent Auditors Report - Richter Usher & Vineberg.......................F-1

Consolidated Balance Sheets as at December 31, 2003 and 2002.................F-2

                                       29
<PAGE>

Consolidated Statement of Shareholders' Equity for
the year ended December 31, 2003.............................................F-3

Consolidated Statement of Operations and Comprehensive Income
for the years ended December 31, 2003 and December 31, 2002,
and for the period from inception (April 18, 2001) through
December 31, 2003............................................................F-6

Consolidated Statement of Cash Flows for the years ended
December 31, 2003 and December 31, 2002 and for the
period from inception (April 18, 2001) through December 31, 2003.............F-7

Notes to Consolidated Financial Statements...................................F-8

FINANCIAL STATEMENT SCHEDULES

All financial statement schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.

REPORTS ON FORM 8-K

On October 3, 2003 we filed a Form 8-K dated August 8, 2003 containing Item 5
and Item 7 disclosure.

No other reports on Form 8-K were filed during the quarter ended December 31,
2003.

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)
</TABLE>

                                       30
<PAGE>

<TABLE>
<CAPTION>
                  SEC Report
                  Reference
Exhibit No.         Number                                     Description
-----------       ----------            --------------------------------------------------------------------------
<S>                 <C>                 <C>
   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)

   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)
</TABLE>

                                       31
<PAGE>

<TABLE>
<CAPTION>
                  SEC Report
                  Reference
Exhibit No.         Number                                     Description
-----------       ----------            --------------------------------------------------------------------------
<S>                 <C>                 <C>
   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                                Executive Employment Agreement between Registrant and Terry Giles dated as
                                        of May 1, 2003

   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.

                                       32
<PAGE>

(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.

(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.

                 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees.
-----------

     Our principal accountants billed us for aggregate fees in the amount of
approximately $46,000 and $27,000 for the fiscal years ended December 31, 2003
and 2002, respectively including audit fees of approximately $25,000 and $18,000
respectively.

Audit-Related Fees.
-------------------

     Our principal accountants billed us for aggregate fees in the amount of
$12,500 and $9,000 for the fiscal years ended December 31, 2003 and 2002,
respectively, for services that were reasonably related to the performance of
the audit or review of our financial statements.

                                       33
<PAGE>

Tax Fees.
---------

     Our principal accountants billed us for aggregate fees in the approximate
amount of $8,500 and $0 for the fiscal years ended December 31, 2003 and 2002,
respectively, for tax compliance, tax advice, and tax preparation.

All Other Fees.
---------------

     Our principal accountants billed us for aggregate fees in the amount of $0
for the fiscal years ended December 31, 2003 and 2002 for other fees.

Audit Committee's Pre-Approval Practice.
----------------------------------------

     Section 10A(i) of the Securities Exchange Act of 1934 prohibits our
auditors from performing audit services for us as well as any services not
considered to be "audit services" unless such services are pre-approved by our
audit committee or unless the services meet certain de minimis standards.

     The percentage of the fees for audit, audit-related, tax and other services
were as set forth in the following table:

                                       34
<PAGE>

-------------------------------------------------------------------------------
             Percentage of total fees paid to principal accountants
-------------------------------------------------------------------------------
                             Fiscal Year 2003           Fiscal Year 2002
-------------------------------------------------------------------------------
Audit fees                        54.35%                      66.7%
-------------------------------------------------------------------------------
Audit-related fees                27.17%                      33.3%
-------------------------------------------------------------------------------
Tax fees                          18.48%                       0%
-------------------------------------------------------------------------------
All other fees                      0%                         0%
-------------------------------------------------------------------------------

                                       35
<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:  March 29, 2004                  By: /s/ Heather Baker
                                            ---------------------------------
                                            Heather Baker
                                            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 29th day of March, 2004.




               /s/ Heather Baker
               -----------------------------------------------------
                   Heather Baker, President, Chief Executive Officer, Director


               /s/ James Klein
               -----------------------------------------------------
                   James Klein, Secretary, Treasurer, Chief Financial
                   and Accounting Officer and Director


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


               /s/ Robert S. Torokvei
               -----------------------------------------------------
                   Robert S. Torokvei, Chairman of the Board


               /s/ Terry Giles
               -----------------------------------------------------
                   Terry Giles, Director


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

                                       36
<PAGE>

INDEPENDENT AUDITORS' REPORT


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, 2003 and December 31,
2002 and the related consolidated statements of operations and comprehensive
income, shareholders' equity and cash flows for the years ended December 31,
2003, December 31, 2002 and for the period from April 18, 2001 (inception) to
December 31, 2003. 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 audit.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an 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, 2003 and December 31, 2002 and the results of its operations and
its cash flows for the years ended December 31, 2003, December 31, 2002 and for
the period from April 18, 2001 (inception) to December 31, 2003 in conformity
with accounting principles generally accepted in the United States.

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.


/S/ Richter, Usher & Vineberg
-----------------------------
CHARTERED ACCOUNTANTS
GENERAL PARTNERSHIP

Montreal, Quebec
January 23, 2004
(Except for note 14, which is
 dated March 2, 2004)

                                      F-1
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)

<TABLE>
<CAPTION>
                                                          2003             2002
===================================================================================

ASSETS

CURRENT
<S>                                                   <C>              <C>
      Cash                                            $    467,812     $     20,650
      Term deposits (note 5)                               107,612               --
      Accounts receivable                                  763,783           18,597
      Inventories                                          382,998           61,145
      Deposits and prepaid expenses                        344,318          123,498
      Investment tax credits receivable                    110,025          112,581
-----------------------------------------------------------------------------------
                                                         2,176,548          336,471
FIXED ASSETS (note 6)                                      274,247          144,699
PATENT AND INTELLECTUAL PROPERTY RIGHTS (net
  of accumulated amortization of $4,542)                   267,967               --
-----------------------------------------------------------------------------------

                                                      $  2,718,762     $    481,170
===================================================================================

LIABILITIES

CURRENT

      Accounts payable and accrued liabilities             699,450          273,937
      Loans payable                                             --          172,402
-----------------------------------------------------------------------------------
                                                           699,450          446,339
-----------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (note 7)

SHAREHOLDERS' EQUITY

CAPITAL STOCK (note 8)                                       5,402            4,149

ADDITIONAL PAID-IN CAPITAL                               6,250,593        1,786,113

STOCK OPTIONS OUTSTANDING                                  719,866          227,500

WARRANTS                                                    37,410               --

CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT         (28,138)         (52,142)

DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE        (4,965,821)      (1,930,789)
-----------------------------------------------------------------------------------
                                                         2,019,312           34,831
-----------------------------------------------------------------------------------

                                                      $  2,718,762     $    481,170
===================================================================================
</TABLE>

See accompanying notes

                                      F-2
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)

<TABLE>
<CAPTION>
                                                                                      Accumulated    Cumulative
                                     Common and                                         Deficit       Foreign
                                   Preferred Shares   Additional   Stock               during the     Currency      TOTAL
                                             Stated    Paid-in    Options             Development   Translation  SHAREHOLDERS'
                                   Number     Value    Capital  Outstanding  Warrants    Stage      Adjustment      EQUITY
==============================================================================================================================
<S>                               <C>        <C>      <C>         <C>       <C>        <C>          <C>          <C>
BALANCE - APRIL 18, 2001
  (DATE OF INCEPTION)                  --    $   --   $    --     $  --     $     --   $      --    $      --    $      --

April 18, 2001 - issue of
  common shares                    10,000        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        10,000        64        --        --           --    (137,610)       5,212     (132,334)

March 19, 2002 - common
  share split on a 500 to 1
  basis                         4,990,000        --        --        --           --          --           --           --

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>

See accompanying notes

                                      F-3
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)

<TABLE>
<CAPTION>
                                                                                      Accumulated    Cumulative
                                     Common and                                         Deficit       Foreign
                                   Preferred Shares   Additional   Stock               during the     Currency      TOTAL
                                             Stated    Paid-in    Options             Development   Translation  SHAREHOLDERS'
                                   Number     Value    Capital  Outstanding  Warrants    Stage      Adjustment      EQUITY
==============================================================================================================================
<S>                               <C>        <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       18,745     (13,200)       --           --          --          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       12,497      (8,800)       --           --          --          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   $1,786,113   $ 227,500        --  $(1,930,789)   $(52,142)   $    34,831
</TABLE>

See accompanying notes

                                      F-4
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)

<TABLE>
<CAPTION>
                                                                                       Accumulated    Cumulative
                                     Common and                                          Deficit       Foreign
                                   Preferred Shares    Additional   Stock               during the     Currency      TOTAL
                                             Stated     Paid-in    Options             Development   Translation  SHAREHOLDERS'
                                 Number       Value     Capital  Outstanding  Warrants    Stage      Adjustment      EQUITY
==============================================================================================================================
<S>                            <C>          <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       18,745    (13,200)       --           --         --         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       31,242    (22,000)       --           --         --         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)                --        --       23,134    490,628        --           --         --       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   $6,250,593  $ 719,866   $37,410  $(4,965,821)  $(28,138)  $ 2,019,312
==============================================================================================================================
</TABLE>

See accompanying notes

                                      F-5
<PAGE>


VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)

<TABLE>
<CAPTION>
                                                                                     FROM INCEPTION
                                                                                    (APRIL 18, 2001)
                                                                                            TO
                                                        2003              2002      DECEMBER 31, 2003
=====================================================================================================
REVENUE
<S>                                                 <C>              <C>              <C>
      Contract cancellation                         $    787,500     $         --     $    787,500
      Sales                                              791,036               --          791,036
-----------------------------------------------------------------------------------------------------
                                                       1,578,536               --        1,578,536
-----------------------------------------------------------------------------------------------------
EXPENSES
      Cost of sales                                      374,780               --          374,780
      Research and development                           522,968          236,924          815,104
      Office and administration                          113,422           83,881          220,523
      Travel                                             125,157           89,459          218,939
      Computer                                            10,490            3,440           16,333
      Consulting                                          61,765          117,500          195,333
      Donations                                               --               --              129
      Insurance                                           26,873            3,844           31,165
      Marketing                                          172,842          305,025          494,146
      Rent                                                83,039            7,356           97,729
      Salaries                                         1,341,755          368,581        1,710,336
      Taxes, licenses and royalties                        2,942           63,222           67,847
      Professional fees                                1,141,250          269,193        1,417,314
      Investor relations                                  31,704           40,411           72,115
      Interest and bank charges                           11,952            8,635           23,059
      Amortization and depreciation                       78,867           26,478          106,513
      Write-down of goodwill                                  --           37,230           37,230
      Stock-based compensation expense                   513,762          132,000          645,762
-----------------------------------------------------------------------------------------------------
                                                       4,613,568       (1,793,179)      (6,544,357)
-----------------------------------------------------------------------------------------------------
NET LOSS                                              (3,035,032)      (1,793,179)      (4,965,821)
Foreign currency translation adjustment                   24,004          (57,354)         (28,138)
-----------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME                                $ (3,011,028)    $ (1,850,533)    $ (4,993,959)
=====================================================================================================
BASIC WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING                                  18,939,671       10,216,112       12,074,371
=====================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE (note 9)    $      (0.16)    $      (0.18)    $      (0.41)
=====================================================================================================
</TABLE>

See accompanying notes

                                      F-6
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)

<TABLE>
<CAPTION>
                                                                                                   FROM INCEPTION
                                                                                                  (APRIL 18, 2001)
                                                                                                          TO
                                                                      2003             2002       DECEMBER 31, 2003
===================================================================================================================
FUNDS PROVIDED (USED) -
    OPERATING ACTIVITIES
<S>                                                               <C>              <C>              <C>
        Net loss                                                  $ (3,035,032)    $ (1,793,179)    $ (4,965,821)
        Amortization and depreciation                                   78,867           26,478          106,513
        Write-down of goodwill                                              --           37,230           37,230
        Stock-based compensation expense                               513,762          132,000          645,762
        Issue of stock options to non-employees                         36,938          117,500          154,438
        Issue of common shares for marketing and consulting
         services, royalties, legal fees and signing bonuses           144,265          205,000          349,265
        Foreign currency translation adjustment                         24,004          (57,354)         (28,138)
-------------------------------------------------------------------------------------------------------------------
                                                                    (2,237,196)      (1,332,325)      (3,700,751)
        Changes in non-cash operating elements
         of working capital (note 10)                                 (859,790)         (27,477)        (872,905)
-------------------------------------------------------------------------------------------------------------------
                                                                    (3,096,986)      (1,359,802)      (4,573,656)
-------------------------------------------------------------------------------------------------------------------
    FINANCING ACTIVITIES
        Loan payable, shareholders                                          --         (172,652)              --
        Loans payable                                                 (172,402)         374,187          584,615
        Issue of capital stock                                       4,264,800          912,583        5,177,447
        Redemption of preferred shares                                  (1,666)              --           (1,666)
-------------------------------------------------------------------------------------------------------------------
                                                                     4,090,732        1,114,118        5,760,396
-------------------------------------------------------------------------------------------------------------------
    INVESTING ACTIVITIES
        Term deposits                                                 (107,612)              --         (107,612)
        Additions to fixed assets                                     (203,873)        (160,521)        (376,217)
        Acquisition of patent and intellectual property rights        (235,099)              --         (235,099)
-------------------------------------------------------------------------------------------------------------------
                                                                      (546,584)        (160,521)        (718,928)
-------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH                                            447,162         (406,205)         467,812
CASH
    BEGINNING OF PERIOD                                                 20,650          426,855               --
-------------------------------------------------------------------------------------------------------------------
    END OF PERIOD                                                 $    467,812     $     20,650     $    467,812
===================================================================================================================
</TABLE>

See accompanying notes

                                      F-7
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


1.   FINANCIAL STATEMENTS PRESENTATION

Vitalstate, Inc. (the "Company") is based in Montreal, Canada and Boynton Beach,
Florida 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-8
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(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
$4,965,821 from inception (April 18, 2001) to December 31, 2003. As reported on
the statement of cash flows, the Company has reported deficient cash flows from
operating activities of $4,573,656 from inception (April 18, 2001) to December
31, 2003. To date, these losses and cash flow deficiencies have been financed
principally through the raising of capital and issue of common shares.
Additional capital and/or borrowings will be necessary in order for the Company
to continue in existence until attaining and sustaining profitable operations.

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. Management
anticipates generating revenue through the sales of its products during the next
year. The major shareholders of the Company have indicated commitment to fund
the operations of the Company during the next year 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-9
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

                                      F-10
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

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 $62,000 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.

On an annual basis, management reviews the carrying amount of patent and
intellectual property rights for possible impairment by evaluating undiscounted
cash flows. Patent and intellectual property rights are written down to their
estimated net recoverable amount when a permanent decline is identified.

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.

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 period presented was primarily due to fluctuations
in the exchange rates between the Company's reporting currency and the Canadian
dollar.



                                      F-11
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

CHANGE IN ACCOUNTING POLICY

STOCK-BASED COMPENSATION

Consistent with year ended December 31, 2002, 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.

Effective January 1, 2003, the Corporation adopted the fair value method of
accounting for stock-based employee compensation plans, which is the method of
accounting defined in Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation. Under the fair value method of
accounting, compensation cost is measured based on the fair value of the award
at the grant date and recognized over the service period.

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.
The Company has elected to use the modified prospective method of transition.
Under this method, stock-based employee compensation cost will be 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. Prior period financial statements will not be
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.

                                      F-12
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Assumptions used in Black-Scholes options pricing model:

---------------------------------------------------------
Expected dividend yield                            0.00%
Expected volatility                              109.19%
Risk-free interest rate                            3.63%
Expected life (years)                              2.98
=========================================================

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

Prior to 2003, the Company accounted for stock-based compensation in accordance
with Accounting Principles Board Opinion (APB) 25, "Accounting for Stock Issued
to Employees", and related interpretations. Up to December 31, 2002,
compensation cost of $132,000 was recorded using the intrinsic value method.

The following outlines the impact and the assumptions used if the December 31,
2002 compensation cost for 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)
     =======================================================

For the year ended December 31, 2003, the Company recorded compensation cost of
approximately $514,000, of which approximately $112,000 ($0.006 per basic share)
relates to prior to 2003.

                                      F-13
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements No. 143, "Accounting for Asset Retirement Obligations"("SFAS 143").
SFAS 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and normal use of the asset. SFAS 143 requires that the fair value
of a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. SFAS
143 is effective for fiscal years beginning after June 15, 2002. The adoption of
SFAS 143 in fiscal 2003 did not have a material effect on the consolidated
financial statements.

In August 2001, the FASB issued Statement No. 144 "Accounting for the Impairment
or Disposal of Long-Lived" ("SFAS 144"). While SFAS 144 supersedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", it retains many of the fundamental
provisions of that Statement. SFAS 144 is effective for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years. The
adoption of SFAS 144 in fiscal 2002 did not have a material effect on the
consolidated financial statements.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS 4"). SFAS 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" ("SFAS 4") and amends other existing authoritative
pronouncements. As a result of SFAS 145, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB
30"). Applying the provision of APB 30 will distinguish transactions that are
part of an entity's recurring operations from those that are unusual or
infrequent or that meet the criteria for classification as an extraordinary
item. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The
adoption of SFAS 145 in fiscal 2003 did not have a material effect on the
consolidated financial statements.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 replaces
EITF Issued No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)". SFAS 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS 146 did not have a material effect on our consolidated
financial statements.



                                      F-14
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation requires
companies to recognize an initial liability for the fair value of an obligation
assumed when issuing a guarantee. The provision for initial recognition and
measurement of the liability will be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of FIN 45
did not materially affect the Company's consolidated financial statements.

In April 2003, the Financial Accounting Standards Board issued Statement No. 149
(SFAS 149), "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003. The
adoption of SFAS 149 did not have a material effect on the Company's financial
position or results of operations.

In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement
No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity". SFAS 150 establishes standards
for how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. SFAS 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS 150 did not have a material effect on
the Company's financial position or results of operations.

In December 2003, the Financial Accounting Standards Board reissued
Interpretation No. 46, or FIN 46R, "Consolidation of Variable Interest
Entities." FIN 46R requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A variable interest entity either (a) does
not have equity investors with voting rights, or (b) has equity investors that
do not provide sufficient financial resources to the entity to support its
activities. FIN 46R is required to be applied to all entities subject to it no
later than the end of the first reporting period that ends after December 15,
2004, unless the Company had already implemented the requirements of FIN 46 in
which case, the Company would continue to account for these entities under the
original pronouncement until FIN 46R becomes effective. The adoption of FIN 46R
is not expected to have a material impact on the results of operations or
financial condition.



                                      F-15
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


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 are to be
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 is automatically
redeemable (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 anniversary of the
Closing Date and to be issued on the second anniversary 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.

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
     ===========================================================================

                                      F-16
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


4.   BUSINESS ACQUISITION (CONT'D)

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.   TERM DEPOSITS

Term deposits bear interest at rates varying between 1.4% and 2.1% per annum,
and mature no later than December 2004.

6.   FIXED ASSETS

<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
     ==========================================================================================

                                                                 Accumulated           2002
                                                                Amortization       Net Carrying
                                                   Cost       and Depreciation        Amount
     ------------------------------------------------------------------------------------------
     Computer hardware                        $      40,789    $        6,720    $       34,069
     Computer software                               58,702             8,805            49,897
     Furniture and fixtures                          32,133             3,782            28,351
     Laboratory and production equipment             20,254             3,038            17,216
     Leasehold improvements                          17,542             4,679            12,863
     Domain names                                     2,787               484             2,303
     ------------------------------------------------------------------------------------------

                                              $     172,207    $       27,508    $      144,699
     ==========================================================================================
</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, 2003
(EXPRESSED IN U.S. FUNDS)


7.   COMMITMENTS AND CONTINGENCIES

COMMITMENTS

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

     2004                                            $    134,000
     2005                                                 136,000
     2006                                                 142,000
     2007                                                 148,000
     2008                                                  50,000

The Company has agreed to issue 225,000 common shares to employees of the
Company, subject to continued employment, as follows:

     On or after June 10, 2004                       125,000 shares
     On or after June 10, 2005                       100,000 shares

CONTINGENCIES

On April 9, 2003 Dreampak LLC ("Dreampak") brought an action against the Company
in the US District Court for the Eastern District of Wisconsin seeking a
declaratory judgment that Dreampak was not in violation of a May 13, 2002
confidentiality agreement (the "Confidentiality Agreement") between the parties.
On April 22, 2003, the Company brought an action in the US District Court for
the District of New Jersey asserting claims for breach of the Confidentiality
Agreement, misappropriation of trade secrets, breach of fiduciary duty and
tortious interference with prospective business relations. Following the filing
of the New Jersey action, Dreampak filed an amended complaint in the Wisconsin
action alleging the Company had misappropriated Dreampak's trade secrets by
incorporating information learned from Dreampak into the Company's creatine
based nutritional supplement product. Dreampak also asserted these claims as
counterclaims in the New Jersey action. On May 6, 2003, the Company filed an
amended complaint in the New Jersey action seeking (i) a declaratory judgment
that the Company is not violating any rights of Dreampak, and (ii) making a
business disparagement claim based on Dreampak's false assertion to the
Company's contract manufacturer that their manufacturer of the Company's
"Actijube" products involves them in a theft of trade secrets.

In the New Jersey action, the Company has obtained a temporary restraining order
enjoining Dreampak from marketing and producing any products utilizing
information disclosed to Dreampak pursuant to the Confidentiality Agreement. On
December 30, 2003, this restraining order was vacated.

In the opinion of management, the actions brought against the Company are
without merit and accordingly, no provision has been made in the accounts for
these claims.

Professional fees incurred during the year ended December 31, 2003 related to
the above matters were approximately $699,000.


                                      F-18
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


8.   CAPITAL STOCK

                                                                2003       2002
================================================================================
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 -

  1,666,667  (2002 - 3,333,334) Series A preferred shares     $ 1,667    $ 3,333
 20,762,194  (2002 - 10,329,793) common shares                  3,735        816
--------------------------------------------------------------------------------
                                                              $ 5,402    $ 4,149
================================================================================

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.

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.


                                      F-19
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


8.   CAPITAL STOCK (CONT'D)

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.

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.


                                      F-20
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


8.   CAPITAL STOCK (CONT'D)

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.

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.

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.


                                      F-21
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


8.   CAPITAL STOCK (CONT'D)

STOCK OPTION PLAN

By virtue of a stock option plan, 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 vest
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.

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.

As at December 31, 2003, 2,227,500 (2002 - 2,210,000) options were outstanding
of which 1,335,000 (2002 - 250,000) were exercisable and the average remaining
contractual life of all options outstanding was approximately three years and
ten months (2002 - four years and nine months).


                                      F-22
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


8.   CAPITAL STOCK (CONT'D)

The number of options has varied as follows:

                                                                     WEIGHTED
                                                                      AVERAGE
                                                     SHARES       EXERCISE PRICE
     ---------------------------------------------------------------------------
     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
     ===========================================================================

9.   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.

Of the 2,227,500 options outstanding at December 31, 2003, 2,142,500 were
anti-dilutive.

10.  STATEMENT OF CASH FLOWS ADDITIONAL INFORMATION

Changes in non-cash operating elements of working capital:

                                                      2003              2002
     ---------------------------------------------------------------------------
     Accounts receivable                          $   (745,186)     $    (7,476)
     Inventories                                      (321,853)         (61,145)
     Deposits and prepaid expenses                    (220,820)        (121,822)
     Investment tax credits receivable                    2,556        (112,581)
     Accounts payable and accrued liabilities           425,513          275,547
     ---------------------------------------------------------------------------

                                                  $   (859,790)     $   (27,477)
     ===========================================================================


                                      F-23
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


10.  STATEMENT OF CASH FLOWS ADDITIONAL INFORMATION (CONT'D)

Cash interest paid during the year amounted to $Nil (2002 - $2,424).

Non-cash investing and financing activities are as follows:

     On April 3, 2002, the Company received an assignment of receivables of
     $584,615 from the holders as a contribution to capital.

     On October 8, 2002, the Company issued 48,127 common shares as settlement
     of a loan payable of $18,000.

     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.

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

11.  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, 2003, there were tax losses of approximately $5,000,000 that
may be applied against earnings of future years.


                                      F-24
<PAGE>

VITALSTATE, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 18, 2001) TO DECEMBER 31, 2003
(EXPRESSED IN U.S. FUNDS)


12.  RELATED PARTY TRANSACTIONS

The following table summarizes the Company's related party transactions,
measured at the exchange amount which is the amount of the consideration
established and agreed to by the related parties.

                                                             2003      2002
     ---------------------------------------------------------------------------
     Paid to companies of which a shareholder of
       the Company is a shareholder:
       Research and development expenses                    $85,900   $64,700
       Office and administration expenses                        --     8,600
       License expenses                                          --     1,600
     Paid to a member of the immediate family of
       a shareholder:
       Rent expense                                          14,700     7,300

13.  MAJOR CUSTOMERS

Four customers each account for more than 10% of the Company's sales. Sales to
these customers represent approximately 46%, 12%, 12% and 11%, respectively, of
the Company's sales.

14.  SUBSEQUENT EVENTS

a)   On February 11, 2004, the Company cancelled 400,000 of its stock options
     outstanding.

b)   On February 10, 2004 and March 2, 2004, the Company borrowed $200,000 and
     $800,000, respectively, from a shareholder. The loans, bearing interest at
     8% per annum, are due on demand no later than December 2004. As security
     for the loans, the Company has pledged its current assets.

                                      F-25