<PAGE>   1
                    U. S. 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 the fiscal year ended December 31, 2000

                           Commission File No. 0-28137


                                 MICROBEST, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

          MINNESOTA                                          41-1864003
------------------------------                            -------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            identification No.)



     751 PARK OF COMMERCE DRIVE, SUITE # 122 BOCA RATON, FLORIDA 33487-3623
     ----------------------------------------------------------------------
                    (Address of principal executive offices)

                    Issuer's telephone number (561) 995-9770

          Securities registered under Section 12(b) of the Exchange Act

                                      None

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

                         COMMON STOCK, $.001 PAR VALUE
                         -----------------------------
                                (Title of Class)

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

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

The issuer's revenues for the fiscal year ended December 31, 2000 were $642,937.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
were sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. On December 31, 2000 the aggregate
market value of all common equity held by non-affiliates was $5,557,980.

Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

As of December 31, 2000, there were 32,694,085 shares of common stock issued and
outstanding.


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                FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2000


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                PAGE
                                                                                ----
<S>           <C>                                                                 <C>
PART I

         Item 1.   Description of Business                                        3
         Item 2.   Description of Property                                        7
         Item 3.   Legal Proceedings                                              8
         Item 4.   Submission of Matters to a Vote of Security Holders            9

PART II

         Item 5.  Market for Common Equity and Related Shareholder Matters        9
         Item 6.  Management's Discussion and Analysis of Financial Condition
                       and Results of Operations                                 12
         Item 7.  Financial Statements                                           16
         Item 8.  Changes In and Disagreements with Accountants on accounting
                       and financial disclosure                                  16

PART III

         Item 9.  Directors, Executive Officers, Promoters and Control
                         Persons; Compliance with Section 16(a) of
                         the Exchange Act                                        17
         Item 10. Executive Compensation                                         18
         Item 11. Security Ownership of Certain Beneficial Owners
                         and Management                                          19
         Item 12. Certain Relationships and Related Transactions                 19
         Item 13. Exhibits and Reports on Form 8-K                               20


SIGNATURES                                                                       21

EXHIBITS

</TABLE>

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

MISSION STATEMENT

Microbest develops cleaning products through applied biotechnology that are
effective, environmentally responsible and user-safe. Microbest's successful
application of fundamental biological processes, such as the natural
decomposition of organic wastes by harmless bacteria found in soil systems, has
led to the development of its highly effective BioCleansing Systems(R). Through
this breakthrough in applied biotechnology, cleaning more effectively,
responsibly and safely than ever before is now a reality. This technology, while
providing benefits management believes have never before been achieved, is
clearly the solution to the cleaning and disposal of waste grease/oil and
organic materials throughout the waste water stream, from the source on floors
and industrial surfaces to the improvement of processing efficiencies at waste
water treatment facilities.

CONCEPT

Microbest makes and markets its innovative, biologically based cleaning
products, named BioCleansing(R) Systems, for the domestic institutional
(including hospitality, health care, education and government markets) and
industrial (including manufacturing, food processing, transportation, refining
and waste treatment) cleaning products industry, representing combined markets
estimated to be $5 billion annually based on management's review of industry
trend data. The growing awareness of environmental pressures, manifested by
tightening government restrictions and regulations such as the Presidential
Executive order 13101 mandating the use of "environmentally preferable" products
by all sectors of the government, has added additional focus on the features and
benefits of Microbest's innovative products.

Initial development focused on grease trap remediation in restaurants. It was
quickly found that the desired biological process resulting in the reduction of
collected fats and greases by the digestive action of selected bacterial
cultures was hampered by the daily usage and disposal of the restaurant's
caustic floor and hard surface cleaning products. The benefit of creating
alternative cleaning products that would support the biological process, not
hinder it, drove further development. The Microbest BioCleansing Systems(R)
emerged as powerful, high performance, cost effective, environmentally safe
cleaning systems that outperform traditional floor and hard surface cleaners in
foodservice, industrial, institutional, and commercial applications.

Microbest BioCleansing Systems(R) feature all the elements that are popular
among users of industrial cleaners and include features such as pre-portioned
packaging, high-tech dispensing of bulk concentrate and advanced
biodegradability. In addition, the products are designed to be more responsible
and safer for the marketplace, targeting current users of industrial grade
cleaners who are concerned about the environment and risk management issues
relating to employee slip-fall accidents as well as those looking for powerful,
cost effective, efficient means of waste grease/oil removal and odor abatement.

BACKGROUND

Michael J. Troup, the inventor/innovator responsible for the BioCleansing
Systems(R), introduced the proprietary products in 1993 after initial research,
development, and evaluation. Although early testing focused on grease trap
remediation, successive development resulted in the expansion of the Microbest
product line, customer base, and market. The business goals evolved to focus on
creating more effective and more responsible alternative cleaning products for
floors and hard surfaces, which additionally support the biological process of
remediation, producing substantial reductions in waste volumes.

The business was started as Microbest Products, Inc., a Florida corporation that
was incorporated on January 1, 1993, and subsequently merged into Microbest,
Inc., a Minnesota corporation on April 17, 1997. Microbest, Inc. had been
incorporated on December 3, 1996, as Emerald Shade, Inc. Microbest's common
stock commenced public trading in May 1997 and was approved for trading on the
OTC/BB in April 1998.



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The trademark registration of the Microbest name and logo design was approved in
1994 (Registration # 1,862,215). Registration of "BioCleansing Systems(R)"
occurred in 1997.

The Company is highly dependent upon the efforts and abilities of Mr. Troup, its
Chief Executive Officer and Chairman. As founder of the Company, he continues to
be the person most responsible for the development of the Microbest product line
and market focus.

Mr. Troup holds both a B.S. in Psychology, with minors in chemistry and biology,
and an M.A. in Educational Psychology from the University of Toledo. He spent
five years as an educator, four years as a corporate technical sales executive
and 19 years as an entrepreneur in the areas of commercial real estate
brokerage, development, construction and building products sales. The
experiences he developed from these fields as a trainer, team manager and
product developer are invaluable components of the contributions he has made to
Microbest to date.

PRODUCTS

 In the opinion of management Microbest's proprietary BioCleansing Systems(R)
provide the most effective and cost-saving approach to floor and hard surface
cleaning that exists in the present market. By comparison, traditional cleaners
are obsolete. This unique system provides biological alternatives to traditional
harsh and ineffective chemicals while protecting the user's employees,
clientele, physical assets and our environment. This revolutionary technology
produces powerful, top-quality cleaning products that are environmentally safe
yet deliver a wide range of fully guaranteed benefits beyond cleaning itself,
including substantial reduction in slip-fall occurrences and the elimination of
odors.

BIOCLEANSING SYSTEMS(R) BY MICROBEST(R), INC.

Biologically enhanced, powerful cleaning and remediation Systems designed to
eliminate food service and industrially generated fats, greases and waste oils
resulting in grease-free, odor free areas, slip resistant floor surfaces,
trouble-free drain lines and reductions in grease trap pumping. Environmental
and user-safe components replace traditional harsh, caustic cleaning products;
are biodegradable, safe and effective; Presidential Executive order 13101
compliant as "Environmentally Preferable".

FLOORWASH(TM)                                   OSHA: HMIS RATING of "0" IN USE

         Highly concentrated (160:1) liquid cleanser together with selected
microbial cultures generates powerful no-rinse, slip-resistant floor cleaner
that keeps drain lines open and reduces grease trap pumping. Continuous
microbial action cleans and maintains grout lines. Eliminates sour mop heads.
Biodegradable, non-caustic, available in portion pouches or bulk for dispensing
systems. Applications include kitchens and associated areas, restrooms (degrades
urine: eliminating odors).

MULTIPURPOSE CLEANER/DEGREASER                  OSHA: HMIS RATING OF "0" IN USE

         Replaces butyl and caustic degreasers while supporting BioCleansing
System(R) overall effectiveness. General purpose liquid cleaner (27:1),
biodegradable, non-caustic, available in portion pouches or bulk for dispensing
systems.

GLASS & SURFACE CLEANER                         OSHA: HMIS RATING OF "0" IN USE

         Ammonia free, non-scented cleaner that excels on stainless steel,
Plexiglas, counters and table tops, glass and other hard surfaces at dilution
ratio of 32:1. Supports BioCleansing System(R), biodegradable, non-caustic and
available in portion pouches or bulk for dispensing systems.

BIODEODORIZER(TM)                               OSHA: HMIS RATING of "0" IN USE

         Powerful blend of microbial cultures degrades the source of odors
without "masking". At 4:1, BioDeodorizer treats garbage areas, drains,
bathrooms, bar areas, carpets, tile, upholstery. Digests proteins, urine, feces,
vomit. Supports BioCleansing System(R), biodegradable, non-caustic, available in
quarts or bulk for dispensing systems.


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IBC INDUSTRIAL BIOCLEANSER(TM)                  OSHA: HMIS RATING OF "0" IN USE

         Concentrated (40:1 for routine; 32:1 for heavy soil applications)
liquid BioCleanser(TM) together with selected microbial cultures (MHD) generates
powerful cleaner for floors, walls and equipment in and around industrial
facilities where oil, grease, and petroleum waste is a problem. No rinse, slip
resistant for floors. Excellent for floor scrubber machines. Biodegradable,
non-caustic, non-corrosive, eliminates "oil dry" for incidental oil spills,
available in bulk for dispensing systems.

Listed below are the relative contributions to sales for each of the products
for the two years 1999 and 2000:

  FloorWash (90% of sales)                 BioDeodorizer (*% of sales)
  IBC Industrial Biocleanser (*% of sales) Surface & Glass Cleaner (*% of sales)
  MultiPurpose Degreaser (*% of sales)
         * Less than 5%

All products are manufactured for Microbest by third parties under protective
agreements according to Microbest's proprietary specifications and in compliance
with government regulations and guidelines. Biological components are produced
for the Company by one vendor in its ISO 9000 facility with strict adherence to
prevailing USDA Laboratory Guidelines. In addition to conventional bulk
packaging for dilution and dispensing systems, the Microbest product line
utilizes new, convenient, pre-portioned pouch packaging designed for easy use,
enhanced control and less packaging materials. Pouches are also an effective
sampling vehicle.

MARKET

The current industrial and institutional cleaning market is fractionated,
comprised of multiple suppliers, various channels of distribution, and a wide
range of end-users. Microbest is focused on the spectrum of foodservice and
industrial opportunities where cleanliness and risk management are critical and
waste grease and oil residue is a problem.

The majority of cleaning products companies tries to compete on price or
service, rather than focusing on quality. In addition to cleaning, continued
tightening of government restrictions and regulations regarding waste disposal
provides for new sub-markets within the cleaning industry, creating what is
virtually an untapped opportunity for effective and economical biological
cleaning alternatives that reduce waste volumes.

With pricing integral to driving the business, the pricing strategy is to
deliver to the marketplace not only the substantial benefits of the BioCleansing
Systems(R) but also aggressive, competitive pricing. Cost-effective
manufacturing and low company overhead support this pricing strategy as volumes
increase. As current sales continue to expand to match anticipated volumes on
which initial pricing strategies were based, the Company is moving successfully
toward achieving its projected cost effectiveness. Pricing itself is further
enhanced by the range of additional benefits delivered by the BioCleansing
Systems(R), such as reduction in slip-fall accidents, elimination of tile and
grout erosion, and elimination of odors.

Marketplace experience shows that once the product is used, loyalty and
repurchase are reinforced through the recognition of obtaining high quality at a
competitive price together with significant labor reduction and savings achieved
in the other areas identified above.

MARKETING AND SALES

Microbest is focused on aggressive sales expansion through direct sales to
regional chains, national accounts and government agencies. Sales through
distributors are supported by corporate sales staff together with national
coverage provided by over 40 manufacturer's reps.



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The innovative Microbest "Distributor Pull-Through Program" approaches
distributor sales growth by "pulling" products through distribution with faxing,
sampling and phone sales to obtain initial orders direct by Microbest staff to
the distributors' customers on behalf of the distributor. The "Pull-Through
Program" is designed to increase the distributor `s direct sales to his
customers initially with subsequent increased reorders from the distributor to
Microbest.

Expansion of the existing MICROBEST.NET web site, when completed, will enable
interactive distributor support and training as well as e-commerce for on-line
purchasing.

With over 100 stocking distributors in place, national presence is supported by
conventional wholesaler systems in foodservice, janitorial/sanitation,
paper/chemical, and industrial markets. While Microbest has sales agency
agreements with ten independent manufacturer's representatives, the Company does
not consider any one of these to be material contracts.

End-users consist of major national chain and franchisee restaurant groups,
regional restaurant chains, independent restaurants, hotels, school systems,
universities, US military, health care facilities, salons, contract cleaning
companies, machine shops, industrial facilities and municipal wastewater
treatment systems. Encouraged by the success of its initial market penetration
in the food service industry, the Company is marketing to industrial factories
where hydrocarbon oil and grease are a problem, auto repair and maintenance
facilities, including auto dealers, USDA food processing facilities, and the pet
industry.

Recent restructuring in the USDA and the elimination of its "product
authorization program" opens the food processing market to the BioCleansing
Systems(R). Second generation product development will see movement into such
areas as waste water treatment products, residential septic tank treatments,
gray water treatment for ships, boats and motor homes, diesel boat bilge
treatment and odor control and cleaning products for the veterinarian market.

COMPETITION

Microbest competes with large and small companies engaged in the development,
marketing and sales of cleaning products. Many of these competitors have
significant financial, research and development, marketing and sales resources.
These competitors include companies such as Ecolab, S. C. Johnson, Spartan
Chemical as well as distributors who private label competitor products such as
Sysco Corp., Alliant Foodservice, Inc. and Gordon Food Service. The Company is
not aware of any competitor that markets biologically-based cleaning products
similar to the Company's products.

Microbest believes that its ability to compete effectively with these
competitors will depend on (1) the talents and abilities of Mr. Troup and his
management team, (2) its ability to develop and maintain strategic relationships
within the industries that will have a strong demand for its unique
biologically-based cleaning products, and (3) its ability to establish strong
consumer preference for the use of the Company's cleaning products.

REGULATION

The Company knows of no current or pending forms of regulation, legislation or
laws intended to prohibit or limit the application of its technology, products
or any of the components inherent in its formulations.

The Microbest BioCleansing Systems(R) bring users of the Systems into compliance
with hazardous materials regulations and environmental laws.

PATENT/PROPRIETARY PRODUCT PROTECTION

The Company's existing proprietary product line is not protected under U.S. or
foreign patents. The Company relies on proprietary trade secrets and
confidentiality agreements to protect the formulae of its products. This
strategy was embraced to eliminate formulation disclosure under patent
application and the potential expense of patent defense in the courts. While
"reverse engineering" is a possibility, after six years the Company's products
have not been duplicated. Several formidable competitors have shown an interest



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in having the Microbest product line available to them on a licensed or private
label basis, however no such arrangements have been consummated nor are any
presently pending.

The Company believes that its existing products do not infringe upon the
intellectual property rights of any other person or entity.

SOURCE, MANUFACTURE AND AVAILABILITY OF PRODUCTS

The Company out-sources the majority of its manufacturing and fulfillment
services. This strategy has been very successful to date in providing
flexibility to service markets from a variety of locations while eliminating the
capital expenditures and fixed overhead required in maintaining additional
Company operated locations.

Microbest has relationships with three major vendors with which it has
non-compete/non-disclosure agreements and that it considers significant to the
production of its products. One of these blends the Company's cleaning
solutions, at its plant in Dallas, TX, in accordance with formuli provided by
the Company another produces the Company's microbial products at its ISO 9000
facility in Houston, TX from formulae provided by the Company and a third
packages the Company's products in pouches at its plant in Atlanta, GA. While
each of these vendors is material to the production of the Company's product,
management of the Company is familiar with other vendors which are capable of
providing the same service without any serious disruption of production and does
not consider any of these to be strategic relationships. The Company has not
experienced any significant delays from any of these vendors since it has been
doing business with them.

EMPLOYEES

As of December 31, 2000, the company employed 7 full time employees and 3 part
time employees. The Company believes it has satisfactory relations with its
employees.

BANKRUPTCY

In June, 2000 - Microbest, Inc., filed for bankruptcy protection under the
provisions of Chapter 11 to protect the shareholders, vendors, employees and
customers from two former insiders (Raymond A. Evans & Simon M. Mundlak,
hereinafter SIMRAY)) who made a hostile attempt to acquire the assets of the
Company to satisfy a judgment they received as a result of a settlement
negotiated in 1998.

Late in May 2000, the Company was involved in good faith negotiations with
SIMRAY to resolve the issue, when SIMRAY took separate aggressive maneuvers to
take control of the Company's bank accounts and all of its physical assets. The
Company moved quickly to protect its assets and filed the bankruptcy petition on
June 1, 2000.

At the time of this hostile maneuver the Company was negotiating a $2.5 million
financing commitment with a Wall Street investment banking firm with which it
has had a relationship for several years. These negotiations were terminated as
a result of the bankruptcy filing.

In August 2000, the reached a new settlement with SIMRAY. After executing the
settlement agreement the Company applied for and was granted dismissal from the
Bankruptcy. See Part I, Item 3. Legal Proceedings for a description of the
SIMRAY matter.

ITEM 2. DESCRIPTION OF PROPERTY

All of the operations of the Company are conducted from premises leased from
unaffiliated landlords.

Pursuant to a lease agreement with Triad Properties, the company leases
approximately 3,000 square feet of usable space located at 751 Park of Commerce
Drive, Suite 122, Boca Raton, Florida as its principal executive offices, as
well as marketing, administration and product development facilities. The lease



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runs through March 2003, with annual rental of approximately $26,000. This is a
modern CBS and Steel, class B building in a major Boca Raton office park, with
2500 square feet of office space and a 500 square foot warehouse.

The company also leased approximately 2,400 square of usable space under a
short-term rental agreement at 4301 Oak Circle Drive, Boca Raton, Florida. This
facility was used as a temporary warehouse and distribution facility at a
monthly rental of $1,696. This is a CBS and steel warehouse, with 500 square
feet of office space in a strategically located industrial section of Boca
Raton, convenient to transportation. The Company vacated these premises on March
1, 2000 as an economy measure and consolidated the functions previously
performed there with a vendor that does fulfillment for the Company.

The company considers its current leased facility adequate for its operations.
In the event its lease was terminated or not renewed, management believes
adequate alternative space is readily available under comparable terms and
conditions.

ITEM 3. LEGAL PROCEEDINGS

THE CIOFFI MATTER

This is an action pending before the American Arbitration Association, which was
filed in 1999 by Microbest, Inc.'s former President, Patrick Cioffi, Jr.
(Cioffi).

Cioffi was hired as Microbest's President in November 1997 and the parties
entered into an Employment Agreement in June 1998. The Employment Agreement
allows termination for cause based on a "breach of fiduciary duty, permanent
disability, conviction of a felony or crime involving moral turpitude or
dishonesty, or such other conduct which holds Mircobest up to public ridicule."
Microbest terminated Cioffi's employment for cause in December 1998. It is now
known that:

         1. Cioffi misrepresented his educational background and professional
            credential,

         2. A complaint was made that Cioffi sexually harassed a female
            employee,

         3. Cioffi gave himself an unauthorized salary increase,

         4. Cioffi inappropriately received undisclosed payments from a vendor,
            and

         5. Cioffi provided false information regarding the financial status of
            the Company to the Board of Directors.

Cioffi's seven-count Demand for Arbitration raises allegations against Microbest
and its CEO, Michael Troup ("Troup") for breach of contract, breach of implied
covenant of good faith and fair dealing, fraud in the inducement, unpaid wages,
Quantum Meruit, breach of fiduciary duties and accounting. Cioffi alleges that
nothing he did meets the cause threshold and therefore, Microbest breached the
Employment Agreement and he is entitled to the compensation and benefits
outlined in the Employment Agreement. Cioffi further contends that even if he
was terminated for cause, he is still entitled to the 500,000 shares of
Microbest's common stock. Cioffi seeks damages of approximately $450,000 for
lost wages and benefits, plus the value of 500,000 shares of commons stock, and
his attorneys' fees and costs.

Microbest and Troup deny the allegations of Cioffi's Demand for Arbitration. In
addition, Microbest filed a four count counterclaim against Cioffi for:

         Breach of Contract
         Rescission
         Fraud, and
         Breach of Fiduciary Duty.

Microbest seeks in excess of $100,000 from Cioffi. Microbest contends that, for
the reasons set forth above, it terminated Cioffi for cause. Microbest further



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alleges that Cioffi fraudulently induced it to enter into the Employment
Agreement and, therefore, the agreement should be rescinded, including the stock
compensation plan.

Discovery is substantially complete. The final arbitration hearing is scheduled
on September 10-13, 2001.

Microbest believes that Cioffi's allegations are without merit and that it had a
valid business reason to terminate Cioffi's employment. However, due to the
uncertainty of litigation, counsel is unable to predict the amount of damages
Cioffi may be awarded at the final arbitration hearing or the amount of damages
the Company will be awarded if it prevails on its counterclaim.

THE SIMRAY MATTER

In late 1998, Raymond Evans and Simon Mundlack (hereinafter SIMRAY),
shareholders and creditors of Microbest Products, Inc. (MPI) and former
distributors of the Company's products brought a lawsuit against the Company in
connection with the level of its ownership participation in MPI prior to and
subsequent to the merger, as previously described in Part 1, Item 1, Description
of Business, Bankruptcy.

This lawsuit was settled in March 1999 by paying off an existing outstanding
loan of $100,000 and the issuance of 600,000 shares of the Company's common
stock. In connection with the issuance of common stock the Company recorded a
charge to litigation settlement expense of $525,000. The settlement terms
further stated that 300,000 of the 600,000 shares of common stock issued had a
one-year call provision and if the Company did not exercise its call provision,
then SIMRAY had a 10 day put provision.

In March of 2000, after the one-year call provision expired, SIMRAY exercised
their put and demanded $361,000 from the Company and obtained a judgment against
the Company. As a result, the Company filed voluntary bankruptcy to protect
itself from SIMRAY. See Part 1, Item 1 - Description of Business, Bankruptcy.

In November 2000, the Company and SIMRAY reached another agreement to settle the
litigation liability. In exchange for $200,000 cash, 50,000 free trading shares
of the Company's common stock and a two year option to purchase 250,000 shares
of the Company's common stock at a 25% discount, SIMRAY would assign their
position in the judgment. A shareholder of the Company paid the $200,000 cash,
another shareholder of the Company contributed the 50,000 shares and the Company
executed the stock option agreements pursuant to the above described terms. As a
result, the judgment was assigned from SIMRAY to the shareholder who paid the
$200,000.

In December 2000, the Company settled the $361,000 litigation liability with the
shareholder by issuing 7,220,000 shares of common stock.

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

NONE

                                     PART II

 ITEM 5.  MARKET PRICE FOR COMMON EQUITY AND RELATED SHAREHOLDER
          MATTERS

COMMON STOCK

Microbest is authorized to issue 100,000,000 shares of common stock, $.001
stated value. As of December 31, 2000 there were 32,694,085 shares issued and
outstanding, all of which are validly issued, fully paid and non-assessable. The
Company has not declared nor paid any dividends since its inception, and it is
not likely that any dividends will be declared at any time in the near future.
Any dividends will be subject to the discretion of the company's Board of



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Directors, which has no plans at this time to declare or pay any dividends, and
will depend upon, among other things, the operating and financial condition of
the company, its capital requirements and general business conditions. The
Company currently intends to utilize any positive cash flow it may achieve for
the development of its business and ongoing working capital needs.

All common shares have one vote per share on all matters to be voted upon by the
shareholders. Cumulative voting in the election of directors is not allowed and
a quorum for shareholder meetings result when a majority of issued and
outstanding shares are present in person or by proxy.

On March 25, 1999, the Company's Board of Directors approved the creation of a
qualified incentive stock option plan and reserved 1,000,000 shares of common
stock for options to be granted under the plan. To conform to the Internal
Revenue Code as a tax qualified ISO plan, the Plan must be approved by a
majority of the Company's shareholders. Because the shareholders did not approve
the Plan, the options granted are deemed to be non-qualified.

During 1999 the Company issued 45,000 stock options to employees and 20,000 to
non-employees, all at an exercise price of $.19. During 2000 the Company issued
250,000 options in connection with the litigation settlement described in Item 3
above, at an exercise price equal to a 25% discount to the market price on the
date of exercise. During 2000 the Company also issued 150,000 stock options for
services by a director of the Company at an exercise price of $.15.

All the issued options vest immediately.

PREFERRED STOCK

Microbest is authorized to issue 50,000,000 shares of preferred stock, $.01
stated value. As of December 31, 2000 there were 40,020 preferred shares issued
and outstanding. The preferred stock is convertible into common stock at a ratio
of 10 common shares for each preferred share, at a conversion price of $.10 per
share. The conversion period expires April 17, 2002. Prior to conversion, each
preferred share has 10 votes. The preferred stock is not registered with the
Securities and Exchange Commission.

CONVERTIBLE DEBT AND PROMISSORY NOTE

On September 1, 1999, the Company issued $200,000 of Convertible Promissory
Notes, which bear interest at 8 3/4% and mature in two years, with interest due
at maturity. After 15 months and until maturity, the outstanding balance of
principal and interest shall be convertible, at the option of the holder, into
shares of the Company's common stock at a conversion price 20% below the average
closing bid prices of the common stock for the prior 90 days. The Convertible
Debt is unsecured. See notes to financial statements.

Also on September 1, 1999, the Company issued a $150,000 promissory note, due in
one year, to a fund controlled by Mr. Matthew Bruderman. (See Part III, Item
12). The note bears interest at 12 1/2%. Interest is due at maturity. The holder
of the note also received 50,000 shares of the Company's common stock. The note
is unsecured. The note is currently in default. See notes to financial
statements.

MARKET PRICE OF COMMON STOCK

The Company's common stock traded on the NASD OTC Bulletin Board from April 1998
through January 19, 2000. It was removed from the Bulletin Board on January 20,
2000 because of Rule 6530 and has since then to the present traded on The
National Quotation Bureau's Electronic Quote System, "The Pink Sheets" in both
cases under the symbol MBST. The following table sets forth the range of high
and low bid quotations for the periods indicated as reported by National
Quotation Bureau, Inc. Such quotations reflect prices between dealers, without
retail mark-up, markdown or commission and may not represent actual
transactions.



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                                                  HIGH BID       LOW BID
                                                  --------       -------

January 1, 1999 through March 31, 1999 ..          $1.50          $0.75
April 1, 1999 through June 30, 1999 .....          $1.19          $0.63
July 1, 1999 through September 30, 1999 .          $0.88          $0.19
October 1, 1999 through December 31, 1999          $0.43          $0.15
January 1, 2000 through March 31, 2000 ..          $0.55          $0.11
April 1, 2000 through June 30, 2000 .....          $0.38          $0.04
July 1, 2000 through September 30, 2000 .          $0.28          $0.04
October 1, 2000 through December 31,2000           $0.35          $0.05
January 1, 2001 through March 31, 2001 ..          $0.44          $0.08
April 1, 2001 through June 30, 2001 .....          $0.24          $0.08

RECENT SALES OF UNREGISTERED SECURITIES

The following provides information concerning all sales of securities that the
Company sold within the two year period ended December 31, 2000 relying on
exemptions from registration under the Securities Act of 1933:

During the year ended December 31, 1999 the Company issued 161,275 shares of
common stock for cash of $142,500 without registration pursuant to an exemption
from registration under-rule 504.

During 1999 the Company also issued 2,308,267 restricted shares of common stock
for cash of $589,006 and services of $60,420 without registration in reliance
upon section 4 (2) of the Securities Act of 1933.

In March 1999 the Company issued 600,000 shares of common stock for litigation
settlement for which it recorded $525,000 of litigation settlement expenses (See
Item 3. Legal Proceedings). *

During 2000 the Company issued 6,120,199 restricted shares of common stock for
cash of $458,403 without registration in reliance upon section 4 (2) of the
Securities Act of 1933.

During 2000 the Company issued 1,758,917 shares of common stock to employes.
Management placed a value of $72,316 on these shares as employee compensation. *

During 2000 the Company issued 2,484,219 shares of common stock for services.
Management placed a value of $214,586 on the services provided. *

In December 2000 the Company issued 7,220,000 shares of common stock to a
shareholder of the Company in settlement of a $361,000 litigation liability (See
Item 3. Legal Proceedings). *

During the six month period ended June 30, 2001 the Company issued 3,196,639
restricted shares of common stock for cash of $410,597 without registration in
reliance upon section 4 (2) of the Securities Act of 1933.

During the six month period ended June 30, 2001 the Company also issued 275,000
shares of common stock for services. Management placed a value of $40,250 on the
services provided. *

         o  All issued as restricted shares without registration in reliance
            upon section 4 (2) of the Securities Act of 1933.

As of December 31, 2000 there were approximately 1,015 holders of record of the
Company's common stock.



                                       11
<PAGE>   12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

The following Management's Discussion and Analysis should be read in conjunction
with the financial statements and related notes thereto that appear elsewhere
herein.

FORWARD LOOKING STATEMENTS

This Form 10-KSB contains certain forward-looking statements. These
forward-looking statements include statements regarding marketing plans, capital
and operating expenditures, results of operations, potential utility and
acceptance of our existing and proposed products, and the need for and
availability of additional financing. The forward-looking statements included
herein are based on current expectations and involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions
regarding our business which involve judgments with respect to among other
things, future economic and competitive conditions, future regulations, and
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, actual results may differ
materially from those set forth in the forward-looking statements.

Any forward-looking statement speaks only as of the date on which such statement
is made. New factors emerge from time to time, and it is not possible for us to
predict all such factors. Further, we cannot assess the impact of each such
factor on the business or the extent to which any factor, or combinations of
factors, may cause actual results to differ materially from those contained in
any forward-looking statement. In light of the significant uncertainties
inherent in the forward-looking information contained herein, the inclusion of
such information should not be regarded as any representation by us or any other
person that our objectives or plans will be achieved.

BACKGROUND AND FINANCIAL HISTORY

Although Microbest Inc. has been in existence since 1993, the Company has not
been able to develop its operating plan to the point where it can sustain
profitable operations. The Company has been involved essentially in product
development and market testing and development since it was founded. In 1997 the
Company began concentrating its marketing efforts in the food service industry
and has been successful in developing a presence for its products in that
market.

The business of developing, marketing and selling the Company's biological
cleaning products is capital intensive. The Company intends to continue its
selling and marketing efforts and will require additional capital in order to
continue operating at the current level, to expand its business, and to fund
production and development costs. Additional capital financing may not be
available. Without such financing, the Company will not be able to continue at
its present operational level or fully implement its business strategy.

The Company has been unable to generate sufficient cash flow from operations
throughout its history to fund operations, including its marketing development
plans and the concentration of marketing efforts in the food service industry.
For the two years ended December 31, 2000, the company generated $1,128,661 in
net sales. During this same two years the company recorded net losses of
$3,073,224 The Company generated $1,415,602 from financing activities during
this period to help fund the shortfall in working capital.

LIQUIDITY AND CAPITAL RESOURCES

For the two years ended December 31, 2000 the Company issued 20,652,877 shares
of common stock for cash, for services and for litigation settlement as
restricted under rule 144, in reliance on Section 4 (2) of the Securities Act of
1933, or for cash without registration pursuant to an exemption from
registration under rule 504. Accredited investors have provided the funds
necessary to cover the Company's shortfall in working capital during the past
two years.

In August 1999 the Company arranged for $500,000 financing through the private
sale of restricted shares of its common stock to several unrelated accredited
investors who are familiar with the Company, its mission and its products. The
shares were offered without registration in reliance on Section 4 (2) of the
Securities Act of 1933. The price for the shares sold was at a discount of 25%
to the average closing bid price as reported on the Over the Counter Bulletin
Board for the five days prior to the date of sale. This financing was designed



                                       12
<PAGE>   13

to meet the working capital needs of the Company through the balance of 1999. As
of February 3, 2000 the Company has received $500,000 from the sale of 2,387,366
shares of common stock under these arrangements.

On September 1, 1999 the Company issued $200,000 of unsecured convertible
promissory notes to three individuals. The notes bear Interest at 8 3/4% and
mature in two years, with interest due at maturity. After 15 months and until
maturity, the outstanding balance of principal and interest shall be
convertible, at the option of the holder, into shares of the Company's common
stock at a conversion price 20% below the average closing bid prices of the
common stock for the prior 90 days. The proceeds from the notes were used to
repay $200,000 advanced to the Company by Matthew J. Bruderman, a related party
(see Item 12 Certain Relationships and Related Transactions).

On July 1, 2001 the three notes holders agreed to extend the due date of the
notes to June 30, 2002. One of the note holders, whose note is for $100,000
waived his rights to the conversion features of the note in exchange for the
Company's agreement to pay interest due on the note currently in cash. The other
two holders received an additional 5% discount on the conversion price for
extending the due date. (See notes 6 and 12 to the financial statements)

Also on September 1, 1999, the Company issued a $150,000 unsecured promissory
note to a firm controlled by Mr. Bruderman, due in one year, with interest at
12 1/2%, which is due at maturity. The holder of the note also received 50,000
shares of the Company's common stock at the time of issuance. The proceeds of
the note were used to meet operating expenses. The note was increased to
$170,000 on October 15, 2000 to reflect an additional $20,000 cash advance made
to the Company and on July 1, 2001 the due date was extended to June 30, 2002.
(See notes 6 and 12 to the financial statements)

In June 2000 the Company arranged for an additional $360,000 of financing again
through the private sales of restricted shares of its common stock to a small
group of accredited investors under the same terms described above regarding the
$500,000 arranged in August 1999. Between June 9, 2000 and January 8, 2001 the
Company received $360,000 from the sale of 5,374,609 shares of common stock
under this arrangement.

On February 16, 2001 the Company received a $1,000,000 Financial Commitment,
from a new investment source, under terms similar to the $500,000 and $360,000
described above. As of August 9, 2001 the Company received $335,000 from the
sale of 2,719,118 shares of common stock under this commitment. (See Item 12
Certain Relationships and Related Transactions)

As indicated above, the Company raised substantially all its invested funds
through the private sales of its common stock relying on exemptions from
registration under the Securities Act of 1933. To continue such sales of its
common stock has recently become more costly to the Company because of the
decline in the market price of the Company's common stock on the OTC/BB. The low
bid price dropped from $.75 in the first quarter of 1999 to $.15 at the end of
1999. After being removed from the OTC/BB on January 20, 2000 because of Rule
6530 the shares have traded as low as $0.05 per share on the National Quotation
Bureau's Electronic Quote System. If the Company is unable to raise capital
through the sale of its common stock or is unable to find alternative sources of
investor funds, the Company's ability to continue will be in jeopardy.

On March 20, 2000 the Company received a "Notice of Exercise by Raymond Evans
and Simon Mundlak (hereinafter SIMRAY) of a Put Option" demanding that the
Company purchase the 300,000 shares of common stock covered by the "put" for
$450,000 all in accordance with the SIMRAY Settlement Agreement. (See Item 3.
Legal Proceedings and Note 5 Litigation Settlement). As the Company did not have
the cash resources to fulfill its purchase obligation, SIMRAY exercised the
right of judgment they received as a result of the settlement negotiated in
1998. Late in May 2000, the Company was involved in good faith negotiations with
SIMRAY to resolve the issue, when SIMRAY took separate aggressive maneuvers to
take control of the Company's bank accounts and all of its physical assets. The
Company moved quickly to protects its assets. On June 1, 2000 the Company filed
for bankruptcy protection under the provisions of Chapter 11 of the United
States Bankruptcy Code.



                                       13
<PAGE>   14

At the time of this hostile maneuver the Company was negjotiating a $2.5 million
financing commitment with a Wall Street investment banking firm with which it
has had a relationship for several years. These negotiations were terminated as
a result of the bankruptcy filing.

On August 21, 2000 the Company reached a new settlement with SIMRAY. Under the
terms of this settlement SIMRAY would receive $200,000 in cash, retain as free
trading shares 50,000, of the 600,000 shares of common stock they owned and they
received a two year option to acquire 250,000 shares of the Company's common
stock at a 25% discount to the market price of the shares when exercised. A
shareholder of the Company paid the $200,000 cash, another shareholder conveyed
the 50,000 free trading shares and the Company executed the stock option
agreement.

After executing the above described settlement, In October 2000 the Company
applied for and was granted dismissal from the Bankruptcy.

In January 2000, pursuant to a SEC filing on FORM 10-SB in November 1999, the
Company became subject to the periodic reporting rules of the 1934 Securities
Exchange Act. As of August 9, 2001, the Company has not filed its annual,
quarterly, or periodic reports as required by the 34 Act and the regulations of
the SEC. Management of the Company expects all past due SEC reports to be filed
before the end of September 2001. What actions, if any, the SEC may take as a
result of the Company's non-compliance is unknown.

THE FOLLOWING TABLE SUMMARIZES THE COMPANY'S CONDENSED FINANCIAL POSITION AND
CONDENSED OPERATING RESULTS FOR THE PERIODS INDICATED:

<TABLE>
<CAPTION>

                                                                                     $ IN THOUSANDS
                                                                                  YEARS ENDED DEC. 31
                                                                             -----------------------------
                                                                              2000        1999        1998
                                                                             -----       -----       -----

<S>                                                                          <C>         <C>         <C>
BALANCE SHEET DATA
Working Capital (Deficit) .............................................       $(455)      $(732)      $(467)
Total Asset ...........................................................       $ 174       $ 178       $ 213
Total Liabilities .....................................................       $ 959       $1173       $ 622
 Stockholders Equity (Deficit) ........................................       $(785)      $(995)      $(408)

STATEMENT OF OPERATIONS DATA
Net Sales .............................................................       $ 643       $ 486       $ 377
Gross Profit (Loss) ...................................................       $ 332       $ 222       $  50

Expenses
Salaries Wages & Benefits .............................................       $ 615       $ 700       $ 549
Occupancy Costs .......................................................       $ 170       $ 189       $ 205
Travel ................................................................       $  66       $  96       $ 161
Professional Fees .....................................................       $ 216       $ 138       $  75
Marketing Expenses ....................................................       $  62       $  94       $ 191
Interest Expense ......................................................       $  90       $  69       $  19
Litigation Settlement .................................................       $ 236       $ 886          --
                                                                             ------      ------      ------
Total Expenses ........................................................      $1,455      $2,172      $1,210

Net Income (Loss) .....................................................     $(1,123)    $(1,950     $(1,150)
                                                                             ------      ------      ------
</TABLE>


FINANCIAL CONDITION

The Company's current financial position improved somewhat in 2000 compared with
1999 because of the due date extension on notes payable. (see footnotes 6 and
12) However, accounts payable and accrued expenses increased at a greater rate
than the growth in accounts receivable and inventory. Accordingly, negative
working capital at the end of 2000 was $455,000 compared with $732,000 at the
end of 1999 and $467,000 at the end of 1998. Current liabilities at the end of



                                       14
<PAGE>   15

1999 include an increase of $261,000 in the liabilities related to the SIMRAY
settlement, and an increase of $176,000 in accounts payable and accrued expenses
off set by a decrease of $200,000 in short term financing obligations. At the
end of 2000 negative working capital decreased $277,000 to $455,000, reflecting
the settlement of the $361,000 SIMRAY obligation for stock (See above, Item 3.
Legal Proceedings and Note 5 Litigation Settlement). This reductions was offset
by an $80,000 increase in accounts payable.

The Company was delinquent in depositing some of its payroll taxes in periods as
far back as December 1997. According to IRS records, the Company owed $184,433
in taxes, penalties and interest as of July 20, 2001. On July 24, 2001, the
Company entered into an installment agreement with the IRS to pay $5,000 per
month to settle this obligation. All amounts due per the IRS have been accrued
by the Company and are included on the balance sheet ($175,808 and $144,215 at
December 31, 2000 and 1999 respectively). The IRS has filed a tax lien against
the Company to secure its position.

The Company's accumulated operating deficit at the end of fiscal year 2000 is
$4,766,000 and is directly attributable to the inability to increase sales
quickly enough to fund the marketing efforts that, in the opinion of management,
are necessary to realize the required level of revenues to attain profitable
operations. This operating deficit is offset by $4,106,000 in the Company's
capital account reflecting the funds it has been able to raise through sales of
its common stock. The financial shortfall of this strategy is that it requires
the continuous infusion of investment capital to keep the Company running and
creates an environment where ongoing commitments (including payroll and
operating expenses) are met on a week-to-week basis. The danger is that the
Company may run out of funds to continue sales and marketing efforts before it
can achieve a sustaining level of sales. The Company has no plans to increase
further the number of employees or for significant capital expenditures until
sufficient investment capital is raised or until revenues increase
substantially.

OPERATING RESULTS

The Company has improved its gross operating margin over the past two years by
concentrating sales efforts on pallet-sized bulk shipments. This strategy
reduced the need for one company operated facility and has allowed for more
economic lot purchasing and a significant reduction in fright costs. During this
time the Company significantly improved the internal controls over its financial
operations which were deficient before the installation of a computerized
accounting system on January 1, 1999. The results of these efforts are reflected
in gross profit margin of 46% in 1999 and 52% in 2000, which compares with
margins below 15% previously.

In 1998 the Company increased its operating expenses significantly to support
the marketing expansion plan initiated during 1997. The Company had only two
full time employees during most of 1997, this increased to six employees early
in 1998 and to 10 full time employees in 1999. The majority of this staff is
involved with sales and marketing. The increase in 1999 reflects increased
commissions paid on higher sales, plus the salary for Mr. William Breslin who
joined the Company as CFO on January 1, 1999. As economy measures in 2000 the
Company closed a warehouse and distribution center and released under performing
members of its sales staff.

The Company moved into expanded office facilities early in 1998, thereby
increasing office occupancy expenses and related expenses of supporting the
expanded sales and marketing staff. The increase in occupancy costs includes
rent, local and long distance telephone, utilities, lease of computers and
office equipment as well as added office supplies and expenses.

Travel expenses were higher in 1998 primarily because of two business trips
Michael Troup made to Japan. Travel was curtailed in 1999 and 2000 as a cost
cutting move.

Professional fees increased in 1999 because of audit and legal fees associated
with initial SEC filings, legal fees associated with litigation and financial
consulting services. Professional fees increased further in 2000 because of
protracted audit fees associated with several amendments to our SEC FORM 10SB,
ongoing legal fees for litigation services and consulting fees for marketing and
financial consulting services.



                                       15
<PAGE>   16

Marketing expenses were unusually high in 1998 as the Company revised much of
its hard copy advertising materials at a one time cost approximating $80,000.
Discretionary marketing expenses have been curtailed during 1999 and 2000 as
cost cutting moves.

Interest expense increased from $19,000 in 1998 to $69,000 in 1999 and $90,000
in 2000 primarily as a result of the increases in debt financing obligations and
for interest due on past due payroll taxes.

The Company recorded $236,000 in 2000 and $886,000 in 1999 of litigation
settlement expenses in connection with the settlement of the SIMRAY matter. (See
description above under Liquidity and Capital Resources, Item 3. Legal
Proceedings and Note 5 Litigation Settlement)

The Company is currently involved in litigation with a former officer. See Part
II, Item 3. Legal Proceedings and Note 9 Commitments and Contingencies. for a
description and management's belief that the outcome will be in its favor.)

PLAN OF OPERATION

The Company's financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company has incurred
losses for the last four years and has an accumulated deficit from operations of
$4,891,658 at December 31, 2000. Management recognizes that the company must
generate additional financial resources to enable it to continue operations and
is presently working on receiving financing commitments in this regard.

The realization of assets and the satisfaction of liabilities in the normal
course of business is dependent upon the company obtaining additional equity
capital and ultimately achieving profitable operations. However, no assurances
can be given that the Company will be successful in these activities. Should any
of these events not occur, the financial results will be materially affected.

The Company plans to continue its current strategy of developing a presence for
its products in the food service industry. Additionally, work needs to continue
on rounding out the product line and expanding penetration into other target
markets. This strategy will continue to require additional ongoing investor
financing. While management of the Company believes it will be able to arrange
the necessary financing to support its plan, if it is unable to, there is
substantial doubt that the Company will be able to continue.

As described above the Company's expenditures to date have greatly exceeded its
revenues even though those revenues have shown growth from year to year (sales
for the year 2000 were $643,000 compared with $486,000 in 1999). The Company
continues to have sales growth but at a less than a desirable rate and plans to
continue its aggressive market development plan. As indicated above the
operations of the Company have been financed primarily with funds provided by a
small group of accredited investors. Management of the Company is confident this
group will continue funding the company's operating plan until it is financially
successful. On February 16, 2001 the Company received a $1,000,000 funding
commitment from one of these investors which management believes will provide
for the Company's financial needs through the end of 2001.

ITEM 7. FINANCIAL STATEMENTS.

The financial statements of the Company required by Regulation S-B are attached
to this Report. Reference is made to Item 13 below for an index to the financial
statements and financial schedules.

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

NONE



                                       16
<PAGE>   17

                                    PART III

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

The directors and executive officers of the company are:


<TABLE>
<CAPTION>
NAME                             AGE                POSITION
----                             ---                --------
<S>                               <C>               <C>
Michael J. Troup                  58                Chairman of the Board and Chief Executive officer
William J. Breslin                63                Director and Secretary, Treasurer and Chief Financial
                                                      Officer
Matthew J. Bruderman              29                Director
Carter Reames                     63                Director

</TABLE>


MICHAEL TROUP, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, provided the
concept, initial investment capital and entrepreneurial drive necessary to bring
the Microbest proprietary products to market. The holder of an undergraduate
degree in Psychology, with minors in chemistry and biology, and an M.A. in
Educational Psychology from The University of Toledo, Mr. Troup brings to the
management team more than 25 years of experience in manufacturing, marketing and
concept development. Mr. Troup has been employed full time by the Company since
January 1993 as its C.E.O.

WILLIAM J. BRESLIN, DIRECTOR AND CHIEF FINANCIAL OFFICER, brings over 35 years
of diversified financial experience to Microbest. Mr. Breslin began his career
with Price Waterhouse where he developed specialties in corporate finance,
business development, and acquisitions and mergers. He spent 15 years in
corporate financial management as a senior financial executive with such
companies as Hartz Mountain Corporation, The Washington Post Corporation and The
Zondervan Publishing Company. For the last 10 years Mr. Breslin has been an
independent consultant to emerging growth companies in his areas of specialty.
Mr. Breslin is a Certified Public Accountant in the states of New York and
Florida. He holds an undergraduate degree from Iona University with a major in
accounting. Mr. Breslin joined the company as CFO on January 1, 1999 and became
a Director on April 8, 1999.

MATTHEW J. BRUDERMAN, DIRECTOR, is President and CEO of M. J. Bruderman &
Company, Inc., an international money management firm based in New York. Mr.
Bruderman, who represents the third generation of Bruderman family presence on
Wall Street, brings to Microbest his experience in financing developing
companies, and his relationships in the investment banking community. Mr
Bruderman has been in his present position for the past five years. Mr.
Bruderman became a director of the Company on June 22, 1998. Mr. Bruderman
resigned from the Company's Board on May 31, 2000 because of the time demands of
his own business

CARTER REAMES, DIRECTOR serves as Chief Executive Officer of Reames Realty
Advisors, a firm based in Atlanta specializing in commercial real estate
advisory services and acquisitions. Prior to his real estate investment
activities, Mr. Reames held technical and management positions in the chemical
manufacturing industry, and brings an array of engineering and entrepreneurial
talents to the Microbest Board. Mr. Reames became a director of the company on
October 8, 1998.

SECTION 16(a) BENEFICIAL OWNERSHIP, REPORTING COMPLIANCE

Section 16 (a) of the Securities Exchange Act of 1934 and the rules there under
require the Company's officers and directors, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies.



                                       17
<PAGE>   18


During the last fiscal year, all Section 16 (a) filing requirements applicable
to the Company's officers and directors were not complied with on a timely basis
because of a misunderstanding by management of the Company regarding the
effective date as it relates to the requirements of Section 16(a). Forms 3, 4
and 5 for the four officers and directors of the Company which were due to be
filed between March 31, 2000, and June 30, 2001 where not filed until July ,
2001. Management of the Company is not aware of any other shareholders that did
not meet the filing requirements of Section 16 (a).

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid to the Company's
Chief Executive Officer, the Company's Chief Financial Officer and all
executives with total annual compensation exceeding $100,000 for the last three
completed fiscal years.

<TABLE>
<CAPTION>

                                               ANNUAL COMPENSATION
                                          -------------------------------        OTHER
NAME AND PRINCIPAL POSITION               YEAR       SALARY        BONUS       COMPENSATION
---------------------------               ----       ------        -----       ------------
<S>                                       <C>       <C>           <C>             <C>
Michael J. Troup, C.E.O.................  2000      $140,000      $18,000(5)      $16,480(1)
                                          1999      $140,000         None         $16,480(1)
                                          1998      $105,000         None         $16,480(1)

Patrick Cioffi, President(2) ...........  1998      $ 87,950         None         $15,985

William J. Breslin(3) ..................  2000      $ 80,000      $14,000(5)         None
                                          1999      $ 78,000         None            None
                                          1998          None         None         $16,500

Gary Garavaglia(4) .....................  2000      $120,000      $ 7,250(5)         None
                                          1999      $ 70,000      $ 4,500            None
</TABLE>


         1.    Includes $6,500 in lease payments on a vehicle the Company
               provides to Mr. Troup, $6,480 in health insurance premiums the
               Company pays for his benefit and $3,500 in health club dues the
               Company pays for his benefit.

         2.    Mr. Cioffi joined the Company as its president on November 3,
               1997 and served in that capacity until December 8, 1998 when he
               was terminated for cause. As a result of his dismissal the
               agreement between the Company and Mr.Cioffi was deemed void and
               the stock compensation arrangement with him was cancelled. See
               Part 11, Item 3. Legal proceedings.

         3.    Mr. Breslin joined the company as its CFO on January 1, 1999 at
               an annual salary of $78,000. Prior to that he worked as an
               independent consultant to the Company performing the services of
               the CFO on a part-time basis.

         4.    Mr. Garavaglia joined the Company on July 2, 1999 as Vice
               President for Marketing at an annual salary of $120,000. He
               received a signing bonus of 25,000 shares of common valued at
               $4,500

         5.    On June 30, 2000 the Board of Directors granted stock bonuses to
               Messrs Troup, Breslin and Garavaglia as follows:

                    Mr. Troup 450,000 shares valued at $18,000
                    Mr. Breslin 350,000 shares valued at $14,000
                    Mr. Garavaglia 150,000 shares valued at $7,250

COMPENSATION OF DIRECTORS

The Company has no formal compensation plan for its Directors. However, in June
2000 the Board of Directors granted 200,000 shares of common stock to each of
its Directors, including its officers who are Directors. This action was taken



                                       18
<PAGE>   19

to acknowledge their past service to the Company and their ongoing commitment to
continue as Directors during the period the Company was in bankruptcy. The
shares granted to Messrs. Troup and Breslin are reflected in Item 10 above as
part of their bonuses.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of December 31, 2000 the beneficial ownership
of the Company's 32,694,085 outstanding shares of common stock and 40,020
outstanding shares of preferred stock by any persons who own of record or are
known to own, beneficially, more than 5% of the Company's common or preferred
stock and each director and executive officer of the Company and all directors
and officers as a group.

<TABLE>
<CAPTION>

                                            NAME AND ADDRESS          AMOUNT AND NATURE                 PERCENT
TITLE OF CLASS                             OF BENEFICIAL OWNER       BENEFICIAL OWNERSHIP               OF CLASS
--------------                             -------------------       --------------------               --------

<S>                                          <C>                             <C>                           <C>
  Common Stock                               Michael J. Troup                2,741,725(1)                  11.6%
  Preferred Stock ........................   Michael J. Troup                   36,200                     90.4%
                                             1117 Island Dr.
                                             Delray Beach, FL 33483

  Common Stock............................   Matthew J. Bruderman              625,000(2)                   1.9%
                                             1 World Trade Center
                                             Suite 1153
                                             New York, NY 10048

  Common Stock............................   Carter Reames                     390,000                       1.0%
                                             6440 Tanacrest Ct. N.W.
                                             Atlanta, GA 30328

  Common Stock............................   William J. Breslin                663,394(3)                     .8%
                                             1764 N. W. 88th Way
                                             Coral Springs, FL 33071

  Common Stock ...........................   All officers and directors      4,420,119                      13.5%
   Preferred Stock                           as a group (4)                     36,200                      90.4%

</TABLE>

Messrs. Troup, Breslin and Reames are directors of the company and Mr. Bruderman
was a director until he resigned on May 1, 2000.. Mr. Troup is the Chairman of
the Board and the C.E.O. of the company. Mr. Breslin is secretary, treasurer and
the C.F.O. of the Company.

         1.    Includes 1,050,000 shares issued to the Michael J. Troup Trust,
               76,333 shares issued to Lindsey Troup and 72,333 shares issued to
               Peter Troup with respect to which Mr. Troup claims beneficial
               ownership. Lindsey and Peter Troup are Mr. Troup's children.

         2.    Mr. Bruderman has provided financial consulting services to the
               Company.

         3.    Includes 5,000 shares issued to Heather A. Breslin and 5,000
               shares issued to Holly A. Breslin with respect to which Mr.
               Breslin claims beneficial ownership. Heather and Holly Breslin
               are Mr. Breslin's daughters.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In June 1998 Microbest, Inc. engaged Mr. Bruderman to perform a variety of
financial consulting services over an extended period of time. The services
performed by Mr. Bruderman included the following:

         o  Assistance in developing the Company's business plan

         o  Introducing management to potential investors

         o  Recruiting potential board members

         o  Assistance with executive recruitment



                                       19
<PAGE>   20

         o  Assistance in developing the Company's marketing plans

         o  Assistance with financial public relations

As compensation for these services the Company accrued $40,000 of consulting
expense in each of 1998 and 1999. The parties mutually agreed that the company
issue 250,000 restricted shares of Microbest common stock to Mr. Bruderman in
recognition of his financial consulting efforts and related out of pocket
expenses. These shares were issued in January 2000. (See Note 11)

On February 16, 2001 the Company received a $1 million financial commitment from
Forward Looking Technologies, Inc., (FLT) of Aventura, Florida a venture capital
group specializing in funding emerging growth technology companies with an
emphasis on solutions to pressing environmental issues. Microbest was chosen by
FLT for its leadership in the development of its bio-based cleaning
technologies.

Since making its commitment in February, through August 9, 2001 FLT has advanced
$335,000 to Microbest for which it received 2,719,118 restricted shares of
common stock, which represents a seven and one half percent ownership interest
of the Company common stock making them a beneficial owner of Microbest.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

The following documents of the Company are filed as part of this report:

Financial Statements;

    Independent Auditor's Report

    Balance Sheets as of December 31, 2000 and 1999

    Statements of Operations for the Years Ended December 31, 2000 and 1999

    Statements of Changes in Stockholders' Equity (Deficit) for the years ended
    December 31, 2000 and 1999

    Statements of Cash Flows for the Years ended December 31, 2000 and 1999

    Notes to Financial Statements

  Exhibits

         Number 1                       Plan of Merger (1)
         Number 2                       Articles of Incorporation (1)
         Number 3                       By-Laws (1)
         Number 4                       Shareholder Reconciliation (3)
         Number 5                       Promissory Notes (2)
         Number 6                       $500,000 Additional Financing (3)
                                        $360,000 Additional Financing (3)
                                        $1,000,000 Financial Commitment from
                                        Forward Looking Technologies (3)

         (1)   Incorporated herein by reference to the Company's Form 10-SB as
               originally filed on November 16, 1999.

         (2)   Incorporated herein by reference to the Company's Form 10-SB,
               Amendment # 1 filed on February 9, 2000

         (3)   Incorporated herein by reference to the Company's Form 10-SB,
               Amendment # 3 filed on August 24, 2001




                                       20
<PAGE>   21

                                   SIGNATURES

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                            MICROBEST, INC.

August 24, 2001                              By  /s/ Michael J. Troup
                                                ------------------------------
                                                 Michael J. Troup, President

In accordance with the Exchange Act 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>

<S>                                                  <C>

/s/ Michael J. Troup
-----------------------------                        Chairman of the Board of Directors,
August 24 , 2001                                     Chief Executive Officer and President
Michael J. Troup

/s/ William J. Breslin
-----------------------------                        Chief Financial Officer, Principal
August  24, 2001                                     Accounting Officer, Treasurer and Director
William J. Breslin

/s/ Carter Reames
-----------------------------                        Director
August 24, 2001
Carter Reames
</TABLE>



                                       21
<PAGE>   22
                                 MICROBEST, INC.

                                TABLE OF CONTENTS


                                                                  PAGE
                                                                  ----

INDEPENDENT AUDITORS' REPORT                                       23

FINANCIAL STATEMENTS

         Balance Sheets                                            24

         Statements of Operations                                  25

         Statement of Changes in Stockholders' Deficit             26

         Statements of Cash Flows                                  27

NOTES TO FINANCIAL STATEMENTS                                   28-40









                                       22
<PAGE>   23




                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Microbest, Inc.

We have audited the accompanying balance sheets of Microbest, Inc. (the
"Company") as of December 31, 2000 and 1999, and the related statements of
operations, changes in stockholders' deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Microbest, Inc. as of December
31, 2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in notes 1 and 12 to the
financial statements, the Company has a deficit in working capital, has suffered
cumulative losses from operations since inception, and it has a tax lien filed
against it by the Internal Revenue Service. This raises substantial doubt about
the Company's ability to continue as a going concern. Management's plan in
regard to these matters is also described in note 1. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

                                        /s/ Ahearn, Jasco + Company, P.A.
                                        --------------------------------------
                                        AHEARN, JASCO + COMPANY, P.A.
                                        Certified Public Accountants

Pompano Beach, Florida
August 9, 2001


                                       23
<PAGE>   24

                                  MICROBEST, INC.
                                  BALANCE SHEETS
                            DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>

                                                                              2000              1999
                                                                          -----------       -----------
<S>                                                                       <C>               <C>
                                          ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                              $        --       $        --
   Accounts receivable, net of allowances of $5,400                            54,862            28,598
   Inventories, net                                                            69,059            76,866
   Prepaid expenses                                                                --             8,000
                                                                          -----------       -----------
            TOTAL CURRENT ASSETS                                              123,921           113,464

PROPERTY AND EQUIPMENT, net                                                    43,312            62,502

OTHER ASSETS                                                                    6,381             2,385
                                                                          -----------       -----------
            TOTAL                                                         $   173,614       $   178,351
                                                                          ===========       ===========

                       LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
   Cash overdraft                                                         $     3,311       $     7,047
   Accounts payable and accrued liabilities                                   560,380           474,898
   Current portion of capital lease obligation                                  2,339             1,981
   Litigation settlement payable                                                   --           361,000
   Due to shareholders                                                         13,000                --
                                                                          -----------       -----------
            TOTAL CURRENT LIABILITIES                                         579,030           844,926
                                                                          -----------       -----------

LONG-TERM DEBT:
   Capital lease obligation - long-term portion                                 9,866            12,205
   Note payable - shareholder                                                 170,000           150,000
   Convertible promissory notes                                               200,000           166,500
                                                                          -----------       -----------
            TOTAL LONG-TERM DEBT                                              379,866           328,705
                                                                          -----------       -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
   Preferred stock, 50,000,000 shares authorized; 40,020 shares
    issued and outstanding                                                        400               400
   Common stock, 100,000,000 shares authorized; 32,694,085 and
    15,110,750 issued and outstanding in 2000 and 1999, respectively           32,694            15,110
   Additional paid-in capital                                               4,073,282         2,757,214
   Deficit                                                                 (4,891,658)       (3,768,004)
                                                                          -----------       -----------
            STOCKHOLDERS' DEFICIT, NET                                       (785,282)         (995,280)
                                                                          -----------       -----------
            TOTAL                                                         $   173,614       $   178,351
                                                                          ===========       ===========

</TABLE>


                 See accompanying notes to financial statements.


                                       24
<PAGE>   25

                                 MICROBEST, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999





<TABLE>
<CAPTION>

                                                             2000               1999
                                                        ------------       ------------
<S>                                                     <C>                <C>
SALES, net                                              $    642,937       $    485,724

COST OF SALES                                                310,666            264,134
                                                        ------------       ------------
            GROSS PROFIT                                     332,271            221,590

ADMINISTRATIVE EXPENSES                                    1,129,828          1,215,700
LITIGATION SETTLEMENT EXPENSES                               236,347            886,000
                                                        ------------       ------------
            LOSS FROM OPERATIONS                          (1,033,904)        (1,880,110)

INTEREST EXPENSE                                             (89,750)           (69,460)
                                                        ------------       ------------
            LOSS BEFORE PROVISION FOR INCOME TAXES        (1,123,654)        (1,949,570)

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

            NET LOSS                                    $ (1,123,654)      $ (1,949,570)
                                                        ============       ============



LOSS PER COMMON SHARE:
   Basic and diluted                                    $     (0.052)      $     (0.146)
                                                        ============       ============
   Weighted average common shares outstanding             21,513,809         13,360,515
                                                        ============       ============

</TABLE>













                 See accompanying notes to financial statements.



                                       25
<PAGE>   26

                                 MICROBEST, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999


<TABLE>
<CAPTION>

                                                              PREFERRED STOCK                      COMMON STOCK
                                                       ------------------------------   ----------------------------------
                                                                       STATED VALUE                       STATED VALUE
                                                        # OF SHARES   $.01 PER SHARE      # OF SHARES     $.001 PER SHARE
                                                       -------------  ---------------   ---------------   ----------------
<S>                                                          <C>             <C>          <C>                <C>
STOCKHOLDERS' DEFICIT, December 31, 1998                     40,040          $400         12,041,208         $12,041

Conversion of preferred stock                                   (20)           --                200              --

Issuance of common stock for cash, net                           --            --          2,154,342           2,154

Issuance of common stock to employees                            --            --            170,000             170

Issuance of common stock for services and interest               --            --            145,000             145

Issuance of common stock for litigation settlement               --            --            600,000             600

Beneficial conversion feature on convertible
     promissory notes                                            --            --                 --              --

Issuance of stock options to consultants                         --            --                 --              --

Net loss for the year ended December 31, 1999                    --            --                 --              --
                                                            -------          ----         ----------         -------

STOCKHOLDERS' DEFICIT, December 31, 1999                     40,020           400         15,110,750          15,110

Issuance of common stock for cash, net                           --            --          6,120,199           6,120

Issuance of common stock to employees                            --            --          1,758,917           1,759

Issuance of common stock for services                            --            --          2,484,219           2,485

Issuance of common stock for litigation settlement               --            --          7,220,000           7,220

Capital contribution from shareholder                            --            --                 --              --

Issuance of stock options for litigation settlement              --            --                 --              --

Net loss for the year ended December 31, 2000                    --            --                 --              --
                                                            -------          ----         ----------         -------
STOCKHOLDERS' DEFICIT, December 31, 2000                     40,020          $400         32,694,085         $32,694
                                                            =======          ====         ==========         =======
</TABLE>


<TABLE>
<CAPTION>


                                                       ADDITIONAL
                                                         PAID-IN                             STOCKHOLDERS'
                                                         CAPITAL              DEFICIT        DEFICIT, NET
                                                       -----------       --------------   -----------------
<S>                                                     <C>                <C>                  <C>
STOCKHOLDERS' DEFICIT, December 31, 1998                $1,397,490         $(1,818,434)         $  (408,503)

Conversion of preferred stock                                   20                  --                   20

Issuance of common stock for cash, net                     729,352                  --              731,506

Issuance of common stock to employees                       30,430                  --               30,600

Issuance of common stock for services and interest          29,655                  --               29,800

Issuance of common stock for litigation settlement         524,400                  --              525,000

Beneficial conversion feature on convertible
     promissory notes                                       44,667                  --               44,667

Issuance of stock options to consultants                     1,200                  --                1,200

Net loss for the year ended December 31, 1999                   --          (1,949,570)          (1,949,570)
                                                        ----------         -----------          -----------

STOCKHOLDERS' DEFICIT, December 31, 1999                 2,757,214          (3,768,004)            (995,280)

Issuance of common stock for cash, net                     452,283                  --              458,403

Issuance of common stock to employees                       70,557                  --               72,316

Issuance of common stock for services                      212,101                  --              214,586

Issuance of common stock for litigation settlement         353,780                  --              361,000

Capital contribution from shareholder                      200,000                  --              200,000

Issuance of stock options for litigation settlement         27,347                  --               27,347

Net loss for the year ended December 31, 2000                   --          (1,123,654)          (1,123,654)
                                                        ----------         -----------          -----------
STOCKHOLDERS' DEFICIT, December 31, 2000                $4,073,282         $(4,891,658)         $  (785,282)
                                                        ==========         ===========          ===========
</TABLE>





                 See accompanying notes to financial statements.



                                       26
<PAGE>   27

                                 MICROBEST, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>

                                                                                          2000                 1999
                                                                                       -----------          -----------
<S>                                                                                    <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                            $(1,123,654)         $(1,949,570)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation                                                                          19,190               17,217
      Interest expense, beneficial conversion feature                                       33,500               11,167
      Common stock issued to employees                                                      72,316               30,600
      Common stock issued for services, net                                                214,586               17,800
      Common stock issued for litigation settlement                                             --              525,000
      Loss from litigation settlement                                                       36,347              361,000
      Other non-cash charges                                                                17,000               49,867
      Changes in certain assets and liabilities:
         Accounts receivable                                                               (26,264)              13,083
         Inventories                                                                         7,807              (34,409)
         Accounts payable and accrued liabilities                                           76,482              169,099
         Cash overdraft                                                                     (3,736)               7,047
                                                                                       -----------          -----------
NET CASH USED IN OPERATING ACTIVITIES                                                     (676,426)            (782,099)
                                                                                       -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITY
   Change in other assets                                                                   (3,996)               2,490
   Purchases of property and equipment                                                          --              (12,125)
                                                                                       -----------          -----------
NET CASH USED IN INVESTING ACTIVITIES                                                       (3,996)              (9,635)
                                                                                       -----------          -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on capital lease obligation                                                     (1,981)              (1,679)
   Repayment of note payable                                                                    --             (100,000)
   Capital contribution from shareholder                                                   200,000                   --
   Proceeds from the issuance of notes payable                                                  --              305,333
   Proceeds from sale of stock                                                             458,403              731,526
   Advances from (payments to) shareholders                                                 24,000             (200,000)
                                                                                       -----------          -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  680,422              735,180
                                                                                       -----------          -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                                       --              (56,554)

CASH AND CASH EQUIVALENTS, Beginning of year                                                    --               56,554
                                                                                       -----------          -----------
CASH AND CASH EQUIVALENTS, End of year                                                 $        --          $        --
                                                                                       ===========          ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid in cash                                                               $        --          $        --
                                                                                       ===========          ===========
   Income taxes paid in cash                                                           $        --          $        --
                                                                                       ===========          ===========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
      In 2000, a litigation settlement liability of $361,000 was satisfied
  through the issuance of 7,220,000 shares of common stock.
</TABLE>

                 See accompanying notes to financial statements.



                                       27
<PAGE>   28





                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

               DESCRIPTION OF ENTITY

               Microbest, Inc. is the entity resulting from a merger of an
               entity previously named Emerald-Shade, Inc. ("ESI") and Microbest
               Products, Inc. ("MPI"). MPI began operations in 1993. ESI was
               incorporated in Minnesota on December 3, 1996, but had no
               activity or operations prior to the merger other than the
               issuance of its common stock. The post-merger entity will be
               referred to as the "Company". The Company is engaged in making
               and marketing a biologically based, environmentally safe system
               of cleaning products for the industrial and institutional
               cleaning products industry.

               BASIS OF PRESENTATION, AND GOING CONCERN CONSIDERATIONS

               The Company's financial statements have been prepared on a going
               concern basis, which contemplates the realization of assets and
               the settlement of liabilities and commitments in the normal
               course of business. The Company incurred a net loss of $1,123,654
               and $1,949,570 for the years ended December 31, 2000 and 1999,
               respectively, and has a stockholders' deficit of $785,282 and a
               working capital deficit of $455,109 at December 31, 2000. The
               Company is also delinquent in the payment of certain payroll
               taxes to the Internal Revenue Service, and the IRS has filed a
               tax lien against the Company (see note 12). Management recognizes
               that the Company must generate additional resources to enable it
               to continue operations, and to satisfy its existing debts and
               obligations. Management is planning to obtain additional capital
               through the sale of equity securities and to increase revenues
               from operations. The realization of assets and satisfaction of
               liabilities in the normal course of business is dependent upon
               the Company obtaining additional equity capital and ultimately
               obtaining profitable operations. However, no assurances can be
               given that the Company will be successful in these activities.
               Should any of these events not occur, the accompanying financial
               statements will be materially affected.

               USE OF ESTIMATES

               The preparation of financial statements in conformity with
               generally accepted accounting principles 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.

               REVENUE RECOGNITION AND CREDIT RISKS

               Revenue is recognized at the time the goods are shipped. Accounts
               receivable are primarily with restaurants and food service
               companies located nationwide. The Company sells its products to
               various customers spread over a wide geographic area, therefore,
               the Company believes that it does not have an abnormal
               concentration of credit risk within any one market or any one
               geographic area.

               During the year ended December 31, 2000 two customers comprised
               24% of the Company's sales (12% each). In 1999, no single
               customer accounted for more than 10% of the Company's sales.


                                       28
<PAGE>   29


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
--------------------------------------------------------------------------------

               INVENTORIES

               The Company's proprietary products are produced under contract by
               independent third parties for resale and distribution by the
               Company. Inventories, therefore, substantially consist of the
               proprietary products and are recorded at the lower of cost
               (first-in, first-out method) or market. Products purchased with
               the intent to use as samples or for promotional purposes are
               expensed as acquired. Inventories are presented net of
               allowances.

               PROPERTY AND EQUIPMENT

               Property and equipment is recorded at acquisition cost and
               depreciated using the straight-line method over the estimated
               useful lives of the assets. Useful lives range from three to
               seven years. Expenditures for routine maintenance and repairs are
               charged to expense as incurred.

               INCOME TAXES

               The Company accounts for income taxes in accordance with the
               Statement of Financial Accounting Standards No. 109 (SFAS No
               109), "Accounting for Income Taxes." Deferred taxes are provided
               on a liability method whereby deferred tax assets are recognized
               for deductible temporary differences, operating loss carry
               forwards, and tax credit carry forwards, and deferred tax
               liabilities are recognized for taxable temporary differences.
               Temporary differences are the differences between the reported
               amounts of assets and liabilities and their tax bases. Deferred
               tax assets are reduced by a valuation allowance when, in the
               opinion of management, it is more likely than not that some
               portion or all of the deferred tax assets may not be realized.
               Deferred tax assets and liabilities are adjusted for the effects
               of changes in tax laws and rates on the date of enactment. State
               minimum taxes are generally expensed as paid.

               CASH AND CASH EQUIVALENTS

               Cash and cash equivalents include all highly liquid investments
               purchased with an original maturity of three months or less. The
               Company occasionally maintains cash balances in financial
               institutions in excess of the federally insured limits.

               STOCK BASED COMPENSATION

               In October 1995, the Financial Accounting Standards Board (FASB)
               issued SFAS No. 123, "Accounting for Stock-Based Compensation."
               SFAS No. 123 encourages, but does not require, companies to
               record compensation plans at fair value. The Company has chosen,
               in accordance with the provision of SFAS No. 123, to apply
               Accounting Principles Board Opinion No. 25, "Accounting for Stock
               Issued to Employees" (APB 25) for its stock plans. Under APB 25,
               if the exercise price of the Company's stock options is less than
               the market price of the underlying stock on the date of grant,
               the Company must recognize compensation expense. SFAS No. 123
               will be adopted for disclosure purposes only and will not impact
               the Company's financial position, annual operating results, or
               cash flows. For transactions with other than employees in which
               services were performed in exchange for stock, the transactions
               are recorded on the basis of the fair value of the services
               received or the fair value of the equity instrument issued,
               whichever is more readily measurable.


                                       29
<PAGE>   30


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
--------------------------------------------------------------------------------

               NET LOSS PER COMMON SHARE

               SFAS 128, "Earnings Per Share," requires companies with complex
               capital structures or common stock equivalents to present both
               basic and diluted earnings per share ("EPS") on the face of the
               income statement. Basic EPS is calculated as income available to
               common stockholders divided by the weighted average number of
               common shares outstanding during the period. Diluted EPS is
               calculated using the "if converted" method for common share
               equivalents such as convertible securities and options and
               warrants.

               FAIR VALUE OF FINANCIAL INSTRUMENTS

               Cash, accounts receivable, and accounts payable and accrued
               liabilities are reflected in the financial statements at cost,
               which approximates fair value because of the short-term maturity
               of those instruments. The fair value of the Company's debt and
               capital lease obligations are the same as the recorded amount
               because the rates and terms approximate current market
               conditions. The fair value of the related party obligations is
               not subject to fair value estimation due to their unique nature.

               STATEMENT OF COMPREHENSIVE INCOME

               In accordance with SFAS No. 130, "Reporting Comprehensive
               Income", the Company is required to report its comprehensive
               income, however, a statement of comprehensive income is not
               presented since the Company had no items of other comprehensive
               income.

               NEW ACCOUNTING PRONOUNCEMENTS

               SFAS No. 133, "Accounting for Derivative Instruments and Hedging
               Activities" and SFAS No. 138, "Accounting for Certain Derivative
               Instruments and Certain Hedging Activities, an Amendment of FASB
               133" establishes accounting and reporting standards for
               derivative instruments, including certain derivative instruments
               embedded in other contracts, and for hedging activities. These
               new standards are effective for all fiscal quarters of all fiscal
               years beginning after June 30, 2000. The Company adopted SFAS No.
               133, as amended by SFAS No. 138, on January 1, 2001, and such
               adoption had no impact on the Company's financial statements.

               In July 2001, SFAS No. 141, "Business Combinations," and SFAS No.
               142, "Goodwill and Other Intangible Assets," were issued. SFAS
               No. 141 changes certain accounting methods used for business
               combinations, primarily by eliminating use of the
               pooling-of-interests method effective July 1, 2001. SFAS No. 142
               establishes new guidance on how to account for goodwill and
               intangible assets after a business combination is completed.
               Among other things, goodwill and certain other intangible assets
               will no longer be amortized, but will now be tested for
               impairment. This statement will apply to existing goodwill and
               intangible assets, beginning with fiscal years starting after
               December 15, 2001. The Company does not expect that the adoption
               of these statements will have a material impact on the Company's
               financial position, results of operations, or cash flows.

               RECLASSIFICATIONS

               Certain 1999 financial statement amounts were reclassified to
               conform to the 2000 presentation.


                                       30
<PAGE>   31


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 2.        PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------

               Property and equipment consists of the following at December 31,
               2000 and 1999:
<TABLE>
<CAPTION>

                                                               2000              1999
                                                            --------          --------
<S>                                                         <C>               <C>
               Equipment owned under capital leases         $ 15,865          $ 15,865
               Office and computer equipment                  58,373            58,373
               Leasehold improvements                         20,067            20,067
               Less accumulated depreciation                 (50,993)          (31,803)
                                                            --------          --------
               Property and equipment, net                  $ 43,312          $ 62,502
                                                            ========          ========
</TABLE>

               Depreciation expense for the years ended December 31, 2000 and
               1999 was $19,190 and $17,217, respectively, and includes capital
               lease amortization.

--------------------------------------------------------------------------------
NOTE 3.        CAPITAL LEASE OBLIGATION
--------------------------------------------------------------------------------

               In December 1998, certain office equipment was acquired under the
               provisions of a long-term lease, and the Company has capitalized
               the minimum lease payments. The lease payments are for five years
               beginning in January 1999. As of December 31, 2000, the leased
               equipment has a recorded cost of $15,865, and total accumulated
               depreciation of $6,346 (see note 2).

               Future minimum lease payments under the capital lease and the net
               present value of the future minimum lease payments subsequent to
               December 31, 2000 are as follows:

               Future minimum lease payments                   $16,819
               Less: amount representing interest                4,614
                                                               -------
               Present value of minimum lease payments         $12,205
               Less: Current portion                             2,339
                                                               -------
               Long-term capital lease obligation              $ 9,866
                                                               =======

               Future minimum lease payments are $2,339 in 2001, $2,761 in 2002,
               $3,260 in 2003 and $3,845 in 2004.



                                       31
<PAGE>   32


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 4.        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
--------------------------------------------------------------------------------

               Accounts payable and accrued liabilities at December 31, 2000 and
               1999 consist of the following:

<TABLE>
<CAPTION>

                                                                               2000             1999
                                                                             --------         --------
<S>                                                                          <C>              <C>
               Accounts payable                                              $231,811         $152,595
               Accrued liabilities:
                    Payroll taxes and related penalties and interest          175,808          144,215
                    Professional fees                                          60,500          115,000
                    Accrued interest                                           48,333           22,355
                    Product warranty and replacement                           25,000           25,000
                    Accrued sales taxes and other                              18,928           15,733
                                                                             --------         --------
                         Total                                               $560,380         $474,898
                                                                             ========         ========
</TABLE>


--------------------------------------------------------------------------------
NOTE 5.        LITIGATION SETTLEMENT
--------------------------------------------------------------------------------

               In late 1998, a group of shareholders known as "Simray" brought a
               lawsuit against the Company in connection with the merger of MPI
               and ESI, as described in note 1. Simray was a shareholder and
               creditor of MPI, both prior to the merger and after the merger,
               and was a former distributor of the Company's products. This
               lawsuit was settled in March 1999 by satisfying an existing
               outstanding loan of $100,000 and the issuance of 600,000 shares
               of the Company's common stock. In connection with the issuance of
               common stock the Company recorded a charge to litigation
               settlement expense of $525,000. The settlement terms also granted
               the Company a one-year repurchase, or "call" provision, on
               300,000 of the 600,000 shares. However, if the Company did not
               exercise their call provision, then Simray had a "put" provision
               to force the Company to repurchase the 300,000 shares.

               In March 2000, after the one-year call provision expired, Simray
               exercised their put and demanded $361,000 from the Company for
               the repurchase of the shares. Simray subsequently obtained a
               judgment against the Company. As a result, the Company filed
               voluntary bankruptcy to protect itself from collection actions on
               Simray's judgment. At December 31, 1999, the Company accrued a
               litigation settlement in the amount of $361,000.

               In November 2000, the Company and Simray reached an agreement to
               settle the litigation liability. In exchange for $200,000 cash,
               50,000 shares of the Company's common stock, and options to
               purchase 250,000 shares of the Company's common stock at a 25%
               discount, Simray would assign their position in the judgment to
               another party. A shareholder of the Company paid the $200,000
               cash, another shareholder of the Company transferred 50,000
               shares of his personally owned common stock, and the Company
               executed the stock option agreements pursuant to the
               above-described terms. As a result, the $361,000 judgment was
               assigned from Simray to the shareholder who paid the $200,000. A
               value of $9,000 was placed on the 50,000 transferred shares, and
               a liability was recorded for this amount. In December 2000, the
               Company settled the $361,000 liability with the shareholder by
               issuing 7,220,000 shares of common stock.


                                       32
<PAGE>   33


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 6.        DEBT OBLIGATIONS
--------------------------------------------------------------------------------

               NOTE PAYABLE - SHAREHOLDER

               One September 1, 1999, the Company issued a $150,000 unsecured
               promissory note to a shareholder. The note originally matured on
               September 1, 2000, but it was extended on July 1, 2001 to now be
               due on June 30, 2002. The note bears interest at a rate of 12.5%,
               and interest was accrued during the period the note was in
               default. For the years 2000 and 1999, $18,750 and $6,250,
               respectively, was charged to interest expense for the stated
               coupon rate. Effective October 15, 2000, the face amount of the
               note was increased to $170,000 to reflect an additional cash
               advance made to the Company by the shareholder. As additional
               consideration for the note extension, the Company granted the
               shareholder a security interest in certain assets of the Company.

               In connection with the original 1999 issuance, the shareholder
               was also issued 50,000 shares of the Company's common stock. The
               shares were recorded into equity at their fair market value of
               $12,000, and amortized into interest expense over the original
               one-year term. For the years ended 2000 and 1999, $8,000 and
               $4,000, respectively, was charged to interest expense for the
               share issuance.

               CONVERTIBLE PROMISSORY NOTES

               On September 1, 1999, the Company issued $200,000 of unsecured
               convertible promissory notes to three individuals. The notes bear
               interest at a rate of 8.75%, payable at maturity. For the years
               2000 and 1999, $17,500 and $5,833, respectively, was charged to
               interest expense for the stated coupon rate. The original notes
               were due September 1, 2001, but the holders agreed to certain
               modifications on July 1, 2001, as further described below.

               The original notes contained the following conversion feature: as
               of December 31, 2000 and until maturity, the outstanding balance
               of principal and interest is convertible, at the option of the
               holder, into shares of the Company's common stock at a conversion
               price of 20% below the average closing bid prices of the common
               stock for the 90 days prior to conversion. According to
               applicable accounting principles, the 20% discount on the
               conversion price is a beneficial conversion feature. At the date
               of issuance, this discount was valued at $44,667 and was charged
               to additional paid-in capital and as a reduction of the
               promissory notes at issuance. The $44,667 has been accreted to
               interest expense from the date of issuance through December 31,
               2000. For the years ended 2000 and 1999, $33,500 and $11,167,
               respectively, was charged to interest expense as a result of the
               beneficial conversion feature.

               Effective July 1, 2001, these three promissory notes were
               amended. One creditor, whose note was for $100,000, agreed to
               extend the due date to June 30, 2002 and waived all rights to
               participate in the above described conversion feature, in
               exchange for the Company agreeing to pay accrued interest
               immediately and future interest currently. The other two
               creditors agreed to extend the due date to June 30, 2002 in
               exchange for an additional 5% discount on the conversion price.
               As a result of the conversion discount change, the Company
               recomputed the beneficial conversion feature for these notes, and
               as a result, will take a $10,999 additional charge to interest
               expense in July 2001.


                                       33
<PAGE>   34


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 7.        INCOME TAXES
--------------------------------------------------------------------------------

               A summary of the provision for income taxes for the years ended
               December 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>

<S>                                                                     <C>                <C>
                                                                           2000               1999
                                                                        ---------          ---------
               Currently payable:
                  Federal                                               $      --          $      --
                  State                                                        --                 --
               Deferred benefit, federal and state                        448,720            733,680
               Change in deferred tax asset valuation allowance          (448,720)          (733,680)
                                                                        ---------          ---------
                          Income tax provision                          $      --          $      --
                                                                        =========          =========
</TABLE>

               Temporary differences between the financial statement carrying
               amounts and tax bases of assets and liabilities that give rise to
               net deferred tax assets at December 31, 2000 and 1999 relate to
               the following:
<TABLE>
<CAPTION>

                                                                                   2000                 1999
                                                                                -----------          -----------
<S>                                                                             <C>                  <C>
               Available federal and state net operating loss carryover         $ 1,769,250          $ 1,432,220

               Stock options granted to other than employees                         11,420                  480

               Accrued expenses, not deductible until paid                          135,230               34,480

               Less: valuation allowance                                         (1,915,900)          (1,467,180)
                                                                                -----------          -----------
                          Net deferred tax asset                                $        --          $        --
                                                                                ===========          ===========
</TABLE>


              The Company has used a combined estimated federal and state tax
              rate of approximately 40% for all deferred tax computations. The
              tax benefit prior to the allowance differs from the Federal
              statutory rate of 40% because of permanent differences, arising
              primarily from non-deductible expenses, and the effect of state
              income taxes.

              The Company has recorded a valuation allowance in accordance with
              the provisions of SFAS No. 109 to reflect the estimated amount of
              deferred tax assets that may not be realized. In assessing the
              realizability of deferred tax assets, management considers whether
              it is more likely than not that some portion or all of the
              deferred tax assets will not be realized. The ultimate realization
              of deferred tax assets is dependent upon the generation future
              taxable income during the periods in which temporary differences
              and/or carryforward losses become deductible.

              The Company has available tax net operating loss carryovers
              ("NOLs") as of December 31, 2000 of approximately $4,423,000. The
              NOLs expire beginning in 2008. Certain provisions of the tax law
              may limit the net operating loss carryforwards available for use
              in any given year in the event of a significant change in
              ownership interest. There have already been significant changes in
              stock ownership; however, management believes that an ownership
              change has not yet occurred which would cause the net operating
              loss carryover to be limited.


                                       34
<PAGE>   35


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 8.        STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

               PREFERRED STOCK

               The Company has authorized 50,000,000 shares of $0.01 stated
               value preferred stock. The Company is authorized to provide for
               the issuance of shares of preferred stock and to establish the
               number of shares included in each series and to fix the
               designation, voting powers, preferences and relative rights and
               qualifications, limitations or restrictions of each such series.

               In April 1997, the Company designated all 50,000,000 shares of
               the preferred stock as Class A Preferred Stock. The holders of
               Class A Preferred Stock have no voting rights and each Class A
               Preferred share is convertible into 10 common shares for a period
               of five years from the date of any issuance at a conversion price
               of $0.10 per common share.

               In November 1997, the Board of Directors of the Company resolved
               to reverse split the Class A Preferred Stock on a 1 for 50 share
               basis. The reported shares of the Company have been restated to
               January 1, 1999 for this stock split. The shareholders agreed to
               adjust the conversion terms so the ratio for conversion remained
               at 10 shares of common stock for each share of preferred stock.

               During 1999, a preferred shareholder converted 20 shares of
               preferred stock into 200 shares of common stock. The Company
               received $20 cash in connection with the conversion.

               COMMON STOCK

               The Company has authorized 100,000,000 shares of $0.001 stated
               value common stock. The holders of the common stock are entitled
               to one vote per share and have non-cumulative voting rights. The
               holders are also entitled to receive dividends when, as, and if
               declared by the Board of Directors. Additionally, the holders of
               the common stock do not have any preemptive right to subscribe
               for, or purchase, any shares of any class of stock.

               During 2000, the Company sold 6,120,199 shares of common stock
               that resulted in net proceeds of $458,403, and also issued
               1,758,917 shares of common stock to employees and 2,484,219
               shares of common stock for services. Management of the Company
               placed a value of $72,316 on the employee compensation and
               $214,586 on the services performed.

               As described in note 5, a liability was settled through the
               issuance of 7,220,000 shares common stock during the year ended
               2000, and a loan was satisfied in 1999 through the issuance of
               600,000 shares of common stock.

               During 1999, the Company sold 2,154,342 shares of common stock
               that resulted in net proceeds of $731,506, and also issued
               170,000 shares of common stock to employees and 145,000 shares of
               common stock for services and interest. Management of the Company
               placed a value of $30,600 on the shares issued for employee
               compensation, and $29,800 on the shares issued for interest and
               services performed.


                                       35
<PAGE>   36


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 8.        STOCKHOLDERS' EQUITY (continued)
--------------------------------------------------------------------------------


               STOCK OPTIONS - NON-EMPLOYEES

               During March 2000, the Company issued 250,000 common share stock
               options in connection with the litigation settlement described in
               note 5. The exercise price of these options is stated as being an
               amount that is 25% below the market price of the Company's common
               shares on the date of exercise. These options are immediately
               exercisable, and expire two years from the date of issuance. The
               Company placed a value of $27,347 on these options, and recorded
               the charge as litigation settlement expense.

               During December 1999, the Company issued 20,000 common share
               stock options for services provided by other than employees of
               the Company. The exercise price of these options is $0.19. The
               Company placed a value of $1,200 on these options, and recorded
               compensation expense in accordance with SFAS No. 123. These
               options vested immediately, and expire two years from the date of
               issuance.

               STOCK OPTION PLAN - EMPLOYEES

               On March 25, 1999, the Board of Directors approved the creation
               of a stock option plan (the "Plan"), and reserved 1,000,000
               shares of the Company's common stock for options to be granted
               under the Plan. During December 1999, the Company issued 45,000
               stock options to employees that are exercisable for 45,000 shares
               of common stock at a fair value exercise price of $0.19. These
               options immediately vested, and they expire in two years from
               issuance.

               During April 2000, the Company issued 150,000 stock options to a
               director. The options are exercisable for 150,000 shares of
               common stock at a fair value exercise price of $0.15. These
               options vested immediately, and they expire in eight years from
               issuance.

               STOCK OPTIONS - PRO FORMA DISCLOSURE

               SFAS No. 123 requires entities that account for awards for
               stock-based compensation to employees in accordance with APB 25
               to present pro forma disclosures of results of operations and
               earnings per share as if compensation cost was measured at the
               date of grant based on the fair value of the award. The fair
               value for these options was estimated at the date of grant using
               a Black-Scholes options pricing model with the following
               weighted-average assumptions: a risk-free interest rate of 8.00%,
               zero dividend yield, 90% volatility and a weighted-average
               expected life of the option of two years. The fair value of each
               of employee the options was approximately $0.06 at December 31,
               1999.

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


                                       36
<PAGE>   37


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 8.        STOCKHOLDERS' EQUITY (continued)
--------------------------------------------------------------------------------


               For purposes of pro forma disclosures, the estimated fair value
               of the options is amortized to expense over the options' vesting
               period. Under these conditions, the Company's net loss of
               $1,123,654 for the year ended December 31, 2000 would have been
               increased to the pro forma amount of $1,141,647, and the
               Company's net loss of $1,949,570 for the year ended December 31,
               1999 would have been increased to the pro forma amount of
               $1,952,270. The Company's basic and diluted loss per share of
               $0.0522 for the year ended December 31, 2000 would have been
               increased to the pro forma loss per share of $0.0531, and the
               Company's basic and diluted loss per share of $0.1459 for the
               year ended December 31, 1999 would have been increased to the pro
               forma loss per share of $0.1461.

               The pro forma amounts may not be representative of the future
               effects on reported net income and earnings per share that will
               result from the future granting of stock options since future pro
               forma compensation expense may be allocated over the periods in
               which options become exercisable and new option awards may be
               granted each year.

               STOCK OPTION ACTIVITY SUMMARY

               The following table presents the Company's stock option activity
               for the two years ended December 31, 2000:
<TABLE>
<CAPTION>

                                                             OPTIONED          WEIGHTED-AVERAGE
                                                              SHARES            EXERCISE PRICE
                                                            ------------     -------------------

<S>                                           <C>                                       <C>
               Options outstanding at January 1, 1999                --                 $  --
               Issued in 1999                                    65,000                  0.19
               Forfeited in 1999                                     --                    --
                                                                -------                 -----
               Options outstanding at December 31, 1999          65,000                 $0.19
               Issued in 2000                                   400,000                  0.14
               Forfeited in 2000                                     --                    --
                                                                -------                 -----

               Options outstanding at December 31, 2000         465,000                 $0.15
                                                                =======                 =====
</TABLE>


               The weighted-average exercise price of the options issued in
               2000, and the totals as of December 31, 2000, are estimated,
               because of the variable exercise price of 250,000 of the options,
               as described above. The employee options expire as follows:
               45,000 in December 2001, and 150,000 in April 2008. The
               non-employee options expire as follows: 20,000 in January 2002,
               and 250,000 in March 2002. All options outstanding at December
               31, 2000 and 1999 are available for exercise by the option
               holder.


                                       37
<PAGE>   38


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 9.        COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

               LEASES

               The Company leases its office space under a lease expiring in
               March 2003, as well as certain other equipment. Future minimum
               lease payments under these operating leases are approximately as
               follows: $29,121 in 2001, $25,390 in 2002 and $5,703 in 2003.
               Total rental expense incurred during 2000 and 1999 was $43,678
               and $50,750, respectively.

               LITIGATION

               The Company is involved in a legal action relating to the
               December 1998 termination for cause of the employment of Mr.
               Patrick Cioffi, Jr., its former president. The Company alleges,
               among other things, that Mr. Cioffi inappropriately received
               payments from a vendor, gave himself an unauthorized salary
               increase, sexually harassed a female employee, and misrepresented
               his educational background and professional credentials before
               being hired. The Company further alleges that Cioffi fraudulently
               induced it to enter into an employment agreement, and therefore
               the employment agreement should be deemed void and his stock
               compensation arrangement cancelled. Mr. Cioffi has filed an
               arbitration action against the Company claiming damages,
               including $450,000 for lost wages, the value of the stock
               compensation arrangement, and legal fees. The matter is presently
               scheduled for arbitration in September 2001. It is the position
               of the Company that the claim of Mr. Cioffi lacks merit and that
               the Company had valid business reasons to terminate his
               employment. Counsel to the Company is unable to opine as to the
               ultimate outcome, or to the amount of damages should Cioffi
               prevail. At December 31, 2000, management has recorded accruals
               for legal fees and related expenses, but no reserve has been
               recorded for the amount of damages, if any, that the arbitrator
               may award to Cioffi, should he prevail.

               In addition to the Cioffi matter above, the Company is from time
               to time exposed to claims and legal actions in the normal course
               of business, some of which are initiated by the Company.
               Management believes that the settlement or resolution of any
               other such actions, if any, will not have a material effect on
               the financial position or results of operations of the Company.

               SECURITIES AND EXCHANGE COMMISSION (SEC) COMPLIANCE

               In January 2000, pursuant to a SEC filing on Form 10-SB in
               November 1999, the Company became subject to the periodic
               reporting rules of the 1934 Securities Exchange Act. As of August
               9, 2001, the Company has not filed its annual, quarterly, or
               periodic reports as required by the '34 Act and the regulations
               of the SEC. Management of the Company expects all past due SEC
               reports to be filed before the end of September 2001. What
               actions, if any, the SEC may take as a result of the Company's
               non-compliance is unknown.


                                       38
<PAGE>   39


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 10.       NET LOSS PER COMMON SHARE
--------------------------------------------------------------------------------

               For the years ended December 31, 2000 and 1999, weighted average
               common shares include only common shares outstanding. The
               inclusion of common share equivalents would be anti-dilutive and,
               as such, they are not included. However, the common stock
               equivalents, if converted, would have increased common shares
               outstanding at December 31, 2000 and 1999 by 1,698,533 and
               465,200 shares, respectively. The 2000 common stock equivalents
               were computed using an assumed conversion price of $0.12 for the
               convertible promissory notes (see note 6).

               A reconciliation of the number of common shares shown as
               outstanding in the financial statements with the number of shares
               used in the computation of weighted average common shares
               outstanding is shown below:

<TABLE>
<CAPTION>

                                                                                2000               1999
                                                                            ----------         ----------
<S>                                                                         <C>                <C>
               Common shares outstanding at December 31st                   32,694,085         15,110,750
               Effect of weighting                                          11,180,276          1,750,235
                                                                            ----------         ----------
                         Weighted average common shares outstanding         21,513,809         13,360,515
                                                                            ==========         ==========
</TABLE>


--------------------------------------------------------------------------------
NOTE 11.       RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

               On June 12, 1998, the Company entered into a two-year agreement
               with Matthew J. Bruderman, who owns and operates an investment
               advisory firm, M.J. Bruderman & Company (the "firm"), to provide
               financial consulting services, including but not limited to, the
               raising of investment capital for the Company. This agreement was
               amended on January 7, 2000, retroactive to June 12, 1998. At
               December 31, 1999, the Company had accrued $80,000 of expense
               relating to services performed pursuant to this agreement. During
               2000, the Company issued 250,000 shares of its common stock as
               compensation for the prior years' services. Also during 2000, Mr.
               Bruderman received 400,000 shares for his services as a
               consultant to the Company and as a director of the Company.

               As described in note 5, pursuant to the Simray settlement, 50,000
               shares of common stock were transferred to Simray. A principal
               stockholder transferred his personal shares of stock in
               connection with this settlement. Management placed a value of
               $9,000 on these shares and as a result has recorded a liability
               to this shareholder. This shareholder also advanced $4,000 to the
               Company during 2000.

               As described in note 5, pursuant to the Simray settlement, a
               $200,000 cash payment was required. A stockholder made the
               $200,000 payment and assumed Simray's position in the judgment.
               This cash payment was recorded as a capital contribution as of
               December 31, 2000, and this stockholder's position in the
               judgment was satisfied during 2000 with the issuance of 7,220,000
               shares of common stock.


                                       39
<PAGE>   40


                                 MICROBEST, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 12.       SUBSEQUENT EVENTS
--------------------------------------------------------------------------------


               INTERNAL REVENUE SERVICE (IRS) LIABILITY AND LIEN

               The Company was delinquent in the depositing of some of its
               payroll taxes in periods as far back as December 1997. According
               to IRS records, the Company owed $184, 433 in taxes, penalties
               and interest as of July 20, 2001. On July 26, 2001, the Company
               and the IRS entered into an installment agreement under which the
               Company will pay $5,000 per month beginning August 10, 2001. All
               amounts due to the IRS have been accrued by the Company, and are
               included in the balance sheet under the caption "accounts payable
               and accrued liabilities" (see note 4). To secure its position in
               the unpaid taxes, the IRS has filed a tax lien against the
               Company. Under the terms of the installment agreement, if the
               Company defaults on a payment, the IRS has the right to cancel
               the agreement, and then proceed to collect the entire amount by
               levy on the Company's bank accounts, other assets, or by seizing
               the property of the Company. Management believes that the
               installment agreement will be complied with, and that the IRS
               will not take any action to seize the Company's assets. However,
               any action taken by the IRS to collect the debt beyond the agreed
               upon monthly payment may have a significant material effect on
               the financial position of the Company, and if assets are seized,
               the Company may be unable to continue in operation.

               FINANCIAL COMMITMENT

               On February 16, 2001, the Company received a $1 million financial
               commitment from Forward Looking Technologies, Inc. ("FLT"), a
               venture capital group. Through August 9, 2001, FLT has advanced
               $335,000 to the Company for which it received 2,719,118 shares of
               common stock.

               DEBT EXTENSIONS AND CHANGES

               Effective July 1, 2001, a series of changes were made to the
               Company's debt obligations. These changes included an extension
               of due dates, and a partial cancellation of a feature allowing
               for conversion of the debt into shares common stock. These
               changes are more fully described in Note 6 above.

               SUBSEQUENT ISSUANCES OF COMMON STOCK

               Subsequent to December 31, 2000, and through August 9, 2001, the
               Company has raised cash of approximately $410,500 through the
               issuance of 3,196,639,shares of its common stock, including the
               FLT investment described above. The Company has also issued
               275,000 shares of its common stock for purposes other than
               raising cash.


                                       40