FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

[X]  Annual report  pursuant to section 13 or 15(d) of the  Securities  Exchange
     Act of 1934

     For the fiscal year ended December 31, 2001

[]   Transition  report  pursuant  to  section  13 or  15(d)  of the  Securities
     Exchange Act of 1934


                         Commission File Number 0-24829
                                                -------

                                FTS APPAREL, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         Colorado                                                84-1416864
--------------------------------                             -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               identification No.)


1379 River Road, Yardley, Pennsylvania                                   19067
----------------------------------------                              ----------
(Address of principal executive offices)                              (Zip Code)


Registrant's telephone number, including area code:  (215) 741-5883
                                                     --------------

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

Securities registered pursuant to Section 12(g) of the Act:

                               Title of each class

                          Common Stock, $.001 par value
                          -----------------------------

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.   Yes X     No
              ---      ---

<PAGE>


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
the  registrant's  knowledge,  in  definitive  proxy or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

The Registrant's revenues for the most recent fiscal year were $576,846.

The  aggregate  market  value of the  2,632,355  shares of common  stock held by
nonaffiliates of the Company as of May 13, 2002 was $131,618 based upon the last
reported sale of the common stock of $.05 per share.

The total  number of shares of  issuer's  common  equity as of May 13,  2002 was
11,149,284.


                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None

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

<PAGE>


                                TABLE OF CONTENTS


PART I                                                                      Page
                                                                            ----

         Items 1 and 2. Business and Properties ...........................    1

         Item 3.        Legal Proceedings .................................    5

         Item 4.        Submission of Matters to a Vote of
                        Security Holders ..................................    5
PART II

         Item 5.        Market for Registrant's Securities and Related
                        Shareholders Matters ..............................    6

         Item 6.        Management's Discussion and Analysis or
                        Plan of Operation .................................    7

         Item 7.        Financial Statements and Supplementary Data .......   12

         Item 8.        Changes in and Disagreements with Accountants
                        on Accounting and Financial Disclosure ............   12

PART III

         Item 9.        Directors, Executive Officers and Compliance
                        with Section 16(a) of the Exchange Act ............   12

         Item 10.       Executive Compensation ............................   14

         Item 11.       Security Ownership of Certain Beneficial
                        Owners and Management .............................   16

         Item 12.       Certain Relationships and Related Transactions ....   18

PART IV

         Item 13.       Exhibits, Reports on Form 8-K and
                        And Financial Statements ..........................   21

         Signature Page ...................................................   23

         Index to Financial Statements ....................................   24

                                       ii
<PAGE>

                           Forward Looking Statements

     See "Special Note Regarding Forward-Looking Statements" at the end of "Item
6.  Management's  Discussion  and Analysis or Plan of Operation"  for cautionary
statements concerning forward-looking information contained in this report.


                             Additional Information

     Descriptions  in this Report are  qualified by reference to the contents of
any contract,  agreement or other  documents and are not  necessarily  complete.
Reference  is made to each such  contract,  agreement  or  document  filed as an
exhibit  to  this  Report,  or  previously  filed  by the  Company  pursuant  to
regulations of the Securities and Exchange Commission (the  "Commission").  (See
"Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.")

                                       iii
<PAGE>


ITEMS 1. AND 2. BUSINESS AND PROPERTIES
                -----------------------

History
-------

     FTS Apparel,  Inc. ("FTS" or the "Company") was founded under the name Full
Tilt Sports, Inc. in 1997 as a Colorado  corporation to sell designer sportswear
and accessories.  Effective August 23, 2000, we changed our name to FTS Apparel,
Inc. Our common stock trades on the OTC Bulletin Board.

     Effective  January 11, 2002, we experienced a change in control.  Effective
that date, our Board of Directors  appointed a new Chairman and Chief  Executive
Officer.   Subsequently,  all  former  officers  and  directors  resigned  their
positions with the Company and the new Chairman  appointed three  additional new
members to the Board.  The new  Chairman  also  agreed to  purchase  most of the
Company  common  stock owned by two of the former  officers  and  directors  and
additional  stock  from  some  other  Company  shareholders.  As  a  result,  we
experienced a change in control.  See Item 9.  Directors and Executive  Officers
and Item 11. Security Ownership of Certain Beneficial Owners and Management.

     In  conjunction  with this change in control,  our principal  executive and
administrative offices were moved to Pennsylvania. Our new address is 1379 River
Road, Yardley, Pennsylvania 19067.

Description of Business
-----------------------

     Historically,  and through  December 31,  2001,  we were in the business of
designing and selling high quality  designer/casual  sportswear and accessories,
focusing  on  athletic  and  casual  lifestyle   clothing.   We  identified  our
merchandise  with the "Flip The  Switch"  and "FTS"  trademarks  and  logos.  We
marketed  our  products  with  a  sports  orientated   approach,   primarily  by
endorsements from professional  athletes and sports  personalities.  Our product
line  included  shirts,  jackets,  vests,  pants and caps in various  styles and
colors that we believed  were  attractive  and appealing to our target market of
young consumers.

     In  January of 2002,  in  connection  with the change in control  described
above, we decided to expand our business into other opportunities.  In an effort
to increase  value to  shareholders,  we have  decided to explore  opportunities
outside the apparel industry.  While we do not expect to completely  abandon our
traditional business, we will expect to explore opportunities in industries that
we hope may  generate  more  revenue,  profitability  and more  interest  by the
investing public.

     Our  investigation to date has revealed that attractive  opportunities  are
still available in the technology and distribution industries.  Accordingly,  we
will  evaluate  one or more  companies  of  which  management  is aware in these
industries  in an effort to identify a company  that  offers high profit  margin
with little downside risk. To date, we have identified one company that provides
network  design and  installation  and website  design  services to its clients.
While no agreement has been reached with this entity,  our  management  believes
that this may be one opportunity  that presents the type of business that we may
add to our business.

                                        1
<PAGE>

     Another avenue that we are exploring is to adapt our historical business to
an e-commerce  business model. In this concept,  we would offer the high quality
merchandise  that we have sold  historically  to  consumers  exclusively  on the
Internet through a web site. This would reduce the overhead  associated with the
need to maintain a staff of sales, order processing and distribution  personnel.
While our thoughts are still in the early stages of exploration, we believe that
this  would  be  an  attractive  way  to  use  our  intellectual  property  more
effectively than we have in the past.

Production
----------

     We contract  with  independent  overseas  and  domestic  manufacturers  for
production of our merchandise,  whose products we have tested and approved.  Our
staff of personnel,  either alone or in  conjunction  with outside  consultants,
designs  all  specifications  for  our  products,  including  style,  color  and
materials.  We produce only high quality  garments and  accessories to appeal to
the  discriminating  consumer.  Our current  manufacturers have performed to our
standards in terms of quality, cost and time of manufacturing and delivery,  but
we don't have  written  contracts  with these  manufacturers.  However,  we feel
confident that they, or someone else, will be able to fill our orders.

     The products that we have had produced to date are:

     o    golf shirts
     o    t-shirts
     o    long sleeve shirts
     o    sweat shirts
     o    fleece jackets
     o    pants
     o    shorts
     o    caps

     We place our larger orders with the overseas manufacturers when we can plan
in advance.  These  manufacturers  have more favorable prices but take longer to
fill our orders and deliver our  products.  For smaller  custom  orders that are
required on short notice, such as for tournaments and team sales, we use a local
Colorado  company that can  manufacture  the clothing on short notice.  However,
using a local  manufacturer  is more costly and we  therefore  try to avoid this
whenever possible.

Marketing
---------

     The focus of our marketing  historically has been the professional athletes
and celebrity  personalities  wearing and  promoting our clothing.  We have been
successful  in  signing  several  of these  endorsement  contracts  particularly
because several  members of our former  management  were  professional  baseball
players and had contacts with these athletes. In many instances,  these athletes
are not signed to any  contract  but  promote our  apparel  line  because of the
personal relationship with the members of our management. These athletes include
professional  football  players,  baseball  players,  boxers and popular  former
professionals as well.

                                        2
<PAGE>

     We also have begun  using  other  methods to promote  our  product  line in
addition to endorsement by professional athletes and sports  personalities.  The
methods we have already used include:

     o    Sponsorship of sporting events
     o    Sponsorship of team sports
     o    Radio advertisements
     o    Newspaper advertisements
     o    Internet advertisements

     Due to the disappointing  results of our sales efforts, we believe that our
past  methods  need  refining.  Accordingly,  we will  evaluate  other  means of
marketing in the future as our new business model evolves.

Distribution and Sales
----------------------

     The focus of our distribution and sales has been through retail department,
specialty and sporting goods stores.  We are dependent on sales in these markets
to  achieve  the sale  volumes  we need to be  profitable.  We are  selling  our
products in other markets as well, which give us more exposure and acceptance in
the marketplace.

     Retail Store Sales.  Our products  have  historically  been sold  primarily
through department stores,  specialty stores and sporting goods stores. In 2000,
we were  successful in placing our  merchandise  in JC Penny,  a major  national
retailer.  However, due to the disappointing results of that placement,  we were
unable to renew that  relationship  in 2001.  The sales  potential for retailers
varies greatly as their  locations range from kiosks to department  stores.  The
retail stores where our products have been sold in this last year include:

     o    Department Stores - JC Penney and Elder Beerman
     o    Sporting Good Stores - Gart Sports, Copper Rivet, Finish Line
          and Shoe Extreme
     o    Nutrition Stores - Will Power Nutrition and Advanced Nutrition


     Team Sales.  We have also been  marketing  our  products to amateur  sports
teams, mostly in the Colorado Springs and Colorado Front Range region, where our
headquarters  was formerly  located and where we had the most local contacts and
exposure.  These  customers  were mostly soccer,  hockey,  football and baseball
clubs and teams.

Trademark
---------

     We believe that the distinctiveness of our clothing and accessories lies in
our "Flip The Switch"  concept.  We therefore  took  precautions  to protect our
trademark.  Trademark  registration  applications  have been filed with the U.S.
Patent  and  Trademark  Office  (the  "USPTO").  Registration  for our "Flip The
Switch" trademark has been approved by the USPTO and we expect registration very
shortly.  An opposition has been filed against the federal  registration for our
"FTS" trademark, but we do not believe this opposition has merit. If registered,
these  trademark  registrations  will give us the right to use the trademarks in

                                        3
<PAGE>

any state and  challenge  anyone who infringes on our  trademarks.  If any other
company seeks to use a similar  trademark to sell articles of clothing for which
we have registered our trademark, we can challenge them in court and demand that
they cease.

Research and Development
------------------------

     Historically,  we have  engaged  consultants  to work  with  our  staff  of
designers to create our apparel  merchandise.  With the need to reduce our staff
to  conserve  financial  resources,  we now will  rely  exclusively  on  outside
consultants  to create any of our  merchandise.  These  individuals  may work as
consultants for many different entities, so there allegiance and availability to
us may be limited.

Employees
---------

     As of fiscal year end December 31, 2001,  we employed one  individual  on a
part time basis. Roger Burnett,  our former President,  acted as chief operating
officer and was  responsible for winding up our operations in the retail apparel
industry. He left our employment shortly after the end of the year.

     Scott Gallagher now serves as our Chairman and Chief Executive Officer.  We
have  retained  another  individual  to help in the capacity of chief  operating
officer.  We also retain the  services  of a financial  officer to help with our
accounting  and  financial  reporting.  See  Item  9.  Directors  and  Executive
Officers.

     We do not  expect  any  additional  significant  changes  in the  number of
employees over the next twelve months. From time-to-time, we engage the services
of  outside  consultants  to  assist  in  our  business,   including  attorneys,
accountants, and marketing and advertising personnel. We may engage the services
of additional  individuals  in the future as our business  needs dictate and our
financial resources permit.

Facilities
----------

     We  currently  occupy 500 square  feet of office  space at 1379 River Road,
Yardley,  Pennsylvania 19067 on a month-to-month  basis pursuant to an agreement
with our Chief Executive Officer.  Our plans are to lease offices in Center City
Philadelphia at a rate of $600.00 per month in the near future.


ITEM 3. LEGAL PROCEEDINGS
        -----------------

     Neither we, nor any of our  officers or directors  in their  capacities  as
such, are subject to any material legal  proceedings,  and we do not know of any
potential or threatened legal proceeding.


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the year covered by this report.

                                        4
<PAGE>

                                     PART II


ITEM 5. MARKET FOR OUR SECURITIES AND RELATED SHAREHOLDER MATTERS
         --------------------------------------------------------

     Our common stock has traded over the counter and has been quoted in the OTC
Bulletin Board since March 18, 1999. The stock currently trades under the symbol
"FLIP."

     The following  table sets forth the range of high and low bid quotations as
reported by the National  Association of Securities Dealers for the common stock
of the  Company  for the last two  fiscal  years.  Quotations  represent  prices
between dealers, do not include retail markups,  markdowns or commissions and do
not necessarily represent prices at which actual transactions were effected.

Fiscal Quarter  Ended      High            Low
---------------------     ------          -----

         2000
         ----
March 31                  $1.50           $.63
June 30                    1.25            .69
September 30                .97            .51
December 31                 .53            .19

         2001
         ----
March 31                    .31            .07
June 30                     .26            .07
September 30                .25            .02
December 31                 .07            .02


     The number of record  holders of our common  stock as of December  31, 2001
was 132, not including nominees of beneficial owners.

     Holders of common stock are  entitled to receive  such  dividends as may be
declared by the Company's  Board of Directors.  No dividends on the common stock
have  been  paid or  declared  by the  Company  to date,  nor  does the  Company
anticipate that dividends will be paid in the foreseeable future.

     As of the date of this  report,  a total of 150,000  preferred  shares were
designated  Series A Preferred Stock, of which 50,000 were issued.  All of those
shares  have an issue price and  preference  on  liquidation  equal to $1.00 per
share.  The Series A Preferred  Shares accrue dividends at a rate equal to 3.75%
of the net profits of the Company,  payable in cash. The Company may redeem this
preferred  stock at any time following  notice to the holder for an amount equal
to the issue  price,  plus any  accrued  but  unpaid  dividends.  The holder may
convert any number of shares of  preferred  stock,  on a one to one basis,  into
shares of common stock until April 13, 2003,  and after that date all  remaining
shares of preferred  stock shall be  converted on that basis into common  stock.
Holders of the preferred  stock vote with the holders of the common stock on all
matters  presented  to the  shareholders  and are  entitled to one vote for each
share.

                                        5
<PAGE>

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

Overview
--------

     Historically and through the year ended December 31, 2001, we have operated
exclusively in the apparel  industry.  We marketed,  produced and  distributed a
line of recreation  apparel under the label "FTS" or "Flip the Switch." However,
the  results  of our  efforts  were  unsatisfactory.  In an  effort  to  improve
operations, our management resigned shortly after year- end, and appointed a new
Chairman. As a result, the Company may expand its operations to other industries
in an effort to increase shareholder value. See Item 1.Business, previously.

     Due to continuing losses from operations,  the accountant which audited our
financial  statements  for the year ended  December 31, 2001 assessed that there
was substantial doubt about our ability to continue as a going concern. See Note
2 to the  Financial  Statements.  Our  plans to  address  this  contingency  are
discussed  below under  "-Results of  Operations"  and  "-Liquidity  and Capital
Resources."

Results of Operations
---------------------

     Year ended  December 31, 2001.  During the year ended December 31, 2001, we
realized a net loss of  $1,168,154  (or $0.14 per share) on revenue of $576,846,
compared to a net loss of  $1,329,841  ($.20 per share) on revenue of $1,360,284
for the year ended  December 31, 2000.  Revenue  during 2001  decreased 58% from
2000 due to our inability to replace the loss of a major customer from the prior
year.  Approximately $1,092,000 of merchandise sold in 2000, representing 82% of
our sales,  was to one  customer.  We attribute the loss of this customer to the
intense competition in the apparel industry.

     The cost of goods sold in 2001,  including a  write-down  of  inventory  of
$111,979,  was 113% of revenue. That is, our cost of goods exceeded our revenue.
In 2000,  the cost of goods  was 77% of  revenue.  The write  down of  inventory
during 2001 was  necessitated  by our decision to liquidate  the  inventory  for
quick  sale.  Despite  our  efforts,  including  manufacturing  a portion of our
products overseas,  we do not believe that we ever achieved  sufficient sales to
reduce  our cost of goods to  acceptable  levels.  This fact,  coupled  with our
general  and  administrative  expenses,  caused us to report a net loss for each
year of our existence.

     General and  administrative  expenses decreased 33% from 2000 to 2001, from
$1,643,727  in 2000 to  $1,101,127 in 2001.  However,  these  expenses are still
relatively   high   compared  to  gross  profit.   A   substantial   portion  of
administrative expenses relate to non-cash expenses associated with the issuance
of stock to a former officer for services.  Non-cash  expenses  related to stock
based  compensation  during  2001  was  $226,672.  See  Note 3 to the  Financial
Statements and Item 12. Certain Relationships and Related Transactions.  We also
incurred a non-cash  rent expense of $108,000  through the issuance of shares to
our  former  Chairman  for  office  space  owned by his  affiliate.  That  lease
arrangement  was  terminated  subsequent  to  the  end  of the  fiscal  year  in
connection with the change in control discussed elsewhere in this report.

                                        6
<PAGE>

     We have  reduced  our  staff  significantly  over the last two  years in an
effort to preserve working capital and improve our operating results. During the
year ended December 31, 2001, we released all but the most critical employees in
an effort to meet these  objectives.  None-the-less,  salaries  and payroll were
still a  significant  portion of our  expense,  although  less than during 2000.
Subsequent to year-end,  we reduced our personnel  even farther,  leaving only a
chief executive officer,  a bookkeeper and operating  officer,  most of who have
agreed to work for non-cash compensation.

     Professional  fees remained a significant  expense in the amount of $52,133
in 2001 as compared to $82,258 in the prior fiscal  year.  These  expenses  were
incurred in connection  with our need to file periodic  reports with the SEC, as
well as fees incurred in connection  with the  investigation  of  acquisition of
other  businesses.  The high  expense in 2000 was due to costs  associated  with
Commission  filing  requirements  and the  reimbursement  of legal and financial
consulting fees to an officer in the amount of $45,000.

     We  anticipate  that we will  continue to incur losses until such time,  if
ever, that we generate revenues from retail sales in an amount adequate to cover
cost of goods and expenses.

     Year  ended  December  31,  2000.  Year 2000 was the first year in which we
received  significant  revenue from  operations.  Prior to that,  we were in the
development stage.

     During  the  year  ended  December  31,  2000,  we  realized  a net loss of
$1,329,841 (or $0.20 per share) on revenue of $1,360,284, compared to a net loss
of  $1,513,241  on revenue of $289,180  for the year ended  December  31,  1999.
Revenue  increased  from the prior fiscal year 370% due to the increased sale of
our products,  primarily in large retail  outlets.  Approximately  $1,092,000 of
merchandise in 2000 was sold to one customer, representing 82% of our sales.

     In 1999, the cost of goods was 31% of revenues. In 2000, the costs of goods
increased to 77% of revenues.  The increased  cost of goods is attributed to the
following  factors:  (i) in 2000,  a greater  percentage  of our  products  were
manufactured overseas, resulting in increased shipping and customs duties costs;
(ii) some of our  overseas  orders had to be shipped  by air  freight,  which is
considerably more expensive than ocean shipping;  (iii)  significant  additional
costs were  incurred in 2000 due to the  delivery of our products to more retail
locations.  Our JC Penney  orders were  shipped  directly to each of two hundred
stores instead of to a centralized location. In 2000, our shipping expenses were
$226,185 compared to $2,002 in 1999.

     General and  administrative  expenses decreased slightly from 1999 to 2000,
from $1,712,516 in 1999 to $1,643,727 in 2000. However, these expenses are still
relatively high compared to gross profit. A substantial  portion of our net loss
for 2000 resulted from non-cash  expenses  associated with the issuance of stock
in a private  placement  and issuance of stock for services.  Non-cash  expenses
related to  stock-based  compensation  during 2000 were  $730,679.  See Item 12.
Certain Relationships and Related Transactions.

                                        7
<PAGE>

     Shipping costs  increased  significantly  from 1999 to 2000, from $2,002 in
1999 to $226,185  in 2000 as  discussed  above,  to meet  demands for  increased
sales.  Consulting fees of $596,404 were also a significant  expense in 2000. Of
that amount,  $395,928 was charged as consulting fees in connection with a stock
acquisition.  See Item  12.  Certain  Relationships  and  Related  Transactions.
Salaries  increased,  as we increased the number of full time employees from six
to nine.  Salaries in 2000 were  $225,947 as compared to $189,433  for the prior
fiscal year.

     Professional  fees remained a significant  expense in the amount of $82,256
in 2000 as compared to $82,593 in the prior  fiscal  year.  The high  expense in
2000 was due to costs  associated with Commission  filing  requirements  and the
reimbursement of legal and financial consulting fees to an officer in the amount
of $45,000.

     Advertising expenses decreased in 2000 due to the Company's reallocation of
its efforts and  available  funds to fulfill its larger sales  orders.  In 2000,
advertising  expenses  were $138,312 as compared to $416,799 in the prior fiscal
year. Prepaid advertising costs in the form of endorsement contracts reported as
prepaid expenses  decreased as well, from $153,733 during 1999 to $36,493 during
2000.

     We  anticipate  that we will  continue to incur losses until such time,  if
ever, that we generate revenues from retail sales in an amount adequate to cover
cost of goods and expenses.

Liquidity and Capital Resources
-------------------------------

     December 31, 2001.  Our financial  position  weakened  considerably  during
2001,  as we were forced to curtail  operations.  Reduced  revenue and a lack of
working capital  necessitated  efforts to reduce  overhead.  This reduction,  in
turn,  further  reduced  sales,  as we did not have the  resources to market our
product.

     Working capital at December 31, 2001 was reduced to $59,460,  a decrease of
$874,534,  or 94% from the end of 2000.  Our working  capital at  year-end  2001
consisted  solely of restricted cash,  property and equipment,  all of which was
transferred  subsequent  to year-end in  connection  with the  settlement of our
obligations  for a facility  lease.  The  dramatic  reduction  in cash and other
current  assets  during 2001 is the result of cash applied to  operations in the
amount of $281,778,  consisting of a decrease in accounts receivable of $89,165,
sale or write off of inventory of $288,697  and  extinguishments  of all prepaid
expenses.

     In order to continue as a going  concern,  it will be  necessary  for us to
raise  additional  capital in the  immediate  future.  We intend to obtain  this
capital from the sale of our equity securities, although no firm commitments for
financing  currently exist. We may also solicit short term financing in the form
of debt to  bridge  the  period  until  plans  for an  equity  financing  can be
finalized.  However, if we are unable to obtain this financing, we may be forced
to liquidate our remaining assets and cease operations.

     December  31,  2000.  Our working  capital at December  31, 2000  increased
$624,571,  or 200%,  from the prior  fiscal year.  At December 31, 2000,  we had
working  capital of $933,994,  consisting of  $1,009,860  of current  assets and
$75,866 of current liabilities.  This compares to working capital of $309,423 at
December  31,1999.  Although  $327,425 of our current  assets are in the form of
cash, the balance is represented by accounts receivables, inventory, and prepaid
expenses that cannot be used to satisfy our immediate cash requirements.  Hence,
we suffered from a shortage of liquidity.

                                        8
<PAGE>

     The proceeds of the sale of our stock to one principal  shareholder in 2000
paid for a  significant  portion of our  expenses  in 2000 and  accounted  for a
significant  portion of our cash assets at year end.  During 2000,  we completed
the sale of  3,594,256  shares  of  common  stock in a  private  placement  at a
negotiated price of  approximately  $.37 per share. The aggregate value received
in the private  placement was  $1,343,780,  as  determined by the parties.  This
amount consists of $1,000,000 in cash;  payment of rent valued at $193,744,  for
our office  facilities for a two year term;  office  equipment and  improvements
valued at $32,192; and consulting services valued at $117,844.

     We  subsequently  determined that the fair market value of the common stock
for financial  statement  reporting  purposes on the date of the transaction was
approximately  $.55  per  share.  Accordingly,   we  recorded  additional  stock
compensation   of  $648,864  over  the  lives  of  the   associated   agreements
representing the difference  between the negotiated price per share and the fair
market value of the common stock.  During the year ended  December 31, 2000, the
amount of this additional compensation was $278,084.

Special Note Regarding Forward-Looking Statements
-------------------------------------------------

     This  Report  contains  forward-looking  statements  within the  meaning of
federal  securities  laws.  These  statements plan for or anticipate the future.
Forward-looking  statements  include  statements  about the future of the retail
apparel  industry,  statements  about our future  business plans and strategies,
statements  about our need for  working  capital,  future  revenues,  results of
operations and most other statements that are not historical in nature.  In this
Report,  forward-looking  statements  are  generally  identified  by  the  words
"anticipate,"  "plan,"  "believe,"  "expect,"  "estimate," and the like. Because
forward-looking  statements  involve future risks and  uncertainties,  there are
factors  that  could  cause  actual  results  to differ  materially  from  those
expressed or implied. Some of these risks include, among others, the following:

     1. Lack of Assured Source of Financing.
        ------------------------------------
     All of our liquid  assets were  extinguished  subsequent  to the end of the
2001 fiscal year in connection with the change in control discussed  previously.
As a result, we are dependent on the receipt of additional financing to continue
as a going concern. The report of our independent accountants raises substantial
doubt  about our ability to  continue  as a going  concern.  If we are unable to
obtain sufficient financing,  we may be forced to liquidate any remaining assets
and cease all operations. While we believe that we have the ability to raise the
required capital, there is no assurance that we will be successful.

     2. No Assured Source of Revenue.
        -----------------------------
     In  conjunction   with  the  change  in  control,   we  are   investigating
opportunities to acquire other business or properties to supplement our existing
business.  However, our business presently generates no revenue, and there is no
assurance  that we will be successful in  reorganizing  the business in order to
obtain revenue in the future.

                                        9
<PAGE>

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         ------------------------------------------

     Reference is made to the Index to Financial Statements following Part IV of
this  Report  for a listing  of the  Company's  financial  statements  and notes
thereto.


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

     On  January  4,  2000,  our  Board  of  Directors  engaged  Stark  Tinter &
Associates  LLC  (now,  Stark  Winter  Schenkein  & Co.,  LLP) as our  principal
accountant and independent  auditors for the years ending December 31, 1999, and
simultaneously accepted the resignation of Kish Leake & Associates,  P.C. as our
principal  accountant and auditors.  Kish Leak & Associates,  P.C. stated as its
reason for its  resignation  that it would no longer  engage in providing  audit
services to public companies.

     The reports of Kish Leake & Associates, P.C. for the two fiscal years prior
to its resignation did not contain an adverse opinion or a disclaimer of opinion
and were not qualified or modified as to uncertainty,  audit scope or accounting
principles.

     In connection  with the audits of our financial  statements  for the fiscal
year ended December 31, 1998,  and the period from inception  (June 30, 1997) to
December 31, 1997, there were no disagreements with Kish Leak & Associates, P.C.
on any  matters of  accounting  principles  or  practices,  financial  statement
disclosure,  or  auditing  scope and  procedure  which,  if not  resolved to the
satisfaction  of Kish Leake & Associates,  P.C.,  would have caused Kish Leake &
Associates, P.C. to make reference to the matter in their report.

     Prior  to the  engagement  of Stark  Winter,  we did not  consult  with any
representative  of that firm  regarding  any matter  required to be disclosed by
Item 304(a)(2) of Regulation S-B.


                                    PART III

ITEM 9. DIRECTORS,  EXECUTIVE  OFFICERS AND COMPLIANCE WITH SECTION 16(a) OF THE
        EXCHANGE ACT.
         -----------------------------------------------------------------------

     The following  individuals presently serve as officers and directors of the
Company.  All of our current  directors  except Mr. Gallagher have served on the
Board since February 10, 2002; Mr. Gallagher has served since January 11, 2002.

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

Scott Gallagher             35             Chairman of the Board of Directors,
                                           Chief Executive Officer and President

Linda Ehlen                 52             Chief Financial Officer

David R. Rasmussen          35             Director

                                       10
<PAGE>


W. Scott McBride            33             Director

James H. Gilligan           33             Director


     All of the directors are currently  serving a term of office until the next
annual meeting of the  shareholders  and until their successors are duly elected
and  qualified,  or until they resign or are removed.  The officers serve at the
will of the Board of  Directors  and  pursuant  to  employment  agreements  (see
below).

     The following  represents a summary of the business  history of each of the
current directors for the last five years:

     SCOTT GALLAGHER.
      ---------------
     Mr.  Gallagher  is the  president  of  About-Face  Communications,  LLC,  a
privately held business  consulting firm located in Yardley,  Pennsylvania.  Mr.
Gallagher  has held  that  position  since  1998.  Prior to  founding  AFC,  Mr.
Gallagher was the chief investment officer and a general partner with the Avalon
Investment  Fund, a private hedge fund based in New York City.  Prior to Avalon,
Mr.  Gallagher was a branch manager and founder of the  Langhorne,  Pennsylvania
office for Scottsdale  Securities,  Inc., a national brokerage firm based in St.
Louis, Mo.

         LINDA EHLEN.
         -----------

     Ms. Ehlen is currently  employed at Casa Comieda,  Inc., a company involved
in the  restaurant  business,  as Chief  Financial  Officer.  She has held  that
position since 1995. From 1981 to 1995, she was a controller  for Livingston Oil
Corp.  Ms.  Ehlen  earned her  Bachelor's  Degree in  Accounting  from  Monmouth
University, Rutgers School of Government and Accounting.


     DAVID R. RASMUSSEN.
     ------------------
     Mr. Rasmussen is currently employed in a leadership role by a subsidiary of
General  Electric  (NYSE:GE).   In  his  role,  he  is  charged  with  providing
information  technology  solutions  that  enable  the  business  to  drive  core
processes and grow profitable  relationships.  Prior to that, Mr.  Rasmussen was
associated  with  Arthur  Andersen  where  he  was  responsible  for  developing
solutions for a wide client base.

     Mr. Rasmussen has a Bachelor's degree in Computer Technology from Rockhurst
University in Kansas City Missouri.

     W. SCOTT MCBRIDE.
     ----------------
     He has been working as an independent  consultant with Saloman Smith Barney
for over five years.  In 2001,  Mr.  McBride  also  worked with Datek  Online in
Jersey City, New Jersey before  starting a new venture as an  independent  sales
consultant  with a publicly traded  security/biometric  firm. Mr. McBride earned
his Masters Degree in Education from Monmouth  University,  in Long Branch,  New
Jersey and BA in  Political  Science  from  Western  State  College in Gunnison,
Colorado.

                                       11
<PAGE>

     JAMES H. GILLIGAN.
     -----------------
     From 1996 to 2001, Mr. Gilligan was employed at Kristensons-Petroleum, Inc.
(KPI) as a broker/trader.  KPI services ship owners, marine fuel suppliers and a
network of independent  brokers/traders  around the world. In September of 2001,
Mr.  Gilligan began working as an independent  sales  consultant with a publicly
held security/biometric company. Mr. Gilligan earned his BA in Liberal Arts from
West Virginia  University  in  Morgantown,  West Virginia and his  Associates in
Liberal Arts from Brookdale Community College, in Lincroft, New Jersey.

COMPLIANCE WITH SECTION 16.
---------------------------

     The following table sets forth each director,  officer or beneficial  owner
of more than ten  percent of any class of equity  securities  of the  registrant
registered  pursuant to Section 12 that failed to file on a timely basis,  Forms
3, 4 or 5 as required  by Section  16(a)  during the most recent  fiscal year or
prior years.

Name of Reporting Person    Late Form 3  Late Form 4  Late Form 5  Transactions
------------------------    -----------  -----------  -----------  ------------
LeRoy Landhuis                  0            2             0            2
Roger K. Burnett                0            1             0            1


ITEM 10. EXECUTIVE COMPENSATION
         ----------------------

     The  following  table  presents a summary of the  compensation  paid to our
Chief  Executive  Officer during the last three fiscal years. No other executive
officer  received  compensation  in excess of $100,000  during  2001.  Except as
listed below, there are no bonuses, other annual compensation,  restricted stock
awards or stock  options/SARs  or any other  compensation  paid to the executive
officers.

                           Summary Compensation Table

                                                                 Long-term
                                   Annual Compensation          Compensation
                                ---------------------------   ------------------


                                                Other Annual  Securities
Name and Position                Year  Salary   Compensation  Underlying Options
-------------------------------  ----  ------   ------------  ------------------

LeRoy Landhuis,                  2000  $19,750   $117,844(1)         -0-(2)
 Chairman of the Board and       2001      -0-   $226,672(3)         -0-(2)
 Chief Executive Officer

----------------------------------------
     (1) Represents compensation for services pursuant to a Consulting Agreement
which was paid in the form of 315,201  shares of common stock valued at $.373869
per share.  For  additional  amounts  deemed  paid to the officer in the form of
discounted   securities,   See  Item  12.  Certain   Relationships  and  Related
Transactions.

     (2) Excludes  warrants for 1,036,000  shares of common stock.  See Item 12.
Certain Relationships and Related Transactions.

     (3) Includes 782,222 shares of common stock valued at $220,000  pursuant to
a consulting  agreement with the Named  Executive  Officer and 142,500 shares of
common stock valued at $6,672 issued pursuant to a registration rights agreement
with the Named Executive Officer. See Item 12. Certain Relationships and Related
Transactions.
----------------------------------------

                                       12
<PAGE>

Compensation Agreements
-----------------------

     Effective January 11, 2002, Mr. Gallagher executed an Executive  Employment
Agreement  with us pursuant to which he was  appointed our Chairman of the Board
and  Chief  Executive  Officer.  The  Agreement  provides  him a base  salary of
$100,000  per  year,  the   opportunity  for  bonuses  based  on  our  financial
performance,  1,200,000  shares of our common stock and the right to participate
in benefit programs maintained for its other employees. The Agreement covers the
period through the end of 2004,  subject to earlier  termination.  The Agreement
provides that we may terminate his employment with "cause," as defined  therein.
In the event that his employment is terminated  without  cause,  we must pay him
for the balance of the original term.

     Directors  are not  currently  compensated,  except as noted  above for Mr.
Landhuis,  although  each  is  entitled  to be  reimbursed  for  reasonable  and
necessary  expenses  incurred on our behalf.  We reserve the right to enter into
compensation arrangements with the directors in the future.

     There were no stock  options  granted for  services to the named  executive
officers in fiscal year 2001 and there were no stock options exercised by any of
the named executive officers in fiscal year 2001.

     The  following  table is a summary of the value of the  options  granted to
named  executive  officers  as of fiscal  year end 2001,  based  upon the latest
average trading price of our stock.

                          Fiscal Year End Option Value

                           Number of Shares
                           Underlying Unexercised      Value of Unexercised
                           Options at FY-End           Options at FY-End
                           Exercisable                 Exercisable/Unexercisable
                           ----------------------      -------------------------

Roger K. Burnett           200,000(1)                     $0(2)
Joseph F. DeBerry          200,000(1)                     $0(2)


----------------------------------------
     (1) These options were  cancelled  subsequent to year-end by agreement with
the holders.

     (2) Based upon the last sales  price of our common  stock on  December  31,
2001.
----------------------------------------

     Stock Option Plan
     -----------------
     We have  adopted a  Non-Qualified  Stock  Option and Stock  Grant Plan (the
"Plan")  for the  benefit  of key  personnel  and others  providing  significant
services to the Company.  An  aggregate of 2,500,000  shares of Common Stock has
been reserved for issuance under the Plan, as amended.

     The Plan is administered by the Board of Directors, which selects optionees
and  recipients  of any stock  grants,  the  number of shares  and the terms and
conditions  of any  options or grants to key  persons  defined  in the Plan.  In
determining the value of services rendered to the Company for purposes of awards

                                       13
<PAGE>

under  the  Plan,  the  Board  considers,  among  other  things,  such  person's
employment   position  and  relationship  with  the  Company,   his  duties  and
responsibilities,  ability,  productivity,  length of  service  or  association,
morale, interest in the Company,  recommendation by supervisors and the value of
comparable  services  rendered by others in the community.  All options  granted
pursuant  to the Plan are  exercisable  at a price not less than the fair market
value of the shares of Common Stock on the date of grant.

     There is no  taxable  income to an  optionee  as a result of the grant of a
Non-Qualified  Stock Option  unless the grant is at less than fair market value.
However,  an optionee incurs taxable income upon the exercise of a Non-Qualified
Stock Option based on the difference  between the fair value of the stock at the
time of exercise  and the exercise  price.  The Company is not entitled to a tax
deduction upon the grant of a Non-Qualified  Stock Option,  but is entitled to a
tax deduction upon exercise  corresponding to the optionee's  taxable income. In
2001,  no options  were granted  under the Plan.  Options to purchase a total of
598,000 shares of Common Stock are currently outstanding.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

     As of May 13, 2002, there were a total of 11,149,284 shares of Common Stock
of the Company and 50,000 Series A Preferred Shares of the Company  outstanding,
the only classes of voting securities of the Company currently outstanding.  The
Common Stock and the Series A Preferred  Shares vote together as a single class,
and each share is entitled to one vote.

     The  following  tabulates  holdings of Common  Stock of the Company by each
person  who holds of  record or is known by  management  of the  Company  to own
beneficially more than 5% of the voting securities outstanding and, in addition,
by all directors and officers of the Company  individually and as a group. There
are no officers or directors who own Preferred Stock and no holders of Preferred
Stock of the Company who own beneficially  more than 5% of the voting securities
outstanding.  Information in the table includes  options and warrants which were
outstanding and exercisable within 60 days of year-end 2000. Percentages include
shares  which  can be  issued  to the  named  shareholder,  but  not  any  other
shareholder.

     The  shareholders  listed below have sole voting and investment  power. The
address  of  each  of  the  beneficial  owners  is  1379  River  Road,  Yardley,
Pennsylvania 19067, unless otherwise  indicated.  All ownership of securities is
direct ownership unless otherwise indicated.

                                       Number of                  Percent of
            Name                        Shares                Voting Securities
--------------------------------       ----------             -----------------

Officers and Directors

Scott Gallagher                        3,081,618                    27.64%

Linda Ehlan                                 -0-                        -0-

David R. Rasmussen                          -0-                        -0-

                                       14
<PAGE>

W. Scott McBride                            -0-                        -0-

James H. Gilligan                           -0-                        -0-

All Officers and Directors
as a Group (5 persons)                 3,081,618                    27.64%


5% Beneficial Owners

LeRoy Landhuis(1)                      6,471,311                    53.11%
212 N. Wahsatch Avenue, Suite 301
Colorado Springs, CO 80903

----------------------------
     (1) Includes  warrants for 1,036,000  shares of Common  Stock,  exercisable
immediately for an exercise price of $1.50 per share,  and expiring on April 19,
2010.
----------------------------


Change in Control
-----------------

     See Item 1. Business,  "-History" for a description  of  transactions  that
resulted  in a  change  in  control.  We  know  of  no  other  relationships  or
arrangements that may result in a change in control in the future.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

Transactions with LeRoy Landhuis
--------------------------------

     During  the year  ended  December  31,  2001,  we issued a total of 924,722
shares to LeRoy Landhuis,  former  Chairman and Chief  Executive  Officer of the
Company  and  currently  the owner of  greater  than five  percent of our common
stock. Of that amount, 782,222 shares were issued for consulting services valued
at $220,000 and 142,500 shares valued at $6,672 were issued in  satisfaction  of
our obligation  pursuant to a registration  rights agreement.  We negotiated the
number of shares  issued in  connection  with the  consulting  services with Mr.
Landhuis prior to his becoming an officer and director, and the number of shares
was based on a discount  from the public  trading  price of our common  stock on
December 31, 2001.  We negotiated  the number of shares in  connection  with the
registration agreement at the time the shares were issued; this amount was based
on the fair market value of the common stock at the time of the  transaction and
the perceived value of the opportunity foregone by Mr. Landhuis.

     During the years ended  December 31, 2000 and 2001, we occupied  facilities
in space  leased from an affiliate of Mr.  Landhuis.  The rent paid  pursuant to
this  arrangement for those two years was $193,744,  based on the value assigned
to the stock that we issued to Mr. Landhuis in exchange for the rent.

                                       15
<PAGE>

     Effective April 19, 2000, we issued  3,594,256  shares of Common Stock in a
private  placement to Mr.  Landhuis.  The  aggregate  proceeds  from the private
placement  was  $1,343,780,  based  upon the  value of the  stock as  originally
negotiated  by the parties  ($.37 per share),  consisting of $1,000,000 in cash;
payment of rent  valued at  $193,744  for our office  facilities  for a two year
term;  office  equipment  and  improvements  valued at $32,192;  and  consulting
services  valued at $117,844.  Mr.  Landhuis was a minority  shareholder  in the
Company prior to the transaction.

     As part of that transaction, a Warrant was granted to Mr. Landhuis granting
him the right to acquire up to an  additional  1,036,000  shares of Common Stock
for the price of $1.50 per share, effective until April 19, 2010.

     The Company entered into an agreement with Mr.  Landhuis,  effective August
18,  2000  whereby  the  Company  would  indemnify  Mr.  Landhuis  for  any  tax
liabilities  Mr.  Landhuis incurs for income in excess of amounts agreed upon in
his prior agreements with the Company.

     These transactions with Mr. Landhuis were unanimously approved by the Board
of Directors as it then existed.

     During  2000,  Mr.  Landhuis  made a short term loan to the  Company in the
amount  of  $65,685  for  payroll,  accounts  payable,  merchandise  and  travel
expenses.  The loan was repaid prior to year end with  interest in the amount of
$1,585.

     Also  during 2001 and 2000,  $5,936 and  $16,065  was paid to the  Landhuis
Brokerage and Management Co. for consulting services and office support services
provided to the Company.  The Landhuis  Brokerage  and  Management  Co. was also
reimbursed $12,621 for travel expenses incurred on behalf of the Company.

     Finally, during 2000, $30,000 was reimbursed to Mr. Landhuis for legal fees
incurred regarding Mr. Landhuis's  acquisition of stock in the Company and other
related transactions.

                                       16
<PAGE>

                                     PART IV

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

     (a)  Exhibits.

          Except as otherwise  indicated,  each of the following  documents were
          included as exhibits to the Company's  Registration  Statement on Form
          10-SB filed under the Securities Act of 1934, File No. 0-24829 and are
          incorporated herein by this reference.

      Exhibit No.
      -----------

        2               Not applicable.

        3.1(1)          Articles of Incorporation of the Company as filed June
                        30, 1997 with the Secretary of State of the State of
                        Colorado.

        3.2(1)          Articles of Amendment of the Articles of Incorporation
                        of the Company as filed April, 15, 1998 with the
                        Secretary of State of the State of Colorado.

        3.3(6)          Articles of Amendment of the Articles of Incorporation
                        of the Company as filed August 23, 2000 with the
                        Secretary of State of the State of Colorado.

        3.4(1)          Bylaws of the Company.

        4.1(2)          Form of Certificate for Common Shares, $.0001 par value
                        per share.

        9               Not applicable.

       10.1(1)          Employment Agreement, by and between the Company and
                        Roger K. Burnett, dated August 5, 1997

       10.2(1)          Employment Agreement, by and between the Company and
                        Joseph F. DeBerry, dated August 5, 1997

       10.3(1)          Non-Qualified Stock Option and Stock Grant Plan, dated
                        July 1, 1998

       10.4(1)          Stock Option Agreement

       10.5(3)          Lease Agreement, dated January 21, 2000

       10.6(4)          Subscription Agreement, by and between the Company and
                        LeRoy Landhuis, dated April 19, 2000

       10.7(6)          Consulting Agreement, by and between the Company and
                        LeRoy Landhuis, dated January 1, 2000

                                       17
<PAGE>

       10.8(6)          Agreement, by and between the Company and LeRoy
                        Landhuis, dated August 18, 2000

       10.9(7)          Executive Employment Agreement between the Company and
                        Scott Gallagher dated January 11, 2002

       11               Not applicable.

       13               Not applicable.

       16(5)            Letter of Change in Certifying Accountant

       18               Not applicable.

       21               Not applicable.

       22               Not applicable.

       23               Not applicable.

       24               Not applicable.

       27               Not applicable.

       99               Not applicable.

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

(1) included as an exhibit to Form 10-SB dated August 24, 1998, and incorporated
herein by this reference

(2)  included  as an exhibit to our Annual  Report on Form 10-KSB for the fiscal
year ended December 31, 1998, and incorporated herein by this reference

(3)  included  as an exhibit to our Annual  Report on Form 10-KSB for the fiscal
year ended December 31, 1999, and incorporated herein by this reference

(4)  included as an exhibit to our Current  Report on Form 8-K,  dated April 19,
2000, and incorporated herein by this reference

(5) included as an exhibit to our Current  Report on Form 8-K,  dated January 4,
2000, and incorporated herein by this reference

(6)  included  as an exhibit to our Annual  Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by this reference

(7) included as an exhibit to our Current  Report on Form 8-K, dated January 11,
2002, and incorporated herein by this reference

     (b) Reports on Form 8-K

          The  Company  has not filed any  Reports on Form 8-K during the fourth
          quarter of the fiscal year covered by this Report.

     (c) Financial Statements and Schedules.

          The  Financial  Statements  filed herein are described in the Index to
          Financial Statements following Part IV of this Report.

                                       18
<PAGE>

                                    SIGNATURE
                                    ---------

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the Registrant has caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized in Yardley,  Pennsylvania on
the 15th day of May, 2002.


                                FTS APPAREL, INC.


                            By: /s/ Scott Gallagher
                               -----------------------------------------------
                               Scott Gallagher, Chairman of the Board,
                               Chief Executive Officer, President and Director


     Pursuant to the  requirements  of the  Security  Exchange  Act of 1934,  as
amended,  this Report has been signed by the following persons in the capacities
and on the dates indicated.

Signatures                             Title                         Date



/s/ Scott Gallagher             Chairman of the Board,          May 15, 2002
-----------------------         Chief Executive Officer,
Scott Gallagher                 President and Director



/s/ Linda Ehlen                 Chief Financial Officer         May 15, 2002
-----------------------         and Secretary
Linda Ehlen



/s/ James H. Gilligan           Director                        May 15, 2002
-----------------------
James H. Gilligan



/s/ Scott McBride               Director                        May 15, 2002
-----------------------
Scott McBride

<PAGE>

                                FTS Apparel, Inc.
                                Table of Contents

                                                                   Page
                                                                   ----

Report of Independent Auditors                                       F-1

Balance Sheet                                                        F-2

Statements of Operations                                             F-3

Statement of Changes in Stockholders' Equity                         F-4

Statements of Cash Flows                                             F-5

Notes to Financial Statements                                     F-6 - F-14


<PAGE>

STARK WINTER SCHENKEIN & CO., LLP
--------------------------------------------------------------------------------
                                                    Certified Public Accountants
                                                           Financial Consultants


                         REPORT OF INDEPENDENT AUDITORS


Shareholders and Board of Directors
FTS Apparel, Inc.

We have  audited  the  accompanying  balance  sheet of FTS  Apparel,  Inc. as of
December  31,  2001,  and the  related  statements  of  operations,  changes  in
stockholders'  equity,  and cash flows for the years ended December 31, 2001 and
2000.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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 by management, as well as evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of FTS  Apparel,  Inc. as of
December 31, 2001, and the results of its operations, and its cash flows for the
years ended December 31, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company has suffered recurring losses from operations.
This factor raises  substantial doubt about the Company's ability to continue as
a going concern.  Management's plans in regard to this matter are also discussed
in Note 2. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.




Denver, Colorado
April 22, 2002


/s/ Stark Winter Schenkein & Co., LLP
-------------------------------------
Stark Winter Schenkein & Co., LLP


     7535 East Hampden Avenue, Suite 109         o Denver, Colorado 80231
                       o (303) 694-6700 Fax (303)694-6761

                                       F-1
<PAGE>
                                FTS APPAREL, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 2001


                                     ASSETS

CURRENT ASSETS
      Cash - restricted                                          $    44,236
      Other current assets                                            19,682
                                                                 -----------
                 Total current assets                            $    63,918
                                                                 ===========



                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Accounts payable and accrued expenses                      $     2,101
      Accounts payable - related party                                 2,357
                                                                 -----------
                 Total current liabilities                             4,458
                                                                 -----------

STOCKHOLDERS' EQUITY
      10% Convertible preferred stock, Series A, $0.01
        par value, 150,000 shares authorized, 50,000
        shares issued and outstanding                                 50,000
      Preferred stock, $0.01 par value, 4,850,000 undesignated
        shares authorized, none issued or outstanding                   --
      Common stock, $0.001 par value, 25,000,000 shares
        authorized, 8,645,951 shares issued
        and outstanding                                                8,646
      Additional paid in capital                                   4,254,462
      Accumulated (deficit)                                       (4,253,648)
                                                                 -----------

                                                                      59,460
                                                                 -----------

                                                                 $    63,918
                                                                 ===========

 The notes to the financial statements are an integral part of these statements

                                       F-2
<PAGE>


                            FTS APPAREL, INC.
                         STATEMENTS OF OPERATIONS



                                                   YEAR ENDED     YEAR ENDED
                                                  DECEMBER 31,   DECEMBER 31,
                                                      2001          2000
                                                  -----------    -----------

 REVENUES
       Sales of merchandise                       $   568,953    $ 1,327,464
       Advertising and promotion income                 7,893          6,860
       Trade agreements                                  --           25,960
                                                  -----------    -----------

                                                      576,846      1,360,284

 COST OF GOODS SOLD                                   645,824      1,043,416
                                                  -----------    -----------

 GROSS PROFIT (LOSS)                                  (68,978)       316,868

 GENERAL AND ADMINISTRATIVE EXPENSES                1,101,127      1,643,727
                                                  -----------    -----------

 (LOSS) FROM OPERATIONS                            (1,170,105)    (1,326,859)
                                                  -----------    -----------

OTHER INCOME (EXPENSE)
      Interest income                                   3,207         11,179
      Interest expense                                 (1,256)       (12,750)
                                                  -----------    -----------

                                                        1,951         (1,571)
                                                  -----------    -----------

NET (LOSS)                                         (1,168,154)    (1,328,430)

PREFERRED DIVIDENDS                                      --           (1,411)
                                                  -----------    -----------

NET (LOSS) APPLICABLE TO COMMON STOCK             $(1,168,154)   $(1,329,841)
                                                  ===========    ===========

PER SHARE INFORMATION:

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
      (BASIC AND DILUTED)                           8,598,451      6,807,656
                                                  ===========    ===========

NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED)   $     (0.14)   $     (0.20)
                                                  ===========    ===========

The notes to the financial statements are an integral part of these statements

                                       F-3
<PAGE>

<TABLE>
                                FTS APPAREL, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2001 AND 2000
                      (Table Split - see below - continued)
<CAPTION>

                                                        Number of   Number of
                                                        Preferred   Common      Preferred  Common
                                                        Shares       Shares     Stock      Stock
                                                        ---------   ---------   ---------  ------

<S>                                                     <C>         <C>         <C>        <C>
Balance, December 31, 1999                                 50,000   3,939,722   $ 50,000   $3,940

      Stock issued for services and fixed assets             --     1,106,773       --      1,106

      Stock issued for cash                                  --     2,674,734       --      2,675

      Preferred dividends declared                           --          --         --       --

      Net (loss) for the year ended December 31, 2000        --          --         --       --
                                                        ---------   ---------   --------   ------

Balance, December 31, 2000                                 50,000   7,721,229     50,000    7,721

      Subscribed stock issued                                --       105,000       --        105

      Stock issued for services                              --       819,722       --        820

      Net (loss) for the year ended December 31, 2001        --          --         --       --
                                                        ---------   ---------   --------   ------

Balance, December 31, 2001                                 50,000   8,645,951   $ 50,000   $8,646
                                                        =========   =========   ========   ======
</TABLE>


<TABLE>
                                FTS APPAREL, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2001 AND 2000
                            (Table Split - continued)
<CAPTION>


                                                                 Additional                   Total
                                                                 Paid-in       Accumulated    Stockholders'
                                                                 Capital         Deficit        Equity
                                                                 ----------    -----------    -----------

                                                                 <C>           <C>            <C>

Balance, December 31, 1999                                       $2,034,632    $(1,755,653)   $   332,919

      Stock issued for services and fixed assets                    996,758           --          997,864

      Stock issued for cash                                         997,325           --        1,000,000

      Preferred dividends declared                                     --           (1,411)        (1,411)

      Net (loss) for the year ended December 31, 2000                  --       (1,328,430)    (1,328,430)
                                                                 ----------    -----------    -----------

Balance, December 31, 2000                                        4,028,715     (3,085,494)     1,000,942

      Subscribed stock issued                                          (105)

      Stock issued for services                                     225,852           --          226,672

      Net (loss) for the year ended December 31, 2001                  --       (1,168,154)    (1,168,154)
                                                                 ----------    -----------    -----------

Balance, December 31, 2001                                       $4,254,462    $(4,253,648)   $    59,460
                                                                 ==========    ===========    ===========
</TABLE>


The notes to the financial statements are an integral part of these statements

                                       F-4
<PAGE>

<TABLE>
                                FTS APPAREL, INC.
                            STATEMENTS OF CASH FLOWS
<CAPTION>

                                                              YEAR ENDED     YEAR ENDED
                                                             DECEMBER 31,   DECEMBER 31,
                                                                2001           2000
                                                             -----------    -----------
<S>                                                          <C>            <C>

OPERATING ACTIVITIES
         Net (loss)                                          $(1,168,154)   $(1,328,430)
         Adjustments to reconcile net (loss) to net cash
             (used in) operating activities:
                 Amortization and depreciation                    32,822         11,695
                 Stock issued or subscribed for services,
                    contracts, and trade agreements              226,672        249,501
                 Amortization of non-cash prepaid
                    expenses                                     304,728        481,178
                 Write-down of inventory                         111,979           --
                 Loss on sale of property and equipment           (2,662)          --
         Changes in:
             Accounts receivable                                  89,165         (6,716)
             Inventory                                           176,718       (126,917)
             Prepaid expenses                                       --          128,928
             Deposits                                             11,782         (8,665)
             Accounts payable and accrued expenses               (66,799)           216
             Accounts payable - related party                      1,971           --
             Deferred income - trade agreements                     --          (21,520)
                                                             -----------    -----------
                 Net cash (used in) operating activities        (281,778)      (620,730)
                                                             -----------    -----------

INVESTING ACTIVITIES
     Acquisition of fixed assets                                    --          (10,532)
                                                             -----------    -----------
                   Net cash (used in) investing activities          --          (10,532)
                                                             -----------    -----------

FINANCING ACTIVITIES
     Common stock issued, net of offering costs                     --        1,000,000
     Proceeds from note payable                                     --          724,558
     Proceeds from officer loan                                     --           65,685
     Proceeds from note payable - related party                     --             --
     Payments on note payable                                       --         (724,558)
     Payments on officer loan                                       --          (65,685)
     Payments on note payable - related party                       --          (42,000)
     Preferred dividends paid                                     (1,411)        (5,000)
                                                             -----------    -----------
                 Net cash provided by financing activities        (1,411)       953,000
                                                             -----------    -----------

                           Net increase (decrease) in cash      (283,189)       321,738

CASH AT BEGINNING OF YEAR                                        327,425          5,687
                                                             -----------    -----------

CASH AT END OF YEAR                                          $    44,236    $   327,425
                                                             ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
     Cash paid for:
         Interest                                            $     1,256    $    12,750
                                                             ===========    ===========
         Income taxes                                        $      --      $      --
                                                             ===========    ===========

SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH
FINANCING AND INVESTING ACTIVITIES

During the year ended December 31, 2000, the Company
     issued  469,597 shares of common stock for the
     following assets:

     Prepaid rent                                            $      --      $   193,744
     Prepaid consulting                                             --          522,427
     Property and equipment                                         --           32,192
                                                             -----------    -----------
                                                             $      --      $   748,363
                                                             ===========    ===========
</TABLE>

The notes to the financial statements are an integral part of these statements

                                       F-5
<PAGE>


                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

Note 1 - Organization and Summary of Significant Accounting Policies

Organization

FTS Apparel,  Inc. (the Company) was incorporated under the laws of the State of
Colorado. The Company's primary purpose has been the development, marketing, and
distribution  of clothing  apparel  bearing the FTS (Flip the Switch)  insignia.
Subsequent to December 31, 2001, the Company  experienced changes in control and
operations (see Note 8).

Use of Estimates

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

Cash and Cash Equivalents

For  purposes of the  statement  of cash flows,  the Company  considered  demand
deposits and highly liquid-debt  instruments  purchased with a maturity of three
months or less to be cash equivalents.

Inventory

Inventories  are stated at the lower of cost or market  using the  average  cost
method.  The  Company's  evaluates  the net  realizable  value of inventory on a
quarterly basis. For the year ending December 31, 2001, the Company has recorded
a loss on  write-down  of inventory  of  $111,979,  which is included in cost of
goods sold.

Property and Equipment

Property  and  equipment  is stated at cost and is being  depreciated  using the
straight-line method over the asset's estimated economic life, ranging from 3 to
10 years.  Subsequent  to December  31, 2001,  the Company  entered into a lease
settlement agreement (See Note 8) in which all assets were given to the landlord
as partial  satisfaction of a lease  obligation.  The net book value of property
and equipment of $19,682 is included in other current assets.

Depreciation  expense for the years ended December 31, 2001 and 2000 was $30,063
and $9,851, respectively.

                                       F-6
<PAGE>

                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


Financial Instruments

Fair value estimates  discussed herein are based upon certain market assumptions
and pertinent  information  available to management as of December 31, 2001. The
respective  carrying  value of certain  on-balance-sheet  financial  instruments
approximated  their fair values.  These financial  instruments  include cash and
accounts  payable and accrued  expenses.  Fair values are assumed to approximate
carrying values for these financial  instruments  because they are short term in
nature,  or are  receivable  or payable on demand,  and their  carrying  amounts
approximate fair value.

Impairment of Long-Lived Assets

The Company  periodically  reviews the carrying  amount of  property,  plant and
equipment and its identifiable  intangible  assets to determine  whether current
events or  circumstances  warrant  adjustments to such carrying  amounts.  If an
impairment  adjustment is deemed necessary,  such loss is measured by the amount
that the carrying  value of such assets  exceeds their fair value.  Considerable
management  judgement  is  necessary  to  estimate  the fair  value  of  assets;
accordingly, actual results could vary significantly from such estimates. Assets
to be disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell.

Revenue Recognition

Net revenues from wholesale  product sales are  recognized  upon the transfer of
title and risk of ownership to  customers.  Allowances  for  estimated  returns,
discounts and doubtful  accounts are provided when sales are recorded.  Shipping
and handling costs are included in cost of sales.

The Company  recognizes  revenue from  advertising  and promotion  income as the
requisite services are provided.

Advertising Costs

Advertising is expensed as incurred. Advertising costs expensed during the years
ended December 31, 2001 and 2000 were $ - and $138,312, respectively.

Segment information

The Company  follows  Statement of Financial  Accounting  Standards  (SFAS) 131,
"Disclosure  about Segments of an Enterprise and Related  Information".  Certain
information is disclosed,  per SFAS 131,  based on the way management  organizes
financial information for making operating decisions and assessing  performance.
The  Company  currently  operates  in one  business  segment  and will  evaluate
additional segment disclosure requirements if it expands operations.

                                       F-7
<PAGE>

                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


Net Loss Per Common Share

The Company  follows SFAS 128,  "Earnings Per Share".  Basic earnings (loss) per
common share  calculations  are  determined by dividing net income (loss) by the
weighted average number of shares of common stock  outstanding  during the year.
Diluted earnings (loss) per common share calculations are determined by dividing
net income (loss) by the weighted  average  number of common shares and dilutive
common  share  equivalents  outstanding.   During  the  periods  when  they  are
anti-dilutive,  common  stock  equivalents,  if any, are not  considered  in the
computation.

Stock-Based Compensation

The Company  accounts for stock based  compensation in accordance with SFAS 123,
"Accounting  for  Stock-Based  Compensation."  The  provisions of SFAS 123 allow
companies  to either  expense the  estimated  fair value of stock  options or to
continue  to follow the  intrinsic  value  method set forth in APB  Opinion  25,
"Accounting  for Stock Issued to Employees"  (APB 25) but disclose the pro forma
effects on net income  (loss) had the fair value of the options  been  expensed.
The Company has elected to continue to apply APB 25 in accounting  for its stock
option incentive plans.

The Company has issued its common stock as  compensation to  non-employees.  The
Company measures the amount of stock-based  compensation based on the fair value
of the equity  instrument  issued or the  services  or goods  provided as of the
earlier of (1) the date at which an agreement  is reached with the  non-employee
as to the  number of shares to be  issued  for  performance,  or (2) the date at
which the non-employees' performance is complete.

Recent Pronouncements

In July 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS 141,
Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations  completed after June 30, 2001. SFAS 142
is effective for the year beginning January 1, 2002;  however certain provisions
of that Statement apply to goodwill and other intangible assets acquired between
July 1, 2001,  and the effective  date of SFAS 142. The Company does not believe
the adoption of these  standards  will have a material  impact on its  financial
statements.

                                       F-8
<PAGE>


                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


In July  2001,  the FASB  issued  SFAS  143,  Accounting  for  Asset  Retirement
Obligations.  This statement  addresses  financial  accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs.  This Statement  applies to all entities.  It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition,  construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement  is  effective  for  financial  statements  issued  for  fiscal  years
beginning  after June 15,  2002.  The  Company is  evaluating  the impact of the
adoption of this standard and has not yet  determined  the effect of adoption on
its financial position and results of operations.

In August  2001,  the FASB issued SFAS 144,  Accounting  for the  Impairment  or
Disposal of Long-Lived Assets. This statement addresses financial accounting and
reporting for the  impairment or disposal of  long-lived  assets and  supersedes
SFAS 121,  Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The  provisions  of the  statement  are  effective for
financial  statements issued for fiscal years beginning after December 15, 2001.
The Company is  evaluating  the impact of the adoption of this  standard and has
not yet determined the effect of adoption on its financial  position and results
of operations.

Note 2 - Going Concern

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles, which contemplates continuation of the
Company as a going  concern.  However,  the  Company has  sustained  substantial
recurring losses, aggregating $1,168,154 in 2001 and $1,328,430 in 2000.

The  Company's  ability to continue as a going  concern is  contingent  upon its
ability to attain profitable  operations and obtain capital. The Company intends
to raise capital through the sale of equity  securities  and/or the solicitation
of short term financing. However, the Company has no firm commitments for either
the sale of equity securities or debt financing.

The financial  statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.

Note 3 - Stockholders' Equity

The Company  has  authorized  30,000,000  shares of stock,  of which  25,000,000
shares are $.001 par value common stock and 5,000,000  shares are $.01 par value
preferred  stock.  The Board of Directors is  authorized  to divide the class of
preferred  shares into series and to fix and determine  the relative  rights and
preferences of those shares.

                                       F-9
<PAGE>

                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


In April 1998 the Company  authorized the issuance of 150,000 shares of Series A
Voting  Convertible  Cumulative  Preferred Stock for $1 per share.  The Series A
Convertible Preferred Stock paid senior preferential fixed dividends at the rate
of 10% per annum  until  April  2000.  From May 2000  through  April  2003,  the
dividend is  calculated at 3.75% of the "net profits" of the Company and payable
annually on or before 90 days from the  closing of the  Company's  fiscal  year.
Each  share of Series A  Convertible  Preferred  Stock is  convertible  into one
common  stock  share at the  option  of the  holder.  The  Series A  Convertible
Preferred Stock automatically converts to common stock in April 2003.

During the year ended December 31, 2000, the Company issued  1,106,773 shares of
common  stock for  services  and assets  valued at  $997,864  ($.25 to $1.38 per
share).  The values  ascribed  to the common  stock  corresponded  with the fair
market value of the common shares on the respective  dates the Company agreed to
issue the shares.

During the year ended December 31, 2000,  the Company sold  2,674,734  shares of
common stock for cash of  $1,000,000.  The shares were sold at a discount to the
fair market value as quoted on the OTC Bulletin  Board of 30% to account for the
shares being restricted pursuant to Rule 144 of the Securities Act of 1933.

During  January 2001,  the Company issued 782,222 shares of common stock related
to consulting services to be provided by the Chief Executive Officer.  The value
of the  consulting  services is  stipulated to be $220,000.  Per the  consulting
agreement, the shares were valued at 75% of the average bid and ask price of the
common stock on December 31, 2000,  which  approximates  the discount that would
have  been  applied  due to the  shares  being  restricted  per  Rule 144 of the
Securities Act of 1933.

During April 2001,  the Company issued 142,500 shares of common stock related to
a stock purchase agreement with the Chief Executive Officer in which the Company
agreed to issue 12,500  shares every month until a  Registration  Statement  was
filed. The parties agreed to delay the filing of the Registration  Statement and
that the total additional  shares issued would be 142,500 shares. Of the 142,500
shares issued during 2001, 105,000 were earned and subscribed as of December 31,
2000. The remaining 37,500 shares were earned during the year ended December 31,
2001.

                                      F-10
<PAGE>


                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

Note 4 - Stock Options

The Company has a Non-Qualified  Stock Option and Stock Grant Plan (the "Plan"),
adopted in July 1997. Under the Company's Plan, the Company's Board of Directors
has  reserved  2,500,000  shares that may be granted at the Board of  Directors'
discretion. No option may be granted after July 27, 2007 and the maximum term of
the options granted under the Plan is ten years.

The effect of applying  SFAS 123 on pro forma net (loss) as stated  below is not
necessarily  representative  of the  effects on reported  net income  (loss) for
future years due to, among other things, the vesting period of the stock options
and the fair value of additional stock options in future years. Had compensation
cost for the Company's  stock option plans been  determined  based upon the fair
value  at the  grant  date  for  awards  under  the  plans  consistent  with the
methodology  prescribed under SFAS 123, the Company's net (loss) would have been
$1,340,040,  or $.19 per share,  for 2000.  The  Company did not grant any stock
options  during  2001.  The fair values of the options  granted  during 2000 was
$1.08 on the date of grant using the Black-Scholes option pricing model with the
following  assumptions:  no  dividend  yield,  volatility  of 105%,  a risk-free
interest rate of 6.00%, and expected lives of 10 years from date of vesting.

Changes in options outstanding under the plan are summarized as follows:

                                         Number of        Weighted
                                          Shares          Average
                                                       Exercise Price
                                         ---------       ---------
Outstanding at December 31, 1999         1,036,000       $   1.50
Granted                                     14,000           1.44
Exercised                                     --               --
Forfeited                                     --               --

Outstanding at December 31, 2000         1,050,000           1.50
                                         ---------       ---------
Granted                                       --              --
Exercised                                     --              --
Forfeited                                 (452,000)          1.50
                                         ---------       ---------
Outstanding at December 31, 2001           598,000         $ 1.50
                                         =========       =========

The exercise price for all options is at or above the market value of the common
stock as of the date of grant.

The following table summarizes information about fixed price stock options:


                                      F-11
<PAGE>


                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


                                                Outstanding and     Exercisable
                                                    Weighted         Weighted
                                                    Average           Average
                                  Number          Contractual         Exercise
          Exercise Prices       Outstanding          Life              Price
          ---------------       -----------     ---------------    ------------
           $0.81 - $1.38            4,000         7.1 years            $1.14
           $1.50 - $2.75        1,044,000         7.7 years            $1.50

Note 5 - Stock Warrants

The following details the warrants outstanding as of December 31, 2001:

                                    Underlying        Exercise
                                      Shares            Price
                                    ---------          -------
Warrant issued during 2000          1,036,000          $1.50

The  warrant  was  issued to the Chief  Executive  Officer of the  Company.  The
Warrant  expires on April 19,  2010.  At  December  31,  2001,  the  Company had
reserved 1,036,000 shares of common stock for stock warrants.

Note 6 - Income Taxes

The Company  accounts  for income taxes under SFAS 109,  "Accounting  for Income
Taxes",  which  requires use of the  liability  method.  SFAS 109 provides  that
deferred  tax assets  and  liabilities  are  recorded  based on the  differences
between the tax bases of assets and liabilities  and their carrying  amounts for
financial reporting purposes, referred to as temporary differences. Deferred tax
assets  and  liabilities  at the end of each  period  are  determined  using the
currently  enacted tax rates  applied to taxable  income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.

Reconciliation  of the Federal statutory income tax rate of 34% to the effective
rate is as follows:

          Federal statutory income tax rate                  34.00 %
          State taxes, net of federal benefit                 4.95 %
          Valuation allowance                               (38.95)%
                                                            ----------
                                                                -- %
                                                            ==========

The tax effects of temporary differences and net operating losses that give rise
to significant portions of deferred tax assets and liabilities  consisted of the
following:


             Reconciling items:

             Net operating loss carryforward        $ 1,413,000
             Less valuation allowance                (1,413,000)
                                                    -----------
             Net deferred tax asset                 $       --
                                                    ===========

The net operating  loss carry forward of  approximately  $3,623,000  will expire
through 2021.

                                      F-12
<PAGE>

                                FTS APPAREL, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


The net change in valuation  allowance for the year ended  December 31, 2001 was
$617,000.

Note 7 - Related Party Transactions

The Company was the recipient of legal services from a shareholder.  The Company
incurred expenses of $24,841 and $16,218 related to these services for the years
ended December 31, 2001 and 2000, respectively.

On April 19, 2000,  the Company  issued  3,594,256  shares of common stock and a
stock warrant (See Note 5) in exchange for cash,  fixed assets,  office rent and
consulting  services.  The  agreement  also  requires  the  Company  to  file  a
Registration  Statement  for the  shares  issued and to issue  12,500  shares of
common stock per month until the filing of a Registration Statement.  Subsequent
to the year ended  December 31, 2000,  the parties agreed to delay the filing of
the Registration  Statement and that the total additional shares issued would be
142,500 shares.

During 2000, an officer of the Company provided a short-term  operating loan for
$65,685. The note was repaid, with interest of $1,585, during 2000.

In prior years,  the Company entered into promissory note agreements for $42,000
with two members of the board of  directors.  The  principal,  plus  interest of
$2,850, was paid during 2000.

Note 8 - Subsequent Events

The Company  entered  into a lease  settlement  agreement  with a related  party
whereby,  for forgiving a one-year lease  obligation for office space,  he would
receive the following:  (i) all cash on hand at January 5, 2002, (ii) assignment
of all equipment and inventory remaining in the office,  (iii) assignment of all
uncollected  accounts receivable as of January 5, 2002, (iv) issuance of 433,333
shares of common stock, (v) accrual of interest on the remaining  balance at the
rate of 12%, and (vi) settlement of any remaining  balance in the form of common
stock at an assigned value of $0.03 per share.  Any difference  between the fair
market value of the common  stock and the assigned  value will be recorded as an
expense.  The Company anticipates issuing  approximately  935,000 shares of its'
common stock to satisfy the remaining balance.

Effective  January 11, 2002,  the Company  experienced  a change in control,  in
which  the Board of  Directors  appointed  a new  Chairman  and Chief  Executive
Officer.  In  connection  with the change in control, the Company has decided to
explore opportunities outside of the apparel industry. However, the Company does
not anticipate abandoning their traditional business.

During January 2002, the Company agreed to issue 2,070,000  shares of its common
stock related to employment agreements and services to be provided.

                                       F-13