SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, D.C. 20549











FORM
10-KSB







ANNUAL REPORT PURSUANT TO SECTION 13
OR 15 (D)





OF THE SECURITIES AND EXCHANGE ACT OF
1934







For the
fiscal year ended:                                                              Commission File Number

March 31,
2002                                                                           
333-5278-NY





Agate Technologies, Inc.





(Name of small business issuer in its
charter)



Delaware                                                                                               
94-3334052

(State or
other jurisdiction
of                                                                   (I.R.S.
Employer

incorporation
or
organization)                                                                  
Identification number)









895 Dove
Street, 3rd Floor



Newport Beach
, California                                                                      
92660



(Address of
Principal Executive
Offices)                                                    (Zip Code)









Issuer's
telephone number: (562) 483-1095





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





Securities
registered under Section 12(g) of the Act: None







Check whether
the issuer (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.





Yes X;    No







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



State
issuer's revenues for the most recent fiscal year.  $595,092.



The aggregate
market value of the voting common stock held by non-affiliates of the Registrant
as of May 30, 2002 was  $115,025.93.  The Company's common stock is traded on the
OTC Electronic Bulletin Board.

There were
21,567,593  shares of common stock $.0001 par value outstanding as of May
30,
2002.



Documents
incorporated by reference:   None



Transitional
Small Business Format (check one);   Yes   ;   No 
X



ADVISEMENT



This Annual Report on Form 10-KSB contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 or by the
Securities and Exchange Commission in its rules, regulations and/or releases.. 
These forward-looking statements are based on the Company's current expectations
or beliefs , including but not limited to, statements concerning our operations,
economic performance, financial condition, growth and acquisition strategies,
investments and operational plans.  For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements.  Without limiting the generality of the
foregoing, words such as "believe," "anticipate," "expect," "intend," "plan,"
"will," "believe," "intend," "could," "might" or "continue" or the negative or
other variations thereof and other similar expressions identify forward-looking
statements.  In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements.  These forward-looking statements by their
nature involve substantial risks and uncertainties, certain of which are beyond
our control, and  actual results may differ materially depending on a
variety of important facts, including but not limited to those risk factors
discussed herein below.



You are cautioned not to place undue reliance on these forward-looking
statements, which relate only to events as of the date on which the statements
are made.  We undertake no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.  You should refer to and carefully review the information
in future documents we file with the Securities and Exchange Commission.





PART I







ITEM 1.
DESCRIPTION OF BUSINESS



Introduction



Agate
Technologies, Inc., a Delaware Corporation ("the Company"), is a holding company
and through its subsidiaries is engaged in the design, development and marketing
of software solutions, associated hardware , and services enabling cross PC
(personal computer ) platform connectivity, making it easier for data and device
sharing and reducing computer downtime.  The Company's business focus and
product offerings include plug and play software, components for hot swap
solutions, peripheral products for date back-up, instant data recovery and USB
digital storage devices and applications.







Since its
formation on January 1996, Agate Technologies (California), Inc , a California corporation
("Agate-California), was  engaged in the design, development and marketing
of software solutions, associated hardware, and services enabling cross PC
(personal computer) platform connectivity which made it easier for data and
device sharing and reduced computer downtime.







Agate-California pioneered the first real
application of "plug and play" software technology for swapping of storage
peripherals for IDE and ATAPI interfaces.  This technology eliminated the need
to restart and reconfigure the computer system whenever a peripheral device was
inserted or removed from the computer.  Since then, hot swapping to IDE
peripherals has become a standard in mobile devices and currently more than a
million notebook PCs use the Company's ProSwap software through royalty
licenses granted to various PC manufacturers, including IBM, Acer, NEC, Hewlett
Packard, Fujitsu and Siemens.











On June 29, 1999,
all former shareholders of Agate-California were issued shares in ARCA Corp., a New Jersey corporation
("ARCA") with no known assets or liabilities, in exchange for the contribution
of their Agate-California shares.  Each common shareholder received 1.5 ARCA
common shares for each Agate-California share exchanged.  Each Series A
Preferred shareholder received an equal number of ARCA Series A Preferred
Shares, which had substantially identical rights, preferences, privileges, and
restrictions, except each share is convertible into 1.5 ARCA common shares.  As
a result of this transaction, shareholders of Agate California owned in excess
of 90% of ARCA's outstanding shares and Agate-California became a wholly owned
subsidiary of ARCA.  Accordingly, the transaction between ARCA and
Agate-California is considered to be an acquisition of Agate-California by ARCA.











On June 30, 1999,
ARCA was merged into its other wholly owned subsidiary, Agate Technologies,
Inc., a Delaware corporation ("Agate-Delaware" or the "Company"), in order to re-incorporate ARCA
in Delaware.  Agate-Delaware has Series A Preferred Stock that is identical in
rights, preferences, privileges and restrictions to the ARCA Series A Preferred
Stock.  Each ARCA shareholder received one share of Agate-Delaware in exchange
for one ARCA share.  As a result of this transaction, Agate Technologies Inc., a
Delaware corporation, became a publicly traded company on June 30, 1999.











Subsequently,
Agate-Delaware formed new subsidiaries and operated its business through these
subsidiaries which  include  Agate-California , EI
Corporation, Agate International Cayman Limited, and Agate Singapore Pte
Ltd. In addition , Agate-California had a Malaysian subsidiary prior to its
transaction with Agate-Delaware called ATI Technologies (M) Sdn Bhd.  All of the subsidiaries except Agate-California are inactive and outstanding liabilities of the group far
exceed their assets.  The Company currently does not have the funds
necessary to conduct its operations which have temporarily ceased until either
more financing is obtained, the Company is able to raise funds by a licensing
transaction or partial asset sale, the Company is acquired by or acquires
another business, or the Company goes out of business.  The Company's principle office is located at  895 Dove
Street, 3rd Floor, Newport Beach, Ca 92660.



Business Overview







The Company is
engaged in the design, development and marketing of data storage solutions and
data management across PC platforms.  The Company's business focus and product
offerings include plug and play software, components for hot-swap solutions,
peripheral products for data back-up, products allowing for instant data
recovery and USB digital storage devices and related applications.  The Company
derives revenues from software licensing and products sold through resellers, direct telephone and Internet sales.







During the first
quarter of 2001, the Company located its sales, marketing and technical support
operations in St George, Utah and its corporate and accounting operations were
located in Cerritos, California.  During the early 2001, the  Q USB hard drive
continued to achieve strong media coverage and attention  as a unique removable
storage device. However, by June 2001,  the Company was unsuccessful in raising
further funding due to overall tough market conditions and a slower economy.  As
a result of the financial strain ,, steps were taken to close its St George
operations and cut back on its staffing.  Without a new round of financing, the
Company was not able to meet its objective to expand product development ,
marketing and meet the competitive demands on pricing.











The Company was
not able to sustain its ongoing business operations in early 2002 without
additional capital. Commencing Feb 2002, the Company ceased its normal business
operations and focused on working with financial advisors to restructure the
Company's debt and reduce its outstanding debt through conversion of debt to
shares so that the "public shell" can then be merged with an operating company
with operating history and assets.  Although the Company intends to find a
potential merger candidate, there can be no assurance that it can successfully
restructure the debt for the purpose of the merger.  Further, there is no
assurance that any completed acquisition will enhance the Company's future.  If
an acquisition is consummated, it is expected that a significant portion of the
consideration will result in significant dilution of stockholder interest.



Patents,
Proprietary Technology and Other Intellectual Property







Because its
proprietary technology and information is important to the Company, it relies on
a combination of trade secret, copyright, trademark, and patent laws, together
with confidentiality procedures and nondisclosure agreements, to establish and
protect the proprietary rights and technology used in its products.











The Company also
relies on unpatented proprietary know-how in developing its products, and
employs various methods, including confidentiality agreements with employees,
consultants and others, to protect its trade secrets and know-how.











Irrespective of
the foregoing, the Company cannot be sure that these methods of protecting its
proprietary technology, information and know-how will afford complete
protection.  Patents may not be enforceable or provide the Company with
meaningful protection from competitors.  If a competitor were to infringe the
Company's patents, the costs of enforcing its patent rights might be substantial
or even prohibitive.  Likewise, the Company cannot be sure that others will not
independently develop its trade secrets and know-how or obtain access to them.











The Company
expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps.  Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements.  Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which could have a material adverse effect upon the
Company's business, operation results and financial condition.  See Item 3 in
PART I of this document entitled "Legal Proceedings."







The Company has
two patent applications pending with the United States Patent and Trademark
Office.  These applications relate to the Company's "hotswap" technology and the
Web2Drive Internet portal.  In June 1999, the Company filed a continuation to its
November 1996 U.S. patent application covering certain aspects of its ProSwap
technology (and specifically as it applies to IDE devices).  Based on the lack
of funds, the Company has not been able to pursue the continuation of these
patents.







The Company owns
various trademarks and trade names relating to its products lines.



Principal
Suppliers







The Company's  Q
USB hard drive devices are solely sourced from one manufacturer.  Any termination
or significant disruption in the Company's relationship with the manufacturer or
any material adverse change to the financial condition of  the manufacturer
could prevent the Company from filling customer orders in a timely manner and
would have a material adverse effect on the Company's financial position and
results of operation.  Although management believes that its relationship with
these manufacturers is good, there can be no assurance that these relationships
will continue or that either of these manufacturers will continue to be in a
position to manufacture products for the Company in a timely and cost efficient
manner.  Although the Company attempts to reduce the adverse impact that
problems with these suppliers could cause by maintaining a safety stock, there
is no assurance that the Company would be able to replace the supplier before
its safety stock would be depleted.



Research and
Development Spending



During the two
most recent full-year fiscal periods ended March 31, 2002 and March 31, 2001,
the Company spent $256,758 and $412,791 respectively on research and development
activities.  See Item 6 in PART II of this document entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."



Employees





The Company
currently has no employees.  The officers of the Company continue to maintain
the Company's minimal operations pending completion of the debt restructure for
the purpose of a merger transaction. The officers of the Company do not receive
compensation and have deferred their compensation expense. On June 28, 2002, Ms.
Shirley Ooi has resigned as CFO and remains as a director of the Company.



Compliance With
Environmental Laws



Because of the
nature of the Company's business, it does not believe that the costs and effects
of compliance with environmental laws, whether federal, state or local, would be
significant or even material.





ITEM 2.
DESCRIPTION OF PROPERTY







The Company does
not own any real property.  In March 2002, the Company moved out of its office
at 16000 Carmenita Road, Cerritos.  As the Company has no financial resources,
it has located its address at 895 Dove Street, 3rd Floor, Newport
Beach, California 92660 for purposes of mail and phone communications only.







ITEM 3. LEGAL
PROCEEDINGS







Except as
described below, the Company is not a party to any material pending legal
proceedings nor is any of its property subject to any such legal proceedings:







Due to the
Company's lack of cash, it has been attempting to negotiate with its creditors
on outstanding obligations.  The following legal proceedings were filed during
the year  ended March 31 2002:







S&S Public
Relations Inc. v. Agate Technologies, Inc.  Superior Court of California for the
County of Alameda, Fremont Hall of Justice.  This action was filed on December
14 2001. S&S Public Relations, Inc. alleges that the Company owes it $17,311.51
principal, $1007 interest, $660 attorney's fees and $149.00 costs for a total judgment of $19,127.51 relating to services rendered for public relations.  As
the Company has no funds to proceed with a response to this action, it is
attempting to negotiate with plaintiff's counsel to issue shares in settlement
for the outstanding payment.  The matter is still pending.







Alphagraphics v.
Agate Technologies, Inc.  Fifth Judicial Court in and for Washington County, State
of Utah Case NO 010501632.  Judgment was entered against the Company on
September 18, 2001 in the sum of  $16.431.60 and the plaintiff obtained a
writ of attachment on October 31 2001.  The Company agreed to pay the judgment
in installments and paid the plaintiff the first installment of $6,907.26.  The
Company abandoned the settlement agreement when it was determined that the value
of the property located in St. George , Utah was less than the value of the
judgment. Since then, plaintiffs have proceeded to foreclose on the writ of
attachment and sold the property. No further claims have been received on this
matter.







Agate
Technologies, Inc., a California corporation ("Agate"), is involved in two legal
proceedings related to Jamilah Abu Bakar ("Bakar"), a former employee of Agate's
Malaysian subsidiary, ATI Technologies (M) Sdn Bhd. ("ATI").  Agate is the
plaintiff in a declaratory relief action pending in the Santa Clara County
Superior Court entitled Agate Technologies, Inc. v Jamilah Abu Bakar.  In
this action, Agate seeks a ruling that it is not obligated to pay damages or a
portion of Bakar's salary or compensation for the period of time that she was
employed by ATI.  On April 24, 2001, the Court granted Bakar's motion to stay
this action pending the adjudication of the following Malaysian action.  Bakar
is the plaintiff in an action pending before the Malaysian Industrial Court
between Jamilah Bte Abu Bakar and ATI Technologies (M) Sdn Bhd, and Agate
Technologies Inc. California.  In this action, Bakar claims that she was
constructively terminated from her position as executive director with ATI, and
seeks monetary damages.  On or about December 9, 2000, the Malaysian court
granted Bakar's request to add Agate as a party defendant to this action.  Agate
believes that the order was improperly entered in violation of an agreement of
the parties to toll legal action during an attempt to mediate their disputes. On
November 26, 2001, the case was tried, however no one appeared on behalf of ATI.  As a result, the Malaysian Industrial Court, on January 15,
2002, handed down a verdict against Agate Technologies, Inc., California and
ATI and in favor of Bakar in the amount of 1,210,000 Malaysian Ringgit, which is
approximately $375,000.  The Company has not yet decided whether to revive the
U.S. declaratory relief action that had been stayed pending the results of the
Malaysian action.  If and when Bakar attempts to enforce her Malaysian judgment
in the U.S., the Company intends to contest the entry of such judgment,
although no assurance can be given that the Company will be successful in this
regard.   Bakar is the sole shareholder of a corporation that beneficially owns
more than 5% of the Company's outstanding common stock.







In May 2001 the
Company received a letter from a competitor demanding that it cease manufacture
of the Q USB hard drive device.  The letter alleges that the Q device
infringes on a patent filed by the competitor for a similar type of digital
storage device.  The Company's legal counsel has determined that, based on
the information currently available to the Company, it has not infringed
because, among other reasons, providing a flash memory device having USB
connectivity and functionality is not novel.  Based on the foregoing, the
Company has advised the competitor that it will continue to manufacture and sell
the Q device.  The Company has not heard any further from the competitor.





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







No matters were
submitted to a vote of security holders during the fourth quarter of the
Company's fiscal year ended March 31, 2002, either through the solicitation of
proxies or otherwise.





PART II





ITEM 5. MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS







Since June 30,
1999, the Company's common stock has been eligible for trading on the OTC
Bulletin Board under the symbol "AGTE.OB."  The Company's common stock began
trading in the third quarter of 1999.  No assurance can be given that the
present market for the Company's common stock will continue or will be
maintained.







The following
table sets forth the range of the high and low bid information for shares of the
Company's common stock during each of the calendar quarters identified below.





Quarter Ending

HIGH                                      LOW





Sep 30,
2000                                         
$2.50                                        $1.25





Dec 31,
2000                                        
$1.875                                      $0.812





March 31,
2001                                     
$1.65                                        $0.30





June 30,
2001                                       
$1.24                                        $0.35





September 30,
2001                               $0.45                                       
$ 0.14





December 31,
2001                               $0.25                                       
$ 0.02





March 31, 2002                                    
$0.10                                       
$0.027





June 30, 2002                                       
$0.03                                       
$0.005







The last price of
the Company's common stock as reported on the OTC Electronic Bulletin Board on
June 30, 2002, was $0.008 .  As of June 30, 2002, the Company had 529 holders of record
of the Company's common stock.







The Company has
not paid any dividends on its common stock and the Board of Directors presently
intends to continue a policy of retaining earnings, if any, for use in the
Company's operations and to finance expansion of its business.







In 1999, the
Company sold 321,336 shares of its Common Stock at $0.75 per share, raising
$241,002.  This offering was made pursuant to an exemption granted by Rule 506
promulgated under the Securities Act of 1933.







In 2000, the
Company sold 429,000 shares of Common Stock at $0.50 per share, raising
$214,500.  This offering was also made pursuant to an exemption granted by Rule
506 promulgated under the Securities Act of 1933.







In 2000, the
Company also sold 859,450 shares of its Common Stock, with attached warrants,
for $1.00 per unit.   This offering was made through Chicago Investment Group,
Inc.  This offering was made pursuant to an exemption granted by Rule 506
promulgated under the Securities Act of 1933.







In 2001, the
Company sold 285,714 shares of its Common Stock for 0.035 cents per share,
raising $10,000 . This offering was made pursuant to an exemption granted by
Rule 506 promulgated under the Securities Act of 1933







In May 2002, the
Company issued 3,121,644 shares of its restricted Common Stock to a certain
party who elected to convert to Common Stock pursuant to the terms of the
Convertible Note entered into on October 01, 2001.  The Convertible Note matures on
November 03, 2002 bearing an interest rate of 12% per annum and was agreed to by the
Holder when the Company could not repay the Promissory Notes.







In May 2002, the
Company issued 10,902,200 shares of its restricted Common Stock to certain
related parties who elected to convert to Common Stock pursuant to the terms of
the Convertible Note entered into on October 01, 2001.  The Convertible Note matures
on November 03, 2002 bearing an interest rate of 12% per annum and was agreed to by
the Holders when the Company could not repay the Promissory Notes.







In June 2002, the
Company issued 2,737,500 shares of restricted Common Stock to convert 1,825,000
preferred shares to common shares pursuant to the terms of the Preferred Stock Agreement .





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



General







The Company is a
holding company and through its subsidiaries is engaged in the design,
development and marketing of data storage and data management hardware and
software solutions and services enabling cross PC platform connectivity, making
it easier for data and device sharing and reducing computer downtime.  The
Company's business focus and product offerings include plug and play software,
components for hot swap solutions, peripheral products for data back-up, instant
data recovery and USB digital storage devices and applications.  During the FYE
March 31 2002, the Company was not able to raise additional working capital as a
result of which the Company was under severe financial strain.  Although the
Company implemented the closure of its St George, Utah, office, cutback on staff
and reduced overall expenses,  it was not able to keep the normal business
operations sustainable without further cash injection.  Commencing February 2001, the
Company ceased its normal business operations and focused on working with
financial advisors to restructure the Company's debt and started working with
creditors to convert debt to stock.  After the debt
restructure is completed, the Company intends to seek new business opportunities. There is however no assurance that the Company can continue to
maintain this minimal operations without additional funds or that a merger can
be consummated .







The Company's
fiscal year end is March 31, 2002.





Results Of
Operations



Fiscal Years Ended
March 31, 2002 And March 31, 2001.







Net sales for the
year ended March 31, 2002 declined to $595,092  compared with net sales of
$1,761,736 for the year ended March 31, 2001, a decrease of  66%.  Net sales for
the year ended March 31, 2002 were derived from software licensing sales and
bundled products sale which consist mainly of the Q-USB drive, which is a USB
/flash memory digital hard drive, the size of a key. For the year ended March 31, 2002, bundled products and software
licensing accounted for 88% and 12%, respectively, of all net sales.  This
compares to 72% and 28%, respectively, for the fiscal year ended March 31, 2001.







Gross margins
increased to 36% for the year ended March 31, 2002 compared to 18% for the year
ended March 31, 2001,  due to a higher volume of direct sales through the Internet
and a lower inventory write down in the current year.  Gross profit declined to
$215,826 for the fiscal year ended March 31, 2002 compared to $313,499 for the
fiscal year ended March 31, 2001, a decrease of 31%.







Operating expenses
increased slightly in the year ended March 31, 2002 to $2,641,901 from
$2,621,793 for the year ended March 31, 2001, an increase of 0.8%.  A
significant portion of the operating expense for the year ended March 31, 2002, 
represented non-cash operating expense . This non cash operating expense
included an amount of $657,809 in services which was paid with the Company's
stock and $235,928  in deferred compensation to the officers of the Company.  
As at March 31, 2002, total accrued deferred compensation owed to the officers
of the Company was $517,756.  Research and development expenses decreased to $256,758 for the year ended March
31, 2002, from $412,791 for the year ended March 31, 2001, a decrease of 38%. 
Sales and marketing expenses decreased to $590,136 for the year ended March 31,
2002, compared to $1,116,593 for the year ended March 31, 2001, a decrease of
47%.  General and administrative expenses increased to $1,794,807  for the year
ended March 31, 2002, from $1,092,409 for the year ended March 31, 2001, an
increase of 64%.  The increase  in general and administrative expenses was
largely due to payments to consultants and for professional and legal fees. All
other office and premise expenses were reduced as operations scaled down 
significantly by mid year and staff cutbacks were implemented.







Interest income
and other income decreased to $9,277 for the year ended March 31, 2002, from
$28,930 for the year ended March 31, 2001.  This reflects a reduction in cash
resources.







The Company's
operating loss increased to $2,425,875 for the year ended March 31, 2002, from
$2,308,294 for the year ended March 31, 2001, an increase in operating losses of
$117,581 or 5%.  For the year ended March 31, 2002,  the Company had a net loss of
$2,492,312 compared to a net loss of $2,359,200 for the year ended March 31,
2000, an increase of $133,112 or 6%.  Although management expects operating costs
to be minimal for maintaining  the public company, waiting to locate a new
business opportunity keeps the Company as a going concern, as there is no
assurance that the Company can continue without further cash injection.



Liquidity and
Capital Resources







Net cash used in
operating activities for the year ended March 31, 2002, was $146,025.  This
compares to net cash used in operating activities of $1,581,903 for the year
ended March 31, 2001.  Net cash provided by investing activities was $398,802
for the year ended March 31, 2002.  This compares to net cash used  by investing
activities of $363,115  for the year ended March 31, 2001.  Working capital
(current assets minus current liabilities) was a deficit $2,513,466 at March 31,
2002 compared to the working capital deficit  of $1,438,538 as at March 31, 2001. 
The increasein working capital of $1,424,052 or 75% reflects the
Company's utilization of its working capital to fund its continuing losses from
operations.  At March 31, 2002, the Company had cash and cash equivalents on
hand of $26,264 and other current assets of $25,885.  Current liabilities at
March 31, 2002 were $2,565,615.







The Company's cash
on hand as of March 31, 2002 would not be adequate to fund the Company's
operations for one month if the Company continued to use cash in operating
activities at the same rate as in fiscal 2002.  The Company has significantly 
reduced its cash used in operations through implementing closure of the St
George, Utah office, staff cutbacks and currently maintaining minimal operations
while working to restructure its debt.   The Company has reached
an agreement with China Trust U.S.A. Bank on settlement of its outstanding debt by converting
it to shares.  The bank has signed the agreement and transaction is to be
implemented upon the payment of a minimum cash amount of $15,000 to the Bank.  
The Company is in the process of restructuring its debt and locating a new
business opportunity.  Therefore, there is no assurance that the Company will have adequate financial
resources in order to maintain its minimal operations while restructuring
its debt.  Management plans to raise minimum funding through technology licenses
or consulting agreements to keep the Company's operations sustainable until a
new business opportunity can be located. There is , however, no assurance that the Company's  creditors
will accept the debt restructure or that upon completion of the debt
restructure, a new business opportunity can be located.  If the Company is unable to achieve
any of the plans mentioned, the Company will not have enough cash to continue to
operate.







The Company
currently does not have any material commitments for capital expenditures.







The Company has a
limited operating history and no financial resources to sustain the Company's
minimal operations pending the debt restructure and locating a merger partner. 
There is no assurance that given the lack of financial resources, the Company
can continue with the debt restructuring while finding a merger partner.  Even if a merger
transaction were consummated, it is expected that a significant portion of the
Company would have to be given as consideration for the transaction resulting
in significant dilution to stockholders.  There is no
assurance that the debt restructure can be successful or that creditors will
agree to the proposed restructure.  If the Company is
not successful in implementing the restructure plan, the business and future
sustainability of the Company will be at risk.  Furthermore, even if a
merger partner was located, there is no assurance that the Q drive business can
be revived and or the development of the Q  drive product can be continued
and/or the Q drive product can respond to current and future competitive
pressures.







There is no
assurance that the Company's business activity can be continued due to factors
beyond our control, including:  1. The demand for and
market acceptance of the Q drive product;  2.
Customer retention;  3. The
timing and success of marketing efforts;  4. The availability
and magnitude of working capital expenditure for competitive volume pricing; 
5. The
timely manufacture of the product which is sole sourced;  6. The
introduction of new services or enhancements by the Company and its competitors; 
7.
Economic conditions including those in the technology sector;  8.
Potential unfavorable legislative and regulatory developments;  9. A highly
competitive environment.







To the extent that
the Company relies on the Internet for its e-commerce site, the Company's
business will be hurt and or inhibited for a number of reasons including: 
1. General economic conditions;  2. Access costs;  3. Inadequate
network infrastructure;  4. Security concerns;  5. Inconsistent
quality of services;  6. Reliability of the web hosting and ecommerce
vendor;  7. Lack of availability of cost-effective, high speed service from
Internet Service Providers.







Although the
Company relies upon certain third parties for security products which effect the secure
transmission of confidential information, there is no assurance that the
measures implemented will not be circumvented or that the Company's systems will
not be infected by computer viruses which will require costs outlay to eliminate
resulting in interruption to the business.







The Internet
infrastructure may not be able to support the demands placed on it or the
Internet's performance and reliability may decline.  Similarly, Web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure which could hurt
the business.







The Company may be
exposed to risks associated with acquisitions, including integration risks and
risks associated with methods of financing and the impact of accounting
treatment.  In addition, the process of completing an acquisition may take
a long time, therefore putting further financial strain on the Company to
sustain current operations.  Furthermore, there is no guarantee that the
acquisition will enhance the business of the Company.  Other risks
encountered include the inaccuracy of financial data of the acquired company.







Currently, there are no
securities analysts covering the Company and distributing research and
recommendations about the stock.  Even with monthly trading volume for the
Company's stock at 767,883
in April 2002, 658,613 in May 2002, and 980,891 in June 2002, the large
availability of public trading stock, the lack of analyst coverage ,
fluctuations due to overall stock market and economic conditions generally and the insolvency of
the Company give no assurance that there will be a market for the shares or that
the stock can be sold.







Any of these
factors could have a significant and adverse impact on the market price of our
common stock.  In addition, the stock market in general has experienced extreme
volatility and rapid decline that has often been unrelated or disproportionate
to the operating performance of particular companies.  These broad market
fluctuations may adversely affect the trading price of the common stock.



Limited Capital/Need
for Additional Capital



The
Company presently does not have sufficient operating capital to continue the
business. The Company is working with financial advisors to restructure the
Company's debt and intends to find a merger partner for the "public shell." 
There can be no assurance that the Company will be able to consummate such a
merger transaction and without further financing, the Company may not be able to
continue as a going concern.



Uncertain Market
Acceptance



The Company's business is based on a perceived need for portable or
transportable small-sized memory devices, suitable for linkage with all common
computer hardware utilized by individual personal computer operators.  The
Company has undertaken no independent market study to determine whether or not
the market will accept such products.  The Company's business will be subject to
all the risks associated with introducing and marketing a new product or
service.



Recent and Expected
Losses



From inception, the
Company has never been profitable and has sustained substantial net losses from
operations.  There can be no assurance that it ever will generate positive
revenues from its operating activities, or that it will achieve and sustain a
profit during any future period, particularly if operations remain at current
levels.  Failure to achieve significant revenues or profitability would
materially and adversely affect the Company's business, financial condition, and
results of operations.  During the fiscal years ended, March 31, 2000, year ended March 31,
2001, and year ended March 31, 2002,  the Company incurred net pre-tax losses of 
$1,811,521, $2,355,990 and $2,491,512  respectively.   The Company's
former auditors, Singer Lewak Greenbaum & Goldstein, LLP, issued a "going
concern" opinion for the Company's financials at March 31 2001.  In that
opinion, the auditor noted that the Company has sustained recurring losses,
which raises substantial doubt about its ability to continue as a going concern.



Technological Change and Market Competition.



Competition in the data storage
industry continues to be intense.  The industry is characterized by changing
technologies and customer demands for new products.  Third parties could develop
products and technologies, which could cause the Company's products and
technologies to become obsolete.  Many of these competitors have considerably
greater resources and abilities, greater marketing and sales capacity,
established distribution networks, significant good will and global name
recognition.  As a result, these competitors may be in a better position than
the Company to quickly respond to rapid technological change and consumer
demand.  Accordingly, there can be no assurance that the Company will be
successful in its ability to enhance current products and develop and introduce
future products that will achieve market acceptance.  The Company's future is
largely dependent on development of new products including, for example, its Q
USB hard drive device, its enhancements and applications.  These products and
services are in varying stages of development and there can be no assurance that
the development of these products and services will be successfully or timely
completed.  See the section entitled "Competition."



Unproven and Evolving
Business Model



While the Company launched the new Q drive
in the quarter ended December 2000, it intends to extend this technology to
vertical applications to enhance product functionalities and usability to
consumers.  This is a novel and unproven business model, which may not be
successful and will ultimately depend on consumer demand for such a product. 
The Company is aware of similar products that are currently available, and
anticipates that any business model it develops will be subject to change.  At
this time it is impossible for management to predict the degree to which
consumers will demand such a product or whether any potential market will be
large enough to provide any meaningful revenue or profit for the Company. 
Successful implementation of this business model may also require the Company to
enter into partnerships with OEMs and software solutions providers.  There can
be no assurance that the Company will find OEMs or software solutions providers
willing to partner with it.



Dependence on One
Manufacturer



Most of the Company's products, including the
custom Q drives, are sole sourced.  Any termination or significant disruption in
the Company's relationship with the manufacturer or any material adverse change to
the financial condition of the manufacturer could prevent the Company from filling
customer orders in a timely manner and would have a material adverse effect on
the Company's financial position and results of operation.  Although management
believes that its relationship with its manufacturers are good, there can be no
assurance that these relationships will continue or that these manufacturers
will continue to be in a position to manufacture products for the Company in a
timely and cost efficient manner.  Even though the Company maintains a safety
stock, there can be no assurance that the Company would be able to replace the
supplier before its safety stock runs out.



Supply Relationships
With and Dependence on Third Parties



The Company will be dependent upon
the hardware products of third parties for its products that are "bundled" with
other products for sale.  There can be no assurance that any relationship
between the Company and any such third party will continue to be beneficial to
the Company.  There can also be no assurance that the third parties will
continue to produce products in the future that retain their current level of
market acceptance, that the products will continue to be available in adequate
quantities at the times required by the Company or that such third party
products will not contain defects or errors.  The Company may experience lost
revenues due to the third party's delay in correcting defects in their products,
delay in getting an adequate supply of their products to the Company, or from
any resulting loss of market share.



Protection of
Intellectual Property



The Company relies primarily on a combination of
copyright, trademark and patent laws, trade secrets, confidentiality procedures
and contractual provisions to protect its proprietary technology.  In addition,
the Company seeks to avoid disclosure of its trade secrets, including requiring
those persons with access to the Company's proprietary information to execute
confidentiality agreements with the Company and restricting access to the
Company's source code.  The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection.







Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary.  Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem.  In addition, the laws of
many countries do not protect the Company's proprietary rights to as great an
extent as do the laws of the United States.  There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology.





A competitor has claimed infringement by
the Company with respect to the Q USB hard drive device and others may claim
infringement by the Company with respect to other current or future products. 
See Item 3 in PART I of this document entitled "Legal Proceedings."  The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps.  Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements.  Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition.





On June 21, 2002,
the Company, by the vote of the majority of the stockholders, approved an
increase in the total amount of common shares authorized.  The total number
of common shares authorized was increased from 75,000,000 to 200,000,000 common
shares.





ITEM 7. 
FINANCIAL STATEMENTS



AGATE
TECHNOLOGIES, INC. AND SUBSIDIARIES

CONTENTS

March 31, 2002





INDEPENDENT AUDITORS' REPORT



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated
Balance
Sheet

Consolidated
Statements of Operations and Comprehensive Loss

Consolidated
Statements of Shareholders' Equity (Deficit)

Consolidated
Statements of Cash Flows

Notes to
Consolidated Financial Statements



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS







To
the Board of Directors





Agate
Technologies, Inc. and subsidiaries







We
have audited the accompanying consolidated statements of operations and
comprehensive loss, shareholders' equity (deficit), and cash flows of Agate
Technologies, Inc. and subsidiaries for the year ended March 31, 2001.  These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.







We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.







In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated results of their operations of Agate
Technologies, Inc. and subsidiaries and their consolidated cash flows for the
year ended March 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.





The accompanying financial
statements have been prepared assuming that the Company will continue as a going
concern.  However, for the year ended March 31, 2001, the Company incurred a net
loss of $2,359,200, and its net cash used in operating activities was
$1,581,903.  Furthermore, since the Company has suffered recurring losses from
operations, it is in violation of its financial covenants and borrowing base
formula; therefore, the Company is in default on its line of credit.  Recovery
of the Company's assets is dependent upon future events, the outcome of which is
indeterminable.  In addition, successful completion of the Company's transition,
ultimately, to the attainment of profitable operations is dependent upon
obtaining adequate financing to fulfill its development activities and achieving
a level of sales adequate to support the Company's cost structure. These
factors, among others, as discussed in Note 2 to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.







SINGER LEWAK GREENBAUM & GOLDSTEIN LLP











Los
Angeles, California





June
12, 2001





INDEPENDENT AUDITORS' REPORT





To the Board of Directors





Agate Technologies, Inc. and Subsidiaries





Newport Beach, California





We have audited the accompanying consolidated balance
sheet of Agate Technologies, Inc. and subsidiaries as of March 31, 2002, and the
related consolidated statements of operations and comprehensive loss,
shareholders' equity (deficit), and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.  The consolidated financial statements
of Agate Technologies, Inc. as of March 31, 2001 were audited by other auditors
whose report dated June 12, 2001 expressed a "going concern" qualified opinion
on those statements.



We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Agate Technologies, Inc. and subsidiaries as of March 31, 2002, and
the consolidated results of their operations and their consolidated cash flows
for the year ended March 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.





The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern.  As
discussed in Note 2 to the financial statements, however, for the year ended
March 31, 2002, the Company incurred a net loss of $2,492,312, and its net cash
used in operating activities was $146,025.  In addition, the Company's
accumulated deficit was $13,172,445 as of March 31, 2002.  Furthermore, since
the Company has suffered recurring losses from operations, the Company is in
default on its line of credit.  Due to its default on the payment of outstanding
invoices, the Company is also involved in certain legal proceedings and claims. 
The management believes that the outcome of these matters will have a material
adverse effect on the Company's financial position or results of operations. 
Recovery of the Company's assets is dependent upon future events, the outcome of
which is indeterminable.  In addition, successful completion of the Company's
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost structure. 
These factors, among others, as discussed in Note 2, raise substantial doubt
about the ability to continue as a going concern.  Management's plans in regards
to this matter are also described in Note 2.  The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.





Kwang-Ho
Lee, CPA





June
28, 2002                                                              KENNY H.
LEE CPA GROUP







AGATE TECHNOLOGIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

MARCH 31, 2002

``

``

`ASSETS

								March 31, 2002

Current assets
   Cash and cash equivalents					    $	26,264
   Accounts receivable, net of allowance
      for doubtful accounts of $171,060					  8,316
   Inventories								  9,385
   Prepayments and other assets						  8,184

		Total current assets                                 $   52,149

Restricted cash								  6,000
Property and equipment, net						 21,875
Software development costs						      -
                                                                         _______

		Total assets                                         $   80,024




LIABILITIES AND SHAREHOLDERS' DEFICIT


								March 31, 2002

Current liabilities
   Line of credit						$	397,603
   Note payable								274,182
   Current portion of time-share payable                                  1,335
   Accounts payable						 	715,464
   Accrued compensation							517,756
   Accrued closure provision						412,908
   Other accrued expenses						143,358
   Notes payable - related parties					103,009

		Total current liabilities                             2,565,615

Time-share payable, net of current portion	                         11,244

		Total liabilities                                     2,576,859

Commitments and contingencies

Shareholders' deficit
   Convertible Series A preferred stock, $0.0001 par value.
   	15,000,000 shares authorized;
	1,825,000 shares issued and outstanding			        1833
   Common stock, $0.0001 par value.
	75,000,000 shares authorized:
	21,567,593 shares issued and outstanding	              2,1577
   Additional paid-in capital                                     10,844,506
   Stock subscription                                               (151,500)
   Accumulated other comprehensive loss			            ( 19,736)
   Accumulated deficit			                         (13,172,445)

		Total shareholders' deficit                       (2,496,835)

		Total liabilities and shareholders' equity        $   80,024`

`The accompanying notes are an integral part of these statements.`

``

``

``

AGATE TECHNOLOGIES, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS For the Years Ended March 31, 2002




`2002   	       2001

Revenues
   License revenue	                   $   71,410      $  497,954
   Sales revenue                              523,682       1,263,782

	Total revenue                         595,092       1,761,736

Cost of goods sold                            379,266       1,448,237

Gross profit                                  215,826         313,499

Expenses
   Research and development                   256,758         412,791
   Sales and marketing                        590,136       1,116,593
   General and administrative               1,794,807       1,092,409

	Total expenses                      2,641,701       2,621,793

Loss from operations                       (2,425,875)     (2,308,294)

Other income (expense)
   Interest income and other income             9,277          28,930
   Interest expense and other expense         (74,914)        (76,626)

	Total other income (expense)          (65,637)        (47,696)

Loss before provision for income taxes     (2,491,512)     (2,355,990)

Provision for income taxes                        800           3,210

Net loss                                   (2,492,312)     (2,359,200)

Other comprehensive income (loss)
   Foreign currency translation adjustment     59,300           1,896

Comprehensive loss                        ($2,433,012)    ($2,357,304)

Basic and diluted loss per common share      (  $0.15)       (  $0.18)

Weighted average number of common shares    16,068,580     13,337,572`

``

`The accompanying notes are an integral part of these statements.`

``

``

``

AGATE TECHNOLOGIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIT)

For the Years Ended March 31,



Accumulated                                    
Total

Convertible                                            Additional                         
Other                               Stockholders

Series A Preferred Stock   Common Stock     
Paid-in          Stock       Comprehensive  
Accumulated        Equity

Shares      Amount     
Shares   Amount     Capital  Subscription   Income(loss)          Deficit           (Deficit)



Balance at March

31, 2000      1,825,000       
$   183    12,932,004     $1,293  
$8,918,846   $   
-       $  (80,932)      
$(8,320,933)    $ 
518,457



Common stock issued for cash,

net of issuance costs

of  $133,917                                          
1,073,950         108        832,675 (151,500)                
-                         -         
681,283

Stock options exercised for cash                   
40,500             4          40,496            
-                   -                        
-            40,500

Non-cash stock options exercised                 
60,000             6         23,994             
-                   -                       
-             24,000

Stock issued for services                               
10,000             1          22,499            
-                   -                       
-             22,500

Stock options issued for services                           
-             -         109,575            
-                   -                       
-           109,575

Cumulative translation adjustment                         
-             -                   
-             -           
1,896                        -             
1,896

Net loss                                                                   
-             -                   
-             -                  
-         (2,359,200)    (2,359,200)



Balance at March

31, 2001        
1,825,000          $ 183  $14,116,454 
$1,412    $9,948,085$(151,500)  $ (79,036)  
$(10,680,133)     $(960,989)



Non-cash stock options

exercised for services                                 27,329            3          13,935                 
-                  -                      
-            13,938

Stock options exercised for cash              
213,903           21         19,979                 
-                  -                      
-            20,000

Stock subscription for cash                     
285,714            29           9,971                 
-                  -                      
-            10,000

Stock issued for services                      
6,317,764          631       643,240                 
-                  -                      
-           643,871

Stock issued for loan fees                        
100,000           10         55,990                  
-                  -                      
-            56,000

Stock issued for payment of debt           
446,429            45       111,562                 
-                  -                      
-           111,607

Stock issued for employee

compensation                                       
60,000             
6         14,994                 
-                 
-                      
-           
15,000

Stock options issued for services                      
-               -          26,750                 
-                  -                      
-            26,750

Cumulative translation adjustment                    
-               -                  
-                  -        
59,300                       -           
59,300

Net loss                                                              
-               -                  
-                  -                 
-        (2,492,312)    (2,492,312)



Balance at March

31, 2002            
1,825,000      $ 183 21,567,593    $2,157 $10,844,506  
$(151,500)   $(19,736)  
$(13,172,445)  $(2,496,835)





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





AGATE TECHNOLOGIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended March 31,



|                                                                                          | 2002          | 2001         
|----------------------------------------------------------------------------------------- | ------------- | -------------
|Cash flow from operating activities:
    Net loss                                         | $ (2,492,312) | $ (2,359,200)
|Adjustments to reconcile net loss to net cash used in
    operating activities:           |               |              
|Depreciation and amortization of property and equipment                                   | 22,770        | 43,735       
|Amortization of software development costs                                                | 40,681        | 5,319        
|Provision for bad debts                                                                   | 43,154        | 108,449      
|Issuance of stock as compensation                                                         | 28,938        | 24,000       
|Issuance of stock for services rendered                                                   | 643,871       | 22,500       
|Issuance of stock options for services rendered                                           | 26,750        | 109,575      
|Issuance of stock for loan fees                                                           | 56,000        | -0-          
|Issuance of stock for payment of debt                                                     | 50,000        | -0-          
|Issuance of stock for collateral for payment of debt                                      | 61,607        | -0-          
|(Increase) decrease in                                                                    |               |              
|Accounts receivable                                                                       | 262,616       | (197,957)    
|Inventories                                                                               | 164,877       | 186,344      
|Prepayments and other current assets                                                      | 6,033         | 51,160       
|Other assets                                                                              | -0-           | 7,000        
|Increase (decrease) in                                                                    |               |              
|Accounts payable                                                                          | 429,223       | 164,853      
|Accrued compensation                                                                      | 235,928       | 190,818      
|Accrued closure provision                                                                 | 289,853       | (7,358)      
|Accrued interest on notes payable                                                         | 21,682        | -0-          
|Other accrued expenses                                                                    | (37,696)      | 68,859       
|Total adjustments                                                                         | 2,346,287     | 777,297      
|Net cash used in operating activities                                                     | (146,025)     | (1,581,903)  
|Cash flow from investing activities:                                                      |               |              
|Restricted cash                                                                           | 398,802       | (306,083)    
|Software development costs                                                                | -0-           | (46,000)     
|Purchase of property and equipment                                                        | -0-           | (11,032)     
|Net cash provided (used in) investing activities                                          | 398,802       | (363,115)    
|Cash flow from financing activities:                                                      |               |              
|Proceeds from line of credit                                                              | -0-           | 644,485      
|Repayment of line of credit                                                               | (401,882)     | -0-          
|Net proceeds from notes payable                                                           | 75,000        | 227,500      
|Repayment of notes payable                                                                | (50,000)      | -0-          
|Repayment of time-share payable                                                           | (1,155)       | (1,325)      
|Net proceeds from note payable - related
    parties                                      | 5,325         | 102,684      
|Repayment of note payable - related parties                                               | (5,000)       | -0-          
|Proceeds from the exercise of stock options                                               | 20,000        | 40,500       
|Sales of common stock in private placements                                               | -0-           | 815,200      
|Issuance costs                                                                            |               | (133,917)    
|Proceeds from stock subscription                                                          | 10,000        | -0-          
|Net cash provided (used in) by financing activities                                       | (347,712)     | 1,695,127    
|Cumulative translation adjustment                                                         | 59,300        | 1,896        
|Net decrease in cash and cash equivalents                                                 | (35,635)      | (247,995)    
|Cash and cash equivalents at beginning of year                                            | 61,899        | 309,894      
|Cash and cash equivalents at end of year                                                  | $26,264       | $61,899      
|Supplemental disclosure of cash flow information:     
    Cash paid during the year for: |               |              
|Interest                                                                                  | $60,978       | 54,174       
|Income tax                                                                                | $ -0-         | $3,210       





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



#### AGATE TECHNOLOGIES, INC. AND SUBSIDIARIES

##### NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

###### March 31, 2002





(1)  Organization and Line of Business







Agate Technologies, Inc. ("Agate-California")
was incorporated in the state of California on January 17, 1996. It develops,
designs, and markets removable storage devices and complementary software and
licenses its technologies to other manufacturers.



Pacific Rim Trading Limited
("Pacific Rim Trading") held 31% and 52% of Agate-California's common stock as
of March 31, 2002 and 2001, respectively. If the Series A convertible preferred
stock were to be converted into common stock, Pacific Rim Trading would hold
less than 50% of Agate-California's common stock.





On June 29, 1999, all former
shareholders of Agate-California were issued series of stock in ARCA, Corp. ("ARCA"),
a non-operating public shell with no known assets or liabilities, in exchange
for their Agate-California shares. Each common shareholder received 1.5 ARCA
common shares for each Agate-California share exchanged. Each Series A preferred
shareholder received an equal number of ARCA Series A preferred shares, which
had substantially identical rights, preferences, privileges, and restrictions,
except each share is convertible into 1.5 ARCA common shares. As a result, Agate-California
became a wholly owned subsidiary of ARCA. The transaction between ARCA and Agate-California
was accounted for as a recapitalization of Agate-California. All references to
the number of shares and amounts per share herein have been adjusted to reflect
the effect of this 1.5 adjustment for all periods presented.



On June 30, 1999, ARCA merged into its other wholly owned
subsidiary, Agate Technologies, Inc. a Delaware Corporation, ("Agate-Delaware")
in order to reincorporate ARCA in Delaware. Agate-Delaware has Series A
preferred stock that has identical rights, preferences, privileges, and
restrictions as the ARCA Series A preferred stock. Each ARCA shareholder
received one share of Agate-Delaware stock in exchange for each ARCA share of
the same class. Agate-California remains a wholly owned subsidiary of Agate-Delaware.



(2)  Summary of
Significant Accounting Policies



# Affirmative Statement



The
accompanying consolidated financial statements have been adjusted to include all
adjustments which in the opinion of the management of the Company are necessary
in order to make the consolidated financial statements not misleading.



# Principles of Consolidation



The consolidated financial statements include the
accounts of

Agate-Delaware and its wholly
owned subsidiaries, Agate Technologies (California), Inc., ei Corporation, Agate
International (Cayman) Ltd., and Agate Technologies PTE Ltd. (collectively, the
"Company"). All significant intercompany accounts and transactions are
eliminated in consolidation.



# Basis of Presentation - Going Concern



The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, for the years ended March 31, 2002 and
2001, the Company incurred a net loss of $2,492,312 and $2,359,200, and its net
cash used in operating activities was $146,025 and $1,581,903, respectively. In addition, the Company's accumulated deficit was
$13,172,445 and $10,680,133 as of March 31, 2002 and 2001. Furthermore, since
the Company has suffered recurring losses from operations, it is in violation of
its financial covenants and borrowing base formula; therefore, the Company is in
default on its line of credit.  Sales of the Company's products do not currently
generate enough revenue to sustain its operations and to date; the Company has
not been able to obtain adequate financing.  The Company has negotiated with the
Bank to modify the terms of its outstanding loan in the amount of $ 397,603. 
Due to its lack of cash, the Company defaulted on an unsecured shareholder loan
for $ 244,563, and has been late in the payment of outstanding invoices to
certain vendors.  Some vendors have filed legal actions against the Company to
attempt to collect the amounts owed.  Other vendors have agreed to accept shares
of the Company's common stock as payment of the amounts owed.



Management recognizes that the Company must generate additional resources and
the eventual achievement of sustained profitable operations. Management has no
immediate plans to raise equity or debt capital in view of the current financial
condition and intends to restructure its debt. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.



# Revenue Recognition



Revenues on product sales are generally recognized when products are shipped,
and license revenues are recognized when earned.  The Company provides a
guaranteed return policy for a thirty- (30) day period and a warranty for one
(1) year for the product sales.  No return policy is made for license revenues. 
The policy contains a requirement of the products to be packed and returned in
original condition.  When the products are returned, the Company normally
exchanges the products or provides credits to the customers.  The returned
products are directly shipped out to the supplier and receive new products or
credits from the supplier.



# Comprehensive Income



For the
year ended March 31, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains and losses on
available-for-sale securities.



# Cash and Cash Equivalents



For
purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with original maturity of three months or less to
be cash equivalents.



# Inventories



Inventory is stated at the lower of cost, which is calculated on a first-in,
first-out basis or market. At March 31, 2002, inventory consisted solely of
finished goods.



# Property and Equipment



Property and equipment are stated at cost. Depreciation for property and
equipment is provided on a straight-line basis over an estimated useful life of
generally three years. Amortization of leasehold improvements is provided on a
straight-line basis over the shorter of the life of the related asset or the
lease term.



# Fair Value of Financial
Instruments



The
Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable, accrued compensation, and accrued closure provision, the carrying
amounts approximate fair value due to their short maturities. The amounts shown
for note payable, notes payable-related parties, and time-share payable also
approximate fair value because current interest rates offered the Company for
debt of similar maturities is substantially the same.



# Stock-Based Compensation



SFAS
No. 123, "Accounting for Stock-Based Compensation," establishes and encourages
the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current implicit
value accounting method specified in Accounting Principles Bulletin ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," to account for
stock-based compensation issued to employees. The Company has elected to use the
intrinsic value based method and has disclosed the pro forma effect of using the
fair value based method to account for its stock-based compensation.



# Income Taxes



Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
report amounts at each period end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period, if any, and the change
during the period in deferred tax assets and liabilities.



# Loss per Share



The
Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
computed by dividing loss available to common shareholders by the
weighted-average number of common shares outstanding. Diluted loss per share is
computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Because the Company has incurred net losses, basic
and diluted loss per share are the same.



Foreign Currency Exchange Gains and Losses



The
reporting currency for the Company is the United States dollar. The functional
currency of the Company's foreign subsidiary is the Singapore dollar.
Subsidiaries' assets and liabilities are translated into United States dollars
at the exchange rate in effect at the balance sheet date. Revenue and expenses
are translated at average rates of exchange prevailing during the period. The
resulting cumulative translation adjustments are disclosed as a component of
accumulative other comprehensive income (loss) in shareholders' equity. Foreign
currency transaction gains and losses are recorded in the statements of
operations and comprehensive loss as a component of general and administrative
expense and have been immaterial for the periods presented.



# Reclassifications



Certain
amounts included in the prior year financial statements have been reclassified
to conform with the current year presentation. Such reclassification had no
effect on reported net loss.



# Estimates



In
preparing financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.



# Certain Risks and Concentrations



Ongoing
customer credit evaluations are performed by the Company, and collateral is not
required. The Company maintains allowances for potential returns and credit
losses. Management believes that the allowance provided at March 31, 2002 is
sufficient.



The
Company's products include components subject to rapid technological change.
Significant technological change could adversely affect the Company's operating
results and subject the Company to product returns and inventory losses. While
the Company has ongoing programs to minimize the adverse effect of such changes
and considers technological change in estimating its allowances, such estimates
could change in the future. In addition, the Company's products are currently
manufactured by a single supplier, and certain key components are currently
available from only single sources.



Two
customers accounted for 11% and 10% of the Company's net revenues for the year
ended March 31, 2002. Four customers accounted for 23%, 21%, 18% and 10% of the
Company's net revenues for the year ended March 31, 2001.



The
Company has one major supplier who represented 55% and 62% of total purchases
during the years ended March 31, 2002 and 2001, respectively.



# Recently Issued Accounting Pronouncements



In June
2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations."  This statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development, and/or the normal operation of long-lived assets, except for
certain obligations of lessees.  This statement is not applicable to the
Company.



In July
2001, the FASB issued SFAS No. 141, "Business Combinations."  This statement
addresses financial accounting and reporting for business combinations and
supersedes Accounting Principles Bulletin ("APB") Opinion No. 16, "Business
Combinations," and SFAS No. 38, "Accounting for Pre-Acquisition Contingencies of
Purchased Enterprises."  All business combinations in the scope of this
statement are to be accounted for using one method, the purchase method.  The
provisions of this statement apply to all business combinations initiated after
June 30, 2001.  Use of the pooling-of-interests method for those business
combinations is prohibited.  This statement also applies to all business
combination accounted for using the purchase method for which the date of
acquisition is July 1, 2001 or later.



In July
2001, the FASB issued SFAS No. 142, "Goodwill and other Intangible Assets." 
This statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets."  It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition.  This statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements.  It is effective for fiscal years beginning after December
15, 2001.  Early application is permitted that the entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not been issued previously.



(3)  Property and
Equipment



Property and equipment at March 31, 2002 consisted of the following:

Time-share in
a condominium                                    $          25,000

Laboratory equipment                                                          
10,865

Computer hardware and software                                       
189,324

Office
equipment                                                                   
6,124

Furniture and
fixtures                                                            42,660





Leasehold improvements                                                       7,543

281,516

Less:
accumulated depreciation and amortization                   259,641

Total                                                               $     21,875



Depreciation and amortization expense was $22,770 and $43,735 for the years
ended March 31, 2002 and 2001, respectively.





(4)  Software Development Costs



Software development costs at March 31, 2002 consisted of the following:



Software development costs                                      $         
46,000

Less: accumulated amortization                                            46,000

Total                                                           $        
         -



Amortization expense was $40,681 and $5,319 for the years ended March 31, 2002
and 2001, respectively.





(5)  Line of Credit



The Company maintains
a credit agreement with a financial institution, which provides for a revolving
line of credit up to a maximum of $800,000. Advances are limited to a borrowing
base of cash for 50% of the loan amount, 70% of eligible accounts receivable,
and 40% of inventory, capped at $300,000. The line of credit is collateralized
by cash for 50% of the balance and substantially all of the assets of the
Company. In addition, the Company is required to comply with certain financial
covenants. The line of credit bears interest at prime (4.75% at March 31, 2002),
plus 3.00%. As of March 31, 2002, the Company's outstanding balance was
$397,603, and the Company was in violation of its borrowing base formula and the
financial covenants. The credit agreement expired on April 30, 2001.



The Company is in a
negotiation with the financial institution to convert its outstanding loan into
its common stock as of March 31, 2002.





(6)  Notes Payable



The Company maintains
notes payable, which bears interest at 10% per annum. Interests are payable
monthly. The notes payable matured on March 2001 and December 2001,
respectively. As of March 31, 2002, the amount due was $244,563 and $29,619,
respectively, and an agreement has not been made to renew the note for the
principal amount of $244,563.  On November 3, 2001, the note payable of $29,619
was converted into a Convertible Note bearing interest at twelve (12) percent
per annum.





(7)  Notes Payable - Related Parties



On October 1, 2001,
notes payable to related parties were converted into Convertible Notes bearing
interest at ten (10) percent per annum.  Note payable - related parties at March
31, 2002 consisted of the following:



Note payable - officer,
bearing interest at 10% per annum. Interest is payable
quarterly.

The convertible note matures on October
1, 2002.                                                         
$   47,827

Note payable - officer,
bearing interest at 10% per annum. Interest is payable quarterly.

The convertible note matures
on October 1, 2002.                                                              
55,182

103,009

Less: current portion                                                                      
          103,009







Long-term
portion                                                                       
      $             -





(8)  Time-share Payable



The Company purchased
a time-share interest in a condominium and financed the purchase with a loan.
The loan bears interest at 14.36% per annum and is payable in equal monthly
installment. The debt matures in June 2008.



Future minimum
principal payments under this loan agreement at March 31, 2002 were as follows:

Year Ending

March 31,



2003                                                   
$          1,335

2004                                                               
1,542



2005                                                                1,781

2006                                                               
2,057



2007                                                                2,647



Thereafter                                                        
3,217

Total                                                       $         12,579





(9)  Commitments and Contingencies





# Leases



The Company leases a
facility for its corporate office on a month-to-month basis from an unrelated
party. Monthly payments of $1,750 are required on this lease. The Company also
leases equipment and an automobile under non-cancelable operating leases, which
expire through March 2005. Future minimum annual rental commitments under the
non-cancelable operating leases at March 31, 2002 were as follows:



Year Ending

March 31,



2003                                             
$  17,167



2004                                                    5,560

2005                                                   3,239

Total
                                   $           25,966



Rent expense was $37,063
and $109,660 for the years ended March 31, 2002 and 2001, respectively.



# Service Agreements



Periodically, the Company
enters into various agreements for services, including, but not limited to,
financial consulting and public relations. The agreements generally are ongoing
until such time they are terminated, as defined. Compensation for services is
paid either on a fixed monthly rate or based on a percentage, as specified, and
may be payable in shares of the Company's common stock. Such expense is included
in general and administrative expenses in the accompanying statements of
operations and comprehensive loss.



# Employment Contracts



The Company entered into
employment contracts with its Chief Executive Officer and Chief Financial
Officer. The agreements call for a minimum base salary and provide for certain
bonuses based on net profits, expense allowances, and severance benefits.



# Litigation



The Company is involved
in certain legal proceedings and claims which arise in the normal course of
business. Management believes that the outcome of these matters will have a
material adverse effect on the Company's financial position or results of
operations in view of the Company's current financial condition.





(10)   Shareholders' Equity



# Preferred Stock



Under the Company's
Articles of Incorporation, preferred stock may be issued in series, and the
Company's Board of Directors is authorized to determine the rights, preferences,
and terms of each series.

## 

## Dividends

The holders of Series A preferred
stock are entitled to receive dividends, out of any assets legally available,
prior and in preference to, any declaration or payment of any dividend on the
common stock of the Company at the rate of $0.175 per share per year, or if
greater (as determined on a per-year basis and on an as-converted basis for the
preferred stock) an amount equal to that paid on the common stock of the
Company. Such dividends are payable when, as, and if declared by the Board of
Directors and are not cumulative. As of March 31, 2001, no dividends have been
declared.



## Liquidation

In the event of any liquidation,
dissolution, or winding up of the Company, either voluntary or involuntary, the
holders of Series A preferred stock are entitled to receive, prior and in
preference to, any distribution of any assets of the Company to the holders of
common stock by reason of their ownership, an amount equal to the sum of $3.50
for each outstanding share of Series A preferred stock, as adjusted for any
stock dividends, combination, or splits, plus any declared but unpaid dividends
on such shares. Any remaining assets will be distributed ratably to the holders
of common stock based on the number of shares held by each shareholder.



## Voting

The holder of each share of Series A
preferred stock does not have voting rights.



## Conversion

At the option of the holder, each
share of Series A preferred stock is convertible into the number of fully paid
and non-assessable shares of common stock which results from dividing the
conversion price per share in effect for the preferred stock at the time of
conversion into the per share conversion value of such shares. The initial
conversion price per share is $3.50, which is subject to adjustment from time to
time. The number of shares into which a share of preferred stock is convertible
is referred to as the conversion rate.



Conversion is
automatic at its then effective conversion rate immediately upon the closing of
a firm commitment underwritten public offering pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended, converting
the offer and sale of common stock in which the aggregate proceeds raised equal,
or exceed, $5,000,000, or when fewer than 150,000 shares of Series A preferred
stock are outstanding. The Board of Directors has reserved 2,075,000 shares of
common stock for future issuance to effect the conversion of the preferred stock
into common stock.



## Redemption

At the option of the Board of Directors,
the Company may redeem in whole or in part, the Series A preferred stock by
paying cash equal to the sum of $3.50 for each outstanding share of Series A
preferred stock, plus any declared but unpaid dividends.



# Common Stock



Each share of common stock is entitled to one vote. The holders
of common stock are also entitled received dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock outstanding.



During the year ended March 31, 2002, the Company issued 27,329
shares of common stock for non-cash stock options exercised totaling $13,938,
and 285,714 common shares for stock subscription exercised totaling $10,000.



During the year ended March 31, 2002, the Company issued
6,371,764 shares of common stock for services rendered value at $643,871.



At May 21, 2001, the Company issued 100,000 shares of common
stock at $0.56 per share to one of its creditors for fees for loan consideration
of $50,000 and issued additional 446,429 shares of common stock at $0.25 per
share as collateral for the payment of the loan.



During the year ended March 31, 2002, the Company also issued its
outstanding shares of common stock 60,000 shares at $0.25 per share for employee
compensation totaling $15,000.



# Consultants' Equity Plan



In October 2001, the Company
adopted the Consultants' Equity Plan to provide incentives to attract, retain
and motivate eligible persons whose present and potential contributions to the
Company as consultants, independent contractors, or advisors are important to
the success of the Company, and its Parent and Subsidiaries, by offering them an
opportunity to participate in the Company's future performance through awards of
Stock.  The total aggregate number of shares reserved and available for grant
and issuance pursuant to this plan was 4,000,000 shares and included shares that
were subject to: (a) an Award granted but forfeited or repurchased by the
Company at the original issue price; and (b) an Award that otherwise terminates
without shares being issued.



# Stock Options



The
Company had two incentive stock option plans under which shares of common stock
are reserved for issuance to employees and consultants. In connection with the
reorganization, the 1996 Stock Option Plan and the 1997 Stock Option Plan were
canceled, and the shares were transferred and adopted under the 1999 Dual Stock
Option Plan (the "1999 Plan"). Under the 1999 Plan, shares of common stock are
reserved for issuance to employees and consultants, and the Company may grant up
to 4,500,000 incentive stock options or non-statutory options.  On August 28,
2001, the Company amended the 1999 Dual Stock Option Plan and renamed it "Agate
Technologies Inc., Equity Incentive Plan".  Under the amended plan, the Company
may issue awards of Options, Restricted Stock and Stock Bonuses up to 4,500,000
shares.



The Company has adopted only the disclosure provisions of SFAS
No. 123. It applies Accounting Principles Bulletin ("APB") Option No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock and options
issued to outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for awards
under this plan consistent with the methodology prescribed by SFAS No.123, the
Company's net loss and loss per share would be reduced to the pro forma amounts
indicated below for the years ended March 31, 2002 and March 31, 2001:





2002                   2001





Net loss





As reported                                     $ (2,492,312)      $
(2,359,200)





Pro forma                                        $ (2,519,062)      $
(2,566,073)





Basic loss per common share



As
reported                                     $          (0.16)      $        
(0.18)

Pro
forma                                        $          (0.16)      $        
(0.19)



On April 20, 2001, certain
independent contractor exercised its options to purchase 27,329 shares of common
stock for non-cash totaling $13,938.



On October 12, 2001, the Company issued
stock options to purchase 500,000 shares of common stock.



On October 15, 2001, 213,903 shares of
these options were exercised for cash totaling $20,000.  In relation to
this transaction, the Company recorded compensation expense totaling $26,750.



On October 15, 2001,
the Company granted options to purchase 1,000,000 shares of common stock to the
officers of the Company.



The
following summarizes all of the Company's stock option transactions:

Stock       
Weighted-       Stock              Weighted

Options        Average   
   Options             Average

Outstanding   
Exercise      Outstanding        Exercise

Price     Outside of Plan     Price

Outstanding,
March 31,

2000,                                    906,500          $  
1.10          750,000          $  0.08

Granted 
                            1,225,000          $   0.44          
50,000          $  2.13

Exercised               
           ( 100,500)         $   0.64                   -          $       -

Cancelled            
              ( 281,000)         $   0.99                  
-          $       -



Outstanding, March 31,

2001                                  1,750,000          $  
0.58          800,000          $   0.21

Granted                             1,527,329           $   0.14                   -          $        -

Exercised                           (241,232)          $  
0.10                   -          $         -

Cancelled                          
(825,000)          $   0.44                   -          $ 
      -



Outstanding, March

31,
2002                         2,211,097         $   0.48        800,000          $  0.21



Exercisable, March

31,
2002                         2,211,097         $   0.48     
  800,000          $  0.21



Information relating to these options is
as follows:

|Exercise Price | Stock Options Outstanding | Stock Options Exercisable | Weighted-Average
    Remaining Contractual Life | Weighted-Average
    Exercise Price of Options Outstanding | Weighted-Average
    Exercise Price of Options Exercisable
|-------------- | ------------------------- | ------------------------- | ----------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------------------------









$      0.08                  
750,000              
750,000               
5.0 years              
$      0.08          $    
0.08





$      0.44                  
925,000              
925,000               
9.0 years              
$      0.44         
$     0.44





$      2.13                    
50,000                
50,000               
4.0 years              
$      2.13         
$     2.13





$      0.09                   286,097       
       286,097                9.8
years               $      0.10         
$     0.10





$      0.17                   500,000       
       500,000                9.8
years               $      0.17          $     0.17





$      0.17                   500,000       
       500,000               
9.8 years              
$      0.17         
$     0.17

3,011,097          
3,011,097





For purposes of
computing the pro forma disclosures required by SFAS No. 123, the fair value of
each option granted to employees and directors is estimated using the Black
Scholes option-pricing model with the following weighted-average assumptions for
the years ended March 31, 2002 and 2001: dividend yields of 0% and 0%,
respectively; expected volatility of 33% and 160%, respectively; risk-free
interest rates of 4.0% and 4.7%, respectively; and expected lives of ten (10)
years.



The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.





(11)      Income Taxes



The following table
presents the current and deferred income tax provision for federal and state
income taxes for the years ended March 31, 2002 and 2001:

2002                                2001

Current

Foreign                        $        -                         $       
2,410

State                                  800                                    
800

800                                  3,210

Deferred

Foreign                        
          -                                        -

State                           
        -                                   -

-                                   -

### Provision for income taxes     $     800                
$      3,210



As of March 31,
2002, the Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $11,012,000 and $8,916,000, respectively.
The net operating loss carryforwards begin expiring in 2005. The utilization of
net operating loss carryforwards may be limited due to the ownership change
under the provisions of Internal Revenue Code Section 382 and similar state
provisions.



(12)      Segment Information



The Company operates
and tracks its results in one operating segment. The Company manages revenues by
geographic region, but does not manage operations by region.



Net revenue for locations
outside of the United States are substantially the result of export sales from
the United States. Net revenue by geographic region based on customer locations
was as follows:

2002                            2001

Net
revenue



United States                   $     
580,302                 $     1,164,779

Pacific Rim                                      
-                          410,442

Europe                                     
28,038                          167,704

Other                                        11,542                       
    18,811

619,882                       1,761,736

Elimination adjustments     
            -                         -

Total                                     619,882                     
1,761,736





(13)      Subsequent Event



On May 31, 2002, one of notes payable was converted into
3,121,644 shares of restricted common stock.  On the same date, notes payable to
related parties - officers were also converted into 5,040,800 and 5,861,400
shares of restricted common stock, respectively.



On June 13,
2002, the financial institution signed the 'Debt Conversion Agreement' with the
Company.  Pursuant to the Agreement, the Company will pay $15,000 and convert
all of the Bank's outstanding liabilities to common stock.



On June 24, 2002, 1,825,500 shares
of Series A preferred stock were converted into 2,737,500 restricted shares of
common stock.  Pursuant to the preferred stock agreement, the conversion rate
was 1.5 times of each preferred stock.





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





Singer Lewak Greenbaum & Goldstein , the
independent accountants who had been engaged by the Company as its principal
accountants to audit the Company's consolidated financial statements, were
dismissed effective July 10 2002.  The Company has engaged Kenny H.
Lee CPA Group as the Company's new principal independent accountants to audit
the Company's consolidated financial statements for the year ending March 31,
2002.







The decision to change the Company's independent
accountants from Singer Lewak Greenbaum & Goldstein LLP  to Kenny H Lee CPA
Group  was approved by the Company's Board of Directors.







The report of Singer Lewak Greenbaum &
Goldstein LLP on the financial statements of the Company as of and for the year
ended March 31, 2001 did not contain an adverse opinion, or a disclaimer of
opinion, however the report was modified as to the Company's ability to continue
as a going concern.  During the one-year period ended March 31, 2001, through the
date of dismissal of Singer Lewak Greenbaum & Goldstein , the Company did not
have any disagreements with Singer Lewak Greenbaum & Goldstein  on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Singer Lewak Greenbaum & Goldstein  LLP, would have caused it
to make a reference to the subject matter of the disagreements in connection
with its reports.







Prior to engaging
Kenny H. Lee CPA Group , the Company had not consulted Kenny H Lee CPA Group ,
regarding the application of accounting principles to a specified transaction,
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements.





PART III





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



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





Name                                                 
Age                                         Position



Mr. Francis
Khoo                                
59                                            Chairman of the Board and Chief
Executive Officer



Ms Shirley
Ooi                                    
51                                            Chief Financial Officer







MR. FRANCIS KHOO,
has served as Chairman of the Board and Chief Executive Officer since the
Company started in January 1996.  Beginning in the last quarter of 1995, Mr.
Khoo worked with Pacific Rim Trading Co., Ltd. to organize the investment in and
formation of the Company.  Before that, Mr. Khoo obtained a broad range of
experience and knowledge in the investment and financial services industry.  He
has followed this up by becoming involved with several emerging growth
businesses.  His career in financial services includes senior assignments at
Bank of America, Dean Reynolds and Shearson Lehman.  In 1991, Mr. Khoo became an
entrepreneur and was both investor and director of a private US company that
ultimately went public.







Mr. Khoo has
entered into Confidentiality and Intellectual Property Agreements with the
Company assigning ownership of inventions  he makes to the Company and agreeing
to maintain the Company's proprietary information confidential.







Ms Shirley Ooi has
served as Chief Financial Officer and member of the Board of Directors since she
co-founded the Company in January 1996.  Ms. Ooi has over 20 years of
experience in the investment and financial services industry.  Prior to joining
the Company, Ms. Ooi worked with Bank Leu (a subsidiary of Credit Suisse group)
both in Hong Kong and Singapore where she served as Regional Managing Director
for Southeast Asia and was also the Asia Representative from 1992 through 1995. 
Prior to this appointment, Ms. Ooi worked as Private Banking Head for Scotiabank
in Singapore.







On
June 28, 2002, Ms. Ooi resigned as the CFO of the Company.  No replacement has
been found for the Company.











The directors of
the Company are elected at the annual meeting of shareholders, serving until the
next annual meeting and until his or her successor is duly elected and qualified
unless earlier resignation or removal.  Executive officers of the Company serve
at the pleasure of the Board of Directors until their resignation or removal.







ITEM 10. EXECUTIVE
COMPENSATION







Summary
Compensation Table



The following
table shows all cash compensation paid or to be paid by the Company during the
fiscal years indicated to the Chief Executive Officer and the highest paid
executive officers of the Company as of the end of the Company's last fiscal
year whose salary and bonus for such period in all capacities in which the
executive officer served exceeded $100,000.





LONG TERM COMPENSATION





ANNUAL
COMPENSATION             AWARDS/PAYOUTS



Name and
        Principal Position
      Year
      Salary
      ($)
      Bonus
      ($)
      Other
      Annual
      Compen-sation
      
      ($)
      Securities
        Underlying Options/
        
        SARs
        (1)
      All Other
      Compen-sation
      
      ($)Chief Executive
      OfficerFrancis Khoo
      2001
      $129,600(3)
      ---
      21,600(4)
      200,000(2)
      ---Director and CEO
      2000
      $129,600(3)
      ---
      22,440(4)
      
      ---1999
      $129,600
      ---
      20,880
      225,000(1)
      ---Shirley Ooi
      2001
      $108,000(3)
      
      15,600(4)
      200,000 (2)Director and CFO
      2000
      $108,000(3)
      
      14,940(4)1999
      $108,000
      
      19,500
      150,000(1)










(1) The
options vest at the rate of 2-1/12% per month over four years from their date of
grant on September 30, 1998.  As at June 29, 1999, upon the consummation of the
merger transaction with Arca , each Agate shareholder received 1.5X Agate
stock.  Accordingly, the stock options split to 1.5X .







(2) The
options were granted immediate vesting.





(3)  For the year
ended 2001, salary represents amounts earned but not paid.  For the year
ended 2000, salary represents amounts earned and partially paid.  (see Item
6 under Liquidity and Capital Resources - deferred compensation).



(4)  Represents
housing and automobile allowance pursuant to the terms of the employment
agreement.  Excludes tax equalization benefits which have been accrued but
unpaid.









Option Grants











The following
table sets forth information with respect to the named executive officers
concerning the grants of options during the fiscal year ended March 31, 2002.







OPTION GRANTS IN LAST FISCAL YEAR









Name
      Number of
      Securities Underlying Options Granted
      % of Total Options
      Granted to Employees in Fiscal Year
      Exercise of Base
      Price
      Expiration DateFrancis Khoo
      500,000
      50%
      0.165
      10/15/2011Shirley Ooi
      500,000
      50%
      0.165
      10/15/2011---
      ---










Option Exercises
and Fiscal Year End Option Values







The following
table sets forth information with respect to the named executive officers
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the March 31, 2002 fiscal year.  The Company has
never granted any stock appreciation rights.







AGGREGATED OPTIONS EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTIONS VALUES:









|Name         | Shares Acquired on
    Exercise | Value Realized | Number of Securities
    Underlying Unexercised Options at FY End
    Exercisable/Unexercisable | Value of Unexercised in the Money Options at FY End
    Exercisable/Unexercisable
|------------ | ------------------------------- | -------------- | ----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------
|             |                                 |                |                                                                                                 |                                                                                  
|Francis Khoo | 0                               | 0              | 1,346,875/28,125                                                                                | 0                                                                                
|Shirley Ooi  | 0                               | 0              | 1,131,250/18,750                                                                                | 0                                                                                
|             |                                 |                |                                                                                                 |                                                                                  









(1) In
accordance with SEC rules, values are calculated by subtracting the exercised
price from the fair market value of the underlying common stock.  For purposes
of this table, fair market value is deemed to be the closing bid price of  the common
stock on March 28, 2002, which was $0.027  per share.







Mr. Khoo and Ms.
Ooi are parties to employment agreements with the Company.  These agreements
provide for a base salary (currently $129,600 for Mr. Khoo and $108,000 for Ms.
Ooi), to be increased each April for cost of living.  In addition, Mr. Khoo
receives an automobile allowance.  Mr. Khoo and and Ms Ooi are to receive a
bonus equal to 2% of the Company's net profits capped at $500,000.  To date, no
bonuses have been paid as the Company has not been profitable.







The Employment
Agreements for Mr. Khoo and Ms. Ooi provide that termination without cause
results in six months severance pay, termination with cause results in three
months severance pay, and termination for malfeasance results in no severance
pay.  Mr. Khoo and Ms. Ooi , each, also receive a housing allowance of up to
$2,600 per month, airfare twice per year for home leave to Singapore, and the
costs of storing belongings in Singapore and relocating to Singapore when their
employment with the Company terminates.  In addition, there are provisions for
tax equalization and payment for tax preparation services by personal
accountants.





ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT











The following
table sets forth information concerning the beneficial ownership of the
Company's common stock as of May 30, 2002 for (a) each person known to the
Company to be a five percent beneficial owner of the common stock; (b) each
director; (c) each executive officer designated in the section captioned
"MANAGEMENT-Executive Compensation;" and (d) all directors and executive
officers as a group.  Except as otherwise noted, each person named below had
sole voting and investment power with respect to such securities.









|Title of Class                                                                                                 | Name and Address                                                                                                                                                                                                                                                                                                                                      | Amount and
      Nature of Beneficial Ownership | Percent of
    
    Class
|-------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------
|Common Stock                                                                                                   | Francis Khoo-Chief Executive Officer and Chairman
    
    895 Dove Street, 3rd
    Floor
    
    Newport Beach Ca 92660                                                                                                                                                                                                                             | 1,735,875(2)(4)(7)                              | 7.58%                    
|Common Stock                                                                                                   | Shirley Ooi-Chief Financial Officer and Director
    
    895 dove Street, 3rd Floor
    
    Newport Beach Ca 92660                                                                                                                                                                                                                                  | 1,449,750(3)(4)(7)                              | 6.39%                    
|Common Stock                                                                                                   | Pacific Rim Trading Ltd.(4)
    
    c/o Acceptor Corporation Ltd.
    
    12th Floor, Ruttonjee House
    
    11 Duddell Street
    
    Hong Kong                                                                                                                                                                                                 | 6,620,000(4)                                    | 30.69%                   
|Common Stock                                                                                                   | Pitisan Sdn Berhad
    
    31 Jalan Riong
    
    59100 Kuala Lumpur
    
    Malaysia                                                                                                                                                                                                                                                              | 2,737,500(4)(6)                                 | 12.69%                   
|Common Stock                                                                                                   | Just Gems Ltd.                                                                         
    36 Jalan Terasek Lapan                                                
    Bangsar Baru                                                                      
    59100 Kuala Lumpur                                                        
    Malaysia | 1,125,000(4)                                    | 5.22%                    
|All officers and directors as a group (includes holdings under Pacific Rim
    Trading Ltd.-See note 4 below.) |                                                                                                                                                                                                                                                                                                                                                       | 9,055,625(5)(7)                                 | 38.9%                    









(1) 
Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934. 
Unless otherwise stated below, each such person has sole voting and investment
power with respect to all such shares.  Under Rule 13d-3(d), shares not
outstanding which are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the purpose of
calculating the number and percentage owned by such person, but are not deemed
outstanding for the purpose of calculating the percentage owned by each other
person listed.







(2) 
Includes  1,346,875 shares issuable upon exercise of options held by Mr. Khoo
which are exercisable within 60 days of March 31, 2002.  Does not include 28,125
shares subject to options that are not then exercisable.







(3)  Includes
1,131,250 shares issuable upon exercise of options held by Ms. Ooi which are
exercisable within 60 days of March 31, 2002.  Does not include 18,750 shares
subject to options that are not then exercisable.







(4)  5%
shareholder.







(5)  Pacific
Rim Trading Co., Ltd., a BVI corporation, is a single asset holding company that
owns 6,620,000 shares of the Company's common stock.  Mr. Francis Khoo and Ms.
Shirley Ooi are the sole directors of Pacific Rim Trading Co., Ltd.  See note
(7) below for certain information on stock ownership of Pacific Rim Trading Co,
Ltd. by Company affiliates.







(6)  Consists
of shares issuable upon conversion of 1,825,000 shares of the Company's Series A
Preferred Stock.







(7)  Excludes
any attribution of Company shares due to ownership of Pacific Rim Trading Co.,
Ltd.  Shareholders of Pacific Rim Trading Co., Ltd. include Francis Khoo
(21.6%), Shirley Ooi (21.6%), Vincent Ooi (7.3%), and Just Gems, Inc. and/or its
shareholder (20%).





ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS







The promoters of
the Company were Pacific Rim Trading Co., Ltd., Francis Khoo, Shirley Ooi, and
Vincent Ooi.  Pacific Rim Trading Co., Ltd. purchased 6,750,000 Company shares
in exchange for $570,000 cash in the first half of 1996.  Vincent Ooi purchased
637,500 Company shares in exchange for certain intellectual property relating to
removable hard drives during the first half of 1996.





ITEM 13. EXHIBITS
AND REPORTS ON FORM 8-K



(a)       
Exhibits



The
following exhibits are filed with or incorporated by reference into this Annual
Report on Form 10KSB



3.01    
Articles of Incorporation: Exhibit O to Exhibit 10.19 to Registrant's (then ARCA
Corp.) Current

Report on Form 8-K filed on June 10, 1999, is hereby incorporated by reference.



3.02     Bylaws: Exhibit O to Exhibit 10.19 to Registrant's (then ARCA Corp.)
Current Report on Form 8-K

filed
on June 10, 1999, is hereby incorporated by reference.



10.20  
Material Contracts: Employment Agreement with John Madigan



16.1    
Letter on change in certifying accountant: Exhibit 16 to Registrant's
Current Report on Form 8-K filed

on May 2 2001, is hereby incorporated by
reference.



21.1    
Subsidiaries of the Registrant



23.1     Consent of independent accountant



(b)       On May 2, 2001, the Company filed a Form 8-K relating to its decision to
change its certifying accountant from Grant Thornton LLP to Singer Lewak
Greenbaum &  Goldstein LLP.  During the one year period ended March 31, 2001, and
the interim period from April 1, 2000 through April 27, 2001, the date of
dismissal of Grant Thornton LLP , the Company did not have any disagreements,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Grant Thornton LLP, would
have caused it to make a reference to the subject matter of the disagreements in
connection with its reports.  Prior to engaging Singer Lewak Greenbaum &
Goldstein LLP, the Company did not consult Singer Lewak Greenbaum & Goldstein
LLP regarding the application of accounting principles to a specified
transaction, completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements.



Form 8-K was filed
during the quarter ended September 30, 2001 to adopt an amended and restated Dual
Stock Option Plan.



SIGNATURES



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



AGATE
TECHNOLOGIES, INC.



By:  /s/ Francis Khoo

Francis
Khoo

Chief Executive
Officer





In accordance with
the Exchange Act, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.





SIGNATURES                                                
TITLE                                      DATE



_______________________

/s/ Francis Khoo                              Chief
Executive Officer, Director           July 11, 2002



Francis Khoo









_______________________

/s/ Shirley Ooi                                 Chief
Financial Officer, Director             July 11, 2002

Shirley Ooi