<PAGE>
                    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, 2001

                          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 [X]   NO [ ]

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. [X]

The issuer's revenues for the fiscal year ended December 31, 2001 were
$617,538.

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, 2001 the aggregate
market value of all common equity held by non-affiliates was $3,654,723.

As of March 31, 2002, there were 40,380,547 shares of common stock issued and
outstanding.


<PAGE>


                FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2001


                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
PART I                                                                                                         PAGE

<S>                                                                                                            <C>
         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                                           8

PART II

         Item 5.  Market for Common Equity and Related Shareholder Matters                                      8
         Item 6.  Management's Discussion and Analysis of Financial Condition and
                  Results of Operations                                                                        10
         Item 7.  Financial Statements                                                                         15
         Item 8.  Changes In and Disagreements with Accountants on accounting and
                  financial disclosure                                                                         15

PART III

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

SIGNATURES                                                                                                     20

EXHIBITS
</TABLE>


                                       2
<PAGE>


                                     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.


                                       3
<PAGE>


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.


                                       4
<PAGE>


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 2001 and 2000:

<TABLE>
         <S>                                             <C>
         FloorWash (90% of sales)                        BioDeodorizer (*% of sales)
         IBC Industrial Biocleanser (*% of sales)        Surface & Glass Cleaner (*% of sales)
         MultiPurpose Degreaser (*% of sales)
</TABLE>

         * 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.


                                       5
<PAGE>


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) assist in bringing 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


                                       6
<PAGE>


years the Company's products have not been duplicated. Several formidable
competitors have shown an interest 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, 2001, the company employed 3 full time employees and 2 part
time employees. The Company believes it has satisfactory relations with its
employees.

BANKRUPTCY

On June 1, 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. In August 2000, the Company reached a new settlement with
SIMRAY. After executing this settlement agreement the Company applied for and
was granted dismissal from the Bankruptcy on October 27, 2000. (See Item 3,
Legal Proceedings)

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
runs through March 2003, with annual rental of approximately $33,000. 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 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.


                                       7
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

As previously reported in our annual report on FORM 10-KSB for the year ended
December 31, 2000 (see Item 3, Legal Proceedings-The Cioffi Matter) the Company
was involved in a legal action relating to the termination of its former
president. On August 28, 2001 the Company and Mr. Cioffi settled the matter.
Based on the obligations agreed to in the settlement, the Company was required
to make cash payments of $115,000 ($90,000 was paid in four installments
between September 7, 2001 and February 28, 2002 and $5,000 is to be paid each
April 28 from 2002 through 2006) and to issue 20,000 shares of common stock.
The Company recorded a litigation settlement charge of $113,422 to reflect its
obligations under the settlement.

In November 2000, the Company reached a final agreement to settle protracted
litigation with two former shareholders, Raymond Evans and Simon Mundlak
(hereinafter SIMRAY)who were also creditors. 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 agreed to assign their judgment against the Company to shareholders of
the Company. One shareholder paid the $200,000 cash, another 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 judgment liability with the shareholder by issuing 7,220,000 shares of
common stock.

The Company has $220,004 in trade account payable as of December 31, 2001, of
which $150,740 is over ninety days past due, and $94,981 of which is over one
year old. Eight vendors have instituted collection proceedings against the
Company relative to these past due obligations. One claimant was granted a
default judgment in the amount of $11,436 and another vendor is threatening a
suit for $10,714. Management is handling each claim separately and to date has
generally been successful in working out amicable settlements. The majority of
the Company's creditors have been gracious in working with management to
resolve this problem.

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, 2001 there were 39,553,276 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 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. On October 30, 2001 the
Company's Board of Directors reserved an additional 1,000,000 shares of common


                                       8
<PAGE>


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

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.

On March 30, 2001 the Company issued 850,000 options to officers, directors and
employees of the Company, and issued 200,000 options to non- employee
consultants all at an exercise price of $.09

Because the shareholders did not approve the Plan, the options granted are
deemed to be non-qualified.

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 for a
period of five years from the date of issue at a ratio of 10 common shares for
each preferred share, upon the payment of a conversion price of $.10 per each
common share received. The conversion period for the 40,020 issued preferred
shares 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 unsecured, 8 3/4%
Convertible Promissory Notes, with a two years maturity. After 15 months the
principal and interest are convertible, at the option of the holder, into
shares of the Company's common stock at a conversion price 20% below the market
price. On July 1, 2001 the note holders agreed to extend the due date to June
30, 2002. One $100,000 note holder waived his conversion rights in exchange for
monthly cash interest payments on his note. The other two holders received an
additional 5% on their conversion discount for extending the due date.

Also on September 1, 1999, the Company issued a one year $150,000 unsecured
promissory note, with interest at 12 1/2% due at maturity. On July 1, 2001 the
due date was extended to June 30, 2002. The note was increased to $170,000 on
October 15, 2000 for an additional $20,000 cash advance made to the Company.

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 been
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.


<TABLE>
<CAPTION>
                                                           HIGH BID         LOW BID
                                                           --------         -------
<S>                                                        <C>              <C>
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
July 1, 2001 through September 30, 2001 ........            $0.24            $0.13
October 1, 2001 through December 31, 2001 ......            $0.19            $0.05
</TABLE>


                                       9
<PAGE>


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, 2001 relying on
exemptions from registration under section 4 (2) the Securities Act of 1933:

During 2000 the Company issued 6,120,199 shares of common stock for cash of
$458,403.

During 2000 the Company issued 1,758,917 shares of common stock to employees.
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 2001 the Company issued 4,987,191 restricted shares of common stock for
cash of $609,225.

During 2001 the Company issued 1,725,000 shares of common stock to employees.
Management placed a value of $192,000 on these shares as employee compensation.

During 2001 the Company also issued 827,000 shares of common stock for services
and interest. Management placed a value of $89,177 on the services provided.

On August 24, 2001 the Company issued 150,000 shares of common stock upon
exercise of a stock option at the exercise price of $22,500.

On August 26, 2001 the Company issued 20,000 shares of common stock for a
$5,000 litigation settlement.

During 2001 the Company cancelled 850,000 shares of common stock for a value of
$51,000 that were previously issued as part of a consulting agreement with a
third party, upon cancellation of such agreement.

As of December 31, 2001 there were approximately 920 holders of record of the
Company's common stock.

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


                                      10
<PAGE>


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 modest presence for its
products in that market. For the past two years the Company has expanded its
marketing efforts to include the Janitorial and Sanitary (Jan/San) Distributor
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 and
Jan/San industries. For the two years ended December 31, 2001, the company
generated $1,260,475 in net sales. During this same two years the company
recorded net losses of $2,070,530. The Company generated $1,274,308 from
financing activities during this period to help fund the shortfall in working
capital.

LIQUITY AND CAPITAL RESOURCES

For the two years ended December 31, 2001 the Company issued 24,442,526 shares
of common stock for cash, to employees, for services and for litigation
settlements as restricted under rule 144, in reliance on Section 4 (2) of the
Securities Act of 1933. Accredited investors have provided the funds necessary
to cover the Company's shortfall in working capital during the past two years.

On September 1, 1999, the Company issued $200,000 of unsecured, 8 3/4%
Convertible Promissory Notes, with a two years maturity. After 15 months the
principal and interest are convertible, at the option of the holder, into
shares of the Company's common stock at a conversion price 20% below the market
price. On July 1, 2001 the note holders agreed to extend the due date to June
30, 2002. One holder of a $100,000 note waived his conversion rights in
exchange for monthly cash interest payments on his note. The other two holders
received an additional 5% on their conversion discount for extending the due
date. These notes are currently due on June 30, 2002, and the Company presently
expects that sufficient cash will not be generated from operations to repay
them on that date. The Company does not know if the note holders will extend
the due date again, and the Company has not identified a new source of
financing if the note holders do not extend. If the notes go into default on
June 30, 2002, the Company's ability to continue may be in jeopardy.


                                      11
<PAGE>


Also on September 1, 1999, the Company issued a one year $150,000 unsecured
promissory note, with interest at 12 1/2% due at maturity. On July 1, 2001 the
due date was extended to June 30, 2002. The note was increased to $170,000 on
October 15, 2000 for an additional $20,000 cash advance made to the Company.
This note is currently due on June 30, 2002 and the Company presently expects
that sufficient cash will not be generated from operations to repay the note on
that date. The Company does not know if the note holder will extend the due
date again and the Company has not identified a new source of financing if the
note holder does not extend. If the note goes into default on June 30, 2002,
the Company's ability to continue may be in jeopardy.

On February 16, 2001 the Company received a one-year $1,000,000 Financial
Commitment, from Forward Looking Technologies Inc., (FLT), a venture capital
group specializing in funding emerging growth technology companies, with an
emphasis on solutions to pressing environmental issues. During the one year
term of the commitment the Company received $698,775 for which it issued
5,541,443 restricted shares of common stock without registration in reliance
upon section 4 (2) of the Securities Act of 1933. The stock was issued at a 25%
discount to the market, in accordance with the terms of the commitment. The
commitment expired on February 28, 2002. On March 1, 2002 FLT extended its
Financial Commitment under the same terms and conditions for one more year for
the balance of the $1,000,000. For a short time after the disasters of
September 11th FLT had some liquidity restrictions and was not able to meet the
Company's take down request on a timely basis. This situation is now corrected.
(See Item 12 Certain Relationships and Related Transactions)

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. These sales of stock are costly to the Company because
of the decline in the market price of the Company's common stock over the past
few years. The low bid price dropped to a low of $.05 after being removed from
the OTC/BB on January 20, 2000 because of Rule 6530.For the past two years the
shares have traded as low as $0.04 per share on the National Quotation Bureau's
Electronic Quote System. If the Company is unable to raise additional capital
in the future 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.

As previously reported in our annual report on FORM 10-KSB for the year ended
December 31, 2000 (see Item 3, Legal Proceedings-The Cioffi Matter,) the
Company was involved in a legal action relating to the termination of its
former president. On August 28, 2001 the Company and Mr. Cioffi settled the
matter. Based on the obligations agreed to in the settlement the Company was
required to make cash payments of $115,000 ($90,000 was paid in four
installments between September 7, 2001 and February 28, 2002 and $5,000 is to
be paid each April from 2002 through 2006) and to issue 20,000 shares of common
stock. The Company recorded a litigation settlement charge of $113,422 to
reflect its obligations under the settlement.

In November 2000, the Company reached a final agreement to settle protracted
litigation with two former shareholders, Raymond Evans and Simon Mundlak
(hereinafter SIMRAY)who were also creditors. 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 agreed to assign their judgment against the Company to shareholders of
the Company. One shareholder paid the $200,000 cash, another 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 judgment liability with the shareholder by issuing 7,220,000 shares of
common stock.

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

Due to insufficient cash generated from operations, the Company presently does
not have cash available to pay its already incurred accounts payable and other
liabilities. Obligations are being met on a week-to-week basis as cash becomes
available. There can be no assurance given that the Company's present flow of


                                      12
<PAGE>


cash, both from operations and the FLT financial commitment, will be sufficient
to meet current and future obligations. The Company continues to require
additional investment capital to fund operations and development. As such,
these factors, as well as other factors discussed in "financial condition"
below, raise substantial doubt about the Company's ability to continue as a
going concern.

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
                                                                          -----------------------------------------
                                                                          2001              2000              1999
                                                                          -----             -----             -----
<S>                                                                       <C>               <C>               <C>
                       BALANCE SHEET DATA
Current Assets ...............................................            $  59             $ 124             $ 113
Current Liabilities ..........................................            $(940)            $(579)            $(845)
                                                                          -----             -----             -----
Working Capital (Deficit) ....................................            $(881)            $(455)            $(732)
Total Asset ..................................................            $  90             $ 174             $ 178
Total Liabilities ............................................            $(962)            $(959)           $(1173)
                                                                          -----             -----             -----
 Stockholders Equity (Deficit) ...............................            $(872)            $(785)            $(995)
                                                                          -----             -----             -----

                  STATEMENT OF OPERATIONS DATA
Net Sales ....................................................            $ 618             $ 643             $ 486
Gross Profit (Loss) ..........................................            $ 239             $ 332             $ 222
Expenses
Salaries Wages & Benefits ....................................            $ 611             $ 615             $ 700
Occupancy and administration  Costs ..........................            $ 135             $ 170             $ 189
Travel .......................................................            $  67             $  66             $  96
Professional Fees ............................................            $ 108             $ 216             $ 138
Marketing Expenses ...........................................            $ 136             $  62             $  94
Interest Expense .............................................            $  67             $  90             $  69
Litigation Settlement ........................................            $ 113             $ 236             $ 886
                                                                          -----             -----             -----
Total Expenses ...............................................            $1237             $1455             $2172
Other Income .................................................            $  51                --                --
                                                                          -----             -----             -----
Net Income (Loss) ............................................            $(947)           $(1123)           $(1950)
                                                                          -----             -----             -----
</TABLE>

FINANCIAL CONDITION

The Company's working capital deficit increased by $425,761 in 2001primarily
because $370,000 in notes payable became current and because receivables and
inventories were at their lowest level in three years because of reduced sales
activity and lack of funds to replenish inventories. Other current liabilities
in 2001 were $9,429 less than in 2000 but the aging of these liabilities are
much older. Negative working capital at the end of 2000 was $455,109 compared
with $844,926 at the end of 1999 mainly as a result of settling the $361,000
SIMRAY obligation for stock in 2000 (See above, Item 3. Legal Proceedings and
Note 5 Litigation Settlement).

The Company has $220,004 in trade accounts payable as of December 31, 2001, of
which $150,740 is over ninety days past due, and $94,981 of which is over one
year old. Eight vendors have instituted collection proceedings against the
Company relative to these past due obligations. One claimant was granted a
default judgment in the amount of $11,436 and another vendor is threatening a
suit for $10,714. Management is handling each claim separately and to date has
been generally successful in working out amicable settlements. The majority of
the Company's creditors have been gracious in working with management to
resolve this problem.

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


                                      13
<PAGE>


month to settle this obligation. All amounts due per the IRS have been accrued
by the Company and are included on the balance sheet ($164,390 and $175,808 at
December 31, 2001 and 2000 respectively). As a result of cash flow problems,
the Company is delinquent on four of its monthly payments as of March 25, 2002
and is currently working with the IRS on an Offer In Compromise for a more
equitable settlement of this issue. 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 2001 is
$5,838,534 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 $4,966,765 in the
Company's capital accounts reflecting the equity it has been able to record
through issuances of its common and preferred 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's sales for the year 2001 were $618,000, a decrease of $25,000 from
the prior year and the first year in the Company's history that sales
decreased. Previously the Company has had modest sales increases each year
since it was founded. Sales for the first nine months of 2001 were modestly
ahead of 2000 but sales in the fourth quarter of 2001 were $35,000 less than
the fourth quarter 2000. Management believes this reduction is temporary and is
primarily a reaction by customers to the disaster of September 11th and the
resultant slow down in the economy. Sales for the first quarter in 2002 are
closer to the same level as the prior year.

The increase of $157,000 in net sales in 2000 as compared to 1999 is primarily
the result of initial sales to school systems throughout the State of Florida,
expansion of sales by a west-coast distributor who began selling for the
company at the end of 1999 and several major orders from one industrial
customer.

Gross profit margins decreased in the last quarter of and for the year 2001
because of a non-recurring $49,500 adjustment for contaminated inventory that
had to be destroyed. Additionally, because of cash flow constraints late in
2001, the Company had to make shorter than normal production runs at higher
costs which could not be passed on.

Prior to 1999 the Company increased its operating expenses significantly to
support the marketing expansion plan initiated during 1997. The majority of the
increase involved sales and marketing efforts, including staff and peaked in
1999. As economy measures in 2000 the Company closed a warehouse and
distribution center and released under performing members of its sales staff
generating an approximate 10% decrease in Salaries, Wages & Benefits for 2000
and 2001.

Occupancy and administrative costs were reduced $19,000 in 2000 and an
additional $35,000 in 2001as economy measures by cutting back on long distance
telephone, office supplies and other office expenses.

Travel was curtailed in 2001 and 2000 as a cost cutting move.

Professional fees were high 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.

Professional fees returned to more normal levels in 2001 for auditing and
consulting work but still reflect high legal fees associated with the
settlement of the Cioffi matter (See Item 3 Legal Proceedings above).


                                      14
<PAGE>


Marketing expenses were higher in 2001 reflecting mainly payments to outside
sales consultants working with large potential new customers. Discretionary
marketing expenses were curtailed during 2000 as cost cutting moves.

Interest expense increased from $69,000 in 1999 to $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 reduction in 2001 interest expense reflects the
reduction in interest on the 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. The
Company recorded $113,000 in 2001 of litigation settlement expenses in
connection with the settlement of the Cioffi matter. (See description above
under Liquidity and Capital Resources, Item 3. Legal Proceedings and Note 5
Litigation Settlement)

The Company recorded $51,000 of other income in 2001 for the cancellation of
common stock previously issued for consulting services.

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 five years and has an accumulated deficit from operations
of $5,838,534 at December 31, 2001. 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 Company's financial condition 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 prior
to 2001 when sales growth was interrupted. The Company believes sales growth
will continue 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 believes this group will continue funding the company's operating plan
until it is financially successful. On March 1, 2002 the Company received a one
year extension of the February 16, 2001$1,000,000 funding commitment it
received from one of these investors which management believes will provide for
the Company's financial needs through the first half of 2002.

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


                                      15
<PAGE>


                                    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              59           Chairman of the Board and Chief Executive officer
William J. Breslin            64           Director and Secretary, Treasurer and Chief Financial
                                           Officer

Carter Reames                 64           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.

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.

Based on its reviews of the copies of the Section 16(a) forms received by it, or
written representations from certain reporting persons, the Company believes
that, during the last fiscal year, all Section 16(a) filing requirements
applicable to it officers, directors and greater than ten-percent beneficial
owners were complied with and filed timely.

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.


                                      16
<PAGE>


<TABLE>
<CAPTION>
                                                         ANNUAL COMPENSATION
                                                         ---------------------        OTHER
NAME AND PRINCIPAL POSITION                YEAR          SALARY          BONUS     COMPENSATION
---------------------------                ----          ------          -----     ------------

<S>                                        <C>         <C>            <C>          <C>
Michael J. Troup, C.E.O ................   2001        $140,000(1)    $35,000(6)    $10,080(2)
                                           2000        $140,000       $18,000(5)    $16,480(3)
                                           1999        $140,000       None          $16,480(3)

William J. Breslin(3) ..................   2001        $ 78,000(1)    $15,000(6)    None
                                           2000        $ 78,000       $16,000(5)    None
                                           1999        $ 78,000       None          None

Gary Garavaglia(4) .....................   2001        $120,000(1)                  None
                                           2000        $120,000       $ 7,250(5)    None
                                           1999        $ 70,000       $ 4,500       None
</TABLE>

1.       In the last quarter of 2001 the Company had severe cash restrictions
         and prevailed on its three top executives to accept shares of common
         stock in lieu of cash compensation. Accordingly the Company issued the
         following shares:

                  Mr. Troup 470,000 shares valued at $47,000
                  Mr. Breslin 200,000 shares valued at $20,000
                  Mr. Garavaglia 330,000 shares valued at $33,000

2.       Includes $3,600 in lease payments on a vehicle the Company provides
         Mr. Troup and $6,400 in health insurance premiums the Company provides
         for Mr. Troup.

3.       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.

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

         Also Includes $2,000 paid to Mr. Breslin as a cash bonus.

6.       On October 1, 2001 the Company issued 360,000 shares to Mr. Troup and
         140,000 shares to Mr. Breslin because of their personal liability
         exposure to the Company's delinquent payroll taxes. In exchange for
         the issuance of the shares, which are to be retained and controlled by
         the Company, the officers agree to use proceeds from sales of the
         Company's common stock they own personally to settle the obligation
         with the Internal Revenue Service. Any shares not used to accomplish
         the settlement will be returned to the Company.

OPTION GRANTS

The following table contains information concerning common stock option grants
to each of the Named Executive Officers for the calendar year ended December
31, 2001. No options were granted to these individuals in any prior year.


                                      17
<PAGE>


<TABLE>
<CAPTION>
                                                       Individual Grants
                                              -----------------------------------
                                               No. of        % of Total Options       Exercise
                             Year of           Shares        Granted to Employees       Price       Expiration
Name                          Grant           Granted        in the Calendar Year     Per Share        Date
----                         -------          -------        --------------------     ---------     ----------

<S>                          <C>              <C>            <C>                      <C>           <C>
Michael J. Troup              2001            250,000               35.71               $0.09         2008
William J. Breslin            2001            200,000               28.57               $0.09         2008
Gary Garavaglia               2001            100,000               14.29               $0.09         2008
</TABLE>

The options vest immediately and are exercisable in whole or part at any time
until expiration. The options expire immediately upon termination of
employment.

No options were exercised during the year.

COMPENSATION OF DIRECTORS

On June 11, 2001 the Board of Directors formalized a compensation plan for its
outside Directors. Beginning the second quarter of 2001 each outside director
will receive $2,500 quarterly cash compensation and an annual stock option for
150,000 shares of common stock. Prior to this no formal compensation plan for
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 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, 2001 the beneficial ownership
of the Company's 39,553,276 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>
Officers and Directors
  Common Stock                        Michael J. Troup,                    3,300,051(1)                  8.2%
  Preferred Stock                     Michael J. Troup                        36,200                    90.4%
                                      1117 Island Dr.
                                      Delray Beach, FL 33483
  Common Stock                        William J. Breslin,                  1,113,394(2)                  2.8%
                                      1764 N. W. 88th Way
                                      Coral Springs, FL 33071
  Common Stock                        Carter Reames                          833,500                     2.1%
                                      6440 Tanacrest Ct. N.W.
                                      Atlanta, GA 30328
  Common Stock                        All officers and directors           5,246,945                    13.1%
  Preferred Stock                     as a group                              36,200                    90.4%

Other Beneficial Own
  Common Stock                        Forward Looking Technologies,
                                      Inc.(3)                              4,037,187                    10.1%
</TABLE>

Messrs. Troup, Breslin and Reames are directors of the company. 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 850,000 shares issued to the Michael J. Troup Trust with
         respect to which Mr. Troup claims beneficial ownership, and also
         includes 466,666 shares issued to Mr. Troup's former wife and his
         emancipated children as to which he does not claim beneficial
         ownership.


                                      18
<PAGE>


2.       Includes 140,000 shares issued to Mr. Breslin's children and
         grandchildren as to which he claims beneficial ownership.

3.       Forward Looking Technologies, Inc is a venture capital group that has
         made a financial commitment to finance the Company up to $1 million.
         See Item 12, Certain relationships and related transactions below.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 16, 2001 the Company received a one-year $1,000,000 Financial
Commitment, from Forward Looking Technologies Inc., (FLT), a venture capital
group specializing in funding emerging growth technology companies, with an
emphasis on solutions to pressing environmental issues. During the one year
term of the commitment the Company received $698,775 for which it issued
5,541,443 restricted shares of common stock without registration in reliance
upon section 4 (2) of the Securities Act of 1933. The stock was issued at a 25%
discount to the market, in accordance with the terms of the commitment.. The
commitment expired on February 28, 2002. On March 1, 2002 FLT extended its
Financial Commitment under the same terms and conditions for one more year for
the balance of the $1,000,000. For a short time after the disasters of
September 11th FLT had some liquidity restrictions and was not able to meet the
Company's take down request on a timely basis. This situation is now corrected.

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, 2001 and 2000

         Statements of Operations for the Years Ended December 31, 2001 and 2000

         Statements of Changes in Stockholders' Deficit for the years ended
         December 31, 2001 and 2000

         Statements of Cash Flows for the Years ended December 31, 2001 and 2000

         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)
                           March 1, 2002 extension of Financial Commitment by
                              Forward Looking Technologies(4)

(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


                                      19
<PAGE>


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

(4)      Incorporated herein by reference to the Company's Form 8-K filed on
         March 15, 2002

FORM 8-K Filed with the Commission on March 15, 2002

                                   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.


April       , 2002                           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,
-------------------------------------                 Chief Executive Officer and President
April   , 2002
Michael J. Troup


/s/ William J. Breslin                                Chief Financial Officer, Principal
-------------------------------------                 Accounting Officer, Treasurer and Director
April   , 2002
William J. Breslin


/s/ Carter Reames                                      Director
-------------------------------------
April   , 2002
Carter Reames
</TABLE>


                                      20
<PAGE>


                                MICROBEST, INC.


                               TABLE OF CONTENTS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         Page

<S>                                                                               <C>
INDEPENDENT AUDITORS' REPORT                                                              F-2

FINANCIAL STATEMENTS

         Balance Sheets                                                                   F-3

         Statements of Operations                                                         F-4

         Statement of Changes in Stockholders' Deficit                                    F-5

         Statements of Cash Flows                                                         F-6

NOTES TO FINANCIAL STATEMENTS                                                     F-7 through F-17
</TABLE>


                                                                            F-1
<PAGE>


                          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, 2001 and 2000, 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 of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Microbest, Inc. as of December
31, 2001 and 2000, 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 in America.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 1 to the financial
statements, the Company, among other issues, has a deficit in working capital,
and has suffered cumulative losses from operations since inception. 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
March 25, 2002


                                                                            F-2
<PAGE>


                                MICROBEST, INC.
                                 BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                   2001                    2000
                                                                                -----------             -----------

<S>                                                                             <C>                     <C>
                            ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                    $        --             $        --
   Accounts receivable, net of allowances of $5,400                                  35,465                  54,862
   Inventories, net                                                                  23,266                  69,059
                                                                                -----------             -----------

            TOTAL CURRENT ASSETS                                                     58,731                 123,921

PROPERTY AND EQUIPMENT, net                                                          26,139                  43,312

OTHER ASSETS                                                                          5,430                   6,381
                                                                                -----------             -----------

            TOTAL                                                               $    90,300             $   173,614
                                                                                ===========             ===========

               LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:

   Cash overdraft                                                               $     8,137             $     3,311
   Accounts payable and accrued liabilities                                         535,644                 560,380
   Current portion of capital lease obligation                                        2,761                   2,339
   Note payable - shareholder                                                       170,000                      --
   Convertible promissory notes                                                     200,000                      --
   Current portion of litigation settlement payable                                  23,059                      --
   Due to shareholders                                                                   --                  13,000
                                                                                -----------             -----------

            TOTAL CURRENT LIABILITIES                                               939,601                 579,030
                                                                                -----------             -----------

LONG-TERM DEBT:
   Capital lease obligation - long-term portion                                       7,105                   9,866
   Note payable - shareholder                                                            --                 170,000
   Convertible promissory notes                                                          --                 200,000
   Litigation settlement payable - long-term portion                                 15,363                      --
                                                                                -----------             -----------

            TOTAL LONG-TERM DEBT                                                     22,468                 379,866
                                                                                -----------             -----------

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; 39,553,276 and
    32,694,085 issued and outstanding in 2001 and 2000, respectively                 39,553                  32,694
   Additional paid-in capital                                                     4,949,312               4,073,282
   Note receivable for stock option exercise                                        (22,500)                     --
   Deficit                                                                       (5,838,534)             (4,891,658)
                                                                                -----------             -----------

            STOCKHOLDERS' DEFICIT, NET                                             (871,769)               (785,282)
                                                                                -----------             -----------

            TOTAL                                                               $    90,300             $   173,614
                                                                                ===========             ===========
</TABLE>


                See accompanying notes to financial statements.


                                                                            F-3
<PAGE>


                                MICROBEST, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                  2001                     2000
                                                              ------------             ------------

<S>                                                           <C>                      <C>
SALES, net                                                    $    617,538             $    642,937

COST OF SALES                                                      378,385                  310,666
                                                              ------------             ------------

            GROSS PROFIT                                           239,153                  332,271

ADMINISTRATIVE EXPENSES                                          1,056,300                1,129,828
LITIGATION SETTLEMENT EXPENSES                                     113,422                  236,347
                                                              ------------             ------------

            LOSS FROM OPERATIONS                                  (930,569)              (1,033,904)

OTHER INCOME (EXPENSE):
   INTEREST EXPENSE                                                (67,307)                 (89,750)
   OTHER INCOME                                                     51,000                       --
                                                              ------------             ------------

            OTHER EXPENSE, NET                                     (16,307)                 (89,750)
                                                              ------------             ------------

            LOSS BEFORE PROVISION FOR INCOME TAXES                (946,876)              (1,123,654)

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

            NET LOSS                                          $   (946,876)            $ (1,123,654)
                                                              ============             ============



LOSS PER COMMON SHARE:

   Basic and diluted                                          $     (0.026)            $     (0.052)
                                                              ============             ============

   Weighted average common shares outstanding                   36,350,110               21,513,809
                                                              ============             ============
</TABLE>


                See accompanying notes to financial statements.


                                                                            F-4
<PAGE>


                                MICROBEST, INC.
                 STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                  Preferred
                                   Stock
                                 ----------
                                   40,020
                                   shares         Common Stock                             Note
                                 at started  -------------------------                  Receivable,
                                   value of               Stated Value    Additional       Stock
                                    $.01                    $.001          Paid-in        Option                      Stockholders'
                                  per share  # of Shares  per share        Capital        Exercise      Deficit       Deficit, Net
                                 ----------  -----------  ------------   -----------    -----------   -----------     -------------

<S>                              <C>         <C>          <C>            <C>             <C>          <C>             <C>
STOCKHOLDERS' DEFICIT,
  January 1, 2000                   $400     15,110,750     $ 15,110     $ 2,757,214     $     --     $(3,768,004)    $  (995,280)

Issuance of common stock for
  cash, net                           --      6,120,199        6,120         452,283           --              --         458,403

Issuance of common stock to
  employees                           --      1,758,917        1,759          70,557           --              --          72,316

Issuance of common stock for
  services                            --      2,484,219        2,485         212,101           --              --         214,586

Issuance of common stock for
  litigation settlement               --      7,220,000        7,220         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                  400     32,694,085       32,694       4,073,282           --      (4,891,658)       (785,282)

Issuance of common stock for
  cash, net                           --      4,987,191        4,987         604,238           --              --         609,225

Issuance of common stock to
  employees                           --      1,725,000        1,725         190,275           --              --         192,000

Issuance of common stock for
  services and interest               --        827,000          827          88,350           --              --          89,177

Issuance of common stock for
  litigation settlement               --         20,000           20           4,980           --              --           5,000

Exercise of common stock options
  for note receivable                 --        150,000          150          22,350      (22,500)             --              --

Issuance of stock options to
  consultants                         --             --       15,987              --           --          15,987

Cancellation of shares                --       (850,000)        (850)        (50,150)          --              --         (51,000)

Net loss for the year ended
  December 31, 2001                   --             --           --              --           --        (946,876)       (946,876)
                                    ----    -----------     --------     -----------     --------     -----------     -----------

STOCKHOLDERS' DEFICIT,
  December 31, 2001                 $400     39,553,276     $ 39,553     $ 4,949,312     $(22,500)    $(5,838,534)    $  (871,769)
                                    ====    ===========     ========     ===========     ========     ===========     ===========
</TABLE>


                See accompanying notes to financial statements.


                                                                            F-5
<PAGE>


                                MICROBEST, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                         2001                 2000
                                                                                    ----------------    -----------------

<S>                                                                                      <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                              $ (946,876)        $ (1,123,654)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation                                                                           17,173               19,190
      Interest expense, beneficial conversion feature                                             -               33,500
      Common stock issued to employees                                                      192,000               72,316
      Common stock issued for services and interest                                          89,177              214,586
      Losses from litigation settlements                                                      5,000               36,347
      Other non-cash income and expenses, net                                               (35,013)              17,000
      Changes in certain assets and liabilities:
         Accounts receivable                                                                 19,397              (26,264)
         Inventories                                                                         45,793                7,807
         Accounts payable and accrued liabilities                                           (24,736)              76,482
         Litigation settlement payable                                                       38,422                    -
         Cash overdraft                                                                       4,826               (3,736)
                                                                                    ----------------    -----------------
NET CASH USED IN OPERATING ACTIVITIES                                                      (594,837)            (676,426)
                                                                                    ----------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITY:
   Change in other assets                                                                       951               (3,996)
                                                                                    ----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on capital lease obligation                                                      (2,339)              (1,981)
   Capital contribution from shareholder                                                          -              200,000
   Proceeds from sale of stock                                                              609,225              458,403
   Advances from (payments to) shareholders                                                 (13,000)              24,000
                                                                                    ----------------    -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                   593,886              680,422
                                                                                    ----------------    -----------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                         -                    -

CASH AND CASH EQUIVALENTS, Beginning of year                                                      -                    -
                                                                                    ----------------    -----------------

CASH AND CASH EQUIVALENTS, End of year                                                          $ -                  $ -
                                                                                    ================    =================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid in cash                                                                   $ 19,595                  $ -
                                                                                    ================    =================
   Income taxes paid in cash                                                                    $ -                  $ -
                                                                                    ================    =================
</TABLE>


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.

         During 2001, a director exercised 150,000 options to buy common stock
with a note for $22,500. The note receivable for the exercise price is
presented as a reduction of stockholders' deficit.


                See accompanying notes to financial statements.


                                                                            F-6
<PAGE>


                                MICROBEST, INC.
                         NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
-------------------------------------------------------------------------------


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         DESCRIPTION OF ENTITY

         Microbest, Inc. is the entity resulting from a 1997 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 is 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 $946,876 and $1,123,654
         for the years ended December 31, 2001 and 2000, respectively, and has
         a stockholders' deficit of $871,769 and a working capital deficit of
         $880,870 at December 31, 2001. 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 9). The
         Company is substantially delinquent on a number of accounts with its
         vendors, several of whom have initiated collection proceedings.

         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 (see notes 11
         and 12) 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 (which it has
         been unable to do over the past five years). 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.

         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.

         REVENUE RECOGNITION, CREDIT RISKS, AND CONCENTRATIONS

         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


                                                                            F-7
<PAGE>


         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, 2001, two customers accounted for
         36% of the Company's total sales (22% and 14% each). In 2000, two
         customers comprised 24% of the Company's total sales (12% each).
         During the year ended December 31, 2001, one vendor was the supplier
         of 22% of the Company's total purchases. In 2000, that same vendor
         supplied 26% of the Company's total purchases.

         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.

         FREIGHT COSTS

         Freight costs incurred for delivering goods to customers are included
         in cost of goods sold and amounted to $57,235 and $58,583 for the
         years ended December 31, 2001 and 2000. The Company generated $8,278
         and $8,315 of freight revenues recharged to customers during the same
         periods, and these amounts are included in sales.

         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 ("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, if any, 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 employee
         equity 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 employee stock option 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. For transactions with other than employees
         in which services


                                                                            F-8
<PAGE>


         were performed in exchange for stock or other equity instruments, 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.

         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 capital lease obligation
         is the same as the recorded amount because the rate and terms
         approximate current market conditions. The fair values of the related
         party debt obligations are not subject to fair value estimation
         because of their unique nature.

         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 as the Company does not use derivatives
         and hedging activities.

         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.
         Specifically, it requires use of the purchase method of accounting for
         all business combinations initiated after June 30, 2001, thereby
         eliminating use of the pooling-of-interests method. SFAS No. 142
         establishes new guidance on how to account for goodwill and intangible
         assets after a business combination is completed. This statement also
         applies will apply to existing goodwill and intangible assets,
         beginning with fiscal years starting after December 15, 2001. The
         Company does not expect that this adoption will have any impact on the
         Company's financial position, results of operations, or cash flows.

         In August 2001, SFAS No. 144, "Accounting for the Impairment or
         Disposal of Long-Lived Assets" was issued. SFAS No. 144 supercedes
         certain previously issued pronouncements on similar topics, and
         establishes a single accounting model for assets to be disposed of by
         sale whether previously held and used or newly acquired. SFAS No. 144
         retains certain aspects of the old pronouncements, such as the
         presentation of discontinued operations in the income statement, but
         broadens the presentation to include a component of an entity. SFAS
         No. 144 is effective for fiscal years beginning after December 15,
         2001 and the interim periods within. The Company does not believe that
         the adoption of SFAS No. 144 will have a material impact on its
         financial position, results of operations or cash flows.

         RECLASSIFICATIONS

         Certain 2000 financial statement amounts were reclassified to conform
         to the presentation used for the 2001 fiscal year.


                                                                            F-9
<PAGE>


NOTE 2.  PROPERTY AND EQUIPMENT

         Property and equipment consists of the following at December 31, 2001
         and 2000:


<TABLE>
<CAPTION>
                                                           2001                 2000
                                                         --------             --------

         <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                    (68,166)             (50,993)
                                                         --------             --------

         Property and equipment, net                     $ 26,139             $ 43,312
                                                         ========             ========
</TABLE>


         Depreciation expense for the years ended December 31, 2001 and 2000
         was $17,173 and $19,190, 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 capitalized the
         minimum lease payments. The lease payments began in January 1999. As
         of December 31, 2001, the leased equipment has a recorded cost of
         $15,865, and total accumulated depreciation of $9,519 (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, 2001 are as follows:


<TABLE>
         <S>                                                                <C>
         Future minimum lease payments                                      $12,614
         Less: amount representing interest                                   2,748
                                                                            -------
         Present value of minimum lease payments                            $ 9,866
         Less: Current portion                                                2,761
                                                                            -------

         Long-term capital lease obligation                                 $ 7,105
                                                                            =======
</TABLE>

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

NOTE 4.        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

         Accounts payable and accrued liabilities at December 31, 2001 and 2000
         consist of the following:


<TABLE>
<CAPTION>
                                                                            2001               2000
                                                                          --------            --------

         <S>                                                              <C>                 <C>
         Accounts payable                                                 $220,004            $231,811
         Accrued liabilities:
              Payroll taxes and related penalties and interest             164,390             175,808
              Professional fees                                             35,000              60,500
              Accrued interest                                              70,818              48,333
              Product warranty and replacement                              25,000              25,000
              Accrued sales taxes and other                                 20,432              18,928
                                                                          --------            --------

                   Total                                                  $535,644            $560,380
                                                                          ========            ========
</TABLE>


                                                                           F-10
<PAGE>


         The Company has $220,004 in trade accounts payable as of December 31,
         2001, of which $150,740 is over ninety days past due, and $94,981 of
         which is over one year old. There are several claims pending against
         the Company relative to these past due obligations. One claimant has
         been granted a default judgment in the amount of $11,436. Collection
         action is pending in a number of small claims and one vendor is
         threatening a lawsuit claiming $10,714. Management is handling each
         claim separately and to date has generally been successful in reaching
         amicable settlements.

NOTE 5.  LITIGATION SETTLEMENT

         During 2001, the Company settled a legal action relating to the
         termination of its former president. Based on the obligations agreed
         to in the settlement, the Company issued 20,000 shares of common stock
         valued at $5,000 and made cash payments totaling $70,000. The Company
         made an additional payment of $20,000 in February 2002, and is
         required to make annual cash payments of $5,000 each April from 2002
         through 2006. As these payments do not bear interest, the amount
         payable at December 31, 2001 was discounted at a rate of 8.5% to an
         amount of $38,422. The discounted amounts due are as follows: $23,059
         in 2002, $4,341 in 2003, $3,989 in 2004, $3,665 in 2005, and $3,368 in
         2006.

         In November 2000, the Company reached a final agreement to settle
         protracted litigation with two former shareholders, Raymond Evans and
         Simon Mundlak (hereinafter "Simray") who were also creditors. 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 agreed
         to assign their judgment against the Company to shareholders of the
         Company. One shareholder paid the $200,000 cash, another 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 judgment liability
         with this shareholder upon the issuance of 7,220,000 shares of common
         stock.

NOTE 6.  DEBT OBLIGATIONS

         NOTE PAYABLE - SHAREHOLDER

         On 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 and is
         presently due on June 30, 2002. 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. 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 2001 and
         2000, $21,250 and $18,750, respectively, were charged to interest
         expense for the stated coupon rate.

         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 of the
         promissory note. For the year ended December 31, 2000, $8,000 was
         charged to interest expense for this share issuance.


                                                                           F-11
<PAGE>


NOTE 6.  DEBT OBLIGATIONS (continued)

         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 2001
         and 2000, $18,023 and $17,500, respectively, were 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 year ended December 31, 2000, $33,500 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 paying future interest in cash
         monthly. The accrued interest through June 30, 2001 was paid in shares
         of the Company's common stock. As of December 31, 2001, the Company is
         currently in default on the monthly payments of the interest. 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 recorded a $10,337
         additional charge to interest expense in July 2001.

NOTE 7.  INCOME TAXES

         A summary of the provision for income taxes for the years ended
         December 31, 2001 and 2000 is as follows:


<TABLE>
<CAPTION>
                                                                        2001                 2000
                                                                     ---------             ---------

         <S>                                                         <C>                   <C>
         Currently payable:
            Federal                                                  $      --             $      --
            State                                                           --                    --
         Deferred benefit, federal and state                           376,790               448,720
         Change in deferred tax asset valuation allowance             (376,790)             (448,720)
                                                                     ---------             ---------

                    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, 2001 and 2000 relate to the following:


                                                                           F-12
<PAGE>


<TABLE>
<CAPTION>
                                                                                2001                    2000
                                                                             -----------             -----------

         <S>                                                                 <C>                     <C>
         Available federal and state net operating loss carryover            $ 2,128,100             $ 1,769,250
         Stock options granted to other than employees                            17,810                  11,420
         Accrued expenses, not deductible until paid                             146,780                 135,230
         Less: valuation allowance                                            (2,292,690)             (1,915,900)
                                                                             -----------             -----------

                    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, 2001 of approximately $5,320,000. 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.

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 establish the number of
         shares included in each preferred stock 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, upon the payment of a conversion price of
         $0.10 per each common share received.

         COMMON STOCK

         The Company has authorized 100,000,000 shares at $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 2001, the Company sold 4,987,191 shares of common stock that
         resulted in net proceeds of $609,225, and also issued 1,725,000 shares
         of common stock to employees and 827,000 shares of common stock for
         services and interest. Management of the Company placed a value of
         $192,000 on the shares issued as employee compensation, and $89,177 on
         the shares issued for services and interest. As part of a litigation
         settlement, the Company issued 20,000 shares of common stock with a
         value of $5,000 (see note 5).


                                                                           F-13
<PAGE>


         Common stock issued to employees in 2001 includes 500,000 shares of
         common stock issued as compensation to two officers because of their
         personal liability exposure to the Company's delinquent payroll tax
         obligation to the Internal Revenue Service ("IRS"); see note 9. In
         exchange for the issuance of the shares, which are to be retained and
         controlled by the Company, the officers agreed to use proceeds from
         personal sales from their holdings of the Company's common stock to
         assist in settling the obligation with the IRS. Any shares not used to
         accomplish the settlement will be returned to the Company.

         During 2001, the Company cancelled a fiscal year 2000 consulting
         agreement with a third party. As part of the termination, the Company
         cancelled 850,000 of the 1,000,000 shares of common stock issued as
         compensation to this third party. The income generated by this
         cancellation totaled $51,000 and is presented as other income in the
         statement of operations.

         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.

         STOCK OPTIONS - NON-EMPLOYEES

         During March 2001, the Company issued 200,000 common share stock
         options for services provided by other than employees of the Company.
         The exercise price of these options is $0.09. The Company placed a
         value of $15,987 on these options, and recorded compensation expense
         in accordance with SFAS No. 123. These options vested immediately, and
         expire seven years from the date of issuance.

         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.

         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. On
         October 31, 2001, the Board of Directors reserved an additional
         1,000,000 shares of the Company's common stock for options to be
         granted under the plan.

         During March 2001, the Company issued 850,000 stock options to
         employees and directors that are exercisable for 850,000 shares of
         common stock at a fair value exercise price of $0.09. These options
         immediately vested, and they expire in seven years from issuance.

         During April 2000, the Company issued 150,000 stock options to a
         director. The options were exercisable for 150,000 shares of common
         stock at a fair value exercise price of $0.15. These options vested
         immediately, and the expiration term was eight years from issuance.
         During 2001, the options were exercised in exchange for a note
         totaling $22,500. At December 31, 2001, the Company has reflected the
         note receivable of $22,500 as a reduction of stockholders' deficit.


                                     F-14
<PAGE>


         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, 382% volatility and a
         weighted-average expected life of the option of seven years. The fair
         value of each of the employee options was approximately $0.08 at
         December 31, 2001.

         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.

         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 $946,876 for the
         year ended December 31, 2001 would have been increased to the pro
         forma amount of $1,014,876, and 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. The Company's basic and diluted loss
         per share of $0.026 for the year ended December 31, 2001 would have
         been increased to the pro forma loss per share of $0.027, and the
         Company's basic and diluted loss per share of $0.052 for the year
         ended December 31, 2000 would have been increased to the pro forma
         loss per share of $0.053.

         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, 2001:


<TABLE>
<CAPTION>
                                                              Optioned         Weighted-Average
                                                               Shares           Exercise Price
                                                              ---------        ----------------

         <S>                                                  <C>              <C>
         Options outstanding at January 1, 2000                  65,000             $0.19
         Issued in 2000                                         400,000              0.13
         Forfeited in 2000                                           --                --
                                                              ---------             -----

         Options outstanding at December 31, 2000               465,000              0.14

         Issued in 2001                                       1,050,000              0.09
         Exercised in 2001                                     (150,000)             0.15
         Forfeited in 2001                                      (65,000)             0.19
                                                              ---------             -----

         Options outstanding at December 31, 2001             1,300,000             $0.10
                                                              =========             =====
</TABLE>


                                                                           F-15
<PAGE>


         Options outstanding at December 31, 2001 are as follows. There are
         850,000 employee options, exercise price of $0.09, all expiring in
         March 2008. The non-employee options are as follows: 250,000
         exercisable at 25% below the market price of the Company's common
         shares on the date of exercise, expiring in March 2002; and 200,000
         with an exercise price of $0.09 expiring in March 2008. All options
         outstanding at December 31, 2001 are available for immediate exercise
         by the option holder.

NOTE 9.  COMMITMENTS AND CONTINGENCIES

         DELINQUENT PAYROLL TAXES

         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 ($164,390 and $175,808
         at December 31, 2001 and 2000, respectively). As a result of cash flow
         problems, the Company is delinquent on four of its monthly payments as
         of March 25, 2002 and is currently working with the IRS on an
         Offer-In-Compromise for a more equitable settlement of this issue. The
         IRS has filed a tax lien against the Company to secure its position.

         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:
         $25,950 in 2002, $6,262 in 2003, $560 in 2004, $560 in 2005, and $420
         in 2006. Total rental expense incurred during 2001 and 2000 was
         $42,139 and $43,678, respectively.

         LITIGATION

         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 such
         actions, if any, will not have any additional material effect on the
         financial position or results of operations of the Company.

NOTE 10. NET LOSS PER COMMON SHARE

         For the years ended December 31, 2001 and 2000, 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, 2001
         and 2000 by 2,533,533 and 1,698,533 shares, respectively. The common
         stock equivalents were computed using an assumed conversion price of
         $0.12 for the convertible promissory notes.

                  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>
                                                                            2001                 2000
                                                                         ----------            ----------

         <S>                                                             <C>                   <C>
         Common shares outstanding at December 31st                      39,553,276            32,694,085
         Effect of weighting                                              3,203,166            11,180,276
                                                                         ----------            ----------

                   Weighted average common shares outstanding            36,350,110            21,513,809
                                                                         ==========            ==========
</TABLE>


                                                                           F-16
<PAGE>


NOTE 11. RELATED PARTY TRANSACTIONS

         On February 16, 2001, the Company received a one-year $1,000,000
         financial commitment from Forward Looking Technologies, Inc. ("FLT"),
         a venture capital group specializing in funding emerging growth
         technology companies, with an emphasis on solutions to pressing
         environmental issues. During the initial one-year term of the
         commitment (ending on February 28, 2002), the Company received
         $698,775 for which it issued 5,541,443 restricted shares of common
         stock without registration in reliance upon Section 4 (2) of the
         Securities Act of 1933. The stock was issued at a 25% discount to the
         market, in accordance with the terms of the commitment.

         On March 1, 2002, FLT extended its financial commitment under the same
         terms and conditions for an additional one-year term for the balance
         of the $1,000,000. For a short time after the disasters of September
         11, 2001, FLT had some liquidity restrictions and was not able to meet
         the Company's take down funding requests on a timely basis. This
         situation is now corrected, and management expects FLT to timely meet
         the Company's funding requests.

NOTE 12. SUBSEQUENT EVENTS

         ISSUANCE OF COMMON STOCK

         Subsequent to December 31, 2001 and through March 25, 2002, the
         Company received $65,000 from FLT, for which it issued 827,271 shares
         of common stock in accordance with the terms of the agreement with
         FLT, as described in note 11 above.


                                                                           F-17