<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark one)

[X]      Annual Report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the fiscal year ended December 31, 2002

[ ]      Transition Report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the transition period from ______________ to
         _________________.

Commission File No. 0-11472

                               DONLAR CORPORATION
              ----------------------------------------------------
              (Exact name (formerly Donlar Biosyntrex Corporation)
                   of registrant as specified in its charter)

           Illinois                                     36-3683785
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                             6502 South Archer Road
                          Bedford Park, Illinois 60501
             ------------------------------------------------------
             (Address of principal executive offices with Zip Code)

                                 (708) 563-9200
             ------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: none

Securities registered pursuant to Section 12(g) of the Act: common stock (no par
value per share)

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 SB contained herein, and if no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State registrant's revenues for its most recent fiscal year:  $3,584,572

The aggregate market value of common stock held by non-affiliates of the
registrant was $2,622,055 on March 31, 2003 based on the most recent prior
trading price on March 18, 2003 of $0.15 per share. The number of shares
outstanding of the registrant's common stock as of March 31, 2003 was
20,793,360.

<PAGE>
                               DONLAR CORPORATION

                         2002 FORM 10-KSB ANNUAL REPORT

                                TABLE OF CONTENTS

                                     Part I.

<Table>
<S>                                                                           <C>
Item 1.  Description of Business ...........................................   1
Item 2.  Description of Properties .........................................  21
Item 3.  Legal Proceedings .................................................  22
Item 4.  Submission of Matters to a Vote of Security Holders ...............  22

                                    Part II.

Item 5.  Market for Common Equity and Related Stockholder Matters ..........  22
Item 6.  Management's Discussion and Analysis or Plan of Operation .........  23
Item 7.  Financial Statements ..............................................  29
Item 8.  Changes or Disagreements with Accountants .........................  29

                                    Part III.

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act .................  29
Item 10. Executive Compensation ............................................  32
Item 11. Security Ownership of Certain Beneficial Owners and Management ....  35
Item 12. Certain Relationships and Related Transactions ....................  38
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..  38
Item 14. Controls and Procedures ...........................................  44
</Table>

                           FORWARD LOOKING STATEMENTS

This report and the documents incorporated by reference in this report contain
forward-looking statements. These forward-looking statements are based on our
current expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and variations
of these words or similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially from those
expressed or forecasted in any forward-looking statements as a result of a
variety of factors, including those set forth in "Description of Business -
Certain Business Considerations and Risk Factors" and elsewhere in, or
incorporated by reference into, this report. We undertake no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.


                                       i
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

THIS ANNUAL REPORT ON FORM 10-KSB IS FOR DONLAR BIOSYNTREX CORPORATION

         Pursuant to Rule 12g-3(g) of the General Regulations under the
Securities Exchange Act of 1934, Donlar Corporation ("Donlar") is filing this
Annual Report on Form 10-KSB for 2002 for Donlar Biosyntrex Corporation
("Biosyntrex"). This Annual Report contains historic financial, market and other
information for Biosyntrex as if Biosyntrex were the filer. However, where
information relates to a period on or after March 5, 2003, the effective date of
the merger of Biosyntrex with and into Donlar, the information relates to
Donlar, the surviving corporation in the merger.

MERGER OF DONLAR BIOSYNTREX CORPORATION AND DONLAR CORPORATION

         The shareholders of Donlar and Biosyntrex, Donlar's majority owned
subsidiary, approved the merger of Biosyntrex with and into Donlar at a
shareholders meeting held at the corporate offices in Bedford Park, IL on
February 27, 2003, with Donlar being the surviving corporation (the "Company").
The merger was effective March 5, 2003. Prior to the merger, Donlar was
principally a holding company for the Biosyntrex common stock that it owned. The
merger has not resulted, and is not expected to result, in any significant
change to the businesses operated by Biosyntrex prior to the merger.

         Pursuant to the agreement and plan of merger, each share of Biosyntrex
common stock (other than shares owned by Donlar) converted into the right to
receive 0.25998836 shares of common stock of Donlar and each share of Donlar's
common and Series A preferred stock issued prior to the merger (other than
shares owned by certain shareholders who agreed to cancellation pursuant to the
restructuring plan described in Biosyntrex's and Donlar's joint information
statement/prospectus) converted into the right to receive 0.48725820 shares of
common stock of Donlar. All outstanding warrants, options or rights of any kind
to acquire any shares of capital stock or other securities of any kind from
Donlar or Biosyntrex were cancelled in the merger except for the Company's
principal lender's right to acquire shares of the Company's common stock upon
conversion of certain loans as described below under "Restructuring Plan." The
shares of common stock of Donlar issued in the merger and related transactions
are publicly traded over-the-counter as "Other OTC" on the so-called "Grey
Market" under the symbol DLRC. A letter of transmittal has been sent to all
shareholders of record of the merged companies with instructions on how to
exchange their shares for newly issued shares of Donlar common stock. Donlar's
common stock is deemed by operation of Rule 12g-3(a) of the Securities Exchange
Act of 1934, as amended, (the "1934 Act") to be registered under Section 12(g)
of the 1934 Act.


                                      -1-
<PAGE>

         In connection with the merger, the Company implemented a restructuring
plan that resulted in the elimination of approximately $25.2 million of the
Company's liabilities and replaced these liabilities with equity securities,
principally senior convertible preferred stock. The restructuring plan is
described in more detail below under "Restructuring Plan."

RESTRUCTURING PLAN

         In early 2001, as a result of anticipated difficulties in servicing
debt and obtaining necessary additional funding, management of Donlar and its
majority owned subsidiary, Biosyntrex, began to consider debt restructuring
alternatives and sources of additional funding. In May 2001, management of the
companies met with Tennessee Farmers Life Insurance Company, Willis Stein &
Partners and Dr. Robert Martin, the companies' three largest creditors, to
discuss a restructuring plan. A restructuring plan was ultimately agreed to that
included the merger of Biosyntrex with and into Donlar and the following
additional terms:

         As part of the restructuring plan, on March 18, 2002, Biosyntrex and
Donlar entered into a Bridge and Consolidated Term Loan Agreement with Tennessee
Farmers Life Insurance Company. Pursuant to the terms of the loan agreement,
Biosyntrex and Donlar obtained a bridge loan facility in the amount of
approximately $2.127 million to be used to refinance certain short term debt,
provide working capital, pay certain accounts payable creditors and pay expenses
of the restructuring and the merger (the "Term C Loan"). Approximately $1.85
million of the Term C Loan was drawn down. In addition, the terms of existing
loans to Donlar in the original principal amount of approximately $17.64 million
were restated and made the joint and several obligations of Donlar and
Biosyntrex in the total amount of $19.2 million reflecting the original amount
of the loans and accrued, unpaid interest thereon (the "Term A Loan" and "Term B
Loan"). Each of the loans is collateralized by substantially all of the assets
of the Company.

         Loans under the Term C Loan bear interest at a rate of eleven percent
per annum with one half of such interest payable on a quarterly basis on the
last business day of March, June, September and December and the other half
payable at maturity on March 18, 2003. As discussed in further detail below
under "Tennessee Farmers Loan Default," Donlar did not make the required payment
under the bridge loan facility on March 18, 2003.

         The restated loans are divided into two loans (the Terms A and B
Loans). The first such loan is in the principal amount of approximately $10.18
million, bears interest at a rate of nine percent per annum


                                      -2-
<PAGE>

until March 18, 2003, at which time such interest is payable, and thereafter
bears interest at eleven percent per annum payable on a quarterly basis on the
last business day of March, June, September and December. The principal balance
of the loan is payable in equal quarterly installments of not less than $222,500
commencing on March 31, 2003 and thereafter on the last business day of March,
June, September and December. Any remaining unpaid principal and interest is
payable on March 31, 2007. The Company did not make the interest payment on
March 18, 2003 or the principal payment on March 31, 2003.

         The second restated loan is in the principal amount of $9.0 million,
bears interest at a rate of one percent per annum, but neither interest nor
principal are payable until the first to occur of one of certain events
described in the loan agreement, the latest of which is March 18, 2005, after
which time the interest that has accrued is payable in full within thirty days
and thereafter is payable quarterly on the last business day of March, June,
September and December together with principal payments of not less than
$222,500. Any remaining unpaid principal and interest is payable on March 31,
2007.

         As part of the restructuring plan, the Company will issue approximately
1.6 million shares of common stock to Tennessee Rural Health Improvement
Association, which will represent approximately 7.8% of the Company's
outstanding common stock and 1.8% on a fully diluted basis and TFIC, Inc., an
affiliate of Tennessee Farmers, will surrender for cancellation, without
issuance to it of any Company common stock as a result of the merger,
approximately 3.85 million shares of Donlar common stock that it owns. The
Company common stock to be issued to Tennessee Rural Health is in addition to
the approximately 1.27 million shares of Company common stock to be issued to
Tennessee Rural Health as a result of the merger in exchange for the
approximately 2.6 million shares of Donlar common stock owned by it. Tennessee
Rural Health is a provider of health insurance and other health benefits. It is
affiliated with Tennessee Farm Bureau Federation which owns approximately 7.5%
of Tennessee Farmers Life Insurance Company.

         The Company made numerous representations, warranties and covenants in
the loan agreement. Among the covenants, the Company agreed to limit its ability
to incur additional indebtedness, make any investments or loans, pay dividends,
purchase, redeem or issue capital stock or sell or encumber assets. Each of the
loans made or restated pursuant to the loan agreement is subject to acceleration
and the application of higher default rates of interest in the event the Company
defaults in the payment of principal or interest when due, breaches any
covenants contained in the loan agreement that are not remedied within five
calendar days or any other specified event of default occurs.

         Each of the loans under the loan agreement is convertible at the option
of the lender at any time prior to repayment into Company common stock. Loans
made under the Term C Loan convert at a rate of one share per $0.29 of
outstanding principal amount of the loans. The restated loans, the Term A and B
Loans, convert at a rate of one share per $0.68 of outstanding principal amount
of the loans. The maximum number of shares of Company common stock issuable upon
conversion of the loans is approximately 34.37 million. The conversion rates are
subject to antidilution protection. The holders of the loans have certain
registration rights with respect to the shares issuable upon conversion.

         As part of the restructuring plan and as permitted by the loan
agreement, the Company has issued 465,000 shares of common stock to four
creditors, Mr. Randy Olshen, Mr. Michael Acton, Mr. Rudy Monnich and Mr. Charles
Brodzki, in exchange for their forgiveness of all debts and claims by them
against the Company.

         Mr. Olshen has a sales contract entitling him to a 20% commission on
sales of certain of Biosyntrex's products. Mr. Olshen agreed to the termination
of that contract in exchange for 80,000 shares of Company common stock.


                                      -3-
<PAGE>

         Mr. Acton has a consulting contract entitling him to a consulting fee
of approximately $123,000. Mr. Acton agreed to exchange the approximately
$94,000 remaining due under that contract for 200,000 shares of Company common
stock.

         Mr. Monnich has an outstanding account payable of approximately $11,000
and Mr. Brodzki has an outstanding note payable of approximately $50,000. They
agreed to forgive these amounts in exchange for 60,000 and 125,000 shares of
Company common stock, respectively.

         As part of the restructuring plan, the Company also reached agreements
with Willis Stein & Partners and its affiliate Star Polymers to (i) exchange
$9.0 million of original principal amount of notes plus accrued interest for
shares of a new series of Company senior convertible preferred stock with a
stated liquidation value of $9.0 million and convertible into approximately
13.23 million shares of Company common stock and (ii) exchange all of the
pre-merger Donlar equity securities held by Willis Stein/Star Polymers, equaling
approximately 20.28 million shares of Donlar common and preferred stock, for 1.0
million shares of newly issued Company common stock. Willis Stein/Star Polymers
are not entitled to receive any other Company common stock as a result of the
merger. The foregoing exchange has been completed.

         The Company also reached agreement with Dr. Robert Martin, a director
of the Company and, immediately prior to the merger, Biosyntrex, to (i) exchange
approximately


                                      -4-
<PAGE>

$9.9 million of original principal amount of notes plus accrued interest for
shares of Company senior convertible preferred stock with a stated liquidation
value of $9.0 million and convertible into approximately 13.23 million shares of
Company common stock, (ii) relinquish rights to receive royalty payments from
the Company equal to one percent of all sales during a ten year period beginning
in 2000 and surrender for cancellation all of the pre-merger Donlar common and
preferred stock held by him, equaling approximately 16.56 million shares, in
exchange for 5.0 million shares of newly issued Company common stock and (iii)
surrender for cancellation options and warrants to purchase over 38 million
shares of pre-merger Donlar common and preferred stock at exercise prices
ranging from $0.01 to $5.50 for a warrant to purchase 3.0 million shares of
Company common stock for $0.68 per share. The foregoing exchange has been
completed. Dr. Martin also received 1,187,940 shares of Company common stock as
a result of the merger in exchange for the 4,569,000 shares of Biosyntrex common
stock that he owned.

         To further eliminate debt from the balance sheet of the Company, the
Company reached agreements with all fifteen holders of approximately $1.9
million of original principal amount of notes issued in 1998 and 2000 to
exchange their notes for shares of Company senior convertible preferred stock in
an aggregate stated liquidation value equal to the total amount of the notes and
convertible into approximately 2.8 million shares of Company common stock. The
foregoing exchange has been completed.

         Donlar and Biosyntrex, as of December 31, 2002, collectively had
approximately $48.92 million of liabilities. The restructuring has eliminated
approximately $25.26 million of liabilities, substituting for it approximately
$20 million of senior convertible preferred stock and 465,000 shares of common
stock.

         As a result of the foregoing agreements, 12.7 million shares of newly
issued Company common stock, representing 61.1% on an outstanding basis and
13.7% on a fully diluted basis, is being issued to the holders of preferred and
common stock of Biosyntrex (other than Donlar) and the holders of preferred and
common stock of Donlar (other than TFIC, Inc., Dr. Martin, Willis Stein/Star
Polymers, who are treated as specified above, and excluding the approximately
1.6 million additional shares to be issued to Tennessee Rural Health) in
exchange for the pre-merger Donlar and Biosyntrex stock that they owned. The
12.7 million shares of newly issued Company common stock has been allocated
between the former Donlar and Biosyntrex shareholders on the basis of the
respective ownership of Biosyntrex common stock by Donlar on the one hand, and
all other shareholders of Biosyntrex, on the other hand.


                                      -5-
<PAGE>

         Accordingly, 68% of the 12.7 million shares of newly issued Company
common stock, or 8.7 million shares, is being allocated to the pre-merger Donlar
shareholders (other than TFIC, Inc., Dr. Martin, Willis Stein/Star Polymers with
respect to their Donlar shares, who are treated as specified above, and
excluding the approximately 1.6 million additional shares to be issued to
Tennessee Rural Health) and 32%, or 4.0 million shares, is being allocated to
the pre-merger Biosyntrex shareholders (other than Donlar, whose shares were
cancelled). As a result, and taking into account the cancellation of certain
shares as described above, each former holder of Donlar preferred and common
stock (other than the holders of cancelled shares) is entitled to receive
approximately 0.49 shares of newly issued Company common stock for each share of
pre-merger Donlar stock the holder owned, each former holder of Biosyntrex
common and Series B preferred stock (other than Donlar) is entitled to receive
0.26 shares of newly issued Company common stock for each share of Biosyntrex
stock the holder owned and each former holder of Biosyntrex Series A preferred
stock is entitled to receive one share of newly issued Company common stock for
each originally issued share of Series A preferred stock the holder owned
(excluding dividend shares). As a result of the merger, the former shareholders
of Donlar (other than holders of cancelled shares and excluding the
approximately 1.6 million additional shares to be issued to Tennessee Rural
Health) will own 41.61% (9.36% on a fully diluted basis) of the Donlar common
stock, and the former shareholders of Biosyntrex (other than Donlar) will own
19.48% (4.38% on a fully diluted basis) of such common stock.

TENNESSEE FARMERS LOAN DEFAULT

         The Company did not make a required payment to Tennessee Farmers on
March 18, 2003 under the March 18, 2002 Bridge and Consolidated Term Loan
Agreement. The payment due on March 18, 2003 included $916,572 of accrued but
unpaid interest on the "Term A Loan," $116,546 of accrued but unpaid interest on
the "Term C Loan" and the principal amount of the "Term C Loan" in the amount of
approximately $1.79 million. In addition, a $42,540 commitment fee for the "Term
A Loan" was due on March 18, 2003 and was not paid by the Company. Tennessee
Farmers has informed the Company that it does not intend to exercise its right
under the loan agreement to convert the loans into Company common stock or
extend the terms of the loans. As a result of the payment default under the loan
agreement, Tennessee Farmers has the right to declare all amounts owning under
the loan agreement to be immediately due and payable. The total amount of
principal and accrued interest outstanding under the loans as of March 18, 2003
plus the commitment fee was $23,099,010. The Company and Tennessee Farmers
entered into a forbearance agreement as of March 18, 2003 providing that
Tennessee Farmers will forbear until May 2,


                                      -6-
<PAGE>

2003 from exercising any of its rights and remedies against the Company and its
property, subject to the terms and conditions of the forbearance agreement.

         Because the Company has not obtained an extension from Tennessee
Farmers of the repayment date for the loans or Tennessee Farmers agreement to
convert the loans to Company common stock, the Company is actively seeking to
sell the Company or to find a source of private equity financing or a merger or
other strategic partner.

PRODUCTS

         From 1997 until November of 2000, Biosyntrex was primarily engaged in
the distribution and sale of nutritional and nutraceutical products.
Biosyntrex's principal products were biologic nutraceutical supplements and
sports and nutrition bars. As a result of transactions completed in 2000 and in
early 2001, all of the operational activities and businesses of Donlar were
transferred to Biosyntrex. Donlar's businesses, discussed below, were in the
performance chemicals and agricultural products markets. The former Donlar
businesses became Biosyntrex's principal businesses, Biosyntrex began phasing
out its nutritional and nutraceutical business and Donlar became a holding
company for the Biosyntrex common stock that it owned. As a result of the merger
of Biosyntrex into Donlar that was completed in March 2003, all of the
businesses that were operated by Biosyntrex now reside in Donlar, the surviving
corporation in the merger.

         During 2002, Biosyntrex's marketing, sales, distribution and
administrative operations were conducted from Donlar's headquarters in Bedford
Park, Illinois, and its manufacturing operations were conducted from Donlar's
Peru, Illinois facility.

         Biosyntrex's, and, as a result of the merger, now Donlar's, principal
businesses are conducted through two product lines:

         o    BioPolymers (performance chemicals markets); and

         o    AgriSciences (agricultural products markets).

         The principal business of the Company in 2002 was the production and
marketing of products initially developed by Donlar. Historically, Donlar began
as a research and development company to exploit the possibilities of
developing, manufacturing and marketing a new family of biodegradable polymers
known as thermal polyaspartates (TPA). Although there was no market at the time
of Donlar's inception for a new so-called "green chemistry," Donlar concluded
that a market would develop if the technology and products


                                      -7-
<PAGE>

were available. It also determined that the development of this technology and
market would also require substantial capital.

         It took about ten years and the use of extensive capital to reach the
point of commercialization whereby the Company's products and markets are
protected by a global intellectual property portfolio of patents. The products
are manufactured in a modern plant capable of producing high quality products at
low cost and are sold in a marketplace where the Company's TPA products can
compete on a cost/performance basis with conventional chemicals.

         TPA is non-hazardous, non-toxic, hypoallergenic, environmentally
friendly and biodegradable. These proteins are used in a broad range of
industrial, agricultural and consumer markets. Over 180 global patents protect
the Company's technology, products and marketplace. The U.S. Government
recognized the environmental benefits of this technology in 1996 when it awarded
Donlar the first Presidential Green Challenge Chemistry Award.

         TPA products are beta proteins (biopolymers) manufactured from the
common biological amino acid, L-aspartic acid. TPA is a highly active biopolymer
that is completely soluble in water. By varying the manufacturing method,
different properties can be built into the biopolymer, tailoring it to a
specific use. Products are formulated and packaged into both powder and liquid
forms.

         In the performance chemicals markets, the Company offers products
utilizing TPA that are believed to be environmentally superior to
non-biodegradable and environmentally non-friendly chemicals used in a wide
variety of industrial and consumer products. These products are used to prevent
mineral scale and metal corrosion in industrial processes using high volumes of
water, such as offshore oil and gas production and industrial cooling water. TPA
can also be used as a biodegradable antiredeposition agent for detergents.
Antiredeposition agents are those detergent ingredients that prevent dirt
particles from re-attaching to the fabric in the wash cycle once the fabric has
been cleaned.

         In agriculture, the Company's products are believed to significantly
increase the effectiveness of fertilizers by allowing the components of
fertilizers to be more available to the plant. The Company also holds patents
under which it is developing products that will have the effect of dramatically
reducing the use of herbicides and insecticides. The Company believes that since
herbicides and insecticides are made more efficacious when mixed with TPA,
significantly less herbicide and insecticide may need to be applied. The
products thereby benefit growers and farmers through increased yields and
reduced crop inputs. The products may also benefit the environment through a
reduction in ground water contamination. Additionally, TPA biodegrades
harmlessly in the soil after having served its function.


                                      -8-
<PAGE>

REGULATORY MATTERS

         The marketing of certain of the Company's products is subject to
regulatory oversight in certain jurisdictions. In each of the fifty states, the
respective departments of agriculture have various requirements for the
registration of different types of agricultural products to be used within that
state. The Company's products do not require registration in 26 states. In the
remaining 24 states, the purpose for registration is to assure consumers/growers
that the products can be used safely and that they have demonstrated a variety
of benefits such as protection against insects or root growth enhancement. The
state departments of agriculture that require registration publish guidelines
for the submission of several different kinds of data in order to make a
determination for registration. These data include laboratory, green house,
university and field test results, as well as toxicity, environmental and
general safety information. Each state has its own requirements which range from
minimal information coupled with a small fee to extensive data sets that cover
several years of experience and may be very expensive to comply with. The review
process may include several resubmissions of updated data or other kinds of
information and may take years. States may also give limited registration to
products that cover only one or more kinds of plants.

         The Company's products have been registered in 20 of the 24 states
requiring registration, and the company is pursuing registration in the four
other states, South Dakota, Alabama, Mississippi and Pennsylvania. When the
department of agriculture of a specific state registers the products, those
products may then be sold with required information that is printed on the
product's label such as the plants/crops that the product can be used on,
instructions on how to safely apply the product, maximum quantities to use and a
variety of safety and toxicity handling precautions.

         The Company's products are also subject to approval by foreign
regulatory authorities, but there are no federal regulatory approvals required
for distribution. A loss of a product registration in a key U.S. state would
significantly limit the Company's ability to market its crop nutrition products.

EMPLOYEES

         As of December 31, 2002, the Company had 14 full-time employees.


                                      -9-
<PAGE>

CERTAIN BUSINESS CONSIDERATIONS AND RISK FACTORS

         The short and long-term success of the Company is subject to certain
risks, many of which are substantial in nature. Shareholders and prospective
shareholders in the Company should consider carefully the following factors, in
addition to other information contained in this report.

         The Company Has A History Of Operating Losses And May Never Become
Profitable. Both Biosyntrex and Donlar have incurred significant net operating
losses since their formations. As of December 31, 2002, Biosyntrex had a
shareholders' deficit of $39.4 million, a loss of approximately $8.3 million and
an accumulated deficit of $104.4 million. The factors contributing to these
significant operating losses include:

         o    marketing expenditures;

         o    acquisition expenses and costs;

         o    expansion of research and development programs;

         o    costs associated with pre-clinical studies and clinical trials;

         o    nutritional studies;

         o    regulatory compliance requirements;

         o    trials for other products under development; and

         o    implementation of programs to market products ultimately approved
              for distribution.

         The Company's future success and ability to achieve profitability
depends upon its ability to successfully operate its businesses. The Company may
never achieve significant revenues or profitable operations.

         The Company's Recurring Losses Raise Doubt About The Company's Ability
To Continue As A Going Concern. The consolidated financial statements of the
Company have been prepared on the assumption that the Company will continue as a
going concern. The Company's independent public accountants have issued their
report dated March 21, 2003 that includes an explanatory paragraph stating that
the Company's recurring losses and default on $21 million of loans, among other
things, raise substantial doubt about its ability to continue as a going
concern. The Company's historical sales are limited and it has been necessary to
rely upon financing from debt and the sale of equity securities to sustain
operations.


                                      -10-
<PAGE>

         If The Company Cannot Satisfy Its Substantial Debt Obligations, It Will
Negatively Effect The Value Of Its Stock. The Company is an obligor under a loan
agreement which covers a bridge loan facility totaling up to $2.127 million (of
which $1.85 million has been drawn down) and two prior loans the terms of which
were amended and restated in the loan agreement in the amount of approximately
$19.18 million. Each of the loans made or restated pursuant to the loan
agreement is subject to acceleration and the application of higher default rates
of interest in the event the Company defaults in the payment of principal or
interest when due, breaches any covenants contained in the loan agreement that
are not remedied within five calendar days or any other specified event of
default occurs. The Company did not pay principal and interest in the amount of
approximately $2.02 million on the loans made under the bridge loan facility
that was due and payable on March 18, 2003. In addition, the Company did not pay
approximately $1.34 million that was due in March 2003 on the restated loans.
These payment defaults triggered the Company's lender's acceleration rights and
the applicable default rates of interest. Donlar and Tennessee Farmers entered
into a forbearance agreement effective March 18, 2003 providing that Tennessee
Farmers will forbear until May 2, 2003 from exercising any of its rights and
remedies against Donlar and its property, subject to the terms and conditions of
the forbearance agreement.

         Because the Company has not obtained an extension from Tennessee
Farmers of the repayment date for the loans or Tennessee Farmers agreement to
convert the loans to Company common stock, the Company is actively seeking to
sell the Company or to find a source of private equity financing or a merger or
other strategic partner. If the Company is unsuccessful in this effort and
Tennessee Farmers accelerates its loans, the Company will likely be forced to
seek the protection of the bankruptcy laws.

         The Restructuring Plan Involves Substantial Dilution To Shareholders.
Prior to the merger of Biosyntrex with and into Donlar, Donlar owned 68% of the
outstanding Biosyntrex common stock and all other shareholders own 32% of the
outstanding Biosyntrex common stock. As part of the restructuring plan, 5.0
million, 1.0 million, approximately 1.6 million and 465,000 shares of the
Company's common stock has or will be issued to Dr. Martin, Willis Stein &
Partners, Tennessee Rural Health and collectively Messrs. Randy Olshen, Michael
Acton, Rudy Monnich and Charles Brodzki (each creditors of the companies),
respectively. In addition, a warrant has been issued to Dr. Martin for 3.0
million shares of the Company's common stock, shares of the Company's
convertible preferred stock which are convertible into approximately 29.3
million shares of the Company's common stock has or will be issued to Dr.
Martin, Willis Stein/Star Polymers, and the 1998 and 2000 note holders,
Tennessee Farmers Life Insurance Company obtained notes in the aggregate amount
of in excess of $21.0 million that are convertible into approximately 34.4
million shares of the


                                      -11-
<PAGE>

Company's common stock and 5.0 million shares of the Company's common stock have
been reserved for issuance under the equity incentive plan. As a result of the
foregoing transactions and completion of the merger, the pre-merger Donlar
shareholders (other than Dr. Martin, Willis Stein/Star Polymers, TFIC, Inc. and
the additional shares being issued to Tennessee Rural Health) will own
approximately 41.6% and the pre-merger Biosyntrex shareholders (other than
Donlar) will own approximately 19.5% of the Company's outstanding common stock.
On a fully diluted basis, assuming conversion or exercise of all notes,
preferred equity, warrants and other securities of the Company that are
convertible into or exercisable for shares of common stock of the Company, the
pre-merger Donlar shareholders (excluding Dr. Martin, Willis Stein/Star Polymers
and the additional 1.6 million shares being issued to Tennessee Rural Health)
will own approximately 9.4%, the pre-merger shareholders of Biosyntrex (other
than Donlar) will own approximately 4.4%, Tennessee Farmers will own
approximately 38.3%, Willis Stein/Star Polymers will own approximately 15.4% and
Dr. Martin will own approximately 22.9% of the Company's common stock (excluding
the shares he will receive upon conversion of the 4,569,000 shares of Biosyntrex
stock that he owns; including those shares, Dr. Martin will on a fully diluted
basis own approximately 24.3%). The maximum combined effect of the issuance of
the shares of common stock upon the exercise of Dr. Martin's warrant, the
conversion of the convertible preferred stock and the conversion of the notes
would be to increase the number of shares of the Company's common stock
outstanding by approximately 67 million shares.

         If The Company Sells Additional Equity Securities, It May Result In
Additional Shareholder Dilution. The Company needs to sell additional equity
securities, enter into a strategic transaction or obtain other forms of
financing to fund its operations and refinance its debt. Absent such a
transaction or additional financing, it will be necessary to postpone or cancel
some or all of the Company's planned business activities which could adversely
affect the Company's ability to conduct its business operations, generate future
revenues and introduce new products. The failure by the Company to refinance
debt will have a adverse affect on the Company's business and financial position
including the possibility of foreclosure by the Company's principal lender on
substantially all of the Company's assets and bankruptcy. Additional financing
may not be available, or, if available, may not be available on acceptable terms
or in required amounts. If additional funds are raised by issuing shares of
common stock or securities convertible into common stock, those sales or
conversion could result in further and possibly substantial dilution of the
Company's shareholders. Substantial dilution may make it more difficult for
investors to sell their shares or may result in a lower price of the Company's
securities.


                                      -12-
<PAGE>

         The Trading Price Of The Company's Common Stock Is Likely To Be
Volatile. The trading price of Biosyntrex's common stock has been, and the
trading price of the Company's common stock is likely to be, subject to wide
fluctuations in response to the quarter to quarter variations in operating
results, material announcements by the Company or its competitors, governmental
regulatory action, conditions in the industries in which they operate, or other
events or factors, many of which are beyond the Company's control. From March
31, 2000 to February 28, 2003, the trading or high and low bid and ask price of
Biosyntrex's common stock has fluctuated from a high of $8.60 and a low of
$0.01. Since the effective date of the merger, March 5, 2003, the Company's
common stock has been trading in the Grey Market. Reported trading prices have
fluctuated from a high of $0.15 and a low of $0.01. The Company's operating
results in future quarters may be below the expectations of investors. In such
event, the price of the common stock would likely decline, perhaps
substantially. In addition, the stock market has historically experienced
extreme price and volume fluctuations.

         The Company Is Unlikely To Pay Dividends. The Company has never
declared or paid cash dividends on its common stock and it is not anticipated
that any cash dividends will be declared on the Company's common stock in the
foreseeable future.

         If The Company Is Not Successful In Commercializing Its Products, It
Will Not Be Able To Generate Enough Income To Cover Its Operating Expenses And
Debt Service. Donlar was founded in 1990 to develop, manufacture and market an
entirely new protein technology with the potential to replace a generation of
older, non-biodegradable and potentially toxic chemicals. This new family of
biopolymers, know as thermal polyaspartates or TPA, is non-hazardous, non-toxic,
hypoallergenic, environmentally friendly and biodegradable. These proteins are
used in a broad range of industrial, agricultural and consumer markets. TPA
products are beta proteins (biopolymers) manufactured from the common biological
amino acid, L-aspartic acid. TPA is a highly active biopolymer that is
completely soluble in water. By varying the manufacturing method, different
properties can be built into the biopolymer, tailoring it to a specific use.
Products are formulated and packaged into both powder and liquid forms.

         Until 1996, Donlar was engaged principally in research and development
activities, and from 1996 through 2000, market development activities related to
several products utilizing TPA. These market development activities have been
continued by Biosyntrex since its acquisition of Donlar's businesses and have
been continued by the Company since the merger of Biosyntrex with and into
Donlar. While marketing of the TPA products has commenced in the crop nutrition
and oil field service areas, the products have not achieved full
commercialization, and product applications are in various stages of
commercialization.


                                      -13-
<PAGE>

As a result, the TPA products have been sold only in limited quantities and
there can be no assurance that a significant market will develop for such
products with respect to any of their potential applications. The Company's crop
nutrition and performance chemical products have been used commercially for only
a short period of time. The Company's potential customers in the agricultural,
performance chemicals, and other fields in which the Company's products have
potential applications require predictable and consistent performance. Although
certain products incorporating the TPA technology have passed product
performance and reliability testing in both laboratory and commercial use, there
can be no assurance that they will continue to do so consistently in the future,
will meet future customer performance standards or will offer sufficient price
or performance advantages required to achieve commercial success. The Company's
failure to develop, manufacture and commercialize TPA products on a timely and
cost effective basis will prevent it from generating enough revenues to cover
its operating expenses and debt service.

         If The Company's Agricultural Customers Do Not Accept Its Products, It
Will Negatively Affect Revenues. The Company's future success in agriculture
depends largely on acceptance of the TPA technology by agricultural customers
and the ability of the Company to educate those customers about the proper
methods and rates of application required to obtain the levels of increased
yield that the TPA products are capable of generating. Traditionally,
agricultural end users have been slow to adopt new technologies until their
consistent effectiveness and economic value have been evidenced over several
growing seasons. Successful introduction of the Company's products will also
depend to a large extent on recommendations of prior users. Although the
Company's research data have shown that its crop nutrition products result in
increased yields, the level of such increase and, thus, the economic return from
use of such products, depends on the method and rate of application, the type of
crop and prevailing weather and soil conditions. There can be no assurance that
the Company will be able to demonstrate that the purchase of its crop nutrition
products will be consistently cost effective for the intended users.

         If The Company Cannot Protect Its Proprietary Information, It May Lead
To Increased Competition And Expenses And Decreased Revenues. The Company's
success depends, in part, on its ability to obtain patent protection for the
thermal polyaspartates processes, materials, and methods of use, to preserve its
trade secrets, and to operate without infringing the patent or other proprietary
rights of others. Donlar has been granted 50 United States patents. Each time
that Donlar filed a patent application in the United States, it filed similar
applications in foreign jurisdictions that Donlar believed were important to its
future business and that afford reasonable protection to intellectual property
rights. Donlar has been granted 137 foreign patents, including patents granted
by the European Community, South Africa, Israel,


                                      -14-
<PAGE>

Japan, Mexico, Russia and Egypt, and currently has numerous patent applications
pending in such jurisdictions. The patent applications filed by Donlar may not
result in issued patents and the scope and breadth of any claims allowed in any
patents issued to Donlar may not exclude competitors or provide competitive
advantages to Donlar. In addition, any patents issued to Donlar may not be held
valid if subsequently challenged, others may claim rights in the patents and
other proprietary technology owned by Donlar, and others may have developed or
will develop similar products or technologies without violating any of Donlar's
proprietary rights.

         The Company's inability to obtain patent protection, preserve its trade
secrets or operate without infringing the proprietary rights of others, as well
as its loss of any rights to technology that it now has or acquires in the
future, could have a negative impact on its ability to maintain or increase
sales revenues. Litigation, which could result in substantial cost to, and
diversion of effort by, the Company, may be necessary to enforce patents owned
by the Company, to defend the Company against infringement claims made by
others, or to determine the ownership, scope or validity of the proprietary
rights of the Company and others. An adverse outcome in any such litigation
could subject the Company to significant liabilities to third parties, require
it to seek licenses from third parties, and/or require it to cease using certain
technology, any of which could increase its operating costs or negatively impact
its ability to maintain or increase sales.

         The Company may also become involved in interference proceedings
declared by the United States Patent and Trademark Office in connection with one
or more of the Company's patents or patent applications to determine priority of
invention. Any such proceeding could result in substantial cost to the Company,
as well as a possible adverse decision as to priority of invention of the patent
or patent application involved. In addition, the Company may become involved in
reissue or reexamination proceedings in the patent office in connection with the
scope or validity of its patents. Any such proceeding could have a material
adverse effect on its business, results of operations and financial condition,
and an adverse outcome in such proceeding could result in a reduction of the
scope of the claims of any such patents or such patents being declared invalid.
In addition, from time to time, to protect its competitive position, the Company
may initiate reexamination proceedings in the patent office with respect to
patents owned by others. Such proceedings could result in substantial cost to,
and diversion of effort by, the Company, and an adverse decision in such
proceedings could increase its operating costs or negatively impact its ability
to maintain or increase sales revenues.

         The Company relies on trade secrets and proprietary know how in the
conduct of the its operations. The Company uses employee and third party
confidentiality and non


                                      -15-
<PAGE>

disclosure agreements to protect such trade secrets and know how. The obligation
to maintain the confidentiality of such trade secrets or proprietary information
may be breached by employees, consultants, advisors or others and the Company
may not have adequate remedies for any breach. In addition, the trade secrets or
proprietary know how may otherwise become known or be independently developed or
discovered by third parties.

         The Company May Not Be Able To Maintain Or Increase Sales Revenues Due
To Competition. While the Company is not aware of any technology directly
competitive with its TPA products in the agricultural field, there are numerous
types of natural ingredients such as humates, alginates, heprins and other amino
acid extract products that act as fertilizers, plant growth stimulants or immune
system aids for which claims have been made regarding their ability to increase
plant yields. These products are marketed by numerous regional distributors and
sold to dealers, who, in turn, sell to farmers and growers. In the performance
chemicals field there is substantial competition by other chemical products,
principally water soluble polymers and similar products manufactured by
companies such as Rohm & Haas, BASF AG, Goodrich and others. Bayer AG produces
limited quantities of a technical grade, highly branched form of a similar type
product using production methods that are outside the scope of the Company's
production patents. This product has applications that may be outside the scope
of the Company's methods of use patents. All of these larger producers of
chemical products have substantially greater financial and technical resources,
larger research and development staffs, and greater manufacturing and marketing
capabilities than the Company. There can be no assurance that the Company's
performance chemicals products will compete effectively against products
produced by such competitors.


                                      -16-
<PAGE>

         The Company's Limited Manufacturing Capacity and Experience May Have A
Material Adverse Effect On Its Results Of Operations. The Company's success will
depend, in part, on its ability to manufacture its products in significant
quantities, with consistent quality, at acceptable costs and on a timely basis.
The Company has limited experience in high volume manufacturing.

         If The Company's Operation Of Its Manufacturing Facility Is Materially
Disrupted, It May Result In Significant Increased Costs And Reduced Revenues.
The Peru, Illinois plant is the Company's sole manufacturing facility and the
only facility capable of producing their products in quantities sufficient to
meet its projected needs. While the Company maintains business interruption
insurance in the amount of $15 million, any material disruption in the Peru
plant's operations, whether due to fire, natural disaster or otherwise, and
whether or not covered by that insurance, could significantly increase operating
costs and reduce revenues.

         Failure By The Company To Obtain Or Maintain Regulatory Approval For
The Distribution Of Its Products In Key U.S. States Would Significantly Limit
Its Ability To Market Its Crop Nutrition Products. In each of the fifty states,
the respective departments of agriculture have various requirements for the
registration of different types of agricultural products to be used within that
state. The Company's products do not require registration in 26 states. In the
remaining 24 states, the purpose for registration is to assure consumers/growers
that the products can be used safely and that they have demonstrated a variety
of benefits such as protection against insects or root growth enhancement. The
state departments of agriculture that require registration publish guide lines
for the submission of several different kinds of data in order to make a
determination for registration. These data include laboratory, green house,
university and field test results, as well as toxicity, environmental and
general safety information. Each state has its own requirements which range from
minimal information coupled with a small fee to extensive data sets that cover
several years of experience and may be very expensive to comply with. The review
process may include several resubmissions of updated data or other kinds of
information and may take years. States may also give limited registration to
products that cover only one or more kinds of plants.

         The Company's products have been registered in 20 of the 24 states
requiring registration, and the Company is pursuing registration in the four
other states, South Dakota, Alabama, Mississippi and Pennsylvania. When the
department of agriculture of a specific state registers the products, those
products may then be sold with required information that is printed on the
product's label such as the plants/crops that the product can be used on,
instructions on how to safely apply the product, maximum quantities to use and a
variety of safety and toxicity handling precautions.


                                      -17-
<PAGE>

         The Company's products are also subject to approval by foreign
regulatory authorities, but there are no federal regulatory approvals required
for distribution. A loss of a product registration in a key U.S. state would
significantly limit the Company's ability to market its crop nutrition products.

         If The Technology Relied Upon By The Company Fails To Remain
Competitive, It Will Not Be Able To Increase Or Maintain Sales Revenues.
Although the Company has developed 50 patents covering manufacturing processes,
composition and methods of use, all of the Company's products are based on its
patented TPA technology. The earliest patent for the TPA technology was issued
in 1991 and will expire in 2008 and relates to the initial manufacturing
process. The latest patent was issued in 2002 and, under the new patent law,
will expire in 2022. The fields in which the Company intends to sell its
products are highly competitive and intensive research and development is always
being undertaken by governmental entities, educational institutions and private
enterprises with respect to products having practical effects such as those of
certain of the Company's products. Competitive products may be introduced by
third parties or competing materials based on different or new technologies may
become commercially available. The Company's competitors may succeed in
developing or marketing materials, technologies or products that exhibit
superior performance or are more commercially desirable or more cost effective
than those developed and marketed by the Company. Any of the foregoing could
have a negative affect on the Company's ability to maintain or increase sales
revenues without improving its products, developing new products or reducing
costs.

         The Company's Limited Experience In Marketing TPA Products May Have A
Negative Impact On Its Ability To Increase Sales Revenues. While the Company's
sales force has experience in marketing products to agricultural and performance
chemicals end users, the Company has limited experience in marketing and selling
the thermal polyaspartates products. To market its products effectively, the
Company will be required to develop an expanded marketing and sales force that
can effectively demonstrate the advantages of, and recommended methods and rates
of application for, the TPA product applications. The crop nutrition products
will also rely heavily on the availability of recommendations of prior users. In
the performance chemicals field, the Company currently sells certain of its TPA
products to companies that typically blend its TPA products as an ingredient
with their own products and then sell the resulting blended product to other
companies. The Company's future success will depend in part on the continued
relationships with distributors, its ability to enter into other similar
arrangements, the continuing interest of the existing distributors in


                                      -18-
<PAGE>

current and potential product applications and, eventually, the distributors'
success in marketing and willingness to purchase the Company's products.

         Currently, the Company has no formal purchasing arrangements or
contracts with customers or distributors. The ordering process for the Company's
products begins with the customer submitting a purchase order to the Company's
customer service department. The purchase order states the terms of the
purchase, such as price, quantities, freight terms and shipping dates. When the
purchase order is approved by management, it is confirmed back to the customer,
and the order is filled.

         Loss of Key Personnel By The Company Would Have A Material Adverse
Effect On Its Business Operations. The Company's principal executive officers,
Larry Koskan and Robert Pietrangelo, have an average of over 25 years of
collective experience in chemicals research, development and sales. The loss of
the services of either one of these executive officers or other key personnel,
or the failure of the Company to attract and retain other skilled and
experienced personnel on acceptable terms, would have a material adverse effect
on the combined company's business operations. There is no key person insurance
on either of these executive officers. Both of these executive officers have
employment agreements with the Company. Mr. Koskan's contract expires on July 1,
2003 and Mr. Pietrangelo's expires on September 7, 2003, unless extended.

         Because The Company Has A Relatively Small Group Of Customers, The Loss
Of Any Single Customer May Have A Material Adverse Effect On Its Results Of
Operations, Financial Condition And Business. The Company began commercial sales
of its products in 1999. The Company sells its crop nutrition products primarily
to agricultural distributors and its performance chemicals products to chemical
service companies. While the Company expects to significantly increase its sales
in these product lines and to focus its sales efforts on a more specifically
targeted group of agriculture and chemical distributors, sales may continue to
be concentrated among a relatively small group of customers, though not
necessarily those that represented the largest portions of the Company's sales
in the past. In 2002, the Company's top three customers based on net sales
revenues, Industri Kapital, Baker Hughes Incorporated and Clariant
International, Ltd., Switzerland accounted for 29.9%, 22.6% and 4.4% of its net
sales revenues, respectively. The loss of any one of these customers would have
a material adverse effect on the Company, its results of operations and its
financial condition.

         Because The Company's Crop Nutrition Business Is Seasonal, Its Results
Of Operations May Vary Significantly From Quarter To Quarter. Demand for the
Company's crop nutrition products can be expected to be significantly affected
by agricultural conditions, which can be


                                      -19-
<PAGE>

unpredictable and volatile as a result of a number of factors. The most
important factors are weather conditions and patterns, current and projected
grain stocks and prices, and governmental agricultural policies, including those
that directly or indirectly influence the number of acres planted, the level of
grain stocks, the mix of crops planted, and crop prices. Because of its
dependence on agricultural markets, the crop nutrition business is seasonal and
the Company's operating results may vary significantly from quarter to quarter.

         New Environmental Or Other Regulations Could Increase The Company's
Operating Costs. Like other manufacturers, the Company is subject to a broad
range of Federal, state, local and foreign laws and requirements, including
those governing discharges in the air and water, the handling and disposal of
solid and hazardous substances and wastes, the remediation of contamination
associated with the release of hazardous substances, work place safety and equal
employment opportunities. The Company has made expenditures to comply with such
laws and requirements. The Company believes, based on information currently
available to management, that it is in compliance with applicable environmental
and other legal requirements and that the Company will not require material
capital expenditures to maintain compliance with such requirements in the
foreseeable future.

         Governmental authorities have the power to enforce compliance with such
laws and regulations, and violators may be subject to penalties, injunctions or
both. Third parties may also have the right to enforce compliance with such laws
and regulations. As the Company develops new formulations for thermal
polyaspartates products and combines TPA with other products, such as herbicides
and insecticides, those products may become subject to additional review and
approval requirements governing the sale and use of its products. The Company's
manufacturing processes do not currently result in the generation of hazardous
wastes. This may not always be the case and material costs or liabilities may be
incurred by the Company in the future as a result of the manufacturing
operations. It is also possible that other developments, such as additional or
increasingly strict requirements of laws and regulations of these types, or
enforcement policies thereunder, could significantly increase the Company's
costs of operations.

         Personal Injury Or Property Damage Claims Relating To The Company's
Products Could Have A Material Adverse Effect On Its Results of Operations And
Financial Condition. Products sold by the Company may expose it to potential
liability for personal injury or property damage claims relating to the use of
those products, particularly if used in a manner not in conformity with the
Company's instructions. Although product liability claims historically have not
had a material adverse effect on the Company in the past, the Company may be
subject to or incur liability for such claims in the future. The Company
maintains product liability insurance in amounts that management deems
commercially reasonable; however, a


                                      -20-
<PAGE>

significant claim that is uninsured or partially insured could result in loss or
deferral of revenues, diversion of resources, or damage to the Company's
reputation, any of which could have a material adverse effect on the Company's
business, operating results, and financial condition.

         If The Merger and Restructuring Constitute A Change Of Control Under
The Change Of Control Agreements With The Two Principal Executive Officers,
Substantial Benefits Could Be Payable Under Such Agreements At Some Time In The
Future. The Company has change of control agreements with its two principal
executive officers, Larry Koskan and Robert Pietrangelo, which provide that if
there is a change of control of Donlar and the executive officer is subsequently
terminated without cause or resigns for good reason within the applicable time
periods provided in the agreements, the executive officer would be entitled to
substantial severance benefits. Under the agreements, the approval of the merger
of Biosyntrex and Donlar by the Donlar shareholders may be deemed to have
constituted a change of control. Mr. Koskan has waived any rights he may have
under his agreement as a result of the merger. Mr. Pietrangelo has declined
Donlar's request for a similar waiver. In the event the merger constitutes a
change of control and Mr. Pietrangelo is terminated without cause or resigns for
good reason within the applicable time periods provided for in his change of
control agreement, based on his current salary, Mr. Pietrangelo would be
entitled to benefits currently valued by the Company at approximately $670,000.


ITEM 2. DESCRIPTION OF PROPERTIES

         The Company constructed a TPA manufacturing facility in Peru, Illinois
on a 40 acre parcel purchased by the Company in 1996. This 50,000 square foot
facility currently contains one chemical reactor. The facility is large enough
to accommodate additional reactors and may be expanded modularly without
substantial engineering or technical expenses or delays. The Peru facility is
strategically located near barge, rail and road transportation facilities. The
Company conducts its manufacturing operations in the Peru, Illinois plant. The
Peru facility is subject to a mortgage under a Bridge and Consolidated Term Loan
Agreement with Tennessee Farmers Life Insurance Company.

         The Company's administrative offices and laboratory are in an
approximately 6,700 square foot office and laboratory space in Bedford Park,
Illinois which is leased from the Illinois Institute of Technology. The lease is
currently on a month-to-month basis. The monthly lease obligation is $9,000.


                                      -21-
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         None.

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

         None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Biosyntrex's common stock was listed on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") SmallCap Market under the
primary symbol "BIME." On November 27, 2000, Biosyntrex's common stock was
delisted from the Nasdaq SmallCap Market and was subsequently quoted on the NASD
over-the-counter bulletin board under the symbol "DBSY.OB" As a result of the
merger of Biosyntrex and Donlar, which was effective on March 5, 2003,
Biosyntrex's common stock was converted into the right to receive newly issued
shares of common stock of Donlar, the surviving corporation in the merger. The
Donlar common stock issued in the merger trades over-the-counter on the "Grey
Market" under the symbol "DLRC." Grey Market trades are reported to the NASD so
that investors can track price and volume amounts; however, bids and offers are
not collected in a central spot so "best execution" of orders is difficult. The
following table contains information about the range of high and low bid prices
for the Biosyntrex common stock for each full quarterly period within the two
most recent fiscal years, based upon quotations on the NASD over-the-counter
bulletin board (and giving effect to all stock splits occurring during such
period or prior to the issuance of this report):

<Table>
<Caption>
            Quarter Ended                           High(1)       Low(1)
            -------------                           -------      -------
<S>                                                 <C>          <C>
         December 31, 2002                          $  0.14      $  0.06
         September 30, 2002                         $  0.15      $  0.09
         June 30, 2002                              $  0.27      $  0.10
         March 31, 2002                             $  0.50      $  0.18

         December 31, 2001                          $  0.57      $  0.05
         September 30, 2001                         $  0.50      $  0.05
         June 30, 2001                              $  1.42      $  0.46
         March 31, 2001                             $  1.50      $  0.75
</Table>


                                      -22-
<PAGE>

----------

(1)      The source of these high and low prices was the NASD over-the-counter
         bulletin board. The high represents the best (highest) price a
         prospective buyer is prepared to pay that day and the low represents
         the best (lowest) price at which someone who owns the security offers
         to sell it.

         The market price of the common stock is subject to significant
fluctuations in response to variations in the Company's quarterly operating
results, general trends in the market for the Company's products and product
candidates, and other factors, over many of which the Company has little or no
control. In addition, broad market fluctuations, as well as general economic,
business and political conditions, may adversely affect the market for the
Company's common stock, regardless of the Company's actual or projected
performance.

         As a result of the merger, each share of Biosyntrex common stock was
converted into the right to receive 0.26 shares of Donlar common stock. From
March 5, 2003 through March 31, 2003, the Donlar common stock traded on the
"Grey Market" at prices ranging from a high of $0.15 to a low of $0.01 per
share.

         On March 31, 2003, there were approximately 1,590 holders of record of
the Company's common stock.

         As of March 31, 2003, the Company had one series of preferred stock
outstanding, that being its Senior Convertible Preferred Stock. There were
19,905,500 shares of Senior Convertible Preferred Stock outstanding convertible
into 29,272,794 shares of common stock.


DIVIDENDS

         The Company has never declared or paid cash dividends on its common
stock and does not anticipate paying any cash dividend on its common stock in
the foreseeable future.


RECENT SALES OF UNREGISTERED EQUITY SECURITIES

         None during the period covered by this report that have not been
previously reported.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion and analysis of Donlar's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the


                                      -23-
<PAGE>

notes thereto appearing elsewhere in this report. See Item 7. - "Financial
Statements."

OVERVIEW

         From 1997 until November of 2000, Donlar's former subsidiary,
Biosyntrex, was primarily engaged in the distribution and sale of nutritional
and nutraceutical products. Biosyntrex's principal products were biologic
nutraceutical supplements and sports and nutrition bars. Donlar's businesses,
discussed below, were the development and sale of products in the performance
chemicals and agricultural markets. As a result of the transactions that were
completed in 2000 and in early 2001, all of the operational activities and
businesses of Donlar were transferred to Biosyntrex and Donlar became a holding
company for the Biosyntrex common stock that it owned. The former Donlar
businesses became Biosyntrex's principal businesses and Biosyntrex began phasing
out its nutritional and nutraceutical business. As a result of the merger of
Donlar and Biosyntrex in March 2003, all of Biosyntrex's businesses are now
conducted by Donlar. Donlar's marketing, sales, distribution and administrative
operations are conducted from Donlar's headquarters in Bedford Park, Illinois,
and its manufacturing operations are conducted from Donlar's Peru, Illinois
facility.

         Donlar's, and formerly Biosyntrex's, businesses are conducted through
two product lines:

         o    BioPolymers (performance chemicals business); and

         o    AgriSciences (agricultural business).

         The Company's current business is the production and marketing of
products initially developed by Donlar. Historically, Donlar began as a research
and development company to exploit the possibilities of developing,
manufacturing and marketing a new family of biodegradable polymers known as
thermal polyaspartates (TPA). Although there was no market at the time of
Donlar's inception for a new so-called "green chemistry," Donlar concluded that
a market would develop if the technology and products were available. It also
determined that the development of this technology and market would also require
substantial capital.

         It took about ten years and the use of extensive capital to reach the
point of commercialization whereby the Company's products and markets are
protected by a global intellectual property portfolio of patents. The products
are manufactured in a modern plant


                                      -24-
<PAGE>

capable of producing high quality products at low cost and are sold in a
marketplace where the Company's TPA products can compete on a cost/performance
basis with conventional chemicals.

         As a result of this historical development, the Company's revenues from
the sale of its products increased from approximately $1.4 million in 2000 to
$2.4 million in 2001 to $3.6 million in 2002. Commercialization of the products
began approximately three years ago focusing on the building of three market's
in oil production, agriculture and detergents.

CRITICAL ACCOUNTING POLICIES

         INVENTORIES

         Inventories are stated at the lower of cost or market value, using the
first-in, first-out method.

         PROPERTY, PLANT AND EQUIPMENT

         Property and equipment are stated at cost less accumulated
depreciation. Depreciation and amortization are determined using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 30 years. Expenditures for maintenance and repairs are expensed when
incurred and betterments are capitalized. Gains and losses on sale of property,
plant and equipment are reflected in operations.

         The Company assesses the recoverability of its property, plant and
equipment whenever adverse events or changes in circumstances or business
climate indicate that expected future undiscounted cash flows or their fair
value may not be sufficient to support recorded cash flows or their fair value
may not be sufficient to support recorded property, plant and equipment. If
impairment exists, the carrying amount of property, plant and equipment will be
reduced to net realizable value.

         EARNINGS PER COMMON, COMMON EQUIVALENT AND REVERSE STOCK SPLITS

         The computation of basic earnings per common share is based on the
weighted average number of common shares outstanding during the year.

         The computation of diluted earnings per common share is based on the
weighted average number of common shares outstanding during the year plus common
stock equivalents, which would arise from the exercise of stock options and
warrants outstanding


                                      -25-
<PAGE>

using the treasury stock method and the average market price per share during
the year. Common stock equivalents are not included in the diluted earnings per
share calculation when their effect is anti-dilutive.

         Preferred stock dividends and the impact of beneficial conversion
premiums increase the net loss attributable to common stockholders for purposes
of computing the net loss per common share.

         At December 31, 2002, there were 39,573 shares of Biosyntrex preferred
stock outstanding, convertible into 235 shares of common stock.

         REVENUE RECOGNITION

         In accordance with SAB 101, sales of product are recognized upon
shipment of the product, which is when title transfers to the customer. The
Company maintains reserves for potential losses on receivables from its
customers, and such losses have generally not exceeded management's
expectations. Revenue by product type for the years ended December 31, 2002 and
2001 was: Agricultural - $425,870 and $238,935; Biopolymer - $2,173,284 and
$1,812,331; and Nutriceutical - $234,089 and $301,568.

         RESEARCH, AND DEVELOPMENT  EXPENSES

         Research, and development expenses include amounts paid to third-party
and related-party consultants for marketing, investment banking, and other
business advisory services, as well as costs related to the Company's
nutraceutical product research and development activities. Costs associated with
research and development of new products are expensed as incurred.


                                      -26-
<PAGE>

YEAR-END RESULTS OF OPERATIONS

         During the year ended December 31, 2002, Donlar had revenues of
$3,584,572, compared to $2,352,834 for the year ended December 31, 2001. The
increase in revenues was due to growth in the BioPolymers product line from both
new and existing customers and new products. Approximately $80,000 is related to
new customers, approximately $11,000 is related to new products and
approximately $1,162,000 is related to additional business from the established
customer base. These increases are offset by a slight decrease in sales of
agricultural products.

         Cost of revenue was $2,940,010 in 2002, compared to cost of revenue of
$2,639,022 in 2001. This increase was due to the increased sales in 2002, offset
by decreased staff in the manufacturing area, as well as other cost reductions
at the manufacturing facility in Peru, Illinois for plant supplies, plant
repairs and equipment rental.

         Research and development cost decreased from $821,414 in 2001 to
$537,395 in 2002 due to a reduction in research projects undertaken and a
related reduction in staffing levels for research.

         Selling, general and administrative expenses decreased from $7,054,783
in 2001 to $2,175,717 in 2002. This decrease in 2002 was the result of
approximately $3.2 million of expense attributable to common stock and warrants
issued to consultants for services in 2001, a write down of goodwill in 2001 of
approximately $1.2 million, a $60,000 reduction in travel expenses and a
$417,000 reduction in professional fees.

         Other expense decreased from $13,302,928 in 2001 to $4,986,990 in 2002.
This decrease is attributable to a 2001 loss on the repayment of a shareholder
receivable, a 2001 write down of investments to market value and a reduction in
interest expense from $7.1 million in 2001 to $5.1 million in 2002. This
decrease in interest expense was due to a decrease in the amortization of debt
discount.

         As a result of the foregoing, and as offset by the acceleration of debt
discount amortization related to the debt restructuring, the net loss decreased
from $21,465,313 in 2001 to $8,267,660 in 2002.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, the Company has been unable to finance its operations
from cash flows from operating activities. As a result of the recent agreement
with certain creditors to restructure principal and interest payments, the
Company was able to pay current operating


                                      -27-
<PAGE>

expenses in 2002. As of December 31, 2002, the Company had cash of $102,388. In
March of 2002, the Company obtained additional bridge financing in connection
with the restructuring of its debt, but has no other plans for its continued
financing. The Company did not repay its bridge financing or make other required
payments on its restructured debt in March 2003. The payments due Tennessee
Farmers in March 2003 consisted of $916,572 in interest and $222,500 in
principal due on the restated loans and $188,771 in interest, $42,540 in
commitment fee and $1,849,217 in principal due on the bridge financing. The
total of the payments due in March 2003 was $3,019,600.

         As a result of the Company's payment default, the entire amount of the
Tennessee Farmers debt in the amount of $23,099,010, including accrued interest,
is now due and payable. The Company and Tennessee Farmers entered into a
forbearance agreement effective as of March 18, 2003 providing that Tennessee
Farmers will forbear until May 2, 2003 from exercising any of its rights and
remedies against the Company and its property, subject to the terms and
conditions of the forbearance agreement.

         Because the Company has not obtained an extension from Tennessee
Farmers of the repayment date for the loans or Tennessee Farmers agreement to
convert the loans to Company common stock, the Company is actively seeking to
sell the Company or to find a source of private equity financing or a merger or
other strategic partner.

         The Company reduced its cash flows used in operations from $1,773,455
in 2001 to $1,134,309 in 2002, due to the continued effort to reduce costs and
the increased revenue during 2002. The Company has been able to decrease its
inventory levels by approximately $912,000 from 2001. In addition, it has
increased its accrued liabilities by approximately $959,000, primarily as a
result of not paying interest in cash and recording it as accrued interest.

         Cash flows used in investing activities decreased to $68,393 in 2002
from $100,329 during 2001. This is due to the Company limiting its capital
expenditures during 2002.

         Cash flows provided by financing activities increased from $1,001,095
during 2001 to $1,301,294 during 2002. This increase is due to the Tennessee
Farmers bridge loan.

         The audited consolidated financial statements of the Company for 2002
have been prepared on the assumption that it will continue as a going concern.
The Company's independent public accountants have issued their report dated
March 21, 2003, that includes an explanatory paragraph stating that the
Company's recurring losses and default on the Tennessee Farmers' loan, among
other things, raise substantial doubt about the Company's ability to continue as
a going concern.


                                      -28-
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

         Index to Consolidated Financial Statements:

<Table>
<S>                                                                        <C>
           Report of Independent Certified Public Accountants ..........   F-1

           Consolidated Balance Sheet as of December 31, 2002 ..........   F-2

           Consolidated Statements of Operations for the Years Ended
           December 31, 2002 and 2001 ..................................   F-3

           Consolidated Statement of Shareholders' Deficit for the
           Years Ended December 31, 2002 and 2001 ......................   F-4

           Consolidated Statements of Cash Flows for the Years Ended
           December 31, 2002 and 2001 ..................................   F-5

           Notes to Consolidated Financial Statements ..................   F-7
</Table>

ITEM 8. CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

         None.

                                    PART III

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

         The following table lists the persons currently serving as executive
officers and directors of the Company.


<Table>
<Caption>
    NAME                        AGE   POSITION
    ----                        ---   --------
<S>                             <C>   <C>
    Larry P. Koskan             60    Chief Executive Officer, President and
                                      Chairman of the Board, November 2000 to
                                      present; Chief Financial Officer, February
                                      2003 to present

    Joel H. Lurquin             36    Controller and Treasurer, November 2000 to
                                      present
</Table>


                                      -29-
<PAGE>

<Table>
<Caption>
    NAME                        AGE   POSITION
    ----                        ---   --------
<S>                             <C>   <C>
    Robert P. Pietrangelo       62    Vice President, November 2000 to present;
                                      Chief Operating Officer, July 2001 to
                                      present

    Edward T. McCormick(1)(2)   45    Director

    Dr. Robert G. Martin(2)     61    Director

    Dean R. Kleckner(1)(2)      71    Director
</Table>

(1)  Member of Audit Committee. Mr. McCormick is chairman of the committee.

(2)  Member of Compensation Committee. Dr. Martin is chairman of the committee.

         Larry P. Koskan, Donlar's founder, has served as a director, President
and Chief Executive Officer of Donlar since its inception in 1990, and as
Chairman of the Board of Donlar since 1992. Mr. Koskan held the same positions
at Biosyntrex from November 2000 until the merger of Biosyntrex and Donlar in
March 2003. Since February 2003, Mr. Koskan has served as Chief Financial
Officer. Prior to founding Donlar, Mr. Koskan held several research and
development and manufacturing positions during a 23 year career with Nalco
Chemical Company. As Corporate Research Development Director for Nalco, his
duties included establishing large-volume market opportunities for innovative,
specialty polymers. He also served as Vice President of Research and Development
of Nalco's Water and Waste Treatment Division. Mr. Koskan holds a B.S. in
Education and Chemistry from the University of Kansas and an M.S. in Organic
Chemistry from Loyola University of Chicago and is the inventor or co-inventor
of over 20 U.S. patents.

         Robert P. Pietrangelo joined Donlar in April 1997 as its Vice
President, Sales and Marketing of the Performance Chemicals Division and in
October 1997 was named President of that division. Mr. Pietrangelo assumed the
same positions with Biosyntrex in November 2000. In July of 2001, he was
appointed Chief Operating Officer of Donlar and Biosyntrex. Prior to joining
Donlar, Mr. Pietrangelo held various management positions in the performance
chemicals industry, including marketing manager with CPS Chemical (1989 to 1996)
and Strategic Business Unit Manager with Rohm & Haas Company (1984 to 1989). Mr.
Pietrangelo has a B.A. in Chemistry and Mathematics from LaSalle University and
an M.B.A. in Marketing and Finance from Drexel University.

         Joel H. Lurquin joined Donlar in 1995 as Controller. Mr. Lurquin
assumed the same position with Biosyntrex in November 2000. Prior to joining
Donlar, Mr. Lurquin was a senior auditor with Bansley and Kiener, Certified
Public Accountants. He has a B.S. in Accounting from DePaul University.


                                      -30-
<PAGE>

         Edward T. McCormick joined the board of directors in April 2003. Mr.
McCormick is a partner with the audit and accounting firm of Mulcahy Pauritsch
Salvador & Co., Ltd. He joined the firm in 1982 and was named partner in 1986.
He currently is an audit partner with the firm. Mr. McCormick is a certified
public accountant in the State of Illinois, a graduate of Illinois State
University, a member of the American Institute of Certified Public Accountants
and the Illinois CPA Society.

         Dr. Robert G. Martin has served as a director of Donlar since June 1992
and as a director of Biosyntrex from November 2000 until the merger of Donlar
and Biosyntrex in March 2003. Dr. Martin, a cataract surgeon, has been a
principal of Carolina Eye Associates, a 15-office ophthalmic practice, since
1977. He is Chairman of the Board of the Society for Excellence in Eye Care and
past president of the American Board of Eye Surgery. Dr. Martin holds a B.S. in
Chemistry and an M.D. from the University of North Carolina at Chapel Hill.

         Dean R. Kleckner has served as a director of Donlar since November 3,
2000 and as a director of Biosyntrex from November 2000 until the merger of
Donlar and Biosyntrex in March 2003. He has been a President of the American
Farm Bureau Federation since 1986. Mr. Kleckner also operates a 350-acre corn,
soybean and hog farm in Iowa.

         No family relationships exist between or among any of the Company's
officers and directors.

BOARD OF DIRECTORS COMMITTEES

         The Board of Directors has established a Compensation Committee and an
Audit Committee.

Compensation Committee

         The Compensation Committee makes recommendations to the Board of
Directors with respect to the compensation of management employees and
administers plans and programs relating to employee benefits, incentives and
compensation. The Compensation Committee also determines the persons to receive
options under the Company's stock option plans and the number of options to be
granted.

Audit Committee

         The Audit Committee makes recommendations to the Board of Directors
with respect to the engagement of the Company's independent public accountants
and reviews the scope and effect of the audit engagement.


                                      -31-
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of the Company's common stock and
other equity securities. Officers, directors and greater than 10% shareholders
are required by SEC Regulations to furnish the Company with copies of all
Section 16(a) reports they file. Based solely upon a review of the copies of
such reports furnished to the Company, the Company believes that there was
compliance for the year ended December 31, 2002 with all Section 16(a) filing
requirements applicable to the Company's greater than 10% beneficial owners.

ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth the annual and long-term compensation in
fiscal years 2002, 2001 and 2000 for the Company's Chief Executive Officer and
Chief Operating Officer. The Company's current Chief Executive Officer and Chief
Operating Officer held those same positions with Biosyntrex prior to the
effective date of the merger, March 5, 2003. The information in the table is
based on these officers' compensation from Biosyntrex.

                           Summary Compensation Table

<Table>
<Caption>
                                               Annual Compensation                          Long Term Compensation
                                                                                               Awards                    Payouts
           (a)                 (b)         (c)        (d)         (e)            (f)            (g)        (h)            (i)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Securities
                                                                 Other        Restricted    Underlying
                                                                Annual      Stock Options/      LTIP                    All Other
Name and Principal position    Year       Salary     Bonus   Compensation       Awards      SARs(#)(3)   Payouts($)  Compensation($)
---------------------------    ----      --------    -----   ------------   --------------  ----------   ----------  ---------------
<S>                            <C>       <C>         <C>     <C>            <C>             <C>          <C>         <C>
Larry P. Koskan                2002      $235,998     -0-         -0-            -0-             -0-         -0-            -0-
  President and Chief          2001      $159,623     -0-         -0-            -0-             -0-         -0-            -0-
  Executive Officer            2000(1)   $ 30,833     -0-         -0-            -0-             -0-         -0-            -0-

Robert P. Pietrangelo          2002      $212,952     -0-         -0-            -0-             -0-         -0-            -0-
   Vice President and          2001      $161,367     -0-         -0-            -0-         500,000         -0-            -0-
   Chief Operating
   Officer

Michael G. Acton               2000(2)   $100,000     -0-         -0-            -0-             -0-         -0-        $20,000(4)
   Chief Executive
   Officer
</Table>

(1)  Mr. Koskan replaced Mr. Acton on November 3, 2000 as Chief Executive
     Officer.

(2)  Ended September 30th of each of the fiscal years indicated.

(3)  All options, warrants and other rights to obtain common stock of Donlar or
     Biosyntrex issued or granted prior to the merger were cancelled in the
     merger.

(4)  Represents fair market value of 8,000 shares of common stock of Biosyntrex
     granted to Mr. Acton on December 22, 1999.


                                      -32-
<PAGE>

STOCK PLANS

         As of December 31, 2002, 1,325,000 shares of Biosyntrex's common stock
were subject to options and issuable upon exercises of options granted under the
2001 Equity Incentive Plan. All options to purchase Biosyntrex common stock were
cancelled as part of the merger between Biosyntrex and Donlar that was effective
on March 5, 2003.

OPTION GRANTS IN FISCAL YEAR 2002

         There were no options granted during 2002.

         As part of the merger, all options previously granted were cancelled.
It is anticipated that new options will be issued by the Company to replace
cancelled options.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE

         The following table sets forth information with respect to the exercise
of stock options by each named executive officer during the fiscal year ended
December 31, 2002, as well as the aggregate number and value of unexercised
options held by such officers on December 31, 2002:

                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year-end Option Value

<Table>
<Caption>
                                                                  Number of securities       Value of Unexercised
                                                                  Underlying                 In-the-Money
                                                                  Unexercised options        Options at December
                                                                  At December 31, 2002(#)    31, 2002($)
                        Shares Acquired                           Exercisable/               Exercisable/
Name                    On Exercises(#)(1)   Value Realized($)    Unexercisable              Unexercisable(2)
----                    ------------------   -----------------    -----------------------    --------------------
<S>                     <C>                  <C>                  <C>                        <C>
Robert P. Pietrangelo           -0-                -0-                 -0-/500,000               $-0-/$70,000
</Table>

     (1)  All share amounts and exercise prices were adjusted to reflect all
          stock splits prior to the issuance of this report.

     (2)  At December 31, 2002, the average of the closing bid and ask prices
          for Biosyntrex's common stock was $0.10.


                                      -33-
<PAGE>

COMPENSATION OF DIRECTORS

         Members of the Board of Directors who are not directly or indirectly
employed by the Company have their expenses reimbursed in connection with
attending meetings of the Board of Directors. In addition, during 2001 options
were granted to Dean Kleckner and Robert Copper to purchase 50,000 and 100,000
shares of Biosyntrex common stock, respectively, at an exercise price of $0.20,
for their service on the board. These options were cancelled as part of the
merger transaction.

EMPLOYMENT CONTRACTS

         Biosyntrex entered into an employment agreement dated September 7,
2001, with Robert P. Pietrangelo to serve as chief operating officer of
Biosyntrex. The employment agreement is for a two year term, automatically
renewing for an additional three years if sales exceed expenses before the
conclusion of the second year. Under the employment agreement, Mr. Pietrangelo
is paid an annual base salary of $160,000, subject to annual increases at the
discretion of the board of directors, and is entitled to receive for 2001 (i) an
option to purchase 500,000 shares of Biosyntrex's common stock at $0.20 per
share vesting in equal annual increments over five years and (ii) an option to
purchase an additional 500,000 shares of Biosyntrex's common stock at $0.20 per
share immediately vested in full if Biosyntrex achieves $2.0 million in sales in
2001 and Biosyntrex's sales exceed expenses by December 31, 2001. The options
issued to Mr. Pietrangelo were cancelled as part of the merger transaction. The
condition for the issuance of the additional option was not satisfied. All
salary increases have been approved by the Board of Directors.

         Donlar entered into an employment agreement dated July 1, 1996, with
Larry Koskan to serve as President and Chief Executive Officer of Donlar. Mr.
Koskan's employment by the Company has continued under the terms of the Donlar
employment agreement. The employment agreement was for an initial five year term
and has been extended for an additional two years. Under the employment
agreement, Mr. Koskan is paid an annual base salary of $185,000 which amount may
be increased from time to time by the Compensation Committee of the Board of
Directors. Mr. Koskan is further entitled to full compensation during any period
or periods of disability not exceeding two years in the aggregate and a term
life insurance policy in the face amount of $500,000 throughout the term of his
employment. If Mr. Koskan's employment is terminated involuntarily as defined in


                                      -34-
<PAGE>

his employment agreement, then Mr. Koskan is entitled to severance pay in a lump
sum amount equal to his base compensation for the twenty-four months immediately
preceding the termination. All salary increases have been approved by the Board
of Directors.

         The foregoing employment agreements are continued in effect with the
Company subsequent to the merger of Biosyntrex and Donlar.

REPORT ON REPRICINGS OF OPTIONS/SARS

         None.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS

         To the Company's knowledge, the following table sets forth information
regarding ownership of the Company's outstanding common stock on March 31, 2003
by beneficial owners of more than 5% of the outstanding shares of common stock.

<Table>
<Caption>
                                              AMOUNT AND
                                               NATURE OF
                                             COMMON STOCK
                                              BENEFICIAL
  NAME AND ADDRESS OF BENEFICIAL OWNER       OWNERSHIP(1)       PERCENT OF CLASS
  ------------------------------------       -------------      ----------------
<S>                                          <C>                <C>
Tennessee Farmers Life Insurance Company     37,268,544(2)           67.56%
816 South Garden Street,
Columbia, Tennessee

Dr. Robert Martin                            22,423,234(3)           57.45%
c/o Carolina Eye Associates,
2170 Midland Road,
South Pines, North Carolina

Willis Stein & Partners, L.P.                14,235,294(4)           41.83%
227 West Monroe, Suite 4300,
Chicago, Illinois

Larry P. Koskan                               2,301,821(5)           11.1%
6502 South Archer Avenue,
Bedford Park, Illinois
</Table>

(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date on which beneficial
ownership is calculated, upon the exercise of options or warrants or otherwise.
Each beneficial owner's percentage of ownership is determined by assuming that
options, warrants, or other rights to acquire shares, held by such person (but
not those held by any other person) and exercisable within


                                      -35-
<PAGE>

sixty (60) days from the date hereof have been fully exercised. Percentages are
calculated based on 20,793,360 shares of common stock outstanding as of March
31, 2003 (as adjusted for shares deemed to be beneficially owned by such
shareholder).

(2) Includes 1,626,308 shares of common stock to be issued to Tennessee Rural
Health Improvement Association as part of the restructuring, 1,271,749 shares of
common stock issuable to Tennessee Rural Health Improvement Association in the
merger in exchange for the 2,610,012 shares of Donlar common stock that it owned
and the 34,370,487 shares of common stock issuable to Tennessee Farmers Life
Insurance Company upon conversion of its loans to the Company.

(3) Includes 1,187,940 shares issuable to Dr. Martin in the merger in exchange
for the 4,569,000 shares of Biosyntrex common stock that he owned and 5,000,000
shares, a warrant to purchase 3,000,000 shares and the Senior Convertible
Preferred Stock (convertible into 13,235,294 shares of common stock), each
issued to Dr. Martin as part of the restructuring.

(4) Includes 1,000,000 shares of common stock to be issued to Willis Stein &
Partners, L.P. and a total of 9,000,000 shares of Senior Convertible Preferred
Stock (convertible into 13,235,294 shares of common stock) to be issued to
Willis Stein & Partners, L.P. and its affiliate, Star Polymers, L.L.C., as part
of the restructuring.

(5) Represents 2,301,821 shares of common stock. This does not include: 1,772
shares of common stock held in the name of Brett Koskan; 974,516 shares of
common stock held in the name of the Koskan Children Trust; 4,619 shares of
common stock held in the name of Christine R. Fenlon; 6,568 shares of common
stock held in the name of Elizabeth P. Koskan; 1,407,556 shares of common stock
held in the name of Jerilyn Koskan; 5,594 shares of common stock held in the
name of Kayleigh Koskan; 5,594 shares of common stock held in the name of
Margaret K. Brody; 1,772 shares of common stock held in the name of Mikayla
Koskan-Brody; and 4,619 shares of common stock held in the name of Patrick D.
Koskan.

         To the Company's knowledge, the following table sets forth information
regarding beneficial ownership of the Company's outstanding equity securities on
March 31, 2003 by all directors, each of the "named executive officers" and all
directors and "named executive officers" as a group.

                                      -36-
<PAGE>
<Table>
<Caption>
                                                                    AMOUNT AND
                                                                     NATURE OF
                                 AMOUNT AND                           SENIOR
                                  NATURE OF                         CONVERTIBLE
                                COMMON STOCK                     PREFERRED STOCK
NAME AND ADDRESS OF              BENEFICIAL           PERCENT       BENEFICIAL          PERCENT
 BENEFICIAL OWNER               OWNERSHIP(1)          OF CLASS     OWNERSHIP(1)         OF CLASS
-------------------             ------------          --------   ---------------        --------
<S>                             <C>                   <C>        <C>                    <C>
Dr. Robert Martin               22,423,234(3)          57.45%      9,000,000(3)          45.21%

Larry P. Koskan                  2,301,821(5)           11.1%             --                --

Dean R. Kleckner                     2,600                 *              --                --

Robert Pietrangelo                   8,569                 *              --                --

Edward T. McCormick                     --                --              --                --

Joel Lurquin                            --                --              --                --

All Directors and Executive     24,736,224              65.0%      9,000,000             45.21%
Officers as a Group(6)
</Table>

(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date on which beneficial
ownership is calculated, upon the exercise of options or warrants or otherwise.
Each beneficial owner's percentage of ownership is determined by assuming that
options, warrants, or other rights to acquire shares, held by such person (but
not those held by any other person) and exercisable within sixty (60) days from
the date hereof have been fully exercised. Percentages are calculated based on
20,793,360 shares of common stock and 19,905,500 shares of Senior Convertible
Preferred Stock outstanding as of March 31, 2003 (as adjusted for shares deemed
to be beneficially owned by such shareholder).

(2) Includes 1,187,940 shares issuable to Dr. Martin in the merger in exchange
for the 4,569,000 shares of Biosyntrex common stock that he owned and 5,000,000
shares, a warrant to purchase 3,000,000 shares and the Senior Convertible
Preferred Stock (convertible into 13,235,294 shares of common stock) each issued
to Dr. Martin as part of the restructuring.

(4) Includes 1,000,000 shares of common stock and 9,000,000 shares of Senior
Convertible Preferred Stock (convertible into 13, 235,294 shares of common
stock) issued to Willis Stein & Partners, L.P. or its affiliate, Star Polymers,
L.L.C. as part of the restructuring.

(5) Represents 2,301,821 shares of common stock. This does not include: 1,772
shares of common stock held in the name of Brett Koskan; 974,516 shares of
common stock held in the name of the Koskan Children Trust; 4,619 shares of
common stock held in the name of Christine R. Fenlon; 6,568 shares of common
stock held in the name of Elizabeth P. Koskan; 1,407,556 shares of common stock
held in the name of Jerilyn Koskan; 5,594 shares of common stock held in the
name of Kayleigh Koskan; 5,594 shares of common stock held in the name of
Margaret K. Brody; 1,772 shares of common stock held in the name of Mikayla
Koskan-Brody; and 4,619 shares of common stock held in the name of Patrick D.
Koskan.

* Less than 1%


                                      -37-
<PAGE>

The following table sets forth securities authorized for issuance under equity
compensation plans that have been previously approved by security holders and
not previously approved by security holders.

                            Equity Compensation Plans

<Table>
<Caption>
                                                                                   NUMBER OF SECURITIES
                                NUMBER OF SECURITIES TO BE    WEIGHTED-AVERAGE     REMAINING AVAILABLE
                                 ISSUED UPON EXERCISE OF      EXERCISE PRICE OF    FOR FUTURE ISSUANCE
                                   OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,       UNDER EQUITY
      PLAN CATEGORY                WARRANTS AND RIGHTS       WARRANTS AND RIGHTS    COMPENSATION PLANS
      -------------             --------------------------  --------------------   --------------------
<S>                             <C>                         <C>                    <C>
EQUITY COMPENSATION PLANS               1,874,509                   1.37                 125,491
APPROVED BY SECURITY HOLDERS

EQUITY COMPENSATION PLANS NOT              N/A                       N/A                   N/A
APPROVED BY SECURITY HOLDERS

TOTAL                                   1,874,509                   1.37                 125,491
</Table>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Tennessee Farmers Life Insurance Company, Willis Stein & Partners,
L.P., Star Polymers, L.L.C. and Dr. Robert Martin entered into a series of
agreements with the Company as part of the restructuring plan. The restructuring
plan and the agreements are described above under "Item 1. Description of
Business. Restructuring Plan."

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Documents filed as part of this Form 10-KSB:

             1. Financial Statements (included in Part II, Item 7)

                Report of Independent Certified Public Accountants

                Consolidated Balance Sheet as of December 31, 2002

                Consolidated Statements of Operations for the Years Ended
                December 31, 2002 and 2001

                Consolidated Statement of Shareholders' Deficit for the Years
                Ended December 31, 2002 and 2001

                Consolidated Statements of Cash Flows for the Years Ended
                December 31, 2002 and 2001

                Notes to Consolidated Financial Statements


                                      -38-
<PAGE>

             2. Financial Statement Schedules: Financial statement schedules
                have been omitted because they are not required or are not
                applicable, or because the required information is shown in the
                financial statements or notes thereto.

             3. Exhibits: The following Exhibits are filed with this Form
                10-KSB:

                Exhibit No.       Description of Exhibit

                  2.1$$$          Stock Purchase Agreement, dated as of August
                                  7, 2000, between Biosyntrex Systems, Inc. and
                                  Donlar Corporation.

                  2.2$$$          Asset Purchase Agreement, dated as of August
                                  7, 2000, between Biosyntrex Systems, Inc. and
                                  Donlar Corporation.

                  3.1+            Amended and Restated Articles of Incorporation

                  3.2+            Amended and Restated Bylaws (adopted March 22,
                                  1996)

                  3.3+            Certificate and Statement of Determination of
                                  Rights and Preferences of Series A 10%
                                  Cumulative Convertible Preferred Stock

                  3.4+            Certificate and Statement of Determination of
                                  Rights and Preferences of Series B 10%
                                  Cumulative Convertible Non-Voting Preferred
                                  Stock

                  3.5+            Certificate and Statement of Determination of
                                  Rights and Preferences of Series D 8%
                                  Cumulative Convertible Non-Voting Stock

                  3.6+            Certificate of Amendment to the Designation of
                                  Rights and Preferences Related to Series A 10%
                                  Cumulative Convertible Preferred Stock

                  3.7+            Certificate and Statement of Determination of
                                  Rights and Preferences of Series C 8%
                                  Cumulative Convertible Non-Voting Preferred
                                  Stock


                                      -39-
<PAGE>

                  3.8++           Certificate and Statement of Determination of
                                  Rights and Preferences of Series E, 8%
                                  Cumulative Convertible Preferred Stock

                  3.9++           Certificate of Amendment of Determination of
                                  Rights and Preferences of Series F, 8%
                                  Cumulative Convertible Preferred Stock

                  3.10++          Amendment to Determination of Rights and
                                  Preferences of Series F Preferred

                  3.11++          Certificate and Statement of Determination of
                                  Rights and Preferences of Series G, 8%
                                  Cumulative Preferred Stock

                  3.12++          Amendment to Designation of Rights and
                                  Preferences of Series G Preferred

                  3.13++          Certificate and Statement of Determination of
                                  Rights and Preferences of the Series J, 8%
                                  Cumulative Convertible Preferred Stock

                  4.1**           Form of Common Stock Certificate

                  4.3**           Form of Series A 10% Cumulative Convertible
                                  Preferred Stock Certificate

                  4.4*            Form of Series B 10% Cumulative Convertible
                                  Preferred Stock Certificate

                  4.5#            Form of Series D 8% Cumulative Convertible
                                  Preferred Stock Certificate

                  4.6+            Form of Series C 8% Cumulative Convertible
                                  Preferred Stock Certificate

                  4.7++           Form of Series E Certificate

                  4.8++           Form of Series F Certificate

                  4.9++           Form of Series G Amendment


                                      -40-
<PAGE>

                  4.10++          Form of Series J Certificate

                  4.11%%          Bridge and Consolidated Term Loan Agreement,
                                  dated March 18, 2002, among Biosyntrex, Donlar
                                  and Tennessee Farmers Life Insurance Company

                  4.12            Forbearance Agreement, dated as of March 18,
                                  2003, between Donlar and Tennessee Farmers
                                  Life Insurance Company

                  10.43*          Office Lease Agreement

                  10.50*          Thomas Q. Garvey, III Indemnification
                                  Agreement

                  10.51*          St. Luke's-Roosevelt Hospital Center Statement
                                  of Agreement

                  10.52*          Michael G. Acton Agreement

                  10.53*          Frank A. Eldredge Agreement

                  10.54*          James Dalton Agreement

                  10.60#          Amended License Agreement with PTI

                  10.77#          1995 Stock Incentive Plan

                  10.80#          Incentive Stock Option Agreement with Michael
                                  G. Acton (May 4, 1995)

                  10.82#          Amended 1995 Stock Incentive Plan

                  10.83#          Non-Qualified Stock Option Agreement with
                                  Christopher D. Illick

                  10.84#          Schedule Identifying Other Non-Qualified Stock
                                  Option Agreements

                  10.85#          Incentive Stock Option Agreement with Frank A.
                                  Eldredge

                  10.86#          Schedule Identifying other Incentive Stock
                                  option Agreements

                  10.95+          Lease Agreement with Young Electric Sign
                                  company


                                      -41-
<PAGE>

                  10.97+          Form of Registration Rights Agreement (Series
                                  C Preferred)

                  10.98+          Form of Investor Questionnaire and
                                  Subscription Agreement (Series C Preferred)

                  10.108+         License Agreement with Biomed Patent
                                  Development LLC

                  10.112+         First Amendment to Amended License Agreement
                                  with PTI

                  10.113++        Contract with ML Industries

                  10.114++        Contract with Medical Foods, Inc.

                  10.115++        Contract with Harrogate Marketing LLC

                  10.116++        Rockwood Purchase Agreement, as amended

                  10.117+++       Marketing and Consulting Services Agreement
                                  between Biosyntrex Systems, Inc., and
                                  Harrogate Marketing, L.L.C. dated as of August
                                  14, 1999

                  10.118$         Contract with Amerifit Nutrition, Inc.

                  10.119$         License Agreement with Amerifit Nutrition,
                                  Inc.

                  10.120$         Contract with ICN Pharmaceutical

                  10.121$         Schedules to ICN Pharmaceutical Contract

                  10.122$         Non-Competition Agreement with Amerifit
                                  Nutrition, Inc.

                  10.123$$        1999 Stock Option and Incentive Plan of
                                  Biosyntrex effective as of January 1, 1999

                  10.124$$        Form of Incentive Stock Option Grant and
                                  Agreement between Biosyntrex and certain
                                  directors, officers and employees of
                                  Biosyntrex

                  10.125$$        Form of Stock Option Grant and Agreement
                                  between Biosyntrex and certain directors,
                                  officers and employees of Biosyntrex


                                      -42-
<PAGE>

                  10.126$$        Form of Stock Award Letter.

                  10.127$$$       Promissory Note in the principal amount of
                                  $1,115,024.80, dated as of August 7, 2000.

                  10.130@         Capital Contribution, Assignment and
                                  Assumption Agreement

                  10.131@@        Form of Consulting Agreement with Peter
                                  Frugone

                  10.132@@@       Form of Consulting Agreement with Media
                                  Relations Strategy, Inc.

                  10.133%         Form of 2001 Equity Incentive Plan

                  10.134%%        Form of Employment Agreement dated September
                                  7, 2001, between Biosyntrex and Robert P.
                                  Pietrangelo

                  10.135%%        Form of Employment Agreement dated July 1,
                                  1996, between Donlar and Larry Koskan

                  23.1            Consent of Grant Thornton LLP

----------

     #    Incorporated by reference to Biosyntrex's Annual Report on Form 10-K/A
          for the fiscal year ended September 30, 1995.

     *    Incorporated by reference to Biosyntrex's Annual Report on Form 10-KSB
          for the fiscal year ended September 30, 1994.

     **   Incorporated by reference to Biosyntrex's Annual Report on Form 10-K
          for the fiscal year ended September 30, 1993 and the two month period
          ended November 30, 1993.

     ***  Incorporated by reference to Biosyntrex's Annual Report on Form 10-K
          for the fiscal year ended September 30, 1992.

     +    Incorporated by reference to Biosyntrex's Annual Report on Form 10-KSB
          for the fiscal year ended September 30, 1996.

     ++   Incorporated by reference to Biosyntrex's Annual Report on Form 10-KSB
          for the fiscal year ended September 30, 1998.


                                      -43-
<PAGE>

     +++  Incorporated by reference to Biosyntrex's Annual Report on Form 10-KSB
          for the fiscal year ended September 30, 1999.

     $    Incorporated by reference to Biosyntrex's Quarterly Report on Form
          10-QSB for the period ended December 31, 1999.

     $$$  Incorporated by reference to Biosyntrex's Registration Statement on
          Form S-8 filed on February 2, 2000.

     $$$  Incorporated by reference to Biosyntrex's Current Report on Form 8-K
          filed on August 15, 2000.

     @    Incorporated by reference to Biosyntrex's Current Report on Form 8-K
          filed on January 22, 2001.

     @@   Incorporated by reference to Biosyntrex's Registration Statement on
          Form S-8 filed on May 2, 2001.

     @@@  Incorporated by reference to Biosyntrex's Quarterly Report on Form
          10-QSB for the quarter ended March 31, 2001.

     %    Incorporated by reference to Biosyntrex's Proxy Statement filed on
          June 20, 2001.

     %%   Incorporated by reference to Biosyntrex's Annual Report on Form 10-KSB
          filed on April 15, 2002.


     (b)  Reports on Form 8-K filed during the last quarter of the period
          covered by this report.

          None.

ITEM 14. CONTROLS AND PROCEDURES

         Within the 90 days prior to the date of this Form 10-KSB Report, the
Company carried out an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures. This evaluation was
performed under the supervision and with the participation of management,
including the Company's President and Chief Executive Officer and the Company's
Controller.


                                      -44-
<PAGE>

         Under the rules of the Securities and Exchange Commission, the term
"disclosure controls and procedures" means controls and other procedures of the
Company that are designed to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in such reports is
accumulated and communicated to the Company's management, including the
President and Chief Executive Officer and the Chief Financial Officer, as
appropriate to permit management to make timely decisions regarding required
disclosure.

         Based on this evaluation, the Company's President and Chief Executive
Officer and the Company's controller concluded that the Company's disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information that the Company is required to disclose in the reports it files
under the Securities Exchange Act of 1934, within the time periods specified in
the rules and forms of the Securities and Exchange Commission. Subsequent to the
date of this evaluation, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls.

         A control system, no matter how well-designed and operated, cannot
provide absolute assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected.


                                      -45-
<PAGE>

                                   Signatures

              Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                       DONLAR CORPORATION
                                       ------------------
                                          (Registrant)


                                       /s/ Larry P. Koskan
                                       -----------------------------------------
                                       By:   Larry P. Koskan
                                       Its:  President, Chief Executive Officer
                                             and Chief Financial Officer
                                       Date: April 15, 2003

              In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.

<Table>
<Caption>
Signature                                 Title                    Date
---------                                 -----                    ----
<S>                                 <C>                       <C>
/s/ Larry P. Koskan                 Director, Chairman        April 15, 2003
-----------------------------
Larry P. Koskan


/s/ Edward T. McCormick             Director                  April 15, 2003
-----------------------------
Edward T. McCormick


/s/ Dr. Robert G. Martin            Director                  April 15, 2003
-----------------------------
Dr. Robert G. Martin


/s/ Dean R. Kleckner                Director                  April 15, 2003
-----------------------------
Dean R. Kleckner
</Table>


                                      -46-
<PAGE>

                                  CERTIFICATION

     I, Larry P. Koskan, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Donlar Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

     (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Dated: April 15, 2003                /s/ Larry P. Koskan
                                     -------------------------------------------
                                     Larry P. Koskan, President,
                                     Chief Executive Officer and Chief Financial
                                     Officer


                                      -47-
<PAGE>

                                  CERTIFICATION

     I, Joel Lurquin, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Donlar Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

     (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Dated: April 15, 2003                  /s/ Joel H. Lurquin
                                       -----------------------------------------
                                       Joel H. Lurquin, Controller


                                      -48-
<PAGE>

                       DONLAR CORPORATION AND SUBSIDIARIES
                   Index to Consolidated Financial Statements

<Table>
<Caption>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Report of Independent Certified Public Accounts                            F-1

Consolidated Balance Sheet as of December 31, 2002                         F-2

Consolidated Statements of Operations for the
Years Ended December 31, 2002 and 2001                                     F-3

Consolidated Statement of Shareholders' Deficit for the
Years Ended December 31, 2002 and 2001                                     F-4

Consolidated Statements of Cash Flows for the
Years Ended December 31, 2002 and 2001                                     F-5

Notes to Consolidated Financial Statements                                 F-7
</Table>


                                      -49-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Shareholders
   Donlar Biosyntrex Corporation

We have audited the consolidated balance sheets of Donlar Biosyntrex Corporation
and Subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for the years
ended December 31, 2002 and 2001. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Donlar
Biosyntex Corporation and Subsidiaries as of December 31, 2002, and the
consolidated results of their operations, shareholders' deficit and cash flows
for the years ended December 31, 2002 and 2001, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note B to the
consolidated financial statements, the Company has had substantial recurring
losses from operations, is in default on $21,033,352 of loans and has relied
upon financing from the sale of its equity securities to satisfy its
obligations. These conditions raise substantial doubt about the ability of the
Company to continue as a going concern. Management's plans in regard to this
matter are also described in note B. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.


                                       GRANT THORNTON LLP


Chicago, Illinois
March 21, 2003


                                      F-1
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2002
--------------------------------------------------------------------------------

<Table>
<S>                                                               <C>
                            ASSETS

Current assets
  Cash                                                            $     102,338
  Receivables, less allowance for doubtful accounts of $6,965           308,520
  Inventories, net                                                      929,816
  Prepaid expenses                                                       31,598
  Other current assets                                                   21,336
                                                                  -------------

        Total current assets                                          1,393,608

Property and equipment, net                                           8,731,397
Other assets                                                            269,398
                                                                  -------------

                                                                  $  10,394,403
                                                                  =============

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

              LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities
  Current portion of convertible debt                             $  23,991,887
  Payables and accrued expenses                                       8,592,559
  Short term notes payable                                            8,252,507
                                                                  -------------

        Total current liabilities                                    40,836,953

Notes payable                                                         9,000,000

Shareholders' deficit
  Preferred stock, $.0001 par value                                     197,797
  Common stock, $.0001 par value                                             --
  Additional paid-in capital                                         64,839,608
  Stock subscriptions receivable                                        (31,987)
  Accumulated deficit                                              (104,447,968)
                                                                  -------------

        Total shareholders' deficit                                 (39,442,550)
                                                                  -------------

                                                                  $  10,394,403
                                                                  =============
</Table>


         The accompanying notes are an integral part of this statement.


                                      F-2
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                    2002              2001
                                                ------------      ------------
<S>                                             <C>               <C>
Revenues                                        $  3,584,572      $  2,352,834

Cost of revenue                                    2,940,010         2,639,022
Research and Development                             537,395           821,414
Selling, general and administrative                2,175,717         7,054,783
                                                ------------      ------------

        Total operating expenses                   5,653,122        10,515,219
                                                ------------      ------------

Loss from operations                              (2,068,550)       (8,162,385)

Other (expense) income
  Interest expense                                (5,112,646)       (7,078,494)
  Write down of investments to market                     --          (864,434)
  Loss on repayment of shareholder receivable             --        (5,360,000)
  Debt conversion expense                           (289,655)               --
  Gain on sale of fixed assets                        74,478
  Other                                              340,833                --
                                                ------------      ------------

        Total other (expense) income              (4,986,990)      (13,302,928)
                                                ------------      ------------

        Net loss before income taxes and
          extraordinary item                      (7,055,540)      (21,465,313)

Provision for income taxes                                --                --
                                                ------------      ------------

        Net loss before extraordinary item        (7,055,540)      (21,465,313)
                                                ------------      ------------

Extraordinary loss on retirement of debt          (1,212,120)               --

                                                ------------      ------------
        Net loss                                $ (8,267,660)     $(21,465,313)
                                                ============      ============

Per common share:
Basic:
  Net loss before extraordinary item                    (.15)             (.48)
  Net loss                                              (.17)             (.48)

Diluted:
  Net loss before extraordinary item                    (.15)             (.48)
  Net loss                                              (.17)             (.48)

Weighted average shares of common stock
  outstanding:
  Basic                                           48,275,579        44,772,087
  Diluted                                         48,275,579        44,772,087
</Table>


         The accompanying notes are an integral part of this statement.


                                      F-3
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


<Table>
<Caption>
                                                                          Series A               Series B
                                                Common stock           Preferred Stock        Preferred Stock       Additional
                                             Shares       Amount     Shares      Amount      Shares     Amount    paid-in capital
                                          -----------     ------     ------     --------     ------     ------    ---------------
<S>                                       <C>             <C>        <C>        <C>          <C>        <C>       <C>
Balance at January 1, 2001                 50,999,500     $   --     39,124     $191,057        449     $6,740     $ 63,543,186

Net loss                                           --         --         --           --         --         --               --

Issuance of warrants for services                  --         --         --           --         --         --          403,900

Issuance of Capital Stock                          --         --         --           --         --         --          714,593

Issuance of stock for services              2,458,079         --         --           --         --         --        2,184,248

Exercise of warrants                          418,000         --         --           --         --         --           49,000

Amortization of deferred compensation              --         --         --           --         --         --               --

Vesting of stock options and warrants                                                                                     1,880

Repayment of shareholder receivable        (8,000,000)                                                               (2,640,000)

Cancellation of stock options                                                                                          (321,400)
                                          -----------     ------     ------     --------     ------     ------     ------------

Balance at December 31, 2001               45,875,579     $   --     39,124     $191,057        449     $6,740     $ 63,935,407

Issuance of stock for services              3,000,000         --         --           --         --         --          955,596

Cancellation of stock options                      --         --         --           --         --         --         (341,050)

Debt conversion expense                            --         --         --           --         --         --          289,655

Amortization of deferred compensation              --         --         --           --         --         --               --

Net loss                                           --         --         --           --         --         --               --

                                          -----------     ------     ------     --------     ------     ------     ------------
Balance at December 31, 2002               48,875,579     $   --     39,124     $191,057        449     $6,740     $ 64,839,608
                                          ===========     ======     ======     ========     ======     ======     ============

<Caption>

                                            Shareholder      Deferred       Accumulated
                                          note receivable  compensation       deficit             Total
                                          ---------------  ------------    -------------      ------------
<S>                                       <C>              <C>             <C>                <C>
Balance at January 1, 2001                   $ (31,987)     $(282,708)     $ (74,714,995)     $(11,288,707)

Net loss                                            --             --        (21,465,313)      (21,465,313)

Issuance of warrants for services                   --       (703,125)                --          (299,225)

Issuance of Capital Stock

Issuance of stock for services                      --             --                 --         2,184,248

Exercise of warrants                                --             --                 --            49,000

Amortization of deferred compensation               --        870,625                 --           870,625

Vesting of stock options and warrants                                                                1,880

Repayment of shareholder receivable                                                             (2,640,000)

Cancellation of stock options                                                                     (321,400)
                                             ---------      ---------      -------------      ------------

Balance at December 31, 2001                 $ (31,987)     $(115,208)     $ (96,180,308)     $(32,194,299)

Issuance of stock for services                      --             --                 --           955,596

Cancellation of stock options                       --             --                 --          (341,050)

Debt conversion expense                             --             --                 --           289,655

Amortization of deferred compensation               --        115,208                 --           115,208

Net loss                                            --             --         (8,267,660)       (8,267,660)

                                             ---------      ---------      -------------      ------------
Balance at December 31, 2002                 $ (31,987)     $      --      $(104,447,968)     $(39,442,550)
                                             =========      =========      =============      ============
</Table>


         The accompanying notes are an integral part of this statement.


                                      F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                       2002              2001
                                                                    -----------      ------------
<S>                                                                 <C>              <C>
Cash flows from operating activities
  Net loss                                                          $(8,267,660)     $(21,465,313)
  Adjustments to reconcile net loss to net cash
    used in operating activities
      Depreciation and amortization                                   1,089,730         1,289,712
      Compensation expense related to options and warrants               40,825         2,848,353
      Repayment of shareholder receivable                                    --         5,360,000
      Gain on sale of fixed assets                                      (74,478)               --
      Debt conversion expense                                           289,655                --
      Interest expense related to amortization of debt discount       1,194,751         3,414,664
      Write-down of goodwill                                                 --         1,189,923
      Write-down of investment to market                                     --           864,434
      Extraordinary loss on early debt extinguishment                 1,212,120                --
      Change in assets and liabilities
        Receivables                                                     196,393          (310,621)
        Inventories                                                     912,428           848,769
        Prepaid expenses and other assets                                62,642           211,816
        Payables and accrued expenses                                 2,209,285         3,974,808
                                                                    -----------      ------------

          Net cash used in operating activities                      (1,134,309)       (1,773,455)

Cash flows from investing activities
  Purchase of property and equipment                                   (172,335)         (100,329)
  Proceeds from sale of property and equipment                          103,942                --
                                                                    -----------      ------------

          Net cash used in investing activities                         (68,393)         (100,329)

Cash flows from financing activities
  Principal repayments of convertible notes                                  --          (135,498)
  Proceeds from convertible debt                                      1,849,217
  Deferred financing costs                                             (295,923)
  Proceeds from notes payable                                            11,000           418,000
  Issuance of common stock                                                   --           714,593
  Proceeds from exercise of warrants                                         --            49,000
  Proceeds from issuance of convertible notes                                --                --
  Principal repayment of notes payable                                 (263,000)          (45,000)
                                                                    -----------      ------------

          Net cash provided by financing activities                   1,301,294         1,001,095
                                                                    -----------      ------------

Net increase (decrease) in cash and cash equivalents                     98,592          (872,689)

Cash at beginning of year                                                 3,746           876,435
                                                                    -----------      ------------

Cash at end of year                                                 $   102,338      $      3,746
                                                                    ===========      ============
</Table>


                                      F-5
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                           2002         2001
                                                         --------    ----------
                                                                     (Restated)
<S>                                                      <C>         <C>
Supplemental disclosure of cash flow information:
  Cash paid for interest                                 $101,788     $655,457
</Table>

Other non-cash transactions

In 2001, the Company was forgiven its liability on its line of credit of $75,000
in exchange for related-party notes receivable with a book value of $75,000.

In 2002, the Company exchanged fixed assets with a net book value of $29,464 for
payment of rent on its operating facilities, in the amount of $103,942,
resulting in a gain of $74,478.


         The accompanying notes are an integral part of this statement.


                                      F-6
<PAGE>




DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Donlar Biosyntrex Corporation ("Donlar Biosyntrex") and subsidiaries
(collectively the "Company") manufactures and distributes environmentally
friendly biodegradable polymers, known as thermal polyaspartates ("TPA"), in
limited quantities, to agricultural and industrial markets. In the agricultural
market, the products increase a plant's ability to absorb nutrients more
efficiently and have been focused toward winter wheat, corn, cotton and
vegetables. In the industrial markets, the products replace nonbiodegradable
chemicals, such as polyacrylates, and have been focused toward the oil
production, water treatment, detergents and cleaners, and personal care fields.
The Company markets these products to distributors and manufacturers primarily
in the United States and Europe.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements have been adjusted to reflect the reverse
acquisition further described in note C. The transaction was accounted for as a
reverse acquisition whereby Donlar Corporation was treated as the accounting
acquirer and Donlar Biosyntrex as the acquiree. The financial statements include
the activity of both Donlar Biosyntrex and Donlar Corporation.

The consolidated financial statements also include the accounts of Donlar
Biosyntrex's wholly-owned subsidiary, Optim Nutrition, Inc. All significant
intercompany balances and transactions have been eliminated.

USE OF ESTIMATES

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


                                      F-7
<PAGE>

DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

INVESTMENT IN EQUITY SECURITIES

The Company's investments in equity securities are carried in the financial
statements at fair market value. Realized gains and losses, determined using the
specific identification method, are included in earnings. At December 31, 2001,
the Company wrote down to fair market value certain equity security investments.
The write down amounted to $864,434 and was due to a decline in fair value
considered to be other than temporary.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates that the fair value of all financial instruments at
December 31, 2002, does not differ materially from the aggregate carrying values
of its financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. Considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value and, accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.

INVENTORIES

Inventories are stated at the lower of cost or market value, using the first-in,
first-out method.

PROPERTY, PLANT AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are determined using the straight-line method over
the estimated useful lives of the assets, which range from 3 to 30 years.
Expenditures for maintenance and repairs are expensed when incurred and
betterments are capitalized. Gains and losses on sale of property, plant and
equipment are reflected in operations.

The Company assesses the recoverability of its property, plant and equipment
whenever adverse events or changes in circumstances or business climate indicate
that expected future undiscounted cash flows or their fair value may not be
sufficient to support recorded property, plant and equipment. If impairment
exists, the carrying amount of property, plant and equipment will be reduced to
net realizable value. As of December 31, 2002, there was no impairment noted.

EARNINGS PER COMMON, COMMON EQUIVALENT AND REVERSE STOCK SPLITS

The computation of basic earnings per common share is based on the weighted
average number of common shares outstanding during the year.


                                      F-8
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

EARNINGS PER COMMON, COMMON EQUIVALENT AND REVERSE STOCK SPLITS - CONTINUED

The computation of diluted earnings per common share is based on the weighted
average number of common shares outstanding during the year plus common stock
equivalents, which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is anti-dilutive. Common stock
equivalents not included in the calculation total 1,325,000 shares.

Preferred stock dividends and the impact of beneficial conversion premiums
increase the net loss attributable to common stockholders for purposes of
computing the net loss per common share.

At December 31, 2002, there were 39,573 shares of Donlar Biosyntrex preferred
stock outstanding, convertible into 235 shares of common stock.

GOODWILL

Goodwill was established as a result of the reverse acquisition of Donlar
Biosyntrex by Donlar Corporation. Costs associated with the Donlar Corporation
purchase of Donlar Biosyntrex were also capitalized. The goodwill was amortized
over five years.

The Company assessed the recoverability of the goodwill whenever adverse events
or changes in circumstances or business climate indicated that expected future
undiscounted cash flows may be sufficient to support recorded goodwill. If
impairment exists, the carrying amount of goodwill would be reduced by the
estimated shortfall of discounted cash flows. During 2001, the goodwill was
determined to be impaired and written down to zero.


REVENUE RECOGNITION

In accordance with SAB 101, sales of product are recognized upon shipment of the
product, which is when title transfers to the customer. The Company maintains
reserves for potential losses on receivables from its customers, and such losses
have generally not exceeded management's expectations. Revenue by product type
for the years ended December 31, 2002 and 2001 was: Agricultural - $395,834 and
$238,935; Biopolymers - $3,065,298 and $1,812,331; and Nutraceutical - $123,441
and $301,568.

The majority of the Companies receivables are due from Companies in the
nutraceutical industry. Receivables are due within 30 days and are stated at
amounts due from customers, net of an allowance for doubtful accounts.


                                      F-9
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses include amounts paid to third-party and
related-party consultants, as well as costs related to the Company's
nutraceutical product research and development activities. Costs associated with
research and development of new products are expensed as incurred.

ADVERTISING

The Company expenses the cost of advertising when the advertising occurs. For
the year ended December 31, 2001, advertising expense totaled approximately
$92,000, and is included in other general and administrative expenses in the
accompanying statements of operations. There were no advertising expenses in
2002.

INCOME TAXES

The Company recognizes deferred income tax assets or liabilities for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial statement and income tax bases of assets and liabilities using enacted
tax rates expected to apply when differences are expected to be settled or
realized. All deferred tax assets and liabilities have a full valuation
allowance reserved for.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principals Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), in accounting for its
employee stock options. The Company has adopted the disclosure-only provisions
of Financial Accounting Standards No. 123 (SFAS 123). Under APB 25, because the
exercise price of the Company's employee stock options approximates the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. The expense associated with stock options and warrants issued to
non-employees and non-directors is reflected in the consolidated financial
statements in accordance with SFAS 123. As permitted by SFAS 123, the intrinsic
value of compensatory options is reflected in the consolidated financial
statements in accordance with APB 25.

The Company has a stock-based employee compensation plan, which is described
more fully in Note K. The Company applies APB 25 and related Interpretations in
accounting for its plan. Stock expense in 2002 and 2001 is the result of options
issued with an exercise price below the underlying stock's market price. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS 123, using
the assumptions described in Note K, to its stock-based employee plan.


                                      F-10
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


<Table>
<Caption>
                                                               Years ended
                                                               December 31,
                                                       ----------------------------
                                                          2002             2001
                                                       -----------   --------------
<S>                                                    <C>           <C>
Net loss applicable to common shares - as reported     $(8,267,660)  $  (21,465,313)

Deduct:  Total stock-based employee compensation
    expense determined under fair value based
    method for awards granted, modified, or
    settled
                                                           (30,478)         (34,650)

Net loss applicable to common shares - pro forma        (8,298,138)     (21,499,963)

Basic loss per common share - as reported                     (.17)            (.48)
Basic loss per common share - pro forma                       (.17)            (.48)
</Table>

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of receivables. In the normal course of business,
the Company provides credit terms to its customers. Accordingly, the Company
performs ongoing credit evaluations of its customers and maintains allowances
for possible losses which, when realized, have been within the range of
management's expectations.

The Company maintains its cash in bank deposit accounts, which may, at times,
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.

NEW ACCOUNTING STANDARDS

         The Financial Accounting Standards Board has issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 will be
effective January 1, 2003. The new rules apply to all entities that have legal
obligations associated with the retirement of a tangible long-lived asset. The
entity should recognize a liability for an asset retirement obligation if (a)
the entity has a duty or responsibility to settle an asset retirement
obligation, (b) the entity has little or no discretion to avoid the future
transfer or use of the assets, and (c) the transaction or other event obligating
the entity has occurred. The Company does not believe this pronouncement will
have a material impact on its financial statements.


                                      F-11
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


         Effective January 1, 2002, the Financial Accounting Standards Board
issued SFAS No. 144, "Impairment or Disposal of Long-Lived Assets" (SFAS 144).
Under the provisions of SFAS 144, an entity should recognize an impairment loss
if the carrying amount of a long-lived asset or asset group if it is not
recoverable and exceeds its fair value. An entity must test an asset or asset
group for impairment whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable. SFAS 144 also includes criteria for
classifying a long-lived asset or asset group as held for sale. Assets held for
sale must be shown at the lower of its carrying amount or fair value less cost
to sell. The adoption of this pronouncement did not have a material impact on
the Company's financial statements.

         In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Recission of FASB Statements 4, 44 and 64, Amendment of FASB Statement 13,
and Technical Corrections" (SFAS 145). Among other provisions, SFAS 145 rescinds
FASB Statement 4 "Reporting Gains and Losses from Extinguishment of Debt."
Accordingly, gains or losses from extinguishment of debt should not be reported
as extraordinary items unless the extinguishment qualifies as an extraordinary
item under the criteria of Accounting Principles Board Opinion 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" (APB 30). Gains and losses from extinguishment of debt, which do
not meet the criteria of APB 30, should be reclassified to income from
continuing operations in all prior periods presented. The provisions of SFAS 145
will be effective for fiscal years beginning after May 15, 2002. Upon adoption,
the Company anticipates that it will reclassify gains on early extinguishment of
debt and related taxes previously recorded as extraordinary items to other
income and provision for taxes, respectively.

         In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146). SFAS 146 addresses the accounting and reporting for costs associated with
exit or disposal activities. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. This pronouncement
will become effective as of January 1, 2003 and will impact any exit or disposal
activities the Company initiates after that date. The Company does not believe
this pronouncement will have a material impact on its financial statements.


                                      F-12
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


         In December 2002, the Financial Accounting Standards Board issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure:
an amendment of FASB Statement 123" (SFAS 148). SFAS 148 provides alternative
transition methods for a voluntary change in the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in
annual financial statements about the method of accounting for stock-based
employee compensation and the pro forma effect on reported results of applying
the fair value based method for entities that use the intrinsic value method of
accounting. The pro forma effect disclosures are also required to be prominently
disclosed in the interim period financial statements. These provisions of SFAS
148 became effective for financial statements for fiscal years ending after
December 15, 2002 and are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002. The
Company does not believe this pronouncement will have a material impact on its
financial statements.

     In January 2003, the Financial Accounting Standards Board issued FIN 46,
"Consolidation of Variable Interest Entities - An Interpretation of ARB 51" (FIN
46). FIN 46 is effective immediately for any variable interest entity created
after January 31, 2003 and to variable interest entities that an enterprise
acquires an interest in after that date. The statement includes disclosure
requirements that must be met and may require the reporting entity to
consolidate those variable interest entities which meet certain requirements.
This pronouncement will become effective as of the first interim or fiscal
period beginning after June 15, 2003 and will impact any variable interest
entity activities the Company initiates after that date. The Company does not
believe this pronouncement will have a material impact on its financial
statements.

NOTE B - GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As of December 31, 2002, the
Company had an accumulated deficit of $104,447,968 and has had substantial
recurring losses. The consolidated operations of the Company have not achieved
profitability and the Company has relied upon financing from the sale of its
equity securities and liquidation of other assets to satisfy its obligations. As
discussed in Note G under "Tennessee Farmers Loan Default", the Company did not
make required payments in March 2003 and is in default on $21,033,352 of loans.
These conditions raise substantial doubt about the ability of the Company to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

The Company's ability to continue as a going concern is subject to the
attainment of profitable operations, the obtaining necessary funding from
outside sources or the sale of the Company, a merger with another company or
another strategic transaction. In connection with its restructuring plan, the
Company converted approximately $25.26 million in debt into equity in the form
of convertible preferred stock. Management's plan with respect to continuing as
a going concern includes


                                      F-13
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


evaluating new products and markets, minimizing overhead and other costs, and
seeking a strategic transaction. However, there can be no assurance that
management will be successful.

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

NOTE C - ACQUISITION

On August 7, 2000, Donlar Corporation entered into an agreement with Donlar
Biosyntrex to purchase 427,311 shares of Donlar Biosyntrex common stock,
approximately 19.9% of the outstanding shares, in exchange for a $1,115,025, 10%
note due December 31, 2000. On November 3, 2000, Donlar Corporation and Donlar
Biosyntrex amended this agreement. The restructured transaction took place in
three phases. First, Donlar Biosyntrex completed a 1 for 5 reverse split of its
common stock. Secondly, Donlar Corporation paid $563,500 in cash as a partial
payment on the $1,115,025 million note and received 1,127,000 shares of Donlar
Biosyntrex common stock.

Thirdly, Donlar Corporation transferred the exclusive right to distribute and
the exclusive right to all future sales from Donlar Corporation's crop nutrition
management and oil field products to Donlar Biosyntrex. Donlar Biosyntrex also
received the rights to certain research and development activity of Donlar
Corporation and $1,850,000 in cash in exchange for issuing 40,152,520 additional
shares of Donlar Biosyntrex common stock to Donlar Corporation, so that upon
completion of these transactions, Donlar Corporation owned 96% of Donlar
Biosyntrex common stock. Donlar Corporation also agreed to transfer to Donlar
Biosyntrex the balance of its assets and related liabilities, except for Donlar
Corporation's existing patent rights and all intellectual property relating to
Donlar Corporation's genetic research activities.

Assets transferred from Donlar Corporation to Donlar Biosyntrex collateralize
certain notes payable and convertible debt of Donlar Corporation. In addition,
other notes payable, convertible debt and other liabilities will be assumed by
Donlar Biosyntrex in the future. Therefore, in accordance with SEC Staff
Accounting Bulletin No. 73, such debt has been "pushed down" to Donlar
Biosyntrex and is reflected in Donlar Biosyntrex financial statements.

The foregoing transactions represent a change in control of Donlar Biosyntrex,
since Donlar Corporation acquired 96% of Donlar Biosyntrex common stock and
Donlar Corporation's senior management and Board of Directors succeeded to the
same positions at Donlar Biosyntrex. Therefore, the transaction has been
accounted for as a reverse acquisition and a purchase of Donlar Biosyntrex by
Donlar Corporation. The financial statements include the activity of Donlar
Corporation as of and for the year ended December 31, 2000. The financial
statements also include the activity of Donlar Biosyntrex subsequent to the date
of acquisition, (November 3, 2000). The fair value of the Donlar Corporation
assets and businesses transferred to Donlar Biosyntrex was deemed to be more
clearly evident than the fair value of the Donlar Biosyntrex business acquired
by Donlar Corporation. The measure of the fair value of the Donlar Corporation
assets and businesses in this case was 4% of the value of Donlar Corporation's
stock. This was based on the amount of control Donlar Corporation gave up in
return for the business operations


                                      F-14
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


of Donlar Biosyntrex. The fair value (4% of Donlar Corporation) was based on
Donlar equity transactions totaling 1,342,084 shares all at $0.77 per share
prior to the November 3, 2000 transaction. The purchase price of Donlar
Biosyntrex is considered to be the estimated fair value of 4% of Donlar
Corporation's stock, or $1,700,000, plus acquisition costs incurred of $338,953.
The acquisition price was allocated as follows:

<Table>
<S>                                     <C>
Cash                                    $     1,780
Accounts receivable                          91,214
Inventory                                   168,040
Investments                                 864,434
Other assets                                 38,236
Fixed assets                                125,000
Goodwill                                  1,552,073
Liabilities assumed                      (1,140,777)
                                        -----------
                                        $ 2,038,953
                                        ===========
</Table>

This was accounted for by the purchase method and the excess of the acquisition
price over the fair value of the assets acquired is accounted for as goodwill
and was being amortized over five years.

During 2001, the Company determined its goodwill was impaired. This was due to
negative cash flows from the above-mentioned acquisition and the decrease in
revenue from the product lines included in the purchase. This impairment of
$1,189,923 was expensed during the year ended December 31, 2001.


                                      F-15
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE D - DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

<Table>
<S>                                                                 <C>
Inventories
   Finished goods                                                   $   753,910
   Raw materials                                                        792,571
   Reserve for obsolescence                                            (616,665)
                                                                    -----------

                                                                    $   929,816
                                                                    ===========

Payables and accrued expenses
   Trade payables                                                   $   295,834
   Accrued interest                                                   6,056,276
   Accrued other                                                      2,240,449
                                                                    -----------

                                                                    $ 8,592,559
                                                                    ===========
</Table>

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

NOTE E - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, along with corresponding estimated useful lives,
consisted of the following:

<Table>
<Caption>
                                             Useful
Description                                   Life               Amount
------------------------------             ----------          -----------
<S>                                        <C>                 <C>
Land                                                           $   566,782
Building                                   30 years              5,820,273
Laboratory and plant equipment             5-10 years            7,425,903
Furniture and fixtures                     5-7 years               205,151
Leasehold improvements                     1-4 years                56,008
                                                               -----------
         Total property, plant
             and equipment                                      14,074,117

Less-accumulated depreciation
    and amortization                                             5,342,720
                                                               -----------
          Property, plant and
              equipment, net                                   $ 8,731,397
                                                               ===========
</Table>


                                      F-16
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE F - ACCOUNTS RECEIVABLE

Receivables consist of trade receivables of $315,485, less an allowance for
doubtful accounts of $6,965.

Changes in the Company's allowance for doubtful accounts are as follows:

<Table>
<S>                          <C>
Beginning balance            $ 16,997
    Bad debt expenses              --
    Write-offs                (10,032)
    Recoveries                     --
                             --------
Ending balance               $  6,965
                             --------
</Table>

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

NOTE G - NOTES PAYABLE

All of the notes payable mentioned below are the obligations of Donlar
Corporation, which have been "pushed down" to Donlar Biosyntrex in connection
with the acquisition of Donlar Biosyntrex by Donlar Corporation.

Notes payable consisted of the following:

<Table>
<S>                                                                   <C>
Short-term notes payable
  Unsecured note payable to shareholder and director of Donlar
     Corporation, due October 31, 2002, bearing interest at
     prime plus 2%. (6.25% at December 31, 2002)                      $3,000,000
  Unsecured note payable to a shareholder and director of Donlar
     Corporation, due September 30, 2002, bearing interest at
     11% per annum, collateralized by a second lien on Donlar
     Corporation's patents                                             5,131,507
  Unsecured note payable to shareholder and director of Donlar
     Corporation, due September 6, 2002, with no stated interest
     rate                                                                 21,000
  Unsecured note payable to shareholder of Donlar Biosyntrex
     due July 17, 2002, with no stated interest rate                      50,000
                                                                      ----------
                                                                      $8,252,507
                                                                      ==========
</Table>

                                      F-17
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


<Table>
<S>                                                                   <C>
Long-term notes payable

  Notes payable to venture capital shareholders of Donlar
     Corporation $7,000,000 due June 2, 2006, and $2,000,000
     due December 31, 2006, bearing interest at 10% per annum,
     payable quarterly in cash or in kind at Donlar Corporation's
     option, collateralized by a third lien on Donlar
     Corporation's patents and a second lien on all Donlar
     Biosyntex's assets                                               $9,000,000
                                                                      ----------
                                                                      $9,000,000
                                                                      ==========
</Table>

As discussed in Note Q, all of the above notes have been cancelled and converted
into equity as part of the restructuring plan.

On October 23, 2000, Donlar Corporation issued a note to Dr. Robert G. Martin, a
director and shareholder, in the amount of $3,000,000. This note bears interest
at prime plus 2% (6.25% at December 31, 2002) and had a maturity date of April
30, 2001. The note was amended and now has a maturity date of September 30,
2002. Donlar Corporation issued Dr. Martin warrants to purchase shares of its
common stock at $0.01 a share. The total amount of warrants was equal to 15% of
the total common stock of Donlar Corporation (19,558,320 shares) and will be
increased to 30% of the total common stock if the note is not paid in full at
the maturity date. These warrants have an expiration of December 31, 2006. The
value of the warrants was $14,864,323, computed using the Black-Scholes option
pricing method. The $3,000,000 proceeds were allocated to the note ($503,798)
and paid-in capital for the warrants ($2,496,202) based on the relative fair
value of securities issued. This discount will be amortized over the life of the
note. As discussed in Note Q, the note and warrants have been cancelled and
converted into equity as part of the restructuring plan.

CONVERTIBLE DEBT

All of the convertible notes payable mentioned below are the obligations of
Donlar Corporation and are convertible into shares of Donlar Corporation's
common or Series A preferred stock. The note payment obligations have been
"pushed down" to Donlar Biosyntrex in connection with the acquisition by Donlar
Biosyntrex of Donlar Corporation. The stock issuance obligations remain with
Donlar Corporation.


                                      F-18
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


Convertible debt consisted of the following:

<Table>
<S>                                                                  <C>
Unsecured notes payable, due April 15, 2001, bearing interest at
  12%, convertible into a variable number of shares of Donlar
  Corporation's Series A preferred stock at 90% of the per share
  value of an initial public offering of Donlar Corporation or
  strategic investment.(1)                                           $   763,500

Note payable, secured by all tangible and intangible assets of
  Donlar Corporation and Donlar Biosyntrex Corporation, due
  March 18, 2007 bearing interest at 9% per annum, convertible
  into shares of the Company's common stock at $0.68 per share        10,184,135

Note payable, secured by all tangible and intangible assets of
  Donlar Corporation and Donlar Biosyntrex Corporation, due
  March 18, 2007 bearing interest at 1% per annum, convertible
  into shares of the Company's common stock at $0.68 per share         9,000,000

Note payable, secured by all tangible and intangible assets of
  Donlar Corporation and Donlar Biosyntrex Corporation, due
  March 18, 2003 bearing interest at 11% per annum, convertible
  into shares of the Company's common stock at $0.29 per share         1,849,217

Unsecured notes payable, due on various dates in 2005, bearing
  interest at 15%, convertible into a variable number of shares
  of Donlar Corporation's Series A preferred stock at $1.01 per
  share, or $0.505 per share upon an initial public offering of
  Donlar Corporation, net of unamortized debt discount of
  $113,521 at December 31, 2002.(1)                                      878,479

Unsecured note payable, due July 17, 2005, bearing interest at
  12%, convertible into a variable number of shares of Donlar
  Corporation's Series A preferred stock at $1.01 per share, or
  $0.505 per share upon an initial public offering of Donlar
  Corporation.(1)                                                        150,000

Unsecured notes payable to a shareholder and director of Donlar
  Corporation, due on various dates in 2005, bearing interest at
  15%, convertible into a variable number of shares of Donlar
  Corporation's Series A preferred stock at $0.77 per share, or
  $0.385 per share upon an initial public offering of Donlar,
  net of unamortized debt discount of $482,728 at December 31,
  2002.(1)                                                             1,166,556
                                                                     -----------

                                                                     $23,991,887
                                                                     ===========
</Table>

(1) As discussed in Note Q, this note was cancelled and converted into equity in
March 2003 as part of the restructuring plan.

In 1998, Donlar Corporation received $763,500 from certain shareholders in
exchange for (a) 12% three-year notes convertible into Donlar Corporation's
Series A preferred stock at 90% of the per share value of an initial public
offering or a future equity investment in Donlar Corporation of at least
$15,000,000; and (b) ten-year warrants for $763,500 in Donlar Corporation's
Series A preferred stock, exercisable at the per share value of the next equity
investment in Donlar Corporation of at least $15,000,000. A debt discount of
$551,000 recorded to reflect the value of the warrants was amortized over a
36-month period beginning April 15,


                                      F-19
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


1998. The number of shares into which the notes are convertible is subject to a
minimum such that, if necessary, at the time of an initial public offering or
the next equity investment in Donlar Corporation of at least $15,000,000, the
value of participating shareholders' shares, options and warrants would be at
least 150% of the shareholders' $2,763,586 basis in these and prior investments.
At December 31, 2002, the value of the debt totals $763,500.

An investor purchased for $150,000 a five year 12% note convertible into shares
of Donlar Corporation's Series A preferred stock at $1.01 per share, or $.505
per share in the event of an initial public offering.

Included in convertible debt above is $23,709,193 (net of debt discount) at
December 31, 2002, in notes, which were issued to shareholders of Donlar
Corporation.

         As part of the restructuring plan, on March 18, 2002, Donlar Biosyntrex
and Donlar Corporation entered into a Bridge and Consolidated Term Loan
Agreement with Tennessee Farmers Life Insurance Company. Pursuant to the terms
of the loan agreement, Donlar Biosyntrex and Donlar Corporation obtained a
bridge loan facility in the amount of approximately $2.127 million to be used to
refinance certain short term debt, provide working capital, pay certain accounts
payable creditors and pay expenses of the restructuring and the merger (the
"Term C Loan"). Approximately $1.85 million of the bridge loan was drawn down.
In addition, the terms of existing loans to Donlar in the original principal
amount of approximately $17.64 million were restated and made the joint and
several obligation of Donlar Corporation and Donlar Biosyntrex in the total
amount of $19.2 million reflecting the original amount of the loans and accrued,
unpaid interest thereon (the "Term A Loan" and "Term B Loan"). Each of the loans
is collateralized by substantially all of the assets of the Company.

         Loans under the Term C Loan bear interest at a rate of eleven
percent per annum with one half of such interest payable on a quarterly basis on
the last business day of March, June, September and December and the other half
payable at maturity on March 18, 2003. As discussed in further detail below
under "Tennessee Farmers Loan Default," Donlar did not make the required payment
under the Term C Loan on March 18, 2003.

         The restated loans are divided into two loans (the Terms A and B
Loans). The first such loan is in the principal amount of approximately $10.18
million, bears interest at a rate of nine percent per annum until March 18,
2003, at which time such interest is payable, and thereafter bears interest at
eleven percent per annum payable on a quarterly basis on the last business day
of March, June, September and December. The principal balance of the loan is
payable in equal quarterly installments of not less than $222,500


                                      F-20
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


commencing on March 31, 2003 and thereafter on the last business day of March,
June, September and December. Any remaining unpaid principal and interest is
payable on March 31, 2007. The Company did not make the interest payment on
March 18, 2003 or the principal payment on March 31, 2003.

The second restated loan is in the principal amount of $9.0 million, bears
interest at a rate of one percent per annum, but neither interest nor principal
are payable until the first to occur of one of certain events described in the
loan agreement, the latest of which is March 18, 2005, after which time the
interest that has accrued is payable in full within thirty days and thereafter
is payable quarterly on the last business day of March, June, September and
December together with principal payments of not less than $222,500. Any
remaining unpaid principal and interest is payable on March 31, 2007.

TENNESSEE FARMERS LOAN DEFAULT

         The Company did not make a required payment to Tennessee Farmers on
March 18, 2003 under the March 18, 2002 Bridge and Consolidated Term Loan
Agreement. Tennessee Farmers has informed the Company that it does not intend to
exercise its right under the loan agreement to convert the loans into Company
common stock or extend the terms of the loans. As a result of the payment
default under the loan agreement, Tennessee Farmers has the right to declare all
amounts owning under the loan agreement to be immediately due and payable. The
Company and Tennessee Farmers entered into a forbearance agreement as of March
18, 2003 providing that Tennessee Farmers will forbear until May 2, 2003 from
exercising any of its rights and remedies against the Company and its property,
subject to the terms and conditions of the forbearance agreement.

DEBT MATURITIES

At December 31, 2002, the notes payable and convertible debt mature as follows:

<Table>
<S>                                                                <C>
2003..........................................................     $32,224,394
2004..........................................................              --
2005..........................................................              --
2006..........................................................       9,000,000
                                                                   -----------

                                                                    41,244,394

Less imputed interest.........................................       2,647,884
                                                                   -----------

                                                                   $38,496,510
                                                                   ===========
</Table>


                                      F-21
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE H - INCOME TAXES

The benefit for income taxes is different than amounts, which would be provided
by applying the statutory Federal income tax rate to loss before benefit for
income taxes for the following reasons:

<Table>
<Caption>
                                                    Years ended
                                                    December 31,
                                                 -------------------
                                                  2002         2001
                                                 ------       ------
<S>                                              <C>          <C>
Federal income tax benefit at statutory rate       34.0%        34.0%
State income tax benefit                            4.6          4.6
Permanent differences                              (5.9)       (13.2)
Valuation allowance                               (32.7)       (25.4)
                                                 ======       ======

                                                      0%           0%
                                                 ======       ======
</Table>

Deferred tax assets (liabilities) are comprised of the following:

<Table>
<S>                                                     <C>
Net operating loss carryforwards                        $ 25,231,700
Write-down of assets                                         335,000
Allowance for bad debts                                        2,700
Inventory                                                     18,100
Valuation allowance                                      (25,286,000)
                                                        ------------

                                                        $         --
                                                        ============
</Table>

The Company's valuation allowance was also reduced for the expiration of both
the investment tax credit carryforward and a portion of the net operating loss
carryforward.

As of December 31, 2002, the Company had net operating loss carryforwards
("NOLs") for Federal income tax reporting purposes of approximately $65,000,000.
These NOLs will expire over time between the fiscal years ended 2003 through
2022. There can be no assurance that all of these NOLs will be available to
offset future taxable income, if any. A NOL generated in a particular year will
expire for Federal income tax purposes if not utilized within 15 to 20 years,
dependent on when the NOLs were generated. Additionally, the Internal Revenue
Code


                                      F-22
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


contains other provisions, which could reduce or limit the availability and
utilization of these NOLs. For example, limitations are imposed on the
utilization of NOLs if certain ownership changes have taken place. In accordance
with SFAS No. 109, a valuation allowance is provided when it is more likely than
not that some portion of the deferred income tax asset will not be realized. Due
to the uncertainty with respect to the ultimate realization of the NOLs, the
Company has established a valuation allowance for all of its deferred income tax
assets.

NOTE I - COMMITMENTS AND CONTINGENCIES

LITIGATION

Because of the nature of their activities, the Company is subject to legal
actions, which arise in the normal course of business. In the opinion of
management, based discussion with legal counsel, the disposition of such matters
will not have a material effect on the consolidated financial position of the
company.

NOTE J - COMMON AND PREFERRED STOCK

The following is a listing of Donlar Biosyntrex authorized common and preferred
stock as of December 31, 2002.

Donlar Biosyntrex has authorized 500,000,000 shares of common stock with a par
value of $0.0001.

Donlar Biosyntrex has authorized 50,000,000 shares of preferred stock with a par
value of $0.0001. The preferred shares have been designated as follows, however
the entire amount authorized has not been allocated to specific series:

o    Series A 10% cumulative, 1,075,000 shares authorized, these shares convert
     on a one for one basis for common stock, subject to adjustment for stock
     splits, stock dividends, and the like.

o    Series B 10% cumulative, 1,000,000 non-voting shares authorized, these
     shares convert on a one for one basis for common stock, subject to
     adjustment for stock splits, stock dividends, and similar items.

     Series E 8% cumulative, 7,000,000 non-voting shares authorized, these
     shares convert to common stock by dividing the stated value of Series E by
     the lessor of $1.10 or per share fair value of Company's common stock.

o    Series F 8% cumulative, 7,000,000 non-voting shares authorized, these
     shares convert to common stock by dividing the stated value of Series F by
     the lessor of $1.10 or per share fair value of Company's common stock.


                                      F-23
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


o    Series J 10% cumulative, 2,000 non-voting shares authorized, these shares
     are convertible by dividing the stated value of Series J by the market
     price of the common stock on such date.

No shares of Series B, E, F or J preferred stock were outstanding as of December
31, 2002.

         In November 2000, Donlar Biosyntrex issued and delivered 8,000,000
shares of its common stock, representing approximately 17% of Donlar Biosyntrex,
to a shareholder and former director of Donlar so that he could pledge that
stock to a commercial bank as collateral for a loan. Donlar agreed to the
surrender for cancellation of 8,000,000 shares of Donlar Biosyntrex common stock
held by Donlar. The issuance of 8,000,000 shares by Donlar Biosyntrex and the
surrender by Donlar of 8,000,000 shares, together with other unrelated stock
issuances by Donlar Biosyntrex, increased the minority interest from 4% to 32%.
Donlar recognized a receivable from the former director and shareholder in
connection with the transfer of 8,000,000 shares in its subsidiary, Donlar
Biosyntrex. The receivable was recorded by Donlar Biosyntrex and Donlar at fair
value, $8,000,000. In June 2002, the former director and shareholder agreed to
cancel 4,289,816 shares of Donlar stock held by him in satisfaction of the
receivable. The relationship of 8,000,000 shares to 4,289,816 is based on the
exchange ratios referred to in the discussion of the Merger.

The original issuance by Donlar Biosyntrex of the 8,000,000 shares of common
stock was recorded as a shareholder receivable at the fair value at the date of
issuance ($1.00 per share). The shareholder was deemed to be an affiliate of
Donlar Biosyntrex, and therefore, the receivable was recorded as a contra equity
account. On August 13, 2001, in satisfaction of the receivable, the shareholder
surrendered all his shares of Donlar Corporation stock to Donlar Corporation and
Donlar Corporation surrendered 8,000,000 shares of Donlar Biosyntrex common
stock held by Donlar Corporation to Donlar Biosyntrex. The surrender of shares
has been recorded as an acquisition of Treasury Stock. Donlar incurred a loss on
the receivable of $5,360,000 because of the difference in the fair value of the
stock between the issue and the settlement date.

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

NOTE K - STOCK OPTIONS AND WARRANTS

Donlar Biosyntrex has established certain Stock Incentive Plans (collectively,
the "Plans"), which allow for the granting of incentive stock options,
nonqualified stock options, stock appreciation rights and the award of common
stock to certain individuals, including employees, officers, directors,
consultants, and others as designated by the Board of Directors. Under the terms
of the Plans, the exercise prices for incentive stock options shall not be less
than the fair market value at the date of grant. The exercise price for
nonqualified stock options shall not be less than the lesser of:

     1)   the book value per share of common stock as of the end of the fiscal
          year of Donlar Biosyntrex immediately preceding the date of grant, or

     2)   50 percent of the fair market value per share of common stock on the
          date of grant.


                                      F-24
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


Options are exercisable within periods determined by the Board of Directors but
may not exceed ten years from the date of grant.

A summary of Donlar Biosyntrex stock option activity is as follows. Stock option
activity for Donlar Corporation is not included.

<Table>
<Caption>
                                      Number of          Exercise         Weighted average
                                       shares          Price range         exercise price
                                      ---------      ----------------     ----------------
<S>                                   <C>            <C>                  <C>
Outstanding at January 11, 2001          49,769         2.50-1,190.00           28.25
    Granted                           1,325,000                   .20             .20
    Exercised                                 0                    --              --
    Cancelled                              (260)     1170.00-1,190.00        1,185.38

Outstanding at December 31, 2001      1,374,509             .20-1,190             .99
    Granted
    Exercised
    Cancelled

Outstanding at December 31, 2002      1,374,509          .20-1,190.00             .99

Exercisable at December 31, 2002        434,509            .20-219.80            2.71
                                      ---------      ----------------        --------
</Table>


                                      F-25
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE K - STOCK OPTIONS AND WARRANTS - CONTINUED

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:

<Table>
<Caption>
                                                                   December 31,
                                                                       2001
                                                                   ------------
<S>                                                                  <C>
Expected dividend yield                                              $     --
Expected stock price volatility                                           124%
Risk-free interest rate                                                  4.48%
Expected life of options                                              7 years
</Table>

The weighted average fair value of options granted during 2001 was $.20. There
were no options granted during 2002

The following table summarizes information about Donlar Biosyntrex stock options
outstanding at December 31, 2002:

<Table>
<Caption>
              Outstanding                          Exercisable
---------------------------------------   -------------------------------
                             Weighted
                              average
                             remaining    Weighted               Weighted
  Range of       Number     contractual    average    Number     average
  exercise     outstanding     life       exercise  exercisable  exercise
   prices          at         (years)       price       at        price
-------------  -----------  -----------   --------  -----------  --------
<S>            <C>          <C>           <C>       <C>          <C>
$ 0.00-0.20     1,325,000       4.71          .20     385,000        .20
  0.20-20.00       36,000       2.61         2.50      36,000       2.50
 20.01-219.80      13,509        .50        74.58      13,509      74.58
-------------   ---------       ----        -----     -------      -----

$  .20-219.80   1,374,509       3.27        $ .99     434,509        .99
=============   =========       ====        =====     =======
</Table>


                                      F-26
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE K - STOCK OPTIONS AND WARRANTS - CONTINUED

A summary of Donlar Biosyntrex warrant activity is as follows. Warrant activity
for Donlar Corporation is not included.

<Table>
<Caption>
                                       Number of    Exercise     Weighted average
                                        shares     price range    exercise price
                                       ---------   -----------   ----------------
<S>                                    <C>         <C>           <C>
Outstanding as of January 1, 2001        650,000          .01            .01
   Granted                               500,000         2.50           2.50
   Exercised                            (418,000)    .01-2.50            .20
   Canceled                                   --           --             --
                                       ---------    ---------          -----

Outstanding as of December 31, 2000      732,000    $.01-2.50          $1.00
                                       =========    =========          =====
   Granted
   Exercised
   Cancelled

Outstanding as of December 31, 2002      732,000    $.01-2.50          $1.00
                                       =========    =========          =====
</Table>

In August 2000, Donlar Corporation entered into agreement with an investment
advisor in which the advisor received warrants to purchase a total of 400,000
shares of Donlar Biosyntrex common stock at a purchase price of $0.01 per share.
The excess of the fair value of Donlar Biosyntrex stock at date of grant has
been recorded as management, consulting and research expense in the amount of
$245,000.

In November 2000, Donlar Biosyntrex entered into a consulting agreement in which
the consultant is to receive three year warrants to purchase a total of 250,000
share of Donlar Biosyntrex common stock at a purchase price of $0.01 per share.
The excess of the fair value of Donlar Biosyntrex stock at date of grant over
the exercise price has been recorded as deferred compensation. This is being
amortized over the two-year life of the agreement.

In May 2001, the Company entered into a consulting agreement, in which the
consultant is to receive three year warrants to purchase a total of 500,000
shares of Donlar Biosyntrex common stock at a purchase price of $2.50 per share.
The fair value of the warrants at the date of grant was recorded as deferred
compensation and was amortized over the life of the agreement.

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

NOTE L - BENEFIT PLANS

On January 1, 1996, Donlar Corporation adopted a 401(k) savings plan. Employees
meeting certain eligibility requirements, as defined, may contribute a
percentage of pretax gross wages up


                                      F-27
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


to the legally defined deferral limit. Donlar Corporation may make discretionary
contributions. As of December 31, 2002 and 2001, Donlar Corporation has not made
any contributions to the plan.

NOTE M - RELATED PARTY TRANSACTIONS

During the year ended December 31, 2001:

Donlar Corporation has entered into an employment agreement with a shareholder
and key employee described in note O.

Donlar Biosyntrex issued shares of common stock to the former president of
Donlar Biosyntrex in satisfaction for a one-year consulting agreement.

During the year ended December 31, 2002:

Donlar Biosyntrex entered into a distributor agreement with a company that is
owned by a board member of Donlar Biosyntrex. This agreement appoints this
distributor as the exclusive distributor of sales of all of the Company's
nutraceutical products in the United States. The nutraceutical business has
since been discontinued.

As further discussed in Note G, a shareholder converted all outstanding debt and
warrants into common stock as part of the restructuring plan.

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

NOTE N - OPERATING LEASES

The Company leases certain equipment under noncancellable operating leases,
which expire through March 2007. The Company leases its facilities on a month to
month basis. Lease expense for years ended December 31, 2002 and 2001, was
approximately $114,315 and $226,763, respectively. Future minimum lease
commitments are as follows:

<Table>
<Caption>
Fiscal year                                                              Amount
-----------                                                             --------
<S>                                                                     <C>
2003..................................................................  $ 15,555
2004..................................................................    16,920
2005..................................................................    14,442
2006..................................................................     6,054
2007..................................................................     1,365
                                                                        --------
                                                                        $ 54,336
                                                                        ========
</Table>


                                      F-28
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE O - COMMITMENTS AND CONTINGENCIES

In 1994, Donlar Corporation entered into a licensing agreement with a
shareholder for the use of patent rights. The licensing agreement requires
Donlar Corporation to pay $7,500,000 in cumulative royalties. Annual payments
are based upon sales volume. Royalty payments, as a percentage of sales, are 4%
for the first $2,000,000 in royalties, decreasing one percentage point to a
floor of 1% for each $2,000,000 in royalties paid until $7,500,000 in cumulative
royalties is paid. Royalty expense relating to this agreement was $15,869 and
$9,557 for the years ended December 31, 2002 and 2001, respectively. While
royalties have been accrued based on 4% of agricultural sales, royalties were
first paid beginning July 1999.

Donlar Corporation maintains an employment agreement expiring on June 30, 2001,
renewable for two additional years at the employee's option, with a certain key
employee providing for minimum aggregate annual payments of $185,000 and
severance in the event of termination. Under the agreement, the employee is also
eligible for cash and stock bonuses. Donlar Corporation has also agreed to
provide $550,000 in life insurance coverage for the employee.

Donlar Corporation maintains an employment agreement expiring September 7, 2003,
renewable for three additional years at the employee's option if certain sales
goals are met, with a certain key employee providing for the minimum aggregate
annual payments of $160,000 plus an auto allowance and severance in the event of
termination. Under the agreement, the employee is also eligible for incentive
cash and stock bonuses. The Company has agreed to provide $500,000 in life
insurance coverage for the employee and a disability insurance policy.

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

NOTE P - SIGNIFICANT SOURCE OF REVENUES

The Company had sales to certain customers that have accounted for at least 10%
of the Company's net revenue. Customer information is as follows for the years
ended December 31, 2002 and 2001.

<Table>
<Caption>
                                                                      Percentage of
                        Percentage of net revenues                 accounts receivable
                        --------------------------                 -------------------
                         2002                2001                         2002
                        ------              ------                        ----
<S>                     <C>                 <C>                    <C>
Customer A                4.4%               12.7%                           0%
Customer B               29.9%               23.6%                        33.4%
Customer C               22.6%               21.6%                        15.0%
</Table>


                                      F-29
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE Q - SUBSEQUENT EVENTS

The shareholders of Donlar Corporation and Donlar Biosyntrex Corporation
approved the merger of Donlar Biosyntrex with and into Donlar Corporation on
February 27, 2003, with Donlar being the surviving corporation (the "Company").
The merger was effective March 5, 2003. Prior to the merger, Donlar Corporation
was principally a holding company for the Donlar Biosyntrex common stock that it
owned. The merger has not resulted, and is not expected to result, in any
significant change to the businesses operated by Donlar Biosyntrex prior to the
merger.

         The unaudited pro forma condensed consolidated financial information
presented below has been derived from the audited and unaudited historical
financial statements of Donlar Corporation ("Donlar") and subsidiaries
collectively "the Combined Company," and reflects management's present estimate
of pro forma adjustments to give effect to the contemplated merger (the
"Merger") of Donlar and its 68% owned subsidiary, Donlar Biosyntrex Corporation
("Donlar Biosyntrex") and the debt and capital restructuring coincident with the
Merger. The unaudited pro forma condensed statements of operations give effect
to the Merger as if the transaction had been consummated as of the beginning of
each period presented. This information should be read in conjunction with the
historical financial statements and notes thereto. The pro forma financial data
have been included as required by the rules and regulations of the Securities
and Exchange Commission and are provided for comparative purposes only. This pro
forma presentation does not purport to represent what the financial position or
results of operations would actually have been if such transactions and events
had in fact occurred on those dates or to project results of operations for any
future period.

         Donlar's condensed consolidated financial information included in these
pro forma financial statements is derived from its audited December 31, 2002
consolidated financial statements.

DONLAR CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002

<Table>
<Caption>
                                                Donlar                Pro Forma                     Combined
                                                Corporation           Adjustments                   Company
                                                -------------         ------------                  -------------
<S>                                             <C>                   <C>                           <C>
Assets

Cash and cash equivelants                       $     102,338         $         --                  $     102,338
Accounts receivable, net                              308,520                   --                        308,520
Inventories                                           929,816                   --                        929,816
Prepaid expenses and other current assts               52,934                   --                         52,934
                                                -------------         ------------                  -------------

Total current assets                                1,393,608                   --                      1,393,608
Property and equipment, net                         8,731,397                   --                      8,731,397

Other assets
  Deferred financing costs                            269,398                   --                        269,398
  Goodwill                                                  0            1,336,500(7)                   1,336,500
                                                -------------         ------------                  -------------

Total other assets                                    269,398            1,336,500                      1,605,898
                                                -------------         ------------                  -------------

Total assets                                       10,394,403            1,336,500                     11,730,903
                                                =============         ============                  =============

Current liabilities

  Accounts payable and accrued expenses             8,592,559           (2,473,000)(2)                  3,119,509
                                                                        (2,139,000)(3)
                                                                           (11,050)(8)
                                                                          (850,000)(6)

  Convertible debt, current portion                23,991,887             (763,500)(6)                 20,325,215
                                                                        (1,849,217)(3)
                                                                        (1,053,955)(6)
  Notes payable, current portion                    8,252,507           (7,874,932)(3)                    327,575
                                                                           (50,000)(8)                         --
                                                -------------         ------------                  -------------

Total current liabilities                          40,836,953          (17,064,654)                    23,772,299

Long-term liabilities
  Notes payable, net of current liabilities         9,000,000           (9,000,000)(2)                         --
                                                -------------         ------------                  -------------



Total liabilities                                  49,836,953          (26,064,654)                    23,772,299
                                                -------------         ------------                  -------------

Shareholders' deficit

  Common stock (20,793,360 shares)                         --                   --                        197,797

  Preferred stock (199 shares)                        197,797            9,000,000(2)                  18,000,000
                                                                         9,000,000(3)
  Additional paid in capital                       64,839,608(a)           536,682(1)                  75,996,140
                                                                         2,473,000(2)
                                                                         2,139,000(3)
                                                                         1,650,000(4)
                                                                           300,445(5)
                                                                         2,567,455(6)
                                                                         1,336,500(7)
                                                                           153,450(8)
  Accumulated deficit                            (104,447,968)          (1,755,378)(1),(4),(5),(8)   (106,203,346)
  Shareholder note receivable                         (31,987)                  --                        (31,987)
                                                -------------         ------------                  -------------

Total shareholders' deficit                       (39,442,550)          27,401,154                    (12,041,396)
                                                -------------         ------------                  -------------

Total liabilities and shareholders' deficit     $  10,394,403         $  1,336,500                  $  11,730,903
                                                =============         ============                  =============
</Table>


                                      F-30
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------


DONLAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002

<Table>
<Caption>
                                             Donlar           Pro Forma         Combined
                                             Corporation      Adjustments       Company
                                             -----------      -----------       -----------
<S>                                          <C>              <C>               <C>
Revenue                                      $ 3,584,572      $       --        $ 3,584,572

Cost of revenue                                2,940,010              --          2,940,010
Research and development                         537,395              --            537,395
Selling, general and administrative            2,175,717              --          2,175,717
                                             -----------      ----------        -----------

Total operating expenses                       5,653,122              --          5,653,122
                                             -----------      ----------        -----------

Loss from operations                          (2,068,550)             --         (2,068,550)
                                             -----------      ----------        -----------

Other income(expense)
  Interest expense                            (5,112,646)        677,000(2)      (3,550,860)
                                                                 794,500(3)
                                                                (116,922)(3)
                                                                 (24,252)(6)
                                                                 231,460(6)
  Other                                          340,833              --            340,833
  Gain on disposal of fixed assets                74,478              --             74,478
  Debt conversion expense                       (289,655)             --           (289,655)
                                             -----------      ----------        -----------
Total other expenses                          (4,986,990)      1,561,786         (3,425,204)

Loss before income taxes                      (7,055,540)      1,561,786         (5,493,754)
                                             -----------      ----------        -----------
Provision for income taxes                            --              --                 --

Net loss before extraordinary item            (7,055,540)      1,561,786         (5,493,754)

Extraordinary loss on retirement of debt      (1,212,120)             --         (1,212,120)
                                             -----------      ----------        -----------

Net Loss                                     ($8,267,660)     $1,561,786        ($6,705,874)
                                             ===========      ==========        ===========
</Table>

         The following pro forma adjustments have been made to the condensed
consolidated pro forma financial statements for the years ended December 31,
2002.

         1.       To record the issuance of 1,626,308 shares of common stock of
                  the combined company to Tennessee Rural Health, a 6%
                  shareholder of Donlar and holder of approximately $21.3
                  million of the debt of Donlar and Donlar Biosyntrex. Because
                  these shares are to be issued as part of the restructuring
                  plan, the expense (fair value of $0.33 per share at date of
                  measurement, March 18, 2002) associated with these shares is
                  treated as additional debt conversion inducement expenses. The
                  entire expense was recognized at March 18, 2002. The pro forma
                  adjustment is non-recurring and only included on the pro forma
                  balance sheet.


                                      F-31
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

         2.       To record the exchange with Willis Stein/Star Polymers of
                  $9,000,000 in notes plus accrued interest of approximately
                  $2,473,000 for shares of a new series of senior convertible
                  preferred stock of the combined company with a stated
                  liquidation value of $9,000,000, convertible into 13,235,294
                  shares of common stock of the combined company. No dividends
                  may be paid on the senior convertible preferred stock until
                  all Tennessee Farmers Life Insurance Company debt has been
                  repaid. This transaction has been treated as a conversion of
                  debt with no beneficial conversion features and the accrued
                  interest has been treated as additional paid in capital. The
                  number of common shares that the $9 million of preferred stock
                  can be converted into is determined by the loan agreement and
                  the terms of the preferred stock. There is no beneficial
                  conversion feature as the conversion rate is not in the money.
                  The interest that would have been accrued during the periods
                  presented is shown as a pro forma adjustment to the statement
                  of operations, since the debt is being exchanged for equity.

         3.       To record the exchange with Dr. Martin of $9,900,000 in notes
                  plus accrued interest of approximately $2,139,000 and less
                  related debt discount of $530,000 for shares of senior
                  convertible preferred stock with a stated liquidation value of
                  $9,000,000 and convertible into 13,235,294 shares of common
                  stock of the combined company. No dividends may be paid on the
                  senior convertible preferred stock until all Tennessee Farmers
                  debt has been repaid. This transaction has been treated as a
                  conversion of debt with no beneficial conversion features and
                  the accrued interest has been treated as additional paid in
                  capital. The number of common shares that the $9 million of
                  preferred stock can be converted into is determined by the
                  Tennessee Farmers' loan agreement and the terms of the
                  preferred stock. There is no beneficial conversion feature as
                  the conversion rate is not in the money. The interest and
                  amortization that would have been accrued during the periods
                  presented are shown as pro forma adjustment to the statements
                  of operations, since the debt is being exchanged for equity.

         4.       To record the issuance of 5,000,000 shares of common stock of
                  the combined company to Dr. Martin in relinquishment of rights
                  to receive royalty payments from Donlar and for the
                  cancellation of approximately 16.56 million shares of Donlar
                  common and preferred stock. This transaction has been treated
                  as additional conversion expense in an amount equal to the
                  fair value of the shares issued ($0.33 per share). This is a
                  non-recurring event and as such is only included on the pro
                  forma balance sheet.

         5.       To record the issuance to Dr. Martin of a warrant to purchase
                  3,000,000 shares of the combined company common stock for
                  $0.68 per share, in exchange for the cancellation of all
                  previously held options and warrants to purchase shares of
                  Donlar stock held by Dr. Martin. The fair value of the
                  previously held options and warrants is equal to $29,555. The
                  fair value of the new warrant is $330,000. This transaction
                  has been treated as additional conversion expense equal to the
                  difference of the fair


                                      F-32
<PAGE>
DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

                  values of the old warrants and options and the new warrant.
                  This is a non-recurring event and as such is only included on
                  the pro forma balance sheet.

         6.       To record the exchange of the 1998 and 2000 Notes of
                  approximately $1,900,000 plus accrued interest of $850,000 and
                  less related debt discount of $138,000 for shares of senior
                  convertible preferred stock with a stated liquidation value
                  equal to the amount of the Notes and convertible into
                  2,800,000 shares of common stock of the combined company.
                  Because the common stock of the combined company has no par
                  value, the entire balance has been treated as additional paid
                  in capital. The interest and amortization that would have been
                  accrued during the periods presented are shown as pro forma
                  adjustments to the statement of operations, since the debt is
                  being exchanged for equity.

         7.       To record the conversion in the merger of Donlar Biosyntrex
                  stock (except shares held by Donlar) into shares of the
                  combined company at an exchange rate of 0.26 shares of common
                  stock of the combined company for each share owned by the
                  minority shareholders of Donlar Biosyntrex. These minority
                  owned shares of Donlar Biosyntrex consist of 15,537,142 shares
                  of common stock, 39,124 shares of Series A preferred stock and
                  449 shares of Series B preferred stock. These shares will be
                  converted in the merger into 4,049,765 shares of common shares
                  of the combined company. This transaction constitutes a step
                  acquisition of the minority interests resulting in an
                  acquisition price of approximately $1,336,500. This amount has
                  been reflected as goodwill in a preliminary purchase price
                  allocation. The purchase price adjustment to goodwill was
                  calculated by taking the number of shares converted into by
                  the $0.33 share value at the agreement date.

         8.       To record the issuance of 465,000 shares to pay certain
                  claims. In connection with the restructuring plan, Donlar and
                  Donlar Biosyntrex have reached agreements to issue 465,000
                  shares of common stock of the combined company to accounts
                  payable and other creditors as payment for open payables and
                  claims against either Donlar or Donlar Biosyntrex. The
                  issuances will result in an adjustment to debt conversion
                  expense of $92,400. The issuances of the shares are contingent
                  upon the completion of the merger. The creditors consist of
                  four individuals. Two of these creditors had outstanding
                  accounts payable of $61,050. The other two creditors had an
                  outstanding sales contract and consulting contract, which were
                  bought out by these issuances. This is a non-recurring event
                  and as such is only recorded in the pro forma balance sheet.


                                      F-33