U.S. Securities
  and Exchange Commission
  Washington, D.C. 20549

Form 10-QSB

|[x]  | QUARTERLY
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934            
|---- | ----------------------------------------------------------------------------------------------------
|     | For
      the quarterly ended June 30, 2002                                                         
|     |                                                                                                     
|[  ] | TRANSITION
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934           
|     | For
      the transition period from ___________________________to__________________________________

Commission
  File No. 000-25107

THERMOELASTIC
  TECHNOLOGIES, INC.(Name of Small Business Issuer in its Charter)

|COLORADO                                |  | 51-0387926                        
|--------------------------------------- |  | ----------------------------------
|(State
        or Other Jurisdiction of |  | (I.R.S.
        Employer I.D. No.)
|incorporation
        or organization)  |  |                                   

1109 7th
  Court, Fox Island WA 98333
  (Address of Principal Executive Offices)
  Issuers Telephone Number: (253) 549-4336

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

APPLICABLE
  ONLY TO CORPORATE ISSUERS

State
  the number of shares outstanding of each Issuers classes of common equity,
  as of the latest practicable date: June 30, 2002: Common Stock  188,912,444

Transitional Small Business
  Issuer Format Yes [  ]   No [x]

---

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

A financial
  statement, unaudited and included herein, beginning on page F-1 (Exhibit 99.0),
  is incorporated herein by this reference.

The Financial
  Statements of the Company required to be filed with this 10-QSB Quarterly Report
  were prepared by management, together with related Notes. In the opinion of
  management, these Financial Statements fairly present the financial condition
  of the Company, but should be read in conjunction with the Financial Statements
  of the Company for the year ended September 30, 2001 previously filed with the
  Securities and Exchange Commission.

Item 2.
  Managements Plan of Operations

Our discussion
  and analysis of our financial condition and results of operations are based
  upon our consolidated statements, which have been prepared in accordance with
  accounting principles generally accepted in the United States. The preparation
  of these financial statements requires us to make estimates and judgments that
  affect the reported amounts of assets, liabilities, revenues and expenses. In
  consultation with our Board of Directors, we have identified certain accounting
  policies that we believe are key to an understanding of our financial statements.
  These are important accounting policies that require managements most
  difficult, subjective judgments.

The Company
  is in its initial stages of development with minor revenues and income and is
  subject to all the risks inherent in the creation of a new business. Since the
  Company s principal activities to date have been limited to organizational
  activities, prospect development, and acquisition of interests, it has no record
  of any material revenue-producing operations. Consequently, there is no operating
  history upon which to base an assumption that the Company will be able to achieve
  its business plans.

When used
  in this Form 10-QSB, the words anticipate, estimate,
  expect, project and similar expressions are intended
  to identify forward-looking statements. Such statements are subject to certain
  risks, uncertainties and assumptions including the possibility that the Companys
  proposed plan of operation will fail to generate revenues. Should one or more
  of these risks or uncertainties materialize, or should underlying assumptions
  prove incorrect, actual results may vary materially from those anticipated,
  estimated or projected.

PRINCIPAL
  PRODUCT

ThermoElastic
  Technologies, Inc., a development stage entity (the Company or TTI),
  was incorporated on January 21, 1999, in the State of Delaware to carry on the
  business of marketing and distributing a new generation acrylic, known as Biocompatible
  Intraoral Thermo Elastic Material (BITEM), which was anticipated
  to be sold to dental related businesses and other allied fields throughout the
  world. On July 15, 1999, the Company entered into a reverse acquisition agreement
  with LPR Cybertek (LPR) to become a publicly traded company incorporated
  under the laws of the State of Colorado. The goal of the Company was to market
  products throughout specified geographical locations in the dental field. During
  the quarter ended March 31, 2001, the Company acquired the exclusive right to
  distribute DISIFIN in the United States and Canada. DISIFIN is a solid cleaning
  product used as a disinfectant in the medical, dental and food processing industries.
  In August, 2002, the agreements concerning both BITEM AND DISIFIN were both
  canceled and the Company is seeking a suitable merger candidate at the present
  time. Apple Dental Ventures Inc. terminated its agreement with the Company whereby
  the Company had entered into an agreement with Apple Dental Ventures to acquire
  the rights and related privileges to manufacture, market distribute and sell
  by retail, wholesale or any other method the BITEM products due
  to the Company s failure to pay certain monies due under that Agreement.

---

In August,
  2002, in Orlando, Florida, the FBI and the SEC arrested two of the Company
  s officers and directors as well as two principal shareholders and certain consultants
  to the Company in connection with an undercover federal investigation into alleged
  securities, wire and mail fraud. The Company was not named as a party. Subsequently,
  the named officers and directors resigned.

The CEO
  of the Company is examining all previous consulting agreements, stock options
  and stock issuances for cash and services to determine that the agreements and
  stock issuances were valid and that all consideration due has been received
  by the Company. Any future stock issuances required under these agreements have
  been frozen pending review of each agreement.

The Company
  has a subsidiary, ThermoElastic Technologies (CANADA), Inc. which was organized
  in June, 1999. The subsidiary is inactive and no financial activities have occurred
  in the subsidiary.

The Company
  is in the development stage of operations. Certain shareholders of the Company
  contributed their free trading stock in satisfaction of certain of the Company
  s debts and obligations. The Company replaced these shares with shares of restricted
  stock.

The Company,
  over the next twelve months, intends to search for a suitable merger candidate
  as the Company will not be able to continue its proposed operation of marketing
  and distributing dental applications in the United States and internationally.

RESULTS
  OF OPERATIONS

For the
  three months ended June 30, 2002, the Company had revenues of $12,180 with a
  gross profit of approximately $4,000. Total expenses were $3,995,369, resulting
  in a net loss for the quarter of ($3,991,342) compared to net revenues of $2,001
  and expenses of $532,992 for the quarter ended June 30, 2001, which resulted
  in a net loss for the quarter of ($530,991). The net loss per share for the
  three month periods ended June 30, 2002 and 2001 was ($.05) and ($.03), respectively.
  Sales increased from $2,001 to $12,180 for the three months ended June 30, 2002
  compared to June 30, 2001. The increase in sales was due to the Company acquiring
  government approval to sell the BITEM product. Expenses increase from $532,992
  to 3,995,369 for the three months ended June 30, 2002 compared to the same period
  ended June 30, 2001. The increase in expenses resulted from the writing off
  of $3,000,000 of prepaid consulting fees and the write-off of $319,318 of product
  rights resulting from the Company s defaults under the product rights
  agreements. The net loss increase from $530,991 to $3,995,369 for the three
  month period ended June 30, 2002 compared to June 30, 2001. The increase in
  the net loss was primarily caused by the increase in consulting fees expenses
  and the write-off of product rights.

For the
  nine months ended June 30, 2002, the Company had net revenues of $37,220 with
  a gross profit of approximately $24,000. The Company s expenses were $7,133,523,
  resulting in a net loss for the nine month period of ($7,109,432) compared to
  net revenues of $2,604 and expenses of $1,077,748 for the nine month period
  ended June 30, 2001, which resulted in a net loss for the quarter of ($1,075,144).
  The net loss per share for the nine month periods ended June 30, 2002 and 2001
  was ($.08) and ($.06), respectively. Sales increased from $2,950 to $37,220
  fro the nine months ended June 30, 2002 compared to the same period ended June
  30, 2001. The increase in sales was die to the fact that the Company acquired
  government approval to sell the BITEM product. For the nine month period ended
  June 30, 2002, expenses increased from $1,077,248 to $7,133,523 compared to
  the same period ended June 30, 2001. The increase in expenses resulted from
  the writing off of approximately $6,000,000 of consulting fees and the write-off
  of product rights totaling $319,318 resulting from the Company s defaults
  under its product rights agreements. The net loss for the nine month period
  ended June 30, 2002 increase from $1,075,144 to $7,109,432 for the same period
  ended June 30, 2001. The increase in net loss was primarily caused by the increase
  in consulting fees expenses and the write-off of product rights.

---

Since
  January 30, 1995 (inception) to June 30, 2002, the Company has had total net
  revenues of $31,142 and expenses of $9,184,499.

The Companys
  total assets at June 30, 2002 were approximately $25,000 compared to assets
  of approximately $705,000 at June 30, 2001. The Companys current assets
  at June 30, 2002 were approximately $24,00 and consisted primarily of accounts
  receivable of approximately $17,000 and cash of approximately $6,500. The Company
  s current assets at June 30, 2001 were approximately $378,000 and consisted
  primarily of prepaid expenses totaling approximately $328,000, cash of approximately
  $32,000 and approximately $13,000 in inventory. The Company s other assets
  at June 30, 2002 were its product rights in BITEM and DISIFIN totaling $325,000.
  The reduction in total assets was primarily from the write-off of the consulting
  fees and product rights.

The Company
  s current liabilities at June 30, 2002 were approximately $545,000 compared
  to current liabilities of approximately $1,600,000 at June 30, 2001. The current
  liabilities of the Company at June 30, 2002 consist of account payables to related
  entities of approximately $23,000, trade payables of approximately $100,000,
  product rights payable of $125,000, and loans payable to related parties of
  approximately $215,000. Its current liabilities at June 30, 2001 consisted of
  accounts payable to related parties of approximately $1,226,000, trade accounts
  payable of $116,000, products rights payable of $125,000, loans payable to related
  parties of approximately $90,000 and common stock reimbursements of approximately
  $37,000. Total liabilities decreased from approximately $1,600,000 at June 30,
  2001 to approximately $545,000 at June 30, 2002 primarily due to the cancellation
  of $820,000 in debt owed by the Company to two shareholders.

Total
  shareholders (deficit) decreased from ($889,874) at June 30, 2001 to a
  deficit of ($519,803) at June 30, 2002.

LIQUIDITY

ThermoElastic
  currently has no material commitments for capital expenditures except for its
  potential obligations with respect to BITEM and DISIFIN. The Company has no
  operations and no expectation of revenues in the near future, other than the
  receipt of pre-existing accounts receivable. The Company will need to raise
  money through loans or through the sale of stock to fund its operations in the
  near future as well as to continue complying with its obligations under the
  federal securities laws.

The Company
  will use any proceeds it realizes from raising capital or borrowing money to
  pay its expenses and to further its business plan. However, there can be no
  assurances that the Company will be able to raise capital or borrow money to
  fund its operations and to continue with the cost of complying with its reporting
  obligations under the Securities Exchange Act of 1934.

Over the
  next two years, the Companys liquidity is dependent on revenues from any
  infusions of capital and debt financing. The Company does not know whether or
  not it will be successful in raising capital or borrowing funds to continue
  its operations. There can be no assurances that the Company will be able to
  obtain additional equity or debt financing in the future, if at all.

PART II
  - OTHER INFORMATION

Items 1
  and 3. Not applicable.

Item 2.
  Changes in Securities

---

See Item 4 below.

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

On April
  10, 2002, at a special meeting of shareholders, an amendment to the Articles
  of Incorporation was approved. This amendment increased the authorized capital
  of the Company to a total of 1,000,000,000 shares, with a par value of $.001,
  and 20,000,000 shares of Preferred Stock also being authorized.

Item 5.
  Other Information.

On August
  13, 2002, the Federal Bureau of Investigation and the U.S. Securities and Exchange
  Commission arrested Howard Kerbel, Barry Berman (major stockholders of the Company),
  Dennis Epstein (Chairman of the Board of Directors), Kenneth Liebscher (President
  of the Company), and Melvin Levine and Vincent Barone (consultants to the Company)
  for federal mail and wire fraud and various securities violations. All parties
  have pleaded not guilty to these charges. ThermoElastic Technologies, Inc. and
  Subsidiary were not charged in these activities.

The Company
  has hired a new President and Chief Executive Officer and has appointed a new
  Board of Directors. The new Chief Executive Officer is examining all previous
  consulting agreements, stock options and stock issuances to determine that the
  agreements and stock issuances were valid and in compliance with all SEC rules
  and regulations. He has also frozen all future stock issuances until the agreements
  can be authenticated.

On September
  9, 2002, a meeting of the Board of Directors of the Company was held. At that
  meeting, the Company accepted the resignations of the following officers and
  directors: George Osterbauer, Stephen Rivers, Ila Berman, Bernie Teitelbaum,
  and Bonnie Walters. At the meeting, Kevin Murphy was appointed a director and
  CEO, Philip Miller was appointed a director and Secretary and Sid Wilner was
  appointed as CFO to fill vacancies on the Board. The meeting was adjourned and
  re-convened. At the reconvened meeting, Kenneth Liebscher resigned as an officer
  and director and Dr. Barzilay resigned as a director. The size of the Board
  was reduced to three.

Item No.
  6 B Exhibits and Reports on Form 8-K

|(a)     | No reports
      on Form 8-K were filed during the quarter ended June 30, 2002.
|------- | -------------------------------------------------------------------------------
|(b)**** | Exhibits                                                                       

99 Financial Statements
  for the periods ended June 30, 2002 and 2001

---

SIGNATURES

Pursuant
  to the requirements of the Securities Exchange Act of 1934, the Registrant has
  duly caused this Report to be signed on its behalf by the undersigned thereunto
  duly authorized.

|October 31, 2002 |                                       |                       
|---------------- | ------------------------------------- | ----------------------
|                 | THERMOELASTIC
      TECHNOLOGIES, INC
|                 |                                       |                       
|                 | By:                                   | /s/ Kevin
      Murphy
|                 | Kevin Murphy,
      President        
|                 |                                       |                       
|                 | By:                                   | /s/ Sid
      Wilmer  
|                 | Sid Wilner,
      CFO                

---

Certifications

Pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of
  Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer
  of ThermoElastic Technologies, Inc., a Colorado corporation (the Company),
  does hereby certify, to such officers knowledge, that:

The Quarterly
  Report on Form 10-QSB for the quarter ended June 30, 2002 (the Form 10-QSB)
  of the Company fully complies with the requirements of section 13(a) or 15(d)
  of the Securities Exchange Act of 1934 and information contained in the Form
  10-QSB fairly presents, in all material respects, the financial condition and
  results of operations of the Company.

|Date:
      October 31, 2002 | By: | /s/ KevinMurphy                              
|---------------------------- | --- | ---------------------------------------------
|                             |     |                                              
|                             |     | Kevin
        Murphy, Chief Executive Officer



Pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of
  Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer
  of ThermoElastic Technologies, Inc., a Colorado corporation (the Company),
  does hereby certify, to such officers knowledge, that:

The Quarterly
  Report on Form 10-QSB for the quarter ended June 30, 2002 (the Form 10-QSB)
  of the Company fully complies with the requirements of section 13(a) or 15(d)
  of the Securities Exchange Act of 1934 and information contained in the Form
  10-QSB fairly presents, in all material respects, the financial condition and
  results of operations of the Company.

|Date:
      October 31, 2002 | By: | /s/
        SidWilner                    
|---------------------------- | --- | -----------------------------------------
|                             |     |                                          
|                             |     | Sid Wilner, Chief
      Financial Officer

---



THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARY(DEVELOPMENT
  STAGE COMPANIES)
  CONSOLIDATED BALANCE SHEETSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

ASSETS

|                                                       |   | June
      30, |  
|------------------------------------------------------ | - | -------------- | -
|                                                       |   |               
|                                                       |   | 2002           |  
|                                                       |   |                |  
|CURRENT
      ASSETS                                   |   |                |  
|Cash
      and cash equivalents                        | $ | 6,510          |  
|Accounts
      receivables                             |   | 16,671         |  
|Travel
      advances                                  |   | 0              |  
|Inventory                                              |   | 0              |  
|Prepaid
      expenses                                 |   |                |  
|Consulting
      fees                                  |   | 0              |  
|Other                                                  |   | 702            |  
|                                                       |   |                |  
|TOTAL
      CURRENT ASSETS                             |   | 23,883         |  
|                                                       |   |                |  
|OFFICE
      FURNITURE AND COMPUTERS                   |   |                |  
|Cost                                                   |   | 3,679          |  
|Less
      accumulated depreciation                    |   | 2,156          |  
|                                                       |   |                |  
|NET OFFICE FURNITURE AND COMPUTERS                     |   | 1,523          |  
|                                                       |   |                |  
|                                                       |   |                |  
|OTHER
      ASSETS                                     |   |                |  
|Product
      rights                                   |   |                |  
|Bitem                                                  |   | 0              |  
|Disifin                                                |   | 0              |  
|                                                       |   |                |  
|TOTAL OTHER ASSETS                                     |   | 0              |  
|                                                       |   |                |  
|TOTAL ASSETS                                           | $ | 25,406         |  
|                                                       |   |                |  
|                                                       |   |                |  
|LIABILITIES
      AND STOCKHOLDERS (DEFICIT)          |   |                |  
|CURRENT
      LIABILITIES                              |   |                |  
|Accounts
      payable                                 |   |                |  
|Trade                                                  | $ | 99,417         |  
|Related
      entities                                 |   | 22,481         |  
|Common
      stock reimbursements                      |   | 0              |  
|Accrued
      liabilities                              |   |                |  
|Non-related
      entities                             |   | 8,535          |  
|Related
      entities                                 |   | 75,680         |  
|Loans
      payable  related parties                  |   | 214,096        |  
|Product
      rights payable                           |   | 125,000        |  
|                                                       |   |                |  
|TOTAL
      CURRENT LIABILITIES                        |   | 545,209        |  
|                                                       |   |                |  
|CONTINGENCIES                                          |   | -              |  
|                                                       |   |                |  
|STOCKHOLDERS
      (DEFICIT)                          |   |                |  
|Preferred
      stock, par value $.0001 per share      |   |                |  
|Authorized
      20,000,000 shares comprised of:       |   |                |  
|8,000,000
      Class A Preferred                      |   |                |  
|12,000,000
      unclassified                          |   |                |  
|0
      shares issued and outstanding                  |   | 0              |  
|Common
      stock, par value $.0001 per share         |   |                |  
|Authorized
      980,000,000 shares                    |   |                |  
|Issued
      and outstanding                           |   |                |  
|June
      30, 2002  188,912,444 shares               |   | 18,892         |  
|June
      30, 2001  20,598,164 shares                |   |                |  
|Paid-in
      capital in excess of par value of stock  |   | 8,793,442      |  
|Deficit
      accumulated during the development stage |   | (9,318,357     | )
|Accumulated
      other comprehensive (loss)           |   |                |  
|(Primarily
      cumulative translation adjustment)    |   | (13,780        | )
|                                                       |   |                |  
|TOTAL
      STOCKHOLDERS (DEFICIT)                    |   | (519,803       | )
|                                                       |   |                |  
|TOTAL
      LIABILITIES AND                            | $ | 25,406         |  
|STOCKHOLDERS (DEFICIT)                                |   |                |  

1

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARY
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

FOR
  THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)

|                                    | Three
      Months   |             | Nine
      Months    |   |                             |  
|----------------------------------- | -------------------- | ----------- | -------------------- | - | --------------------------- | -
|                                    | Ended
      June 30, |             | Ended
      June 30, |   | June
      30, 1995         |  
|                                    |                      |             |                      |   | (Date
        of Inception) |  
|                                    |                      | 2002        |                      |   | 2001                        |  
|                                    |                      |             |                      |   |                             |  
|                                    |                      |             |                      |   |                             |  
|                                    |                      |             |                      |   |                             |  
|NET
      (LOSS)                    | $                    | ( 3,991,342 | )                    | $ | ( 530,991                   | )
|                                    |                      |             |                      |   |                             |  
|OTHER
      COMPREHENSIVE (LOSS)    |                      |             |                      |   |                             |  
|                                    |                      |             |                      |   |                             |  
|Foreign
      currency translations |                      |             |                      |   |                             |  
|adjustments                         |                      | (9,654      | )                    |   | (4,447                      | )
|                                    |                      |             |                      |   |                             |  
|                                    |                      |             |                      |   |                             |  
|NET
      COMPREHENSIVE (LOSS)      | $                    | ( 4,000,996 | )                    |   | (
        535,438           | )
|                                    |                      |             |                      |   |                             |  

2

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYCONSOLIDATED
  STATEMENTS OF OPERATIONSFOR
  THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001
  (UNAUDITED)

|                                                | Three
      Months   |                    | Nine
      Months    |   |                           |  
|----------------------------------------------- | -------------------- | ------------------ | -------------------- | - | ------------------------- | -
|                                                | Ended
      June 30, |                    | Ended
      June 30, |   | June
      30, 1995       |  
|                                                |                      |                    |                      |   | (Date
      of Inception) |  
|                                                | 2002                 |                    | 2001                 |   | 2002                      |  
|                                                |                      |                    |                      |   |                           |  
|                                                |                      |                    |                      |   |                           |  
|REVENUE                                         | $                    | 12,180             |                      | $ | 2,001                     |  
|COSTS
      OF SALES                            |                      | 8,153              |                      |   | 0                         |  
|                                                |                      |                    |                      |   |                           |  
|GROSS
        PROFIT                            |                      | 4,027              |                      |   | 2,001                     |  
|                                                |                      |                    |                      |   |                           |  
|EXPENSES                                        |                      |                    |                      |   |                           |  
|Research,
      development and consulting fees |                      |                    |                      |   |                           |  
|(Primarily
      to related entities)           |                      | 3,627,281          |                      |   | 461,350                   |  
|Write-off
      of product rights               |                      | 319,318            |                      |   | 0                         |  
|General
      and administrative                |                      | 48,770             |                      |   | 71,642                    |  
|                                                |                      |                    |                      |   |                           |  
|TOTAL
      EXPENSES                            |                      | 3,995,369          |                      |   | 532,992                   |  
|                                                |                      |                    |                      |   |                           |  
|                                                |                      |                    |                      |   |                           |  
|NET
      (LOSS)                                | $                    | (
      3,991,342) |                      | $ | (
      530,991           | )
|                                                |                      |                    |                      |   |                           |  
|NET
      (LOSS) PER COMMON SHARE               |                      |                    |                      |   |                           |  
|Basic
      and Diluted                         | $                    | (
      .05)       |                      | $ | (
      .03               | )
|                                                |                      |                    |                      |   |                           |  
|WEIGHTED
      AVERAGE NUMBER OF                |                      |                    |                      |   |                           |  
|COMMON
      SHARES OUTSTANDING                 |                      |                    |                      |   |                           |  
|Basic
      and Diluted                         |                      | 86,094,890         |                      |   | 19,059,830                |  
|                                                |                      |                    |                      |   |                           |  

3

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARY(DEVELOPMENT
  STAGE COMPANIES)CONSOLIDATED
  STATEMENT OF STOCKHOLDERS (DEFICIT)
  FOR THE PERIOD FROM JANUARY 30, 1995 (DATE OF INCEPTION) TOJUNE
  30, 2002
  (UNAUDITED)

|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|---------------------------------------------------------- | --------------------- | -------------------- | ------- | --------------------- | ---------------- | - | ------------------ | ----------- | ------------------ | ----- | ----------------- | -------------- | - | - | -----------
|                                                           |                       |                      |         |                       |                  |   |                    |             | Paid-I**n**        |       |                   | **Deficit**    |   |   |            
|                                                           |                       |                      |         |                       |                  |   |                    |             | Capital
        in |       |                   | Accumulated    |   |   | Accumulated
|                                                           | Preferred
      Stock | Common
        Stock |         | Excess
        of Par |                  |   | During
        The |             |                    | Other
|                                                           |                       |                      |         |                       | Value
        of |   |                    | Development |                    |       | Comprehensiv**e**
|                                                           | Shares                |                      | Amounts |                       | Shares           |   | Amount             |             | Stock              |       |                   | Stage          |   |   | (Loss)     
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|AT
      DATE OF INCEPTION                                 | 0                     | $                    | 0       |                       | 0                | $ | 0                  | $           | 0                  |       | $                 | 0              |   | $ | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|JANUARY
      30, 1995 -COMMON STOCK                       |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|ISSUED
      TO FOUNDERS      FOR SERVICES                 | 0                     |                      | 0       |                       | 13,760,000       |   | 1,376              |             | (1,176             | )     |                   | 0              |   |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|AUGUST
      1, 1995 -COMMON STOCKISSUED
      FOR CASH    | 0                     |                      | 0       |                       | 1,720,000        |   | 172                |             | 9,828              |       |                   | 0              |   |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|DECEMBER
      15, 1995 -COMMON STOCK                      |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|ISSUED
      FOR CASH                                      | 0                     |                      | 0       |                       | 860,000          |   | 86                 |             | 4,914              |       |                   | 0              |   |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|NET
      (LOSS) FOR THE YEAR ENDEDDECEMBER
      31, 1995 | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | (8,606         | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|BALANCE,
      DECEMBER 31, 1995                           | 0                     |                      | 0       |                       | 16,340,000       |   | 1,634              |             | 13,566             |       |                   | (8,606         | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|FEBRUARY
      10, 1996 - COMMON STOCK                     |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|ISSUED
      FOR SERVICES                                  | 0                     |                      | 0       |                       | 860,000          |   | 86                 |             | 4,914              |       |                   | 0              |   |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|NET
      (LOSS) FOR THE YEAR ENDEDDECEMBER
      31, 1996 | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | (10,202        | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|BALANCE,
      DECEMBER 31, 1996                           | 0                     |                      | 0       |                       | 17,200,000       |   | 1,720              |             | 18,480             |       |                   | (18,808        | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|NET
      (LOSS) FOR THE YEAR ENDEDDECEMBER
      31, 1997 | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | (824           | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|BALANCE,
      DECEMBER 31, 1997                           | 0                     |                      | 0       |                       | 17,200,000       |   | 1,720              |             | 18,480             |       |                   | (19,632        | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|CAPITAL
      CONTRIBUTED TOTHE
      CORPORATION          | 0                     |                      | 0       |                       | 0                |   | 0                  |             |                    |       |                   | 0              |   |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|NET
      (LOSS) FOR THE SHORT-YEARENDED                   |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|SEPTEMBER
      30, 1998                                   | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | (6,760         | ) |   | 0          
|                                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |                |   |   |            
|BALANCE,
      SEPTEMBER 30, 1998                          | 0                     | $                    | 0       |                       | 17,200,000       | $ | 1,720              |             | 28,480             |       | $                 | (
      26,392 | ) | $ | 0          

4

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARY(DEVELOPMENT
  STAGE COMPANIES)CONSOLIDATED
  STATEMENT OF STOCKHOLDERS (DEFICIT) (CONTINUED)
  FOR THE PERIOD FROM JANUARY 30, 1995 (DATE OF INCEPTION) TOJUNE
  30, 2002
  (UNAUDITED)

| |                       |                      |         |                       |                  |  |                    |             |                    |       |                   |             |  |  |            
| | --------------------- | -------------------- | ------- | --------------------- | ---------------- |  | ------------------ | ----------- | ------------------ | ----- | ----------------- | ----------- |  |  | -----------
| |                       |                      |         |                       |                  |  |                    |             | Paid-I**n**        |       |                   | **Deficit** |  |  |            
| |                       |                      |         |                       |                  |  |                    |             | Capital
        in |       |                   | Accumulated |  |  | Accumulated
| | Preferred
      Stock | Common
        Stock |         | Excess
        of Par |                  |  | During
        The |             |                    | Other
| |                       |                      |         |                       | Value
        of |  |                    | Development |                    |       | Comprehensiv**e**
| | Shares                |                      | Amounts |                       | Shares           |  | Amount             |             | Stock              |       |                   | Stage       |  |  | (Loss)     
| |                       |                      |         |                       |                  |  |                    |             |                    |       |                   |             |  |  |            

|JULY
      15, 1999, COMMON STOCK         |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|----------------------------------------- | --------- | - | - | ---- | - | ---------- |  | - | ----- |  | - | -------- | - | - | ------------------- | - | - | --------------- | -
|DIVIDEND
      PAYABLE IN PREFERRED STOCK | 1,650,000 |   | $ | 165  |   | 0          |  | $ | 0     |  | $ | 164,835  |   | $ | (
        165,000   | ) | $ | 0               |  
|JULY
      15, 1999 REDEMPTION OF         |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|PREFERRED
      STOCK FOR CASH            | 1,650,000 | ) |   | (165 | ) | 0          |  |   | 0     |  |   | (164,835 | ) |   | 0                   |   |   | 0               |  
|JULY
      15, 1999, MERGER WITH          |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|THERMOELASTIC
      TECHNOLOGIES, INC.    | 0         |   |   | 0    |   | 0          |  |   | 0     |  |   | 732,385  |   |   | 0                   |   |   | 0               |  
|FOREIGN
      CURRENCY                    |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|TRANSLATION
      ADJUSTMENT              | 0         |   |   | 0    |   | 0          |  |   | 0     |  |   | 0        |   |   | 0                   |   |   | (5,121          | )
|NET
      (LOSS) FOR THE YEAR             |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|ENDED
      SEPTEMBER 30, 1999            | 0         |   |   | 0    |   | 0          |  |   | 0     |  |   | 0        |   |   | (472,071            | ) |   | 0               |  
|                                          |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|BALANCE,
      SEPTEMBER 30, 1999         | 0         |   |   | 0    |   | 17,200,000 |  |   | 1,720 |  |   | 760,865  |   |   | (
        663,463   | ) |   | (5,121          | )
|FAIR
      VALUE OF OFFICE RENT           |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|DONATED
      BY STOCKHOLDER              | 0         |   |   | 0    |   | 0          |  |   | 0     |  |   | 1,358    |   |   |                     |   |   | 0               |  
|FRACTIONAL
      SHARES OF STOCK          | 0         |   |   | 0    |   | 138,164    |  |   | 14    |  |   | (14)     |   |   |                     |   |   | 0               |  
|FOREIGN
      CURRENCY                    |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|TRANSLATION
      ADJUSTMENT              | 0         |   |   | 0    |   | 0          |  |   | 0     |  |   | 0        |   |   |                     |   |   | 638             |  
|NET
      (LOSS) FOR THE YEAR             |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|ENDED
      SEPTEMBER 30, 2000            | 0         |   |   | 0    |   | 0          |  |   | 0     |  |   | 0        |   |   | (708,990            | ) |   | 0               |  
|                                          |           |   |   |      |   |            |  |   |       |  |   |          |   |   |                     |   |   |                 |  
|BALANCE,
      SEPTEMBER 30, 2000         | 0         |   | $ | 0    |   | 17,338,164 |  | $ | 1,734 |  | $ | 762,209  |   | $ | (
        1,372,453 | ) | $ | (
        4,483 | )

5

---

**THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARY**(DEVELOPMENT
  STAGE COMPANIES)CONSOLIDATED
  STATEMENT OF STOCKHOLDERS(DEFICIT) (CONTINUED)
  FOR THE PERIOD FROM JANUARY 30, 1995 (DATE OF INCEPTION) TOJUNE
  30, 2002
  (UNAUDITED)

|                                                                                        |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|--------------------------------------------------------------------------------------- | --------------------- | -------------------- | ------- | --------------------- | ---------------- | - | ------------------ | ----------- | ------------------ | ----- | ----------------- | ----------- | - | - | ----------- | -
|                                                                                        |                       |                      |         |                       |                  |   |                    |             | Paid-I**n**        |       |                   | **Deficit** |   |   |             |  
|                                                                                        |                       |                      |         |                       |                  |   |                    |             | Capital
        in |       |                   | Accumulated |   |   | Accumulated |  
|                                                                                        | Preferred
      Stock | Common
        Stock |         | Excess
        of Par |                  |   | During
        The |             |                    | Other |                  
|                                                                                        |                       |                      |         |                       | Value
        of |   |                    | Development |                    |       | Comprehensiv**e** |            
|                                                                                        | Shares                |                      | Amounts |                       | Shares           |   | Amount             |             | Stock              |       |                   | Stage       |   |   | (Loss)      |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**JANUARY 2001-COMMON  STOCK
      ISSUED FOR**                                         |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**CASH**                                                                                | 0                     | $                    | 0       |                       | 1,000,000        | $ | 100                | $           | 150,400            |       | $                 | 0           |   | $ | 0           |  
|**SERVICES**                                                                            | 0                     |                      | 0       |                       | 1,988,000        |   | 198                |             | 758,569            |       |                   | 0           |   |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**MAY 2001 - COMMON  STOCK ISSUED
      FOR**                                           |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**SERVICES**                                                                            | 0                     |                      | 0       |                       | 400,000          |   | 40                 |             | 83,960             |       |                   | 0           |   |   | 0           |  
|**ACCOUNTS PAYABLE**                                                                    | 0                     |                      | 0       |                       | 400,000          |   | 40                 |             | 59,960             |       |                   | 0           |   |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**JULY 2001 - COMMON   
      STOCK ISSUED FOR    SERVICES**                            | 0                     |                      | 0       |                       | 125,000          |   | 13                 |             | 39,987             |       |                   | 0           |   |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**SEPTEMBER 30, 2001  -  COMMON
      STOCK ISSUED FOR ACCOUNTS PAYABLE**               | 0                     |                      | 0       |                       | 950,000          |   | 95                 |             | 299,905            |       |                   | 0           |   |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**FOREIGN CURRENCY TRANSLATION
      ADJUSTMENT**                                       | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | 0           |   |   | (4,977      | )
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**NET (LOSS) FOR THE YEAR ENDED SEPTEMBER
      30, 2001**                              | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | (836,472    | ) |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**BALANCE, SEPTEMBER 30, 2001**                                                         | 0                     |                      | 0       |                       | 22,201,164       |   | 2,220              |             | 2,154,990          |       |                   | (2,208,925  | ) |   | (9,460      | )
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**COMMON STOCK ISSUED FOR SERVICES**                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**MARCH 2002**                                                                          | 0                     |                      | 0       |                       | 35,910,850       |   | 3,592              |             | 2,670,812          |       |                   | 0           |   |   | 0           |  
|**MAY 2002**                                                                            | 0                     |                      | 0       |                       | 73,000,000       |   | 7,300              |             | 3,496,700          |       |                   | 0           |   |   | 0           |  
|**COMMON STOCK ISSUED FOR INTEREST
      OCTOBER 2001 (PRIMARILY TO RELATED ENTITIES)** | 0                     |                      | 0       |                       | 3,050,900        |   | 305                |             | 152,240            |       |                   | 0           |   |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**COMMON STOCK ISSUED FOR ACCOUNTS PAYABLE
      - OCTOBER 2001**                       | 0                     |                      | 0       |                       | 750,000          |   | 75                 |             | 158,912            |       |                   | 0           |   |   | 0           |  
|****                                                                                    |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**COMMON STOCK ISSUED FOR NOTES PAYABLE
      - OCTOBER 2001**                          | 0                     | $                    | 0       |                       | 2,784,500        | $ | 278                | $           | 19,960             |       | $                 | 0           |   | $ | 0           |  

6

---





THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARY(DEVELOPMENT
  STAGE COMPANIES)CONSOLIDATED
  STATEMENT OF STOCKHOLDERS (DEFICIT) (CONTINUED)
  FOR THE PERIOD FROM JANUARY 30, 1995 (DATE OF INCEPTION) TOJUNE
  30, 2002
  (UNAUDITED)

|                                                                                          |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|----------------------------------------------------------------------------------------- | --------------------- | -------------------- | ------- | --------------------- | ---------------- | - | ------------------ | ----------- | ------------------ | ----- | ----------------- | ----------- | - | - | ----------- | -
|                                                                                          |                       |                      |         |                       |                  |   |                    |             | Paid-I**n**        |       |                   | **Deficit** |   |   |             |  
|                                                                                          |                       |                      |         |                       |                  |   |                    |             | Capital
        in |       |                   | Accumulated |   |   | Accumulated |  
|                                                                                          | Preferred
      Stock | Common
        Stock |         | Excess
        of Par |                  |   | During
        The |             |                    | Other |                  
|                                                                                          |                       |                      |         |                       | Value
        of |   |                    | Development |                    |       | Comprehensiv**e** |            
|                                                                                          | Shares                |                      | Amounts |                       | Shares           |   | Amount             |             | Stock              |       |                   | Stage       |   |   | (Loss)      |  
|****                                                                                      |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**COMMON STOCK ISSUED FOR CASH**                                                          |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**MARCH 2002**                                                                            | 0                     | $                    | 0       |                       | 50,000           | $ | 5                  | $           | 9,995              |       | $                 | 0           |   | $ | 0           |  
|**MAY 2002**                                                                              | 0                     |                      | 0       |                       | 51,165,000       |   | 5,117              |             | 129,833            |       |                   | 0           |   |   | 0           |  
|                                                                                          |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**FOREIGN CURRENCY TRANSLATION ADJUSTMENT FOR THE
      NINE MONTHS ENDED JUNE 30, 2002** | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | 0           |   |   | (4,320      | )
|                                                                                          |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**NET (LOSS) FOR THE NINE MONTHS ENDED JUNE 30, 2002**                                    | 0                     |                      | 0       |                       | 0                |   | 0                  |             | 0                  |       |                   | (7,109,432  | ) |   | 0           |  
|                                                                                          |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  
|**BALANCE, JUNE 30, 2002**                                                                | 0                     |                      | 0       |                       | 188,912,414      |   | 18,892             |             | 8,793,442          |       |                   | (9,318,357  | ) |   | (13,780     | )
|                                                                                          |                       |                      |         |                       |                  |   |                    |             |                    |       |                   |             |   |   |             |  

7

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYCONSOLIDATED
  STATEMENTS OF CASH FLOWS
  FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001 ANDFOR
  THE PERIOD FROM JANUARY 30, 1995 (DATE OF INCEPTION) TOJUNE
  30, 2002
  ( UNAUDITED)

|                                                  |   |                         |   |   |                             |   |   |                  |  
|------------------------------------------------- | - | ----------------------- | - | - | --------------------------- | - | - | ---------------- | -
|                                                  |   | Nine
      Months Ended |   |   | January
        30, 1995    |  
|                                                  |   | June
      30,          |   |   | (Date
        of Inception) |  
|                                                  |   |                         |   |   | to
        June 30,         |  
|                                                  |   | 2002                    |   |   | 2001                        |   |   | 2002             |  
|                                                  |   |                         |   |   |                             |   |   |                  |  
|CASH
      FLOWS FROM                             |   |                         |   |   |                             |   |   |                  |  
|OPERATING
      ACTIVITIES:                       |   |                         |   |   |                             |   |   |                  |  
|Net
      (loss)                                  | $ | (
      7,109,432       | ) | $ | ( 1,075,144                 | ) | $ | ( 9,153,357      | )
|Adjustments
      to reconcile net (loss)         |   |                         |   |   |                             |   |   |                  |  
|to
      net cash (used) by operating activities: |   |                         |   |   |                             |   |   |                  |  
|Depreciation                                      |   | 269                     |   |   | 519                         |   |   | 2,156            |  
|Amortization                                      |   | 5,682                   |   |   | 0                           |   |   | 5,682            |  
|Fair
      value of rent                          |   | 0                       |   |   | 0                           |   |   | 1,358            |  
|Common
      stock issued for services            |   | 6,178,404               |   |   | 654,000                     |   |   | 7,066,371        |  
|Common
      stock issued for interest            |   | 152,545                 |   |   | 0                           |   |   | 152,545          |  
|Write-off
      of product rights                 |   | 319,318                 |   |   | 0                           |   |   | 319,318          |  
|Changes
      in operating assets                 |   |                         |   |   |                             |   |   |                  |  
|and
      liabilities:                            |   |                         |   |   |                             |   |   |                  |  
|Accounts
      receivable                         |   | (3,169                  | ) |   | (2,072                      | ) |   | (17,671          | )
|Travel
      advances                             |   | 0                       |   |   | (1,397                      | ) |   | 1,000            |  
|Inventory                                         |   | 6,409                   |   |   | (13,339                     | ) |   | 0                |  
|Prepaid
      expenses                            |   | 246,945                 |   |   | (298,274                    | ) |   | (702             | )
|Accounts
      payable                            |   | (112,369                | ) |   | 570,035                     |   |   | 650,350          |  
|Accrued
      liabilities                         |   | 63,045                  |   |   | (12,028                     | ) |   | 84,215           |  
|                                                  |   |                         |   |   |                             |   |   |                  |  
|NET
      CASH (USED) BY OPERATING ACTIVITIES     |   | (252,353                | ) |   | (177,700                    | ) |   | (
      888,735) |  
|                                                  |   |                         |   |   |                             |   |   |                  |  
|CASH
      FLOWS FROM INVESTING ACTIVITIES:       |   |                         |   |   |                             |   |   |                  |  
|Purchase
      of product rights                  |   | 0                       |   |   | (925,000                    | ) |   | (180,000         | )
|Purchase
      of property and equipment          |   | 0                       |   |   | 0                           |   |   | (3,679           | )
|                                                  |   |                         |   |   |                             |   |   |                  |  
|NET
      CASH (USED) BY INVESTING ACTIVITIES     |   | 0                       |   |   | (25,000                     | ) |   | (183,679         | )
|                                                  |   |                         |   |   |                             |   |   |                  |  
|CASH
      FLOWS FROM FINANCING ACTIVITIES:       |   |                         |   |   |                             |   |   |                  |  
|Issuance
      of common stock                    |   | 144,950                 |   |   | 150,500                     |   |   | 1,023,370        |  
|Redemption
      of preferred stock               |   | 0                       |   |   | 0                           |   |   | (165,000         | )
|Proceeds
      from loans payable                 |   | 117,259                 |   |   | 89,575                      |   |   | 234,334          |  
|                                                  |   |                         |   |   |                             |   |   |                  |  
|NET
      CASH PROVIDED BY FINANCING ACTIVITIES   |   | 262,209                 |   |   | 240,075                     |   |   | 1,092,704        |  
|                                                  |   |                         |   |   |                             |   |   |                  |  

8

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND
  SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
  FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001 ANDFOR
  THE PERIOD FROM JANUARY 30, 1995 (DATE OF INCEPTION) TOJUNE
  30, 2002
  (UNAUDITED)

|                                       |   | Nine
      Months Ended |   |   | January
      30, 1995    |  
|-------------------------------------- | - | ----------------------- | - | - | ------------------------- | -
|                                       |   | June
      30,          |   |   | (Date
      of Inception) |  
|                                       |   |                         |   |   | to
      June 30,         |  
|                                       |   | 2002                    |   |   | 2001                      |  
|                                       |   |                         |   |   |                           |  
|                                       |   |                         |   |   |                           |  
|EFFECT
      OF EXCHANGE RATE          |   |                         |   |   |                           |  
|CHANGES
      ON CASH                  | $ | (
        4,320         | ) | $ | (
        6,237           | )
|                                       |   |                         |   |   |                           |  
|                                       |   |                         |   |   |                           |  
|NET
      INCREASE IN CASH             |   |                         |   |   |                           |  
|AND
      CASH EQUIVALENTS             |   | 5,536                   |   |   | 31,138                    |  
|                                       |   |                         |   |   |                           |  
|CASH
      AND CASH EQUIVALENTS        |   |                         |   |   |                           |  
|AT
      B EGINNING OF PERIOD          |   | 974                     |   |   | 805                       |  
|                                       |   |                         |   |   |                           |  
|CASH
      AND CASH EQUIVALENTS        |   |                         |   |   |                           |  
|AT
      END OF PERIOD                 | $ | 6,510                   |   | $ | 31,943                    |  
|                                       |   |                         |   |   |                           |  
|SUPPLEMENTARY
      DISCLOSURE         |   |                         |   |   |                           |  
|OF
      CASH FLOW INFORMATION:        |   |                         |   |   |                           |  
|Cash
      paid for interest           | $ | 0                       |   | $ | 0                         |  
|                                       |   |                         |   |   |                           |  
|Cash
      paid for taxes              | $ | 0                       |   | $ | 0                         |  
|                                       |   |                         |   |   |                           |  
|SCHEDULE
      OF NON-CAS H            |   |                         |   |   |                           |  
|INVESTING
      AND FINANCING          |   |                         |   |   |                           |  
|ACTIVITIES:                            |   |                         |   |   |                           |  
|Common
      stock issued for services | $ | 6,178,404               |   | $ | 842,767                   |  
|                                       |   |                         |   |   |                           |  
|Common
      stock issued for interest | $ | 152,545                 |   | $ | 0                         |  
|                                       |   |                         |   |   |                           |  
|Common
      stock issued for          |   |                         |   |   |                           |  
|accounts
      payable                 | $ | 158,987                 |   | $ | 60,000                    |  
|                                       |   |                         |   |   |                           |  
|Common
      stock issued for          |   |                         |   |   |                           |  
|notes
      payable                    | $ | 20,238                  |   | $ | 0                         |  
|                                       |   |                         |   |   |                           |  
|Purchases
      of product rights      |   |                         |   |   |                           |  
|through
      issuance of common stock | $ | 0                       |   | $ | 50,000                    |  
|                                       |   |                         |   |   |                           |  
|Fair
      value of rent donated by    |   |                         |   |   |                           |  
|stockholders                           | $ | 0                       |   | $ | 0                         |  
|                                       |   |                         |   |   |                           |  

9

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  1                SUMMARY
  OF SIGNIFICANT ACCOUNTING POLICIES

> Nature
>         of Business and History of Company
>       The
>         Company was originally organized to develop two products to be manufactured
>         and distributed to the medical and food processing industries. In June
>         2002, the Company defaulted on its two property rights agreements and
>         subsequently lost all of its rights to the products.
>       The
>         Company is now a development stage company seeking merger candidates.
>       On
>         June 14, 1999, the Company organized ThermoElastic Technologies (Canada),
>         Inc., a 100% owned Canadian subsidiary. As of June 30, 2002, the subsidiary
>         was inactive and no financial activities have taken place in the subsidiary.
>       Principles
>         of Consolidation
>       The
>         consolidated financial statements include the accounts of ThermoElastic
>         Technologies, Inc. and its wholly owned subsidiary ThermoElastic Technologies
>         (Canada), Inc.
>       There
>         were no inter-company transactions between the companies.
>       Cash
>         and Cash Equivalents
>       For
>         purposes of the statement of cash flows, the Company considers all highly
>         liquid debt instruments purchased with an original maturity of three months
>         or less to be cash equivalents.
>       Accounts
>         Receivable
>       Accounts
>         receivable are reported at the customers outstanding balances less
>         any allowance for doubtful accounts.
>       Allowance
>         for Doubtful Accounts
>       The
>         allowance for doubtful accounts on account receivables is charged to income
>         in amounts sufficient to maintain the allowance for uncollectible accounts
>         at a level management believes is adequate to cover any possible losses.
>         At June 30, 2002, management believes all accounts are collectible.

10

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  1SUMMARY
  OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

> Inventory
>       Inventory
>         is stated at the lower of cost (determined on the first-in, first-out-
>         method) or market.
>       Property
>         and Equipment
>       Property
>         and equipment are stated at cost. Major renewals and improvements are
>         charged to the asset accounts while replacements, maintenance and repairs,
>         which do not improve or extend the lives of respective assets, are expensed.
>         At the time property and equipment are retired or otherwise disposed of,
>         the assets and related depreciation accounts are relieved of the applicable
>         amounts. Gains or losses from retirements or sales are credited or charged
>         to income.
>       The
>         Company depreciates its property and equipment for financial reporting
>         purposes using the accelerated methods based upon an estimated useful
>         life of five years.
>       Accounting
>         Estimates
>       Management
>         uses estimates and assumptions in preparing financial statements in accordance
>         with generally accepted accounting principles. Those estimates and assumptions
>         affect the reported amounts of assets and liabilities, the disclosure
>         of contingent assets and liabilities, and the reported revenues and expenses.
>         Actual results could vary from the estimates that were used.
>       Revenue
>         Recognition
>       The
>         Company recognizes revenue from product sales when the goods are shipped
>         and title passes to customers.

11

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  1SUMMARY
  OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

> Income
>         Taxes
>       Provisions
>         for income taxes are based on taxes payable or refundable for the current
>         year and deferred taxes on temporary differences between the amount of
>         taxable income and pretax financial income and between the tax basis of
>         assets and liabilities and their reported amounts in the financial statements.
>         Deferred tax assets and liabilities are included in the financial statements
>         at currently enacted income tax rates applicable to the period in which
>         the deferred tax assets and liabilities are expected to be realized or
>         settled as prescribed in FASB Statement No. 109, Accounting for Income
>         Taxes. As changes in tax laws or rate are enacted, deferred tax assets
>         and liabilities are adjusted through the provision for income taxes.
>       Net
>         (Loss) Per Share
>       The
>         Company adopted Statement of Financial Accounting Standards No. 128 that
>         require the reporting of both basic and diluted (loss) per share. Basic
>         (loss) per share is computed by dividing net (loss) available to common
>         stockholders by the weighted average number of common shares outstanding
>         for the period. Diluted (loss) per share reflects the potential dilution
>         that could occur if securities or other contracts to issue common stock
>         were exercised or converted into common stock. In accordance with FASB
>         128, any anti-dilutive effects on net (loss) per share are excluded.
>       Disclosure
>         About Fair Value of Financial Instruments
>       The
>         Company estimates that the fair value of all financial instruments at
>         June 30, 2002 and 2001, as defined in FASB 107, does not differ materially
>         from the aggregate carrying values of its financial instruments recorded
>         in the accompanying balance sheet. The estimated fair value amounts have
>         been determined by the Company using available market information and
>         appropriate valuation methodologies. Considerable judgement is required
>         in interpreting market data to develop the estimates of fair value, and
>         accordingly, the estimates are not necessarily indicative of the amounts
>         that the Company could realize in a current market exchange.

12

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  1SUMMARY
  OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

> Long-Lived
>         Assets
>       Statement
>         of Financial Accounting Standards No. 121, Accounting for the Impairment
>         of Long-Lived Assets and for Long- Lived Assets to be Disposed Of, requires
>         that long- lived assets be reviewed for impairment whenever events or
>         changes in circumstances indicate that the historical cost-carrying value
>         of an asset may no longer be appropriate.
>       The
>         Company assesses recoverability of the carrying value of an asset by estimating
>         the future net cash flows expected to result from the asset, including
>         eventual disposition. If the future net cash flows are less than the carrying
>         value of the asset, an impairment loss is recorded equal to the difference
>         between the assets carrying value and fair value. This standard
>         did not have a material effect on the Companys results of operations,
>         cash flows or financial position.
>       Foreign
>         Currency Translation
>       The
>         financial statements of the Company are measured using the local currency
>         as the functional currency. Assets and liabilities of these companies
>         are translated at exchange rates as of the balance sheet date or historical
>         acquisition date, depending on the nature of the account. Revenues and
>         expenses are translated at average rates of exchange in effect during
>         the year. The resulting cumulative translation adjustments have been recorded
>         as a separate component of stockholders equity. Foreign currency
>         transaction gains and losses, which are immaterial, are included in consolidated
>         net income. The financial statements are presented in United States of
>         America dollars.

NOTE
  2DEVELOPMENT
  STAGE OPERATIONS

> As
>         of December 31, 2001, the Company was in the development stage of operations.
>         According to the Financial Accounting Standards Board of the Financial
>         Accounting Foundation, a development stage company is defined as a company
>         that devotes most of its activities to establishing a new business activity.
>         In addition, planned principal activities have not commenced, or have
>         commenced and have not yet produced significant revenue.

13

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  2DEVELOPMENT
  STAGE OPERATIONS (CONTINUED)

> As
>         of January 1, 2002, the Company ceased being a development stage company
>         as it received all governmental approvals for selling the BITEM product.
>         However, in June 2002, the Company defaulted on its product right agreements
>         and lost its rights to the products. Consequently, the Company has reverted
>         to a development stage Company and is reporting its results of operations
>         and cash flows as if it was a development stage Company since the date
>         of its inception.

NOTE
  3ACCOUNTS
  PAYABLE  RELATED ENTITIES

> The
>         accounts payable  related entities consist of the following:

| |                                                 | June
      30, 2002 |       
| | ----------------------------------------------- | ------------------- | ------
| |                                                 |                     |       
| | Howard
      Kerbel                             | $                   | 16,281
| | George
      Osterbauer                         |                     | 4,435 
| | Kenneth
      Liebscher                         |                     | 1,765 
| |                                                 |                     |       
| | Total
      accounts payable  related entities | $                   | 22,481
| |                                                 |                     |       

NOTE
  4ACCRUED
  LIABILITIES

> Accrued
>         liabilities consist of the following:

| |                          | June
      30, 2002 |       
| | ------------------------ | ------------------- | ------
| |                          |                     |       
| | Non-related              | $                   | 8,535 
| |                          |                     |       
| | Related                  |                     |       
| | George
      Osterbauer  | $                   | 66,680
| | Kenneth
      Liebscher  |                     | 6,000 
| | Bernard
      Tietelbaum |                     | 3,000 
| |                          |                     |       
| | Total
      non-related  |                     | 75,680
| |                          |                     |       
| | Total                    | $                   | 84,215
| |                          |                     |       

NOTE
  5LOANS
  PAYABLE  RELATED ENTITES

> The
>         loans payable  related entities consists of the following:

| |                                             | June
      30, 2002 |        
| | ------------------------------------------- | ------------------- | -------
| |                                             |                     |        
| | Howard
      Kerbel                         | $                   | 81,594 
| | Dennis
      Epstein                        |                     | 1,853  
| | George
      Osterbauer                     |                     | 8,276  
| | Gritell
      International Limited         |                     | 122,373
| |                                             |                     |        
| | Total
      loans payable  related parties | $                   | 214,096
| |                                             |                     |        

14

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  6PRODUCT
  RIGHTS PAYABLE

> The
>         Company is obligated for the following balances on its product rights
>         agreements:

| |                                    | June
      30, 2002 |        
| | ---------------------------------- | ------------------- | -------
| |                                    |                     |        
| | Bitem                              | $                   | 75,000 
| | Disifin                            |                     | 50,000 
| |                                    |                     |        
| | Total
      product rights payable | $                   | 125,000
| |                                    |                     |        

NOTE
  7INTEREST
  EXPENSE

> Interest
>         expense for the nine months ended June 30, 2002 and 2001 was $153,335
>         and $1,556, respectively.

NOTE
  8INCOME
  TAXES

> Significant components of the Companys deferred tax assets are as
>         follows at June 30, 2002.

Deferred tax assets:

| | Net
      operating loss carryforward   | $ | 1,830,600 | 
| | --------------------------------------- | - | --------- | 
| | Less
      valuation allowance          |   | 1,830,600 | 
| |                                         |   |           | 
| | Net
      deferred tax assets           | $ | 0         | 
| |                                         |   |           | 
| |                                         |   |           | 
| | A reconciliation
      of the valuation |   |           | 
| | allowance
      is as follows:          |   |           | 
| | Balance,
      October 1, 2001          | $ | 408,000   | 
| | Addition
      to the allowance for the |   |           | 
| | Nine
      months ended June 30, 2002   |   | 1,422,600 | 
| |                                         |   |           | 
| | Balance,
      June 30, 2002            | $ | 1,830,600 | 
| |                                         |   |           | 

15

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  9PREFERRED
  STOCK

> On
>         June 27, 2002, the Board of Directors approved a new series of preferred
>         stock designated as Class A Preferred Stock as follows:
>       Par value - $.0001
>         Maximum number of shares  8,000,000
>         Issue
>           price - $.0001 per share or one- for-one exchange with a like amount
>           of fully paid issued shares of common stock Liquidation preference 
>           preference over common shares; liquidation price $.0001 per share Conversion
>           to common stock authorized

NOTE
  10STOCK
  OPTIONS

> The
>         Company has the following stock options outstanding as of June 30, 2002.

| |                                              |            |  |   | Option               | 
| | -------------------------------------------- | ---------- |  | - | -------------------- | 
| |                                              | Shares     |  |   | Price                | 
| |                                              |            |  |   |                      | 
| | Apple
      Dental Ventures                  | 100,000    |  | $ | 0.0001               | 
| |                                              |            |  |   | Per
        share    | 
| | Vista
      Development Ltd  Advisory Board | 25,000     |  |   | 50% of current       | 
| |                                              |            |  |   | market
        price | 
| | Mel Levine                                   | 500,000    |  | $ | 0.05                 | 
| |                                              |            |  |   |                      | 
| | Mel Levine                                   | 665,000    |  | $ | 0.10                 | 
| | Gritell
      International Limited          | 10,500,000 |  | $ | 0.0005               | 
| | Trilock
      Financial Corporation          | 5,300,000  |  | $ | 0.0005               | 
| |                                              |            |  |   |                      | 
| |                                              | 17,090,000 |  |   |                      | 
| |                                              |            |  |   |                      | 

16

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  11STOCK
  WARRANTS

> The
>         Company has the following warrants outstanding as of December 31, 2001:

| |        |  |       |      | Number          |         | Expiration |                          
| | ------ |  | ----- | ---- | --------------- | ------- | ---------- | -------------------------
| | Series |  | Price |      | of
      Shares |         | Date       |                          
| |        |  |       |      |                 |         |            |                          
| | A      |  | $     | 2.00 |                 | 666,400 |            | December
        31, 2001
| | B      |  | $     | 3.00 |                 | 666,400 |            | December
        31, 2001

> The
>         Company is negotiating the extension of the expiration dates on the warrants.
>       The
>         Company may redeem the warrants at $.01 per warrant.

NOTE
  12NET
  OPERATING LOSS CARRYFORWARDS

> The Company has the following net operating loss carryforwards:

| | Tax
      Year           |  | Amount |           | Expiration
      Date |     
| | ------------------------ |  | ------ | --------- | --------------------- | ----
| |                          |  |        |           |                       |     
| | December
      31, 1995  |  | $      | 8,396     |                       | 2010
| | December
      31, 1996  |  |        | 6,821     |                       | 2011
| | December
      31, 1997  |  |        | 381       |                       | 2012
| | September
      30, 1998 |  |        | 6,439     |                       | 2018
| | September
      30, 1999 |  |        | 479,900   |                       | 2019
| | September
      30, 2000 |  |        | 707,842   |                       | 2020
| | September
      30, 2001 |  |        | 834,007   |                       | 2021
| | June
      30, 2002      |  |        | 7,109,432 |                       | 2022
| |                          |  |        |           |                       |     
| |                          |  | $      | 9,153,218 |                       |     
| |                          |  |        |           |                       |     

> Future
>         changes in ownership may limit the ability of the Company to utilize these
>         net operating loss carryforwards prior to their expiration.

NOTE
  13CONTINGENCIES

> In the Companys contracts with Gritell International Limited and
>         Trilock Financial Corporation, the Company agreed to reimburse Gritell
>         International Limited and Trilock Financial Corporation for any income
>         taxes that might accrue to them on the compensation they receive. The
>         amount of the tax, if any, is not known and the Company has not accrued
>         any liability for these contingencies.

17

---

THERMOELASTIC
  TECHNOLOGIES, INC. AND SUBSIDIARYNOTES
  TO FINANCIAL STATEMENTSJUNE
  30, 2002 AND 2001
  (UNAUDITED)

NOTE
  14GOING
  CONCERN

> These
>         financial statements are presented on the basis that the Company is a
>         going concern. Going concern contemplates the realization of assets and
>         the satisfaction of liabilities in the normal course of business over
>         a reasonable length of time. The Company has incurred significant losses,
>         defaulted on its agreements to manufacture the Bitem and Disifin products,
>         has negative working capital and needs additional capital to finance its
>         operations. These conditions raise uncertainty about its ability to continue
>         as a going concern.
>       Managements
>         plans regarding the going concern situation include, but are not limited
>         to, seeking additional capital from private or public sources and seeking
>         a merger candidate.

NOTE
  15WRITE-OFF
  OF PRODUCT RIGHTS AGREEMENTS

> The
>         Company defaulted on two product rights agreements and wrote-off previously
>         capitalized product rights assets totaling $319,318.

NOTE
  16UNAUDITED
  FINANCIAL INFORMATION

> The
>         accompanying financial information as of June 30, 2002 is unaudited. In
>         managements opinion, such information includes all normal recurring
>         entries necessary to make the financial information not misleading.

NOTE
  17SUBSEQUENT
  EVENT

> On
>         August 13, 2002, the Federal Bureau of Investigation and the U.S. Securities
>         and Exchange Commission arrested Howard Kerbel, Barry Berman (major stockholders
>         of the Company) Dennis Epstein (Chairman of the Board of Directors), Kenneth
>         Liebscher (President of the Company), and Melvin Levine and Vincent Barone
>         (consultants to the Company) for federal mail and wire fraud and various
>         securities violations. All parties have pleaded not guilty to these charges.
>       ThermoElasticTechnologies,
>         Inc. and Subsidiary were not charged in these activities.
>       The
>         Company has hired a new President and Chief Executive Officer and has
>         appointed a new Board of Directors.

NOTE
  18REVIEW
  OF PREVIOUSLY ISSUED STOCK AND CONSULTING AGREEMENTS

> The
>         new Chief Executive Officer is examining all previous consulting agreements,
>         stock options and stock issuances for cash and services to determine that
>         the agreements and stock issuances were valid and in compliance with all
>         SEC rules and regulations. He has also frozen all future stock issuances
>         until the agreements can be authenticated.

18

---