SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K



[x]Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934

For the fiscal year ended December 31,
2008



[
]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

WELLSTONE FILTERS, INC.



(Exact name of registrant in its
charter)



Delaware33-0619264



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



300 Market Street, Suite
130-13, Chapel Hill, North
Carolina                    
27516



(Address
of principal executive
offices)                                        
(Zip Code)



Registrant's telephone number, including
area code:
         (919)
370-4408

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 registrant (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 registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90
days.           YES
X      NO

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B 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. [ X
]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer or a small
reporting company. See definition of large accelerated filer, accelerated
filer and small reporting company in Rule 12b-2 of the Securities Exchange
Act of 1934.

Large accelerated filer [ ]   Accelerated
filer [ ] Non-accelerated filer [ ] Small reporting company [ X ]

Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).

Yes  [
  ]    No  [  X ]



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 registrant as of March 15, 2009 was $ 89,716
based on a closing bid price of $ 1.25  per share as of March 15,
2009

The number of shares outstanding of the
issuer's classes of Common Stock as of March 15, 2009



Common Stock, $.001 Par Value  105,989
 Shares






PART
I



Item 1.

DESCRIPTION OF BUSINESS



When used in this Form 10-KSB, the words
"expects," "anticipates," "estimates" 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. Readers should carefully
review the risk factors described  in  other  documents  the
Company files from time  to  time  with  the
 Securities  and Exchange Commission,  including  the
Quarterly Reports on Form 10-QSB to be filed  by the Company subsequent to
this Annual Report on Form 10-KSB and any Current Reports  on  Form
8-K filed by the Company.



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  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 Company  sublicensed the technology outside the United States in
January 2007.



On May 25, 2001, Wellstone LLC was
acquired  by  Farallon Corporation, a publicly registered 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
8,400,000 shares of common  stock of Farallon Corporation.  In
addition,  in  connection  with  the transaction,
 Farallon  Corporation  issued 238,728 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 refer
to the combined entity. On January 5, 2005, Wellstone created a wholly-owned
subsidiary operating company, Wellstone Tobacco, Inc., a North Carolina
corporation. All of the tobacco sales operations have been conducted through
Wellstone Tobacco, Inc.



---

Wellstone tested  the  filter
technology in small manufacturing batches. Wellstone held discussions with
several major manufacturers for licensing or supply contracts, but no contracts
have been entered into nor are any currently under negotiation.  All
testing performed on the filter technology prior to and through December 31,
2005 has been for developmental  purposes  only and in the third
 quarter of 2005 Wellstone shipped product to Central and South America for
promotional and consumer trial purposes only.



Wellstone's original plan was to license
its proprietary cigarette filter technology to existing cigarette
 manufacturers.   We believe that our filter compound removes
certain carcinogens and the incorporation of our compound into currently
marketed brands would be the quickest way to bring 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 a part of an increasing number of small manufacturers who have
gained market share in recent years (estimated by some to be 12 billion units of
the total 2005 US market) in this multi-billion dollar market.  Wellstone's
objective is to offer an ultra premium product at a value price.  Sales of
the Wellstone brand began in the first quarter of calendar 2006. On April 5,
2006, the  Company announced  that  a  major  supplier
 to  convenience stores in the Southeastern United States agreed to
carry all styles of the Wellstone brand and secure orders using  its sales
organization.



Wellstone has developed packaging
materials and tobacco blends for a full line of cigarettes (regular, smooth
blue, and menthol) that is consistent with its ultra premium brand positioning.
 In addition to selling our own brand of Wellstone cigarettes, we will
continue to pursue incorporation of our filter into existing cigarette brands.
  We purchase various ingredients necessary for our filter from
suppliers, but do not enter into written agreements with such suppliers; rather
we submit purchase orders on an as-needed basis.



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



In the quarter ended September 30, 2006,
the Company continued to suffer from a negative gross margin on its cigarettes,
which was part of the Company's strategy to obtain market share and entry into
the competitive cigarette marketplace.  Management reviewed the liquidity
position of the Company during the quarter ended September 30, 2006 and sought
unsuccessfully for additional debt or equity funding. Although the Company did
enter into negotiations for a private placement, the funding group required that
the Company carry out a 1-for- 25 reverse split of the common stock as a
precondition to such placement. After Wellstone carried out the reverse split,
the funding source did not complete funding.  Faced with inadequate cash
resources to fund the market introduction of  its  products,
 management determined  to suspend further marketing activity.
 As a result, sales in the quarter ended September 30, 2006 fell to only
$6,475, and Wellstone had no significant sales for the remainder of the year
ended December 31, 2006.  All employees and officers have been dismissed or
have resigned, except for the Company Chief Executive Officer. The Company has
negotiated with it suppliers for time to obtain financing and continue its
business, but there is not a high probability that financing can be obtained
that is not unduly dilutive to the Company shareholders. Currently the Company
has no sales and is seeking financing in order to re-enter the market.



3










THE TOBACCO AND CIGARETTE
INDUSTRY



Published  industry  sources
 estimate  that  the  annual  U.S  sales  of
cigarettes  in  2005  were  381  billion.
 Approximately 44.5 million adult Americans smoke; worldwide, the figure is
estimated to be 1.5 billion people. The market share of five major U.S.
cigarette manufacturers in 2005 was estimated as follows:



U.S.MARKET SHAREPhillip Morris Cos.,
Inc.
48.70%RJ Reynolds
28.20%Lorillard
9.20%Commonwealth
3.50%Liggett & Meyers
2.20%Total
91.80%






FILTERS



Almost all cigarettes sold are filtered.
  Worldwide, 93% of the 5.5 trillion cigarettes sold in 2005 were
filtered.  Four types  of  material  are used in filters:
 cellulose  acetate  (68%),  polypropylene  (21%
 primarily in China)  pure  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 "safe" or "safer" cigarettes has been slow due to three 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.



Third, until Wellstone was introduced, any
perceived safer cigarette, or PREP (perceived reduced exposure product) did not
lead to a pleasant smoking experience.  We believe that the Wellstone
filter provides a unique smoothness and rich flavor not found in any other
PREP.



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 and 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 which is 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
 Anthony Cerami, Dr. Carla Cerami Hand M.D./Ph.D. and Dr. Peter Ulrich
Ph.D, all shareholders  of  Wellstone  and licensed  to
 Wellstone  on  September  14,  1999, and of U.S.
Patent 6,615,842 "Methods for removing nucleophilic toxins from  tobacco
smoke" issued September 9,  2003  to  Dr.  Cerami,  and
Drs. Cerami Hand and Ulrich   and  licensed  to Wellstone on
September 14, 1999.  Compounds  in  the  filter
 material  include periodate-oxidated  (dialdeyhde)
 devivaties  of  the polysaccarides cellulose, starch and
agarose.

4



We intend to sell and market our own
cigarette  brand and to sell filters directly to manufacturers to be
integrated into their own cigarette brands.  We also intend to develop our
own "make your own" as well as  enter  into  the  small
cigar market.



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.  We
have also tested our filter in an FTC testing facility.  These tests
indicate that our technology removes a measurable level of harmful substances.
Variables such as the mix of tobacco used and manufacturing additives may 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  a  250
milligram  level  of concentration  in  the  Wellstone
filter, a majority of the  nitrosamines  were removed.



MARKETING



The U.S. cigarette  market  is
 a mature market in which overall consumer demand is expected to continue
to decline  over  time.   On  average,  domestic
consumption  has  fallen approximately 2 percent per year over the
past decade. Numerous  factors  have   contributed
  to   this   decline,  including
 health considerations,   diminishing   social
  acceptance  of  smoking,   legislative
limitations on smoking in public places, and  rapidly accelerating costs in
the form of increased state tax on cigarettes and settlement cost.



Even though our filter technology has
proven  to  be  effective,  tobacco companies  are
 now  prohibited from making any claims around the safety of  an
ingredient, filter or  process  utilized  in cigarette
manufacturing.  However, because our test marketing indicates that our
 package design and product taste is acceptable, management feels that the
brand will  be  successful  if  we get consumer trial and
are able to maintain adequate distribution channels. We believe that our sales
in the first half of 2006 justified managements assessment of the potential
success of the brand. Wellstone did not conduct any formal taste tests, but
feedback from smokers indicated that Wellstone cigarettes had high taste
acceptance. Unfortunately, Wellstone had to suspend marketing in the third
quarter of 2006 due to lack of finances. We do not know when, if ever, we will
be able to continue marketing and resume sales.



---

INTERNATIONAL MARKETS; GLYCANEX LICENSE;
ACQUISITIONS



Wellstone investigated the
 international potential of its proprietary compound, especially in Europe,
Africa, and Asia where smoking levels are  much higher  than  in
 the  United States and Canada. On January 17, 2007, Wellstone entered
into a Patent License Agreement with  Glycanex BV, the supplier of the
patented filter compound used  in Wellstone cigarettes. Under the Patent
License  Agreement, Wellstone granted to Glycanex an exclusive right to the
patent rights  for  all  countries excepting the  United
 States  of  America and its territories and possessions.
 Glycanex agreed to pay Wellstone a  3%  royalty  on
 net  sales which exceed the minimum threshold of Euro 500,000.
 The consideration for  the  granting of the license to Glycanex
was the cancellation of $120,000 owed to Glycanex  for purchases of the
filter compound.



Two  principal factors led to the
decision to license Wellstone's  key technology to Glycanex.  First,
 Wellstone  lacks  cash  at  this  time  to
pay Glycanex  for the $ 120,000  which is owed and likewise lacks cash
to defend any collection  lawsuit.  Wellstone  also  lacks
 at  this  time  cash  to fund marketing  of its
Wellstone cigarettes in the United States, but believes  that with
sufficient  funding  it  can resume marketing. Secondly Wellstone
believes that the technology is viable and  that  the  licenses
 to  Glycanex  provide a possibility  for  Wellstone to
receive royalty income from the exploitation  of the technology outside
 the  United States. Management believes that the Patent License
Agreement validates the value of the technology.



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  test-marketed
 a  new  cigarette  brand  during 2005, Marlboro Ultra
Smooth, which contained 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 did not make  any reduced risk or reduced exposure
health claims.   The  brand  was  removed from test
market due to a lack of consumer acceptance.



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.



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 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.
  Based  on a licensing agreement with  Cerami
 Consulting Corporation, Wellstone has exclusive  rights  to
 the  technology  on which the patent is based.  Therefore,
Wellstone has controlling rights to the technology on which it is based until
June 26, 2020, according to current U.S. Patent law.



The international rights to our technology
have been licensed to Glycanex, NL, as set forth under the caption Marketing.



EMPLOYEES



As  of  December  31,
 2008, we had only one employee, our Chief Executive Officer, and a
part-time controller.  Pending resumption of marketing, we do not intend to
add additional employees at this time.



---

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 $.07
per pack in South Carolina to $2.46 per pack in Rhode Island.   These
 taxes could adversely affect cigarette sales in the future and our
potential revenues.

7



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



AVAILABLE INFORMATION



We file annual, quarterly and current
reports, information statements and other information with the Securities and
Exchange Commission (the "SEC").  The public may read and copy any
materials we file with the SEC at the SEC's Public Reference  Room  at
 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.  The  SEC  also  maintains  an
 Internet  site  that contains  reports,  proxy
 and  information  statements,  and other information
regarding issuers that file electronically with the SEC. The  address
 of  that site is http://www.sec.gov.





---

Item 1A. RISK FACTORS.





We may be 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 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.  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 have generated only limited revenues
and our marketing operations have been suspended.



Sales and marketing of the Wellstone brand
began in the first quarter of calendar 2006. Our sales were limited and were
carried out with a negative gross margin in order to obtain market share.
Marketing efforts were suspended in the third quarter of 2006. Wellstone may not
be able to find an adequate 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, Wellstone
had a loss of $2,772,581 for the year ended December 31, 2006. We had a loss of
$71,193 from operations and a net loss of $77,054 in 2007.  Wellstone had a
net loss of $131,905 for the year ended December 31, 2008.  We do not have
financing at this time to resume marketing operations, and we had to write off
stale and obsolete inventory during the last quarter of 2006. Wellstone may not
be able to resume marketing, or attain profitability.  Wellstone may not
 be  able to implement its business plan in accordance with its
internal forecasts or at a level  that meets the expectations of
investors.



The report of our independent registered
public accounting firm included in this Annual Report on Form 10-KSB contains an
explanatory paragraph expressing substantial doubt about our ability to continue
as a going concern.



As a result of our losses to date and our
current lack of revenue, our independent registered public accounting firm has
concluded that there is substantial doubt as to our ability to continue as a
going concern, and accordingly, our independent registered public accounting
firm has included in their report on our December  31,  2007
consolidated  financial  statements included herein an explanatory
paragraph describing the events that have given rise to this uncertainty. The
Company will seek additional sources of capital through the issuance of debt or
equity financing, but there can be no assurance the Company will be successful
in accomplishing its objectives.  The ability of the Company to continue as
a going concern is dependent on additional sources of capital.



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 market is a mature market and on average, domestic consumption has
decreased approximately 2% per year over the past decade.  Numerous factors
have contributed to this decline, including health considerations,
 diminishing  social  acceptance  of smoking, legislative
 limitations  on  smoking in public places and rapidly
accelerating costs in the form of increased state tax on cigarettes and
settlement cost.  If the U.S. cigarette market continues to contract, it
could adversely affect our potential future sales, operating income and cash
flows.



Weaknesses in the Company's internal
controls and procedures could have a material adverse effect on the
Company.



Management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with GAAP. Management determined that
material weaknesses in our internal control over financial reporting existed as
of December 31, 2005.  A material weakness is a control deficiency, or
combination of control deficiencies that results in a more than remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.

9



If we are unable to substantially improve
our internal controls, our ability to report our financial results on a timely
and accurate basis will continue to be adversely affected, which could have a
material adverse effect on our ability to operate our business.
  Please see Item 8A - Controls and Procedures for more information
regarding the measures implemented in 2005, as well as those that we
 implemented in 2006.  Each remedy is designed to remediate the
deficiencies in our internal controls.  In addition, even after  the
remedial measures discussed in  Item 8A - Controls and Procedures are fully
implemented, our internal controls may not prevent all potential errors or
fraud,  because any control system, no matter how well designed, can only
provide reasonable and not absolute assurance that the objectives of the control
system will be achieved.



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



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 may not be able to
meet market demands of 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.  Our competitors include developers of low-carcinogen tobacco
and developers of other filter technology, and these competitors may have a
substantially greater financial, manufacturing, marketing and other resources at
their disposal.  Another company could develop filter technology similar to
ours.  Competition will affect our ability to market our product and obtain
financing.  Wellstone brands will be subject to increased competition and
this has resulted in additional 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 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
Congress had not given the FDA authority to regulate tobacco products as
customarily marketed.  Given the decision by the Supreme Court it is
unclear whether 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."



---

The cigarette industry is a mature market
in which overall consumer demand may continue to decline over time and this may
have a negative impact on us.



On average, domestic consumption has
fallen approximately 2 percent per year over the past decade.  Numerous
factors have contributed to this decline, including health considerations,
diminishing social acceptance of smoking, legislative limitations on smoking in
public places, and rapidly accelerating costs in the form of increased state tax
on cigarettes and settlement costs. If this decline in industry-wide consumption
 continues and Wellstone is unable to capture market share from its
competitors, or  if the industry as a whole is unable to offset the
decline, Wellstone's sales volume,  operating  income  and cash
 flows  could  be  materially  adversely
 affected,  which  in  turn could negatively affect the
value of our common stock.



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 increasing, possibly
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 patents
against infringement.



Our success in commercially exploiting our
proprietary technology depends in large part on our ability to defend the
patents that were licensed to us, 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,
either in the United States or in foreign countries.  The primary patents
licensed to us were only issued in the United States and not in foreign
jurisdictions.   If international patents are not issued, it would
diversely 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 costs. 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, could have a serious negative
impact upon our business and operating results.  We do not have an
employment agreement with Mr. Hand, and we have not obtained "key-man" life
insurance with respect to his life.



No cash dividends have been paid and we do
not anticipate that we will pay any dividends in the future.



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 should not 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.



As the holders of a significant amount of
common stock of Wellstone, management and its affiliates have, and will have,
substantial influence over Wellstone, and such affiliates may have interests
which differ from other holders.



Members of management, and their
affiliates, own 71,773 shares of common stock, on a fully diluted basis, or
65.7% of the common stock.  As such, such individuals have substantial
influence and control over matters voted upon by  stockholders  (such
 as  the election of the  directors  to  the
 Board  of Directors of Wellstone, mergers  and  sale
 of  assets  involving Wellstone and other matters upon which
stockholders of Wellstone vote).  This power, in turn, gives them
substantial control over the business and operations of Wellstone.



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.



---

Item 1B.  UNRESOLVED STAFF
COMMENTS



We have no
unresolved staff comments.



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 leased space in a state-of-the-art cigarette
manufacturing facility. In addition to office and plant space, Wellstone also
leased, on a non-exclusive basis as needed, certain production assets to produce
cigarette samples. Wellstone vacated this space in September, 2006 and now rents
a minimal amount of space in Chapel Hill, North Carolina on a month to month
basis.



Item 3.

LEGAL PROCEEDINGS



Not Applicable.



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,
2008.







---







PART
II





Item 5.

MARKET FOR REGISTRANTS COMMON
EQUITY AND RELATED STOCK­HOLDER MATTERS

(a)  Market Information



The Company's Common Stock has traded on
the OTC Bulletin Board under the symbol WLSF.OB from May, 2003 to June 29, 2006,
when the symbol was changed to WFLT.OB in connection with a 1-for-25 reverse
stock split, and under the symbol WFLR.PK on the Pink Sheets LLC from June 7,
2007, when a 1-for-100 reverse stock split was effected.   The high
and low sales prices for the common stock were as follows:



Quarter
Ended
High
LowDecember 31,
2008
$       
0.51
$       
0.51September 30,
2008
1.01
1.01June 30,
2008
3.00
3.00March 31,
2008
1.60
1.60December 31,
2007
8.75
2.00September 30,
2007
15.00
4.00June 30,
2007
21.00
9.00March 31,
2007
25.00
10.00December 31,
2006
75.00
10.00September 30,
2006
350.00
60.00June 30,
2006
700.00
325.00March 31,
2006
1,400.00
725.00




All share information is adjusted for
stock splits and stock dividends. The above information was supplied by the OTC
Bulletin Board or Pink Sheets, LLC 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 December 31, 2008, there were
approximately 140 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 Plans



Equity Compensation Plan Information as of December 31,
2008

Number of Securities

remaining available

(a)                                          
(b)           for future
issuance

Number of Securities          
Weighted Average
             under
equity

To be issued upon
             
exercise price of
                  
compensation
plans                           
                                                 
exercise of
existing              
outstanding options,          
(excluding Securities

Options,
warrants                               
warrants and
                       
reflected in

Plan
Category                      
and
rights                             
rights                                     
column (a)



Equity
compensation            
7,200                                   
$250     
                               9,600

approved by

Security holders



Equity
compensation                                         
-              
 
             
 -                 
                           
-

Plans not approved

By Security
holders



Total                                      
7,200                                                                                      
9,600





(e)

Sales of Unregistered Securities during
the year ended December 31, 2008



None.



(f) Company repurchases of common stock
during the years ended December 31, 2008 and 2007.



None





Item 6.  
SELECTED FINANCIAL DATA



As a smaller reporting company we are not required to respond to this item.

Item 7.



MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS



SUSPENSION OF MARKETING PROGRAM



In the quarter ended September 30, 2006,
 the Company continued to suffer from a negative  gross  margin
 on its cigarettes; which  was  part  of  the
 Company's strategy to obtain market  share  and  entry
 into  the  competitive  cigarette marketplace.
 Management reviewed the liquidity position of the Company  during the
 quarter  ended September 30, 2006 and sought unsuccessfully for
additional debt or equity  funding. Although the Company did enter into
negotiations for a private placement,  the  funding group required
that the Company carry out a 1-for- 25 reverse split of the  common stock
as a precondition to such placement. After Wellstone carried out the
 reverse  split,  the  funding  source  did not
complete  funding.  Faced  with  inadequate  cash
 resources to fund the market introduction  of  its
 products,  management  determined   to  suspend
 further marketing activity.  As a result, sales in the quarter ended
September 30, 2006 fell to only $6,475, and Wellstone had no significant
 sales for the fourth  quarter, and does not expect to be able to have
any further sales until such time as Wellstone obtains financing. All full time
employees and officers have  been dismissed or have resigned except for the
Company Chief Executive Officer. The  Company  is in negotiations with
its suppliers for time to  obtain  financing and continue its
 business,  but  there  is  not  a  high
probability that  financing  can be obtained that is not unduly
dilutive to the Company shareholders.



---

WELLSTONE'S STRATEGIC DIRECTION



Following a review of the tobacco
 market  and  cigarette  industry, Wellstone determined to
manufacture  and  produce  its  own  brand  of
 cigarettes.  In connection with such plan, Wellstone has developed
packaging materials and tobacco blends for a full line of cigarettes, including
regular, smooth blue and menthol. Our strategy and objective is to offer an
ultra-premium product at a value price.



Wellstone has received approval from the
Federal Trade Commission (FTC) and the National  Association  of
Attorneys Generals (NAAG) and has been added  to  the list of approved
brands  in  thirty  one states. We have initiated the process for
approval in the remaining states but are not actively prosecuting approval due
to lack of funds and uncertainty about the Companys future marketing. Wellstone
has signed a multi-year manufacturing contract with US Flue-Cured  Tobacco
 for production. With the exception of filters, US Flue- Cured will procure
all materials,  manufacture, package, and ship to order. The Company
believes US Flue-Cured's annual manufacturing capacity is sufficient to meet its
short and long-term needs.  Filters  will  be sourced from the
largest domestic filter manufacturer, as well as several European alternatives.
Tobacco leaves  and  filter compound material is readily available
 through  a  variety of sources.



Subject to regulatory  approval,
 we  intend  to offer what we consider to be a "Potentially
Reduced Exposure Product" or "PREP"  or  products within the price
value  segment  of  the  market.  The Company launched
its Wellstone  brand  of cigarettes in the United States during
 the  first  quarter  of  2006  and  has
shipped  all  brand  styles to Arizona, Louisiana, North
Carolina, Virginia and California. Wellstone  is  investigating
 the  international  potential  of its proprietary
 compound,  especially  in  Europe,  Africa, and Asia
where smoking levels  are  much  higher  than in the United
States and  Canada.  The  Company continues to consider one
 or  more  acquisitions if such can be synergistic with  our
 current  business,  but no agreements  have  been
 reached  for  any acquisitions.



We  believe  that our brand of
cigarettes  are  lower  in  toxins  and  do
 not compromise the  pleasurable  effects  of smoking.
Wellstone's strategic plan as well as its philosophy is based on two
assumptions: first, quitting smoking can be  difficult and second, many
smokers do  not  concentrate  on  cigarette  tar
levels.  In  2002, according to industry reports, 64% of all
cigarettes sold in the United States  were  high (more than 10 mg) in
tar. Wellstone believes that part of the reason smokers  prefer  high
 tar  cigarettes  is because of taste. Wellstone's goal is to
reduce toxins and certain associated carcinogens without affecting the
cigarettes' taste. We believe smokers will try  Wellstone for its lower
price, and come back for its taste.



We believe that Wellstone is the only
small (less than $50 million in sales) US cigarette manufacturer that is
publicly traded. We believe that  the  remainder of  the
 small  manufacturers  in  the  industry are privately
held or foreign. Management believes Wellstone's access to  the  US
 capital markets will assist Wellstone  in its goal to become the
largest company in  the  growing  discount cigarette market.
However, there can be no assurance that Wellstone's access to US capital markets
 will  provide the necessary financing to build and grow the
business.



We intend to sell and market  our
 own  cigarette  brand  and  to  sell filters
directly  to  manufacturers  to be integrated into their own
cigarette  brands. Management has determined that  manufacturing and
distributing a Wellstone line of cigarettes will be in the best  interests
 of its stockholders, particularly if Wellstone is able to successfully
market its brand. The successful launch of a  Wellstone  brand
 should  add  significant  value   to
  the  Company.  More importantly, the success of a
Wellstone brand will, it is anticipated, lead the way for other manufacturers to
utilize the filter in their own cigarettes under a Wellstone license. We also
intend to develop our own "make  your own" as well as enter into the small
cigar market.



---

OVERVIEW



Wellstone has relocated 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.  The office  space and plant
are located at 250 Crown Boulevard in Timberlake, North Carolina,
 approximately  20 miles from Durham. This space was vacated in
September, 2006, and now rents a minimal amount of space in Chapel Hill, North
Carolina on a month to month basis.  In furtherance of its  marketing
plans, the Company:



- Designed packaging to reflect the
benefits of the Wellstone filter.



-  Retained  Signal
 Design, Inc.  of  Durham,  North  Carolina  to
 assist  in developing a comprehensive brand strategy and marketing
campaign.



- Has received results  from  an
 independent FTC testing facility that confirm the Company's expectations
for their patented filter technology.



- Hired independent sales consultants and
are negotiating with several more.



-  Entered  into an agreement
with U.S.  Flue-Cured Tobacco Growers,  Inc. to manufacture
Wellstone's product line.



- Received FTC advertising approval and
rotation warning approval



- Wellstone brand  approved  by
 Settling  States  under  the Master Settlement
Agreement



- Has formulated distribution plans and
begun shipping cigarettes.



RESULTS OF OPERATIONS



On January 5, 2006, the Company announced
that it launched  its Wellstone brand in the United States with shipments
to several states resulting  in  revenue of $258,194 for the year
ended December 31, 2006, of which $215,741 represented sales for the six months
ended June 30, 2006 before marketing efforts were suspended in the third
quarter. On April 5, 2006, the  Company announced  that  a
 major  supplier  to  convenience stores in the Southeastern
United States had agreed to carry all styles  of the Wellstone brand and
secure orders  using  its  sales  organization. Wellstone
 had  been  able  to  secure additional suppliers to
carry all styles of the Wellstone brand family and anticipated that it would
ship to additional states  during  the third quarter of 2006 with
sales to most states by the end of the year. However, due to cessation of
marketing, there was only limited sales after June 30, 2006.  Wellstone
shipped product to Central and South America during the third quarter of 2005
 for  promotional  and  consumer trial  purposes
 only. Prior to January 2006 Wellstone had received no revenue. Our
operations primarily  consisted  of developing and refining our
proprietary filter  formulation,  obtaining  a  US  and
  international   patent   on  that
formulation,  and  on seeking to market the filter technology and the
Wellstone brand of cigarettes.



Wellstone
had a loss from operations of $6,044 in the year ended December 31, 2008. These
expenses reflect sales of $0, and operating expenses associated with the
inactivity of the company. Interest expenses of $125,861 related to the
outstanding debt to debenture holders and management. The Company had a loss of
$ 77,054 for the year ended December 31, 2007 that included a gain of $120,000
from the forgiveness of debt associated with the international license of the
technology to a supplier for the year ended December 31, 2007.  The loss is
primarily the result of interest  expense  of $125,861



---

Substantially all of our losses for the
year ended December 31, 2005  were the   result   of
 general  operating  expense,  legal  fees,  and
 stock-based compensation expense  for  the issuance of stock and
stock options.  Options to purchase 180,000 shares with  exercise
 prices of $.08325 per share were issued to two officer employees resulting
in an expense  of  approximately $1,920,000. 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. In
addition, the Company issued 160,000 shares of stock  to  an
 unrelated individual as certain compensation for consulting services that
he provided  to  the Company and 20,000 shares of common stock to the
brother of the Company's Chief  Executive Officer for legal services that
he provided to the Company.  These shares  were  valued  at
$25.50 per share based on the closing price of the Company's common stock on the
 date of  issuance  and  resulted  in  a non-cash
expense of $4,590,000.  The Company issued 65,000 shares of common
 stock  upon the exercise of stock options at an exercise price of
$.25 and 24,000 shares  of common stock upon the exercise of stock options
at an exercise price of $.08325.



LIQUIDITY AND CAPITAL RESOURCES



We began shipping  cigarettes
 in  the US during January 2006 with shipments to several states
resulting in revenue  of  $258,194  for  the  year
 ended December 31,  2006. We currently have no sales and no cash to
fund operations. An officer and director is advancing funds to Wellstone for its
cash requirements.



Wellstone  Filters,  Inc.
received  $250,000  from  the Carlson  Group,  Ltd.,
pursuant to a promissory note, dated May 17, 2006. This  Note is not
associated with  the prior promissory notes which had been issued in 2006
 and  2004.  The Company  borrowed  the  principal
amount of $250,000, at an interest rate of 8% per annum, due in full on December
31, 2007. In addition to the stated interest rate, the Company shall also pay to
the Lender an amount equal to the lesser of (a) $25,000 or (b) 3% of  the
net profits after taxes as of September 30, 2007, to be payable simultaneously
 with  the  principal and interest due on December 31, 2007. If a
portion of the principal or  interest  is paid prior to December 31,
2007, the calculation of the additional amount shall  be adjusted pro-rata.
In  the  event of a default under the note when due, then the
 Lender,  at  its election,  may  declare the entire
unpaid principal, and all accrued but unpaid interest, immediately  due
 and payable. The maximum additional amount that the Company shall pay is
$25,000,  and  such  amount  is due on the maturity of the
Note. This note has not been paid as of December 31, 2008, and the Company lacks
funds to pay the note. Wellstone is in discussions with Carlson Group, Ltd.
regarding repayment options.





On January 25, 2006, Wellstone Filters,
Inc. received $500,000 from the Carlson Group, Ltd., pursuant to a promissory
note, dated January  25,  2006. This Note is not associated with the
prior promissory note which had been issued in 2004. The Company borrowed the
principal amount of $500,000, at an interest  rate  of 8%  per
 annum,  due  in  full  on December 31, 2007. In
addition to the stated  interest rate, the Company shall  also pay to
the Lender an amount equal to the lesser of (a) $25,000 or (b) 3% of  the
net profits after taxes as of September 30, 2007, to be payable simultaneously
 with  the principal and interest due on December 31, 2007. If a
portion of the principal  or  interest is paid prior to December 31,
2007, the calculation of the additional amount  shall  be adjusted
pro-rata.  In the event of a default under the note when due, then the
 Lender, at its election,  may  declare the entire unpaid
principal, and all accrued but unpaid interest, immediately  due  and
 payable.  The maximum additional amount that the Company shall pay is
$25,000, and such amount  is  due on the maturity of the Note. This
note has not been paid as of December 31, 2008, and the Company lacks funds to
pay the note. Wellstone is in discussions with Carlson Group, Ltd. regarding
repayment options.





---

During  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. This note has not
been paid as of December 31, 2008, and the Company lacks funds to pay the note.
Wellstone is in discussions with Carlson Group, Ltd. regarding repayment
options.



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.



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.  The Company
will be required  to  engage  in debt or equity transactions to
satisfy cash needs over the next twelve months, and Management believes that it
will be able  to  raise  the required funds for operations
 from  one  or  more  future offerings and to affect
 our business plan. However, there can be no assurances to that effect
because our  ability  to  raise significant amounts of financing
will be dependent on favorable capital markets  and  obtaining a
market for our products,  and  other  risks inherent in the
business as  discussed  under  the caption "Risk Factors" may
affect the outcome of Management's plans.





Item 8. FINANCIAL
STATEMENTS



Wellstone's financial statements are
appended to the end of this reportreport and include the
following:



Report of  Independent
Registered Public Accounting Firm

Consolidated Balance Sheets as
of December 31,  2008 and 2007

Consolidated Statement of Income
for the years ended December 31, 2008 and 2007 and the period inception
(February 17, 1998)) to December 31, 2008

Consolidated Statement of Cash
Flows  for the years ended December 31, 2008 and 2007 and the period
inception (February 17, 1998) to December 31, 2008

Consolidated Statement of
Stockholders Deficit for the  period inception (February 17, 1998)) to
December 31, 2008

Notes to Consolidated Financial
Statements.

.



Item 9.

CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNT­ING AND FINANCIAL DISCLOSURE

On January 12, 2008, Wellstone Filters,
Inc. (the Company) terminated its relationship with  De Joya Griffith
& Company, LLC (De Joya Griffith), the principal accountant previously
engaged to audit the Companys financial statements.  The Companys board
of directors approved the dismissal of  De Joya Griffith. The audit reports
of De Joya Griffith on  the Companys financial statements for the fiscal
years ending December 31, 2006 and 2005 did not contain any adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope, or accounting principles, except such report was modified to include an
explanatory paragraph for a going concern uncertainty. In connection with the
audits of the fiscal year ending  December 31, 2007 and 2006 including the
subsequent interim periods since engagement through January 12, 2008,  the
date of termination, the Company had no disagreements with De Joya Griffith with
respect to accounting or auditing issues of the type discussed in Item
304(a)(iv) of Regulation S-B.  Had there been any disagreements that were
not resolved to their satisfaction, such disagreements would have caused De Joya
Griffith to make reference in connection with their opinion to the subject
matter of the disagreement. In addition, during that time there were no
reportable events (as defined in Item 304(a)(1)(iv) of Regulation S-B).

19

During the fiscal year ending December 31,
2006, including the subsequent interim periods since engagement through January
12, 2008, the date of De Joya Griffiths termination, the Company (or anyone on
its behalf) did not consult with any other accounting firm regarding any of the
accounting or auditing concerns stated in Item 304(a)(2) of Regulation S-B.
Since there were no disagreements or reportable events (as defined in Item
304(a)(2) of Regulation S-B), the Company did not consult any other firm in
respect to these matters during the time periods detailed herein.

The Company provided De Joya Griffith with
a copy of the Form 8-K reporting this change. The Company requested that De Joya
Griffith furnish the Company with a letter to the Securities and Exchange
Commission stating whether De Joya Griffith agreed with the above statements. A
copy of that letter dated January 12, 2008 is filed as an Exhibit to the Form
8-K.

On January 12, 2008 the Registrant engaged
Black Wing Group,,LLC as its new independent.  Prior to the engagement of
Black Wing Group. LLC, the Registrant did not consult with Black Wing Group, LLC
on the application of accounting principles to any specific transaction nor the
type of audit opinion that might be rendered on the Registrant's financial
statements.



Item 9T.  CONTROLS AND
PROCEDURES



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 accurately, in accordance with U.S. Generally Accepted
Accounting  Principles and 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
of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure and procedures (as defined in
Exchange Act Rule 13a-15(e) and 15d-15(e)).  Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that as of the
end of the period covered by this Annual Report on Form 10-K our disclosure
controls and procedures were effective to enable us to accurately record,
process, summarize and report certain information required to be included in the
Companys periodic SEC filings within the required time periods, and to
accumulate and communicate to our management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.



---

There were no changes in our internal
control over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



This annual report does not include an attestation
report of the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only managements report in this Annual Report.



Item
9B.       OTHER INFORMATION



Not applicable





Item
10.       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.



Learned Jeremiah Han

Learned Jeremiah Hand, Chief Executive
Officer



Mr. Hand, age 50,  joined Wellstone
in March, 2000. He has been Chief Executive Officer and a director since March
2000 and Acting Chief Financial Officer since September, 2006.  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 1999 he founded HFC, a private seed venture
capital corporation, which has made many internet and biotechnology related
investments and is a founder of Medibuy.com.  In March 2000, Mr. Hand began
to devote a significant portion of his time to Wellstone.  He now dedicates
30% 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.



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 2008.



Audit Committee Financial
Expert



Wellstone  does not have either an
Audit Committee or a financial expert on the Board of Directors.   The
Board of Directors believes that obtaining the services of an audit committee
financial expert is not economically rational at this time in light of the costs
 associated  with  identifying and retaining an individual
 who  would  qualify  as  an audit committee financial
 expert,  the limited scope of our operations and the  relative
 simplicity  of our financial statements and accounting procedures
..



Section 16(a)  Beneficial Ownership
Reporting Compliance



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, 2007,
Wellstone believes that 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
2008.



---

Item 11. EXECUTIVE
COMPENSATION



No compensation or benefits have been paid
to the sole executive officer and director for the years ended December 31, 2008
and 2007.



In September 2004 Mr. Hand was granted
options to purchase 7,200 shares at $250.00 per share. The above options were
granted under Wellstone's 1994 Stock Option Plan, as such plan was amended and
restated in 2004.  There were no options granted or exercised in the years
ended December 31, 2008 and 2007. The options held by Mr. Hand are not in the
money and have no value.



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



---

Item
12.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







Learned Jeremiah
Hand(1)(2)71,773                                                    
66.3%

Chief Executive Officer



Carla Cerami Hand,
MD,PhD(1)(2)71,773                                                    
66.3%



Anthony Cerami,
PhD(1)(3)11,574                                                    
11.5%



All officers and directors

as a group (1
person)                                       
71,773                                                    
66.3%



* less than 1%

(1)The business address of each of these
persons is300 Market Street, Suite 130-13, Chapel Hill, North Carolina
27516

(2)Ms. Cerami Hand and Mr. Learned
Jeremiah Hand are wife and husband.  The 71,773 shares listed as
beneficially owned by Mr. Learned Jeremiah Hand include 55333 shares which are
controlled by Carla Cerami Hand, as stated below; 7,200 shares issuable upon
exercise of stock options, and 9,240 shares held through a family limited
partnership controlled by him.  Mr. Hand disclaims beneficial ownership of
such 55,333  shares.  Ms. Cerami is the sole limited partner of a
partnership which holds 46,093 shares and also controls 9,240 shares held via a
trust, and may be deemed to beneficially own the 16,440 shares controlled by
Learned Jeremiah Hand.  She disclaims beneficial ownership of the 16,440
shares controlled by Learned Jeremiah Hand.

(3)Dr. Anthony Cerami is the father of
Carla Cerami Hand. Shares are held in a trust.



---

Item 13.CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Mr. Learned Hand, an officer and director,
advanced $28,940  to Wellstone for expenses which had not been reimbursed
as of December 31, 2008.  Mr. Learned Hand advanced an additional $15,000
to Wellstone for operating expenses in September 2006 that has not been
reimbursed as of December 31, 2008.  A law firm controlled
 by a brother of Learned Hand advanced funds on behalf of  Wellstone
from time to  time  prior to calendar  2006,  and as of
December 31, 2007 and 2008 the amount unreimbursed to the law firm was $16,286.
 The  highest amount owing to the law firm during 2007 or 2008
 was $16,286.



Mr. Learned J. Hand has advanced the
Company additional funds during  2007 in the amount of $61,144.  Mr.
Hand is under no commitment to continue to advance funds to the
Company.



Carla  Cerami  Hand  or
 Cerami  Consulting  Corporation  and  an  entity
controlled  by  Learned  Hand loaned various amounts to Wellstone
for its capital requirements prior to the year ended December 31, 2006.
  The  loans are due on demand, bear interest at 8% per annum and
are represented by promissory  notes.   As  of December 31,
2008,  $34,671 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, 2008.



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.



Item 14 Principal Accountant Fees and
Services.



Audit Fees



Item 14 Principal Accountant Fees and
Services.



During
the period covering the fiscal years ended December  31,  2007
  our  principal  accounting  firm  Blackwing
Group was paid audit fees of $2,000 for audit services performed in 2008. In
fiscal 2007 we paid DeJoya Griffith & Co. $9,000 for reviews of our
Quarterly Reports on Form 10-QSB. We paid DeJoya Griffith $24,000 in audit fees
and $1,345 for EDGAR filing fees for $2006.



Audit Committees pre-approval policies and
procedures



We do not have an audit committee.
 Our engagement of Blackwing Group LLC, as our independent registered
public accounting firm, 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.





---

PART IV





Item 15.

EXHIBITSAND FINANCIAL STATEMENT
SCHEDULES



(a) Exhibits.  The following exhibits
of the Company are included herein.No schedules are
required.



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



2.1. Agreement and Plan of Reorganization,
dated February, May 25, 2001, be­tween the Reg­istrant 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)

3.5 Articles of Amendment for reverse
stock split. (10)

10. Material Contracts



10.1 Stock Option
Plan(1)

102 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(5)

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)

10.11 $500,000 Promissory Note between
Wellstone Filters, Inc. and Carlson Group, Ltd., dated January 25, 2006
(6)

10.12 Summary of Employment Agreement with
Learned Jeremiah Hand (7)

10.13 Summary of Employment Agreement with
Samuel M. Veasey (7)

10.14. Patent License Agreement dated
January 17, 2007 between Wellstone and Glycanex BV.(8)



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 and
Financial Officer Pursuant to Exchange Act Rule 13a-14(a)(10).



32.1 Certification of Chief Executive and
Financial Officer pursuant to 18 U.S.C. Section 1350(10).



(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) Incorporated by reference to the
Company's amended Annual Report  on Form 10-KSB/A, dated December 31,
2004.

(6) Incorporated by reference  to the
Company's  Current  Report on Form 8-K, dated December 25,
2005.

(7) Incorporated by reference to the
Company's Annual Report  on Form 10-KSB, dated December 31,
2004.

(8) Incorporated by reference to the
Company's Current Report on Form 8-K, dated January 22, 2007.

(9)(7) Incorporated by reference
to the Company's Annual Report  on Form 10-KSB, dated December 31,
2006.

(10) Filed herewith.



---











SIGNATURES



Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 18, 2009.





WELLSTONE FILTERS, INC.





By:/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 Registrant and in the capacities on March 18,
2009.



By:/s/Learned Jeremiah
Hand                                                           
CEO and Director

Learned Jeremiah
Hand                                                                      
(principal executive officer and acting

accounting
and financial officer)

26



---




# THE BLACKWING GROUP, LLC

18921G E
VALLEY VIEW PARKWAY #325

INDEPENDENCE,
MO 64055

816-813-0098



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM



Wellstone Filters, inc. (A Development Stage
Company)

3887 Pacific Street

Las Vegas, NV 89121



We have audited the accompanying balance sheets of
Wellstone filters, inc. (A Development Stage Company) as of December 31, 2007
and 2008, and the related statements of income and changes in members equity,
and cash flows for the periods then ended and the period from February 17, 1998
to December 31, 2008.  These financial statements are the responsibility of
the Companys management.  Our responsibility is to express an opinion on
these financial statements based on our audits.



We conducted our audit 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.  The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.



In our opinion, based on our audit and the report of the
prior auditor, these financial statements referred to above present fairly, in
all material respects, the financial position of Wellstone filters, inc. (A
Development Stage Company) as of December 31, 2007 and 2008, and the results of
its operations and its cash flows for the periods then ended and the period from
February 17, 1998 to December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.




The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
C to the financial statements, the Company faces competition from existing
companies with considerably more financial resources and business connections.
In the event that Company fails to meet the anticipated levels of performance
there is significant doubt that the Company will be able to meet the debt
obligations related to the non public offering. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note C. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



The Blackwing Group, LLC

Issuing Office: Independence, MO

March 17, 2009







---





















Wellstone Filters, Inc.(A Company in the Development
Stage)Consolidated Balance
SheetsUnaudited
AuditedASSETS
December 31,
2008
December 31,
2007Current AssetsCash and cash
equivalents
$                                                               
-
$                    
       -Total Current Assets
-
-Furniture and equipment,
net
-
1,294Total Property and
Equipment
-
1,294Total Assets
$                                                               
-
$        
           1,294LIABILITIES AND
CAPITALCurrent LiabilitiesCurrent portion of long term
debt
$                                                 
2,250,000
$            
2,250,000Accounts Payable
557,944
553,194Related party accounts
payable
116,728
116,728Accrued expenses
1,356,224
1,230,363Note Payable to
Affiliate
59,200
59,200Total Current
Liabilities
4,340,096
4,209,485Total Liabilities
4,340,096
4,209,485STOCKHOLDERS' EQUITY
(DEFICIT)Preferred stock, $0.001 par value,
1,000,000shares authorized; no shares
issued and outstanding
$                                                             
-
$                         
-Common stock, $0.001 par value,
100,000,000 sharesauthorized; 105,989 and
105,989shares  outstanding respectively
106
106Paid in Capital
28,264,340
28,264,340Accumulated deficit
(32,604,542)
(32,472,637)Total stockholders'
deficit
(4,340,096)
(4,208,191)Total liabilities &
equity
$                                           
                  (0)
$                   
1,294




The
accompanying notes are an integral part of these financial
statements.

28
WELLSTONE
FILTERS, INC.(A Company in the
Development Stage)Condensed
Consolidated Statement of OperationsTwelve Months
Ended

Twelve Months
Ended

CumulativeDecember
31

December
31

AmountsSince2008

2007

Inception(Feb.
1998)Revenues
$                                      
-

$                               
-

$       
258,193Cost of Sales
-

-

273,075Gross Profit
-

-

(14,882)Expenses:General and
administrative expense
6,044

71,193

31,224,787Research and
development expense
-

-

237,269Loss from
operations
(6,044)

(71,193)

(31,476,938)Interest Expense
125,861

125,861

1,474,678Loss before income
taxes
(131,905)

(197,054)

(32,951,616)Forgiveness of
debt
-

120,000

347,074Income tax benefit
-

-

-Net
loss
$                           
(131,905)

$              
       (77,054)

$ 
(32,604,542)Basic and diluted weighted average number of
common shares outstanding
105,989

105,989Basic and Diluted Net Loss Per Share
$                  
              (1.24)

$                         
(0.73)
































































































The
accompanying notes are an integral part of these financial
statements.








Wellstone Filters,
Inc.Statement of
Stockholderss Equity (Deficit)Inception (February 17,
1998) through December 31, 2008AdditionalCommon
Stock
Paid-In
Subscription
Accumulated
TotalShares
Amount
Capital
Receivable
Deficit
CapitalBalance, February 17,
1998

-
$               
-
$        
    -

$                 
-
$                  
-Restatement for
recapitalization

84,000
84
(84)

-
-Capital
contribution

-
-
-

100
100Net loss

-
-
-

(6,675)
(6,675)Balance, December 31,
1998

84,000
84
(84)

(6,575)
(6,575)Net loss

-
-
-

(969)
(969)Balance, December 31,
1999

84,000
84
(84)

(7,544)
(7,544)Net loss

-
-
-

(21,395)
(21,395)Balance, December 31,
2000

84,000
84
(84)

(28,939)
(28,939)Acquisition of Farallon
Corporation

8,400
8
(2,850)

-
(2,842)Stock issued in cancellation
of debt

2,387
2.4
2,840

-
2,842Reclassification of members'
contribution toadditional paid-in
capital

-
-
100

(100)
-Net loss

-
-
-

(8,218)
(8,218)Balance, December 31,
2001

94,787
95
6

(37,257)
(37,157)Additional paid-in capital

-
-
16,800

-
16,800Net loss

-
-
-

(35,033)
(35,033)Balance, December 31,
2002

94,787
95
16,806

(72,290)
(55,390)Additional paid-in capital



12,600


12,600Net loss





(72,694)
(72,694)-Balance, December 31,
2003

94,787
95
29,406

(144,984)
(115,484)Common stock issued
for:Cash

230
0.23
195,000

-
195,000Services (related
party)

6,000
6
6,269,994

-
6,270,000Stock options issued
to:Consultants

-
-
654,946

-
654,946Officers /
employees

-
-
13,555,000

-
13,555,000Warrants issued with
Debt

-
-
1,020,000

-
1,020,000Net loss

-
-
-

(20,802,580)
(20,802,580)Balance, December 31,
2004

101,017
101
21,724,346

(20,947,564)
776,881Common stock issued
for:Exercise of stock
options

240
0.24
2,000


2,000Services

1,800
2
4,589,998


4,590,000Stock options issued to
employees



1,920,000


1,920,000Employee subscription
receivable

1,040
1
25,999
(26,000)

-Net loss





(8,675,439)
(8,675,439)Balance December 31
2005

104,097
104
28,262,343
(26,000)
(29,623,003)
(1,386,557)Stock issued on exercise of
options


0.24
2,000


2,000Payment of subscription
receivable

240


26,000

26,000Net loss





(2,772,581)
(2,772,581)Balance December 31,
2006

104,337
104
28,264,343
-
(32,395,584)
(4,131,138)Net Income (three months ended
March 31, 2007)





41,579
41,579Balance March 31,
2007

104,337
104
28,264,343
$            
-
(32,354,005)
(4,089,559)Shares issued for rounding in
reverse stock split

1,652
2
(2)


--Net Loss (three months ended
June 30, 2007)





(51,567)
(51,567)Balance June 30,
2007

105,989
106
28,264,340
$            
-
(32,405,573)
(4,141,126)Net Loss (three months ended
September 30, 2007)




(34,277)
(34,277)Balance September 30,
2007

105,989
106
28,264,340
$            
-
(32,439,849)
(4,175,403)Net Loss (three months ended
December, 2007)





(32,788)
(32,788)Balance December 31,
2007

105,989
106
28,264,340
$            
-
(32,472,637)
(4,208,191)Net Loss (twelve months ended
December 2008)





(131,905)
(131,905)Balance December 31,
2008

105,989
106
28,264,340
$            
-
(32,604,542)
(4,340,096)


The
accompanying notes are an integral part of this financial
statement.
















WELLSTONE
FILTERS, INC.(A Company in
the Development Stage)Consolidated Condensed
Statement of Cash FlowsCumulativeTwelve
Months Ended
AmountDecember
31
Since2008
2007
Inception(Feb.
17, 1998)Cash from operating
activity:Net income/(loss)
$   
(131,905)
$     
(77,054)
$ 
(32,604,542)Adjustments to reconcile
net loss to net cash used in   operating activities:Issuance of
common stock for services
-
-
10,860,000Issuance of
stock options for services
-
-
654,946Issuance of
stock options to employees as compensation
-
-
15,475,000Amortization of debt discount
-
-
1,020,000Depreciation
1,294
6,178
25,594Rental
expense forgiven by officer and board member
-
-
29,400Loss on
disposal of furniture
-
-
1,795(Increase)
in accounts receivable
-
-
-(Increase)
/ decrease in inventory
-
-
-Increase/(decrease) in bank overdraft
-
-
45(Increase)
in prepaid expenses
-
-
-Increase/(decrease) in accounts payable
4,750
(116,787)
557,944Increase in
related party accounts payable
-
61,145
111,436Increase in
accrued expense
125,861
125,861
1,350,304Net cash used in operating activity
$               
-
$          
(657)
$   
(2,518,078)Cash flow from investing
activitiesPurchase of fixed assets
-
-
(16,222)Cash flows form
financing activities:Proceeds from sale of
common stock
-
-
199,000Proceeds from exercise
of stock options
-
-
26,000Proceeds form long-term
debt
-
-
2,250,000Member contribution of
equity
-
-
100Proceeds form related
party notes payable
-
-
59,200Net cash provided from
financing activities
-
-
2,534,300Net increase/(decrease)
in cash and cash equivalents
-
(657)
(0)Cash and cash
equivalents at beginning of period
-
657
-Cash and cash
equivalents at end of period
$               
-
$               
-
$               
(0)Supplemental Disclosure of
Cash Flow Information:Cash paid during the period
for interest
$               
-
$               
-
$                 
-Cash paid during the period
for income taxes
$               
-
$               
-
$                 
-




The
accompanying notes are an integral part of these financial
statements.


















WELLSTONE
FILTERS, INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



A summary of significant accounting
policies of Wellstone Filters, Inc. (A Development Stage Company) (the Company)
is presented to assist in understanding the Companys financial statements. The
accounting policies presented in these footnotes conform to accounting
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the accompanying financial
statements. These financial statements and notes are representations of the
Companys management who are responsible for their integrity and objectivity.
The Company has not realized revenues from its planned principal business
purpose and is considered to be in its development state in accordance with SFAS
7, Accounting and Reporting by Development State
Enterprises.



Organization, Nature of Business and Trade
Name



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 8,400,000 shares of the Registrant's Common Stock. In addition, the Company
issued 238,728 shares of common stock for 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 yearend. The
financial statements from inception through May 25, 2001, are those of
Wellstone, LLC, and the accounting acquirer.  Subsequent to May 25, 2001,
the financial statements reflect the consolidated position and operations of
Registrant and Wellstone. All share amounts are after giving effect to a 5-for-1
forward stock split effected in July 2003, a .40 for one stock dividend effected
in October 2003 and a 3-for-1 forward stock split effected in September 2004, a
1-for-25 reverse split effective June 2006 and a 1-for-100 reverse stock split
effective June of 2007.

The Company is engaged in the development
and marketing of a proprietary cigarette filter technology and the Wellstone
brand of cigarettes utilizing its patented reduced risk filter. On January 5,
2006, Wellstone announced that it had launched its brand in the United States
with shipments to Phoenix, Arizona. The Company subsequently announced that it
had shipped the Wellstone brand to Chapel Hill, NC and Richmond, Virginia and
has partnered with a major supplier of convenience stores in the Southeastern
United States to carry the Wellstone brand family. The Company is not currently
generating any revenues from planned principal operations and is considered a
development stage company as defined in Statement of Financial Accounting
Standards No. 7.



These Consolidated financial statements
include the accounts of the Company and its subsidiaries.  All significant
intercompany transactions and accounts have been eliminated in
consolidation.







33



WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



Organization, Nature of Business and Trade
Name (continued)



Basis of Presentation



The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that effect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates. Management further
acknowledges that it is solely responsible for adopting sound accounting
practices, establishing and maintaining a system of internal accounting control
and preventing and detecting fraud. The Companys system of internal accounting
control is designed to assure, among other items, that (1) recorded transactions
are valid; (2) all valid transactions are recorded and (3) transactions are
recorded in the period in a timely manner to produce financial statements which
present fairly the financial condition, results of operations and cash flows of
the company for the respective periods being presented.



Property and Equipment



Property and equipment are carried at
cost, less accumulated depreciation and amortization. Expenditures for
maintenance and repairs are charged against operations. Renewals and betterments
that materially extend the life of the assets are capitalized. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in
income for the period.



Depreciation is computed for financial
statement purposes on a straight-line basis over estimated useful lives of the
related assets of 3 to 5 years.



For federal income tax purposes,
depreciation is computed under the modified accelerated cost recovery system.
For audit purposes, depreciation is computed under the straight-line method.



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 difference between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. 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
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.



Cash and Cash Equivalents



For purposes of the statement of cash
flows, the Company considers all short-term debt securities purchased with
maturity of three months or less to be cash equivalents.










WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)



Stock based Compensation



On January 1, 2006, we adopted the fair
value recognition provisions of SFAS No. 123(R), Accounting for Stock-Based
Compensation, to account for compensation costs under our stock option plans. We
previously utilized the intrinsic value method under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (as
amended).



We use the fair value method for equity
instruments granted to employees and non-employees and use the Black Scholes
model for measuring the fair value of options, if issued. The stock based fair
value compensation is determined as of the date of the grant or the date at
which the performance of the services is completed (measurement date) and is
recognized over the vesting period.



For the twelve months ended December 31,
2008, the Company did not have any stock based compensation expenses.



Revenue and Cost
Recognition



The Company provides custom solutions for
business management needs. The Company reports income and expenses on the
accrual basis of accounting, whereby income is recorded when it is earned and
expenses recorded when they are incurred. In this specific industry revenue from
jobs is recognized as stipulated in each contract for services. The Company
currently has not met any contract terms for recognition of revenue.



Cost of Goods Sold



Job costs include all direct materials,
and labor costs and those indirect costs related to contracted services.
Selling, general and administrative costs are charged to expense as incurred.



Advertising



Advertising expenses related to specific
jobs are allocated and classified as costs of goods sold. Advertising expenses
not related to specific jobs are recorded as general and administrative
expenses.



Use of Estimates



The preparation of financial statements in
accounting principles generally accepted in the United States of America
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.



A change in managements estimates or
assumptions could have a material impact on Wellstone Filters, Inc.s financial
condition and results of operations during the period in which such changes
occurred. Actual results could differ from those estimates. Wellstone Filters,
Inc.s financial statements reflect all adjustments that management believes are
necessary for the fair presentation of their financial condition and results of
operations for the periods presented.










WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)



Research and Development



The Company expenses research and
development costs as incurred.



Concentration of Credit
Risk



The Company maintains its cash in bank
deposit 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.



Principles of Consolidation



The consolidated financial statements
include the accounts of the Registrant and its wholly owned subsidiaries,
Wellstone Filters, LLC and Wellstone Tobacco, Inc. All significant inter-company
transactions have been eliminated in consolidation.



Recently Issued Accounting
Pronouncements



Recently Enacted Accounting Standards In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (FAS 157), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. The provisions of FAS 157 became effective as of the beginning of
our 2008 fiscal year. The adoption of FAS 157 did not have a significant impact
on our financial statements.



In September 2006, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108), which addresses how to quantify the effect of
financial statement errors. The provisions of SAB 108 became effective as of the
end of our 2007 fiscal year. The adoption of SAB 108 did not have a significant
impact on our financial statements.



In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities, including
an amendment of FASB Statement No. 115 (FAS 159). FAS 159 permits companies to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparison between companies that choose different measurement attributes for
similar types of assets and liabilities. The provisions of FAS 159 become
effective as of the beginning of our 2009 fiscal year. We are currently
evaluating the impact that FAS 159 will have on our financial
statements.



In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 which applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those
entities that have an outstanding




















WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)



Recently Issued Accounting Pronouncements
(continued)



noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. The statement is effective for annual periods
beginning after December 15, 2008.



In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment
of FASB Statement No. 133, (SFAS 161) as amended and interpreted, which
requires enhanced disclosures about an entitys derivative and hedging
activities and thereby improves the transparency of financial reporting.
Disclosing the fair values of derivative instruments and their gains and losses
in a tabular format provides a more complete picture of the location in an
entitys financial statements of both the derivative positions existing at
period end and the effect of using derivatives during the reporting period.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Early adoption is permitted.
We are currently evaluating the impact that FAS 161 will have on our financial
statements.



In May 2008, the FASB issued SFAS No. 163, Accounting
for Financial Guarantee Insurance Contracts  an interpretation of FASB
Statement No. 60.  SFAS 163 requires that an insurance enterprise
recognize a claim liability prior to an event of default (insured event) when
there is evidence that credit deterioration has occurred in an insured financial
obligation.  This Statement also clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements.  SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  The Company does not expect the adoption of SFAS 163
will have a material impact on its financial condition or results of
operation.

None of the above new pronouncements
has current application to the Company, but may be applicable to the Companys
future financial reporting.




















WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008





NOTE B  STOCK SPLITS AND STOCK
DIVIDENDS



The Company has declared and affected the
following stock splits and dividends:



- A five for one stock split in July
2003

- A four-tenths for one stock dividend in
September 2003

- A three for one stock split in September
2004

- A one for 25 reverse stock split in June
2006

- A one for 100 reverse stock split in
January 2007



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



NOTE C  GOING CONCERN



Under the going concern assumption, an
entity is ordinarily viewed as continuing in business for the foreseeable future
with neither the intention nor the necessity of liquidation, ceasing trading, or
seeking protection from creditors pursuant to laws or regulations.



Accordingly, assets and liabilities are
recorded on the basis that the entity will be able to realize its assets and
discharge its liabilities in the normal course of business.



The Company incurred a net loss of $31,715
and $32,788 for the three months ended December 31, 2008 and 2007 and $131,905
and $77,054 for the twelve months ended December 31, 2008 and 2007.  The
Company's liabilities exceed its assets by  $4,340,096 as of December 31,
2008.  The Company's sole operations have been discontinued with no other
source of operating revenues. These factors create substantial doubt about the
Company's ability to continue as a going concern.  The Company's management
plans to continue as a going concern revolves around its ability to develop
and/or acquire new business operations, as well as raise necessary capital to
pay ongoing general and administrative expenses of the Company.



The ability of the Company to continue as
a going concern is dependent on securing additional sources of capital and the
success of the Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.



NOTE D  INCOME TAXES



The Company accounts for income taxes
using the liability method; under which deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and the tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
















WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE D  INCOME TAXES  Continued



As of December 31, 2008, the Company had
net operating loss carryforwards of approximately $32,604,542, which expire in
varying amounts between 2016 and 2026.   Realization of this potential
future tax benefit is dependent on generating   sufficient
  taxable income prior to expiration of the loss carryforward. The
deferred tax asset related to this potential future tax benefit has been offset
by a valuation allowance in the same amount. The amount of the deferred tax
asset ultimately realizable could be increased in the near term if estimates of
future taxable income during the carryforward period are revised.



Deferred income tax assets of $6,045,049
and $5,987,407 at December 31, 2008 and 2007, respectively were offset in full
by a valuation allowance.



The components of the Company's net
deferred tax assets, including a valuation allowance, are as follows:



Deferred Tax Assets
As of December 31, 2008
As of December 31, 2007Net operating loss
carryforwards
$3,766,549
$3,708,907Stock based compensation
2,278,500
2,278,500Net deferred tax assets before valuation
allowance
$6,045,049
$5,987,407Less: Valuation Allowance
(6,045,049)
(5,987,407)Net deferred tax assets
--
--




A reconciliation between the amounts of
income tax benefit determined by applying the applicable U.S. and State
statutory income tax rate to pre-tax loss is as follows:



As of December 31, 2008
As of December 31, 2007Statutory federal income tax
(35%)
(35%)Statutory state income tax
(8.7%)
(8.7%)Change in valuation allowance on deferred tax
assets
(43.7%)
(43.7%)




Due to the inherent uncertainty in
forecasts and future events and operating results, the Company has provided for
a valuation allowance in an amount equal to gross deferred tax assets resulting
in the above figures for the periods audited.






























WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE E  NET LOSS PER COMMON
SHARE



Net loss per share is calculated in
accordance with SFAS No. 128, Earnings Per Share using the weighted average
number of common shares outstanding during the year.



The computation of diluted loss 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 1,462,600 shares of common stock at December
31, 2006 with conversion process of $2.50 per share as of December 31, 2006.
Common stock equivalents have not been included in the diluted loss per share
calculation for the year December 31, 2008 or 2007  because the effect
would be antidilutive.



NOTE F  PROPERTY AND EQUIPMENT



The carrying values of fixed assets as of
December 31, 2008 and 2007, were as follows:



2008
2007Equipment
$ 19, 421
19,421Furniture and Fixtures
-
-19,421
19,421Accumulated Depreciation
(19,421)
(18,127)$
        -
$
   1,294






Depreciation for the periods ended
December 31, 2008 and 2007 is $1,294 and $6,178.



NOTE G  ACCRUED EXPENSES



The Company has accrued expenses for years
ended 2008 and 2007 of $1,356,224 and $1,230,363 , respectively. The amounts for
2008 and 2007 were primarily the result of deferred salaries of Company
executives and interest on notes payable.



NOTE H  LONG-TERM DEBT



Long-Term debt consist of the following at
December 31, 2007 and 2008:



2007
2008Note 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 129,600 shares of the Companys common
stock for $12.50 per share
$2,250,000
$2,250,000




40



WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE I  RELATED PARTY
TRANSACTIONS



Mr. Learned Hand, an officer and director,
advanced $28,942 to the Company for expenses, which had not been reimbursed as
of December 31, 2008.  Mr. Learned Hand advanced an additional $15,000 to
Wellstone for operating expenses in September 2006.  The unreimbursed
amount as of December 31, 2006 was $43,942.   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, 2006 the amount unreimbursed to
the law firm was $16,286.



Pacific Coast Distributors, a distributor
owned and operated by Adam Hand, a brother of the Company's CEO, accounted for $
39,311, or 15% of the Company's sales in 2006. The sales terms to this
distributor were the same as any other distributor. As of December 31, 2006,
this distributor owed the Company $39,311, which was 15% of the Company's
accounts receivable as of that date. However, in connection with its cessation
of sales, the Company has written off all of its accounts receivables as
uncollectible.



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, 2008, $34,671 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, 2005.



During 2005 Wellstone issued 20,000 shares
of common stock, valued at $510,000, to the brother of the Company's Chief
Executive Officer for legal services that he provided to the Company.



In 2004, we issued to Jehu Hand, a brother
of our Chief Executive Officer, 600,000 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 22,992 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.


















WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE I  RELATED PARTY TRANSACTIONS
(continued)



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 the Company for its corporate expenses. The
Warren Institute, affiliated with the above officers, provided from time to time
office space and occasional use of 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.

The notes payable - related party consist
of loans from officers of the Company. The amounts are unsecured, bearing
interest rates between 5% to 8% and are due on demand.  Accrued interest on
the notes was $37,109 and $31,248 as of December 31, 2008 and December 31, 2007,
respectively.

Accounts payable  related party includes
amounts due to an officer of the Company and the brother of an officer of the
Company.



NOTE J - SUPPLEMENTAL CASH FLOW
INFORMATION



No cash amounts were paid for interest or
income taxes during the period from February 17, 1998, (date of inception) to
December 31, 2008.



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 2005 and 2004,  $510,000 and $42,500, respectively, 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 238,728 shares of common stock in settlement of $2,842 of
debt.












WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE K  CAPITAL STOCK

Preferred Stock



The Company has authorized 1,000,000
shares of preferred stock, $.001 par value, with such rights, preferences and
designation and to be issued in such series as determined by the Board of
Directors. No shares of preferred stock are issued and outstanding at December
31, 2008.



Common Stock



The Company has authorized common stock. 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. 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
45,136,800 shares of common stock.



On December 1, 2006 a one for one-hundred
reverse stock split was approved and effected on January 31, 2007.  The
reverse stock split resulted in a reclassification of common stock from
10,433,720 to 105,989

, including 1,652 shares issued to
shareholders in rounding off the reverse stock split. .



On May 17, 2006 a one for twenty-five
reverse stock split was approved and effected on June 19, 2006. The reverse
stock split resulted in a reclassification of common stock from 280,842,991 to
10,433,720.



There was only one issuance of common
stock in 2006. On March 6, 2006, an employee exercised stock options to purchase
24,000 shares of common stock for $2,000.



During 2005, the Company issued to Jehu
Hand, a brother of our Chief Executive Officer, 600,000 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.



During 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 22,992 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.



Issuance of Stock Options Resulting in
Expense



During 2005, the Company granted stock
options to purchase 180,000 shares of common stock to employees with exercise
prices below the market price on the measurement date.  Because the options
vested immediately, they resulted in compensation expense of $1,920,000 in 2005.
No options were granted in 2006 or 2007.



During 2004, options to purchase
26,500,000 shares with exercise prices ranging from $.003 to $.01 per share were
issued to three officers of the Company, resulting in an expense of
approximately $13,555,000.   Also, 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 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.



43

---

WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2008



NOTE L - FAIR VALUE OF FINANCIAL
INSTRUMENTS



The Companys financial instruments
consist of cash, accounts payable, and notes payable. The carrying amount of
cash and accounts payable 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.



NOTE M  PATENT LICENSE
AGREEMENT



On January 17, 2007, Wellstone entered
into a Patent License Agreement with Glycanex, BV, the supplier of the patented
filter compound used in Wellstone cigarettes. Under the Patent License
Agreement, Wellstone granted to Glycanex an exclusive right to the patent rights
for all countries excepting the United States of America and its territories and
possessions. Glycanex agreed to pay Wellstone a 3% royalty on net sales which
exceed the minimum threshold of Euro 500,000. The consideration for the granting
of the license to Glycanex was the cancellation of $120,000 owed to Glycanex for
purchase of the filter compound.  There was no activity with respect to
this agreement in 2008.

NOTE N - LIQUIDITY

The Company launched its Wellstone brand
of cigarettes in the United States during the first quarter of 2006 and has
shipped all brand styles to Arizona, Louisiana, North Carolina, Virginia and
California.  Additionally, the Company has partnered with several suppliers
of convenience stores in the Southeastern and the West Coast to carry the
Wellstone brand family. Even though the Companys net revenue increased 241% for
the second quarter over the first quarter it continued to have a deficit in
working capital and stockholders' deficit, and continued to incur losses.
Although sales were increasing, the Company continued to suffer from a negative
gross margin on its cigarettes; which was part of the Companys strategy to
obtain market share and entry into the competitive cigarette marketplace.
Management reviewed the liquidity position of the Company during the quarter
ended September 30, 2006 and sought unsuccessfully for additional debt or equity
funding. Although the Company did enter into negotiations for a private
placement, the funding group required that the Company carry out a 1-for- 25
reverse split of the common stock as a precondition to such placement. After
Wellstone carried out the reverse split, the funding source did not complete
funding. Faced with inadequate cash resources to fund the market introduction of
its products; management determined to suspend further marketing activity.

NOTE O - NOTE PAYABLE

Wellstone Filters, Inc. received $250,000
from the Carlson Group, Ltd., pursuant to a promissory note, dated May 17, 2006.
This Note is not associated with the prior promissory notes which had been
issued in 2006 and 2004. The Company borrowed the principal amount of $250,000,
at an interest rate of 8% per annum, due in full on December 31, 2007. In
addition to the stated interest rate, the Company shall also pay to the Lender
an amount equal to the lesser of (a) $25,000 or (b) 3% of the net profits after
taxes as of September 30, 2007, to be payable simultaneously with the principal
and interest due on December 31, 2007. If a portion of the principal or interest
is paid prior to December 31, 2007, the calculation of the additional amount
shall be adjusted pro-rata. In the event of a default under the note when due,
then the Lender, at its election, may declare the entire unpaid principal and
all accrued but unpaid interest, immediately due and payable. The maximum
additional amount that the Company shall pay is $25,000, and such mount is due
on the maturity of the Note.  No further arrangements have been made with
respect to these agreements in 2008.



---

WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2007



NOTE O - NOTE PAYABLE
(continued)



On January 25, 2006, Wellstone Filters,
Inc. received $500,000 from the Carlson Group, Ltd., pursuant to a promissory
note, dated January 25, 2006. This Note is not associated with the prior
promissory note which had been issued in 2004. The Company borrowed the
principal amount of $500,000, at an interest rate of 8% per annum, due in full
on December 31, 2007. In addition to the stated interest rate, the Company shall
also pay to the Lender an amount equal to the lesser of (a) $25,000 or (b) 3% of
the net profits after taxes as of September 30, 2007, to be payable
simultaneously with the principal and interest due on December 31, 2007. If a
portion of the principal or interest is paid prior to December 31, 2007, the
calculation of the additional amount shall be adjusted pro-rata.



In the event of a default under the note
when due, then the Lender, at its election, may declare the entire unpaid
principal and all accrued but unpaid interest, immediately due and payable. The
maximum additional amount that the Company shall pay is $25,000, and such amount
is due on the maturity of the Note. In October 2004 the Company entered into an
agreement with another fund under which it received $1.5 million in debt
financing plus warrants.  The Company has dismissed or accepted the
resignation of all employees and officers except for its Chief Executive
Officer, has vacated its corporate offices and otherwise drastically reducedits general and administrative costs pending a resolution of its liquidity
problems.  The Company is funding its cash needs from funds lent by its
officer and director.



NOTE P  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
1,680,000 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 for the Board of
Directors determines the option price, which cannot be less that 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.



On December 31, 2008, the Company had
960,000 shares available for grant under the Option Plan.



During 2004, the Company issued warrants
to purchase 129,600 shares of common stock with an exercise price of $12.50 per
share in connection with a note payable. See Note H.













45









WELLSTONE FILTERS,
INC.

(A Development Stage
Company)

NOTES TO FINANCIAL
STATEMENTS

FOR THE YEAR ENDING
DECEMBER 31, 2007



NOTE P  STOCK OPTION PLAN
(continued)



A schedule of the options is as
follows:



ExerciseNumber of
PriceOptions
Per ShareOutstanding at December 31, 2004
1,273,000
.17 - .25Granted
180,000
0.08325Exercised
128,000
.08325 - .25Outstanding at December 31, 2005
1,325,000
.17 - .25Granted
-
-
- -Exercised
24,000
.08333Lapsed
581,000
- -Outstanding at December 31, 2006
720,000
2.50Granted
- -
- -Exercised
-
-
-
-Outstanding at December 31, 2007
720,000
2.50




Granted
- -
- -Exercised
-
-
-
-Outstanding at December 31, 2008
720,000
2.50