UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                   For Fiscal Year Ended December 31, 1998 or

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                           Commission File No. 0-13670

                      TELETRAK ENVIRONMENTAL SYSTEMS, INC.
                 (Name of Small Business Issuer in Its Charter)

           Delaware                                               13-3187778
(State of other jurisdiction of                                   (IRS Employer
incorporation or organization)                                    Identification
                                                                  Number

     2 Sutton Road, Webster, MA                                   01570
(Address of principal executive offices)                          (Zip Code)

                                 (508) 949-2430
               Registrant's Telephone Number, Including Area Code

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

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock, par value $.001
                                (Title of Class)

Check whether the registrant (1) has filed all reports required to be Section 13
or 15(d) of the Exchange Act during the 12 months (or such shorter period that
the registrant was required to reports), and (2) has been subject to such filing
requirements for the days. Yes |_| No |X|

Check if there is no disclosure of delinquent filers pursuant to Item Regulation
S-B contained herein, 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 l0-KSB. |X|

The aggregate market value of the voting stock held by non-affiliates the
registrant at October 8, 1999 was approximately $1,672,237 based on the average
bid and asked prices as reported by the NASD Electronic Bulletin Board. For
these purposes, the term "affiliates" is deemed to mean the officers and
directors of the registrant.

The registrant's revenues for the year ended December 31, 1998 were $1,580,155.
At October 8, 1999 there were 7,472,927 shares of common stock outstanding.

Documents Incorporated by Reference:                        None
Transitional Small Business Format:                         Yes |_| No |X|
<PAGE>

                                TABLE OF CONTENTS
                                   FORM 10-KSB

                                                                            PAGE
                                                                            ----

PART I
      Item 1.     Business...................................................  1
      Item 2.     Properties.................................................  4
      Item 3.     Legal Proceedings..........................................  4
      Item 4.     Submission of Matters to a Vote............................  4

PART II
      Item 5.     Market for Registrant's Common Stock and Related
                  Stockholder................................................  5
      Item 6.     Management's Discussion and Analysis or Plan
                  of Operations..............................................  5
      Item 7.     Financial Statements.......................................  9
      Item 8.     Changes in and Disagreements With Accountants or
                  Accounting and Financial Disclosure........................  9

PART III
      Item 9.     Directors & Executive Officers; Compliance With
                  Section 16(a) of the Exchange Act.......................... 10
      Item 10.    Executive Compensation..................................... 11
      Item 11     Security Ownership of Certain Beneficial Owners
                  and Management............................................. 11
      Item 12     Certain Relationships and Related Transactions............. 12
      Item 13     Exhibits, List and Reports on Form 8-K..................... 13
<PAGE>

                                     PART I

ITEM 1. BUSINESS

Background

      Teletrak Environmental Systems, Inc. (the "Company") a Delaware
corporation, was organized as Teletrak Advanced Technology, Inc. in January 1983
as a wholly-owned subsidiary of Helm Capital Group, Inc. ("Helm") to develop and
market software products. Until November 1998, however, the Company had been an
inactive public company for several years.

      On July 24, 1998, the Company entered into a merger agreement (the "Merger
Agreement") with Advanced Environmental Systems, Inc., a Massachusetts
corporation ("AES"), having a principal place of business at 2 Sutton Road,
Webster, Massachusetts 01570. Under the terms of the Merger Agreement, a
newly-formed wholly-owned Massachusetts subsidiary of the Company merged with
and into AES with AES surviving as a wholly-owned subsidiary of the Company (the
"Merger"). Pursuant to the Merger and the Merger Agreement the former AES
stockholders received an aggregate of 3,750,000 shares of the Company's common
stock in exchange for their AES stock.

      As a condition to the Merger, the Company effected a one for ten reverse
split of the Company's outstanding common stock (the "Reverse Split"). Under the
Reverse Split, the authorized number shares of the Company's common stock was
reduced to 8,000,000 shares (the "Common Stock") and the number of authorized
shares of preferred stock was reduced to 2,000,000. Subsequently, the
certificate of incorporation was amended to authorize 25,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock. There are no shares of
preferred stock outstanding at this time.

      Immediately prior to the effectiveness of the Merger on November 18, 1998,
the Company distributed to the pre-Merger stockholders of the Company, one-half
Warrant (as hereafter described) for each share of Common Stock held by them
upon the effectiveness of the Merger, and 500,000 additional Warrants were
issued to Helm and the Company's former management for pro rata distribution in
exchange for previously issued warrants held by Helm which were canceled in the
Merger. In addition, Helm contributed 5,000,000 shares of the Company's common
stock to the Company which were canceled and the holders of all outstanding
warrants to purchase the Company's common stock waived and surrendered all
rights with respect to such warrants, which were canceled. Simultaneous with the
effectiveness of the Merger, the Company sold in a private placement (the
"Private Placement") to certain former AES stockholders and affiliates 1,000,000
shares of Common Stock plus warrants (the "Warrants") to purchase up to 500,000
shares of Common Stock at an exercise price of $2.00 per share for a period of
three years, redeemable at $.05 per Warrant, at the option of the Company, if
the Common Stock trades for three consecutive days at $3.00 per share on any
national securities exchange, or the average of the bid and asked prices of the
Common Stock in the over the counter markets is over $3.00 for three consecutive
trading days. The purchase price (the "Purchase Price") in the Private Placement
was $.50 for a unit comprised of one share of Common Stock and one Warrant. As
part of the Private Placement, the Company agreed to sell to certain other Helm
affiliates (the "Helm Affiliates"), up to 245,000 shares of Common Stock and up
to 122,500 Warrants at the Purchase Price. Pursuant to the terms of the
Subscription Agreement between the Company and the Helm Affiliates dated
November 9, 1998 (the "Subscription Agreement"), the Helm Affiliates agreed to
pay the Purchase Price as follows: (i) $72,500 upon execution of the
Subscription Agreement; (ii) $25,000 ninety (90) days after the execution of the
Subscription Agreement; and (iii) $25,000 one hundred and eighty (180) days
after execution of the Subscription Agreement. The Helm Affiliates subsequently
defaulted on the second two payments and as a result received only 145,000
shares and 72,500 Warrants. Former AES stockholders and/or their affiliates have
purchased for $25,000, with the agreement of the Helm Affiliates, 50,000 Private
Placement Shares and 50,000 Warrants in lieu of the Helm Affiliates.

The Company

      AES, a privately-held company prior to the Merger, specializes in the
manufacture, distribution and licensing of industrial jet pumps known as
"mucking pumps" and related equipment. The design of these pumps, with no
movable parts, makes this equipment a highly effective portable tool for the
removal of granular wet or dry material (including sludge, scale, slurries,
sands and heavy shot blasting material), for a wide range of applications across
many industries including environmental clean-up of hazardous matter such as
lead and other heavy metals and nuclear contaminants and as general maintenance
tools in the marine, transportation, chemical and waste water industries. The
motive power, compressed gases such as air or steam or pressurized liquids such
as water, oils or pulps, provides operating flexibility for hopper loading,


                                       1
<PAGE>

cleaning and submersible application, as well as the ability to collect and
transport materials over long distances. With no moving parts, the AES pump is
designed to be virtually maintenance free and to require no skilled labor to
operate. The Company believes that more than 1,000 pumps are in use today in a
wide range of industries, including power plants, steel mills, foundries, oil
refineries, chemical and petrochemical operations, food processing facilities,
shipyards and marine vessel applications and water treatment plants. This same
pump technology has been adapted into an entire manufacturing line of vacuum
filtering equipment for use in hazardous sites where strict governmental
standards and laws demand that all surface preparation and removal take place in
a dust free environment.

      In addition, the Company manufactures and distributes a full line of
shrouded, hand operated tools that attach to the above vacuum filtering
equipment. These tools have been designed to work on all surfaces and all types
of construction material, both hazardous and non-hazardous.

Marketing and Distribution

      The Company has a sales staff of five people. The sales process typically
involves mailing of literature, follow-up communications, technical meetings
with customers, requests for proposals and estimating and submittal of proposals
for specific projects. The Company has developed ongoing relations with a broad
range of customers in various industries and geographical sites. Products are
distributed directly to customers by the Company's sales staff or through
regional distribution networks.

Dependence on Third Party Suppliers and Manufacturers

      The Company purchases supplies from a variety of regional sources. The
Company is not dependent on a single supplier for parts or fabrication and
maintains a minimum of two sources of all critical parts,

Dependence on Major Customers

      The Company sells to a wide-range of industries, including power plants,
steel mills, foundries, oil refineries, chemical and petrochemical plants, food
processing facilities, shipyards and marine vessel manufacturers and water
treatment plants and therefore is not dependent on any one major customer.
Nonetheless, in 1998, sales to one of the Company's European distributors
represented approximately 13% of all of the Company's sales.

Competition

      The industrial maintenance equipment and environmental remediation
equipment supplier industry in the United States are highly fragmented, with
numerous small and medium-sized companies serving niche markets based upon
geography, industry, media (air, water, soil, etc.) and technological
specialization. Because the Company sells to a wide range of industries, the
Company can adapt to changes in the marketplace by allocating its resources to
the industry segment providing the most business opportunities. Management
believes that its key to success in the industry is the unique design of its
products which is regarded as proprietary and is based on proven principles of
physics and air/fluid dynamics creating a vacuum/ cyclone in a pumping device
that has no moving parts. The Company believes that this creates several
advantages over most competitive pumps by permitting applications that involve
particle sizes up to 3/4 inches in diameter, material that can cause plugging,
and transportation of pumped material for distances up to 500 feet vertical and
1,000 feet horizontal. The pump creates a miniature cyclone effect and removes
the desired material from one location to another in a manner similar to a
directed cyclone. In addition, the pump's relative small size and ease of
cleaning and maintenance are also unique and competitive attributes. The base
core technology is also used in the Company's vacuum and filtering products in


                                       2
<PAGE>

such a manner as to remove hazardous and non-hazardous substances in a safe and
efficient manner. The Company will continue to focus on the application of new
technology as well as innovative applications of existing technologies to solve
complex problems.

      Management believes that the primary factors of competition are price,
technological capabilities, reputation for quality and safety, relevant
experience, availability of machinery and equipment, financial strength and
knowledge of local markets and conditions. Management believes that with its
recent acquisitions, the Company will compete favorably on the basis of the
foregoing factors. See "Recent Developments". However, many of the Company's
competitors have financial resources and facilities far greater than that of the
Company. Additionally, from time to time, the Company may face competition from
new entrants into the industry. The Company may also face competition from
technologies that may be introduced in the future, and there can be no assurance
that the Company will be successful in meeting the challenges which will be
posed by its competition in the future.

Proprietary Rights

      The Company and its subsidiaries seek proprietary protection for its
products so as to prevent others from commercializing equivalent products in
substantially less time and at substantially lower expense. The Company's
success will depend in part on the ability of the Company to obtain effective
patent protection for the Company's proprietary technologies and products,
defend such patents, preserve its trade secrets and operate without infringing
upon the proprietary rights of others. The Company and its subsidiary, LTC (as
defined below in "Recent Developments"), own the following patents and licenses:

                                     Patents

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                Title                                         Applications or               Status
                                                               Patent Number
----------------------------------------------------------------------------------------------------
<S>                                                  <C>                                   <C>
Sealed Waste Transfer System for Vacuum Blasting     5,529,530                             Patented
----------------------------------------------------------------------------------------------------
Sealed Waste Transfer System for Vacuum Blasting     5,591,067                             Patented
----------------------------------------------------------------------------------------------------
Bolt Head Blaster                                    5,667,430                             Patented
----------------------------------------------------------------------------------------------------
Pressure Balanced Vacuum Blasthead                   5,709,590                             Patented
----------------------------------------------------------------------------------------------------
Pressure Balanced Vacuum Blasthead                   European Patent Appln. 96936393.6     Pending
----------------------------------------------------------------------------------------------------
Pressure Balanced Vacuum Blasthead                   Japanese Patent Application           Pending
----------------------------------------------------------------------------------------------------
Air Cushioned Vacuum Blast Head                      5,833,521                             Patented
----------------------------------------------------------------------------------------------------
Unique Power Tool Vacuum Tube Shutoff                5,524,663                             Patented
----------------------------------------------------------------------------------------------------
</TABLE>

                                    Licenses

Abrasive Blasting System                             5,107,630          Patented

Employees

      The Company currently has 10-12 full and part-time employees. All other
management decisions are reviewed by the Company's Board of Directors.

Recent Developments

      On February 27, 1999, the Company's wholly-owned subsidiary, TES
Acquisition Corp., a Delaware corporation, entered into an asset purchase
agreement (the "Asset Purchase Agreement") with LTC Americas, Inc. ("LTC"),
LTC's wholly-owned subsidiary, Surface Decon Corporation ("Surface Decon"),
LTC's parent, McPhee Fischer, Inc. ("McPhee Fischer") and McPhee Fischer's
controlling shareholder, W.S. McPhee ("McPhee") pursuant to which the Company
acquired substantially all of the non-cash assets of LTC and Surface Decon (the
"Purchased Assets"). The LTC business consists of the manufacturing, sale, and
rental of vacuum blasting equipment. The purchase price for the Purchased Assets
consisted of


                                       3
<PAGE>

(i) $211,000 in cash; (ii) a promissory note of the Company and TES Acquisition
Corp. in the principal amount of $80,000 (the "Promissory Note") and (iii)
209,000 shares of restricted common stock of the Company. The Promissory Note is
payable in 36 equal monthly installments bearing interest at a rate of 10% per
year.

      On March 24, 1999, the Company's wholly-owned subsidiary, TES Acquisition
Corp. amended its Certificate of Incorporation to change its name to LTC
Teletrak, Inc.

ITEM 2. PROPERTIES

Massachusetts Lease

      The Company's wholly-owned Massachusetts subsidiary, AES, leases office
space at 2 Sutton Road, Webster, Massachusetts from an entity that is 90% owned
by Gerd Reinig, Chairman of the Company's Board of Directors, officer and
substantial stockholder of the Company. Under the terms of the lease, AES pays
$2,000 per month in rent. The term of the lease is month-to-month.

ITEM 3. LEGAL PROCEEDINGS:

None.

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

None.


                                       4
<PAGE>

                                     PART II

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

Market Information

The following table sets forth the high and low bid prices for the Company'
stock for the prior two year period:

                                        High        Low
                                        ----        ---

            1998      First Quarter     $.04       $.035
                      Second Quarter     .07        .035
                      Third Quarter      .045       .04
                      Fourth Quarter     .04        .04

            1997      First Quarter      .015       .015
                      Second Quarter     .015       .015
                      Third Quarter      .03125     .015
                      Fourth Quarter     .05        .02

      The high and low bid prices cited herein for 1998 and 1997 have been
obtained from the Electronic Bulletin Board quotation system of the NASD prior
to the Merger.

      At October 8, 1999 the bid and ask prices for the Company's common stock
obtained from the Electronic Bulletin Board of the NASD, were $0.375 and $0.4375
respectively.

Holders

      The Company is advised by American Stock Transfer & Trust Company, its
agent, that there were approximately 304 holders of record of the Company Common
Stock at October 8, 1999.

Dividend Policy

      The Company has never paid any dividends. The Company does not plan to pay
any cash dividends in the foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS

      AES was initially organized as a Massachusetts corporation January 2, 1996
for the purpose of manufacturing and marketing of jet pumps for pumping or
vacuuming of liquids, sludges and slurries in the waste water field that may be
contaminated. Even though the sales of these jet pumps proved successful, it
soon became apparent that the sale of the pumps as stand-alone units would limit
the applications and sales. By late 1996 AES had developed complete systems with
the jet pump as the core product, comprising the driving sources, vacuum and
holding tanks and the control cabinets all mounted on skids or trailers as
self-contained packages. These systems marketed as HazVac(TM) and Envirovacs(TM)
and combine advanced jet pump, vacuum and filtration technology. The systems can
be transported for diverse applications including removal of hazardous material.
With no moving parts the equipment requires extremely little maintenance and can
be used for vacuuming a large variety of liquid or solid material, wet or dry.

      The purpose of the merger with Teletrak, a public company, was to create a
means to raise the required capital to build a solid, financially strong company
which will be a dominant supplier of equipment for industrial plant maintenance
and the environmental clean-up industry on a global basis. This aim is to be
accomplished through acquisitions of companies manufacturing similar and
complementary equipment and through further development of the existing product
lines.


                                       5
<PAGE>

Comparison of Revenues of Advanced Environmental Systems After Giving Effect to
Merger.

          Fiscal Year                       1998           1997          1996
          -----------                       ----           ----          ----
Advanced Environmental Systems (AES)      1,580,155      1,216,886      749,383

For the three years prior to the Merger, the Company (Teletrak) had no revenues.

      The Company completed its first acquisition in February 1999 with the
purchase of substantially all of the non-cash assets of LTC Americas and its
wholly-owned subsidiary Surface Decon Ltd. LTC and Surface Decon are leading
suppliers of vacuum blasting equipment to the nuclear and chemical industries.
Management believes that the acquisition of the LTC line of vacuum blasting
equipment greatly compliments the Company's existing equipment line and gives
the Company product offering in the surface preparation industry.

      Liquidity & Capital Resources

      As of December 31, 1998 the Company, after giving effect to the Merger,
had working capital of U.S. $359,481 compared to $92,929 for the year ended
December 31, 1997. The improvement in working capital is primarily due to the
investment of $410,000 from the Private Placement which has subsequently been
completed resulting in aggregate gross proceeds of approximately $600,000.

      The Company presently has outstanding publicly held Warrants to purchase
shares of common stock which, if all were exercised, could result in gross
proceeds to the Company of approximately $4,500,000. This does not include the
Warrants attached to the 600,000 units sold under the Private Placement. All
Warrants, including the 600,000 Private Placement Warrants will expire October
31,2001, however, there is no assurance that the Warrants will be exercised and
that Company will receive the proceeds therefrom.

      The Company has a $300,000 revolving line of credit with a major bank,
secured by substantially all of the assets of the Company. The line was
increased to $400,000 in 1999. At December 31, 1998, the Company was not in
compliance with required financial covenants. On July 23, 1999, the bank waived
such noncompliance. The bank's waiver does not extend through December 31, 1999.
In accordance with accounting standards, the obligations have been classified as
current.

      The Company does not have any material commitments for capital
expenditures as of the filing of this report.

      Management believes that the revenues being generated from operations,
short-term lines of credit and the proceeds from the sale of common stock in the
Private Placement will provide sufficient liquidity to meet the Company's
working capital needs for the remainder of this fiscal year ending December 31,
1999.


                                       6
<PAGE>

      Advanced Environmental Systems, Inc. (AES) was privately held until the
Merger. Selected financial data for AES, adjusted for accounting to meet SEC
reporting standards shows the following comparisons to prior fiscal years since
its inception January 1, 1996:

Statement of Operations Data for AES (after giving effect to the Merger):

                                                   Years ended
                                 ----------------------------------------------
                                 Dec 31, 1998     Dec 31, 1997     Dec 31, 1996
                                 ------------     ------------     ------------

Net Sales                           1,580,155        1,216,886          749,383
Cost of goods sold                  1,002,681          808,891          388,803
                                   ----------       ----------       ----------
Gross Profit                          577,474          407,995          360,580
SGA&A, Eng. R&D & Interest            746,118          876,364          357,335
                                   ----------       ----------       ----------
Loss before provision
for income-taxes                     (168,644)        (468,369)           3,245
                                   ----------       ----------       ----------
Net Loss                             (168,644)        (464,369)          (4,855)

Balance Sheet Data
Current Assets                        998,590          754,228          686,838
Current Liabilities                   639,109          661,299           44,082
                                   ----------       ----------       ----------
Working capital                       359,481           92,929          642,756
Total assets                        1,181,370        1,006,851          825,713
Long term obligations                       0          124,648           96,358
                                   ----------       ----------       ----------
Shareholders Equity                   542,261          220,904          685,273

Analysis of Operations for Fiscal 1997 & 1998

Fiscal 1997

      AES experienced a net loss of $464,369 for the 1997 fiscal year. The loss
was a result of higher than anticipated start-up costs and some product recalls
on a newly acquired tool line.

      Management made a decision to invest in the shrouded power tool market to
complement AES's vacuum and filtration systems. These tools provide dust-free
remediation of lead paint, low level nuclear, and other coatings, from steel,
concrete, and wood. The power tools combine with AES's jet pump/vaccum
technology to provide complete and effective systems to address lead paint
removal from bridges and other structures, and low level nuclear decontamination
from nuclear power plants and Department of Energy facilities. Management
believes that these systems are cost-effective, productive and safe creating a
market to contractors rehabilitating the nation's bridges and mass
transportation systems, as mandated by Congress. In addition, Congress has
allocated significant funds for decommissioning and decontaminating the
country's nuclear power plants. Other potential markets are in the marine
industry, chemical plants and refineries and the transportation sector, wherever
high maintenance costs occur.

      During May of 1997 AES acquired Unique Systems of Lansing, IL. Unique
manufactures a patented product line of shrouded power tools. In connection with
this purchase, AES had to invest in further engineering, testing, and
documentation so as to improve the marketing of this product line. The cost of
absorbing and integrating this product line with AES products was higher than
anticipated and these costs were all expensed in 1997.

      As a result of the above investments the Tools and related Jet Pump and
Vacuum Systems now function for their intended applications. Initial systems
were sold to the Virginia Department of Transportation, St. Lawrence Seaway
Authority, and Northeast Utilities.

      Also during 1997 AES secured rights to a patented power tool capable of
performing high volume lead remediation from Dumont Corp. The tools are
extremely effective in decontaminating large concrete surfaces. Approximately 20
systems to several abatement contractors were sold, but the tools developed an
operating problem when used on a continuous basis. As a result approximately
$40,000 in reworking costs occurred. Dumont and AES agreed to solve the problem
through engineering changes and parts substitution, and management believes that
the tool will become a valuable asset to the Company's product line in the
future.


                                       7
<PAGE>

      The positive effect of these acquisitions is that sales increased by
approximately 30% in 1998, as AES continued to develop a marketing and
distribution system in these new emerging markets.

Fiscal 1998

      AES reduced the operating loss of $459,974 for 1997 to an operating loss
of $129,847, a substantial decrease of $330,127 for fiscal year 1998. The loss
was a result of investments in management and staff, the costs of the Merger and
becoming a public company, and the investment for developing an abrasive vacuum
blasting and recovery/recyling system. AES also reduced its SG&A expenses in
1998 to approximately 45% of sales compared to 72% in 1997.

      Two regional sales managers were added to the Company's sales staff. This
was done to assure sales coverage along the eastern seaboard. The training costs
and all expenses associated with this transaction were expensed as incurred.
Furthermore, in 1998, a corporate controller was also added to the Company's
management team.

      AES developed, designed, and tested equipment capable of vacuuming, and
recycling Bar Shot blasting abrasive. This abrasive is becoming widely used by
the shipbuilding industry because of its increased productivity over
conventional abrasives. The equipment is capable of recycling the abrasive four
times, thus substantially reducing abrasive consumption, acquisition cost for
the abrasive and, more importantly, drastically reducing solid waste disposal
costs. Testing was completed on the technology in October at Ingalls Shipyard, a
Division of Litton Industries, a large shipbuilding facility in Pascagoula, MS.
Ingalls subsequently placed a $131,000 order for a system that was delivered and
successfully started up in the first quarter of 1999. This was the first system
developed to recycle this special abrasive. The Company anticipates additional
orders from Ingalls, and has quoted other major shipbuilders. The cost of
engineering and testing of this new unit was expensed as incurred.

      Continued strong demand for the Company's technologies increased sales by
30% to $1,580,155. The gross profit increased to 36.5% from 33.5% in the prior
year. Management believes that improved manufacturing efficiencies and better
cost controls should position the Company, although there can be no assurances,
to achieve close to a 40% margin in fiscal 1999. The Company's tools and jet
pump vacuum technology is being used extensively in the decontamination of
Yankee Atomic Facility in Rowe, MA. Such facility is the first commercial
nuclear plant in the U.S. to be decommissioned and decontaminated. Based on the
success at Yankee, the Company is expecting significant business in other
commercial nuclear plants slated for decommissioning by the Nuclear Regulatory
Commission.

Potential Impact of Year 2000 Computer Issues Overview

      The year 2000 computer problem is the inability of computer systems which
store dates by using the last two digits of the year (i.e. "98" for "1998") to
reliably recognize that dates after December 31, 1999 are later than, and not
before, 1990. For instance, the date January 1, 2000, may be mistakenly
interpreted as January 1, 1900, in calculations involving dates on systems that
are non-year 2000 compliant. The Company relies on information technology ("IT")
systems and other systems and facilities such as telephone, building access
control systems and heating and ventilation equipment ("Embedded Systems") to
conduct its business. These systems are potentially vulnerable to year 2000
problems due to their use of date information. The Company also has business
relationships with customers and healthcare providers and other critical vendors
who are themselves reliant on IT and Embedded Systems to conduct their
businesses.

State of Readiness

      The Company's IT systems are largely centralized, with substantially all
systems maintained in the Company's corporate headquarters in Webster,
Massachusetts. The Company has developed its own standards for systems which
include both purchased and internally-developed software. The Company's IT
hardware infrastructure is built mainly around mid-range computers and IBM
PC-compatible servers and desktop systems. The Company's internally-developed
software was either been designed to be year 2000 ready from inception or is in
the process of being modified to be year 2000 ready. Substantially all of the
Company's mid-range IT hardware has been remedied to a state of year 2000
readiness, with the remainder scheduled to be remedied by the end of fiscal
1999. The Company plans to complete the remediation, testing and certification
of all of its IT systems by the end of fiscal 1999. The Company leases most of
the office space in which its reliance on Embedded Systems presents a potential
problem and plans to work with the respective lessors to identify and correct
any potential year 2000 problems related to these Embedded Systems. The Company
believes that its year 2000 projects generally are on schedule.


                                       8
<PAGE>

External Relationships

      The Company faces the risk that one or more of its critical suppliers or
customers ("External Relationships") will not be able to interact with the
Company due to the third party's inability to resolve its own year 2000 issues,
including those associates with its own External Relationships. The Company is
attempting to determine the overall year 2000 readiness of its External
Relationships. The Company, however, does not have sufficient information at the
current time to predict whether its External Relationships will be year 2000
ready.

Risks and Contingency/Recovery Planning

      If the Company's year 2000 issues were unresolved, the most reasonably
likely worst case scenario would include, among other possibilities, the
inability to accurately and timely authorize and process benefits and medical
stays, accurately bill customers, access claims exposure, determine liquidity
requirements, report accurate data to management, stockholders, customers,
regulators and others, business interruptions or shut downs, financial losses,
reputation harm, loss of significant customers, increased scrutiny by regulators
and litigation related to year 2000 issues. The Company cannot guarantee that it
will be able to resolve all of its year 2000 issues. Any critical unresolved
year 2000 issues at the Company or its External Relationships, however, could
have a material adverse affect on the Company's results of operations, liquidity
or financial condition. The Company has developed, or is developing,
contingency/recovery plans aimed at ensuring the continuity of critical business
functions before and after December 31, 1999. As part of that process, the
Company has substantially completed the development of manual work alternatives
to automated processors which will both ensure business continuity and provide a
ready source of input to affected systems when they are returned to an
operational status. These manual alternatives, presume, however, that basic
infrastructure such as electrical power and telephone service, as well as
purchased systems which are advertised to be year 2000 ready by their
manufacturers (primarily personal computers and productivity software) will
remain unaffected by the year 2000 problem.

      Statements Regarding Forward-looking Statements

      The annual report contains certain forward-looking statements with respect
to the financial condition, results of operations and business of the Company
including statements relating to the cost savings, revenue enhancements and
Company's plans to restructure and consolidate its operations and grow through
strategic acquisitions. Such forward-looking statements involve certain risks
and uncertainties that could cause the actual results to differ materially from
those contemplated by such forward looking statements. Such risks include,
without limitation: (1) expected cost savings from the restructured and
consolidated operations may not be fully realized; (2) the impact of competition
on revenues and margins; (3) increased costs of raw materials; (4) the
difficulties relating to the integration of new businesses; (5) uncertainty with
respect to year 2000 issues; and (6) other risks and uncertainties as may be
detailed from time to time in the Company's public announcements and Commission
filings.

ITEM 7. FINANCIAL STATEMENTS

      The financial statements required by Regulation S-B are included in this
Annual Report on Form 10-KSB commencing on page F-1.

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

      BDO Seidman audited the Company's financial statements for the year ended
December 31, 1994. No independent audits were performed and the Company did not
include audited financial statements in its Form 10-KSB for 1995, 1996 and 1997
because the Company qualified as an inactive registrant under the provisions of
Rule 3-11 of Regulation S-X.

      On January 26, 1999, Richard A. Eisner & Company, LLP was appointed as the
Company's independent certified public accountants.


                                       9
<PAGE>

                                    PART III

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

      The directors and nominees serve, if and when elected, until the next
annual shareholders meeting and until their successors are elected and
qualified.

      The following table sets forth regarding the Company's directors,
executive officers and control persons:

            Name                     Age         Position
            ----                     ---         --------

            Gerd E. Reinig           60          Chairman of the Board

            Domenic Sgambellone      56          Executive Vice
                                                 President and Chief
                                                 Operating Officer
            Gerald P. McNamara       50          Director, President
                                                 and Chief Executive
                                                 Officer
            Heinz Buhr               48          Director

            Glen Wegner              60          Director

            William P. Gagnon        53          Director

      Gerald P. McNamara. Mr. McNamara is the President and Chief Executive
Officer of the Company and is a founder and director of AES. He has served as
its president and chief executive officer since its inception in 1996. Mr.
McNamara has worked in a variety of executive positions at companies in the
environmental and remediation industry for more than 20 years. He served as
president of IPEC Advanced Systems, a manufacturer of surface preparation and
remediation equipment from 1983 to 1993. From 1993 to 1996, he was a consultant
to environmental equipment manufacturers.

      Gerd E. Reinig. Mr. Reinig is the Chairman of the Board and is a
co-founder of AES. He has served as Director and Treasurer of AES since its
inception in 1996 and, since 1975, as President and Chief Executive Officer of
Gould & Eberhardt Corp., a prominent manufacturer or machine tools and large
gear cutting machinery. Prior to this, he held executive and engineering
positions at Orban Company and Lurgi Inc. Mr. Reinig has a masters degree in
mechanical engineering from the Institute of Engineering, Frankfurt, Germany.

      Domenic Sgambellone, Mr. Sgambellone is executive vice president, chief
operating officer and the principal financial officer for the Company. He has
served in these positions since July of 1999. Mr. Sgambellone has twenty-five
years experience in organization and financial management as an officer and
consultant to small and medium sized companies. Mr. Sgambellone's most recent
position was with Du-Mont Companies, Wisconsin and Illinois, a company similar
to AES. Prior to Mr. Sgambellone's most recent position with the Du-Mont
Companies, he served as chief financial officer and treasurer of Forte Brothers,
Inc., a heavy construction company. Mr. Sgambellone has a bachelor of science
degree from St. Peters College in Jersey City and a masters of business
administration from Seton Hall University in New Jersey.

      Heinz Buhr. Mr. Buhr is a Director of the Company and a private investor.
He has served as Director and Treasurer of AES since its inception in 1996. Mr.
Buhr, a resident and citizen of Germany, is an investor and active partner in
several real estate partnerships and industrial development companies. Prior to
1994, Mr. Buhr served as president and chief executive officer of Metek GmbH, a
major supplier of brake shoes for the automotive industry.

      Glen Wegner. Dr. Wegner is a Director of the Company and has served as an
advisor and director of AES since 1996. He is also a private investor and
director of Hobie Cat, Inc. and Basic Telepresence, Inc. He served as president
and vice chairman of Optical Corporation of America from 1990-1997. Dr. Wegner
is trained and licensed in both law and medicine and prior to 1990 served in an
executive capacity with several successful ventures utilizing advanced
technologies in the health and environmental industries.


                                       10
<PAGE>

      William P. Gagnon. Mr. Gagnon is a Director of the Company and is the
president and chief executive officer of Arland Tool & Manufacturing, Inc., a
large manufacturing concern involved in Computer Numerically Controlled
machining and assembly of electrical power generation parts. He started with
Arland in 1970 to develop numerically controlled operations. In 1980, he was
appointed chief executive officer. Prior to this he was a laser engineer at the
American Optical Company.

ITEM 10. EXECUTIVE COMPENSATION

      For the fiscal years ended December 31, 1998, no cash compensation was
paid to the Company's Chairman to any other executive officer with the exception
of Gerald McNamara, President and Chief Executive Officer, who draws an annual
salary of $100,000 from AES. Mr. McNamara also receives the following
perquisites on an annual basis: (1) $5,400 in car payments; (2) $5,899 in health
insurance premiums; (3) $4,612 in dental insurance premiums and (4) $14,495 in
life insurance premiums. The Company's outside directors received no cash fees
during 1998.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information as of October 8, 1999, of each
person known by the Company to be the beneficial owner of five percent or more
of the Company's Common, by each current officer and director and all current
officers and directors as a group. Except as otherwise indicated, each named
holder has, to the best of the Company knowledge, sole voting and investment
power with respect to the shares indicated.

Name And Address Of Beneficial Owner   Common Stock Beneficially   Percentage Of
------------------------------------   Owned                       Outstanding
                                       -------------------------   -------------

Helm Capital Group, Inc.               1,176,507(1)                13.6%
537 Steamboat Road
Greenwich, CT 06830

Gerd Reinig                            1,599,263(2)                21.2%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570

Domenic Sgambellone                            0                    0.0%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570

Heinz Buhr                               762,750(3)                10.3%
Am Hambuch 18
D53340 Meckenheim
Germany

William Gagnon                           600,000(4)                7.9%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570

Dr. Glen Wegner                          412,500(5)                5.5%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570

Gerald McNamara                          399,750(6)                5.4%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570

All Officers and Directors as a        3,774,263                   51%
group (6 persons)


                                       11
<PAGE>

* less than 1%

(1) Includes 1,176,507 Warrants owned by Helm Capital Group, Inc. to purchase
shares of Common Stock at $2.00 per share, expiring November 18, 2001.
(2) Includes 966,250 shares of Common Stock owned by Gerd Reinig, 300,000 shares
of Common Stock owned by his wife, Karola Reinig and 80,000 Warrants owned by
Mr. Reinig to purchase Common Stock at $2.00 per share, expiring November 18,
2001.
(3) Owned by Buhr GmbH, a German corporation, of which Mr. Buhr is a Partner and
the Chief Executive Officer.
(4) Owned by Arland Tool & MFG, Inc., a Massachusetts corporation, of which Mr.
Gagnon is the Chief Executive Officer. Also includes 200,000 Warrants owned by
Arland Tool and MFG, Inc. to purchase shares of Common Stock at $2.00 per share.
The Warrants expire on November 18, 2001.
(5) Includes 187,500 shares of Common Stock owned by Dr. Wegner, 150,000 shares
of Common Stock owed by his wife, Lynn Wegner, and 75,000 Warrants owned by Dr.
Wegner to purchase shares of Common Stock at $2.00 per share. The Warrants
expire on November 18, 2001.
(6) Includes 200,000 shares of Common Stock owned by Mr. McNamara and 199,750
shares of Common Stock owned by his wife, Tomi McNamara.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Prior to the Merger, Helm was the owner of 61.2% of the Company's
outstanding Common Stock. Historically, the Company financed its operations and
operating deficit advances from Helm. Since 1996, Helm has made no advances to
the Company although financial and accounting services were provided by Helm to
the Company. During 1998 and 1997, no transactions were entered into between
Helm and the Company, involving in excess of $60,000 except that in 1997 the
Company issued 3,582,268 shares of common stock to Helm in extinguishment of
$895,567 of indebtedness owing to Helm, and 5,000,000 shares of Common Stock to
Helm upon conversion of 1,000,000 shares of outstanding preferred stock at $.20
per share.

      The Company's wholly-owned subsidiary, AES, lease office space at 2 Sutton
Road, Webster, Massachusetts from Gould & Eberhardt, a corporation which is 90%
percent owned by Gerd Reinig, the Company's Chairman of the Board.

      On August 19, 1999, the Company borrowed $150,000 from Gerd Reinig, it
Chairmen, and issued a 10% promissory note representing the $150,000 loan
amount. Under the note, interest at the rate of 10% per annum is payable on a
monthly basis and the principal is due August 20, 2000.

      On August 23, 1999, the Company's Chairman, Gerd Reinig purchased 253,013
shares of Common Stock from Helm increasing his percentage ownership of the
Company to approximately 21.2%.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit Number     Description                      Location
--------------     -----------                      --------
3.1                Certificate of Incorporation     Incorporated by reference to
                                                    Exhibit 3(a) to the
                                                    Company's Registration
                                                    Statement on Form S-1 (No.
                                                    2-84930)

3.2                Certificate of Amendment to      Incorporated by reference to
                   Certificate of Incorporation     Exhibit 3(a) to the
                                                    Company's Registration
                                                    Statement on Form S-1 (No.
                                                    2-84930)

3.3                Certificate of Amendment to      Incorporated by reference to
                   Certificate of Incorporation     Exhibit 3.2(A) to the
                                                    Company's Registration
                                                    Statement on Form S-2 (No.
                                                    2-30374)


                                       12
<PAGE>

3.4                Certificate of Amendment to      Incorporated by reference to
                   Certificate of Incorporation     Exhibit 3.4 to the Company's
                                                    Annual Report on Form 10-KSB
                                                    for 1991

3.5                Certificate of Amendment to      Incorporated by reference to
                   the Certificate of               Exhibit B to the Company's
                   Incorporation                    Information Statement filed
                                                    on September 4, 1998

4.1                Form of Common Stock Warrant     Incorporated by reference to
                                                    Exhibit 10.2 of the
                                                    Company's Form 8-K filed on
                                                    February 19, 1999.

10.1               Agreement and Plan of Merger     Incorporated by reference to
                   by and among AES, the            Exhibit 10.1 of the
                   Company, Helm and the Merger     Company's Form 8-K filed on
                   Sub, dated July 24, 1998         February 19, 1999.

10.2               Asset Purchase Agreement by      **
                   and among LTC, Surface Decon,
                   McPhee Fischer and LTC
                   Teletrak, dated February 27,
                   1999

23.1               Consent of Baril & Smith         **


23.2               Consent of Richard A. Eisner     **
                   & Company, LLP

27.1               Financial Data Schedule          **

** Filed herewith

(b) Reports on Form 8-K:

      A Report on Form 8-K, dated November 18, 1998, was filed by the Company,
pursuant to which Item 2 and Item 7 were reported.


                                       13
<PAGE>

TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)

Contents

                                                                            Page
                                                                            ----
Financial Statements

Independent Auditor's Report of Baril & Smith                               F-1

Balance Sheets as of December 31, 1997 and 1996                             F-2

Statements of Operations for the years ended December 31, 1997 and 1996     F-3

Statements of Stockholders' Equity for the years ended December 31,
1997 and 1996                                                               F-4

Statements of Cash Flows                                                    F-5

Notes to Financial Statements                                               F-6

Supplementary Information:

            Independent Auditor's Report on Supplementary Information       F-10

            Schedules of Cost of Goods Sold                                 F-11

            Schedules of Selling, General and Administrative Expenses       F-12

Independent auditors' report of Richard A. Eisner Company, LLP              F-13

Balance Sheet as of December 31, 1998                                       F-14

Statement of Operations for the year ended December 31, 1998                F-15

Statement of changes in Stockholders' Equity for the year ended December
31, 1998                                                                    F-16

Statement of Cash Flows for the year ended December 31, 1998                F-17

Notes to Financial Statements                                               F-18


                                       14
<PAGE>

                                                                    May 29, 1998

To the Board of Directors and Stockholders of
Advanced Environmental Systems, Inc.

                          INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying balance sheets of Advanced Environmental
Systems, Inc. as of December 31, 1997 and 1996 and the related statements of
operations and stockholders' equity 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 audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Advanced Environmental Systems,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.

                                                      Baril & Smith


                                      F-1
<PAGE>

                     ADVANCED ENVIRONMENTAL SYSTEMS, INC.
                                BALANCE SHEETS
                          DECEMBER 31, 1997 AND 1996

                                    Assets
                                                            1997           1996
                                                            ----           ----
Current assets:
  Cash                                               $     5,777    $    15,974
  Accounts receivable, less allowance
     for doubtful accounts of $15,000 in 1997            235,217        138,652
  Stock subscription receivable                                         375,000
  Inventory (Note 2)                                     491,980        144,716
  Prepaid expenses                                        21,254         12,496
                                                     -----------    -----------

    Total current assets                                 754,228        686,838
                                                     -----------    -----------

Property and equipment (Note 3)                          273,311        149,782
  Less - Accumulated depreciation                         43,688         10,907
                                                     -----------    -----------

                                                         229,623        138,875
                                                     -----------    -----------

Investment in affiliate (Note 7)                          23,000
                                                     -----------

                                                     $ 1,006,851    $   825,713
                                                     ===========    ===========
                      Liabilities and Stockholders' Equity
Current liabilities:
  Note payable (Note 4)                              $   290,000
  Current portion of long-term debt (Note 5)              24,416    $     9,918
  Accounts payable                                       314,629         16,864
  Due to affiliate                                        32,254         13,200
  Accrued income taxes                                                    4,100
                                                     -----------    -----------

    Total current liabilities                            661,299         44,082
                                                     -----------    -----------

Other liabilities:
  Deferred credit facility (Note 7)                       61,992
  Long-term debt (Note 5)                                 62,656         92,358
  Deferred income taxes                                                   4,000
                                                     -----------    -----------

                                                         124,648         96,358
                                                     -----------    -----------

Commitments (Note 7)

Stockholders' equity:
  Common stock, no par value:
  Authorized - 200,000 shares
    issued and outstanding - 10,000 shares               690,128        690,128
  Accumulated deficit                                   (469,224)        (4,855)
                                                     -----------    -----------

                                                         220,904        685,273
                                                     -----------    -----------

                                                     $ 1,006,851    $   825,713
                                                     ===========    ===========

                 Read Accompanying Notes and Accountants' Report


                                      F-2
<PAGE>

                      ADVANCED ENVIRONMENTAL SYSTEMS, INC.

                            STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                            1997          1996
                                                            ----          ----

Net sales                                            $ 1,216,886    $   749,383

Cost of goods sold                                       808,891        388,803
                                                     -----------    -----------

Gross margin                                             407,995        360,580

Selling, general and administrative expenses             867,969        332,788
                                                     -----------    -----------

(Loss) income from operations                           (459,974)        27,792
                                                     -----------    -----------

Other expenses:
  Litigation settlement (Note 8)                                         20,836
  Interest expense                                         8,395          3,711
                                                     -----------    -----------

                                                           8,395         24,547
                                                     -----------    -----------

Net (loss) income before provision for income taxes     (468,369)         3,245

Provision (credit) for income taxes (Note 6)              (4,000)         8,100
                                                     -----------    -----------

Net loss                                             $  (464,369)   $    (4,855)
                                                     ===========    ===========

                 Read Accompanying Notes and Accountants' Report


                                      F-3
<PAGE>

                      ADVANCED ENVIRONMENTAL SYSTEMS, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                           Shares   Common Stock    Accumulated
                                      Outstanding   No Par Value        Deficit
                                      -----------   ------------        -------

Issuance of 3,400 common shares in
  exchange for inventory, patterns
  and molds                                 3,400      $ 120,000

Issuance of 3,400 common shares
  in exchange for machinery and
  equipment                                 3,400        101,000

Issuance of 1,700 common shares
  for cash                                  1,700         94,128

Issuance of 1,500 common shares
  for cash                                  1,500        375,000

Net loss                                                              $  (4,855)
                                        ---------      ---------      ---------

Balance December 31, 1996                  10,000        690,128         (4,855)

Net loss                                                               (464,369)
                                        ---------      ---------      ---------

Balance December 31, 1997                  10,000      $ 690,128      $(469,224)
                                        =========      =========      =========

                Read Accompanying Notes and Accountants' Report


                                      F-4
<PAGE>

                      ADVANCED ENVIRONMENTAL SYSTEMS, INC.

                            STATEMENTS OF CASH FLOWS

                  FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996

                                                              1997         1996
                                                              ----         ----

OPERATING ACTIVITIES
  Net loss                                               $(464,369)   $  (4,855)
  Adjustments to reconcile net loss to net
    cash used by operating activities:
      Depreciation and amortization                         32,781       10,907
      Deferred income tax                                   (4,000)       4,000
      Provision for doubtful accounts                       15,000
  (Increase) decrease in operating assets:
    Accounts receivable                                   (111,565)     (64,716)
    Inventory                                             (347,264)      16,864
    Prepaid expenses                                        (8,758)    (138,652)
  Increase (decrease) in operating liabilities:
    Accounts payable                                       297,465       13,200
    Accrued  expenses                                       10,800      (12,496)
    Accrued income taxes                                    (3,800)       4,100
                                                         ---------    ---------

   Net cash used by operating activities                  (583,710)    (171,648)
                                                         ---------    ---------

INVESTING ACTIVITIES
  Investment in affiliate                                  (23,000)
  Purchase of property and equipment                      (123,529)      (6,160)
                                                         ---------    ---------

  Net cash used by investing activities                   (146,529)      (6,160)
                                                         ---------    ---------

FINANCING ACTIVITIES
  Advances from affiliate                                  125,000
  Repayment to affiliate                                   (54,754)
  Proceeds from note payable                               290,000      100,000
  Proceeds from sale of common stock                       375,000       94,128
  Repayment of long-term debt                              (15,204)        (346)
                                                         ---------    ---------

   Net cash provided by financing activities               720,042      193,782
                                                         ---------    ---------

(Decrease) increase in cash                                (10,197)      15,974

Cash at beginning of year                                   15,974
                                                         ---------

Cash at end of year                                      $   5,777    $  15,974
                                                         =========    =========

Supplemental disclosure of cash flow information:
  Cash paid during year for:
    Interest expense                                     $  12,497    $   3,711

                Read Accompanying Notes and Accountants' Report


                                      F-5
<PAGE>

                      ADVANCED ENVIRONMENTAL SYSTEMS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1996

Note 1 - Business activities and accounting policies

      Business activities

      The Company was incorporated under the laws of the Commonwealth of
Massachusetts on January 4, 1996 and is engaged in the marketing distribution
and licensing of industrial pumps and related equipment. The product is
manufactured on a subcontract basis.

      Accounting policies

      The significant accounting policies utilized by the Company are described
below:

      Revenue recognition

      The Company records sales and related cost of sales at the time of
shipments if all conditions for a sale are met. Shipments on a consignment on
demonstration basis are carried in inventory until a sale to a third party.

      Use of estimates

      The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.

      Inventory

      Inventory, which consists primarily of industrial pumps and related parts,
is stated at first-in, first-out (FIFO) cost.

      Property and equipment

      Property and equipment is stated at cost and depreciation is provided
using the straight-line and accelerated methods. Expenditures for repairs and
maintenance are charged to operations as incurred. Renewals and betterments
which extend the lives of the assets are capitalized. The cost of property
retired or sold, together with the related accumulated depreciation, is removed
from the appropriate accounts and any resulting gain or loss is included in
operations.


                                      F-6
<PAGE>

Note 1 - Business activities and accounting policies - continued

      Income taxes

      Deferred income tax assets and liabilities arise from temporary
differences between the financial reporting and tax basis of assets and
liabilities that result in net taxable or deductible amounts in future periods.
Deferred taxes are classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse.

      Advertising

      The Company follows the policy of charging the costs of advertising to
expense as incurred.

Note 2 - Inventory

      Inventory at December 31, 1997 and 1996 consist of the following:

                                                               1997         1996
                                                               ----         ----

      Components and replacement parts                     $447,010     $100,011
      Finished goods                                         44,970       44,705
                                                           --------     --------

                                                           $491,980     $144,716
                                                           ========     ========

Note 3 - Property and equipment

      The cost of property and equipment and the estimated useful lives used for
computing depreciation at December 31, 1997 and 1996:

                                           Estimated
                                         Useful Life         1997           1996
                                         -----------         ----           ----

      Machinery and equipment                7 years     $193,097       $141,600
      Office equipment                     3-7 years       58,657          8,182
      Motor vehicles                         5 years       21,557
                                                         --------

                                                         $273,311       $149,782
                                                         ========       ========

Note 4 - Note payable

      The Company has a $300,000 revolving line of credit with a bank. The loan
agreements provides for interest payable at the bank's prime rate plus 1.5% and
is secured by all assets of the Company and the personal guarantees of the
Company's stockholders. The revolving credit agreement is renewable annually on
May 31, 1998.


                                      F-7
<PAGE>

Note 5 - Long-term debt

      Long-term debt at December 31, 1997 and 1996 consist of the following:

                                                              1997         1996
                                                              ----         ----

      Note payable to bank with interest at prime
      plus 2% (10.5%) secured by all assets of the
      Company and the personal guarantees of the
      Company's shareholders, due in monthly
      principal installments of $1,959, plus
      interest through October 1, 2001. Financial
      performance covenants relative to debt
      service and leverage exist.                        $  86,164    $ 100,000

      Obligation under capital lease secured by
      computer equipment payable in 24
      installments of $149, including interest.                908        2,276
                                                         ---------    ---------

                                                            87,072      102,276
            Less - Amounts due within one year             (24,416)      (9,918)
                                                         ---------    ---------

                                                         $  62,656    $  92,358
                                                         =========    =========

      The aggregate principal maturities for the years subsequent to December
31, 1997 are as follows:

            1999                                          $23,508
            2000                                           23,508
            2001                                           15,640

      The Company is not in compliance with certain financial performance
covenants as required by it's lending agreement. The bank is aware of this and
is working with the Company to resolve.

Note 6 - Income taxes

      The credit for income taxes represents the reversal of the prior year
deferred tax liability. The Company has a net operating loss carryforward of
approximately $450,000 which is available for fifteen years. The potential
future tax benefit of $150,000 has been offset by a valuation reserve.

Note 7 - Related party transactions

      On February 14, 1997, the Company entered into a ten year exclusive sales
and distribution agreement with a stockholder for sale of the Company's products
in Europe. The Company will offer this distributor a 5% discount from list price
in return for an accelerated payment schedule.


                                      F-8
<PAGE>

Note 7 - Related party transactions - continued

      Deferred credit facility

      As part of a private placement equity financing closed in February 1997
the Company received a deferred credit facility of $125,000 from the
shareholder. The Company has agreed to sell the shareholder products at a sales
value of $125,000 over a three year period. The credit facility is non-interest
bearing and payable through sales discounts over a three year period.

      Investment in Eco-Jet

      In 1997, the Company acquired a 15% interest in a European distributor
whose majority ownership is held by a shareholder of the Company. Consideration
for the investment of $23,000 is evidenced by a credit taken on sale made to the
distributor.

      Facilities

      The Company occupies office and assembly space in a facility owned by a
stockholder. Approximately 4,000 square feet is occupied as a tenant at will. A
charge of $24,000 representing rent and utilities has been made.

Note 8 - Litigation

      A litigation claim was settled by the Company in 1997 for settlement of
$10,000.

Note 9 - Purchase of Unique tool product line

      On May 8, 1997, the Company purchased certain assets consisting of
inventory, fixed assets, tooling, demo equipment, patent rights and other assets
for a total consideration of approximately $208,000 of which $65,000 was paid at
closing. The balance is due within a one year period as the inventory is sold.

Note 10 - Proposed merger

      In December 1997, the Company signed a letter of intent to enter into a
merger with Teletrak Advanced Technology Systems, Inc. (Teletrak). The merger is
proposed to be a tax free transaction and Advanced Environmental Systems, Inc.
(AESI) will be the surviving corporation. The merger is expected to be completed
in the second quarter of 1998.

Note 11 - Subsequent events

      On March 19, 1998, the Company agreed to sell its affiliate Eco-Jet, pumps
having a sales value of $200,000. The transaction is intended to assist the
Company with cash flows needs.

      In May, 1998, the Company entered into an agreement to be a sales
representative for a manufacturer and purchase inventory with a list price of
$50,000. The agreement stipulates that if the Company makes purchases totaling
$250,000 by June 30, 2000, all rights to manufacture the product will be
transferred to the Company.


                                      F-9
<PAGE>

                                                                    May 29, 1998

To the Board of Directors and Stockholders of
Advanced Environmental Systems, Inc.

Our audits were made primarily for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplementary schedules
of cost of goods sold, selling, general and administrative expenses for the
years ended December 31, 1997 and 1996 are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
examination of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.

                                          Baril & Smith


                                      F-10
<PAGE>

                      ADVANCED ENVIRONMENTAL SYSTEMS, INC.

                         SCHEDULES OF COST OF GOODS SOLD

                  FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996

                                                           1997           1996
                                                           ----           ----

Inventory at beginning of year                       $  144,716
                                                     ----------

Purchases                                             1,118,990       $471,843

Subcontract costs                                        37,165         61,676
                                                     ----------       --------

                                                      1,156,155        533,519
                                                     ----------       --------

Goods available for sale                              1,300,871        533,519

Less: Inventory at end of year                          491,980        144,716
                                                     ----------       --------

                                                     $  808,891       $388,803
                                                     ==========       ========

                 Read Accompanying Notes and Accountants' Report


                                      F-11
<PAGE>

                      ADVANCED ENVIRONMENTAL SYSTEMS, INC.

            SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                           1997             1996
                                                           ----             ----

Salaries and wages                                     $278,243         $155,766

Travel and entertainment                                 96,318           38,808

Freight                                                  71,542           14,447

Advertising                                              67,887           12,536

Insurance                                                54,956           34,464

Commissions                                              49,957            1,937

Employee benefits                                        45,283           26,187

Professional fees                                        43,985

Rent                                                     33,935            5,637

Telephone                                                32,950           19,749

Depreciation and amortization                            32,781           10,907

Bad debt expense                                         24,002

Office supplies and expenses                             18,730            7,617

Miscellaneous                                            17,400            4,733
                                                       --------         --------

                                                       $867,969         $332,788
                                                       ========         ========

                 Read Accompanying Notes and Accountants' Report


                                      F-12
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders
Teletrak Environmental Systems, Inc.
Webster, Massachusetts

We have audited the accompanying consolidated balance sheet of Teletrak
Environmental Systems, Inc. (formerly Teletrak Advanced Technology Systems,
Inc.) and subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year 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 audit.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Teletrak Environmental
Systems, Inc. and subsidiaries as of December 31, 1998 and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As disclosed in the financial
statements, the Company has an accumulated deficit at December 31, 1998, has
suffered a substantial net loss during 1998 and obtained a temporary waiver from
a creditor regarding noncompliance with debt covenants that raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also disclosed in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                       Richard A. Eisner & Company, LLP

New York, New York
March 11, 1999

With respect to Note I(1)
March 23, 1999

With respect to Note E
July 23, 1999 and August 27, 1999

With respect to Note J(2)
August 19, 1999


                                      F-13
<PAGE>

Consolidated Balance Sheet
December 31, 1998

ASSETS
Current assets:
  Cash                                                              $   296,709
  Accounts receivable (net of allowance for
    doubtful accounts of $30,000)                                       206,031
  Inventory                                                             365,098
  Subscription receivable                                                80,000
  Other current assets                                                   50,752
                                                                    -----------

      Total current assets                                              998,590

Property and equipment, net                                             181,780
Other assets                                                              1,000
                                                                    -----------

                                                                    $ 1,181,370
                                                                    ===========

LIABILITIES
Current liabilities:
  Notes payable                                                     $   250,000
  Current portion of long-term debt                                      61,906
  Accounts payable and accrued expenses                                 253,907
  Due to related party                                                   73,296
                                                                    -----------

    Total current liabilities                                           639,109
                                                                    -----------

Commitments

STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares
  authorized, none issued
Common stock - $.001 par value, 25,000,000 shares
  authorized, 7,252,927 shares issued and outstanding                     7,253
Additional paid-in capital                                            1,172,875
Accumulated deficit                                                    (637,867)
                                                                    -----------

    Total stockholders' equity                                          542,261
                                                                    -----------

                                                                    $ 1,181,370
                                                                    ===========

See notes to financial statements


                                      F-14
<PAGE>

Consolidated Statement of Operations
Year Ended December 31, 1998

Net sales                                                           $ 1,580,155
Cost of goods sold                                                    1,002,681
                                                                    -----------

Gross profit                                                            577,474
                                                                    -----------

Operating expenses:
  Selling, general and administrative expenses                          662,672
  Advertising expense                                                    29,649
  Bad debt expense                                                       15,000
                                                                    -----------

    Total operating expenses                                            707,321
                                                                    -----------

Loss from operations                                                   (129,847)
Interest expense (net of interest income of $862)                        38,797
                                                                    -----------

Net loss                                                            $  (168,644)
                                                                    ===========

Net loss per share - basic and diluted                                 $(.04)
                                                                       =====

Weighted average number of common shares outstanding                  3,969,037
                                                                    ===========

See notes to financial statements


                                      F-15
<PAGE>

Consolidated Statement of Changes in Stockholders' Equity
Year Ended December 31, 1998

<TABLE>
<CAPTION>
                                                       Common Stock
                                                      Par Value $.001          Additional
                                                --------------------------      Paid-in       Accumulated
                                                   Shares         Amount        Capital         Deficit          Total
                                                -----------    -----------    -----------     -----------     -----------
<S>                                               <C>          <C>            <C>             <C>             <C>
January 1, 1998                                   3,750,000    $     3,750    $   686,378     $  (469,223)    $   220,905
Equivalent shares held by Teletrak
  stockholders - pre-merger                       2,522,927          2,523         (2,523)                              0
Issuance of common stock and warrants               980,000            980        489,020                         490,000
Net loss                                                                                         (168,644)       (168,644)
                                                -----------    -----------    -----------     -----------     -----------

December 31, 1998                                 7,252,927    $     7,253    $ 1,172,875     $  (637,867)    $   542,261
                                                ===========    ===========    ===========     ===========     ===========
</TABLE>

See notes to financial statements


                                      F-16
<PAGE>

Consolidated Statement of Cash Flows
Year Ended December 31, 1998

Cash flows from operating activities:
  Net loss                                                            $(168,644)
  Adjustments to reconcile net loss to
  net cash used in operating activities:
    Provision for doubtful accounts                                      15,000
    Depreciation and amortization                                        41,192
    Write-off of fixed assets                                             8,351
    Loss on write-off of investment                                       3,330
    Changes in:
      Accounts receivable                                                14,186
      Inventory                                                         126,882
      Prepaid expenses and other assets                                 (29,498)
      Accounts payable and accrued expenses                             (60,721)
      Due to/from related party                                          (2,280)
                                                                      ---------

        Net cash used in operating activities                           (52,202)
                                                                      ---------

Cash flows from investing activities:
  Acquisition of property and equipment                                  (1,700)
                                                                      ---------

Cash flows from financing activities:
  Proceeds from sale of common stock                                    410,000
  Principal payments on notes and loans payable                         (65,166)
                                                                      ---------

        Net cash provided by financing activities                       344,834
                                                                      ---------

Net increase in cash                                                    290,932
Cash - beginning of year                                                  5,777
                                                                      ---------

Cash - end of year                                                    $ 296,709
                                                                      =========

Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                                                          $  38,797
    Income taxes                                                      $   1,350

Supplemental disclosures of noncash operating and
financing activities:
  Common stock subscriptions receivable                               $ (80,000)
  Other assets                                                        $ (18,670)
  Due to related parties (Note F)                                     $  18,670

See notes to financial statements


                                      F-17
<PAGE>

TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)

Notes to Financial Statements
December 31, 1998

NOTE A - THE COMPANY AND BASIS OF PRESENTATION

The Company was incorporated on January 5, 1983 as Helm Advanced Technology
Center, Inc. On April 25, 1983 the Company changed its name to Teletrak Advanced
Technology Systems, Inc. and on November 18, 1998 the Company changed its name
to Teletrak Environmental Systems, Inc. when the Company, an inactive entity,
effected a merger with Advanced Environmental Systems, Inc. ("AES"). The merger
was consummated through an exchange of shares that resulted in the former AES
shareholders receiving control of Teletrak. The merger is accounted for as a
recapitalization and has been treated as a capital transaction for accounting
purposes. In accordance with the merger, Teletrak issued 3,750,000 shares of its
common stock to the shareholders of AES in exchange for the outstanding common
stock of AES. In connection therewith, AES's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by
Teletrak in the transaction while AES's historical accumulated deficit was
carried forward. The operations reflect those of AES from January 1, 1998
through the date of the merger and consolidated operations through December 31,
1998. AES is an operating company that is engaged in the marketing, distribution
and licensing of industrial pumps and related equipment used primarily in
environmental remediation. All significant intercompany balances and
transactions were eliminated in consolidation.

Management is developing a plan to improve cash position including focusing its
sales in profitable product lines, as well as introducing new LTC products (see
Note J).

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1)   Inventory:

      Inventory is valued at the lower of cost (first-in, first-out) or market.

(2)   Property and equipment:

      Property and equipment are stated at cost, less accumulated depreciation.
      Depreciation is provided using the straight-line method over the estimated
      useful lives of the respective assets ranging from 3 to 7 years.
      Expenditures for maintenance and repairs are charged to operations as
      incurred.

(3)   Revenue recognition:

      Shipments on a consignment or demonstration basis are carried in inventory
      until such items are sold.

(4)   Cash equivalents:

      The Company considers all cash accounts, which are not subject to
      withdrawal restrictions or penalties, and all highly liquid instruments
      purchased with a maturity of three months or less to be cash equivalents.

(5)   Long-lived assets:

      In accordance with Statement of Financial Accounting Standards No. 121,
      "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to be Disposed of", the Company records impairment losses on
      long-lived assets used in operations, including intangible assets, when
      events and circumstances indicate that the assets might be impaired and
      the undiscounted cash flows estimated to be generated by those assets are
      less than the carrying amounts of those assets.


                                      F-18
<PAGE>

TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)

Notes to Financial Statements
December 31, 1998

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(6)   Income taxes:

      The Company accounts for income taxes under the provisions of Statement of
      Financial Accounting Standard No. 109, "Accounting for Income Taxes"
      ("SFAS 109") which requires use of the liability method of accounting for
      income taxes. The liability method measures deferred income taxes by
      applying enacted statutory rates in effect at the balance sheet date to
      the differences between the tax bases of assets and liabilities and their
      reported amounts in the financial statements. The resulting asset or
      liability is adjusted to reflect changes in the tax laws as they occur.

(7)   Concentration of credit risk:

      The Company maintains its cash in highly rated financial institutions. At
      December 31, 1998, the Company had bank deposits exceeding federally
      insured limits by approximately $192,000.

(8)   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 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.

(9)   Loss per common share:

      The Company calculates net loss per share pursuant to Statement of
      Financial Accounting Standards No. 128 "Earnings Per Share," which
      requires the presentation of basic and diluted earnings per share
      information. Basic and diluted loss per share exclude any dilutive effects
      of options, warrants and convertible securities.

(10)  Research and development:

      The Company expenses costs of research and development activities as
      incurred.

(11)  Recent accounting pronouncements:

      In June 1997, the Financial Accounting Standards Board issued Statements
      of Financial Accounting Standards No. 130, "Reporting Comprehensive
      Income," and No. 131, "Disclosure about Segments of an Enterprise and
      Related Information," which were effective for the year beginning January
      1, 1998. These pronouncements did not have an effect on the information
      presented in the Company's financial statements.

NOTE C - INVENTORY

Inventory consists of the following at December 31, 1998:

            Components and replacement parts         $199,995
            Finished goods                            165,103
                                                     --------

                                                     $365,098
                                                     ========


                                      F-19
<PAGE>

TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)

Notes to Financial Statements
December 31, 1998

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 1998:

      Machinery and equipment                   $215,354
      Office equipment                            47,076
                                                --------

                                                 262,430
      Less accumulated depreciation               80,650
                                                --------

                                                $181,780
                                                ========

NOTE E - NOTES PAYABLE - BANK

At December 31, 1998, the Company had a $300,000 line of credit with a bank
which was subsequently increased to $400,000 and which, as extended, expires on
June 30, 2000. Available borrowings are based on a formula of eligible accounts
receivable and inventory. Outstanding borrowings under the line are payable on
demand and bear interest at 1.50% above the bank's base rate (7.75% at December
31, 1998). At December 31, 1998 the Company had $50,000 available for future
borrowings under the line.

At December 31, 1998, the Company was not in compliance with required financial
covenants. On July 23, 1999, the bank has waived such noncompliance. The bank's
waiver does not extend through December 31, 1999. In accordance with accounting
standards the obligations have been classified as current.

Additionally, the Company has a loan with the bank, principal payable in monthly
installments of $1,959 plus interest at the bank's base rate plus 2.00% through
August 2001. Principal repayments as originally scheduled are due as follows:

      1999                                      $ 23,508
      2000                                        23,508
      2001                                        14,890
                                                --------

                                                $ 61,906
                                                ========

However, such periodic payments are deemed accelerated and may be payable during
1999. Both loan facilities are secured by substantially all of the Company's
assets.

NOTE F - RELATED PARTY TRANSACTIONS

The Company rents its premises from an entity owned by a stockholder who is a
director and officer of the Company. Rent is $2,000 per month. To date the
Company has not paid rent and $48,000 of accrued rent is recorded as a liability
in the financial statements. Rent expense of $24,000 has been charged to
operations during 1998. In addition, the Company purchases supplies from this
entity. At December 31, 1998 amounts payable to the related party aggregated
$73,296.


                                      F-20
<PAGE>

TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)

Notes to Financial Statements
December 31, 1998

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

In 1997, the Company acquired a 15% interest in a European distributor whose
majority ownership is held by a shareholder of the Company. Sales to this
distributor represent approximately 13% of the Company's sales in 1998. During
1998, the Company, in a noncash transaction, sold back their entire investment
to the distributor for the settlement of outstanding payables totaling $18,670.

NOTE G - COMMITMENTS

In 1997, the Company entered into a ten year exclusive sales and distribution
agreement with a stockholder for sale of the Company's products in Europe. The
Company will offer this distributor a 5% discount from list price in return for
an accelerated payment schedule. Total sales since the inception of agreement
amounted to approximately $352,000.

In 1998, the Company entered into an agreement to be a sales representative for
a manufacturer and purchase inventory with a list price of $50,000. The
agreement stipulates that if the Company makes purchases totaling $250,000 by
June 30, 2000, all rights to manufacture the product will be transferred to the
Company. At December 31, 1998, the Company has purchased approximately $51,000.

NOTE H - TAXES ON INCOME

The Company's deferred tax asset at December 31, 1998 represented a benefit from
a net operating loss carryforward of $200,000 which is reduced by a valuation
allowance of $200,000 since the likelihood of realization of such tax benefit is
not presently determinable. The Company's provision for income taxes for the
period ended December 31, 1998 are comprised of the deferred tax items. The
Company's ability to utilize its net operating loss carryforwards may be subject
to an annual limitation in future periods pursuant to Section 382 of the
Internal Revenue Code of 1986, as amended, if additional transactions and/or
ownership changes take place. Net operating losses of the pre-merger public
entity, old Teletrak, are subject to a Section 382 limitation and any potential
benefit is considered de minimis.

The difference between the statutory federal income tax rate on the Company's
net loss and the Company's effective income tax rate for the year ended December
31, 1998 is summarized as follows:

      Statutory federal income tax benefit rate            (34.0)%
      State income tax benefit, net of federal benefit      (6.0)%
      Increase in valuation allowance                       40.0%
                                                           -----

                                                             0.0%
                                                           =====

At December 31, 1998 the Company had available for federal income tax purposes a
net operating loss carryforward of approximately $500,000 expiring through the
year 2018 that may be used to offset future taxable income.


                                      F-21
<PAGE>

TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)

Notes to Financial Statements
December 31, 1998

NOTE I - STOCKHOLDERS' EQUITY

(1)   Private placement:

      Pursuant to the merger agreement between Teletrak and AES, the Company was
      authorized to sell certain AES stockholders or affiliates up to 500,000
      units, consisting of two post-merger shares of Teletrak common stock ("New
      Common Share") and one warrant to purchase an additional New Common Share
      for $2.00 for a period of three years ("Warrant"), (collectively a
      "Unit"), at a purchase price of $1.00 per Unit. The Company was also
      authorized to sell up to 125,000 Units to holders of Teletrak's post
      merger common stock or their affiliates.

      As of December 31, 1998, 410,000 Units had been sold and warrants remain
      outstanding on 205,000 Units, of which 80,000 units were subscribed to in
      1998 and paid for in March 23, 1999.

(2)   Warrants:

      Immediately preceding the merger, each of Teletrak's shareholders received
      one-half of a Warrant for each post-split common share held by them upon
      the effectiveness of the merger, for a total of 1,261,463 Warrants. In
      addition, 493,000 Warrants were issued to pre-merger Warrant holders in
      exchange for Warrants canceled pursuant to the merger and 7,000 additional
      Warrants were issued.

      At December 31, 1998 the Company has outstanding 2,251,463 Warrants, each
      to purchase one share of common stock at $2.00 per share. The Warrants are
      exercisable through September 27, 2001. The Warrants are redeemable at
      $.05 per Warrant at the Company's option if the common shares trade for
      three consecutive days at $3.00 per share on any national securities
      exchange, or if the average bid and asked price of the common shares in
      the over the counter markets is over $3.00 per share for three consecutive
      trading days.

      Shares have not been reserved for the exercise of Warrants.

NOTE J - SUBSEQUENT EVENTS

(1)   In February 1999, the Company consummated an agreement to buy designated
      assets (including inventory, fixed assets and certain intangible assets)
      of a company and its subsidiary that manufactures, sells and rents vacuum
      blasting equipment. Preliminary unaudited information for the five-month
      period ended February 28, 1999 indicates that the acquired business has
      experienced a significant loss in the amount of $206,000 based on revenues
      of $313,000. The transaction is expected to be accounted for as a
      purchase. The cost consists of $211,000 in cash, $80,000 in promissory
      notes bearing interest at 10% per annum and payable in 36 equal monthly
      installments and 209,000 shares of common stock valued at approximately
      $52,000. The purchase price will be allocated among the tangible and
      intangible assets acquired based on their fair values. In addition, the
      Company is assuming the seller's operating leases including premises,
      photocopier and telephone services, related services contracts and a
      supply contract.

(2)   On August 19, 1999, the Company entered into a promissory note to borrow
      $150,000 from a stockholder who is a director and officer. Under the note,
      the principal sum and interest at the interest rate of 10% per annum on a
      monthly basis is due August 20, 2000.


                                      F-22
<PAGE>

                                   SIGNATURES

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

Signature                     Title                             Date
---------                     -----                             ----


/s/ GERD E. REINIG            Chairman of the Board             October 15, 1999
------------------------
Gerd E. Reinig


/s/ GERALD P. MCNAMARA        Director, President and           October 15, 1999
------------------------      Chief Executive Officer
Gerald P. McNamara


/s/ DOMENIC SGAMBELLONE       Executive Vice President and      October 15, 1999
------------------------      Chief Operating Officer
Domenic Sgambellone           (principal financial officer)


/s/ HEINZ BUHR                Director                          October 15, 1999
------------------------
Heinz Buhr


/s/ GLEN WEGNER               Director                          October 15, 1999
------------------------
Glen Wegner


/s/ WILLIAM P. GAGNON         Director                          October 15, 1999
------------------------
William P. Gagnon