SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  -------------
                                   FORM 10-KSB
                                  -------------

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For fiscal year ended December 31, 2001

                        COMMISSION FILE NUMBER: 333-51628

                           HEALTH SCIENCES GROUP, INC.
             (Exact name of Registrant as specified in its Charter)

            COLORADO                                       91-2079221
   (State or other jurisdiction of                       (IRS Employer
   incorporation or organization)                      Identification No.)



                              Howard Hughes Center
                          6080 Center Drive, 6th Floor
                          Los Angeles, California 90045
                                 (310) 242-6700
    (Address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)

      SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
                         COMMON STOCK, $0.001 PAR VALUE
                                (Title of Class)

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


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

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not 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[]

Revenues for the fiscal year ended December 31, 2001: $341,813

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant on April 15, 2002 was approximately $6,250,000 based upon the average
reported closing bid and asked price of such shares. As of April 15, 2002, there
were 6,910,184 shares outstanding.  The registrant does not have any outstanding
non-voting equity.

================================================================================
<PAGE>



                                TABLE OF CONTENTS


PART I

  Item 1.      Description of Business .................................    3

  Item 2.      Description of Property..................................   21

  Item 3.      Legal Proceedings........................................   21

  Item 4.      Submission of Matters to a Vote of Security Holders .....   21


PART II

  Item 5.      Market for Registrant's Common Equity
                    and Related Shareholder Matters ....................   22

  Item 6.      Management's Discussion and Analysis or Plan of
                   Operation............................................   23

  Item 7.      Financial Statements ....................................   28

  Item 8.      Changes In and Disagreements with Accountants
                    on Accounting and Financial Disclosure .............   28


PART III

  Item 9.      Directors, Executive Officers, Promoters, and Control
                    Persons; Compliance with Section 16(a) of the
                    Exchange Act........................................   29

  Item 10.     Executive Compensation ..................................   30

  Item 11.     Security Ownership of Certain Beneficial Owners and
                    Management .........................................   31

  Item 12.     Certain Relationships and Related Transactions ..........   33

  Item 13.     Exhibits and Reports on Form 8-K ........................   33









                                       2
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         GENERAL

         Health Sciences Group, Inc. (the "Company'), a Colorado corporation, is
an  emerging-growth  company engaged in the acquisition and integration into its
collaborative  network, of companies operating in the fields of pharmaceuticals,
nutraceuticals, and biotechnology. The Company will leverage the benefits of its
public  status,  the knowledge of its executive  management  team, and access to
capital  resources  of its  strategic  investors  to  assist in  developing  the
business  strategies,  operations and management  teams of companies it acquires
(the "Portfolio  Companies").  The Company expects to provide strategic guidance
and  operational  support  in  areas  such  as  finance,  sales,   distribution,
production  and  manufacturing.   By  applying   improvements  to  the  acquired
companies'  operations,   introducing   synergistic   relationships  within  the
collaborative network of Portfolio Companies,  and leveraging economies of scale
in raw  material  purchasing  and product  distribution,  management  expects to
further enhance operating  margins.  The Company will offer Portfolio  Companies
opportunities  for  synergistic  business  relationships  among and  between one
another.

         The consistent  growth and fragmented  nature of the healthcare  market
presents  tremendous  opportunities  for the  Company to acquire  health-related
companies at favorable  discounts.  Within this  market,  there are  acquisition
candidates which have  significant  market potential for their products but lack
the strategic guidance,  operational support, and capital resources necessary to
maximize scales of efficiency in production and  distribution  channels to yield
higher margins.  These companies offer quality  products and/or services and are
often well  positioned  in their  respective  markets,  but lack these  elements
necessary  to  bring  them to the next  level of  growth.  The  recent  economic
down-turn and reduced  accessibility  to capital  markets  further  presents the
Company  with an  opportunity  to employ its  resources  in making  acquisitions
consistent with its growth strategy.

        Through an expansive network and long-standing relationships, management
has  access  to a steady  supply of such  quality  acquisition  candidates.  The
Company plans to leverage the core  competency of its  management  team,  having
experience in mergers and acquisitions,  financings,  business  valuations,  and
operations  management,  to effectuate such transactions.  Management expects to
take an active role in providing strategic guidance and operational support. The
goal of the Company is to become a  significant  operator in the  health-related
industries by acquiring,  integrating  and  operating  profitable,  under-valued
companies.  By  applying  operational   improvements,   introducing  synergistic
efficiencies,  and leveraging economies of scale,  management expects to further
enhance the Company's shareholder value.

         CORPORATE BACKGROUND

         The  Company  was  originally  founded  on  June 13, 1996 as  Centurion
Properties  Development Corporation. On October 16, 2000, the Company changed to
iGoHealthy.com,  Inc.  and it began  development  of an online,  incentive-based
shopping mall of  health-related  retailers.  Consumers who became  members were
able to earn  points on  purchases  made  through its online  shopping  mall and
redeem these points for cash and prizes.  In April 2001, the Company completed a

                                       3
<PAGE>

self-underwritten offering on a Form SB-2 registration statement with Securities
and Exchange Commission.  After further evaluation of its market potential as an
online  shopping mall, on August 1, 2001  management  shifted toward its current
business  strategy  to  take  advantage  of  the  opportunities  it  saw  in the
health-related industry. To better reflect its new strategy, the Company changed
its name to Health Sciences Group, Inc., effective on September 10, 2001.

         BUSINESS STRATEGY

         The Company's strategy is to:

          o    identify under-valued  companies with opportunity for operational
               improvements;

          o    acquire  significant  interests and integrate  acquired companies
               into a collaborative  network;  o provide strategic  guidance and
               operational support to the companies which it acquires; and

          o    promote synergistic collaboration among and between the companies
               in its portfolio.

          o    promote synergistic collaboration among and between the companies
               in its portfolio.

         Identify under-valued companies with opportunity for operational
         improvements.

         Management's expertise in business valuations and operations management
allows  it  to  identify   companies  that  are   under-valued   candidates  for
improvements.  To determine if a candidate  company is under-valued,  management
applies a disciplined  analysis using key financial  metrics to measure relative
enterprise  value compared to the purchase price.  Management then structures an
acquisition strategy that capitalizes on this approach.

         To  determine  whether to enter a market by acquiring an interest in an
existing  company,  management  will weigh the following  industry and Portfolio
Company criteria:

         Industry Criteria
         -----------------

         Inefficiency.  Management  considers  whether the industry suffers from
         inefficiencies that may be alleviated through a new product or service.
         Management also considers the relative amount of inefficiency,  as more
         inefficient industries present greater profit potential.

         Competition.  Management  evaluates  the amount of  competition  that a
         Portfolio   Company   faces   from   other   businesses   in   targeted
         health-related fields.

         Profit Potential.  Management  considers the number and dollar value of
         transactions in the industry.  In the  multi-billion  dollar industries
         that are targeted,  offering even incremental  efficiency  improvements
         presents  significant  profit  potential.  Management also examines the
         size of the market  opportunity,  the profit  potential  in serving the
         target  market and whether the  company can provide  assistance  to the
         Portfolio Companies.

                                       4
<PAGE>

         Portfolio Company Criteria
         --------------------------

         Under-valued  Assets.  The  Company  will  acquire  a  company  only if
         management believes that it has an enterprise  valuation that is higher
         than its purchase price.

         Management  Quality.  Management  assesses  the  overall  quality   and
         industry expertise of a potential Portfolio Company's management.

         Significant Ownership. Management considers whether the Company will be
         able to obtain a  significant  position  in the  Portfolio  Company and
         exert influence over its strategic direction.

         Network Synergy.  Management  considers the degree to which a potential
         Portfolio Company may contribute to the Company's network,  and benefit
         from the Company's network and operational resources.

         Acquire  significant interests  and integrate acquired companies into a
         collaborative network.

         After a potential  Portfolio  Company is  identified,  management  will
negotiate  the  acquisition  of a  significant  interest in the target  company.
Ideally,  the  Company  strives  to own  100%  of the  equity  of its  Portfolio
Companies,  but in  certain  instances  management  believes  that it may have a
positive   influence  with  lower  ownership   levels.  As  a  condition  to  an
acquisition, management requires representation on the Portfolio Company's board
of directors to ensure the Company's ability to provide active  participation in
the  Portfolio  Company.  As a result of its  extensive  experience,  management
believes  that  it  has  the  ability  to  complete   acquisitions  quickly  and
efficiently.

         During  negotiations with potential  Portfolio  Companies,  emphasis is
placed on the value of the  Company's  seasoned  management  team and  strategic
investors,  collaborative  network where economies of scale and synergies can be
realized,  and  access to  capital  from  either  private  sources or the public
markets,  which it believes gives the Company a competitive advantage over other
acquirers  in  successfully  consummating  transactions.   In  addition  to  the
Company's executive  management,  seasoned industry  consultants  participate in
these  discussions  and other stages of the acquisition  process,  including the
initial evaluation of potential Portfolio Companies as well as due diligence.

         Provide  strategic  guidance and  operational  support to the companies
         which it acquires.

         After  the  Company  makes  an  acquisition  of  a  Portfolio  Company,
management  intends  to take an active  role in its  affairs by  providing  both
strategic  guidance  and  operational  support.  However,  the  goal  is to seek
companies with a capable  management team that require minimal  oversight by the
Company's management on day-to-day operations:

         Strategic  Guidance.  Management  provides  strategic  guidance  to the
         Portfolio   Company  regarding  market   positioning,   business  model
         development  and market  trends.  In addition,  management  will advise


                                       5
<PAGE>

         Portfolio Company  management on strategy and  operational  issues. The
         exclusive focus on the healthcare market and the knowledge base of  our
         executive  management team and strategic investors  provides management
         with  valuable  information  that is shared with the Portfolio  Company
         network.

         Operational  Support.  Companies often have difficulty obtaining senior
         executive  level guidance in the many areas of expertise that companies
         need to be successful.  Management will assist the Portfolio  Companies
         by  providing  access to  skilled  managers  who  guide  the  Portfolio
         Companies in the following functional areas:

                  Business Development. Companies may be involved in evaluating,
                  structuring   and  negotiating   joint   ventures,   strategic
                  alliances,  joint marketing agreements,  acquisitions or other
                  transactions.  Management provides assistance to the Portfolio
                  Companies  in these  areas.  The  executive  management  team,
                  strategic  investors and management of the Portfolio Companies
                  assist in this function.

                  Finance.  The  Company's  finance  executive  is  dedicated to
                  providing  financial  guidance to the  Portfolio  Companies in
                  areas  such  as  corporate   finance,   financial   reporting,
                  accounting  and  treasury   operations.   In  providing  these
                  services,  management  leverages the skills and  experience of
                  its  internal  finance and  accounting  group,  its  Portfolio
                  Company network and outside consultants.

                  Sales and Marketing.  Several  members of the management  team
                  are expected to provide  guidance to the Portfolio  Companies'
                  sales, marketing, product positioning and advertising efforts.

                  Manufacturing  and  Distribution.   The  Company's   operating
                  officer is dedicated to helping the Portfolio  Companies  with
                  their manufacturing systems strategies and optimizing to their
                  current production lines and distribution channels.

         Promote  synergistic collaboration among  and  between companies in its
         portfolio.

         One of the  principal  goals of the  Company's  network  is to  promote
innovation and collaboration among its Portfolio Companies,  which should result
in shared knowledge and business contacts among the Portfolio  Companies and the
formation of strategic alliances.  Through the network, management will identify
prospective alliances, make introductions, and assist in strategic planning.

         The   Company   has   secured   a   domain   name    located   at   URL
http://www.HSciences.com  where it will host a website  featuring,  among  other
information,  its  Portfolio  Companies.  Management  will develop and implement
creative  and  informative  forums  to  provide  information  on each  Portfolio
Company,  the market segment in which it operates, a description of the products
or services offered, and marketing  information.  Furthermore,  the Website will
also offer information on the Company and its corporate officers,  stock quotes,
financial statements, and press releases.

                                       6
<PAGE>


                               PORTFOLIO COMPANIES


         XCEL HEALTHCARE, INC.

         GENERAL

         XCEL  Healthcare,   Inc.   ("XCEL")  is  a   fully-licensed   specialty
healthcare    pharmacy   which   provides   prescription   drugs   and   related
patient-specific  biopharmaceuticals,  medical  supplies,  and disease treatment
programs to individuals with chronic diseases.  Through its pharmacy, XCEL fills
individual  patient  prescriptions  primarily  for  patients  with  catastrophic
illness  that  include  quadra/paraplegias,  cystic  fibrosis,  renal  dialysis,
cancer, and Multiple Sclerosis, among other chronic conditions.

         INDUSTRY OVERVIEW

         The specialty  pharmacy  market is fragmented  with several  public and
many small private  companies  focusing on different product or customer niches.
Few  companies  offer a wide  range  of  pharmaceuticals  and  related  supplies
targeted to multiple customer groups,  specifically  office-based physicians and
patients  self-injecting at home.  Historically,  cancer therapy, renal dialysis
and most other treatments for chronic and  life-threatening  medical  conditions
were administered  almost exclusively in a hospital inpatient setting. In recent
years, the frequency with which these treatments have been administered  outside
the hospital has increased dramatically.

         The   service   needs   of   office-based   physicians   and   patients
self-administering  at home differ  markedly from those of the hospital  market,
creating  logistical  challenges and increasing  administrative  costs for those
offices.  Office-based  physicians and clinics  generally order relatively small
quantities of drugs at irregular intervals and do not have inventory  management
systems or sufficient  pharmacy  staffing.  Challenges  facing these  caregivers
include  having  necessary  administrative  and  financial  resources,  managing
relationships with multiple suppliers,  managing  inventories,  billing patients
and third-party payors, and monitoring new clinical developments.  XCEL believes
that the  shift  from  hospital-based  to  office-based  or  home-based  therapy
administration  has  created  a  significant  opportunity,  particularly  in the
quadra- and paraplegias,  cystic fibrosis,  renal dialysis,  oncology,  Multiple
Sclerosis as well as other chronic diseases.

         Cystic  Fibrosis.  Cystic  fibrosis  is a  genetically  caused  disease
affecting  approximately 30,000 children and adults in the United States. Cystic
fibrosis causes the body to produce  abnormally thick,  sticky mucus, due to the
faulty  transport of chloride  (one of the  constituents  of regular table salt)
from inside the cells  lining  organs,  such as the lungs and  pancreas,  to the
outer surfaces of the cells.  The thick cystic fibrosis mucus also obstructs the
pancreas,  preventing  enzymes  necessary  to  digest  food  from  reaching  the
intestines  where they work.  Specialized  treatments  are  available to address
these  problems  at care  centers  across the  country  supported  by the Cystic
Fibrosis Foundation.  One in 31 Americans (one in 28 Caucasians, or more than 10
million people) is an unknowing,  symptom-less carrier of the defective gene. An


                                       7
<PAGE>

individual  must inherit two defective  copies of the cystic fibrosis gene - one
from each parent - to have cystic  fibrosis.  Each time two carriers  conceive a
child, there is a 25 percent chance that the child will have cystic fibrosis;  a
50 percent chance that the child will be a carrier; and a 25 percent chance that
the child will be a non-carrier.

         Renal  Dialysis.  End  stage  renal  disease  is  characterized  by the
irreversible  loss of kidney  function and requires  kidney  transplantation  or
routine  dialysis  treatment  (either  periodialysis  or  hemodialysis),   which
involves removing waste products and excess fluids from the blood.  According to
the Health Care Financing  Administration  (HCFA), as of December 31, 2000, over
90% of dialysis  patients were receiving  hemodialysis  in outpatient  treatment
centers.  Hemodialysis typically utilizes various specialty  pharmaceuticals and
related  medical  supplies  as part of the  treatment.  Hemodialysis  treatments
usually  last three  hours and are  performed  three  times a week at over 3,000
outpatient  facilities in the United  States.  The  medication  most  frequently
prescribed to hemodialysis  patients is EPO, which  stimulates the production of
red blood cells.  XCEL  estimates  that the United  States  market for EPO alone
easily exceeds $1 billion.

         Oncology. The principal treatments for cancer are surgery and a regimen
of pharmaceutical  treatments.  Surgery typically involves hospitalization,  but
radiation and chemotherapy  are  increasingly  being delivered in alternate site
settings  such as the  physician  office and the home.  According  to USA Today,
cancer drugs generate in excess of $6 billion per year in sales worldwide, which
is  predicted to grow to $62.7  billion by the year 2030.  According to SunTrust
Equitable  Securities  Research,  the National Institutes of Health (NIH) stated
that direct medical  spending on oncology  services  reached  approximately  $37
billion in 1998, and it should  continue to grow at 8-10% annually over the next
several years.  Management believes that the office-based  segment of the cancer
pharmaceutical  market represents  approximately 25% of such market and has been
growing  faster  than the  cancer  pharmaceutical  market.  Growth in the cancer
pharmaceutical market is expected to be driven by the continued  introduction of
new   pharmaceuticals   and  increases  in  the  incidence  of  cancer.  Of  350
biotechnology  medicines  currently in  development,  nearly one half are cancer
related,  according to a 1998 survey  conducted by  Pharmaceutical  Research and
Manufacturers  of  America.  In  addition,  the overall  incidence  of cancer is
expected to increase as the  average  age of the U.S.  population  continues  to
increase.  According to the NIH, over 50% of all cancers are diagnosed in people
age 65 or over.

         Multiple Sclerosis.  Multiple Sclerosis is a  disease  of  the  central
nervous  system for which  neither a cause nor a cure is  currently  known.  The
central  nervous  system is made up of nerves  that act as the body's  messenger
system.  Nerves are protected by substances  called  myelin,  which insulate the
nerves and aid in the  transmission of nerve impulses,  or messages  between the
brain and other parts of the body.  In patients  with  Multiple  Sclerosis,  the
body's  immune  cells enter the brain and spinal cord and attack the  protective
myelin covering. Once the myelin is gone, a process called demyelination,  nerve
impulses sent  throughout the central nervous system can become  disrupted.  The
brain then becomes unable to send and receive messages.  Although the nerves can
regain myelin, this process is not fast enough to outpace the deterioration that
occurs.  The types and severity of Multiple Sclerosis varies due to the location


                                       8
<PAGE>

and the extent of  demyelination.  It is  estimated  that  between  250,000  and
300,000  persons in the United States have Multiple  Sclerosis.  In recent years
the FDA has  approved  several  biopharmaceutical  drugs that been shown to help
slow the progression of Multiple  Sclerosis.  These drugs are Avonex,  Betaseron
and Copaxone. XCEL provides these products, under prescription from a physician,
to patients with Multiple Sclerosis.

         XCEL'S STRENGTHS

         Management  believes the following  represent XCEL's business strengths
and have been the principal factors in its business success to date:

          o    Clinical  expertise.  XCEL provides disease treatment programs to
               patients and physicians through its highly trained clinical staff
               of pharmacists and patient care coordinators. These personnel are
               available  for  ongoing  consultation  with the  patient  and the
               dispensing physician regarding the patient's therapy and progress
               seven days a week, 24 hours a day.

          o    Broad  product  offerings  to targeted  markets.  XCEL sells over
               2,000 SKUs of  pharmaceuticals  and medical supplies which enable
               it to provide  one-stop  shopping to its customers.  XCEL targets
               its selling  efforts of this broad range of products and services
               to customers  in alternate  site  settings,  such as  physicians'
               offices,  ambulatory surgery centers,  renal dialysis clinics and
               patients  self-injecting at home. XCEL continually  evaluates new
               products that it can add to its offerings to continue to meet the
               needs of these specialized markets.

          o    Knowledgeable  sales,  marketing  and support  staff.  XCEL has a
               well-trained,  knowledgeable  sales and sales support staff. XCEL
               holds  frequent  meetings  with its suppliers to enable the sales
               and  support  staff to be  well-informed  about  current  and new
               biopharmaceuticals. The sales and support staff provides not only
               superior and knowledgeable  customer  service,  but also promotes
               the sale of new products.

          o    Commitment  to customer  service.  XCEL is committed to providing
               superior  customer service that includes shipping products within
               one day of being ordered. XCEL's software enables its salespeople
               to quickly  determine  product  availability,  pricing,  customer
               order history and billing information. In addition, XCEL provides
               patient education,  counseling and follow-up with 24-hour on-call
               nurses  to  assist  its  patients  in  better  understanding  and
               complying with their treatments.

         XCEL'S GROWTH STRATEGY

         XCEL's  objective is to continue to grow rapidly and enhance its market
position  as a  leading  specialty  pharmacy  provider  by  capitalizing  on its
business strengths and pursuing the following strategy:


                                       9
<PAGE>

          o    Continue to focus on and further  penetrate  the  alternate  site
               market.  By  focusing  on the  alternate  site  market,  XCEL has
               targeted growth segments of the health care industry.  It intends
               to increase its alternate  site market  presence by expanding its
               product and service offerings, increasing its sales and marketing
               personnel and focusing on group accounts. o


          o    Accelerate growth of its higher margin, patient-specific pharmacy
               business by leveraging  relationships  with  existing  customers.
               Management  believes  that a  number  of  physicians  that  order
               pharmaceuticals  and supplies  from XCEL also treat  patients who
               require patient-specific  biopharmaceuticals.  XCEL's information
               database  identifies  these  cross-selling   opportunities,   and
               management  believes it is well-positioned to capture incremental
               revenue from these customers.

          o    Pursue  acquisitions to complement existing product offerings and
               further penetrate  markets.  Management  believes that the highly
               fragmented  specialty pharmacy industry affords it an opportunity
               to   grow   through   selective   acquisitions.    By   acquiring
               complementary  businesses,  XCEL can increase its customer  base,
               expand its product and geographic scope and leverage its existing
               infrastructure.

          o    Continue to develop  physician  and payor  networks  that enhance
               XCEL's  alliance  capabilities  with  manufacturers.   Management
               believes  that with  strong  physician  and payor  networks,  the
               relationships  with its manufacturers  will be enhanced,  thereby
               increasing  the potential  for  alliances  which could expand its
               products,  service and geographic  scope. In addition,  contracts
               with  payors  generate   significant  new  patient  volumes  and,
               therefore, revenue growth.

          o    Maintain cost control while investing in  infrastructure.  XCEL's
               goal is to remain a low cost  provider of specialty  products and
               services  yet increase  the  value-added  services it provides to
               customers such as 24-hour on-call support, patient counseling and
               specialized shipping.

         SALES AND MARKETING

         XCEL strives to generate new customers and solidify  existing  customer
relationships  through  frequent  direct  marketing  contact that emphasizes its
broad product lines in specialty  markets,  competitive  prices,  and responsive
service.  XCEL targets larger customers with customized  approaches developed by
management  and its key  account  team.  XCEL's  sales  personnel  service  both
in-bound and out-bound  calls and are  responsible  for  assisting  customers in
purchasing  decisions,  answering questions and placing orders.  Sales personnel
also  initiate  out-bound  calls to market  XCEL's  services  to those  customer
accounts identified as being high volume accounts, high order frequency accounts
or cross- selling  opportunity  accounts.  All sales personnel work to establish
long-term  relationships  with the XCEL's customers through regularly  scheduled
phone  contact and  personalized  service,  including  direct sales calls on key
customers.

                                       10
<PAGE>

         COMPETITION

         The alternate site specialty pharmaceutical and medical supply industry
is  highly   competitive  and  is  experiencing  both  horizontal  and  vertical
consolidation.  The industry is  fragmented,  with several public and many small
private  companies  focusing on different  product or customer  niches.  Some of
XCEL's  current  and  potential   competitors  include   independent   specialty
distributors;  national full-line, full-service wholesale drug distributors that
operate  their  own  specialty  distribution   businesses;   retail  pharmacies;
specialty  pharmacy  divisions of prescription  benefit managers;  institutional
pharmacies;  hospital-based  pharmacies;  home healthcare  agencies;  mail order
distributors  that distribute  medical supplies on a regional or national basis;
and certain manufacturers that own distributors or that sell their products both
to distributors and directly to users,  including clinics and physician offices.
Some of XCEL's  competitors  have greater  financial,  technical,  marketing and
managerial resources than XCEL. While competition is primarily price and service
oriented,  it can also be affected by depth of product line,  technical  support
systems, specific patient requirements and reputation. There can be no assurance
that competitive pressures will not have a material adverse effect on XCEL.

         GOVERNMENT REGULATION

         As a provider of healthcare  services and products,  XCEL is subject to
extensive regulation by federal, state and local government agencies directed at
preventing  fraud  and  regulating   reimbursement  under  various  governmental
programs, as more fully described below.

         Licensing.  The Company is required to register  with the United States
Drug Enforcement Administration (DEA) and appropriate state agencies for various
permits and/or licenses, and it also must comply with the operating and security
standards of such agencies.  XCEL's pharmacy program and provider businesses are
subject  to  licensing  by the DEA as well as by the state  boards of  pharmacy,
state health  departments  and other state  agencies  where they  operate.  XCEL
primarily operates in Southern California.

         Medicare and  Medicaid  Reimbursement.  As part of the Social  Security
Amendments of 1965,  Congress  enacted the Medicare  program which  provides for
hospital,  physician and other statutorily-defined health benefits for qualified
individuals such as persons over 65 and the disabled. The Medicaid program, also
established  by Congress in 1965,  is a joint  federal  and state  program  that
provides  certain  statutorily-defined  health  benefits  to  financially  needy
individuals who are blind, disabled, aged, or members of families with dependent
children.  In addition,  Medicaid  generally covers  financially needy children,
refugees  and  pregnant  women.  A  substantial  portion  of XCEL's  revenue  is
attributable  to  payments  received  from  third-party  payors,  including  the
Medicare and Medicaid programs.

         Medicare Legislation. In December 2000, federal legislators enacted the
Medicare,  Medicaid and SCHIP Benefits  Improvement  and Protection Act of 2000.
Among other items, this legislation  provides the home healthcare  industry with
some relief from the effects of the Balanced Budget Act of 1997, which contained
a number of provisions that are affecting,  or could potentially affect,  XCEL's
Medicare  reimbursement  levels.  The Medicare Balanced Budget Refinement Act of


                                       11
<PAGE>

1999 also mitigated some of the effects of the Balanced  Budget Act of 1997. The
Medicare,  Medicaid and SCHIP  Benefits  Improvement  and Protection Act of 2000
provided  reinstatement in 2001 of the full annual cost of living adjustment for
durable  medical  equipment and provides  minimal  increases in 2002 for durable
medical  equipment and oxygen.  The Balanced  Budget Act of 1997 had frozen such
adjustments for each of the years 1998 through 2002.

         During 2000,  the Secretary of the U.S.  Department of Health and Human
Services ("HHS") wrote to the durable medical  equipment  regional  carriers and
recommended,  but did not mandate,  that Medicare  claims  processors base their
payments for covered outpatient drugs and biologicals on pricing schedules other
than the  Average  Wholesale  Price  listing,  which  historically  has been the
industry's  basis for drug  reimbursement.  The  suggested  alternative  pricing
methodology was offered in an effort to reduce  reimbursement levels for certain
drugs to more closely  approximate a provider's  acquisition  cost, but it would
not have covered the costs that homecare pharmacies incur to prepare, deliver or
administer the drugs to patients.  Billing,  collection and other overhead costs
also would have been excluded. Under current government reimbursement schedules,
these  costs  are  not  clearly  defined  but  are  implicitly  covered  in  the
reimbursement  for the drug cost. The  healthcare  industry has taken issue with
the HHS's approach for several reasons,  primarily  because it fails to consider
the  accompanying  costs of  delivering  and  administering  these types of drug
therapies  to  patients  in  their  homes.   Further,  if  providers  choose  to
discontinue  providing  these  drugs due to  inadequate  reimbursement,  patient
access may be jeopardized. The Medicare, Medicaid and SCHIP Benefits Improvement
and  Protection  Act of 2000 delayed the adoption of proposed drug price changes
and  directed  the General  Accounting  Office to conduct a thorough  study,  by
September  2001,  to examine the  adequacy of current  payments and to recommend
revised  payment  methodologies.   The  study  was  completed  but  the  authors
acknowledged  that 1) the limited scope and deadline  associated  with the study
did not allow for a thorough analysis of the homecare pharmacy aspect of covered
services,  2) legitimate  service  components and related costs do exist, and 3)
different methods of determining drug delivery and  administration  payments may
be necessary for different types of drugs.  Currently,  the timing and impact of
such pricing methodology revisions are not known.

         The Balanced  Budget Act of 1997 granted  authority to the Secretary of
HHS to  increase  or  reduce  the  reimbursement  for  home  medical  equipment,
including oxygen, by 15% each year under an inherent  reasonableness  procedure.
However,  under the provisions of the Medicare Balanced Budget Refinement Act of
1999,  reimbursement  reductions  proposed  under  the  inherent  reasonableness
procedure have been delayed pending (1) a study by the General Accounting Office
to examine the use of the authority granted under this procedure (completed July
2000),  and (2)  promulgation  by the Centers for  Medicare & Medicaid  Services
(formerly  the  Health  Care   Financing   Administration),   of  a  final  rule
implementing the inherent reasonableness  authority. This regulation has not yet
been issued.

         Further,  the Balanced Budget Act of 1997 mandated that the Centers for
Medicare & Medicaid  Services conduct  competitive  bidding  demonstrations  for
Medicare  Part B items and services.  The  competitive  bidding  demonstrations,
currently  in  progress,  could  provide  the  Centers  for  Medicare & Medicaid
Services and Congress with a model for implementing  competitive  pricing in all


                                       12
<PAGE>

Medicare  programs.  If such a competitive  bidding system were implemented,  it
could result in lower  reimbursement  rates,  exclude certain items and services
from  coverage  or impose  limits  on  increases  in  reimbursement  rates.  The
administration is seeking authority to implement nationwide  competitive bidding
for all Part B products and services (except physician's services). Congress has
rejected  similar  proposals in the past. It is not clear whether  Congress will
adopt this latest proposal.

         Claims Audits.  Durable medical equipment regional carriers are private
organizations that contract to serve as the federal  government's agents for the
processing  of claims  for  items  and  services  provided  under  Part B of the
Medicare program. These carriers and Medicaid agencies also periodically conduct
pre-payment  and  post-payment  reviews  and other  audits of claims  submitted.
Medicare  and  Medicaid  agents  are under  increasing  pressure  to  scrutinize
healthcare  claims more closely.  In addition,  the home healthcare  industry is
generally characterized by long collection cycles for accounts receivable due to
complex and time-consuming requirements for obtaining reimbursement from private
and  governmental  third-party  payors.  Such long collection  cycles or reviews
and/or   similar  audits  or   investigations   of  XCEL's  claims  and  related
documentation  could result in denials of claims for payment  submitted by XCEL.
Further,  the  government  could demand  significant  refunds or  recoupments of
amounts paid by the government for claims which, upon subsequent  investigation,
are  determined by the government to be  inadequately  supported by the required
documentation.

         Physician  Self-Referrals.  Certain  provisions  of the Omnibus  Budget
Reconciliation Act of 1993, commonly known as "Stark II", prohibit XCEL, subject
to certain  exceptions,  from  submitting  claims to the  Medicare  and Medicaid
programs for "designated  health services" if XCEL has a financial  relationship
with the  physician  making the referral  for such  services or with a member of
such  physician's  immediate  family.  The  term  "designated  health  services"
includes  several  services  commonly  performed or supplied by XCEL,  including
durable  medical  equipment and home health  services.  In addition,  "financial
relationship" is broadly defined to include any ownership or investment interest
or compensation  arrangement pursuant to which a physician receives remuneration
from the  provider  at  issue.  Violations  of Stark  II may  result  in loss of
Medicare  and  Medicaid  reimbursement,   civil  penalties  and  exclusion  from
participation  in the Medicare  and  Medicaid  programs.  In January  2001,  the
Centers for Medicare & Medicaid Services issued the first of two phases of final
regulations to clarify the meaning and application of Stark II. Officials of the
Centers for Medicare & Medicaid  Services  have stated that they expect Phase II
to be issued by August, 2002, however, Phase I addresses the primary substantive
aspects of the prohibition and several key exceptions.  Significantly, the final
regulations  define previously  undefined key terms,  clarify prior definitions,
and  create   several  new  exceptions   for  certain   "indirect   compensation
arrangements",   "fair  market  value"  transactions,   arrangements   involving
non-monetary  compensation  up to $300,  and  risk-sharing  arrangements,  among
others.  The regulations  also create a new  "knowledge"  exception that permits
providers to bill for items provided in connection with an otherwise  prohibited
referral,  if the provider does not know, and does not act in reckless disregard
or  deliberate  ignorance  of, the  identity  of the  referring  physician.  The
effective date for the bulk of Phase I of the final  regulations  was January 4,
2002. Finally,  recent enforcement  activity and resulting case law developments
have increased the legal risks of physician  compensation  arrangements  that do
not satisfy the terms of an  exception  to Stark II,  especially  in the area of
joint venture arrangements with physicians.

                                       13
<PAGE>

         False Claims. The False Claims Act imposes civil and criminal liability
on individuals or entities that submit false or fraudulent claims for payment to
the government. Violations of the False Claims Act may result in treble damages,
civil monetary  penalties and exclusion from the Medicare and Medicaid programs.
The False Claims Act also allows a private individual to bring a qui tam suit on
behalf of the  government  against a healthcare  provider for  violations of the
False Claims Act. A qui tam suit may be brought by, with only a few  exceptions,
any private  citizen who has material  information of a false claim that has not
yet been  previously  disclosed.  Even if disclosed,  the original source of the
information  leading  to the public  disclosure  may still  pursue  such a suit.
Although  a  corporate  insider  is often  the  plaintiff  in such  actions,  an
increasing number of outsiders are pursuing such suits.

         In a qui tam suit, the private  plaintiff is responsible for initiating
a lawsuit that may eventually lead to the government  recovering  money of which
it was  defrauded.  After the private  plaintiff has initiated the lawsuit,  the
government  must  decide  whether to  intervene  in the  lawsuit  and become the
primary  prosecutor.  In the event the government  declines to join the lawsuit,
the private  plaintiff  may choose to pursue the case  alone,  in which case the
private  plaintiff's  counsel  will have primary  control  over the  prosecution
(although  the  government  must be kept apprised of the progress of the lawsuit
and will still  receive at least 70% of any  recovered  amounts).  In return for
bringing the suit on the  government's  behalf,  the statute  provides  that the
private  plaintiff is entitled to receive up to 30% of the recovered amount from
the litigation proceeds if the litigation is successful. Recently, the number of
qui tam suits brought against healthcare  providers has increased  dramatically.
In addition, at least five states - California, Illinois, Florida, Tennessee and
Texas - have enacted  laws  modeled  after the False Claims Act that allow those
states to recover money which was fraudulently obtained by a healthcare provider
from the state (e.g., Medicaid funds provided by the state).

         Patient  Confidentiality.  Various  federal  and state  laws  establish
minimum  standards for the  maintenance of medical records and the protection of
patient  health  information.  In the  course of our  business,  XCEL  maintains
medical  records for each  patient to whom it  dispenses  pharmaceuticals.  As a
result,  XCEL is subject  to one or more of these  medical  record  and  patient
confidentiality  laws.  Of  particular  significance  are the  Health  Insurance
Portability and Accountability Act (HIPAA) security and privacy regulations. The
HIPAA security  regulations,  which establish certain standards for assuring the
physical security and integrity of electronically maintained health information,
were  promulgated  in 1998 as a proposed  rule. The final rule is expected to be
published shortly. The HIPAA privacy regulations,  which establish standards for
protecting the  confidentiality  and privacy of health  information in any form,
were  issued  as a  final  rule on  December  28,  2000.  However,  the  privacy
regulations  have been  re-opened  for public  comment  and the  effective  date
postponed. The HIPAA regulations impose significant civil and criminal sanctions
for  violations  of  the  rules  and  improper  use  or  disclosure  of  patient
information.

         The HIPAA security regulations may require that XCEL invest significant
capital in upgrading its information systems hardware,  software and procedures.
The HIPAA privacy  regulations may require that XCEL make substantial changes to


                                       14
<PAGE>

its policies,  procedures,  forms,  employee  training and information  handling
practices.  However,  until the  HIPAA  security  and  privacy  regulations  are
finalized and effective,  management is unable to determine  their  financial or
other impact on XCEL.

         Management  believes  that  its  pharmacy  practices  and its  contract
arrangements with other healthcare providers and pharmaceutical suppliers are in
compliance  with these laws. To address the risks  presented by such laws,  XCEL
maintains  several  programs  designed to minimize the likelihood  that it would
engage in conduct or enter into  contracts  in  violation of the fraud and abuse
laws.  Contracts of the types subject to these laws are reviewed and approved by
the corporate  contract services and/or legal  departments.  XCEL also maintains
various educational  programs designed to keep its managers updated and informed
on  developments  with  respect  to the fraud and abuse  laws and to remind  all
employees  of XCEL's  policy of  strict  compliance  in this  area.  While  XCEL
believes its discount agreements,  billing contracts and various fee-for-service
arrangements  with other  healthcare  providers  comply with applicable laws and
regulations,  XCEL cannot provide any assurance that further  administrative  or
judicial  interpretations of existing laws or legislative  enactment of new laws
will not have a material adverse effect on XCEL's business.


         BIOSELECT INNOVATIONS, INC.

         GENERAL

         BioSelect  Innovations,  Inc.  ("BioSelect") produces a line of topical
bases for drug delivery and skin care products.  BioSelect is also  developing a
new family of  proprietary  OTC-Nutraceutical  products that uniquely  integrate
selective  traditional  over-the-counter  (OTC) generic drugs with complementary
alternative  medications such as vitamins,  herbs and other natural supplements.
Slated to launch under the COCARE(R) brand name, these specific formulations are
expected  to  address  various  ailments  such  as  heart  disease,  cold & flu,
arthritis,  migraine, and allergy,  among others.  Although BioSelect focuses on
commercializing   its   innovative    products   and   technologies,    it   may
opportunistically  acquire  products,  technologies  or companies with products,
manufacturing  and  distribution  capabilities  consistent  with its  commercial
objectives.

         INDUSTRY OVERVIEW

         Drug Delivery Market. Drug delivery companies develop  technologies  to
improve the  administration  of therapeutic  compounds.  These  technologies are
designed to enhance safety,  efficacy,  ease-of-use and patient  compliance with
prescribed  therapy.   Drug  delivery  technologies  provide  opportunities  for
pharmaceutical  and  biotechnology  companies to extend their drug franchises as
well as develop new and innovative products.

         The vast majority of the drugs currently on the market are taken orally
or are administered by injection.  Oral drug delivery  methods,  while simple to
use, typically subject drugs to first-pass metabolism in the body, which results


                                       15
<PAGE>

in drug  degradation  in the  stomach and  further  neutralization  in the liver
before  reaching  the  bloodstream.  In order to achieve  efficacy,  higher drug
dosages are often used, with increased  risks of side effects.  The injection of
pharmaceuticals,  while  avoiding  first-pass  metabolism in the body,  also has
major  limitations,   including  pain,  which  can  lead  to  decreased  patient
acceptance  and  compliance  with  prescribed  therapy.  A  decline  in  patient
compliance  can  increase the risk of medical  complications  and lead to higher
healthcare costs.  Also, the costs of injectable drugs typically are higher as a
result of the additional costs  associated with medical  personnel to administer
the  injections  and the costs  associated  with the  purchase  and  disposal of
syringes.

         Pharmaceutical  and  biotechnology  companies  look  to  drug  delivery
enhancements  as a way of  gaining a  competitive  advantage.  Alternative  drug
delivery technologies,  which avoid first-pass metabolism and are less invasive,
are often sought by  pharmaceutical  and  biotechnology  companies to extend the
period of market  exclusivity  for a branded drug and thus postpone  competition
from  generic  drugs.  In  order  to  maintain  the   competitiveness  of  their
proprietary  drug  candidates,  large  pharmaceutical  companies  seek  delivery
enhancements  that will increase  safety and  efficacy,  reduce side effects and
make administration more convenient.  Further, drug delivery companies can apply
their  technologies  to off-patent  products to formulate  their own proprietary
products,  which they often  commercialize by seeking  marketing  collaborations
with  larger  pharmaceutical   companies  that  have  greater  capabilities  and
resources.

         Management  believes that developing safer and more efficacious ways of
delivering  existing drugs  generally is less risky than  attempting to discover
new drugs, because of the lower product development cost. On average, management
estimates that it takes 15 years for an  experimental  new drug to progress from
the  laboratory  to  commercialization  in the  U.S.,  with an  average  cost of
approximately  $500 million.  Typically,  only one in 5,000  compounds  entering
pre-clinical  testing advances into human testing and only one in five tested in
humans is approved. By contrast,  drug delivery companies typically target drugs
that already have been approved,  have a track record of safety and efficacy and
have established markets for which there is a proven medical need. Consequently,
clinical   trials   related   to   drug   delivery   technologies   applied   to
previously-approved  pharmaceuticals  need only show that  carrier  technologies
deliver the drug without harming the patient or changing the clinical attributes
of the drug.

         Skin Health and Restoration Market.  In the United States,  skin health
and restoration is managed  primarily by  dermatologists  and plastic  surgeons.
Management estimates that there are approximately 9,500 dermatologists and 5,700
plastic  surgeons in the United States whose  practice  includes skin health and
restoration.  Skin  conditions  are  typically  treated  with  products  such as
prescription   drugs,   over-the-counter   drugs  and  cosmetics,   as  well  as
office-based  procedures  such as  chemical-based  skin peels.  In recent years,
physicians have taken on an  increasingly  active role in the management of skin
restoration.   For   example,   the  number  of  skin  health  and   restoration
physician-mediated  office procedures has increased from approximately 1,200,000
in 1997 to  approximately  2,900,000 in 2000, which represents a compound annual
growth rate of 55%.  This growth  reflects  both the  increased  use of existing
in-office  procedures and the  introduction of new procedures such as laser skin


                                       16
<PAGE>


resurfacing,  laser hair removal and  microdermabrasion,  a procedure  where the
surface layer of the skin is physically removed. We believe that the growth also
represents  efforts of skin care  physicians  to  broaden  their  practices  and
sources of revenue to include more  cosmetically-based  products and procedures.
Third-party reimbursement policies have limited patient access to dermatologists
and imposed limits on the level of reimbursement for physician procedures, which
have  resulted  in a loss of revenue  to  physicians.  Physicians  have tried to
compensate  for this lost revenue by focusing on cosmetic  procedures  which are
typically  elective and paid for directly by the patients and not subject to the
reimbursement  restrictions  imposed by  third-party  payors.  Furthermore,  the
aggregate number of physician-mediated  cosmetic procedures,  including non-skin
based procedures such as facelifts,  hair transplants and breast  augmentations,
have grown  significantly in recent years,  resulting in increased office visits
and opportunities for the sale of physician-mediated skin health and restoration
products.

         Management  believes that the skin health and  restoration  market will
continue to experience  strong growth as a result of several factors,  including
the  development  of new products and  procedures  for a wider range of cosmetic
treatments and the gradual aging of the U.S.  population.  Older segments of the
population  tend to control large  amounts of  disposable  income and are highly
motivated to improve their personal appearance.

         OTC  Drug &  Nutraceutical  Supplement  Market.   In  2000,  the   non-
prescription,  OTC drug  markets  generated  $19 billion in annual  sales in the
United  States and $49 billion in annual sales on a global  basis,  according to
the International Trade Commission.  The FDA defines "over-the-counter" drugs as
those available  under the law to the general public without a prescription.  As
noted by the Commissioner of US International  Trade  Commission,  growth in the
market has been driven  historically by medications  switching from prescription
to OTC - a process that is accelerating.

         According to the Nutritional Business Journal, the US nutraceutical, or
dietary,  supplement  market generated $16.8 billion in retail sales in the year
2000,  with vitamins and "herbs and  botanicals"  accounting for an estimated $6
billion and $4.2 billion,  respectively. In addition, sports, minerals, meal and
specialty  nutraceutical  components garner healthy shares of the market. Growth
has slowed in recent years as expansion beyond the industry's core customer base
of  health-focused  consumers has proven  difficult.  Although the nutraceutical
supplement  market  continues to expand its total revenue  base,  the market has
realized  a  decrease  in its  year-over-year  growth  rate.  This  decrease  is
generally  accredited to a suffering from  substantial  public  relations issues
related to the effects of specific  vitamins and "herbs and  botanicals" as well
as  truth-in-labeling  issues. These issues arose as the industry was attempting
to transition its growth to the mass market in a slowing economy.



                                       17
<PAGE>

         OTC-NUTRACEUTICAL MARKET OPPORTUNITY

         BioSelect  plans to launch this new  proprietary  family of  innovative
combination  of OTC drugs  with  natural  remedies  such as  herbs,  botanicals,
vitamins,   and  other   supplements  that  targets  the  nexus  of  traditional
medications  and  homeopathic   remedies.   BioSelect  intends  to  exploit  its
innovative,  patent-pending combination of OTC-Nutraceuticals  products, thereby
offering combination medications using both synthetic and natural remedies.

         In the past,  "traditional"  medications and  homeopathic,  or natural,
remedies have not been bundled together in a single product. Yet, both medicinal
perspectives  offer specific  solutions for the use in the treatment of distinct
ailments.  BioSelect's  OTC-Nutraceutical  product  line brings these two fields
together to offer formulas,  which combine  effective drug and natural  remedies
into  unique  formulas   addressing  distinct  ailments,   disease-states,   and
symptomotology.

         Management  believes its  COCARE(R)  product line will offer  consumers
substantial value by increasing  purchasing  convenience and patient compliance,
as well as providing product safety and efficacy.  The initial COCARE(R) product
line will address the following categories:

         o     Cold and flu relief
         o     Arthritis relief
         o     Cardiac protection
         o     Acid reflux relief
         o     Urinary tract infection relief
         o     Cough suppression
         o     Migraine relief

         Prior to the proposed COCARE(R) product  offering,  consumers could not
purchase the respective  product  constituents  as an integrated  pharmaceutical
solution.  Instead,  for example,  consumers  seeking  arthritic  symptom relief
purchased  acetaminophen and glucosamine  separately and often through different
sales channels. BioSelect's proposed COCARE(R) products eliminate the consumer's
need to  purchase  a myriad  of  separate  OTC and  nutraceutical  products.  In
addition to avoiding the hassle of choosing among multiple products,  management
believes its products can increase product compliance,  efficacy,  and safety by
providing a pre-formulated solution optimized for effectiveness and safety.

         Consumers in the mass market have demonstrated  increasing  interest in
natural health products,  including dietary supplements,  vitamins and botanical
nutraceuticals,  over the past decade.  This  interest  level is  simultaneously
being met with the increasing availability of highly efficacious pharmacological
agents  that were  previously  prescription-restricted.  The growing OTC market,
together with its multi-billion  dollar consumer  audience,  provides  BioSelect
with a significant  marketing and distribution  channel  mechanism through which
its COCARE(R) products can provide customers with unique ailment solutions while
simultaneously providing significant financial opportunities for the many makers
of OTC drugs that are continually seeking new sources of growth.
Management believes that its COCARE(R) products have the potential to:


                                       18
<PAGE>

          o    enhance the health of  consumers  by  combining  the  advances of
               science with natural remedies;

          o    provide  consumers  with a source  of  nutraceutical  supplements
               promoted by an established, trusted OTC company;

          o    enable  BioSelect  and  its  partners  to  expand  the  reach  of
               nutraceuticals  into the  mass  market  by  combining  them  with
               ubiquitous OTC drugs;

          o    afford  the  opportunity  to  establish   intellectual   property
               protection availed through the combination of nutraceuticals with
               OTC drugs; and

          o    provide a pharmaceutical company with a high-growth,  high-margin
               product line.

         Management  believes  that products  that combine OTC  medications  and
nutraceutical   supplements  provide  a  unique  growth  opportunity.   For  the
pharmaceutical  industry,  which has  traditionally  been reliant on medications
switching from  prescription  status to OTC status to spur growth,  new products
which combine "traditional" medications and homeopathic remedies are expected to
offer  substantial  new industry  growth  opportunities.  For the  nutraceutical
industry,   it   is   anticipated   that   the   successful    introduction   of
OTC-Nutraceutical  products  supported  by one or  more  established,  respected
pharmaceutical  companies  would lend the industry much needed  credibility.  In
addition,  management  believes that such  combination  products would offer the
nutraceutical  industry a new channel to the mass market.  As a result,  product
launches of BioSelect's  COCARE(R) products are expected to enjoy strong support
from both the  traditional  OTC  industry  as well as that of the  nutraceutical
supplement manufacturers.

         BIOSELECT'S GROWTH STRATEGY

         BioSelect  intends to become a leader in the field of transdermal  drug
delivery,  specialty  pharmaceutical  products  that  are  applied  to the  skin
(cosmoceuticals)  and  in the  development  and  marketing  of a new  family  of
proprietary OTC-Nutraceutical products.
Key  elements  of  its  business  and  commercialization  strategy  include  the
following:

         Lower risk strategy for selecting  product  candidates for development.
BioSelect  does  not  intend  to  focus  its  product   development  efforts  on
development  of new chemical  entities.  Instead,  it will focus on applying its
proprietary technologies in the following three areas:

         (1)      development  of topical  or  transdermal  formulations  of new
                  chemical entities in partnership with innovator pharmaceutical
                  or biotechnology companies;

         (2)      development of new, high  performance  cosmeceutical  products
                  that  address the skin care needs of an  increasing  number of
                  affluent middle-aged and older people; and

                                       19
<PAGE>

         (3)      development   and  launch  of  a  new  family  of  proprietary
                  OTC-Nutraceutical   products  through   alliances  with  major
                  pharmaceutical companies.

         Leveraging  of  corporate  alliances.  BioSelect  plans to  enter  into
strategic   alliances  with   established   pharmaceutical   companies  for  the
development  of its drug  delivery  products.  These  alliances  generally  will
provide  research  or  clinical  funding  and other  support  during the product
development process. Its partners generally will provide established and trained
marketing and sales forces to sell the products.

         Internal focus on the  dermatology  market.  BioSelect  plans to retain
exclusive  or   co-marketing/co-promotion   rights  in  the  United   States  to
dermatological and related uses of the products it develops, while out-licensing
rights for other uses.  Similarly,  whenever possible, it will attempt to retain
commercial rights to dermatological and other specialty  pharmaceutical  uses of
products  developed under partner sponsored research  collaborations.  BioSelect
ultimately  plans to market the  dermatological  and  cosmeceutical  products it
develops,  either through the utilization of contract sales  representatives  or
through the establishment of its own sales force.

         Acquisition  of  complementary  products,  technologies  or businesses.
Although  BioSelect is focusing on the in-house  development  of its  innovative
pharmaceutical/nutraceutical products and technologies, it may opportunistically
acquire  products,  technologies or companies with products,  manufacturing  and
distribution capabilities consistent with its commercial objectives.

         PATENTS AND TRADEMARKS

         BioSelect has developed a number of proprietary  formulations that have
patents  pending.  These  patents  address the unique  integration  of selective
traditional  over-the-counter (OTC) generic drugs with complementary alternative
medications such as vitamins, herbs and other natural nutraceutical supplements.
The product  development effort focuses on developing  proprietary  formulations
for  existing  products  and on the  creation of  formulations  for product line
extensions.  The  preservation and improvement of the quality of the BioSelect's
products are also integral parts of its overall strategy.

         BioSelect maintains and has applied for patent, trademark and copyright
protection in the United States relating to certain of its existing and proposed
products and processes,  including COCARE, CONASE, COPROFEN, EPIGEST ESSENTIALS,
FEMDERM ESSENTIALS, FEMGEST ESSENTIALS,  TRANSLIPOBASE and XCEL. There can be no
assurance that BioSelect will be able to successfully  protect its  intellectual
property,  and the loss of its intellectual  property protection could adversely
affect its business.


         BIOFARM, S.A.

         Leveraging  the  collective  knowledge and resources of its  management
team and capital resource network,  the Company's initial  acquisition under its
new  business  strategy  was  the  acquisition  of  Biofarm,  S.A.,  a  Romanian
pharmaceuticals  producer of low-priced  vitamins and  medications  derived from


                                       20
<PAGE>

natural  plant  extracts.   Biofarm  currently  manufactures  60  pharmaceutical
products in compressed,  molded and coated tablets,  soft  gelatinous  capsules,
powders and granules,  injection  solutions,  sprays,  external and internal use
solutions, syrups, and eye drops.

         As of October 18, 2001,  the Company had concluded the  acquisition  of
24.34%  of  the  total  capital  stock  of  Biofarm,   S.A.  from  International
Pharmaceutical Group, LLC ("IPG") for shares of its common stock. Although not a
director  of the  Company at the time,  the  Company's  Chairman of the Board of
Directors, Mr. Harry S. Branch, was a managing member of IPG. In connection with
the Company's new focus,  management chose to not pursue the contemplated  stock
tender offer in Romania and has not purchased any additional shares of Biofarm's
common stock.


         EMPLOYEES

         As of April 15, 2002, the Company  employed  twenty  persons,  of which
seventeen  are employed on a full-time  basis at XCEL and  BioSelect,  including
pharmacists,  technicians, accounting, marketing and administrative personnel. A
standard package of employee benefits is provided to all full-time  employees in
addition to  on-the-job  training  and  advancement  opportunities.  None of the
Company's  employees are covered by a collective  bargaining  agreement and none
are represented by labor unions. XCEL has entered into an Employment  Agreement,
Nondisclosure  and  Non-Competition  Agreement with each of three key employees.
These Agreements include provisions for salary increases and stock options based
on earnings growth that XCEL/BioSelect may achieve.


ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's  executive  offices are located at Howard Hughes  Center,
6080 Center Drive, 6th Floor, Los Angeles,  California.  The Company also leases
facilities  in  Woodland  Hills,  California  for its  operations  of  XCEL  and
BioSelect.  The lease agreements  expire at various times through July 2004. The
following  is a schedule by years of future  minimum  rental  payments  required
under  operating  leases that have  non-cancelable  lease terms in excess of one
year as of December 31, 2001.

         Year ending December 31,
             2002                                      $         48,832
             2003                                                36,832
             2004                                                20,772
                                                       ----------------
                                                       $        106,436
                                                       ================

ITEM 3.  LEGAL PROCEEDINGS

         Except for non-material  litigation  incident to our ordinary course of
business,  the  Company  is not a party  to any  litigation  that  could  have a
material adverse effect on our business or results of operations.

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

         None.

                                       21
<PAGE>


                                     PART II


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

The common stock began  trading in the OTC Bulletin  Board on August 3, 2001 and
currently  trades under the symbol  "HESG".  The following  table sets forth the
high and low bid price per share  quotations  as  reported  on the OTC  Bulletin
Board of the common stock for the periods  indicated.  These quotations  reflect
inter-dealer prices, without retail mark up, mark down or commission and may not
necessarily represent actual transactions. Actual prices may vary.

         FISCAL YEAR ENDING DECEMBER 31, 2001:
                                                         High           Low
                                                         ----          -----
         First Quarter .................................  N/A           N/A
         Second Quarter ................................  N/A           N/A
         Third Quarter ................................. $1.62         $0.07
         Fourth Quarter ................................ $4.90         $1.45

During fiscal year 2001, the Company  implemented its 2001 Employee Stock Option
Plan and on July 16, 2001 filed a  registration  statement  on Form S-8 with the
Securities and Exchange  Commission in order to register up to 2,000,000  shares
of the Company's common stock, $0.001 par value, for the purpose of issuing such
stock pursuant to options  exercised  under the Plan.  The Company  subsequently
renamed  its plan to Health  Sciences  Group,  Inc.  Equity  Incentive  Plan and
further revised it to allow for the issuance of stock awards.

At April 15,  2002,  the Company had  approximately  65 holders of record of our
voting common stock; management estimates that the Company has approximately 195
additional  beneficial  holders of the  Company's  common stock held in names of
brokers and securities depositories. Of the current holders of its common stock,
Messrs.  Tannous and Glaser together  beneficially own  approximately 34% of the
Company.

         DIVIDENDS

The Company has not paid or declared  cash  distributions  or  dividends  on its
common  stock  and does not  intend  to pay cash  dividends  in the  foreseeable
future.  Future  payment of cash  dividends  rests within the  discretion of the
Board of Directors and is based on its earnings,  financial  condition,  capital
requirements, and other factors.


         SALES OF UNREGISTERED SECURITIES

         The following  information is furnished as to securities of the Company
sold during 2001 that were not  registered  under the Securities Act of 1933, as
amended (the "Securities Act"):

         (1)      On October 22, 2001,  the Company issued  1,700,000  shares of
                  its  common  stock in  exchange  for shares of  Biofarm,  S.A.
                  valued at approximately $698,000 or $2.44 per share.

                                       22
<PAGE>

         (2)      On December 17, 2001, the Company issued 918,000 shares of its
                  common   stock  in  exchange   for  100%  of  the  issued  and
                  outstanding  shares of XCEL  Healthcare,  Inc.  and  BioSelect
                  Innovations,  Inc. valued at approximately $4,190,000 or $4.56
                  per share.

         The  transactions  described  above were exempt  from the  registration
requirements of the Securities Act pursuant to Section 4(2) thereof.


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

         THIS REPORT CONTAINS FORWARD LOOKING  STATEMENTS  WITHIN THE MEANING OF
SECTION 27A OF THE  SECURITIES  ACT OF 1933, AS AMENDED,  AND SECTION 21E OF THE
SECURITIES  EXCHANGE ACT OF 1934,  AS AMENDED.  WITH THE EXCEPTION OF HISTORICAL
MATTERS, THE MATTERS DISCUSSED IN THIS COMMENTARY ARE FORWARD LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES.  FORWARD LOOKING STATEMENTS  INCLUDE,  BUT
ARE NOT LIMITED  TO,  STATEMENTS  CONCERNING  ANTICIPATED  TRENDS IN SALES.  THE
COMPANY'S ACTUAL RESULTS COULD DIFFER  MATERIALLY FROM THE RESULTS  DISCUSSED IN
SUCH FORWARD  LOOKING  STATEMENTS.  THERE IS  ABSOLUTELY  NO ASSURANCE  THAT THE
COMPANY  WILL  ACHIEVE  THE  RESULTS  EXPRESSED  OR IMPLIED  IN FORWARD  LOOKING
STATEMENTS.

         The  following  discussion  and  analysis  of the  Company's  financial
condition  and  results of  operations  should be read in  conjunction  with the
financial statements and accompanying notes and the other financial  information
appearing  elsewhere  in this  Annual  Report  on  Form  10-KSB.  The  financial
information  presented is for the period January 1, 2000 to our fiscal year end,
December 31, 2001.

         OVERVIEW

         The Company was established as an online, incentive-based shopping mall
of  health-related  retailers.  Upon further  evaluation of the online  shopping
market,  management  chose to re-examine its current  business plan and deploy a
new business  strategy.  As part of the management's  new strategy,  the Company
acquires and integrates into a collaborative network, companies operating in the
fields of  pharmaceuticals,  nutraceuticals,  and biotechnology  (the "Portfolio
Companies").

         Through  an   expansive   network  and   long-standing   relationships,
management has access to a steady supply of such quality acquisition candidates.
The Company plans to leverage the core competency of its management team, having
experience in mergers and acquisitions,  financings,  business  valuations,  and
operations  management,  to effectuate such transactions.  Management expects to
take an active role in providing strategic guidance and operational  support. By
applying operational  improvements,  introducing synergistic  efficiencies,  and
leveraging  economies  of scale,  management  expects  to  further  enhance  the
Company's earnings potential.

         The goal of the  Company  is to become a  significant  operator  in the
health-related  industries by acquiring,  integrating and operating  profitable,
under-valued   companies   operating   in   the   fields   of   pharmaceuticals,
nutraceuticals, and biotechnology.

                                       23
<PAGE>

         INVESTMENT IN BIOFARM, S. A.

         During fiscal year ended December 31, 2001, the Company acquired 24.34%
of the  outstanding  capital  stock of Biofarm,  S.A for shares of the Company's
common  stock.  Biofarm is a Romanian  pharmaceuticals  producer  of  low-priced
vitamins  and  medications  derived from natural  plant  extracts.  It currently
manufactures  60  pharmaceutical  products  in  compressed,  molded  and  coated
tablets,  soft gelatinous capsules,  powders and granules,  injection solutions,
sprays, external and internal use solutions, syrups, and eye drops.

         ACQUISITION OF XCEL HEALTHCARE, INC. AND BIOSELECT INNOVATIONS, INC.

         In December 2001, the Company  purchased 100% of the outstanding  stock
of XCEL  Healthcare,  Inc.  and  BioSelect  Innovations,  Inc. for shares of the
Company's  common  stock.  XCEL is a  fully-licensed  specialty  pharmacy  which
provides  prescription  drugs and related medical supplies and services and is a
provider of patient-specific  biopharmaceuticals  and disease treatment programs
to individuals with chronic diseases.

         BioSelect  is engaged in the  research,  development  and  marketing of
specialty  pharmaceutical  products,  drug  delivery  systems,  and  proprietary
OTC-Nutraceutical formulations.  Slated to be marketed under the COCARE(R) brand
name and  distributed  through  alliances with major  pharmaceutical  companies,
BioSelect's new family of  OTC-Nutraceutical  products  addresses heart disease,
cold & flu, arthritis, migraine, and allergy, among other conditions.


         RESULTS OF OPERATIONS

         The results described herein reflect the consolidated operations of the
Company  and,  for a  one-month  period,  the  operations  of  its  wholly-owned
operating subsidiaries,  XCEL and BioSelect,  for the fiscal year ended December
31, 2001 compared with the same period in fiscal year 2000.

                                 SELECTED STATEMENT OF OPERATIONS INFORMATION

                                                 Years Ended
                                 -------------------------------------------
                                 December 31, 2001         December 31, 2000
                                 -----------------         -----------------
          Net sales              $         341,813         $               -
                                 =================         =================
          Gross profit           $          82,989         $               -
                                 =================         =================
          Net Loss               $       (735,096)         $        (34,247)
                                 =================         =================
          Net loss per share     $          (0.22)         $          (0.02)
                                 ================          =================

         NET  SALES  AND COST OF GOODS  SOLD.  The  Company's  net sales for the
fiscal year ended December 31, 2001 totaled  $341,813 and cost of goods sold for
the same period totaled  $258,824,  or 75.7% of net sales,  resulting in a gross
profit of  $82,989,  or 24.3% of net  sales.  Included  in cost of goods sold is


                                       24
<PAGE>

approximately  $50,000 of non-recurring  expense related to the stepped up basis
in  inventory  at December 1, 2001 due to the  purchase of XCEL and  pursuant to
SFAS No. 141.  Without  this  one-time  charge,  the  Company's  gross profit is
$132,492,  or 38.8% of net  sales.  Net  sales  were  derived  from one month of
operations  of XCEL and  BioSelect.  The Company did not generate  sales for the
fiscal year ended December 31, 2000.

         OPERATING  EXPENSES.  Operating  expenses  for the fiscal  years  ended
December  31,  2001 and 2000  totaled  $908,455,  or  265.8% of net  sales,  and
$34,339, respectively.  Operating expenses include those associated with a start
up venture  such as legal,  accounting,  consulting  and general  administrative
services provided for daily operations,  business  development,  and acquisition
due  diligence.  Management  expects  these  costs to  increase  as the  Company
purchases additional Portfolio Companies.

         INCOME FROM EQUITY  INVESTMENT.  Income from equity  investment for the
fiscal year ended December 31, 2001 totaled $94,816, or 27.7% of net sales. This
income was derived from the Company's investment in Biofarm, S.A.

         NET LOSS.  Net loss for the fiscal  years ended  December  31, 2001 and
2000  totaled  $735,096 and  $34,247,  respectively.  The losses for each of the
years ended December 31 are largely  attributable to general and  administrative
expenses  associated with a start up venture  including  consulting fees, legal,
accounting  and   administrative   expenses  relating  to  the  Company's  daily
operations.  Net loss per share of common  stock was  approximately  $(0.22) and
$(0.02) for the fiscal  years ended  December  31, 2001 and 2000,  respectively.
Further,  there  can  be  no  assurance  that  the  Company  will  ever  achieve
profitability  or that a stream of revenue can be generated and sustained in the
future.

         CAPITAL RESOURCES AND LIQUIDITY

         PUBLIC OFFERING. On February 16, 2001 the Company became effective on a
registration  statement  previously  filed  with  the  Securities  and  Exchange
Commission to sell  1,000,000  shares of its common stock.  Under this offering,
the  Company  issued a total of  499,450  shares  of its  common  stock  for net
proceeds  totaling  $124,863.  Management plans to arrange for additional equity
financing, the proceeds of which will be used for expanded growth of its current
operations and the purchase of additional Portfolio Companies.

         ASSETS.  The Company's  current assets  totaled  $518,933 and $5,311 at
December  31, 2001 and 2000,  respectively.  Total  assets were  $6,269,196  and
$34,882 at December 31, 2001 and 2000,  respectively.  The increase in assets is
primarily  due to the  purchase of XCEL and  BioSelect.  At December  31,  2001,
assets consisted primarily of patents totaling $3,300,000, investments in equity
securities  totaling $844,977,  formulas totaling $676,223,  accounts receivable
totaling $399,913,  agreements  not-to-compete  totaling $379,167, and excess of
cost over fair value of net assets acquired totaling  $286,546.  At December 31,
2000, assets consisted primarily of cash on hand totaling $5,311,  furniture and
equipment totaling $5,461 and work-in-process related to the web site design and
development totaling $25,625.


                                       25
<PAGE>

         LIABILITIES  AND WORKING  CAPITAL.  The Company's  current  liabilities
totaled $1,242,746 and $13,001 at December 31, 2001 and 2000, respectively. This
resulted in working capital totaling $(723,813) and $21,881 at December 31, 2001
and 2000,  respectively.  Total  liabilities  were  $1,284,887  and  $13,001  at
December  31,  2001 and 2000,  respectively.  The  increase  in  liabilities  is
primarily  due to the  purchase of XCEL and  BioSelect.  At December  31,  2001,
liabilities consisted primarily of accounts payable,  accrued expenses and notes
payable.

         CASH FLOWS. Net cash used for operating activities totaled $349,810 and
$9,729 for the years ended  December 31, 2001 and 2000,  respectively.  Net cash
used for investing  activities  totaled $115,207 and $20,460 for the years ended
December  31,  2001 and  2000,  respectively.  Net cash  provided  by  financing
activities  totaled  $459,706 and $35,500 for the years ended  December 31, 2001
and 2000,  respectively.  Cash flow provided by the issuance of common stock was
$187,363  and  $37,500  for  the  years  ended   December  31,  2001  and  2000,
respectively.

         CASH REQUIREMENTS AND ADDITIONAL FUNDING

         As of April 15, 2002, the Company's principal commitments  consisted of
agreements  with various  consultants who will provide the Company with business
development,  public  and  financial  relations  in  exchange  for  stock of the
Company.  The Company has also retained  consultants  to facilitate  debt and/or
equity  financing, with compensation as a flat cash fee or as a portion of funds
raised.

         In March  2002,  the  Company  executed a letter of intent to  purchase
Quality  Botanical  Ingredients  ("QBI")  whose  facilities  are  based in South
Plainfield, New Jersey for cash and shares of the Company's common stock. QBI is
a leading  purchaser,  manufacturer  and contract  processor  of bulk  botanical
materials and nutritional  ingredients supplied to buyers in the pharmaceutical,
nutraceutical  and  cosmetic   industries,   among  others.  QBI  uses  patented
(patent-issued) pulverizing/grinding technology in its state-of-the-art sifting,
milling, blending and densifying processes.

         Management  believes that cash on hand will be insufficient to meet its
anticipated  needs  for  working  capital,  capital  expenditures  and  business
development  for the next  twelve  months.  If the  Company  is  unable to raise
additional funds, management may be forced to curtail or cease operations.  Even
if we are able to continue our operations,  the failure to obtain debt or equity
financing could have a substantial  adverse effect on the business and financial
results,  and we may need to delay additional  purchases of potential  Portfolio
Companies.  Although the Company has historically relied upon financing provided
by its  officers to  supplement  operations,  they are not legally  obligated to
provide  the Company  with any  additional  funding in the  future.  The Company
currently  maintains one line of credit,  with  automatic  annual renewal and an
annual  interest  rate at 2.5%  above the  prime  interest  rate,  and is in the
process of applying for an additional line of credit with Heller Financial, a GE
Capital Company.



                                       26
<PAGE>

         In the future, management may be required to seek additional capital by
selling debt or equity  securities,  selling assets, or otherwise be required to
bring  cash  flows  in  balance   when  it   approaches   a  condition  of  cash
insufficiency.  The sale of additional equity securities,  if accomplished,  may
result in dilution  to the  Company's  shareholders.  Management  cannot  assure
shareholders,  however,  that financing will be available in amounts or on terms
acceptable to the Company, or at all.

         SUBSEQUENT EVENTS

         On March 28,  2002,  the Company  granted its  Controller  an option to
purchase  30,000  shares  of  its  common  stock  at an  exercise  price  of the
prevailing  market  price per share.  These  options vest over a period of three
years.

         On April 9, 2002, the Company granted three  consultants each an option
to purchase  25,000 shares of its common stock at an exercise price of $1.25 per
share in consideration of services  rendered as consultants to the Company until
April 8, 2003. The estimated value of the options totaled approximately $190,000
at the date of grant  using the  Black-Scholes  option  pricing  model  with the
following  assumptions:  risk-free  interest  of  2.54%;  dividend  yield of 0%;
volatility  factor of the expected market price of the Company's common stock of
194%; and a term of 1 year.

         In March 2002 and April  2002,  the  Company  entered  into  rescission
agreements  with three  consultants.  Pursuant to the rescission  agreements and
upon  the  termination  of the  respective  consulting  agreements  for  lack of
performance,  a total of  385,132  shares of the  Company's  common  stock  were
returned to the Company and  subsequently  retired.

         As of April 15,  2002,  the Company issued 176,500 shares,  and options
to purchase  1,485,000  shares,  of its common stock under the Company's  Equity
Incentive  Plan.  A total of 880,000  options  were  exercised  resulting in the
issuance of 813,366 shares of the Company's  common stock. An aggregate total of
604,734 shares of the Company's common stock had been issued under the Plan, net
of 385,132 shares retired.

         Messrs.  Tannous and  Glaser loaned  a total of $140,000 to the Company
through  April 15,  2002.  These  loans  accrue  interest  at 8% per annum.  The
principal and any unpaid interest is due on demand.


                           FORWARD-LOOKING STATEMENTS

         In connection with the safe harbor provisions of the Private Securities
Litigation  Reform  Act of 1995  (the  "Reform  Act"),  the  Company  is  hereby
providing cautionary  statements  identifying important factors that could cause
the  Company's  actual  results to differ  materially  from those  projected  in
forward-looking  statements  (as such term is defined in the Reform Act) made by
or on behalf of the  Company  herein or  orally,  whether in  presentations,  in
response to questions or otherwise.  Any  statements  that  express,  or involve
discussions as to,  expectations,  beliefs,  plans,  objectives,  assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as  "intends,"  "plans,"  "will  result,"  "are expected to," "will
continue," "is  anticipated,"  "estimated,"  "projection" and "outlook") are not


                                       27
<PAGE>

historical facts and may be forward-looking  and,  accordingly,  such statements
involve  estimates,  assumptions,  and  uncertainties  which could cause  actual
results  to  differ  materially  from  those  expressed  in the  forward-looking
statements.  Such  uncertainties  include the risk factors set forth below. They
also include the following conditions or uncertainties: (i) risk associated with
real estate  ownership,  operations  and  development,  including  environmental
liabilities,  worker's strikes,  construction delays, obtaining building permits
and necessary  zoning changes;  (ii)  illiquidity of equity  investments;  (iii)
imposition of new regulatory  requirements affecting the Company; (iv) the delay
or failure to properly  manage  growth;  (v) effect of uninsured  loss; and (vi)
breakdown of water,  sewage or other  municipal  services  and other  conditions
beyond the control of the Company.  The Company  cautions that actual results or
outcomes could differ  materially  from those  expressed in any  forward-looking
statements made by or on behalf of the Company.  Any  forward-looking  statement
speaks  only as of the date on which such  statement  is made,  and the  Company
undertakes no obligation to update any  forward-looking  statement or statements
to reflect  events or  circumstances  after the date on which such  statement is
made or to reflect the occurrence of  unanticipated  events.  New factors emerge
from time to time,  and it is not possible for management to predict all of such
factors. Further, management cannot assess the impact of each such factor on the
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any  forward-looking
statements.


ITEM 7.  FINANCIAL STATEMENTS

         Our audited financial  statements required by Item 310(a) of Regulation
S-B, together with the independent  auditors'  reports of Stonefield  Josephson,
Inc. for fiscal year ended 2001, begin on page F-1 hereof.


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

         On October 26, 2001,  the Company  dismissed  Singer Lewak  Greenbaum &
Goldstein, LLP as its independent auditor and engaged Stonefield Josephson, Inc.
Management of the Company knows of no past disagreements between the Company and
Singer Lewak Greenbaum & Goldstein,  LLP on any matter of accounting  principles
or practices,  financial  statement  disclosure or auditing  scope or procedure.
There  were no  "reportable  events"  (as such  term is  defined  in Item 304 of
Regulation  S-K) that occurred  within the Company's most recent fiscal year nor
any  subsequent  interim  period  preceding  the  replacement  of  Singer  Lewak
Greenbaum & Goldstein LLP.





                  [ THIS SECTION IS INTENTIONALLY LEFT BLANK ]




                                       28
<PAGE>


                                    PART III


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

         The  following  table sets  forth the name,  age and  position  of each
director and executive officer of Health Sciences Group, Inc. There are no other
persons  which can be  classified  as a promoter  or  controlling  person of the
Company. The officers and directors of Health Sciences are as follows:

--------------------------------------------------------------------------------
      Name                    Age             Title
--------------------------------------------------------------------------------

      Harry S. Branch          43             Chairman of the Board
      Fred E. Tannous          35             Chief Executive Officer, Treasurer
                                               and Director
      Bill Glaser              35             President, Secretary and Director

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

         Harry S.  Branch  is  Chairman  of the  Board of  Directors  of  Health
Sciences Group, Inc. Mr. Branch is Principal of Branch & Associates,  a UK-based
accounting firm specializing in corporate finance  transactions.  He has over 20
years of experience in conducting valuations and feasibility studies for clients
in  various  industries,   including  aerospace,   commercial   insurance,   and
pharmaceuticals.  During this time, Mr. Branch was successful in completing over
$140 million in  transaction  value.  Prior to founding  Branch & Associates  in
1990,  as Managing  Director of his own  financial  advisory  firm,  Mr.  Branch
advised on  financial  restructuring  transactions  for  companies  in  distress
situations.  He was also  effective in negotiating  equity and debt  placements,
structuring mergers and acquisitions,  and advising on tax efficient  strategies
for  high-net-worth  individuals.  Mr. Branch has attained  Professional Part II
qualifications  with the Institute of Cost and Management  Accountants (UK) with
distinctions in corporate law and taxation.

         Fred E. Tannous is Chief Executive Officer,  Treasurer,  and a Director
of Health Sciences Group, Inc. Previously,  Mr. Tannous was employed at DIRECTV,
Inc. where he was involved in various capacities including valuing, structuring,
and executing  strategic  investments.  Prior to joining DIRECTV, a wholly-owned
subsidiary of Hughes Electronics Corporation, Mr. Tannous was with the corporate
treasury  organization of Hughes where he assisted in conducting  valuations and
effectuating  financing  transactions  for the  company's  satellite and network
communication  units.  From February  1996 to May 1999,  Mr.  Tannous  served as
Treasurer and Chief Financial Officer of Colorado Casino Resorts, Inc., a gaming
and lodging concern with  operations in Colorado.  In addition to overseeing the
company's  finance  and  accounting  operations,  he  was  accountable  for  all
corporate finance and treasury activities.  Previously,  as principal of his own
consulting firm, Mr. Tannous  consulted to several start-up  ventures in various
industries where he was instrumental in developing  business plans,  advising on
business strategy and capital structure,  and arranging venture financings.  Mr.
Tannous received an MBA in finance and accounting from the University of Chicago
Graduate  School of Business.  He also holds a Masters and  Bachelors  degree in
Electrical Engineering from the University of Southern California.

                                       29
<PAGE>

         Bill Glaser is President,  Secretary and a Director of Health  Sciences
Group,  Inc. Mr. Glaser was founder and Chief  Executive  Officer of HealthyUSA,
Inc., a start-up  venture  established in July 1999 for the purpose of operating
an online resource for health-conscious  living. From July 1994 to May 2000, Mr.
Glaser founded and served as the Chief Executive Officer of Zenterprise, Inc., a
comprehensive strategic and management-consulting  firm, which focused primarily
on business strategy,  marketing,  and management consulting services for public
and  private  companies.  From  September  1991 to July 1994,  Mr.  Glaser was a
registered  principal of a regional stock brokerage firm where he gained diverse
experience  in  finance,  management,   marketing,  sales,  and  public  company
relations.  Previously,  he was a registered  representative at Drexel, Burnham,
Lambert and Smith  Barney.  Mr.  Glaser holds a Bachelors  degree in finance and
economics from the Ithaca College - School of Business.

         Directors are elected annually and hold office until the annual meeting
of the  shareholders of Health  Sciences and until their  successors are elected
and qualified.  There are no family  relationships  among the Company's officers
and directors.  Directors may receive  compensation as determined by the Company
from time to time by vote of the Board of Directors.  Such compensation might be
in the form of stock  options.  Directors  may be  reimbursed by the Company for
expenses incurred in attending meetings of the Board of Directors.


ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth information  concerning common stock ownership by
beneficial owners of five percent or more of the Company's common stock and each
of the officers and directors and the officers and directors as a group:
<TABLE>
<CAPTION>

                                    SUMMARY COMPENSATION TABLE

------------------------------------------------------------------------------------------------------------------
                                           Annual Compensation                         Awards
                                   -------------------------------------------------------------------------------
                                                             Other        Restricted    Securities       All
Name and                                                     Annual         Stock       Underlying      Other
Principal Position        Year       Salary($)   Bonus ($)  Compensation     Awards    Options/SARs   Compensation
-------------------     --------   -----------   ---------  ------------  -----------  ------------   ------------
<S>                     <C>         <C>          <C>        <C>           <C>            <C>          <C>
Fred E. Tannous         12/31/01      11,538        --             --     $125,000      250,000            --
CEO, Treasurer          12/31/00        --          --             --         --           --              --

------------------------------------------------------------------------------------------------------------------
Bill Glaser             12/31/01      11,538        --             --     $125,000      250,000            --
President, Secretary    12/31/00        --          --             --           --          --             --

------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       30
<PAGE>

The table below sets forth information concerning the exercise of options during
2001 along with the aggregate 2001 year-end  option  holdings of the below named
officers of the Company:

<TABLE>
<CAPTION>
                AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
                                       COMMON STOCK

---------------------------------------------------------------------------------------------------
                                                    Number of securities      Value of unexercised
                                                    underlying options at          in-the-money
                  Shares Acquired     Value            December 31, 2001            options at
Name                on Exercise     Realized     Exercisable/Unexercisable     December 31, 2001
---------------------------------------------------------------------------------------------------
<S>               <C>               <C>          <C>                          <C>
Fred E. Tannous        none           none                 250,000 / 0            $622,500 / n/a
Bill Glaser            none           none                 250,000 / 0            $622,500 / n/a

---------------------------------------------------------------------------------------------------
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information  concerning common stock ownership by
beneficial  owners of five  percent or more of our common  stock and each of our
officers and directors and our officers and directors as a group:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                       Amount of
                      Name and Address                                Beneficial          Percent of
Title of Class        of Beneficial Owner                             Ownership(1)        Class (2)
-------------------------------------------------------------------------------------------------------
<S>                   <C>                                             <C>                 <C>
Common                Harry S. Branch
$0.001 par value      6080 Center Drive, 6th Floor                     1,760,000             25.5%
                      Los Angeles, CA 90045
-------------------------------------------------------------------------------------------------------
Common                Bill Glaser (3)
$0.001 par value      6080 Center Drive, 6th Floor                     1,322,379             18.5%
                      Los Angeles, CA 90045
-------------------------------------------------------------------------------------------------------
Common                Fred E. Tannous (3) (4)
$0.001 par value      6080 Center Drive, 6th Floor                     1,322,379             18.5%
                      Los Angeles, CA 90045
-------------------------------------------------------------------------------------------------------
Common                American Financial Communications, Inc. (5)
$0.001 par value      655 Redwood Highway, Suite 255                     493,465              6.9%
                      Mill Valley, CA 94941
-------------------------------------------------------------------------------------------------------
Common                All officers and directors                       4,404,758             59.4%
$0.001 par value      as a group (three persons)
-------------------------------------------------------------------------------------------------------
Common                Total shares issued and outstanding              6,910,184            100.0%
-------------------------------------------------------------------------------------------------------
</TABLE>
                                       31
<PAGE>

------------
(1)  Unless otherwise indicated,  the Company believes that all persons named in
     the table have sole voting and investment  power with respect to all shares
     beneficially owned by them. Each beneficial owner's percentage ownership is
     determined  by  assuming  that  options or  warrants  that are held by such
     person and which are exercisable  within 60 days of the date of this report
     have been exercised.

(2)  Calculation of percentage ownership was based on 6,910,184 shares of common
     stock outstanding.

(3)  Includes options to purchase 250,000 shares exercisable within 60 days.

(4)  Includes 3,000 shares that were gifted by Mr. Tannous to certain  immediate
     family members.

(5)  At December 31, 2001, American Financial Communications,  Inc. held 257,000
     shares of its common stock. To date, additional shares of up to 236,465 are
     due to AFC  pursuant  the  agreement.  The  consulting  agreement  with AFC
     provides a limit on the number of shares  which can be issued  based on the
     Company's shares issued and outstanding.


        EMPLOYMENT CONTRACTS

        The Company has agreed to terms with the  following  executive officers:

        Fred E. Tannous. Pursuant to an Employment Agreement, to be effective as
of January 1, 2002 expiring on December 31, 2005,  Mr.  Tannous  serves as Chief
Executive Officer and Treasurer of the Company.  The Agreement will provide that
Mr.  Tannous  is to  receive  an annual  base  salary of  $190,000,  subject  to
adjustment at the discretion of the Company's  Board of Directors.  To date, Mr.
Tannous has  accepted  deferred  payment of such  compensation.  The  Employment
Agreement  will provide for severance  payments in the event that Mr. Tannous is
terminated  other than "for  cause",  as will be defined in the  Agreement.  The
severance  payment  would be equal to six months  base  salary.  The  Employment
Agreement  will also  provide  for  incentive  compensation  in the event of the
Company meeting certain  revenue  milestones as set forth in the Agreement,  and
for such other fringe  benefit as are  generally  available  to other  executive
officers of the Company, including health insurance and an automobile allowance.

        Bill Glaser. Pursuant   to an Employment  Agreement, to be  effective as
of January 1, 2002 expiring on December 31, 2005, Mr. Glaser serves as President
and Secretary of the Company.  The Agreement  will provide that Mr. Glaser is to
receive  an annual  base  salary  of  $190,000,  subject  to  adjustment  at the
discretion of the Company's Board of Directors. To date, Mr. Glaser has accepted
deferred payment of such compensation. The Employment Agreement will provide for
severance  payments in the event that Mr. Glaser is  terminated  other than "for
cause",  as will be defined in the  Agreement.  The  severance  payment would be
equal to six months base salary. The Employment  Agreement will also provide for
incentive  compensation  in the event of the  Company  meeting  certain  revenue
milestones as set forth in the  Agreement,  and for such other fringe benefit as
are generally  available to other executive  officers of the Company,  including
health insurance and an automobile allowance.

                                       32
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr.  Kenneth  Glaser was  retained  by  the Company for a period of six
months for the purpose of providing marketing and advertising services. Pursuant
to the  Marketing  Agreement,  the Company  paid Mr.  Kenneth  Glaser a total of
$15,000. Mr. Kenneth Glaser is the father of Bill Glaser.

         Mr. David E. Tannous,  CPA  was retained by the Company for the purpose
of providing accounting and bookkeeping services.  The Company paid Mr. David E.
Tannous  approximately $1,500 per month for a period of six months. Mr. David E.
Tannous is the brother of Fred E. Tannous.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

a.       Exhibits

     3.1(1)   Articles of Incorporation
     3.2(1)   By-laws
     3.3(1)   Amendment to the Articles of Incorporation of iGoHealthy.com, Inc.
     10.1(1)  Contract for Services Agreement between Stephen Davis and
              iGoHealthy.com, Inc.
     10.2(1)  Domain Name Sale and Assignment Agreement between HealthyUSA, Inc.
              and iGoHealthy.com, Inc.
     10.3(1)  Promissory Note between HealthyUSA, Inc. and iGoHealthy.com, Inc.
     16.1(2)  Letter on Change in Certifying Accountant
     21.1     Subsidiaries of the Registrant

     (1) Filed as exhibit to the  registration  statement  on Form SB-2 filed on
         December  11,  2000 (File No.  333-51628)  and herein incorporated by
         reference.

     (2) Filed as an exhibit to our current report on Form 8-K filed on November
         1, 2001 and herein incorporated by reference.

b. Reports on Form 8-K filed during the Company's fourth fiscal quarter:

(1)     On October 17, 2001, the Company filed a current report on Form 8-K with
        the Commission dated October 17, 2001, reporting  information under Item
        2,  Acquisition  of Assets,  Item 5, Other Events and Item 7,  Financial
        Statements and Exhibits.

(2)     On October 26, 2001, the Company filed a current report on Form 8-K with
        the Commission dated October 26, 2001, reporting  information under Item
        4, Changes in Registrant's  Certifying  Accountant and Item 7, Financial
        Statements and Exhibits.

(3)     On December 31,  2001,  the Company  filed a current  report on Form 8-K
        with the Commission dated December 31, 2001, reporting information under
        Item 2,  Acquisition  of Assets,  and Item 7,  Financial  Statements and
        Exhibits.

                                       33
<PAGE>




                                   SIGNATURES

         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Act of 1934, as amended, the registrant has duly caused this report to be signed
on our behalf by the  undersigned,  thereunto duly  authorized  this 15th day of
April, 2002.

                                               HEALTH SCIENCES GROUP, INC.


                                        By:    /s/ Fred E. Tannous
                                               ----------------------------
                                               Fred E. Tannous
                                               Chief Executive Officer,
                                               Principal Financial Officer,
                                               and Director


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


April 15, 2002                          By:    /s/ Fred E. Tannous
                                               ----------------------------
                                               Fred E. Tannous
                                               Chief Executive Officer,
                                               Principal Financial Officer,
                                               and Director


April 15, 2002                          By:    /s/ Bill Glaser
                                               ----------------------------
                                               Bill Glaser
                                               President, Secretary, and
                                               Director


April 15, 2002                          By:    /s/ David Johnson
                                               ----------------------------
                                               David Johnson, CPA
                                               Controller







                                       34
<PAGE>




                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                                 (FORMERLY IGOHEALTHY.COM, INC.)
                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------





                                                                        Page
                                                                        ----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-1A

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                          F-2

     Consolidated Statements of Operations and Other
      Comprehensive Loss                                                 F-3

     Consolidated Statement of Stockholders' Equity                   F-4 - F-5

     Consolidated Statements of Cash Flows                            F-6 - F-7

     Notes to Consolidated Financial Statements                       F-8 - F-27




                                       35

<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
Health Sciences Group, Inc. and Subsidiaries
Los Angeles, California


We have audited the accompanying  consolidated  balance sheet of Health Sciences
Group, Inc. (formerly iGoHealthy.com,  Inc.) and Subsidiaries as of December 31,
2001,  and  the  related   consolidated   statements  of  operations  and  other
comprehensive loss, stockholders' equity 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 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 consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  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 consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Health
Sciences Group,  Inc. and  Subsidiaries as of December 31, 2001, and the results
of  their  consolidated  operations  and  other  comprehensive  loss  and  their
consolidated cash flows for the period then ended, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial statements,  the Company's net loss and negative working
capital  raise  substantial  doubt  about its  ability  to  continue  as a going
concern.  Management's plans concerning these matters are also discussed in Note
1. The  consolidated  financial  statements do not include any adjustments  that
might result from the outcome of this uncertainty.


STONEFIELD JOSEPHSON, INC.

Santa Monica, California
March 30, 2002



                                      F-1
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Health Sciences Group, Inc.
(formerly iGoHealthy.com, Inc.)


We have audited the accompanying statements of operations, stockholders' equity,
and cash flows of Health Sciences Group, Inc.  (formerly  iGoHealthy.com,  Inc.)
for the year  ended  December  31,  2000.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of Health  Sciences Group,  Inc.  (formerly
iGoHealthy.com,  Inc.)'s operations and its cash flows for the year December 31,
2000.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will  continue as a going  concern.  During the year ended  December 31,
2000, the Company incurred a net loss of $34,247, and it had negative cash flows
from  operations  of $9,729.  These factors  raise  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these  matters  are  described  in Note 1. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 30, 2001




                                      F-1A
<PAGE>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEET
                                                               DECEMBER 31, 2001
--------------------------------------------------------------------------------

                                     ASSETS
CURRENT ASSETS:
  Accounts receivable, net of contractual allowance
    totaling $57,357                                             $     399,913
  Inventory                                                            117,069
  Other current assets                                                   1,951
                                                                 -------------
         Total current assets                                          518,933

FURNITURE AND EQUIPMENT, net of accumulated depreciation
    and amortization                                                   197,740

OTHER ASSETS:
  Intangible assets, net of accumulated amortization                 4,707,546
  Investment in equity securities                                      844,977
                                                                 -------------
                                                                 $   6,269,196
                                                                 =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Book overdraft                                                 $     113,516
  Accounts payable and accrued expenses                                610,411
  Line of credit                                                        73,000
  Current maturities of notes payable                                  408,396
  Current maturities of obligations under capitalized leases            18,229
  Loans payable, stockholders                                           19,194
                                                                 -------------
         Total current liabilities                                   1,242,746

NOTES PAYABLE, less current maturities                                  20,000

OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities           22,141
                                                                 -------------

         Total liabilities                                           1,284,887
                                                                 -------------
STOCKHOLDERS' EQUITY:
  Preferred stock; $0.001 par value, 5,000,000 shares
    authorized, no shares issued and outstanding                             -
  Common stock; $0.001 par value, 50,000,000 shares
    authorized, 6,808,684 shares issued and outstanding                  6,809
  Additional paid-in capital                                         5,895,738
  Prepaid compensation expense                                        (145,833)
  Total other comprehensive loss                                        (1,662)
  Accumulated deficit                                                 (770,743)
                                                                 --------------

         Total stockholders' equity                                  4,984,309
                                                                 -------------
                                                                 $   6,269,196
                                                                 =============
   The accompanying notes are an integral part of these financial statements

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                                        OTHER COMPREHENSIVE LOSS
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

                                                 Year ended             Year ended
                                              December 31, 2001      December 31, 2000
                                              -----------------      -----------------
<S>                                            <C>                    <C>
SALES, net                                     $       341,813        $            -

COST OF GOODS SOLD                                     258,824                     -
                                               ---------------        --------------

GROSS PROFIT                                            82,989                     -
                                               ---------------        --------------

RESEARCH AND DEVELOPMENT                                20,286                     -
GENERAL AND ADMINISTRATIVE EXPENSES                    888,169                34,339
                                               ---------------        --------------

TOTAL OPERATING EXPENSES                               908,455                34,339
                                               ---------------        --------------

LOSS FROM OPERATIONS                                  (825,466)              (34,339)

INCOME FROM EQUITY INVESTMENT                           94,816                     -
INTEREST (EXPENSE) INCOME, net                          (4,446)                   92
                                               ---------------        --------------

LOSS BEFORE INCOME TAXES                              (735,096)              (34,247)

PROVISION FOR INCOME TAXES                                   -                     -
                                               ---------------        --------------

NET LOSS                                              (735,096)              (34,247)

OTHER COMPREHENSIVE LOSS -
  unrealized loss on marketable securities                (231)                    -
                                               ---------------        --------------

TOTAL COMPREHENSIVE LOSS                       $      (735,327)       $      (34,247)
                                               ===============        ==============

NET LOSS PER SHARE - basic and diluted         $          (.22)       $       (.02)
                                               ===============        =============

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING - basic and diluted                    3,292,278             1,401,205
                                               ===============        ==============
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                                               DECEMBER 31, 2001
--------------------------------------------------------------------------------

                                    Common stock         Additional       Prepaid          Other                          Total
                                --------------------       paid-in     compensation    comprehensive   Accumulated    stockholders'
                                 Shares      Amount        capital        expense          loss          deficit         equity
                                ---------   --------     ----------    ------------    ------------    -----------    -----------


<S>                             <C>         <C>          <C>            <C>            <C>             <C>            <C>
Balance at January 1, 2000      1,400,000   $  1,400     $         -    $         -    $          -    $   (1,400)    $         -

Issuance of common stock
  for website development           5,000          5             620              -               -             -             625

Issuance of common stock
  for services rendered             5,000          5             620              -               -             -             625

Issuance of common stock
  for cash                        300,000        300          37,200              -               -             -          37,500

Services provided by officers
  of the Company                        -          -          17,378              -               -             -          17,378

Net loss                                -          -               -              -               -       (34,247)        (34,247)
                                ---------   --------     -----------    -----------    ------------    -----------    -----------

Balance at December 31, 2000    1,710,000      1,710          55,818              -               -       (35,647)         21,881

Issuance of common stock
  for cash                        749,450        750         186,613              -               -             -         187,363

Issuance of common stock
  for note payable                 20,000         20           4,980              -               -             -           5,000

Issuance of common stock
  for services                    487,000        487         173,091              -               -             -         173,578

Issuance of common stock to
  officers for services         1,000,000      1,000         249,000              -               -             -         250,000
</TABLE>



    The accompanying notes are an integral part of these financial statements


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
                                                               DECEMBER 31, 2001
--------------------------------------------------------------------------------

                                    Common stock         Additional       Prepaid          Other                          Total
                                --------------------       paid-in     compensation    comprehensive   Accumulated    stockholders'
                                 Shares      Amount        capital        expense          loss          deficit         equity
                                ---------   --------     ----------    ------------    ------------    -----------    -----------


<S>                             <C>         <C>          <C>            <C>            <C>             <C>            <C>
Stock options issued in
  exchange for services                 -          -          74,824              -               -              -         74,824

Issuance of common stock for
  investment in equity          1,700,000      1,700         695,989              -               -              -        697,689
  securities

Stock options exercised on a
  "cashless" basis                563,366        563            (563)             -               -              -              -

Return of Company's common stock (385,132)      (385)            385              -               -              -              -

Issuance of common stock for
  all issued and outstanding
  shares of XCEL Healthcare,
  Inc. and BioSelect
  Innovations, Inc.               964,000        964       4,398,796              -               -              -      4,399,760

Services provided by officers
  of the Company                        -          -          56,805              -               -              -         56,805

Prepaid compensation expense
  issued as shares to
  stockholders                          -          -               -       (145,833)              -              -       (145,833)

Unrealized loss on investment
  in marketable securities              -          -               -              -          (1,662)             -         (1,662)

Net loss                                -          -               -              -               -       (735,096)      (735,096)
                                ---------   --------     -----------    -----------    ------------    -----------    -----------

Balance at December 31, 2001    6,808,684   $  6,809     $ 5,895,738    $  (145,833)   $     (1,662)   $  (770,743)   $  4,984,309
                                =========   ========     ===========    ===========    ============    ===========    ============
</TABLE>






    The accompanying notes are an integral part of these financial statements



                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

                                                            Year ended           Year ended
                                                         December 31, 2001    December 31, 2000
                                                         -----------------    -----------------
<S>                                                      <C>                   <C>
CASH FLOWS USED FOR OPERATING ACTIVITIES:
  Net loss                                               $       (735,096)     $       (34,247)

  ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
    USED FOR OPERATING ACTIVITIES:
      Depreciation and amortization                                32,893                1,515
      Services provided by officers of the Company                 56,805               17,378
      Issuance of common stock for services rendered              173,578                  625
      Provision for contractual allowance                           2,568                    -
      Income from equity investment                               (94,816)                   -
      Common stock issued to officers as compensation             104,167                    -
      Stock options issued for services                            74,824                    -

  CHANGES IN ASSETS AND LIABILITIES:
    (INCREASE) DECREASE IN ASSETS:
      Accounts receivable                                         (14,100)                   -
      Inventory                                                    40,714                    -
      Other current assets                                          2,473                    -

    INCREASE IN LIABILITIES -
      accounts payable and accrued expenses                         6,180                5,000
                                                         ----------------      ---------------

         Net cash used for operating activities                  (349,810)              (9,729)
                                                         -----------------     ----------------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
  Purchase of furniture and equipment                             (20,398)              (5,460)
  Investment in equity securities                                 (52,472)                   -
  Excess of purchase price over fair market value of
    assets acquired                                               (40,674)                   -
  Website development                                              (1,663)             (15,000)
                                                         -----------------     ----------------

         Net cash used for investing activities                  (115,207)             (20,460)
                                                         -----------------     ---------------
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

                                                            Year ended           Year ended
                                                         December 31, 2001    December 31, 2000
                                                         -----------------    -----------------
<S>                                                      <C>                   <C>
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Issuance of common stock                                        187,363               37,500
  Proceeds from line of credit                                      9,415                    -
  Book overdraft                                                  113,516                    -
  Payments on capital lease obligations                            (1,456)                   -
  Proceeds from notes payable                                     165,000                    -
  Payments on notes payable                                          (396)              (2,000)
  Payments to stockholders                                        (13,736)             (20,588)
  Proceeds from stockholders                                            -               20,588
                                                         ----------------      ---------------
         Net cash provided by financing activities                459,706               35,500
                                                         ----------------      ---------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               (5,311)               5,311

CASH AND CASH EQUIVALENTS, beginning of year                        5,311                    -
                                                         ----------------      ---------------
CASH AND CASH EQUIVALENTS, end of year                   $              -      $         5,311
                                                         ================      ===============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid                                          $          4,539      $             -
                                                         ================      ===============
  Taxes paid                                             $              -      $             -
                                                         ================      ===============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
  Common stock issued in exchange for outstanding
    stock of XCEL Healthcare, Inc. and BioSelect
    Innovations, Inc.                                    $      4,399,760      $             -
                                                         ================      ===============
  Common stock issued for investment in
    equity securities                                    $        697,689      $             -
                                                         ================      ===============
  Common stock issued to officers for services           $        250,000      $             -
                                                         ================      ===============
  Common stock issued for services                       $        173,578      $         1,250
                                                         ================      ===============
  Stock options issued in exchange for services          $         74,824      $             -
                                                         ================      ===============
  Services provided by officers of the Company           $         56,805      $        17,378
                                                         ================      ===============
  Note payable converted to common stock                 $          5,000      $             -
                                                         ================      ===============
</TABLE>
    The accompanying notes are an integral part of these financial statements

                                      F-7
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Organization and Basis of Presentation
          --------------------------------------
          Health  Sciences Group,  Inc. (the "Company") was  incorporated in the
          state of Colorado on June 13, 1996 as Centurion Properties Development
          Corporation.  The Company remained dormant until October 16, 2000 when
          its name was changed to  iGoHealthy.com,  Inc. On September  10, 2001,
          the  Company  changed  its name to Health  Sciences  Group,  Inc.  The
          Company   acquires  and  integrates  into  a  collaborative   network,
          companies operating in the fields of  pharmaceuticals,  nutraceuticals
          and  biotechnology.  In the year 2000,  the Company was  considered  a
          development stage enterprise.

          Effective  December  14,  2001,  the  Company  acquired  100%  of  the
          outstanding stock of XCEL Healthcare,  Inc., a California  corporation
          and the outstanding  shares of BioSelect  Innovations,  Inc., a Nevada
          corporation  for  approximately  $4.4 million (Note 2). As a result of
          the  acquisition,  the Company is required to disclose certain segment
          information (Note 6).

          Principles of Consolidation
          ---------------------------
          These financial statements include the accounts of the Company and its
          wholly  owned  subsidiaries,   XCEL  Healthcare,   Inc.  ("XCEL")  and
          BioSelect Innovations, Inc. ("BioSelect").  All material inter-company
          accounts have been eliminated in consolidation.

          Classes of Stock
          ----------------
          The Company's  Articles of Incorporation,  as amended,  authorized the
          issues of up to  55,000,000  shares of stock,  consisting of 5,000,000
          shares of Convertible Preferred Non-voting Stock and 50,000,000 shares
          of common stock which have a par value of $0.001

          Convertible Preferred Stock
          ---------------------------
          Convertible  Preferred  Non-voting  Equity  Stock will have par terms,
          preferences  and  conversion  features as  determined  by the Board of
          Directors  at the  time of the  issuance  of any  such  shares.  As of
          December 31, 2001,  the Company's  Board of Directors  have not issued
          any preferred stock.





                                      F-8
<PAGE>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          Basis of Presentation
          ---------------------
          As reflected in the accompanying  consolidated  financial  statements,
          the Company has a loss from operations, its current liabilities exceed
          its current  assets and the Company is  delinquent  in payments of its
          notes  payables.  These  matters  raise  substantial  doubt  about the
          Company's ability to continue as a going concern.

          In  view  of  the  matters  described  in  the  preceding   paragraph,
          recoverability  of a major portion of the recorded asset amounts shown
          in the  accompanying  consolidated  balance  sheet is  dependent  upon
          continued operations of the Company, which, in turn, is dependent upon
          the  Company's  ability to  continue  to raise  capital  and  generate
          positive  cash  flows  from  operations.  The  consolidated  financial
          statements   do  not   include   any   adjustments   relating  to  the
          recoverability and classification of recorded asset amounts or amounts
          and  classifications of liabilities that might be necessary should the
          Company be unable to continue its existence.

          Management  plans to take, or has taken,  the following  steps that it
          believes will be sufficient to provide the Company with the ability to
          continue in existence:

          o    The  Company  is  currently  in  negotiation   with  a  financial
               institution for a line of credit.

          o    The Company is seeking to raise equity funds that will be used to
               fund any capital shortfalls.

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

          Fair Value of Financial Instruments
          -----------------------------------
          For certain of the Company's financial instruments, including accounts
          receivable,  book overdraft and accounts payable and accrued expenses,
          the carrying  amounts  approximate  fair value due to their relatively
          short maturities. The amounts owed for long-term debt also approximate
          fair value  because  current  interest  rates and terms offered to the
          Company are at current market rates.

                                      F-9
<PAGE>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          Cash and Cash Equivalents
          -------------------------
          Cash  equivalents  are comprised of certain highly liquid  investments
          with maturity of three months or less when purchased.

          Concentration of Credit Risk
          ----------------------------
          Substantially all of the Company's accounts receivable is due from two
          governmental   agencies.    Included   in   accounts   receivable   is
          approximately $349,000 due from these two agencies.

          Investment in Equity Securities
          -------------------------------
          The Company  accounts for its investments in equity  securities  under
          the  provisions  of  Financial  Accounting  Standards  Board  ("FASB")
          Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  115,
          "Accounting for Certain Investments in Debt and Equity Securities". In
          accordance  with FASB No. 115,  equity  securities  that have  readily
          determinable   fair  values  are   classified  as  either  trading  or
          available-for-sale  securities.  Securities  that are  bought and held
          principally for the purpose of selling in the near term (thus held for
          only a short period of time) are classified as trading  securities and
          all other securities are classified as available-for-sale. Trading and
          available-for-sale  securities  are  measured  at  fair  value  in the
          balance sheet. For trading securities any realized gains or losses and
          any unrealized  holding gains and losses are reported in the statement
          of operations.  For  available-for-sale  securities any realized gains
          and  losses  are  reported  in the  statement  of  operations  and any
          unrealized  holding  gains  and  losses  are  reported  as a  separate
          component of stockholders'  equity until realized.  As of December 31,
          2001, all of the Company's  investments  in marketable  securities are
          classified as available-for-sale.

          The Company accounts for its investments in equity securities in which
          it has significant  influence over operating and financial policies of
          the  company,   typically  greater  than  20%  ownership,   under  the
          provisions of Accounting Principles Board Opinion No. 18 (APB No. 18),
          "The Equity Method of Accounting for Investments in Common Stock".  In
          accordance with APB No. 18, the Company records the initial investment
          at cost, reduces the investment by dividends received and increases or
          decreases the investment by the Company's  proportionate  share of the
          investee's net earnings or loss.

          Inventory
          ---------
          Inventory  consists of purchased goods that are stated at the lower of
          cost or market,  cost generally being determined on a first-in,  first
          out basis.


                                      F-10
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          Furniture and Equipment
          -----------------------
          Furniture and equipment are stated at cost.  Depreciation  is provided
          on a  straight-line  basis  over  the  estimated  useful  lives of the
          assets,  which  range  from  5-7  years.  Leasehold  improvements  are
          amortized  on the  straight-line  method over the term of the lease or
          estimated  useful  life,   whichever  is  shorter.   Expenditures  for
          maintenance  and repairs are charged to operations as incurred,  while
          renewals and betterments are capitalized.

          Patents
          -------
          Patents  consist of the  expenditures  for the  purchase and filing of
          patents as valued by an unrelated party. Patent costs are amortized on
          a straight-line  basis over their economic lives of  approximately  19
          years  and  are  reviewed  for  impairment   whenever  the  facts  and
          circumstances   indicate   that  the   carrying   amount  may  not  be
          recoverable.

          Formulas
          --------
          Formulas  consist of the fair market  value of formulas  purchased  as
          valued  by  an  unrelated   party.   Formulas   are   amortized  on  a
          straight-line  basis over their  estimated  economic lives of 15 years
          and are reviewed for impairment  whenever the facts and  circumstances
          indicate that the carrying amount may not be recoverable.

          Revenue Recognition
          -------------------
          Net  sales  are  recorded  at the  Company's  established  rates on an
          accrual basis, net of the provision for contractual  allowances,  when
          pharmaceutical  products are shipped.  Contractual  allowances include
          differences between established billing rates and amounts estimated by
          management  as  reimbursable  from  third-party  payors and others for
          products shipped.

          Research and Development Costs
          ------------------------------
          Research  and  development  costs  consist  of  expenditures  for  the
          research and development of patents, which cannot be capitalized.

          Advertising Costs
          -----------------
          The Company expenses advertising costs as incurred. The Company had no
          advertising costs for the years ended December 31, 2001 and 2000.


                                      F-11
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          Comprehensive Income
          --------------------
          In June 1998, the Financial Accounting Standards Board ("FASB") issued
          SFAS  No.  130,  "Reporting   Comprehensive   Income".  SFAS  No.  130
          establishes  standards for the reporting and display of  comprehensive
          income and its components in the financial statements.

          Income Taxes
          ------------
          Deferred  income taxes result  primarily  from  temporary  differences
          between   financial  and  tax  reporting.   Deferred  tax  assets  and
          liabilities  are  determined  based  on  the  difference  between  the
          financial  statement  bases and tax bases of  assets  and  liabilities
          using enacted tax rates. A valuation allowance is recorded to reduce a
          deferred  tax asset to that  portion  that is  expected to more likely
          than not be realized.

          Net Loss Per Share
          ------------------
          The Company uses SFAS No. 128,  "Earnings  Per Share" for  calculating
          the basic and diluted loss per share. Basic loss per share is computed
          by  dividing  net loss  attributable  to  common  stockholders  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.  At
          December  31,  2001 the  Company  had  500,000  shares of  potentially
          dilutive  common  shares.  At December  31,  2000,  the Company had no
          potentially dilutive common shares.

          Segment Information
          -------------------
          In June 1997, the Financial Accounting Standards Board ("FASB") issued
          SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
          Information". SFAS No. 131 establishes standards for reporting certain
          information about operating segments and certain information about its
          products and services,  the geographic  areas in which it operates and
          its major customers.



                                      F-12
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          Recent Accounting Pronouncements
          --------------------------------
          In July 2001,  the FASB issued SFAS No. 141  "Business  Combinations."
          SFAS No. 141 supersedes Accounting Principles Board ("APB") No. 16 and
          requires that any business combinations  initiated after June 30, 2001
          be  accounted   for  as  a  purchase;   therefore,   eliminating   the
          pooling-of-interest  method  defined  in  APB  16.  The  statement  is
          effective for any business  combination  initiated after June 30, 2001
          and shall  apply to all  business  combinations  accounted  for by 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
          Intangibles."   SFAS  No.  142  addresses  the  initial   recognition,
          measurement   and   amortization   of   intangible   assets   acquired
          individually  or with a group of other assets (but not those  acquired
          in a business  combination) and addresses the amortization  provisions
          for excess cost over fair value of net assets  acquired or intangibles
          acquired in a business  combination.  The  statement is effective  for
          fiscal years  beginning after December 15, 2001, and is effective July
          1,  2001  for  any  intangibles  acquired  in a  business  combination
          initiated   after  June  30,  2001.  The  Company  is  evaluating  any
          accounting  effect,  if any, arising from the recently issued SFAS No.
          142,  "Goodwill  and Other  Intangibles"  on the  Company's  financial
          position or results of operations.

          In October 2001,  the FASB recently  issued SFAS No. 143,  "Accounting
          for Asset Retirement  Obligations," which requires companies to record
          the fair value of a liability for asset retirement  obligations in the
          period  in  which  they  are  incurred.  The  statement  applies  to a
          company's  legal  obligations  associated  with  the  retirement  of a
          tangible   long-lived   asset  that  results  from  the   acquisition,
          construction,  and  development  or through the normal  operation of a
          long-lived asset. When a liability is initially recorded,  the company
          would capitalize the cost,  thereby  increasing the carrying amount of
          the  related  asset.   The  capitalized   asset   retirement  cost  is
          depreciated  over the life of the respective asset while the liability
          is accreted to its present  value.  Upon  settlement of the liability,
          the obligation is settled at its recorded amount or the company incurs
          a gain or loss. The statement is effective for fiscal years  beginning
          after June 30, 2002.  The Company does not expect the adoption to have
          a material  impact to the Company's  financial  position or results of
          operations.


                                      F-13
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          Recent Accounting Pronouncements (Continued
          -------------------------------------------
          In October  2001,  the FASB issued SFAS No. 144,  "Accounting  for the
          Impairment or Disposal of Long-Lived Assets".  Statement 144 addresses
          the  accounting  and  reporting  for the  impairment  or  disposal  of
          long-lived  assets.  The statement  provides a single accounting model
          for  long-lived  assets to be disposed of. New criteria must be met to
          classify  the asset as an asset  held-for-sale.  This  statement  also
          focuses on  reporting  the  effects  of a  disposal  of a segment of a
          business. This statement is effective for fiscal years beginning after
          December 15, 2001.  The Company does not expect the adoption to have a
          material  impact to the  Company's  financial  position  or results of
          operations.

NOTE 2 -  BUSINESS ACQUISITION

          In December 2001, the Company  entered into a stock purchase and share
          exchange  agreement and acquired 100% of the outstanding stock of XCEL
          Healthcare,  Inc., a California corporation and BioSelect Innovations,
          Inc., a Nevada  corporation  for common stock valued at  approximately
          $4.4 million including  acquisition  costs of approximately  $250,000.
          The value of the 964,000 shares of common stock issued, which includes
          46,000  shares of common  stock  issued to a  consultant  for services
          provided to the Company  relating to the  acquisition,  was determined
          based on the average  market price of the Company's  common stock over
          the 2-day period  before and after the terms of the  acquisition  were
          agreed  to and  announced.  855,000  shares  were  placed in an escrow
          account  which will be released  after the Company  removes the former
          shareholders of XCEL as personal guarantors on a vendor account.  This
          provision was satisfied in April 2002.










                                      F-14
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 2 -  BUSINESS ACQUISITION (CONTINUED)

          In keeping  with the  Company's  business  plan to purchase  Portfolio
          Companies  in  the  fields  of  pharmaceuticals,  nutraceuticals,  and
          biotechnology, management believes the acquisition of XCEL Healthcare,
          Inc. and BioSelect Innovations,  Inc. will enhance its goal to provide
          strategic  guidance,  synergism and operating support to the Portfolio
          Companies.  XCEL and  BioSelect  are  engaged  in the sale of  in-home
          pharmaceutical  products,   primarily  in  Southern  California,   and
          research and development for drug delivery systems for nutraceuticals,
          vitamins and minerals, and cosmetic  pharmaceuticals.  The acquisition
          has been  accounted  for as a  purchase  pursuant  to SFAS NO. 141 and
          accordingly,  the acquired  assets and  liabilities  assumed have been
          recorded at their  estimated fair values at the date of acquisition as
          valued by an unrelated party. This acquisition includes excess of cost
          over fair value of net assets acquired of approximately $287,000 which
          is the premium the Company  paid to generate  revenues in this market.
          The  operating  results  of  this  acquisition  are  included  in  the
          Company's   consolidated  results  of  operations  from  the  date  of
          acquisition.

          The following table summarizes the estimated fair values of the assets
          acquired and liabilities assumed at the date of acquisition.

                                                            At November 30, 2001
                                                            --------------------
           Current assets                                     $      550,357
           Furniture and equipment                                   180,000
           Intangible assets                                       4,420,000
           Excess of cost over fair value of
            net assets acquired                                      286,546
                                                              --------------
             Total assets acquired                                 5,436,903
                                                              --------------

           Current liabilities                                      (974,936)
           Long-term debt                                            (23,426)
                                                              --------------
             Total liabilities assumed                              (998,362)

           Other comprehensive loss                                    1,893
                                                              --------------
             Net assets acquired                              $    4,440,434
                                                              ==============

          The acquired intangible assets have a weighted-average  useful life of
          approximately 16 years.


                                      F-15
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 2 -  BUSINESS ACQUISITION (CONTINUED)

          A summary  of the  intangible  assets  and their  useful  lives are as
          follows:

           Patent applications                     $    3,300,000      19 years
           Existing proprietary formulas                  600,000      15 years
           Agreements not-to-compete                      390,000       3 years
           Drug delivery system formulas                   80,000      15 years
           Website and domain name                         50,000       3 years
                                                   --------------

                                                   $    4,420,000
                                                   ==============

          The following  unaudited  pro-forma  summary presents the consolidated
          results  of  operations  of  the  Company  as if the  acquisition  had
          occurred at the beginning of the 2001 and 2000 fiscal years.

                                                      2001             2000
                                                      ----             ----
                                                (in thousands, except per share)

            Net sales                           $      3,711      $      2,481
            Gross profit                               1,433             1,357
            Net (loss) income                           (959)               11
            Earnings (loss) income per
              common share                             (0.29)             0.01

          The above  amounts are based upon certain  assumptions  and  estimates
          which the  Company  believes  are  reasonable,  and do not reflect any
          benefit  from   economies   which  might  be  achieved  from  combined
          operations. The pro-forma results do not necessarily represent results
          which would have  occurred if the  acquisition  had taken place on the
          basis assumed above,  nor are they indicative of the results of future
          combined operations.









                                      F-16
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 3 -  FURNITURE AND EQUPMENT

          A summary at December 31, 2001 is as follows:

            Furniture and equipment                              $       43,157
            Computer equipment                                           42,058
            Vehicles held under capital leases                           50,000
            Leasehold improvements                                       70,644
                                                                 --------------

                                                                        205,859
            Less accumulated depreciation, including $1,389
              for vehicles held under capital leases                      8,119
                                                                 --------------

                                                                 $      197,740
                                                                 ==============

          Depreciation  expense charged to operations  totaled $8,028 (including
          $1,389 for vehicles held under capital lease  obligations) and $91 for
          the years ended December 31, 2001 and 2000, respectively.

NOTE 4 -  INVESTMENT IN EQUITY SECURITIES

          In September  2001 and October 2001, the Company  purchased  8,753,797
          shares   (approximately   24.3%)  of  common  stock  of  Biofarm  S.A.
          ("Biofarm"),  a listed  company on the  Romanian  Stock  Exchange,  in
          exchange  for  1,700,000   shares  of  the  Company's   common  stock.
          Subsequently,  Biofarm issued new shares by incorporating  revaluation
          reserves which were calculated in accordance with Romanian  accounting
          law.  As a result,  the total  number of shares  owned by the  Company
          increased from 8,753,797  shares to 14,432,064  shares.  The Company's
          underlying equity in net assets as reported by Biofarm at December 31,
          2001 was approximately $1,765,000.

          The  difference  between the Company's  reported  equity and Biofarm's
          underlying equity is principally due to the accounting treatment given
          to the Company's original investment in Biofarm. This was accomplished
          by an  exchange  of common  stock  between  the  Company and its major
          shareholder.  The Company's basis in the transferred  stock became the
          basis in the  Biofarm  common  stock,  which was less  than  Biofarm's
          underlying  equity. At December 31, 2001, the closing price of Biofarm
          common  stock was  approximately  $0.065  per share,  resulting  in an
          aggregate  market value for the Company's  investment of approximately
          $938,000.




                                      F-17
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 4 - INVESTMENT IN EQUITY SECURITIES (CONTINUED)

          The  following  represents  selected  financial  information  from the
          audited  financial  statements  of  Biofarm.  All amounts are shown in
          thousands.

                Total assets                               $           8,224
                                                           =================
                Total liabilities                          $             971
                                                           =================
                Net income                                 $           1,397
                                                           =================

NOTE 5 -  INTANGIBLE ASSETS

          A summary at December 31, 2001 is as follows:

                Patents                                    $       3,300,000
                Formulas                                             680,000
                Agreements not-to-compete                            390,000
                Excess of cost over fair value of net
                  assets acquired                                    286,546
                Website development                                   77,289
                                                           -----------------

                                                                   4,733,835
                Less accumulated amortization                         26,289
                                                           -----------------
                                                           $       4,707,546
                                                           =================

          Estimated amortization expense for the years ending December 31, 2002,
          2003, 2004, 2005 and 2006 is $192,000, $192,000, $179,777, $45,333 and
          $45,333, respectively. Amortization expense totaled $24,865 and $1,424
          for the years ended December 31, 2001 and 2000, respectively.

          Agreements Not-to-Compete
          -------------------------
          Pursuant to the stock purchase and share exchange  agreement (Note 2),
          certain  shareholders  of the  Company  entered  into  non-competition
          agreements.  The agreements have been recorded at fair market value at
          the date of purchase as valued by an unrelated  party.  The agreements
          are amortized on a straight-line  basis over their estimated  economic
          lives of 3 years.



                                      F-18
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 5 -  INTANGIBLE ASSETS (CONTINUED)

          Excess of cost over fair value of net assets acquire
          ----------------------------------------------------
          Excess of cost over fair value of net assets acquired arising from the
          acquisition  of XCEL and  BioSelect  (Note 2) include  amounts paid to
          consultants  for  services  provided  relating to the  purchase of the
          companies.  Excess of cost over fair value of net assets acquired will
          be amortized pursuant to SFAS No. 142.

          Website Development
          -------------------
          The Company capitalizes certain software  development costs, which are
          amortized  using the  straight-line  method over the estimated  useful
          lives of the software, not to exceed three years.

NOTE 6 -  SEGMENT INFORMATION

          The Company has three business units that have separate management and
          reporting  infrastructures that offer different products and services.
          The  business  units  have  been  aggregated  into  three   reportable
          segments: Corporate, Pharmaceutical, and Research and Development. The
          Corporate  group is the holding company and oversees the operations of
          the other business units. The Corporate group also arranges  financing
          and strategic guidance for the entire organization. The Pharmaceutical
          group provides in-home pharmaceutical products,  primarily in Southern
          California.  The Research and  Development  group develops  future and
          present  products  in  the  fields  of  drug  delivery,  vitamins  and
          minerals, and cosmetic  pharmaceuticals.

          The  accounting  policies  of the  segments  are  the  same  as  those
          described in the summary of significant  accounting policies (Note 1).
          The Company has no intersegment  sales for the year ended December 31,
          2001. The Company's  reportable  segments are strategic business units
          that  offer  different   products  and  services.   They  are  managed
          separately  because each business  requires  different  technology and
          marketing  strategies.  The Company  evaluates the  performance of its
          operating  segments  based on income from  operations,  before  income
          taxes, accounting changes, non-recurring items and interest income and
          expense.






                                      F-19
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 6 -  SEGMENT INFORMATION (CONTINUED)

          Summarized financial  information  concerning the Company's reportable
          segments is shown in the following  table for the year ended  December
          31, 2001:

<TABLE>
<CAPTION>
                                                                             Research and
                                               Corporate    Pharmaceutical    Development   Consolidated
                                             ------------   --------------   ------------   ------------
          <S>                                  <C>           <C>              <C>            <C>
          Revenue                             $          -   $     341,813    $          -   $    341,813
          Operating Loss                      $    688,925   $      25,885    $     20,286   $    735,096
          Depreciation and amortization       $     10,550   $      22,343    $          -   $     32,893
          Interest expense, net               $      1,146   $       3,300    $          -   $      4,446
          Identifiable Assets                 $  1,125,791   $   1,843,405    $  3,300,000   $  6,269,196
</TABLE>

NOTE 7 -  LINE OF CREDIT

          The Company may borrow up to $75,000 under a revolving  line of credit
          agreement,  which has an automatic  annual renewal,  expiring in March
          2003.  Interest is payable at 2.5% above the prime  interest  rate. At
          December  31,  2001,  the  interest  rate was 7.5%.  The  agreement is
          guaranteed by certain  stockholders of the Company.  Interest  expense
          totaled $491 for the year ended December 31, 2001.

NOTE 8 -  NOTES PAYABLE

          A summary is as follows:

           Note payable,  bank, interest at the banks'
             reference rate with a floor of 5.5%,  currently
             5.5% per annum,  secured by a savings account
             owned by a stockholder of the Company, due November
             2002                                                   $   160,000

           Note payable, individual, interest at 10% per annum,
             unsecured, due October 2002                                 61,146

           Note payable, individual, interest at 10% per annum,
             unsecured, due March 2003                                   55,000

           Note payable, individual, interest at 12% per annum,
             unsecured, due May 2002                                     55,000

           Notes payable, individuals, interest at 10% per
             annum, secured by second trust deeds on the homes
             of certain  stockholders of the Company, due June
             2000, the note holders have not demanded payment
             as of December 31, 2001                                     45,000

                                      F-20
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

 NOTE 8 - NOTES PAYABLE (CONTINUED)

           Note payable, individual, interest at 10% per annum,
             unsecured, due September 2003                               20,000

           Note payable, individual, interest at 10% per annum,
             unsecured, due on demand                                    16,620

           Note payable, individual, interest at 19% per annum,
             unsecured, due October 2002                                  9,630

           Note payable, individual, interest at 12% per annum,
             unsecured, due on demand                                     6,000
                                                                    -----------

                                                                        428,396
           Less current maturities                                      408,396
                                                                    -----------
                                                                    $    20,000
                                                                    ===========

          The following is a summary of the principal  amounts  payable over the
          next two years:

               2002                                                 $   408,396
               2003                                                      20,000
                                                                    -----------

                                                                    $   428,396
                                                                    ===========

          Interest  expense totaled $3,658 for the year ended December 31, 2001.
          The Company had no interest  expense for the year ended  December  31,
          2000.










                                      F-21
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 9 - OBLIGATIONS UNDER CAPITALIZED LEASES

          In December 2001, the Company incurred  capital lease  obligations for
          vehicles.  Aggregate  monthly  payments of $1,845,  including  average
          interest at 11.2% per annum,  are due through  various dates  expiring
          December  2003  through  March  2004,  and are  secured by the related
          vehicles.  Interest  expense  totaled $390 for the year ended December
          31, 2001.

          The following is a summary of the principal  amounts  payable over the
          next three years:

            Years ending
            December 31,
            ------------
            2002                                                 $       22,143
            2003                                                         22,143
            2004                                                          1,061
                                                                 --------------

            Total minimum lease payments                                 45,347
            Less amount representing interest                             4,977
                                                                 --------------
            Present value of net minimum lease payments                  40,370
                     Less current maturities                             18,229
                                                                 --------------

                                                                 $       22,141
                                                                 ==============

NOTE 10 - EMPLOYEE BENEFIT PLANS

          XCEL, a wholly owned  subsidiary of the Company,  sponsors an employee
          benefit plan, pursuant to Section 401(k) of the Internal Revenue Code,
          whereby participants may contribute a percentage of compensation,  but
          not in excess of the maximum  allowed under the Code.  The plan allows
          the Company to make  matching  contribution  at the  discretion of the
          Board of Directors. The Company did not provide matching contributions
          for 2001.

          XCEL  also  has  a  qualified,  noncontributory  profit  sharing  plan
          covering full-time  employees of XCEL who have at least 1,000 hours of
          service and are not covered under a collective  bargaining  agreement.
          The plan provides for contributions of 3% of eligible salaries for all
          eligible  employees.  There was no profit sharing  expense  charged to
          operations for the years ended December 31, 2001.


                                      F-22
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 11 - COMMON STOCK

          Common stock
          ------------
          In February  2001, the Company sold 499,450 shares of its common stock
          at $0.25  per share  from an  initial  public  offering,  raising  net
          proceeds of approximately $125,000.

          In February 2001, the Company issued 20,000 shares of its common stock
          in  exchange  for a note  payable in the amount of $5,000 or $0.25 per
          share. The note holder agreed to waive any interest earned thereon.

          In July 2001, the Company issued 475,000 shares of its common stock to
          a consultant  in exchange for public and financial  relation  services
          valued at $118,750 or $0.25 per share (Note 14).

          In July 2001, the Company issued 1,000,000 shares of its common stock,
          valued at $250,000 or $0.25 per share, to its officers as compensation
          in exchange for  services  rendered for the period from August 1, 2001
          through July 31, 2002.  At December  2001,  approximately  $146,000 of
          this  amount  was  unearned  and has been  included  in  stockholders'
          equity.

          In  September  2001 and October  2001,  the Company  issued  1,700,000
          shares of its  common  stock in  exchange  for shares of  Biofarm,  SA
          valued at approximately $698,000 or $2.44 per share (Note 4).

          In September  2001, a consultant  exercised  250,000  stock options to
          purchase  common  stock at an exercise  price of $0.25 per share.  The
          exercise generated proceeds of $62,500.

          In September  2001,  consultants  exercised  630,000  stock options to
          purchase  common  stock.  The  consultants  exercised the options on a
          "cashless"  basis and as a result  were issued  563,366  shares of the
          Company's common stock. Subsequently,  385,132 shares of the Company's
          common stock was returned by the consultants and cancelled (Note 13).

          In December  2001,  the Company  issued  964,000  shares of its common
          stock in  exchange  for 100% of the issued and  outstanding  shares of
          XCEL  Healthcare,  Inc.  and  BioSelect  Innovations,  Inc.  valued at
          approximately $4,400,000 or $4.56 per share (Note 2).

          In December 2001, the Company issued 12,000 shares of its common stock
          in  exchange   for  services   provided  to  the  Company   valued  at
          approximately $55,000 or $4.56 per share.



                                      F-23
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 12 - INCOME TAXES

          For Federal income tax return purposes,  the Company has available net
          operating loss  carry-forwards of approximately  $770,000 which expire
          through  2021  and  are   available  to  offset   future   income  tax
          liabilities.

          Temporary  differences  which  give rise to  deferred  tax  assets and
          liabilities at December 31, 2001 are as follows:

               Deferred tax asset arising from net
                 operating loss carry forwards                $        308,000
               Valuation allowance                                    (308,000)
                                                              ----------------

                         Net deferred tax asset               $              -
                                                              ================

          The  reconciliation  of the  effective  income tax rate to the Federal
          statutory rate is as follows for the years ended December 31, 2001 and
          2000:

                                                      December 31,  December 31,
                                                          2001          2000
                                                      ------------  ------------

            Federal and state income tax rate            (34.0)%       (34.0)%
            State income taxes, net federal benefit       (6.0)%        (6.0)%
            Effect of valuation allowance                 40.0 %        40.0 %
                                                      ------------  ------------
            Effective income tax rate                      0.0 %         0.0 %
                                                      ===========   ===========


NOTE 13 - STOCK OPTIONS

          The Company has adopted the 2001 Equity  Incentive  Plan (the "Plan").
          The Plan  authorizes  the  issuance of up to  2,000,000  shares of the
          Company's  common stock  pursuant to the  exercise of options  granted
          thereunder.  The Board of  Directors  administers  the  Plan,  selects
          recipients  to whom options are granted and  determines  the number of
          shares to be awarded.  Options  granted under the Plan are exercisable
          at a price  determined by the Board of Directors at the time of grant,
          but in no event less than fair market value.



                                      F-24
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 13 - STOCK OPTIONS (CONTINUED)

          Non-employee options
          --------------------
          In August 2001, the Company granted options,  as included in the table
          below, to purchase  880,000 shares of the Company's common stock at an
          exercise  price of $0.25 per  share,  exercisable  for a period of one
          year. The options were issued in exchange for  consulting  services to
          be provided to the Company  over a one-year  period.  The value of the
          options totaled $148,404 at the date of grant using the  Black-Scholes
          option  pricing  model  with  the  following  assumptions:   risk-free
          interest rate of 3.57%; dividend yield of 0%; volatility factor of the
          expected market price of the Company's  common stock of 194%; and term
          of 1 year.  All of the options were  exercised in September  2001.  In
          March  2002 and  April  2002,  the  Company  entered  into  rescission
          agreements with three of the consultants.  Pursuant to the agreements,
          common stock issued to the consultants  totaling 385,132 shares of the
          Company's  common  stock were  returned  to the Company and the shares
          were retired (Note 11).

          The average remaining life of the outstanding options is approximately
          nine years. The number and weighted average exercise prices of options
          granted  under the Plan,  for the year ended  December 31, 2001 are as
          follows:

                                                                   2001
                                                           ---------------------
                                                                         Average
                                                                        Exercise
                                                             Number       Price
                                                           ----------   --------
           Outstanding at beginning of the year                     -    $    -
           Granted during the year                          1,380,000      0.25
           Exercised during the year                          880,000      0.25
                                                           ----------
           Outstanding and exercisable at end of
            the year                                          500,000      0.25
                                                           ==========

          The Company has elected to follow Accounting  Principles Board Opinion
          No. 25,  "Accounting  for Stock Issued to Employees"  (APB No. 25) and
          related  interpretations  in accounting for its employee stock options
          because the alternative fair value accounting  provided for under FASB
          Statement No. 123, "Accounting for Stock-Based Compensation," requires
          use of option  valuation  models  that were not  developed  for use in
          valuing employee stock options. Under APB No. 25, because the exercise
          price of the Company's  employee stock options equals the market price
          of the underlying stock on the date of grant, no compensation  expense
          is recognized.

                                      F-25
<PAGE>

                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 13 - STOCK OPTIONS (CONTINUED)

          Pro forma  information  regarding the effect on operations is required
          by SFAS 123, and has been  determined  as if the Company had accounted
          for its  employee  stock  options  under the fair value method of that
          statement. Pro forma information using the Black-Scholes method at the
          date of grant based on the following  assumptions:  risk free interest
          rate of 3.57%; dividend yield of 0%; volatility factor of the expected
          market price of the Company's common stock of 194%; term of 1 year.

          This  option  valuation  model  requires  input of  highly  subjective
          assumptions.   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 of  estimate,  in  management's  opinion,  the
          existing model does not necessarily  provide a reliable single measure
          of fair value of its employee stock options.

          For purposes of FASB 123 pro forma  disclosures,  the  estimated  fair
          value of the options is amortized to expense over the option's vesting
          period. The Company's pro forma information is as follows:

                                                               December 31, 2001
                                                               -----------------
              Net loss, as reported                            $      (735,096)
              Pro forma net loss                               $      (819,415)

              Basic and diluted historical loss per share      $          (.22)
              Pro forma basic and diluted loss per share       $          (.25)

NOTE 14 - COMMITMENTS AND CONTINGENCIES

         Leases
         ------
         The Company leases its office facilities under various lease agreements
         expiring  through July 2004.  Rental  expense  under  operating  leases
         totaled $15,751 for the year ended December 31, 2001. There was no rent
         expense for the year ended  December 31, 2000. As of December 31, 2001,
         future minimum rental payments  required under operating  leases are as
         follows:

               Year ending December 31,
                  2002                                       $          48,832
                  2003                                                  36,832
                  2004                                                  20,772
                                                             -----------------

                                                             $         106,436
                                                             =================


                                      F-26
<PAGE>
                                    HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

          Employment Agreements
          ---------------------
          In December 31, 2001, the Company entered into  employment  agreements
          with three stockholders of the Company to pay an annual base salary of
          $125,000,  $125,000 and $85,000 through  December 2004. The agreements
          include  provisions  for salary  increases  and stock options based on
          earnings growth the Company may achieve.

          Under this agreement,  salaries totaled  approximately $28,000 for the
          year ended December 31, 2001.

          Consulting Agreements

          In July 2001, the Company entered into a consulting  agreement with an
          unrelated party for public and financial  relations for the nine month
          period ending May 3, 2002 valued at approximately $461,000 in exchange
          for shares of the Company's  common stock.  At December 31, 2001,  the
          Company  issued  475,000 shares of its common stock valued at $118,750
          (Note 11) and accrued  approximately  $132,000 for services  performed
          which  will be paid in 2002 with  additional  shares of the  Company's
          common stock.

NOTE 15 - SUBSEQUENT EVENTS

          Employment Agreements
          ---------------------
          Effective  January  1,  2002,  the  Company  entered  into  employment
          agreements  with  officers of the Company to pay an annual base salary
          of $190,000 plus cash bonuses based on key milestone's the Company may
          achieve.  The  agreements  expire on December 31, 2005.  To date,  the
          officers have deferred payment on such compensation.

          Stock Options
          -------------
          In March 2002 and April 2002,  the  Company  entered  into  rescission
          agreements with three  consultants  upon the termination of respective
          consulting agreements. Pursuant to the agreements, common stock issued
          to the  consultants  totaling  385,132 shares of the Company's  common
          stock were  returned to the  Company and the shares were  subsequently
          retired.

          In March 2002 and April 2002, the Company  granted options to purchase
          a total of  105,000  shares of its  common  stock at  exercise  prices
          ranging  from $1.25 to $3.10 per share in  consideration  for services
          provided to the Company. Certain options are subject to vesting.

          Loans payable - officers/stockholders
          -------------------------------------
          Two  officers/stockholders  loaned a total of  $140,000 to the Company
          through April 15, 2002.  These loans accrue  interest at 8% per annum.
          The principal and any unpaid interest is due on demand.

                                      F-27