<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

            [X] Annual Report Pursuant to Section 13 of 15(d) of the
                             Securities Act of 1934
                   For the Fiscal Year Ended December 31, 2000
                                       OR
          [ ] Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                    For the transition period from ___ to ___

                         Commission File Number: 0-28444

                             EPL TECHNOLOGIES, INC.
                             ----------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                                   <C>
        Colorado                                                                     84-0990658
------------------------                                                -----------------------------------
 (State of incorporation)                                              (I.R.S. Employer Identification No.)

                                       2 INTERNATIONAL PLAZA, SUITE 245
                                       --------------------------------
                                          PHILADELPHIA, PENNSYLVANIA                 19113-1507
                                          ---------------------------                ----------
                                   (address of principal executive offices)

Registrant's telephone number, including area code:                                (610) 521-4400

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

Securities registered pursuant to Section 12(g) of the Act:                 Common Stock $0.001 par value
</TABLE>

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
                                      ---  ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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
amendments to this Form 10-K. [X]

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of February 28, 2001 was estimated at approximately $10,113,000.
This calculation excludes an estimated 14,311,000 shares of common stock held by
directors, officers and stockholders whose ownership exceeds five percent of the
shares outstanding at February 28, 2001.

The number of shares of the Registrant's Common Stock outstanding as of February
28, 2001, was 37,425,814 shares.




<PAGE>   2



                             EPL TECHNOLOGIES, INC.

                       INDEX TO ANNUAL REPORT ON FORM 10-K
                          YEAR ENDED DECEMBER 31, 2000


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<CAPTION>
                                                                                            PAGE
<S>                                                                                           <C>
1.    ITEM 1. BUSINESS                                                                         2

2.    ITEM 2. PROPERTIES                                                                      14

3.    ITEM 3. LEGAL PROCEEDINGS                                                               15

4.    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                             15

5.    ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY                      16
      HOLDER MATTERS

6.    ITEM 6. SELECTED FINANCIAL DATA                                                         18

7.    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS                                                               19

      ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                      32

8.    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                     34

9.    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE                                                                59

10.   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                59

11.   ITEM 11. EXECUTIVE COMPENSATION                                                         62

12.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT                                                                              66

13.   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                 68

14.   ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
      FORM 8-K                                                                                69

15.   SIGNATURES                                                                              72
</TABLE>












<PAGE>   3


                                     PART I
ITEM 1. BUSINESS

GENERAL DEVELOPMENT

EPL Technologies, Inc. (the "Company" or "EPL") is a leading designer,
developer, manufacturer and marketer of packaging technologies, which include a
range of proprietary perforated products, as well as proprietary produce
processing technologies and scientific and technical services. These products
and services are designed to maintain the quality and integrity of various types
of fresh-cut produce, as well as and address a number of other markets. The
Company designs and markets products to address the specific needs of a variety
of fresh-cut produce categories. The foundation of the Company's system is its
proprietary produce processing aid technology, which inhibits the natural
enzymatic degradation of fruits and vegetables after they have been processed.
Fresh-cut fruits and vegetables that are treated with the Company's proprietary
processing aids better maintain their natural characteristics, such as color,
texture, taste and smell. In certain fresh-cut produce categories, such as
fresh-cut sliced apples, fresh-cut potatoes and fresh mushrooms, the Company's
processing aids allow increased availability of these fresh-cut produce products
in retail and commercial markets. The Company has concluded that the use of the
Company's processing aids, in accordance with the Company's recommended
protocols, is "generally recognized as safe" ("GRAS") under U.S. Food and Drug
Administration ("FDA") regulations.

The Company also uses a variety of film technologies to create packaging
specifically designed to address the particular post harvest needs of specific
vegetables. The Company markets these packaging products to produce growers and
processors. The Company has launched major initiatives to seek to maximise the
opportunities for its range of perforated products. These products are marketed
for use in pharmaceutical, bakery, snackfood, consumer goods, healthcare,
confectionery and industrial markets.

The Company currently operates in two main business segments, proprietary
processing technologies, and proprietary perforated packaging products. The
Company's revenues consist of (i) revenues derived from the sale of flexible
packaging and processing technologies, (ii) revenues derived from the sale of
certain fresh-cut fruits and vegetables, (iii) royalties from the sale of
certain fresh-cut fruits and vegetables that have been processed using the
Company's proprietary technologies and (iv) fees received for scientific and
technical services rendered by the Company. The Company's revenues in 2000 from
the sale of produce are derived primarily from the sale of fresh-cut corn and
potatoes. The Company's royalty revenues are derived from sales of mushrooms and
fresh-cut apples, that use the Company's proprietary technologies.

Historically, substantially all of the Company's revenues have been derived from
the sale of flexible packaging. The Company believes that the Company's
packaging technologies provide a platform to increase its sales of packaging,
processing technologies and scientific and technical services to growers and
processors of fresh produce. Therefore, the Company expects that the proportion
of its revenues derived from the sale of its products and services targeted to
the needs of the fresh-cut produce industry will increase over time and
constitute a significant portion of the Company's future revenue growth. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Prior to 1994, the Company was a development stage enterprise with limited
capital and had limited revenues, operating exclusively as a manufacturer and
marketer of processing aids. After the advent of new management and an infusion
of capital in December 1992, the Company began to expand its business to include
packaging







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and scientific and technical services in an effort to develop
integrated systems solutions designed to maintain and support the quality and
integrity of fresh-cut produce. The Company has made the following acquisitions,
seeking to accomplish this objective:

        -      In September 1994, the Company acquired Respire Films, Inc.
               ("Respire"), a U.S.-based business involved in the marketing of
               packaging films.

        -      In September 1995, the Company acquired Bakery Packaging Services
               Limited ("BPS"), based near Runcorn, Cheshire, England (the
               "Runcorn Facility"). BPS provided the Company with a U.K. base
               for packaging, together with access to numerous produce and other
               food companies in the U.K. and elsewhere in Europe. BPS also
               provided the Company with proprietary perforating technology to
               enhance the Company's strategic position, as well as an
               incremental source of packaging revenue. The U.K. packaging
               business was further enhanced by the acquisition in July 1996 of
               a food-grade printing facility and certain other assets located
               at Gainsborough, Lincolnshire, England (the "Gainsborough
               Facility"), from Printpack Europe (St. Helens) Limited. The
               Company has consolidated the operations at the Runcorn Facility
               and at the Gainsborough Facility into those of its subsidiary,
               EPL Flexible Packaging Limited ("EPL Flexible UK").

        -      In April 1996, the Company, through its Pure Produce, Inc.
               subsidiary ("Pure Produce"), acquired the assets of Pure Produce,
               a general partnership based in Worcester, Massachusetts,
               providing the Company with in-house scientific and technical
               capabilities, specifically in the areas of food safety and
               microbiological testing.

        -      In July 1996, the Company, through its Crystal Specialty Films,
               Inc. subsidiary, now known as EPL Flexible Packaging, Inc. ("EPL
               Flexible US"), acquired the assets of Crystal Plastics, Inc.,
               located outside Chicago. This acquisition provided the Company
               with a U.S. base for both the Company's proprietary gas flame
               perforation equipment and its specialized microperforating
               technology and helped increase the Company's packaging presence
               in the U.S. EPL Flexible US uses "K" and polystyrene resins to
               manufacture and convert a range of films for numerous
               applications, some of which are used to support the Company's
               U.S. packaging business as a part of the Company's integrated
               systems solutions. EPL Flexible US also provided the U.S. base
               for facilitating the Company's fulfillment of an exclusive
               agreement with E.I. duPont de Nemours & Co. Inc. ("duPont"),
               whereby the Company provided all of duPont's gas-flame
               perforating requirements for duPont's Mylar(R) films. In
               addition, EPL Flexible US is also a supplier to the Company's
               ANC-Respire joint venture (see below).

        -      In October 1997, the Company acquired California Microbiological
               Consulting, Inc., based in Walnut Creek, California ("CMC").
               Together with Pure Produce, CMC specializes in food safety,
               forensic testing and microbiological consulting, and provides the
               Company with scientific and technical facilities on the East and
               West Coasts.

        -      In December 1997, the Company acquired Fabbri Artes Graficas
               Valencia S.A. ("Fabbri"), a converter, printer and marketer of
               specialty flexible packaging, serving principally the European
               produce market, based in Valencia, Spain. The Company believes
               that this acquisition complements and enhances the Company's
               existing U.K.-based packaging businesses, providing incremental
               capacity for more efficient production of the combined






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               product mix, as well as a strategic foothold on the European
               continent for the launch of the Company's related processing
               aid and scientific and technical services businesses.

The Company believes that its packaging technologies complement and enhance the
effectiveness of its processing technologies, thus making packaging an integral
component of the ntegrated system. In marketing its packaging technologies, the
Company works closely with its customers in an effort to determine optimal
packaging characteristics for the customer's products, thereby being in a
position to influence a customer's buying decision with respect to its packaging
needs. The Company's packaging business also provides a revenue stream that
helps to fund market development and the Company's lengthy sales process, and
the presence of its packaging infrastructure in regions where produce is grown
enhances its sales prospects to produce growers and processors.

The scientific and technical services the Company provides complement the
processing technologies and packaging as a part of its systems solutions. The
Company's scientific and technical expertise provides the Company with an
expanding base of knowledge about food technology and the Company believes this
expertise helps to establish credibility with customers and supports the
commercialization of the Company's products.

The Company markets its packaging technologies, processing technologies and
scientific and technical services to processors of packaged, fresh-cut produce
as well as to our broadening range of new markets. To this end, the Company has
developed relationships with produce processors and other companies in an effort
to penetrate further the fresh-cut produce market.

        -      In July 1996, the Company formed NewCorn Co LLC ("Newcorn"), a
               limited liability company in which the Company has a 51%
               membership interest. Newcorn is a joint venture between the
               Company, Underwood Ranches and Twin Garden Farms. These latter
               two partners are two major regional growers and processors of
               fresh-cut sweet corn. Newcorn processes, packages, markets and
               sells fresh-cut corn products using the Company's processing aids
               and packaging materials, with the aim of developing year-round,
               nationally available branded fresh-cut corn products. At the end
               of 2000, the management decided that it was appropriate to
               discontinue its corn operations under its previous format, which
               had consumed much of the Company's financial and management
               resources. The management agreement with the Company's partner in
               Newcorn had come to an end, which made it a suitable point for
               the Company to refocus its resources on those opportunities that
               offer higher margins and a shorter, less demanding route to
               market. As a result of this, the Company has agreed with Green
               Giant to discontinue the use of the brand for corn and with them
               pursue a different entry into the market that places little, if
               any, demands on the Company's resources.(See Note 3 to the
               Company's consolidated financial statements).

        -      In September 1997, the Company executed a ten-year exclusive
               trademark license agreement (subject to extension) and strategic
               alliance with Potandon Produce LLC ("Potandon"), a "Green
               Giant(R) Fresh" brand licensee of The Pillsbury Company. The
               agreement is subject to the terms of Potandon's license of the
               "Green Giant(R) Fresh" brand, and contains certain minimum
               royalty requirements and other customary provisions. During the
               first three years of the term of the agreement, Potandon has the
               option to require the Company to negotiate in good faith to form
               a business entity in which Potandon and the Company would jointly
               participate in the fresh-cut potato products business on terms
               yet to be established. No such option has been exercised. The
               Company sells fresh-cut potato products, such as french fries,






                                       4
<PAGE>   6

               to the food service industry under the "Green Giant(R) Fresh"
               brand name, utilizing the Company's "Potato Fresh(R) System"
               processing aid technologies and related protocols in processing
               potatoes supplied principally by Potandon and now by Reser's
               Fine Foods, Inc. (See below).

        -      In October 1997, the Company entered into a strategic alliance
               with Farmington Fresh, a major grower and marketer of Fuji
               apples. Under this alliance, the Company has licensed its "Apple
               Fresh(R)" processing technology to Farmington Fresh and provides
               scientific and technical services in connection with the
               production by Farmington Fresh of certain varieties of fresh-cut
               sliced apples. The agreement, which currently extends until
               December 2002, grants Farmington Fresh production exclusivity in
               its local geographic market. In addition to revenues from sales
               of the Company's processing aids and scientific and technical
               services, the agreement entitles the Company to receive a royalty
               from each package of fresh-cut apple slices sold.

        -      In March 1998, the Company entered into an agreement with
               American National Can Company ("ANC"), a major supplier of
               packaging materials and containers in the U.S. and a subsidiary
               of Pechiney SA, to create a joint venture to market flexible
               packaging systems for the fresh produce market. The joint
               venture, ANC-Respire LLC, develops, manufactures, markets,
               promotes and sells variety-specific, proprietary and other
               packaging products under the brand name "ANC-RESPIRE(TM)". ANC
               and the Company have equal ownership interests in the joint
               venture, which has an initial term of three years (subject to
               earlier termination) and can be extended upon the agreement of
               ANC and the Company. The joint venture formally commenced
               operations in January 1999. As part of the Company's desire to
               better exploit its perforation technologies in the U.S., the
               Company and ANC have agreed to unwind their joint venture and
               are discussing various alternative relationships going forward.

        -      In April 1998, Newcorn entered into a trademark sublicense
               agreement with The Sholl Group II, Inc. ("Sholl"), the exclusive
               licensee of The Pillsbury Company's "Green Giant(R) Fresh" brand
               name. The agreement grants Newcorn the exclusive right in North
               America to use the "Green Giant(R) Fresh" brand name on the
               Company's fresh-cut corn products. Under this agreement,
               Freshcorn LLC, a joint venture owned equally by the Company and
               Sholl, will provide marketing support for the Company's fresh-cut
               corn products. Newcorn's license expires on December 31, 2020,
               subject to automatic renewal or earlier termination in certain
               events, including termination of Sholl's license from The
               Pillsbury Company. Newcorn will pay a royalty to Sholl based on
               the number of cases of licensed corn products sold by Newcorn.
               Additionally, Newcorn will pay to Freshcorn a fee based on the
               profitability of Newcorn's sales of fresh-cut corn products (the
               "Fee"), against which the royalty payments to Sholl will be
               credited. As members of Freshcorn, Newcorn and Sholl have agreed
               that, generally, 25% of the Fee in each year will be used to
               reimburse expenses incurred by Newcorn for the advertising,
               marketing and promotion of the Company's fresh-cut corn products
               (with regard to proposed changes relating to the license to use
               the "Green Giant(R) Fresh" brand name in connection with
               fresh-cut corn products - As discussed above and in Item 7 below,
               at the end of 2000 management decided that it was appropriate to
               discontinue its corn operations under its previous format).

        -      In October 1998, the Company received formal approval from Sholl,
               on behalf of Pillsbury, to use a new facility located in
               Camarillo, California and operated by the Company's Newcorn






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               affiliate (the "Camarillo Facility") for fresh produce
               processing. Shipments of fresh-cut corn under the "Green Giant(R)
               Fresh" brand from the Camarillo Facility began in late October
               1998. In a coordinated development, the Company relocated its
               fresh-cut potato processing activities to the Camarillo Facility
               from a facility operated by an approved co-packer.

        -      In October 1999, EPL announced the creation of a strategic
               alliance with Reser's Fine Foods ("Reser's"), which is one of
               North America's largest potato product manufacturers. It provides
               EPL with access to world-class manufacturing and distribution
               capability across the U.S. (Reser's currently has distribution
               centers in 14 states). Reser's has recently completed a new
               100,000 square feet state of the art processing facility in
               Pasco, Washington, and will provide EPL with significant
               economies of scale. Reser's will be responsible for all aspects
               of raw material sourcing, production and distribution to EPL of
               its range of fresh-cut potato products. The Reser's/EPL alliance
               will meet all of EPL's potato volume requirements for the near
               term, and EPL believes that it will only need relatively small
               amounts of incremental expenditure to increase future capacity.

        -      In addition, through the Reser's/EPL alliance, EPL gained the
               sourcing of an additional range of blanched potato products.
               These part-cooked products broaden EPL's product range and are
               expected to make its product proposition more attractive to
               potential distributors. The blanched potato products will be
               marketed under the "Fresh Alternatives" brand name, also licensed
               from Pillsbury.

        -      In March 2000, EPL announced the signing of a long-term worldwide
               exclusive marketing and licensing agreement with The Biotech
               Group, an affiliate of Monterey Mushrooms. Under this agreement,
               EPL has licensed its Mushroom Fresh(R) processing technology to
               The Biotech Group and will receive a royalty on the sale of
               mushroom products that use EPL's technology.

        -      In May 2000, EPL announced it had signed a two year manufacturing
               and supply agreement with Procter & Gamble to provide a key
               component for a new consumer product.  This component, to be
               manufactured at a U.S. facility of the Company's U.S. packaging
               business, involves the use of proprietary technology.

The Company was incorporated in 1985 under the laws of the State of Colorado.
The Company's executive offices are located at 2 International Plaza, Suite 245,
Philadelphia 19113-1507, and its telephone number is (610) 521-4400.

PRODUCTS AND SERVICES

The Company's products and services fall into two major classifications:
proprietary perforating packaging technologies and processing technologies
(which include the sale of fresh-cut corn and potatoes).

Perforated Packaging Products. The Company's produce packaging business involves
perforating, converting and printing flexible packaging, using technologies and
processes, some of which are proprietary to the Company. The Company also
designs packaging films, the structure of which allows gas and moisture
transmission at different rates, thereby maintaining a balance that enhances the
effectiveness of the Company's processing technologies. As with processing
technologies, in marketing its packaging technology the Company works closely
with each customer and potential customer, using its scientific and technical
services in seeking to determine optimal packaging characteristics, such as the
type of film and extent of perforation,








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including the size, shape and number of holes of the packaging, based on the
respiration rate of the particular type of produce.

As one of the leading perforators of packaging film, the Company is targeting
specialty and, in some instances, new markets. Although historically films used
in the produce industry have not been perforated, perforating has been shown to
be beneficial to the packaging of certain varieties of fresh-cut produce, which
by their nature continue to consume oxygen and produce carbon dioxide and
moisture after being cut and packaged. Precise perforation of the packaging
materials allows the produce to "breathe," thereby permitting the packaging to
work with the processing technology to inhibit the process of enzymatic
degradation. The Company's microperforation technology is proprietary. The
Company's proprietary production capability allows the Company to produce
perforated films of high quality and great consistency in a cost-effective
manner. This capability provides control over moisture and oxygen transmission
rates. The Company believes its broad range of capabilities to produce
perforated films provides it with a competitive advantage. The Company has an
exclusive agreement with duPont, whereby duPont purchases its entire requirement
for flame perforation services for its Mylar(R) film from the Company. In
addition, the Company is increasingly being approached to work on new
applications, many outside of the produce industry, utilizing its perforating
knowledge and capabilities.

Another aspect of the Company's packaging business is the conversion of
packaging film into bags designed for a customer's food packaging needs for
applications such as produce and bakery. The Company also has food-grade
standard printing capabilities in the U.K., utilizing three six-color presses
and eight-color press. The Company's packaging business provides additional
market presence in certain geographic regions that the Company believes can
enhance sales prospects for the Company's processing technologies and provide
cross-marketing opportunities, although there can be no assurance that such will
be the case. In the U.S., the Company subcontracts its printing and converting
requirements, which the Company believes are readily available.

In addition to its produce packaging capabilities, the Company provides
packaging to the snack food, cooked meat pastry products, bakery and
confectionery industries, and, to a lesser extent, for other uses, including
pharmaceutical and industrial applications.

Processing Technologies. The Company develops, manufactures and markets
proprietary and patented processing technologies, designed to inhibit the
enzymatic degradation that causes fruits and vegetables to begin to deteriorate
immediately after processing, thereby better maintaining their natural
characteristics, such as color, texture, taste and smell. The Company believes
its processing aids provide it with competitive advantages over other existing
fresh-cut produce processing technologies.

According to FDA regulations, a processing aid is a substance used as a
manufacturing aid to enhance the appeal or utility of a food. FDA regulations do
not require packaged produce to identify certain processing aids used in
processing the products. The Company's processing aids are designed to be
applied to produce during post-harvest processing. The Company's processing aids
are then removed from the produce prior to packaging, although insignificant
amounts may remain on the produce. As a result, the Company believes that
produce treated with the Company's processing aids does not, under FDA
regulations, require labeling referring to those processing aids. Based on
advice from FDA counsel and on assessment of relevant scientific literature by
the Company and by third parties, the Company has concluded that the use of the
Company's processing aids in accordance with the Company's protocols is GRAS
under FDA regulations.

The Company formulates processing aids for certain varieties of produce in
accordance with its detailed







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scientific protocols. The Company believes that its Apple Fresh(R), Corn
Fresh(R) and Potato Fresh(R) and Mushroom Fresh(R) processing aids have the
potential to create new markets. These new markets, i.e. fresh-cut apple slices,
fresh-cut potato products and freshly washed mushrooms, have historically not
been available due to the lack of an effective, non-sulfite based alternative.
For example, Apple Fresh(R) (for which the Company has recently been granted
U.S. patent protection), when used in conjunction with the Company's packaging
technology, can be used to inhibit browning and other enzymatic degradation in
certain varieties of fresh apple slices for up to 14 days after processing.
Potato Fresh(R) is designed to provide similar pre-packaged distribution
capability for and fresh-cut potato products. In addition to Apple Fresh(R),
Potato Fresh(R) and Mushroom Fresh(R), the Company currently markets its Carrot
Fresh(R) processing aid for carrots.

Scientific and Technical Services. The Company provides scientific and technical
services in the areas of post-harvest horticulture, forensic analysis of food
contaminants and food safety and application development for customers. These
services are areas of critical importance for processors of fresh produce. The
Company's post-harvest horticulture services are designed to help processors
understand the impact of harvesting and handling methods on the sensory
characteristics, nutritional value and microbiological populations of produce.
In providing these services, the Company focuses on solving particular problems
unique to certain kinds and varieties of fruits and vegetables in an effort to
maintain the quality and integrity and reduce post-harvest loss. The Company's
forensic testing services involve the analysis of food adulteration by foreign
or unlabeled substances or contaminants. The Company's food safety services,
which are intended to reduce or eliminate pathogens known to cause serious
illness in humans, include research, microbiological testing, production
monitoring, and the implementation of Total Quality Management and Hazard
Analysis and Critical Control Point ("HACCP") programs. The FDA has announced
its intention to introduce a new rule requiring HACCP programs, which programs
are designed to prevent microbial and other safety hazards in food products
through appropriate controls during production and processing, at certain juice
processing plants. The Company believes that HACCP programs ultimately will
become standard in the produce processing industry in response to emerging
concerns about the microbial safety of fresh fruits and vegetables.

The Company's scientific and technical services team consists of four Ph.D.s, as
well as senior scientists and additional support technicians. These areas of
expertise include microbiology, food science, post-harvest physiology, plant
physiology and plant pathology. The Company maintains three laboratories
dedicated to microbiological testing, as well as applications work to support
the Company's sales thrust.

The Company believes its scientific and technical expertise enhances its
credibility in marketing its processing technologies and packaging materials to
fresh-cut produce processors. Accordingly, the majority of the Company's
scientific and technical services are provided to support marketing efforts for
the Company's other products. The Company also provides microbiological services
on a contract basis for some customers, in what the Company believes is a
growing market for food safety-based testing and consulting services. In
addition to providing incremental revenue, these consulting relationships may
provide cross-marketing opportunities for the Company's products. As an
additional technical resource, the Company maintains a Scientific Advisory
Board, consisting of experts in the field of food science, the members of which
are available for consulting on an as-needed basis.

Company-sponsored research and development expenditures for the years ended
December 31, 1998, 1999 and 2000 were approximately $1,573,000, $1,870,000 and
$1,341,000 respectively. See the Company's Consolidated Financial Statements.






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MARKETS

The Company's focus is on products and services that are used in the processing
of fresh-cut fruits and vegetables for both the retail and food service markets.
By helping to maintain the quality and integrity of fresh-cut produce, the
Company can meet the needs of its customers who are seeking to offer
differentiated, brand-name, nationally available fresh-cut alternatives to
commodity produce lines. The Company's packaging products are used in the
fresh-cut produce industry in the U.S. and by leading companies in the U.K. and
Europe in the fresh-cut produce, bakery, snack food and confectionery
industries, and for other uses. The Company's processing technologies generally
help to facilitate either new products, in the case of fresh-cut potato
products, or a superior product proposition, in the case of the mushrooms. The
scientific and technical services offered by the Company provide companies in
the produce industry, especially those involved with fresh-cut and minimally
processed produce, with analysis, protocols and plans relating to food safety
and quality assurance programs, including microbiological testing, and provides
additional internal technical support in developing the Company's processing aid
and packaging protocols.

Increasingly, the Company is able to leverage its perforating expertise and
exploit opportunities in non produce related industries. This area is expected
to contribute significantly to the Company's future growth in sales revenue.

The Company's penetration to date of the various markets it is seeking to
develop has been limited. The Company's Respire(R) brand of breathable packaging
is used on a number of produce categories, principally in produce in Europe. The
Company has been developing relationships with processors and other companies in
connection with the use of the Company's processing aid technology and related
protocols in various fruit and vegetable categories.

The Company believes that demand for fresh-cut produce is being driven at the
retail level by consumer preferences for healthy foods, convenience and variety.
Similarly, demand for fresh-cut produce by food service providers is
increasingly driven by the need to be able to deliver a product that is
consistent in quality and of high food safety standards while reducing
significant processing and storage costs associated with fresh-cut produce.
Development of new fresh-cut produce applications is further supported by
produce growers and processors who are seeking to increase revenues and margins
by establishing differentiated, brand-name, fresh-cut alternatives to commodity
produce lines.

SALES AND PRODUCT COMMERCIALIZATION PROCESS

With respect to its packaging business, the Company seeks to meet the growing
needs of existing customers, develop new products that can be sold to existing
customers, and sell existing and new products to new customers as such
opportunities are identified. The Company believes that the experience it has
accumulated in all aspects of the produce industry, together with its scientific
expertise, is helping to facilitate a systems solution approach to the packaging
needs of the processor.

In developing its processing technologies, the Company first seeks to identify
the physiological and biochemical issues associated with a particular fresh-cut
fruit or vegetable (e.g. white blush on carrots) and to determine the cause of
any issue so identified. Then the Company seeks to develop an appropriate
solution in a laboratory setting when it perceives that a significant market
opportunity may exist. In this connection, the Company has extensive experience
of testing and operating in a number of processing facilities and working on a
number of different fruits and vegetables, and can thus approach potential
customers from a position of extensive knowledge and experience with a proposed
produce solution. After initial discussions, the Company








                                       9
<PAGE>   11

initiates a detailed review and testing process to customize the application of
the Company's technologies to the potential customer's processing system. The
testing process involves both application of the Company's processing aids and,
where appropriate, other scientific and technical support services, such as
HACCP and the design of tailored packaging solutions. Once such development is
completed, the product moves through successive steps of an increasingly
sophisticated testing program, during which the Company identifies and proposes
any processing changes that may be needed and that ultimately leads to a product
decision. The Company also works with the customer to develop specific protocols
that should be applied.

In the area of scientific and technical services, the Company has an existing
customer base that it has built up over time. The Company has been actively
marketing an increased range of available services, with a specific emphasis on
enhancing cross-marketing opportunities.

The Company has been developing relationships with produce processors and other
companies in an effort to penetrate the fresh-cut produce market. The Company
believes that its packaging acquisitions in regions where produce is grown will
serve as a platform to enhance the Company's ability to cross-market its other
products and services to other produce processors and growers in those regions.
Similarly, with sales of processing technologies, the Company has an opportunity
to sell its complementary packaging. The Company also plans to make proposals
for product development or food safety programs to other existing customers of
its processing technologies and packaging.

Due to the extended nature of the development, testing and sales process for
processing technologies, the Company has experienced no significant backlog of
orders to date for these products and, based on the relatively small incremental
cost and time frame required to increase product output, the Company does not
believe that any backlog measurement is material. Similarly, the Company has not
experienced a significant backlog of orders for its packaging materials.

SOURCES OF SUPPLY

The Company's U.S. packaging business utilizes a number of subcontractors for
film manufacturing, conversion and printing. The U.K. and European packaging
businesses source their film and other requirements from a number of suppliers,
most of which are based in the U.K. and Europe. The U.K. and European packaging
businesses also perform their own conversion and printing. The Company believes
that it is not dependent on a single or a few suppliers or subcontractors for
its packaging businesses.

The Company purchases its U.S. processing aid ingredient requirements from a
number of suppliers, some of which use sources outside the U.S. These raw
materials transactions are undertaken on a commercial, arm's-length basis. The
mixing of the Company's processing aids is currently conducted under a
subcontract with a third party. The Company believes that the mixing of its
processing aids could be performed in-house or by numerous other parties on an
out-sourcing basis without incurring substantial additional expense.

Previously, certain types of potatoes (primarily Russets) used by the Company in
processing were provided under a long-term market priced supply agreement with
Potandon. The Company also previously acquired other types of potatoes on the
open market. Since the alliance with Reser's announced in late 1999, Reser's is
responsible for acquiring all of the Company's potato requirements for
processing.

INDUSTRY AND GEOGRAPHIC AREAS

The Company's financial statements currently present financial information for
two industry segments in







                                       10
<PAGE>   12

which the Company does business: (a) packaging materials and (b) processing
technologies and related activities. Information relating to sales by the
Company or its subsidiaries of fresh-cut corn and potatoes and the provision of
scientific and technical services is included in the financial information
presented for the processing technologies and related activities segment. The
Company markets processing technologies and related products primarily in the
U.S., with smaller amounts also sold in Canada, while packaging materials are
marketed in North America, the U.K. and Continental Europe. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 16 to the Company's Consolidated Financial Statements.

CUSTOMER CONCENTRATION

During the year ended December 31, 1999 and 2000, no one customer accounted for
more than 10% of the Company's sales. During 1998, Pepsico accounted for 15% of
the Company's sales.

SEASONALITY

Although, historically, the management of the Company has not discerned a
seasonal pattern in the Company's business on a consolidated basis, certain
aspects of the Company's business are seasonal. For example, Fabbri, one of the
Company's subsidiaries engaged in the business of manufacturing and marketing
flexible packaging sold primarily in the produce industry, historically has
reported relatively higher sales revenue and income in the Company's first and
fourth fiscal quarters because of timing of citrus and other crop harvests.
However, Newcorn, a subsidiary of the Company engaged in the business of
processing and marketing fresh-cut corn, historically has reported higher sales
revenue in the Company's second quarter, although fluctuations in the results of
Newcorn's operations have been difficult to predict due to the developmental
nature of Newcorn's business. The Company's results of operations may become
subject to greater seasonality as its various businesses develop at different
rates.

COMPETITION

Although many other companies provide packaging or microbiological testing and,
to a lesser extent, processing aids for fresh produce, the Company is unaware of
any competitor that provides each of these as components of integrated systems
solutions for processing fresh-cut produce. The Company's direct, indirect and
potential competitors include producers of sulfites and "sulfite substitutes,"
as well as other providers of alternative preservation and packaging
technologies, including those employing temperature, gas and humidity control.
The Company believes its products may provide technological advantages over
competing technologies and processes, particularly in terms of their safety and
effectiveness. Despite the potential advantages of the Company's products and
technologies, however, many competitors and potential competitors, particularly
in the market for produce packaging, are larger, have greater financial,
marketing, sales, distribution and technological resources, and enjoy greater
name recognition than the Company. Certain of these companies may also enjoy
long-standing relationships with processors of fresh produce. Accordingly, there
can be no assurance that the Company will be able to compete effectively against
such competitors.

The Company believes the primary competitive factors in the market for fresh-cut
produce technologies include safety and consistency, cost-effectiveness and ease
of use, availability of technical service and support and product innovation.

PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS






                                       11
<PAGE>   13

The Company currently has six U.S. patents issued or allowed, one U.S. patent
pending and numerous other patents licensed to the Company or under review for
application. The U.S. patents for the Company's "Potato Fresh(R)" and "Carrot
Fresh(R)" processing aids were granted on June 26, 1990 and September 13, 1994,
respectively, with the U.S. patent for the Company's "Apple Fresh(R)" processing
technology being granted on April 25, 2000. The Company also has U.S. patent
protection for technologies designed to (i) eliminate the use of ice in shipping
boxes of processed broccoli, (ii) inhibit the enzymatic browning of fresh peeled
whole potatoes and (iii) administer treatments to pre-packed boxes of produce,
although the actual patents have not yet been issued. In addition to the
foregoing, U.S. patent protection has been obtained for a processing technology
developed by the Company in collaboration with Penn State University for use on
freshly harvested mushrooms. Penn State University has granted the Company an
exclusive license for this technology for the life of the patent (the
"License"). During the last few months the Company has been discussing the
nature of its relationship with Penn State University. These discussions were
precipitated by Penn State's claim that the Company had breached certain of its
obligations under the License (a claim the Company believes is without merit).
In any event, the Company has agreed to consider Penn State's proposal to
terminate the license and enter into a new non-exclusive license covering the
same technology, which modified license the Company believes will not have a
material adverse effect on its ability to penetrate the fresh mushroom market.
As of the date hereof, no final decision with Penn State has been reached.
Patents that had been granted, or applications that were pending as of June 8,
1995, run for the longer of 17 years from the date of formal grant or 20 years
from the date of filing. For all subsequent filings, U.S. patents (once granted)
run for 20 years from the date of formal application. The Company or certain of
its subsidiaries also have twelve registered U.S. trademarks, including
Respire(R), and its processing aid names, such as Potato Fresh(R), and two
trademark applications pending. The Company has a license to use the "Green
Giant(R) Fresh" brand on the Company's fresh-cut potato products which runs
through September 2007, unless terminated earlier. The Company also has a
license to use "Fresh Alternatives" brand name on potato products, also licensed
from Pillsbury. In addition, the Company's Newcorn subsidiary has a license to
use the "Green Giant(R) Fresh" brand for fresh-cut corn products which runs
through December 31, 2020, unless terminated earlier. "Green Giant(R) Fresh" is
a registered trademark of The Pillsbury Company. The Company has and may
continue to seek licenses for other trademarks that it believes will add value
to a proposed product. Furthermore, the Company has eight patents and 19 patent
applications pending outside the U.S. for its main processing aid technologies,
as well as one registered trademark and two trademark applications pending
outside the U.S., with others under review. To help protect the Company's
technology and proprietary information, the Company has confidentiality
agreements with its customers, as well as internal non-disclosure agreements and
safeguards, although there can be no assurance that these safeguards will be
adequate to fully protect the Company. The importance the Company attaches to
its patent position is reflected in the significant efforts made on research and
development (see the Company's Consolidated Financial Statements and the notes
thereto). In addition to its patent protection, the Company believes it has a
competitive advantage through its proprietary knowledge of the applications for
its technology.

REGULATORY REQUIREMENTS

Based on advice from FDA counsel and on assessment of relevant scientific
literature by the Company and by third parties, the Company has concluded that
the use of the Company's processing aids in accordance with the Company's
recommended protocols is GRAS under FDA regulations. There is, however, a risk
that new scientific information about an ingredient could change its GRAS
status, that the FDA could revise its regulations governing the GRAS status of
the ingredients, or that the FDA might take the position that an ingredient is
not GRAS under the current regulations. Any such change could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company employs a firm of Washington-based FDA lawyers to advise
the Company on the effect of FDA regulations on the Company's








                                       12
<PAGE>   14

operations, together with any planned or potential changes in government
attitude and legislation. The Company also consults with advisors outside the
U.S. concerning foreign regulatory issues. Compliance with existing FDA
regulations has not been a material burden on the Company's operations to date,
although there can be no assurance that the regulatory requirements will not
change and increase the burden to the Company.

The Company's packaging operations are subject to federal, state and local U.S.,
U.K. and other European environmental laws and regulations that impose
limitations on the generation, storage, transport, disposal and emission of
various substances into the environment, including laws that restrict the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. The Company is
subject to U.S. and foreign laws and regulations regarding the use, storage,
transport and disposal of inks used with its packaging products. There can be no
assurance that there will not be an accidental contamination, disposal or injury
from the use, storage, transport or disposal of inks used in the Company's
packaging business. Additionally, the Company's use of plastic film in its
packaging operations may subject it, in certain jurisdictions, to laws and
regulations designed to reduce solid wastes by requiring, among other things,
plastics to be degradable in landfills, minimum levels of recycled content,
various recycling requirements, disposal fees and limits on the use of plastic
products. In addition, various consumer and special interest groups have lobbied
from time-to-time for the implementation of additional environmental protection
measures. The Company may be required to make capital expenditures in response
to changing compliance standards and environmental regulations. Furthermore,
unknown contamination of sites currently or formerly owned or operated by the
Company (including contamination caused by prior owners and operators of such
sites) and off-site disposal of hazardous substances and wastes may give rise to
additional compliance costs. There can be no assurance that the Company will not
incur liabilities for environmental matters in the future, including those
resulting from changes in environmental regulations, that may have a material
adverse effect on the Company's business, financial condition and results of
operations.

Specifically, during its due diligence investigation in connection with the
Fabbri acquisition, the Company was informed that from time-to-time in the past,
Fabbri disposed of certain hazardous waste (such as used oil cans, empty dye
cans and electrolytic salts residue) using some waste management companies that
were not authorized handlers of hazardous waste under applicable Spanish
legislation. Some drums of such hazardous waste also were not labeled as
required and stored longer than permitted under Spanish legislation. Under
Spanish law, a producer of hazardous wastes remains responsible for damages to
third parties or the environment if these wastes are collected by a
non-authorized hauler. As part of the documentation of the Fabbri Acquisition,
the Company obtained from the prior owner of Fabbri, Sidlaw Group plc, a U.K.
public-company ("Sidlaw"), an indemnification for any fines or penalties levied
against the Company from the collection of waste by unauthorized haulers,
subject to a limit of approximately $4,500,000. The Company is not aware that
these past actions resulted in any environmental damages, and therefore does not
believe that these actions represent possible material losses. To the extent
that the Company incurs liabilities in respect of the foregoing that are not
covered by the indemnity from Sidlaw, or Sidlaw fails to fulfill its indemnity
obligations, there could be a material adverse effect on the Company's business,
financial condition and results of operations. Nevertheless, the Company is not
aware that any claims have been made or are pending, and is not aware of any
past or current environmental conditions that it believes will result in any
material adverse effect on the Company's business, financial condition and
results of operations.

EMPLOYMENT

As of December 31, 2000, the Company had 221 employees providing services in the
U.S. and Europe, of which 21 were engaged in sales and marketing, 165 in
production, 9 in technical services and research and 26 in management and
administration. Some of the managerial employees are employed pursuant to
employment






                                       13
<PAGE>   15

agreements, and the Company maintains key-man insurance on Mr. Devine, the
Company's Chief Executive Officer, in the amount of $1,000,000. See "Item 11 -
Executive Compensation". The Company expects to recruit additional personnel as
and when required.


FORWARD LOOKING STATEMENTS

Statements in the foregoing discussion that are not statements of historical
fact and reflect the intent, belief or expectations of the Company and its
management regarding the anticipated impact of events, circumstances and trends
should be considered forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not guarantees of future performance, and actual results may vary
materially from those projected in the forward-looking statements. For a
discussion of factors that may materially affect realization of these
expectations, see Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Looking Statements."


ITEM 2. PROPERTIES

The Company believes that its current facilities are adequate for its present
needs and that it would not have any difficulty in obtaining additional or
alternate space at prevailing rates if necessary. The Company's current
facilities are as follows:

<TABLE>
<CAPTION>
                                SQUARE    OWNED/LEASED
        LOCATION                 FEET     (EXPIRATION)        CHARACTER OF USE
        --------                 ----     ------------        ----------------
      <S>                      <C>        <C>                 <C>
      Philadelphia, PA           6,600    Leased (1/2002)     Principal administrative office
      Oswego, IL                16,400    Leased (6/2004)     Packaging operations
      Oswego, IL                 7,080    Leased (4/2002)     Packaging operations
      Gainsborough, England     19,500    Leased (10/2004)    Printing facility
      Runcorn, England          17,478    Owned               Perforating and converting
                                                              facilities
      Runcorn, England           5,085    Leased (9/2007)     Perforating and converting
                                                              facilities
      Runcorn, England           8,500    Leased (12/2002)    Perforating and converting
                                                              facilities
      Camarillo, CA(a)(b)       74,248    Leased (11/2004)    Fresh-cut corn processing
                                                              facility
      Darien, WI(b)             35,200    Leased (5/2008)     Fresh-cut corn processing
                                                              facility
      Valencia, Spain          142,106    Leased (7/2007)     Packaging operations
</TABLE>

      (a)      Property is leased by Newcorn and the lease is guaranteed by the
               Company. Newcorn occupies approximately 73% of the facility.

      (b)      As discussed more fully in Note 3 to the Company's consolidated
               financial statements, the Company has ceased operations in these
               facilities and is seeking to exit its obligations under these
`              leases.

The Company also occupies additional space under agreements with third parties,
primarily in connection with research and development arrangements and
processing activities.









                                       14
<PAGE>   16

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party
or to which any of its subsidiaries or property is subject. None of the
Company's officers or directors, are involved in any legal proceedings relating
to the Company. To the best of the Company's knowledge, there are no proceedings
being contemplated against it or its subsidiaries by governmental authorities.


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

There were no matters submitted to a vote of the security holders during the
fourth quarter of the fiscal year ended December 31, 2000.




                                       15
<PAGE>   17



                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

MARKET INFORMATION

      PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "EPTG", and has done so since September 1999, having previously traded on
the Nasdaq National Market under the same symbol since May 1998. From January 4,
2000 to February 11, 2000 the Common Stock traded under the symbol "EPTGC", as
the Company was granted an exemption from the minimum $1.00 per share stock
price Nasdaq SmallCap Market listing requirements. From July 1996 to May 1998,
the Common Stock traded on the Nasdaq SmallCap Market under the symbol "EPTG",
except for a period of approximately 30 days following March 18, 1998 when the
Common Stock was included on the Nasdaq SmallCap Market under the symbol "EPTGD"
to indicate the one-for-two reverse split that was approved by shareholders in
March 1998. The following table sets forth the quarterly range of high and low
bid quotations for 1999 and 2000 for the Company's Common Stock during the
periods indicated, adjusted for the reverse split, assuming a price that is
twice the actual pre-split price (such high and low bid quotations reflect
inter-dealer prices without retail mark-up, mark down or commissions and may not
necessarily represent actual transactions):

<TABLE>
<CAPTION>
                                           HIGH               LOW
                                           ----               ---
<S>                                        <C>               <C>
1999
        First quarter                      $5.00             $3.75
        Second quarter                      4.38              3.75
        Third quarter                       3.81              1.00
        Fourth quarter                      1.25              0.50

2000
        First quarter                       4.75              0.63
        Second quarter                      2.75              1.06
        Third quarter                       1.50              0.88
        Fourth quarter                      1.06              0.38
</TABLE>


In February 2001, the Company announced that it had received Nasdaq Staff
determinations indicating that (A) the Company fails to comply with the $1.00
minimum bid price and net tangible assets, market capitalization and net income
requirements for continued listing set forth in Marketplace Rules 4310(c)(04)
and 4310(c)(2)(B), (B) the Company's Form 10-K for the fiscal year ended
December 31, 1999 contained a 'going concern' qualification in the audit opinion
and (C) the Company's securities are, therefore, subject to delisting from The
Nasdaq SmallCap Market. The Company requested, and on March 22, 2001 was heard,
at a hearing before a Nasdaq Listing Qualifications Panel ("Panel") to review
the Staff determinations. There can be no assurance the Panel will grant the
Company's request for continued listing.

As of February 28, 2001 there were 37,425,814 shares of the Company's Common
Stock issued and outstanding, held by 248 shareholders of record and
approximately 3,400 beneficial shareholders. In addition,






                                       16
<PAGE>   18


there were 210,610 shares held in treasury as of the same date. During the
twelve months ended December 31, 2000, the Company did not declare any cash
dividends on its Common Stock. Other than in connection with the payment of
accumulated dividends, which have not been declared or paid, on its Series A 10%
Cumulative Convertible Preferred Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock (collectively the "Preferred Stock"), the
Company intends to retain earnings, if any, that may be generated from
operations to finance the expansion and development of its business. No cash
dividends have ever been declared or paid to date on the Common Stock. The
Company does not expect to declare or pay cash dividends to the holders of the
Common Stock in the foreseeable future and no such dividends may be declared or
paid until all accumulated dividends on the Series A, Series B and Series C
Preferred Stock have been paid. See Note 9 to the Company's Consolidated
Financial Statements.

RECENT SALES OF UNREGISTERED SECURITIES

A total of 6,715,333 shares of Common Stock were issued, in transactions not
involving a public offering under the Securities Act of 1933, as amended, during
the year ended December 31, 2000. 3,672,000 shares were issued to a number of
institutional investors in a private placement, raising gross proceeds of
$3,962,000. In addition, in connection with the restructuring of the credit
facility with the Lenders detailed in Note 8 to the Consolidated Financial
Statements, a further 2,200,000 shares of Common Stock were issued to the
Lenders and 310,000 shares of Common Stock to a third party which participated
in the negotiation of the restructuring. The value of these shares were
amortized as interest expense over the then remaining period of the facility. A
further 33,333 shares of Common Stock were issued upon conversion of the 50,000
shares of Series A Stock detailed in Note 10 to the Consolidated Financial
Statements, 240,000 shares of Common Stock were issued in settlement of
liabilities totaling $233,500, 100,000 shares of Common Stock were issued upon
the exercise of warrants, raising gross proceeds of $52,000 and 160,000 shares
(valued at $160,000) were issued in relation to the raising of new equity.







                                       17
<PAGE>   19

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected condensed consolidated statement of
operations and balance sheet data for the Company and its subsidiaries. The
selected condensed consolidated financial data for the years ended December 31,
1998, 1999 and 2000 and as of December 31, 1999 and 2000 are derived from the
audited Consolidated Financial Statements of the Company, which are included
elsewhere in this report, and are qualified by reference to such Consolidated
Financial Statements and the related Notes thereto. The selected condensed
consolidated financial data for the years ended December 31, 1996 and 1997 and
as of December 31, 1996, 1997 and 1998 are derived from audited consolidated
financial statements of the Company not included herein. The selected
consolidated financial data set forth below is qualified in its entirety by, and
should be read in conjunction with the Consolidated Financial Statements, the
related Notes thereto and Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report.


<TABLE>
<CAPTION>
                                                 FISCAL YEAR ENDED DECEMBER 31
                                                 -----------------------------
                               1996          1997           1998          1999          2000
                               ----          ----           ----          ----          ----
                                       (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF  OPERATIONS:
<S>                        <C>           <C>          <C>            <C>           <C>
Sales                      $ 11,314       $ 19,953     $  32,977      $  30,307     $  27,814
Cost of Sales                 9,136         18,090        29,481         30,199        25,420
Gross Profit                  2,178          1,863         3,496            108         2,394
Total operating expenses      6,362          9,185        11,196         13,909        16,448
Loss from operations         (4,184)        (7,322)       (7,700)       (13,801)      (14,054)
Net loss                     (4,296)        (7,187)       (7,781)       (14,416)      (24,262)
Net loss for common
  shareholders               (5,295)        (8,355)      (10,535)       (15,618)      (25,810)
Net loss per common share  $  (0.71)      $  (1.00)    $   (0.99)     $   (1.10)    $   (0.79)
  - basic and diluted

Weighted average number
  of common shares         7,436,759      8,372,537    10,598,878     14,221,642    32,574,693
</TABLE>


<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                     ------------
                                1996        1997        1998       1999         2000
                                ----        ----        ----       ----         -----
                                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
BALANCE SHEET DATA:
<S>                           <C>         <C>         <C>        <C>         <C>
Working capital (deficit)     $ 2,269     $ 6,513     $ 5,131    $ (6,043)   $ (14,764)
Total assets                   15,215      26,200      29,772      25,999       18,725
Long-term debt                  1,554       1,792       3,683       1,341        1,267
Total liabilities               6,797       8,967      12,620      22,323       26,611
Series D Convertible
 Preferred Stock                    0      10,617      12,847           0            0
Accumulated deficit           (16,283)    (24,207)    (34,652)    (50,270)     (76,080)
Total shareholders' equity
 (deficit)                    $ 8,418     $ 6,615     $ 4,305     $ 3,675      ($7,886)
</TABLE>






                                       18
<PAGE>   20



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The Company is a leading developer, manufacturer and marketer of packaging
technologies, which include a range of proprietary perforated products, as well
as proprietary produce processing technologies and scientific and technical
services. These products and services are designed to maintain the quality and
integrity of fresh-cut produce, as well as address a number of other markets.
The Company designs and markets products to address the specific needs of a
variety of fresh-cut produce categories. The foundation of the Company's systems
is its proprietary produce processing technology, which inhibits the natural
enzymatic degradation of fruits and vegetables after they have been processed.
Fresh-cut fruits and vegetables that are treated with the Company's proprietary
processing technologies better maintain their natural characteristics such as
color, texture, taste and smell. The use of the Company's processing
technologies allows for increased availability of certain fresh-cut produce
products, such as sliced apples, potatoes and corn. The Company has concluded
that the use of the Company's processing technologies, in accordance with the
Company's recommended protocols, is "generally recognized as safe" ("GRAS")
under FDA regulations.

The Company also uses a variety of film technologies to create packaging
specifically designed to address the particular post harvest needs of specific
vegetables The Company markets these packaging products to produce growers and
processors. The Company has launched major initiatives to seek to maximise the
opportunities for its range of perforated products. These products are marketed
for use in pharmaceutical, bakery, snackfood, consumer goods, healthcare,
confectionery and industrial markets.

The Company's financial statements currently present financial information for
two industry segments in which the Company does business: (a) processing
technologies and related activities and (b) packaging materials. Information
relating to sales by the Company or its subsidiaries of fresh-cut corn and
potatoes and the provision of scientific and technical services is included in
the financial information presented for the processing technologies and related
activities segment.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Sales. Sales decreased from $30,307,000 in 1999 to $27,814,000 in 2000, a
decrease of $2,493,000 or 8.2%. Sales of processing technologies and related
activities decreased from $7,539,000 in 1999 to $4,408,000 in 2000, a decrease
of $3,131,000 or 41%. Sales of U.S. packaging materials increased from
$2,666,000 in 1999 to $3,204,000 in 2000, an increase of $538,000 or 20%. Sales
of U.K. packaging materials increased from $11,486,000 in 1999 to $14,194,000 in
2000, an increase of $2,708,000 or 24%. Sales of European packaging materials
decreased from $8,616,000 in 1999 to $6,008,000 in 2000, a decrease of
$2,608,000 or 30%.

The decrease in sales of processing technologies and related activities was
mainly due to the lower sales revenue from fresh-cut corn sold through the
Company's majority-owned affiliate, Newcorn, which accounted for 89% of the
decline. During 1999 and early 2000 the Company restructured the corn operations
and withdrew from the market. This withdrawl also involved not only a reduction
in overheads, thus reducing the breakeven level of sales, but also a complete
reappraisal of the sales and purchasing model. In addition, the Company largely
withdrew from the corn market during November and December 2000. Given the
previous experience of the business, the Company did not previously contract for
corn growing during this period in order to maintain a favorable risk profile.
At the end of 2000, the management decided that it was appropriate to
discontinue its corn operations under its previous format, which had consumed
much of the Company's financial and management resources. The management
agreement with the Company's







                                       19
<PAGE>   21
partner in Newcorn had come to an end, which made it a suitable point for the
Company to refocus its resources on those opportunities that offer higher
margins and a shorter, less demanding route to market. As a result of this, the
Company has agreed with Green Giant to discontinue the use of the brand for corn
and with them pursue a different entry into the market that places little, if
any, demands on the Company's resources. The Company's strategic objectives
remain undiminished in terms of the provision of processing technologies and the
Company believes that it will be able to supply technology to the corn industry,
without incurring the capital expenditures and expenses required to manufacture
and distribute corn products using such technology. This withdrawal from the day
to day activity of supplying finished corn product will help facilitate the
Company's move to profitability, which remains the Company's goal. However,
there can be no assurance that such will be the case.

     During the first quarter of 2000, the Company completed the relocation
of its potato processing equipment from Somis, California to Pasco, Washington.
The production and shipment of fresh-cut potato products commenced in March from
the Pasco, Washington facility of Reser's. During this relocation period the
Company withdrew a number of products from the market and thus, there was a fall
in revenue while the processing line was relocated. These products were put back
into production during the second and third quarters of 2000. This transition
has taken longer than expected and the Company is only just getting back into
production after several distribution tests and studies. This relocation
followed the signing in October 1999 of a strategic five-year manufacturing and
co-pack agreement with Reser's, under which Reser's will process and supply EPL
Food with all of EPL Food's fresh-cut potato product requirements. As stated
earlier, this relocation caused some disruption to shipments and also caused the
Company to restrict its sales and marketing activities until such time as the
relocation was completed, which accounted for the balance of the decline in this
segment.

     In addition to the above mentioned co-pack agreement, Reser's will process
and supply EPL Food with a new range of blanched (partially cooked) potato
products to be sold by EPL Food under the Fresh Alternatives (TM) brand. The
Fresh Alternatives (TM) brand has been made available to EPL Food by the Sholl
Group II, Inc., the exclusive licensee of The Pillsbury Company's Green Giant
(R) Fresh brand name. The Company has already commenced sales of these blanched
potato products, although such sales did not have a material impact on sales
revenue during 2000. In addition, the Company and Reser's agreed to enter into
a related five-year non-exclusive license agreement for the Company's
proprietary processing technology for potatoes. The Company currently believes
these arrangements for both fresh and blanched potato products will have a
material positive impact on the sales revenue of EPL Food in 2001 and beyond,
although there can be no assurance such will be the case.

     During the first quarter of 2000, the Company announced an exclusive
licensing arrangement with Monterey Mushrooms for its Mushroom Fresh (R)
processing technology, and began generating revenue during the second and third
quarters of 2000. During the last few months, the Company has been discussing
the nature of its relationship with Penn State University. These discussions
were precipitated by Penn State's claim that the Company had breached certain of
its obligations under the License (a claim the Company believes is without
merit). However, the Company has agreed to consider Penn State's proposal to
terminate the license and enter into a new non-exclusive license covering the
same technology, which modified license the Company believes will not have a
material adverse effect on its ability to penetrate the fresh mushroom market.
As of the date hereof, no final decision with Penn State has been reached. In
addition, during December the license granted to Monterey Mushrooms was changed
to become non-exclusive. Although such revenue is currently not material, the
Company believes that these arrangements will have a material contribution to
processing technology revenue in 2001 and beyond, although there can be no
assurance that this will in fact be the case. The Company is also following up
on potential opportunities for processing technologies and scientific and
technical services in Europe.

     In line with the Company's stated objective of achieving group
profitability, and as its Pure Produce subsidiary was forecasting continued
losses, it was agreed with the management of this subsidiary that it

                                       20
<PAGE>   22

would be more appropriate for it to function outside of the Company. Thus,
subsequent to the year end, certain assets of the subsidiary were sold at
approximately net book value to management. Total proceeds were not material
to the Company.

      The 20% increase in U.S. packaging material sales was principally
attributable to increasing sales of perforated products, as well as timing
differences in shipments to large customers compared to the same period of 1999.
In May 2000 the Company signed a two year manufacturing and supply agreement
with Procter & Gamble to provide a key component for a new consumer product.
This component, to be manufactured at a U.S. facility of the Company's U.S.
packaging business, involves the use of proprietary technology. The product and
its expected volume have not been identified for competitive reasons. The U.S.
packaging facility has been expanded to better manage the increased volume and
production demands of this new agreement. The Company continues to be engaged in
discussions with a number of potential customers for new product applications
and markets, especially in relation to the Company's proprietary perforating
capabilities. These products are marketed for use in pharmaceutical, bakery,
snackfood, consumer goods, healthcare, confectionery and industrial markets Some
initial orders have been received to date. Should further such orders be
forthcoming, the Company expects that such new orders would make a material
contribution to sales revenue in 2001 and onwards. There can be no assurance,
however, that the Company will obtain these orders
    The 24% increase in U.K. packaging material sales was principally
attributable to an increase in the sales of packaging to the produce industry.
The Company is now one of the leading suppliers of produce packaging to
processors supplying most of the main food retailers in the U.K., and this
market segment now represents the largest single segment of the U.K. business.
The Company believes that its efforts to change product mix represent a more
stable foundation for sustainable and more profitable growth, although there can
be no assurance that the Company will be successful in these efforts. The year
2000 has seen a full year's benefit of some of the increased orders, which is
expected to generate a material increase in revenue during 2001 and beyond,
although there can be no assurance that such additional revenue will be
obtained. In addition, the Company's proprietary micro-perforating technology
has enabled the Company to win new orders in the area of cooked meat pastry
products and the Company believes it is the market leader in this industry
segment. New orders continue to be gained in the area of "breathable" packaging
and the Company has increased its production capacity in this area to handle the
forecast volume increase. During the first quarter of 2000, the U.K. operation
installed an 8 color press to further enhance its tactical abilities. Other
applications are currently under development, which, if successful, could have a
material impact on sales revenues in 2001 and beyond, although there can be no
assurance that this development will result in new orders.
    The 30% decline in sales of European packaging materials was due mainly to
(i) an adverse movement in exchange rates when converting sales into US dollars,
which moved approximately 15% in 2000 as compared with the same period of 1999
and (ii) the impact of flood damage that occurred at the Fabbri factory in late
October. It is anticipated that adverse currency conversion rates are expected
at least in the short term to affect Spanish sales as reported in US dollars as
compared to the prior year period. The flood damage restricted Fabbri's sales
revenues in the final two months of 2000. With a delay in the receipt of
insurance proceeds, and with limited availaility of capital, this restriction on
sales revenue has continued into 2001 and is expected to adversely impact
Fabbri's sales revenues at least through the first half of 2001. Once these
issues have been resolved, Fabbri will look to integrate its activities more
with the U.K. subsidiary, not only to leverage its scientific and technical
knowledge base, but also to be able to offer customers a pan European service
offering. This will also take advantage of the U.K.'s expertise in perforating.

Gross Profit. Gross profit increased from $108,000 in 1999 to $2,394,000 in
2000, an increase of $2,286,000 or, as a percentage of sales, from 0.4% to 8.6%.
Following management's decision to exit its corn operations (see Note 3 to the
Company's consolidated financial statements), a one time write down of





                                       21
<PAGE>   23

$235,000 of inventory at Newcorn was made to reduce the inventory to its
estimated market value. Without this charge, the gross profit would have been
9.5%, despite incurring operational losses within the corn business during the
year The reported increase reflected the considerably reduced losses in the corn
operations, following the restructuring that occurred at the end of 1999. In
addition, there was also a significant improvement in the results of the potato
operations, following the completion at the end of the first quarter of the
relocation of the potato processing facility to Reser's Pasco, Washington
facility. The gross margin in the US packaging business also improved, as a
result of improved volumes and a more beneficial sales mix. There was also a
further gain in the UK packaging margin, reflecting significant volume
increases, resulting in improved economies of scale, as well as a continuing
improvement in product mix. These gains were offset by a fall in the gross
profit in European packaging, caused principally by the lower sales volumes, as
well as additional impact of the floods which limited revenue generation, but
where costs continue to be incurred. These costs have not yet been reimbursed
under business interruption claims (see Note 13 to the Company's consolidated
financial statements).

In addition, the Company continues to accelerate the development of certain
applications for its proprietary micro-perforating technology. These costs are
primarily expensed as incurred. Although the benefits of this expense have
started to contribute to incremental sales revenue and gross profits, it is
expected to increase significantly in the U.K. and other areas moves forward
with various projects, although there can be no assurance that such will be the
case.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $9,898,000 in 1999 to $9,316,000 in 2000,
a decrease of $582,000 or 6%. This decrease was despite incurring (i) over
$377,000 of non-cash charges relating to the amortization of the fair value of
warrants issued, (ii) the continuing and accelerating development of the
Company's sales and marketing efforts, particularly in the area of packaging and
perforation development, and (iii) other costs, including additional
professional fees. The Company's sales and marketing efforts with respect to
processing technologies and related activities are primarily focused on
fresh-cut potatoes, apples and mushrooms, together with packaging and
perforation applications. This decrease in expenses also reflects the change in
the nature of development costs incurred, as some products move from the product
development stage to market development. This is evidenced by a significant fall
in research and development costs as outlined below.

Research and Development Costs. Research and development costs decreased from
$1,870,000 in 1999 to $1,341,000 in 2000, a decrease of $529,000 or 28%. The
reduction reflects the reallocation of resources from development to application
and execution. The Company continues to expense all development costs, whether
product, market or sales related, as incurred, and thus costs are incurred prior
to the benefits, if any, that may be expected to be realized from such expense.
The Company expects that research and development costs will continue at no less
than recent levels and may increase.

Gain on sale of fixed assets. As noted in the Company's consolidated financial
statements, in 1999 the Company completed a sale and leaseback of the land and
building at its Spanish trading subsidiary, Fabbri, with an unrelated third
party. The Company raised gross proceeds, before costs and taxes, of
PTS800,000,000 (approximately $5,100,000). The Company expects to realize a
total pretax profit of approximately $2,303,000 on this transaction. For
financial reporting purposes, $374,000 (1999:$285,000) of this total profit has
been recognized in the year 2000. The remaining balance will be recognized over
the eight year life of the associated leaseback. The tax on this profit can be
deferred for up to 10 years under Spanish tax rules.







                                       22
<PAGE>   24



Restructuring Costs. As explained more fully in Note 3 to the Company's
consolidated financial statements, management took the decision to cease the
operations of Newcorn and to exit the fresh corn products market. As a result, a
charge was made for various exit costs of $947,000, including rent, salary and
utilities through the estimated date the related facilities would be closed or
leased. In addition, further impairment provisions were made against inventory
(recorded within cost of sales), goodwill and fixed assets (recorded within
depreciation and amortization).

Depreciation and Amortization. Depreciation and amortization increased from
$2,141,000 in 1999 to $5,218,000 in 2000, an increase of $3,077,000 or 144%. Of
this increase, $348,000 related to the write down of goodwill and $2,747,000 to
the writedown to fixed assets, both in relation to the Company's corn business,
following the decision to discontinue corn operations in its previous format
(See Note 3 to the Company's consolidated financial statements). Excluding these
one time items, depreciation and amortization would have decreased by $18,000
(0.8%) to $2,123,000.

Loss from Operations. Loss from operations increased from $13,517,000 in 1999 to
$14,054,000 in 2000, an increase of $537,000 or 4%. Of the total, $4,277,000
related to various one time charges related to the closure of its fresh cut corn
operations. Excluding these charges, loss from operations would have decreased
from $13,517,000 in 1999 to $9,777,000 in 2000, a decrease of $3,740,000, after
incurring operational losses incurred in the corn business. The decrease in the
loss was primarily due to the significant improvement in gross margins, despite
the lower sales revenue and the impact of the floods in Spain. In addition,
there was a net reduction in total operating expenses, excluding depreciation
and amortization and the amortization of the fair value of the warrants
mentioned above, of over $1,427,000. Further improvements are expected in this
regard, and management believes that the infrastructure costs can be further
leveraged as sales continue to develop. However, because all development costs
are expensed as they are incurred, together with the fact that such expense is
necessarily incurred before the benefits of increased sales and improved margins
can be seen, the Company's financial results do not yet reflect this activity.

Interest Expense. The increase in interest charges from the charge of $820,000
in 1999 to $10,135,000 in 2000 principally reflects the non-cash cost
amortization of deferred finance costs incurred in 1999, together with
additional finance charges arising from the additional shares of Common Stock
granted upon the restructuring of the facility with the Lenders as described in
Note 7 to the Company's consolidated financial statements. In addition, there is
a fair value provision for warrants granted in the first quarter of 2000 in
connection with the first quarter financing described in Note 7 to the Company's
consolidated financial statements. Of the total charge in the current year of
$10,135,000, $8,966,000 (88%) represents the aforementioned non-cash costs. In
addition, the level of debt for the year ended December 31, 2000 was
considerably higher than the same period in 1999.

Accretion, Discount and Dividends on Preferred Stock. Accretion, discount and
dividends on Preferred Stock increased from $1,203,000 in 1999 to $1,548,000 in
2000, an increase of $345,000. This non-cash increase was due to an adjustment
reflecting the fair value of warrants issued during the year 2000, which totaled
$1,508,000 (97%) of the total charge in the period. Most of the expense in 1999
related to a fair value charge for warrants granted in connection with the
conversion of the remaining Series D Stock in 1999, plus an appreciation
provision on the Series D Stock, all of which Stock was converted by December
31, 1999.







                                       23
<PAGE>   25

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Sales. Sales decreased from $32,978,000 in 1998 to $30,307,000 in 1999, a
decrease of $2,671,000 or 8.1%. Sales of processing technologies and related
activities decreased from $8,913,000 in 1999 to $7,539,000 in 1999, a decrease
of $1,374,000 or 15.4%. Sales of U.S. packaging materials decreased from
$3,318,000 in 1998 to $2,666,000 in 1999, a decrease of $652,000 or 20%. Sales
of U.K. packaging materials fell from $11,929,000 in 1998 to $11,486,000 in
1999, a decrease of $443,000 or 3.7%. Sales of European packaging materials
decreased marginally from $8,818,000 in 1998 to $8,616,000 in 1999, a decrease
of $202,000 or 2.2%.

The decrease in sales of processing technologies and related activities was
mainly due to the lower sales revenue from fresh-cut corn sold through the
Company's majority-owned affiliate, Newcorn. During the second quarter of 1999
the Company completed the work on its facility in Darien, Wisconsin (the "Darien
Facility"). However, this was just prior to the short period of the year when
local corn is generally available. The Company decided not to incur significant
ongoing costs to compete against low value corn at uneconomic prices and thus
limited its sales activities, principally during the third quarter but which
also adversely impacted the fourth quarter. During this market withdrawl in the
fourth quarter, the Company restructured Newcorn. This withdrawl involved not
only a reduction in overheads, thus reducing the breakeven level of sales, but
also a complete reappraisal of the sales model. The Company has identified the
need for changes in the way it promotes its corn to major customers, to help
support the year round model, and has been implementing such changes
accordingly. In addition, the Company is focusing its sales efforts on food
service, as well as to develop its traditional retail market. In relation to
this market extension, the Company is also extending the range of corn products
available, and plans to introduce further new products during 2000 onwards.
During part of the year, Newcorn had at times been unable to process and sell on
a profitable basis bulk corn that it had committed to purchase. This situation
impacted gross profit and since then, the Company has limited its corn
commitments under contract.

Offsetting the decrease in corn revenue described above, the Company experienced
significant growth in the volume of fresh-cut potato products sold by its EPL
Food Products, Inc. ("EPL Food") subsidiary under the "Green Giant(R) Fresh"
brand name. The Company has continued to expand both the geographical coverage
of its sales effort and the product range, and now offers a number of different
fresh-cut potato products in addition to its original "Fresh Fries". However, as
the Company continued to seek to expand its product range and geographic
coverage, the Company sought to find a strategic partner to help in this
process. As mentioned above, in October 1999 the Company announced that it had
signed a strategic five-year manufacturing and co-pack agreement with Reser's
Fine Foods, Inc. ("Reser's"). Under the agreement, Reser's will process and
supply EPL Food with all of EPL Food's fresh-cut potato product requirements.
Subsequent to the year end, the Company completed the relocation of its potato
processing equipment and production and shipment of fresh-cut potato products
commenced from Reser's Pasco, Washington facility.

In addition, Reser's will process and supply EPL Food with a new range of
blanched (partially cooked) potato products to be sold by EPL Food under the
Fresh Alternatives (TM) brand. The Fresh Alternatives (TM) brand has been made
available to EPL Food by the Sholl Group II, Inc., the exclusive licensee of The
Pillsbury Company's Green Giant (R) Fresh brand name. The Company has already
commenced sales of these blanched potato products, although such sales did not
have a material impact on sales revenue in 1999. In addition, the Company and
Reser's agreed to enter into a related five-year non-exclusive license agreement
for the Company's proprietary processing technology for potatoes. The Company
currently believes these arrangements for both fresh and blanched potato
products will have a material positive impact on the sales








                                       24
<PAGE>   26


revenue of EPL Food in 2000 and beyond, although there can be no assurance such
will be the case.

The Company is continuing to focus on the sale and development of its processing
technologies, particularly with respect to corn, potatoes and apples.
Furthermore, development work continues to seek to exploit the new technologies
for use on freshly harvested mushrooms and whole peeled potatoes. In this
regard, subsequent to the year end, the Company announced an exclusive licensing
arrangement with Monterey Mushrooms for its Mushroom Fresh (R) processing
technology. The Company currently believes that these arrangements will have a
material contribution to processing technology revenue in 2000 and beyond,
although there can be no assurance that this will in fact be the case. In
addition, product testing continues on other vegetables, and in some cases has
been expanded or accelerated, and significant costs have been incurred to date
that are yet to yield material revenues. The Company also continues to grow its
capability in scientific and technical services, opening a new West Coast
laboratory in 1999, and is seeing an increasing demand for food safety and
hygiene advice in the produce industry. Revenue from this area rose by 34% over
the same period in 1998 and the Company expects further increases in this figure
in 2000 and beyond, although there can be no assurance such will be the case.
The Company believes it is well-positioned to add further value to the
operations of fresh-cut processors. Furthermore, the Company is receiving an
increasing number of inquiries for its processing technologies from potential
U.K. and European customers.

The reduction in U.S. packaging material sales was principally attributable to
timing differences in shipments to large customers compared to the same period
of 1998 and the Company currently expects to recover some of this volume going
forward, in addition to what was recovered in the fourth quarter. The Company is
currently engaged in discussions with a number of potential customers for new
product applications and markets, especially in relation to the Company's
proprietary perforating capabilities, leveraging the knowledge base of the U.K.
operations. These include applications in the consumer goods, produce,
horticultural, bakery and pharmaceutical industries, amongst others. Some
initial orders have been received in 2000. Should further such orders be
forthcoming, the Company expects that such new business would make a material
contribution to sales revenue in 2000 and onwards. There can be no assurance,
however, that the Company will in fact obtain this business. As noted above, as
part of the Company's desire to better exploit its perforation technologies in
the U.S., the Company and ANC have agreed to unwind their joint venture and are
discussing various alternative relationships going forward.

The small decrease in U.K. packaging material sales was principally attributable
to a reduced level of sales to Pepsico, historically the Company's largest
single customer, as well as the adverse impact of pricing pressures in the U.K.,
together with a reduction in sales of film to the bakery industry. The impact,
however, was offset by increased sales in other areas, as the Company continued
the execution of its strategic objective to reduce its dependence on Pepsico and
the bakery industry, both of which are lower margin areas of activity, and focus
more effort on utilizing its proprietary perforating technology to move into
new, higher value-added areas. This strategy began to have an impact in the
final quarter of 1999, as evidenced by the fact that sales revenue in the fourth
quarter of 1999 was 32% higher than in same period in 1998. Raw material prices
have generally fallen by some 10-15% compared with the same period in 1998,
which accounts for most of the reduction in revenue, as sales prices were
adjusted downwards to reflect the lower raw material prices. The Company
believes that its efforts to change product mix represents a more stable
foundation for sustainable and more profitable growth, although there can be no
assurance that the Company will be successful in these efforts. During 1998 the
Company's Respire(R) brand of breathable packaging for fresh produce was
launched in the U.K. and has been successful in gaining new business in 1999. In
this regard, the Company has recently gained new business from the suppliers to
the main supermarkets in the U.K., and these began to come through in increased
shipments, as indicated by the revenue increase in the






                                       25
<PAGE>   27

fourth quarter of 1999. The year 2000 is expected to see a full year benefit of
the increased new business, which is expected to generate a material increase in
revenue during 2000 and beyond, although there can be no assurance that such
additional revenue will be obtained. In addition, the Company's proprietary
micro-perforating technology has enabled the Company to win new business in the
area of cooked meat pastry products, although the volume of this business has
not been significant to date. New business continues to be gained in the area of
"breathable" packaging and the Company has recently increased its production
capacity in this area to handle the forecast volume increase. Other applications
are currently under development, which, if successful, could have a material
impact on sales revenues in 2000, although there can be no assurance that this
development will result in new business.

Sales of European packaging materials decreased marginally, principally as a
result of timing differences in shipments. The 1999 citrus harvest was delayed
slightly, resulting in some shipments of packaging materials being delayed. The
Company, through Fabbri, is targeting further expansion not only in Spain but in
other European countries and this is beginning to show results. In addition,
Fabbri is reducing its dependency on the citrus crop by increasing its sales of
packaging materials used in fresh produce and other areas. Fabbri is also
seeking to expand its limited revenue derived from South American countries
through existing and new contacts. Furthermore, Fabbri is working increasingly
closely with the U.K. business not only to leverage the scientific and technical
knowledge base, but to be able to offer customers a pan-European service
offering. In support of this, a new sales office was opened in France in late
1999, where Fabbri already generates significant sales revenue, and a further
sales office is expected to open in the second quarter of 2000 in Amsterdam,
Netherlands. These are expected to contribute to sales revenue in 2000 and
beyond, although there can be no assurance that this will in fact be the case.
The increased technical base is reflected in the launch of the Company's
Respire(R) brand of "breathable" packaging for fresh produce into Europe, from
which Fabbri has already begun to gain new business, although it did not have a
material impact on sales revenue in 1999.

The Company also continued to grow its capability in scientific and technical
services. The acquisition in late 1997 of CMC provided the Company with a West
Coast platform to extend its microbiological and other scientific services from
the Company's existing East Coast location. During 1998 the Company launched its
Pure Produce(TM) range of food safety services, focusing on its HACCP services.
This new range of services has been successfully introduced in a number of
locations and, with the increasing focus on food safety and hygiene in the
produce industry, the Company believes that it is well-positioned to add further
value to the operations of fresh-cut processors.

Gross Profit. Gross profit decreased from $3,496,000 in 1998 to $108,000 in
1999, a decrease of $3,388,000 or, as a percentage of sales, from 10.6% to 0.4%.
This decrease was principally due to the adverse impact of the cost of market
development and sales support within the corn and potato businesses. In
addition, Newcorn, at times, was unable to process and sell on a profitable
basis bulk corn which it had committed to purchase, which adversely impacted
gross profit. Market development and sales support costs are expected to
continue to be incurred in the future, although their adverse impact on gross
profit is expected to diminish as sales volumes and operating efficiencies
improve. The Company also expects that the relocation of Newcorn's West Coast
operations in late 1998, together with the recent completion of the Darien
Facility, which have significantly increased processing capacity, will help
enhance operating efficiencies in the future as sales volumes increase. As
outlined above, the Company withdrew from the corn market to a degree during the
third and fourth quarters of 1999. Although the cost base of the business has
been reduced during this period, the significantly lower level of corn sales
during this period had a significant adverse effect on gross profit. However,
the Company believes that these changes will provide








                                       26
<PAGE>   28

Newcorn with a significantly improved operating base in 2000 and beyond.

The various agreements with Reser's, in relation to the Company's Green Giant
potato activity, is expected to make a significant improvement to the
profitability of this business from 2000 onwards as the business benefits from
the economies of scale of Reser's existing production volumes. The relocation of
the potato processing facility was completed subsequent to the year end and
production and shipments have already commenced from Reser's Pasco, Washington
facility.

Gross profit from period-to-period may also be impacted by pricing pressures on
Newcorn's corn business primarily attributable to the extent to which bulk corn
is available in regions where Newcorn's fresh-cut corn products are sold, which
is largely a function of the timing of and variations in regional harvest
yields. Newcorn enters into fixed price contracts for the supply of a portion of
its bulk corn requirements, the aim of which is to ensure, where possible,
adequate supplies of bulk corn of consistent quality at a known, fixed price. If
market prices for bulk corn are constant or rise, Newcorn will benefit from such
arrangement. However, if market prices fall, Newcorn may not be able to fully
pass on all of its costs if it is unable to renegotiate contract prices. As the
Company's business becomes more reliant upon sales of its processing
technologies and related activities, results of operations may be more
susceptible to the effects of changing prices due to the pricing of certain
kinds of produce, as well as ingredients used in the Company's processing
technologies.

In addition, the Company continues to accelerate the development of certain
applications for its proprietary micro-perforating technology. These costs are
primarily expensed as incurred. Although the benefits of this expense started to
contribute to incremental sales revenue and gross profit in the 1999 fourth
quarter in the U.K. packaging business, it is expected to increase significantly
in the U.K. and other areas in 2000 and beyond, although there can be no
assurance that such will be the case.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $7,904,000 in 1998 to $9,898,000 in 1999,
an increase of $1,994,000 or 25%. This increase was due primarily to (i) the
continuing development of the Company's sales and marketing efforts,
particularly in the area of sales of processing technologies and related
activites for potatoes and corn, (ii) the non-cash expense of options granted to
non-employees and the fair value of warrants granted to certain consultants and
advisers to the Company and (iii) other costs, including the hiring of
additional personnel in some businesses and costs to reduce the future level of
overheads in other businesses. The Company's sales and marketing efforts with
respect to processing technologies and related activities are primarily focused
on fresh-cut potatoes, corn and apples and, to a lesser extent, other produce
categories, together with packaging applications. As indicated above, the corn
business was restructured during the fourth quarter of 1999 and the overhead
base reduced. The Company continues to evaluate ways to reduce its overhead base
in all areas of its business and believes that a number of the actions taken in
1999, although increasing short term costs, will help improve profitability in
2000 and beyond.

Research and Development Costs. Research and development costs increased from
$1,573,000 in 1998 to $1,870,000 in 1999, an increase of $297,000 or 18.8%. This
reflects increased costs of internal scientific activities related to sales
efforts for large potential customers, principally related to mushrooms and
potatoes, together with perforated films, as well as external costs from the
collaborative work undertaken with outside institutions. The Company continues
to expense all development costs, whether product, market or sales related, in
the year incurred, and thus costs are incurred prior to the benefits, if any,
that may be expected to be realized from such expense. Some of the initial
results from the work on mushrooms






                                       27
<PAGE>   29

can be seen from the recently announced licensing agreement with Monterey
Mushrooms. The Company expects that research and development costs will continue
at no less than recent levels and may increase.

Gain on sale of fixed assets. As noted in the Company's consolidated financial
statements, the Company completed a sale and leaseback of the land and building
at its Spanish trading subsidiary, Fabbri, with an unrelated third party. The
Company raised gross proceeds, before costs and taxes, of PTS800,000,000
(approximately $5,100,000). The Company expects to realize a total pretax profit
of approximately $2,303,000 on this transaction. For financial reporting
purposes, $279,000 of this total profit has been recognized in the current
period. The remaining balance will be recognized over the eight year life of the
associated leaseback. The tax on this profit can be deferred for up to 10 years
under Spanish tax rules.

Depreciation and Amortization. Depreciation and amortization increased from
$1,719,000 in 1998 to $2,141,000 in 1999, an increase of $422,000 or 25%. This
is mainly due to the increased fixed asset base which arose as a result of the
capital expenditure on the new corn processing facilities at Camarillo, CA and
Darien, WI, together with capital expenditures in the U.K.

Loss from Operations. Loss from operations increased from $7,700,000 in 1998 to
$13,517,000 in 1999, an increase of $5,817,000 or 76%. The increase was
primarily due to an increase in costs in 1999 as compared with 1998 (mainly
reflected in the fall in gross profit). As the Company moves to the next stage
of development of its respective markets, it incurs a number of unique costs,
including the market development costs of potatoes and corn, the latter
including the expensing of the start-up costs of the new Darien Facility which
was approved during the second quarter of 1999 for shipment of fresh produce
under the "Green Giant(R) Fresh" brand name. The various costs associated with
the development of the corn and potato businesses accounted for the majority of
the losses incurred. The Company continues to look for ways to leverage the
Company's infrastructure through the expansion of the Company's business, and
management believes this leverage should increase further as sales continue to
develop. Management believes that considerable commercial progress continues to
be made and that the foundation for future sustainable growth has been
considerably strengthened. The Company believes that this progress is evidenced
by (i) the restructuring of the corn business, (ii) the alliance with Reser's in
relation to the Company's potato business, (iii) the new business gained in the
fourth quarter of 1999 in the U.K. for perforated produce packaging and (iv) the
ongoing discussions related to, and development of, new products. However,
because all development costs are expensed as they are incurred, together with
the fact that such expense is necessarily incurred before the benefits of
increased sales and improved margins can be seen, the Company's financial
results do not yet reflect this activity.

Accretion, Discount and Dividends on Preferred Stock. Accretion, discount and
dividends on Preferred Stock decreased from $2,754,000 in 1998 to $1,203,000 in
1999, a decrease of $1,551,000. The decrease principally reflects the completion
of the amortization of the beneficial conversion features of the Series D Stock
and accretion of the fair value of warrants issued concurrently with the
issuance of the Series D Stock. The 1999 charge principally reflects (i) the
fair value of warrants granted in connection with the conversion of the
remaining Series D Stock in 1999, and (ii) a provision representing a 4% per
annum appreciation on the stated value of the Series D Stock then outstanding.
All of the remaining Series D Stock was converted or redeemed during 1999.







                                       28
<PAGE>   30

LIQUIDITY AND CAPITAL RESOURCES

The consolidated financial statements of the Company have been prepared on a
going concern basis, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business, and do not reflect any adjustments that might result if the Company is
unable to continue as a going concern. The Company has incurred net losses,
exclusive of accretion, discount and dividends on preferred stock, of
$7,781,366, $14,415,788 and $24,261,514 in 1998, 1999 and 2000, respectively,
incurred cash losses from operations of $7,151,732, $6,045,420 and $8,192,543 in
1998, 1999, and 2000, respectively, has an accumulated deficit of $76,079,646
and has negative working capital of $14,764,121 as of December 31, 2000. Within
this negative working capital is approximately $6,675,000 of short term debt
that is repayable during the first 6 months of 2001. As explained more fully in
Note 7 to the Company's consolidated financial statements, the Company has
reached agreement to defer some of this for a period of up to 90 days, and is in
discussions to defer repayment of the balance. Additionally the Company's $1.0
million convertible debt is currently due for repayment at the end of May 2001.
In addition, the Company was not in compliance with one of the asset covenants
with the Bank of Scotland during the final quarter of 2000, and consequently
the loans may be called for repayment at any time. The Company's continued
ability to operate is dependent upon its ability to maintain adequate financing
and to achieve levels of revenue necessary to support the Company's cost
structure. Historically, the Company's revenues have not been sufficient to fund
the development of the Company's business, and thus it has had to finance its
operating losses externally principally through equity financing.

The factors described above have caused the Company's independent public
auditors to include a going concern uncertainty paragraph in their audit report
accompanying the Company's 2000 Consolidated Financial Statements. The paragraph
states that the Company's recurring losses from operations, negative working
capital and accumulated deficit raise substantial doubt about its ability to
continue as a going concern and cautions that the financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.

To address the current financial situation, the Company has undergone a number
of operational improvements as well as made significant investments in
development and marketing activities related to its various processing
technology businesses and packaging businesses in 2000, which the Company's
management believes will improve cash flows from operations. The Company expects
that the following, amongst others, should contribute to an improvement in the
financial performance of the Company in the year 2001 and beyond, although there
can be no assurance that such will in fact be the case: (i) the decision by the
Company's management at the end of 2000 to discontinue corn operations under its
previous format, resulting in a provision for the impairment of assets used in
the business of $4,277,000 (see Note 3 to the Company's consolidated financial
statements), (ii) the agreement with Reser's for Reser's to process and supply
EPL Food with all of EPL Food's fresh-cut potato requirements and the relocation
during 2000 of its potato processing to Reser's Pasco, Washington facility,
(iii) further exploitation of the Company's processing technologies, especially
focusing on the licensing arrangement with Monterey Mushrooms for fresh
mushrooms, and (iv) further exploitation of the Company's perforating
technologies, as evidenced by the new orders gained in produce packaging in the
U.K. during 2000, together with the various applications development projects
currently in progress.

The Company will be required to seek additional and longer-term debt or equity
financing to fund operating requirements in 2001 and repay and/or refinance
existing short term debt. In this regard, the Company is currently exploring a
number of options to raise additional capital over and above that mentioned
above. This includes seeking additional equity, as well as long term debt.
Subsequent to the year end, the Company has entered into an agreement with an
institutional investor to raise $5.0 million in new convertible preferred stock,
which is expected to close in the second quarter of 2001. Additionally, the
Company has engaged an outside adviser to assist in its attempt to obtain
long-term financing. The cost of such additional financing arrangements may not
be acceptable to the Company and could result in significant dilution to the
Company's existing shareholders. No assurances can be given that the Company
will be successful in raising additional capital and failure to raise such
capital, if needed, could have a material adverse effect on the Company's
business, financial condition and results of operations.

At December 31, 2000, the Company had $166,000 in unrestricted cash and short
term investments, compared with $588,000 at December 31, 1999, a decrease of
$422,000. In addition, the Company has $383,000 of restricted cash - current and
$444,000 of restricted cash - noncurrent. During the year ended December 31,
2000, $8,193,000 was used in operating activities. In addition, $1,353,000 was
used in investing activities to purchase fixed assets. The increase in cash used
in operating activities of $2,187,000 in 2000 compared to 1999 reflects the
increased net loss in 2000 offset by increased non cash adjustments and an
increase in working capital as suppliers' outstanding balances were reduced (as
opposed to 1999 when supplier accounts were increased).

Total financing activities during 2000 provided net cash of $9,026,000, compared
with net cash provided of $3,175,000 in 1999. The generation in 2000 was
primarily from the proceeds of short term debt ($5,190,000) and net proceeds
from the issuance of common stock ($3,870,000), offset by repayment of long term
debt.

As of December 31, 2000 and 1999, the Company had drawn $597,500 and $644,700
respectively under its long term line of credit with the Bank of Scotland,
entered into by its subsidiary, EPL Technologies (Europe) Limited, for up to
$597,500 (Pound Sterling 400,000 at an exchange rate of Pound Sterling
1:$1.4938), which bears interest of 2% over bank base rate (6.00% as of December
31, 2000). The Company also had a short-term line of credit with the Bank of
Scotland in the amount of $1,611,700, which also bears interest of 2% over bank
base rate. At December 31, 1999, approximately $1,040,300 had been drawn under
this facility. During 2000, the Company agreed with the Bank of Scotland to
convert the short term line of credit into a similar facility based more closely
on the level of outstanding receivables of its UK operations. Under this new
facility, the Company's new limit is approximately $2,241,000, subject to the
level of receivables, and carries interest of 1.75% over bank base rate. At
December 31, 2000 approximately $2,051,000 had been drawn under this facility.
In conjunction with this new facility, the Company also has an additional
short-term line of credit with the Bank of Scotland, carrying interest at 1.75%
over bank base rate, under which the Company had drawn approximately $297,000 as
of December 31, 2000. The lines of credit are collateralized by the assets of
EPL Technologies (Europe) Limited and its subsidiaries. The debt agreements with
the Bank of Scotland contain certain covenants applicable to the results of
operations of these businesses that provide for maintenance of minimum asset
levels and minimum earnings before interest and tax to external interest ratios.
During the final quarter of 2000 the Company was not in compliance with one of
the asset covenants. Consequently, the loans may be called for repayment at any
time. To date, the Bank of Scotland has not imposed any financial penalties for
this non-compliance.

The Company, through its subsidiary, EPL Flexible Packaging, Inc., has a short
term credit facility of $100,000 with Old Second National Bank of Aurora, which
facility was fully drawn at December 31, 2000 ($50,000 at December 31, 1999).
This facility is secured upon the inventory of EPL Flexible Packaging, Inc. and
carries interest at a rate of 1.5% over the banks prime rate (8.25% as at
December 31, 2000).

Newcorn has two equipment financing loans with General Electric Capital
Corporation ("GECC") and Santa Barbara Bank & Trust ("SBBT") secured by
specifically identified capital assets. At December 31, 2000, approximately
$302,700 and $202,800 were outstanding under the GECC and SBBT loans,
respectively.

Paul L. Devine, the Company's Chairman and Chief Executive Officer, agreed to
extend to the Company, on a short-term basis, a revolving credit facility. At
December 31, 2000, $100,100 was outstanding, excluding interest. The Company's
obligations under this facility are unsecured and amounts outstanding thereunder
bear interest at a rate of nine percent (9%) per annum. The Company's Chairman
has agreed to defer




                                       29
<PAGE>   31

repayment of the remaining balance owed to him until the Company is able to do
so. See Item 13 - "Certain Relationships and Related Transactions."

In December 1999 two investment funds affiliated with the Company granted the
Company a credit facility of $3,500,000, which amount was fully drawn as at
December 31, 2000 and 1999. The facility carries a stated interest at the rate
of 12% per annum and is secured by a pledge of certain assets of the Company. In
connection with this facility, the Company issued two million shares of Common
Stock and issued a warrant to acquire 350,000 shares of Common Stock at an
exercise price of $0.50 per share. In May 2000, the Lenders agreed to defer the
repayment date until September 2000, as well as agree to other changes in the
terms of the facility. In connection with this restructuring, the Company issued
an aggregate of one million shares of Common Stock to the Lenders and 150,000
shares of Common Stock to a third party which participated in the negotiation of
the restructuring. Based on the market value at the date of issuance, the shares
had a value of $1,725,000. Such value was recorded as deferred debt costs on the
balance sheet under prepaid expenses and other current assets and was amortized
into interest expense over the life of the initial debt agreement. This
amortization was complete as at September 30, 2000. In August 2000, the lenders
agreed to further restucture the facility, including to defer repayment until
December 2000. Under this agreement, the Company issued an aggregate of
1,200,000 shares of Common Stock to the Lenders and 160,000 shares of Common
Stock to a third party which participated in the negotiation of the
restructuring. The value of the shares ($1,186,250) was amortized into interest
expense over the life of the agreed restructuring. In November 2000, the
facility was again restructured, including to defer repayment until March 2001.
Under this latest agreement, 600,000 shares of Common Stock ($412,500, based on
the market value as at December 1, 2000) will be issuable and were charged into
interest expense in December 2000. In addition, further shares will be issuable
in January 2001 and February 2001 (600,000 shares and 650,000 shares
respectively). These will be charged into interest expense in those periods,
based on the market value at those times. Subsequent to the year end, repayment
has been deferred again to May 2001. As of December 31, 2000, the effective
interest rate of this facility, after including all of the debt issue costs,
including the value of the stock and warrants issued, is approximately 145%.

In February and March 2000, the Company, in a series of transactions, borrowed
from individual investors $3,175,000 for a period of 12 months. The loans, which
are unsecured, carry interest at the rate of 10% per annum. In connection with
these loans, the Company issued warrants to acquire a total of 1,637,500 shares
of Common Stock at an exercise price of $1.00 per share. The fair value of the
warrants ($4,711,000) is being amortized into interest expense over the life of
the debt. Subsequent to December 31, 2000, the Company has commenced
negotiations with the investors to restructure the notes payable to allow for
the extension of the initial terms, which require repayment in February and
March 2001. Agreement has been reached to extend the repayment date on the
majority of this balance for a period up to 90 days, and discussions are
continuing with the balance. Interest will continue to accrue at a rate of 10%
per annum. In consideration for this extension (and for each month thereof),
warrants to purchase 6,000 shares of Common Stock per $100,000 will be issued.
The fair value attributable to these warrants will be amortized into interest
expense over the extension period.

In November 2000 the Company obtained a loan from an institutional investor
totaling $1,000,000. The loan, which is secured on the assets of EPL Flexible
Packaging, Inc., excluding inventory, is for a period of 6 months and bears
interest at 10% per annum. The loan is convertible into shares of Preferred
Stock upon request. These shares of Preferred Stock would have a coupon of 10%
per annum and are in turn convertible into shares of Common Stock at a
conversion price of $1.00 per share. The loan agreement provides for the
conversion terms to be amended if the Company undertakes a major financing (as
defined by the loan







                                       30
<PAGE>   32


agreement) on more favorable terms. To date no such financing has been
completed. In connection with this loan the Company issued warrants to acquire a
total of 400,000 shares of Common Stock at an exercise price of $1.00 per share.
Since this loan can be converted immediately, the fair value of the warrants
($204,000) has been charged into interest expense upon issuance. The effective
interest rate of this facility, assuming the loan is not converted and after
including the value of the warrants issued, is approximately 51%.

At December 31, 2000, the Company had warrants outstanding and exercisable to
purchase 9,974,114 shares of Common Stock at a weighted average price of $1.35
per share. In addition, at December 31, 2000, the Company had 2,032,125 options
outstanding and exercisable to purchase shares of Common Stock at a weighted
average price of $7.60 per share (with prices ranging from $0.69 to $15.25 per
share). See Note 11 to the Company's Consolidated Financial Statements. At
December 31, 2000, there were no material commitments for capital expenditures.







                                       31
<PAGE>   33


FORWARD LOOKING STATEMENTS

Statements in the foregoing discussion that are not statements of historical
fact and reflect the intent, belief or expectations of the Company and its
management regarding the anticipated impact of events, circumstances and trends
should be considered forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not guarantees of future performance and actual results may vary
materially from those projected in the forward-looking statements. Meaningful
factors that might affect such results include, but are not limited to: a) the
Company's needs for capital, including for acquisitions, which needs have been
and, particularly in the short term, are expected to continue to be substantial,
and its potential inability to obtain additional financing on satisfactory terms
or in satisfactory amounts, b) the Company's product development and sales
process, which is lengthy and resource intensive, c) the uncertainty of demand
for, or the market acceptance of, the Company's products and services, d) the
Company's limited resources and experience in marketing and selling its products
and services, e)financial, personnel resources and production requirements and
potential difficulties in cross-marketing and managing multiple product lines,
f) the Company's potential inability to identify and acquire acceptable
acquisition targets, to the extent necessary to fulfill its expansion plans, and
its potential inability to successfully integrate any such acquisitions into its
operations, g) potential product obsolescence and short product life cycles, h)
potential competition, particularly in the market for produce packaging, from
companies with greater financial, management and other resources, i) the
unpredictability and volatility of the market for agricultural products, j)
changes in U.S. and foreign regulation, k) difficulty with research and
development and sales and marketing activities regarding new and existing
products, including extension of necessary time periods or increase in expense
for product introduction and market penetration, l) potential difficulties in
obtaining or protecting intellectual property rights or the infringement of
proprietary or other rights of the Company by third parties, m) raw material
availability and pricing, n) loss of services of key employees of the Company
and o) delays in the Company's ability to bring into production new facilities
or equipment, as well as other information contained in the Company's other
filings with the Securities and Exchange Commission.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company uses its unsecured and secured lines of credit, equipment financing
loans, notes payable and capital leases to finance a significant portion of its
operations. These on-balance sheet financial instruments, to the extent they
provide for variable rates of interest, expose the Company to interest rate risk
resulting from changes in the related banks' base rates. The majority of the
Company's indebtedness, which is denominated in U.S. dollars, is currently at
fixed rates of interest, and thus the Company believes it does not have any
material interest rate risk.








                                       32
<PAGE>   34

The Company derives its revenues from its subsidiaries which account in US
dollars, British pounds and Spanish pesetas. In 2000 the revenue generated from
these sources amounted to $7,612,000 (27.4%), $14,194,000 (51%) and $6,008,000
(21.6%) respectively. The total long-lived assets denominated in these
currencies as at December 31, 2000 amounted to $2,319,000 (25.9%), $5,941,000
(66.4%) and $695,000 (7.7%) respectively. The exchange rate between the US
dollar and the British pound was relatively stable during most of 2000, with the
pound/dollar 2000 monthly average rate rising by approximately 6.5% in 2000 over
1999, and has also been very stable over the last few years. The Company does
not believe that this is a significant exchange rate risk for the Company. The
exchange rate between the US dollar and the Spanish peseta has fallen by an
average of approximately 15% during 2000. Although it has risen slightly in
December and since December 31, 2000, any future movements are difficult to
predict.

To the extent that the Company's financial instruments expose the Company to
interest rate risk and market risk, they are presented in the table below. The
table presents principal cash flows and related interest rates by year and
maturity for the Company's unsecured and secured lines of credit, equipment
financing loans, notes payable and capital leases in effect at December 31,
2000. The information is presented in U.S. dollars, or where appropriate, U.S.
dollar equivalents, which is the Company's reporting currency. The instruments'
actual cash flows are denominated in U.S. dollars ($US) and British pounds
sterling, as indicated in parentheses.

<TABLE>
<CAPTION>
                                                             Principal Amount Maturing in
                                                             ----------------------------
                                     2001       2002       2003       2004      2005      Thereafter    Total        Fair value
                                     ----       ----       ----       ----      ----      ----------    -----        ----------
<S>                               <C>         <C>       <C>         <C>        <C>        <C>         <C>            <C>
Fixed Rate ($US)                  4,608,667   224,659       --         --        --           --      4,833,326       4,833,326
Average Interest Rate                 9.98%    10.34%       --         --        --           --        ---              ---

Variable Rate (pounds sterling)   1,885,805   282,887    264,939    120,000    30,000         --      2,583,631       2,583,631
Variable Rate ($US)               2,817,015   422,577   395,7661     79,256    44,813         --      3,859,427       3,859,427
Average Interest Rate                 7.70%     7.47%      7.50%      7.00%     7.00%         --        ---              ---
</TABLE>







                                       33
<PAGE>   35



ITEM 8 : CONSOLIDATED FINANCIAL STATEMENTS


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                          PAGE
<S>                                                                      <C>
INDEPENDENT AUDITORS' REPORT                                               35

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND 1999
    AND FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
CONSOLIDATED BALANCE SHEETS                                                36

CONSOLIDATED STATEMENTS OF OPERATIONS                                      37

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIT)                   38

CONSOLIDATED STATEMENTS OF CASH FLOWS                                      39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                               40-58
</TABLE>







                                       34
<PAGE>   36

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
  EPL Technologies, Inc.
Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheets of EPL
Technologies, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of EPL Technologies, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 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 2 to the
consolidated financial statements, the Company's recurring losses from
operations, cash flow deficiencies, negative working capital, and debt
refinancing requirements raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


/s/Deloitte & Touche LLP

Philadelphia, Pennsylvania
March 29, 2001






                                       35
<PAGE>   37
EPL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    2000              1999
<S>                                                           <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents                                     $    166,041     $    587,589
  Restricted cash - current                                          382,570          394,516
  Accounts receivable, net                                         4,535,696        5,318,724
  Inventories, net                                                 2,926,741        4,225,435

  Prepaid expenses and other current assets                          974,542        1,125,021
                                                                ------------     ------------

           Total current assets                                    8,985,590       11,651,285
                                                                ------------     ------------

PROPERTY AND EQUIPMENT, Net                                        5,913,578        8,862,422
                                                                ------------     ------------

INTANGIBLE ASSETS, Net:
  Patents, net of accumulated amortization of $2,126,134
    and $2,013,660 at December 31, 2000 and 1999                     671,061          783,535
  Goodwill, net of accumulated amortization of $2,188,714
    and $1,415,326 at December 31, 2000 and 1999                   1,720,405        2,493,793
  Other intangibles, net of accumulated amortization of
    $222,624  and $191,708 at December 31, 2000 and 1999             114,532          145,448

Restricted cash - noncurrent                                         443,871          511,126
Deferred debt costs                                                  785,181        1,427,094
Other noncurrent assets                                               90,895          124,000
                                                                ------------     ------------

           Total other assets                                      3,825,945        5,484,996
                                                                ------------     ------------

TOTAL ASSETS                                                    $ 18,725,113     $ 25,998,703
                                                                ============     ============

CURRENT LIABILITIES:
  Accounts payable                                              $  7,453,260     $  9,645,801
  Accrued expenses                                                 1,964,937        1,556,968
  Accrued interest                                                   539,605           58,038
  Other liabilities                                                2,444,060        1,704,707
  Deferred gain on sale-leaseback, current portion                   322,107          359,985
  Short term revolving credit facilities with related
    parties, net of issue costs                                    3,600,060        3,877,000
  Short term convertible debt                                      1,000,000
  Current portion of long-term debt and short term
    credit facilities                                              6,425,682        1,918,572
                                                                ------------     ------------

           Total current liabilities                              23,749,711       19,121,071

LONG-TERM DEBT                                                     1,267,071        1,340,527
DEFERRED GAIN ON SALE-LEASEBACK, NONCURRENT PORTION                1,334,040        1,670,700
DEFERRED INCOME TAXES                                                259,945          191,196
COMMITMENTS AND CONTINGENCIES (NOTE 13)
                                                                ------------     ------------
           Total liabilities                                      26,610,767       22,323,494
                                                                ------------     ------------



STOCKHOLDERS' EQUITY (DEFICIT):
  Convertible Series A Preferred Stock, $1.00 par
    value - authorized, 3,250,000 shares; issued and
    outstanding, 10,000 and 60,000 shares in 2000
    and 1999                                                          10,000           60,000
  Common Stock, $0.001 par value - authorized,
    50,000,000 shares; issued, 37,491,561 and
    30,776,228 outstanding, 37,280,951 and
    30,565,618 shares in 2000 and 1999                                37,492           30,776
  Additional paid-in capital                                      69,136,145       54,916,708
  Accumulated deficit                                            (76,079,646)     (50,270,041)
  Treasury stock, at cost                                           (138,160)        (138,160)
  Accumulated other comprehensive loss                              (851,485)        (924,074)
                                                                ------------     ------------

           Total stockholders' equity (deficit)                   (7,885,654)       3,675,209
                                                                ------------     ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)            $ 18,725,113     $ 25,998,703
                                                                ============     ============
</TABLE>

See notes to consolidated financial statements.


                                       36
<PAGE>   38
EPL TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     2000                 1999               1998
<S>                                                              <C>                  <C>                <C>
SALES                                                            $ 27,813,637         $ 30,307,360       $ 32,977,537
COST OF SALES                                                      25,419,664           30,199,717         29,481,264
                                                                 ------------         ------------       ------------

  Gross Profit                                                      2,393,973              107,643          3,496,273

OPERATING EXPENSES:
  Selling, general and administrative expenses                      9,316,058            9,897,520          7,903,882
  Research and development costs                                    1,340,832            1,870,105          1,572,825
  Gain on sale of fixed assets                                       (374,160)            (284,570)
  Restructuring costs                                                 946,950
  Depreciation and amortization                                     5,217,949            2,141,347          1,719,442
                                                                 ------------         ------------       ------------

LOSS FROM OPERATIONS                                              (14,053,656)         (13,516,759)        (7,699,876)

OTHER EXPENSES :
  Interest Expense, net                                            10,134,598              819,800             25,345

  Loss from unconsolidated affiliates                                     663               61,708             56,145
                                                                 ------------         ------------       ------------

LOSS BEFORE INCOME TAX EXPENSE                                    (24,188,917)         (14,398,267)        (7,781,366)

Income tax expense                                                     72,597               17,521
                                                                 ------------         ------------       ------------

NET LOSS                                                          (24,261,514)         (14,415,788)        (7,781,366)

Accretion, discount and dividends
  on preferred stock                                                1,548,091            1,202,533          2,753,727
                                                                 ------------         ------------       ------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS                        $(25,809,605)        $(15,618,321)      $(10,535,093)
                                                                 ============         ============       ============

LOSS PER COMMON SHARE - basic and diluted                        $      (0.79)        $      (1.10)      $      (0.99)
                                                                 ============         ============       ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - basic and diluted     32,574,693           14,221,642         10,598,878
                                                                 ============         ============       ============
</TABLE>






                                       37
<PAGE>   39
EPL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                           SERIES A
                                                                  COMMON STOCK          PREFERRED STOCK       ADDITIONAL
                                                              ---------------------------------------------     PAID-IN    TREASURY
                                                                NUMBER    AMOUNT     NUMBER       AMOUNT        CAPITAL      STOCK
<S>                                                           <C>         <C>      <C>          <C>          <C>           <C>
BALANCE, DECEMBER 31, 1997                                     9,047,982   9,048    2,073,000    2,073,000    28,697,761

 Shares issued in public offering (net of issuance costs)        809,097     809                               6,622,813
 Accretion of Series C warrant value                                                                              40,000
 Accretion of Series D warrants, discount,
    increase in stated value and issuance costs
 Exercise of options (net of costs)                              158,000     158                                 794,949
 Conversion of Series A and C preferred shares to
    common shares                                              1,414,222   1,414   (2,013,000)  (2,013,000)    2,011,730
 Conversion of Series D preferred stock to common shares          48,088      48                                 208,435
 Exercise of warrants (net of costs)                              33,575      34                                  66,525
 Comprehensive (loss) income

  Net loss

  Other comprehensive income (loss)
   Foreign currency adjustment

 Comprehensive loss

                                                              ----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998                                    11,510,964  11,511       60,000       60,000    38,442,213

 Accretion of Series C warrant value                                                                              40,000
 Accretion of Series D stated value and warrant value
 Exercise of options                                              52,500      53                                 158,697
 Conversion of Series D preferred stock to common shares      13,630,314  13,630                              11,575,475
 Issuance of warrants to Series D Holders                                                                        795,247
 Contribution of shares by Series D Holders                                                                      138,160   (138,160)
 Forgiveness of dividends on Series D Stock                                                                      124,767
 Issuance of stock in private placement (net of costs)         3,582,450   3,582                               1,814,347
 Issuance of stock to lender                                   2,000,000   2,000                               1,186,000
 Issuance of Warrants to lender                                                                                  161,000
 Issuance of Warrants to consultants in lieu of compensation                                                     480,802
 Comprehensive (loss) income

  Net loss

  Other comprehensive income (loss)
   Foreign currency adjustment

 Comprehensive loss

                                                              ----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999                                    30,776,228  30,776       60,000       60,000    54,916,708   (138,160)

 Accretion of Series C warrants                                                                                   40,000
 Issuance of stock in private placement (net of costs)         3,832,000   3,832                               3,168,257
 Conversion of Series A preferred shares to common stock          33,333      34      (50,000)     (50,000)       49,966
 Exercise of Warrants                                            100,000     100                                  51,600
 Issuance of warrants to lenders                                                                               5,000,228
 Issuance of warrants to consultants in lieu of compensation                                                     482,750
 Issuance of warrants in connection with Series D stock                                                        1,508,091
 Issuance of warrants in lieu of costs                                                                           363,850
 Shares issued to lender and associates                        2,510,000   2,510                               3,321,240
 Shares issued in settlement of liabilities                      240,000     240                                 233,455
 Comprehensive (loss) income

  Net loss

  Other comprehensive income (loss)
   Foreign currency adjustment

 Comprehensive loss

                                                              ----------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000                                    37,491,561  37,492       10,000       10,000    69,136,145   (138,160)
                                                              =====================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                            ACCUMULATED
                                                                                               OTHER
                                                                                           COMPREHENSIVE        TOTAL
                                                              COMPREHENSIVE  ACCUMULATED      INCOME         STOCKHOLDERS
                                                                  LOSS         DEFICIT        (LOSS)       EQUITY (DEFICIT)
<S>                                                           <C>            <C>           <C>             <C>
BALANCE, DECEMBER 31, 1997                                                   (24,206,954)       42,427         6,615,426

 Shares issued in public offering (net of issuance costs)                                                      6,623,622
 Accretion of Series C warrant value                                             (40,000)
 Accretion of Series D warrants, discount,
    increase in stated value and issuance costs                               (2,623,400)                     (2,623,400)
 Exercise of options (net of costs)                                                                              795,107
 Conversion of Series A and C preferred shares to
    common shares
 Conversion of Series D preferred stock to common shares                                                         208,483
 Exercise of warrants (net of costs)                                                                              66,559
 Comprehensive (loss) income

  Net loss                                                      (7,781,366)   (7,781,366)                     (7,781,366)

  Other comprehensive income (loss)
   Foreign currency adjustment                                     400,612                     400,612           400,612

 Comprehensive loss                                             (7,380,754)

                                                              -----------------------------------------------------------
BALANCE, DECEMBER 31, 1998                                                   (34,651,720)      443,039         4,305,043

 Accretion of Series C warrant value                                             (40,000)                              0
 Accretion of Series D stated value and warrant value                           (367,286)                       (367,286)
 Exercise of options                                                                                             158,750
 Conversion of Series D preferred stock to common shares                                                      11,589,105
 Issuance of warrants to Series D Holders                                       (795,247)                              0
 Contribution of shares by Series D Holders                                                                            0
 Forgiveness of dividends on Series D Stock                                                                      124,767
 Issuance of stock in private placement (net of costs)                                                         1,817,929
 Issuance of stock to lender                                                                                   1,188,000
 Issuance of Warrants to lender                                                                                  161,000
 Issuance of Warrants to consultants in lieu of compensation                                                     480,802
 Comprehensive (loss) income

  Net loss                                                     (14,415,788)  (14,415,788)                    (14,415,788)

  Other comprehensive income (loss)
   Foreign currency adjustment                                  (1,367,113)                 (1,367,113)       (1,367,113)

 Comprehensive loss                                            (15,782,901)

                                                              -----------------------------------------------------------
BALANCE, DECEMBER 31, 1999                                                   (50,270,041)     (924,074)        3,675,209

 Accretion of Series C warrants                                                  (40,000)
 Issuance of stock in private placement (net of costs)                                                         3,172,089
 Conversion of Series A preferred shares to common stock
 Exercise of Warrants                                                                                             51,700
 Issuance of warrants to lenders                                                                               5,000,228
 Issuance of warrants to consultants in lieu of compensation                                                     482,750
 Issuance of warrants in connection with Series D stock                       (1,508,091)
 Issuance of warrants in lieu of costs                                                                           363,850
 Shares issued to lender and associates                                                                        3,323,750
 Shares issued in settlement of liabilities                                                                      233,695
 Comprehensive (loss) income

  Net loss                                                     (24,261,514)  (24,261,514)                    (24,261,514)

  Other comprehensive income (loss)
   Foreign currency adjustment                                      72,589                      72,589            72,589

 Comprehensive loss                                            (24,188,925)

                                                              -----------------------------------------------------------
BALANCE, DECEMBER 31, 2000                                                   (76,079,646)     (851,485)       (7,885,654)
                                                                             ============  ============      ============
</TABLE>

<PAGE>   40

EPL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                         2000         1999        1998
<S>                                                                             <C>              <C>              <C>
OPERATING ACTIVITIES:
  Net loss                                                                       $(24,261,514)    $(14,415,788)    $(7,781,366)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Expenses paid with warrants for common stock                                    450,757          480,802
      Amortization of debt issue costs                                              8,965,893          277,815
      Depreciation and amortization                                                 5,217,949        2,141,347        1,719,442
      Provision for inventory obsolescence                                            234,666          103,205
      Restructuring costs                                                             946,950
      Minority interest and gain on sale of fixed assets                             (374,160)        (284,570)         (44,835)
      Equity loss                                                                                       61,708           56,145
      Changes in assets and liabilities, net of effects from
        acquisitions of businesses, which (used) provided cash:
          Restricted cash - current                                                    11,946         (394,516)
          Accounts receivable                                                         783,128        1,100,988       (1,037,587)
          Inventories                                                               1,064,028          (53,150)        (864,277)
          Prepaid expenses and other current assets                                   247,681          337,642         (455,703)
          Other noncurrent assets                                                      33,105          (70,454)
          Accounts payable                                                         (2,238,208)       3,176,746        1,730,686
          Accrued expenses                                                            889,536          404,877           62,532
          Deferred tax liability                                                       68,749          113,232
          Restricted cash - noncurrent                                                 67,255          (24,982)        (486,144)
          Other liabilities                                                          (300,304)         999,678          (50,625)
                                                                                 ------------     ------------      -----------

           Net cash used in operating activities                                   (8,192,543)      (6,045,420)      (7,151,732)
                                                                                 ------------     ------------      -----------

INVESTING ACTIVITIES:
  Property and equipment acquired                                                  (1,352,327)      (1,412,858)      (5,062,696)
  Net proceeds from sale of fixed assets                                                             4,889,000           59,546
  Acquisition of businesses and contingent payments, net of cash acquired                                               (75,000)
  Cost of patent acquired                                                                                               (29,363)
                                                                                 ------------     ------------      -----------

           Net cash (used in) provided by investing activities                     (1,352,327)       3,476,142       (5,107,513)
                                                                                 ------------     ------------      -----------

FINANCING ACTIVITIES:
  Proceeds from long-term debt                                                      1,037,086                         3,443,666
  Proceeds from short term lines of credit                                          5,190,372        3,597,000
  Net payment of long-term debt                                                    (1,070,744)        (898,603)      (1,533,562)
  Proceeds from sale of common stock/warrants/options                               3,869,018        1,976,679        7,533,517
  Redemption of Series D Stock                                                                      (1,500,000)
                                                                                 ------------     ------------      -----------

           Net cash provided by financing activities                                9,025,732        3,175,076        9,443,621
                                                                                 ------------     ------------      -----------

EFFECT OF EXCHANGE RATE CHANGE ON CASH                                                 97,590       (1,363,204)         403,663
                                                                                 ------------     ------------      -----------

DECREASE IN CASH AND CASH EQUIVALENTS                                                (421,548)        (757,406)      (2,411,961)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          587,589        1,344,995        3,756,956
                                                                                 ------------     ------------      -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                                           $    166,041     $    587,589      $ 1,344,995
                                                                                 ============     ============      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during year for:
      Interest                                                                   $    234,167     $    149,487      $   186,084
      Income taxes                                                                                      33,815           36,173

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
  AND FINANCING ACTIVITIES:
  Accretion of warrants, discount, increase in stated value and
    issuance costs related to preferred stock                                    $  1,473,091     $  1,202,533      $ 2,663,400
  Issuance of common stock for:
    Exchange for interest/debt issue costs                                          3,323,750        1,188,000
    Conversion of preferred shares to common shares                                    50,000       11,589,105          208,483
    Settlement of Liabilities                                                         233,455
  Issuance of warrants to lender                                                    5,000,228          161,000
  Issuance of warrants to consultants                                                 482,750
  Issuance of warrants in connection with raising equity                            1,302,850
  Contribution of treasury stock and forgiveness of dividend on
    Series D Preferred Stock                                                     $                $    262,927
</TABLE>





                                       39
<PAGE>   41
EPL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.   ORGANIZATION - EPL Technologies, Inc. and subsidiaries (the "Company")
          is engaged in the development, manufacture and marketing of
          proprietary food processing aid technologies (primarily through its
          EPL Food Products Inc., EPL Pure Produce, Inc. and NewCornCo, LLC
          ("Newcorn") subsidiaries), packaging technologies (primarily through
          its EPL Flexible Packaging, Inc., EPL Flexible Packaging Ltd. and
          Fabbri Artes Graficas Valencia, S.A. ("Fabbri") subsidiaries) and
          related scientific and technical services that facilitate the
          maintenance of the quality and integrity of fresh produce (primarily
          through its California Microbiological Consulting, Inc. and EPL Pure
          Produce, Inc. subsidiaries).

     B.   PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
          include the accounts of EPL Technologies, Inc. and its majority and
          wholly owned subsidiaries. All material intercompany transactions and
          balances have been eliminated in consolidation. The consolidated
          financial statements include the operations of NewCorn, an entity 51%
          owned by the Company. Since the equity of the minority owners has been
          reduced to zero, the Company is recording 100% of NewCorn's losses.

     C.   CASH AND CASH EQUIVALENTS - The Company considers all short-term
          investments with original maturities of three months or less to be
          cash equivalents.

     D.   ACCOUNTS RECEIVABLE - Accounts receivable are shown net of allowance
          for doubtful accounts of $771,064 and $1,217,477 as of December 31,
          2000 and 1999, respectively.

     E.   INVENTORIES - Inventories are stated at the lower of cost or net
          realizable value. Cost is determined by the first-in, first-out (FIFO)
          method (see Note 4).

     F.   PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
          Depreciation and amortization is calculated by the straight-line
          method, based upon the estimated useful lives of the assets which are
          as follows:

          <TABLE>
          <CAPTION>
          <S>                                            <C>
          Production and laboratory equipment            5-10 years
          Machinery and office equipment                 3-11 years
          Leasehold improvements                         The term of the lease and up to two
                                                         option periods or the estimated life of
                                                         the asset, whichever is shorter.
          Motor vehicles                                 3-6 years
          Buildings                                      20-40 years
          </TABLE>


     G.   RESTRICTED CASH - Restricted cash is primarily invested in
          certificates of deposit which mature within one year and are
          principally used as security for equipment financing


                                       40
<PAGE>   42

          and escrow requirements (see Note 13). The classification of these
          securities is determined based on the expected term of the collateral
          requirements and not necessarily the maturity date of the underlying
          securities.

     H.   OTHER ASSETS -

          Goodwill - Goodwill related to the acquisition of certain subsidiaries
               is being amortized on a straight-line basis over 10 years.

          Patents - Costs related to acquired patents are being amortized on a
               straight-line basis over the life of the patent. Costs related to
               internally-developed patents are generally expensed as incurred.

          Other Intangibles - Other intangibles which consist of trademarks,
               formulations and non-compete agreements are being amortized on a
               straight-line basis over 5 to 10 years.

          Total amortization expense related to intangible assets was $916,778,
          $610,378 and $549,823 for the years ended December 31, 2000, 1999 and
          1998 respectively. The amortization expense for 2000 includes an
          impairment provision against the goodwill related to Newcorn of
          $348,236.

     I.   INCOME TAXES - The Company has adopted the provisions of Financial
          Accounting Standards Board ("FASB") Statement No. 109, Accounting for
          Income Taxes (SFAS No. 109). SFAS No. 109 requires that deferred
          income taxes reflect the tax consequences in future years of
          differences between the tax bases of assets and liabilities and their
          financial report amounts using the enacted marginal rate in effect for
          the year in which the differences are expected to reverse.

     J.   REVENUE RECOGNITION - Revenues are recognized either at the time of
          shipment to customers or, for inventory held at customers' facilities,
          at the time the product is utilized in the customers' processing
          operations.

     K.   FOREIGN CURRENCY TRANSLATION ADJUSTMENT - The financial statements of
          the Company's foreign subsidiaries have been translated into U.S.
          dollars in accordance with SFAS No. 52, Foreign Currency Translation.
          All balance sheet accounts have been translated using the current
          exchange rate at the balance sheet date. Income statement amounts have
          been translated using the average rate for the year. The profit or
          loss resulting from the change in exchange rates has been reported
          separately as other comprehensive income or loss.

     L.   INVESTMENT IN UNCONSOLIDATED SUBSIDIARY - The Company holds a 50%
          interest in its unconsolidated subsidiary, Freshcorn LLC
          ("Freshcorn"). This investment is accounted for under the equity
          method as the Company does not maintain control of Freshcorn. The
          Company's share of Freshcorn's losses for the years ended December 31,
          2000, 1999 and 1998, was $663, $61,708 and $56,145 respectively. The
          Company's equity in the accumulated deficit of Freshcorn, $118,516, is
          included in other liabilities on the Company's balance sheet.

     M.   RECLASSIFICATIONS - Certain reclassifications have been made to the
          1999 and 1998 consolidated financial statements in order to conform
          with the 2000 presentation.



                                       41
<PAGE>   43


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

     O.   LONG LIVED ASSETS - The Company evaluates the carrying value of its
          long-lived assets for impairment whenever events or changes in
          circumstances indicate that the carrying value of an asset may not be
          recoverable. Impairment is recognized when the net carrying value of
          the long-lived asset exceeds the estimated future undiscounted cash
          flows related to such asset. Measurement of the amount of impairment,
          if any, is based upon the difference between the carrying value and
          estimated fair value.

     P.   STOCK-BASED COMPENSATION - The Company measures compensation expense
          for its stock-based employee compensation plans using the intrinsic
          value method prescribed by APB Opinion No. 25, Accounting for Stock
          Issued to Employees. See Note 11 for pro forma disclosures of net
          income and earnings per share as if the fair value-based method
          prescribed by SFAS No. 123, Accounting for Stock-Based Compensation,
          had been applied in measuring compensation expense.

     Q.   NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued SFAS No.
          133, Accounting for Derivative Instruments and Hedging Activities.
          This statement establishes accounting and reporting standards for
          derivative instruments, including certain derivative instruments
          embedded in other contracts collectively referred to as derivatives,
          and for hedging activities. It requires that an entity recognize all
          derivatives as either assets or liabilities in the consolidated
          balance sheet and measure those statements at fair value. This
          statement, as amended, will be adopted by the Company effective
          January 1, 2001. The Company has had no material adjustments to its
          consolidated financial position or results from operations as a result
          of adopting SFAS No. 133.

          In December 1999, the Securities and Exchange Commission (the "SEC")
          issued Staff Accounting Bulletin No. 101, Revenue Recognition in
          Financial Statements ("SAB No. 101"). SAB No. 101 provides guidance on
          the recognition, presentation and disclosure of revenue in financial
          statements filed with the SEC, and was adopted by the Company in the
          fourth quarter of 2000. The adoption of SAB No. 101 had no material
          impact on the company's consolidated financial position or results
          from operations.

2.   OPERATIONS

     The consolidated financial statements of the Company have been prepared on
     a going concern basis, which contemplates the continuation of operations,
     realization of assets and liquidation of liabilities in the ordinary course
     of business, and do not reflect any adjustments that might result if the
     Company is unable to continue as a going concern. The Company has incurred
     net losses, exclusive of accretion, discount and dividends on preferred
     stock, of $7,781,366, $14,415,788 and $24,261,514 in 1998, 1999 and 2000,
     respectively, incurred cash losses from operations of $7,151,732,
     $6,045,420 and $8,192,543 in 1998, 1999 and 2000, respectively, has an
     accumulated deficit of $76,079,646 and has negative working capital of
     $14,764,121 as of December 31, 2000. Within this negative working capital
     is approximately $6,675,000 of short term debt that is repayable during the
     first 6 months of



                                       42
<PAGE>   44
     2001. As explained more fully in Note 7, the Company has reached agreement
     to defer repayment of the majority of this amount for a period up to 90
     days, and is in negotiations with some of the lenders to defer repayment of
     the balance. Additionally, the Company's $1.0 million convertible debt is
     currently due for repayment at the end of May 2001. In addition, the
     Company was not in compliance with one of the asset covenants during the
     final quarter of 2000, and consequently the loans may be called for
     repayment at any time. The Company's continued ability to operate is
     dependent upon its ability to maintain adequate financing and to achieve
     levels of revenue necessary to support the Company's cost structure.
     Historically, the Company's revenues have not been sufficient to fund the
     development of the Company's business, and thus it has had to finance its
     operating losses externally, principally through equity financing. The
     Company will be required to seek additional and longer-term debt or equity
     financing to fund operating requirements in 2001 and repay and/or refinance
     existing short term debt. In this regard, the Company is currently
     exploring a number of options to raise additional capital over and above
     that mentioned above. This includes selling additional equity, as well as
     long term debt. Subsequent to the year end, the Company entered into an
     agreement with an institutional investor to raise $5.0 million in new
     convertible preferred stock, which is expected to close in the second
     quarter of 2001. Additionally, the Company has engaged an outside adviser
     to assist in its attempt to obtain long term financing. The cost of such
     additional financing arrangements may not be acceptable to the Company and
     could result in significant dilution to the Company's existing
     shareholders. No assurances can be given that the Company will be
     successful in raising additional capital and failure to raise such capital,
     if needed, could have material adverse effect on the Company's business,
     financial condition and results of operations.

     These factors indicate that there is substantial doubt about the Company's
     ability to continue as a going concern. The accompanying financial
     statements do not include any adjustments that might be necessary should
     the Company be unable to continue as a going concern.

     The Company has undergone a number of operational improvements as well as
     made significant investments in development and marketing activities
     related to its various processing technology businesses and packaging
     businesses in 2000, which the Company's management believes will improve
     cash flows from operations. The Company expects that the following, amongst
     others, should contribute to an improvement in the financial performance of
     the Company in the year 2001 and beyond, although there can be no assurance
     that such will in fact be the case : (i) The decision by the Company's
     management at the end of 2000 to discontinue corn operations under its
     previous format (see Note 3), (ii) the agreement with Reser's for Reser's
     to process and supply EPL Food with all of EPL Food's fresh-cut potato
     requirements and the relocation during 2000 of its potato processing to
     Reser's Pasco, Washington facility, (iii) further exploitation of the
     Company's processing technologies, especially focusing on the licensing
     arrangement with Monterey Mushrooms for fresh mushrooms, and (iv) further
     exploitation of the Company's perforating technologies, as evidenced by the
     new orders gained in produce packaging in the U.K. during 2000, together
     with the various applications development projects currently in progress.
     The Company's ability to operate beyond the immediate future is dependent
     upon its ability to achieve levels of revenues to support the Company's
     cost structure, maintain adequate financing and generate sufficient cash
     flows from operations to meet its operating needs. However, no assurance
     can be given that the Company will be successful in its efforts to
     implement its plans and achieve a level of profitability.


3.   CLOSURE OF CORN OPERATIONS

     During 1999 and 2000, the Company had undertaken a number of changes in its
     corn operations (Newcorn) in an effort to reduce the significant operating
     losses that had been incurred. Although such losses were reduced as a
     result of these measures, Newcorn continued to operate at a loss and was
     projected to continue incurring losses, prompting management to consider
     alternative actions. Management concluded that any attempt to bring Newcorn
     to profitability would require additional management and financial
     resources. Additionally, the management agreement with the Company's
     partner in



                                       43
<PAGE>   45

     Newcorn was due to expire. Accordingly, in December 2000, management
     decided to cease the operations of Newcorn and to exit the fresh corn
     products market. The results of such operations were previously included
     within the processing aids and other activities segment of the Company's
     business.

     Management's plan to exit this operation included the termination of
     substantially all (6) of its employees during December 2000 and January
     2001 and the commencement of efforts to seek a third party willing to buy
     Newcorn's existing assets and assume Newcorn's current operating leases. In
     relation to this plan, the Company has recorded charges totaling $4,277,000
     at December 31, 2000. These charges include the following:(i) an impairment
     provision against goodwill of $348,000 recorded within depreciation and
     amortization expense; (ii) a $235,000 writedown of inventory to its
     estimated market value, recorded within cost of sales; (iii) an impairment
     provision of $2,747,000 to reduce fixed assets to their net realizable
     value, recorded within depreciation and amortization expense; and (iv) a
     charge for various exit costs totaling $947,000, including rent, utilities
     and associated taxes of $689,000, salaries of $182,000 and other facility
     closure costs of $76,000 through the estimated date the related facilities
     would be closed or leased. Exclusive of the write down provisions,
     Newcorn's operations resulted in revenues of $3,007,000 and $5,807,000 in
     2000 and 1999 respectively, and operating losses of $2,867,000 and
     $4,767,000 in the same periods.

4.   INVENTORIES

     Inventories consisted of the following:


<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                   -----------------------------
                                                       2000           1999
<S>                                                 <C>            <C>
     Raw materials and supplies                     $ 1,410,928    $ 2,320,560
     Finished goods                                   1,515,813      1,904,875
                                                    -----------    -----------
                                                    $ 2,926,741    $ 4,225,435
                                                    ===========    ===========
</TABLE>


5.   PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:


<TABLE>
<S>                                              <C>             <C>
     Production and laboratory equipment         $  9,480,167    $  8,384,464
     Buildings                                        929,293         865,921
     Machinery and office equipment                   686,649         611,728
     Leasehold improvements                         2,323,535       2,290,512
     Motor vehicles                                    45,567          90,653
                                                 ------------    ------------

         Total property and equipment              13,465,211      12,243,278
     Accumulated depreciation and amortization     (7,551,633)     (3,380,856)
                                                 ------------    ------------

     Property and equipment, net                 $  5,913,578    $  8,862,422
                                                 ============    ============
</TABLE>


     Depreciation expense was $4,301,171, $1,530,969 and $1,169,619 for the
     years ended December 31, 2000, 1999 and 1998, respectively. The
     depreciation expense for 2000



                                       44
<PAGE>   46

     includes an impairment provision against the fixed assets related to
     Newcorn of $2,747,000 (see Note 3)

     During 1999, the Company completed a sale and leaseback of the land and
     building at its Spanish trading subsidiary, Fabbri, with an unrelated third
     party. The Company raised gross proceeds, before costs and taxes, of PTS
     800,000,000 (approximately $5,100,000). The Company expects to recognize a
     total pretax profit of approximately $2,303,000 on this transaction. For
     financial reporting purposes, $374,000 and $285,000 of this total profit
     has been recognized for the years ended December 31, 2000 and 1999
     respectively. The remaining balance will be recognized over the eight year
     life of the associated leaseback. Future lease payments under the sale
     leaseback transaction are approximately $412,000 per year for the lease
     term of eight years. The tax on this profit can be deferred for up to 10
     years under Spanish tax rules.


6.   INCOME TAXES

     The components of loss before income taxes for the year 2000, 1999 and 1998
     were taxed under the following jurisdictions:

<TABLE>
<CAPTION>
                                2000                1999                1998

<S>                        <C>                 <C>                 <C>
     Domestic              $(23,753,362)       $(14,216,982)       $ (7,677,762)
     Foreign                   (508,152)           (181,285)           (103,604)
                           ------------        ------------        ------------

         Total             $(24,261,514)       $(14,398,267)       $ (7,781,366)
                           ============        ============        ============
</TABLE>



     The provision (benefit) for income taxes for the years ended December 31,
     2000, 1999 and 1998 consists of the following:

<TABLE>
<CAPTION>
                                                       2000        1999   1998


<S>                                                   <C>         <C>        <C>
      Deferred foreign income tax expense (benefit)   $ 72,597    $113,232   $
      Current foreign income tax expense (benefit)                 (95,711)
                                                      --------    --------   ----

        Total income tax expense (benefit)            $ 72,597    $ 17,521   $
                                                      ========    ========   ====
</TABLE>


     There was no federal or state benefit provided for domestic losses as a
     100% valuation allowance was recorded based on management's assessment that
     realization was not likely. In addition, there was no foreign benefit
     provided for certain foreign losses as a 100% valuation allowance was
     recorded based on management's assessment that realization was not likely.

     Income tax expense (benefit) was different from the amounts computed by
     applying the statutory federal income tax rate to the loss before income
     taxes due to the following:



                                       45
<PAGE>   47

<TABLE>
<CAPTION>
                                                     2000    1999    1998

<S>                                                   <C>     <C>     <C>
Federal income tax (benefit) at U.S. statutory rate   (34%)   (34%)   (34%)
Reduction in income tax benefit resulting from:
  Federal losses not benefited                         30%     33%     23%
  Other                                                 4%      1%     11%
                                                      ----    ----    ----

Tax benefit                                             0%      0%      0%
                                                      ====    ====    ====
</TABLE>



     Deferred income taxes reflect the net tax effects of temporary differences
     between the carrying amount of assets and liabilities for financial
     reporting purposes and is a summary of the significant components of the
     Company's deferred federal tax assets and liabilities:


<TABLE>
<CAPTION>
                                        2000                          1999

Deferred Tax Asset:
<S>                              <C>                           <C>
  Other assets                   $    1,704,994                $      389,872
  Foreign assets
  Operating loss carryforwards       17,716,416                    13,123,050
                                 --------------                --------------

  Gross deferred tax asset           19,421,410                    13,512,922
  Valuation allowance               (19,421,410)                  (13,512,922)
                                 --------------                --------------

           Deferred tax asset
                                 --------------                --------------

Deferred Tax Liability:
  Fixed assets                           33,929                        30,153
  Foreign liability                     226,016                       161,043
                                 --------------                --------------
  Deferred tax liability                259,945                       191,196
                                 --------------                --------------

Net deferred tax liability       $      259,945                $      191,196
                                 ==============                ==============
</TABLE>



     For income tax reporting purposes, the Company has net operating loss
     carryforwards of approximately $52,100,000, which will expire between 2003
     and 2020.




                                       46
<PAGE>   48




7.   DEBT

     As of December 31, 2000 and 1999, debt includes the following:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                       -------------------------
                                                           2000         1999

<S>                                                     <C>          <C>
Unsecured line of credit                                $            $  331,333
Secured lines of credit                                  3,045,833    1,734,984
Convertible debt                                         1,000,000
Equipment financing loans                                  505,467      741,734
Notes payable                                            3,214,954      119,329
Capital leases                                             926,499      331,719
                                                        ----------   ----------

                                                         8,692,753    3,259,099
Less current portion and short term credit facilities    7,425,682    1,918,572
                                                        ----------   ----------

Long-term debt                                          $1,267,071   $1,340,527
                                                        ==========   ==========
</TABLE>




     As of December 31, 2000 and 1999, the Company had outstanding approximately
     $597,500 and $644,700, respectively, under its long term line of credit
     with the Bank of Scotland, entered into by its subsidiary, EPL Technologies
     (Europe) Limited, for up to $597,500, which bears interest of 2% over bank
     base rate (6.00% as of December 31, 2000). The Company also had a
     short-term line of credit with the Bank of Scotland, in the amount of
     $1,611,700, which also bears interest of 2% over bank base rate. At
     December 31, 1999 $1,040,304 was outstanding under this facility. During
     the year, the Company agreed with the Bank of Scotland to convert the
     short-term line of credit into a similar facility based more closely on the
     level of outstanding receivables of its UK operations. Under this new
     facility, the Company's new limit is approximately $2,241,000, subject to
     the level of receivables, and carries interest of 1.75% over bank base
     rate. At December 31, 2000, approximately $2,051,000 had been drawn under
     this facility. In conjunction with this new facility, the Company also has
     an additional short-term line of credit with the Bank of Scotland, carrying
     interest at 1.75% over bank base rate, under which the Company had drawn
     approximately $297,000 as of December 31, 2000. The lines of credit are
     collateralized by the assets of EPL Technologies (Europe) Limited and its
     subsidiaries. The debt agreements with the Bank of Scotland contain certain
     covenants applicable to the results of operations of these businesses that
     provide for maintenance of minimum asset levels and minimum earnings before
     interest and tax to external interest ratios. During the final quarter of
     2000, the Company was not in compliance with one of the asset covenants,
     consequently the loans may be called for repayment at any time. To date,
     the Bank of Scotland has not levied any financial penalties for this
     non-compliance.

     During 1999 the Company, through its Spanish subsidiary Fabbri, finalized
     with BankInter an unsecured line of credit for up to PTS100,000,000
     ($602,400 at $1.00:PTS 166 at December 31, 1999). The remaining balance
     drawn under the facility was repaid during the second quarter of 2000 after
     which the facility was canceled. Thus no amount was outstanding thereunder
     as of December 31, 2000 ((PTS55,000,000 ($331,300 at $1.00:PTS166 at
     December 31, 1999)).

                                       47
<PAGE>   49

     During the final quarter of 1999, the Company, through its subsidiary, EPL
     Flexible Packaging, Inc., was granted a short term credit facility of
     $100,000 with Old Second National Bank of Aurora, which facility was fully
     drawn at December 31, 2000 ($50,000 at December 31, 1999). This facility is
     secured upon the inventory of EPL Flexible Packaging, Inc. and carries
     interest at a rate of 1.5% over the bank's prime rate (8.5% as at December
     31, 2000). There are no covenants applicable to this facility.

     In 1998, NewCornCo, LLC entered into two equipment financing loans with
     General Electric Capital Corporation ("GECC") and Santa Barbara Bank &
     Trust (SBB&T) secured by specifically identified capital assets. The GECC
     loan is for $549,032 for a term of 48 months bearing interest at 10.34% per
     annum. The SBB&T loan is for $465,977 for a term of 48 months payable in
     equal monthly installments bearing interest at 10.5% per annum. At December
     31, 2000, $302,680 and $202,787 were outstanding on the GECC and SBB&T
     loans, respectively.

     In February and March 2000, the Company, in a series of transactions,
     borrowed from individual investors $3,175,000 for a period of 12 months.
     The loans, which are unsecured and included under notes payable, carry
     interest at the rate of 10% per annum. In connection with these loans, the
     Company issued warrants to acquire a total of 1,637,500 shares of Common
     Stock at an exercise price of $1.00 per share. The effective interest rate
     of this facility, after including the value of the warrants issued, is
     approximately 158%. The fair value of the warrants ($4,711,000) was
     recorded as deferred debt costs on the balance sheet under prepaid expenses
     and other current assets and is being amortized into interest expense over
     the life of the debt. Subsequent to December 31, 2000, the Company has
     commenced negotiations with the investors to restructure the notes payable
     to allow for the extension of the initial terms, which require repayment in
     February and March 2001. Agreement has been reached to extend the repayment
     date on the majority of this balance for a period of up to 90 days, and
     discussions are continuing with the balance. Interest will continue to
     accrue at a rate of 10% per annum payable upon repayment of debt. In
     consideration for this extension (and for each month thereof), warrants to
     purchase 6,000 shares of Common Stock per $100,000 will be issued. The fair
     value attributable to these warrants will be amortized into interest
     expense over the extension period.

     In November 2000 the Company obtained a loan from an institutional investor
     totaling $1,000,000. The loan, which is secured on the assets of EPL
     Flexible Packaging, Inc., excluding inventory, is for a period of 6 months
     and carries interest at the rate of 10% per annum (which interest is to be
     paid upon repayment of debt or conversion). The loan is convertible into
     shares of preferred stock upon request. These shares of preferred stock
     would have a coupon of 10% per annum and are in turn convertible into
     shares of common stock at a conversion price of $1.00 per share. The loan
     agreement provides for the conversion terms to be amended if the Company
     undertakes a major financing (as defined in the loan agreement) on more
     favorable terms. To date no such financing has been completed. In
     connection with this loan the Company issued warrants to acquire a total of
     400,000 shares of Common Stock at an exercise price of $1.00 per share.
     Since this loan can be converted immediately, the fair value of the
     warrants ($204,000) has been charged into interest expense upon issuance.
     The effective interest rate of this facility, assuming the loan is not
     converted and after including the value of the warrants issued, is
     approximately 51%.



                                       48
<PAGE>   50

     Other debt relates to capital leases that bear interest at rates from 7.0%
     through 10.5%, with varying monthly principal and interest payments. At
     December 31, 1999 notes payable related primarily to a financing
     arrangement related to an insurance policy.

     At December 31, 2000, aggregate annual maturities of debt (including short
     term lines of credit) were as follows:

     YEAR ENDING DECEMBER 31,

     <TABLE>
     <S>                              <C>
     2001                               7,425,682
     2002                                 647,236
     2003                                 395,766
     2004                                 179,256
     2005                                  44,813
                                       ----------

                                       $8,692,753
                                       ==========
     </TABLE>




8.   CREDIT FACILITIES WITH RELATED PARTIES

<TABLE>
<CAPTION>
                                               DECEMBER 31,        DECEMBER 31,
                                                   2000                1999
                                              -------------       -------------

<S>                                           <C>                 <C>
Revolving credit facility with CEO            $     100,000       $     377,000
Revolving credit facility with stockholders       3,500,000           3,500,000
                                              -------------       -------------
  Total                                       $   3,600,000       $   3,877,000
                                              =============       =============
</TABLE>


     In March 1999, Paul L. Devine, the Company's Chairman and Chief Executive
     Officer, agreed to extend to the Company, on a short-term basis, a
     revolving credit facility in an amount of up to $500,000, which was
     increased to $1,000,000 in June 1999. At December 31, 2000, $100,000 was
     outstanding. The Company's obligations under this facility are unsecured
     and amounts outstanding thereunder bear interest at a rate of nine percent
     (9%) per annum. The Company's Chairman has agreed to defer repayment of the
     remaining balance owed to him until such time as the Company is able to do
     so. The Company has agreed to pay all reasonable out-of-pocket expenses
     incurred by Mr. Devine in connection with advancing funds to the Company
     under this facility.

     In December 1999, two investment funds affiliated with an existing
     affiliated investor of the Company (the Lenders), granted the Company a
     credit facility of $3,500,000, which amount was fully drawn at December 31,
     2000. The facility carries interest at the rate of 12% per annum and is
     secured by a pledge of certain assets of the Company. In connection with
     this facility, the Company issued two million shares of Common Stock
     (valued at $1,188,000) and issued a warrant to acquire 350,000 shares of
     Common Stock at an exercise price of $0.50 per share (such warrant having a
     fair value of $161,000). The facility was repayable in June 2000, however,
     in May 2000, the lenders agreed to defer the repayment date until September
     2000, as well as agree to other changes in the terms of the facility. In
     connection with this restructuring, the Company issued an aggregate of one
     million shares of Common Stock to the Lenders and 150,000 shares of Common
     Stock to a third party which participated in the negotiation of the
     restructuring. Based on the market value at the date of



                                       49
<PAGE>   51
     issuance, the shares had a value of $1,725,000. Such value was amortized
     into interest expense over the extended life of the debt agreement
     (September 2000). In August 2000, the lenders agreed to further restructure
     the facility, including to defer repayment until December 2000. Under this
     agreement, the Company issued an aggregate of one million, two hundred
     thousand shares of Common Stock to the Lenders and 160,000 shares of Common
     Stock to a third party which participated in the negotiation of the
     restructuring. The value of the shares ($1,186,250) was amortized into
     interest expense over the life of the agreed restructuring. In November
     2000, the facility was again restructured, including to defer repayment
     until March 2001. Under this latest agreement, 600,000 shares (valued at
     $412,500, based on the market value as at December 1, 2000) will be
     issuable and were charged into interest expense in December 2000. In
     addition, further shares of Common Stock will be issuable in January 2001
     and February 2001 (600,000 shares and 650,000 shares respectively). These
     will be charged into interest expense in those periods based on the market
     value at those times. Subsequent to the year end, repayment has been
     deferred again until May 2001. In addition, interest continues to be
     accrued and will be paid upon repayment of the debt balance. As of December
     31, 2000, the effective interest rate of this facility, after including all
     of the debt issue costs, including the value of the stock and warrants
     issued, is approximately 145%.

     Interest charged in relation to related party loans totaled $451,000 for
     the year ended December 31, 2000. The interest payable as of December 31,
     2000 was $250,000 and is included within accrued interest on the Company's
     balance sheet.

9.   CONVERTIBLE PREFERRED STOCK

     The Series A Preferred Stock, (the "Series A Stock") which has been issued
     up to its authorized limit of 3,250,000, was issued at a price of $1.00 per
     share with each share of Series A Stock carrying the option to convert into
     common shares at a rate of $1.50 per share. The Series A Stock carries
     equal voting rights to the common shares, based on the underlying number of
     common shares after conversion. The Series A Stock carries a dividend rate
     of 10% per annum, payable in cash and/or common shares ($1.50 per share) at
     the Company's option (dividends in arrears at December 31, 2000 and 1999
     totaled $1,424,518 and $1,420,692, respectively.) Fifty thousand shares of
     Series A Stock were converted during 2000, leaving ten thousand shares
     outstanding at December 31, 2000.

     The Company also had a Series B and Series C Preferred Stock, all of which
     were converted during 1997 and 1998 respectively. The Series B Stock
     carried a dividend of 10% per annum, payable in cash and/or shares ($9.40
     per share) at the Company's option. The outstanding dividends on the Series
     B Stock at December 31, 2000 totaled $270,092. The outstanding dividends on
     the Series C Stock at December 31, 2000 totaled $49,239.

     At the Annual Meeting of the Company held on July 21, 1997, the
     shareholders of the Company approved an increase in the number of shares of
     Board Designated Preferred Stock reserved for issuance from 2,000,000 to
     4,000,000 shares. During 1997, the Company issued a further 12,500 shares
     of Board Designated Preferred Stock - designated Series D Convertible
     Preferred Stock - at an aggregate consideration, before associated costs
     and expenses, of $12,500,000, to three new institutional investors (the
     "Series D Stock"). In connection with the issuance of the Series D Stock,
     the Company issued warrants to purchase 201,614 shares of the Company's
     Common Stock at an exercise price of 130% of the closing price on the
     issuance date (i.e. $20.16 per share).

     During 1999, shareholders of 10,800 shares of the Series D stock elected to
     exercise their right of conversion into common stock. In connection with
     the conversion of 1,324 of these shares of the Series D Stock, the Company
     granted certain Series D shareholders warrants to purchase 1,571,429 shares
     of common stock at exercise prices of $0.52 and $0.66 per share



                                       50
<PAGE>   52

     to induce conversion. These warrants are immediately vested and expire in
     2004. The value of these warrants, $795,247, was recorded as a return to
     the Series D shareholders in 1999. In connection with these conversions,
     the shareholders received common stock based only on the stated value of
     the Series D Stock held. The 210,610 shares of common stock issuable as a
     result of the appreciated value of the Series D Stock (the "Premium
     Shares") were contributed back to the Company and have been accounted for
     as Treasury Stock at the market value of the Company's stock at the date of
     the conversion. Further warrants in relation to the conversion of the
     Series D Stock were issued during 2000 (see Note 10).

     Also in 1999, holders of the remaining 1,500 shares of Series D Stock
     redeemed their shares to the Company for a cash payment of $1,500,000, the
     stated value of the shares redeemed. The additional value of the redeemed
     shares based on the 4% appreciation factor, $124,767, has been recorded as
     additional paid-in capital. There were no shares of Series D Stock
     outstanding at December 31, 1999.

10.  COMMON STOCK

     During 2000, the Company issued a total of 6,715,333 shares of common
     stock, in transactions not involving a public offering under the Securities
     Act of 1933, as amended. 3,672,000 shares were issued to a number of
     institutional investors in various private placements, raising gross
     proceeds of $3,962,000. In addition, in connection with the restructuring
     of the credit facility with the Lenders detailed in Note 8 above, a further
     2,200,000 shares of common stock were issued to the Lenders and 310,000
     shares of common stock to a third party which participated in the
     negotiation of the restructuring. The value of these shares were amortized
     as interest expense over the then remaining period of the facility. A
     further 33,333 shares of common stock were issued upon conversion of the
     50,000 shares of Series A Stock detailed in Note 9, 240,000 shares of
     common stock were issued in settlement of liabilities totaling $233,500,
     100,000 shares of common stock were issued upon the exercise of warrants,
     raising gross proceeds of $52,000 and 160,000 shares (valued at $160,000)
     were issued in relation to the raising of new equity.

     During 1999, the Company issued a total of 19,265,264 shares of common
     stock. A total of 13,630,314 shares were issued upon the conversion of
     10,800 shares of Series D Stock, of which 210,610 shares, with a market
     value of $138,130 were subsequently contributed back to the Company to be
     held as treasury stock. A total of 2,901,354 shares were issued in private
     placements to raise gross proceeds of $1,500,000, which were used in full
     to redeem the remaining 1,500 shares of Series D Stock (see Note 9). An
     additional 52,500 shares were issued in connection with the exercise of
     previously issued options, resulting in net proceeds to the Company of
     approximately $158,750. A total of 2,000,000 shares, valued at $1,188,000,
     were issued in connection with a loan received from two institutional
     investors. A further 681,096 shares were issued in connection with a
     private placement, resulting in net proceeds to the Company of
     approximately $330,000. Total issuance costs related to these issuances of
     stock amounted to approximately $12,000.

     During 1998, the Company issued a total of 2,462,982 shares of common
     stock. A total of 809,097 shares were issued in connection with the public
     offering completed in May 1998, resulting in net proceeds to the Company of
     approximately $6,624,000. A total of 1,462,310 shares were issued upon the
     conversion of 2,013,000 shares of Series A Stock, all 144,444 shares of
     Series C Stock and 200 shares of Series D Stock. A total of 158,000 shares
     were issued from the exercise of previously issued options, resulting in
     net proceeds to the Company of approximately $795,000. A total of 33,575
     shares were issued from the



                                       51
<PAGE>   53

     exercise of previously issued warrants, resulting in net proceeds to the
     Company of approximately $67,000.

     During 2000, warrants to acquire a total of 5,962,500 shares of Common
     Stock were issued. Warrants to acquire a total of 1,637,500 shares of
     Common Stock were issued in connection with new loans totaling $3,175,000,
     as detailed in Note 7 above. The value ascribed to these warrants
     ($4,711,000) has been recorded as deferred debt costs and is being
     amortized into interest expense over the 12 month life of the loans,
     commencing in March 2000. Warrants to acquire 400,000 shares of Common
     Stock were also issued in connection with a new loan drawn down in the
     final quarter of 2000, as detailed in Note 7. Since this loan can be
     converted immediately, the fair value of these warrants ($204,000) has been
     charged into interest expense upon issuance. The Company also issued
     warrants to acquire 450,000 shares of Common Stock to consultants in lieu
     of cash compensation for advisory services provided in the second and third
     quarters and over the next nine months. The value of these warrants
     ($469,000) is being recorded as selling, general and administrative
     expenses in the Company's statement of operations over the expected service
     period of 12 months. The Company also issued a further warrant to acquire
     100,000 shares of Common Stock to an employee of the Company, together with
     a warrant to acquire 100,000 shares of Common Stock to a former director of
     the Company. These were granted with an exercise price based on the market
     value at the date of the agreement. Other warrants to acquire 65,000 shares
     of Common Stock were issued, with an ascribed value of $98,900. Of this
     $13,800 was expensed to selling, general and administrative expenses, and
     $85,100 was expensed to interest expense. A total of 2,210,000 warrants
     were issued in relation to the raising of new equity. The value ascribed to
     this ($1,302,850) has been recorded as a reduction to the related
     additional paid in capital.

     Finally, the Company also issued warrants to acquire 1,000,000 shares of
     Common Stock in relation to the conversion of the Series D Stock, which
     conversion was completed in December 1999, as provided in the Series D
     Stock conversion agreements. After the expiration of each 30 day period,
     warrants to purchase a further 100,000 shares of Common Stock will be due
     to be issued, at an exercise price of $0.52 per share, until such time as
     the shares of Common Stock issued upon conversion of the Series D Stock are
     registered. The value ascribed to these warrants $1,508,100 was amortized
     immediately upon issuance to accretion, discount and dividends during 2000.

     At December 31, 2000, the Company had warrants outstanding to purchase
     9,974,114 shares of common stock at an average price of $1.35 per share. In
     addition, the Company had options outstanding for the issuance of 2,032,125
     shares of common stock at prices ranging from $0.69 to $15.25 per share
     (weighted average price of $7.60 per share) (see Note 11).




                                       52
<PAGE>   54

11.  STOCK OPTION PLANS

     The 1994 Stock Incentive Plan (the "1994 Plan") originally provided for up
     to 750,000 shares of unissued common stock to be made available for the
     granting of options. This was approved by stockholders on July 21, 1994. On
     July 22, 1996, stockholders approved an increase in the number of shares
     available for the granting of options under the 1994 Plan to 1,500,000. On
     July 21, 1997, the stockholders approved another amendment to the 1994
     Plan, which increased the number of shares of common stock reserved for
     issuance under the 1994 Plan to 2,250,000. The 1994 Plan provided that no
     options could be granted under it after May 4, 1999, and thus no options
     were available for grant under the 1994 Plan as of December 31, 1999. As at
     December 31, 2000, options to acquire 1,395,625 shares of Common Stock were
     outstanding and exercisable under the 1994 Plan.

     The Company's 1998 Stock Incentive Plan, as amended and restated (the "1998
     Plan"), was adopted by the Company's shareholders on September 29, 1998.
     Under the 1998 Plan, 850,000 shares of common stock are reserved for
     issuance.

     The 1998 Plan provides for options to be granted with exercise prices at or
     in excess of the market value of the Company's stock at the date of grant.
     Such options are generally immediately vested and have terms of 5 years.

     Combined information regarding these plans is as follows:


<TABLE>
<CAPTION>
                                                                       WEIGHTED
                                                                       AVERAGE
                                                        SHARES         EXERCISE
                                                     UNDER OPTION       PRICE

<S>                                                 <C>               <C>
Outstanding and Exercisable at December 31, 1997       1,758,125         8.92

Activity for the Year Ended December 31, 1998:
  Granted                                                396,625         8.61
  Exercised                                             (158,000)        5.05
                                                      ----------

Outstanding and Exercisable at December 31, 1998       1,996,750         9.17
                                                      ----------

Activity for the Year Ended December 31, 1999:
  Granted                                                298,125         4.26
  Exercised                                              (52,500)        3.02
  Expired                                               (344,750)        8.62
                                                      ----------

Outstanding and Exercisable at December 31, 1999       1,897,625         8.67
                                                      ----------

Activity for the Year Ended December 31, 2000:
  Granted                                                478,500         1.59
  Expired                                               (344,000)        5.17
                                                      ----------

Outstanding and Exercisable at December 31, 2000       2,032,125     $   7.60
                                                      ==========
</TABLE>



     These options expire between March, 2001 and September 2005.



                                       53
<PAGE>   55

     The following table summarizes information about the Company's stock
     options outstanding at December 31, 2000:


<TABLE>
<CAPTION>
                                                 NUMBER                  WEIGHTED           WEIGHTED
        RANGE OF                              OUTSTANDING                 AVERAGE           AVERAGE
        EXERCISE                                   AT                    REMAINING          EXERCISE
         PRICES                            DECEMBER 31, 2000         CONTRACTUAL LIFE        PRICE

<S>                                            <C>                    <C>                  <C>
$0.69 - $1.51                                     350,750                4.3 years            $ 1.21
$2.17 - $4.61                                     384,625                     3.7               3.62
$5.31 - $8.94                                     690,250                     1.1               7.61
$10.50 - $15.25                                   606,500                     1.1               3.79
                                                  -------

                                                2,032,125
                                                =========

</TABLE>


     The estimated fair value of options granted during 2000, 1999 and 1998
     ranged between $0.53 - $1.89, $0.42 - $2.87, and $3.13 - $8.18 per share,
     respectively. The Company applies Accounting Principles Board Opinion No.
     25 and related interpretations in accounting for its stock option plans.
     All options have been granted with exercise prices at or above the market
     value of the Company's common stock at the date of grant. Accordingly, no
     compensation cost has been recognized for its stock option plans. Had
     compensation cost for the Company's stock option plans been determined
     based on the fair value at the grant dates for awards under those plans
     consistent with the provisions of SFAS No. 123, the Company's net loss and
     loss per share for the years ended December 31, 2000, 1999 and 1998 would
     have been increased to the pro forma amounts indicated below:


<TABLE>
<CAPTION>
                                                  2000            1999             1998

Net loss available for common stockholders:
<S>                                             <C>             <C>              <C>
  As reported                                   $ 25,809,605    $ 15,618,321     $ 10,535,093
  Pro forma                                     $ 26,288,105    $ 16,209,598     $ 12,077,683

Net loss per common share (basic and diluted):
  As reported                                   $       0.79    $       1.10     $       0.99
  Pro forma                                     $       0.81    $       1.14     $       1.14
</TABLE>




     The fair value of options granted under the Company's stock option plans
     during 2000, 1999 and 1998 was estimated on the date of grant using the
     Black-Scholes option-pricing mode with the following assumptions used: no
     dividend yield, expected volatility of from 94% - 124%, 81%, and 65% for
     the years ended December 31, 2000, 1999 and 1998, respectively, risk free
     interest rates of from 6.1% - 6.75%, 6% and from 5.34% - 5.75%, for the
     years ended December 31, 2000, 1999 and 1998, respectively, and expected
     lives of 5 years.

12.  NET LOSS PER COMMON SHARE

     Net loss per common share is computed by dividing the loss applicable to
     common stockholders by the weighted average number of common shares
     outstanding during the period. For the years ended December 31, 2000, 1999
     and 1998, the potential common shares have an antidilutive effect on the
     net loss per common share for common stockholders.

                                       54
<PAGE>   56

     The following table summarizes those securities that could potentially
     dilute loss per common share for common shareholders in the future that
     were not included in determining net loss per common stockholders as the
     effect was antidilutive.


<TABLE>
<CAPTION>
                                                                     2000      1999      1998
                                                                      (SHARES IN THOUSANDS)

Potential common shares resulting from:
<S>                                                                   <C>       <C>       <C>
  Stock options                                                       2,032     1,898     1,997
  Convertible preferred stock                                             7        40     2,907
  Convertible debt                                                    1,000
  Warrants                                                            9,974     4,174       264
                                                                     ------    ------    ------

                                                                     13,013     6,112     5,168
                                                                     ======    ======    ======
</TABLE>



13.  COMMITMENTS AND CONTINGENCIES

     The Company has entered into various operating leases for facilities,
     vehicles and equipment. At December 31, 2000, future minimum lease payments
     were as follows:


<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,

<C>                                                                              <C>
2001                                                                             $ 1,473,555
2002                                                                               1,292,798
2003                                                                               1,181,194
2004                                                                               1,001,869
2005 and thereafter                                                                1,870,844
                                                                                 -----------

Future minimum lease payments                                                    $ 6,820,260
                                                                                 ===========
</TABLE>



     Rental expense for operating leases amounted to $1,101,456, $1,071,530 and
     $891,118 for the years ended December 31, 2000, 1999 and 1998,
     respectively.

     The Company has entered into agreements for services with certain executive
     officers. In addition to a base salary, certain other benefits are
     provided. At December 31, 2000, minimum payments to executive officers
     under these agreements totaled approximately $1,360,000.

     In connection with the Fabbri acquisition, the Company was informed that
     from time to time in the past Fabbri disposed of certain hazardous waste
     using some waste management companies that were not authorized handlers of
     hazardous waste under applicable Spanish legislation. The Company obtained
     from the prior owner of Fabbri an indemnification for any fines or
     penalties levied against the Company from such actions. Management believes
     that the matter will not have a material adverse effect on the Company's
     consolidated financial position or results of operations.

     In connection with the sale and leaseback of the premises at Fabbri, the
     Company became aware of certain planning and compliance issues with the
     local authorities that remain unresolved. The Company does not believe that
     it will incur any material liability related to



                                       55
<PAGE>   57

     these matters, however, if any costs are incurred, the Company believes it
     can recover these costs from the prior owner of Fabbri under a warranty in
     the sale and purchase agreement. As a result of this uncertainty, the
     Company has placed approximately $383,000 into escrow pending the
     resolution of this matter. Such amount has been recorded as restricted cash
     - current on the balance sheet.

     At the end of October 2000, the Valencia region and surrounding area in
     Spain was hit by catastrophic thunderstorms and flash floods. These severe
     weather conditions caused material damage to the equipment, premises and
     inventory located at the Valencia plant of the Company's Spanish subsidiary
     Fabbri. In connection with this event, the Company has filed insurance
     claims totaling $841,000, including reimbursement for damages incurred of
     $330,000 and costs of business interruption of $511,000. At December 31,
     2000, a damage claim of approximately $330,000 has been made and has been
     recorded in the Company's consolidated financial statements within prepaid
     expenses, and cost of sales, where the costs of the damage were initially
     recorded. As of December 31, 2000, no amounts have been recorded in
     connection with the business interruption claim, since such amounts were
     not realized prior to December 31, 2000. The recovery of this claim will be
     recorded as other income when the claims are settled and received in 2001.
     Subsequent to December 31, 2000, the Company has received approximately
     $200,000 of this claim.

     In February 2001, the Company announced that it had received Nasdaq Staff
     determinations indicating that (A) the Company fails to comply with the
     $1.00 minimum bid price and net tangible assets, market capitalization and
     net income requirements for continued listing set forth in Marketplace
     Rules 4310(c)(04) and 4310(c)(2)(B), (B) the Company's Form 10-K for the
     fiscal year ended December 31, 1999 contained a 'going concern'
     qualification in the audit opinion and (C) the Company's securities are,
     therefore, subject to delisting from The Nasdaq SmallCap Market. The
     Company requested, and on March 22, 2001 was heard, at a hearing before a
     Nasdaq Listing Qualifications Panel ("Panel") to review the Staff
     determinations. There can be no assurance the Panel will grant the
     Company's request for continued listing.

     During the last few months the Company has been discussing the nature of
     its relationship with Penn State University, and has agreed to consider
     entering into a new non-exclusive license in relation to Mushroom Fresh
     Technology. The Company believes this change, if agreed, will not have a
     material adverse effect on its ability to penetrate the fresh mushroom
     market.

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of cash and cash equivalents, accounts receivable, due
     from related parties and accounts payable approximate fair value because of
     the short maturities of these items.

     Interest rates that are currently available to the Company for issuance of
     long-term debt (including current maturities) with similar terms and
     remaining maturities are used to estimate fair value for long-term debt.
     The estimated fair value of the long-term debt approximates its carrying
     value.

     The fair values are based on pertinent information available to management
     as of respective year-ends. Although management is not aware of any factors
     that could significantly affect the estimated fair value amounts, such
     amounts have not been comprehensively revalued for purposes of these
     consolidated financial statements since that date, and current estimates of
     fair value may differ from amounts presented herein.

15.  CUSTOMER CONCENTRATION

     During the years ended December 31, 2000 and 1999, no single customer
     accounted for more than 10% of total consolidated revenues. In 1998, one
     customer accounted for approximately 15% ($5,054,000) of total consolidated
     revenues.

16.  INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION

     The Company develops, manufactures, and markets proprietary technologies
     designed to maintain the integrity of fresh produce. These products fall
     into two major classifications: packaging materials and processing aids.
     The Company's produce packaging business involves perforating, converting
     and printing flexible packaging, using technologies and processes, some of
     which are proprietary to the Company, which are marketed in North and South
     America, the United Kingdom and Continental Europe. Processing aids are
     designed



                                       56
<PAGE>   58

     to inhibit the enzymatic degradation that causes fruits and vegetables to
     begin to deteriorate immediately after processing and are sold primarily in
     the United States with smaller amounts also sold in Canada. This category
     also includes activities of the Company's fresh-cut corn and potato
     products, as well as provision of scientific and technical services in the
     United States.

     The following table summarizes the Company's financial information by
     industry segment.


<TABLE>
<CAPTION>
                                                              2000            1999              1998

SALES:
<S>                                                      <C>             <C>             <C>
  Processing aids                                        $  4,408,248    $  7,538,811    $    8,912,517
  Packaging materials                                      23,405,389      22,768,549        24,065,020
                                                         ------------    ------------    --------------

           Total sales                                   $ 27,813,637    $ 30,307,360    $   32,977,537
                                                         ============    ============    ==============

NET LOSS FROM OPERATIONS:
  Processing aids                                        $(13,537,143)   $(10,519,584)   $   (6,729,036)
  Packaging materials                                        (516,513)     (3,281,745)         (970,840)
                                                         ------------    ------------    --------------

           Total net loss from operations                $(14,053,656)   $(13,801,329)   $   (7,699,876)
                                                         ============    ============    ==============

DEPRECIATION AND AMORTIZATION EXPENSE:
  Processing aids                                        $  4,367,412    $  1,192,105    $    1,161,240
  Packaging materials                                         850,537         949,242           558,202
                                                         ------------    ------------    --------------

           Total depreciation and amortization expense   $  5,217,949    $  2,141,347    $    1,719,442
                                                         ============    ============    ==============

TOTAL ASSETS:
  Processing aids(1)                                     $  4,173,942    $ 10,320,428    $    9,747,366
  Packaging materials                                      14,551,171      15,678,275        20,024,142
                                                         ------------    ------------    --------------

           Total assets                                  $ 18,725,113    $ 25,998,703    $   29,771,508
                                                         ============    ============    ==============

TOTAL CAPITAL EXPENDITURES:
  Processing aids                                        $    192,697    $    607,433    $    3,638,067
  Packaging materials                                       1,159,630         805,425         1,424,629
                                                         ------------    ------------    --------------

           Total capital expenditures                    $  1,352,327    $  1,412,858    $    5,062,696
                                                         ============    ============    ==============
</TABLE>


     (1) Total Assets includes various corporate assets, including patents and
     deferred debt costs.

                                       57
<PAGE>   59

     The Company has operating facilities in the United States, the United
     Kingdom and Spain. The following table summarizes the Company's financial
     information based on operation location.


<TABLE>
<CAPTION>
                               2000          1999          1998

SALES:
<S>                        <C>           <C>           <C>
  United States            $ 7,612,213   $10,204,882   $12,230,514
  United Kingdom            14,194,000    11,486,238    11,929,324
  Spain                      6,007,424     8,616,240     8,817,699
                           -----------   -----------   -----------

           Total           $27,813,637   $30,307,360   $32,977,537
                           ===========   ===========   ===========

TOTAL LONG-LIVED ASSETS:
  United States            $ 3,103,720   $ 8,454,138   $ 6,204,642
  United Kingdom             5,941,232     5,086,962     5,554,015
  Spain                        694,571       806,318     4,509,991
                           -----------   -----------   -----------

           Total           $ 9,739,523   $14,347,418   $16,268,648
                           ===========   ===========   ===========
</TABLE>



17.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>                                   FIRST           SECOND         THIRD       FOURTH       TOTAL
                                           QUARTER          QUARTER       QUARTER      QUARTER (i)  YEAR
2000                                                    (DOLLARS IN `000 EXCEPT PER SHARE DATA.)

<S>                                      <C>              <C>            <C>         <C>         <C>
Revenues                                    6,052            7,936          6,952       6,874       27,814
Operating (loss) before                    (1,868)          (1,513)        (1,545)     (3,910)      (8,836)
  depreciation and amortization
Net loss                                   (3,762)          (4,974)        (5,119)    (10,407)     (24,262)
Loss per common share                       (0.14)           (0.17)         (0.16)      (0.32)       (0.79)

1999

Revenues                                    7,758            8,292          6,648       7,609       30,307
Operating (loss) before                    (2,461)          (2,103)        (1,630)     (5,181)     (11,375)
  depreciation and amortization
Net loss                                   (3,157)          (2,911)        (2,529)     (7,021)     (15,618)
Loss per common share                       (0.27)           (0.24)         (0.19)      (0.40)       (1.10)
</TABLE>


     (i)The fourth quarter 2000 figures include charges totaling $4,277,000 in
     relation to the cessation of operations of Newcorn. They also include the
     effect of significant flood damage incurred at the Company's operation in
     Spain. The compensation under the business interruption insurance will be
     recognized as the proceeds are received (see Note 13).

18.  SUBSEQUENT EVENTS

     Subsequent to the year end, the Company entered into an agreement with an
     institutional investor to raise $5 million in new convertible preferred
     stock, which is expected to close in the second quarter of 2001.
     Additionally, the Company has engaged an outside adviser to assist in its
     attempts to obtain long term financing.

                                       58
<PAGE>   60




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not Applicable

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.

<TABLE>
<CAPTION>
    NAME                                AGE             POSITIONS WITH THE COMPANY AND AFFILIATES
    ----                                ---             -----------------------------------------

<S>                                      <C>       <C>
Paul L. Devine                           46        Chairman of the Board of Directors, President, Chief
                                                   Executive Officer

Dr. William R. Romig                     54        Senior Vice President-Science and Technology

Michael S. Leo                           57        Secretary

Antony E. Kendall                        58        Chief Executive Officer of EPL Flexible Packaging Ltd.

Adolph S. Clausi (1)(2)                  78        Director

W. Ward Carey (1)(2)                     63        Director

Richard M. Harris (1)(2)(3)              65        Director

(1)   Member of Compensation Committee

(2)   Member of Audit Committee

(3)   Appointed July 10 2000
</TABLE>

Paul L. Devine. Mr. Devine was appointed Chairman and Chief Executive Officer of
the Company in March 1992. From 1989 to 1992, Mr. Devine was involved as a
business consultant in the identification and targeting of acquisitions for
various public companies. During this time, he also served as a director and
chief executive officer of various companies, including three U.K. subsidiaries
of Abbey Home Healthcare, Inc., a U.S. public health care group. Prior to this,
he was the Chief Executive of Leisure Time International, plc from 1986 to 1989.
He is a graduate of London University and holds Bachelors and Masters degrees in
curriculum research. Throughout his business career, he has been intimately
involved in the design and implementation of new product strategies, both in
financial services and health/hygiene services.

Dr. William R. Romig. Dr. Romig was appointed Vice President of Research and
Development of the Company in September 1994, and, as of January 1, 1998, serves
as Senior Vice President of Science and Technology. From 1988 until 1994, Dr.
Romig was first Senior Director of Vegetable Genetics and then



                                       59
<PAGE>   61

Senior Director of Business Development and Director of Product Development for
FreshWorld, a joint venture between DNA Plant Technology Corporation, a public
company, and duPont. Prior to 1988, he worked for General Foods Corporation
(Kraft) eventually attaining the highest technical position of Principal
Scientist. Dr. Romig received his B.S. in Plant Pathology from Cornell
University and his Ph.D. from the University of Delaware. He has held positions
of Adjunct Professor at several universities and has lectured and published in
the area of fresh-cut fruits and vegetables. Dr. Romig is also Chairman of the
Company's Scientific Advisory Board.

Michael S. Leo. Mr. Leo was appointed Secretary of the Company in February 2000.
He is a partner in the law firm of Gibbons, Del Deo, Dolan, Griffinger &
Vecchione, where he has worked since January 1997. Prior to this he was a
partner with Day, Barry & Howard from November 1994 to December 1996. In
industry, Mr. Leo has held positions as Senior Vice President, General Counsel
and a director of Rhone-Poulenc, Inc., Assistant General Counsel of
International Paper Company and Associate General Counsel of Standard &
Poor's/Intercapital, Inc. He has also held a position in enforcement and
compliance with the U.S. Securities and Exchange Commission. Mr. Leo received
his B.A. degree at Brooklyn College, his M.A. degree in Business Policy at
Columbia University and his J.D. at George Washington University.

Antony E. Kendall. Mr. Kendall joined the Company in August 1996 as chief
executive officer of BPS (now EPL Flexible Packaging Ltd). From 1970 to 1996,
Mr. Kendall worked for the UCB group of companies in various senior management
positions. Most recently he was Managing Director of UCB Flexible Ltd.,
responsible for marketing its specialty packaging products in the U.K. and for
Pepsico European contracts. He holds a B.S. degree in Mechanical Engineering
from the University of London.

Adolph S. Clausi. Mr. Clausi was elected to the Board of Directors in March
1998. For more than five years, Mr. Clausi has served as a consultant and
adviser to the food industry. He was Senior Vice President and Chief Research
Officer of General Foods Corporation worldwide, prior to his retirement. Mr.
Clausi is a past President of the Institute of Food Technologists (IFT), past
Chairman of the IFT Foundation and past Chairman of the Food Safety Council. He
has a chemistry degree from Brooklyn College and has done graduate work at
Stevens Institute of Technology. Mr. Clausi is the holder of 13 patents, has
authored chapters in food technology texts and has delivered numerous papers on
various aspects of the management of food science and technology. Mr. Clausi is
currently a director of Opta Food Ingredients, Inc. and also serves as a member
of the Technical Advisory Board of Goodman Fielder, Ltd. He served on the
Technical Advisory Board of Martek Biosciences, Inc. from 1990 to 1997. Mr.
Clausi serves as a director and a member of Technical Advisory Boards of a
number of private companies as well.

W. Ward Carey. Mr. Carey was elected to the Board of Directors in January 1999.
He is currently Senior Vice President - Investments at PaineWebber Incorporated
in New York. Prior to joining PaineWebber in 1993, he served as an Executive
Vice President and Director of Bessemer Trust Company of Florida. He previously
served as President, Chairman and Chief Executive Officer of Tucker Anthony in
New York and Chairman of the Executive Committee of Sutro and Company in San
Francisco. He has almost 40 years of senior level experience in the investment
and investment banking fields.

Richard M. Harris. Mr. Harris was appointed to the Board of Directors in July
2000. For over eight years, Mr Harris has worked as a business consultant to
various public and private companies. Prior to his early retirement he was
Senior Vice President and Chief Financial Officer of Axel Johnson, Inc. He
previously served for 18 years with the International Paper Company as Senior
Vice President for all packaging operations. He was Group Chief Executive of the
industrial packaging business and Executive Vice President and Chief Financial
Officer of the parent company.



                                       60
<PAGE>   62



COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and Nasdaq, copies of which are required by regulation to be furnished to the
Company.

      Based solely on review of the copies of such forms furnished to the
Company, the Company believes that during fiscal year 2000 its officers,
directors and ten percent (10%) beneficial owners complied with all Section
16(a) filing requirements.




                                       61
<PAGE>   63


ITEM 11. EXECUTIVE COMPENSATION

      The following table sets forth the aggregate compensation paid by the
Company for the year ended December 31, 2000 for services rendered in all
capacities to the Chief Executive Officer and each of the other four most highly
compensated executive officers (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                LONG-TERM COMPENSATION
                                                                           ------------------------------
                                             ANNUAL COMPENSATION                AWARDS          PAYOUTS
                                         -----------------------------   -----------------   ----------------
                                                                                                         ALL
                                                                         RESTRICTED                     OTHER
                                                             OTHER         STOCK    OPTIONS/   LTIP     COMPEN-
            NAME AND                    SALARY     BONUS  COMPENSATION    AWARD(S)   SARS    PAYOUTS    SATION
      PRINCIPAL POSITION       YEAR      ($)       ($)        ($)          ($)       (#)      ($)        ($)
      ----------------------   ---       ---        ---       ---          ---       ---      ---        ----

<S>                            <C>      <C>        <C>      <C>              <C> <C>           <C>      <C>
Paul L. Devine                 2000     375,000         0    2,740           0        0        0        0
  Chairman, President          1999     275,000         0    5,888           0        0        0        0
  and Chief Executive          1998     275,000         0    2,872           0        0        0        0
  Officer

Jose Saenz de Santa Maria      2000     122,332         0    3,096(1)        0        0        0        0
  Managing Director            1999     128,205         0   21,659(1)        0        0        0        0
  Fabbri Artes Graficas
  Valencia S.A                 1998     133,600    13,600   25,593(1)        0   45,000        0        0

Antony E. Kendall              2000     151,400         0   16,613(2)        0        0        0        0
  Chief Executive Officer      1999     134,460         0   15,837(2)        0        0        0        0
  EPL Flexible                 1998     137,423         0   12,788(2)        0   20,000        0        0
  Packaging Ltd

William R. Romig               2000     140,000         0      288           0        0        0        0
  Senior Vice President        1999     130,000         0        0           0        0        0        0
  Science and Technology       1998     120,000         0        0           0        0        0        0

</TABLE>

     (1)  Assumes an exchange rate of $1:PTS177 for 2000, $1:PTS162 for 1999 and
$1: PTS149.70 for 1998.

     (2)  Assumes an exchange rate of Pound Sterling 1:$1.514 for 2000, Pound
          Sterling 1:$1.652 for 1999 and Pound Sterling 1:$1.65 for 1998.

COMPENSATION OF DIRECTORS

With the exception of Mr. Devine in his capacity as an officer of the Company,
no cash compensation was paid to any director of the Company during the year
ended December 31, 2000.

Pursuant to the terms of the Company's 1998 Stock Incentive Plan, as amended and
restated, each non-employee director of the Company shall receive an automatic
grant of options to purchase 7,500 shares of Common Stock on June 25, 2000 and
on each June 25 thereafter during the term of such plan. In accordance with
these terms, warrants to purchase 7,500 shares, at an exercise price of $1.25
per share, were granted to W. Ward Carey and Adolph S. Clausi on July 6, 2000
for their services as members of the audit and compensation committees. These
options are exercisable for ten year terms. See "Stock Incentive Plans" below.

In addition, the Company from time to time has granted to certain of its
non-employee directors a number of options to purchase shares of Common Stock
upon the initial election of such director to the Company's Board of Directors
to provide incentive for a high level of dedication in the future and to align
the interests of such directors with the interests of the Company's
shareholders. See Item 13 - "Certain Relationships and Related Transactions."




                                       62
<PAGE>   64


EMPLOYMENT AND CONSULTING CONTRACTS

Mr. Devine and the Company are parties to an employment agreement dated as of
January 1, 1997 that provides that Mr. Devine is to serve as the Company's
Chairman of the Board, President and Chief Executive Officer. The agreement
provides for a rolling three-year term. The agreement provides for a base salary
to be fixed by the Board which, as of January 1, 1997, was $275,000 per year. On
March 28, 2000, the Board increased Mr. Devine's annual salary to $375,000.
Pursuant to the agreement the Company will maintain life insurance on Mr.
Devine's life with a face amount equal to at least $1,000,000, for which Mr.
Devine may designate a beneficiary. Under the agreement Mr. Devine also will be
entitled to receive a retirement benefit if he remains continuously employed (as
defined) by the Company until age 50. Generally, if Mr. Devine retires at age
65, the retirement benefit to be received annually will be equal to 50% of his
average annual base salary and bonus during the final three years of his
employment (less benefits from any other defined benefit pension plan of the
Company). The percentage of Mr. Devine's average annual base salary and bonus
will be reduced or increased by 6% for each year by which Mr. Devine elects to
have such retirement benefit commence earlier or later than his 65th birthday.
The agreement also provides that Mr. Devine is entitled to participate in all
benefit plans and arrangements of the Company and may also receive bonuses, if
any, as determined by the Board of Directors. The agreement also provides
certain disability and death benefits to Mr. Devine, as well as severance
payments approximately equal to Mr. Devine's average salary and bonus for the
previous three years, to continue for three years if Mr. Devine is terminated
under certain conditions. Additionally, Mr. Devine is entitled to receive a
payment of slightly less than three times his "base amount" (as defined in the
Internal Revenue Code of 1986) in the event of a "change of control" of the
Company (as defined in the agreement). This agreement also contains certain
customary provisions regarding confidentiality and non-competition.

The Company, through Fabbri Artes Graficas Valencia S.A. ("Fabbri"), entered
into an employment agreement with Mr. Saenz de Santa Maria commencing on May 1,
1998, which provides that Mr. Saenz de Santa Maria is to serve as managing
director of Fabbri. The agreement provides for an annual salary of PTS20,000,000
($133,000 at an exchange rate of $1:PTS150), which salary is reviewable on
January 1 annually, together with customary benefits, such as vacation and the
provision of an automobile. A bonus is also payable upon the achievement of
certain performance targets, as agreed on an annual basis. The contract may be
terminated by either side upon six months' notice. The agreement also contains
certain customary provisions regarding confidentiality and non-competition.

The Company, through Bakery Packaging Services Limited (now known as EPL
Flexible Packaging Limited ("EPL Flexible")), entered into an employment
agreement with Mr. Kendall commencing on August 1, 1996, which provides that Mr.
Kendall is to serve as Chief Executive Officer of EPL Flexible. The agreement
originally provided for an annual salary of Pound Sterling 70,000 ($115,000 at
an exchange rate of Pound Sterling 1:$1.65), which salary is reviewable on
January 1 annually and has been increased to Pound Sterling 83,000 ($137,000 at
an exchange rate of Pound Sterling 1:$1.65) as of July 1, 1997, together with
customary benefits, such as vacation, the provision of an automobile, healthcare
coverage and contributions into a defined contribution pension scheme. A bonus
is also payable upon the achievement of certain performance targets, as agreed
on an annual basis. The contract may be terminated by either side upon six
months' notice. The agreement also contains certain customary provisions
regarding confidentiality and non-competition. The annual salary was increased
to Pound Sterling 100,000 ($165,000 at an exchange rate of Pound Sterling
1:$1.65), effective January 1, 2000.

Effective January 1, 1998, the Company entered into a new employment agreement
with Dr. Romig, which runs for an initial term of two years, with annual renewal
terms thereafter. Either party may terminate the contract upon six months'
notice. The initial annual salary is $120,000, with a bonus of up to 25% of the



                                       63
<PAGE>   65

salary based upon the achievement of agreed-upon objectives. The salary was
increased to $140,000 effective July 1, 1999. In addition to the customary
provisions on vacation and healthcare coverage, the agreement also provides
that, in the event of a termination of employment by either party due to a
change in control (as defined in the agreement), Dr. Romig would receive a total
payment equal to twice his annual salary plus a bonus equal to his average bonus
earned over the previous twelve months. The agreement also contains certain
customary provisions regarding confidentiality and non-competition.

STOCK INCENTIVE PLANS

The Company's 1994 Stock Incentive Plan was adopted by the shareholders on July
21, 1994, and modified by the shareholders to increase the shares issuable
thereunder and to make certain other changes on July 22, 1996, and again on July
21, 1997 (as so modified, the "1994 Plan"). The Company's 1998 Stock Incentive
Plan, as amended and restated ( the "1998 Plan"), was adopted by the Company's
shareholders on September 29, 1998. The 1994 Plan and the 1998 Plan are intended
to provide additional incentive to certain employees, certain consultants or
advisors and non-employee members of the Board of Directors to enter into or
remain in the employ of the Company or to serve on the Board of Directors by
providing them with an additional opportunity to increase their proprietary
interest in the Company and to align their interests with those of the Company's
shareholders generally through the receipt of options to purchase Common Stock
that have been structured to comply with the applicable provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended, and Rule 16b-3
thereunder. The 1994 Plan and the 1998 Plan provide for the grant of incentive
stock options within the meaning of the Internal Revenue Code of 1986, as
amended, and non-qualified stock options and the award of shares of Common
Stock. The particular terms of each option grant or stock award are set forth in
a separate agreement between the Company and the optionee or award recipient.
The 1994 Plan and the 1998 Plan are administered by the administration
committees appointed by the Board of Directors, which are currently comprised of
W. Ward Carey, Adolph S. Clausi and Richard M. Harris. The committees generally
have the discretion to determine the number of shares subject to each award, and
other applicable terms and conditions, including a grant's vesting schedule. The
term of an option granted under the 1994 Plan could not be more than five years
from the grant date and options generally terminate three months after an
optionee ceases to be employed by the Company (twelve months in the case of
death or disability). The 1994 Plan provided that no option may be granted under
it after May 4, 1999.

Under the 1998 Plan, 850,000 shares of Common Stock are reserved for issuance.
The terms of the 1998 Plan are substantially similar to those of the 1994 Plan,
except that (i) the minimum exercise price for options granted under the 1998
Plan to executives, officers and employee directors of the Company that were
serving as of September 29, 1998, is $14.00 per share, (ii) all options granted
under the 1998 Plan must be granted at a premium to the market price of the
Common Stock at the time of grant, (iii) options granted under the 1998 Plan
cannot be repriced without shareholder approval and (iv) the term of an option
may not be more than ten years from the grant date. In addition, the 1998 Plan
provides for the automatic grant to each non-employee director of the Company of
options to purchase 7,500 shares of Common Stock on each June 25 thereafter
during the term of the 1998 Plan. The 1998 Plan provides that no option may be
granted under it after June 25, 2008.

No grants of options to purchase Common Stock were made during the year ended
December 31, 2000 to Named Executive Officers.

The following table sets forth certain information concerning exercises by Named
Executive Officers of options



                                       64
<PAGE>   66

to purchase Common Stock during the year ended December 31, 2000 and the value
as of December 31, 2000 of unexercised stock options held by Named Executive
Officers as of such date.


                   AGGREGATED OPTION EXERCISES IN LAST FISCAL
                    YEAR AND FISCAL YEAR-END OPTION VALUES(1)

<TABLE>
<CAPTION>
                                                                                                VALUE OF UNEXERCISED
                                                                    NUMBER OF SECURITIES           IN-THE-MONEY
                                                               UNDERLYING UNEXERCISED OPTIONS        OPTIONS AT
                                                                     AT DECEMBER 31, 2000        DECEMBER 31, 2000(1)
                                      SHARES                         --------------------        --------------------
                                     ACQUIRED      VALUE                           UNEXER-                      UNEXER-
        NAME                       ON EXERCISE   REALIZED($)        EXERCISABLE    CISABLE       EXERCISABLE     CISABLE
        ----                       -----------   ----------         -----------    -------      -----------    ---------

<S>                                  <C>         <C>               <C>            <C>           <C>             <C>
        Paul L. Devine                  0           0                 350,000        0             0               0
        Jose Saenz de Santa Maria       0           0                  45,000        0             0               0
        Antony E. Kendall               0           0                  95,000        0             0               0
        William R. Romig                0           0                 162,500        0             0               0

</TABLE>

     (1)  At December 31, 2000, the closing price of a share of Common Stock on
          the Nasdaq Small Cap Market was $0.50.


In April 2000 Antony Kendall was awarded a warrant to puchase 100,000 shares of
Common Stock, with an exercise price of $0.75 per share. These warrants were
unexercised as at December 31, 2000.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Company's Compensation Committee during fiscal 2000 were Mr.
Carey and Mr. Clausi, who served for the entire year and Mr. Harris who was
elected to the committee in July 2000. None of Mr. Carey, Mr. Clausi or Mr.
Harris were officers or employees of the Company or any of its subsidiaries
during 2000. Except as disclosed under "Item 13 - Certain Relationships and
Related Transactions," none of the members of the Compensation Committee nor any
of their affiliates entered into any transactions with the Company during 2000.



                                       65
<PAGE>   67



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information, as of December 31,
2000, regarding the beneficial ownership of (i) each director, (ii) each of the
Named Executive Officers, (iii) all executive officers and directors of the
Company as a group and (iv) each person known to the Company to be a beneficial
owner of more than 5% of the Company's outstanding Common Stock. The table also
sets forth certain information as of December 31, 2000, regarding beneficial
ownership of the Company's Series A Preferred Stock, each share of which is
convertible into Common Stock and is entitled to the number of votes equal to
the number of whole shares of Common Stock into which each such share is
convertible. Except as set forth below, the shareholders named below have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.

<TABLE>
<CAPTION>
                                          SHARES               PERCENT
                                        BENEFICIALLY             OF
NAME OF BENEFICIAL OWNER                  OWNED (1)          COMMON STOCK
------------------------                  ---------          ------------
<S>                                   <C>                    <C>
Lancer Partners, L.P.                   5,988,505(2)            16.06%

GHM, Inc.                               4.870,487(3)            12.56%

Joseph Giamanco                         3,727,412(4)             9.61%

Mrs Wayne Close                         2,992,307(5)             6.82%

Paul L. Devine                            720,916(6)             1.92%

W. Ward Carey                             162,175(7)                *

Adolph S. Clausi                          130,625(8)                *

Richard M Harris                           50,000(9)                *

Antony E. Kendall                         196,000(10)               *

William R. Romig                          165,000(9)                *


Directors and executive officers
  as a group (7 persons)                1,422,216(11)             3.73%

Total number of shares outstanding     37,280,951               100.00%
  common

Shares of common stock issuable upon
 conversion of Series A Preferred           6,666(12)               *
</TABLE>

        *      Less than one percent.

(1)     Unissued shares of Common Stock of each owner subject to currently
        exercisable options or other rights to acquire securities exercisable
        within 60 days of the date hereof are included in the totals listed and
        are deemed to be outstanding for the purpose of computing the percentage
        of Common Stock owned by such person, but are not deemed to be
        outstanding for the purpose of computing the percentage of the class
        owned by any other person. The effect of this calculation is to increase
        the stated total ownership percentage currently controlled. Information
        in the table is based solely upon information contained in filings with
        the Securities and Exchange Commission, pursuant to sections 13(d) and
        13(g) of the Securities Exchange Act of 1934, as amended, and the
        records of the Company. The calculation also excludes 210,610 shares
        held in treasury at December 31, 1999.





                                       66
<PAGE>   68


(2)     Includes shares of Common Stock held by funds other than Lancer
        Partners, L.P., but which are commonly managed in a group that includes
        Lancer Partners, L.P. The address for Lancer Partners, L.P. is 375 Park
        Avenue, Suite 2006, New York, NY 10152.

(3)     Includes 1,500,000 shares of Common Stock that may be acquired by
        exercising warrants. The address for GHM, Inc. is 74 Trinity Place, New
        York, NY 10006

(4)     Includes 1,500,000 shares of Common Stock that may be acquired by
        exercising warrants. Mr Giamanco is a controlling shareholder in GHM,
        Inc. The address for Mr Giamanco is c/o GHM, Inc., 74 Trinity Place, New
        York, NY 10006.

(5)     Includes 40,000 shares of Common Stock held jointly by two family
        members. Also includes 278,571 shares of Common Stock that may be
        acquired by exercising warrants. The address for Mrs. Close is c/o
        Marcus J. Williams Esq., Davis Wright Tremaine, LLP, Suite 2300, 1300 SW
        Fifth Avenue, Portland, OR 97201-5682.

(6)     Includes 350,000 shares of Common Stock that may be acquired by
        exercising options. The address for Mr. Devine is c/o the Company, 2
        International Plaza, Suite 245, Philadelphia, PA 19113-1507.

(7)     Includes 109,375 shares of Common Stock issuable upon exercise of
        options. Also includes 5,000 shares of Common Stock owned by Mr. Carey's
        wife, as to which he disclaims beneficial ownership.

(8)     Includes 115,625 shares of Common Stock issuable upon exercise of
        options.

(9)     Amount shown represents shares of Common Stock that may be acquired by
        exercising options

(10)    Includes 95,000 shares of Common Stock that may be acquired by
        exercising options and 100,000 shares of Common Stock that may be
        acquired by exercising warrants.

(11)    Includes 882,500 shares of Common Stock that may be acquired by
        exercising options and 100,000 shares of Common Stock that may be
        acquired by exercising warrants.

(12)    As of December 31, 2000 there were a total of 10,000 shares of Series A
        Preferred Stock outstanding, beneficially held as follows: 5,000 or 50%
        held by J. Matthew Dalton, whose address is 1232 W. George Street,
        Chicago, IL 60657; and 5,000 or 50% held by Verne Scazzero, whose
        address is 1414 South Prairie Ave., Chicago, IL 60605.





                                       67
<PAGE>   69


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In March 1999, Paul L. Devine, the Company's Chairman and Chief Executive
Officer, agreed to extend to the Company on a short-term basis a revolving
credit facility in an amount of up to $500,000, of which $100,000, excluding
unpaid interest, is outstanding as of the date of this Annual Report. The
Company's obligations under this facility are unsecured, and amounts outstanding
thereunder bear interest at a rate of nine percent (9%) per annum. The Company's
Chairman has agreed to defer repayment of the remaining balance owed to him
until such time as the Company is able to do so.. The Company has agreed to pay
all reasonable out-of-pocket expenses incurred by Mr. Devine in connection with
advancing funds to the Company under this facility.

The Company from time-to-time has granted to certain of its non-employee
directors a number of options to purchase shares of Common Stock upon the
initial election of such director to the Company's Board of Directors to provide
incentive for a high level of dedication in the future and to align the
interests of such directors with the interests of the Company's shareholders. On
March 28, 2000, the Company granted, under the 1998 Plan, to each of Adolph S.
Clausi and W. Ward Carey options to purchase 50,000 shares of Common Stock at
$2.475, an exercise price which represented 110% of the closing price of the
Common Stock on the date of grant. On September 8, 2000, the Company granted
Richard M. Harris, under the 1998 Plan,options to purchase 50,000 shares of
Common Stock at $1.0312, an exercise price which represented 110% of the closing
price of the Common Stock on the date of grant. Such options were fully vested
as of the date of grant.

In December 1999 two investment funds affiliated with the Company granted the
Company a credit facility of $3,500,000, which amount was fully drawn as at
December 31, 2000 and 1999. The facility carries a stated interest at the rate
of 12% per annum and is secured by a pledge of certain assets of the Company. In
connection with this facility, the Company issued two million shares of Common
Stock (valued at $1,188,000) and issued a warrant to acquire 350,000 shares of
Common Stock at an exercise price of $0.50 per share (such warrant having a fair
value of $161,000). In May 2000, the Lenders agreed to defer the repayment date
until September 2000, as well as agree to other changes in the terms of the
facility. In connection with this restructuring, the Company issued an aggregate
of one million shares of Common Stock to the Lenders and 150,000 shares of
Common Stock to a third party which participated in the negotiation of the
restructuring. Based on the market value at the date of issuance, the shares had
a value of $1,725,000. Such value was recorded as deferred debt costs on the
balance sheet under prepaid expenses and other current assets and was amortized
into interest expense over the life of the initial debt agreement. This
amortization was complete as at September 30, 2000. In August 2000, the lenders
agreed to further restucture the facility, including to defer repayment until
December 2000. Under this agreement, the Company issued an aggregate of
1,200,000 shares of Common Stock to the Lenders and 160,000 shares of Common
Stock to a third party which participated in the negotiation of the
restructuring. The value of the shares ($1,186,250) was amortized into interest
expense over the life of the agreed restructuring. In November 2000, the
facility was again restructured, including to defer repayment until March 2001.
Under this latest agreement, 600,000 shares of Common Stock ($412,500, based on
the market value as at December 1, 2000) will be issuable and were charged into
interest expense in December 2000. In addition, further shares will be issuable
in January 2001 and February 2001 (600,000 shares and 650,000 shares
respectively). These will be charged into interest expense in those periods,
based on the market value at those times. Subsequent to the year end, repayment
has been deferred again to May 2001. As of December 31, 2000, the effective
interest rate of this facility, after including all of the debt issue costs,
including the value of the stock and warrants issued, is approximately 145%.




                                       68
<PAGE>   70


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


FINANCIAL STATEMENTS

See index to Financial Statements at page 34.


REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the three months ended December 31,
2000.















EXHIBITS

The following is a list of exhibits filed as part of this Annual Report on Form
10-K. Where so indicated, exhibits that were previously filed are incorporated
by reference.

EXHIBIT
NUMBER  DESCRIPTION
------  -----------

 3.1    Amended and Restated Articles of Incorporation of the Company, as
        amended. (Incorporated by reference to Exhibit 3.1 to the Company's
        Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
        on file with the Securities and Exchange Commission (the "SEC").)

 3.2    Amended and Restated Bylaws of the Company, as amended. (Incorporated by
        reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
        for the quarter ended September 30, 1997 on file with the SEC.)

 3.3    Plan of Reverse Stock Split (Incorporated by reference to the Company's
        definitive proxy statement for a special meeting of stockholders dated
        February 27, 1998, on file with the SEC)

 4.1    Specimen Common Stock Certificate (Incorporated by reference to Exhibit
        4.1 to the Company's Annual Report on Form 10-K for the year ended
        December 31, 1997 on file with the SEC.)

10.1    1994 Stock Incentive Plan, as amended (Incorporated by reference to
        Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File No
        333-42047) on file with the SEC).

10.2    Agreement for the sale and purchase of the entire issued share capital
        of Bakery Packaging Services



                                       69
<PAGE>   71


EXHIBIT
NUMBER  DESCRIPTION
------  -----------

        Limited, dated September 15, 1995. (Incorporated by reference to Exhibit
        2.1 to the Company's Report on Form 8-K dated October 3, 1995 on file
        with the SEC.)

10.3    Disclosure letter in relation to the agreement for the sale of the
        entire issued share capital of Bakery Packaging Services Limited, dated
        September 15, 1995. (Incorporated by reference to Exhibit 2.2 to the
        Company's Report on Form 8-K dated October 3, 1995 on file with the
        SEC.)

10.4    Agreement between EPL Technologies (Europe) Limited and DWL Associates
        for the services of D.W. Lyon as Chief Operating Officer of Bakery
        Packaging Services Limited. (Incorporated by reference to Exhibit 2.3 to
        the Company's Report on Form 8-K dated October 3, 1995 on file with the
        SEC.)

10.5    Employment agreement between EPL Technologies, Inc. and P.L. Devine,
        Director, President and Chief Executive Officer, dated as of January 1,
        1997. (Incorporated by reference to Exhibit 10.15 to the Company's
        Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 on
        file with the SEC.)

10.6    Office Lease Agreement dated September 11, 1996 between EPL
        Technologies, Inc. and K/B Fund II for Headquarters office.
        (Incorporated by reference to Exhibit 10.10 to the Company's Annual
        Report on Form 10-K for the fiscal year ended December 31, 1996 on file
        with the SEC.)

10.7    License agreement dated as of April 29, 1997 by and between Integrated
        Produce Systems, Inc. and Farmington Fresh. (Incorporated by reference
        to Exhibit 10.1 to the Company's Registration Statement on Form S-3
        (File No. 333-42185) on file with the SEC.)

10.8    Amendment to License Agreement, dated December 1, 1997, between
        Integrated Produce Systems, Inc. and Farmington Fresh. (Incorporated by
        reference to Exhibit 10.2 to the Company's Registration Statement on
        Form S-3 (File No. 333-42185) on file with the SEC.)

10.9    Operating Agreement of NewCornCo, LLC, dated July 19, 1996, as amended,
        between the Company and Agricultural Innovation & Trade, Inc.
        (Incorporated by reference to Exhibit 10.3 to the Company's Registration
        Statement on Form S-3 (File No. 333-42185) on file with the SEC.)

10.10   Fresh-Cut Corn Processing Agreement, dated July 22, 1996, between
        NewCornCo, LLC, and Agricultural Innovation & Trade, Inc. (Incorporated
        by reference to Exhibit 10.4 to the Company's Registration Statement on
        Form S-3 (File No. 333-42185) on file with the SEC.)

10.11   Assignment of Membership Interest, dated December 6, 1997, between
        Agricultural Innovation & Trade, Inc. and Twin Garden Sales, Inc.
        (Incorporated by reference to Exhibit 10.5 to the Company's Registration
        Statement on Form S-3 (File No. 333-42185) on file with the SEC.)

10.12   Requirements Agreement, dated as of January 1, 1998, between NewCornCo,
        LLC, and Twin Garden Farms. (Incorporated by reference to Exhibit 10.6
        to the Company's Registration Statement on Form S-3 (File No. 333-42185)
        on file with the SEC.)

10.13   Employment Agreement, dated January 1, 1998, between the Company and
        William R. Romig. (Incorporated by reference to Exhibit 10.17 to the
        Company's Registration Statement on Form S-3 (File No. 333-42185) on
        file with the SEC.)

10.14   Agreement for the Sale and Purchase of the entire issued share capital
        of Fabbri Artes Graficas Valencia S.A., dated December 11, 1997.
        (Incorporated by reference to Exhibit 2.1 to the Company's Current
        Report on Form 8-K filed on December 24, 1997.)

10.15   Securities Purchase Agreement dated as of November 6, 1997 between the
        Company and each of the purchasers of the Company's Series D Preferred
        Stock. (Incorporated by reference to Exhibit 4.4 to the Company's
        Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.)

10.16   Registration Rights Agreement dated as of November 6, 1997 between the
        Company and each of the purchasers of the Company's Series D Preferred
        Stock. (Incorporated by reference to Exhibit 4.5 to



                                       70
<PAGE>   72



EXHIBIT
NUMBER  DESCRIPTION
------  -----------

        the Company's Quarterly Report on Form 10-Q for the quarter ended
        September 30, 1997.)

10.17   Trademark License Agreement between IPS Produce, Inc. (now known as EPL
        Food Products, Inc. and Potandon Produce LLC (confidential treatment has
        been granted for certain portions of this document). (Incorporated by
        reference to Exhibit 10.12 to the Company's Quarterly Report on Form
        10-Q for the quarter ended September 30, 1997.)

10.18   Employment Agreement dated as of February 18, 1998, by and between EPL
        Technologies, Inc. and Bruce M. Crowell. (Incorporated by reference to
        Exhibit 10.22 to the Company's Registration Statement on Form S-1 (File
        No. 333-46397) on file with the SEC.)

10.19   Employment Agreement dated as of October 1, 1997, by and between EPL
        Technologies, SRL. and Jose Saenz de Santa Maria. (Incorporated by
        reference to Exhibit 10.23 to the Company's Registration Statement on
        Form S-1 (File No. 333-46397) on file with the SEC.)

10.20   Agreement dated February 1, 1998 by and between the Company and American
        National Can Company (Incorporated by reference to Exhibit 99.2 to the
        Company's Current Report on Form 8-K filed on March 30, 1998.)

10.21   Operating Agreement of the new joint venture between the Company and
        American National Can Company. (Incorporated by reference to Exhibit
        99.3 to the Company's Current Report on Form 8-K filed on March 30,
        1998.)

10.22   Employment Agreement dated as of May 1, 1998 by and between Fabbri Artes
        Graficas Valencia SA and Jose Saenz de Santa Maria. (Incorporated by
        reference to Exhibit 10.24 to the Company's Quarterly Report on Form
        10-Q for the quarter ended September 30, 1998)

10.23   Employment Agreement dated as of July 1, 1998 by and between EPL
        Technologies, Inc. And R. Brandon Asbill. (Incorporated by reference to
        Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the
        quarter ended September 30, 1998)

10.24   1998 Stock Incentive Plan, as amended and restated (Incorporated by
        reference to the Company's Proxy Statement on Form 14A filed with the
        SEC on August 25, 1998.)

11.0    Computation of Earnings per Common Share and Fully Diluted Earnings per
        Common Share.

21      Subsidiaries of the Company (Incorporated by reference to Exhibit 21 to
        the Company's Registration Statement on Form S-1 (File No 333-46397) on
        file with the SEC).

23.1    Consent of Deloitte & Touche LLP.







                                       71
<PAGE>   73


                                   SIGNATURES

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

                                 EPL TECHNOLOGIES, INC.

Date: March 30, 2001               /S/ Paul L. Devine
                                   --------------------------------
                                   Paul L. Devine
                                   Chairman and President
                                   Principal Executive Officer

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

Date: March 30, 2001               /S/ Paul L. Devine
                                   --------------------------------
                                   Paul L. Devine
                                   Chairman and President
                                   (Principal Executive Officer)

Date: March 30, 2001               /S/Timothy B. Owen
                                   ----------------------------
                                   Timothy B. Owen
                                   (Principal Financial and Accounting Officer)

Date: March 30, 2001               /S/ Adolph S. Clausi
                                   ------------------------------
                                   Adolph S. Clausi
                                   Director

Date: March 30, 2001               /S/ W. Ward Carey
                                   ------------------------------
                                   W. Ward Carey
                                   Director

Date: March 30, 2001               /S/ Richard M. Harris
                                   -------------------------------
                                   Richard M. Harris
                                   Director











                                       72