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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                          __________________________


                                  FORM 10-KSB

                  ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934.

                           FOR THE FISCAL YEAR ENDED
                               DECEMBER 31, 2001

                          COMMISSION FILE NO. 1-11968

                          __________________________

                            SAF T LOK INCORPORATED
       (Exact name of small business issuer as specified in its charter)

         FLORIDA                                    65-0142837
 (State of Incorporation)                (I.R.S. Employer Identification)

               32 West State Street, Sharon, Pennsylvania 16146
                   (address of principal executive offices)

                                (724) 981-3159
               (Company's telephone number, including area code)

                          __________________________

      Securities registered under Section 12(b) of the Exchange Act: NONE

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

      Title of each Class: COMMON STOCK, $0.01 PAR VALUE
     Name of each exchange on which registered: OVER THE COUNTER BULLETIN
BOARD(OTCBB)

     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 if not contained in the 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 the Form 10-KSB
or any amendment to this Form 10-KSB. [_]

     The Company's total revenues for its fiscal year ended December 31, 2001,
were $31,076.

     The aggregate market value of the Company's voting stock held by non-
affiliates (all persons other than executive officers or directors) of the
Company on April 12, 2002 (based upon the average bid and asked prices of such
stock on Over The Counter Bulletin Board on that date) was approximately
$528,870.

     On April, 12 2002, there were 1,651,721 shares of the registrant's common
stock outstanding.

===============================================================================

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<TABLE>
<S>                                                                                                <C>
PART I ........................................................................................     1
  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: .................................     1
Item 1.  Description of Business ..............................................................     1
  COMPANY HISTORY .............................................................................     1
  THE SAF T LOK-Registered-Trademark GRIP LOCK ................................................     1
  THE SAF T LOK-Registered-Trademark MAGAZINE LOCK ............................................     1
  COMPATIBLE FIREARMS..........................................................................     2
     GUN BRANDS AND MODELS.....................................................................     2
SAF T LOK-Registered-Trademark CUSTOMERS.......................................................     3
     LAW ENFORCEMENT USE ......................................................................     3
     CONSUMER USE .............................................................................     4
     GENERAL SERVICES ADMINISTRATION CONTRACT .................................................     4
ENDORSEMENTS ..................................................................................     4
METHODS OF DISTRIBUTION .......................................................................     4
COMPETITIVE BUSINESS CONDITIONS ...............................................................     5
     THE AFTERMARKET ..........................................................................     5
     THE ORIGINAL EQUIPMENT MARKET ............................................................     5
MATERIALS, SUPPLIERS AND MANUFACTURING ........................................................     6
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION ...............................................     6
GOVERNMENTAL REGULATION AND REGULATORY REQUIREMENTS ...........................................     6
PRODUCT DEVELOPMENT ...........................................................................     7
EMPLOYEES .....................................................................................     7
PUBLIC AVAILABILITY OF COMPANY INFORMATION ....................................................     7

Item 2.  Description of Property ..............................................................     7

Item 3.  Legal Proceedings ....................................................................     7

Item 4.  Submission of Matters to a Vote of Security Holders ..................................     8

PART II .......................................................................................     8
 Item 5.  Market for the Company's Common Equity and Related Stockholder
    Matters ...................................................................................     8
  LISTING AND TRADING PRICES ..................................................................     8
  ISSUANCE AND SALE OF SECURITIES .............................................................     9
     6% CONVERTIBLE DEBENTURES ................................................................     9
     COMMON STOCK .............................................................................     9

 Item 6.  Management's Discussion and Analysis of Financial Condition and
    Results of Operations .....................................................................     9
REVENUES AND EXPENSES .........................................................................    10
LIQUIDITY AND SOURCES OF CAPITAL ..............................................................    12
     SALE OF DEBENTURES .......................................................................    12
     NON-CASH PAYMENTS AND SALARY DEFERRALS ...................................................    12
     CONTEMPLATED STRATEGIC PARTNERSHIPS ......................................................    12
     OTHER FINANCING EFFORTS ..................................................................    12
PRODUCT LIABILITY .............................................................................    12
ANTICIPATED MAJOR EXPENSES ....................................................................    12
CAPITAL RESOURCES AND EXPENDITURES ............................................................    12
OUTLOOK .......................................................................................    12
     GUN SAFETY ADVANCES ......................................................................    13
</TABLE>

                                       i
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<TABLE>
<S>                                                                                <C>
Item 7.  Financial Statements and Supplementary Data ...........................   13

 Item 8.  Changes in Accountants ...............................................   13

PART III .......................................................................   14
 Item 9.  Directors and Executive Officers of the Registrant ...................   14
  BUSINESS EXPERIENCE ..........................................................   14
  SIGNIFICANT EMPLOYEES AND FAMILY RELATIONSHIPS ...............................   14
  SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ......................   15

 Item 10. Executive Compensation ...............................................   15
  SUMMARY COMPENSATION TABLE ...................................................   15
  OPTION/SAR GRANTS TABLE ......................................................   15
  AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE ...........   16
  REPORT ON REPRICING OF OPTIONS ...............................................   16
  COMPENSATION OF DIRECTORS ....................................................   16
  EMPLOYMENT AND CONSULTING AGREEMENTS .........................................   16

 Item 11.  Security Ownership of Certain Beneficial Owners and Management.......   17

 Item 12.  Certain Relationships and Related Transactions ......................   17

 Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K......   17

  FINANCIAL STATEMENTS: ........................................................   17

  EXHIBITS TO FORM 10KSB: ......................................................   17

  CURRENT REPORTS ON FORM 8-K ..................................................   17
</TABLE>

                                      ii
<PAGE>

PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:

     This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
contained in this document, including, without limitation, the statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Liquidity and Sources of Capital" regarding the Company's
strategies, plans, objectives, expectations, and future operating results are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable at this time, it can
give no assurance that such expectations will prove to have been correct. Actual
results could differ materially based upon a number of factors including, but
not limited to, risks attending litigation and government investigation,
inability to raise additional capital or find strategic partners, leverage and
debt service, governmental regulation, dependence on key personnel, competition,
including competition from other manufacturers of gun locks, costs and risks
attending manufacturing, expansion of operations, market acceptance of the
Company's products, limited public market and liquidity, shares eligible for
future sale, the Company's common stock ("Common Stock") being subject to penny
stock regulation and other risks detailed in the Company's filings with the
United States Securities and Exchange Commission ("SEC" or "Commission").

ITEM 1.  DESCRIPTION OF BUSINESS

COMPANY HISTORY

     Saf T Lok Incorporated (the "Company") through its subsidiary, Saf T Lock
Corporation, a Florida corporation, ("STL"), designs, develops, manufactures and
distributes patented and proprietary safety locks for handguns. STL was
organized in 1989 by Franklin W. Brooks to develop a proprietary gun locking
device. Until February 1996, it remained a privately held company focused on
developing the Saf T Lok-Registered-Trademark gun lock, without revenue. STL was
acquired by the Company by merger on February 13, 1996.

     The Company was incorporated in Florida in July 1989, under the name of RGB
Sales and Marketing, Inc., and in October commenced operation of a retail store
selling Amiga computers and producing tutorial programs for such computers. An
initial public offering of common stock was held on June 23, 1993, during which
the Company sold a total of 1,340,000 shares of common stock at a public
offering price of $7.00 per share. The acquisition of STL in 1996 marked the end
of the Company's involvement in the video editing business. The Company is
currently focused on the design, development, manufacture, and marketing of Saf
T Lok-Registered-Trademark combination locks which, when integrated into a
handgun, prevent both accidental and unauthorized discharge of the weapon,
including unintentional discharge by children and assailants. Two types of gun
locks, the Grip Lock and the Magazine Lock, are currently produced in limited
fashion by the Company. The Grip Lock was the first product developed by STL,
prior to its acquisition by the Company. The first Magazine Lock was conceived
in late 1996, the prototype developed and produced in 1997, and production and
shipment commenced in June 1998.

THE SAF T LOK-Registered-Trademark GRIP LOCK

     The Saf T Lok-Registered-Trademark Grip Lock is a mechanical combination
lock that attaches to a handgun. It is easily installed, removed and operated by
a gun owner. When unlocked, it neither hampers nor interferes with use of the
gun. When engaged, it locks the gun into the "no fire" position, stopping normal
operation and preventing it from being fired. The Saf T Lok-Registered-Trademark
Grip Lock does not involve keys or batteries that might be lost or fail.

     The body of the lock is positioned under, and concealed by, the gun's grip.
The combination mechanism is located at the top of the grip, where it is easily
accessible. The Saf T Lok-Registered-Trademark Grip Lock is mounted on a plate
placed under the gun's grip and is installed by removal of the grip, insertion
of the lock's mounting plate and replacement of the original grip with custom
rubber grips sold with the Grip Lock. When locked, the Grip Lock cannot be
removed without special tools or damage to the gun, even if the grips are
removed. The lock engages by moving its safety slide backward with one finger
while pushing the reset button with another finger, a simultaneous action
designed to prevent accidental locking. The Grip Lock may be engaged even if the
gun is loaded. In the firing position, the gun can be unlocked in about three
seconds by depressing each of three individually programmed buttons the correct
number of times, in any order, without looking at the lock or the gun. Each lock
comes with a preset combination, but the Company produces a separately marketed
combination changing kit that allows the gun owner to select a different,
personal, combination.
<PAGE>

THE SAF T LOK-Registered-Trademark MAGAZINE LOCK

     Like the Grip Lock, the Saf T Lok-Registered-Trademark Magazine Lock is a
precision, miniaturized, all mechanical, combination lock that attaches to the
handgun, is easily installed, removed and operated by a gun owner, and when
unlocked, neither hampers nor interferes with the use of the gun. It has two
combination buttons that each move in two directions, yielding 10,000 possible
combinations. The Magazine Lock replaces the gun's magazine. The locking
mechanism, located at the bottom of the lock/magazine, occupies the space of
four to six cartridges, depending on the caliber. The Magazine Lock is installed
by inserting the Saf T Lok-Registered-Trademark Magazine Lock into the gun's
magazine receptacle. When locked, a lever engages the trigger bar or similar
part of the gun's firing mechanism, a second lever locks over the trigger bar or
frame to prevent removal of the magazine. The lock is disengaged by entering a
four-digit combination, which can also be personalized.

COMPATIBLE FIREARMS

     The American Firearms Industry, a trade association, estimates that there
are 60-65 million handguns and 30-35 million handgun owners in the United
States. According to the February 2000 COMMERCE IN FIREARMS IN THE UNITED STATES
published by the U.S. Bureau of Alcohol, Tobacco and Firearms and the Department
of Commerce, an estimated two million new and two million second-hand handguns
are sold in the United States annually.

     GUN BRANDS AND MODELS

     At this time, Saf T Lok-Registered-Trademark gun locks are available on a
limited basis for the following gun brands and models:

COLT, SPRINGFIELD, AUTO ORDINANCE SINGLE COLUMN, SEMI-AUTOMATIC PISTOLS
1911-A1 & clones                                       Commander & clones
Officer, Compact & clones
(Will not work properly with some replacement or extended safety levers.)


ROSSI REVOLVERS                                        GLOCK PISTOLS
(will not fit M-877, 677 and Lady Rossi)
Model M-68                                              Model 17 9 mm
Model M-720                                             Model 19 9 mm
Model M-88                                              Model 22/24 40 cal
Model M-851                                             Model 23 40 cal
Model M-515                                             Model 26 9 mm
Model M-971                                             Model 27
Model M-518
Model M-971-VRC                                         BERETTA PISTOLS
                                                        Model 92 9 mm
                                                        Model 96 40 cal
RUGER REVOLVERS
SP 101

                     SMITH & WESSON K & L FRAME REVOLVERS
Model 10                                                Model 17
Model 65LS                                              Model 617
Model 686 Plus                                          Model 686 Magnum
Model 13                                                Model 19
Model 66                                                Model 686
Model 686 Quad                                          Model 14
Model 64                                                Model 67
Model 686 Power Port                                    Model 686 Combat
Model 696                                               Model 15
Model 65                                                Model 586

TAURUS                                                  SIG SAUER
Model 85                                                Model P226 9mm
Model 605                                               Model P228 9mm
Model 94                                                Model P229 9mm
Model 941

                       SMITH & WESSON J-FRAME REVOLVERS
Model 36                                                Model 36 LS
Model 37                                                Model 38
Model 49                                                Model 60
Model 60LS                                              Model 63
Model 317                                               Model 442
Model 637                                               Model 638
Model 640                                               Model 642
Model 642LS                                             Model 649
Model 651                                               Model 940

                                       2
<PAGE>

SAF T LOK-Registered-Trademark CUSTOMERS

     The Company believes that the greatest demand for Saf T Lok-Registered-
Trademark gun locks will come from those who use handguns for guarding their
households or for personal protection. This includes both individual consumers
among the general public and professionals in the law enforcement community. The
Company further believes that these individuals and entities will be willing to
pay more for the benefits of Saf T Lok-Registered-Trademark gun locks, which are
considerably more expensive than simple trigger locks. Saf T Lok-Registered-
Trademark gun locks are also designed to be easily integrated into the handgun
design and manufacturing process, which is another potential market for the
Company's products. SEE "Outlook-Gun Safety Advances." The Company does not plan
to produce Saf T Lok-Registered-Trademark gun locks for the cheaper, small
caliber, "Saturday Night Special" category of handguns, as the locks for these
guns might well cost more than the gun itself.

     LAW ENFORCEMENT USE

     Saf T Lok-Registered-Trademark gun locks are issued by police and other law
enforcement organizations for use by their officers, for the off-duty home
storage of handguns in daily use. Currently, Saf T Lok-Registered-Trademark gun
locks have been purchased by:

     -    the Arlington County Sheriff's Department, Arlington, Virginia;
     -    the Boston Police Department, Boston, Massachusetts;
     -    the Carbondale Police Department, Carbondale, Colorado;
     -    the Dothan Police Department, Dothan, Alabama;
     -    the Elmira Police Department, Elmira, New York;
     -    the Evans Police Department, Angola, New York;
     -    the Cambridge Police Department, Cambridge, Massachusetts;
     -    the Coral Springs Police Department, Coral Springs, Florida;
     -    the Cumberland County Sheriffs Department, Fayetteville, North
          Carolina;
     -    the Garwood Police Department, Garwood, New Jersey;
     -    the Gloucester Police Department, Gloucester, Massachusetts;
     -    the Grant County Sheriffs Department, Lancaster, Wisconsin;
     -    the Hallandale Police Department, Hallandale, Florida;
     -    the Harnett County Sheriff's Department, Lillington, North Carolina;
     -    the Harvard University Police & Security, Cambridge, Massachusetts;
     -    the Key Biscayne Police Department, Key Biscayne, Florida;
     -    the Logan Police Department, Logan, Utah;
     -    the Los Angeles Unified School District Police, Los Angeles,
          California;
     -    the Macomb Police Department, Macomb, Illinois;
     -    the Maryland National Capitol Park Police, Silver Springs, Maryland;
     -    the Metro Washington Transit Police, Washington, DC;
     -    the Metro Washington Airport Authority, Washington, DC, at Reagan
          National and Dulles Airports;
     -    the Miami Springs Police Department, Miami Springs, Florida;
     -    the Monroe County Sheriffs Department, Bloomington, Indiana;
     -    the National Park Service, Brunswick, GA;
     -    the Navajo Nation Department of Public Safety, Window Rock, Arizona;
     -    the Niles Police Department, Niles, Illinois;
     -    the North Carolina State Highway Patrol, Raleigh, North Carolina;
     -    the Norwood Police Department, Norwood, Massachusetts;
     -    the Oaklawn Police Department, Oaklawn, Illinois;
     -    the Orland Park Police Department, Orland Park, Illinois;
     -    the Owen County Sheriffs Department, Spencer, Illinois;
     -    the Palm Beach County Sheriffs Department, West Palm Beach, Florida;
     -    the Palmetto Police Department, Palmetto, Florida;
     -    the Springfield Police Department, Springfield, New Jersey;
     -    the Sullivan County Sheriffs Department, Sullivan, Indiana;

                                       3
<PAGE>

     -    the U.S. Customs, Washington, DC;
     -    the U.S. Immigration & Naturalization Service, Altoona, Pennsylvania;
     -    the U.S. Marshals, Boston, Massachusetts;
     -    the Office of Inspector General, U.S. Nuclear Regulatory Commission,
          Washington, DC;
     -    the Volusia County Sheriff's Department, Daytona beach, Florida; and
     -    the Wisconsin Department of Justice, Division of Narcotics, Madison,
          Wisconsin.

     The Company believes that the law enforcement community presents a
substantial market for Saf T Lok-Registered-Trademark gun locks. According to
the Department of Justice, the more than 700 general purpose State and local law
enforcement agencies that employ 100 or more full-time sworn personnel
collectively employ more than 381,000 such personnel. Former U.S. Housing
Secretary, Andrew Cuomo estimates that governments at all levels together buy
more than 500,000 police guns annually.

  CONSUMER USE

     The Consumer segment of Saf T Lok-Registered-Trademark's potential market
consists of non-law enforcement handgun owners who use guns for home defense and
self-protection. It is estimated that these individuals collectively own more
than sixty-five million handguns, and purchase over two million more each year,
from licensed firearms dealers in the United States.

  GENERAL SERVICES ADMINISTRATION CONTRACT

     In March 1999, the U.S. General Services Administration (GSA), the
purchasing arm of the Federal government, awarded a five-year contract to the
Company for its products (the "GSA Contract"). The contract with the GSA's
Federal Supply Service runs from March 1, 1999, through February 29, 2004. While
the contract does not obligate the federal government to purchase any of the
Company's products, it allows federal law enforcement agencies and other
departments and offices in all fifty states, Washington D.C., Puerto Rico and
the Virgin Islands to procure Saf T Lok-Registered-Trademark gun locks directly
from the Company, or over the Internet from GSA Advantage, on the best pre-
negotiated terms. Several law enforcement agencies have taken advantage of this
contract when purchasing locks.

ENDORSEMENTS

     Saf T Lok-Registered-Trademark gun locks have received the following
endorsements:

     -    INSTITUTE FOR POLICE RESEARCH. Independent evaluation by the Institute
          for Police Research (the "IPR"), a branch of the International Union
          of Police Associations, AFL-CIO, concluded with a strong
          recommendation about Saf T Lok-Registered-Trademark gun locks. Trigger
          locks, conversely, were "found to be of very little value."

     -    FRATERNAL ORDER OF POLICE. In June 1998, Saf T Lok-Registered-
          Trademark became the only gun locking device endorsed by the Fraternal
          Order of Police (FOP), one of the most prominent police labor
          organizations in the country, with over 272,000 members.

     -    SAFE AND VAULT TECHNICIANS ASSOCIATION. Saf T Lok-Registered-Trademark
          has been endorsed as "one of the most important advancements this
          century in firearm safety" by the Safe and Vault Technicians
          Association, a premier organization for security professionals.

     -    CITY OF BOSTON POLICE DEPARTMENT. 97% of the seventy-seven City of
          Boston Police Department officers who field evaluated Saf T Lok-
          Registered-Trademark gun locks prior to purchase by that Department,
          for off-duty use by its officers, rated the lock easy to use.

METHODS OF DISTRIBUTION

     In 1996, the Company began marketing the Grip Lock by advertising in gun
magazines to attract gun dealers who would then promote the sale of Saf T Lok-
Registered-Trademark gun locks to their customers. While the Company signed up
more than 1,350 gun dealers and locksmiths in the United States, sales were
disappointing, because the law enforcement market was rapidly switching from
revolvers to semi-automatic models that the Company had not yet developed a lock
for, and the Company had insufficient resources for a sustained advertising
campaign.

     Resources were therefore devoted to development of the Magazine Lock, and
further promotional efforts delayed until the product line was completed.
Nearing completion of the Magazine Lock and lacking adequate funds to develop
the consumer market, the Company split its marketing effort into two portions,
the retail consumer market and the law enforcement market. In early 1998 the
Company entered a distribution agreement with United Safety Action, Inc. to
develop the retail consumer market. This agreement was terminated in 1999
because the Company was dissatisfied with USA's performance under the contract.

                                       4
<PAGE>

     The Company currently conducts its own distribution, through retail stores,
the Internet and direct sale to law enforcement authorities. In 2001, most of
the Company's sales revenues were derived from sales to one law enforcement
agency. Additional methods of distribution and third party distributors are
currently being explored.


     COMPETITIVE BUSINESS CONDITIONS

        The Aftermarket

     The Company's competitors include Master Lock, manufacturer of trigger
locks, numerous manufacturers of safes and lock-boxes, as well as upcoming
developers of "smart gun" technology like Colt's Manufacturing Co. Some or all
of these competitors may be larger, better capitalized companies with a longer
production history and existing distribution channels. The Company's products
compete with lock boxes, trigger locks, cable locks, ring locks and the evolving
smart guns. Many of these products are more widely known and less expensive than
the Company's products. In addition, while the Company believes that there are
no generally available comparable products on the current market at a similar
price, it nevertheless expects competitors to attempt development of similar
products, possibly reducing the Company's sales or profit margins or both. A
catalog retailer liquidated some Company products at extremely low prices, which
came from inventory at United Safety Action, Inc., a former Company distributor.

     TRIGGER LOCKS AND CABLE LOCKS. Trigger locks were the first widely
available commercial gun lock, and are consequently most commonly known to
consumers. However, they cannot be unlocked quickly and are not recommended for
use on a loaded weapon. The first trigger lock, which opens with a key, was
marketed by Master Lock Company. More recently, combination padlocks and
combination built-in locks have also been marketed. These locks are opened by
aligning the numbers on three individual wheels. Turning the wheels can be
awkward, and proper alignment difficult to accomplish quickly or in the dark.
Electronic trigger locks, another option, are subject to inopportune battery or
electronic failure.

     MAGNETIC RING LOCKS. These are magnetic locking devices attached to the
frame of a handgun under the grip that blocks a gun's firing action. The lock is
released by aligning an external magnet with the magnet inside the gun. The
interaction of the two magnets moves the locking lever, allowing the gun to be
fired. Although these locks have been available for a number of years, they have
not gained significant market share. This may be because the advantages of the
passive locking mechanism are offset by the cost of installation and
difficulties in use. For example, the most well known of these devices requires
modification of the gun itself and installation by a gunsmith, which costs
approximately $250 per gun, although a less expensive model, comparable in price
to Saf T Lok-Registered-Trademark gun locks, may become more widely available.
Notwithstanding the cost, however, magnetic ring locks still have several other
disadvantages. For example, gun operators must wear a rather unattractive magnet
ring any time the gun is used. In addition, since the magnet in the ring must be
properly aligned with the magnet in the gun for the lock to release, proper fit
is important and may be difficult to achieve given the wide variety of hand and
finger sizes.

     BOX LOCKS AND GUN SAFES. Both box locks and gun safes effectively limit
access to guns. Although the most inexpensive models retail for about the same
price as Saf T Lok-Registered-Trademark gun locks, most are considerably more
expensive. They are also generally not attractive enough to display in a readily
available place in the home or office. Moreover, since they use either key,
combination or electronics locks, they have some of the same limitations as
trigger locks.

     "SMART GUN" TECHNOLOGY. So-called "smart gun technology" which identifies
an authorized gun owner electronically may become a competitive threat to the
Company in the future. One type of "smart gun" has a built-in electronic lock
that "reads" a coded radio signal from a device worn by the user. At this time,
however, such devices are very expensive and not commercially available.
Therefore, the Company does not consider them a competitive threat at this time,
especially in the used gun market.

     Another type of smart gun technology, which validates the authorized user
by reading ingerprints, has also been publicized. The Company has looked into
the possible availability of such devices, and to the best of its knowledge,
believes that the required technology cannot yet be adapted to handgun use. In
fact, the major promoter of fingerprint technology, Oxford Micro Devices, has
discontinued further development of fingerprint activated gun locks.

      The Original Equipment Market

     All major gun manufacturers are either including a locking device, such as
a trigger lock or a cable lock, with their guns or have developed locking
devices built into or attaching to the gun. Most of these are simple,
inexpensive key operated devices that suffer the same drawbacks and
inconvenience of use as similar aftermarket products. Some gun manufacturers
have had to recall a large number of such devices as testing by the federal
Consumer Products Safety Council has shown the devices to fail under certain
conditions. The attractiveness of this approach by the gun manufacturers is one
of low cost and easy implementation.

                                       5
<PAGE>

     The Company believes that Saf T Lok-Registered-Trademark gun locks are
better than competing products because they can be:

-     kept readily available;

-     used on a loaded gun;

-     disengaged within seconds;

-     operated by touch, even in the dark; and

-     opened without keys or electronics.

     In addition, retail prices of gun locks run from the $5-$20 range for low-
end trigger locks, several hundred dollars for gun boxes to several thousand
dollars for the sophisticated high-tech models not available to the general
public. The Saf T Lok-Registered-Trademark is moderately priced at $69.95 for
the Grip lock and $89.95 for the Magazine lock. Notwithstanding the foregoing,
however, Saf T Lok-Registered-Trademark gun locks will compete with trigger
locks, gun boxes and smart gun technology at the retail store level for shelf
space, advertising, and promotional displays.

MATERIALS, SUPPLIERS AND MANUFACTURING

     Saf T Lok-Registered-Trademark gun locks are made in component parts. Both
the Grip Lock and the Magazine Lock employ locking mechanisms that are die cast
in zinc alloy and nickel-plated. The Grip Lock also includes rubber grips, and
the Magazine Lock a metal and plastic magazine to hold ammunition. Historically,
the Company has found, and continues to believe, that an ample supply of the raw
materials used in the manufacture of its product components will remain
available from numerous sources at reasonable prices.

     The manufacturing of Saf T Lok-Registered-Trademark gun lock components is
subcontracted to various specialists. The gunlocks had been assembled, tested
for quality assurance and packaged for distribution at the Company's West Palm
Beach, Florida location and later at another Florida facility.

PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION

     The Company owns twelve U.S. patents on the Saf T Lok-Registered-Trademark
Grip Lock and the Magazine Lock and related inventions, and has corresponding
protections in a number of European countries. The issued patents, dated January
29, 1991 through November 23, 1999, were assigned to the Company by Franklin W.
Brooks. The patent numbers are: 4,987,693; 5,229,532: 5,335,521; 5,090,148;
5,140,766; 5,408,777; 5,457,907; 5,732,497; 5,749,166; 5,782,029; 5,987,796; and
5,974,717. The Company also filed patent application number SN 09/411,881.
Together, the issued and pending patents cover a variety of ways of locking a
variety of firearms. These patent numbers are prominently displayed on both the
Grip Lock and the Magazine Lock, as part of the Company's efforts to protect its
patents and guard against infringement.

     The Company received Registration Number 2,131,422 from the United States
Patent and Trademark Office for its logo "Saf T Lok-Registered-Trademark" on
January 20, 1998. In May 1998 the terms "Personalized Handgun" (TM) and
"Personalized Firearm" (TM) were also registered.

GOVERNMENTAL REGULATION AND REGULATORY REQUIREMENTS

     Neither the Company nor Saf T Lok-Registered-Trademark gun locks are
subject to specific governmental regulation or standards, although the sale of
handguns is heavily regulated. However, several states have considered types of
enhanced gun regulation that impact handgun safety locks and recently the
federal Consumer Products Safety Council has contracted with the American
Society for Testing and Materials ("ASTM") to set standards and test procedures
for gun locking devices. ASTM's first meeting to develop standards was held on
April 11,2001. The Company welcomes this effort as previous serious studies of
gun locks, such as done by the State of Maryland before they passed their
landmark 2000 legislation, have put the Company's products in good light.

     Both federal and state governments have been reviewing ways to increase gun
safety and minimize gun violence. One way of accomplishing this is to require
gun manufacturers to incorporate safety devices similar to the Company's
products into all handguns sold. The first regulation of this kind was passed by
the Maryland state legislature in early April 2000, and signed into law by
Governor Glendening on April 11, 2000. More than half a dozen states are
considering similar laws. Although gun manufacturers have uniformly resisted
this kind of legislation in the past, this view is changing. For example, Smith
& Wesson agreed in March of 2000 to include safety locks with all handguns it
sells. They will provide external locks initially, and internal ones within the
next few years.

                                       6
<PAGE>

PRODUCT DEVELOPMENT

     During 2001, the Company spent $2,157 on new product design. Design of gun
locks for Glock Models 20 and 21, the Smith & Wesson 9mm and 40 caliber high
capacity semi-automatic pistols, and the Walther Models P99/S&W SW99 are near
completion. In 2000, the Company spent approximately $29,333 on design of new
product models and prototyping new lock designs.

EMPLOYEES

     Including its executive officers, as of December 31, 2001, the Company had
four employees. None of these employees was covered by a collective bargaining
agreement. Management believes that the Company's relationship with its
employees is good.

PUBLIC AVAILABILITY OF COMPANY INFORMATION

     The public may read and copy any materials filed by the Company with the
SEC, at the Commission's Public Reference Room, located at 450 Fifth Street,
N.W., Washington, DC 20549. Information about operation of the Public Reference
Room is available by calling 1-800-SEC-0330. All electronic filings, including
those of the Company, are available on the Commission's website, at
http://www.sec.gov. Additional information about the Company and its products is
also available at http://www.saf-t-lok.com.

ITEM 2.   DESCRIPTION OF PROPERTY

     In the summer, 2001, the Company closed its West Palm Beach Facility and
moved the operations to Fort Lauderdale, Florida and the corporate headquarters
to Sharon, Pennsylvania. The Company was obligated under the lease expiring July
31, 2003 at an annual rent of approximately $95,000. Management has negotiated a
settlement and termination of the lease, as of June 30, 2001, without
significant additional expense to the Company. In December 2001 the Company
closed its Fort Lauderdale facility and relocated the operations to Sharon,
Pennsylvania. The Company was obligated under the lease expiring April 1, 2003
at an annual rent of approximately $22,896. The Company is negotiating a
termination of this lease agreement, the terms of which will not be substantial.
The Company entered into a lease with James E. Winner, Jr. for approximately
5,000 square feet of space in Sharon, Pa. The Company is obligated under the
lease expiring April 1, 2003 at an annual Rate of $16,250.00.

ITEM 3.   LEGAL PROCEEDINGS

     On May 29, 1998 the Company received notice of an informal inquiry by the
SEC Division of Enforcement concerning activities between January 1, 1996 and
May 29, 1998 and focusing on the Company's description of the terms of the
Distribution Agreement, which is described in "Methods of Distribution--
Termination of USA Distribution Agreement." The Company complied with all
document production requests and Mr. Brooks appeared for subpoenaed testimony on
February 18, 1999. At that time the Company received a copy of the Commission's
Order Directing Private Investigation and Designating Officers to Take Testimony
dated September 22, 1998, File No. HO-3451, citing possible violations of the
Federal Securities Laws by Company management over an extended period. On
December 20, 2000, pursuant to an Offer of Settlement made by the Company, the
Securities and Exchange Commission and the Company reached a settlement with
respect to the Division of Enforcement's investigation of the Company that began
in mid-1998.

     As part of the settlement, and solely for the purpose of proceedings with
the Commission, the Company, without admitting or denying the Commission's
findings, consented to the entry of the Commission's findings and the entry of
the Commission's Order Instituting Proceedings Pursuant to Section 21C of the
Securities Exchange Act of 1934 And Imposing Cease and Desist Order (Litigation
Release No.16835; Administrative File No. 3-10395, December 20, 2000).
Specifically, the Commission found that certain of the Company's press releases
and public filings made in 1997 and 1998 concerning a 1997 private equity
offering and various business arrangements violated Sections 10(b) and 13(a) of
the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 13a-13 there under.
The Commission likewise found that the Company violated the Exchange Act with
respect to inaccurate projections contained in a 1998 analyst's report that the
Company had reviewed and for which it paid a fee. The Commission's Order
prohibits the Company from committing or causing any future violations of the
statutes and rules referred to herein.

     Simultaneously, the Company's President, Franklin Brooks, and former
president, John Gardner, settled the Commission's claims against them with
respect to the matters described above. Messrs. Brooks and Gardner, without
admitting or denying the allegations set forth in the Commission's complaint
(Civ. No. 00-9110, United States District Court for the Southern District of
Florida, Miami Division (filed December 20, 2000)) consented to the entry of
final judgment permanently enjoining them from future violations of the statutes
and rules referred to herein and imposing civil penalties against each of them
in the amount of $55,000. In accordance with Florida law and the Company's
settlement agreement with Mr. Gardner concerning the termination of his
employment, a committee of the Company's board of directors not including
Messrs. Brooks or Gardner has concluded that Messrs. Brooks and Gardner had
acted in good faith and that the Company should reimburse them for the
penalties. The Company also provided Messrs. Brooks and Gardner a legal defense.
The Company's insurance carrier has denied coverage of defense costs related to
this investigation.

                                       7
<PAGE>

     On August 17, 1999, the Company was named as defendant in a declaratory
judgment action pending in the United States District Court for the District of
Arizona by Safe-T-Hammer, Inc., Case No. CIV 99-1479-PHX-RGS. The plaintiff
seeks a declaratory judgment that its trademark does not infringe upon the Saf T
Lok-Registered-Trademark trademark, to invalidate the Saf T Lok-Registered-
Trademark trademark, and attorneys fees and costs. On December 5, 2000 the
Company and the defendant reached an agreement and the suit has been terminated.

     On March 28, 2000, Winner Holding LLC, Winner Club LLC and James E. Winner
Jr. (collectively, "Winner") filed a complaint against the Company and Mr.
Brooks in the United States District Court for the Western District of
Pennsylvania (Case No. 00-610). The suit arises from discussions between the
parties regarding a possible merger. Winner's complaint purports to allege,
among other things, causes of action for breach of contract, fraud, negligent
misrepresentation and breach of duty to negotiate in good faith, and seeks
compensatory damages in excess of $75,000 for each cause of action. Winner is
also seeking a permanent injunction preventing the Company from being acquired
by another party, as well as punitive damages of at least $5,000,000. On March
12, 2001, Winner withdrew the complaint with prejudice.

     On April 4, 2002, the Company was served with a Complaint in a civil action
filed in the United States District Court for The Southern District of Florida
captioned Edward Cohen, on behalf of himself and all others similarly situated
against the Company, Franklin W. Brooks, Jeffery W. Brooks, William Schmidt,
James E. Winner, Jr., John F. Hornbostel, Jr. and Goldberg Wagner Stump and
Jacobs LLP. This is a class action on behalf of all purchasers of the Common
Stock of the Company between April 14, 2000 and April 16, 2001, seeking to
pursue remedies under the Securities Exchange Act of 1934. The Company denies
the allegations and plans to defend itself vigorously. The Company has also
submitted this matter to its insurer.

     Except as discussed above, the Company knows of no other legal proceedings,
pending or threatened, or judgments entered against the Company or any director
or officer of the Company in his or her capacity as such. Moreover, the Company
is not aware of any pending or contemplated proceeding against it by
governmental authorities concerning environmental matters.

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

     On February 7, 2000, the Company held its annual meeting of shareholders.
At the annual meeting, a total of 13,092,618 shares were present in person or by
proxy, and:

-      Franklin W. Brooks, Jeffrey W. Brooks, William M. Schmidt, Dennis W.
       DeConcini and James V. Stanton were reelected to serve on the Company's
       board of directors. The number of votes cast in connection with the
       election of directors was 12,982,370 (for), 301,141 (against) and 109,248
       (abstain).

-      The Company's shareholders approved an increase in the number of
       authorized shares of common stock from 20 million shares to 30 million
       shares. The number of votes cast in connection with the amendment was
       12,761,039 (for), 1,000 (against) and 30,438 (abstain)

     The additional authorized shares will be available for issuance at the
direction of the board of directors, without further shareholder action, for
capital raising purposes, strategic alliances and other purposes deemed by the
board to be in the best interest of the shareholders.

PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
LISTING AND TRADING PRICES

     The Company's Common Stock is quoted on the OVER THE COUNTER BULLETIN BOARD
(otcbb)under the symbol "LOCK". On April 8, 2002, the closing trade price for
the Company's Common Stock was $.20. As of March 31, 2002, there were
approximately 517 stockholders of record. The Company believes that there are
approximately 7000 beneficial owners of its Common Stock.

     The Company historically has not paid cash dividends and does not intend to
pay such dividends in the foreseeable future. The Company intends to retain its
earnings, if any, to finance the expansion of its business and for general
corporate purposes.

     The following table sets forth the range of high and low bid price
quotations obtained from the National Quotation Bureau, LLC for the Common Stock
for the two fiscal years ended December 31, 2000 and 2001 and for the quarter
ended March 31, 2002. These quotes are believed to be representative of inter-
dealer quotations, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.

                                       8
<PAGE>

                                             HIGH        LOW

YEAR ENDING DECEMBER 31, 2000:

     First Quarter.......................... 3.53125     1.125
     Second Quarter......................... 4.438       1.188
     Third Quarter.......................... 1.313       0.75
     Fourth Quarter......................... 0.906       0.125


YEAR ENDING DECEMBER 31, 2001:

     First Quarter.......................... 8.28        1.56
     Second Quarter......................... 4.29        1.05
     Third Quarter.......................... 1.65        0.50
     Fourth Quarter......................... 0.79        0.20

QUARTER ENDING MARCH 31, 2002:

     First Quarter.......................... 0.38        0.20
                                            ---------  ---------

     On February 2, 2001 the Company disclosed that it had received a NASDAQ
Staff determination that the Company failed to meet the minimum bid price
requirement for continued listing set forth in Marketplace Rule 4310(c)(4), and
that its common stock was, therefore, subject to delisting from the NASDAQ
SmallCap Market. The Company was notified it also will be required to
demonstrate its ability to sustain long term compliance with all applicable
Nasdaq maintenance criteria. The Company requested, and was granted a hearing on
March 9, 2001 before a Nasdaq Listing Qualifications Panel to review the Staff
determination. On March 28, 2001 the Company disclosed that it had received a
decision from the Panel that allows the Company's stock to continue to be
listed, under a temporary exception, on the Nasdaq Small Cap Market and that it
has until May 4, 2001 to demonstrate compliance with Nasdaq's minimum bid price
requirement, as well as all of Nasdaq's continued listing requirements.

     On April 23, 2001, the Company received notice from Nasdaq that it was not
in compliance with Nasdaq's tangible asset requirement, as set forth in Rule
4310 (C) (2) (B). On April 26, 2001 and May 7, 2001, the Company submitted a
proposal to Nasdaq to address this deficiency. On May 14, 2001, NASDAQ advised
the Company that it would not grant the Company a temporary exception to the net
tangible asset requirement. As a result, the Company's securities were delisted
on May 15, 2001. The Company's securities trade on the OTC Bulletin Board.

ISSUANCE AND SALE OF SECURITIES

     6% CONVERTIBLE DEBENTURES

     The Company sold $875,000 worth of 6% convertible debentures ("Debentures")
in May 2000 through J.P. Carey Securities, Inc., ("Carey") to one accredited
investor. Carey, with its business partner, Pegasus Capital, Inc., and their
attorneys, received aggregate commissions composed of 43,750 shares of Common
Stock, $82,500 in cash, and legal fees of $5,000. An additional escrow fee of
$1,250 was also paid. The Debentures and compensatory shares were issued in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act (a "Section 4.2 Exemption"). The registration statement covering
the Common Stock issuable upon conversion of the debentures and the compensatory
shares was filed on August 17, 2000 and has not yet become effective.

     The debentures bear interest at the rate of 6% per year. The remaining
$175,000 of debentures mature on May 26, 2002. Upon conversion, the outstanding
principal amount of the debentures will be converted into Common Stock at a 20%
discount off market price, subject to a minimum conversion price of $1.00 per
share and a maximum conversion price of $2.00 per share. If the debentures are
converted prior to maturity, the Company may, at its sole option, elect to pay
any interest due in cash or in Common Stock which has been registered by the
Company. To the extent that the debentures are not converted prior to their
maturity dates, the principal and interest shall convert to Common Stock at a
20% discount off market price, unless cash payment is demanded by the holders,
at their option. The Debenture certificates bear restrictive legends addressing
the transferability of the debentures and the underlying Common Stock.

     COMMON STOCK

     During the fourth quarter of 2001 none of the Company's Common Stock was
issued.


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The Company anticipates that public concern for heightened gun safety as a
means of slowing increases in gun violence may significantly affect its
financial condition in the future. Gun manufacturers, beginning with Smith &
Wesson, are beginning to embrace gun safety locks as a way of improving their
products and minimizing liability, which should similarly broaden the market for
products like those produced by the Company. The events contributing to this
trend are discussed more completely in "Outlook-Gun Safety Advances."

                                       9
<PAGE>

REVENUES AND EXPENSES

The Company's net revenues in 2001 were $31,076 compared to $109,158 in 2000. In
2001 the Company was unable to reverse the downward trend of sales from the
prior two years that derived the majority of sales from law enforcement
agencies. The Company has attempted to reverse this trend by way of continued
prospecting with law enforcement agencies and existing customers as well as
through use of the Company's Internet site.

The following table compares gross profit margin, revenues and losses between
fiscal years 2001 and 2000. Parentheses indicate losses:

                                   2001                       2000

                          Actual       Per Share      Actual      Per share

Losses                  ($1,037,222)      ($.63)   ($6,563,494)      ($.42)

Sales Revenues         $     31,076               $    109,158

Other Revenues         $      9,303               $     29,154

Gross Profit Margin              65%                        39%

"Other revenues" were generated primarily by short-term investment of cash on
hand, interest on the note receivable and payments received for licenses.

The following table compares the Company's major expense categories between 2001
and 2000:

                                                          2001        2000

Consulting fees, Marketing Fees and Commissions         $  3,434   $  102,568

Salaries and Wages                                      $ 97,076   $1,110,653

Professional and Administrative Services                $ 70,836   $        0

Contract Labor                                          $ 32,000   $        0

Advertising and Sales Promotion                         $ 22,391   $  116,059

Legal, Accounting, and Professional Fees                $302,375   $  663,948

Bad Debt Expense                                        $ 13,148   $    8,000

Product Development                                     $  2,157   $   29,333

Expenses Associated with reduction in valuation of:

     Inventories                                        $218,008   $2,057,659

     Leasehold Improvements                             $ 10,830   $        0

     Tools and Dies (net of depreciation)               $      0   $  859,317

     Patents (net of depreciation)                      $      0   $  254,713

Miscellaneous                                           $273,829   $1,406,733


CONSULTING FEES, MARKETING FEES, AND COMMISSIONS. In 2001 the Company paid
$3,434 in commissions to an independent sales representative. In 2000 the major
costs in this category were $250,000 in fees to Friedman Billings & Ramsay, Inc.
in connection with the Company's search for a strategic alliance partner
partially offset with a credit of $197,300 for repricing the options held by
certain consultants following a Black-Scholes evaluation.

INVENTORY LIABILITY. The Company reviews the carrying value of property and
equipment for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases where
undiscounted future cash flows are less than the carrying value, an
<PAGE>

impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair market value.

SALARIES AND WAGES. The cash compensation expense to Company employees in 2001
was $83,519 as compared to $450,712 in 2000. The Company took action in 2001 to
reduce costs as necessary as revenues were not adequate to support the expense.
The remaining compensation in 2000 consisted mainly of non-cash stock options
issued to two former employees, $135,000 to Ralph Nichols as part of his
employment agreement and $392,000 to John Gardner as settlement for a wrongful
termination suit brought against the Company and $132,741 of amortization of
deferred compensation.

PROFESSIONAL AND ADMINISTRATIVE SUPPORT. The Company incurred expenses for
support supplied by Winner Administration and Winner International in the amount
of $70,836 during 2001. The expenses are for actual hours worked by employees
and billed to the Company.

CONTRACT LABOR. The Company paid an independent Contractor to move the physical
operations from its West Palm Beach, Florida facility to a less expensive
facility in Fort Lauderdale, Florida.

ADVERTISING AND SALES PROMOTION. Advertising and sales promotion expenses
decreased in 2001 by $93,668 or 81% from 2000, reflecting the Company's
decreasing sales activity and limited financial resources.

LEGAL, ACCOUNTING, AND PROFESSIONAL FEES. The Company spent substantially less
in 2001 than in 2000. In 2001 the major costs in this category were $176,582 for
accounting, $73,254 for general legal, and $21,874 for SEC legal costs.

BAD DEBT EXPENSE. The Company wrote off $22,391 in uncollectable accounts in
2001 and in 2000 provided $8,000 in allowance for uncollectable accounts
receivable.

PRODUCT DEVELOPMENT COSTS. The Company product development costs were lower in
both 2001 and 2000 reflecting a reduction in sales activity and financial
resources.

INVENTORY, TOOLS AND DIES, AND PATENT REVALUATION. As stated under Inventory
Liability, whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated undiscounted future cash
flows expected to result from its use and eventual disposition an impairment
loss is recognized equal to an amount by which the carrying value exceeds the
fair value of the assets. Despite efforts to find strategic alliance partners,
the Company has been unable to consummate a deal. Consequently and consistent
with standard accounting practice, the inventory was revalued at net realizable
value which resulted in a charge to operations of $218,008 in 2001 and
$2,057,659 in 2000.

Concurrent with the reduction in inventory to its net realizable value, the
tooling and patents related to that inventory are subject to that same
treatment. Therefore, impairment losses of $859,317 were recognized for the
unamortized portion of tools and dies and $254,713 for unamortized portion of
the patent costs in 2000.

During 1999 and 2000, management anticipated the occurrence of certain events
that would have led to the movement of inventory within the current operating
cycle of one year. Since that did not materialize, $2,225,000 of inventories was
reclassified as a non-current asset in 2000. The Company amended its 1999-year
end financial statement as well as its three quarterly statements for 2000 in
March 2001 to reflect the reclassification. As 2000 drew to a close management
realized that events over which they had no control would likely result in the
inability to realize the value of the inventory within a predictable period of
time.
<PAGE>

MISCELLANEOUS EXPENSE. The following table compares major miscellaneous expenses
in 2001 and 2000.

         Type of Expense                                     2001      2000

Travel Expenses                                             $16,475  $ 29,282

Payroll Taxes                                               $ 7,283  $ 39,027

Depreciation                                                $23,761  $308,889

Insurance Costs                                             $91,361  $123,481

Communications Costs                                        $15,617  $ 21,317

Building Rent                                               $63,637  $104,641

Interest Expense                                            $43,874  $657,324

Penalties                                                   $     0  $110,000

Moving and Storage Expense                                  $11,821  $      0

Travel expenses in 2001 were lower due to reduced sales activity, but also
included costs involved in managing the physical move to more economical
facilities.

Depreciation was substantially lower in 2001 due to the previous write down of
assets in 2000.

Building rent was materially lower in 2001 compared to 2000 due to the Company's
efforts to reduce costs. The Company moved the operations from West Palm Beach,
Florida to Fort Lauderdale, Florida in the second quarter of 2001. In an effort
to further reduce costs the operations were moved to Sharon, Pa. In December
2001.

Interest expense in 2001 was accrued primarily for debentures and notes payable
to James E. Winner Jr. In 2000 the Company incurred interest of $435,680 on
debentures and $218,750 for the beneficial conversion feature on debentures sold
in 2000.

In 2000 the Company, Franklin Brooks, and John Gardner settled with the SEC with
both Gardner and Brooks agreeing to pay a penalty of $55,000 for which the
Company's by-laws require reimbursement to them. See "LEGAL PROCEEDINGS".

Moving and storage expenses were incurred in 2001 in the process of relocating
the operations and assets.
<PAGE>

The following table compares miscellaneous balance sheet items between 2001 and
2000.

                                                                Category
                                                            2001       2000

Cash and cash equivalents                                 $ 11,345   $ 44,164

Inventory

     Current                                              $      0   $ 78,000

     Non-current                                          $      0   $150,000

Property and Equipment, Less Accumulated Depreciation     $ 56,733   $ 91,739

Patents, Less Accumulated Amortization                    $      0   $      0

Accrued Expenses                                          $311,858   $106,704

Accounts Payable                                          $498,612   $427,532

Note Payable                                              $377,000   $      0

The Company's cash and cash equivalents were lower at the end of 2001 than 2000
due to the reduction in sales and operating activity.

Accrued expenses increased due to the fact that the Company has expensed but not
paid auditing fees, interest on notes payable, and professional and
administrative support services.

Notes Payable for 2001 represent loans made by James E. Winner, Jr. to the
Company during 2001 and is secured by the assets of the Company.

The revaluation of inventory, property, and equipment, and patents is explained
in the above section on expenses.

                                      11
<PAGE>

LIQUIDITY AND SOURCES OF CAPITAL

     The Company ended the fourth quarter of 2001 with a cash balance of
$11,345. The Company has not been successful in raising additional funds for
working capital. Net accounts receivable of $1,772 and accrued expenses and
accounts payable totaling $810,470 emphasize the need for additional working
capital.

NOTES PAYABLE

     During 2001 the Company signed a series of promissory notes for loans made
by Mr. James E. Winner Jr. The first note was signed in March of 2001 and the
most recent was in December 2001. Annualized interest rates range from 4.75% to
7.5% with two notes at prime. The total balance of all the notes is $377,000.
Four notes totaling $300,000 mature on July 30, 2002. One note totaling $5,000
matures on August 8, 2002 and the remaining notes totaling $72,000 are payable
on demand.

SALE OF DEBENTURES

     In the second quarter of 2000, the Company sold a total of $875,000 worth
of 6% convertible debentures. The placement agent who brokered this transaction
received a total of 43,750 shares of Common Stock as a portion of the
commissions for the sales of the debentures. In the fourth quarter of 1999, the
Company sold a total of $1,325,000 worth of its 6% two-year convertible
debentures. The placement agents who brokered these transactions received a
total of 135,000 shares of Common Stock as a portion of their commissions for
these sales.

COST REDUCTION MEASURES

     During the year ended December 31, 2001, the Company took measures to
reduce costs and preserve cash due to the reduced sales activity. Salaries and
wages were reduced through cutbacks in personnel and through utilization of
outside management and administrative personnel and contract labor on an "as
needed" basis. The Company was only billed for hours worked by these personnel.

     The Company closed its West Palm Beach Facility and moved the operations to
Fort Lauderdale, Florida and the corporate headquarters to Sharon, Pennsylvania.
The Company was obligated under the lease expiring July 31, 2003 at an annual
rent of approximately $95,000. Management has negotiated a settlement and
termination of the lease, as of June 30, 2001, without significant additional
expense to the Company. In December 2001 the Company closed its Fort Lauderdale
facility and relocated the operations to Sharon, Pennsylvania. The Company was
obligated under the lease expiring April 1, 2003 at an annual rent of
approximately $22,896. The Company is negotiating a termination of this lease
agreement, the terms of which will not be substantial.

     In August 2001, the Company issued, at market price, shares of restricted
Common Stock of the Company in partial payment for services rendered in lieu of
cash to satisfy an outstanding balance of $7,668.

     In 2000 the Company was able to conserve cash and reduce accounts payable
by approximately $197,000 through the issuance of stock and stock options in
lieu of cash for payment of goods and services. As part of the Company's efforts
to conserve cash, the salaries of all officers and managers were being accrued
beginning with September 2000.

NON-CASH PAYMENTS AND SALARY DEFERRALS

     The 2001 year end balance was $11,345 in cash, needed to pay the Company's
accumulated accounts payable of $498,612 and sustain operations in 2002. To
further conserve cash, all salaries of Company officers and executives have been
deferred since the last week of August 2000.

CONTEMPLATED STRATEGIC PARTNERSHIPS

     As the Company does not have sales sufficient to sustain operations, the
Company has sought a strategic alliance to provide either an immediate revenue
stream or marketing expertise to help increase sales revenues to a self
sustaining, profitable level, or both. On May 4, 2001, the Company announced
that it had signed a letter of intent to purchase all of the outstanding
membership interests of Winner International LLC, a privately held security and
safety product company headquartered in Sharon, Pennsylvania. On October 11,
2001 the Company and Winner International LLC entered into a letter agreement
terminating and rescinding the letter of intent.

QUALIFICATIONS

     Notwithstanding the Company's intended plan to seek strategic partnerships,
if sales do not increase sufficiently in 2002 and no alliances are forged, the
Company will need to obtain additional working capital. Reflecting this, a going
concern qualification was included in the report Form 10-KSB for 2000, filed
with the SEC. The underlying causes resulting in the auditor's "going concern"
qualification have continued through the year ended December 31, 2001.

PRODUCT LIABILITY

     The Company has experienced no product liability claims to date and is
unaware of any incident that would lead to a product liability action against
the Company.

ANTICIPATED MAJOR EXPENSES

     The Company does not anticipate any unusual major expenses separate from
its ordinary operating expenses. However, should the Company succeed in forming
a strategic business combination it could incur significant costs related to
consummation of such transaction, including increased professional fees for
attorneys, financial advisors, accountants and other consultants.

CAPITAL RESOURCES AND EXPENDITURES

     The Company does not anticipate any other substantial capital expenditures
during the fiscal year.

                                      12
<PAGE>

OUTLOOK

     Even with the election of a new President and the change in the
Administration, handgun safety remains a major concern and interest may continue
to increase in the next few years. The focus is expected to involve less emotion
and politics and to become more one of gun safety rather than one of perceived
attempts to ban guns. Gun safety issues are expected to be moved from the
Federal level to the state level, while those at the federal level are seemingly
becoming more rational with the approach being taken by the Consumer Products
Safety Commission to set measurable standards of performance for gun locking
devices. The Company, with developed products that address preventive handgun
safety, anticipates that it will be in a position to benefit from this trend-
although this, of course, cannot be guaranteed. In the short term, the Company
continues to face a number of significant problems, including the need to
continually fund its day to day operating requirements, such as production,
wages and research and development, SEE "Liquidity and Sources of Capital" and
the need to improve its distribution and sales capability. On balance, however,
the Company believes that the continued focus on handgun safety, the use of gun
locks by law enforcement agencies, the litigation aimed at gun manufacturers and
corresponding about-face regarding gun safety locks begun by Smith & Wesson, as
well as the gun legislation currently pending and enacted by states such as
Maryland, may create a domino effect that may bring the Company's products into
the spotlight. Some of the more important recent events in the gun safety arena
are discussed below.

GUN SAFETY ADVANCES

     Over the past several years, more and more people are focusing on gun
safety concerns. Many reported injuries and deaths from the accidental discharge
of firearms involve guns purchased for protection and stored loaded at home.
According to statistics provided by the American Firearms Industry on its
website, half of all U.S. households have at least one gun. According to a 1998
survey by the Center to Prevent Handgun Violence, it has been estimated that
nearly 1.2 million unattended, latch key children have access to loaded and
unloaded guns. A May 1997 study sponsored by the National Institute of Justice
showed that 55% of all handgun owners keep their guns loaded and that 34% keep
their handguns loaded and unlocked. According to unpublished data from the Vital
Statistics System, one child is killed and at least thirteen more are injured in
unintentional shootings each day in the U. S. Furthermore, police officers and
military personnel as well as individual gun owners are always at risk of being
shot by their own weapons when grabbed by assailants.

     PRESIDENTIAL DIRECTIVE. Following his February 1997 State of the Union
Address, President Clinton directed all federal agencies to equip their handguns
with child safety locks. Those agencies complied using a variety of then
available products, mostly trigger locks and padlocks. However, the Company has
since delivered evaluation samples of Saf T Lok gun locks to a number of federal
agencies, at their request, resulting in the possibility of sales to such
agencies, as well as a contract with the General Services Administration, which
makes Saf T Lok-Registered-Trademark gun locks more readily available to federal
employees. SEE "Saf T Lok-Registered-Trademark Law Enforcement USE" and
"Outlook-General Services Administration Contract."

     STATE ACTION. To date, as reported by The Firearms Litigation
Clearinghouse, lawsuits against gun manufacturers for producing unsafe weapons
or for irresponsible sales tactics have been filed in approximately 32 cities
and states, of which a number have been dismissed and more are threatened with
dismissal, appearing that a number of these cases were not on firm ground. As
this continues, remedies for unsafe gun practices are likely to revert to tort
litigation or increased state regulation of firearm safety. The Company feels
that a trend towards preventive gun safety may put increasing focus on the
Company's products. For example, as reported in the BALTIMORE SUN, Maryland
Governor Glendening's Task Force on Child-Proof Guns countered gun
manufacturers' claims that no reasonable technology exists to make guns safer by
recommending that all handguns for sale to private citizens in Maryland come
equipped with a Saf T Lok-Registered-Trademark or similar device as an interim
road to "smart guns" (See "Smart Gun" Technology" above). The Governor's gun
safety legislation, the centerpiece of his year 2000 legislative agenda, was
approved by the Maryland state legislature in early April 2000. "The bill makes
a giant step toward creating safe communities, not only in Maryland but across
the country," said Glendening, who was joined by President Clinton when he
signed the bill into law on April 11, 2000. The Florida state legislature, among
others, is considering similar action.

     SMITH & WESSON'S PLEDGE. In addition, in March 2000, Smith & Wesson entered
into a legal settlement with the federal administration in which it pledged to
equip its handguns with safety features on a schedule similar to the one
proposed in the Maryland legislation, and specifically to put built-in locks in
all of its handguns within the next few years. More recently, on December 11,
2000, Smith & Wesson agreed to similar provisions with the City of Boston, Mass.

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this Item is incorporated by reference to the
Financial Statements beginning on page F-1 herein.

ITEM 8.   CHANGES IN ACCOUNTANTS

     Effective February 15, 2002, the Company replaced Goldberg Wagner & Jacobs
LLP, as its independent accountants, and engaged Weinberg & Company, P.A. as its
new independent accountants.

     During the Company's relationship with Goldberg Wagner & Jacobs LLP there
were no disagreements between the Company and Goldberg Wagner & Jacobs LLP. This
engagement began May 30, 1997 and included the subsequent interim period through
February 15, 2002. The decision to change independent accountants was approved
by the Board of Directors of the Company as of February 15, 2002.

                                      13
<PAGE>

PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     On February 6, 2001 a change in control of the board of directors of Saf T
Lok Incorporated ("Company") was effected as a result of the appointment of five
new directors. The Company's Chairman Franklin Brooks, acting in accordance with
Article 5, Section 8 of the Bylaws of the Company, filled vacancies resulting
from the resignation of four incumbent directors and an increase in the number
of directors from five to six. The Board of Directors, at a meeting held on
February 19, 2001, increased the number of directors from six to seven and
appointed one other new director.

     The newly appointed directors were James E. Winner, Jr., Stephen Gurgovits,
John F. Hornbostel, Jr., Adam Monks, Richard Florida and Karen Winner Hale.
Franklin Brooks remained as a member of the Company's board of directors. The
directors who resigned were James Stanton, Dennis DeConcini, William Schmidt and
Jeffrey Brooks. The Chairman received resignation letters from directors James
Stanton and Dennis DeConcini on January 22, 2001. Directors William Schmidt and
Jeffrey Brooks resigned on February 6, 2001. Prior to the resignations of
directors Jeffrey Brooks and William Schmidt the board of directors met to
consider a proposal put forth by James E. Winner, Jr. (the "Winner Proposal") to
replace the four incumbent directors with a slate of directors presented by Mr.
Winner.

     After considering various options, the directors unanimously agreed that it
would be in the best interest of the shareholders to take the necessary actions
to advance the Winner Proposal. In furtherance thereof, the board was
reconstituted as set forth above.

     No payments were made in order to effect the change in control of the
Company's board of directors. Moreover, the new directors have received no
compensation, including securities of the Company, in connection with the change
in control. However, the Winner Proposal contemplates (i) the granting of
options to purchase the Company's common stock to the incoming management team,
(ii) a reduction in the exercise price of outstanding options granted to the
Company's outgoing management, in consideration for their forfeiture of accrued
salaries, (iii) the creation of a new stock option plan to reward key employees
of the Company, and (iv) an amendment to the Company's Articles of Incorporation
that would increase the number of shares the Company is authorized to issue, and
thereby enable the Company to consummate acquisitions and/or secure financing.
These aspects of the Winner Proposal are expected to be submitted to
shareholders of the Company for their approval, at a meeting of shareholders to
be called for that purpose.

     On March 19, 2001, Franklin Brooks resigned as President and a director of
the Company but remains available for consultation.

     On March 23, 2001 Stephen Gurgovits resigned as a director of the Company
due to an increase of responsibilities in his other undertakings. He may, in the
future, be available to re-join the Company's Board of Directors.

     On April 19, 2001 Messrs Dewey R. Stokes and Curtis A. Sliwa were elected
directors of the Company.

     On August 26, 2001 Charles R. Miller was elected Chief Financial Officer
and Treasurer of the Company.

     On December 20, 2001, Adam S. Monks resigned as a director of the Company.

     On January 25, 2002, Richard L. Florida resigned as a director of the
Company due to constraints on his time and his travel schedule.

     The following table sets forth information regarding the directors and
executive officers of the Company:

Name                           Age                  Position
----                           ---                  --------

James E. Winner, Jr.            72      Chairman of the Board, President and
                                        Chief Executive Officer

Karen Winner Hale               41      Director

John F. Hornbostel, Jr.         61      Secretary, General Counsel, Director

Dewey R. Stokes                 60      Director

Curtis A. Sliwa                 48      Director

Charles R. Miller               54      Chief Financial Officer and Treasurer

                                      13
<PAGE>

BUSINESS EXPERIENCE

     James E. Winner, Jr., age 72, developed The Club(R) vehicle anti-theft
device, the original patented vehicle steering wheel lock and the No. 1 selling
mechanical anti-theft device for cars and trucks worldwide. In 1986, he formed
and incorporated Winner International to market The Club(R) with the corporate
mission to serve its customers and community with fairness and integrity and be
the world leader in providing innovative quality, security and safety products.
In 1996 Mr. Winner formed and became Chairman of Winner Holdings Company to
oversee and maintain overall administration and operation of Winner
International and other Winner businesses. Mr. Winner has been recognized for
both his personal, as well as his professional achievements, receiving The
Merrill Lynch and Ernst & Young "Entrepreneur of the Year" Award in 1992 and The
Shenango Valley Pennsylvania Chamber of Commerce "Person of the Year" Award in
1994. He is the father of Karen Winner Hale.

     Karen Winner Hale, age 41, is the Chief Operating Officer of Winner
International and is the Vice Chairman of Winner Holdings. She assisted in the
founding of Winner International in 1986 and had held senior executive positions
since that time. She has served on the boards of the Shenango Valley Foundation,
The Winner Foundation and the Shenango Valley Chamber of Commerce. Ms. Winner
Hale earned an M. B. A. degree from Youngstown State University. She is the
daughter of James E. Winner, Jr.

     John F. Hornbostel, Jr., age 61, has been the Vice President, General
Counsel and Secretary of Winner International since 1993, and holds these
positions with other Winner Companies. He was Vice President, General Counsel
and Secretary of RMI Titanium Company from 1982 to 1993. He is a member of the
American Corporate Counsel Association and received his J.D. degree from Fordham
University School of Law.

     Dewey R. Stokes, age 60, is currently in his third term of office as
Franklin County, Ohio Commissioner having joined the Board of Commission in
1991. A former Columbus, Ohio police officer for over 26 years. Commissioner
Stokes has a long and proud history of public service. Commissioner Stokes
received the America's Star Award from the U.S. Marshal's Association in
recognition of his career in law enforcement and contributions to the law
enforcement profession. Commissioner Stokes currently serves on several boards
and committees in the Columbus area.

     Curtis A. Sliwa, age 48, is best known, around the world, as the founder
and leader of The Guardian Angels, a non-profit, all-volunteer, crime-fighting
organization with 28 chapters throughout the United States and Canada, as well
as England, Italy, Sweden, and Japan. Mr. Sliwa also spearheaded countless
public service programs. In 1994 he founded Cyberangels, the largest online
safety and educational program in cyberspace. Mr. Sliwa has also authored
several books on self-defense and safety. Mr. Sliwa currently is co-host of a
talk radio program in New York City.

     Charles R. Miller, age 54, received his B.S. degree from the University of
Steubenville. Mr. Miller has over 15 years experience in executive and financial
management in a corporate environment involving multiple operating locations. He
has served 14 years as Chief Financial Officer of the Federal Wholesale Group of
Aurora, Ohio with operations in California and Georgia. He also was executive
Vice President of Finance of Snyder Distributing & Affiliated Companies from
1984 to 1987 and served earlier as Senior Staff Accountant with Touche Ross &
Company CPA's.

SIGNIFICANT EMPLOYEES AND FAMILY RELATIONSHIPS

Karen Winner Hale is the daughter of James E. Winner, Jr.

                                      14
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Based solely upon a review of Forms 4, and 5, and amendments thereto,
furnished to the Company for the fiscal year ended December 31, 2001 the
following (or former) officers and directors of the Company failed to file the
following forms on a timely basis:

None.

ITEM 10.  EXECUTIVE COMPENSATION

     Franklin W. Brooks is the only Company executive or officer for whom
reporting is required as a "named officer." No executive compensation was made
to any Company executive or officer in the fiscal year ended December 31, 2001.

<TABLE>
<CAPTION>
                                                                      Long Term
                                                                   Compensation Awards
                                     Annual Compensation              Securities
        Name         Year       Salary   Bonus    Other annual        Underlying
                                  ($)     ($)   compensation (1)        Options
<S>                  <C>        <C>      <C>    <C>                <C>
Franklin W. Brooks   2001       $   -0-  $ -0-        $-0-
                     2000  (4)  $69,231  $ -0-        $-0-
(1)                  1999  (3)  $55,127  $ -0-        $-0-            1,000,000 (2)
</TABLE>

(1)  Mr. F. W. Brooks assumed the position of Chairman of the Board of Directors
     from February 1996 until February 2001, served as Chief Executive Officer
     of the Company from November 1996 to April 1997, assumed the positions of
     President from June 1998 until March 2001 and Chief Executive Officer from
     June 1998 until February 2001. On March 19, 2001 he resigned as President
     and as a director of the Company.

(2)  Mr. F. W. Brooks was issued a stock option for 1,000,000 shares of common
     stock in December 1997. On November 2, 1999 the board of directors approved
     a reduction in the exercise price of that stock option, from $2.00 per
     share to $1.19 per share, the market closing price of the stock on that
     day.

(3)  Includes $11,538 that was accrued in 1999 and paid in 2000.

(4)  Does not include $30,769 which was accrued in 2000 and has not been paid.

Option/SAR Grants Table
-----------------------

     The following table provides information regarding those options granted to
the Named Officers during the fiscal year ended December 31, 2000.


                       Number of     % of Total Options
                        Shares           Granted to      Exercise or
                      Underlying        Employees in     Base Price   Expiration
Name               Options Granted     Fiscal Year (1)     $/Share       Date
---------------    ---------------   ------------------  -----------  ----------
Franklin Brooks           0                  NA              NA           NA

(1) No options were granted to the named officer or to any other executive or
officer or employee of the Company in the fiscal year ended December 31, 2001.

Aggregated Option Exercises and Fiscal Year-End Option Value Table
------------------------------------------------------------------

     The following table provides information regarding those options exercised
by Mr. Brooks during the fiscal year ended December 31, 2001.

<TABLE>
<CAPTION>
       Name           Shares        ($)       Number of Shares             Values of Unexercised
                      Acquired      Value     Underlying Unexercised       in the Money Options
Franklin F. Brooks    on exercise   realized  options at year end          at year ended (2)
                                              Exercisable   Unexercisable  Exercisable   Unexercisable
<S>                   <C>           <C>       <C>           <C>            <C>           <C>
Unexercisable         (1)           (1)       1,000,000        -0-             $-0-          $-0-
</TABLE>

                                      19
<PAGE>

(1)  Franklin Brooks did not exercise any stock options during the fiscal year
     ended December 31, 2001.

(2)  Value based on the difference between the closing price of the Company's
     Common Stock on Over The Counter Bulletin Board of $0.___ per share on
     December 29, 2001, and the exercise price of the options. By action of the
     Board of Directors on November 2, 1999, the exercise price has been lowered
     from $2.00 per share to $1.19 per share.

Report on repricing of Options

   Two options for a total of 100,000 shares had been previously granted to two
consultants. In February 2000, in order to provide adequate incentive, the
exercise price of both options was repriced from $2.50 per share to $1.25 per
share, the market price of the time of repricing.

Director Compensation

   The Company granted stock options in the amount of 250,000 shares of Common
Stock, exercisable at $2.00 per share, on October 23, 1997, to each of Mr.
Dennis W. DeConcini and Mr. James W. Stanton in connection with their
appointment as directors of the Company. The options vested over a three-year
period. Prior to their resignations, James Stanton exercised a portion of his
option for 40,000 shares and Dennis DeConcini exercised none of his options.
They relinquished the balance of their unexercised options in February 2001.

   The Company's 1993 Stock Option Plan (the "Plan") provides for the grant of
an option for 5,000 shares of Common Stock to each Director who is not otherwise
employed (i) upon the adoption of the Plan, (ii) upon that Director's election
to the Board of Directors, and (iii) upon election to the Board of Directors
after all previously granted options have vested. These options are to be
granted at fair market value, vest at a rate of 2,500 shares on June 1 and
December 1 after the date of the grant, and are exercisable for 10 years from
the date of grant.

   Prior to their resignations, former independent directors James Stanton and
Dennis DeConcini were each awarded options for a total of 15,000 shares
according to these provisions. At the time of their resignations none of these
options had been exercised and have since been relinquished.


EMPLOYMENT AND CONSULTING AGREEMENTS

   The Company is not a party to any written employment or consulting agreements
with management. All employees serve at the discretion of the board of
directors.

                                      20
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following table sets forth certain information known to the Company
regarding the beneficial ownership of shares of Common Stock as of February 28,
2001 unless otherwise noted below, by (i) each person known by the Company to be
the owner of more than 5% of the outstanding shares of Common Stock, (ii) each
of the Company's Directors, (iii) each of the Company's executive officers, and
(iv) all executive officers and directors as a group. Unless otherwise
indicated, each person has sole investment and voting power with respect to all
shares shown as beneficially owned.

                                       Amount and Nature of
Name and Address of Beneficial Owner   Beneficial Ownership Percent of Class (3)

Franklin W. Brooks (a)                   1,100,512(1)             6.68%


Hamdam Diamond Corporation (b)           1,000,000(2)             6.07%


James E. Winner, Jr. (c)                         0                   0%


Karen Winner Hale (c)                            0                   0%


John F. Hornbostel, Jr. (c)                      0                   0%


Dewey R. Stokes (c)                              0                   0%


Curtis A. Sliwa(c)                               0                   0%


All Directors and Executive Officers as
  a Group (7 people)                     1,100,512                6.68%




(a)  Address is 7689 SE Rivers Edge Street, Jupiter, Florida  33458.
(b)  Address is 5030 Anchor Way, Callows Bay Christiansted, St. Croix 00820-
     4521. See Footnote (2).
(c)  32 West State Street, Sharon, Pennsylvania 16146

(1)  Of these shares, 100,512 are held by Mr. Brooks and his wife as tenants in
     common. Includes option to purchase 1,000,000 shares of Common Stock.
(2)  As reported by Hamdam Diamond Corporation on Schedule 13-D dated October
     27, 1997 and by communication to the Hamdam Diamond Corporation verifying
     ownership as of July 29, 1999. Subsequent attempts to communicate with
     Hamdam Diamond Corporation as late as March 5, 2001 to verify ownership
     status have gone unanswered.
(3)  Based on 1,651,211 of Common Stock outstanding as of March 31, 2002.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   None.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                      21
<PAGE>

FINANCIAL STATEMENTS:

   The Financial Statements and Schedules listed below are located after
the signature page and begin on page F-1.

   Description                                                      Page
   -----------                                                      ----

   Auditors' Report...........................................          F-1
   Balance Sheets.............................................    F-2 - F-3
   Statements of Changes in Shareholders' Equity..............    F-4 - F-5
   Statements of Operations...................................          F-6
   Statements of Cash Flows...................................    F-7 - F-8
   Notes to Financial Statements..............................    F-9 - F-29
<PAGE>

EXHIBITS TO FORM 10KSB:

  EXHIBIT NO.                        DESCRIPTION OF EXHIBIT


     3.1  Articles of Incorporation, as amended (incorporated herein by
          reference to Exhibit 3.1 to the Company's Form S-1 filed with the SEC
          on February 17, 1998)

     3.2  Articles of Amendment (incorporated by reference to the Company's
          Annual Report on Form 10-KSB, as filed with the SEC on April 14, 2000)

     3.3  By-Laws, as amended (incorporated by reference to the Company's Annual
          Report on Form 10-KSB, as filed with the SEC on May 13, 1998)

     4.1  Form of 6% Convertible Debenture (incorporated by reference to the
          Company's Registration Statement on Form S-3, as filed with the SEC on
          August 17, 1999)

     4.2  Form of 6% Convertible Debenture (incorporated by reference to the
          Company's Registration Statement on Form S-3, as filed with the SEC on
          August 17, 2000)

    10.1  Agency Agreement between the Company and Alexander, Wescott & Co.,
          Inc. dated April 20, 1999 (incorporated by reference to the Company's
          Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999,
          as filed with the SEC)

    10.2  Letter Agreement between the Company and Alexander, Wescott & Co.,
          Inc. dated July 8, 1999 (incorporated by reference to the Company's
          Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999,
          as filed with the SEC)

    10.3  Letter Agreement between the Company and Alexander, Wescott & Co.,
          Inc. dated July 8, 1999 (incorporated by reference to the Company's
          Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999,
          as filed with the SEC)

    10.4  Placement Agency Agreement between the Company and J. P. Carey
          Securities, Inc. dated December 30, 1999 (incorporated by reference to
          the Company's Current Report on Form 8-K filed with the SEC on June 4,
          1999)

    10.5  Form of Securities Purchase Agreement relating to the Company's
          Debenture offering through J. P. Carey Securities, Inc. (incorporated
          by reference to the Company's Registration Statement on Form S-3, as
          filed with the SEC on August 17, 1999)

    10.6  Form of Registration Rights Agreement relating to the Company's
          Debenture offering through J. P. Carey Securities, Inc. (incorporated
          by reference to the Company's Registration Statement on Form S-3, as
          filed with the SEC on August 17, 1999)

    10.7  Placement Agency Agreement between the Company and J. P. Carey
          Securities, Inc. dated May 26, 2000 (incorporated by reference to the
          Company's Registration Statement on Form S-3, as filed with the SEC on
          August 17, 2000)

    10.8  Form of Securities Purchase Agreement relating to the Company's
          Debenture offering through J. P. Carey Securities, Inc. (incorporated
          by reference to the Company's Registration Statement on Form S-3, as
          filed with the SEC on August 17, 2000)

    10.9  Form of Registration Rights Agreement relating to the Company's
          Debenture offering through J. P. Carey Securities, Inc. (incorporated
          by reference to the Company's Registration Statement on Form S-3, as
          filed with the SEC on August 17, 2000)

    23.1  Consent of Weinberg & Company, P.A.
    24.1  Power of Attorney (see below)
<PAGE>

CURRENT REPORTS ON FORM 8-K

  The Company filed the following current reports on Form 8-K during fiscal year
ended December 31, 2001 and thereafter.

  A current report on Form 8-K was filed by the Company on February 21, 2001
reporting a change in control of the board of directors of the Company.

  A current report on Form 8-K was filed by the Company on April 8, 2002
reporting the filing of a class action Complaint against the Company, certain
directors and other defendants.

SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sharon, Commonwealth of Pennsylvania, on April
15, 2002.

  SAF T LOK INCORPORATED


By: /s/ John F. Hornbostel, Jr.        By: /s/ Charles R. Miller
    ---------------------------            ---------------------
        John F. Hornbostel, Jr.              Charles R. Miller
        Secretary, General Counsel           Chief Financial Officer,
                                             Principal Accounting Officer

                                      17
<PAGE>

                                                 POWER OF ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS:



That the undersigned officers and directors of Saf T Lok Incorporated, a Florida
corporation, do hereby constitute and appoint James E. Winner, Jr., or John F.
Hornbostel, Jr., or Karen Winner Hale, or Charles R. Miller, the lawful attorney
and agent, with power and authority to do any and all acts and things and to
execute any and all instruments which said attorney and agent determine may be
necessary or advisable or required to enable said corporation to comply with the
Securities Act, and any rules or regulations or requirements of the SEC in
connection with this report on Form 10-KSB. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this report, to any and all amendments, to this
report, and to any and all instruments or documents filed as part of or in
conjunction with this report or amendments thereof, and each of the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.  This power of Attorney may be signed in several
counterparts.


   IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.


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



Signature                    Capacity                            Date



/s/ James E. Winner, Jr.     Chairman of the Board               April 13, 2002
---------------------------
James E. Winner, Jr.         of Directors, President and

                             Chief Executive Officer


/s/ Karen Winner Hale        Director                            April 15, 2002
---------------------------
Karen Winner Hale


/s/ John F. Hornbostel, Jr.  Director,Secretary,General Counsel  April 12, 2002
---------------------------
John F. Hornbostel, Jr.


/s/ Curtis A. Sliwa          Director                            April 13, 2002
---------------------------
Curtis A. Sliwa


/s/ Dewey R. Stokes          Director                            April 12, 2002
---------------------------
Dewey R. Stokes


/s/ Charles R. Miller        Chief Financial Officer and         April 13, 2002
---------------------------
Charles R. Miller            Treasurer, Principal
                             Accounting Officer

                                      18
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                       CONSOLIDATED FINANCIAL STATEMENTS


                                -  I N D E X  -

                                                                 Page

INDEPENDENT AUDITORS' REPORTS                                    F-1 - F-2

CONSOLIDATED BALANCE SHEETS AS OF
     DECEMBER 31, 2001 AND 2000                                  F-2 - F-3

CONSOLIDATED STATEMENTS OF CHANGES IN
     SHAREHOLDERS'S EQUITY AS OF
     DECEMBER 31, 2001 AND 2000                                  F-4 - F-5

CONSOLIDATED STATEMENTS OF OPERATIONS FOR
     THE YEARS ENDED DECEMBER 31, 2001 AND 2000                  F-6

CONSOLIDATED STATEMENT OF CASH FLOWS FOR
     THE YEARS ENDED DECEMBER 31, 2001 AND 2000                  F-7 - F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       F-9 - F-29

<PAGE>

                 [LETTER HEAD OF GOLDBERG WAGNER & JACOBS LLP]


                         INDEPENDENT AUDITORS' REPORT
                         ----------------------------

To the Board of Directors
Saf T Lok Incorporated
West Palm Beach, FL

We have audited the consolidated balance sheet of Saf T Lok Incorporated and
subsidiaries as of December 31, 2000 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Saf T Lok
Incorporated and subsidiaries as of December 31, 2000 and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that Saf T Lok
Incorporated will continue as a going concern. As discussed in Note 2 to the
financial statements, under existing circumstances, there is substantial doubt
about the ability of Saf T Lok Incorporated to continue as a going concern as of
December 31, 2000. Management's plans in regard to that matter also are
discribed in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


                                        GOLDBERG WAGNER JACOBS LLP

West Palm Beach, Florida
March 28, 2001
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                       CONSOLIDATED FINANCIAL STATEMENTS

                                -  I N D E X  -


                         INDEPENDENT AUDITORS' REPORT
                         ----------------------------

To the Board of Directors
Saf T Lok Incorporated
Sharon, Pennsylvania

We have audited the consolidated balance sheets of Saf T Lok Incorporated and
subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  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 consolidated financial position of Saf T Lok
Incorporated and subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.

The accompanying financial statements have been prepared assuming that Saf T Lok
Incorporated will continue as a going concern.  As discussed in Note 2 to the
financial statements, under existing circumstances, there is substantial doubt
about the ability of Saf T Lok Incorporated to continue as a going concern as of
December 31, 2001.  Management's plans in regard to that matter also are
described in Note 2.  The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


                                   WEINBERG & COMPANY, P.A.
Sharon, Pennsylvania
______________2002

                                      F-1
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       AS OF DECEMBER 31, 2001 AND 2000


<TABLE>
<CAPTION>
                                                                                                  2001                2000
                                                            ASSETS
                                                            ------
<S>                                                                                           <C>                 <C>
Current Assets
  Cash in Bank                                                                                $      11,345       $      44,164
  Accounts Receivable (Net of $21,148 and $8,000 allowance for uncollectible
                accounts in 2001 and 2000, respectively)                                      $       1,772       $      65,612
  Note Receivable                                                                             $      27,307       $      23,490
  Inventories                                                                                 $           -       $      78,000
  Prepaid expenses                                                                            $      61,713       $      55,349
                                                                                              ---------------------------------
     Total current assets                                                                     $     102,137       $     266,615

Property and Equipment, Less Accumulated Depreciation                                         $      56,733       $      91,739

Other Assets
  Inventories (non-current)                                                                   $           -       $     150,000
  Note receivable, less current portion                                                       $      80,087       $     103,646
  Other assets                                                                                $       8,425       $      28,613
                                                                                              ---------------------------------
     Total other assets                                                                       $      88,511       $     282,259

          Total assets                                                                        $     247,381       $     640,613
                                                                                              =================================

                                       Liabilities and Shareholders' (Deficiency) Equity
                                       -------------------------------------------------
Current Liabilities
  Accounts Payable                                                                            $     498,612       $     427,532
  Accrued expenses                                                                            $     311,858       $     106,704
                                                                                              ---------------------------------
     Total current liabilities                                                                $     810,470       $     534,236

Note Payable                                                                                  $     377,000       $           -

Convertible Debentures                                                                        $     175,000       $     175,000

          Total Liabilities                                                                   $   1,362,470       $     709,236

Shareholders' (deficiency) Equity
  Common Stock, $0.01 par value, 3,000,000 shares authorized, 1,651,721 and 1,646,689
                shares issued and outstanding in 2001 and 2000 respectively                   $     165,167       $     164,655
  Paid-in-capital                                                                             $  29,572,570       $  29,582,326
  Accumulated deficit                                                                         $ (30,852,826)      $ (29,815,604)
                                                                                              ---------------------------------
     Total shareholders' deficiency                                                           $  (1,115,089)      $     (68,623)

          Total Liabilities and Shareholders' Equity                                          $     247,381       $     640,613
                                                                                              =================================
</TABLE>

          See accompanying notes to consolidated financial statements

                                      F-2
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                     Common Stock         Paid -in        Equity
                                                  Shares      Amount      Capital       Reductions         Deficit         Total
                                               -------------------------------------------------------------------------------------
<S>                                            <C>          <C>         <C>            <C>           <C>               <C>
Balance,  January 1, 2000                       1,398,436   $ 139,837   $ 26,473,887   $  (132,741)  $   (23,252,110)  $  3,228,873

Issuance of common stock on conversion of
  debentures                                      172,801      17,281      2,040,320                                      2,057,601

Issuance of common stock to former
  officers/employees upon exercise of options      29,958       2,996        400,205                                        403,201

Issuance of common stock to consultants upon
  the exercise of stock options                     3,000         300         74,700                                         75,000

Common stock issued for fees in connection
  with convertible debentures                      17,625       1,763        230,934                                        232,697

Amortization of deferred compensation                                                      132,741                          132,741

Compensation in connection with repricing of
  options to consultants in 1999                                             (60,300)                                       (60,300)

Compensation in connection with repricing of
  options to consultants in 2000                                            (137,000)                                      (137,000)

Issuance of common stock to an employee upon
  exercise of stock options                         1,000         100         10,800                                         10,900

Issuance of common stock to an employee upon
  exercise of cashless options                      3,790         379        134,621                                        135,000

Issuance of common stock as a payment for an
  amount due to a vendor                           20,000       2,000        181,009                                        183,009

Stock options granted to consultant                                           14,400                                         14,400

Additional capital resulting from beneficial
  conversion feature of debentures                                           218,750                                        218,750

Net Loss                                                                                                  (6,563,494)    (6,563,494)
                                               -------------------------------------------------------------------------------------

Balance,  December 31, 2000                     1,646,609     164,655     29,582,326             -       (29,815,604)       (68,623)

Compensation in connection with repricing of
  options to consultants in 1999                                             (12,874)                                       (12,874)

Issuance of common stock as a payment for
  legal services                                    5,112         512          3,118                                          3,630

Net Loss                                                                                                  (1,037,222)    (1,037,222)
                                               -------------------------------------------------------------------------------------

Balance,  December 31, 2001                     1,651,721   $ 165,167   $ 29,572,570   $         -   $   (30,852,826)  $ (1,115,089)
---------------------------                    ==========   =========   ============   ===========   ===============   ============

</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2002


                                                   2001          2000
                                               ------------   ------------

Net Sales                                      $     31,076   $    109,158
Cost of Sales                                  $     10,741   $     65,579
                                               ------------   ------------

Gross Profit                                   $     20,335   $     43,579

Selling, General and Administrative            $   (784,824)  $ (2,021,285)

Stock and options issued for
services and conpensation (note A)             $     12,870   $   (477,041)

Inventory valuation loss                       $   (218,008)  $ (2,057,659)

Asset Impairment Loss                          $    (10,830)  $ (1,114,029)

Depreciation and Amortization                  $    (23,761)  $   (308,889)

Other income and (expense)
Interest Income                                $      9,303   $     29,154
Interest Expense                               $    (43,874)  $   (438,574)
Interest - beneficial conversion feature                      $   (218,750)
Other income and (expense)                     $      1,567   $          -
                                               ------------   -------------
Total other income and (expense)               $    (33,005)  $   (628,170)

Net Loss                                       $ (1,037,222)  $ (6,563,494)

Loss per common share                                  (.63)  $      (4.17)

Weighted average number of
common shares outstanding                         1,648,739      1,572,745

          See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>

                                SAF T LOK, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------

                                                                                               YEAR ENDED
                                                                                   ----------------------------------
                                                                                        2001                2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Loss                                                                      $ (1,037,222)        $ (6,563,494)
     Adjustments to reconcile net (loss) to net cash used
           in operating activities:
                  Depreciation                                                           23,761              308,889
                  Provision for Uncollectible Accounts                                   13,148                8,000
                  Non cash compensation                                                       -              524,941
                  Non cash consulting fees                                               (5,170)            (182,900)
                  Issuance of stock for interest paid upon conversion
                        of debentures                                                         -               32,598
                  Issuance of stock for services                                              -              135,000
                  Interest expense for beneficial conversion of debentures                    -              218,750
                  Issuance of stock for fees related to debentures                            -              232,696
                  Issuance of stock for settlement of accounts payable                    3,630               50,609
                  Inventory valuation adjustment                                        217,986            2,057,659
                  Adjustment of obsolete inventory                                            -               28,651
                  Impairment loss on tools & dies                                             -              859,317
                  Impairment loss on patents                                                  -              254,713
                  Other                                                                     416                    -
                  Changes in assets liabilities:
                        Decrease in accounts receivable                                  50,692               16,772
                        Decrease (Increase) in inventory                                 10,014                7,859
                        Decrease (increase) in prepaid expenses                          (6,364)              (5,754)
                        Increase (decrease) in accounts payable                          71,079               80,253
                        Increase (decrease) in accrued liabilities                      205,156              (11,202)
                        Decrease in other assets                                          3,655               (7,111)
                                                                                   ----------------------------------

                               Net cash used in operating activities                   (449,220)          (1,953,754)
                                                                                   ----------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Payments received on note receivable                                                19,738               21,149
     Payment for purchase of equipment                                                        -              (28,220)
     Loss on Leasehold Improvements                                                      10,830                    -
     Stock issued for payment of equipment                                                    -                    -
                                                                                   ----------------------------------

                               Net cash provided by investing activities                 30,568               (7,071)
                                                                                   ----------------------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES
     Proceeds from notes payable                                                        377,000                    -
     Issuance of debentures                                                                   -              875,000
     Issuance of stock for fees related to debentures                                         -                    -
     Issuance of stock upon exercise of options                                          (7,700)              96,900
     Decrease (increase) in deferred interest                                            16,533               37,508
                                                                                   ----------------------------------

                               Net cash provided by financing activities                385,833            1,009,408
                                                                                   ----------------------------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                               (32,819)            (951,417)

CASH AND CASH EQUIVALENTS, beginning of period                                           44,164              995,581
                                                                                   ----------------------------------

CASH AND CASH EQUIVALENTS, end of period                                           $     11,345         $     44,164
                                                                                   ==================================

SUPPLEMENTAL DISCLOSURE,
     Cash payments for interest                                                    $     14,522         $    175,417
                                                                                   ==================================
</TABLE>

          See accompanying notes to consolidated financial statements

                                      F-5
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This summary of significant accounting policies is presented to assist
         in understanding the Company's financial statements. The financial
         statements and notes are representations of the Company's management
         who are responsible for their integrity and objectivity. The
         preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect the reported amounts of
         assets and liabilities and disclosure of contingent assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenues and expenses during the period. Actual results
         could differ from those estimates. These accounting policies conform to
         accounting principles generally accepted in the United States and have
         been applied in the preparation of the financial statements.

         A)  ORGANIZATION AND PURPOSE

             Saf T Lok Incorporated and Subsidiaries (the "Company") was
             incorporated in Florida in July 1989 under the name of RGB Sales
             and Marketing, Inc. ("RGB"). The Company completed an initial
             public offering of its common stock on June 23, 1993. On February
             13, 1996 RGB acquired the Saf T Lok Corporation ("STL"), a Florida
             corporation, by merger and RGB changed its name to Saf T Lok
             Incorporated. The business of the Company is to design, develop,
             manufacture and market proprietary combination gun locks to prevent
             the unauthorized use of firearms, including unintentional discharge
             by children and assailants.

         B)  PRINCIPLES OF CONSOLIDATION

             The consolidated financial statements include the accounts of Saf T
             Lok Incorporated and its wholly owned subsidiaries, Saf T Lok
             Corporation and RGB Video, Inc., which are inactive. All
             significant intercompany accounts and transactions have been
             eliminated in consolidation.

         C)  CONCENTRATIONS OF RISK

             The Company is dependent upon certain vendors for the manufacture
             of significant components of its Saf T Lok and Magazine Lock
             systems. If these vendors were to become unwilling or unable to
             continue to manufacture these components, in required volumes, the
             Company would have to identify and qualify acceptable alternative

                                      F-6
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         C)  CONCENTRATIONS OF RISK (CONTINUED)

             vendors. The inability to develop alternate sources, if required,
             could result in delays or reductions in product shipments.

             The Company does business and extends credit based on evaluation of
             a customer's financial condition generally without requiring
             collateral. Exposure to losses on receivables is expected to vary
             by customer due to the financial condition of each customer. The
             Company monitors exposure to credit losses and maintains allowances
             for anticipated losses considered necessary under the
             circumstances.

         D)  FAIR VALUE OF FINANCIAL INSTRUMENTS

             The carrying amount of cash, accounts receivable and accounts
             payable approximates fair value because of the short maturity of
             those instruments. The fair value of loans receivable does not
             differ materially from the carrying value recorded in the
             accompanying balance sheet. Rates currently available to the
             Company for debt with similar terms and remaining maturities are
             used to estimate fair value of existing long-term debt.

         E)  CASH EQUIVALENTS

             For the purpose of the statement of cash flows, the Company
             considers all investments with a maturity of three months or less
             to be cash equivalents.

         F)  PROPERTY AND EQUIPMENT

             Property and equipment are recorded at cost. Expenditures for
             renewals and betterments that materially extend the useful lives of
             the assets or increase their productivity are capitalized.
             Expenditures for maintenance and repairs are charged to cost or
             expensed as incurred. Depreciation has been computed using the
             operations. The estimated useful lives are as follows:

                      Item                     Estimated Useful Life
                      ----                     ---------------------
                      Furniture and fixtures             7 - 10 years
                      Equipment                          5 - 10 years
                      Leasehold improvements              5 - 7 years

             In accordance with Statement of Financial Accounting Standards No.
             121 "Accounting for the Impairment of Long-Lived Assets and for
             Long-Lived Assets To Be Disposed Of

                                      F-7
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         F)  PROPERTY AND EQUIPMENT (CONTINUED)

             ("SFAS 121") the Company reviews the carrying value of property and
             equipment for impairment whenever events and circumstances indicate
             that the carrying value of an asset may not be recoverable from the
             estimated future cash flows expected to result from its use and
             eventual disposition. In cases where undiscounted cash flows are
             less than the carrying value, an impairment loss is recognized
             equal to an amount by which the carrying value exceeds the fair
             value of assets. For the year ended December 31, 2001, an
             impairment loss of $13,189 less accumulated depreciation of $2,359,
             has been recognized in the accompanying financial statements
             relating to leasehold improvements.

         G)  INVENTORIES

             Inventories, which are primarily composed of raw materials,
             finished goods and supplies, are stated at the lower of cost or
             market, with cost determined on a first-in, first-out basis.
             Inventory costs for finished goods include material, labor, and
             production overhead. As of December 31, 2001, inventories are
             stated at net realizable value, which resulted in a charge to
             operations of $218,008 in the accompanying financial statement. As
             of December 31, 2000, inventories are stated at net realizable
             value, which resulted in a charge to operations of $2,057,659 in
             the accompanying financial statements.

         H)  INTANGIBLE ASSETS

             The Company capitalized certain legal costs incurred relating to
             acquiring trademarks and patents of Saf T Lok and the Company's
             products. These costs are capitalized and amortized over a period
             of fifteen years. At December 31, 2000, the unamortized portion of
             patent costs, totaling $254,713, was written off as impaired.

         I)  STOCK OPTIONS

             Statement of Financial Accounting Standards No. 123, "Accounting
             for Stock-Based Compensation" encourages, but does not require,
             companies to record compensation cost for stock-based employee
             compensation plans at fair value. The Company has chosen to
             continue to account for stock-based compensation using the
             intrinsic value method prescribed in Accounting Principles Board
             Opinion No. 25, "Accounting for Stock Issued to Employees," and
             related interpretations. Accordingly, compensation cost of stock
             options is measured as the excess, if any, of the quoted market
             price of the company's stock at the date of the grant over the
             option exercise price and is charged to operations over the vesting
             period. Income tax benefits attributable to stock options
             exercised, if any, are credited to paid-in capital.

         J)  INCOME TAXES

             Deferred income taxes are reported using the liability method.
             Deferred tax assets are recognized for deductible temporary
             differences and deferred tax liabilities are recognized for taxable
             temporary differences. Temporary differences are the differences
             between the reported amounts of assets and liabilities and their
             tax basis. Deferred tax

                                      F-8
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         J)  INCOME TAXES (CONTINUED)

             assets are reduced by a valuation allowance when in the opinion of
             management, it is more likely than not that some portion or all of
             the deferred tax assets will not be realized. Deferred tax assets
             and liabilities are adjusted for the effects of changes in tax laws
             and rates on the date of enactment.

         K)  REVENUE RECOGNITION

             The Company recognizes revenue when products are sold and shipped.

         L)  EARNINGS (LOSS) PER COMMON SHARE

             Earnings (Loss) per common share (EPS) are computed in accordance
             with Statement of Financial Accounting Standards No. 128, "Earnings
             Per Share". Basic EPS is computed by dividing consolidated net
             earnings (loss) by the weighted average number of common shares
             outstanding. Diluted EPS is computed by dividing consolidated net
             earnings (loss) by the sum of the weighted average of common shares
             outstanding and the weighted average number of potential common
             shares outstanding.

         M)  RECENT ACCOUNTING PRONOUNCEMENTS

             The Financial Accounting Standards Board has recently issued
             several new Statements of Financial Accounting Standards. Statement
             No. 141, "Business Combinations" supersedes APB Opinion 16 and
             various related pronouncements. Pursuant to the new guidance in
             Statement No. 141, all business combinations must be accounted for
             under the purchase method of accounting; the pooling-of-interests
             method is no longer permitted. SFAS 141 also establishes new rules
             concerning the recognition of goodwill and other intangible assets
             arising in a purchase business combination and requires disclosure
             of more information concerning a business combination in the period
             in which it is completed. This statement is generally effective for
             business combinations initiated on or after July 1, 2001.

             Statement No. 142, "Goodwill and Other Intangible Assets"
             supersedes APB Opinion 17 and related interpretations. Statement
             No. 142 establishes new rules on accounting for the acquisition of
             intangible assets not acquired in a business combination and the
             manner in which goodwill and all other intangibles should be
             accounted for subsequent to their initial recognition in a business
             combination accounted for under SFAS No. 141. Under SFAS No. 142,
             intangible assets should be recorded at fair value. Intangible
             assets with finite useful lives should be amortized over such
             period and those with indefinite lives should not be amortized. All
             intangible assets being amortized as well as those that are not,
             are both subject to review for potential impairment under SFAS No.
             121, "Accounting for the Impairment of Long-Lived Assets and for
             Long-Lived Assets to be Disposed of". SFAS No. 142 also requires
             that goodwill arising in a business combination should not be
             amortized but is subject to impairment testing at the reporting
             unit level to which the goodwill was assigned to at the date of the
             business combination.

             SFAS No. 142 is effective for fiscal years beginning after December
             15, 2001 and must be applied as of the beginning of such year to
             all goodwill and other intangible assets that have already been
             recorded in the balance sheet as of the first day in which SFAS No.
             142 is initially applied, regardless of when such assets were
             acquired. Goodwill acquired in a business combination whose
             acquisition date is on or after July 1, 2001, should not be
             amortized, but should be reviewed for impairment pursuant to SFAS
             No. 121, even though SFAS No. 142 has not yet been adopted.
             However, previously acquired goodwill should continue to be
             amortized until SFAS No. 142 is first adopted.

             Statement No. 143 "Accounting for Asset Retirement Obligations"
             establishes standards for the initial measurement and subsequent
             accounting for obligations associated with the sale, abandonment,
             or other type of disposal of long-lived tangible assets arising
             from the acquisition, construction, or development and/or normal
             operation of such assets. SFAS No. 143 is effective for fiscal
             years beginning after June 15, 2002, with earlier application
             encouraged.

             The adoption of these pronouncements will not have a material
             effect on the Company's financial position or results of
             operations.


NOTE 2 - GOING CONCERN

         The accompanying financial statements have been presented in accordance
         with accounting principles generally accepted in the United States,
         which assume the continuity of the Company as a going concern. As
         reflected in the accompanying financial statements, the Company has
         incurred net losses of $1,037,222 in 2001 and $6,563,494 in 2000 and
         has substantially funded its working capital needs by the sale of
         common stock, warrants and convertible debentures.

                                      F-9
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 2 - GOING CONCERN (CONTINUED)

         In 2000 the Company raised $96,900 of equity capital from the exercise
         of options. During the second quarter of 2000, $875,000 of convertible
         debentures were issued. As of December 31, 2000, $700,000 of these
         debentures were converted to common stock. Approximately $2,882,000 of
         inventory was acquired in 1998 to meet an obligation under a failed
         distribution agreement. The Company has been unable to generate
         sufficient sales in the past two years to materially reduce the amount
         of this inventory and has no significant prospects for sales.

         The Company's continued ability to operate as a going concern is
         dependent on its ability to raise additional capital and achieve a
         successful level of sales. In February 2001, the Board of Directors and
         officers resigned. A new management team assumed the leadership of the
         Company and they are currently assessing what plans and actions should
         be taken in regard to the future operations of the Company. It is too
         early to determine if the new management will be successful in
         developing and implementing plans to resolve the needs for additional
         working capital and in turning around the Company's operations so that
         they become profitable. The aforementioned circumstances raise
         substantial doubt as to the Company's ability to continue as a going
         concern as of December 31, 2001.

NOTE 3 - NOTES RECEIVABLE

         The Company previously had a promissory note due from Opal Technologies
         ("Opal"). The note had an original interest rate of eight percent and
         an annual interest rate of eighteen percent after the note becomes due.
         However, no interest had been accrued due to the fact that it seemed
         doubtful that the interest would be received. Although the Company
         continued to aggressively try to collect on the note receivable from
         Opal, the ability to collect seemed doubtful. Therefore, the note was
         written off as a bad debt in 1995. In 1996, the Company located the
         principals of Opal and renegotiated the note receivable calling for
         total payments of $248,000 including interest over a five year period.
         The Company recognizes income as payments are received. There were no
         payments received in 2000, and $13,425 was received in 1999. The
         Company is continuing its efforts to collect on the note receivable.

         Pursuant to a settlement agreement dated September 27, 1995, Pride
         Integrated Services, Inc. agreed to pay the Company $310,000, which
         included interest over a ten year period with the payments beginning in
         October 1995. The settlement resulted from a suit filed by the Company
         against Pride Integrated Services, Inc. in October 1993, alleging
         copyright infringement and misappropriation of trade secrets. The note
         receivable was discounted as required by Accounting Principles Board
         Opinion No. 21 using an 8% imputed interest rate. The balance of the
         note receivable, net of discount, is $107,394and $127,136 as of
         December 31, 2001 and 2000, respectively.

                                      F-10
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 4 - INVENTORIES

         Inventories are comprised of the following as of December 31, 2001 and
         2000:

<TABLE>
<CAPTION>
                                                                             2001           2000
                                                                         -----------     ----------
<S>                                                                         <C>          <C>
             Finished goods                                                    -0-       $  342,967
             Raw materials                                                     -0-        1,956,783
             Supplies                                                          -0-           22,419
                                                                        ----------       ----------

                      TOTAL                                                    -0-       $2,322,169
            Current portion                                                    -0-           97,169
                                                                        ----------      -----------

            Non-current portion                                                -0-       $2,225,000
                                                                        ==========      ===========
</TABLE>

         A history of losses, poor sales and the lack of a marketing program
         have contributed to the decision to write down the inventories to
         reflect their approximate market value, on a liquidation basis, as of
         December 31, 2000. Cash flows, based on historical information and
         current conditions, do not provide sufficient basis for carrying the
         inventories at historical cost. As a result of revaluing the
         inventories, a loss of $218,008 is being recognized in the accompanying
         financial statements for the year ended December 31, 2001 and
         $2,057,659 for December 31, 2000.


NOTE 5 - PREPAID EXPENSES

         Prepaid expense is comprised of the following as of December 31, 2001
         And 2000:

<TABLE>
<CAPTION>
                            2001         2000
                          --------     --------
<S>                       <C>          <C>
     Prepaid insurance    $ 61,065     $ 46,333
     Prepaid Expenses          648           -0-
     Prepaid rent               -0-       9,016
     Prepaid legal        ---------    ---------
        TOTAL             $ 61,713     $ 55,349
                          =========    =========
</TABLE>

                                     F-11
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000


NOTE 6 - PROPERTY AND EQUIPMENT

         Property and equipment is comprised of the following as of December 31,
         2001 and 2000:


                                                    2001           2000
                                                -----------     ----------
         Equipment                               $  225,161      $225,577
         Furniture and fixtures                      25,694        25,694
                                                                   13,189
         Leasehold improvements                 ------------    ----------
                   TOTAL                         $  250,855       264,460
         Less accumulated depreciation              194,122       172,721
                                                -----------     ----------
                   TOTAL                         $   56,733      $ 91,739
                                                ===========     ==========

During 2001 leasehold improvements from the vacated West Palm Beach facility
were written-off in the amount of $13,189 less accumulated depreciation of
$2,359.

         Based on the Company's inability to generate sufficient sales to absorb
         the inventory of parts used to assemble the Saf T Lok(R) and the
         Magazine Lock, the Company wrote off the net Book Value of $830,360
         relating to its tools and dues during 2000.

NOTE 7 - INCOME TAXES

         The Company has no current or deferred income tax expense (benefit) in
         either 2001 or 2000 because the Company experienced significant losses
         in both years and a 100% valuation allowance was provided for the
         resulting deferred tax assets.

         The following table reconciles the income tax provision (benefit) at
         the U.S. Statutory rate to that in the financial statements:

                                     F-12
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 7 - INCOME TAXES (CONTINUED)


         As of December 31, 2001, the Company had net operating loss carry
         forwards for federal income tax purposes of approximately $19,033,724
         that are available to offset future federal taxable income, if any,
         through 2021. These carry forwards are on a consolidated return basis
         for the members of the consolidated group and, accordingly the loss
         carry forwards may have certain separate income tax return limitations.

         The net tax effects of temporary differences between the carrying
         amount of assets and liabilities for financial reporting purposes and
         the amounts used for income tax purposes are reflected in deferred
         income taxes. Significant components of the Company's deferred tax
         asset as of December 31, 2001 and 2000 are as follows:

                                       2001          2000
                                    -----------  -----------
         Tax effect of NOL
           carry forwards           $ 7,042,478  $ 6,679,000
         Less valuation allowance    (7,042,478)  (6,679,000)
                                    -----------  -----------
         Net deferred tax asset     $         -  $         -
                                    ===========  ===========

         As of December 31, 2001, sufficient uncertainty exists regarding the
         realization of the full amount of these operating loss carry forwards,
         and accordingly, a valuation allowance of $7,042,478 has been
         established. The valuation allowance for deferred tax assets as of
         December 31, 2000 was $6,679,000.

         In accordance with certain provisions of Internal Revenue Code Section
         382, a change in ownership of greater than 50% of a corporation within
         a three year period will place an annual limitation on the
         corporation's ability to utilize its existing tax benefit carry
         forwards. Due to the fact that such change in ownership has occurred,
         the Company is subject to this limitation and the utilization of its
         tax benefit carry forwards will be restricted in the future. In the
         event of subsequent changes in the ownership of the Company, the tax
         benefits may be further restricted.

Note 8 - DEBENTURES PAYABLE

On April 20, 1999, the Company entered into an Agency Agreement ("AA") with
Alexander, Wescott & Co., Inc. ("AWC") under which AWC would offer and sell a
maximum of $2,000,000 and a minimum of $1,000,000 of the Company's 6%
convertible debentures ("Debentures") by April 30, 1999, unless extended 60 days
by AWC.  An extension was requested by AWC and the Company limited solicitation
to a maximum of $1,000,000.  On July 8, 1999, the AA was further modified to
provide that AWC would sell $400,000 of Debentures with the balance of $600,000
remaining on hold at the sole discretion of the Company to cancel the AA prior
to AWC delivering a bona fide subscription agreement.  In consideration of AWC's
efforts, the Company prepaid a cash commission of $130,000 upon the initial
$400,000 sale.  In addition, the Company issued 40,000 shares of Common Stock to
AWC with the proviso that an additional 60,000 shares of Common Stock, or
prorated amount, would be issued upon the sale of any portion of the remaining
$600,000 of Debentures.  The Debentures mature in two years, unless converted,
with interest payable

                                     F-13
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 8 - DEBENTURES PAYABLE(CONTINUED)

         annually. If, at the Company's election, redemption or prepayment
         occurs within 90 days from the date of issuance the debenture holder is
         entitled to a ten percent premium. If redemption or prepayment occurs
         within 180 days of issuance, the debenture holder is entitled to a
         twenty percent premium. The Debenture is convertible at a twenty five
         percent discount, to the market price, at the time of conversion, with
         a floor of $.50 and a ceiling of $2.00. Securities underlying the
         Debenture were to be registered within ninety days of the closing of
         the offering. As of November 1, 1999 all of the $400,000 of Debentures
         were converted into 397,261 shares of common stock of the Company.
         Accrued interest of $5,939 was included in the price of the Debentures
         upon conversion. Conversion prices ranged from $1.1875 to $1.75 per
         common share.

         On October 15, 1999, the Company authorized AWC to complete the sale of
         the remaining $600,000 of Debentures under the AA. As of December 31,
         1999, AWC sold $375,000 of Debentures under the same terms and
         conditions except that the floor was raised to $.70 and the Company had
         the option of redeeming the Debentures at maturity and paying interest
         in cash or with shares of its common stock. As of December 31, 1999,
         none of the $375,000 of debenture holders had elected to convert the
         Debentures.

         On December 30, 1999, the Company engaged J.P. Carey Securities,
         ("JPC") Inc. as placement agent to sell an aggregate principal amount
         of not more than $1,500,000 of 6% subordinated convertible debentures
         ("Debentures"), which mature on or before December 30, 2001. If, at the
         Company's election, redemption or prepayment occurs within the first 90
         days from the date of issuance the debenture holder is entitled to a
         ten percent premium. If redemption or prepayment occurs within the
         second 90 days the debenture holder is entitled to a twenty percent
         premium. If redemption or prepayment occurs any time after 180 days the
         debenture holder is entitled to a thirty percent premium. The Debenture
         is convertible at a twenty five percent discount to the closing bid
         price five trading days immediately preceding the date of conversion,
         with a floor of $.70 and a ceiling of $2.00. As of December 31, 1999,
         JPC had placed $950,000 of Debentures and together with Pegasus
         Capital, Inc. received a placement fee of $85,000. In connection with
         the placement, the Company paid JPC's counsel $10,000 and the escrow
         agent a fee of $1,250. In addition, JPC and related parties are to
         receive 95,000 shares of the Company's common stock as a commission.
         Under the terms of the agreement with JPC, the Company must reserve
         sufficient shares out of its authorized and unissued common stock for
         no less than 100% of the number of shares which would be issuable upon
         conversion of all the Debentures.

         On May 26, 2000, the Company engaged J.P. Carey Securities, ("JPC")
         Inc. as placement agent to sell an aggregate principal amount of
         $875,000 of 6% subordinated convertible debentures ("Debentures"),
         which mature on or before May 26, 2002. If, at the Company's election,
         redemption or prepayment occurs within the first 90 days from the date
         of issuance the debenture holder is entitled to a ten percent premium.
         If redemption or prepayment occurs within the second 90 days the
         debenture holder is entitled to a twenty percent premium. If redemption
         or prepayment occurs any time after 180 days the debenture holder is
         entitled to a thirty percent premium. The Debenture is convertible at a
         twenty percent discount to the closing bid price five trading days
         immediately preceding the date of conversion, with a floor of $1.00 and
         a ceiling of $2.00. As of December 31, 2000,

                                     F-14
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 8 - DEBENTURES PAYABLE (CONTINUED)

         JPC had placed $875,000 of Debentures and together with Pegasus
         Capital, Inc. received a placement fee of $82,500. In connection with
         the placement, the Company paid JPC's counsel $5,000 and the escrow
         agent a fee of $1,250. In addition, JPC and related parties received
         43,750 shares of the Company's common stock as a commission. Under the
         terms of the agreement with JPC, the Company must reserve sufficient
         shares out of its authorized and unissued common stock for no less than
         100% of the number of shares which would be issuable upon conversion of
         all the Debentures.

         During the years ended December 31, 2000 and 1999, the Company issued
         $875,000 and $1,725,000, respectively, of convertible debentures with a
         beneficial conversion feature of twenty five percent in 1999 and twenty
         percent in 2000. In accordance with the Financial Accounting Standards
         Board's Emerging Issues Task Force No. 98-5, the imbedded beneficial
         conversion feature should be recognized and measured by allocating a
         portion of the proceeds equal to the intrinsic value of that feature to
         paid-in capital. In addition, the recorded discount equal to the
         allocation of proceeds to the beneficial conversion feature should be
         recognized as interest expense over the minimum period from the date of
         issuance to the earliest date the debenture holder can convert the
         debenture. Accordingly, the Company has recorded paid-in capital and
         interest expense of $218,750 and $431,250 related to the beneficial
         conversion feature of all debentures issued in 2000 and 1999,
         respectively.

NOTE 9 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

         A)  OPERATING LEASES

             The Company closed its West Palm Beach Facility and moved the
             operations to Fort Lauderdale, Florida and the corporate
             headquarters to Sharon, Pennsylvania. The Company was obligated
             under the lease expiring July 31, 2003 at an annual rent of
             approximately $95,000. Management has negotiated a settlement and
             termination of the lease, as of June 30, 2001, without significant
             additional expense to the Company. In December 2001 the Company
             closed its Fort Lauderdale facility and relocated the operations to
             Sharon, Pennsylvania. The Company was obligated under the lease
             expiring April 1, 2003 at an annual rent of approximately $22,896.
             The Company is negotiating a termination of this lease agreement,
             the terms of which will not be substantial. The Company entered
             into a lease with Mr. James & Winner, Jr. for approximately 5,000
             square feet of space in Sharon, Pa. The Company is obligated under
             the lease expiring April 1, 2003 at an annual rate of $16,250.00.

             The future minimum lease payments required under this operating
             lease are as follows:

                   Year          Amount
                ----------     -----------
                   2002        $    39,146
                   2003              9,787
                               -----------
                   TOTAL       $    48,933
                               ===========

             The total rent expense charged to operations was $104,641 and
             $98,129 for the years ending December 31, 2000 and 1999
             respectively.

         B)  CONSULTING AGREEMENTS

             On February 16, 1999, pursuant to an agreement ratified by the
             Board of Directors on

                                     F-15
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 9 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)

         B)  CONSULTING AGREEMENTS (CONTINUED)

             January 20, 1999, the Company issued 25,000 shares of its common
             stock to two marketing consultants to begin the creation of a
             business plan and to commence a search to secure financing. An
             additional 25,000 shares was to be issued to the marketing
             consultants upon receipt by the Company of a bonafide $2,000,000
             equity financing agreement. The financing agreement was never
             received and the additional shares were never issued.

             On November 15, 1999 the Company entered into a consulting
             agreement with Mr. Ralph Nichols for a term of three months. Mr.
             Nichols was to provide services in the areas of sales, marketing
             and product development. By mutual agreement, the term was
             shortened to end on January 27, 2000. Mr. Nichol's total
             compensation was to consist of $14,400 in cash and options for
             9,600 shares of the Company's common stock, at market, with an
             exercise price of $1.50 a share. In lieu of the cash, Mr. Nichols
             agreed to receive an option for an additional 9,872 shares of the
             Company's common stock at the day's closing price of $1.46875,
             which is exercisable at $.01 per share

             On December 9, 1999, the Company entered into an agreement with an
             investment banking firm ("IBF") to act as financial advisor and
             investment banker in connection with a plan to find a strategic
             alliance partner. In addition to a fee of $250,000, which was paid
             in June 2000, the IBF was to be reimbursed for out-of-pocket costs
             and attorney fees, whether or not a transaction was consummated. A
             $25,000 deposit was paid upon signing of the agreement, which was
             to be applied towards expenses. The IBF has not been successful in
             consummating a transaction for a strategic alliance partner.

NOTE 10 - SHAREHOLDERS' EQUITY

          A) THE 1993 STOCK PLAN

             In March 1993, the Company established a stock option plan to
             enhance the ability of the Company to attract and retain qualified
             employees, consultants, officers and directors by creating
             incentives and rewards for their contributions to the success of
             the Company. An aggregate of 500,000 shares of common stock may be
             issued in the plan.

             The plan provides opportunities to purchase stock in the Company
             pursuant to options granted which qualify as incentive stock
             options (ISO's) under Section 422(b) of the Internal Revenue Code
             of 1986 and also for those which do not qualify as ISO's (non-
             qualified) options.

             The plan provides for an automatic grant of non-qualified options
             for 5,000 shares, vesting semiannually, for one year, to each non-
             employee director provided that the director is still serving as a
             director on the vesting date. No options were granted in 1999. Two
             directors were granted 10,000 options at an exercise price of $1.25
             in 2000.

             The exercise price of all ISO's granted under the plan must be at
             least equal

                                     F-16
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY

          A)   THE 1993 STOCK PLAN (CONTINUED)

               to the fair market value of the shares of the common stock on the
               date of the grant. The exercise price for any participant in the
               qualified plan possessing more than 10% of the voting power of
               the Company's outstanding common stock must equal at least 110%
               of the fair market value on the grant date. As of December 31,
               2001 and 2000 no shares have been issued under the qualified
               plan.

               During 2001 and 2000 the Company did not grant any ISO's.

          B)   OTHER INDIVIDUAL NON-QUALIFIED STOCK PLANS

               The Company also grants non-qualified options to its employees,
               consultants, officers and directors through the use of
               individually tailored stock option agreements.

               In 2000, the Company granted 19,472 options to a consultant at a
               market price of $1.50 for 9,600 options and $.01 for 9,872
               options. In 2001, the Company did not grant any options.

          C)   SUMMARY OF STOCK PLANS

               The Company has elected to follow APB Option No. 25, "Accounting
               for Stock Issued To Employees", and related interpretations in
               accounting for its employee stock options. Compensation costs to
               employees of $132,741 and $341,088 have been recognized related
               to stock options when the exercise price was below the fair
               market value of the stock at the date of grant, for the years
               2000 and 1999, respectively. If the Company had elected to
               account for its stock options granted to non-employees under the
               fair value method of SFAS No. 123, "Accounting For Stock-Based
               Compensation", the Company's net loss and loss per common share
               would have been the pro forma amounts indicated below:

                                     F-17
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

          C)   SUMMARY OF STOCK PLANS (CONTINUED)

               The fair value of each option is estimated on the date of grant,
               and at subsequent dates for repriced options, using a Black-
               Scholes option-pricing model with the following weighted average
               assumptions used for grants in 2000 and 1999, respectively:

                                    [TABLE]

               The dividend yield reflects the assumption that the current
               dividend payout will continue to be zero. The expected life of
               the options is based on an estimate, and is not necessarily
               indicative of exercise patterns that may occur. The weighted
               average fair value per option was $1.02 and $.91 for options
               granted during 2000 and 1999, respectively. A summary of the
               status of the stock option plans as of December 31, 2000 and
               1999, and changes during each of the years then ended, follows:

                                    [TABLE]

               The following table summarizes information about the stock
               options outstanding as of December 31, 2000:

                                    [TABLE]

                                      F-18
<PAGE>

                   SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

      C)  SUMMARY OF STOCK PLANS (CONTINUED)

          As of December 31, 2000 there were 25,000 qualified stock options and
          56,500 non-qualified stock options outstanding under the 1993 stock
          plan. There were 2,612,500 individual non-qualified stock options
          (registered through an S-8 and an S-3 filed in 1999). There were
          24,109 individual, non-qualified stock options (unregistered)
          outstanding as of December 31, 2000.

      D)  STOCK ISSUANCES

                                     F-19
<PAGE>

                   SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

      D)  STOCK ISSUANCES (CONTINUED)

          In January 2000 the Company issued 37,500 shares of unregistered
          common stock to Alexander, Wescott & Co., as a commission on the sale
          of $375,000 of convertible debentures.

          In January 2000 the Company issued a total of 95,000 shares of
          unregistered common stock to J. P. Carey Securities, Inc. and related
          parties as a commission on the sale of $950,000 of two-year
          convertible subordinated debentures on December 30, 1999.

          In January 2000, a consultant was issued 9,872 options in payment of
          consulting services in the amount of $14,400.

          In January 2000, a former employee canceled 5,000 options.

          In January 2000, a consultant was issued 9,600 options at an exercise
          price of $1.50 per share.

          In February 2000, two directors were issued 5,000 options each, at an
          exercise price of $2.50 per share. These options were subsequently
          returned to the Company unexercised.

          In February 2000 the Company issued 200,000 shares of unregistered
          common stock to a designee of ProMag Industries, Inc., in payment of
          $183,009 of outstanding invoices for goods and services provided to
          the Company.

          In February 2000 the Company issued 110,000 shares of unregistered
          common stock to Lisa Broderick upon exercise of an option granted in
          settlement of a lawsuit.

                                      F-20
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

      D)  STOCK ISSUANCES (CONTINUED)

          In March 2000 the Company issued 189,578 shares of unregistered common
          stock to John Gardner, a former President of the Company, upon
          exercise of an option granted in settlement of a lawsuit.

          In March 2000 the Company issued 37,895 shares of unregistered common
          stock to Ralph Nichols, a former employee, upon exercise of options
          granted to Mr. Nichols.

          In March 2000, $850,000 of Debentures were converted into 667,322
          shares of the Company's common stock, which included accrued interest
          of $11,734.

          In March 2000, two consultants exercised options to purchase 30,000
          shares of the Company's common stock at $2.50 per share.

          In April 2000, $350,000 of Debentures were converted into 204,268
          shares of the Company's common stock, which included accrued interest
          of $5,889.

          In April 2000, an employee exercised options to purchase 10,000 shares
          of the Company's common stock at an exercise price of $1.09 per share.

          In May 2000, in accordance with the agreement governing the issuance
          of the Company's 6% convertible debentures, $88,750 was paid for fees
          associated with the agreement.

          In June 2000, $75,000 of Debentures and $2,502 of accrued interest
          were converted into 80,653 shares of the Company's common stock.

          In June 2000, in accordance with the agreement governing the issuance
          of the Company's 6% convertible debentures, 43,750 shares of the
          Company's common stock valued at $1.34375 per share were issued for
          fees associated with the agreement.

          In August 2000, $750,000 of Debentures and $12,476 of accrued interest
          were converted into 775,765 shares of the Company's common stock.

          In 1999 and in 2000 the Company repriced 100,000 options previously
          issued to consultants. Variable options were created as a result of
          repricing these options that, in accordance with FASB No. 123, must be
          revalued on a quarterly basis using the Black-Scholes pricing model.
          The effect in the accompanying financial statements of revaluing these
          options on a quarterly basis was to reduce the stock options issued
          for compensation and services expense by $197,300 in 2000 and increase
          the expense by $13,800 in 1999.

          In November 1999 the Company repriced 1,500,000 options previously
          issued to two directors and an officer. Variable options were created
          as a result of repricing these options that, in accordance with FASB
          No. 123, must be revalued on a quarterly basis

                                      F-21
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

      D)  STOCK ISSUANCES (CONTINUED)

          using the Black-Scholes pricing model. The effect of revaluing these
          options on a quarterly basis was to reduce the net loss by $971,900 in
          2000 and increase the net loss by $98,640 in 1999, for FASB No. 123
          disclosure.

          On February 27, 2001, two former board members returned options,
          unexercised, to purchase 490,000 shares of the Company's common stock
          at exercise prices ranging from $1.19 to $3.25 per share.

      E)  DEFERRED COMPENSATION

          In October 1997 two new board members were granted 500,000 stock
          options with an exercise price of $2.00 that was $1.25 per share lower
          than the fair market value at the date of grant. The options vested
          one-third in the year of grant and will be fully vested over a three
          year period.

          In December 1997, the Chairman of the Board was granted 1,000,000
          stock options at an exercise price of $2.00 that was $.5310 per share
          lower than the fair market value of the stock at the date of grant.
          The options vest over a four year period beginning in 1997, provided
          the Chairman continuously serves as a member of the Board of Directors
          and that the patented inventions continue to be assigned to the
          Company. In 2000, compensation expense of $132,741 was recorded for
          the vested portion of the below market value difference in accordance
          with APB Opinion No. 25.

      F)  WARRANTS

          In connection with a failed distribution agreement in 1998, the
          Company entered into an agreement with three unaffiliated companies,
          granting them stock purchase warrants for an aggregate total of
          2,000,000 shares of common stock with an exercise price of $5.00

                                      F-22
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

      F)  WARRANTS (CONTINUED)

          per share and a term of five years. The Company repurchased the
          warrants for $500,000 in 1999.

                                    [TABLE]

          The following table summarizes information about the warrants
          outstanding as of December 31, 2000:

                                    [TABLE]

NOTE 11 - EARNINGS (LOSS) PER COMMON SHARE

          Basic earnings per share ("EPS") is computed using the weighted
          average number of common shares outstanding during the period. Diluted
          EPS, which is basic EPS adjusted for the dilutive effect of stock
          options and other securities that may be converted into common shares,
          is not presented as the effects would be antidilutive. The following
          is a reconciliation of the numerators and denominators of the basic
          and diluted EPS computations:

                                      F-23
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 11 - EARNINGS (LOSS) PER COMMON SHARE (CONTINUED)

                                                     2001          2000
                                                 -----------   -----------
          Numerator:

          Net (Loss)                             $(1,037,222)  $(6,563,494)
                                                 -----------   -----------

          Numerator for basic EPS                 (1,037,222)   (6,563,494)
          Effect of dilutive securities:                   -             -
                                                 -----------   -----------
          Numerator for diluted EPS              $(1,037,222)  $(6,563,494)
                                                 -----------   -----------

          Denominator:

          Denominator for basic EPS
            weighted-average shares                1,648,739     1,572,745
          Effect of dilutive securities:
            Stock Options                                  -             -
            Warrants                                       -             -
            Potentially dilutive common shares             -             -
                                                 -----------   -----------
          Denominator for diluted EPS              1,648,739     1,572,745
                                                 -----------   -----------
          Basic EPS                              $       .63   $     (4.17)
                                                 -----------   -----------
          Diluted EPS                            $       .63   $     (4.17)
                                                 -----------    ----------

NOTE 12 - LITIGATION

       A former Chief Executive Officer, who was hired and terminated in 1996,
       sued the Company and the former Chairman of the Board. The basis of the
       suit was for libel and slander arising from her appointment and
       termination. The Company was represented by its insurance carrier. On
       April 30, 1999 the parties agreed to settle the case for $50,000 in cash,
       which was funded by the Company's insurer, and options for 110,000 shares
       of the Company's common stock at an exercise price of ten cents a share.
       On October 4, 1999, the former employee filed a complaint in the Circuit
       Court for Palm Beach County, Florida alleging that the Company failed to
       timely comply with the settlement and requested damages. The former
       employee has offered to settle the case for the exchange of general
       releases. Counsel believes that an unfavorable outcome is unlikely.

       On May 29, 1998, the Company was informed that the Securities and
       Exchange Commission's Division of Enforcement (the "SEC") had begun an
       informal investigation into whether the Company had violated relevant
       laws, rules or regulations with regard to its publicly traded securities,
       and requested that the Company voluntarily produce documents for the
       period beginning January 1, 1996 through present. The Company has
       complied with the SEC's initial and subsequent requests to produce
       documents, choosing not to claim privilege or withhold any requested
       information in its possession. On February 18, 1999, the President and
       Chief Executive Officer testified before the SEC pursuant to a subpoena.
       At that time, the SEC made available to the Company its formal Order
       Directing Private Investigation and Designating Officers to Take
       Testimony (the "Order"). The Order revealed

                                      F-24
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 12 - LITIGATION (CONTINUED)

       that members of the SEC's staff have reported information to the
       Commission that, in the staff's view, tend to show that during the period
       from at least January 1, 1996 and continuing thereafter, the Company, its
       present or former officers, directors or employees or others may have
       violated federal securities laws. On December 20, 2000, pursuant to an
       Offer of Settlement made by the Company, the SEC and the Company reached
       a settlement. The Company, without admitting or denying the Commission's
       findings, consented to the entry of the Commission's findings and the
       entry of the Commission's Order Instituting Proceedings Pursuant to
       Section 21C of the Securities Exchange Act of 1934 and Imposing Cease and
       Desist Order. The Commission found that certain of the Company's press
       releases and public filings made in 1997 and 1998 violated various
       sections and rules of the Exchange Act. In addition, the Commission found
       that the Company violated the Exchange Act with respect to inaccurate
       projections contained in a 1998 analyst's report that the Company had
       paid for. The Commission's Order prohibits the Company from committing or
       causing any future violations of the statutes and rules of the Exchange
       Act.

       Simultaneously, Franklin Brooks and John Gardner, former Company
       presidents, settled the Commission's claims against them with respect to
       the matters described above. Messrs Brooks and Gardner, without admitting
       or denying the allegations set forth in the Commission's complaint,
       consented to the entry of a final judgment permanently enjoining them
       from future violations of the Exchange Act statutes, as set forth in the
       complaint, and imposed civil penalties against each of them in the amount
       of $55,000. A committee of the Company's Board of Directors, not
       including Messrs Brooks or Gardner, concluded that Messrs Brooks and
       Gardner had acted in good faith and that the Company should reimburse
       them for the penalties. The Company also provided Messrs Brooks and
       Gardner with legal defense. The Company's insurance carrier has denied
       coverage for defense costs related to this investigation.

       On August 17, 1999, the Company was named as a defendant in a declaratory
       judgment action pending in the United States District Court for the
       District of Arizona by Saf-T-Hammer, Inc. The plaintiff was seeking a
       declaratory judgment that its trademark does not infringe upon the Saf-T-
       Lok trademark, to invalidate the Saf-T-Lok trademark and attorneys' fees
       and costs. On December 5, 2000, the Company and the plaintiff executed a
       Settlement and Release Agreement and the lawsuit was dismissed.

       On March 28, 2000, Winner Holding LLC, Winner Club LLC and James E.
       Winner, Jr., (collectively, "Winner") filed a complaint against the
       Company and Mr. Brooks in U.S. District Court in Pennsylvania. The suit
       arose from discussions between the parties regarding a possible merger.
       Winner's complaint purports to allege, among other things, causes of
       action for breach of contract, fraud, negligent misrepresentation and
       breach of duty to negotiate in good faith, and seeks compensatory damages
       in excess of $75,000 for each cause of action. Winner was also seeking a
       permanent injunction preventing the Company from being acquired by
       another party, as well as punitive damages of at least $5,000,000. On
       March 12, 2001, the lawsuit was dismissed with prejudice.

      On April 4, 2002, the Company was served with a complaint in a civil
      action filed in the United States District Court of the Southern District
      of Florida captioned Edward Cohen, on behalf of himself and all others
      similarly situated against the Company, Franklin W. Brooks, Jeffrey W.
      Brooks, William Schmidt, James E. Winner, Jr., John F. Hornbostel, Jr. and
      Goldberg Wagner Stump and Jacobs LLP. This is a class action on behalf of
      all purchasers of the Common stock of the Company between April 14, 2000
      and April 16, 2001 seeking to pursue remedies under the Securities
      Exchange Act of 1934. The Company denies the allegations and plans to
      defend itself vigorously. The Company has also submitted this matter to
      its insurer.

                                      F-25
<PAGE>

                    SAF T LOK INCORPORATED AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 2001 AND 2000

NOTE 13 - SUBSEQUENT EVENTS

       The Company received a letter dated November 3, 2000 from Nasdaq stating
       that the Company's common stock had failed to maintain a minimum bid
       price of one dollar over the last thirty consecutive days of trading, as
       required for continued listing on the Nasdaq SmallCap Market, as set
       forth in Marketplace Rule 4310(c)(4) (the "Rule"). In accordance with the
       Rule, the Company was given until February 1, 2001 to regain compliance
       with the Rule. On February 2, 2001 the Company received notice from
       Nasdaq that it had failed to meet the minimum bid price requirement and
       that its common stock was subject to delisting from the Nasdaq SmallCap
       Market. The Company was also notified that it would be required to
       demonstrate its ability to sustain long-term compliance with all
       applicable Nasdaq maintenance criteria. The Company requested, and was
       granted, a hearing on March 9, 2001 before the Nasdaq Listing
       Qualifications Panel (the "Panel") to review the Staff's determination.
       On March 28, 2001, the Company received a decision from the Panel that
       allows the Company's stock to continue to be listed, under a temporary
       exception, on the Nasdaq SmallCap Market. The Company has until May 4,
       2001 to demonstrate compliance with Nasdaq's minimum bid price
       requirement, as well as all of Nasdaq's continued listing criteria.

       On April 23, 2001, the Company received notice from NASDAQ that it was
       not in compliance with NASDAQ's tangible asset requirement, as set forth
       in Rule 4310 (c) (2) (B). On April 26, 2001, and May 7, 2001, the Company
       submitted a proposal to NASDAQ to address this deficiency. On May 14,
       2001, NASDAQ advised the Company that it would not grant the Company a
       temporary exception to the net tangible asset requirement. As a result,
       the Company's securities were delisted on May 15, 2001. The Company's
       securities trade on the OTC Bulletin Board.

       On February 6, 2001, a change in control of the Board of Directors of Saf
       T Lok Incorporated was effected as a result of the appointment of five
       new Directors. No payments were made in order to effect the change in
       control and the new Directors have received no compensation, including
       securities of the Company. However, the new Chairman, James E. Winner,
       Jr., proposes to grant options to the new management team. As of December
       31, 2001 all operations and offices have been relocated to Sharon
       Pennsylvania.

NOTE 14 - FOURTH QUARTER ADJUSTMENTS

       The Company recorded the inventory valuation loss of $218,008 in the
       fourth quarter of 2001. The Company recorded the inventory valuation loss
       of $2,057,659 and the asset impairment loss of $1,114,029 in the fourth
       quarter of 2000 for an aggregate of $3,171,688 of fourth quarter
       adjustments.

                                      F-26