SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-KSB



[x]

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

For the fiscal year ended December 31, 2007



[ ]

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 small business issuer in its charter)



Delaware



33-0619264



(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 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 23, 2008 was $28,951 based on a closing bid price of $.125 per share as of March 23, 2008



The number of shares outstanding of the issuer's classes of Common Stock as of March 25, 2008



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



Transitional Small Business Disclosure Format           YES       NO X



DOCUMENTS INCORPORATED BY REFERENCE:  NONE













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.





RISKS AND UNCERTAINTIES



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. 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.



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 71773 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.



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 SHARE

Phillip Morris Cos., Inc.

48.7%

RJ Reynolds

28.2%

Lorillard

9.2%

Commonwealth

3.5%

Liggett & Meyers

2.2%

Total

91.8%



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.



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,  2007, 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.



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 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, 2007.













PART II





Item 5.

MARKET FOR COMMON EQUITY, RELATED STOCK­HOLDER MATTERS AND COMMON STOCK REPURCHASES



(a)  Market Information



The Company's Common Stock has traded on the OTC Bulletin Board under the symbol WLSF.OB 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

Low

December 31, 2007

$

8.75

$

2.00

September 30, 2007

15.00

4.00

June 30, 2007

21.00

9.00

March 31, 2007

25.00

10.00



December 31, 2006

$

75.00

$

10.00

September 30, 2006

350.00

60.00

June 30, 2006

700.00

325.00

March 31, 2006

1400.00

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, 2007, there were approximately 143 record holders of Company common stock.



(c) Dividends



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

(d)

Equity Compensation Plans













Equity Compensation Plan Information as of December 31, 2007

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

$250.00

9,600

Plans approved by

Security holders



Equity compensation

0

0

0

Plans not approved

By security holders



Total

7,200

$250.00

9,600



(e)

Sales of Unregistered Securities during the year ended December 31, 2007



None.



(f) Company repurchases of common stock during the years ended December 31, 2007 and 2006.



None



Item 6.

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 $71,193 in the year ended December 31, 2007. 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. There was a gain of $120,000 from the forgiveness of debt associated with the international license of the technology to a supplier. The Company had a loss of $ 2,772,581for the year ended December 31, 2006.  The loss is primarily the result of general and administrative expenses of $2,389,852 and  interest  expense  of $584,868.  General  and  administrative expenses  include  employee wages  of  $546,905 , promotional  material  of $44,573 and write off of stale inventory of $589,899.As of December 31, 2006, the Company owed its manufacturer, US Flue Cured Tobacco Growers, $542,261 and also had an accounts receivable from its manufacturer in the amount of $227,074.  US Flue Cured and the Company agreed to offset these amounts, with the result that the Company owes US Flue Cured Tobacco Growers $315,187 as of December 31, 2006. Other income of $227,074 resulted from write off of accounts receivable owed as uncollectible as of December 31, 2006.



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, 2006, 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, 2006, 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, 2006, 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.



RISKS AND UNCERTAINTIES



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



To date, Wellstone's activities  have been limited to research and development, product testing and initial marketing.  We  currently have no sales.  Wellstone might not be able to find a  market  for  its  products, achieve a significant level of sales  or  attain profitability. As a result  of  the  significant  operating expenses related to start  up  operations,  operating  results  will  be  adversely   affected   if significant  sales do not materialize, whether due to competition or otherwise. Wellstone might  not  be  able  to  grow in the future or attain profitability. Wellstone might not be able to implement  its  business plan in accordance with its internal forecasts or to a level that meets the expectations of investors.



The report of our independent registered public accounting firm included in the audited financials 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,  2005  consolidated financial  statements included in our Annual Report on Form 10-KSB,  filed  with  the  Securities and Exchange Commission on April 11, 2006, 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 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  there  were  no  material weaknesses in our internal control over financial reporting as of December 31, 2006. A material  weakness  is  a control deficiency, or combination of control deficiencies  that  results  in  a  more  than  remote  likelihood  a  material misstatement  of  the  annual  or interim  financial  statements  will  not  be prevented or detected.



If we are unable to maintain our  internal  controls, our ability to report our financial results on a timely and accurate basis  could  be adversely affected, which  could  have  a  material adverse effect on our ability  to  operate  our business. Please see Item  8  -  Controls  and  Procedures for more information regarding the measures implemented in the quarter ended March 31, 2006, as well as those that implemented throughout 2006.  Each  remedy is designed to remediate the deficiencies in our internal controls. In addition, even after the remedial measures discussed in Item 8 - 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. Such  competition may  have  substantially  greater  financial,  manufacturing, marketing  and other resources. 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 the Congress has not given  the  FDA authority  to  regulate  tobacco  products  as  customarily marketed. Given the decision by the Supreme Court it is unclear whether  the Congress in the future will act to grant such authority to the FDA, although  legislation  that  would create  such authority has already been introduced in Congress. See "Government Regulation."



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



If we are successful in obtaining market acceptance  for  our products, we will be  required  to  manage  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 adversely affect our competitive advantage, with respect  to sales outside the United States.



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



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



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



If we lose our management it would damage our business.



We depend  upon  the  continued  services  of our senior  management  for  our continued success. The loss of the Company's  Chief  Executive Officer, Learned Jeremiah Hand, 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 71,77,3 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 7.

FINANCIAL STATEMENTS



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



Item 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT­ING AND FINANCIAL DISCLOSURE

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).

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 8A.  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.



Fiscal 2007



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-KSB 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.



Fiscal 2005



As  required by Rule 13a-15(b) under the Exchange Act,  we  conducted  an evaluation, with the participation of our Chief Executive Officer and the Chief Financial  Officer,  of  the  effectiveness  of  our  disclosure  controls  and procedures as  of  December  31, 2005. In connection with the completion of its audit of, and the issuance of  its  report on, our financial statements for the year ended December 31, 2005, De Joya Griffith & Company, LLC, our independent registered public accounting firm,  identified deficiencies  that existed in the design or operation of our internal control over financial reporting that it considers to be "material weaknesses."  The Public Company Accounting  Oversight  Board  has defined  a  material  weakness  as  a "significant deficiency or combination of significant deficiencies that results  in  more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected."



The  deficiencies  in our internal controls  related  to  accounting  for equity transactions, including  the  issuance  of  stock  and stock options for services.   The disclosure controls deficiencies related to  the  statement  of stockholders  equity  and  footnote  disclosure of information required by U.S. generally  accepted  accounting principles.   The  adjustments  to  record  the issuances of stock and  stock  options  for  services  or  compensation and the footnote disclosure deficiencies were detected in the audit  process  and  have been  appropriately  recorded  and disclosed in this Form 10-KSB.  Based on our evaluation and the deficiencies  identified  above,  we  concluded  that, as of December 31, 2005, our disclosure controls and procedures were not effective in timely  alerting  us  to  the  material  information  relating  to  us  (or our consolidated  subsidiaries)  required to be included in the reports we file  or submit under the Exchange Act.  We are in the process of improving our internal control over financial reporting  in  an effort to remediate these deficiencies through improved supervision and training  of  our  staff  as  well as required notices  provided to senior management simultaneous with all equity  issuances. These deficiencies  have  been disclosed to our Board of Directors.  Additional effort is needed to fully remedy  these  deficiencies and we are continuing our efforts to improve and strengthen our control processes and procedures.  We are implementing  the  following  controls and procedures  to  ensure  that  future issuances of securities are properly  disclosed on Current Reports and included in and reflected on Quarterly and Annual Reports.



The  Chief  Financial Officer  of  the  Company  shall  receive written notification  simultaneous  with  or  immediately  after all issuances  of  securities  authorized  by the Board of Directors  or granted by the Chief Executive Officer of  the Company, in the event  that the Board of Directors grants the Chief  Executive  Officer the  ability to issue securities.  Prior  to  providing  any  Quarterly or Annual Reports to the Company's  independent  registered  public  accounting  firm,  the  Chief  Financial Officer  shall  contact  the  Company's  transfer  agent  and  request  a statement specifying the number  of  outstanding shares at the end of the period, a list of all issuances during  such period and a list of parties  to whom such securities were issued;



The Chief Financial Officer shall prepare a report detailing the number of  securities  issued  during  the  period  based   upon   the   written  notification  it  received  from  the  Chief  Executive  Officer  and the information provided by the transfer agent;



The Chief Financial Officer shall deliver to the Company's  independent  registered  public accounting firm its report of the number of securities issued during the period simultaneous with its delivery of a draft of the Quarterly or Annual Reports.



The Chief Financial Officer shall deliver to the Board of Directors its report of the  number of securities issued during the period simultaneous  with its delivery  of  the  Quarterly  or Annual Reports and the Board of  Directors shall review such report and the  Quarterly  or  Annual Reports  prior to such Quarterly or Annual Reports being filed with the Securities  and Exchange Commission.



These  controls  and  procedures  are a work in progress and the  Company intends to refine and improve upon them over time.  Our management and Board of Directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.















Item 8B.

OTHER INFORMATION



Not applicable





Item 9.

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



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



Learned Jeremiah Hand

49

Chief Executive Officer, acting Chief Financial Officer, and Director



Learned Jeremiah Hand, Chief Executive Officer



Mr. Hand 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 2007.













Item 10. EXECUTIVE COMPENSATION



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





Summary Compensation Table





ANNUAL COMPENSATION

LONG TERM COMPENSATION







Name and

Other Annual

Awards

Payouts

All

Principal Position

Year

Salary

Bonus

Compensation

Other

Restricted

Options/

LTIP

Stock ($)

SARs(#)

Payouts ($)





2007

$0

0

0

0

0



0

Learned Jeremiah Hand

2006

$20,000



0

0

0

0

7,200

0

CEO

2005

48,000

0

0

0

0







Samuel Veasey                      2007             $0



CFO

2006           $20,000

2005           $48,000

72











In connection with his appointment to the Board of Directors of Wellstone in January 2003, Dr. Goyan was granted incentive stock options to purchase 210 shares of common stock for $11.90 per share.  In connection with his election as Chief Financial Officer in September 2004, Mr. Veasey was granted options to purchase 1,800 shares at $250.00 per share. In September 2004 Mr. Hand was also 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. Messrs. Goyan and Veaseys options lapsed in 2006.



Option/SAR Grants in Year ended December 31, 2007 to Named Executive Officers



Number of

% of Total



Securities

Options/SARs

Underlying

Granted to

Options/SARs

Employees in

Exercise or Base

Expiration

Name

Granted (#)

Fiscal Year

Price ($/Sh)

Date



L. Hand

--

S. Veasey

--















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





Number of



Securities

Value of

Underlying

Unexercised

Unexercised

In-the-Money

Options/SARs at

Options/SARs at

Fiscal Year End

Fiscal Year End

Shares Acquired

Exercisable/

Exercisable/

Name

on Exercise (#)

Value Realized ($)

Unexercisable

Unexercisable



L. Hand

0

$0

7,200(1)

$--(1)

S. Veasey

0

$0



--

$--



(1)All options are exercisable.  Value based on closing price of the common stock of $1.25 on March 23, 2008, less exercise price.



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



Item 11.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



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



Name and Address

Common Stock

Percentage







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 (2 persons)

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 12.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Mr. Learned Hand, an officer and director, advanced $24,298  to Wellstone for expenses which had not been reimbursed as of December 31, 2005.  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, 2006.  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, 2006 and 2007 the amount unreimbursed to the law firm was $16,286.  The  highest amount owing to the law firm during 2006 or 2007  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, 2007,  $29,935 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, 2006.



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.













PART IV





Item 13.

EXHIBITS



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



2.

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



2.1.

Agreement and Plan of Reorganization, dated February, May 25, 2001, be­tween the 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)(9).



32.1

Certification of Chief Executive and Financial Officer pursuant to 18 U.S.C. Section 1350(9).





(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.



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.















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 24, 2008.





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 24, 2008.



By:

/s/Learned Jeremiah Hand

CEO and Director

Learned Jeremiah Hand

(principal executive officer and acting accounting and financial officer)















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)

300 Market Street, Suite 130-13

Chapel Hill, North Carolina  27516



We have audited the accompanying balance sheet of Wellstone filters, inc. (A Development Stage Company) as of December 31, 2007, and the related statements of income and changes in members equity, and cash flows for the period then ended.  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 the results of its operations and its cash flows for the period then ended 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 J. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

[f200710kwllstne002.gif]

The Blackwing Group, LLC

Issuing Office: Independence, MO

March 19, 2008













REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

Wellstone Filters, Inc.

Timberlake, North Carolina



We  have  audited  the  accompanying  consolidated  balance sheets of Wellstone Filters,  Inc.  (a  Development  Stage  Company) as of December  31,  2006  and  December  31,  2005  and  the related consolidated  statements  of  operations, stockholders'  deficit  and  cash  flows  for  the  years  then  ended.   These consolidated financial statements  are  the  responsibility  of  the  Company's management.  Our  responsibility is to express an opinion on these consolidated financial statements based on our audit.



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



In  our  opinion,  based  on  our audit, the consolidated financial  statements referred to above present fairly,  in  all  material respects, the consolidated financial position of Wellstone Filters, Inc.  as  of  December  31,  2006  and December  31,  2005,  and  the  results of its consolidated operations and cash flows  for  the  years then ended, 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  2  to  the financial statements, the Company  has  suffered losses from operations, all of which  raise  substantial  doubt  about its ability  to  continue  as  a  going concern.  Management's plans in regards  to these matters are also described in Note 2.  The financial statements do not include  any  adjustments  that  might result from the outcome of this uncertainty.





/s/ De Joya Griffith & Company, LLC

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

De Joya Griffith & Company, LLC

CERTIFIED PUBLIC ACCOUNTANTS

Henderson, NV



March 28, 2007













WELLSTONE FILTERS, INC.

[A Company in the Development Stage]



CONSOLIDATED BALANCE SHEETS



Audited

Audited

December 31,

December 31,

2007

2006



ASSETS

Current Assets



Cash and cash equivalents

$

--

$

657



Total current assets

--

657



Furniture and equipment, net

1,294

7,472



Total Property and Equipment

1,294

8,129



Total Assets

$

1,294

$

8,129



LIABILITIES

CURRENT LIABILITIES:



Current portion of long term debt

$

2,250,000

$

2,250,000

Accounts payable

553,194

669,981

Related party accounts payable

116,728

55,584

Accrued expenses

1,230,363

1,104,502

Notes payable to affiliate

59,200

59,200



Total Current Liabilities

4,209,485

3,389,267



Total Liabilities

4,209,485

4,139,267



STOCKHOLDERS' EQUITY (DEFICIT):



Preferred stock, $.001 par value, 1,000,000 shares

authorized, no shares issued and outstanding

--

--



Common stock, $.001 par value, 300,000,000

shares authorized: 105,989 and 10,433,760

issued and outstanding, respectively

106

10,434



Paid in capital

28,264,340

28,254,012

Accumulated deficit

(32,472,637)

(32,395,584)



Total stockholders' deficit

(4,208,191)

(4,131,138)

__________________

_______________



Total liabilities & equity

$

1,294

$

8,129



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











WELLSTONE FILTERS, INC.

[A Company in the Development Stage]





CONSOLIDATED STATEMENT OF OPERATIONS





Cumulative

For the Year ended

Amounts

December 31,

Since

Inception

2007

2006

(Feb. 1998)



Revenues

--

258,193

258,193



Cost of sales

--

273,075

273,075



Gross Profit

$

--

$

(14,881)

$

(14,882)



Expenses:

General and administrative expense

(71,193)

2,370,419

31,218,743

Research and development expense

--

10,053

237,269



Loss from operations

(71,193)

(2,395,353)

(31,470,894)



Interest Expense

125,861

584,868

1,348,817



Loss before income taxes

(197,054)

(2,980,221)

(32,819,711)



Forgiveness of debt

120,000

227,074

347,074



Net loss

(77,054)

(2,753,147)

(32,472,637)



Basic and diluted weighted average

number of common shares outstanding

105,989

10,433,760



Basic and Diluted Net Loss Per Share

$

(0.73)

$

(0.26)













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











WELLSTONE FILTERS, INC.

[A Company in the Development Stage]

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

AS OF DECEMBER 31, 2007



Common Stock

Additional

______________________

Paid-in

Subscription

Accumulated

Shares

Amount

Capital

Receivable

Deficit

Total

__________

__________

___________

__________

__________

__________

BALANCE, February 17, 1998

-

$

-

$

-

$

-

$

-

$

-



Restatement for recapitalization

210,000,000

210,000

(210,000)

-

-

-

Capital contribution

-

-

-

-

100

100

Net loss

-

-

-

-

(6,675)

(6,675)



Balance, December 31, 1998

210,000,000

210,000

(210,000)

-

(6,575)

(6,575)



Net loss

-

-

-

-

(969)

(969)

Balance, December 31, 1999

210,000,000

210,000

(210,000)

-

(7,544)

(7,544)



Net loss

-

-

-

-

(21,395)

(21,395)

Balance, December 31, 2000

210,000,000

210,000

(210,000)

-

(28,939)

(28,939)



Acquisition of Farallon Corporation

21,000,000

21,000

(23,842)

-

-

(2,842)

Stock issued in cancellation of debt

5,968,200

5,968

(3,126)

-

-

2,842

Reclassification of members

contribution to additional

paid-in-capital

-

-

100

-

(100)

-

Net loss

-

-

-

-

(8,218)

(8,218)

Balance, December 31, 2001

236,968,200

236,968

(236,868)

-

(37,257)

(37,157)



Rental expense forgiven by officers

-

-

16,800

-

-

16,800

Net loss

-

-

-

-

(35,033)

(35,033)

Balance, December 31, 2002

236,968,200

236,968

(220,068)

-

(72,290)

(55,390)



Rental expense forgiven by officers

-

-

12,600

-

-

12,600

Net loss

-

-

-

-

(72,694)

(72,694)

Balance, December 31, 2003

236,968,200

236,968

(207,468)

-

(144,984)

(115,484)



Common stock issued for:

Cash

574,791

575

194,425

-

-

195,000

Services (related party)

15,000,000

15,000

6,255,000

-

-

6,270,000

Stock options issued to consultants

-

-

654,946

-

-

654,946

Stock options issued to officers/employees

-

-

13,555,000

-

-

13,555,000

Allocation of debt proceeds to warrants

-

-

1,020,000

-

-

1,020,000

Net loss

-

-

-

-

(20,802,580)

(20,820,580)

Balance, December 31, 2004

252,542,991

252,543

21,471,903

-

(20,947,564

776,882



Common stock issued for:

Exercise of stock options

600,000

600

1,400

-

-

2,000

Services

4,500,000

4,500

4,585,500

-

-

4,590,000

Stock options issued to employees

-

-

1,920,000

-

-

1,920,000

Employee subscription receivable

2,600,000

2,600

23,400

(26,000)

-

-

Net loss

-

-

-

-

(8,675,439)

(8,675,439)

Balance, December 31, 2005

260,242,991

$

260,243

$

28,002,203

(26,000)

$

(29,623,003)

$

(1,386,557)



Stock issued on exercise of options

600

1,400

Payment of Subscription Receivable

600,000

-

-

26,000

-

2,000

Net loss

-

-

-

-

(2,772,581)

26,000

Reverse Stock Split

(250,409,230)

(250,409)

250,409

-

-

(1,231,796)

Balance, December 31, 2006

10,433,760

$

10,434

$

28,254,012

-

$

(32,395,584)

$

(4,131,138)



Reverse Stock Split

100:1 May 2007

(10,329,383)

(10,328)

10,328

Net loss

--

--

--

--

(77,054)

(77,054)

Balance, December 31, 2007

104,337

$

106

$

28,264,340

-

$

(32,472,637)

$

(4,208,191)



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











WELLSTONE FILTERS, INC.

[A Company in the Development Stage]



CONSOLIDATED STATEMENTS OF CASH FLOWS



Cumulative

For the Year ended

Amounts

December 31,

Since

Inception

2007

2006

(Feb. 1998)

Cash from Operating Activities:

Net income/(loss)

$

(77,054)

$

(2,753,147)

$

(32,472,637)

Adjustments to reconcile net loss to net cash used

in operating activities:

Issuance of common stock for services

--

--

10,860,000

Issuance of stock options for services

--

--

654,946

Issuance of stock options to employees as

compensation

--

--

15,475,000

Amortization of debt discount

--

467,500

1,020,000

Depreciation

6,178

5,865

24,300

Rental expense forgiven by officer and board member

--

--

29,400

Loss on disposal of furniture

--

--

1,795

(Increase) in accounts receivable

--

--

--

(Increase) / decrease in inventory

--

391,796

--

Increase/(decrease) in bank overdraft

--

--

45

Increase in prepaid expense

--

--

--

Increase/(decrease) in accounts payable

(116,787)

300,470

553,194

Increase in related party accounts payable

61,145

17,368

111,436

Increase in accrued expense

125,861

559,380

1,224,443



Net cash used in operating activities

$

(657)

$

(1,010,769)

$

(2,518,078)



Cash flows from investing activities

Purchase of fixed assets

--

--

(16,222)



Cash flows from financing activities:

Proceeds from sale of common stock

--

28,000

199,000

Proceeds from exercise of stock options

--

--

26,000

Proceeds from long-term debt

--

750,000

2,250,000

Member contribution of equity

--

--

100

Proceeds from related party notes payable

--

--

59,200



Net cash provided from financing activities

--

778,000

2,534,300



Net increase/(decrease) in cash and cash equivalents

(657)

(232,769)

--



Cash and cash equivalents at beginning of period

657

233,426

--



Cash and cash equivalents at end of period

$

--

$

657

$

--





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, 2007



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.











WELLSTONE FILTERS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDING DECEMBER 31, 2007



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, 2007



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, 2007, 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, 2007



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



Previously, Opinion 20 required that most voluntary changes in accounting principle be recognized by including in net income of the period of change the cumulative effect of changing to a new principle.  This statement requires retrospective application to prior periods financial statements of changes in accounting principle, when practicable.



In July 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes.  FIN 48 prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition for tax related positions.  FIN 48 becomes effective for the Company on January 1, 2007.  The Company does not believe that the adoption of FIN 48 will have any effect on the consolidated financial statements.



In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments and Hedging Activities (SFAS No. 155), which amends Statement of Financial Accounting Standards No. 133. Accounting for Derivative Instruments and Hedging Activities (SFAS 133) and Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140). SFAS No. 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or hybrid financial instruments containing embedded derivatives, We expect the adoption of SFAS No. 155 to have a material impact on its consolidate financial position, results of operations or cash flows.















WELLSTONE FILTERS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDING DECEMBER 31, 2007



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Recently Issued Accounting Pronouncements (continued)



In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (SFAS No. 156), which amends FASB Statement No. 140 (SFAS No. 140). SFAS 156 may be adopted as early as January 1, 2006 for calendar year-end entities, provided that no interim financial statements have been issued. Those not choosing to early adopt are required to apply the provision as of the beginning of the first fiscal year that begins after September 15, 2006 (e.g., January 1, 2007, for calendar year-end entities). The intention of the new statement is to simplify accounting for separately recognized servicing assets and liabilities, such as those common with mortgage securitization activities, as well as to simplify efforts to obtain hedge-like accounting. Specifically, the FAST said FAS No. 156 permits a services using derivative financial instruments to report both the derivative financial instrument and related servicing asset or liability by using a consistent measurement attribute, or fair value. We do not expect the adoption of SFAS 155 to have a material impact on its consolidated financial position, results of operations or cash flows.



In October 2006, the FASB issued SFAS No. 157 (SFAS No. 157). The purpose of SFAS No. 157 is to provide users of financial statements with better information about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used to develop the measurements, and the effect of certain of the measurements on earnings for the period.



SFAS No. 157 also provides guidance on the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. This changes the definition of fair value to be the price that would be received to sell an asset or paid to transfer a liability, an exit price, as opposed to the price that would be paid to acquire the asset or received to assume the liability, an entry price. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods with those fiscal years (e.g., January 1, 2008, for calendar year-end entities.) We do not expect the adoption of SFAS No. 157 to have a material impact on our consolidated financial position, results of operations or cash flows.



In September 2006, the FASB issued SFAS No. 158 (SFAS No. 158), which amends SFAS No. 87, 88, 106 and 132(R). Post application of SFAS 158, an employer should continue to apply the provision in Statements 87, 88, and 106 in measuring plan assets and benefit obligations as of the date of its statement of financial position and in determining the amount of net periodic benefit cost. SFAS 158 requires amounts to be recognized as the funded status of a benefit plan, which is, the difference between plan assets at fair value and the benefit obligation. SFAS 158 further requires recognition of gains/losses and prior service costs or credits not recognized pursuant to SFAS No. 87 or SFAS No. 106. Additionally, the measurement date is to be the date of the employers fiscal year-end.



Lastly, SFAS No. 158 requires disclosure in the financial statements effects from delayed recognition of gains/losses, prior service costs or credits, and transition assets or obligations. SFAS No. 158 is effective for years ending after December 15, 2006 for employers with publicly traded equity securities and as of the end of the fiscal year ended after June 15, 2007 for employers without publicly traded equity securities. We do not expect the adoption of SFAS No. 158 to have a material impact on our consolidated financial position, results of operations or cash flows.













WELLSTONE FILTERS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDING DECEMBER 31, 2007



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Recently Issued Accounting Pronouncements (continued)



In February 2007, the FASB issued Statement No. 159 (FASB No. 159), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. FASB No. 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 comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.



The provisions of FASB No. 159 become effective as of the beginning of our 2009 fiscal year. We do not expect that the adoption of FASB No. 159 will have a material impact on our financial condition, results of operations or cash flows.



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



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



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 $32,788 and $1,088,801 for the three months ended December 31, 2007 and 2006 and $77,054 and $2,753,147 for the twelve months ended December 31, 2007 and 2006.  The Company's liabilities exceed its assets by  $4,208,191 as of December 31, 2007.  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.







WELLSTONE FILTERS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDING DECEMBER 31, 2007



NOTE C  GOING CONCERN (continued)



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.



As of December 31, 2007, the Company had net operating loss carryforwards of approximately $32,472,637, 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 $5,987,407 and $5,973,200 at December 31, 2007 and 2006, respectively were offset in full by a valuation allowance.  The valuation allowance was increased by $14,207 in the year ended December 31, 2007.



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



|Deferred Tax Assets                                | As of December 31, 2007 | As of December 31, 2006
|-------------------------------------------------- | ----------------------- | -----------------------
|Net operating loss carryforwards                   | $3,708,907              | $3,694,700             
|Stock based compensation                           | 2,278,500               | 2,278,500              
|Net deferred tax assets before valuation allowance | $5,987,407              | $5,973,200             
|Less: Valuation Allowance                          | (5,987,407)             | (5,973,200)            
|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, 2007 | As of December 31, 2006
|---------------------------------------------------- | ----------------------- | -----------------------
|Statutory 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, 2007



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, 2006 because the effect would be antidilutive.



NOTE F  PROPERTY AND EQUIPMENT



The carrying values of fixed assets as of December 31, 2006 and 2007, were as follows:



|                         | 2006      | 2007      
|------------------------ | --------- | ----------
|Equipment                | $ 19, 421 | 19,421    
|Furniture and Fixtures   | -         | -         
|                         | 19,421    | 19,421    
|Accumulated Depreciation | (11,919)  | (18,097)  
|                         | $  7,472  | $    1,324





Depreciation for the periods ended December 31, 2006 and 2007 is $8,086 and $6,178.



NOTE G  ACCRUED EXPENSES



The Company has accrued expenses for years ended 2007 and 2006 of $1,230,463 and $1,104,502, respectively. The amounts for 2007 and 2006 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, 2006 and 2007:



|                                                                                                                                                                                                                              | 2006       | 2007      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ----------
|Note payable to an entity bearing interest at 4%, with principal and interest due on November 30, 2006. The note holder also received a warrant to purchase 129,600 shares of the Companys common stock for $12.50 per share | $2,250,000 | $2,250,000







WELLSTONE FILTERS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDING DECEMBER 31, 2007



NOTE I  RELATED PARTY TRANSACTIONS



Mr. Learned Hand, an officer and director, advanced $24,298 to the Company for expenses, which had not been reimbursed as of December 31, 2005.  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 $39,298.   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, 2004, $20,463 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, 2007



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 $31,248 and $25,387 as of December 31, 2007 and December 31, 2006, 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, 2007.



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, 2007



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, 2007.



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 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.











WELLSTONE FILTERS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDING DECEMBER 31, 2007



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.

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.







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, 2007, 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.























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:



|                                 |           | Exercise    
|-------------------------------- | --------- | ------------
|                                 | Number of | Price       
|                                 | Options   | Per Share   
|Outstanding at December 31, 2004 | 1,273,000 | .17 - .25   
|Granted                          | 180,000   | 0.08325     
|Exercised                        | 128,000   | .08325 - .25
|Outstanding at December 31, 2005 | 1,325,000 | .17 - .25   
|Granted                          | - -       | - -         
|Exercised                        | 24,000    | .08333      
|Lapsed                           | 581,000   | - -         
|Outstanding at December 31, 2006 | 720,000   | 2.50        
|Granted                          | - -       | - -         
|Exercised                        | - -       | - -         
|Outstanding at December 31, 2007 | 720,000   | 2.50