<PAGE>


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

                                   FORM 10-KSB

(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934.

For the fiscal year ended December 31, 2002
                          -----------------

                                       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 0-26186

                           CHESHIRE DISTRIBUTORS, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                Delaware                                   84-1209978
    -------------------------------                    -----------------
    (State or Other Jurisdiction of                     (I.R.S. Employer
    Incorporation or Organization)                     Identification No.)

    152 West 57th St. - 4th Floor, New York, New York       10019
    -------------------------------------------------     ----------
              (Address of Principal Executive Offices)    (Zip Code)

                                 (212) 541-5800
                -----------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

         Securities Registered under Section 12(b) of the Exchange Act:

                                              Name of Each Exchange
           Title of Each Class                on Which Registered

                   None
---------------------------------       ----------------------------------

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

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, $.001 par value per share
                                (Title of Class)

                        ---------------------------------
                                (Title of Class)

<PAGE>

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes  X    No
                                                                       ---


     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
                                     ---

     The issuer's revenues for its most recent fiscal year. $-0-.

     As of December 31, 2002, due to the limited market for the Company's
securities, no estimate is being supplied herewith of the market value for such
securities.

     The number of shares outstanding of the issuer's Common Stock outstanding
as of March 31, 2003 was 99,952,374.

     Transitional Small Business Disclosure Format: Yes    ; No X
                                                        ---    ---


<PAGE>



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

Overview

     We were originally incorporated under the laws of the state of Colorado
under the name Tamaron Oil & Gas, Inc. ("Tamaron") in September 1992 to be the
successor to a corporation also named "Tamaron Oil & Gas, Inc.", which was
dissolved by the Colorado Secretary of State in 1990. In August 1995, we changed
our name from Tamaron to Pacific Development Corporation ("Pacific
Development"). Pursuant to an Agreement of Merger and Plan of Merger and
Reorganization dated March 10, 2000 by and among Pacific Development, and its
wholly owned subsidiary, Cheshire Holdings, Inc. ("Cheshire Holdings"), a
Delaware corporation, Holdings and Pacific Development were merged into a single
corporation existing under the laws of the State of Delaware, with Cheshire
Holdings being the surviving corporation. The merger took effect on March 24,
2000. Simultaneously with the merger, the name of the surviving corporation was
changed to our current name, Cheshire Distributors, Inc. On May 7, 2001, we
consummated various note modifications and release agreements with various
holders of convertible notes whereby the note holders agreed to the full
satisfaction and payment of the convertible notes in exchange for 24,566,384
shares of our common stock. This modification effectively gave control of our
company to the note holders.

Potential Business Combination

     We currently have no business activities. We will attempt to locate and
negotiate with a business entity for the merger of that target business into us.
In certain instances, a target business may wish to become a subsidiary of ours
or may wish to contribute assets to us rather than merge. No assurances can be
given that we will be successful in locating or negotiating with any target
business.

     We believe that there are perceived benefits to being a reporting company
with a class of publicly-traded securities, even though we have no active
business activities. These are commonly thought to include (1) the ability to
use registered securities to make acquisition of assets or businesses; (2)
increased visibility in the financial community; (3) the facilitation of
borrowing from financial institutions; (4) improved trading efficiency; (5)
shareholder liquidity; (6) greater ease in subsequently raising capital; (7)


<PAGE>


compensation of key employees through options stock; (8) enhanced corporate
image; and (9) a presence in the United States capital market.

     A business entity, if any, which may be interested in a business
combination with us may include (1) a company for which a primary purpose of
becoming public is the use of its securities for the acquisition of assets or
businesses; (2) a company which is unable to find an underwriter of its
securities or is unable to find an underwriter of securities on terms acceptable
to it; (3) a company which wishes to become public with less dilution of its
common stock than would occur normally upon an underwriting; (4) a company which
believes that it will be able to obtain investment capital on more favorable
terms after it has become public; (5) a foreign company which may wish an
initial entry into the United States securities market; (6) a special situation
company, such as a company seeking a public market to satisfy redemption
requirements under a qualified Employee Stock Option Plan; or (7) a company
seeking one or more of the other perceived benefits of becoming a public
company.

     We will be actively engaged in seeking a qualified company as a candidate
for a business combination. We may then enter into a definitive agreement with a
wide variety of businesses without limitation as to their industry or revenues.
It is not possible at this time to predict with which company, if any, we will
enter into a definitive agreement or what will be the industry, operating
history, revenues, future prospects or other characteristics of that company.

     We may seek a business opportunity with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. We may
acquire assets and establish wholly-owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries.

     In analyzing prospective business opportunities, management may consider
such matters as the available technical, financial and managerial resources;
working capital and other financial requirements; history of operations, if any;
prospects for the future; nature of present and expected competition; the
quality and experience of management services which may be available and the
depth of that management; the potential for further research, development, or
exploration; specific risk factors not now foreseeable but which then may be
anticipated to impact our proposed activities; the potential for growth or
expansion; the potential for profit; the perceived public recognition or
acceptance of products, services, or trades; name identification; and other
relevant factors.

     Following a business combination, we may benefit from the services of
others in regard to accounting, legal services, underwritings and corporate
public relations. If requested by a target business, management may recommend
one or more underwriters, financial advisors, accountants, public relations
firms or other consultants to provide such services.

     A potential target business may have an agreement with a consultant or
advisor providing that services of the consultant or advisor be continued after
any business combination. Additionally, a target business may be presented to us
only on the condition that the services of a consultant or advisor be continued
after a merger or acquisition. Such preexisting agreements of target businesses
for the continuation of the services of attorneys, accountants, advisors or
consultants could be a factor in the selection of a target business.

     In implementing a structure for a particular business acquisition, we may
become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. We may also acquire
stock or assets of an existing business. On the consummation of a transaction,
it is likely that our present management and stockholders will no longer be in
control of the company. In addition, it is likely that our officers and
directors will, as part of the terms of the acquisition transaction, resign and
be replaced by one or more new officers and directors.

     It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a


<PAGE>


negotiated element of its transaction, we may agree to register all or a part of
such securities immediately after the transaction is consummated or at specified
times thereafter. If such registration occurs, of which there can be no
assurance, it will be undertaken by the surviving entity after we have entered
into an agreement for a business combination or has consummated a business
combination. The issuance of additional securities and their potential sale into
any trading market which may develop in our securities may depress the market
value of our securities in the future if such a market develops, of which there
is no assurance.

     With respect to any merger or acquisition negotiations with a target
business, management expects to focus on the percentage of the company which
target business stockholders would acquire in exchange for their shareholdings
in the target business. Depending upon, among other things, the target
business's assets and liabilities, our stockholders will in all likelihood hold
a substantially lesser percentage ownership interest following any merger or
acquisition. Any merger or acquisition we effect can be expected to have a
significant dilutive effect on the percentage of shares held by our stockholders
at such time.

     We cannot assure you that we will be able to enter into a business
combination, as to the terms of a business combination, or as to the nature of
the target business.

     We anticipate that the selection of a business opportunity in which to
participate will be complex and without certainty of success. We believe (but
have not conducted any research to confirm) that there are numerous firms
seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, increasing the opportunity
to use securities for acquisitions, and providing liquidity for stockholders and
other factors. Business opportunities may be available in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex.

ITEM 2. DESCRIPTION OF PROPERTY

     In February 2000, we entered into a five year lease for office facilities
located in Westport, Connecticut, which terminates on February 5, 2005. Although
this lease has not been formally terminated, there is a current tenant in the
premises who took possession of the premises right after we vacated the premises
in March 2001, and we are presently not making any payments with respect to this
lease. We do not presently own or lease any other material property.

ITEM 3. LEGAL PROCEEDINGS

     In 2002, Mr. Glenn Little filed a complaint against the Company in the
county court of Midland County, Texas seeking to enforce a promissory note
entered on August 8, 2000. Mr. Little is requesting the payment of the principal
in the amount of $50,000 together with interest and attorneys' fees. We filed a
response to the complaint and intend to defend this action. We are investigating
the circumstances surrounding the original issuance of this Note.


<PAGE>


     Neither the Company nor any of its property is a party to any other
material pending or threatened legal proceedings.

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

     No matters were submitted to a vote of security holders during the fiscal
year covered by this Report.


                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our shares of Common Stock currently trade on the OTC Bulletin Board.
Historically, the high and low price quotations for our common stock, $.001 par
value per share, as reported to by the OTC Bulletin Board for 2000, 2001 and
2002 and the first quarter of 2003 is listed in the following chart. These
quotations are between dealers, do not include retail mark-ups, markdowns or
other fees and commissions, and may not represent actual transactions.

 Quarter Ended     Low     High

 2000

 1st Quarter                 N/A      N/A
 2nd Quarter                4.00      7.00
 3rd Quarter                 1.50     4.125
 4th Quarter                 .75      2.00

 2001

 1st Quarter                .02     1.03125
 2nd Quarter                .03     .03
 3rd Quarter                .015     .02
 4th Quarter                .001     .015

 2002

 1st Quarter                .001     .001
 2nd Quarter                .001    .05
 3rd Quarter                .001    .05
 4th Quarter                .001    .005

 2003

 1st Quarter                .005    .015

     At December 31, 2002, there were approximately 414 holders of record of our
Common Stock. We have not paid dividends on our shares of Common Stock


<PAGE>


outstanding during the past two fiscal years. There are no restrictions that
limit the ability of the Company to pay dividends or are likely to do so in the
future.

Recent Sale Of Unregistered Securities

     In February 2003, we issued 65,152,000 shares of our common stock to Laurus
Master Fund, Ltd. upon conversion of a convertible note issued in February 2003.


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

The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward-
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Additionally, the following discussion and analysis
should be read in conjunction with the Financial Statements and notes thereto
appearing elsewhere in this Report.


     Pacific Development was incorporated under the laws of the State of
Colorado on September 21, 1992, to be the successor to a corporation also named
"Tamaron Oil & Gas, Inc.," which was dissolved by the Colorado Secretary of
State in 1990. The predecessor corporation named "Tamaron Oil & Gas, Inc." was
organized under Colorado law on October 6, 1982. Tamaron's name was changed to
"Pacific Development Corporation" and the number of its authorized shares of
common stock, $0.001 par value per share, was increased from 20,000,000 to
100,000,000 shares on August 14, 1995.

     Effective March 24, 2000, Pacific and Cheshire Holdings were merged into a
single corporation existing under the laws of the state of Delaware, with
Cheshire Holdings being the surviving corporation. The name of the surviving
corporation was changed to Cheshire Distributors, Inc. Each share of Pacific's
issued and outstanding common stock was automatically converted into shares of
Cheshire Distributors, Inc.'s common stock. Pacific was formed for the purpose
of acquiring an operating business and at the time of the merger, had no
significant assets or liabilities. The transaction has been accounted for as a
reverse merger/recapitalization of Cheshire Distributors, Inc., which is the
acquirer of Pacific for accounting purposes.

     In February 2003, Laurus Master Fund, Ltd, our majority stockholder,
provided $2 million in financing to us in exchange for a Term Note in the amount
of $2 million. As part of this transaction, pursuant to a security agreement, we
granted a security interest in our assets to Laurus.

     In February 2003, we completed a $2 million investment in Linsang
Manufacturing, Inc., a Delaware corporation, in exchange for a Term Note from
Linsang to us in the amount of $2 million.


<PAGE>


     In February 2003, we issued 65,152,000 shares of our common stock to Laurus
Master Fund, Ltd. upon conversion of a convertible note.

Liquidity and Capital Resources

     We currently have no business activities. We will attempt to locate and
negotiate with a business entity for the merger of that target business into us.
In certain instances, a target business may wish to become a subsidiary of ours
or may wish to contribute assets to us rather than merge. No assurances can be
given that we will be successful in locating or negotiating with any target
business.

     We have incurred substantial losses and have been funding our operations
through debt and equity financings. We will need to continue to fund our
operations in this manner until we achieve sufficiently profitable operations
through a merger, or otherwise. The achievement and/or success of these planned
measures, however, cannot be determined at this time.

ITEM 7. FINANCIAL STATEMENTS

     All financial information required by this Item is attached hereto
beginning on Page F-1.

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

     There have been no changes in or disagreements with accountants on
accounting and financial disclosure.

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

Directors and Executive Officers

     The directors and executive officers of the Company are as follows:

Name               Age   Position

Abe Grossman    50   Chairman, Chief Executive Officer and Director

     Set forth below is a brief background of our executive officers and
directors, based on information supplied by them.

     ABE GROSSMAN. Abe Grossman has more than two decades of experience in the
health care and real estate industries as a developer and manager of various
skilled nursing facilities, as well as other commercial and residential
properties. Mr. Grossman also has served as an investment advisor and trustee of
a jointly operated union/management welfare and pension fund with holdings in
excess of $100 million.


<PAGE>


     Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Directors are reimbursed for travel expenses.

Section 16(a) Beneficial Ownership Reporting Compliance

     Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to us during fiscal year 2002, we are not aware of any director,
officer or beneficial owner of more than ten percent of our Common Stock that,
during fiscal year 2002, failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934.


ITEM 10.  EXECUTIVE COMPENSATION

     Our officers and directors have not been awarded, earned or paid any
compensation since May 2001.


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

     The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2003 by

     o    each person who, to our knowledge, beneficially owns more than 5% of
          the our common stock;

     o    each of our directors; and

     o    all of our executive officers and directors as a group:

                                        NUMBER OF SHARES         APPROXIMATE
                                          BENEFICIALLY           PERCENTAGE OF
NAME(1)                                       OWNED              COMMON STOCK(2)
-------                                    ------------          ---------------


Abe Grossman                                       0               --
c/o Cheshire Distributors, Inc.
152 West 57th St. - 4th Floor
New York, New York 10019

Laurus Master Fund, Ltd.                65,152,000 shares          65%
c/o Ironshore Corporate Services, Ltd.
P.O. Box 1234 G.T.
Queensgate House
South Church Street
Grand Cayman, Cayman Islands

The Keshet Fund, L.P.                   5,633,452 shares           5.6%
152 West 57th St. - 4th Floor


<PAGE>


New York, New York 10019

Keshet, L.P.                            8,793,681 shares           8.7%
c/o Ragnall House, 18 Peel Road
Douglas, Isle of Man, 1M1


All Officers and Directors as a Group
(1 person)                                      0                --
----------

     (1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the rules
and regulations promulgated under the Securities Exchange Act of 1934.
Beneficially owned securities may include securities owned by and for, among
others, the spouse and/or minor children of an individual and any other relative
who has the same home as such individual. Beneficially owned securities may also
include other securities as to which the individual has or shares voting or
investment power or which such person has the right to acquire within 60 days
pursuant to the conversion of convertible equity, exercise of options, or
otherwise. Beneficial ownership may be disclaimed as to certain of the
securities.

     (2) The foregoing table is based upon 99,952,374 shares of common stock
outstanding as of March 31, 2003, assuming no other changes in the beneficial
ownership of our securities.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Laurus Master Fund, Ltd, our majority stockholder, has provided $2 million
in financing to us in exchange for a Note in the amount of $2 million. As part
of this transaction, pursuant to a security agreement, we granted a security
interest in our assets to Laurus.

ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K

(A)  Reports on Form 8-K

     We did not file any reports on Form 8-K in the fourth quarter of fiscal
     year 2002.

(B)  Exhibits

     The following Exhibits are filed as part of this Report:

Exhibit
Number             Description

3.1       Articles of Incorporation of Tamaron Oil & Gas, Inc. filed October 6,
          1982, incorporated by reference to Exhibit 2.1 on the Company' s Form
          10-SB/A filed July 3, 1996.

3.2       Articles of Amendment to the Articles Incorporation of Tamaron Oil &
          Gas, Inc. filed September 22, 1983, incorporated by reference to


<PAGE>


          Exhibit 2.2 on the Company's Form 10-SB/A filed July 3, 1996.

3.3       Articles of Amendment to the Articles Incorporation of Tamaron Oil &
          Gas, Inc. filed October 16, 1985, incorporated by reference to Exhibit
          2.3 on the Company's Form 10-SB/A filed July 3, 1996.

3.4       Bylaws of Tamaron Oil & Gas, Inc, incorporated by reference to Exhibit
          2.4 on the Company's Form 10-SB/A filed July 3, 1996.

3.5       Articles of Incorporation of Tamaron Oil & Gas, Inc., filed September
          21, 1992, incorporated by reference to Exhibit 2.5 on the Company's
          Form 10-SB/A filed July 3, 1996.

3.6       Articles of Amendment to the Articles of Incorporation of Tamaron Oil
          & Gas, Inc., filed April 13, 1995, incorporated by reference to
          Exhibit 2.6 on the Company's Form 10-SB/A filed April 13, 1995.

3.7       Bylaws of Tamaron Oil & Gas, Inc, , incorporated by reference to
          Exhibit 2.7 on the Company's Form 10-SB/A filed July 3, 1996.

3.8       Articles of Amendment to the Articles of Incorporation of Tamaron Oil
          & Gas, Inc., filed August 14, 1995, incorporated by reference to
          Exhibit 2.8 on the Company's Form 10-SB/A filed April 13, 1995.

10.1      Stock Purchase Agreement, incorporated by reference to Exhibit 10.1 on
          the Company's Form 8-K filed November 4, 1999.

10.2      Agreement and Plan of Merger, incorporated by reference to Exhibit
          10.2 on the Company's Form 8-K filed February 18, 2000.

10.3      Agreement of Merger and Plan of Merger and Reorganization,
          incorporated by reference to Exhibit 10.3 on Form 8-K filed March 23,
          2000.

10.4      Laurus Note, dated February 10, 2003.

10.5      Linsang Note, dated February 10, 2003.

10.6      Security Agreement, dated February 10, 2003 by and between Laurus
          Master Fund, Ltd. and the Company.

99        Certification of the Chief Executive Officer of Cheshire Distributors,
          Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.


ITEM 14.   CONTROLS AND PROCEDURES

     As of December 31, 2002, an evaluation was performed by our Chief Executive
Officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our Chief Executive Officer and principal financial officer, concluded that our
disclosure controls and procedures were effective as of December 31, 2002. There
have been no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to December 31,
2002.




<PAGE>




                                   SIGNATURES

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

                                           CHESHIRE DISTRIBUTORS, INC.


                                           By:  /s/ Abe Grossman
                                           Abe Grossman, Chairman and Chief
                                           Executive Officer

                                           Date:  April 14, 2003



<PAGE>


                                                                      EXHIBIT 99

                                  CERTIFICATION

I, Abe Grossman, CEO, certify that:

1. I have reviewed this annual report on Form 10-KSB of Cheshire Distributors,
Inc.;

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

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

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

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

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

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

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

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

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

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


<PAGE>

Date:    April 14, 2003
                                              /s/ Abe Grossman
                                              Chief Executive Officer


<PAGE>
Ehibit 10.4

                                    TERM NOTE

$2,000,000                                                    New York, New York
                                                               February 10, 2003

     FOR VALUE RECEIVED, the undersigned, a corporation organized and existing
under the laws of the State of Delaware, hereby promises to pay to the order of
Laurus Master Fund, Ltd. ("Lender") at its offices located at 152 West 57th
Street, 4th Floor, New York, NY 10019 or at such other place as Lender may from
time to time designate to the undersigned in writing:

     (a) the principal sum of Two Million Dollars and 00/100 Dollars
($2,000,000) payable in full on August 10, 2003; and

     (b) interest on the principal amount of this Note from time to time
outstanding, payable, in arrears, on the last day of each month commencing on
February 28, 2003 and on the last day of each month thereafter at a rate of
interest per annum equal to 8.35%. In no event, however, shall interest
hereunder be in excess of the maximum interest rate permitted by law.

     This Note may be prepaid at any time without premium or penalty. All such
prepayments shall be applied against the principal installments in the inverse
order of the maturities thereof.

     If any one or more of the following events of default (an "Event of
Default") shall occur, that is to say:

     (a) default shall be made in the payment of any principal or interest of
this Note when the same shall become due and payable whether at maturity, by
acceleration, by notice of intention to prepay or otherwise; or

     (b) the undersigned shall become unable to pay its debts as they mature,
make a general assignment for the benefit of creditors, suspend the transaction
of its usual business, commence or cause to be commenced a meeting of its
creditors or take advantage of any of the insolvency laws, or a case is
commenced or a petition in bankruptcy or for an arrangement or reorganization
under the Federal Bankruptcy Code (i) is filed against the undersigned, or (ii)
is filed by the undersigned, or a custodian or receiver (or other court designee
performing the functions of a receiver) is appointed for or takes possession of
the undersigned's assets or affairs, or an order for relief in a case commenced
under the Federal Bankruptcy Code is entered; or

     (c) any judgment or judgments against the undersigned or its property for
any amount remains unpaid, undischarged, unsatisfied, unbonded or undismissed
for a period of ten (10) days, or a levy, sequestration or attachment against
the undersigned or its property for any amount remains unpaid, undischarged,
unstayed, unsatisfied or undismissed for a period of ten (10) days; or

<PAGE>

     (d) a default shall have occurred under the Pledge and Security Agreement
dated as of the date hereof between Kwok Li and Lender (as amended, modified and
supplemented from time to time); or

     (e) should any guarantor of the obligations hereunder (a "Guarantor")
default in such guarantor's obligations under any guaranty agreement, security
agreement and/or pledge agreement (each, a "Guarantor Agreement") or should any
proceeding shall be brought to challenge the validity or binding effect of any
such Guarantor Agreement, or should any such Guarantor Agreement cease to be a
valid, binding and enforceable obligation; or

     (f) if any Guarantor attempts to terminate, challenges the validity of, or
such Guarantor's liability under any Guarantor Agreement or if any individual
Guarantor shall die; or

     (g) if a default shall occur under the Term Note dated as of the date
hereof in the original principal amount of $2,000,000 made by Linsang
Manufacturing, Inc. in favor of Lender (as collateral assignee of Cheshire
Distributors, Inc.),

then this Note (i) upon the occurrence of an Event of Default pursuant to
Section (b) shall immediately become due and payable, without notice, together
with reasonable attorneys' fees and (ii) upon the occurrence of any other Event
of Default, which is not cured within ten (10) days after receipt of written
notice of such default, shall at the option of Lender, immediately become due
and payable, without notice, together with reasonable attorneys' fees if the
collection hereof is placed in the hands of an attorney to obtain or enforce
payment hereof.

     This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State.

     Any judicial proceeding by the undersigned against Lender involving,
directly or indirectly, any matter or claim in any way arising out of, related
to or connected with this Note, shall be brought only in federal or state court
located in the City of New York, State of New York. Any judicial proceeding
brought against the undersigned with respect to this Note may be brought in any
court of competent jurisdiction in the City of New York, State of New York,
United States of America, and, by execution and delivery of this Note, the
undersigned accepts, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Note or any related agreement.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of Lender to bring proceedings against the
undersigned in the courts of any other jurisdiction. The undersigned waives any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens.

     THE UNDERSIGNED EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS NOTE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE OR ANY OTHER


                                       2
<PAGE>

INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
THE UNDERSIGNED HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THIS WAIVER OF THE RIGHT TO TRIAL BY JURY.

     The undersigned expressly waives any presentment, demand, protest, notice
of protest, or notice of any kind except as expressly provided in this Note.

                                 CHESHIRE DISTRIBUTORS, INC.

                                 By:  /s/ Abe Grossman
                                   ---------------------------------------------
                                      Name:  Abe Grossman
                                      Title:
<PAGE>
Exhibit 10.5
                                    TERM NOTE

$2,000,000                                                    New York, New York
                                                               February 10, 2003

     FOR VALUE RECEIVED, the undersigned, a corporation organized and existing
under the laws of the State of Delaware, hereby promises to pay to the order of
Cheshire Distributors, Inc. ("Lender") at its offices located at 152 West 57th
Street, New York, NY 10019 or at such other place as Lender may from time to
time designate to the undersigned in writing:

     (a) the principal sum of Two Million Dollars and 00/100 Dollars
($2,000,000) payable in full on August 10, 2003; and

     (b) interest on the principal amount of this Note from time to time
outstanding, payable, in arrears, on the last day of each month commencing on
February 28, 2003 and on the last day of each month thereafter at a rate of
interest per annum equal to 8.35%. In no event, however, shall interest
hereunder be in excess of the maximum interest rate permitted by law.

     This Note may be prepaid at any time without premium or penalty. All such
prepayments shall be applied against the principal installments in the inverse
order of the maturities thereof.

     If any one or more of the following events of default (an "Event of
Default") shall occur, that is to say:

     (a) default shall be made in the payment of any principal or interest of
this Note when the same shall become due and payable whether at maturity, by
acceleration, by notice of intention to prepay or otherwise; or

     (b) the undersigned shall become unable to pay its debts as they mature,
make a general assignment for the benefit of creditors, suspend the transaction
of its usual business, commence or cause to be commenced a meeting of its
creditors or take advantage of any of the insolvency laws, or a case is
commenced or a petition in bankruptcy or for an arrangement or reorganization
under the Federal Bankruptcy Code (i) is filed against the undersigned, or (ii)
is filed by the undersigned, or a custodian or receiver (or other court designee
performing the functions of a receiver) is appointed for or takes possession of
the undersigned's assets or affairs, or an order for relief in a case commenced
under the Federal Bankruptcy Code is entered; or

     (c) any judgment or judgments against the undersigned or its property for
any amount remains unpaid, undischarged, unsatisfied, unbonded or undismissed
for a period of ten (10) days, or a levy, sequestration or attachment against
the undersigned or its property for any amount remains unpaid, undischarged,
unstayed, unsatisfied or undismissed for a period of ten (10) days; or

<PAGE>

     (d) a default shall have occurred under the Pledge and Security Agreement
dated as of the date hereof between Kwok Li and Laurus Master Fund, Ltd. (as
amended, modified and supplemented from time to time); or

     (e) should any guarantor of the obligations hereunder (a "Guarantor")
default in such guarantor's obligations under any guaranty agreement, security
agreement and/or pledge agreement (each, a "Guarantor Agreement") or should any
proceeding shall be brought to challenge the validity or binding effect of any
such Guarantor Agreement, or should any such Guarantor Agreement cease to be a
valid, binding and enforceable obligation; or

     (f) if any Guarantor attempts to terminate, challenges the validity of, or
such Guarantor's liability under any Guarantor Agreement or if any individual
Guarantor shall die; or

     (g) if a default shall occur under the Term Note dated as of the date
hereof in the original principal amount of $2,000,000 made by Cheshire
Distributors, Inc. in favor of Laurus Master Fund, Ltd.

then this Note (i) upon the occurrence of an Event of Default pursuant to
Section (b) shall immediately become due and payable, without notice, together
with reasonable attorneys' fees and (ii) upon the occurrence of any other Event
of Default, which is not cured within ten (10) days after receipt of written
notice of such default, shall at the option of Lender, immediately become due
and payable, without notice, together with reasonable attorneys' fees if the
collection hereof is placed in the hands of an attorney to obtain or enforce
payment hereof.

     This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State.

     Any judicial proceeding by the undersigned against Lender involving,
directly or indirectly, any matter or claim in any way arising out of, related
to or connected with this Note, shall be brought only in federal or state court
located in the City of New York, State of New York. Any judicial proceeding
brought against the undersigned with respect to this Note may be brought in any
court of competent jurisdiction in the City of New York, State of New York,
United States of America, and, by execution and delivery of this Note, the
undersigned accepts, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Note or any related agreement.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of Lender to bring proceedings against the
undersigned in the courts of any other jurisdiction. The undersigned waives any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens.

     THE UNDERSIGNED EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS NOTE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE OR ANY OTHER


                                       2
<PAGE>

INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
THE UNDERSIGNED HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THIS WAIVER OF THE RIGHT TO TRIAL BY JURY.

     The undersigned expressly waives any presentment, demand, protest, notice
of protest, or notice of any kind except as expressly provided in this Note.

                                 LINSANG MANUFACTURING, INC.

                                 By: /s/ Luis Negrete
                                   ---------------------------------------------
                                     Name:  Luis Negrete
                                     Title: President

PAY TO THE ORDER OF
LAURUS MASTER FUND, LTD.

CHESHIRE DISTRIBUTORS, INC.

By:  /s/ Abe Grossman
---------------------------------
Name:  Abe Grossman
Title:

<PAGE>
Exhibit 10.6

                               SECURITY AGREEMENT

     THIS SECURITY AGREEMENT is dated as of February 10, 2003 between Cheshire
Distributors, Inc., a Delaware corporation ("DEBTOR"), and Laurus Master Fund,
Ltd. a Cayman Islands company. (the "SECURED PARTY").

     WHEREAS, Debtor has executed and delivered to the Secured Party that
certain note made by Debtor and dated as of the date hereof (as the same may be
amended and in effect from time to time, the "NOTE") in the original aggregate
principal amount of $2,000,000; and

     WHEREAS, terms defined in the Note and not otherwise defined herein shall
have the respective meanings provided for in the Note;

     NOW, THEREFORE, in consideration of the premises and in order to induce the
Secured Party to purchase the Note, and for other good and valuable
consideration, Debtor hereby agrees with the Secured Party, as follows:

     1. GRANT OF SECURITY INTEREST. To secure the payment of all Secured
Obligations (as hereafter defined), Debtor hereby grants to the Secured Party a
continuing security interest in all of the following property now owned or at
any time hereafter acquired by Debtor, or in which Debtor now has or at any time
in the future may acquire any right, title or interest (the "COLLATERAL"): all
accounts (the "ACCOUNTS"), inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles), chattel paper,
supporting obligations, investment property, letter-of-credit rights,
trademarks, tradestyles, patents and copyrights in which Debtor now has or
hereafter may acquire any right, title or interest, all proceeds and products
thereof (including, without limitation, proceeds of insurance) and all
additions, accessions and substitutions thereto or therefor. Terms used in this
paragraph which are defined in the Uniform Commercial Code as enacted and in
effect from time to time in the State of New York (the "CODE") are used herein
as so defined in the Code.

     2. SECURITY FOR OBLIGATIONS. This Agreement secures the payment and
performance of all obligations, indebtedness and liabilities of Debtor to
Secured Party of every kind and description, direct or indirect, absolute or
contingent, due or to become due, contractual or tortious, liquidated or
unliquidated, whether existing by operation of law or otherwise, now existing or
hereafter arising, whether arising under this Agreement, the Note, or otherwise,
including any debt, liability or obligations owing from Debtor to others which
Secured Party may have obtained by assignment or otherwise and further including
all interest (including interest accruing after the filing of a proceeding in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), charges or any other payments Debtor is required to
make by law or otherwise arising under or as a result of this Agreement, or
otherwise, together with all reasonable expenses and reasonable attorneys' fees
incurred by Secured Party in connection with Debtor's account (all such
indebtedness, liabilities and obligations being collectively referred to herein
as the "SECURED OBLIGATIONS").

<PAGE>

     3. DEBTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding:
(a) Debtor shall remain liable under the contracts and agreements included in
the Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed; (b) the exercise by Secured Party of any of the rights hereunder shall
not release Debtor from any of its duties or obligations under the contracts and
agreements included in the Collateral; (c) the Secured Party shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Secured Party be obligated
to perform any of the obligations or duties of Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder; and (d)
the Secured Party shall not have any liability in contract or tort for Debtor's
acts or omissions.

     4. REPRESENTATIONS AND WARRANTIES. In order to induce Secured Party to
enter into this Agreement, Debtor represents and warrants to Secured Party as
follows:

          (A) BINDING OBLIGATION. This Agreement is the legally valid and
binding obligation of Debtor, enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws or equitable principles relating to
or limiting creditor's rights generally.

          (B) STATE OF ORGANIZATION. Debtor was organized and remains organized
solely under the laws of the State of Delaware.

          (C) OWNERSHIP OF COLLATERAL; BAILEES. Debtor owns the Collateral and
will own all after-acquired Collateral free and clear of any lien or security
interest. No effective financing statement or other form of lien notice covering
all or any part of the Collateral is on file in any recording office, except for
those in favor of Secured Party. None of the Collateral is in the possession of
any consignee, bailee, warehouseman, agent or processor. No other person or
entity has control of any of the Collateral.

          (D) OFFICE LOCATIONS; FICTITIOUS NAMES. The mailing address, principal
place of business, chief executive office and office where Debtor keeps its
books and records relating to the Collateral is located at the address set forth
in the preamble to this Agreement. Debtor has no other place of business except
those separately specified on Schedule I. Debtor does not do business and has
not done business during the past five years under any name, tradename or
fictitious business name except as disclosed on Schedule II.

          (E) PERFECTION. Secured Party has a valid, perfected and first
priority security interest in the Collateral, securing the payment of the
Secured Obligations, and such security interests are entitled to all of the
rights, priorities and benefits afforded by the Code or other applicable law as
enacted in any relevant jurisdiction which relates to perfected security
interests.

          (F) GOVERNMENTAL AUTHORIZATIONS; CONSENTS. No authorization, approval
or other action by, and no notice to or filing with, any domestic or foreign
governmental authority or regulatory body or consent of any other person or
entity is required for (a) the grant by Debtor of the security interests granted
hereby or for the execution, delivery or performance of this Agreement by
Debtor; (b) the perfection of the security interests granted hereby (except for
filing


                                       2
<PAGE>

UCC financing statements with the appropriate jurisdiction); or (c) the exercise
by Secured Party of its rights and remedies hereunder (except as may have been
taken by or at the direction of Secured Party).

          (G) ACCOUNTS. All Accounts (i) represent complete bona fide
transactions which require no further act under any circumstances on Debtor's
part to make such Accounts payable by the account debtors, (ii) are not subject
to any present, future or contingent offsets or counterclaims, and (iii) do not
represent bill and hold sales, consignment sales, guaranteed sales, sale or
return or other similar understandings or obligations of any affiliate or
subsidiary of Debtor. Debtor has not made, and will not make, any agreement with
any account debtor for any extension of time for the payment of any Account, any
compromise or settlement for less than the full amount thereof, any release of
any account debtor from liability therefor, or any deduction therefrom except a
discount or allowance for prompt or early payment allowed by Debtor in the
ordinary course of business consistent with historical practice. Each Account
constitutes, and each hereafter arising Account will constitute, the legally
valid and binding obligation of the applicable account debtor.

          (H) INTELLECTUAL PROPERTY. All patents, copyrights and trademarks
owned by Debtor are valid, subsisting and enforceable and all filings necessary
to maintain the effectiveness of such registrations have been made.

          (I) INVENTORY. No inventory is subject to any licensing, patent,
trademark, trade name or copyright agreement with any person or entity that
restricts Debtor's ability to manufacture and/or sell the inventory.

          (J) ACCURATE INFORMATION. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Debtor with respect to
the Collateral is and will be accurate and complete in all material respects.

     5.   FURTHER ASSURANCES; COVENANTS.

          (A) OTHER DOCUMENTS AND ACTIONS. Debtor will, from time to time, at
its expense, promptly execute and deliver all further instruments and documents
and take all further action that may be necessary or desirable, or that Secured
Party may request, in order to create, perfect and protect Secured Party's
security interest or to enable Secured Party to exercise and enforce its rights
and remedies under this Agreement, the Note with respect to any Collateral.
Without limiting the generality of the foregoing, (I) Debtor will execute and
file such instruments, documents, agreements and notices, as may be necessary or
desirable, or as Secured Party may request, in order to create, perfect and
protect Secured Party's security interest; (II) at all times during normal
business hours, Secured Party shall have the right to (i) have access to, visit,
inspect, review, evaluate and make physical verification and appraisals of
Debtor's properties and the Collateral, (ii) inspect, audit and copy (or take
originals if necessary) and make extracts from Debtor's books and records and
(iii) discuss with Debtor's principal officers, and independent accountants,
Debtor's business, assets, liabilities, financial condition, results of
operations and business prospects.


                                       3
<PAGE>

          (B) SECURED PARTY AUTHORIZED. Debtor hereby authorizes Secured Party
to file one or more financing or continuation statements, and amendments thereto
(or similar documents required by any laws of any applicable jurisdiction),
relating to all or any part of the Collateral, and ratifies its authorization
for Secured Party to have filed any initial financing statements, or amendments
thereto, if filed prior to the date hereof.

          (C) CORPORATE OR NAME CHANGE. Debtor will not change Debtor's name,
identity, jurisdiction of organization, corporate structure or organization
identification number, if any, issued by its state of incorporation, in each
case without the prior written consent of Secured Party. With respect to any
such change consented to by Secured Party, Debtor will promptly execute and
deliver such instruments, documents and agreements and take such other action as
Secured Party deems necessary or desirable to create, perfect and protect the
security interests of Secured Party in the Collateral.

          (D) BUSINESS LOCATIONS. Subject to the next sentence, Debtor will keep
all tangible Collateral at the locations specified in the preamble hereto and/or
on Schedule I. Debtor will give Secured Party at least thirty (30) days prior
written notice of any change in Debtor's chief executive office, principal place
of business, mailing address of any new location of business or any new location
for any of the Collateral. With respect to any new location (which in any event
shall be within the continental United States), Debtor will execute and deliver
such instruments, documents and agreements and take such other action as Secured
Party deems necessary to create, perfect and protect the security interests of
Secured Party in the Collateral.

          (E) BAILEES. No Collateral shall at any time be in the possession or
control of any bailee or any of Debtor's agents without Secured Party's prior
written consent and unless, if Secured Party has so requested, such bailee or
agent acknowledges in writing that it shall hold all such Collateral for Secured
Party's benefit.

          (F) FILING REQUIREMENTS. None of the Collateral is of a type in which
security interests or liens may be registered, recorded or filed under, or
notice thereof given under, any federal statute or regulation. Debtor shall
promptly notify Secured Party in writing upon acquiring any interest hereafter
in Collateral that is of a type where a security interest or lien may be
registered, recorded of filed under, or notice thereof given under, any federal
statute or regulation.

          (G) PROTECTION OF COLLATERAL; COVENANTS CONCERNING COLLATERAL. Debtor
will do nothing to impair the rights of Secured Party in the Collateral;
provided that Debtor is permitted to use its cash and cash equivalents so long
as such use is not in violation of the Note. Debtor assumes all liability and
responsibility in connection with the Collateral acquired by it, and the
liability of Debtor to pay the Secured Obligations shall in no way be affected
or diminished by reason of the fact that such Collateral may be lost, stolen,
damaged, or for any reason whatsoever unavailable to Debtor. Debtor will not
encumber, mortgage, pledge, assign or grant any lien or security interest in any
Collateral to anyone other than Secured Party. Debtor will not dispose of any
Collateral whether by sale, lease or otherwise. Debtor will bear the full risk
of loss from any loss of any nature whatsoever with respect to the Collateral.
At Debtor's cost and expense in amounts and with carriers acceptable to Secured
Party, Debtor shall keep all its insurable properties and properties in which it
has an interest insured against the hazards of fire, flood and


                                       4
<PAGE>

those hazards covered by extended coverage insurance and such other hazards, and
for such amounts, as is customary in the case of companies engaged in businesses
similar to Debtor's, and furnish Secured Party with endorsements to Debtor's
policies of insurance naming Secured Party as "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to
Secured Party, naming Secured Party as loss payee.

          (H) TAXES AND CLAIMS. Debtor will pay when due all property and other
taxes, assessments and governmental charges imposed upon, and all claims
against, the Collateral (including claims for labor, materials and supplies);
unless such amounts are being diligently contested in good faith by appropriate
proceedings promptly instituted and diligently conducted provided that (i)
adequate reserves with respect thereto are maintained on Debtor's books in
conformity with GAAP and (ii) any related lien shall have no effect on the
priority of the liens in favor of Secured Party or the value of the assets in
which Secured Party has a lien.

          (I) COLLATERAL DESCRIPTION. Debtor will furnish to Secured Party, from
time to time upon request, statements and schedules further identifying,
updating, and describing the Collateral and such other information, reports and
evidence concerning the Collateral as Secured Party may reasonably request, all
in reasonable detail.

          (J) USE OF COLLATERAL. Debtor will not use or permit any Collateral to
be used unlawfully or in violation of any provision of applicable law, or any
policy of insurance covering any of the Collateral.

          (K) RECORDS OF COLLATERAL. Debtor shall keep full and accurate books
and records relating to the Collateral and shall stamp or otherwise mark such
books and records in such manner as Secured Party may reasonably request
indicating that the Collateral is subject to the security interests of Secured
Party.

          (L) COLLATERAL CERTIFICATE. Debtor will deliver to Secured Party on
the first day of each month a certificate (i) detailing Debtor's Eligible
Accounts (as hereafter defined) as of the last day of the immediately preceding
month and (ii) certifying that a Default under Section 8(g) shall not have
occurred at any time during the immediately preceding month, certified as true
and correct by the President or Chief Financial Officer of Debtor. Debtor shall
provide Secured Party all such supporting documentation as Secured Party shall
reasonably request.

     6.   PAYMENT AND COLLECTION OF ACCOUNTS.

          At the Secured Party's election, if a Default has occurred and is
continuing, the Secured Party may notify Debtor's account debtors of the Secured
Party's security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to Debtor's account. Secured Party may at
any time verify Debtor's Accounts utilizing an audit control company or any
other agent of Secured Party.


                                       5
<PAGE>

     7. ATTORNEY-IN-FACT. Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact, with full authority in the place and stead of Debtor
and in the name of Debtor, Secured Party or otherwise, from time to time in
Secured Party's discretion to take any action and to execute any instrument that
Secured Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation:

          (a) to obtain and adjust insurance required to be paid to Secured
Party;

          (b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;

          (c) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;

          (d) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection of, or to
preserve the value of, any of the Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Collateral;

          (e) to pay or discharge taxes, liens or security interests levied or
placed upon or threatened against the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined by
Secured Party in its sole discretion, and such payments made by Secured Party to
become Secured Obligations of Debtor to Secured Party, due and payable
immediately without demand;

          (f) to sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, assignments, verifications and notices
in connection with Accounts, chattel paper and other documents relating to the
Collateral; and

          (g) generally to take any act required of Debtor by Section 5 and to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured Party were
the absolute owner thereof for all purposes, and to do, at Secured Party's
option and Debtor's expense, at any time or from time to time, all acts and
things that Secured Party deems necessary to protect, preserve or realize upon
the Collateral.

     Debtor hereby approves all acts of Secured Party made or taken pursuant to
this Section 7. Neither Secured Party nor any person or entity designated by
Secured Party shall be liable for any acts or omissions or for any error of
judgment or mistake of fact or law. This power, being coupled with an interest,
is irrevocable so long as this Agreement shall remain in force.

     8. EVENTS OF DEFAULT. Debtor shall be in default under this Agreement upon
the happening of any one or more of the following events or conditions (each, a
"Default"): (a) it shall fail to pay when due or punctually perform any of the
Secured Obligations; (b) any covenant, warranty, representation or statement
made or furnished by Debtor or on Debtor's behalf to the Secured Party was false
in any material respect when made or furnished; (c) it shall fail to comply with
any term or provision set forth in this Agreement and such failure (to the
extent not covered by any other clause of this Section 8) shall remain uncured
for a period of two


                                       6
<PAGE>

(2) business days after the date on which the Secured Party notified Debtor of
such failure; (d) the indictment or threatened indictment or Debtor or any
officer of Debtor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Debtor, or any officer of
Debtor pursuant to which statute or proceeding penalties or remedies sought or
available include forfeiture of any of properties of Debtor; (e) an attachment
or levy is made upon any of Debtor's assets having an aggregate value in excess
of $25,000, or a judgment is rendered against Debtor or any of Debtor's
properties involving liability of more than $25,000, which shall not have been
vacated, discharged, stayed or bonded pending appeal within thirty (30) days
from the entry thereof; or (f) a Event of Default shall have occurred under and
as defined in the Note.

     9.   REMEDIES.

          (a) If any Default shall have occurred and be continuing, the Secured
Party may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Code (whether or not the
Code applies to the affected Collateral) and also may: (i) require Debtor to,
and Debtor hereby agrees that it will, at its expense and upon request of the
Secured Party forthwith, assemble all or part of the Collateral as directed by
the Secured Party and make it available to the Secured Party at any place or
places designated by the Secured Party which is reasonably convenient to the
Secured Party and Debtor in which event Debtor shall at its own expense (A)
forthwith cause the same to be moved to the place or places so designated by the
Secured Party, (B) store and keep any Collateral so delivered to the Secured
Party at such place or places pending further direction by the Secured Party,
and (C) while Collateral shall be so stored and kept, provide such guards and
maintenance services as shall be necessary to protect the same and to preserve
and maintain the Collateral in good condition; (ii) withdraw or cause to be
withdrawn all cash in the Lockbox and apply such monies in payment of the
Secured Obligations; (iii) without notice except as specified below, sell,
lease, license or otherwise dispose of the Collateral or any part thereof by one
or more contracts, in one or more parcels at public or private sale, and without
the necessity of gathering at the place of sale of the property to be sold, at
any of the Secured Party's offices or elsewhere, at such time or times, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Secured Party may deem commercially reasonable; and (iv)
apply for the appointment of a receiver for Debtor's property.

          (b) The requirement of reasonable notice shall be met if such notice
is mailed postage prepaid to Debtor, at Debtor's address shown in Secured
Party's records, at least ten (10) days before the time of the event of which
notice is begin given. At any sale of the Collateral, if permitted by law, the
Secured Party may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase, lease, license or other
disposition of the Collateral or any portion thereof for the account of the
Secured Party. The Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Secured Party may
disclaim any warranties that might arise in connection with the sale, lease,
license or other disposition of the Collateral and have no obligation to provide
any warranties at such time. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. To the extent permitted by


                                       7
<PAGE>

law, Debtor hereby specifically waives all rights of redemption, stay or
appraisal which it has or may have under any law now existing or hereafter
enacted.

          (c) Upon the occurrence and during the continuance of a Default, the
Secured Party or its agents or attorneys shall have the right without notice or
demand or legal process (unless the same shall be required by applicable law),
personally, or by agents or attorneys, (i) to enter upon, occupy and use any
premises owned or leased by Debtor or where the Collateral is located (or is
believed to be located) until the Secured Obligations are paid in full without
any obligation to pay rent to Debtor, to render the Collateral useable or
saleable and to remove the Collateral or any part thereof therefrom to the
premises of the Secured Party or any agent of the Secured Party for such time as
the Secured Party may desire in order to effectively collect or liquidate the
Collateral and use in connection with such removal any and all services,
supplies, assets and other facilities of Debtor; and (ii) to take possession of
Debtor's original books and records, to obtain access to Debtor's data
processing equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein in any
manner the Secured Party deems appropriate.

          (d) Debtor acknowledges that a breach of any of the covenants
contained in Sections 5 and 6 hereof will cause irreparable injury to the
Secured Party and that the Secured Party has no adequate remedy at law in
respect of such breaches and therefore acknowledges, without limiting the right
of the Secured Party to seek and obtain specific performance of other
obligations of Debtor contained in this Agreement, that the covenants of Debtor
contained in the Sections referred to in this Section shall be specifically
enforceable against Debtor.


                                       8
<PAGE>

     10. EXPENSES. Debtor shall pay all costs, fees and expenses of the Secured
Party (its assignees and participants, as applicable) in connection with (a)
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, (b) creating, perfecting and enforcing the security
interests, (c) maintaining the security interests, (d) collecting, enforcing,
retaking, holding, preparing for disposition, processing and disposing of the
Collateral, (e) any and all excise, property, sales and use taxes imposed by any
federal, state, local or foreign authority on any of the Collateral, or with
respect to periodic appraisals and inspections of the Collateral, or with
respect to the sale or other disposition thereof, (f) the prosecution or defense
of any action, contest, dispute, suit or proceeding concerning any matter in any
way arising out of, related to or connected with this Agreement and (g) Secured
Party's obtaining performance of the Secured Obligations. If Debtor fails to
promptly pay any portion of the above costs, fees and expenses when due or to
perform any other obligation of Debtor under this Agreement, the Secured Party
may, at its option, but shall not be required to, pay or perform the same and
charge Debtor's account for all fees, costs and expenses incurred therefor, and
Debtor will reimburse the Secured Party therefor on demand. All sums so paid or
incurred by the Secured Party for any of the foregoing, any and all other sums
for which Debtor may become liable hereunder and all fees, costs and expenses
(including attorneys' fees, legal expenses and court costs) incurred by the
Secured Party in enforcing or protecting the security interests or any of its
rights or remedies under this Agreement shall be payable on demand, shall
constitute Secured Obligations, shall bear interest until paid at the highest
rate provided in the Note and shall be secured by the Collateral.

     11. TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL. Upon payment
in full in cash of all Secured Obligations, and Secured Party's receipt of a
release executed by Debtor of any and all claims which Debtor may have or
thereafter have under the Note, Secured Party shall terminate its security
interest in the Collateral. Upon such termination, the Secured Party will, at
the expense of Debtor, execute and deliver to Debtor such documents as Debtor
shall reasonably request to evidence the termination of the security interests.

     12. NOTICE. All notices and other communications hereunder shall be deemed
given three (3) business days after delivered or deposited in the mails, first
class postage prepaid (provided, however, that notices given by telegram, telex
or telefax shall be deemed given when dispatched by telegram, telex or telefax,
as the case may be) and if to (a) Debtor, at the address for Debtor as set forth
beneath Debtor's name at the foot hereof unless Debtor shall give notice in
writing of a different address or telefax number in the manner provided herein
and (b) the Secured Party, at the address for Secured Party set forth beneath
Secured Party's name at the foot hereof unless the Secured Party shall give
Debtor notice in writing of a different address.

     13. SUCCESSORS AND ASSIGNS. This Agreement is for the benefit of the
Secured Party and its successors and assigns. This Agreement shall be binding on
Debtor and its successors and assigns; provided that Debtor may not delegate its
obligations under this Agreement without the Secured Party's prior written
consent. Secured Party may assign (in whole or in part) any or all of the
Secured Obligations together with any or all of the security therefor and any
transferee shall succeed to all of Secured Party's rights with respect thereto.
Secured Party may from time to time sell or otherwise grant participations (in
whole or in part) in any or all of the Secured Obligations and the holder of any
such participation shall, subject to the terms of any agreement between Secured
Party and such holder, be entitled to the same benefits as Secured Party with


                                       9
<PAGE>

respect to any security for the Secured Obligations in which such holder is a
participant. Debtor acknowledges that each such holder may exercise any and all
rights of banker's lien, set-off and counterclaim with respect to its
participation in the Secured Obligations as fully as though Debtor were directly
indebted to such holder in the amount of such participation.

     14.  APPLICABLE LAW.

          (a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and cannot be terminated orally. The
Secured Party and Debtor hereby (a) waive any and all right to trial by jury in
litigation relating to this Agreement and Debtor will not assert any
counterclaim in such litigation, (b) submit to the nonexclusive jurisdiction of
the state and federal courts located in the State of New York and (c) waive any
objection the Secured Party or Debtor may have as to the bringing or maintaining
of such action with any such court.

          (b) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.

     15. CHANGES IN WRITING. No amendment, modification, termination, or waiver
of any provision of this Agreement shall in be effective unless the same shall
be in writing and signed by the Secured Party, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.

     16. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Secured Party in the exercise of any power, right or privilege hereunder
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
any other right, power or privilege.

     17. REMEDIES CUMULATIVE. The rights and remedies provided in this Agreement
are cumulative, and are not exclusive of any other rights, powers, privileges,
or remedies, now or hereafter existing, at law or in equity or otherwise. Debtor
hereby waives in favor of the Secured Party all suretyship defenses and waives
notice of (a) acceptance hereof and of all notices and demands of any kind to
which Debtor may be entitled and (b) presentment to or demand of payment from
anyone whomsoever liable upon the Accounts or the Secured Obligations, protest,
notices of presentment, non-payment or protest and notice of any sale of the
Collateral or any default of any sort. Debtor further waives (a) notice of and
hereby consent to any agreement or arrangements whatsoever with the Secured
Party or any one else and (b) all of Debtor's rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which any
of Debtor or the Secured Party may now or hereafter have against any party
liable for the Secured Obligations.

     18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart; provided that a facsimile


                                       10
<PAGE>

signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original and not a facsimile thereof.

     19. HEADINGS. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.

     20. SURVIVAL. All representations and warranties of Debtor contained in
this Agreement shall survive the execution and delivery of this Agreement.


                                       11
<PAGE>

     The undersigned have duly executed this Agreement as of the date first
written above.


                                 CHESHIRE DISTRIBUTORS, INC.

                                 By: /s/ Abe Grossman
                                     -------------------------------------------
                                      Name: Abe Grossman
                                      Title: Chief Executive Officer
                                      Address:


                                 LAURUS MASTER FUND, LTD.

                                 By: /s/ David Grin
                                     -------------------------------------------
                                      Name:  David Grin
                                      Title:  Director

                                 Address: c/o Ironshore Corporate Services, Ltd.
                                             P.O. Box 1234 G.T.
                                             Queensgate House
                                             South Church Street
                                             Grand Cayman, Cayman Islands

                                       12
<PAGE>

                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                    CONTENTS

<S>                                                                                                                  <C>
Report of Independent Auditors                                                                                     F-2

Financial Statements:

Balance Sheets as of December 31, 2002 and 2001                                                                    F-3

Statements of Operations for each of the two years in the period ended December 31, 2002                           F-4

Statements of Changes in Stockholders' Deficit for each of the two years in the period ended December 31, 2002     F-5

Statements of Cash Flows for each of the two years in the period ended December 31, 2002                           F-8

Notes to the Financial Statements                                                                                 F-10

</TABLE>


                                      F-1


<PAGE>




REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Cheshire Distributors, Inc.

We have audited the accompanying balance sheet of Cheshire Distributors, Inc. (a
development stage enterprise) as of December 31, 2002, and the related
statements of operations, changes in stockholders' deficit, and cash flows for
each of the two years in the period ended December 31, 2002, and for the period
May 12, 1999 (inception) to December 31, 2002. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Cheshire Distributors, Inc. at
December 31, 2002, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2002, and for the period May
12, 1999 (inception) to December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has a working capital deficiency and shareholders' deficit at December 31,
2002. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



                                              WOLINETZ, LAFAZAN & COMPANY, P.C.



Rockville Centre, New York
March 24, 2003

                                      F-2

<PAGE>



                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                                  BALANCE SHEET
                                DECEMBER 31, 2002




                                     ASSETS

Current Assets:
  Notes Receivable (Net of Fair Value Adjustment of $734,156)        $       -
  Accrued Interest Receivable (Net of Fair Value Adjustment of $40,500)      -
                                                                      ---------

Total Assets                                                          $      -
                                                                      =========




                                       LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts Payable                                               $     180,187
  Accrued Expenses                                                     126,011
  Loan Payable - Related Party                                          27,222
  Notes Payable - Related Party                                        734,156
  Notes Payable - Current Portion                                       55,725
                                                                --------------

         Total Current Liabilities                                   1,123,301
                                                                -------------

Commitments and Contingencies

Stockholders' Deficit:
  Common Stock, $0.001 Par Value; Authorized 100,000,000 Shares,
    Issued and Outstanding 34,800,374 Shares                            34,800
  Additional Paid-In Capital                                         4,184,000
  Deficit Accumulated in the Development Stage                      (5,342,101)
                                                                  -------------

         Total Stockholders' Deficit                                (1,123,301)

Total Liabilities and Stockholders' Deficit                     $            -
                                                                ===============






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

                                      F-3

<PAGE>




                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                             STATEMENT OF OPERATIONS



<TABLE>
<CAPTION>
                                                                                            For the Period
                                                                  For the Year Ended        May 12, 1999
                                                     ---------------------------------
                                                                    December 31,            (Inception) to
                                                     ---------------------------------
                                                            2002        2001                December 31, 2002
                                                     ----------------------------------     ----------------


<S>                                                     <C>              <C>               <C>
Revenues                                                $         -      $         -       $         -
                                                        ------------      ------------      ------------

Costs and Expenses:
  Selling, General and Administrative Expenses              127,945           308,723         3,031,065
  Reduction of Notes Receivable and Accrued
    Interest to Fair Value                                  774,656                -            774,656
                                                        ------------      ------------      ------------

         Total Costs and Expenses                           902,601           308,723         3,805,721
                                                       ------------      ------------      ------------

Other Income (Expense):
  Interest Expense and Other Financing Charges           (   55,709)        (  70,020)       (1,005,639)
  Interest Income                                            40,500           444,153
  Amortization of Loan Fees                                       -         ( 230,588)       (1,027,681)
  Extinguishment of Debt                                          -            40,000           592,557
  Loss on Investment                                              -         (    -   )       (  139,770)

         Total Other Income (Expense)                     (  15,209)        ( 260,604)       (1,536,380)
                                                        ------------      ------------      ------------


Net Loss                                               $   (917,810)     $   (569,327)     $ (5,342,101)
                                                       ============      ============     =============
Net Loss Per Share, Basic and Diluted                  $       (.03)     $       (.02)
                                                       ============      ============

Weighted Average Number of Common Shares
  Outstanding:
    Basic and Diluted                                    34,800,374        27,347,590
                                                      ============       ============
</TABLE>










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

                                      F-4

<PAGE>


                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
          FOR THE PERIOD MAY 12, 1999 (INCEPTION) TO DECEMBER 31, 2002


<TABLE>
<CAPTION>
                                                                                                  Deficit
                                                                                                 Accumulated
                                                                                Additional       Development
                                                       Common Stock             Paid-In             in the
                                                   Shares         Amount        Capital              Stage              Total
                                                ------------     ---------      -----------      -----------         -----------
<S>                                             <C>             <C>           <C>               <C>                 <C>
Balance, May 12, 1999                                      -     $       -     $           -     $          -        $        -

Common Stock Issued Upon Incorporation             9,890,927         9,891            (8,893)               -               998

Sale of Common Stock and Warrants                    109,073           109           349,891                -           350,000

Valuation of Non-Cash Conversion
  Feature of Warrants                                      -             -           128,500                -           128,500

Net Loss for the Period                                    -             -                 -         (864,567)         (864,567)

Balance, December 31, 1999                        10,000,000        10,000           469,498         (864,567)         (385,069)

Pacific Development Corporation
  Common Shares - Recapitalization                   137,283           137              (137)               -                 -

Costs Associated with Reverse Merger/
  Recapitalization                                         -             -          (275,000)               -          (275,000)

Issuance of Common Stock to Consultant
  for Services Under S-8                             227,717           228            35,068                -            35,296

Retirement of Common Stock
  by Related Party                                  (406,544)         (407)              407                -

Issuance of Common Stock to Related
  Party Upon Exercise of Stock Options               407,000           407             3,663                -             4,070

Issuance of Common Stock to Correct
  August 1999 Share Purchase Amount                   65,594            66               (66)               -                 -

Issuance of Common Stock for
  Conversion of Note Payable                          97,765            98           155,715                -           155,813

Issuance of Common Stock
  for Consulting Services                             20,000            20            18,780                -            18,800

Valuation of Non-Cash Conversion Feature
  of Warrants and Debt Instruments                         -             -           847,936                -           847,936

Contributed Capital Pursuant to Debt
  Modification with Related Party                          -             -            76,026                -            76,026

Issuance of Common Stock Upon
  Exercise of Stock Options                          500,000           500             4,500                -             5,000

Stock Based Compensation                                   -             -           686,758                -           686,758

Net Loss                                                   -             -                 -       (2,990,397)       (2,990,397)

Balance, December 31, 2000                        11,048,815        11,049         2,023,148       (3,854,964)       (1,820,767)
</TABLE>


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

                                      F-5


<PAGE>



                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
          FOR THE PERIOD MAY 12, 1999 (INCEPTION) TO DECEMBER 31, 2002
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                                  Deficit
                                                                                                 Accumulated
                                                                                Additional       Development
                                                       Common Stock             Paid-In             in the
                                                   Shares         Amount        Capital              Stage              Total
                                                ------------     ---------      -----------      -----------         -----------

Issuance of Common Stock Upon
<S>                                             <C>              <C>              <C>             <C>                  <C>
  Exercise of Stock Options                     100,000               100               900                 -             1,000

Issuance of Common Stock for
  Settlement of Notes Payable and
  Accrued Liabilities                        30,106,540            30,106         1,934,333                 -         1,964,439

Issuance of Common Stock for
  Settlement of Accrued Liabilities           2,650,000             2,650            74,900                 -            77,550

Treasury Stock Contributed by
  Stockholders, 9,104,981 Shares                      -                 -            (9,105)                -                 -
                                                      -                 -             9,105                 -                 -

Retirement of Treasury Stock                 (9,104,981)            (9,105)           9,105                 -                 -

Stock Based Compensation                              -                 -           141,614                 -           141,614

Net Loss                                              -                 -                 -          (569,327)         (569,327)


Balance, December 31, 2001                   34,800,374            34,800         4,184,000        (4,424,291)         (205,491)

Net Loss                                              -                 -                 -          (917,810)         (917,810)

Balance, December 31, 2002                   34,800,374        $   34,800       $ 4,184,000       $(5,342,101)      $ (1,123,301)
                                             ===========      ===========        ===========      ============       ============
</TABLE>









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

                                      F-7

<PAGE>



                                            CHESHIRE DISTRIBUTORS, INC.
                                         (A DEVELOPMENT STAGE ENTERPRISE)
                                              STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                            For the Period
                                                                  For the Year Ended        May 12, 1999
                                                     ---------------------------------
                                                                    December 31,            (Inception) to
                                                     ---------------------------------
                                                            2002        2001                December 31, 2002
                                                     ----------------------------------     ----------------


<S>                                                     <C>              <C>               <C>
Operating Activities:
  Net Loss                                               $  (917,810)     $  (569,327)      $(5,342,101)
                                                         -----------      -----------       -----------

  Adjustments to Reconcile Net Loss to Net Cash
    Used in Operating Activities:
      Depreciation and Amortization                            3,720          235,835         1,040,226
      Loss and Abandonment                                     2,925                -             2,925
      Reduction of Notes Receivable and Accrued Interest
        to Fair Value                                        774,656                -           774,656
      Stock Issued for Services and Other                          -                -           182,596
      Stock Based Compensation                                     -          141,614           828,372
      Extinguishment of Debt                                       -          (40,000)         (592,557)
  Changes in Operating Assets and Liabilities:
    (Increase) in Accrued Interest Receivable                (40,500)               -           (40,500)
    (Increase) in Other Current Assets                             -            2,172                 -
    (Increase) in Security Deposits                                -            7,077                 -
    Increase in Accounts Payable and Accrued Expenses        148,647          (76,719)        1,175,547
                                                         -----------      -----------       -----------


         Total Adjustments                                   889,448          269,979         3,371,265
                                                         -----------      -----------       -----------


Net Cash (Used) in Operating Activities                      (28,362)        (299,348)       (1,970,836)
                                                         -----------      -----------       -----------


Investing Activities:
  Capital Expenditures                                             -                -           (14,899)
  Investment in Cardoso Cigarette Depot (Pty) Ltd.                 -        1,000,000                 -
                                                         -----------      -----------       -----------

Net Cash (Used) in Investing Activities                            -        1,000,000           (14,899)
                                                                          -----------       -----------

Financing Activities:
  Proceeds of Borrowings from Related Party                   27,222                -            27,222
  Proceeds of Notes Payable                                        -                -         2,765,703
  Repayment of Notes Payable                                       -         (708,916)         (713,513)
  Deferred Loan Costs                                              -                -          (179,745)
  Proceeds from Sale of Common Stock                               -                -           350,998
  Proceeds from Exercise of Stock Options                          -            1,000            10,070
  Costs Associated with Reverse Merger/Recapitalization            -                -          (275,000)
                                                                          -----------       -----------

Net Cash Provided by Financing Activities                     27,222         (707,916)        1,985,735
                                                         -----------      -----------       -----------

Net Increase (Decrease) in Cash and Cash Equivalents          (1,140)          (7,264)                -

Cash and Cash Equivalents - Beginning of Period                1,140            8,404                 -
                                                         -----------      -----------       -----------



Cash and Cash Equivalents - End of Period               $          -      $     1,140       $         -
                                                         ===========      ===========       ===========

</TABLE>



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

                                      F-8

<PAGE>

                                            CHESHIRE DISTRIBUTORS, INC.
                                         (A DEVELOPMENT STAGE ENTERPRISE)
                                              STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                            For the Period
                                                                  For the Year Ended        May 12, 1999
                                                     ---------------------------------
                                                                    December 31,            (Inception) to
                                                     ---------------------------------
                                                            2002        2001                December 31, 2002
                                                     ----------------------------------     ----------------


<S>                                                      <C>                 <C>             <C>

December 31, 2002
Supplemental Disclosure of Cash Flow Information:
  Cash Paid for Interest                                 $          -        $          -      $       19,759
                                                        =============        ============      ==============

  Cash Paid for Income Taxes                            $           -        $          -      $            -
                                                        =============        ============      ==============

Supplemental Disclosure of Non-Cash Investing and
  Financing Activities:
    Issuance of 97,765 Shares of Common Stock for
      Conversion of Note Payable                         $          -        $          -      $      155,813
                                                        =============        ============      ==============

    Contributed Capital Pursuant to Debt Modification  with
      Related Party                                     $          -                  -        $       76,026
                                                        =============        ============      ==============

Issuance of 30,106,540 Shares of Common Stock
  for Settlement of Notes Payable and Accrued
  Liabilities                                            $          -        $  1,964,439      $
                                                         ============        ============      ==============
                                                                                                    1,964,439

Issuance of 650,000 Shares of Common Stock for
  Settlement of Accrued Liabilities                      $          -        $     17,550      $
                                                        =============        ============      ==============
                                                                                                       17,550

Issuance of 2,000,000 Shares of Common Stock for
  Settlement of Accrued Liabilities                      $          -        $     60,000      $
                                                        =============        ============      ==============
                                                                                                       60,000

Retirement of 9,104,981 Shares of Treasury Stock         $          -        $      9,105      $        9,105
                                                        =============        ============      ==============

Notes Payable Issued as Consideration
  for Notes Receivable Assigned                         $     734,156        $          -      $      734,156
                                                        =============        ============      ==============
</TABLE>








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

                                      F-9

<PAGE>



                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 1 - Organization and Basis of Presentation

     Pacific Development Corporation (a development stage enterprise) (formerly
Tamaron Oil & Gas, Inc.) ("Pacific") was incorporated under the laws of the
State of Colorado on September 21, 1992, to be the successor to a corporation
also named "Tamaron Oil & Gas, Inc.," which was dissolved by the Colorado
Secretary of State in 1990. The predecessor corporation named "Tamaron Oil &
Gas, Inc." ("Tamaron") was organized under Colorado law on October 6, 1982.
Tamaron's name was changed to "Pacific Development Corporation" and the number
of its authorized shares of common stock, $0.001 par value per share, was
increased from 20,000,000 to 100,000,000 shares on August 14, 1995.

     Effective March 24, 2000, Pacific and Cheshire Holdings, Inc., a Delaware
corporation, were merged into a single corporation existing under the laws of
the state of Delaware, with Cheshire Holdings, Inc. being the surviving
corporation. The name of the surviving corporation was changed to Cheshire
Distributors, Inc. ("the Company"). Each share of Pacific's issued and
outstanding common stock was automatically converted into shares of Cheshire
Distributors, Inc.'s common stock. Pacific was formed for the purpose of
acquiring an operating business and at the time of the merger, had no
significant assets or liabilities. The transaction has been accounted for as a
reverse merger/recapitalization of Cheshire Distributors, Inc., which is the
acquirer of Pacific for accounting purposes.

     On June 5, 2000 the Company changed its fiscal year from December 31 to
February 28. The change was made to coincide with the fiscal year of Cardoso
Cigarette Depot (Pty.) Ltd. (see Note 4). On July 9, 2001 the Company changed
its fiscal year back to December 31.

     Cheshire Distributors, Inc. was originally incorporated on May 12, 1999.
Since the transaction has been treated for accounting purposes as a reverse
merger, only the historical operations of Cheshire Distributors, Inc. are
presented.

     The Company was formed for the purpose of acquiring an operating business
and is currently seeking to obtain capital in order to take advantage of
business opportunities which may have profit potential. Accordingly, the
Company's financial statements are presented as statements of a development
stage enterprise.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As of December 31, 2002 the Company
was a development stage enterprise, has incurred losses of approximately
$5,342,000 since inception and its current liabilities exceed its current assets
by approximately $1,123,000. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. Continuation
of the Company is dependent on its exiting the development stage, achieving
sufficiently profitable operations and obtaining adequate financing. These
financial statements do not reflect any adjustments relating to the
recoverability and classification of assets carrying amounts and classification
of liabilities should the Company be unable to continue as a going concern.

     The Company has incurred substantial losses and has been funding its
operations through debt and equity financings. The Company will need to continue
to fund its operations in this manner until it achieves sufficiently profitable
operations. The Company plans to eliminate the going concern uncertainly by
raising additional funds through debt and/or equity financings. In addition, the
Company has negotiated several note modification and settlement agreements with
various note holders and creditors (see Note 7). The achievement and/or success
of these planned measures, however, cannot be determined at this time.


                                      F-10

<PAGE>

                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.

     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 the
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 these estimates.

     PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which approximated 2 to 5 years.

     DEFERRED LOANS COSTS

     Costs associated with the Company's debt financing transactions have been
capitalized. Such costs were amortized over the duration of the related loans.

     REVENUE RECOGNITION

     The Company uses the accrual method of accounting.

     INCOME TAXES

     The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of the deferred tax assets will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.


                                      F-11

<PAGE>




                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 2 - Summary of Significant Accounting Policies (Continued)
         ------------------------------------------

     Stock-Based Compensation

     The Company accounts for stock-based compensation to its employees using
the intrinsic value method, which requires the recognition of compensation
expense over the vesting period of the option when the exercise price of the
stock option granted is less that the fair value of the underlying common stock.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock as of the date of
grant over the exercise price. Additionally, the Company provides pro forma
disclosure of net loss and loss per share as if the fair value method has been
applied in measuring compensation expense for stock options granted. Stock-based
compensation related to options granted to non-employees is recognized using the
fair value method.

     Loss Per Share

     The computation of loss per share of common stock is computed by dividing
net loss for the period by the weighted average number of common shares
outstanding during that period.

     Because the Company is incurring losses, the effect of stock options and
warrants is antidilutive. Accordingly, the Company's presentation of diluted
earnings per share is the same as that of basic earnings per share.

     Fair Value of Financial Instruments

     The carrying value of the Company's financial instruments, including cash
and cash equivalents, notes receivable, accounts payable, accrued expenses and
notes payable approximated fair value because of the short maturity of these
instruments.



                                      F-12
<PAGE>



                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 3 - Notes Receivable

     In April 2002 the Company entered into an assignment and assumption of two
convertible notes from the original payee whereby the maker promised to pay the
original payee an aggregate of $675,000 plus accrued interest thereon in the
amount of $59,156. The notes bore interest at 8% per annum. The note in the
amount of $125,000 was due on December 20, 2002 and the note in the amount of
$550,000 is past due (see Note 5). The Company has recorded an adjustment to
reflect a reduction in the estimated fair value of these notes of $734,156 at
December 31, 2002. In addition, the Company has recorded an allowance in the
amount of $40,500 for accrued interest receivable on these notes.


NOTE 4 - Investment in Cardoso Cigarette Depot (Pty) Ltd.

     On April 7, 2000, the Company closed the first installment of $1,000,000 of
the purchase of the outstanding shares of common stock of Cardoso Cigarette
Depot (Pty) Ltd. ("Cardoso"), pursuant to the Stock Purchase Agreement
originally dated September 23, 1999, between the Company and Eduardo P.V.
Cardoso and Alberteina Cardoso ("Sellers") and Cardoso, as amended by the
Amended Stock Purchase Agreement dated April 7, 2000 (collectively, the
"Purchase Agreement"). All of the shares of the Sellers had been placed in
escrow, pending full payment for their shares in Cardoso. Additionally, the
Sellers had given the Company their proxy to vote their shares at any general or
special meeting of the shareholders of Cardoso until October 7, 2000.

     The Purchase Agreement provided that the total purchase price of
$10,000,000 was payable in cash in installments of $1,000,000 at closing (April
7, 2000), a second installment of $2,000,000 on or before the twenty-first day
after the closing (May 1, 2000) and a final installment of $7,000,000 on or
before the date which is six months after the closing date (October 7, 2000).
The $1,000,000 April 7th installment was paid with funds raised through the
issuance of additional debt securities. An amendment to the Purchase Agreement
in May 2000 provided for the entire balance of $9,000,000 to be paid on or
before October 7, 2000, and this date was subsequently extended to December 31,
2000.

     On February 8, 2001, in consideration of mutual releases of both parties to
the Cardoso Purchase Agreement, the Company terminated the agreement to acquire
Cardoso Cigarette Depot (Pty) Ltd. The decision was based upon notification to
the Company by its lead lender of its decision to withdraw its financing
proposal after reviewing the financial results and operating losses of Cardoso
for the third quarter. The Company has been able to negotiate the return of
$1,000,000 previously paid to Mr. Cardoso as installment one of the Purchase
Agreement. This amount has been returned to the Company in February 2001.

     Although the Company previously presented Cardoso as a consolidated
subsidiary in its May and August 2000 interim quarterly filings, the
accompanying financial statements present only the operations of Cheshire
Distributors, Inc.




                                      F-13
<PAGE>


                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 5 - Notes Payable and Loans Payable

     Notes payable consist of the following:

     $50,000 face amount 20% unsecured promissory note payable
     October 9, 2000.
     This note is in default and is carried as a current liability.  $  50,000

      Other notes, payable over various terms.                           5,725

      Notes payable, related party (a)                                 734,156
                  Total                                              $ 789,881
                                                                     =========


     (a) In April 2002, the Company issued two Convertible Notes aggregating
$675,000 principal to Laurus Master Fund Ltd. ("Laurus"), the assignor of the
notes receivable, as consideration for notes receivable assigned (see Note 3).
These notes bear interest at 8% per annum. One note for $125,000 was due on
December 20, 2002 and the other note for $550,000 is payable on demand. In
addition, the Company issued a third Convertible Note in the amount of $59,156
to Laurus as consideration for the accrued interest assigned, payable on demand
and bearing interest at 8% per annum. The three convertible notes are
convertible into the Company's common stock at a conversion price of $.005 per
share.

     In addition to conversion privileges contained in certain other debt
instruments (see Note 7), the Company has granted the following outstanding
warrants to purchase common shares:

     Three year warrant to purchase approximately 116,708 shares of the
Company's common stock for total proceeds of $500,000 if exercised by October 1,
2001, and for total proceeds of $600,000 if exercised between October 1, 2001
and October 1, 2002. These warrants were cancelled pursuant to a note
modification and release agreement (see Note 7).

     Two year warrant to purchase common shares at an amount equal to the number
of common shares into which the above $150,000 face amount note is converted.
Warrant exercise price will be equal to 75% of the fair market value of the
Company's common stock at the date of exercise. These warrants were cancelled
pursuant to a note modification and release agreement (see Note 10).

     For the year ended December 31, 2001, the Company recorded $187,021 in
non-cash financing costs related to conversion privileges and warrants contained
in certain of the above outstanding debt and option instruments, based on the
approximate fair value of these conversion privilege warrants and options.

     Loans payable to related parties represent short term advances bearing
interest at 8% per annum. The Company issued a convertible note in February 2003
for these loans (see Note 10).


NOTE 6 - Accrued Expenses

        Accrued expenses consist of the following:

               Accrued Expenses - Other            $   56,706
               Accrued Interest                         69,305
                                                   -----------

                                                   $   126,011


                                      F-14
<PAGE>



                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 7 - Stockholders' Deficit

     Recapitalization

     Cheshire Distributors, Inc. was originally incorporated with an
authorization of 3,000 shares of common stock, par value $.01 per share. In
January 2000 Cheshire Distributors, Inc. effected a 4,957.858 for 1 forward
split and increased its common shares authorized to 100,000,000 shares, par
value $.001 per share. All share and per share data is retroactively restated to
reflect this recapitalization.

     Common Stock

     Upon incorporation, Cheshire Distributors, Inc. issued 9,890,927 shares of
common stock for $998.

     In August 1999 Cheshire Distributors, Inc. sold 174,667 shares of common
stock and 174,667 common stock purchase warrants, exerciseable at $4, $5 and $6
per share in the first, second, and third year after May 2000 respectively, for
an aggregate of $350,000. A total of 109,073 shares were issued in 1999 and in
October 2000 a correction was made to adjust the amount purchased by 65,594
shares.

     As of December 31, 1999, there were 137,283 shares of Pacific issued and
outstanding. Such shares were automatically converted into common stock of the
Company in connection with the March 2000 merger (see Note 1).

     In February 2000 Pacific issued 227,717 shares of common stock valued at
$35,296 to a consultant.

     In May 2000, a related party cancelled 406,544 shares of common stock and
on May 26, 2000 such related party was granted an incentive stock option to
purchase 407,000 shares of common stock at an exercise price of $.01 per share.
In connection with these transactions, the Company recognized a charge of $2,161
during the year ended December 31, 2000. The stock option was exercised
immediately.

     In October 2000, the Company issued 97,765 shares of common stock upon
conversion of a note payable in the amount of $155,813.

     In October 2000, the Company issued 20,000 shares of common stock valued at
$18,800 for services rendered.

     In November 2000, the Company granted an incentive stock option to purchase
500,000 shares of common stock at an exercise price of $.01 per share. In
connection with this grant, the Company recognized a charge of $684,597 during
the year ended December 31, 2000. The stock option was exercised immediately.

     In January 2001, the Company granted a stock option to purchase 100,000
shares of common stock at an exercise price of $.01 per share. In connection
with this grant, the Company recognized a charge of $99,420 during the year
ended December 31, 2001. The stock option was exercised immediately.



                                      F-15
<PAGE>



                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 7 - Stockholders' Deficit (Continued)

     Common Stock (Continued)

     In January 2001, the Company issued a warrant to purchase common stock at
an exercise price of $.10 per share. The warrant expires January 20, 2005. In
connection with this grant, the Company recognized a charge of $42,194 during
the year ended December 31, 2001.

     During the year ended December 31, 2001 the Company issued 2,650,000 shares
of common stock valued at $77,550 as settlement of accrued liabilities to two
creditors.

     Note Modification and Release Agreements and Settlements with Vendors and
     Other Creditors
     --------------------------------------------------------------------------

     Effective as of May 7, 2001, the Company consummated various note
modifications and release agreements ("Note Modifications") with the holders
("Convertible Noteholders") of outstanding convertible notes ("Convertible
Notes") of the Company. The Company had 6 Convertible Noteholders who held an
aggregate of $2,250,000 in principal plus $106,376 of accrued interest excluding
any penalty or default interest of the Company. Additionally, some of the
Convertible Noteholders had earlier received warrants to purchase common stock.
Pursuant to the Note Modifications, the Convertible Noteholders agreed to the
full satisfaction and payment of the Convertible Notes and cancellation of the
warrants by the Company issuing an aggregate of 24,566,384 shares of the
Company's common stock and delivering cash payments in the amount of $605,971 in
reduction of the outstanding amounts due under the Convertible Notes. The
Company also agreed to use its best efforts to negotiate with all other
noteholders of the Company and unsecured creditors for the satisfaction and
release of their claims against the Company. Additionally, as part of the Note
Modifications, the existing directors of the Company, Lev Greenberg, Lionel
Growan and Gilad Gat agreed to resign as directors and officers effective upon
completion of the Note Modifications and delivery of the Company's shares to the
respective Convertible Noteholders which occurred on May 7, 2001. Prior to such
resignations, however, they agreed to fill a vacancy on the Board of Directors
with the majority of Convertible Noteholders' nominee Mr. Abraham Grossman.
Further as a condition of the Note Modifications, the directors and officers
agreed to return to the Company for cancellation 9,104,981 shares of common
stock previously issued and owned by them.

     The implementation of the Note Modifications resulted in:

     1.   The Convertible Noteholders agreeing that $2,250,000 of the
          convertible debt was paid and satisfied in full, and the outstanding
          warrants were cancelled;

     2.   The Convertible Noteholders receiving 24,566,384 shares of "restricted
          securities" of the Company's common stock.

     3.   The registration of the directors and executive officers of the
          registrant.

     4.   The election of the nominee of the Convertible Noteholders Group, Mr.
          Abraham Grossman, as a director of the Company to fill a vacancy pm
          the Board, who after the resignations by the remaining directors
          became the sole director of the Company.


                                      F-16


<PAGE>


     5.   The Company's previous directors and officers, Lev Greenberg and Gilad
          Gat, Lional Growan and a consultant to the Company, returning an
          aggregate of approximately 9 million shares of common stock to the
          Company for cancellation.


                                      F-17


<PAGE>


                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 7 - Stockholders' Deficit (Continued)

     Note Modification and Release Agreements and Settlements with Vendors and
     Other Creditors
     ---------------------------------------------------------------------------
     (Continued)

     6.   The Company negotiating with the holders of other outstanding notes of
          the Company in the aggregate amount of $240,000, who agreed to accept
          in full satisfaction and cancellation of their notes $101,995 in cash
          and 1,899,749 shares of restricted common stock of the Company.

     7.   The Company negotiating with 12 parties to whom the Company owed
          accounts payable in the aggregate amount of $556,430, who agreed to
          accept in full satisfaction and cancellation of their accounts
          receivable from the Company $140,166 in cash and 3,640,407 shares of
          restricted common stock of the Company.

     2000 Omnibus Stock Incentive Plan

     On May 3, 2000 the Company adopted its 2000 Omnibus Stock Incentive Plan
("the Plan").

     Under the Plan, the Board of Directors (or other committee appointed in
accordance with the terms of the Plan) (the "Committee") would be authorized to
make certain types of awards (collectively, "Incentive Awards"). Incentive
Awards can be of different types: incentive stock options, nonqualified stock
options, stock appreciation rights granted in tandem with options, stand-alone
stock appreciation rights, restricted stock awards, phantom stock awards or
bonuses payable in stock.

     The Plan authorizes an aggregate of 1,000,000 shares of the Company's
Common Stock that may be subject to Incentive Awards. This number is subject to
adjustment under certain circumstances described below. Shares delivered under
the Plan may be authorized and unissued shares, treasury shares or shares
acquired by the Company for purposes of the Plan. Generally, shares subject to
an Incentive Award will again become available for purposes of the Plan to the
extent that the Incentive Award terminates without the intended benefit having
been paid or distributed to the participant.


                                      F-18


<PAGE>


                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 7 - Stockholders' Deficit (Continued)

     2000 Omnibus Stock Incentive Plan (Continued)

     The Company has issued various stock options. The Options granted had full
vesting immediately. A summary of the Company's stock options activity under the
Plan is as follows:

<TABLE>
<CAPTION>
                                                             Options
                                    ---------------------------------------------------
                                                      Price Range      Weighted Average
                                        Shares          Per Share      Exercise Price
                                    --------------    -----------      ----------------

<S>                                 <C>               <C>               <C>
    Balance-January 1, 2000                 -         $      -          $      -
    Granted                           907,000          1.375 - 4.75           .01
    Exercised                        (907,000)        (1.375 - 4.75)         (.01)

    Balance - December 31, 2000             -                -                 -

    Granted                           100,000                   .01           .01
    Exercised                        (100,000)                 (.01)         (.01)
                                    ---------          ---------------   ---------

    Balance - December 31, 2001             -                 -                -

    Granted                                 -                 -                -
    Exercised                               -                 -                -


    Balance - December 31, 2002    $        -           $     -         $      -
                                   ==========         ===============   ==========
</TABLE>



     The Company recognized approximately $0 and $142,000 stock-based
compensation expense during the years ended December 31, 2002 and 2001, relating
to options granted to consultants with exercise prices below the estimated fair
market value of the Company's common stock at the date of grant. The Company
applies APB Opinion No. 25 and related Interpretations in accounting for these
plans. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued by the FASB in 1995 and, if
fully adopted, changes the methods for recognition of cost on plans similar to
those of the Company. The Company has adopted the disclosure-only provision of
SFAS 123. Pro forma information regarding net income and earnings per share is
required by Statement 123, and would be determined as if the Company has
accounted for its employee stock options under the fair value method of that
Statement. No stock options were granted to employees and, accordingly, there is
no pro forma presentation. The fair value for the options granted to
non-employees was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rate of 5.5%; volatility factor of the expected market price of the
Company's common stock of 50%; and a weighted-average expected life of the
option, after the vesting period, of 10 years.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the


                                      F-19
<PAGE>


subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 7 - Stockholders' Deficit (Continued)

     Common Stock Purchase Warrants

     The following common stock purchase warrants are outstanding at December
     31, 2002:

     174,667 warrants exercisable at $6 per share in the, third year after May
     2000.

     100,000 warrants exercisable at $.10 per share, expiring January 20, 2005.


NOTE 8 - Income Taxes

     For income tax purposes, the Company has a net operating loss carryforward
("NOL") at December 31, 2002 of approximately $2,577,000 expiring in 2017 if not
offset against future federal taxable income. There are certain limitations as
to the future annual use of the NOLs due to certain changes in the Company's
ownership.

     Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:

                                               Year Ended        Period Ended
                                            December 31, 2002  December 31, 2001
                                            -----------------  -----------------

    Computed "expected" tax benefit          $   74,000         $   211,000

    Decrease in  tax  benefit  resulting
      from net operating loss for which
      no benefit is currently available         (74,000)           (211,000)
                                          -------------        ------------
                                          $          -         $         -
                                          =============        ============

     The Company had deferred tax assets of approximately $1,031,000 at December
31, 2001, resulting primarily from net operating loss carryforwards. The
deferred tax assets have been fully offset by a valuation allowance resulting
from the uncertainty surrounding their future realization. The difference
between the federal statutory rate of 34% and the Company's effective tax rate
of 0% is due to an increase in the valuation allowance.


                                      F-20
<PAGE>


                           CHESHIRE DISTRIBUTORS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 9 - Commitments and Contingencies

     Lease Commitments

     In February 2000 the Company entered into a 5 year lease for office
facilities that terminates February 28, 2005. In addition to base rent, the
lease provides for payment of certain other occupancy costs. Approximate future
minimum payments under this lease are summarized as follows:

                    Year Ending
                   December 31,

                           2003                        $ 85,000
                           2004                        $ 85,000
                           2005                        $ 14,000

     Rent expense under this lease was approximately $85,000 and $74,000 for the
years ended December 31, 2002 and 2001, respectively.


NOTE 10 - Subsequent Events

     In February 2003 the Company issued a $34,576 principal convertible note to
a related party as consideration for various loans made by that related party to
the Company (see Note 5). The note is payable on demand, bears interest at 8%
per annum, and is convertible into common shares of the Company at a conversion
price equal to 50% of the lowest closing bid for the common stock during the 30
days in which the stock has traded prior to but not including the conversion
date. Additionally, in February 2003 the note was assigned to Laurus Master
Fund, Inc. ("Laurus") a related party. On February 18, 2003, the Company issued
to Laurus 65,152,000 shares of common stock upon conversion of the convertible
note.

     In February 2003 the Company issued a $2,000,000 principal term note to a
related party in consideration for loans made to the Company. The term note is
payable August 2003, bears interest at 8.35% per annum and is secured by the
assets of the Company under a security agreement.

     In February 2003 the Company loaned $2,000,000 to a third party. As
consideration, the Company received a $2,000,000 term note payable August 2003
and bearing interest at 8.35% per annum.


                                      F-21

<PAGE>