----

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| x      | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934     |
|--------|----------------------------------------------------------------------------------------------------|
|   | For      the fiscal year ended December 31, 2008                                                   |
|   |                                                                                               |
| o      | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|   | For      the transition period from _______________________to      _________________________       |

| Delaware                            | 22-3367588               |
|-------------------------------------|--------------------------|
| (State      or jurisdiction of      | (I.R.S.      Employer    |
| incorporation      or organization) | Identification      No.) |

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| Large      accelerated filer  ̈                                                                   | Accelerated      filer  ̈         |
|-------------------------------------------------------------------------------------------------------|---------------------------------------|
| Non-accelerated      filer    ̈ (Do not check if      a smaller reporting company) | Smaller      reporting company ý |

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| Note      Concerning Forward Looking Information | 4                                                                                                                      |
|--------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|                                             |                                                                                                                   |   |
| PART      I                                      |                                                                                                                   |   |
|                                             |                                                                                                                   |   |
| ITEM      1.                                     | BUSINESS.                                                                                                              | 5 |
| ITEM      1A.                                    | RISK      FACTORS                                                                                                      | 11 |
| ITEM      1B.                                    | UNRESOLVED      STAFF COMMENTS                                                                                         | 11 |
| ITEM      2.                                     | PROPERTIES                                                                                                             | 12 |
| ITEM      3.                                     | LEGAL      PROCEEDINGS                                                                                                 | 12 |
| ITEM      4.                                     | SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                               | 12 |
|                                             |                                                                                                                   |   |
| PART      II                                     |                                                                                                                   |   |
|                                             |                                                                                                                   |   |
| ITEM      5.                                     | MARKET      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND  ISSUER      PURCHASES OF EQUITY SECURITIES. | 12 |
| ITEM      6.                                     | SELECTED      FINANCIAL DATA                                                                                           | 13 |
| ITEM      7.                                     | MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL                                                                 |   |
|                                             | CONDITION      AND RESULTS OF OPERATIONS                                                                               | 13 |
| ITEM      7A.                                    | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                                                       | 17 |
| ITEM      8.                                     | FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA                                                                       | 17 |
| ITEM      9.                                     | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                                                                  |   |
|                                             | ACCOUNTING      AND FINANCIAL DISCLOSURE                                                                               | 17 |
| ITEM      9A(T)                                  | CONTROLS      AND PROCEDURES                                                                                           | 17 |
| ITEM      9B.                                    | OTHER      INFORMATION                                                                                                 | 18 |
|                                             |                                                                                                                   |   |
| PART      III                                    |                                                                                                                   |   |
|                                             |                                                                                                                   |   |
| ITEM      10.                                    | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.                                                           | 18 |
| ITEM      11.                                    | EXECUTIVE      COMPENSATION                                                                                            | 21 |
| ITEM      12.                                    | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS               | 26 |
| ITEM      13.                                    | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR      INDEPENDENCE                                     | 28 |
| ITEM      14.                                    | PRINCIPAL      ACOUNTING FEES AND SERVICES                                                                             | 29 |
|                                             |                                                                                                                   |   |
| PART      IV                                     |                                                                                                                   |   |
|                                             |                                                                                                                   |   |
| ITEM      15.                                    | EXHIBITS,      FINANCIAL STATEMENT SCHEDULES                                                                           | 30 |

----

|   | ● | The      development of new products and the expansion of the market for our      current products;             |
|--------|---------|-----------------------------------------------------------------------------------------------------------------|
|   | ● | Implementing      aspects of our business plans;                                                                |
|   | ● | Financing      goals and plans;                                                                                 |
|   | ● | Our      existing cash and whether and how long these funds will be sufficient to      fund our operations; and |
|   | ● | Our      raising of additional capital through future equity      financings.                                   |

----

| ITEM      1. | BUSINESS. |
|--------------|-----------|

----

----

----

----

----

----

| ITEM      1A. | RISK      FACTORS |
|---------------|-------------------|

| ITEM      1B. | UNRESOLVED      STAFF COMMENTS |
|---------------|--------------------------------|

----

| ITEM      2. | PROPERTIES |
|--------------|------------|

| ITEM      3. | LEGAL      PROCEEDINGS |
|--------------|------------------------|

| ITEM      4. | SUBMISSION      OF MATTERS TO A VOTE OF SECURITYHOLDERS |
|--------------|---------------------------------------------------------|

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

| Year ended December 31,2008 |   | High   |   |   | Low    |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|
|                        |   |   |   |   |   |   |
| First      Quarter          |   | $      | 0.68   |   |   | $      | 0.40 |   |
| Second      Quarter         |   | $      | 0.53   |   |   | $      | 0.28 |   |
| Third      Quarter          |   | $      | 0.30   |   |   | $      | 0.22 |   |
| Fourth      Quarter         |   | $      | 0.30   |   |   | $      | 0.12 |   |
|                        |   |   |   |   |   |   |   |   |
| Year ended December 31,2007 |   | High   |   |   | Low    |   |
|                        |   |   |   |   |   |   |   |   |
| First      Quarter          |   | $      | 2.35   |   |   | $      | 1.08 |   |
| Second      Quarter         |   | $      | 2.65   |   |   | $      | 1.65 |   |
| Third      Quarter          |   | $      | 3.38   |   |   | $      | 1.55 |   |
| Fourth      Quarter         |   | $      | 1.80   |   |   | $      | 0.55 |   |

----

| 5(d) | Recent      Sales of Unregistered Securities |
|------|----------------------------------------------|

| ITEM      6. | SELECTED      FINANCIAL DATA |
|--------------|------------------------------|

| ITEM      7. | MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS |
|--------------|-------------------------------------------------------------------------------------------------|

----

----

----

----

| ITEM      7A. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK |
|---------------|----------------------------------------------------------------|

| ITEM      8. | FINANCIAL      STATEMENTS |
|--------------|---------------------------|

| ITEM      9. | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE |
|--------------|------------------------------------------------------------------------------------------------|

| ITEM      9A(T) | CONTROLS      AND PROCEDURES |
|-----------------|------------------------------|

----

|   | (i)    | pertain      to the maintenance of records that, in reasonable detail, accurately and      fairly reflect the transactions and dispositions of the assets of the      company;                                                                                                                                                                                            |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
|   | (ii)   | provide      reasonable assurance that transactions are recorded as necessary to permit      preparation of financial statements in accordance with U.S. generally      accepted accounting principles, and that receipts and expenditures of the      company are being made only in accordance with authorizations of      management and directors of the company; and |
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
|   | (iii)  | provide      reasonable assurance regarding prevention or timely detection of      unauthorized acquisition, use or disposition of the company’s assets that      could have a material effect on the financial  statements.                                                                                                                                        |

| ITEM      9B | OTHER      INFORMATION |
|--------------|------------------------|

| ITEM      10. | DIRECTORS,      EXECUTIVE OFFICERS, AND CORPORATE      GOVERNANCE |
|---------------|-------------------------------------------------------------------|

| Name                                                                   | Position                                                                                                    |
|------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                                                   |                                                                                                        |
| Robert      Portman, Ph.D.                                             | Chairman      of the Board of Directors                                                                     |
| Jason      AshStephen      P. Kuchen                                   | President,      Chief Executive Officer, and DirectorChief      Financial Officer, Treasurer, and Secretary |
| David      PortmanMichael      CahrAdam      MizelMarc      Particelli | DirectorDirector      1,2,3Director      1,2Director      2,3                                               |
|                                                                   |                                                                                                        |

----

----

----

|   | o | The      Statement of Changes in Beneficial Ownership of Securities on Form 4 filed      by Robert Portman was filed late. This Form 4 disclosed the acquisition by      Dr. Portman of shares of our common stock at market prices on June 25,      2008, June 27, 2008, July 7, 2008 and July 11,  2008. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ITEM      11. | EXECUTIVE      COMPENSATION |
|---------------|-----------------------------|

| Name      and PrincipalPosition |   | Year   |   | Salary($) |    |   | Bonus($) |   |    | StockAwards($) |   |   | OptionAwards($) |   | Non-Equity      IncentivePlanCompen-sation($) |   |    | Nonqualified      Deferred Compensa-tion      Earnings($) |   |   | All      Other Compensa-tion ($) |   |   | Total      ($) |    |
|---------------------------------|--------|--------|--------|-----------|---------|--------|----------|--------|---------|----------------|--------|--------|-----------------|--------|-----------------------------------------------|--------|---------|-----------------------------------------------------------|--------|--------|----------------------------------|--------|--------|----------------|---------|
| (a)                             |   | (b)    |   | (c)       |    |   | (d)      |   |    | (e)            |   |   | (f)             |   | (g)                                           |   |    | (h)                                                       |   |   | (i)                              |   |   | (j)            |    |
|                            |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Jason      Ash,                 |   | 2008   |   | $         | 295,000 | (1)    |     |   | — |           |   |   | —         |   |                                          | $      | 79,352  | (2)                                                       |   |   | —                          |   |   |           | — |   |   | $ | 55,000 | (1) |   | $ | 429,352 |   |
| President,      Chief           |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Executive      Officer and      |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| a      Director                 |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
|                            |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
|                            |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Robert      Portman,            |   | 2008   |   | $         | 172,083 | (3)    |     |   | — |           |   |   | —         |   |                                          | $      | 216,883 | (2)(3)                                                    |   |   | —                          |   |   |           | — |   |   | $ | 129,740 | (4) |   | $ | 518,706 |   |
| Chairman      of the            |   | 2007   |   | $         | 295,000 |   |     |   | — |           |   |   | —         |   |                                          | $      | 134,484 | (2)                                                       |   |   | —                          |   |   |           | — |   |   | $ | 11,700 | (5) |   | $ | 441,184 |   |
| Board,      Chief               |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Executive      Officer,         |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| President      and Chief        |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Scientific      Officer         |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
|                            |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
|                            |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Stephen      P. Kuchen,         |   | 2008   |   | $         | 154,500 |   |     |   | — |           |   |   | —         |   |                                          | $      | 32,439  | (2)                                                       |   |   | —                          |   |   |           | — |   |   | $ | 0 | (6) |   | $ | 186,939 |   |
| Chief      Financial            |   | 2007   |   | $         | 150,000 |   |     | $      | 4,000   |           |   |   | —         |   |                                          | $      | 43,528  | (2)                                                       |   |   | —                          |   |   |           | — |   |   | $ | 0 | (6) |   | $ | 197,528 |   |
| Officer,      Treasurer,        |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
| and      Secretary              |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |
|                            |   |   |   |      |    |   |     |   |    |           |   |   |            |   |                                          |   |    |                                                      |   |   |                             |   |   |           |    |   |   |   |   |   |   |   |   |   |

----

----

|  Executive      Officer | Number      of Shares of CommonStock      Underlying Options |  Exercise      Price |  Grant      Date   |
|------------------------------|--------------------------------------------------------------|---------------------------|-------------------------|
| Stephen      Kuchen          | 50,000                                                       | $0.23                     | September      17, 2008 |

----

|                       |   | Option      Awards                                                   |    |   | Stock      Awards                                                        |   |
|----------------------------|--------|----------------------------------------------------------------------|---------|--------|--------------------------------------------------------------------------|--------|
| Name                       |   | NumberofSecurities      Underlying Unexercised Options(#)Exercisable |    |   | Number      of Securities Underlying Unexercised Options(#)Unexercisable |   |   | Equity      Incentive Plan Awards: Number of Securities Underlying Unexercised      Unearned Options(#) |   |   | Option      Exercise Price($) |   |   | Option      Expiration Date |   |   | Number      of Shares or Units of Stock That Have Not Vested(#) |   |   | Market      Value of Shares or Units of Stock That Have Not Vested($) |   |   | Equity      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights      That Have Not Vested(#) |   |   | Equity      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or      Other Rights That Have Not Vested($) |   |
| (a)                        |   | (b)                                                                  |    |   | (c)                                                                      |   |   | (d) |   |   | (e) |   |   | (f) |   |   | (g) |   |   | (h) |   |   | (i) |   |   | (j) |   |
|                       |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Jason      Ash,            |   |                                                                 | — |   |                                                                     |   | 600,000 | (1) |   |   | — |   |   | $ | 0.65 |   |   | 01/13/2013 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| President,      Chief      |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Executive      Officer and |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| a      Director            |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stephen      P. Kuchen,    |   |                                                                 | — |   |                                                                     |   | 50,000 | (2) |   |   | — |   |   | $ | 0.23 |   |   | 09/17/2013 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Chief      Financial       |   |                                                                 | 33,333  | (3)    |                                                                     |   | 16,667 | (3) |   |   | — |   |   | $ | 1.13 |   |   | 12/13/2011 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Officer,      Treasurer,   |   |                                                                 | 66,666  | (4)    |                                                                     |   | 33,334 | (4) |   |   | — |   |   | $ | 0.60 |   |   | 02/13/2011 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and      Secretary         |   |                                                                 | 120,000 | (5)    |                                                                     |   | — |   |   |   | — |   |   | $ | 0.70 |   |   | 10/01/2009 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |   |                                                                 |    |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | (1)    | These      options vest in four equal annual installments beginning on January 3,      2009.    |
|--------|--------|-------------------------------------------------------------------------------------------------|
|   |   |                                                                                            |
|   | (2)    | These      options vest in four equal annual installments beginning on September 17,      2009. |
|   |   |                                                                                            |
|   | (3)    | These      options vest in three equal annual installments beginning on December 13,      2007. |
|   |   |                                                                                            |
|   | (4)    | These      options vest in three equal annual installments beginning on February 13,      2007. |
|   |   |                                                                                            |
|   | (5)    | These      options vested in four equal annual installments beginning on October 1,      2004.  |

----

----

| Name                              |   | Fees      Earned orPaid      inCash($) |          |   | StockAwards($) |    |         | OptionAwards($) |   |    | Non-EquityIncentive      PlanCompensation($) |      |   | NonqualifiedDeferredCompensationEarnings($) |          |   | All      OtherCompensation($) |   |          | Total($) |   |
|-----------------------------------|--------|----------------------------------------|---------------|--------|----------------|---------|--------------|-----------------|--------|---------|----------------------------------------------|-----------|--------|---------------------------------------------|---------------|--------|-------------------------------|--------|---------------|----------|--------|
| (a)                               |   | (b)                                    |          |   | (c)            |    |         | (d)             |   |    | (e)                                          |      |   | (f)                                         |          |   | (g)                           |   |          | (h)      |   |
|  David      I. Portman  |   |                                   | —  |   |           | $  | 19,100  |            |   | $  | 28,425                                  | (1)  |   |                                        | —  |   |                          |   | —  |     |   |   | —  |   |   | $  | 47,525  |   |
|  Michael      Cahr      |   |                                   | —  |   |           | $  | 19,100  |            |   | $  | 28,425                                  | (1)  |   |                                        | —  |   |                          |   | —  |     |   |   | —  |   |   | $  | 47,525  |    |
|  Adam      Mizel        |   |                                   | —  |   |           | $  | 19,100  |            |   | $  | 18,980                                  | (1)  |   |                                        | —  |   |                          |   | —  |     |   |   | —  |   |   | $  | 38,080  |    |
|  Marc      Particelli   |   |                                   | —       |   |           | $  | 19,100  |            |   | $  | 18,980                                  | (1)  |   |                                        | —  |   |                          |   | —  |     |   |   | —  |   |   | $  | 38,080  |    |
|  Robert      Portman    |   |                                   | —       |   |           | $  | 12,500  |            |   |    | —                                 |      |   |                                        | —  |   |                          |   | —  |     |   |   | —  |   |   | $  | 12,500  |    |

| ITEM      12. | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS |
|---------------|----------------------------------------------------------------------------------------------------------|

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| Name and Address (1)                                                                           |   | Common Stock (2)Amount Beneficially Owned |      |   | Common Stock (2)Percentage of Class |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|-------------------------------------|--------|
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Jason      Ash (3)President,      Chief Executive Officer and a Director                       |   |                                      | 458,000   |   |                                |   | 3.1 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Stephen      P. Kuchen (4)Vice      President, Chief Financial Officer, Secretary andTreasurer |   |                                      | 274,030   |   |                                |   | 1.9 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Robert      Portman (5)Chairman      of the Board and a Director                               |   |                                      | 3,325,425 |   |                                |   | 21.5 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| David      I. Portman (6)Secretary      and a Director                                         |   |                                      | 604,012   |   |                                |   | 4.1 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Michael      Cahr (7)Director                                                                  |   |                                      | 384,560   |   |                                |   | 2.6 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Adam      Mizel (8)Director                                                                    |   |                                      | 584,840   |   |                                |   | 4.0 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Marc      Particelli (9)Director                                                               |   |                                      | 216,114   |   |                                |   | 1.5 | % |
|                                                                                           |   |                                      |      |   |                                |   |   |   |
| Executive      Officers and Directors as a group (7 persons)                                   |   |                                      | 5,846,981 |   |                                |   | 36.2 | % |

| (1)    | Except      as otherwise indicated, the address of each person named in the above      table is c/o PacificHealth Laboratories, Inc., 100 Matawan Road, Suite      420, Matawan,   NJ 07747.                                                                                                                                                                                                                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (2)    | Common      Stock which is issuable upon the exercise of a stock option which is      presently exercisable or which becomes exercisable within sixty days is      considered outstanding for the purpose of computing the percentage      ownership (x) of persons holding such options, and (y) of officers and      directors as a group with respect to all options held by officers and      directors.                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (3)    | Includes      150,000 shares issuable upon the exercise of options not under any      Incentive Stock plan (“NON-ISO”).                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (4)    | Includes      133,334 shares issuable upon the exercise of options granted under our      1995 Plan and 120,000 shares issuable upon the exercise of options granted      not covered under any Plan (“NON-ISO”).                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (5)    | Includes      1,025,000 shares issuable upon the exercise of options not under any      Incentive Stock plan (“NON-ISO”). Does not include 200,000 shares of      Common Stock owned by Jennifer Portman, Dr. Portman's wife, individually      and as Trustee for his and her minor children, as to which Dr. Portman      disclaims beneficial ownership.                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (6)    | Includes      70,000 shares issuable upon the exercise of options granted under our 1995      Plan and 35,000 shares issuable upon the exercise of options granted under      our 2000 Plan.                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (7)    | Includes      40,000 shares issuable upon the exercise of options granted under our 1995      Plan and 20,000 shares issuable upon the exercise of options granted under      our 2000 Plan.                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (8)    | Includes      447,780 shares that are owned by Aquifer Opportunity Fund, L.P., of which      Mr. Mizel is the managing principal of the general partner and 40,000      shares issuable upon the exercise of options granted under our 2000      Plan.  Mr. Mizel disclaims beneficial ownership of the shares      owned by Aquifer Opportunity Fund, L.P. except to the extent of his      pecuniary interest therein. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (9)    | Includes      40,000 shares issuable upon the exercise of options granted under our 2000      Plan.                                                                                                                                                                                                                                                                                                                                |

----

| Plan      Category                                              |   | Number      of securities to be issued upon exercise ofoutstanding      options,warrants      and rights |      |   | Weighted-average      exerciseprice      of outstandingoptions,      warrants and rights |   |   | Number      of securitiesremaining      available forfuture      issuance underequity      compensation plans (excluding securitiesreflected      in column (a)) |   |
|-----------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|-----------|--------|------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                            |   | (a)                                                                                                      |      |   | (b)                                                                                      |   |   | (c)                                                                                                                                                              |   |
| Equity      compensation plans approved by security holders     |   |                                                                                                     | 547,250   |   |                                                                                     | $      | 0.85   |                                                                                                                                                             |   |   | 410,250 |   |
| Equity      compensation plans not approved by security holders |   |                                                                                                     | 2,395,000 |   |                                                                                     | $      | 0.62   |                                                                                                                                                             |   |   | N/A |   |
| Total                                                           |   |                                                                                                     | 2,942,250 |   |                                                                                     | $      | 0.66   |                                                                                                                                                             |   |   | 410,250 |   |

| ITEM      13. | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR      INDEPENDENCE |
|---------------|------------------------------------------------------------------------------------|

----

| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND      SERVICES |
|----------|---------------------------------------------|

| Fee      Category        |   | Fiscal 2008 |       |   | Fiscal 2007 |   |
|--------------------------|--------|-------------|------------|--------|-------------|--------|
| Audit      Fees1    |   | $           | 95,875     |   |        | $      | 90,463 |   |
| Audit-Related      Fees2 |   | $           | - 0      - |   |        | $      | - 0      - |   |
| Tax      Fees3           |   | $           | 3,300      |   |        | $      | 10,105 |   |
| All      Other Fees4     |   | $           | - 0 -      |   |        | $      | 5,000 |   |
| TOTAL                    |   | $           | 99,175     |   |        | $      | 105,568 |   |

----

| ITEM      15. | EXHIBITS |
|---------------|----------|

----

| By:    | /s/Jason Ash                                         |   |
|--------|------------------------------------------------------|--------|
|   | Jason      Ash, President and Chief ExecutiveOfficer |

| /s/Jason Ash           |   | Director,      President and Chief      |   | March      2, 2009 |
|------------------------|--------|-----------------------------------------|--------|--------------------|
| Jason      Ash         |   | Executive      Officer (Principal       |   |               |
|                   |   | Executive      Officer)                 |   |               |
|                   |   |                                    |   |               |
| /s/Stephen P. Kuchen   |   | Chief      Financial Officer (Principal |   | March      2, 2009 |
| Stephen      P. Kuchen |   | Financial      and Accounting Officer)  |   |               |
|                   |   | and      Secretary                      |   |               |
|                   |   |                                    |   |               |
| /s/Robert Portman      |   | Chairman      of the Board and Director |   | March      2, 2009 |
| Robert      Portman    |   |                                    |   |               |
|                   |   |                                    |   |               |
| /s/David I. Portman    |   | Director                                |   | March      2, 2009 |
| David      I. Portman  |   |                                    |   |               |
|                   |   |                                    |   |               |
| /s/Michael Cahr        |   | Director                                |   | March      2, 2009 |
| Michael      Cahr      |   |                                    |   |               |
|                   |   |                                    |   |               |
| /s/ Adam Mizel         |   | Director                                |   | March      2, 2009 |
| Adam      Mizel        |   |                                    |   |               |
|                   |   |                                    |   |               |
| s/ Marc Particelli     |   | Director                                |   | March      2, 2009 |
| Marc      Particelli   |   |                                    |   |               |

----

|             |   |                                                                  | Incorporated      |
|------------------|--------|-----------------------------------------------------------------------|-------------------|
| Exhibit      No. |   | Description                                                           | by      Reference |
| 3.1              | --     | Certificate      of Incorporation of PacificHealth Laboratories, Inc. |              |
|             |   | and      all amendments thereto                                       | A                 |
|             |   |                                                                  |              |
| 3.2              | --     | Amended      and Restated Bylaws of PacificHealth                     |              |
|             |   | Laboratories,      Inc.                                               | C                 |
|             |   |                                                                  |              |
| 3.3              | --     | Certificate      of Amendment of Certificate of                       | H                 |
|             |   | Incorporation      of PacificHealth Laboratories, Inc.                |              |
|             |   |                                                                  |              |
| 3.4              |   | Certificate      of Designations For Series A Preferred Stock         | I                 |
|             |   |                                                                  |              |
| 4.1              | --     | Specimen      Common Stock Certificate                                | C                 |
|             |   |                                                                  |              |
| 4.2              | --     | Stock      Purchase Agreement dated June 1, 2001                 |              |
|             |   | between      Pacific Health Laboratories, Inc. and                    |              |
|             |   | Glaxo      Wellcome International B.V.                                | E                 |
|             |   |                                                                  |              |
| 10.1†      | --     | Incentive      Stock Option Plan of 1995                              | A                 |
|             |   |                                                                  |              |
|             |   |                                                                  |              |
| 10.2             | --     | Strategic      Alliance Agreement between the Company                 | A                 |
|             |   | and      the Institute of Nutrition and Food Hygiene                  |              |
|             |   |                                                                  |              |
| 10.3             | --     | Exclusive      Licensing Agreement between the                        |              |
|             |   | Company      and the INFH                                             | A                 |
|             |   |                                                                  |              |
| 10.4             | --     | Shareholders      Agreement                                           | A                 |
|             |   |                                                                  |              |
| 10.5†      | --     | 2000      Incentive Stock Option Plan                                 | D                 |
|             |   |                                                                  |              |
|             |   |                                                                  |              |
| 10.6†      |   | Employment      Extension Agreement between PacificHealth             | J                 |
|             |   | Laboratories,      Inc. and Robert Portman effective                  |              |
|             |   | September      1, 2004, executed February 28, 2006                    |              |
|             |   |                                                                  |              |
| 10.8             |   | Asset      Purchase Agreement dated February 22, 2006                 | L                 |
|             |   | between      PacificHealth Laboratories, Inc. and Mott’s        |              |
|             |   | LLP      (redacted, subject to request for confidential treatment)    |              |
|             |   |                                                                  |              |
| 10.9             |   | License      Agreement dated February 22, 2006                        | L                 |
|             |   | between      PacificHealth Laboratories, Inc. and Mott’s        |              |
|             |   | LLP      (redacted, subject to request for confidential treatment)    |              |
|             |   |                                                                  |              |
| 10.10            |   | Consulting,      License and Noncompetition Agreement dated           | L                 |
|             |   | February      22, 2006 among PacificHealth Laboratories, Inc.,        |              |
|             |   | Mott’s      LLP, and Robert Portman (redacted, subject to       |              |
|             |   | request      for confidential treatment)                              |              |
|             |   |                                                                  |              |
| 10.11†     |   | Option      Certificate for grant to Robert Portman                   | M                 |

----

| 10.12† |   | Option      Certificate for grant to Stephen Kuchen under      |   |
|--------------|--------|----------------------------------------------------------------|--------|
|         |   | the      PacificHealth Laboratories, Inc. 1995 Incentive Stock |   |
|         |   | Option      Plan.                                              | M      |
|         |   |                                                           |   |
| 10.13        |   | Form      of Stock Purchase Agreement entered into among       |   |
|         |   | the      Company, Aquifer Opportunity Fund, L.P.               |   |
|         |   | and      Marc C. Particelli.                                   | N      |
|         |   |                                                           |   |
| 10.14        |   | Form      of Grant Instrument under PacificHealth              |   |
|         |   | Laboratories,      Inc. 2000 Incentive Stock Option Plan       |   |
|         |   | for      Adam M. Mizel.                                        | N      |
|         |   |                                                           |   |
| 10.15        |   | Form      of Grant Instrument under PacificHealth              |   |
|         |   | Laboratories,      Inc. 2000 Incentive Stock Option Plan       |   |
|         |   | for      Marc C. Particelli                                    | N      |
|         |   |                                                           |   |
| 10.16        |   | Employment      Agreement, effective January 3, 2008,          |   |
|         |   | by      and between PacificHealth Laboratories, Inc. and       |   |
|         |   | Jason      Ash                                                 | O      |
|         |   |                                                           |   |
| 10.17        |   | Separation      and Release Agreement, effective               |   |
|         |   | August      1, 2008, by and between PacificHealth              |   |
|         |   | Laboratories,      Inc. and Robert Portman                     | P      |
|         |   |                                                           |   |
| 10.18        |   | Amendment      No. 1 to Employment Agreement, by               |   |
|         |   | And      between PacificHealth Laboratories, Inc. and          |   |
|         |   | Jason      Ash, effective August 1, 2008                       | P      |
|         |   |                                                           |   |
| 10.19† |   | Summary      of Compensation for Executive Officers            |   |
|         |   | of      PacificHealth Laboratories, Inc.                       | *      |
|         |   |                                                           |   |
| 23.1         | --     | Consent      of Weiser LLP                                     | *      |
|         |   |                                                           |   |
| 31.1         | --     | Rule      13a-14(a) Certification of Chief Executive Officer.  | *      |
|         |   |                                                           |   |
| 31.2         | --     | Rule      13a-14(a) Certification of Chief Financial Officer.  | *      |
|         |   |                                                           |   |
| 32           | --     | Certifications      of Chief Executive Officer and             |   |
|         |   | Chief      Financial Officer pursuant to Section 906           |   |
|         |   | of      the Sarbanes-Oxley Act of 2002.                        | *      |

| *       | Filed      herewith                                                                                                                        |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------|
| † | Management      contract or management compensatory plan orarrangement.                                                                    |
|    |                                                                                                                                       |
| A       | Filed      with Registration Statement on Form SB-2 (Registration No. 333-36379) (the      “1997 SB-2”) on September 25, 1997. |
|    |                                                                                                                                       |
| B       | Filed      with Amendment No. 1 to the 1997 SB-2 on October 23,  1997.                                                                     |
|    |                                                                                                                                       |
| C       | Filed      with Amendment No. 3 to the 1997 SB-2 on December 17,  1997.                                                                    |
|    |                                                                                                                                       |
| D       | Filed      with Definitive Proxy Statement (Schedule 14A) for annual meeting held on      August 16, 2000, filed on July 11, 2000.         |
|    |                                                                                                                                       |
| E       | Filed      with Current Report on Form 8-K dated June 1, 2001, filed on      June 14, 2001.                                      |
|    |                                                                                                                                       |
| F       | Filed      with Annual Report on Form 10-KSB for the year ended December 31,      2001.                                                    |

----

| G      | Filed      with Amendment to Current Report on Form 8-K dated June 1, 2001,      filed July 5, 2001.    |
|--------|-------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                              |
| H      | Filed      with Annual Report on Form 10-KSB for the year ended December 31,      2002.                           |
|   |                                                                                                              |
| I      | Filed      as Exhibit 3.1 to Current Report on Form 8-K, dated January 24, 2005,      filed on January 28, 2005.  |
|   |                                                                                                              |
| J      | Filed      as Exhibit 10.1 to Current Report on Form 8-K, dated and filed on      September 9, 2004.              |
|   |                                                                                                              |
| K      | Filed      with Annual Report on Form 10-KSB for the year ended December 31,      2004.                           |
|   |                                                                                                              |
| L      | Filed      with Annual Report on Form 10-KSB for the year ended December 31,      2005.                           |
|   |                                                                                                              |
| M      | Filed      as Exhibit to Current Report on Form 8-K, dated December 13, 2006 and      filed on December 19, 2006. |
|   |                                                                                                              |
| N      | Filed      as Exhibit to Current Report on Form 8-K, dated February 22, 2007 and      filed February 27, 2007.    |
|   |                                                                                                              |
| O      | Filed      as Exhibit to Current Report on Form 8-K, dated November 28, 2007 and      filed December 3, 2007.     |
|   |                                                                                                              |
| P      | Filed      as Exhibit to the Annual report on Form 10-KSB filed on March 31,      2006.                           |

----

----

| Report      of independent registered public accounting firm                                           | F-1    |
|--------------------------------------------------------------------------------------------------------|--------|
|                                                                                                   |   |
| Balance      sheets as of December 31, 2008 and 2007                                                   | F-2    |
|                                                                                                   |   |
| Statements      of operations for the years ended December 31, 2008 and    2007                        | F-3    |
|                                                                                                   |   |
| Statements      of changes in stockholders' equity for the years ended December 31, 2008      and 2007 | F-4    |
|                                                                                                   |   |
| Statements      of cash flows for the years ended December 31, 2008 and    2007                        | F-5    |
|                                                                                                   |   |
| Notes      to financial statements                                                                     | F-6    |

----

----

|                                                                                                                                                     |   | December      31, |        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|
|                                                                                                                                                     |   | 2008              |        |   | 2007 |   |
|                                                                                                                                                     |   |              |        |   |   |   |
| ASSETS                                                                                                                                                   |   |              |        |   |   |   |
| Current      assets:                                                                                                                                     |   |              |        |   |   |   |
| Cash      and cash equivalents                                                                                                                           |   | $                 | 888,993     |   |   | $ | 1,712,713 |   |
| Other      short-term investments                                                                                                                        |   |              | 300,000     |   |   |   | - |   |
| Accounts      receivable, net of allowances of $24,000 and $20,000,      respectively                                                                    |   |              | 455,851     |   |   |   | 709,623 |   |
| Inventories      (including consigned inventory of approximately $156,000 and $261,000,      respectively)                                               |   |              | 1,308,316   |   |   |   | 2,010,446 |   |
| Prepaid      expenses                                                                                                                                    |   |              | 159,200     |   |   |   | 111,672 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| Total      current assets                                                                                                                                |   |              | 3,112,360   |   |   |   | 4,544,454 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| Property      and equipment, net                                                                                                                         |   |              | 236,721     |   |   |   | 185,007 |   |
| Deposits                                                                                                                                                 |   |              | 22,895      |   |   |   | 10,895 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| TOTAL      ASSETS                                                                                                                                        |   | $                 | 3,371,976   |   |   | $ | 4,740,356 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| LIABILITIES                                                                                                                                              |   |              |        |   |   |   |   |   |
| Current      liabilities:                                                                                                                                |   |              |        |   |   |   |   |   |
| Notes      payable                                                                                                                                       |   | $                 | 58,810      |   |   | $ | 16,205 |   |
| Accounts      payable and accrued expenses                                                                                                               |   |              | 555,354     |   |   |   | 472,475 |   |
| Deferred      revenue                                                                                                                                    |   |              | 347,945     |   |   |   | 559,876 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
|                                                                                                                                                     |   |              | 962,109     |   |   |   | 1,048,556 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| Commitments                                                                                                                                              |   |              |        |   |   |   |   |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| STOCKHOLDERS'      EQUITY                                                                                                                                |   |              |        |   |   |   |   |   |
| Preferred      stock, $0.01 par value; 1,000,000 shares authorized,-0-      shares issued and outstanding at December 31, 2008and      December 31, 2007 |   |              |   -    |   |   |   |   - |   |
| Common      stock, $0.0025 par value, authorized 50,000,000 shares;                                                                                      |   |              |        |   |   |   |   |   |
| issued      and outstanding 14,194,613 shares at December 31, 2008 and                                                                                   |   |              |        |   |   |   |   |   |
| 13,501,426      shares at December 31, 2007                                                                                                              |   |              | 35,486      |   |   |   | 33,754 |   |
| Additional      paid-in capital                                                                                                                          |   |              | 19,585,297  |   |   |   | 18,874,609 |   |
| Accumulated      deficit                                                                                                                                 |   |              | (17,210,916 | ) |   |   | (15,216,563 | ) |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
|                                                                                                                                                     |   |              | 2,409,867   |   |   |   | 3,691,800 |   |
|                                                                                                                                                     |   |              |        |   |   |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                    |   | $                 | 3,371,976   |   |   | $ | 4,740,356 |   |

----

|                                                                      |   | Years      Ended  |       |
|---------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                      |   | December      31, |       |
|                                                                      |   | 2008              |       |   | 2007 |   |
|                                                                      |   |              |       |   |   |   |
| Revenue:                                                                  |   |              |       |   |   |   |
| Net      product sales                                                    |   | $                 | 7,235,991  |   |   | $ | 7,427,857 |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Cost      of goods sold:                                                  |   |              |       |   |   |   |   |   |
| Product      sales                                                        |   |              | 4,009,817  |   |   |   | 4,445,978 |   |
| Write-down      of inventories                                            |   |              | 201,697    |   |   |   | 439,208 |   |
|                                                                      |   |              |       |   |   |   |   |   |
|                                                                      |   |              | 4,211,514  |   |   |   | 4,885,186 |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Gross      profit                                                         |   |              | 3,024,477  |   |   |   | 2,542,671 |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Operating      expenses:                                                  |   |              |       |   |   |   |   |   |
| Sales      and marketing                                                  |   |              | 898,914    |   |   |   | 917,510 |   |
| General      and administrative                                           |   |              | 3,542,483  |   |   |   | 2,774,824 |   |
| Research      and development                                             |   |              | 150,767    |   |   |   | 211,078 |   |
| Restructuring      expense                                                |   |              | 472,069    |   |   |   | - |   |
|                                                                      |   |              |       |   |   |   |   |   |
|                                                                      |   |              | 5,064,233  |   |   |   | 3,903,412 |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Loss      before other income (expense) and provision for income    taxes |   |              | (2,039,756 | ) |   |   | (1,360,741 | ) |
|                                                                      |   |              |       |   |   |   |   |   |
| Other      income (expense):                                              |   |              |       |   |   |   |   |   |
| Interest      income                                                      |   |              | 45,575     |   |   |   | 71,734 |   |
| Interest      expense                                                     |   |              | (1,468     | ) |   |   | (3,496 | ) |
| Other      income                                                         |   |              | 1,296      |   |   |   | 16,444 |   |
|                                                                      |   |              |       |   |   |   |   |   |
|                                                                      |   |              | 45,403     |   |   |   | 84,682 |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Loss      before income taxes                                             |   |              | (1,994,353 | ) |   |   | (1,276,059 | ) |
|                                                                      |   |              |       |   |   |   |   |   |
| Provision      for income taxes                                           |   |              | -          |   |   |   | - |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Net      loss applicable to common stockholders                           |   | $                 | (1,994,353 | ) |   | $ | (1,276,059 | ) |
|                                                                      |   |              |       |   |   |   |   |   |
| Net      loss per common share - basic                                    |   | $                 | (0.15      | ) |   | $ | (0.10 | ) |
|                                                                      |   |              |       |   |   |   |   |   |
| Net      loss per common share - diluted                                  |   | $                 | (0.15      | ) |   | $ | (0.10 | ) |
|                                                                      |   |              |       |   |   |   |   |   |
| Weighted      average shares outstanding - basic                          |   |              | 13,660,019 |   |   |   | 13,313,995 |   |
|                                                                      |   |              |       |   |   |   |   |   |
| Weighted      average shares outstanding – diluted                  |   |              | 13,660,019 |   |   |   | 13,313,995 |   |

----

|                                    |   |                 |   |   |              |   |   | Additional |   |   |        |   |   |    |   |
|-----------------------------------------|--------|----------------------|--------|--------|-------------------|--------|--------|------------|--------|--------|-------------|--------|--------|---------|--------|
|                                    |   | Preferred      Stock |   |   | Common      Stock |   |   | Paid-In    |   |   | Accumulated |   |   |    |   |
|                                    |   | Shares               |   |   | Amount            |   |   | Shares     |   |   | Amount      |   |   | Capital |   |   | Deficit |   |   | Total |   |
| Balance,      January 1, 2007           |   |                 | -      |   |              | $      | -      |       |   |   | 12,776,690  |   |   | $       | 31,942 |   |   | $ | 17,867,945 |   |   | $ | (13,940,504 | ) |   | $ | 3,959,383 |   |
|                                    |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair      value of stock options issued |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   | 274,890 |   |   |   |   |   |   |   | 274,890 |   |
| Common      stock issued                |   |                 |   |   |              |   |   |       |   |   | 243,243     |   |   |    | 608    |   |   |   | 449,392 |   |   |   |   |   |   |   | 450,000 |   |
| Stock      options/warrants exercised   |   |                 |   |   |              |   |   |       |   |   | 481,493     |   |   |    | 1,204  |   |   |   | 282,382 |   |   |   |   |   |   |   | 283,586 |   |
| Net      loss                           |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   |   |   |   |   | (1,276,059 | ) |   |   | (1,276,059 | ) |
|                                    |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2007         |   |                 | -      |   |              |   | -      |       |   |   | 13,501,426  |   |   |    | 33,754 |   |   |   | 18,874,609 |   |   |   | (15,216,563 | ) |   |   | 3,691,800 |   |
|                                    |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair      value of stock options issued |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   | 473,520 |   |   |   |   |   |   |   | 473,520 |   |
| Common      stock issued                |   |                 |   |   |              |   |   |       |   |   | 500,000     |   |   |    | 1,250  |   |   |   | 148,750 |   |   |   |   |   |   |   | 150,000 |   |
| Common      stock granted to directors  |   |                 |   |   |              |   |   |       |   |   | 193,187     |   |   |    | 482    |   |   |   | 50,918 |   |   |   |   |   |   |   | 51,400 |   |
| Common      stock issuable to directors |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   | 37,500 |   |   |   |   |   |   |   | 37,500 |   |
| Net      loss                           |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   |   |   |   |   | (1,994,353 | ) |   |   | (1,994,353 | ) |
|                                    |   |                 |   |   |              |   |   |       |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2008         |   |                 | -      |   |              | $      | -      |       |   |   | 14,194,613  |   |   | $       | 35,486 |   |   | $ | 19,585,297 |   |   | $ | (17,210,916 | ) |   | $ | 2,409,867 |   |

----

|                                                                                  |   | Years      Ended December 31, |       |
|---------------------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                                  |   | 2008                          |       |   | 2007 |   |
|                                                                                  |   |                          |       |   |   |   |
| Cash      flows from operating activities:                                            |   |                          |       |   |   |   |
| Net      loss                                                                         |   | $                             | (1,994,353 | ) |   | $ | (1,276,059 | ) |
| Adjustments      to reconcile net loss to net cash used in operating      activities: |   |                          |       |   |   |   |   |   |
| Depreciation                                                                          |   |                          | 159,997    |   |   |   | 96,374 |   |
| Allowance      for doubtful accounts                                                  |   |                          | 12,000     |   |   |   | (10,516 | ) |
| Equity      instrument-based expense                                                  |   |                          | 423,986    |   |   |   | 274,890 |   |
| Write-off      of packaging inventories                                               |   |                          | -          |   |   |   | 49,135 |   |
| Reserve/write-off      of inventories                                                 |   |                          | 201,697    |   |   |   | 439,208 |   |
| Restructuring      expense                                                            |   |                          | 344,143    |   |   |   | - |   |
| Changes      in:                                                                      |   |                          |       |   |   |   |   |   |
| Accounts      receivable                                                              |   |                          | 241,772    |   |   |   | (196,873 | ) |
| Prepaid      expenses                                                                 |   |                          | (47,528    | ) |   |   | 32,387 |   |
| Inventories                                                                           |   |                          | 316,060    |   |   |   | (585,514 | ) |
| Deposits                                                                              |   |                          | (12,000    | ) |   |   | - |   |
| Accounts      payable and accrued expenses                                            |   |                          | 61,543     |   |   |   | (488,282 | ) |
| Deferred      revenue                                                                 |   |                          | (211,931   | ) |   |   | 315,679 |   |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Net      cash used in operating activities                                            |   |                          | (504,614   | ) |   |   | (1,349,571 | ) |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Cash      flows from investing activities:                                            |   |                          |       |   |   |   |   |   |
| Proceeds      from sales of other short-term investments                              |   |                          | 1,200,000  |   |   |   | - |   |
| Purchase      of property and equipment                                               |   |                          | (211,711   | ) |   |   | (207,218 | ) |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Net      cash provided by (used in) investing activities                              |   |                          | 988,289    |   |   |   | (207,218 | ) |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Cash      flows from financing activities:                                            |   |                          |       |   |   |   |   |   |
| Proceeds      from common stock issuance                                              |   |                          | 150,000    |   |   |   | 450,000 |   |
| Proceeds      from common stock options/warrants exercised                            |   |                          | -          |   |   |   | 283,586 |   |
| Proceeds      of note payable                                                         |   |                          | 101,116    |   |   |   | 79,305 |   |
| Repayment      of note payable                                                        |   |                          | (58,511    | ) |   |   | (107,427 | ) |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Net      cash provided by financing activities                                        |   |                          | 192,605    |   |   |   | 705,464 |   |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                             |   |                          | 676,280    |   |   |   | (851,325 | ) |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Cash      and cash equivalents at beginning of year                                   |   |                          | 1,712,713  |   |   |   | 2,564,038 |   |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Reclassification      of other short-term investments                                 |   |                          | (1,500,000 | ) |   |   | - |   |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Cash      and cash equivalents at end of year                                         |   | $                             | 888,993    |   |   | $ | 1,712,713 |   |
|                                                                                  |   |                          |       |   |   |   |   |   |
| Supplemental      disclosures of cash flow information:                               |   |                          |       |   |   |   |   |   |
| Cash      paid for interest                                                           |   | $                             | 1,468      |   |   | $ | 3,496 |   |
| Cash      paid for income taxes                                                       |   | $                             | 1,879      |   |   | $ | 20,408 |   |

----

| [1]    | The    Company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The      Company was incorporated in April 1995 to discover, develop, and      commercialize nutritional products. The Company focuses on the      development, marketing, and selling of patented premium nutrition tools      that enable consumers to enhance their health and improve their      performance. The Company’s principle areas of focus are sports performance      and recovery, including optimal weight management. The Company utilizes      third-party contractors to manufacture all products.                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | On      February 22, 2006, the Company sold the trademarks, technology, and      patents for its sports nutrition brands, Accelerade®      and Endurox®      R4      ® to Mott’s LLP (“Mott’s”). Simultaneously, the Company and Mott’s      entered into a License Agreement giving the Company the exclusive,      royalty-free right to continue to sell these products in powder, gel and      pill form.  Consequently, the Company will continue to market      its current sports nutrition products in the same manner as prior to the      sale of the intellectual property assets. Mott’s launched ACCELERADE Ready      To Drink (“RTD”) in the second quarter of 2007 but discontinued the      product in 2008. Therefore, the Company does not expect to receive any      royalties from Mott’s in the near future. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | During      the quarter ended September 30, 2008, the Company made the decision to      restructure to be better able to sustain its base sports performance      business. The Company eliminated a number of positions and chose to exit      certain market sectors. As a result of these decisions, the Company      recorded a restructuring charge in the amount of $472,069 in the quarter      ended September 30, 2008. The components of the restructuring charge are      as follows:                                                                                                                                                                                                                                                                                                                                                                                                                  |

| Accelerated      vesting of stock options previously issued to the former    CEO                  |   | $      | 138,434 |   |
|---------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                                              |   |   |    |   |
| Accrued      severance and benefits to former employees whose positions were      eliminated      |   |   | 149,262 |   |
|                                                                                              |   |   |    |   |
| Write-off      of raw materials and packaging inventory primarily related to      SATIATRIM® |   |   | 184,373 |   |
|                                                                                              |   | $      | 472,069 |   |

|   | During      the fourth quarter of 2008, the Company paid $127,926 towards the $149,262      obligation due to former employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| [2]    | Cash      and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The      Company considers all highly liquid investments with original maturities      of three months or less at the date of purchase to be cash      equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| [3]    | Accounts      receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Accounts      receivable consist of trade receivables recorded at original invoice      amount, less an estimated allowance for uncollectible accounts. Trade      credit is generally extended on a short-term basis; thus trade receivables      do not bear interest. Trade receivables are periodically evaluated for      collectibility by considering a number of factors including the length of      time an invoice is past due, the customers' credit worthiness and      historical bad debt experience. Changes in the estimated collectibility of      trade receivables are recorded in the results of operations for the period      in which the estimate is revised. Trade receivables that are deemed      uncollectible are offset against the allowance for uncollectible accounts.      The Company generally does not require collateral for trade      receivables. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| [4]    | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Inventories      are recorded at the lower of cost or market using the first-in, first-out      ("FIFO") method. The Company determines its reserve for obsolete inventory      by considering a number of factors, including product shelf life,      marketability, and obsolescence. The Company determines the need to write      down inventories by analyzing product expiration, market conditions, and      salability of its products.                                                                                                                                                                                                                                                                                                                                                                                                                                             |

----

| [5]    | Property      and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Property      and equipment are stated at cost and are depreciated using the      straight-line method over their estimated useful lives ranging from 2 to 5      years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| [6]    | Loss      per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Basic      loss per common share is computed by dividing net loss applicable to      common shareholders by the weighted average number of common shares      outstanding during the year. The dilutive effect of the outstanding stock      warrants and options is computed using the treasury stock      method.  For the year ended December 31, 2008, diluted loss      per share did not include the effect of 2,942,250 options outstanding and      27,500 warrants outstanding, respectively, as their effect would be      anti-dilutive. For the year ended December 31, 2007, diluted loss per      share did not include the effect of 2,408,750 options outstanding and      938,930 warrants outstanding, respectively, as their effect would be      anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| [7]    | Revenue      recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Sales      are recognized when all of the following criteria are met:      (1) persuasive evidence that an arrangement exists; (2) delivery      has occurred or services have been rendered; (3) the seller’s price      to the buyer is fixed and determinable; and, (4) collectibility is      reasonably assured. Sales are recorded net of incentives paid and      discounts offered to customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The      Company has a purchasing agreement with a significant customer for all      products sold to this customer whereby all unsold product is subject to a      right of return provision if certain minimum levels of retail sales in a      12-month period of time from the date of initial sale are not achieved.      The Company recognizes revenue when its major customer sells through its      products to the consumer. The Company uses this criteria due to the      inability to accurately estimate future returns from this customer as the      Company has previously agreed to accept returns/discounts of product from      this customer that it was not contractually obligated to do so as well as      because the Company entered into a new purchasing agreement with this      customer that increased certain sell-through minimums. The Company is      currently evaluating its procedures to estimate future returns from this      customer.  As of December 31, 2008 and 2007, shipments to this      customer amounting to $347,945 and $559,876, respectively, have been      reflected as deferred revenue in the Company’s balance    sheet. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| [8]    | Research      and development:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Costs      of research and development activities are expensed as      incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| [9]    | Advertising      costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Advertising      costs are expensed as incurred.  During 2008 and 2007, the      Company recorded advertising expense of $326,286 and $158,716,      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| [10]   | Stock-based      compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The      Company accounts for equity instrument issuances in accordance with      Statement of Financial Accounting Standards (“SFAS”) 123R, "Share-Based      Payment". Such equity issuances encompass transactions in which an entity      exchanges its equity instruments for goods or services including such      transactions in which an entity obtains employee and/or director services      in share-based payment transactions and issuances of stock options to      employees. The Company recorded a charge of $473,520 in the year ended      December 31, 2008, representing the effect on loss from operations, loss      before income taxes, and net loss. Of this amount, $138,434 related to the      acceleration of stock options vesting to the former CEO as is included in      restructuring expense. The Company recorded a charge of $272,334 in the      year ended December 31, 2007, representing the effect on loss from      operations, loss before income taxes, and net  loss.                                                                                                                                                                     |

----

|   | The      fair value of each option grant on the date of grant is estimated using      the Black-Scholes option-pricing model with a volatility ranging from 99%      to 104% for 2008 and from 110% to 119% for 2007, expected life of the      options of 5 years, risk-free interest rate of approximately 3% in 2008      and 4% in 2007 and a dividend yield of 0%. The weighted average fair      values of options granted during the years ended December 31, 2008      and 2007 were $0.35 and $0.76,respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| [11]   | Segment      information:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The      Company operates in one business segment:  the design,      development and marketing of dietary and nutritional supplements that      enhance health and well-being. Segment disclosures relate to sales data      for geographic reasons only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| [12]   | Income      taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The      Company recognizes deferred tax liabilities and assets for the expected      future tax consequences of events that have been included in the financial      statements or tax returns.  Under this method, deferred tax      liabilities and assets are determined on the basis of the differences      between the tax basis of assets and liabilities and their respective      financial reporting amounts ("temporary differences") at enacted tax rates      in effect for the years in which the differences are expected to reverse.      Any resulting deferred tax asset is reduced, if necessary, by a valuation      allowance for any tax benefits that are not expected to be realized.      Effective January 1, 2007, the Company adopted Financial Interpretation      No. 48, “Accounting for Uncertainty in Income Taxes”, (“FIN 48”). The      impact of the adoption of FIN 48 had no material effect on the Company’s      results of operations or financial position.                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| [13]   | Impairment      of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Long-lived      assets, to be held and used, are reviewed for impairment whenever events      or changes in circumstances indicate that the related carrying amounts may      not be recoverable using expected future undiscounted cash      flows.  When required, impairment losses on assets to be held      and used are recognized based on the excess of the assets' carrying amount      over their fair values as determined by selling prices for similar assets      or application of other appropriate valuation      techniques.  Long-lived assets to be disposed of are reported at      the lower of their carrying amounts or fair values less disposal      costs.                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| [14]   | Comprehensive      income (loss):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The      Company does not have any comprehensive income (loss) items at      December 31, 2008 and 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| [15]   | Recent      accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      September 2006, the FASB issued Statement of Financial Accounting      Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157      defines fair value, establishes a framework for measuring fair value, and      expands disclosure requirements regarding fair value measurement. Where      applicable, this statement simplifies and codifies fair value related      guidance previously issued within U.S. generally accepted accounting      principles. SFAS 157 is effective for financial statements issued for      fiscal years beginning after November 15, 2007, and interim periods within      those fiscal years.  SFAS 157 did not have a material impact on      its results of operations or financial condition upon      adoption.                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for      Financial Assets and Financial Liabilities - Including an Amendment of      FASB Statement No.115  (“SFAS 159”). SFAS 159 provides companies      with an option to measure, at specified election dates, certain financial      instruments and other items at fair value that are not currently measured      at fair value. A company that adopts SFAS 159 will report unrealized gains      and losses on items for which the fair value option has been elected in      its financial results during each subsequent reporting date. SFAS 159 also      establishes presentation and disclosure requirements designed to      facilitate comparisons between entities that choose different measurement      attributes for similar types of assets and liabilities. SFAS 159 is      effective for fiscal years beginning after November 15, 2007. SFAS 159 did      not have a material impact on its results of operations or financial      condition upon adoption. |

----

|   | In      December 2007, the SEC issued Staff Accounting Bulletin No. 110 “Amendment      of Topic 14, Share-Based Payment”, (“SAB 110”).  SAB 110      expresses the views of the staff regarding the use of a “simplified”      method, as discussed in SAB No. 107, in developing an estimate of the      expected term of “plain vanilla” share options in accordance with SFAS      123R. SAB 110 did not have a material impact on its results of operations      or financial condition upon adoption.                              |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | In      May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally      Accepted Accounting Principles” (“SFAS 162”). SFAS 162 sets forth the      level of authority to a given accounting pronouncement or document by      category. Where there may be conflicting guidance between two categories,      the more authoritative category will prevail. SFAS 162 became effective      November 14, 2008 and the Company does not expect SFAS 162 to have a      material impact on its results of operations, financial condition, or      current practices. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| [16]   | Use      of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The      preparation of financial statements in conformity with accounting      principles generally accepted in the United States of America requires      management to make certain estimates and assumptions that affect the      reported amounts of assets, liabilities and disclosure of contingent      assets and liabilities at the date of the financial statements and the      reported amount of revenue and expenses during the reporting      period.  Actual results may differ from these      estimates.                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| [17]   | Shipping      and handling fees and costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |  Shipping      and handling costs are included in cost of sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| [18]   | Reclassification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The      Company reclassified $917,510 of sales and marketing expenses from general      and administrative expenses as well as reclassified $96,374 of      depreciation expense to general and administrative expense in 2007 to      conform to current yearpresentation.                                                                                                                                                                                                                                                                                                                       |

----

|                                               |   | 2008   |      |   | 2007   |   |
|----------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                               |   |   |      |   |   |   |
| Raw      materials (at contract manufacturer)      |   | $      | 207,286   |   |   | $      | 266,624 |   |
| Work      in process (at contract manufacturer)    |   |   | -         |   |   |   | 67,920 |   |
| Packaging      supplies (at third party warehouse) |   |   | 42,861    |   |   |   | 56,480 |   |
| Finished      goods (at third party warehouse)     |   |   | 902,132   |   |   |   | 1,358,378 |   |
| Finished      goods (on consignment)               |   |   | 156,037   |   |   |   | 261,044 |   |
|                                               |   |   |      |   |   |   |   |   |
|                                               |   | $      | 1,308,316 |   |   | $      | 2,010,446 |   |

|                               |   | 2008   |    |   | 2007   |   |
|------------------------------------|--------|--------|---------|--------|--------|--------|
|                               |   |   |    |   |   |   |
| Furniture      and equipment       |   | $      | 783,098 |   |   | $      | 616,675 |   |
| Molds      and dies                |   |   | 204,782 |   |   |   | 159,494 |   |
|                               |   |   |    |   |   |   |   |   |
|                               |   |   | 987,880 |   |   |   | 776,169 |   |
| Less      accumulated depreciation |   |   | 751,159 |   |   |   | 591,162 |   |
|                               |   |   |    |   |   |   |   |   |
|                               |   | $      | 236,721 |   |   | $      | 185,007 |   |

|                                                             |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Installment      note payable to insurance finance company       |   |   |   |   |   |   |
| due      in monthly installments of $8,168, including            |   |   |   |   |   |   |
| interest      at 6.48% through February 2008                     |   | $      | -      |   |   | $      | 16,205 |   |
|  Installment      note payable to insurance finance company |   |   |   |   |   |   |   |   |
| due      in monthly installments of $5,456, including            |   |   |   |   |   |   |   |   |
| interest      at 5.00% through March 2009                        |   |   | 16,231 |   |   |   |   |   |
|  Installment      note payable to insurance finance company |   |   |   |   |   |   |   |   |
| due      in monthly installments of $4,378, including            |   |   |   |   |   |   |   |   |
| interest      at 6.10% through October 2009                      |   |   | 42,579 |   |   |   | - |   |

|   |   | $ | 58,810 |   |   | $ | 16,205 |   |
|--------|--------|---|--------|--------|--------|---|--------|--------|

----

| [1]    | Employment      agreements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The      Company entered into a new employment agreement on January 1, 2007, with      the CEO of the Company that provided for minimum annual compensation of      $295,000. On August 5, 2008, the Company entered into a Separation      Agreement with the CEO whereby the Company would continue to pay the      $295,000 salary for twelve months in exchange for a twelve-month      non-compete provision. Also, all previously unvested options vested on      this date. See Note 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The      Company entered into an employment agreement on January 3, 2008, with the      new President and Chief Operating Officer of the Company that provides for      minimum annual compensation of $295,000. In the event of a change in      control, as defined in the employment agreement, and a contemporaneous or      subsequent termination of Employee for Good Reason, the President shall be      paid, as additional compensation, a lump sum equal to half his annual base      salary in effect immediately prior to the change in control. If the      President is terminated without cause, as defined in the employment      agreement, the Company shall pay the President, at the time of      termination, an amount equal to his annual base salary which would have      been paid during a period beginning on the date of termination of      employment and ending on the later of the scheduled termination date, as      defined in the employment agreement, or the first anniversary of the      termination date, to be offset by any compensation earned in other      full-time employment. This employment agreement was amended on August 5,      2008 removing the title of Chief Operating Officer and adding the title of      Chief Executive Officer. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The      Company entered into an employment agreement on January 3, 2008, with the      new Vice President, Product Development and Supply Chain of the Company      that provides for minimum annual compensation of $190,000. If this Vice      President is terminated without cause, as defined in the employment      agreement, the Company shall pay him, at the time of termination, an      amount equal to four months of his base salary which would have been paid      during a period beginning on the date of termination of employment and      ending on the later of the scheduled termination date, as defined in the      employment agreement, or four months from the termination date, to be      offset by any compensation earned in other full-time      employment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| [2]    | Lease:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The      Company has a lease agreement for office space for the rental of 5,500      square feet expiring June 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The      future minimum lease payments due under the lease is as      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

| Years      Ending |   |   |    |
|-------------------|--------|--------|---------|
| December      31, |   |   |    |
|              |   |   |    |
| 2009              |   | $      | 140,250 |   |
| 2010              |   |   | 143,000 |   |
| 2011              |   |   | 148,500 |   |
| 2012              |   |   | 75,625  |   |
|              |   |   |    |   |
|              |   | $      | 507,375 |   |

----

|                                |   |   |      |   |   |   |      |           |   |               | Weighted            |   |
|-------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|----------------|--------|--------------------|---------------------|--------|
|                                |   |   |      |   |   |   |      | Exercise       |   |               | Average             |   |
|                                |   |   |      |   |   |   |      | Price      Per |   |               | Exercise      Price |   |
|                                |   | Option |      |   | Vested |   |      | Common         |   |               | Per      Share      |   |
|                                |   | Shares |      |   | Shares |   |      | Share          |   |               | Outstanding         |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |
| Balance,      January 1, 2007       |   |   | 2,011,500 |   |   |   | 1,069,500 |           |   | $0.20      - $3.80 |                |   | $ | 1.12 |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
| Granted/vested      during the year |   |   | 741,000   |   |   |   | 418,668   |           |   | $0.65      - $2.14 |                |   | $ | 0.76 |   |
| Exercised      during the year      |   |   | (81,000   | )      |   |   | (81,000   | )              |   | $0.20      - $1.00 |                |   | $ | 0.65 |   |
| Expired      during the year        |   |   | (333,000  | )      |   |   | (333,000  | )              |   | $2.79      - $3.80 |                |   | $ | 2.89 |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
| Balance,      December 31, 2007     |   |   | 2,338,500 |   |   |   | 1,074,168 |           |   | $0.20      - $2.14 |                |   | $ | 0.77 |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
| Granted/vested      during the year |   |   | 657,500   |   |   |   | 601,333   |           |   | $0.23      - $0.55 |                |   | $ | 0.35 |   |
| Exercised      during the year      |   |   | -         |   |   |   | -         |           |   | -                  |                |   |   | - |   |
| Expired      during the year        |   |   | (119,000  | )      |   |   | (119,000  | )              |   | $0.20      - $1.92 |                |   | $ | 0.97 |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
| Balance,      December 31, 2008     |   |   | 2,877,000 |   |   |   | 1,556,501 |           |   | $0.20      - $2.14 |                |   | $ | 0.67 |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
|                                |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
| Aggregate      Intrinsic Value,     |   |   |      |   |   |   |      |           |   |               |                |   |   |   |   |   |
| December      31, 2008              |   | $      | -         |   |   | $      | -         |           |   |               |                |   |   |   |   |   |

----

|                 |   |   |        |      |      | Weighted             |   |   |     |   |   |        |   |   |     |      |
|----------------------|--------|--------|-------------|-----------|-----------|----------------------|--------|--------|----------|--------|--------|-------------|--------|--------|----------|-----------|
|                 |   |   |        |      |      | Average              |   |   | Weighted |   |   |        |   |   | Weighted |      |
|                 |   |   |        |      |      | Remaining            |   |   | Average  |   |   |        |   |   | Average  |      |
| Range      of        |   |   | Number      |      |      | Contractual          |   |   | Exercise |   |   | Number      |   |   | Exercise |      |
| Exercise      Prices |   |   | Outstanding |      |      | Life      (in Years) |   |   | Price    |   |   | Exercisable |   |   | Price    |      |
|                 |   |   |        |      |      |                 |   |   |     |   |   |        |   |   |     |      |
| $0.31      - $2.00   |   |   |        | 2,851,000 |      |                 |   | 2.92   |     |   | $      | 0.66        |   |   |     | 1,533,501 |   |   | $ | 0.78 |   |
| $2.01      - $4.00   |   |   |        | 26,000    |      |                 |   | 3.19   |     |   | $      | 2.12        |   |   |     | 23,000    |   |   | $ | 2.13 |   |
|                 |   |   |        |      |      |                 |   |   |     |   |   |        |   |   |     |      |   |   |   |   |   |   |
|                 |   |   |        |      | 2,877,000 |                 |   |   | 2.92     |   |   | $           | 0.67   |   |     |      | 1,556,501 |   |   | $ | 0.80 |   |

|                                |   |   |    |   |   |   |    |           |   |                    | Weighted            |   |
|-------------------------------------|--------|--------|---------|--------|--------|--------|---------|----------------|--------|-------------------------|---------------------|--------|
|                                |   |   |    |   |   |   |    | Exercise       |   |                    | Average             |   |
|                                |   |   |    |   |   |   |    | Price      Per |   |                    | Exercise      Price |   |
|                                |   | Option |    |   | Vested |   |    | Common         |   |                    | Per      Share      |   |
|                                |   | Shares |    |   | Shares |   |    | Share          |   |                    | Outstanding         |   |
|                                |   |   |    |   |   |   |    |           |   |                    |                |   |
| Balance,      January 1, 2007       |   |   | 90,500  |   |   |   | 90,500  |           |   | $0.20 -      $4.88 |                |   | $ | 1.35 |   |
|                                |   |   |    |   |   |   |    |           |   |                    |                |   |   |   |   |   |
| Granted/vested      during the year |   |   | 2,250   |   |   |   | 2,250   |           |   | $1.21 -      $2.10 |                |   | $ | 1.61 |   |
| Expired      during the year        |   |   | (22,500 | )      |   |   | (22,500 | )              |   | $0.90 -      $4.88 |                |   | $ | 4.36 |   |
|                                |   |   |    |   |   |   |    |           |   |                    |                |   |   |   |   |   |
| Balance,      December 31, 2007     |   |   | 70,250  |   |   |   | 70,250  |           |   | $0.20 -      $2.10 |                |   | $ | 0.39 |   |
|                                |   |   |    |   |   |   |    |           |   |                    |                |   |   |   |   |   |
| Granted/vested      during the year |   |   | -       |   |   |   | -       |           |   | -                       |                |   |   | - |   |
| Expired      during the year        |   |   | (5,000  | )      |   |   | (5,000  | )              |   | $0.26 -      $1.23 |                |   | $ | 0.75 |   |
|                                |   |   |    |   |   |   |    |           |   |                    |                |   |   |   |   |   |
| Balance,      December 31, 2008     |   |   | 65,250  |   |   |   | 65,250  |           |   | $0.20 -      $2.10 |                |   | $ | 0.37 |   |

|                 |   |   |        |   |   | Weighted             |   |   |     |   |
|----------------------|--------|--------|-------------|--------|--------|----------------------|--------|--------|----------|--------|
|                 |   |   | Number      |   |   | Average              |   |   | Weighted |   |
|                 |   |   | Outstanding |   |   | Remaining            |   |   | Average  |   |
| Range      of        |   |   | and         |   |   | Contractual          |   |   | Exercise |   |
| Exercise      Prices |   |   | Exercisable |   |   | Life      (in Years) |   |   | Price    |   |
|                 |   |   |        |   |   |                 |   |   |     |   |
| $0.20      - $2.00   |   |   |        | 64,250 |   |                 |   | 0.61   |     |   | $ | 0.34 |   |
| $2.10                |   |   |        | 1,000  |   |                 |   | 1.16   |     |   | $ | 2.10 |   |
|                 |   |   |        |   |   |                 |   |   |     |   |   |   |   |   |
|                 |   |   |        |   | 65,250 |                 |   |   | 0.62     |   |   | $ | 0.37 |   |

----

|                            |   |     |      |   | Exercise |   |              | Weighted            |   |
|---------------------------------|--------|----------|-----------|--------|----------|--------|-------------------|---------------------|--------|
|                            |   |     |      |   | Price    |   |              | Average             |   |
|                            |   |     |      |   | Per      |   |              | Exercise      Price |   |
|                            |   |     |      |   | Common   |   |              | Per                 |   |
|                            |   | Warrants |      |   | Share    |   |              | Common      Share   |   |
|                            |   |     |      |   |     |   |              |                |   |
| Balance,      January 1, 2007   |   |     | 1,351,710 |   |     | $      | 0.63      - $0.88 |                |   | $ | 0.64 |   |
| Exercised      during the year  |   |     | (412,780  | )      |     | $      | 0.63              |                |   | $ | 0.63 |   |
| Balance,      December 31, 2007 |   |     | 938,930   |   |     | $      | 0.63      - $0.88 |                |   | $ | 0.64 |   |
| Expired      during the year    |   |     | (911,430  | )      |     | $      | 0.63              |                |   | $ | 0.63 |   |
|                            |   |     |      |   |     |   |              |                |   |   |   |   |
| Balance,      December 31, 2008 |   |     | 27,500    |   |     | $      | 0.88              |                |   | $ | 0.88 |   |

|                                                   |   | 2008   |     | 2007   |
|--------------------------------------------------------|--------|--------|----------|--------|
|                                                   |   | Amount |     |   | Percent |   | Amount |   |   | Percent |
|                                                   |   |   |     |   |   |   |   |   |   |   |   |   |
| U.S.      federal income tax provision                 |   |   |     |   |   |   |   |   |   |   |   |   |
| (benefit)      at federal statutory rate               |   | $      | (698,020 | )      |   |   | 35 | % |   | $ | (446,620 | ) |   |   | 35 | % |
| Effect      of state taxes, net of                     |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| federal      benefit                                   |   |   | (119,670 | )      |   |   | 6 | % |   |   | (76,560 | ) |   |   | 6 | % |
| Change      in valuation allowance                     |   |   | 642,300  |   |   |   | (32 | %) |   |   | 411,600 |   |   |   | (32 | %) |
| Stock      compensation expense,  (SFAS123R) |   |   | 173,830  |   |   |   | (9 | %) |   |   | 112,700 |   |   |   | (9 | %) |
| Other                                                  |   |   | 1,560    |   |   |   | 0 | % |   |   | (1,120 | ) |   |   | (0 | %) |
|                                                   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                   |   | $      | 0        |   |   |   | 0 | % |   | $ | 0 |   |   |   | 0 | % |

|                                  |   | 2008   |       |   | 2007   |   |
|---------------------------------------|--------|--------|------------|--------|--------|--------|
|                                  |   |   |       |   |   |   |
| Net      operating loss carryforwards |   | $      | 5,657,000  |   |   | $      | 4,931,000 |   |
| Inventory      reserve                |   |   | 17,000     |   |   |   | 72,000 |   |
| Other                                 |   |   | 33,000     |   |   |   | 62,000 |   |
| Valuation      allowance              |   |   | (5,707,000 | )      |   |   | (5,065,000 | ) |
|                                  |   |   |       |   |   |   |   |   |
| Deferred      tax asset               |   | $      | - 0 -      |   |   | $      | - 0 - |   |

----

| [1]    | Concentrations      of credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Financial      instruments, which potentially subject the Company to concentrations of      credit risk, consist primarily of cash, cash equivalents and trade      accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The      Company has concentrated its credit risk for cash by maintaining      substantially all of its depository accounts in two financial      institutions. Amounts at one of the institutions are insured by the      Federal Deposit Insurance Corporation up to $250,000 and amounts at the      other institution are insured by the Securities Investor Protection      Corporation up to $500,000. Uninsured balances aggregated approximately      $581,000 at December 31, 2008 that exceeded these insured amounts. These      financial institutions have a strong credit rating, and management      believes that credit risk relating to these deposits is      minimal.                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The      Company does not require collateral on its trade accounts      receivable.  Historically, the Company has not suffered      significant losses with respect to trade accounts    receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| [2]    | Fair      value of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Cash,      cash equivalents, accounts receivable, accounts payable and notes payable      approximate their fair values due to the short-term maturity of these      instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| [3]    | Major      customers:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | For      the years ended December 31, the Company had product sales from two      customers that accounted for approximately 18% and 15% in 2008 and 21% and      15% in 2007, of net product sales.  Accounts receivable      outstanding related to these customers at December 31, 2008 and 2007      were $200,590 and $435,845, respectively. Deferred revenue from one of      these customers was $347,945 as of December 31, 2008 and $559,876 as      of December 31, 2007. Such amounts are included in the accompanying      balance sheet. The loss of these customers, a significant reduction in      purchase volume by these customers, or the financial difficulty of such      customers, for any reason, could significantly reduce our revenues. We      have no agreement with or commitment from either of these customers with      respect to future purchases. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| [4]    | Major      vendors:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Two      suppliers accounted for approximately 62% and 16%, respectively, of total      inventory purchases for the year ended December 31, 2008 and two suppliers      accounted for 69% and 22%, respectively, of total inventory purchases for      the year ended December 31, 2007.  At December 31, 2008, amounts      due to these two vendors represented approximately 23% and 0%,      respectively, of accounts payable and accrued expenses.  At      December 31, 2007, amounts due to two vendors represented approximately      45% and 1%, respectively, of accounts payable and accrued      expenses.                                                                                                                                                                                                                                                                      |

|               |   | 2008   |      |   | 2007   |   |
|--------------------|--------|--------|-----------|--------|--------|--------|
|               |   |   |      |   |   |   |
| United      States |   | $      | 6,509,508 |   |   | $      | 6,778,183 |   |
| Canada             |   |   | 258,973   |   |   |   | 208,649 |   |
| Other              |   |   | 467,510   |   |   |   | 441,025 |   |
|               |   |   |      |   |   |   |   |   |
| Total              |   | $      | 7,235,991 |   |   | $      | 7,427,857 |   |

----