<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                AMENDMENT NO. 2
                                       TO

                                  FORM 10-KSB

<Table>
<S>    <C>
(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, 2001

[ ]    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
</Table>

                         DONLAR BIOSYNTREX CORPORATION
 (Exact name (formerly Biomune Systems, Inc.) of registrant as specified in its
                                    charter)

<Table>
<S>                                            <C>
                   NEVADA                                       87-0380088
       (State or other jurisdiction of             (I.R.S. Employer Identification No.)
       incorporation or organization)
</Table>

                             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
($0.0001 par value per share)

     Indicate by check mark 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 [ ].

     The aggregate market value of common stock held by non-affiliates of the
registrant was $4,195,028 based on the average of the closing bid and ask prices
of $0.27 per share on March 28, 2002. The number of shares outstanding of the
registrant's common stock as of March 28, 2002 was 48,816,662.

     On October 31, 2000, the registrant declared a 1-for-5 reverse stock split
of its common stock, reducing the number of issued and outstanding shares of
stock by a factor of 5. Outstanding common stock data in this report have been
adjusted to reflect this reverse stock split.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation SB is not contained herein, and will not 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-K or any
amendment to this Form 10-K.  [ ]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                         DONLAR BIOSYNTREX CORPORATION

                         2001 FORM 10-KSB ANNUAL REPORT

                               TABLE OF CONTENTS

<Table>
<S>         <C>                                                             <C>
                                       PART I
Item 1.     Description of Business.....................................      1
Item 2.     Description of Properties...................................      9
Item 3.     Legal Proceedings...........................................      9
Item 4.     Submission of Matters to a Vote of Security Holders.........     10
                                      PART II
            Market for Registrant's Common Equity and Related
Item 5.     Stockholder Matters.........................................     10
Item 6.     Management's Discussion and Analysis or Plan of Operation...     11
Item 7.     Financial Statements and Supplementary Data.................     13
Item 8.     Changes or Disagreements with Accountants...................     13
                                      PART III
Item 9.     Directors and Executive Officers............................     13
Item 10.    Executive Compensation......................................     15
            Security Ownership of Certain Beneficial Owners and
Item 11.    Management..................................................     17
Item 12.    Certain Relationships and Related Transactions..............     18
            Exhibits, Financial Statement Schedules, and Reports on Form
Item 13.    8-K.........................................................     18
</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" above 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

BUSINESSES ACQUIRED FROM DONLAR CORPORATION

     In transactions closing in November 2000 and January 2001, Donlar
Biosyntrex Corporation ("Biosyntrex"), then know as Biomune Systems, Inc.,
acquired from Donlar Corporation ("Donlar") in exchange for 41,279,520 shares of
Biosyntrex's common stock, representing approximately 96% of Biosyntrex's shares
then outstanding on a fully diluted basis, substantially all of Donlar's
businesses and assets plus cash consideration. The businesses acquired from
Donlar were the manufacturing and marketing of agricultural, industrial and
consumer products. Donlar also transferred to Biosyntrex all technology, know
how and patents for the crop nutrient management and oil field services
businesses created after November 3, 2000, as well as all technology resulting
from Donlar pharmaceutical research and development activities after November 3,
2000. Donlar's ownership interest in Biosyntrex has decreased since January 2001
as a result of transfers of common stock by Donlar and issuances of additional
common stock by Biosyntrex.

     The foregoing transactions have been accounted for as a reverse acquisition
of Biosyntrex by Donlar. Accordingly, the financial statements included in this
report are based on Donlar's historical financial statements until November 3,
2000, the date of acquisition, and thereafter, include the activity of both
Donlar and Biosyntrex. Biosyntrex's fiscal year end was changed to December 31
starting with 2000. All references to fiscal years prior to 2000 represent a
fiscal year end of September 30.

RESTRUCTURING PLAN

     In 2002, Biosyntrex and Donlar began implementing a plan which is intended
to significantly restructure their collective debt and capital structures in
order to eliminate a substantial portion of their debt and to ultimately result
in the merger of the two companies (the "Restructuring Plan"). The Restructuring
Plan is scheduled to be completed by July 2002.

     As part of the Restructuring Plan, on March 18, 2001, Biosyntrex and Donlar
entered into a Bridge and Consolidated Term Loan Agreement with Tennessee
Farmers Life Insurance Company (the "Loan Agreement"), a copy of which is filed
with this report and incorporated herein by reference. Pursuant to the terms of
the Loan Agreement, Biosyntrex and Donlar obtained a bridge loan facility in the
amount of approximately $2.1 million to be used to refinance certain short term
debt, provide working capital, pay certain accounts payable creditors and pay
expenses of the transaction. In addition, the terms of an existing loan to
Donlar in the original principal amount of approximately $17.64 million were
restated and made the joint and several obligation 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 "Restated Loans"). Each of the loans
is secured by substantially all of the assets of Biosyntrex and Donlar.

     Loans under the bridge loan facility bear interest at a rate of eleven
percent (11%) 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.

     The Restated Loans are divided into two loans. The first such loan is in
the principal amount of approximately $10.18 million, bears interest at a rate
of nine percent (9%) per annum until March 18, 2003, at which time such interest
is payable, and thereafter bears interest at eleven percent (11%) 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 second
such loan is in the principal amount of $9.0 million, bears interest at a rate
of one percent (1%) 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 (30) days and thereafter is
payable quarterly on the last business day of March, June, September and
December together

                                        1
<PAGE>

with principal payments of not less than $222,500. Any remaining unpaid
principal and interest is payable on March 31, 2007.

     As a condition of the loans and as part of the Restructuring Plan,
Biosyntrex and Donlar have agreed to use their best efforts to merge Biosyntrex
into Donlar on or before July 7, 2002 (the "Merger"). In the Merger, each share
of Biosyntrex's common stock other than shares owned by Donlar will be exchanged
for approximately 0.26 shares of Donlar's common stock. As a result of the
Merger and related transactions described herein, Biosyntrex's shareholders
(other than Donlar) will collectively receive approximately 4.04 million shares
of Donlar's common stock representing approximately 19.44% of the shares of
common stock outstanding following the Merger and approximately 4.32% of the
shares of common stock on a fully diluted basis. The shares of Biosyntrex's
common stock owned by Donlar will be cancelled. The Merger requires the approval
of a majority of the respective shareholders of Biosyntrex and Donlar.

     Biosyntrex and Donlar also made numerous representations, warranties and
covenants in the Loan Agreement. Among the covenants, Biosyntrex and Donlar
agreed to limit their ability to incur additional indebtedness, make any
investments or loans, pay dividends, purchase, redeem or issue capital stock or
sell or encumber assets. In addition, Biosyntrex and Donlar agreed to sell or
discontinue the nutritional and nutraceuticals business on or before March 18,
2003.

     There can be no assurance that Biosyntrex and Donlar will be able to comply
with the covenants and events of default in the Loan Agreement, some of which
events of default are entirely beyond their respective control. 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 Biosyntrex
or Donlar defaults in the payment of principal or interest when due, breaches
any covenants contained in the Loan Agreement that are not remedied within five
(5) calendar days or any other specified event of default occurs.

     Each of the loans is convertible at the option of the holder at any time
prior to repayment into common stock of Biosyntrex and, subsequent to the
Merger, into common stock of Donlar. Loans made under the bridge loan facility
convert into Donlar's post-Merger common stock at a rate of one share per $0.29
of outstanding principal amount of the loans. The Restated Loans convert into
Donlar's post-Merger common stock at a rate of one share per $0.68 of
outstanding principal amount of the loans. 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.

     In 2002, Donlar also reached agreements with Willis Stein and Partners,
L.P. and Star Polymers, L.L.C. (collectively the "Willis Stein Group") to (i)
exchange $9.0 million of original principal amount of notes plus accrued
interest for shares of a new series of senior convertible preferred stock with a
stated liquidation value of $9.0 million and convertible into approximately
13.23 million shares of Donlar's post-Merger common stock and (ii) exchange all
of the equity securities held by the Willis Stein Group in Donlar for 1.0
million shares of Donlar's post-Merger common stock. The foregoing exchanges are
subject to the satisfaction of certain conditions precedent. The Willis Stein
Group also agreed to vote its shares of voting stock of Donlar in favor of the
Merger.

     Donlar also reached agreement in 2002 with Dr. Robert Gale Martin
("Martin"), a director of Donlar and Biosyntrex, to (i) exchange approximately
$9.9 million of original principal amount of notes plus accrued interest for
shares of senior convertible preferred stock in the face amount of $9.0 million
and convertible into approximately 13.23 million shares of Donlar's common
stock, (ii) relinquish rights to receive royalty payments from Donlar or
Biosyntrex and all of his equity securities in Donlar in exchange for 5.0
million shares of Donlar's post-Merger common stock and (iii) surrender for
cancellation any warrants to purchase shares of Donlar stock for a warrant to
purchase 3.0 million shares of Donlar's post-Merger common stock at an exercise
price of $0.68 per share. Martin also agreed to vote his shares of voting stock
of Donlar in favor of the Merger.

     To further eliminate debt from Biosyntrex's balance sheet, Donlar is
seeking the agreement of the holders of approximately $1.9 million of original
principal amount of notes to exchange their notes for shares of senior

                                        2
<PAGE>

convertible preferred stock in the face amount of approximately $1.9 million and
convertible into approximately 2.8 million shares of Donlar's common stock.

PRODUCTS

     Biosyntrex's businesses are conducted through three product lines:

     - BioPolymers, consisting of the performance chemicals business acquired
       from Donlar;

     - AgriSciences, consisting of the agricultural businesses acquired from
       Donlar; and

     - Optim Nutrition, consisting of Biosyntrex's nutritional and
       nutraceuticals business.

     Donlar was organized 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, known as thermal polyaspartates ("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. Donlar has 140 global patents that protect its 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.

     Donlar developed and marketed several products utilizing TPA which are now
manufactured and marketed by Biosyntrex.

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

     Biosyntrex's historical nutritional and nutraceuticals business is being
phased out. Pursuant to the terms of the Loan Agreement, Biosyntrex has agreed
to complete the phase out of the nutritional and nutraceuticals business on or
before March 18, 2003.

EMPLOYEES

     As of December 31, 2001, Biosyntrex had 13 full-time employees.

CERTAIN BUSINESS CONSIDERATIONS AND RISK FACTORS

     The short and long-term success of Biosyntrex is subject to certain risks,
many of which are substantial in nature. Shareholders and prospective
shareholders in Biosyntrex should consider carefully the following factors, in
addition to other information contained in this report.
                                        3
<PAGE>

     History of Operating Losses; Uncertainty of Future Profitability. Both
Biosyntrex and Donlar have incurred significant net operating losses since their
formations. As of December 31, 2001, Biosyntrex, including the historical
financial results of Donlar, had an accumulated deficit of $96.2 million and a
total shareholders' deficit of $32.2 million. The factors contributing to these
significant operating losses include:

     - marketing expenditures;

     - acquisition expenses and costs;

     - expansion of research and development programs;

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

     - nutritional studies;

     - regulatory compliance requirements;

     - trials for other products under development; and

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

     Biosyntrex's future success and ability to achieve profitability depends
upon its ability to successfully operate the businesses acquired from Donlar.
There can be no assurance that Biosyntrex will ever achieve significant revenues
or profitable operations.

     Going Concern. The consolidated financial statements of Biosyntrex have
been prepared on the assumption that Biosyntrex will continue as a going
concern. Biosyntrex's independent public accountants have issued their report
dated April 5, 2002 that includes an explanatory paragraph stating that
Biosyntrex's recurring losses and accumulated deficit, among other things, raise
substantial doubt about its ability to continue as a going concern. Biosyntrex's
historical sales are limited and it has been necessary to rely upon financing
from debt and the sale of its equity securities to sustain operations.

     Debt Obligations. 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 Biosyntrex or Donlar 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. There can be no assurance that Biosyntrex and Donlar
will be able to comply with the covenants and events of default in the Loan
Agreement, some of which events of default are entirely beyond their respective
control. Even if there are no future defaults, the loans made under the bridge
loan facility are due and payable on March 18, 2003, at which time Biosyntrex
and Donlar must either pay or refinance it. There is no assurance that
Biosyntrex and Donlar will have the resources to pay the debt when it is due or
that the holders of the loans or any other source would be willing to provide
the resources to refinance the debt.

     Sale of Equity Securities; Future Dilution. Biosyntrex may need to sell
additional equity securities or obtain other forms of financing to fund its
operations. The Loan Agreement limits Biosyntrex's ability to issue additional
equity and to incur additional indebtedness without its lender's approval.
Absent such additional financing, Biosyntrex may find it necessary to postpone
or cancel some or all of its planned business activities. This could adversely
affect Biosyntrex's ability to conduct its business operations, generate future
revenues and introduce new products. There can be no assurance, however, that
additional financing will be available, or, if available, that it will be
available on acceptable terms or in required amounts. Furthermore, if additional
funds are raised by issuing shares of common stock or securities convertible
into common stock, those sales or conversion will result in further and possibly
substantial dilution of Biosyntrex's shareholders. Substantial dilution may make
it more difficult for investors to sell their shares or may result in a lower
price of Biosyntrex's securities.

     Volatility of Stock Price. The trading price of Biosyntrex's common stock
has been and is likely to continue to be subject to wide fluctuations in
response to the quarter-to-quarter variations in Biosyntrex's operating results,
material announcements by Biosyntrex or its competitors, governmental regulatory
action, conditions in the industries in which it operates, or other events or
factors, many of which are beyond

                                        4
<PAGE>

Biosyntrex's control. Biosyntrex's operating results in future quarters may be
below the expectations of securities analysts and 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. Moreover, Biosyntrex's common stock may be even more prone to
volatility than the securities of other businesses in light of the relatively
small number of shares held by non-affiliates of Biosyntrex. Given such a
relatively small public float, there can be no assurance that the prevailing
market price of common stock will not be artificially inflated or deflated by
trading even of relatively small amounts of common stock.

     Absence of Dividends. Biosyntrex has never declared or paid cash dividends
on its common stock and it does not anticipate that any cash dividends will be
declared on its common stock in the foreseeable future.

     Stages of Commercialization of Products. Donlar was founded in 1990 and
until 1996 was engaged principally in research and development activities, and
from 1996 through 2000, market development activities. These market development
activities have been continued by Biosyntrex since the acquisition of Donlar's
businesses. While the marketing of the TPA products has commenced in the crop
nutrition and oil field services area, Biosyntrex has not achieved full
commercialization, and its product applications are in various stages of
commercialization. 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 crop
nutrition and performance chemical products have been used commercially for only
a short period of time. Current and potential customers in the agricultural,
performance chemicals, and other fields in which Biosyntrex'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. Biosyntrex's
failure to develop, manufacture and commercialize TPA products on a timely and
cost effective basis would have a material adverse effect on Biosyntrex's
business, results of operations and financial condition.

     Need for Acceptance by Agricultural Customers. Biosyntrex's future success
in agriculture depends largely on acceptance of the TPA technology by
agricultural customers and the ability of Biosyntrex 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 Biosyntrex's products will
also depend to a large extent on recommendations of prior users. Although
research data has shown that the crop nutrition products marketed by Biosyntrex
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
and the type of crop and prevailing weather and soil conditions. There can be no
assurance that Biosyntrex will be able to demonstrate that the purchase of its
crop nutrition products will be consistently cost effective for the intended
users.

     The crop nutrition products marketed by Biosyntrex have been the subject of
agricultural industry media reports and articles. While a handful of these
reports and articles have been skeptical or negative in tone, Biosyntrex
attributes this critical comment to natural skepticism associated with new
products and technologies, competitive issues, and the limited number, and
general public unavailability, of farm field trial results. In addition, while
some reported university studies have suggested inconsistent performance results
from the products, management believes that these results may have been affected
by nonconformity with the recommended methods and rates of application and by
such variables as weather and soil conditions. Further, the purpose of many of
these studies was to establish recommended methods and rates of application,
rather than to validate the product's effectiveness. Biosyntrex's future success
will depend, in large part, on its ability to replicate Donlar's field trial
successes on an expanding scale in each crop growing season and to publicly
disseminate the results of those trials, not only to agricultural industry
media, but also directly to potential end users. There can be no assurance that
Biosyntrex will be successful in overcoming user resistance resulting from
adverse publicity regarding the crop nutrition products.

                                        5
<PAGE>

     Dependence on Patents and Protection of Proprietary Information.
Biosyntrex's success will depend, in part, on its ability to obtain patent
protection for the TPA processes, materials, and methods of use, to preserve
their trade secrets, and to operate without infringing the patent or other
proprietary rights of others. Donlar has been granted 48 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 92 foreign patents,
including patents granted by the European Community, South Africa, Israel,
Japan, Mexico, Russia and Egypt, and currently has numerous patent applications
pending in such jurisdictions. No assurance can be given that the patent
applications filed by Donlar will result in issued patents or that the scope and
breadth of any claims allowed in any patents issued to Donlar or Biosyntrex will
exclude competitors or provide competitive advantages to Biosyntrex. In
addition, there can be no assurance that any patents issued to Donlar or
Biosyntrex will be held valid if subsequently challenged, that others will not
claim rights in the patents and other proprietary technology owned by Donlar or
Biosyntrex, or that others have not developed or will not develop similar
products or technologies without violating any of Donlar's or Biosyntrex's
proprietary rights.

     Donlar's and Biosyntrex's inability to obtain patent protection, preserve
their trade secrets or operate without infringing the proprietary rights of
others, as well as their loss of any rights to technology that they now have or
acquire in the future, could have a material adverse effect on Biosyntrex's
business, results of operations and financial condition. Litigation, which could
result in substantial cost to, and diversion of effort by, Donlar and
Biosyntrex, may be necessary to enforce patents issued to Donlar or Biosyntrex,
to defend Donlar or Biosyntrex against infringement claims made by others, or to
determine the ownership, scope or validity of the proprietary rights of Donlar,
Biosyntrex and others. An adverse outcome in any such litigation could subject
Donlar and Biosyntrex to significant liabilities to third parties, require them
to seek licenses from third parties, and/or require them to cease using certain
technology, any of which could have a material adverse effect on Biosyntrex's
business, results of operations and financial condition.

     Donlar or Biosyntrex may also become involved in interference proceedings
declared by the United States Patent and Trademark Office ("PTO") in connection
with one or more of Donlar's or, in the future, Biosyntrex's patents or patent
applications to determine priority of invention. Any such proceeding could
result in substantial cost to Donlar or Biosyntrex, as well as a possible
adverse decision as to priority of invention of the patent or patent application
involved. In addition, Donlar or Biosyntrex may become involved in reissue or
reexamination proceedings in the PTO in connection with the scope or validity of
their patents. Any such proceeding could have a material adverse effect on their
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 their competitive position, Donlar and Biosyntrex, or either of
them, may initiate reexamination proceedings in the PTO with respect to patents
owned by others. Such proceedings could result in substantial cost to, and
diversion of effort by, Donlar and Biosyntrex, and an adverse decision in such
proceedings could have a material adverse effect on Biosyntrex's business,
results of operations and financial condition.

     Biosyntrex relies on trade secrets and proprietary know-how in the conduct
of the its operations. Donlar has used and, Biosyntrex now uses employee and
third-party confidentiality and non-disclosure agreements to protect such trade
secrets and know-how. There can be no assurance that the obligation to maintain
the confidentiality of such trade secrets or proprietary information will not
wrongfully be breached by employees, consultants, advisors or others, that
Donlar and Biosyntrex will have adequate remedies for any breach, or that the
trade secrets or proprietary know-how will not otherwise become known or be
independently developed or discovered by third parties.

     Projected Future Demand for Raw Material Exceeds Current Worldwide
Supply. The primary raw material in the TPA products, produced and sold by
Biosyntrex, is L-aspartic acid. Because L-aspartic acid accounts for a major
portion of Biosyntrex's finished goods costs, any material increase in the price
of this raw material could have a material adverse effect on Biosyntrex. There
are only a limited number of suppliers of L-aspartic acid worldwide and
substantially all of the commercially available L-aspartic acid is produced by
non-domestic sources. Biosyntrex currently purchases primarily from sources
outside the United States. Biosyntrex believes that the world supply of
L-aspartic acid is sufficient to meet its needs over the near term. It
                                        6
<PAGE>

is thus important for Biosyntrex's long-term growth that it secure a low cost
and consistent supply of L-aspartic acid.

     Competition. While Biosyntrex is not aware of any technology directly
competitive with its TPA products in the agricultural field, there are numerous
types of products that make claims as plant growth regulators and stimulants
that affect a plant's genetic or immune system. In the performance chemicals
field there is substantial competition by other chemical products, but also from
other manufacturers of polyaspartate type products using production methods that
may be outside the scope of Donlar's production patents and in target
applications that may be outside the scope of Donlar's methods of use patents.
The larger producers of other chemical products have substantially greater
financial and technical resources, larger research and development staffs, and
greater manufacturing and marketing capabilities than Biosyntrex. There can be
no assurance that Biosyntrex's performance chemicals products will compete
effectively against products produced by such competitors.

     Limited Manufacturing Capacity and Experience. Biosyntrex'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.
Biosyntrex has limited experience in high-volume manufacturing. With respect to
the Peru, Illinois manufacturing facility, Biosyntrex may incur significant
continuous operation costs.

     Reliance on a Single Manufacturing Facility. The Peru, Illinois plant is
Biosyntrex's sole manufacturing facility and the only facility capable of
producing its products in quantities sufficient to meet its projected needs.
While Biosyntrex 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 have a material adverse effect on Biosyntrex's business,
results of operations and financial condition.

     Uncertainty of Regulatory Approvals. Biosyntrex's crop nutrition products
may not be distributed in the various states without regulatory approval by the
applicable state agricultural agency. Obtaining such approval generally requires
that Biosyntrex demonstrate that the products are safe and efficacious over a
defined time period. Donlar has already obtained such approvals for the crop
nutrition products so that the products can be sold in 46 states. In addition,
Biosyntrex's products are subject to approval by foreign regulatory authorities.

     Reliance on Single Technology. Although Donlar has obtained numerous
patents covering manufacturing processes, composition and methods of use, all of
Biosyntrex's products are based on its TPA technology. The fields in which
Biosyntrex 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 Biosyntrex's products. There can
be no assurance that competitive products will not be introduced by third
parties or that competing materials based on different or new technologies may
not become commercially available. There can be no assurance that Biosyntrex's
competitors will not 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 Biosyntrex. Any of
the foregoing could have a material adverse effect on Biosyntrex's business,
results of operations and financial condition.

     Risks Associated with Rapid Growth. Biosyntrex's proposed growth will place
significant demands on its management, as well as its administrative,
operational and financial resources. Biosyntrex's ability to manage its future
growth will require Biosyntrex to implement new, and improve existing,
operational, financial and management information systems. Biosyntrex's success
will depend, in large part, upon its ability to attract and retain highly
qualified research and development, management, manufacturing and marketing and
sales personnel and to continue to motivate and manage its work force,
particularly its sales force. If Biosyntrex is unable to effectively manage any
of these factors, Biosyntrex's business, its financial condition and results of
operations could be materially and adversely affected. No assurance can be given
that Biosyntrex will experience growth or that it will be successful in managing
its growth, if any.

     Limited Marketing Experience. While Biosyntrex's sales force has experience
in marketing products to agricultural and performance chemicals end users,
Biosyntrex has limited experience in marketing and selling

                                        7
<PAGE>

the TPA products. To market its products effectively, Biosyntrex 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. Biosyntrex
currently maintains arrangements with third parties for distribution of certain
of its TPA products in the performance chemicals field and Biosyntrex expects to
enter into additional arrangements with third parties for the commercialization
and marketing of its products. Biosyntrex'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 current and potential product applications and, eventually, the distributors'
success in marketing and willingness to purchase Biosyntrex's products. There
can be no assurance that Biosyntrex will be successful in its marketing efforts,
that it will be able to establish adequate sales and distribution capabilities,
that it will be able to enter into or maintain marketing or distribution
arrangements with third parties on financially acceptable terms, or that any
third parties with whom it enters into such arrangements will be successful in
marketing its products.

     Reliance on Key Personnel. Biosyntrex's principal executive officers have
an average of over 25 years of collective experience in chemicals research,
development and sales. The loss of the services of these executive officers or
other key personnel, or the failure of Biosyntrex to attract and retain other
skilled and experienced personnel on acceptable terms, could have a material
adverse effect on Biosyntrex's business, results of operations and financial
condition.

     Customer Concentration. Biosyntrex has only recently begun commercial sales
of its agricultural and performance chemicals products. Biosyntrex sells its
crop nutrition products primarily to agricultural distributors and its
performance chemicals products to chemical service companies. While Biosyntrex
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 currently
represented the largest portions of Donlar's sales in the past. Thus, the loss
of any single customer could have a material adverse effect on Biosyntrex, its
results of operations and its financial condition.

     Markets for Crop Nutrition Products are Seasonal and Volatile. Demand for
Biosyntrex's crop nutrition products can be expected to be significantly
affected by agricultural conditions, which can be 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 Biosyntrex's operating
results may vary significantly from quarter to quarter.

     Environmental and Other Regulatory Matters. Like other manufacturers,
Biosyntrex 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. Donlar and
Biosyntrex have made expenditures to comply with such laws and requirements.
Biosyntrex believes, based on information currently available to management,
that it is in compliance with applicable environmental and other legal
requirements and that it 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 Biosyntrex develops new formulations for TPA products and
combine the 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 products such as those produced by Biosyntrex.
Biosyntrex's manufacturing processes do not currently result in the generation
of hazardous wastes. However, there can be no assurance that this will always be
the case, and there can be no assurance that material costs or liabilities will
not be incurred by Biosyntrex in the future as a result of the manufacturing
operations. It is also possible that other developments, such as additional or
increasingly strict

                                        8
<PAGE>

requirements of laws and regulations of these types, or enforcement policies
thereunder, could significantly increase Biosyntrex's costs of operations.

     Liability Risk. Products sold by Biosyntrex 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
Biosyntrex's instructions. Although product liability claims historically have
not had a material adverse effect on Donlar or Biosyntrex, there can be no
assurance that Biosyntrex will not be subject to or incur liability for such
claims in the future. Although Biosyntrex maintains product liability insurance
in amounts that management deems commercially reasonable, a significant claim
that is uninsured or partially insured could result in loss or deferral of
revenues, diversion of resources, or damage to Biosyntrex's reputation, any of
which could have a material adverse effect on Biosyntrex's business, operating
results, and financial condition.

     Special Statement Concerning Forward-looking Statements. This report, in
particular the "Business" and "Management's Discussion and Analysis or Plan of
Operation" sections, contains forward-looking statements concerning the
expectations and anticipated operating results of Biosyntrex. All of the
forward-looking statements contained in this report are made in reliance upon
the safe harbor protection for forward-looking statements provided by the
Securities Act and the Exchange Act. Numerous factors govern whether any
forward-looking statement made by Biosyntrex will be or can be achieved. Any one
of those factors could cause actual results to differ materially from those
projected by the forward-looking statements made in this report. These
forward-looking statements include plans and objectives of management for future
operations, including plans and objectives relating to the products and the
future economic performance of Biosyntrex. Forward-looking statements are based
on current expectations that may be affected by a number of risks and
uncertainties. They are also based on certain assumptions.

     Assumptions involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, which
are difficult or impossible to predict accurately and may be beyond the control
of Biosyntrex. Although Biosyntrex believes that the assumptions underlying the
forward-looking statements in this report are reasonable, any of these
assumptions could prove inaccurate. Therefore, there can be no assurance that
the results contemplated in any of the forward-looking statements will be
realized. Budgeting and other management decisions are subjective in many
respects and are susceptible to interpretations and periodic revision based on
actual experience and business developments, the impact of which may cause
Biosyntrex to alter its marketing capital expenditure plans or other budgets.
This will affect Biosyntrex's results of operations. In light of the significant
uncertainties inherent in the forward-looking statements, any such statement
should not be regarded as a representation by Biosyntrex or any other person
that the objectives or plans of Biosyntrex will be achieved.

ITEM 2. DESCRIPTION OF PROPERTIES

     Biosyntrex's marketing, sales, distribution and administrative operations
are located in an approximately 6,700 square foot office and laboratory space in
Bedford Park, Illinois which is leased from the Illinois Institute of
Technology. Biosyntrex's manufacturing operations are conducted in Donlar's
Peru, Illinois plant.

     To meet its initial projected production requirements for TPA, Donlar
constructed a TPA manufacturing facility in Peru, Illinois on a 40-acre parcel
purchased by Donlar in 1996. This 50,000 square foot facility currently contains
two chemical reactors, the larger of which is designed to produce nominally, 30
million pounds of TPA products annually. The facility is large enough to
accommodate additional reactors and Biosyntrex anticipates adding other reactors
serially over the next several years as demand for its products increases. This
expansion process is essentially modular and is not expected to involve
substantial engineering or technical expenses or delays. The Peru facility is
strategically located near barge, rail and road transportation facilities.

ITEM 3. LEGAL PROCEEDINGS

     None.

                                        9
<PAGE>

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

     None.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S 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. Biosyntrex's stock is currently quoted
on the NASD over-the-counter bulletin board under the symbol "DBSY.OB" The
following table contains information about the range of high and low bid prices
for the common stock for each full quarterly period within the two most recent
fiscal years, based upon quotations on the Nasdaq SmallCap Market (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, 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
December 31, 2000...........................................     $1.04     $0.79
September 30, 2000..........................................     $2.35     $2.04
June 30, 2000...............................................     $4.07     $3.29
March 31, 2000..............................................     $8.60     $7.50
</Table>

-------------------------
(1) The source of these high and low prices through November 26, 2000 was
    Nasdaq, and subsequent to November 26, 2000 was the NASD over-the-counter
    bulletin board. The Nasdaq quotations reflect inter-dealer prices, without
    retail mark-up, mark-down or commission, may not represent actual
    transactions, and have been rounded up to the next highest two decimal
    places. Subsequent to November 26, 2000, 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 Biosyntrex's quarterly operating results, general
trends in the market for Biosyntrex's products and product candidates, and other
factors, over many of which Biosyntrex 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 Biosyntrex's common stock,
regardless of Biosyntrex's actual or projected performance. On March 28, 2002,
the average of the closing bid and ask prices of the common stock on the NASD
over-the-counter bulletin board was $0.27 per share.

     On March 28, 2002, there were approximately 5,000 holders of record of
Biosyntrex's common stock.

     As of March 28, 2002, Biosyntrex had the following series of preferred
stock outstanding:

          Series A 10% Cumulative Convertible Preferred Stock -- 39,124 shares
     outstanding, convertible into 232 shares of common stock; and

          Series B 10% Cumulative Convertible Preferred Stock -- 449 shares
     outstanding, convertible into 3 shares of common stock.

DIVIDENDS

     Biosyntrex 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.

                                        10
<PAGE>

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 Biosyntrex's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere in this report.
See Item 7. -- "Financial Statements and Supplementary Data."

OVERVIEW

     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 described in Part I, Item 1. "Description of Business" of
this report, as a result of the transaction that were completed in 2000 and in
early 2001, all of the operational activities of Donlar, except for Donlar's
genetic research activities, are now conducted by Biosyntrex. The former Donlar
businesses are now Biosyntrex's principal businesses and Biosyntrex is phasing
out its nutritional and nutraceutical business. Biosyntrex'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.

     Biosyntrex's reorganized businesses are conducted through three product
lines:

     - BioPolymers, consisting of the performance chemicals business acquired
       from Donlar;

     - AgriSciences, consisting of the agricultural business acquired from
       Donlar; and

     - Optim Nutrition, consisting of Biosyntrex's nutritional and
       nutraceuticals business.

     Biosyntrex 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 Biosyntrex'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 Biosyntrex's TPA products can compete
on a cost/performance basis with conventional chemicals.

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

RESULTS OF OPERATIONS

     During the year ended December 31, 2001, Biosyntrex had revenues of
$2,352,834, compared to $1,381,994 for the year ended December 31, 2000. The
increase in revenues was due to growth in the BioPolymers product line from new
customers and new products.

     Cost of revenue was $2,639,022 in 2001, compared to cost of revenue of
$2,097,189 in 2000. This increase was due to the increased sales in 2001, 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 $1,121,749 in 2000 to $821,414
in 2001 due to a reduction in research projects undertaken and a related
reduction in staffing levels for research.

                                        11
<PAGE>

     Selling, general and administrative expenses increased from $3,689,944 in
2000 to $7,054,783 in 2001. This increase in 2001 was the result of a $1.45
million increase in the amortization of goodwill and $3.17 million in non-cash
expenditures incurred in 2001. These increases were offset by a $440,000
reduction in employee expenses due to staff reductions, a $75,000 reduction in
travel expenses, a $98,000 reduction in consulting fees paid in cash, a $110,000
reduction in professional fees and $124,000 reduction in advertising expenses.
The non-cash expenditures for consulting services represent payments of these
services in the Biosyntrex common stock.

     Other expense increased from $7,136,982 in 2000 to $13,302,928 in 2001 as a
result of an $864,434 write down of investments in 2001 partially offset by a
reduction in interest expense from $7.24 million in 2000 to $7.08 million in
2001 and as a result of a loss of $5,360,000 on repayment of a shareholder
receivable as discussed in Note K to the consolidated financial statements. In
addition, in 2000 Biosyntrex realized a gain of $100,000 on the sale of a
product line.

     As a result of the foregoing, the net loss increased from $12,663,870 in
2000 to $21,465,313 in 2001.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, Biosyntrex has been unable to finance its operations from
cash flows from operating activities. Biosyntrex was cash flow positive from
operations in the fourth quarter of 2001 and the first quarter of 2002 and
expects to be cash flow positive from operations for the year 2002. As of
December 31, 2001, Biosyntrex had cash of $3,746. In March of 2002, Biosyntrex
obtained additional bridge financing in connection with the restructuring of its
debt as described in Part I, Item 1. "Description of Business," but has no other
plans for its continued financing. Biosyntrex intends to continue in existence
through the operation of its businesses.

     Biosyntrex reduced its cash flows used in operations from $6,616,679 in
2000 to $1,773,455 in 2001, due to the continued effort to reduce costs and the
increased revenue during 2001. Biosyntrex has been able to decrease its
inventory levels by approximately $850,000 from 2000. In addition, it has
increased its accrued liabilities by approximately $3.2 million, primarily as a
result of accrued interest.

     Cash flows used in investing activities decreased to $100,329 in 2001 from
$423,670 during 2000. This is due to Biosyntrex limiting its capital
expenditures during 2001 and the fact that the costs associated with the reverse
merger transaction were incurred in 2000.

     Cash flows provided by financing activities decreased from $7,537,506
during 2000 to $1,001,095 during 2001. The cash from financing activities in
2000 resulted from the sale of convertible debt and the exercise of warrants.

     The audited consolidated financial statements of Biosyntrex have been
prepared on the assumption that it will continue as a going concern.
Biosyntrex's independent public accountants have issued their report dated April
5, 2002, that includes an explanatory paragraph stating that Biosyntrex's
recurring losses, among other things, raise substantial doubt about Biosyntrex's
ability to continue as a going concern.

                                        12
<PAGE>

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<Table>
<S>                                                             <C>
Index to Consolidated Financial Statements:
  Report of Independent Certified Public Accountants........    F-1
  Consolidated Balance Sheet as of December 31, 2001........    F-2
  Consolidated Statements of Operations for the Years Ended
     December 31, 2001 and 2000.............................    F-3
  Consolidated Statement of Shareholders' Deficit for the
     Years Ended December 31, 2001 and 2000.................    F-4
  Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2001 and 2000.............................    F-5
  Notes to Consolidated Financial Statements................    F-7
</Table>

ITEM 8. CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS

     None. Reference is made to Item 4. of the Current Report on Form 8-K filed
by Biosyntrex on December 4, 2000.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

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

<Table>
<Caption>
                        NAME                            AGE                   POSITION
                        ----                            ---                   --------
<S>                                                     <C>    <C>
Larry P. Koskan.....................................    59     Chief Executive Officer, President and
                                                               Chairman of the Board, November 2000
                                                               to present
Joel H. Lurquin.....................................    36     Controller and Treasurer, November
                                                               2000 to present
Robert P. Pietrangelo...............................    61     Vice President, November 2000 to
                                                               present; Chief Operating Officer, July
                                                               2001 to present
Robert W. Cooper(1)(2)..............................    73     Director
Dr. Robert G. Martin(2).............................    60     Director
Dean R. Kleckner(1)(2)..............................    70     Director
</Table>

-------------------------
(1) Member of Audit Committee

(2) Member of Compensation 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. 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. In July of 2001, he was appointed Chief
Operating Officer of the Company. 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
                                        13
<PAGE>

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. 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.

     Robert W. Cooper has served as a director of Donlar since June 1992. He has
been a principal of Cooper-Pruyn Architects, Ltd. since 1996 and President and
Chief Executive Officer of R.W. Cooper and Associates, a company providing
engineering and management services to the food processing, chemical and
building materials industries, since 1983. Mr. Cooper is a Registered
Professional Engineer in Illinois and is a member of ASCE and the Illinois
Society of Professional Engineers.

     Dr. Robert G. Martin has served as a director of Donlar since June 1992.
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.
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 Biosyntrex'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
Biosyntrex'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 Biosyntrex's independent public accountants and
reviews the scope and effect of the audit engagement.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the 1934 Act requires Biosyntrex's directors and executive
officers, and persons who own more than 10% of a registered class of
Biosyntrex's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Biosyntrex's common stock and
other equity securities. Officers, directors and greater than 10% shareholders
are required by SEC Regulations to furnish Biosyntrex with copies of all Section
16(a) reports they file. Based solely upon a review of the copies of such
reports furnished to Biosyntrex, with the exception stated below, Biosyntrex
believes that there was compliance for the year ended December 31, 2001 with all
Section 16(a) filing requirements applicable to Biosyntrex's greater than 10%
beneficial owners. Biosyntrex's officers and directors have not filed initial
reports on Form 3 with the SEC. Management is working with such persons to
prepare and file the required forms. Biosyntrex is not aware of any reportable
transactions by its officers and directors during 2001, except that Dr. Martin
purchased 385,000 shares in 2001 in open market transactions.

                                        14
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

     The following table sets forth the annual and long-term compensation in
fiscal years 2001, 2000 and 1999 for Biosyntrex's Chief Executive Officer and
Chief Operating Officer.

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                                                                      LONG TERM
                                              ANNUAL COMPENSATION                                COMPENSATION AWARDS
                             ------------------------------------------------------   -----------------------------------------
            (A)              (B)         (C)       (D)        (E)           (F)          (G)          (H)         PAYOUTS (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..........    2001      $159,623    -0-        -0-           -0-            -0-        -0-               -0-
  President and Chief        2000(1)   $ 30,833    -0-        -0-           -0-            -0-        -0-               -0-
  Executive Officer
Robert P. Pietrangelo....    2001      $161,367    -0-        -0-           -0-        500,000        -0-               -0-
  Vice President and Chief
  Operating Officer
Michael G. Acton.........    2000(2)   $100,000    -0-        -0-           -0-            -0-        -0-           $20,000(4)
  Chief Executive Officer    1999(2)   $100,000    -0-        -0-           -0-         48,000        -0-               -0-
</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) Adjusted to reflect all stock splits prior to the issuance of this report.

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

STOCK PLANS

     As of December 31, 2001, 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.

OPTION GRANTS IN FISCAL YEAR 2001

     The following table sets forth information concerning the grant of stock
options and stock appreciation rights (SARS) made under Biosyntrex's plans
during the fiscal year ended December 31, 2001 to each named executive officer:

                       OPTION GRANTS IN LAST FISCAL YEAR

<Table>
<Caption>
                                                  INDIVIDUAL GRANTS
                                               ------------------------
              (A)                   (B)            (C)           (D)          (E)          (F)            (G)
-------------------------------  ----------    ------------    --------    ----------    --------      ---------
                                                                                          POTENTIAL REALIZABLE
                                 NUMBER OF      % OF TOTAL                                  VALUE OF ASSUMED
                                 SECURITIES      OPTIONS       EXERCISE                  ANNUAL APPRECIATION FOR
                                 UNDERLYING     GRANTED TO     OR BASE                       OPTION TERM(2)
                                  OPTIONS      EMPLOYEES IN     PRICE      EXPIRATION    -----------------------
             NAME                 GRANTED      FISCAL YEAR     ($/SH.)        DATE        5%($)         10%($)
             ----                ----------    ------------    --------    ----------     -----         ------
<S>                              <C>           <C>             <C>         <C>           <C>           <C>
Robert P. Pietrangelo..........   500,000(1)      37.45         $0.20         2011       $62,889       $159,374
</Table>

-------------------------
(1) These options were granted at an exercise price equal to the per share
    market value of the common stock on the grant date. The 500,000 options
    become exercisable 20% percent each year beginning one year after the date
    of grant.

(2) The potential realizable value is calculated based on the term of the option
    (10 years) at its date of grant. It is calculated by assuming that the stock
    price on the date of grant ($0.20) appreciates at the indicated annual rate
    compounded annually for the entire term of the option; however, the optionee
    will not

                                        15
<PAGE>

    actually realize any benefit from the option unless the market value of the
    Company's common stock in fact increases over the option price.

     As part of the restructuring plan described in "Item 1: Description of
Business -- Restructuring Plan," if the Merger is completed all options
previously granted will be cancelled. It is anticipated that new options will be
issued by the surviving corporation in the Merger 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, 2001, as well as the aggregate number and value of unexercised
options held by such officers on December 31, 2001:

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUE

<Table>
<Caption>
                                                                 NUMBER OF SECURITIES
                                                                      UNDERLYING        VALUE OF UNEXERCISED
                                                                 UNEXERCISED OPTIONS    IN-THE-MONEY OPTIONS
                                 SHARES ACQUIRED                 AT DECEMBER 31, 2001   AT DECEMBER 31, 2001
                                  ON EXERCISES        VALUE        (#)EXERCISABLE/        ($)EXERCISABLE/
             NAME                    (#)(1)        REALIZED($)      UNEXERCISABLE         UNEXERCISABLE(2)
             ----                ---------------   -----------   --------------------   --------------------
<S>                              <C>               <C>           <C>                    <C>
Robert P. Pietrangelo..........        -0-             -0-           -0-/500,000            $-0-/$77,500
</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, 2001, the average of the closing bid and ask prices for
    Biosyntrex's common stock was $0.355.

COMPENSATION OF DIRECTORS

     Members of the Board of Directors who are not directly or indirectly
employed by Biosyntrex 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 common stock, respectively, at an exercise price of $0.20, for their
service on the board.

EMPLOYMENT CONTRACTS

     The Company entered into an employment agreement dated September 7, 2001,
with Robert P. Pietrangelo to serve as chief operating officer of the Company.
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
salary of $160,000, subject to annual increases at the discretion of the board
of directors, and is entitled to receive for 2001 (i) options to purchase
500,000 shares of the Company's common stock at $0.20 per share vesting in equal
annual increments over five years and (ii) options to purchase an additional
500,000 shares of the Company's common stock at $0.20 per share immediately
vested in full if the Company achieves $2.0 million in sales in 2001 and the
Company's sales exceed expenses by December 31, 2001.

     Donlar entered into an employment agreement dated July 1, 1996, with Larry
Koskan to serve as President and Chief Executive Officer of Donlar Corporation.
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 his employment agreement, then Mr. Koskan is entitled to severance

                                        16
<PAGE>

pay in a lump sum amount equal to his base compensation for the twenty-four
months immediately preceding the termination.

REPORT ON REPRICINGS OF OPTIONS/SARS

     None.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     To Biosyntrex's knowledge, the following table sets forth information
regarding ownership of Biosyntrex's outstanding common stock on March 28, 2002
by beneficial owners of more than 5% of the outstanding shares of common stock.
No director or executive officer of Biosyntrex owns any common stock.

<Table>
<Caption>
                                                                      SHARES OF COMMON STOCK
                                                                        BENEFICIALLY OWNED
                     NAME AND ADDRESS                         ---------------------------------------
                  OF BENEFICIAL OWNER(1)                        NUMBER          PERCENTAGE OF CLASS
                  ----------------------                        ------          -------------------
<S>                                                           <C>              <C>
Donlar Corporation........................................    33,279,520                68.2%
6502 South Archer Road
Bedford Park, IL 60501
Lasalle Bank(2)...........................................     8,000,000                16.4%
135 South LaSalle Street
Chicago, IL 60603
</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 48,816,662 shares of common stock outstanding as of
    March 28, 2002 (as adjusted for shares deemed to be beneficially owned by
    such shareholder).

(2) The 8,000,000 shares of common stock owned by Lasalle Bank were previously
    pledged to Lasalle Bank as collateral for a loan to a shareholder of Donlar.
    For a description of the pledge, see "Item 5. Other information." in
    Biosyntrex's quarterly report on Form 10-QSB for the quarter ended June 30,
    2001. Pursuant to an agreement between Lasalle Bank and the Donlar
    shareholder, the 8,000,000 shares were transferred to Lasalle Bank in March
    of 2002.

     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 approved
  by security holders...............          1,874,509               1.37                      125,491
Equity compensation plans not
  approved by security holders......         N/A                       N/A                     N/A
Total...............................          1,874,509               1.37                      125,491
</Table>

                                        17
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Donlar Corporation -- Donlar acquired 96% of Biosyntrex on November 3,
2000.

     In November 2000 and January 2001, pursuant to an amended stock purchase
agreement and an amended asset purchase agreement between Biosyntrex and Donlar,
Biosyntrex issued 41,279,520 million shares of common stock, par value $0.0001
per share, representing approximately 96% of Biosyntrex's shares outstanding on
a fully diluted basis, in a private placement to Donlar. Biosyntrex issued those
shares in exchange for $2,413,500 in cash and the transfer to Biosyntrex from
Donlar of the exclusive right to distribute, and the exclusive right to all
future sales from Donlar's agricultural, industrial and consumer products. In
addition, Donlar transferred to Biosyntrex all technology, know how and patents
for the crop nutrition management and oil field services businesses created
after November 3, 2000, as well as all technology resulting from Donlar
pharmaceutical research and development activities after November 3, 2000.
Donlar's ownership interest in Biosyntrex has decreased since January 2001 as a
result of transfers of common stock by Donlar and issuances of additional common
stock by Biosyntrex.

     Christopher D. Illick -- Mr. Illick was the Chairman of Biosyntrex's Board
of Directors until he resigned in the fourth quarter of 2000.

     Biosyntrex had a Consulting Agreement with Christopher D. Illick, one of
Biosyntrex's directors and a member of its Compensation and Audit Committees.
That Consulting Agreement provided for Mr. Illick's services as a director of
Biosyntrex and as a member of Biosyntrex's Compensation and Audit Committees.
Pursuant to that Consulting Agreement, Biosyntrex issued Mr. Illick 45 shares of
common stock each month during his service as a director.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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, 2001
          Consolidated Statements of Operations for the Years Ended December 31,
           2001 and 2000
          Consolidated Statement of Shareholders' Deficit for the Years Ended
           December 31, 2001 and 2000
          Consolidated Statements of Cash Flows for the Years Ended December 31,
           2001 and 2000
           Notes to Consolidated Financial Statements

        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:

<Table>
<Caption>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<C>           <S>
   2.1        Stock Purchase Agreement, dated as of August 7, 2000,
              between Biosyntrex Systems, Inc. and Donlar Corporation.(10)
   2.2        Asset Purchase Agreement, dated as of August 7, 2000,
              between Biosyntrex Systems, Inc. and Donlar Corporation.(10)
   3.1        Amended and Restated Articles of Incorporation(5)
   3.2        Amended and Restated Bylaws (adopted March 22, 1996)(5)
   3.3        Certificate and Statement of Determination of Rights and
              Preferences of Series A 10% Cumulative Convertible Preferred
              Stock(5)
   3.4        Certificate and Statement of Determination of Rights and
              Preferences of Series B 10% Cumulative Convertible
              Non-Voting Preferred Stock(5)
</Table>

                                        18
<PAGE>

<Table>
<Caption>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<C>           <S>
   3.5        Certificate and Statement of Determination of Rights and
              Preferences of Series D 8% Cumulative Convertible Non-Voting
              Stock(5)
   3.6        Certificate of Amendment to the Designation of Rights and
              Preferences Related to Series A 10% Cumulative Convertible
              Preferred Stock(5)
   3.7        Certificate and Statement of Determination of Rights and
              Preferences of Series C 8% Cumulative Convertible Non-Voting
              Preferred Stock(5)
   3.8        Certificate and Statement of Determination of Rights and
              Preferences of Series E, 8% Cumulative Convertible Preferred
              Stock(6)
   3.9        Certificate of Amendment of Determination of Rights and
              Preferences of Series F, 8% Cumulative Convertible Preferred
              Stock(6)
   3.10       Amendment to Determination of Rights and Preferences of
              Series F Preferred(6)
   3.11       Certificate and Statement of Determination of Rights and
              Preferences of Series G, 8% Cumulative Preferred Stock(6)
   3.12       Amendment to Designation of Rights and Preferences of Series
              G Preferred(6)
   3.13       Certificate and Statement of Determination of Rights and
              Preferences of the Series J, 8% Cumulative Convertible
              Preferred Stock(6)
   4.1        Form of Common Stock Certificate(3)
   4.3        Form of Series A 10% Cumulative Convertible Preferred Stock
              Certificate(3)
   4.4        Form of Series B 10% Cumulative Convertible Preferred Stock
              Certificate(2)
   4.5        Form of Series D 8% Cumulative Convertible Preferred Stock
              Certificate(1)
   4.6        Form of Series C 8% Cumulative Convertible Preferred Stock
              Certificate(5)
   4.7        Form of Series E Certificate(6)
   4.8        Form of Series F Certificate(6)
   4.9        Form of Series G Amendment(6)
   4.10       Form of Series J Certificate(6)
   4.11       Bridge and Consolidated Term Loan Agreement, dated March 18,
              2001, among Biosyntrex, Donlar and Tennessee Farmers Life
              Insurance Company
  10.43       Office Lease Agreement(2)
  10.50       Thomas Q. Garvey, III Indemnification Agreement(2)
  10.51       St. Luke's-Roosevelt Hospital Center Statement of
              Agreement(2)
  10.52       Michael G. Acton Agreement(2)
  10.53       Frank A. Eldredge Agreement(2)
  10.54       James Dalton Agreement(2)
  10.60       Amended License Agreement with PTI(1)
  10.77       1995 Stock Incentive Plan(1)
  10.80       Incentive Stock Option Agreement with Michael G. Acton (May
              4, 1995)(1)
  10.82       Amended 1995 Stock Incentive Plan(1)
  10.83       Non-Qualified Stock Option Agreement with Christopher D.
              Illick(1)
  10.84       Schedule Identifying Other Non-Qualified Stock Option
              Agreements(1)
  10.85       Incentive Stock Option Agreement with Frank A. Eldredge(1)
  10.86       Schedule Identifying other Incentive Stock option
              Agreements(1)
  10.95       Lease Agreement with Young Electric Sign company(5)
  10.97       Form of Registration Rights Agreement (Series C
              Preferred)(5)
</Table>

                                        19
<PAGE>

<Table>
<Caption>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<C>           <S>
  10.98       Form of Investor Questionnaire and Subscription Agreement
              (Series C Preferred)(5)
  10.108      License Agreement with Biomed Patent Development LLC(5)
  10.112      First Amendment to Amended License Agreement with PTI(5)
  10.113      Contract with ML Industries(6)
  10.114      Contract with Medical Foods, Inc.(6)
  10.115      Contract with Harrogate Marketing LLC(6)
  10.116      Rockwood Purchase Agreement, as amended(6)
  10.117      Marketing and Consulting Services Agreement between
              Biosyntrex Systems, Inc., and Harrogate Marketing, L.L.C.
              dated as of August 14, 1999(7)
  10.118      Contract with Amerifit Nutrition, Inc.(8)
  10.119      License Agreement with Amerifit Nutrition, Inc.(8)
  10.120      Contract with ICN Pharmaceutical(8)
  10.121      Schedules to ICN Pharmaceutical Contract(8)
  10.122      Non-Competition Agreement with Amerifit Nutrition, Inc.(8)
  10.123      1999 Stock Option and Incentive Plan of Biosyntrex effective
              as of January 1, 1999(9)
  10.124      Form of Incentive Stock Option Grant and Agreement between
              Biosyntrex and certain directors, officers and employees of
              Biosyntrex(9)
  10.125      Form of Stock Option Grant and Agreement between Biosyntrex
              and certain directors, officers and employees of
              Biosyntrex(9)
  10.126      Form of Stock Award Letter.(9)
  10.127      Promissory Note in the principal amount of $1,115,024.80,
              dated as of August 7, 2000.(10)
  10.130      Capital Contribution, Assignment and Assumption
              Agreement(11)
  10.131      Form of Consulting Agreement with Peter Frugone(12)
  10.132      Form of Consulting Agreement with Media Relations Strategy,
              Inc.(13)
  10.133      Form of 2001 Equity Incentive Plan(14)
  10.134      Form of Employment Agreement dated September 7, 2001,
              between Biosyntrex and Robert P. Pietrangelo(15)
  10.135      Form of Employment Agreement dated July 1, 1996, between
              Donlar and Larry Koskan(15)
  23.1        Consent of Grant Thornton LLP(15)
  99.1        Statement of Chief Executive Officer Pursuant to Section
              1350 of Title 18 of the United States Code.
  99.2        Statement of Controller and Chief Accounting Officer
              Pursuant to Section 1350 of Title 18 of the United States
              Code.
</Table>

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

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

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

 (3) 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.

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

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

                                        20
<PAGE>

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

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

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

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

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

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

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

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

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

(15) Incorporated by reference to Biosyntrex's Annual Report on Form 10-KSB for
     fiscal year ended December 31, 2001.

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

         None.

                                        21
<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 BIOSYNTREX CORPORATION
                                          (Registrant)

                                                  /s/ LARRY P. KOSKAN
                                          --------------------------------------
                                          By:      Larry P. Koskan
                                          Its:      President and Chief
                                          Executive Officer
                                          Date:    December 9, 2002

                                        22
<PAGE>

                                 CERTIFICATION

     I, Larry P. Koskan, certify that:

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

     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;

     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;

     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:

          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;

          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
     annual report (the "Evaluation Date"); and

          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;

     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):

          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

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

     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.
                                          /s/ LARRY P. KOSKAN
                                          --------------------------------------
                                          Larry P. Koskan, President and
                                          Chief Executive Officer
Dated: December 9, 2002

                                        23
<PAGE>

                                 CERTIFICATION

     I, Joel Lurquin, certify that:

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

     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;

     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;

     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:

          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;

          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
     annual report (the "Evaluation Date"); and

          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;

     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):

          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

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

     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.

                                          /s/ JOEL H. LURQUIN
                                          --------------------------------------
                                          Joel H. Lurquin, Controller and
                                          Chief Accounting Officer

Dated: December 9, 2002

                                        24
<PAGE>

                 DONLAR BIOSYNTREX 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, 2001..........    F-2
Consolidated Statements of Operations for the Years Ended       F-3
  December 31, 2001 and 2000................................
Consolidated Statement of Shareholders' Deficit for the         F-4
  Years Ended December 31, 2001 and 2000....................
Consolidated Statements of Cash Flows for the Years Ended       F-5
  December 31, 2001 and 2000................................
Notes to Consolidated Financial Statements..................    F-7
</Table>

                                        25
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
  Donlar Biosyntrex Corporation

     We have audited the consolidated balance sheet of Donlar Biosyntrex
Corporation (formerly Biomune Systems, Inc.) and Subsidiaries as of December 31,
2001, and the related consolidated statements of operations, shareholders'
deficit, and cash flows for the years ended December 31, 2001 and 2000. 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 Biosyntrex Corporation and Subsidiaries as of December 31, 2001, and the
consolidated results of their operations, shareholders' deficit and cash flows
for the years ended December 31, 2001 and 2000, 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, 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.

     As discussed in note S, the accompanying consolidated financial statements
for the years ended December 31, 2000 and 2001, have been restated.

                                          GRANT THORNTON LLP

Chicago, Illinois
April 5, 2002, except for Note S for which the date is November 27, 2002.

                                       F-1
<PAGE>

                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                               DECEMBER 31, 2001

<Table>
<Caption>
                                                               (RESTATED)
<S>                                                           <C>
ASSETS
Current assets
  Cash......................................................  $      3,746
  Receivables, less allowance for doubtful accounts of
     $16,997................................................       504,915
  Inventories, net..........................................     1,842,244
  Prepaid expenses..........................................        93,274
  Other current assets......................................        39,335
                                                              ------------
          Total current assets..............................     2,483,514
Property, plant and equipment, net..........................     9,569,100
Other assets................................................        40,908
                                                              ------------
                                                              $ 12,093,522
                                                              ============

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
  Short term notes payable..................................  $  7,734,782
  Current portion of convertible debt.......................     1,751,027
  Payables and accrued expenses.............................     9,088,793
                                                              ------------
          Total current liabilities.........................    18,574,602
Notes payable...............................................     9,000,000
Convertible debt............................................    16,713,219
Shareholders' deficit
  Preferred stock, $.0001 par value.........................       197,797
  Common stock, $.0001 par value............................            --
  Treasury Stock............................................            --
  Additional paid-in capital................................    63,935,407
  Stock subscriptions receivable............................       (31,987)
  Deferred stock compensation...............................      (115,208)
  Accumulated deficit.......................................   (96,180,308)
                                                              ------------
          Total shareholders' deficit.......................   (32,194,299)
                                                              ------------
                                                              $ 12,093,522
                                                              ============
</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>
                                                                  2001           2000
                                                              ------------   ------------
                                                               (RESTATED)     (RESTATED)
<S>                                                           <C>            <C>
Revenues....................................................  $  2,352,834   $  1,381,994
Cost of revenue.............................................     2,639,022      2,097,189
Research and development....................................       821,414      1,121,749
Selling, general and administrative.........................     7,054,783      3,689,944
                                                              ------------   ------------
          Total operating expenses..........................    10,515,219      6,908,882
                                                              ------------   ------------
Loss from operations........................................    (8,162,385)    (5,526,888)
Other income (expense)
  Interest expense..........................................    (7,078,494)    (7,236,982)
  Write down of investments to market.......................      (864,434)            --
  Loss on repayment of shareholder receivable...............    (5,360,000)            --
  Gain on sale of product line..............................            --        100,000
                                                              ------------   ------------
          Total other expense...............................   (13,302,928)    (7,136,982)
                                                              ------------   ------------
Loss before income taxes....................................   (21,465,313)   (12,663,870)
Provision for income taxes..................................            --             --
                                                              ------------   ------------
          Net loss..........................................   (21,465,313)   (12,663,870)
Preferred stock dividends and beneficial conversion
  premium...................................................            --         (2,625)
                                                              ------------   ------------
          Net loss applicable to common shares..............  $(21,465,313)  $(12,666,495)
                                                              ============   ============
Per common share
  Basic
     Net loss...............................................          (.48)          (.31)
  Diluted
     Net loss...............................................          (.48)          (.31)
  Weighted average shares of common stock outstanding
     Basic..................................................    44,772,087     41,339,356
     Diluted................................................    44,772,087     41,339,356
</Table>

        The accompanying notes are an integral part of these statements.
                                       F-3
<PAGE>

                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
                       TWO YEARS ENDED DECEMBER 31, 2001
<Table>
<Caption>
                                                             SERIES A           SERIES B
                                      COMMON STOCK        PREFERRED STOCK    PREFERRED STOCK     ADDITIONAL        SHAREHOLDER
                                     SHARES     AMOUNT   SHARES    AMOUNT    SHARES   AMOUNT   PAID-IN CAPITAL   NOTE RECEIVABLE
                                   ----------   ------   ------   --------   ------   ------   ---------------   ---------------
<S>                                <C>          <C>      <C>      <C>        <C>      <C>      <C>               <C>
Balance at January 1, 2000
  (Restated).....................   4,866,067    $--     27,643   $134,947    449     $6,740     $48,540,610        $(458,835)
Net loss.........................          --     --         --         --     --        --               --               --
Issuance of warrants for
  services.......................          --     --         --         --     --        --          540,000               --
Repayment of shareholder
  receivable.....................          --     --         --         --     --        --               --          414,503
Exercise of warrants.............  33,410,460     --     10,956     53,485     --        --        4,000,000               --
Issuance of warrants in
  connection with debt...........          --     --         --         --     --        --          663,282               --
Amortization of deferred
  compensation...................          --     --         --         --     --        --               --               --
Capital contribution.............   4,722,968     --         --         --     --        --        1,776,614               --
Vesting of stock options and
  warrants.......................          --     --         --         --     --        --           22,680               --
Issuance of shareholder
  receivable.....................   8,000,000     --         --         --     --        --        8,000,000               --
Preferred stock dividends........          --     --        525      2,625     --        --               --               --
                                   ----------    ---     ------   --------    ---     ------     -----------        ---------
Balance at December 31, 2000
  (restated).....................  50,999,500     --     39,124    191,057    449     6,740       63,543,186          (31,987)
Net loss.........................          --     --         --         --     --        --               --               --
Issuance of warrants for
  services.......................          --     --         --         --     --        --          403,900               --
Issuance of common stock.........          --     --         --         --     --        --          714,593               --
Issuance of stock for
  services.......................   2,458,079     --         --         --     --        --        2,184,248               --
Exercise of warrants.............     418,000     --         --         --     --        --           49,000               --
Repayment of shareholder
  receivable.....................   8,000,000     --         --         --     --        --       (2,640,000)              --
Amortization of deferred
  compensation...................          --     --         --         --     --        --               --               --
Vesting of stock options and
  warrants.......................          --     --         --         --     --        --            1,880               --
Cancellation of stock options....          --     --         --         --     --        --         (321,400)              --
                                   ----------    ---     ------   --------    ---     ------     -----------        ---------
Balance at December 31, 2001.....  45,875,579    $--     39,124   $191,057    449     $6,740     $63,935,407        $ (31,987)
                                   ==========    ===     ======   ========    ===     ======     ===========        =========

<Caption>

                                    TREASURY      DEFERRED     ACCUMULATED
                                     STOCK      COMPENSATION     DEFICIT         TOTAL
                                   ----------   ------------   ------------   ------------
<S>                                <C>          <C>            <C>            <C>
Balance at January 1, 2000
  (Restated).....................          --    $      --     $(62,048,500)  $(13,759,208)
Net loss.........................          --           --      (12,663,870)   (12,663,870)
Issuance of warrants for
  services.......................          --     (295,000)              --        245,000
Repayment of shareholder
  receivable.....................          --           --               --        414,503
Exercise of warrants.............          --           --               --      4,000,000
Issuance of warrants in
  connection with debt...........          --           --               --        663,282
Amortization of deferred
  compensation...................          --       12,292               --         12,292
Capital contribution.............          --           --               --      1,776,614
Vesting of stock options and
  warrants.......................          --           --               --         22,680
Issuance of shareholder
  receivable.....................   8,000,000           --               --      8,000,000
Preferred stock dividends........          --           --           (2,625)            --
                                   ----------    ---------     ------------   ------------
Balance at December 31, 2000
  (restated).....................   8,000,000     (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 common stock.........          --           --               --        714,593
Issuance of stock for
  services.......................          --           --               --      2,184,248
Exercise of warrants.............          --           --               --         49,000
Repayment of shareholder
  receivable.....................  (8,000,000)          --               --     (2,640,000)
Amortization of deferred
  compensation...................          --      870,625               --        870,625
Vesting of stock options and
  warrants.......................          --           --               --          1,880
Cancellation of stock options....          --           --               --       (321,400)
                                   ----------    ---------     ------------   ------------
Balance at December 31, 2001.....          --    $(115,208)    $(96,180,308)  $(32,194,299)
                                   ==========    =========     ============   ============
</Table>

        The accompanying notes are an integral part of these statements.

                                       F-4
<PAGE>

                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEARS ENDED DECEMBER 31,

<Table>
<Caption>
                                                                  2001           2000
                                                              ------------   ------------
                                                               (RESTATED)     (RESTATED)
<S>                                                           <C>            <C>
Cash flows from operating activities
  Net loss..................................................  $(21,465,313)  $(12,663,870)
  Adjustments to reconcile net loss to net cash used in
     operating activities
     Depreciation and amortization..........................     1,289,712        934,939
     Issuance of stock, options and warrants for services...     2,848,353        267,680
     Repayment of Shareholder Receivable....................     5,360,000             --
     Gain on sale of product line...........................            --       (100,000)
     Interest expense related to amortization of debt
       discount.............................................     3,414,664      3,431,547
     Write-down of goodwill.................................     1,189,923             --
     Write-down of investment to market.....................       864,434             --
     Change in assets and liabilities
       Receivables..........................................      (310,621)       (30,984)
       Inventories..........................................       848,769        404,516
       Prepaid expenses and other assets....................       211,816       (135,292)
       Payable and accrued expenses.........................     3,974,808      1,274,785
                                                              ------------   ------------
          Net cash used in operating activities.............    (1,773,455)    (6,616,679)
Cash flows from investing activities
  Purchase of property and equipment........................      (100,329)       (84,717)
  Acquisition costs.........................................            --       (338,953)
                                                              ------------   ------------
          Net cash used in investing activities.............      (100,329)      (423,670)
Cash flows from financing activities
  Principal repayments of convertible notes.................      (135,498)      (392,203)
  Proceeds from notes payable...............................       418,000      3,000,000
  Issuance of common stock..................................       714,593      1,776,614
  Proceeds from exercise of warrants........................        49,000      1,000,000
  Payments received on stock subscription receivable........            --        414,503
  Principal repayment of notes payable......................       (45,000)    (1,253,408)
  Proceeds from issuance of convertible notes...............            --      2,917,000
  Borrowings on line of credit..............................            --         75,000
                                                              ------------   ------------
          Net cash provided by financing activities.........     1,001,095      7,537,506
                                                              ------------   ------------
Net (decrease) increase in cash and cash equivalents........      (872,689)       497,157
Cash at beginning of year...................................       876,435        379,278
                                                              ------------   ------------
Cash at end of year.........................................  $      3,746   $    876,435
                                                              ============   ============
Supplemental disclosure of cash flow information
  Interest paid.............................................  $    655,457   $  1,925,137
  Income tax paid...........................................            --             --
</Table>

                                       F-5
<PAGE>

<Table>
<Caption>
                                                                  2001           2000
                                                              ------------   ------------
                                                               (RESTATED)     (RESTATED)
<S>                                                           <C>            <C>
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 $74,639.
  In 2000, Biomune Systems, Inc. was acquired by Donlar
     Corporation through an Asset Purchase Agreement in
     exchange for approximately 96% of Biomune's stock
</Table>

  The transaction was accounted for as a reverse acquisition and the fair
value of the Company was allocated as follows:

<Table>
<S>                                                        <C>            <C>
Accounts receivable......................................                 $     18,355
Notes receivable.........................................                       74,639
Fixed assets.............................................                      125,000
Inventory................................................                      168,040
Investments..............................................                      864,434
Goodwill.................................................                    1,213,120
Other assets.............................................                       38,236
Acquisition costs........................................                      338,953
Liabilities assumed......................................                   (1,140,777)
                                                                          ------------
                                                                          $  1,700,000
                                                                          ============
</Table>

        The accompanying notes are an integral part of these statements.

                                       F-6
<PAGE>

                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     Donlar Biosyntrex Corporation ("Donlar Biosyntrex") and subsidiaries
(collectively the "Company") are in the early commercialization stage of a new
family of environmentally friendly biodegradable polymers, known as thermal
polyaspartates ("TPA"). During 2001, the Company changed its name from Biomune
Systems, Inc. The Company manufactures and markets these polymers to
agricultural, industrial and consumer markets. In the agricultural market, the
products increase a plant's ability to absorb nutrients more efficiently. In the
industrial and consumer markets, the products replace nonbiodegradable
chemicals, and have been focused toward the oil field production, water
treatment, detergents and cleaners, and personal care fields. The Company
markets these products to service companies and distributors in the United
States of America and Europe.

     The Company also is engaged in the distribution and sale of biologic
nutraceutical supplements. Certain of the nutraceutical supplements incorporate
a patented whey protein technology licensed by the Company and designed to
provide or increase protective immunities to disease and to provide nutritional
supplementation. Nutraceutical products are food supplements that are derived
from a food base and are marketed as a beneficial source of nutrients to promote
good health. The Company sells these products primarily to nutritional companies
located in the United States of America. The Company has discontinued these
nutraceutical operations during 2002.

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 accounting acquiree. The
enclosed financial statements are based on Donlar Corporation's historical
financial statements until the date of acquisition, November 3, 2000. From this
date on, the financial statements include the activity of both Donlar Biosyntrex
and Donlar Corporation.

     The consolidated financial statements also include the accounts of Donlar
Biosyntrex' wholly-owned subsidiary, Optim Nutrition, Inc., and Donlar
Corporation's 90%-owned subsidiary, Donlar Pharmaceutical Corporation. All
significant intercompany balances and transactions have been eliminated.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

     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.

INVESTMENT IN EQUITY SECURITIES

     The Company's investment 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.

                                       F-7
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company estimates that the fair value of all financial instruments at
December 31, 2001, 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 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, plant 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. Expenditures
for maintenance and repairs are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property 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 the 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 by the shortfall.

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 weighted average shares for the period from January 1, 2000 to November
3, 2000, assumes the reverse acquisition took place at the beginning of the 2000
fiscal 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 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, 2001, 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 is being
amortized over five years.

     The Company assesses the recoverability of its goodwill whenever adverse
events or changes in circumstances or business climate indicate that expected
future undiscounted cash flows may not be sufficient

                                       F-8
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)


GOODWILL -- CONTINUED

to support recorded goodwill. If impairment exists, the carrying amount of
goodwill will be reduced by the estimated shortfall of discounted cash flows.
See note C.

     The Company will adopt the provisions of SFAS 142 "Goodwill and Intangible
Assets" as of January 1, 2002. The major provisions of this statement are
discussed in the New Accounting Pronouncements section.

INVESTMENTS

     The Company accounts for its investments in affiliates using the lower of
cost or market method.

REVENUE RECOGNITION

     Revenue is recognized upon shipment of the product.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses include amounts paid to third-party and
related-party consultants related to the Company's 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 years ended December 31, 2001 and 2000, advertising expenses totaled
approximately $92,000 and $216,000, respectively, and are included in other
general and administrative expenses in the accompanying statements of
operations.

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.

ACCOUNTING FOR STOCK-BASED COMPENSATION

     The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees," in accounting for its
employee stock options. The Company has adopted the disclosure-only provisions
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-based Compensation." 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.

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.
                                       F-9
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)


CONCENTRATION OF CREDIT RISK -- CONTINUED

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 PRONOUNCEMENTS

     SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other
Intangible Assets" -- On June 29, 2001, the Financial Accounting Standards Board
(FASB) approved for issuance SFAS 141, "Business Combinations," and SFAS 142,
"Goodwill and Other Intangible Assets." The FASB issued these Statements on July
20, 2001. Major provisions of these Statements include the following:

     - All business combinations initiated after June 30, 2001 must use the
       purchase method of accounting. The pooling method of accounting is
       prohibited except for transactions initiated before July 1, 2001.

     - Intangible assets acquired in a business combination must be recorded
       separately from goodwill if they meet explicit criteria in SFAS 141.

     - Any negative goodwill remaining after reducing the carrying value of
       certain acquired assets to zero is recognized as an extraordinary gain.

     - SFAS 141 provisions relating to the initial measurement and recording of
       goodwill and intangible assets, as well as financial statement
       disclosures, are effective for purchase business combinations completed
       after June 30, 2001.

     - Goodwill and those intangible assets that have indefinite lives are not
       amortized but are tested for impairment annually and whenever there is an
       impairment indicator. In certain circumstances, goodwill impairment
       testing need not be done annually. All acquired goodwill must be assigned
       to reporting units for purposes of impairment testing.

     - SFAS 142 is effective for fiscal years beginning after December 15, 2001.
       Early adoption is permitted for companies with fiscal years beginning
       after March 15, 2001 but only if they have not issued their first quarter
       financial statements prior to adoption. Regardless of the full adoption
       date, the nonamortization provisions of SFAS 142 are effective for
       business combinations and other transactions completed after June 30,
       2001.

     - The Statements also include guidance on financial statement presentation
       and disclosures.

     Management does not expect this pronouncement will have an impact on the
Company's 2002 financial statements.

     SFAS 143 "Accounting for Asset Retirement Obligations" -- SFAS 143 states
that a liability for an asset retirement obligation should be recognized if the
obligation meets the definition of a liability in the FASB Concepts Statement 6,
Element of Financial Statements, and if the amount of the liability can be
reasonably estimated. Consequently, an 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 assets, and (c) the
transaction or other event obligating the entity has occurred. When a retirement
obligation is initially recognized, the asset retirement cost is

                                       F-10
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)


NEW ACCOUNTING PRONOUNCEMENTS -- (CONTINUED)

capitalized by increasing the carrying amount of the related long-lived asset by
an amount equal to the liability.

     The initial asset retirement obligation should be recorded at fair value.
Subsequent to the initial measurement, an entity should recognize changes in the
amount of the liability resulting from both the passage of time and revisions to
either the timing or amount of the estimated cash flows.

     SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002.

     SFAS 144 "Impairment or Disposal of Long-Lived Assets" -- was issued to
address significant implementation issues related to SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and to develop a single accounting model to account for long-lived assets
to be disposed of. SFAS 144 supersedes SFAS 121 as well as the provisions of
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, that address the disposal of a segment of a
business. SFAS 144 also amends ARD 51, Consolidated Financial Statements, to
eliminate the exception to consolidate a subsidiary for which control is likely
to be temporary.

     SFAS 144 carries over the recognition and measurement provisions in SFAS
121. Accordingly, an entity should recognize an impairment loss if the carrying
amount of a long-lived asset or asset group (a) is not recoverable and (b)
exceeds its fair value. SFAS 144 requires an entity to 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 provides guidance on
using the probability-weighted approach or the best-estimate approach in
developing estimated future cash flows to test recoverability.

     Unlike SFAS 121, SFAS 144 includes criteria that have to be met for an
entity to classify a long-lived asset or asset group as held for sale. If the
criteria to classify an asset as held for sale are met after the balance sheet
date but before issuance of the financial statements, the asset group would
continue to be classified as held and used in those financial statements when
issued. The measurement of a long-lived asset or asset group classified as held
for sale is at the lower of its carrying amount or fair value less cost to sell.
Expected future losses associated with the operations of a long-lived asset or
asset group classified as held for sale are excluded from that measurement.

     SFAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.

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,
2001, the Company had an accumulated deficit of $90,822,933, a shareholders'
deficit of $32,194,299 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. 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 or obtaining necessary funding from outside
sources. Management's plan with respect to this uncertainty includes obtaining
additional financing from the Company's principal lender, reorganizing the
Company and

                                       F-11
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- GOING CONCERN -- CONTINUED

converting debt to equity, evaluating new products and markets, and minimizing
overhead and other costs. 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 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
activities 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's 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 through December 31, 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 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

                                       F-12
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- ACQUISITION -- CONTINUED

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)
                                                               -----------
                                                               $ 1,700,000
                                                               ===========
</Table>

     The acquisition 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 is being amortized over five years.

     Following is the summarized unaudited pro forma combined results of
operations for the year ended December 31, 2000, assuming the acquisition had
taken place at the beginning of the year. The unaudited pro forma results are
not necessarily indicative of future results or results that would have been
reported had the acquisition been completed when assumed.

<Table>
<S>                                                            <C>
Net sales...................................................   $  1,893,508
Loss before extraordinary item..............................    (18,654,135)
Net loss....................................................    (19,704,238)
Basic loss per share........................................          (2.38)
</Table>

     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 was
$1,189,923 for the year ended December 31, 2001, and goodwill was reduced to
zero.

NOTE D -- DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

<Table>
<S>                                                            <C>
Inventories
  Finished goods............................................   $ 1,215,697
  Raw materials.............................................     1,843,876
  Reserve for obsolescence..................................    (1,217,329)
                                                               -----------
                                                               $ 1,842,244
                                                               -----------
Payables and accrued expenses
  Trade payables............................................   $ 1,498,394
  Accrued interest..........................................     5,188,538
  Accrued other.............................................     2,401,861
                                                               -----------
                                                               $ 9,088,793
                                                               ===========
</Table>

                                       F-13
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E -- PROPERTY, PLANT AND EQUIPMENT

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

<Table>
<Caption>
                                                              USEFUL LIFE     AMOUNT
                                                              -----------   -----------
<S>                                                           <C>           <C>
Land........................................................                $   566,782
Building....................................................    30 years      5,820,273
Laboratory and plant equipment..............................  5-10 years      7,467,403
Furniture and fixtures......................................   5-7 years        205,151
Leasehold improvements......................................   1-4 years         56,008
                                                                            -----------
  Total property, plant and equipment.......................                 14,115,617
Less accumulated depreciation and amortization..............                  4,546,517
                                                                            -----------
  Property, plant and equipment, net........................                $ 9,569,100
                                                                            ===========
</Table>

NOTE F -- INVESTMENT AND ADVANCES TO AFFILIATE

     Donlar Biosyntrex has advanced, loaned and invested a total of $2,156,377
to three companies under common control (Rockwood Company LLC, Twin Eagles LLC
and Cypress) during 1998 and 1999. The loan was for $500,000 and bears interest
at 8% and matures on January 15, 2006. No interest income has been received on
the loan during 2001 or 2000. These advances, loan and investments were fully
reserved for prior to Donlar Corporation's acquisition of Donlar Biosyntrex and
had a net book value of $-0- at December 31, 2001 and 2000.

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%, net of unamortized debt
     discount of $-0- at December 31, 2001..................   $3,000,000
  Unsecured note payable to shareholder and director of
     Donlar Corporation, due December 31, 2001, bearing
     interest at prime plus 2%..............................       50,000
  Unsecured note payable to shareholder and director of
     Donlar Corporation, due September 6, 2002, with no
     stated interest rate...................................       21,000
  Demand note payable to shareholder of Donlar Corporation,
     bearing interest at 11%, collateralized by a stock
     pledge agreement covering all of the shares of the
     Donlar Biosyntrex common stock currently held by Donlar
     Corporation............................................      252,000
</Table>

                                       F-14
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- NOTES PAYABLE -- CONTINUED

<Table>
<S>                                                            <C>
  Unsecured note payable to shareholder of Donlar Biosyntrex
     due July 17, 2002, bearing interest at prime plus 2%...       50,000
  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, net of
     unamortized debt discount of $769,725 at December 31,
     2001...................................................    4,361,782
                                                               ----------
                                                               $7,734,782
                                                               ==========
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 Biosyntrex's assets.............................   $9,000,000
                                                               ----------
                                                               $9,000,000
                                                               ==========
</Table>

     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% (6.75% at December 31, 2001) and had a maturity date
of April 30, 2001. The note was amended and now has a maturity date of October
31, 2002. Donlar Corporation issued Dr. Martin warrants to purchase shares of
its common stock at $0.01 a share. The total amount of warrants is 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.

     In August 1996, Donlar Corporation received $26,000,000 in exchange for (a)
unsecured notes payable, which are convertible into shares of Donlar
Corporation's Series A and B preferred stock, (b) Series C preferred stock of
Donlar Corporation, (c) shares in one of the Donlar Corporation's subsidiaries,
(d) warrants to purchase common stock of Donlar Corporation and (e) future
royalty payments. The proceeds were allocated to the equity instruments and
liabilities based upon estimated fair market value as follows. The fair value of
the expected stream of royalty payments was estimated to be $3,500,000. The
Series C preferred stock's primary feature was voting rights. The stock had no
liquidation preference or redemption or conversion features, nor did it provide
for dividends. Since this stock had only minimal value, a nominal $1,000 was
estimated to be the fair market value. The shares of Donlar Corporation's
subsidiary were assigned a value of $1,000, since the subsidiary had no
operations and the subsidiary was subsequently dissolved. The value of the
warrants was estimated to be zero since they were performance-based warrants,
which management estimated would not be exercisable based on projections. The
face amount of the convertible notes was $26,000,000. A debt discount totaling
$3,502,000 was recorded and was amortized over the three-year period of the
related debt.

     The convertible notes contained an automatic conversion provision. In 1997,
holders of convertible notes aggregating $4,000,000 (face amount) surrendered
their notes following a notice and request by Donlar Corporation for conversion.
On December 31, 1999, the holders of the notes aggregating $22,000,000 entered
into a settlement agreement with Donlar Corporation. Under the terms of the
settlement agreement (a) Donlar Corporation paid at closing on December 31,
1999, a combined $8 million in cash and $9 million

                                       F-15
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- NOTES PAYABLE -- CONTINUED

in 10% seven-year notes to the holders of the notes (b) the warrants and
royalties and Donlar Corporation's Series B and C preferred stock were
cancelled, (c) the convertible notes were converted into 20,278,456 shares of
Donlar Corporation's Series A preferred stock. These convertible note holders
are entitled to receive one share of Donlar Corporation's common or Series A
preferred stock for every three shares of common or Series A preferred stock
issued by Donlar Corporation in the future as a result of the exercise or
conversion of options, warrants and convertible debt of Donlar Corporation
outstanding at December 31, 1999, with exercise or conversion prices greater
than $1.00 per share.

     On October 8, 1999, Donlar Corporation borrowed $5,131,507 from Dr. Martin,
in exchange for a $5,131,507, 11% note payable due on September 30, 2002. The
note requires quarterly interest only payments prior to the lump-sum principal
repayment in 2002. The note is collateralized by a second lien on Donlar
Corporation's patents. These interest payments were not made in 2001.

     In connection with this transaction, Donlar Corporation issued Dr. Martin
seven-year warrants to purchase 12,000,000 shares of Donlar Corporation's Series
A preferred stock at $0.23 per share. The proceeds from issuance of the note and
warrants, $5,131,507, were allocated to the note ($2,052,603) and paid-in
capital ($3,078,904) based on the relative fair values of the securities issued.

     Dr. Martin deposited into an escrow account $1,000,000, which was paid to
holders of convertible notes in connection with closing the settlement agreement
transaction on December 31, 1999. In exchange for the $1,000,000, Donlar
Corporation issued to Dr. Martin a one-year unsecured note, bearing interest at
10%, due on December 31, 2000. In addition, Donlar Corporation issued to Dr.
Martin seven-year warrants to purchase 4,347,826 shares of Donlar Corporation's
Series A preferred stock at $0.23 per share. The value of the warrants was
$2,811,739, computed using the Black-Scholes option pricing method. The
$1,000,000 proceeds were allocated to the note ($262,348 net of debt discount)
and paid-in capital ($737,652) for the warrants based on the relative fair value
of the securities issued. The note was paid in full on December 31, 2000.

     All of the notes mentioned above were issued to shareholders of either
Donlar Corporation or Donlar Biosyntrex.

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.

     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, net of
  unamortized debt discount of $0 at December 31, 2001......   $   763,500
Note payable to bank, collateralized by all Donlar
  Corporation's tangible and intangible assets, due January
  1, 2005, bearing interest at 10% per annum, convertible
  into shares of Donlar Corporation's common stock at $1.01
  per share, net of unamortized debt discount of $1,322,352
  at December 31, 2001......................................    15,789,636
</Table>

                                       F-16
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- NOTES PAYABLE -- CONTINUED


CONVERTIBLE DEBT -- CONTINUED

<Table>
<S>                                                            <C>
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 $290,498 at December 31,
  2001......................................................     1,476,464
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.....................................       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 $715,354 at December 31, 2001.................       284,646
                                                               -----------
                                                                18,464,246
Less current portion........................................     1,751,027
                                                               -----------
                                                               $16,713,219
                                                               ===========
</Table>

     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 is being amortized over a
36-month period beginning April 15, 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.

     During 1997, Donlar Corporation borrowed $5,000,000 from a commercial bank,
supported by the commitment of a group of insurance companies, which were
shareholders of Donlar Corporation to purchase the applicable note and mortgage
from the bank. The note bore interest at 9.77% and required quarterly interest
only payments in 1998 and quarterly interest and principal payments based on a
15-year amortization schedule for the next four years with the remaining balance
due on January 1, 2003. The loan was required to be repaid on completion of an
initial public offering with a 1% prepayment penalty if an offering were
completed in 1998. The note was collateralized by a mortgage on Donlar
Corporation's Peru, Illinois real estate and its equipment.

     In 1998, the $5,000,000 note payable described in the preceding paragraph
and 915,000 shares of Donlar Corporation's Series A preferred stock owned by the
group of insurance companies (referred to above) was purchased by Donlar
Corporation and restructured into a 7% five-year note convertible into shares of
common stock at $5.00 per share or 85% of the per share value of a future public
offering or strategic equity investment in Donlar Corporation of at least
$15,000,000. Cash proceeds to Donlar Corporation were $1,400,000. Interest of
$478,067 was recorded over the seven-month period until the outstanding
obligation equaled the face amount of the note, $12,032,357, on February 1,
1999. Thereafter, Donlar Corporation was required to make quarterly principal
and interest payments on a 15-year amortization schedule and a final balloon
payment on April 1, 2003. The convertible note was collateralized by all the
tangible assets of Donlar Corporation.

                                       F-17
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- NOTES PAYABLE -- CONTINUED


CONVERTIBLE DEBT -- CONTINUED

     With the agreement of the note holder, the two $323,465 payments of
principal and interest scheduled for July 1 and October 1, 1999, were deferred
until December 30, 1999, at which time, Donlar Corporation and the note holder
restructured the note, accrued interest and late fees on the note as well as an
additional $5,000,000 of cash proceeds to Donlar Corporation, into a new
$17,639,648 convertible note.

     The amended and restated note bears interest at 10% and requires quarterly
interest and principal payments based on a 15-year amortization schedule, with
the remaining balance due January 1, 2005. The note is convertible in whole or
in part into shares of Donlar Corporation's Series A preferred stock at an
exercise price of $1.01 per share. The note is collateralized by all Donlar
Corporation's tangible and intangible assets. In connection with the issuance of
the note, Donlar Corporation granted the insurance companies a 7-year warrant
for the purchase of 6,025,171 shares of Donlar Corporation's common stock at an
exercise price of $0.01 per share. The $5,000,000 proceeds were allocated to the
note $2,796,146 and paid-in capital $2,203,854 based on the relative fair value
of the securities issued.

     In 2000, Donlar Corporation received $1,767,000 from certain shareholders
in exchange for (a) five year 15% notes convertible into shares of Donlar
Corporation's Series A preferred stock at $1.01 per share, or $0.505 per share
in the event of an initial public offering, and (b) five year warrants to
purchase 773,062 shares of Donlar Corporation's Series A preferred stock at
$0.01 per share. The cash proceeds were allocated to the note and warrant based
on the relative fair value of the securities issued. The value of the warrants
was $587,527 calculated using the Black Scholes option pricing model. The
$1,767,000 proceeds were allocated to the note $1,326,079 and paid-in-capital
for the warrants $440,921 based on the relative fair value of securities issued.

     In 2000, Dr. Martin paid $1,000,000 for (a) five year 15% notes convertible
into shares of Donlar Corporation's Series A preferred stock at $0.77 per share,
or $0.385 per share in the event of in initial public offering and (b) five year
warrants to purchase 4,069,262 shares of Donlar Corporation's Series A stock at
$0.01 per share. Dr. Martin was also granted a 1% royalty on all Donlar
Corporation sales for five years. The cash proceeds were allocated to the note,
warrant and royalty obligation based on the relative fair value of the
securities issued and the present value of the projected revenue stream. The
value of the warrants was $3,092,639 calculated using the Black Scholes option
pricing model. The $1,000,000 proceeds were allocated to the note ($244,341) and
paid-in-capital for the warrants ($755,659) based on the relative fair value of
securities issued. An additional debt discount was recorded on this note because
of its beneficial conversion factor. This additional discount left the book
value of the note at $-0-.

     Another 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 $18,314,246 (net of debt discount of
$2,328,204) at December 31, 2001, in notes, which were issued to shareholders of
Donlar Corporation.

                                       F-18
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DEBT MATURITIES

     At December 31, 2001, the notes payable and convertible debt mature as
follows:

<Table>
<S>                                                            <C>
  2002......................................................   $10,255,536
  2003......................................................       711,287
  2004......................................................       785,128
  2005......................................................    17,545,006
  2006......................................................     9,000,000
                                                               -----------
                                                                38,296,957
  Less imputed interest.....................................     3,097,929
                                                               -----------
                                                               $35,199,028
                                                               ===========
</Table>

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,
                                                              -------------
                                                              2001    2000
                                                              -----   -----
<S>                                                           <C>     <C>
Federal income tax benefit at statutory rate................   34.0%   34.0%
State income tax benefit....................................    4.6     4.6
Permanent differences.......................................  (13.2)   (5.5)
Valuation allowance.........................................  (25.4)  (33.1)
                                                              =====   =====
Federal income tax benefit at statutory rate................   00.0%   00.0%
                                                              =====   =====
</Table>

     Deferred tax assets are comprised of the following:

<Table>
<S>                                                            <C>
Net operating loss carryforwards............................   $21,152,000
Write-down of assets........................................       663,000
Allowance for bad debts.....................................         5,000
Inventory...................................................        87,000
Other accounts..............................................        30,000
Valuation allowance.........................................   (21,937,000)
                                                               -----------
                                                               $        --
                                                               ===========
</Table>

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

     As of December 31, 2000, the Company had net operating loss carryforwards
("NOL's") for Federal income tax reporting purposes of approximately
$55,000,000. These NOL's will expire over time between 2001 through 2020. There
can be no assurance that all of these NOL's 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 NOL's were generated. Additionally, the Internal Revenue Code contains
other provisions, which could reduce or limit the availability and utilization
of these NOL's. For example, limitations are imposed on the utilization of NOL's
if certain ownership changes have

                                       F-19
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- INCOME TAXES -- CONTINUED

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 NOL's, the Company has established a valuation allowance for
all of its deferred income tax assets.

     The Company could be subject to alternative minimum tax, which the NOL's
cannot be used to offset; however, an assessment has not yet been determined.

NOTE I -- GAIN ON SALE OF PRODUCT LINE

     In January 2000, the Company sold its Nite Bite product line for
$1,482,000. A retention reserve of 10% was established in the amount of
$148,200. The retention reserve had an allowance booked against it at the date
Donlar Biosyntrex was acquired by Donlar Corporation. In February 2001, the
Company received the full retention reserve of $148,200 and determined that at
December 31, 2000, no reserve was necessary and a gain of $100,000 was recorded.

NOTE J -- COMMON AND PREFERRED STOCK

     The following is a listing of Donlar Biosyntrex authorized common and
preferred stock as of December 31, 2001.

     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:

     - 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 similar items.

     - 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 lesser of $1.10 or per share fair value of Company's common stock.

     - 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 lesser of $1.10 or per share fair value of Company's common stock.

     - Series G 8% cumulative, 750,000 non-voting shares authorized.

     - 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 E, F, G or J preferred stock were outstanding as of
December 31, 2001.

NOTE K -- EQUITY TRANSACTIONS

     In January 2001, Donlar Corporation sold 1,500,000 shares of its common
stock for $714,593, which was contributed to the Company.

                                       F-20
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE K -- EQUITY TRANSACTIONS -- CONTINUED

     In January 2001, the Company entered into an agreement with a media
relations firm. This agreement is for one year and the Company issued 500,000
shares of Donlar Biosyntrex's common stock in connection with the execution of
the agreement. The Company recorded $468,750 of general and administrative
expenses, which is the fair value of the stock issued.

     Additionally, the Company issued the media relations firm 750,000 shares of
Donlar Biosyntrex's common stock to be held in an escrow account until
completion of the terms of the agreement. The fair value of these 750,000 shares
was recorded as deferred compensation in the amount of $703,125. This amount is
being amortized over one year, the life of the agreement, as adjusted for
changes in fair value over the term of the agreement. On August 3, 2001, the
750,000 shares were released from escrow and delivered to the media relations
firm and the remaining deferred compensation was reversed and transferred to
additional paid in capital.

     In April 2001, the Company entered into a management services agreement
with an investment advisor. In exchange for the services performed relating to
potential acquisitions, the Company issued 1,000,000 shares of Donlar
Biosyntrex's common stock to the investment advisor. The Company recorded
$1,230,000 in general and administrative expenses during April 2001 equal to the
fair value of these shares.

     On May 11, 2001, the Company issued a warrant to purchase 500,000 shares of
common stock at $2.50 a share to the investment advisor referred to above. In
connection with this transaction, the Company recorded $403,900 of general and
administrative expenses which is the fair value of the warrant issued. The fair
value of the warrant is estimated using the Black-Scholes pricing model, with an
expected volatility of 145%, a risk-free interest rate of 5%, and 0% dividend
yield. On June 6, 2001, this investment advisor partially exercised the warrant
to purchase 18,000 shares.

     In November 2000, the Company had issued and delivered 8,000,000 shares of
the Company's common stock to Dr. Donald Sanders, a shareholder and former
director of Donlar Corporation, so that he could pledge that stock to a
commercial bank as collateral for a loan. The bank has advised the Company and
Donlar Corporation that the loan has not been paid and substituted collateral
has not been provided. The bank continues to hold the shares. At the time of
issuance, the Company received no consideration for the shares. Donlar
Corporation has since agreed to the surrender for cancellation of an equal
number of company shares held by Donlar Corporation.

     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 and,
based on the August 13, 2001 share price of $.33, resulting in a loss of
$5,360,000 on Donlar Biosyntrex.

NOTE L -- 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

                                       F-21
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L -- STOCK OPTIONS AND WARRANTS -- CONTINUED

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 year of
        Donlar Biosyntrex immediately preceding the date of grant, or

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

     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                            WEIGHTED AVERAGE
                                              SHARES      EXERCISE PRICE RANGE     EXERCISE PRICE
                                             ---------    --------------------    ----------------
<S>                                          <C>          <C>                     <C>
Outstanding at January 1, 2000...........      149,169     $    2.50-1,190.00        $   33.80
  Granted................................           --                     --               --
  Exercised..............................      (94,000)             2.50-5.00             3.70
  Canceled...............................       (5,400)        10.00-1,170.00           569.55
                                             ---------     ------------------        ---------
Outstanding at December 31, 2000.........       49,769          2.50-1,190.00            28.25
  Granted................................    1,325,000                    .20              .20
  Exercised..............................           --                     --               --
  Cancelled..............................         (260)     1,170.00-1,190.00         1,185.38
                                             ---------     ------------------        ---------
Outstanding at December 31, 2001.........    1,374,509              .20-1,190              .78
                                             =========
Exercisable at December 31, 2001.........      434,509     $       .20-219.80        $    2.33
                                             =========     ==================        =========
</Table>

     When accounting for the issuance of stock options and warrants, financial
accounting standards allow entities the choice between adopting a fair value
method or an intrinsic value method with footnote disclosures of the pro forma
effects if the fair value method had been adopted. Donlar Biosyntrex has opted
for the latter approach. Had Donlar Biosyntrex options and warrants been
determined based on the fair value method, the results of operations would have
been reduced to the pro forma amounts indicated below:

<Table>
<Caption>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                               2001           2000
                                                           ------------   ------------
<S>                                                        <C>            <C>
Net loss applicable to common shares -- as reported......  $(16,105,313)  $(12,663,870)
Net loss applicable to common shares -- pro forma........   (16,184,963)   (12,663,870)
Basic loss per common share -- as reported...............          (.35)          (.38)
Basic loss per common share -- pro forma.................          (.35)          (.38)
</Table>

                                       F-22
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L -- 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       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Expected dividend yield.....................................  $     --   $     --
Expected stock price volatility.............................       124%        80%
Risk-free interest rate.....................................      4.48%      5.25%
Expected life of options....................................   7 years    2 years
</Table>

     The weighted average fair value of options granted during 2001 was $.20.

     During the year ended December 31, 2000, the Board of Directors of Donlar
Biosyntrex elected to change the exercise price of the options to purchase
84,000 shares issued during 1999, from $5.00 per share to $2.50 per share. These
options are treated as variable options under Accounting Principles Board
Opinion No. 25 and related interpretations, and Donlar Biosyntrex recorded
compensation expense of $520,500 prior to the reverse acquisition transaction.

     The following table summarizes information about Donlar Biosyntrex stock
options outstanding at December 31, 2001:

<Table>
<Caption>
                  OUTSTANDING                                EXERCISABLE
-----------------------------------------------   ---------------------------------
                                     WEIGHTED
                                     AVERAGE      WEIGHTED                 WEIGHTED
                                    REMAINING     AVERAGE                  AVERAGE
   RANGE OF           NUMBER       CONTRACTUAL    EXERCISE     NUMBER      EXERCISE
EXERCISE PRICE    OUTSTANDING AT   LIFE (YEARS)    PRICE     EXERCISE AT    PRICE
--------------    --------------   ------------   --------   -----------   --------
<S>               <C>              <C>            <C>        <C>           <C>
$.00 -    .20...    1,325,000          4.71        $ .20       385,000      $ .20
..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          4.64        $ .78       434,509      $1.37
                    =========          ====        =====       =======      =====
</Table>

     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 at January 1, 2000..................        --     $      --         $  --
  Granted.......................................   650,000           .01           .01
  Exercised.....................................        --            --            --
  Canceled......................................        --            --            --
                                                  --------     ---------         -----
Outstanding at December 31, 2000................   650,000           .01           .01
  Granted.......................................   500,000          2.50          2.50
  Exercised.....................................  (418,000)     .01-2.50           .20
  Cancelled.....................................        --            --            --
                                                  --------     ---------         -----
Outstanding at December 31, 2001................   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

                                       F-23
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L -- STOCK OPTIONS AND WARRANTS -- CONTINUED

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 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 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 an 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.

NOTE M -- 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 to the legally defined deferral limit.
Donlar Corporation may make discretionary contributions. As of December 31, 2001
and 2000, Donlar Corporation has not made any contributions to the plan.

NOTE N -- RELATED-PARTY TRANSACTIONS

     During 2000, Donlar Corporation entered into a management consulting
agreement with a shareholder and director of Donlar Corporation. The agreement
provides that in consideration of the services provided by the consultant, a
consulting fee will be earned, equivalent to 1% of all sales of polymer products
that occur during each year of the term of the agreement (expense and paid or
accrued). The initial payment is to be made on or before April 15, 2001, and a
final payment on or before April 15, 2010. The amount accrued at December 31,
2001, was approximately $28,500.

     During 2000, Donlar Corporation entered into an agreement with the former
president of Donlar Biosyntrex, whereby he will act as a consultant to Donlar
Corporation for a period of one year in exchange for a consulting fee of
$125,000 payable on equal monthly installments. The entire fee was paid during
2001 through the issuance of additional shares of the Company stock.

NOTE O -- OPERATING LEASES

     The Company leases its facilities related to continuing operations under
noncancellable operating leases, which expire through February 2006. Lease
expense for years ended December 31, 2001 and 2000, was approximately $226,763
and $51,000, respectively. Future minimum lease commitments are as follows:

<Table>
<Caption>
FISCAL YEAR                                                    AMOUNT
-----------                                                    -------
<S>                                                            <C>
2002........................................................   $21,416
2003........................................................    11,460
2004........................................................    11,460
2005........................................................     8,982
2006........................................................       594
                                                               -------
                                                               $53,912
                                                               =======
</Table>

                                       F-24
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE P -- 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 except that minimum annual payments of $50,000 are
required to be made beginning year 2000. 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
$9,557 and $10,874 for the years ended December 31, 2001 and 2000, respectively.
The amount accrued at December 31, 2001, was approximately $163,000.

     Donlar Corporation maintains an employment agreement expiring on June 30,
2003, 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 maintains an employment agreement expiring on September
7, 2003, renewing for three additional years if certain sales goals are met,
with a certain key employee providing for minimum aggregate annual payments of
$160,000 plus an automobile allowance and severance in the event of termination.
Under the agreement, the employee is also eligible for incentive cash and stock
bonuses.

     Donlar Corporation and Dr. Gerald Gleich, Vice President of Research of its
subsidiary, Donlar Pharmaceutical Corporation, entered into an agreement in May,
1997, whereby Donlar Corporation purchased certain patents relating to the use
of polyaspartates in a wide variety of allergic conditions. In return for those
patents, Dr. Gleich was granted a 10% interest in Donlar Pharmaceutical
Corporation and the right to receive royalties on sales of products based on
those patents at rates ranging from 0.5% to 2.0%, to a maximum aggregate royalty
of $10 million. No value has been assigned to the acquired patents. The length
of time involved in realizing the value from a pharmaceutical patent makes such
a valuation not determinable.

HARROGATE MARKETING

     On April 1, 2000, the Company terminated its marketing agreement with
Harrogate Marketing ("Harrogate") and entered into a settlement agreement. This
agreement required the Company to pay $400,000 in cash for full satisfaction of
all payments and commissions under the marketing agreement. In addition,
Harrogate incurred additional liabilities in connection with the distribution of
the Company's products under the agreement. The parties agreed that the Company
would pay up to $200,000 of these costs. If additional liabilities exist,
Harrogate would receive up to $300,000 of proceeds on any sale of the right to
the Mountain Lift bar (a product distributed by the Company), which exceeded
$1,000,000. The parties have agreed that the Company is responsible for
approximately $120,000 of payables. During 2001, the Company paid approximately
$47,000 of these payables, with the balance of approximately $73,000 recorded in
accounts payable at December 31, 2001.

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, the disposition of any such matters would not have a material effect
on the consolidated financial position of the Company.

NOTE Q -- 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, 2001 and 2000.

                                       F-25
<PAGE>
                 DONLAR BIOSYNTREX CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE Q -- SIGNIFICANT SOURCE OF REVENUES -- CONTINUED


<Table>
<Caption>
                                                          PERCENTAGE OF      PERCENTAGE OF
                                                          NET REVENUES    ACCOUNTS RECEIVABLE
                                                          -------------   -------------------
                                                          2001    2000           2001
                                                          -----   -----   -------------------
<S>                                                       <C>     <C>     <C>
Customer A..............................................  12.7%   29.1%           0.0%
Customer B..............................................  23.6    10.3           38.5
Customer C..............................................  21.6     4.1           20.1
</Table>

NOTE R -- SUBSEQUENT EVENTS

     On March 18, 2002 the Company entered into a bridge loan of approximately
$2.1 million. The loan agreement states proceeds are to be used to pay down
certain accounts payable, certain short-term debt and pay for expenses related
to the future restructuring of the Company. The bridge loan bears interest at
11% and has a maturity date of March 18, 2003. As a condition to this new loan
the Company had to obtain approval of a debt restructuring from some of its
other noteholders.

     In addition, the terms of the existing loan to the Company are expected to
be renegotiated to make the obligation total approximately $19,200,000, which
will reflect the original loans and accrued interest. The restated loans will be
divided into two loans. The first loan will have a principal balance of
$10,180,000, bears interest at 9%, until March 18, 2003, at which time interest
will be payable. Principal payments are to be made at $222,500 per quarter. Any
unpaid principal and interest will be due on March 31, 2007. The second loan
will have a principal balance of $9,000,000 and bear interest at 1%, no payments
will be required until March 31, 2005. Any unpaid principal and interest will be
due on March 31, 2007.

     Each of the loans will be convertible at the option of the holder into
common stock of Donlar Biosyntrex. The restated loans will convert at a rate of
one share per $0.68 of outstanding principal of the loans.

     In addition, two major debt holders will exchange approximately $18,800,000
of notes payable into convertible preferred stock.

     The restructuring plan calls for Donlar Biosyntrex to be merged into Donlar
Corporation during 2002. The shareholders of Donlar Biosyntrex will receive 0.26
shares of Donlar Corporation's common stock for each share of Donlar Biosyntrex.

NOTE S -- RESTATEMENT

     At December 31, 2000, debt discount, interest expense, net loss and per
share amounts have been adjusted from previously reported amounts to reverse
repayment of Donlar Corporation debt in the amount of $3,000,000 and the
exercise of 19,559,432 common shares and 16,408,324 preferred shares of Donlar
Corporation stock in the amount of $3,000,000. The transaction could not be
completed due to the lack of authorized shares. The financial statements have
been corrected to reflect the unwinding of the transaction. Net loss for the
year ended December 31, 2000, was increased by $1,050,103 ($0.03 per share).

     On November 27, 2002, the Company determined that the November 2000
issuance of 8,000,000 shares of common stock as discussed in Note J should have
been recorded at fair value of $8,000,000, offset by a contra receivable in the
same amount. Further, the Company determined that the August 2001 surrender by
Donlar Corporation of 8,000,000 shares in satisfaction of the receivable should
be treated at fair value, resulting in an expense in 2001 of $5,360,000.

                                       F-26