SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  FORM 10-KSB/A


[x]      Annual Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934
         For the fiscal year ended December 31, 2004

[ ]      Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934
         For the transition period from _______________ to __________________

Commission file number 0-28161

CIK 0001092082

                             WELLSTONE FILTERS, INC.
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              (Exact name of small business issuer in its charter)

        Delaware                                             33-0619264
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(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

250 Crown Boulevard          Timberlake, North Carolina              27583
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    (Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:             (336) 597-8300
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Securities registered pursuant to Section 12(b) of the Act:            None
                                                                --------------

Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
   par value $.001

         Check  whether the  Company  (1) has filed all  reports  required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Company was required to
file such reports) and (2) has been subject to such filing  requirements for the
past 90 days.

                                   YES           NO _X_

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained,  to the best of  registrant's  knowledge,  in definitive  proxy or
information  statements  incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

         State issuer's revenues for its most recent fiscal year: None

         The aggregate  market value of the voting stock held by  non-affiliates
of the Company as of March 25, 2004 was $32,925,698 based on a closing bid price
of $1.35 per share as of March 25, 2004

         The  number of shares  outstanding  of the  issuer's  classes of Common
Stock as of February 28, 2005:

Common Stock, $.001 Par Value - 252,542,991 Shares
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Transitional Small Business Disclosure Format           YES            NO   X

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

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<PAGE>

                                Explanatory Note

         Wellstone is filing this  Amendment No. 1 on Form 10-KSB/A to Wellstone
Filters,  Inc.'s Annual Report on Form 10-KSB for the fiscal year ended December
31, 2004, which was originally filed with the Securities and Exchange Commission
(the "SEC") on April 15, 2005 (the "Original Form 10-KSB"),  to reflect  changes
made in response to certain  comments that it received from the  Securities  and
Exchange Commission on December 29, 2005.

         Although  this Form  10-KSB/A  contains the Original Form 10-KSB in its
entirety,  it  amends  only  Items  1, 6, 8, 9, 12 and 13 and  Exhibit  21.1 and
includes additional Exhibits 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10.

         Except  for the  foregoing  amended  information,  this  Form  10-KSB/A
continues  to speak as of April 15,  2005,  and  Wellstone  has not  updated  or
modified the disclosures herein for events that occurred at a later date. Events
occurring  after the date of the  Original  Form 10-KSB,  and other  disclosures
necessary to reflect  subsequent  events,  have been or will be addressed in our
amended  Quarterly Reports for the quarterly periods ended March 31 and June 30,
2005,  which are being filed  concurrently  with this Form  10-KSB/A,  and/or in
other  reports  filed with the SEC  subsequent  to the date of the Original Form
10-KSB.

                                     PART I
Item 1.  DESCRIPTION OF BUSINESS

         When used in this Form 10-KSB/A,  the words "may,"  "will,"  "expects,"
"anticipates,"  "believes," "estimates," "continues" and similar expressions are
intended to identify forward-looking  statements. Such statements are subject to
risks and  uncertainties,  including  those set forth  below  under  "Risks  and
Uncertainties,"  that could cause actual results to differ materially from those
projected.  These  forward-looking  statements speak only as of the date hereof.
Wellstone  expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking  statements  contained herein to
reflect any change in the  Company's  expectations  with  regard  thereto or any
change in events,  conditions or  circumstances on which any statement is based.
This discussion should be read together with the financial  statements and other
financial information included in this Form 10-KSB/A.

General

         Wellstone Filters, LLC ("Wellstone LLC") was founded in February,  1998
by Dr. Carla Cerami Hand at Cerami  Consulting  Company.  Cerami Consulting Corp
was  investigating  the  negative  health  impact of  cigarette  smoking.  As an
outgrowth of this work, Cerami Consulting decided to investigate the possibility
of  developing  a  filter  technology  that  would  remove  carcinogens  without
impacting flavor. As a result of their research, Cerami Consulting has filed for
U.S. and  international  patents on the  technology  and licensed it and related
patents to Wellstone LLC for potential commercialization.  Two U.S. patents have
been issued ((1) U.S. Patent 6,119,701:  filed - Feb 13 1998:  issued- September
19 2000:  valid until 2018 and (2) U.S. patent  6,615,842:  filed-June 26, 2000:
issued-September 9, 2003: valid until 2020).  International patents are pending.
The  patents  are  held  by  Cerami  Consulting,  however  the  Company  has the
perpetual,  exclusive worldwide rights to the use and  commercialization  of the
patents and the technology related to the patents.

         The  filter  technology  has  been  tested  by  Wellstone  LLC in small
manufacturing  batches.  Wellstone LLC has held  discussions  with several major
manufacturers  for  licensing or supply  contracts,  but no contracts  have been
entered into nor are any under negotiation.  All testing performed on the filter
technology  to  date  has  been  for  developmental  purposes  only.  Use of the
technology in cigarettes manufactured for U.S. sale is dependent upon completion
of an FTC standardized test for tars, nicotine and carbon monoxide.

         On May 25, 2001, Wellstone LLC was acquired by Farallon Corporation,  a
publicly  reporting  corporation  formed with the intention of making subsequent
acquisitions.  Farallon Corporation  acquired all of the outstanding  membership
interests of Wellstone LLC in exchange for 210,000,000 common shares of Farallon

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Corporation. In addition, Farallon Corporation issued 5,968,200 shares of common
stock in cancellation of debt. As a result of the merger,  the former members of
Wellstone  LLC  acquired  a  majority  of the  outstanding  shares of  Farallon.
Accordingly,  the combination  has been accounted for as a reverse  acquisition,
under which, for accounting purposes,  Wellstone LLC is the accounting acquiror,
and Farallon Corporation is accordingly the accounting acquiree. As is customary
in a reverse acquisition,  only the historical financial statements of Wellstone
LLC,  the  accounting   acquiror,   are  presented  for  periods  prior  to  the
acquisition.  Farallon Corporation,  incorporated in 1994,  subsequently changed
its name to  Wellstone  Filters,  Inc and  Wellstone  LLC became a  wholly-owned
subsidiary of Wellstone Filters, Inc. References to Wellstone in this prospectus
refer to the combined entity.

         Wellstone  determined  to  augment  its  strategic  focus.  Wellstone's
original plan was to license its  proprietary  cigarette  filters  technology to
existing cigarette manufacturers. Because we believe our filter compound reduces
the amount of certain known  carcinogens,  Wellstone believed that incorporation
of our  compound  into  currently  marketed  brands would be the quickest way to
bring its Wellstone Filters to the smoking public. After a review of the tobacco
marketplace,  management  determined to  manufacture  and produce its own brand,
hoping to be part of an increasing number of small manufacturers who have gained
market share in recent  years  (estimated  by some to be 12% of total U.S.  2003
market)  in  this  multi-billion  dollar  market.  Sales  and  marketing  of the
Wellstone brand are expected to begin in the second quarter of calendar 2005.

         Wellstone has also developed packaging materials and tobacco blends for
a  full  line  of  Wellstone  cigarettes.  Wellstone  will  continue  to  pursue
incorporation of our filter onto existing  cigarette brands,  while we also sell
our own line of Wellstone cigarettes.

         Wellstone  has  developed   packaging  materials  and  tobacco  blends,
however,  to date, we have not sold any cigarettes.  Wellstone purchases various
ingredients  necessary for our filters from suppliers,  but we do not enter into
written  agreements with such suppliers;  rather we submit purchase orders on an
as-needed basis.

         Wellstone intends to market cigarettes that are lower in tar yet do not
compromise  and may enhance  the  pleasurable  effects of  smoking.  Wellstone's
strategic  plan as well as its  philosophy  is based on two facts:  First,  that
quitting smoking can be difficult.  Second, smokers do not apparently focus much
attention  on tar  levels.  In 2002,  64% of all  cigarettes  sold in the United
States were high in tar, according to industry reports.  Wellstone believes that
part of the reason smokers  prefer high tar cigarettes is because of taste.  The
goal of Wellstone is to reduce tar and certain  associated  carcinogens  without
affecting  taste. We believe smokers will try Wellstone for its lower price, and
come back for its taste.

         On  January  5,  2005,  Wellstone  created  a wholly  owned  subsidiary
operating company, Wellstone Tobacco, Inc., a North Carolina corporation.

         On December 21,  2004,  Wellstone  licensed the rights to  manufacture,
market and distribute the Silverton  cigarette  brand.  Silverton was previously
introduced to the market,  and the acquisition of these rights allows  Wellstone
to market a discount  cigarette to its customers  alongside the Wellstone Brand.
The Company will also utilize the considerable  expertise of its management team
in the tobacco  industry and believes the Silverton  brand will  complement  its
efforts to introduce the Wellstone line into the cigarette  market.  On December
28, 2004,  Wellstone  entered  into an agreement to allow H&S  Marketing to sell
Silverton cigarettes in Florida, with an option to expand into Texas.

         On December  26, 2004,  Wellstone  agreed with  Gesicht-Taube,  a Kiev,
Ukraine based  distributor,  to market and sell the Silverton  brand in Ukraine,
with expansion into Russia and Eastern Europe.

Risks and Uncertainties

We might get sued and may not be covered by insurance.

         There are currently several pending legal actions affecting the tobacco
industry,   including   proceedings   and  claims   arising  out  of  the  sale,
distribution,  manufacture,  development,  advertising,  marketing  and  claimed
health  effects of  cigarettes.  We may be named as a defendant in the future as
there has been a  noteworthy  increase  in the  number of these  cases  pending.
Punitive  damages,  often in amounts  ranging into the hundreds of millions,  or

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even billions of dollars, are specifically pleaded in a number of these cases in
addition  to  compensatory  and other  damages.  We do not yet have any  product
liability insurance,  and if such insurance can be obtained it probably would be
very  limited  in  scope  of  coverage  to  any  claims  that  tobacco  products
manufactured by or for us. contain any foreign object.  Such insurance  probably
would not cover health-related  claims such as those that have been made against
the  major  manufacturers  of  tobacco  products.  We do not  believe  that such
insurance currently can be obtained.  Accordingly, our inclusion in any of these
actions or any future  actions  would have a material and adverse  effect on our
financial condition.

We are  still  in the  Research and  Development Stage and have not received any
revenues.

         To date,  Wellstone's  activities  have been  limited to  research  and
development,  product  testing and initial  marketing.  We have not received any
revenues or income since  inception  and, even though sales and marketing of the
Wellstone  brand are expected to begin in the second  quarter of calendar  2005,
Wellstone  might  not be able to find a  market  for  its  products,  achieve  a
significant  level  of  sales  or  attain  profitability.  As a  result  of  the
significant operating expenses related to start up operations, operating results
will be adversely affected if significant sales do not materialize,  whether due
to competition or otherwise.  Wellstone  might not be able to grow in the future
or attain  profitability.  Wellstone might not be able to implement its business
plan in  accordance  with its  internal  forecasts  or to a level that meets the
expectations of investors.

We are dependent on the domestic tobacco business, which is contracting.

         Substantially all of our revenues are initially  expected to be derived
from  sales  in  the  United  States.  The  U.S.  cigarette  business  has  been
contracting in recent years. If the U.S. cigarette market continues to contract,
it could adversely affect our potential future sales,  operating income and cash
flows.

We do not have any production facilities unless we acquire  them or contract out
production.

         To date we have only  manufactured  our proprietary  filter material in
small  batches.  Problems in purchasing  equipment,  establishing  manufacturing
facilities  and meeting  demand can be  expected.  Problems in  contracting  out
production  can also be  expected.  If we  cannot  produce  filter  material  or
outsource  production  we  cannot  go to  market  with our own brand nor can the
filter be used in existing  brands  unless we license the filer to such existing
brands.

Competition could prevent us from meeting our objectives.

         The cigarette industry is highly competitive.  We encounter competition
from  developers  of  low-carcinogen  tobacco  and  developers  of other  filter
technology,  which  may have  substantially  greater  financial,  manufacturing,
marketing and other  resources than we do. Another  company could develop filter
technology  similar to ours.  Competition  will affect our ability to market our
product and obtain  financing.  As we enter the cigarette  market ourselves with
the Silverton and Wellstone  brands,  we will be subject to the  competition  in
that  market,  which  has been  growing  and which  has  encountered  increasing
pressure due to price discounting.

Our  cigarettes  and the  cigarettes  using our  filter may not be  accepted  by
smokers.

         Our filter and the Wellstone  brand utilizing it may not be accepted by
smokers.  Smokers  may decide not to purchase  our brand or any tobacco  product
made with our  filters due to taste or other  preferences,  and sales of filters
with our technology would be adversely affected.

The cigarette  industry is subject to substantial and increasing  regulation and
taxation and this can only have a negative impact on us.

         Various federal,  state and local laws limit the advertising,  sale and
use of  cigarettes,  and these laws have  proliferated  in recent years.  If, as
expected,  this trend  continues,  it may have  material and adverse  effects on
potential sales,  operating  income and cash flows. In addition,  cigarettes are
subject to substantial and increasing  excise taxes.  Increased excise taxes may
result in declines in overall sales volume.  This result could adversely  affect
the market for our product.

         The  U.S.  Food  and  Drug   Administration   ("FDA")  has  promulgated
regulations  governing  the sale and  advertising  of  tobacco  products.  These

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regulations  are designed  primarily to discourage the sale to, and  consumption
by,  adolescents  and  children.  The  authority of the FDA to  promulgate  such
regulations was challenged in the federal courts.  On March 21, 2000, the United
States  Supreme  Court in a five to four decision held that the Congress has not
given the FDA authority to regulate  tobacco  products as customarily  marketed.
Given the  decision by the Supreme  Court it is unclear  whether the Congress in
the future will act to grant such  authority  to the FDA,  although  legislation
that would create such  authority has already been  introduced in Congress.  See
"Government Regulation."

If we are successful, we might not be able to hire employees and manage a bigger
enterprise.

         If we are successful in obtaining  market  acceptance for our products,
we will be required to manage substantial  volume from the resulting  customers.
To accommodate any such growth and compete  effectively,  we will be required to
attract,  integrate,  motivate  and  retain  additional  highly  skilled  sales,
technical and other employees. We face competition for these people. Our ability
to successfully manage such volume also will be dependent on our ability to find
a suitable  manufacturer for our brand and filters.  We or any person contracted
with to produce  our  products  in  commercial  quantities  might not be able to
overcome  the  challenge  of  setting  up any  production  operations,  and  our
personnel,  systems,  procedures and controls might prove  inadequate to support
our future  operations.  Any failure to implement  and improve our  operational,
financial and management systems or to attract,  integrate,  motivate and retain
additional  employees  required by future growth,  if any, could have a material
and adverse  effect on our  business  and  prospects,  financial  condition  and
results of operations.

We may not be able to protect our patent against infringement.

         Our  success in  commercially  exploiting  our  proprietary  technology
depends in large part on our  ability  to defend  our issued  patent,  to obtain
further  patent  protection  for the  technology  in the United States and other
jurisdictions,   and  to  operate  without   infringing  upon  the  patents  and
proprietary  rights  of  others.  Additionally,   we  must  be  able  to  obtain
appropriate  licenses to patents or proprietary  rights held by third parties if
infringement  would  otherwise  occur,  both in the United States and in foreign
countries.  Our primary patents have only issued in the United States and not in
foreign  jurisdictions.  If  international  patents  are not  issued,  it  would
adversely  affect our competitive  advantage,  with respect to sales outside the
United States.

         Patent  positions,  including our patent  positions (owned or licensed)
are  uncertain  and  involve  complex  legal  and  factual  questions  for which
important legal  principles are unresolved.  Any conflicts  resulting from third
party patent applications and patents could significantly reduce the coverage of
our patents and limit our ability to obtain  meaningful  patent  protection.  If
patents are issued to other  companies  that contain  competitive or conflicting
claims,  we may be required to obtain licenses to these patents or to develop or
obtain alternative  technology.  Such licensing agreements,  if required, may be
unavailable on acceptable terms or at all. If such licenses are not obtained, we
could  be  delayed  in  or   prevented   from   pursuing  the   development   or
commercialization of our products. It is possible that there exists an issued or
pending patent which conflict with or potentially infringe on our patent.

         Litigation which could result in substantial cost may also be necessary
to enforce  any  patents to which we have  rights,  or to  determine  the scope,
validity and  unenforceability  of other parties'  proprietary  rights which may
affect our rights.  U.S.  patents carry a presumption  of validity and generally
can be invalidated only through clear and convincing evidence.  We may also have
to  participate  in  interference  proceedings  declared by the U.S.  Patent and
Trademark  Office to determine the priority of an invention,  which could result
in substantial  cost. Our licensed patents might not be held valid by a court or
administrative  body  or  that  an  alleged  infringer  would  be  found  to  be
infringing. The mere uncertainty resulting from the institution and continuation
of any  technology-related  litigation or interference  proceeding  could have a
material and adverse effect on our business and prospects.

         We may also rely on  unpatented  trade secrets and know-how to maintain
our competitive position,  which we seek to protect, in part, by confidentiality
agreements with employees,  consultants,  suppliers and others. These agreements
might be breached or terminated,  or we might not have adequate remedies for any
breach,  and our trade secrets might otherwise  become known or be independently
discovered by competitors.

If we lose our management it would damage our business.

         We depend upon the continued  services of our senior management for our
continued success.  The loss of the Company's Chief Executive  Officer,  Learned
Jeremiah Hand, or the Company's  Chief  Financial  Officer,  Samuel Veasey could

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have a serious  negative impact upon our business and operating  results.  We do
not have an employment  agreement with Mr. Hand or with Mr. Veasey,  and we have
not obtained "key-man" life insurance with respect to either of their lives.

No cash dividends have or will be paid.

         Wellstone  has not  paid  any  cash  dividends  on its  capital  stock.
Wellstone anticipates that its future earnings, if any, will be retained for use
in the business, or for other corporate purposes, and it is not anticipated that
any cash dividends on its common stock will be paid in the  foreseeable  future.
Investors  cannot  expect to receive any dividends or other  periodic  income on
their investment.

Penny Stock rules could make it hard to resell your shares.

         The Penny Stock  rules  apply to the trading of our stock.  Wellstone's
common stock does not meet the listing requirements for any trading market other
than  the  OTC  Bulletin  Board.  Consequently,  the  liquidity  of  Wellstone's
securities  could be impaired,  not only in the number of securities which could
be bought  and sold,  but also  through  delays in the  timing of  transactions,
reduction in security analysts' and the news media's coverage of Wellstone,  and
lower prices for Wellstone's securities than might otherwise be attained.

         In addition,  the "penny stock" rules limit  trading of securities  not
traded on NASDAQ or a recognized  stock  exchange,  or  securities  which do not
trade at a price of $5.00 or  higher,  in that  brokers  making  trades in those
securities must make a special  suitability  determination for purchasers of the
security,  and obtain the purchaser's  consent prior to sale. The application of
these rules may make it difficult for shareholders to resell their shares.

Management  owns so many  shares,  it will be  difficult  to carry  out  hostile
takeovers. This could affect the value of our stock price.

         Management owns 179,433,000 shares, or 71.1% of the outstanding shares.
Management  is able to elect all the board of directors  and  otherwise  control
Wellstone and its operations,  and other  shareholders  will have little, if any
control over Wellstone's management.  The concentration of control in management
will  discourage  takeover  attempts such as tender offers,  and the purchase of
shares by persons who wish to acquire  control of Wellstone.  Stockholders  will
likely  not be able  to  benefit  from a rise  in  share  prices  which  usually
accompanies hostile takeovers.

We could change the strategy we outline in this report.

         Although we have no current  plan to do so, we may change our  strategy
for the development and marketing of our technology in the future.  Our business
plan might not be implemented as set forth herein.

The Tobacco and Cigarette Industry

         Annual U.S. sales of cigarettes in 2003 were 401 billion. Approximately
44.5 million adult Americans smoke; worldwide, the figure is estimated to be 1.1
billion people. The market share of five major U.S.  cigarette  manufacturers in
2004 was as follows:


                                                             U.S. Market Share
                  Phillip Morris Cos., Inc.                        50.4%
                  RJ Reynolds                                      32.0%
                  Lorillard                                         9.3%
                  Commonwealth                                      3.1%
                  Liggett & Meyers                                  2.6%
                                                                   -----
                     Total                                         97.4%

Filters

         Almost all  cigarettes  sold are  filtered.  Worldwide,  93% of the 5.3
trillion cigarettes sold in 1999 were filtered.  Four types of material are used
in filters: cellulose acetate (68%), polypropylene (21% primarily in China) pure

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cellulose  (less than 1%),  and  granular  additive  filters  such as  activated
charcoal (1%).  Activated  charcoal  filters are efficient having been proven to
reduce  carcinogenicity.  However,  activated carbon filters also remove much of
the taste and  nicotine,  and have  probably not become more popular due to this
reason.  In  management's  opinion,  the  development  of a  "safe"  or  "safer"
cigarettes has been slow due to two factors.  First,  the  manufacturers  had no
interest in developing  "safer"  cigarettes since to do so would be an admission
that smoking was prejudicial to health,  which would adversely  impact sales and
lead to  liability.  We think  this is no  longer a factor  due to  overwhelming
consensus that smoking is unhealthy,  and the 1998 settlement  between the state
governments and the tobacco companies.

         Second, an effective filter (such as activated charcoal) also is likely
to remove that  substance in tobacco smoke which makes smoking a pleasurable  or
addictive habit - nicotine.

         Cigarette  manufacturers  produce  their own filters,  or purchase from
outside manufacturers, principally Filtrona Richmond, Inc.

         Another  device  used  to  enhance   filter   performance  is  to  make
perforations around the base of the filter for ventilation.  The introduction of
air dilutes  the smoke,  but this  device can be  circumvented  by the smoker by
covering the perforations with the fingers.

Harmful components of tobacco smoke

         Tobacco smoke is comprised of atmospheric and other gases,  particulate
matter,  and hundreds of chemical  compounds.  Tar is condensed  tobacco  smoke.
Nicotine is the  addictive  substance  in tobacco  smoke.  In the doses found in
cigarette  smoke carbon  monoxide  reduces the blood's  ability to carry oxygen.
Known  carcinogens  include  benzene,   2-napthylamine,   4-amino  byphenyl  and
radioactive polonium-210.  Potential carcinogens include  N-nitrosodiethylamine,
N-nitrosopyrrolidine, benzoapyrene, N-nitrosodieth aholomine and cadmium.

Our filter removes certain carcinogens

         Our  filter  material  works by  trapping  nucleophiles  in  tobacco or
produced  during  combustion  and is  the  subject  of  U.S.  Patent  6,119,701,
"Methods,  agents and devices for removing  nucleophilic toxins from tobacco and
tobacco smoke", issued September 19, 2000, to Dr. Anthony Cerami Ph.D, Dr. Carla
Cerami Hand M.D./Ph.D. and Dr. Peter Ulrich Ph.D, all shareholders of Wellstone,
and of U.S.  Patent  6,615,842  "Methods for removing  nucleophilic  toxins from
tobacco smoke" issued September 9, 2003 to Mr. Cerami,  and Drs. Cerami Hand and
Ulrich. Compounds in the filter material include periodate-oxidated (dialdeyhde)
devivaties of the polysaccarides cellulose, starch and agarose.

         We intend to sell and market our own cigarette  brand,  to sell filters
directly to manufacturers to be integrated into their own cigarette brands,  and
to "roll your own" manufacturers.

Results of In-house Testing.

         The  patent   developers  have  tested  our  filter   technology  in  a
biopharmaceuticals   laboratory,   using  standard   cigarette  filter  material
(cellulose  acetate)  containing the compound.  However,  these tests,  although
indicative  that our  technology  removes a  measurable  level of other  harmful
substances,  cannot be taken to imply that any specific  level of reduction will
occur in  production  cigarettes.  Variables  such as the mix of  tobacco  used,
manufacturing  additives,  and FTC testing methodology will all cause variations
in the actual percentage of harmful materials removed.

         The Ames  test is a  standard  test  used to  measure  mutagenicity  by
exposing the smoke (filtered and unfiltered) to a strain of Salmonella bacteria.
The Ames test  demonstrated  that our  filter  removed a  majority  of  mutagens
compared to the control cigarette.

         The Greiss test measures nitrosamines, which are contained in cigarette
smoke  and  believed  to be  carcinogenic.  With  the  250  milligram  level  of
concentration  in the  Wellstone  filter a  majority  of the  nitrosamines  were
removed.

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Marketing

         We have engaged in preliminary  discussions with several  manufacturers
in the tobacco  industry.  We think that an  independent  cigarette test will be
necessary in order to proceed further with  negotiations  with any manufacturer.
This  test  will  cost  an  estimated  $35,000.  Even if our  filter  technology
continues to be proven effective, we think that its success depends on the taste
of the product and whether or not smokers  will be  perceived  to value a filter
that  removes  nearly all  carcinogens.  Manufacturers  have  demonstrated  some
interest in "healthier" cigarettes. See "Competition."

International Markets; Acquisitions

         Wellstone  is  investigating   the   international   potential  of  its
proprietary  compound,  especially in Europe and Asia where  smoking  levels are
much higher than in the United States and Canada. We are also considering one or
more acquisitions if such can be synergistic with our current  business,  but no
agreements have been reached for any acquisitions.

Competition

         Our  technology  faces  competition,  but we think that our  technology
competes  favorably  because it reduces  carcinogens while retaining taste and a
significant  level  of  nicotine.  We  believe  that we  potentially  have  five
competitors,  however additional  competitors or new technologies could arise at
any time.  None of them has any  significant  level of sales and there has never
existed any market for special purpose filters.

         Philip Morris is now  test-marketing  a new cigarette  brand,  Marlboro
Ultra Smooth, which contains a new carbon filter that was presumably designed to
help  filter out  certain  toxins in  cigarette  smoke and to  therefore  reduce
exposure to these toxins.  However, Philip Morris is not making any reduced risk
or reduced exposure health claims.

         RJ Reynolds  introduced its Eclipse cigarette in 1998. Eclipse purports
to be safer  because it  primarily  heats  rather  than burns  tobacco,  greatly
reducing second hand smoke, and leaves no ashes,  stains or odor. RJR advertised
that  smoking  Eclipse  cigarette  might  reduce  the  risk of  cancer,  chronic
bronchitis,  and  emphysema.  The American Lung  Association  and American Heart
Association  disagree with those claims.  Eclipse is being marketed  through the
internet and limited retail sales.

         Star Scientific,  under a strategic  agreement with Brown & Williamson,
produces  nitrosamine-free tobacco. Star cures tobacco using microwave radiation
instead of heat.  According  to Star's  Annual  Report on Form 10-K for the year
ended  December 31,  2000,  the use of more than 3% of  Star-cured  tobacco in a
cigarette  results in unacceptable  taste. Star is also developing a filter that
removes only one toxic agent.

         Sekaps  Bio Filter  uses  activated  charcoal  integrated  with  bovine
hemoglobin  (cow's  blood).  Over 40 million of these  filters are employed each
year,  primarily in Russia and Europe.  We believe that all or almost all of the
BioFilter's efficacy results from its activated charcoal components,  and in our
opinion this filter shares the defects of activated charcoal filters in general,
of adversely affecting taste.

         The Green Ball cigarette filter is manufactured by 3DSD. The Green Ball
filter must be purchased  separately  and attached by the user to the cigarette.
According to Green Ball's website,  the cost is $4.99 for five filters and Green
Ball is sold by mail order or in Silicon Valley at a chain of drug stores.  3DSD
claims that its filter removes 90% of the nicotine and 75% of tar.

         Immulabs Sensi Filter removes several toxic gases (hydrogen cyanide and
acrolein) without apparently  affecting taste. The filter is expensive,  but the
main  competitive  disadvantage  compared to our filter  technology  is that the
Sensi Filter does not remove carcinogens. Since the FTC does not test cigarettes
for the removal of toxic gases, only tar and nicotine,  we believe that Immulabs
will have difficulty  marking marketing claims about the relative safety of this
filter.

Intellectual Property

         The technology  fundamental to Wellstone is protected under U.S. Patent
number   6,119,701,   entitled   "Methods,   agents  and  devices  for  removing
nucleophilic  toxins  from  tobacco and  tobacco  smoke," by Cerami et al.,  and
issued to the Cerami Consulting  Corporation.  This patent was filed on February
13, 1998,  and approved on September  19, 2000.  Based on a licensing  agreement
with  Cerami  Consulting  Corporation,  Wellstone  has  exclusive  rights to the
technology on which the patent is based.  The patent is protected until February

                                       8
<PAGE>

13, 2018,  according to current U.S. Patent law. A second U.S. patent was issued
to Cerami  Consulting  Corporation  and licensed to Wellstone:  U.S. Patent U.S.
Patent number 6,615,842, entitled "Methods for removing nucleophilic toxins from
tobacco  smoke" by Cerami et al., and issued to Cerami  Consulting  Corporation.
This  patent  was  filed on June 26,  2000 and  issued  on  September  9,  2003.
Therefore,  Wellstone has  controlling  rights to the  technology on which it is
based until June 26, 2020, according to current U.S. Patent law.

Employees

         As of December 31, 2004, we had 3 full time and 2 part time  employees.
We consider  our  relations  with our  employees  to be  satisfactory.  No union
represents any of our employees.

Legal Proceedings.

         Wellstone is not a party to any pending legal proceeding.

Governmental Regulation

         The manufacture  and sale of cigarettes and other tobacco  products and
of   pharmaceutical   products  are  subject  to  extensive  federal  and  state
governmental  regulation in the United States and by comparable  authorities  in
many foreign  countries.  These national  agencies and other federal,  state and
local entities regulate, among other things, research and development activities
and the testing, manufacture,  safety, effectiveness,  labeling, storage, record
keeping, approval, advertising and promotion of tobacco products.

         There are  multiple  bills  pending  before the Congress and in several
state  legislatures  which, if enacted,  would  significantly  change the United
States tobacco  industry.  Some of these federal bills contain  provisions which
would  provide  substantial  federal  government  funds  for  smoking  cessation
programs and products,  as well as incentives to tobacco companies and others to
produce less harmful or reduced-risk tobacco products.  We are unable to predict
what effect, if any, these provisions, if enacted, would have on our technology.

         The FDA has promulgated  regulations governing the sale and advertising
of  tobacco  products  designed   primarily  to  discourage  the  sale  to,  and
consumption by, adolescents and children. The authority of the FDA to promulgate
such  regulations was challenged in the federal courts. A federal District Court
upheld the FDA's authority to promulgate such regulations but ruled that certain
of the  regulations  restricting  advertising  were  invalid as violative of the
constitutional  right of free  speech.  On appeal,  the United  States  Court of
Appeals for the Fourth Circuit  affirmed  portions of the District Court opinion
that held the FDA could not  regulate  tobacco  advertising  and ruled  that the
executive  branch of the United States  government,  in particular the FDA, does
not have any  authority  to regulate  tobacco  products  generally.  The federal
government  appealed the Appeals  Court's ruling and the matter was heard by the
United States  Supreme Court in late 1999. On March 21, 2000,  the Supreme Court
in a five to four decision held that Congress has not given the FDA authority to
regulate  tobacco  products as customarily  marketed.  Given the decision by the
Supreme  Court it is  unclear  whether  the  Congress  will  act to  grant  such
authority to the FDA, although  legislation that would create such authority has
already been introduced in Congress.

         The  requirements for health warnings on cigarettes are governed by the
Federal  Cigarette  Labeling and Advertising Act ("Labeling  Act"). The Labeling
Act  imposes  labeling  and  advertising   requirements  on  the  manufacturers,
packagers and importers of cigarettes  and requires any company  wishing to sell
cigarettes  within  the  United  States  to submit a plan to the  Federal  Trade
Commission  explaining  how it  will  comply  with  the  warning  label  display
requirements.

         The sale of  tobacco  products  is  subject  to  taxation  in all fifty
states. In addition,  some states permit  municipalities to impose an additional
sales tax, and many  municipalities  do so. The state and municipal  sales taxes
are imposed upon wholesalers and/or retailers but not manufacturers or suppliers
of components such as filters and therefore we have no liability for such taxes.
In addition,  cigarettes are subject to substantial and increasing excise taxes.
The federal excise tax on cigarettes has been steadily increasing. Additionally,
state  excise  taxes  range from $.031 per pack in Kentucky to $2.46 per pack in
Rhode Island.  These taxes could adversely  affect cigarette sales in the future
and our potential revenues.

         Tobacco  production  in the  United  States is  subject  to  government
controls,  including the tobacco-price  support and production  control programs


                                       9
<PAGE>

administered  by the United States  Department of Agriculture  (the "USDA").  In
October 2004,  the Fair and Equitable  Tobacco  Reform Act of 2004 ("FETRA") was
signed into law. FETRA provides for the elimination of the federal tobacco quota
and price support  program through an industry funded buy-out of tobacco growers
and  quota-holders.  The cost of the buy-out is  approximately  $9.6 billion and
will be paid  over 10  years  by  manufacturers  and  importers  of all  tobacco
products.  The cost will be  allocated  based on the relative  market  shares of
manufacturers and importers of all tobacco products. Manufacturers and importers
of tobacco  products are also obligated to cover any losses (up to $500 million)
that  the  government  may  incur  on the  disposition  of  pool  stock  tobacco
accumulated under the previous tobacco price support program.  Wellstone's share
of tobacco pool stock losses will be minimal.

Product Liability

         In the United  States,  there have been  numerous  and  well-publicized
lawsuits  against the largest  manufacturers  of  cigarettes  and other  tobacco
products  initiated  by state and  municipal  governmental  units,  health  care
providers and insurers, individuals (for themselves and on a class-action basis)
and by others.  The legal theories  underlying such lawsuits are varied, but are
generally based upon one or more of the following:  (1) manufacturer  defendants
have deceived  consumers about the health risks  associated with tobacco product
consumption; (2) such defendants knew or should have known about various harmful
ingredients of their products and failed to adequately  warn consumers about the
potential harmful effects of those ingredients;  and (3) such defendants knew of
the addictive  attributes of nicotine and have  purposefully  manipulated  their
product ingredients so as to enhance the delivery of nicotine.

         We intend to sell  cigarettes  and to supply  filters  which we believe
could make cigarettes less prejudicial to health,  Wellstone could be liable for
personal  injury to  consumers.  Even if we believe  such  lawsuits  are without
merit, the cost of defense or settlement of lawsuits could be substantial.

Item 2.  DESCRIPTION OF PROPERTY

         Until September 3, 2003, we rented a minimal amount of office and a lab
room of 1,200 square feet space of an affiliate,  Kenneth Warren Institute. From
October 1, 2003  through  November  30, 2004 we used a minimal  amount of office
space provided by our chief executive  officer at no cost. The agreed upon value
of the facilities at the Warren Institute was $1,400 per month which was accrued
from  January  2002 to  September  30,  2003.  No rent  was  paid to the  Warren
Institute;  however,  Wellstone  recorded  rent  expense  for  the  use  of  the
facilities and a contribution to capital by principal  shareholder of $1,400 per
month. We also use lab space provided from time to time under agreement with our
director  of  research  as part of his  compensation.  On  November  30, 2004 we
relocated from New York to North Carolina to avail  ourselves of the talent pool
and  infrastructure  already in place in North  Carolina.  Wellstone  has leased
space in a state-of-the-art  cigarette  manufacturing  facility.  In addition to
office and plant space,  Wellstone  also  leases,  on a  non-exclusive  basis as
needed, certain production assets to produce cigarette samples. The office space
and plant are located at 250 Crown  Boulevard  in  Timberlake,  North  Carolina,
approximately 20 miles from Durham.  Monthly rental is $2,250.00 per month, on a
month to month basis.

Item 3.  LEGAL PROCEEDINGS

         None.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended December 31, 2004.

                                     PART II

Item 5. MARKET FOR COMMON EQUITY,  RELATED  STOCKHOLDER MATTERS AND COMMON STOCK
REPURCHASES

(a)  Market Information

         The Company's  Common Stock has traded on the OTC Bulletin  Board under
the symbol WLSF.ob since May, 2003. The high and low sales prices for the common
stock were as follows:

                                       10
<PAGE>


         Quarter Ended                           High              Low

         December 31, 2004                       $1.90             $ .54
         September 30, 2004                      $  .80            $ .21
         June 30, 2004                           $1.88             $ .26
         March 31, 2004                          $  .58            $ .12
         December 31, 2003                       $  .20            $ .12
         September 30, 2003                      $  .18            $ .07
         June 30, 2003                           $  .01            $ .00

         All  share  information  is  adjusted  for  stock  splits.   The  above
information  was  supplied by the OTC Bulletin  Board and these  prices  reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

(b)  Holders

         As of April 1, 2005,  there were  approximately  129 record  holders of
Company common stock.

(c) Dividends

         The Company has not paid any dividends on its common stock. The Company
currently intends to retain any earnings for use in its business,  and therefore
does not anticipate paying cash dividends in the foreseeable future.

(d)  Equity Compensation Plans

          Equity Compensation Plan Information as of December 31, 2004
<TABLE>
<CAPTION>

                                                                                        Number of Securities
                                                                                        remaining available
                                                                                        for future issuance
                                    Number of securities                                under equity
                                    To be issued upon         Weighted Average          compensation plans
                                    exercise of outstanding   exercise price of         (excluding securities
                                    options                   outstanding options       reflected in column (a))
                                            (a)                        (b)                       (c)

<S>                                 <C>                       <C>                       <C>
         Equity compensation        31,825,000                $.0046                    10,175,000
         Plans approved by
         Security holders

         Equity compensation                0                 0                         0(1)
         Plans not approved
         By security holders

         Total                      31,825,000                $.0046                    10,175,000
</TABLE>

         (1) After December 31, 2004, the board of directors  reserved 2 million
         shares of common  stock  for  issuance  to  employees,  consultants  or
         advisors for services which will be recorded at fair market value as of
         the date of issue.

(e)  Sales of Unregistered Securities during the year ended December 31, 2004

         During the quarter  ended  December 31, 2004, as reported in a Form 8-K
dated  November  30, 2004,  the Company  received  $1,500,000  in exchange for a
$1,500,000 convertible promissory note, due December 31, 2006, that it issued to
the  Carlson  Group,  Ltd.  The note  bears  interest  at a rate of 4% per annum
(effective  interest rate of 38%), which accrues and is payable on maturity.  In
addition, the Company issued Carlson Group warrants to purchase 3,240,000 shares
of common stock at an exercise price of $.50 per share (approximately 80% of the

                                       11
<PAGE>

market  value  of the  common  stock  on the  date of the  funding  commitment),
resulting in a debt discount of  $1,020,000  based on the relative fair value of
the  warrants.  The  warrants  are  exercisable  for 5 years and have  piggyback
registration  rights.  No underwriter  was involved.  The transaction was exempt
from  registration  under Section 4(6) of the  Securities  Act of 1933 since the
purchaser  is an  accredited  investor and there was no public  solicitation  or
advertising.

         In the year ended December 31, 2004, Wellstone issued restricted shares
for cash to Arrakis  Select,  Inc.  In  accordance  with the  Funding  Agreement
between Wellstone and Arrakis dated January 2, 2004, the purchase price for each
issuance  was fixed at 100% of the closing bid price of the common  stock on the
15th day of the month in which funding was received. No underwriter was involved
in this offering and no commissions  were paid. The control person of Arrakis is
a brother  of an  officer  and  director.  The  transactions  were  exempt  from
registration  under  Section  4(6)  of the  Securities  Act of  1933  since  the
purchaser  is an  accredited  investor and there was no public  solicitation  or
advertising.  Pursuant  to the  Funding  Agreement,  Arrakis  agreed to  provide
Wellstone with its cash needs of approximately $15,000 per month for a period of
90 days,  and the agreement was renewed for two additional 90 day periods (until
September  2004) and then Wellstone  agreed to accept $45,000 in October 2004 as
the final installment.

<TABLE>
<CAPTION>

Month of issuance          Cash purchase price       Number of Shares           Price per Share
-----------------          -------------------       ----------------           ---------------

<S>                              <C>                      <C>                       <C>
January                          $15,000                  125,000                   $  .12
February                          15,000                   62,500                      .24
March                             15,000                   36,585                      .41
April                             15,000                   14,064                     1.067
May                               15,000                   42,057                      .3567
June                              30,000                   88,236                      .34
July                              15,000                   45,000                      .333
August                            15,000                   54,879                      .2733
September                         15,000                   31,470                      .4766
October                           45,000                   75,000                      .60

                  Total         $195,000                  574,791
</TABLE>

         (f)  Company repurchases of common stock during the year ended December
              31, 2004.

         There were no Company repurchases of common stock during the year ended
December 31, 2004.

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

         Management has adopted an accelerated plan to bring the Wellstone brand
to market.  Our target,  originally June 2005, has been advanced to May 2005 due
to earlier than  expected  progress.  In  furtherance  of its  marketing  plans,
Wellstone has relocated its corporate  office from New York to North Carolina to
avail  itself of the talent  pool and  infrastructure  already in place in North
Carolina.   Wellstone   has  leased  space  in  a   state-of-the-art   cigarette
manufacturing  facility.  In addition to office and plant space,  Wellstone also
leases, on a non-exclusive basis as needed, certain production assets to produce
cigarette  samples.  Wellstone  has  enlarged its  management  team by adding an
experienced COO and CFO from one of the major  manufacturers  as well as a VP of
Sales with  extensive  experience in the sale and  marketing of  cigarettes  the
Company has completed design of its packaging.  This is a crucial step since the
Federal Trade Commission must review and approve package design. Wellstone is in
the process of sourcing production  capability for our cigarettes and the filter
incorporating  our patented  technology  and is formulating  distribution  plans
through discussions with distributors.

         Our  operations to date have  consisted of developing  and refining our
proprietary  filter  formulation,  obtaining the  exclusive  license to U.S. and
international  patents  on  that  formulation,  seeking  to  market  the  filter
technology,  and formulating a tobacco blend that delivers a satisfying  smoking
experience.

         Substantially  all of our losses for the year ended  December  31, 2004
are the result of stock-based compensation expense for the issuance of stock and
stock options.  During the year,  options were issued to a scientific advisor to
purchase  4,800,000 shares at an exercise price of $.0007 per share resulting in

                                       12
<PAGE>

expense of approximately  $655,000.  The expense for the issuance of these stock
options to the advisor was calculated based on the Black-Scholes  option pricing
model. In addition,  options to purchase  26,500,000 shares with exercise prices
ranging  from $.003 to $.01 per share  were  issued to three  officer  employees
resulting  in an expense  of  approximately  $13,555,000.  Because  these  stock
options were issued to employees,  the expense was calculated in accordance with
Accounting  Principles  Board  (APB) No.  25,  Accounting  for  Stock  Issued to
Employees.  Under APB No.  25,  the  difference  between  the fair  value of the
Company's  common  stock on the grant date and the  exercise  price of the stock
option, multiplied by the number of options granted, is recorded as compensation
expense.  The Company also issued 15,000,000 shares of common stock to a brother
of our  Chief  Executive  Officer,  for prior  legal  services  provided  to the
Company,  resulting in an expense of  approximately  $6,270,000.  As the Company
intensifies its developmental and marketing efforts,  general and administrative
costs will  increase  in future  quarters  as a result of leasing new offices in
North Carolina,  hiring new employees  including a Chief Financial and Operating
Officer, administrative, marketing and technical employees, and increased travel
and  office  expenses  related  to  the  Company's  anticipated  expansion  into
cigarette  manufacturing.  As of March 31, 2005, our general and  administrative
expenses paid in cash average approximately $90,000 per month.

Liquidity and Capital Resources

         We have never earned  revenues from  operations.  Through  December 31,
2004, our operations  were being funded by shareholder  advances and a financing
agreement with a private  investment fund  controlled by a related party.  These
shareholder  advances and financings from the related party,  including  accrued
interest,  totaled  $115,509 as of December  31,  2004.  On January 2, 2004,  we
entered into a funding agreement with Arrakis Select, a private  investment fund
controlled by a brother of our Chief  Executive  Officer  under which  agreement
Arrakis Select agreed to satisfy  Wellstone's  funding  requirements for 90 days
(renewable for  additional 90 day periods),  in exchange for common stock valued
at the closing bid price of the common  stock as of the 15th day of the month in
which the funding was made.  Through  October 31, 2004  Wellstone  had  received
$195,000 from Arrakis for the issuance of 574,791 restricted shares.

         In October the Company  entered  into an  agreement  with  another fund
under which it received  $1,500,000 in debt  financing  plus  warrants,  and the
agreement with Arrakis was not renewed. The $1,500,000 is believed by management
to be sufficient  for our working  capital needs for at least the next 12 months
from the date of issue.

         Wellstone has sourced suppliers to manufacture its patented formulation
in commercial quantities.  These sources of supply will enable Wellstone to meet
all foreseeable  market demand for the Wellstone line as well as to supply other
manufacturers who may choose to license the product.  Because the formulation is
unique to Wellstone's  product,  Wellstone has been required to specially source
manufacturing to ensure that strict specifications can be met. Wellstone intends
to use multiple suppliers to ensure a reliable supply.

         We  are a  development  stage  company  as  that  term  is  defined  in
paragraphs  8 and 9 of SFAS No. 7. Our  activities  to date have been limited to
seeking  capital;  seeking sources of supply and development of a business plan.
We do not believe that conventional financing,  such as bank loans, is available
to us due to these  factors.  Management  believes that it will be able to raise
the required funds for operations from one or more future  offerings,  and to be
able to affect our business plan. However,  Management believes that Wellstone's
ability to raise significant amounts of financing will be dependent on favorable
capital  markets and also on obtaining  either a small supply  contract or other
validation of our technology by an independent  source, and other risks inherent
in the business as  discussed  under the caption  "Risk  Factors" may affect the
outcome of Management's plans.

Item 7.  FINANCIAL STATEMENTS

         Wellstone's  financial  statements  are  appended  to the  end of  this
report.

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

         Not applicable.

Item 8A.  CONTROLS AND PROCEDURES

                                       13
<PAGE>

         We maintain  disclosure controls and procedures designed to ensure that
information  required to be disclosed in our reports filed under the  Securities
Exchange Act of 1934,  as amended (the Exchange  Act),  is recorded,  processed,
summarized,  and  reported  within  the  required  time  periods,  and that such
information is accumulated and  communicated  to our  management,  including our
Chief Executive Officer and Chief Financial  Officer,  as appropriate,  to allow
for timely decisions regarding disclosure.

         As required by Rule  13a-15(b)  under the Exchange Act, we conducted an
evaluation,  with the participation of our Chief Executive Officer and the Chief
Financial  Officer,   of  the  effectiveness  of  our  disclosure  controls  and
procedures  as of December 31, 2004. In  connection  with the  completion of its
audit of, and the issuance of its report on, our  financial  statements  for the
year ended December 31, 2004, Tanner LC identified  deficiencies that existed in
the design or operation of our internal control over financial reporting that it
considers to be "material  weaknesses." The Public Company Accounting  Oversight
Board  has  defined  a  material  weakness  as  a  "significant   deficiency  or
combination  of  significant  deficiencies  that  results  in more than a remote
likelihood  that a material  misstatement  of the  annual or  interim  financial
statements will not be prevented or detected."

         The  deficiencies  in our internal  controls  related to accounting for
equity transactions,  including the issuance of stock for services, the issuance
of stock options for services,  and warrants issued in connection with debt. The
disclosure  controls  deficiencies  related  to the  statement  of  stockholders
equity,  footnote disclosure of information  required by U.S. generally accepted
accounting  principles,  including  the  stock  option  disclosure  required  by
Statement of Financial Accounting Standards No. 148, and disclosure of the stock
splits  in the  statement  of  stockholders'  equity  and the  footnotes  to the
financial statements. The adjustments to record the issuances of stock and stock
options for services or compensation  and the footnote  disclosure  deficiencies
were  detected in the audit  process and have been  appropriately  recorded  and
disclosed in this Form 10-KSB/A.  Based on our  evaluation and the  deficiencies
identified  above,  we concluded  that, as of December 31, 2004,  our disclosure
controls and procedures were not effective in timely alerting us to the material
information  relating to us (or our  consolidated  subsidiaries)  required to be
included in the reports we file or submit under the Exchange  Act. We are in the
process of improving our internal control over financial  reporting in an effort
to remediate these deficiencies through improved supervision and training of our
staff.  These  deficiencies  have  been  disclosed  to our  Board of  Directors.
Additional  effort is  needed  to fully  remedy  these  deficiencies  and we are
continuing  our efforts to improve and  strengthen  our  control  processes  and
procedures. Our management and Board of Directors will continue to work with our
auditors and other outside  advisors to ensure that our controls and  procedures
are adequate and effective.

         There  has  been no  change  in our  internal  control  over  financial
reporting  during the fourth quarter ended December 31, 2004 that has materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting. Since the most recent evaluation date, there have been
no  significant  changes  in  our  internal  control  structure,  policies,  and
procedures  or in other  areas that  could  significantly  affect  our  internal
control over financial reporting.

Item 8B. OTHER INFORMATION

         Not applicable

                                    PART III

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

         The members of the Board of Directors of Wellstone serve until the next
annual meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors.  The following are the
directors, executive officers and key employees of Wellstone.


          Jere E. Goyan               73    Chairman
          Learned Jeremiah Hand       46    Chief Executive Officer and Director
          Samuel M. Veasey            60    Chief Operating Officer and Chief
                                            Financial Officer




                                       14
<PAGE>

Jere E. Goyan, Chairman

         Dr.  Jere E. Goyan,  73, has served as  Chairman  of the Company  since
January  2003.  Dr. Goyan has served as  President of Goyan and Hart  Associates
since January 1999. Dr. Goyan served as President and Chief Operating Officer of
Alteon,  Inc., a pharmaceutical  company,  from 1993 to 1998. From 1979 to 1981,
Dr.  Goyan served as a  Commissioner  of the Food and Drug  Administration.  Dr.
Goyan is  currently  Dean  Emeritus  and  Professor  Emeritus  of the  School of
Pharmacy, University of California, San Francisco where he was Dean from 1967 to
1992 and a  Professor  from  1956 to 1992.  Dr.  Goyan is a member  of  numerous
associations and served as President of the American  Association of Colleges of
Pharmacy in 1978 and of the American Association of Pharmaceutical Scientists in
1990.  He has received  meritorious  awards,  including  from the  University of
California,  San  Francisco,  the  American  Pharmaceutical   Association,   the
Department of Health and Human Services.  Dr. Goyan is the Chairman of the Board
of  SciClone  Pharmaceuticals,  a  biopharmaceutical  firm,  and a  director  of
Emisphere   Technologies,   Inc.,  a   biopharmaceutical   company,   PharmQuest
Corporation,  a drug development  company,  Penwest  Pharmaceuticals Co., a drug
delivery technology company,  Boehringer Ingelheim  Pharmaceuticals  Corporation
and Slil  Pharmaceuticals,  an  early-stage  drug discovery  company.  Dr. Goyan
obtained a Bachelor of Science degree from the School of Pharmacy, University of
California,  San  Francisco  and a PhD.  in  Pharmaceutical  Chemistry  from the
University of California, Berkeley.

Learned Jeremiah Hand, Chief Executive Officer

         Mr. Hand joined  Wellstone in March,  2000. From March 2000 to December
2003 he was  employed by Warren  Pharmaceuticals,  Inc. as its Vice  President -
Chief  Operating  Officer.  From January 2000 to December  2003 he was Executive
Director of the Kenneth S.  Warren  Institute,  a  non-profit  medical  research
facility.  In March 2000 Mr. Hand began to devote a  significant  portion of his
time to Wellstone. He now dedicates 100% of his time to Wellstone.  From 1994 to
1999, he served as Vice President at Morgan Stanley Dean Witter. He has a BA cum
laude from Amherst College.

Samuel M. Veasey, Chief Operating Officer and Chief Financial Officer

         Mr. Veasey was elected as Chief Financial Officer on September 9, 2004.
Mr.  Veasey was Senior Vice  President  and Chief  Financial  Officer for Vector
Tobacco (USA) Ltd. from October,  2000 until his retirement in July 2001. Vector
Tobacco (USA) Ltd. marketed a "reduced  carcinogen"  cigarette  utilizing carbon
and catalytic filters.  From July 2001 to September 2004 Mr. Veasey was retired.
Vector Tobacco was an operating  subsidiary of Vector Group,  Ltd. (NYSE:  VGR).
Mr.  Veasey was Senior Vice  President  - Finance of Liggett  Group,  Inc.  from
January 1997 to September 2000, and was Vice President,  Chief Financial Officer
and Treasurer of Liggett Group, Inc. from June 1996 to December 1996. He was the
Director of  Corporate  Accounting  of Liggett  from July 1993 to May 1996.  Mr.
Veasey joined  Liggett in August 1967 and held various  positions in the Finance
Department.  The Liggett Group, Inc. is one of the longest  established  tobacco
companies in the United  States.  Mr. Veasey was  responsible  for all financial
activities  of The  Liggett  Group  including  accounting,  budgeting,  internal
control,  debt compliance,  internal and external reporting,  cash management as
well as human resources and information systems.

Code of Ethics

         Wellstone  has not adopted a code of ethics which  applies to the chief
executive officer, or principal financial and accounting officer, because of our
level of  operations at this time.  Wellstone  intends to adopt a code of ethics
during calendar 2005.

Audit Committee Financial Expert

         Wellstone does not have an audit  committee.  Wellstone does not have a
financial expert on its audit committee,  because of the difficulty  encountered
by all small public  companies in obtaining  outside  board  members.  We cannot
predict  when,  if ever,  we will be able to  attract  a person  to the board of
directors who is a financial expert.

Section 16(a)  Beneficial Ownership Reporting Compliance

                                       15
<PAGE>

         Section  16(a)  of the  Exchange  Act  requires  Wellstone's  officers,
directors and persons who own more than ten percent of a registered class of our
equity securities to file reports of ownership and changes in ownership with the
SEC. Officers, directors and ten percent stockholders are required by regulation
to furnish  Wellstone  with copies of all Section 16(a) forms they file.  During
the year ended December 31, 2004, Wellstone believes that Jere E. Goyan, Learned
Jeremiah  Hand and  Samuel M.  Veasey  failed to file the  reports  required  by
Section  16(a)  of the  Exchange  Act,  including  Forms  3, 4 and 5.  Based  on
representations  submitted by such people,  Wellstone does not believe that such
individuals purchased or sold any Wellstone Common Stock during 2004.

Item 10. EXECUTIVE COMPENSATION

         The following  table sets forth the cash  compensation  of  Wellstone's
executive officers and directors during each of the last three fiscal years. The
remuneration  described  in the table does not include the cost to  Wellstone of
benefits  which may be  furnished  to the named  executive  officers,  including
premiums for health  insurance and other  benefits  provided to such  individual
that are extended in connection  with the conduct of Wellstone's  business.  The
value  of such  benefits  cannot  be  precisely  determined,  but the  executive
officers  named below did not receive such other  compensation  in the years set
forth below.

<TABLE>
<CAPTION>

                           Summary Compensation Table


                       ANNUAL COMPENSATION                                        LONG TERM COMPENSATION

        Name and                                             Other Annual                                                All
   Principal Position         Year      Salary     Bonus     Compensation            Awards               Payouts       Other
                                                                            Restricted     SARs(#)     Options/LTIP
                                                                             Stock (4)   Payouts ($)
<S>                           <C>      <C>            <C>          <C>            <C>          <C>        <C>              <C>
Carla Cerami Hand             2004     $     0        0            0              0            0                  0
President                     2003           0        0            0              0            0                  0        0
(resigned January 2004)       2002           0        0            0              0            0                  0
                              2001           0        0            0              0            0                  0        0

Learned Jeremiah Hand         2004     $25,000        0            0              0            0         18,000,000        0
CEO                           2003           0        0            0              0            0                  0        0
                              2002           0        0            0              0            0
                              2001           0        0            0              0            0                  0        0

Samuel Veasey                 2004      10,000                                                            4,500,000
CFO
</TABLE>

In  connection  with his  appointment  to the Board of Directors of Wellstone in
January 2003, Dr. Goyan was granted  incentive stock options to purchase 525,000
shares of common stock for $.000476 per share.  In connection  with his election
as Chief Financial  Officer in September 2004, Mr. Veasey was granted options to
purchase  4,500,000  shares at $.003 per share.  In September  2004 Mr. Hand was
also granted options to purchase 18,000,000 shares at $.003 per share. The above
options were granted under  Wellstone's 1994 Stock Option Plan, as such plan was
amended and restated in 2003.

Option/SAR Grants in Year ended December 31, 2004 to Named Executive Officers

                    Number of   % of Total
                  Securities    Options/SARs
                   Underlying   Granted to
                 Options/SARs   Employees in   Exercise or Base    Expiration
Name              Granted (#)   Fiscal Year    Price ($/Sh)        Date

L. Hand            18,000,000   65.9%          $.003               12/2009
S. Veasey           4,500,000   17.0%          $.003               12/2009


                                       16
<PAGE>

Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Values
<TABLE>
<CAPTION>

                                                   Number of
                                                   Securities       Value of
                                                   Underlying       Unexercised
                                                   Unexercised      In-the-Money
                                                   Options/SARs at  Options/SARs at
                                                   Fiscal Year End  Fiscal Year End
           Shares Acquired                         Exercisable/     Exercisable/
Name       on Exercise (#)   Value Realized ($)    Unexercisable    Unexercisable

<S>                <C>               <C>           <C>              <C>
L. Hand            0                 $0            18,000,000(1)    $21,780,000(1)
S. Veasey          0                 $0             4,500,000(1)    $ 5,445,000(1)
</TABLE>

(1)      All options are  exercisable.  Value based on closing  price of the
         common stock of $1.31 on December 30, 2004,  less exercise price.

         Wellstone  has no long  term  incentive  plans  other  than  the  plans
described above.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth  information  relating to the beneficial
ownership  of  Company  common  stock as of the date of this  report by (i) each
person  known by  Wellstone  to be the  beneficial  owner of more than 5% of the
outstanding  shares  of common  stock  (ii) each of  Wellstone's  directors  and
executive  officers,  and (iii) all  officers and  directors as a group.  Unless
otherwise  noted below,  Wellstone  believes that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially  owned by them. For purposes  hereof,  a person is deemed to be the
beneficial  owner of  securities  that can be acquired by such person  within 60
days from the date  hereof  upon the  exercise  of  warrants  or  options or the
conversion  of  convertible  securities.   Each  beneficial  owner's  percentage
ownership is determined by assuming  that any warrants,  options or  convertible
securities that are held by such person (but not those held by any other person)
and  which  are  exercisable  within  60 days  from the date  hereof,  have been
exercised.

    Name and Address                           Common Stock        Percentage

Jere E. Goyan(1)(2)                                525,000               *
Chairman

Learned Jeremiah Hand(1)(3)                    179,433,000            66.3%
Chief Executive Officer

Samuel Veasey                                    4,500,000             1.8%
Chief Financial Officer

Carla Cerami Hand, MD,PhD(1)(3)                179,433,000            66.3%

Anthony Cerami, PhD(1)(4)                       28,935,000            11.5%

All officers and directors
  as a group (3 persons)                       184,458,000            68.1%

* less than 1%
(1)      The business  address of each of these persons is 250 Crown  Boulevard,
         Timberlake, North Carolina
(2)      Includes options to purchase 525,000 shares of common stock.
(3)      Ms. Cerami Hand and Mr. Learned Jeremiah Hand are wife and husband. The
         179,433,000 shares listed as beneficially owned by Mr. Learned Jeremiah
         Hand include  138,333,000  shares which are  controlled by Carla Cerami
         Hand,  as stated  below;  18,000,000  shares  issuable upon exercise of
         stock  options,  and  23,100,000  shares held through a family  limited
         partnership  controlled by him. Mr. Hand disclaims beneficial ownership
         of such 138,333,000 shares. Ms. Cerami is the sole limited partner of a
         partnership which holds 115,233,000 shares and also controls 23,100,000
         shares  held via a  trust,  and the  41,100,000  shares  controlled  by
         Learned  Jeremiah  Hand.  She  disclaims  beneficial  ownership  of the
         41,100,000 shares controlled by Learned Jeremiah Hand.
(4)      Dr. Anthony Cerami is the father of Carla Cerami Hand.  Shares are held
         in a trust.

                                       17
<PAGE>

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr.  Learned  Hand,  an  officer  and  director,  advanced  $24,298  to
Wellstone for expenses which had not been  reimbursed as of December 31, 2004. A
law firm  controlled  by a brother of Learned Hand  advanced  funds on behalf of
Wellstone  from time to time in calendar  2004,  and as of December 31, 2004 the
amount unreimbursed to the law firm was $16,286. The highest amount owing to the
law firm during 2004 was  $20,149.  The  unreimbursed  amount as of December 31,
2003  was  $5,254.  Such  amounts  do not  bear  interest.  An  investment  fund
controlled  by the brother  invested  funds in  Wellstone  pursuant to a Funding
Agreement described in Part II, Item 5 of this Annual Report.

         Pursuant to an Agreement and Plan of Reorganization dated May 25, 2001,
Wellstone  Filters,  Inc.,  a Delaware  corporation  formerly  known as Farallon
Corporation  ("Wellstone")  acquired all of the outstanding membership interests
of Wellstone LLC in exchange for 210,000,000 shares of Wellstone's Common Stock.
In addition,  Wellstone issued 5,968,200 shares of common stock to a stockholder
of Farallon in cancellation of debt of $2,842. The terms of the acquisition were
determined  between the parties,  who are related in that Learned Jeremiah Hand,
the CEO of  Wellstone,  LLC,  is the  brother  of Jehu  Hand,  the  founder  and
president of Farallon. Prior to the acquisition,  Wellstone LLC and Farallon had
no affiliation or relationship.

         Carla  Cerami  Hand or  Cerami  Consulting  Corporation  and an  entity
controlled  by Learned Hand have loaned  various  amounts to  Wellstone  for its
capital requirements,  as follows. The loans are due on demand, bear interest at
8% per annum and are  represented by promissory  notes. As of December 31, 2004,
$15,727 had accrued as  interest  on these  notes,  none of which had been paid.
These related party notes payable totaled $59,200 as of December 31, 2004.

         In 2004,  we issued to Jehu  Hand,  a  brother  of our Chief  Executive
Officer,  15,000,000  shares of common stock as compensation  for legal services
which he provided to the Company. The Company's issuance of shares of its common
stock to Mr. Hand resulted in an expense of approximately $6,270,000. On January
2, 2004,  Arrakis Select,  Inc., a company controlled by Jehu Hand, a brother of
our Chief Executive  Officer,  entered into a Funding  Agreement whereby Arrakis
provided  $195,000 to Wellstone between January and October 2004 in exchange for
574,791  shares of common  stock.  The Company  issued  common  stock to Arrakis
monthly at a price per share equal to the  closing bid price of common  stock as
of the 15th day of the month in which Arrakis invested the money.

         The  Company  has  a  licensing   agreement   with  Cerami   Consulting
Corporation, an entity owned and controlled by the spouse of the Company's Chief
Executive  Officer.  The  licensing  agreement  grants the Company the exclusive
worldwide   exploitation   rights  to  practice  and  utilize  the   inventions,
technology, know-how, and patent, including the rights to manufacture and market
the filters which are the subject of the licensing  agreement,  that are held by
Cerami Consulting  Corporation.  In exchange for the license rights, the Company
agreed   to  pay  all   future   costs   for   development,   manufacture,   and
commercialization  of the technology,  including all other future fees and costs
in connection with the patents.

         In the fiscal years ended  December 31, 2003 and 2002,  Ms. Cerami Hand
and/or Mr. Learned Hand advanced $8,899 and $16,072,  respectively, on behalf of
Wellstone for its corporate expenses. The Warren Institute,  affiliated with the
above  officers,  provides office space and a 1,200 square foot lab to Wellstone
at a cost of $1,400 per month from January 2002 to  September  30, 2003,  all of
which has been  accounted for as a  contribution  to capital by the  controlling
stockholders.  Such amounts are not  represented by any promissory note and bear
no interest.


                                       18
<PAGE>

                                     PART IV

Item 13. EXHIBITS

(a) Exhibits.     The following exhibits of the Company are included herein.

                 2.       Plan  of  acquisition,  reorganization,   arrangement,
                          liquidation or succession.

                           2.1.     Agreement and Plan of Reorganization,  dated
                                    February May 25,  2001,  between the Company
                                    and Wellstone LLC(2)

                 3.       Certificate of Incorporation and Bylaws

                           3.1.     Articles of Incorporation(1)
                           3.2      Articles of Amendment(2)
                           3.3      Bylaws(1)
                           3.4      Articles of Amendment increasing  authorized
                                    common stock to 300,000,000 shares (5)

                 10.      Material Contracts

                           10.1     Stock Option Plan (1)
                           10.2     Amended and Restated Stock Option Plan (5)
                           10.3     Funding  Agreement  with Arrakis Select Fund
                                    (5)
                           10.4     Schedule of Details,  options  granted as of
                                    December 31, 2004 under Stock Option Plan(6)
                           10.5     $1,500,000 Promissory Note (4)
                           10.6     Warrants,  exercisable for 3,240,000  shares
                                    of common stock (4)
                           10.7     Lease   Agreement,   with  U.S.   Flue-Cured
                                    Tobacco Growers Inc.,  dated as of September
                                    1, 2004. (5)
                           10.8     Marketing  Agreement,  with  H&S  Marketing,
                                    dated as of December 28, 2004 (5)
                           10.9     License  Agreement,  by and  between  Cerami
                                    Consulting    Corporation    and   Wellstone
                                    Filters, LLC, dated as of September 14, 1999
                                    (5)
                           10.10    Lease   Extension    Agreement  with    U.S.
                                    Flue-Cured  Tobacco Growers Inc., dated  May
                                    2, 2005 (5)

                 21.1     Wellstone  Tobacco  Company is  incorporated  in North
                          Carolina.  Trade  names  used  include  Wellstone  and
                          Silverton.  Wellstone  Filters LLC is  incorporated in
                          Delaware.

                 31.1     Certification  of Chief Executive  Officer Pursuant to
                          Exchange Act Rule 13a-14(a).

                 31.2     Certification  of Chief Financial  Officer Pursuant to
                          Exchange Act Rule 13a-14(a).

                 32.1     Certification  of Chief Executive  Officer pursuant to
                          18 U.S.C. Section 1350.

                 32.2     Certification  of Chief Financial  Officer pursuant to
                          18 U.S.C. Section 1350.

         (1)    Incorporated   by  reference  to  the   Company's   Registration
                Statement on Form 10-SB, file no. 0-28161.
         (2)    Incorporated  by reference to the  Company's  Current  Report on
                Form 8-K, dated May 25, 2001.
         (3)    Incorporated  by reference to the  Company's  Current  Report on
                Form 8-K dated August 6, 2001.
         (4)    Incorporated  by reference to the  Company's  Current  Report on
                Form 8-K, dated December 3, 2004.
         (5)    Filed herewith.


Reports on Form 8-K

         8-K Current Report dated September 13, 2004,  regarding the appointment
of Samuel Veasey as Chief Financial Officer and Chief Operating Officer.

         8-K Current Report dated December 3, 2004,  regarding the issuance of a
$1.5 million promissory note with warrants.

Item 14 Principal Accountant Fees and Services.

                                       19
<PAGE>

         During the period covering the fiscal years ended December 31, 2004 and
2003. Tanner LC performed the following professional services:


                                                     2004              2003
                                                     ----              ----
Audit Fees                                        $  13,000         $  5,000
Audit-Related Fees                                $   1,200         $      0

         Audit fees  include the  year-end  audit and review of the Form 10-KSB,
quarterly reviews and reviews of the Forms 10-QSB

         Audit-related  fees  include  aggregate  fees  billed for  professional
assurance and related services rendered by Tanner LC during each of the last two
fiscal years. Examples of such fees include review of S-8 filings with the SEC.

Audit Committees pre-approval policies and procedures.

         We do not have an audit  committee.  Our  engagement  of  Tanner LC was
approved  by the Board of  Directors.  No  services  described  in Item  9(e)(2)
through 9(e)(4) of Schedule 14A were performed by our auditors.


                                       20
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on February 21, 2006.


                                                    WELLSTONE FILTERS, INC.


                                                    /s/ Learned Jeremiah Hand

                                                    Learned Jeremiah Hand
                                                    CEO

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Company and in the capacities on February 21, 2006.


By:     /s/ Learned Jeremiah Hand                 CEO and Director
        Learned Jeremiah Hand                     (principal executive officer)

By:     /s/ Samuel M. Veasey                      Chief Financial Officer
        Samuel M. Veasey                          (principal accounting and
                                                  financial officer)

By:     /s/ Jere Goyan                            Chairman
        Jere Goyan


                                       21
<PAGE>

                                  Exhibit Index

<TABLE>
<CAPTION>
<S>       <C>                                              <C>
--------- ------------------------------------------------ -----------------------------------------------------------
2.1       Agreement and Plan of Reorganization, dated      Incorporated by reference to the Company's Current Report
          February May 25, 2001, between the Company and   on Form 8-K, dated May 25, 2001
          Wellstone LLC(2)

--------- ------------------------------------------------ -----------------------------------------------------------
3.1       Articles of Incorporation                        Incorporated by reference to the Company's Registration
                                                           Statement on Form 10-SB, file no. 0-28161
--------- ------------------------------------------------ -----------------------------------------------------------
3.2       Articles of Amendment                            Incorporated by reference to the Company's Current Report
                                                           on Form 8-K, dated May 25, 2001
--------- ------------------------------------------------ -----------------------------------------------------------
3.3       Bylaws                                           Incorporated by reference to the Company's Registration
                                                           Statement on Form 10-SB, file no. 0-28161
--------- ------------------------------------------------ -----------------------------------------------------------
3.4       Articles of Amendment increasing authorized      Filed herewith
          common stock to 300,000,000 shares
--------- ------------------------------------------------ -----------------------------------------------------------
10.1      Stock Option Plan                                Incorporated by reference to the Company's Registration
                                                           Statement on Form 10-SB, file no. 0-28161
--------- ------------------------------------------------ -----------------------------------------------------------
10.2      Amended and Restated Stock Option Plan           Filed herewith
--------- ------------------------------------------------ -----------------------------------------------------------
10.3      Funding Agreement with Arrakis Select Fund       Filed herewith
--------- ------------------------------------------------ -----------------------------------------------------------
10.4      Schedule of Details, options granted as of       Filed herewith
          December 31, 2004 under Stock Option Plan
--------- ------------------------------------------------ -----------------------------------------------------------
10.5      $1,500,000 Promissory Note                       Incorporated by reference to the Company's Current Report
                                                           on Form 8-K, dated December 3, 2004
--------- ------------------------------------------------ -----------------------------------------------------------
10.6      Warrants, exercisable for 3,240,000 shares of    Incorporated by reference to the Company's Current Report
          common stock                                     on Form 8-K, dated December 3, 2004
--------- ------------------------------------------------ -----------------------------------------------------------
10.7      Lease Agreement, with U.S. Flue-Cured Tobacco    Filed herewith
          Growers, Inc., dated as of September 1, 2004
--------- ------------------------------------------------ -----------------------------------------------------------
10.8      Marketing Agreement, with H&S Marketing, dated   Filed herewith
          as of December 28, 2004
--------- ------------------------------------------------ -----------------------------------------------------------
10.9      License Agreement, by and between Cerami         Filed herewith
          Consulting Corporation and Wellstone Filters,
          LLC, dated as of September 14, 1999
--------- ------------------------------------------------ -----------------------------------------------------------
10.10     Lease Extension Agreement, with U.S. Flue-Cured  Filed herewith
          Tobacco Growers, Inc., dated May 2, 2005
--------- ------------------------------------------------ -----------------------------------------------------------
21.1      List of Subsidiaries                             Filed herewith
--------- ------------------------------------------------ -----------------------------------------------------------
31.1      Certification of Chief Executive Officer         Filed herewith
          Pursuant to Exchange Act Rule 13a-14(a).
--------- ------------------------------------------------ -----------------------------------------------------------
31.2      Certification of Chief Financial Officer         Filed herewith
          Pursuant to Exchange Act Rule 13a-14(a).
--------- ------------------------------------------------ -----------------------------------------------------------
32.1      Certification of Chief Executive Officer         Filed herewith
          pursuant to 18 U.S.C. Section 1350.
--------- ------------------------------------------------ -----------------------------------------------------------
32.2      Certification of Chief Financial Officer         Filed herewith
          pursuant to 18 U.S.C. Section 1350
--------- ------------------------------------------------ -----------------------------------------------------------
</TABLE>

<PAGE>
                                       22
                                               REPORT OF INDEPENDENT REGISTERED
                                                          PUBLIC ACCOUNTING FIRM






To the Board of Directors and Stockholders of
Wellstone Filters, Inc.


We have  audited  the  accompanying  consolidated  balance  sheet  of  Wellstone
Filters,  Inc. (a development  stage  company),  as of December 31, 2004 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the two years then ended and the  period  from June 26,  1998 (date of
inception) to December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Wellstone Filters,  Inc. (a development stage company),  as of December 31, 2004
and the results of their  operations and their cash flows for the two years then
ended and the period from June 26,  1998 (date of  inception)  to  December  31,
2004, in conformity with U.S. generally accepted accounting principles.



/s/Tanner LC


Salt Lake City, Utah
March 18, 2005



                                        1

<PAGE>

                             WELLSTONE FILTERS, INC.
                          (A Development Stage Company)
                           Consolidated Balance Sheet
                                December 31, 2004


        Assets
        ------

Current assets:
  Cash                                                          $     1,431,088
                                                                ---------------

        Total current assets                                          1,431,088

Furniture and equipment, net                                             12,695
                                                                ---------------

                                                                $     1,443,783
                                                                ---------------

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

        Liabilities and Stockholders' Equity
        ------------------------------------

Current liabilities:
  Accounts payable                                              $        23,890
  Related party accounts payable                                         40,584
  Accrued expenses                                                       20,727
  Related party notes payable                                            59,200
                                                                ---------------

        Total current liabilities                                       144,401
                                                                ---------------

Note payable net of unamortized debt discount of $977,500               522,500
                                                                ---------------

        Total liabilities                                               666,901

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.001 par value, 1,000,000 shares
    authorized; no shares issued and outstanding                             -
  Common stock, $.001 par value, 300,000,000 shares
    authorized; 252,542,991 shares issued and outstanding               252,543
  Additional paid-in capital                                         21,471,903
  Accumulated deficit                                               (20,947,564)
                                                                ---------------

        Total stockholders' equity                                      776,882
                                                                ---------------

                                                                $     1,443,783
                                                                ---------------



          See accompanying notes to consolidated financial statements.



                                       2
<PAGE>


                             WELLSTONE FILTERS, INC.
                          (A Development Stage Company)
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>


                                            Years Ended                         Cumulative
                                            December 31,                         Amounts
                                          ---------------------------------      Since
                                                2004              2003          Inception
                                          --------------------------------------------------

<S>                                       <C>                  <C>           <C>
Revenues                                  $              -     $         -   $            -

General and administrative expenses             20,730,764          69,280       20,864,633
Research and development expenses                   19,580               -           19,580

Interest expense                                    52,236           3,414           63,351
                                          -------------------------------------------------

        Loss before income taxes               (20,802,580)        (72,694)     (20,947,564)

Income tax benefit                                       -               -                -
                                          -------------------------------------------------


        Net loss                          $    (20,802,580)    $   (72,694)  $  (20,947,564)
                                          -------------------------------------------------

Net loss per share -
   basic and diluted                      $          (0.09)    $         -
                                          ---------------------------------

Weighted average shares
   - basic and diluted                         240,915,000     186,327,000
                                          ---------------------------------

</TABLE>



         See accoumpanying notes to consolidated financial statements.

                                        3





<PAGE>
                             WELLSTONE FILTERS, INC.
                          (A Development Stage Company)
            Unaudited Consolidated Statement of Shareholders' Deficit
           February 17, 1998 (Date of Inception) to December 31, 2004

<TABLE>
<CAPTION>

                                                Common Stock             Additional
                                           ------------------------       Paid-in       Accumulated
                                              Shares         Amount       Capital        Deficit          Total
                                           -------------------------------------------------------------------------
<S>                                         <C>           <C>          <C>             <C>             <C>
Balance, February 17, 1998                            -   $        -   $          -    $          -    $           -

Restatement for recapitalization            210,000,000      210,000       (210,000)              -                -

Capital contribution                                  -            -              -             100              100

Net loss                                              -            -              -          (6,675)          (6,675)
                                           -------------------------------------------------------------------------

Balance, December 31, 1998                  210,000,000      210,000       (210,000)         (6,575)          (6,575)

Net loss                                              -            -              -            (969)            (969)
                                           -------------------------------------------------------------------------

Balance, December 31, 1999                  210,000,000      210,000       (210,000)         (7,544)          (7,544)

Net loss                                              -            -              -         (21,395)         (21,395)
                                           -------------------------------------------------------------------------

Balance, December 31, 2000                  210,000,000      210,000       (210,000)        (28,939)         (28,939)

Acquisition of Farallon Corporation          21,000,000       21,000        (23,842)              -           (2,842)

Stock issued in cancellation of debt          5,968,200        5,968         (3,126)              -            2,842

Reclassification of members'
contribution to additional paid-in capital            -            -            100            (100)               -

Net loss                                              -            -              -          (8,218)          (8,218)
                                           -------------------------------------------------------------------------

Balance, December 31, 2001                  236,968,200      236,968       (236,868)        (37,257)         (37,157)

Rental expense forgiven by officer                    -            -         16,800               -           16,800

Net loss                                              -            -              -         (35,033)         (35,033)
                                           -------------------------------------------------------------------------

Balance, December 31, 2002                  236,968,200      236,968       (220,068)        (72,290)         (55,390)

Rental expense forgiven by officer                    -            -         12,600               -           12,600

Net Loss                                              -            -              -         (72,694)         (72,694)
                                           -------------------------------------------------------------------------

Balance December 31, 2003                   236,968,200      236,968       (207,468)       (144,984)        (115,484)

Common stock issued for:
    Cash                                        574,791          575        194,425               -          195,000
    Services                                 15,000,000       15,000      6,255,000               -        6,270,000

Stock options issued to consultants                   -            -        654,946               -          654,946

Stock options issued to employees                     -            -     13,555,000               -       13,555,000

Allocation of debt proceeds to warrants               -            -      1,020,000               -        1,020,000

Net loss                                              -            -              -     (20,802,580)     (20,802,580)
                                           -------------------------------------------------------------------------

Balance, December 31, 2004                  252,542,991    $ 252,543   $ 21,471,903    $(20,947,564)   $     776,882
                                           -------------------------------------------------------------------------
</TABLE>


         See accoumpanying notes to consolidated financial statements.

                                        4


<PAGE>


                             WELLSTONE FILTERS, INC.
                          (A Development Stage Company)
                      Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>


                                                                         Years Ended              Cumulative
                                                                         December 31,               Amounts
                                                               ------------------------------        Since
                                                                    2004             2003           Inception
                                                               ------------------------------------------------
<S>                                                            <C>               <C>             <C>
Cash flows from operating activities:
  Net loss                                                     $  (20,802,580)   $    (72,694)   $  (20,947,564)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
      Issuance of common stock for services                         6,270,000               -         6,270,000
      Issuance of stock options for services                          654,946               -           654,946
      Issuance of stock options to employees as compensation       13,555,000               -        13,555,000
      Amortization of debt discount                                    42,500               -            42,500
      Depreciation                                                      3,245           3,005             7,201
      Rental expense forgiven by officer and board member                   -          12,600            29,400
      Increase in accounts payable                                     (1,499)         11,643            23,890
      Increase in related party accounts payable                       10,360          14,152            29,417
      Increase in accrued expenses                                      9,736           3,414            20,727
                                                               ------------------------------------------------

        Net cash used in operating activities                        (258,292)        (27,880)         (314,483)
                                                               ------------------------------------------------

Cash flows from investing activities-
  Purchase of fixed assets                                             (8,729)              -            (8,729)
                                                               ------------------------------------------------

Cash flows from financing activities:
  Proceeds from sale of common stock                                  195,000               -           195,000
  Proceeds from long-term debt                                      1,500,000                         1,500,000
  Members contribution of equity                                            -               -               100
  Proceeds from related party notes payable                                 -          30,000            59,200
                                                               ------------------------------------------------

        Net cash provided by financing activities                   1,695,000          30,000         1,754,300
                                                               ------------------------------------------------

        Net increase in cash and cash equivalents                   1,427,979           2,120         1,431,088

Cash and cash equivalents at beginning of period                        3,109             989                 -
                                                               ------------------------------------------------

Cash and cash equivalents at end of period                     $    1,431,088    $      3,109    $    1,431,088
                                                               ------------------------------------------------

</TABLE>



         See accoumpanying notes to consolidated financial statements.

                                        5



<PAGE>

                             WELLSTONE FILTERS, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                     Years Ended December 31, 2004 and 2003



1.  Organization and Summary of Significant Accounting Policies

         Organization
         Wellstone Filters,  LLC (Wellstone) was organized as a Delaware limited
liability company on February 17, 1998 (date of inception).

         On  May  25,  2001,   Wellstone   Filters,   Inc.   (formerly  Farallon
Corporation) (the "Registrant")  acquired Wellstone pursuant to an Agreement and
Plan of Reorganization (the Agreement), dated as of May 25, 2001.

         The Registrant  acquired all of the outstanding  membership interest of
Wellstone,  in exchange for 210,000,000 shares of the Registrant's common stock.
In addition, the Company issued 5,968,200 shares of common stock in cancellation
of debt.

         The  stockholders  of  Wellstone,  after  the  acquisition,  owned  the
majority  of  the  combined  company.  Accordingly,  the  combination  has  been
accounted  for  as a  reverse  acquisition  whereby,  for  accounting  purposes,
Wellstone is the accounting acquirer and Registrant is the accounting  acquiree.
Registrant  and Wellstone are  collectively  referred to as (the  Company).  The
Company  has  adopted a December  31 year end.  The  financial  statements  from
inception  through May 25, 2001,  are those of  Wellstone,  LLC, the  accounting
acquirer.  Subsequent  to May 25, 2001,  the  financial  statements  reflect the
consolidated position and operations of Registrant and Wellstone.

         The  Company  is  engaged  in  the   development  and  marketing  of  a
proprietary cigarette filter technology;  however, the Company has not commenced
planned principal operations and has not recognized any revenues related to such
planned operations.  Accordingly,  the Company is considered a development stage
company as defined in SFAS No. 7.

         Stock Splits and Stock Dividends
         The Company has declared and  affected the  following  stock splits and
dividend:

         o A five for one stock split in July 2003
         o A four-tenths for one stock dividend in September 2003
         o A three for one stock split in September 2004

         All share amounts in the  consolidated  financial  statements have been
retroactively restated to reflect these stock splits and dividend.

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

         Furniture and Equipment
         Furniture  and  equipment  are  carried  at  cost,   less   accumulated
depreciation and amortization.  Depreciation and amortization are provided using
the straight-line method over the estimated useful lives of the assets of 3 to 5
years.  Expenditures  for maintenance and repairs are expensed when incurred and
betterments  are  capitalized.  Gains  and  losses  on the sale or  disposal  of
furniture and equipment are reflected in operations.

         Income Taxes
         Income  taxes  are  recorded  using the  asset  and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be

                                       6
<PAGE>

recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

         Stock-Based Compensation
         The Company accounts for its employee  stock-based  compensation  using
the intrinsic value method,  as prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. Accordingly, the Company
records deferred  compensation  costs related to its employee stock options when
the current market price of the  underlying  stock exceeds the exercise price of
each stock  option on the  measurement  date  (usually  the date of grant).  The
Company records and measures deferred  compensation for stock options granted to
non-employees, other than members of the Company's Board of Directors, using the
fair value based method.  Deferred  compensation  is expensed on a straight-line
basis over the vesting  period of the related  stock  option.  During 2004,  the
Company granted stock options to purchase  26,500,000  shares of common stock to
employees or members of the Company's  Board of Directors  with exercise  prices
below the market  price on the  measurement  date.  Because the  options  vested
immediately,  they resulted in  compensation  expense of $8,660,000 in 2004. The
Company  granted  stock  options to  non-employees  for  services  resulting  in
$640,000 of general and administrative expense during 2004.

         An alternative  method to the intrinsic  value method of accounting for
stock-based  compensation is the fair value based method prescribed by Statement
of Financial  Accounting  Standards  (SFAS) No. 123,  Accounting for Stock-Based
Compensation,   as  amended  by  SFAS  No.  148,   Accounting  for   Stock-Based
Compensation  - Transition  and  Disclosure.  If the Company used the fair value
based  method,  the Company  would be required to record  deferred  compensation
based on the fair  value of the stock  option  at the date of grant as  computed
using an option-pricing  model,  such as the BlackScholes  option pricing model.
The  deferred  compensation  calculated  under the fair value based method would
then be amortized over the vesting period of the stock option.

         The following  table  illustrates the effect on net (loss) earnings per
share if the Company had applied the fair value based  method to account for its
employee stock-based compensation.

                                                       Years Ended December 31,
                                                   -----------------------------
                                                         2004            2003
                                                   -----------------------------

Net loss, as reported                                $  (20,802,580) $  (72,694)

Add:  Stock-based employee compensation
---
expense included in reported net loss, net of
related tax effects                                      13,555,000           -


Deduct:  Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects              (13,659,983)       (330)
                                                   -----------------------------

Pro forma net (loss) income                          $  (20,907,563) $  (73,024)
                                                   -----------------------------

(Loss) earnings per share-

   Basic and diluted  - as reported                  $        (0.09) $    (0.00)
                                                   -----------------------------

   Basic and diluted  - pro forma                    $        (0.09) $    (0.00)
                                                   -----------------------------

                                       7
<PAGE>
         The fair value of each option  grant is  estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions:

                                                      December 31,
                                           ------------------------------------
                                                 2004              2003
                                           ------------------------------------

Expected dividend yield                    $               - $               -
Expected stock price volatility                         222%              114%
Risk-free interest rate                                3.40%              4.0%
Expected life of options                             5 years           5 years

         The  weighted  average fair value of options  granted  during the years
ended December 31, 2004 and 2003 is $.52 and $.00063, respectively.

         Research and Development
         The Company expenses research and development costs as incurred.

         Concentration of Credit Risk
         The Company  maintains its cash in bank  deposits  accounts  which,  at
times, may exceed federally insured limits.  The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.

         Use of Estimates in the Preparation of Financial Statements
         The  preparation  of  financial  statements  in  conformity  with  U.S.
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

         Earnings Per Share
         The  computation  of basic  earnings per common share is computed using
the weighted average number of common shares outstanding during the year.

         The  computation  of diluted  earnings per common share is based on the
weighted average number of shares outstanding during the year, plus common stock
equivalents  calculated under the treasury stock method.  The Company has issued
equity  instruments  convertible  into  common  stock such as stock  options and
warrants  issued to employees,  consultants  and creditors that can be exercised
for approximately  35,065,000 and 525,000 shares of common stock at December 31,
2004 and 2003, respectively, with conversion prices between $0.00067 and $.50 at
December 31, 2004 and $0.00067 at December  31, 2003.  Common stock  equivalents
have not been  included in the diluted  earnings per share  calculation  for the
years ended December 31, 2004 and 2003 because the effect would be antidilutive.

         Principles of Consolidation
         The  consolidated  financial  statements  include  the  accounts of the
Registrant  and  its  wholly-owned   subsidiary,   Wellstone  Filters  LLC.  All
significant intercompany transactions have been eliminated in consolidation.

2.  Property and Equipment

         Property and equipment consists of the following at December 31, 2004:

                   Equipment                               $          15,718
                   Furniture and fixtures                              4,178
                                                           ------------------
                                                                      19,896
                   Less accumulated depreciation                      (7,201)
                                                           ------------------

                                                           $          12,695
                                                           ------------------

                                       8
<PAGE>
3.  Long-Term Debt

         Long-term debt consists of the following at December 31, 2004:

                Note payable to an entity bearing
                interest at 4%, with principal and
                interest due on November 30, 2006.
                The note holder also received a
                warrant to purchase 3,240,000 shares
                of the Company's common stock for
                $.50 per share.                            $       1,500,000

          Unamortized discount on debt                              (977,500)
                                                           ------------------

                                                           $         522,500
                                                           ------------------

         Future maturities of long-term debt are as follows:

                Years Ending December 31:
                -------------------------
                        2005                               $               -
                        2006                                       1,500,000
                                                           ------------------

                                                           $       1,500,000
                                                           ------------------

4.  Related Party Transactions

         Mr.  Learned  Hand, an officer and  director,  advanced  $24,298 to the
Company for expenses  which had not been  reimbursed  as of December 31, 2004. A
law firm controlled by a brother of Learned Hand advanced funds on behalf of the
Company  from time to time in calendar  2004,  and as of  December  31, 2004 the
amount unreimbursed to the law firm was $16,286.

         Pursuant to an Agreement and Plan of Reorganization dated May 25, 2001,
Wellstone  Filters,  Inc.,  a Delaware  corporation  formerly  known as Farallon
Corporation  ("Wellstone")  acquired all of the outstanding membership interests
of Wellstone LLC in exchange for 210,000,000 shares of Wellstone's Common Stock.
In addition,  Wellstone issued 5,968,200 shares of common stock to a stockholder
of Farallon in cancellation of debt of $2,842. The terms of the acquisition were
determined  between the parties,  who are related in that Learned Jeremiah Hand,
the CEO of  Wellstone,  LLC,  is the  brother  of Jehu  Hand,  the  founder  and
president of Farallon. Prior to the acquisition,  Wellstone LLC and Farallon had
no affiliation or relationship.

         Carla  Cerami  Hand or  Cerami  Consulting  Corporation  and an  entity
controlled  by Learned Hand have loaned  various  amounts to the Company for its
capital requirements,  as follows. The loans are due on demand, bear interest at
8% per annum and are  represented by promissory  notes. As of December 31, 2004,
$15,727 had accrued as  interest  on these  notes,  none of which had been paid.
These related party notes payable totaled $59,200 as of December 31, 2004.

         In 2004,  we issued to Jehu  Hand,  a  brother  of our Chief  Executive
Officer,  15,000,000  shares of common stock as compensation  for legal services
which he provided to the Company. The Company's issuance of shares of its common
stock to Mr. Hand resulted in an expense of approximately $6,270,000. On January
2, 2004,  Arrakis Select,  Inc., a company controlled by Jehu Hand, a brother of
our Chief Executive  Officer,  entered into a Funding  Agreement whereby Arrakis
provided  $195,000 to Wellstone between January and October 2004 in exchange for
574,791  shares of common  stock.  The Company  issued  common  stock to Arrakis
monthly at a price per share equal to the  closing bid price of common  stock as
of the 15th day of the month in which Arrakis invested the money.

         The  Company  has  a  licensing   agreement   with  Cerami   Consulting
Corporation, an entity owned and controlled by the spouse of the Company's Chief
Executive  Officer.  The  licensing  agreement  grants the Company the exclusive
worldwide   exploitation   rights  to  practice  and  utilize  the   inventions,
technology, know-how, and patent, including the rights to manufacture and market
the filters which are the subject of the licensing  agreement,  that are held by
Cerami Consulting  Corporation.  In exchange for the license rights, the Company
agreed   to  pay  all   future   costs   for   development,   manufacture,   and
commercialization  of the technology,  including all other future fees and costs
in connection with the patents.

                                       9
<PAGE>

         In the fiscal years ended  December 31, 2003 and 2002,  Ms. Cerami Hand
and/or Mr. Learned Hand advanced $8,899 and $16,072,  respectively, on behalf of
the Company for its corporate  expenses.  The Warren Institute,  affiliated with
the above  officers,  provides  office  space and a 1,200 square foot lab to the
Company at a cost of $1,400 per month from January  2002 to September  30, 2003,
all of  which  has  been  accounted  for as a  contribution  to  capital  by the
controlling  stockholders.  Such amounts are not  represented  by any promissory
note and bear no interest.

5.  Supplemental Cash Flow Information

         No amounts  were paid for  interest or income  taxes  during the period
from February 17, 1998 (date of inception) to December 31, 2004.

         During the year ended  December  31, 2004 the Company  issued  warrants
with debt. The warrants were valued at $1,020,000,  which amount was recorded as
a discount on  long-term  debt.  During 2004,  $42,500 of the debt  discount was
accreted as interest expense.

         During the years ended December 31, 2003 and 2002, the Company recorded
a contribution of capital of $12,600 and $16,800,  respectively,  for the use of
office  space  provided  by an  officer  and board  member of the  Company.  The
arrangement for the use of office space was mutually terminated on September 30,
2003.

         During the year ended December 31, 2003 the Company purchased furniture
and equipment through an increase in the related party accounts payable totaling
$67,705.

         During the year ended December 31, 2002, the Company acquired furniture
and equipment in exchange for an increase in related party  accounts  payable of
$11,167.

         During the year ended  December 31, 2001 the Company  issued  5,968,200
shares of common stock in settlement of $2,842 of debt.

6.  Income Taxes

         The  provision  for income taxes  differs  from the amount  computed at
federal statutory rates as follows:

                                                       Years Ended
                                                       December 31,
                                            ------------------------------------
                                                   2004              2003
                                            ------------------------------------

Income tax benefit at statutory rate        $       8,321,000   $        27,000
Other                                                       -             2,000
Change in valuation allowance                      (8,321,000)          (29,000)
                                            ------------------------------------

                                            $               -   $             -
                                            ------------------------------------

         Deferred tax assets  (liabilities)  are  comprised of the  following at
December 31, 2004:

Net operating loss carryforward                            $       2,661,000

Issuance of stock options and warrants
for compensation and services                                      5,701,000

Valuation allowance                                               (8,362,000)
                                                           ------------------
                                                           $               -
                                                           ------------------

         As of  December  31,  2004,  the Company  had net  operating  losses of
approximately  $6,653,000 which begin to expire in 2016. If substantial changes
in the Company's  ownership should occur, there would be an annual limitation of
the amount of net  operating  loss  carryforwards  which could be utilized.  The
ultimate  realization of these  carryforwards is due, in part, on the tax law in
effect at the time of future events which cannot be determined.


                                       10
<PAGE>

7.  Capital Stock

         Preferred Stock
         The Company has authorized  1,000,000 shares of preferred stock,  $.001
par value,  with such rights,  preferences and  designations and to be issued in
such series as determined  by the Board of  Directors.  No shares are issued and
outstanding at December 31, 2004.

         Stock Split and Stock Dividend
         A three for one stock  split was  approved  on  September  27, 2004 and
subsequently  effected  on October  6, 2004.  The stock  split  resulted  in the
issuance of an additional 157,978,800 shares of common stock.

         A  five  for  one  stock  split  was  approved  on  July  9,  2003  and
subsequently effected on July 19, 2003. The stock split resulted in the issuance
of an additional 45,136,800 shares of common stock.

         On September 15, 2003 a four tenths for one stock dividend was declared
and  subsequently  issued on September 30, 2003. The stock dividend  resulted in
the issuance of an additional 22,568,400 shares of common stock.

8.  Stock Option Plan

         On April 1, 1994,  the Company  adopted the 1994 Stock Option Plan. The
plan  provides for the granting of awards of up to  42,000,000  shares of common
stock to  officers,  directors,  employees,  advisors,  and  employees  of other
companies that do business with the Company as non-qualified stock options.  The
Stock Option  Committee of the Board of Directors  determines  the option price,
which cannot be less than the fair market value at the date of the grant or 110%
of the fair market value if the  recipient of the grant holds 10% or more of the
Company's  common  stock.  The exercise  price per share of shares  subject to a
Non-Qualified  option cannot be less than 85% of the fair market value.  Options
granted  under the plan will  typically  expire  ten years  from the date of the
grant  (five  years  if the  recipient  of the  grant  holds  10% or more of the
Company's  common  stock  on the  date  of the  grant)  or  three  months  after
termination  of  employment.  The  plan was  amended  and  restated  in 2003 for
technical  updates to confirm with law.

         A schedule of the options is as follows:

                                                                   Exercise
                                                 Number of           Price
                                                  Options          Per Share
                                              ----------------------------------

Outstanding at January 1, 2003                              -   $             -
   Granted                                            525,000            .00067
                                              ----------------------------------

Outstanding at December 31, 2003                      525,000            .00067
   Granted                                         31,300,000               .01
                                              ----------------------------------

Outstanding at December 31, 2003                   31,825,000      .00067 - .10
                                              ----------------------------------

         On December 31, 2004,  the Company had  10,175,000  available for grant
under the Option  Plan.  In  addition to the stock  options  listed  above,  the
Company  issued  warrants to purchase  3,240,000  shares of common stock with an
exercise price of $.50 per share in connection with a note payable.  See Note 3.
All of these warrants were vested and remained outstanding at December 31, 2004.


                                       11
<PAGE>

9.   Stock-Based Compensation

         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2004:
<TABLE>
<CAPTION>

                                      Weighted
                                      Average                                        Weighted
        Range of                      Remaining       Weighted                       Average
       Exercise       Number         Contractual       Average       Number          Exercise
        Prices       Outstanding     Life (Years)   Exercise Price  Exercisable       Price

  <S>                  <C>                 <C>     <C>             <C>           <C>
  $  .00067 - .003     27,825,000          8.8     $     .0023     27,825,000    $        .0023
        .003 - .01      4,000,000          9.9             .01      4,000,000               .01
------------------------------------------------------------------------------------------------

  $   .00067 - .10     31,825,000          9.3     $     .0046     31,825,000    $        .0046
------------------------------------------------------------------------------------------------

</TABLE>

10.   Fair Value of Financial Instruments

         The Company's  financial  instruments  consist of cash,  payables,  and
notes payable. The carrying amount of cash and payables approximates  fair-value
because of the short-term  nature of these items.  The carrying  amount of notes
payable  approximates  fair value as the individual  borrowings bear interest at
market interest rates.


11.   Recent Accounting Pronouncement

         In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs." The
statement  amends  Accounting  Research  Bulletin  ("ARB")  No.  43,  "Inventory
Pricing,"  to clarify  the  accounting  for  abnormal  amounts of idle  facility
expense,  freight,  handling costs, and wasted  material.  ARB No. 43 previously
stated  that  these  costs  must be "so  abnormal  as to  require  treatment  as
current-period charges." SFAS No. 151 requires that those items be recognized as
current-period  charges  regardless  of whether  they meet the  criterion of "so
abnormal."  In  addition,  this  statement  requires  that  allocation  of fixed
production  overhead to the costs of conversion be based on the normal  capacity
of the  production  facilities.  The statement is effective for inventory  costs
incurred  during  fiscal  years  beginning  after June 15,  2005,  with  earlier
application  permitted  for fiscal years  beginning  after the issue date of the
statement.  The adoption of SFAS No. 151 is not  expected to have a  significant
impact on the Company's current financial condition or results of operations.

         In  December  2004,  the  FASB  issued  SFAS  No.  153,  "Exchanges  of
Nonmonetary  Assets - An  Amendment  of APB Opinion No. 29." APB Opinion No. 29,
"Accounting  For  Nonmonetary  Transactions,"  is  based  on  the  opinion  that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets  exchanged.  SFAS No.  153 amends  Opinion  No. 29 to  eliminate  the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general  exception for exchanges of nonmonetary  assets whose results are
not expected to  significantly  change the future cash flows of the entity.  The
adoption  of SFAS No. 153 is not  expected  to have any impact on the  Company's
current financial condition or results of operations.

         In December  2004,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards No. 123R,  "Share-Based  Payment,"
which is effective for public companies for interim or annual periods  beginning
after  June 15,  2005.  This  statement  will have a  significant  impact on our
consolidated  statements  of  operations,  as we will be required to expense the
fair value of our stock  option  grants  rather than  disclose the impact on our
consolidated net loss within our footnotes as is our current practice. We intend
to comply with the standard upon its effectiveness;  however,  we do not believe
that the impact would be materially  different from our pro forma disclosures as
described in Note 1 to the Consolidated Financial Statements.



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