<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

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

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

                   For the fiscal year ended December 31, 2000

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

                         Commission File Number: 0-11625

                                MFIC CORPORATION
             (Exact name of registrant as specified in its charter)

        Delaware                                 04-2793022
        --------                                 ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

30 Ossipee Road, P.0. Box 9101
     Newton, Massachusetts                       02464-9101
-------------------------------                  ----------
(Address of principal executive offices)         (Zip Code)

       Registrant's telephone number, including area code: (617) 969-5452
        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>


The aggregate market value of Common Stock held by non-affiliates of the
registrant (without admitting that any person whose shares are not included in
determining such value is an affiliate), based upon the closing sale price of
the Common Stock on March 16, 2001 as reported on the Over-the-Counter Bulletin
Board was $2,966,905.

The number of shares outstanding of the registrant's Common Stock as of March
16, 2001 was 7,366,667 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
2000. Portions of such proxy statement are incorporated by reference into Part
III of this report.

Item 1.           BUSINESS:

Company Overview:
-----------------

   MFIC Corporation ("MFIC" or the "Company"), through its wholly-owned
subsidiaries, Microfluidics Corporation ("Microfluidics") and MediControl
Corporation ("MediControl"), its Microfluidics Division, as well as its other
operating divisions, Epworth Mill and Morehouse-COWLES specializes in producing
and marketing a broad line of fluid materials processing systems used for a
variety of grinding, dispersing, milling, and blending applications across a
variety of industries and for use in numerous applications within those
industries. Microfluidizer(R) high shear materials processor systems are
produced at the Microfluidics Division, while dispersers, dissolvers, colloid
mills, horizontal media mills, and vertical media mills are produced at the
Morehouse-COWLES Division. The Epworth Mill Division sells and distributes
grinding media.

   Microfluidizer(R) materials processing equipment, produced by the Company's
Microfluidics Division, is used to formulate high shear fluid emulsions,
dispersions, and liposomes, and is used in deagglomeration and cell disruption
for the biotech industry. Emulsions are found in a broad variety of common
products, including processed foods, pharmaceuticals, and specialty coatings
such as photographic films. Dispersions are often employed in products such as
pharmaceuticals, inks, pigments and coatings. The Company believes that the
processing technique of the Microfluidizer(R) equipment enhances the stability
and consistency of emulsions and dispersions due to the equipment's unique
ability to consistently produce uniform micron and sub micron scale particles in
many applications. Liposomes, which are biodegradable cell-like structures, are
used to encapsulate medications or nutrients, and are typically used in cosmetic
or pharmaceutical products. In addition, Microfluidizer(R) equipment is used in
biotechnology applications to harvest, through cell disruption, the cultivated
product contents of plant and animal cells.


                                      -2-
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   The Company's product lines are used to blend, emulsify, disperse,
deagglomerate and grind fluid formulations. These fluid formulations may be
liquid/liquid or liquid/solid formulations and are generally prepared in
quantities ranging from one gallon to hundreds of gallons in an industrial
environment. In connection with the processing of emulsions and dispersions, the
various pieces of equipment in the product lines may be used in preparatory
steps prior to introduction of the product into the Microfluidizer(R) system for
further processing.

    The Company's product lines are diversified and certain equipment is used
independent of the Microfluidizer(R) equipment in the preparation of many
industrial fluid formulations where the desired product characteristics do not
require high energy Microfluidizer(R) processing.

   While the Microfluidizer(R) equipment is generally used in the processing
of high value-added end-products that require extremely small particle sizes,
the Company's other product lines are used in broader, high volume, lower
value-added applications requiring less stringent particle size reduction.

   The combination of product lines result in one of the broadest offerings of
fluid processing equipment in the materials processing market. The Company, in
late 1998 and early 1999, integrated its then existing three divisions such that
its corporate marketing and sales group was responsible for the marketing and
sales of the products for all divisions. The acquisition of the Epworth Mill and
Morehouse-COWLES divisions in 1998 and the consolidation of marketing and sales
personnel into one group enables the Company to sell stand-alone pieces of
equipment to smaller companies that require only limited processing capability,
as well as integrated systems or multiple pieces of equipment from more than one
division to larger customers that have a variety of fluid processing
requirements.

   The Company was incorporated in Delaware in 1983. The Company, formerly named
Biotechnology Development Corporation, changed its name effective June 8, 1993
to Microfluidics International Corporation, and again changed its name effective
July 12, 1999 to MFIC Corporation. Its principal executive offices are located
at 30 Ossipee Road, in Newton, Massachusetts, 02464-9101 and its telephone
number is (617) 969-5452.

    Microfluidizer(R) and Zinger(R) are trademarks of the Company, which have
been registered with the United States Patent and Trademark Office.
Morehouse-COWLES(TM), Epworth Mill(TM) and Microfluidics(TM) are trademarks of
the Company for which registration applications have been filed with the United
States Patent and Trademark Office. All other trademarks or trade names referred
to herein are the property of their respective owners.




                                      -3-
<PAGE>

The Technology:

   The Company's Microfluidizer(R) materials processor device is based on
patents and related technology that were licensed by the Company from Arthur D.
Little & Co. in 1983 and subsequently purchased by the Company in 1985. The
Company holds two United States patents related to the apparatus and process
used to intimately mix liquids and disperse particulate solids in
microemulsions.

   The Company's Microfluidizer(R) processor technology is used in processing
industries to mix materials that are normally very difficult to mix. The
Microfluidizer(R) processor technology allows manufacturers in the chemical,
pharmaceutical, biotechnology, cosmetic, and food processing industries to
produce higher quality products with better characteristics on a more consistent
basis than with other blending, mixing, or homogenizing techniques.
Additionally, the equipment is used for cell disruption to harvest the
cultivated contents of animal and/or plant cells and for liposomal encapsulation
of materials.

   Prior to October 1, 2000, the Company's Epworth Mill products consisted of
ball mills and horizontal media mills. The division is also engaged in the
sale and distribution of grinding media. The division's ball mills are used
in coarse grinding application of liquid slurries such as ore from mines or
coarse slurries of material that will later be processed into finer slurries.
The ball mills use large media in a horizontal rotating cylindrical vessel to
crush and grind the product being processed. The Epworth Mill Division's
patented Zinger(R) horizontal media mill utilizes a unique design for
grinding and dispersing solid materials in a liquid carrying medium. The
design is based upon established rotating, horizontal shaft technology but
adds the unique capability of enhanced mechanical activity between the
grinding media and the product formulation. The enhanced mechanical activity
is achieved through a unique combination of specially designed rotors and
containment vessels. In comparison to traditional horizontal media mills, the
Zinger media mill technology has demonstrated significantly improved
productivity in terms of greater volumes of product processed at acceptable
quality than the comparably sized and priced horizontal media mills. On July
24, 2000, the Company announced that it would transfer the manufacturing and
sale of its Zinger(R) horizontal media mills from its Michigan-based Epworth
Mill Division to the Morehouse-COWLES plant in Fullerton, California. The
transfer began on October 1, 2000, and was completed in the fourth quarter of
fiscal 2000.

   On September 30, 2000, the Company ceased operations of the Ball Mill repair
business and decided to sell its Ball Mill operation conducted at the Epworth
Mill Division through a broker. On March 19, 2001 the Company reached an
agreement to sell the operation for $200,000 in cash and notes, which will
result in a loss on the sale of the ball mill assets of approximately $13,000.




                                      -4-
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   The Company's Morehouse-COWLES Division manufactures grinding and dispersing
equipment used mainly in the coatings and ink industries. The products include
high-speed dissolvers, dispersers, stone mills, and vertical and horizontal
media mills. As one of the early inventors of dispersers, dissolvers, colloid
mills, and media mills, the one hundred-year-old COWLES name is an
industry-accepted symbol of quality, reliable products.

Commercial Applications:

   The Microfluidizer(R) equipment can be used to mix and formulate emulsions,
dispersions and liposomes, and for cell disruption.

   Emulsions are homogenous mixtures of oil and water components (or other
normally immiscible components), which, if mixed properly, do not readily
separate. Emulsions comprise many products, such as processed foods, medicines,
photographic films, hydraulic fluids and polymers. The Company believes that,
generally, an emulsion processed with Microfluidizer(R) equipment will exhibit
improved stability and require reduced concentrations of costly emulsifying
agents that are otherwise needed to enhance product stability.

   Dispersions are mixtures of fine solids suspended in liquid so that the two
do not separate readily after processing. Similar to emulsions, dispersions are
used in a variety of consumer and industrial products, including pigments for
paints and inks, iron oxide for magnetic tapes and mascara, phosphorescent
coatings for TV screens and fluorescent lamps, barium titanate for capacitors,
toners and inks.

   Liposomes are biodegradable cell-like structures, formed from materials such
as cholesterol and lecithin, which can be used to encapsulate medications or
nutrients. Pharmaceutical and cosmetic manufacturers use liposomes as a delivery
system to target active ingredients for specific anatomical sites and to prolong
their efficacy. To date, liposomes have been used commercially in two
applications, of medical diagnostic agents and cosmetics. Applications include
the encapsulation of dye to be used as a marker in medical diagnostic tests and
the encapsulation of ingredients for deeper skin penetration, or time release
control, as well as pharmaceutical, food and specialized agricultural
applications.

   In the biotechnology industry, Microfluidizer(R) equipment is currently used
to harvest, by cell rupture, the contents of plant or animal cells. The
precision with which the Microfluidizer(R) equipment can be used to break up
materials allows the encapsulating cell wall to be ruptured without damage to or
contamination of the cell contents. As a result, the Microfluidizer(R) equipment
minimizes the amount and presence of cell wall debris, thus resulting in maximum
yields.

   The Microfluidizer(R) equipment is generally used in commercial applications
where a scientist, formulator or chemist is trying to develop or improve a
product formulation for an expensive, high value-added end product.
Microfluidizer(R) equipment is initially employed in a research laboratory,

                                      -5-
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with the equipment subsequently being used in scaleup to pilot scale production
of new or improved products, and ultimately, for full production scale volumes
as the improved product comes to market. From laboratory to production, the
volume of product processed range from 1/2 liter to 200 liters per minute.

   The Company also manufactures products that are generally used for blending,
mixing, deagglomeration and dispersion of paints and coatings, inks, adhesives,
sealants, and pigment dispersions. These applications tend to be less
technically demanding, the formulations are less expensive to produce and the
volumes of product produced are large.

The Products:
-------------

The Company currently manufactures and markets the following lines of equipment:

   The HC Series: The HC Series, also known as "Homogenizers," is a
   laboratory-scale series of equipment that is intended to impart moderate
   levels of energy into a customer's product with greater flow rates than the
   more energy intensive Microfluidizer(R) devices. Operating pressures of
   products in the Company's HC Series can range from under 500 psi to as high
   as 8,000 psi, and will process as much as two liters of fluid per minute.

   The M-110 Series: The M-110 Series, a laboratory product line, is designed
   primarily for research and development applications. Standard models can
   operate at pressures as high as 25,000 psi and have a flow rate that exceeds
   one-half of a liter of product per minute. The most recent introduction in
   this line is the M-110EHI model designed for "non-sanitary" industrial
   applications such as paint, coatings, pigments and other chemical/industrial
   applications. This model is constructed from epoxy painted carbon steel
   rather than from standard stainless steel that the Company used in other
   models. The M-110EHI includes an on-board hydraulic pump system for high
   performance "lab scale" micro-mixing at processing pressures up to 25,000 psi
   and flow rates up to 450 ml/min and has numerous standard features and
   options such as an explosive-proof model.

   The M-140 Series: The M-140K, introduced in June of 1994, is a
   laboratory-scale unit developed forcustomers in the chemical, biotechnology,
   pharmaceutical, cosmetic and food processing industries that require elevated
   operating pressures and higher shear forces to achieve better performance.
   The M-140K can achieve operating pressures up to 40,000 psi. The M-140K has a
   built-in hydraulic system and utilizes a bi-directional intensifier pump that
   provides a highly uniform pressure profile. It has been designed with many
   accessories and options including an explosion proof motor, control package,
   and solvent seal quench.

   The M-210 Series: The M-210 Series is a pilot unit and is primarily marketed
   to pharmaceutical, cosmetic and food product manufacturers who have created a
   successful new or improved formulation on the M-110 Series unit and would
   like to increase their productive capacity. The M-210 Series unit is
   typically used for testing formulations at greater volume levels before


                                      -6-
<PAGE>
   initiating full-scale production. For some customers (such as pharmaceutical
   product manufacturers), the M-210 Series may have the capacity to function as
   a production unit.

   The M-610 Series: The M-610 Series consists of custom-built models used for
   large-scale production. These units have flow rates of up to 50 gallons per
   minute and generate operating pressures up to 40,000 psi.

   The M-700 Series: The M-700 Series was introduced at the end of fiscal 1998
   and is designed engineered, and constructed for use in "rugged" industrial
   environments such as coatings, paints, and pigments research and
   manufacturing. The M-700 Series products are constructed from painted carbon
   steel instead of the stainless steel of previous models and will use
   components especially designed to withstand such hazards as dust, grease, and
   water spray. Because the equipment is not used in sanitary environments, it
   can be constructed using materials and methods that otherwise could not be
   used in pharmaceutical, biotechnology, and other "clean" application
   industries and is also more cost-effective, resulting in list price
   reductions of 30% and more.

   The M-700 Series equipment is available in a variety of configurations and
   flow rates depending upon motor size and the number of intensifier pumps.
   The M-7250-20 is a 50 H.P. machine with 2 intensifier pumps with a maximum
   operating pressure of 30,000 psi. It achieves flow rates and productive
   capacity exceeding that of the M-210 series and is, therefore, considered
   by the Company to be a large-scale production unit. In fiscal 2000, the
   Company manufactured and shipped the first sterile M-700 machine designed
   for use in the pharmaceutical industry.

   Stone Mills: Stone Mills are utilized for processing chemicals, food products
   and minerals where the user desires to reduce particles to 15-25 microns in
   size and where the capital equipment costs must be minimized.

   Vertical Media Mills: Vertical Media Mills are used in connection with
   batches or continuous milling of products in a wide variety of industries
   including chemical, agricultural, cosmetics and food. Batch sizes typically
   range from 2 to 60 gallons with throughput capacities of 2 to 900 gallons per
   hour.

   Single Shaft Dissolvers and Dispersers: Single Shaft Dissolvers and
   Dispersers are available in a variety of sizes to meet demand from laboratory
   to full production volume. Generally, these dissolvers and dispersers are
   used in lower cost products, at viscosities up to 50,000 centipoise that
   require blending, mixing, deagglomeration and dispersion.

   Multi-shaft Dissolvers and Dispersers: Multi-shaft Dissolvers and Dispersers
   are available in a variety of sizes to meet demand from laboratory to full
   production volume. Generally these dissolvers and dispersers are used for
   high viscosity products up to 2 million centipoise.

   Customized Units: To meet larger production volume requirements or
   specialized applications, the division provides customized single and
   multi-shaft dissolvers and dispersers on a specialized quotation basis.

                                      -7-
<PAGE>


    Zinger(R) Horizontal Media Mills: This media milling equipment is available
in the following sizes that process products in volumes ranging from 1/4 liter
to 60 liter batches or on a continuous basis.

o  The XL Series: The XL Series equipment is used in laboratory environments and
   has processing vessel sizes from .25 liters to .33 liters.

o  The SV Series: The SV Series equipment is used in pilot scale environments
   and has processing vessel sizes from 3.0 to 5.1 liters.

o  The LV Series: The LV Series equipment is used in production environments and
   has processing vessel sizes from 27 to 60 liters.

Distribution of Grinding Media - The Company is one of the largest distributors
of grinding media in the United States. Sale and distribution of grinding media
includes a wide variety of grinding media from media producers around the world.
The media are used as consumables in mixers produced by the Company as well as
by competitors. Media types include all currently used materials in the industry
including glass, ferrous, stone, steel shot, and ceramic.

Marketing and Sales:
--------------------

   The Company's marketing and sales activities are conducted through a
corporate marketing and sales group that is responsible for the worldwide
marketing and sales of all products.

   Marketing programs include advertising, direct mail, seminars, trade shows
and telemarketing. In addition, the Company has an active program of field
demonstrations, as well as demonstrations to potential users in the Company's
applications laboratories located in Newton, Massachusetts, Fullerton,
California, and Lampertheim, Germany. International distributors and sales
agents are supported with trade advertising, collateral literature and trade
show materials. The distributors also advertise directly on their own behalf and
attend regional and international trade shows. As an aid to the marketing and
sales activity for the equipment, the Company provides prospective customers
with access to its testing laboratories. These laboratories provide free
processing and particle size and distribution analysis of a prospective
customer's sample formulation. Additionally, a prospective customer may pay for
subsequent laboratory time and services on a fee for services basis, which
includes equipment rentals.

   The Company sells its divisions' equipment in the United States through a
network of independent manufacturer's representative firms who are managed by
the Company's regional sales managers. In Canada, the Company has an
exclusive distributor for the Microfluidics product line. In Europe, the
Company sells its equipment through a network of independent regional sales
agents and distributors who are managed by the Company's European Sales
Manager. In Asia and the Pacific Rim, the Company sells through a network of
distributors. Customers in other geographical regions are assisted directly
by Company sales staff.


                                      -8-
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Customers:
----------

   The users of the Company's systems are in various industries, including the
chemical, pharmaceuticals, food, cosmetic and biotechnology industries. No
customer accounted for more than 10% of the Company's revenues in 2000, 1999, or
1998.

Competition:
------------

The Microfluidizer(R) equipment product line of high shear processors has direct
competition in its major markets, including pharmaceutical and coatings/chemical
applications, but management believes that the Company's products have larger
installed bases and competitive performance over products of our competitors.
The Company believes that the Microfluidizer(R) equipment product line offers
the highest shear forces available in the process equipment market today. In
many critical formulations Microfluidizer(R) processors produces better quality
products for our customers.

    The M-700 Series of fluid processors, together with the M-210 and M-610
product lines, provide high shear fluid processing capabilities for both
sanitary and industrial applications. The Company believes that the
Microfluidizer(R) product line provides a distinct advantage over the product
lines of our competitors with respect to the processing of abrasive slurries or
solids dispersed in liquids in large part because of the Company's unique,
wear-resistant, diamond interaction chamber and the special design of the
intensifier pumping system.

    Media sales are in direct competition with a large number of suppliers,
including the major source of the company's media materials.

    The product lines of the Morehouse-COWLES Division have direct competition
in its major market segments. The Morehouse-COWLES product line has strong brand
name recognition, a large installed base and a reputation for high quality,
reliable, processing systems. The systems of this division have a very broad
market use in a wide variety of mixing, blending, grinding, and dispersing
applications and therefore have potential for high volume unit shipments.

    The patented Zinger horizontal media mill competes against a
well-established group of competitive mills. The unique design of the Zinger
media mill, however, results in an economic advantage for customers who employ
the Zinger media mill because they are able to process larger volumes of product
at lower energy cost while attaining at least the same quality as produced by
competitive mill, and can do so occupying less floor space. As customers replace
older mills or expand their facilities, they will gain an economic advantage by
lowering the processing costs of their products by using a mill, such as the
Zinger media mill, which more efficiently processes larger quantities of product
than competitive mills.



                                      -9-
<PAGE>
   The Company faces, and will continue to face, intense competition from other
companies who manufacture and sell fluid processing systems used in grinding,
mixing, milling and dispersing applications. The Company is subject to
significant competition from organizations that are pursuing technologies and
products that are similar to the Company's technology and products. Some of the
organizations competing with the Company have greater capital resources,
research and development staffs and facilities and marketing capabilities than
the Company. The Company's future success will depend in large part on its
maintaining a competitive position in the fluid processing systems field. Rapid
technological development by the Company or others may result in products or
technologies becoming obsolete before the Company recovers the expenses it
incurs in connection with their development. Products offered by the Company
could be made obsolete by less expensive or more effective technologies. There
can be no assurance that the Company will be able to make the enhancements to
its technology necessary to compete successfully with newly emerging
technologies. The Company expects competition to intensify in the fluid
processing systems field as technical advances are made and become more widely
known.


Research and Development:
-------------------------

    The Company's research and development efforts are focused on developing new
mixing techniques for the process industries and further enhancing the
functionality, reliability and performance of existing products. Research and
development costs were $835,136, $927,582, and $935,880 in 2000, 1999, and 1998
respectively. The Company continues to pursue development of the multi-stream
mixer reactor (See Patents and Proprietary Rights Protection) by working with
customers who assist in the development of the system with both application
knowledge and financial support. Patent coverage for this new product is in
various stages of prosecution in the major industrial countries.

Cooperative Research Arrangements:
----------------------------------

    The Company subsidizes research and development activities centered around
Microfluidizer(R) processing technology at a number of research centers and
universities. The Company's subsidy of these activities takes the form of
substantial reduction or elimination of the customary rental charges for the
Microfluidizer(R) equipment provided for use. The Company has, in recent years,
subsidized research and development in the following fields at the following
universities: The University of Massachusetts, Lowell - biotechnology; Lehigh
University - polymer chemistry; Universite Laval (Quebec) - food science;
Worcester Polytechnic Institute ("WPI") - catalytic chemistry; and Purdue
University - pharmaceuticals. In addition to their research activities, these
universities provide the Company with contacts at industrial companies that may
utilize the Microfluidizer(R) processing technology. Additionally, on occasion
research reports, technical papers, and doctoral theses may be published, which
document the use of Microfluidizer(R) technology. Finally, the Company engages
in many informal co-operative development efforts with its' customers,
particularly in the Microfluidics Division.


                                      -10-
<PAGE>
    In addition to providing subsidies, the Company has, in the past, entered
into a research arrangement with Worcester Polytechnic Institute (WPI). The
Company has supported research and development at WPI since 1988. In 1992, the
Company entered into a cooperative venture with WPI to develop, patent and
license for WPI, for its commercial applications, the Microfluidizer(R) process
technology in the following fields: (i) the production of catalysts used in
chemical and petroleum processing; (ii) the manufacture of advanced ceramic
materials; and (iii) the destruction of volatile organic compounds and other
organic contaminants in process waste water. The Company and WPI applied for
United States and foreign patents in 1992 and 1993, respectively, which cite the
Microfluidizer(R) processing technology as enabling the above process
technologies. The two applied-for United States patents were both granted and
issued to WPI in the United States in 1995. In 1996 one applied for patent was
granted to WPI in France for European entry in the Patent Cooperation Treat
("PCT") countries. Patent issuance for these process technologies in several
other foreign jurisdictions is either pending or is in the latter stages of
prosecution. The program is inactive at this time.

Patents and Proprietary Rights Protection:
------------------------------------------

   To protect its proprietary rights, the Company relies on a combination of
U.S. patent and trademark laws, trade secrets, confidentiality agreements,
contractual provisions and technical means. In the event of patent infringement
or breach of confidentiality, there can be no assurance that these measures will
be adequate or that the Company will have sufficient resources to prosecute or
prevail in an action against a third party. In addition, the Company has not
sought patent or trademark protection for its Microfluidizer(R) equipment's
interaction chamber in any country other than the United States and, as such,
its proprietary rights are not subject to the protection of patent or trademark
laws of foreign countries where the Company's equipment is sold. The Company's
Microfluidizer(R) equipment process patent expires on March 13, 2007 and its
device patent expires on August 6, 2002. In 1997 the Company completed
development of a novel adaptation of its Microfluidizer(R) equipment - a
"Multi-Stream High Pressure Mixer Reactor". In August 1997, the Company filed a
patent application for the device and its processes with the United States
Patent and Trademark Office, (USPTO), and filed a Patent Cooperation Country
(PCT) application on May 5, 1998. In July and November 2000, the USPTO issued to
the Company notices of allowances of utility patent claims regarding the
Multiple Stream High Pressure Mixer/Reactor and the use thereof. The Company's
Zinger horizontal media mill is protected by a United States patent granted June
5, 1997.

Manufacturing:
--------------

   At present, the Company subcontracts the manufacture of many of the
components of its' equipment to third parties, with the Company undertaking
the remaining fabrication, assembly and performance testing. The division has
selected certain primary suppliers based upon pricing

                                      -11-
<PAGE>
terms and the quality of their products. The Company believes that there are
adequate available alternate manufacturing sources and suppliers for the
division's components and raw materials.

   The Morehouse-COWLES division performs a significant portion of machining and
assembly operations at its' respective manufacturing location. Certain specialty
components of the systems are provided by outside contractors. The Company
believes that there are adequate available alternate contractors to provide the
division with specialty components.

    The loss of any primary supplier could have a material, adverse effect on
the Company's business, financial condition, or results of operations.

Government Regulation:
----------------------

   Certain of the Company's customers utilize the Company's equipment in
processes and production that are subject to governmental regulation. For
example, the manufacturing and marketing of pharmaceutical products requires the
approval of the Food and Drug Administration ("FDA") within the United States
and of comparable agencies in foreign countries. The FDA has established
mandatory procedures, safety standards and protocols that apply to the
manufacture, clinical testing and marketing of new pharmaceutical products in
the United States. The process of seeking and obtaining FDA approval of a new
product often takes a number of years and often involves the expenditure of
substantial resources. The FDA approval process contributes to the extremely
long lead times that are attendant to manufacturing equipment orders for these
applications.

   Further, in addition to product approvals, the FDA imposes requirements as to
manufacturing practices, record keeping and reporting ("Good Manufacturing
Practices" or "GMP"). GMP-regulated companies are subject to inspections by the
FDA (inclusive of Microfluidizer(R) equipment) and product approvals may be
withdrawn if GMP are not met.

   At present, the Company's customers include companies who are making FDA
approved drugs and preparations for external use and companies who utilize
Microfluidizer(R) equipment for the formulation or production of FDA approved
parenteral (injectable) drugs or compounds.

   Various laws, regulations and recommendations relating to safe working
conditions, laboratory practices and the purchase, storage, movement, import and
export, use and disposal of harmful or potentially harmful substances that may
be used in connection with the Company's research work are, or may, be
applicable to its activities. These laws include, among others, the United
States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the
Occupational Safety and Health Act, the National Environmental Policy Act, the
Toxic Substances Control Act, the Resource Conservation and Recovery Act,
national restrictions on technology transfer, import, export and customs
regulations and other present and possible future local, state or Federal
regulation. The extent of adverse governmental regulation which might result
from future legislation or

                                      -12-
<PAGE>
administrative action cannot be accurately predicted. Certain agreements that
may be entered into by the Company involving exclusive license rights may also
be subject to national or supranational antitrust regulatory control, the effect
of which cannot be predicted.

Backlog:
--------

    The Company's sales order backlog of accepted and unfilled orders at March
16, 2001, and March 16, 2000 was approximately $3,281,000 and $3,371,000,
respectively. Backlog as of any particular date should not be relied upon as
indicative of the Company's net revenues for any future period.

Employees:
----------

    The Company has approximately 73 full-time employees as of March 16, 2001.
None of the Company's employees are covered by a collective bargaining
agreement, and the Company considers its relations with its employees to be
satisfactory. The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled employees.

Item 2.  PROPERTIES

    The Company's corporate headquarters are in Newton, Massachusetts. The
Company also maintains other locations in South Haven, Michigan, Fullerton,
California and a sales office in Lampertheim, Germany. The Company rents
approximately 127,000 square feet of offices, production and research and
development facilities at these locations for administrative, development and
production activities. A small portion of space is sublet to another entity for
a total of $6,000 per annum. The lease terms expire at various times through
August 2006. The Company has the option to extend the leases for up to ten
additional years. The Company believes these facilities will be adequate for
operations for the next several years.

Item 3.  LEGAL PROCEEDINGS

    The Company is not a party to any material legal proceedings.

Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of the Company's security holders during
the quarter ended December 31, 2000.


                                      -13-
<PAGE>


                                     PART II

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

     The Company's Common Stock is traded on the Over the Counter Bulletin Board
under the symbol "MFIC". The following table sets forth the range of quarterly
high and low bid quotations for the last two fiscal years, as furnished by the
National Association of Securities Dealers Automated Quotation System. The
quotations represent interdealer quotations without adjustment for retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Quarters Ended          12/31      9/30       6/30       3/31       12/31      9/30       6/30     3/31
                        2000       2000       2000       2000       1999       1999       1999     1999
----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
<S>                       <C>       <C>        <C>        <C>          <C>       <C>        <C>       <C>
Low                        9/16      15/16       1/2        3/8        1/4        3/8       1/4       5/8
----------------------------------------------------------------------------------------------------------
High                      1 1/8     1 5/16     1 1/16     1 7/16       7/16      13/16      3/4       1
----------------------------------------------------------------------------------------------------------

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

    As of March 16, 2001, there were approximately 387 holders of record of the
Company's Common Stock.

    The Company has never paid any cash dividends on its Common Stock and
presently anticipates that no dividends on its Common Stock will be declared in
the foreseeable future. The Company's current policy is to retain all of its
earnings to finance future growth. In addition, pursuant to loan covenants
contained in the Company's loan agreement with its commercial leader, the
Company may not pay dividends without the commercial lender's prior approval.


                                      -14-
<PAGE>


Item 6.  SELECTED FINANCIAL DATA

     The selected financial information presented below is derived from the
audited consolidated financial statements of the Company for each of the five
years in the period ended December 31, 2000. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes included elsewhere in this Form 10-K.

    As discussed in Note F to the accompanying financial statements, in August
1998, the Company acquired the assets and assumed certain liabilities of two
businesses, Morehouse-COWLES, Inc. and Epworth Manufacturing Company. These
acquisitions were accounted for as a purchase. Accordingly, in the accompanying
financial statements, the results of operations and cash flows include
Morehouse-COWLES and Epworth Mill subsequent to August 15, 1998.

Selected Statement of Operations Data
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                        Year Ended         Year Ended        Year Ended           Year Ended          Year Ended
                                       December 31,       December 31,      December 31,         December 31,        December 31,
                                           2000               1999              1998                 1997                1996
---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                <C>                 <C>                <C>                 <C>
Total revenues                         $15,725,695        $14,083,216         $8,869,679         $ 7,105,706         $ 6,273,768
---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses                15,793,065         14,417,304          9,968,142           6,702,410           5,922,885
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations              (67,370)          (334,088)        (1,098,463)            403,296             350,883
---------------------------------------------------------------------------------------------------------------------------------
Interest expense                          (350,486)          (542,045)          (149,043)               -                   -
---------------------------------------------------------------------------------------------------------------------------------
Other (expense) income                    (250,000)             -                  -                  50,012              50,009
---------------------------------------------------------------------------------------------------------------------------------
Interest income                                248              9,835            119,492             159,256             100,612
---------------------------------------------------------------------------------------------------------------------------------
Gain on sale of investments                  -                 11,864             36,203              91,863                -
---------------------------------------------------------------------------------------------------------------------------------
Net (loss) income before taxes
and extraordinary items                   (667,608)          (854,434)        (1,091,811)            704,427             501,504
---------------------------------------------------------------------------------------------------------------------------------
Income tax (provision) benefit               -                  -               (413,630)            403,630               -
---------------------------------------------------------------------------------------------------------------------------------
Net (loss) income before                  (667,608)          (854,434)        (1,505,441)          1,108,057             501,504
extraordinary items
---------------------------------------------------------------------------------------------------------------------------------
Gain on subordinated debt
restructuring                              194,500              -                  -                  -                     -
---------------------------------------------------------------------------------------------------------------------------------
Net(loss) income                         $(473,108)         $(854,434)       $(1,505,441)         $1,108,057            $501,504
---------------------------------------------------------------------------------------------------------------------------------
Weighted-average shares
outstanding:
---------------------------------------------------------------------------------------------------------------------------------
  Basic                                  7,086,058          5,818,588          5,296,923           4,914,722           4,941,711
---------------------------------------------------------------------------------------------------------------------------------
  Diluted                                7,086,058          5,818,588          5,296,923           4,966,998           4,948,506
---------------------------------------------------------------------------------------------------------------------------------


                                      -15-
<PAGE>

Basic amounts per common
share:
---------------------------------------------------------------------------------------------------------------------------------
Net (loss) income per share
before extraordinary gain                    $(.09)             $(.15)             $(.28)               $.23                $.10
---------------------------------------------------------------------------------------------------------------------------------
Extraordinary gain per share:                  .03                  -                  -                   -                   -
---------------------------------------------------------------------------------------------------------------------------------
Basic net (loss) income per share            $(.06)             $(.15)             $(.28)               $.23                $.10
---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------
Diluted amounts per share:
---------------------------------------------------------------------------------------------------------------------------------
Net (loss) income per share
before extraordinary gain                    $(.09)             $(.15)             $(.28)               $.22                $.10
---------------------------------------------------------------------------------------------------------------------------------
Extraordinary gain per share                   .03                  -                  -                   -                   -
---------------------------------------------------------------------------------------------------------------------------------
Diluted net (loss) income per                $(.06)             $(.15)             $(.28)               $.22                $.10
share
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Selected Balance Sheet Data
<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                 <C>                <C>                 <C>                 <C>
Working capital                        $1,900,740          $1,404,820         $1,575,113          $6,805,556          $6,072,621
---------------------------------------------------------------------------------------------------------------------------------
Total assets                           13,664,235          13,227,316         14,700,022           8,872,218           7,183,324
---------------------------------------------------------------------------------------------------------------------------------
Long term debt                            896,243             775,000            675,000                   -                   -
---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity                    7,093,781           7,161,111          8,029,786           7,538,143           6,428,523
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS

CERTAIN FACTORS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    Management believes that this report contains forward-looking statements
that are subject to certain risks and uncertainties including statements
relating to the Company's plan to achieve full sales/marketing and operational
integration of its divisions, to achieve revenue growth, to maintain and/or
increase operating profitability, and to attain net income profitability. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties that could cause actual results achieved by
the Company to differ materially from those described in the forward-looking
statements. The Company cautions investors that there can be no assurance that
the actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors, including but not limited to, the following risks and uncertainties:
(i) the ability to manage the integration of the Company's divisions into a
cohesive operation and the attainment of successful operating results of such
integrated operations, (ii) whether the performance advantages of the Company's
Microfluidizer(R) or Zinger(R) materials processing equipment will be realized
commercially or that a commercial market for the equipment will continue to
develop, and (iii) whether the Company will have access to sufficient working
capital through continued and improving cash flow from

                                      -16-
<PAGE>
sales and ongoing borrowing availability, the latter being subject to the
Company's ability to comply with the covenants and terms of the Company's loan
agreement with its senior lender.

Results of Operations

         Fiscal 2000 Compared to Fiscal 1999
         -----------------------------------

    Total revenues for the year ended December 31, 2000 were $15,725,695 as
compared to revenues of $14,083,216 for the year ended December 31, 1999,
representing an increase of $1,642,479 or 12%.

    North American sales for the year ended December 31, 2000 increased to
approximately $11,386,000, a 12% increase as compared to North American sales of
approximately $10,126,000 for the year ended December 31, 1999. This increase in
North American sales was principally due to an increase in the sale of machines.
Foreign sales were approximately $4,340,000 for the year ended December 31, 2000
compared to $3,898,000 for the year ended December 31, 1999, an increase of
approximately $442,000 or 11%. This increase in foreign sales was principally
due to an increase in the sale of machines compared to 1999.

    Total cost of goods sold for 2000 was $8,688,465 or 55% of revenue, as
compared to $7,990,398 or 57% of revenue for 1999. The increase in cost of goods
sold in absolute dollars reflects the increase in sales principally generated by
the Microfluidics division of the Company, offset by a decrease in cost of goods
sold by the Epworth Mill Division. The decrease in cost of goods sold was due to
reduced sales at the Epworth Mill Division due to the Company ceasing operations
of the Ball Mill repair business on September 30, 2000. The Company's three
major product lines have different profit margins, as well as multiple profit
margins within each product line. In the course of the periods compared, there
may be significant changes in the cost of revenues as a percentage of revenue
depending on the mix of product sold. Also, the cost of sales as a percent of
revenue will differ between laboratory and pilot plan units sold, due to the
difference in costs between air driven and electric-hydraulic units.

    Total operating expenses for 2000 were $7,104,600, or 45% of revenue, as
compared to $6,426,906, or 46% of revenue, for 1999, which is an increase of
$677,694, or 11%.

    Research and development expenses for 2000 were $835,136 compared to
$927,582 for 1999, a decrease of $92,446, or 10%. The decrease in research and
development expenses is primarily due to a decrease in payroll costs of
approximately $40,000, and a decrease in general research and development
expenses of approximately $52,000.

    Sales and marketing expenses for 2000 increased approximately $548,198 or
19% from $2,934,668 to $3,482,866. The increases were due principally to
increases in outside commissions of approximately $295,000, payroll and related
expenses of approximately $205,000, an increase in advertisement expenses of
approximately $88,000, partially offset by a decrease in printing costs


                                      -17-
<PAGE>
of approximately $21,000, and other general cost reductions of $19,000.

    For the year ended December 31, 2000, general and administrative expenses
increased by approximately $222,000, from $2,564,656 for the year ended
December 31, 1999, to $2,786,598, or 9%. The increase in general and
administrative expenses was principally due to an increase in corporate
overhead of approximately $93,000, amortization of goodwill costs of
approximately $36,000, professional fees of approximately $34,000, and other
cost increases of $59,000.

    Interest expense for 2000 decreased to $350,486 from $542,045 for 1999, a
decrease of $191,559, or 35%. The decrease was due to a decrease in borrowings,
the impact of the debt restructuring, and a decrease in the interest rates
charged the Company.

    Interest income for 2000 decreased to $248 from $9,835 for 1999, a decrease
of $9,587 or 97%. The decrease for 2000 was due to the amount of cash available
to invest as a result of the line of credit lockbox arrangement with National
Bank of Canada described in note G.

    As a result of a debt restructuring and refinancing, the Company recorded an
extraordinary gain of approximately $195,000 in the first quarter of fiscal
2000.

    On July 24, 2000, the Company announced that it would transfer the sales and
manufacturing of its line of Zinger (R) horizontal media mills from its
Michigan-based Epworth Mill Division to the Morehouse-COWLES plant in Fullerton,
California. The transfer began on October 1, 2000 and did not have a material
impact on the profitability of the Company. Simultaneously, the Company ceased
operations of the Ball Mill repair business and decided to sell its Ball Mill
product line. On March 19, 2001, the Company reached an agreement to sell the
Ball Mill operation for $200,000 in cash and notes. The assets held for sale are
separately classified in the balance sheet at December 31, 2000.

    In a letter dated June 16, 2000, J.M. Huber Corporation ("Huber")
informed MFIC Corporation that it purportedly was revoking its acceptance of
seven model LV-40 Zinger(R) horizontal media mills that Huber had purchased
from MFIC's Epworth Mill Division in 1998. The notice of revocation was
accompanied by a claim for the repayment of the full purchase price of
$384,948 and for incidental and consequential damages as a result of alleged
breaches of express and implied warranties in the amount of $2,790,350. The
Company denied any liability. At the request of Huber and as an
accommodation, the Company, in both 2000 and 1999 performed certain services
which, the Company believed, were accepted by Huber as a cure for problems
encountered by Huber with the performance of this equipment. On October 20,
2000, the Company entered into a settlement agreement with Huber pursuant to
which, the Company paid $100,000 to Huber upon execution of the agreement,
and executed a promissory note for $350,000 payable two years from the
execution date, with interest payable quarterly in arrears at 10% per annum.
The Company may prepay the note through April 2001, with the note being
discharged for $300,000 plus accrued and unpaid interest. Huber has
transferred all interest in the seven Media Mills to the Company, and shipped
the equipment to the Company for reconditioning and resale. The Company
recorded a loss on this transaction of $250,000. The loss is included in
other expense in the consolidated statement of operations.

                                      -18-
<PAGE>
    The Company had a sales backlog of $3,281,000 and $3,371,000 at March 16,
2001 and March 16, 2000, respectively.

At December 31, 2000 the Company had a near-record backlog, with orders and
order inquiry levels, especially for Microfluidizer production equipment, at
a very strong level. This activity combined with ongoing business activity
trends and reduced financing costs make improvement in operations likely for
the foreseeable quarters in 2001. Management believes that in 2001 the
Company should experience growth in revenues, realization of improved
operating performance, and attainment of net profitabilility.

Fiscal 1999 Compared to Fiscal 1998
-----------------------------------

    As discussed in Note F to the accompanying financial statements, in August
1998, the Company acquired the assets and assumed certain liabilities of two
businesses, Morehouse-COWLES, Inc. and Epworth Manufacturing Company. These
acquisitions were accounted for as a purchase. Accordingly, in the accompanying
financial statements, the results of operations and cash flows include
Morehouse-COWLES and Epworth Mill subsequent to August 15, 1998.

    Total revenues for the year ended December 31, 1999 were $14,083,216 as
compared to revenues of $8,869,679 for the year ended December 31, 1998,
representing an increase of $5,213,537, or 59%. This increase in revenues was
the result of $4,849,708 in additional revenue generated by the Company's
Epworth Mill and Morehouse-COWLES divisions, and an increase in sales by the
Microfluidics Division of the Company in the amount of $363,829.

    For the Microfluidics Division, North American sales for the year ended
December 31, 1999 increased to $4,518,962, or 5% as compared to North American
sales of $4,299,285 for the year ended December 31, 1998. This increase in North
American sales was principally due to an increase in the sale of spare parts.
Foreign sales were $1,899,989 for the year ended December 31, 1999 compared to
$1,755,836 for the year ended December 31, 1998, an increase of $144,153 or 8%.
This increase in foreign sales was principally due to an increase in the sale of
machines compared to 1998.

    Within the Microfluidics Division, sales of the M-110 Laboratory Series
decreased by approximately $240,000, from $2,555,842, or 42% of sales, in 1998
to $2,315,636, in 1999, or 36% of sales, while spare part sales increased by
approximately $484,000 to 37% of sales, to $2,404,936 in 1999, from $1,920,491
in 1998. Sales of a new line, the M-700 Series, accounted for approximately
$572,000, or 9% of sales in 1999. Sales of the M-210 Series decreased by
approximately $295,000 to 3% of division sales to $204,853 in 1999 from
$499,372, or 8% of sales, in 1998. In addition, the Company's sale of M-610
large volume production units in fiscal 1999 was one unit, down from three units
from fiscal 1998, representing a decrease of approximately $598,000.

    Total cost of goods sold for 1999 was $7,990,398 or 57% of revenue, as
compared to $4,954,826

                                      -19-
<PAGE>
or 56% of revenue for 1998. The increase in cost of goods sold in absolute
dollars reflects the increase in sales generated by the Epworth Mill and
Morehouse-COWLES operating divisions of the Company, offset by a decrease in
cost of goods sold by the Microfluidics Division of approximately $408,000. For
the Microfluidics Division of the Company, cost of goods sold was $2,403,245, or
37% of sales, compared to $2,810,954, or 46% of sales, for 1998. The decrease in
cost of goods sold was due to reduced sales of large volume machines, which have
a lower gross profit margin. The Company's three major product lines have
different profit margins, as well as multiple profit margins within each product
line. In the course of the periods compared, there may be significant changes in
the cost of revenues as a percentage of revenue depending on the mix of product
sold. Also, the cost of sales as a percent of revenue will differ between
laboratory and pilot plan units sold, due to the difference in costs between air
driven and electric-hydraulic units.

    Total operating expenses for 1999 were $6,426,906 or 46% of revenue, as
compared to $5,013,316, or 57% of revenue, for 1998, which is an increase of
$1,413,590, or 28%.

    Research and development expenses for 1999 were $927,582 compared to
$935,880 for 1998, a decrease of $8,298, or 1%. Excluding research and
development expenses attributable to the Epworth Mill and Morehouse-COWLES
operating divisions of the Company of $359,463, which represented an increase of
approximately $102,000, the decrease in research and development expenses of the
Microfluidics Division of approximately $110,000 is primarily due to a decrease
in payroll and related costs of approximately $121,000, offset by a decrease in
grant reimbursement funds of approximately $27,000.

    Sales and Marketing expenses for 1999 increased approximately $571,000, from
$2,363,844 in 1998 to $2,934,668, or 24%. Excluding selling expenses of
approximately $938,000 attributable to the Epworth Mill and Morehouse-COWLES
divisions of the Company, selling expenses increased by approximately $145,000,
from $1,851,584 to $1,996,277 due to an increase in advertising expense of
approximately $92,000, travel and entertainment expenses of approximately
$40,000, and printing expenses of approximately $33,000.

    For the year ended December 31, 1999, general and administrative expenses
increased by approximately $851,000, from $1,713,592 for the year ended December
31, 1998, to $2,564,656. Excluding expenses attributable to the Epworth Mill and
Morehouse-COWLES operating divisions of the Company of approximately $877,000 in
1999 and $396,000 in 1998, general and administrative expenses increased
approximately $370,000, principally due to an increase in amortization of
goodwill in connection with the purchases of the assets and selected liabilities
of the Epworth Mill and Morehouse-COWLES divisions of approximately $246,000,
and an increase in professional fees of approximately $170,000, offset by a
decrease in corporate overhead of approximately $23,000.

    Interest income for 1999 decreased to $9,835 from $119,492 for 1998, a
decrease of $109,657 or 92%. The decrease for 1999 was due to the amount of cash
available to invest.

    The Company realized a gain on the sale of a portion of the Company's
holdings in PolyMedica Industries, Inc. in the amount of $36,203 for the year
ended 1998, and a gain on the sale of


                                      -20-
<PAGE>
Cardiotech International, Inc., in the amount of $11,864 for 1999.

    The Company realized a gain on the sale of fixed assets in 1999 of $58,847.

    In the fourth quarter of 1998, the Company adjusted the valuation allowance
against its deferred tax assets, resulting in a charge of $413,630, due to the
uncertainty of earning sufficient taxable income to realize the benefit of the
deferred tax assets.

QUARTERLY RESULTS OF OPERATIONS

    The following table sets forth, for the periods presented, certain data from
our consolidated statements of operations. In the opinion of our management, the
unaudited quarterly consolidated statement of operations data have been prepared
on substantially the same basis as our audited consolidated financial statements
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
presented. This information should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K. The operating results in any quarter are not necessarily
indicative of the results that may be expected for any future period.

    Summarized unaudited quarterly financial data are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                      Fiscal 2000 Quarters
------------------------------------------------------------------------------------------------------------------
                                                    First            Second           Third             Fourth
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>               <C>               <C>
Net sales                                         $3,732,919      $3,951,979        $3,949,071        $4,091,726
------------------------------------------------------------------------------------------------------------------
Gross profit                                       1,751,869       1,746,354         1,872,287         1,666,720
------------------------------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary gain                                    51,406          28,654          (316,348)         (431,320)
------------------------------------------------------------------------------------------------------------------
Extraordinary gain                                   194,500               -                 -                 -
------------------------------------------------------------------------------------------------------------------
Net income (loss)                                   $245,906         $28,654         $(316,348)        $(431,320)
------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
------------------------------------------------------------------------------------------------------------------
   Basic income (loss) per share
   before extraordinary gain                            $.01            $.00             $(.04)            $(.06)
------------------------------------------------------------------------------------------------------------------
   Extraordinary gain per share                          .03               -                 -
------------------------------------------------------------------------------------------------------------------
   Net income (loss) per share                          $.04            $.00             $(.04)            $(.06)
------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------
   Diluted income (loss) per
   share before extraordinary gain                      $.01            $.00             $(.04)            $(.06)
------------------------------------------------------------------------------------------------------------------
   Extraordinary gain per share                          .03               -                 -                 -
------------------------------------------------------------------------------------------------------------------
   Diluted income (loss) per share                      $.04            $.00             $(.04)            $(.06)
------------------------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                      Fiscal 1999 Quarters
------------------------------------------------------------------------------------------------------------------
                                                    First            Second           Third             Fourth
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>               <C>               <C>
Net sales                                         $2,597,122      $3,342,517        $3,692,425        $4,451,152
------------------------------------------------------------------------------------------------------------------
Gross profit                                         931,590       1,526,182         1,692,991         1,942,055
------------------------------------------------------------------------------------------------------------------


                                      -21-
<PAGE>
Net (loss) income                                  $(629,226)       $(49,864)         $(78,903)         $(96,441)
------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------
Net (loss) income per share:
------------------------------------------------------------------------------------------------------------------
   Basic                                               $(.11)          $(.01)            $(.01)            $(.02)
------------------------------------------------------------------------------------------------------------------
   Diluted                                             $(.11)          $(.01)            $(.01)            $(.02)
------------------------------------------------------------------------------------------------------------------
</TABLE>

As a result of a debt restructuring and refinancing, the Company recorded an
extraordinary gain of approximately $195,000 in the first quarter of fiscal
2000.


As a result of a settlement reached with J.M. Huber Corporation in the third
quarter of fiscal 2000, the Company incurred a loss of approximately $250,000.

LIQUIDITY AND CAPITAL RESOURCES

    The Company generated cash of $80,718 in 2000, $970,442 in 1999, and used
cash of $1,259,391 from operations in 1998, respectively. In 2000, the Company's
principal operating cash requirements were to fund its net loss from operations,
increases in inventories, trade and other receivables, and prepaid expenses,
offset by a decrease in current liabilities. In 1999, the Company's principal
operating cash requirements were to fund its net loss from operations, an
increase in accounts receivables, offset by decreases in inventory and an
increase in current liabilities. In 1998, the amount of the cash decrease was
principally the result of funding the net loss from operations, a decrease in
inventories and accounts receivables, offset by a decrease in current
liabilities.

    Net cash used by investing activities of $27,673 in 2000 consisted of the
proceeds from the sale of assets of $152,989, offset by the purchase of capital
equipment of $180,662. The Company's sale of assets principally related to used
equipment. As of December 31, 2000, the Company had no material commitments for
capital expenditures. The Company used cash of $23,855 for investing activities
in 1999. Net cash used in investing activities included the proceeds from the
sale of assets, net of the purchase of capital equipment. The Company utilized
$6,638,534 for investing activities in 1998. Net cash used for investing
activities included the acquisition of the Epworth Mill and Morehouse-COWLES
businesses, net of cash acquired, as well as the purchase of capital equipment.

    For financing activities, the Company generated cash of $37,138 in 2000,
used cash of $1,301,128 in 1999, and generated cash of $4,365,424 in 1998,
respectively. In 2000, cash was generated from the proceeds of stock issued,
from the proceeds of both a line of credit and a term note from a refinancing,
and was used to pay down a previous line of credit, and pay fees in connection
with obtaining the line of credit. In 1999 cash was used to pay down the line of
credit, and purchase treasury stock, and was offset in part by the issuance of
stock under the employee stock option plan. In 1998, cash was generated from the
proceeds of borrowings to finance the acquisition of the Epworth Mill and
Morehouse-COWLES businesses.

    The cash and cash equivalents balance at December 31, 2000 was $286,355,
an increase of $90,183 from the December 31, 1999 balance of $196,172. At
December 31, 2000, the Company maintained a line of credit and a term loan
(collectively the "Credit Facility") with National Bank of Canada (the
"Lender"). The line of credit facility provides for

                                      -22-
<PAGE>
maximum borrowing of $4,000,000. As of December 31, 2000 and March 16, 2001, the
Company had borrowings of $2,724,015 and $2,617,069, respectively.

    Under the terms of the line of credit with National Bank of Canada, the
Company is subject to a number of restrictions that impact the Company's use of
funds. The Company is limited to acquisition of property of less than $200,000
per year, cannot pay dividends, and must maintain certain financial covenants.
In addition, the Company is required to maintain a lockbox arrangement with the
National Bank of Canada and all cash receipts are included in the lockbox and
are applied against the outstanding line of credit.

    As discussed in Note G to the consolidated financial statements, the
Company was in violation of the tangible net worth, liabilities to worth
ratio, and net income covenants of the credit facility as of December 31,
2000. The Company received a waiver from the National Bank of Canada, as of
December 31, 2000, but is required to meet such covenants thereafter. The
Company's ability to continue planned operations is dependent upon access to
financing under its Credit Facility, which is potentially impacted by the
Company's ability to achieve future compliance with the financial covenants.
Given the terms of the financial covenants and historical results, it is at
least reasonably possible that the Company will be in violation of the
financial covenants in the future. As indicated in Note N, the Company
determined that violations of the tangible net worth and liabilities to worth
ratio covenant occurred for the quarter ended March 31, 2001. The Company
obtained a waiver for these violations from the National Bank of Canada.
Borrowings outstanding under the Credit Facility are secured by a collateral
pledge to the lender of substantially all of the assets of the Company.
Management of the Company is executing plans for a return to profitability,
including the recent reorganization of its' Epworth Mill Division and the
concentration of manufacturing operations in an effort to improve costs and
marketing leverage; however, there can be no assurance that the Company will
be successful in implementing these plans.

    Assuming that there is no significant change in the Company's business, the
Company believes that cash flows from operations, together with existing cash
balances, will be sufficient to meet its working capital and debt service
requirements for at least the next twelve months.

NASDAQ DELISTING

    The Company's Common Stock was listed on the NASDAQ National Market (the
"National Market") under the symbol "MFIC". The Company was notified by the
National Market that, as of October 9, 1998, the Company was not in compliance
with the National Market requirements for the continued listing of its Common
Stock because the public float of the Common Stock was less than $5,000,000 for
more than thirty consecutive days. NASDAQ calculates the market value of a
Company's common stock by multiplying the closing bid price of the stock by the
number of shares held by non-affiliates. The Company estimated that 4,494,502
shares were currently held by non-affiliates. The notice from the National
Market further stated that the Company's Common Stock would be delisted as of
January 18, 1999 if the public float was not $5,000,000 or more for a period of
ten consecutive trading days during the ninety-day period from October 19, 1998
to January 17, 1999. Further, as of September 30, 1998, the Company fell below
another of the National Market's continued listing requirements - its net
tangible assets (total assets minus goodwill) had fallen below $4,000,000 to
$3,251,953. Finally on March 11, 1999, the National Market notified the Company
that the Company was not in compliance with the minimum bid price requirement.
As of March 24, 1999, the Company had still not satisfied any one of the three
foregoing requirements. The Company requested a hearing before the National
Market to request a "phase-down" to the NASDAQ SmallCap Market. This meeting
took place on March 19, 1999. The Company's request was not granted and on April
23, 1999 the Company's stock was delisted from the National Market. The Company
is currently listed on the Over the Counter Bulletin Board. The liquidity of
such securities may be impaired not only in the number of shares that could be
bought and sold, but also through delays in the timing of transactions,
reductions in securities analysts' and media coverage of the Company, and lower
prices than might otherwise be attained.

                                      -23-
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was amended to be
effective for fiscal years beginning after June 15, 2000 by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -Deferral of
the Effective Date of FASB Statement No. 133". SFAS No. 133 requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values
of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The standard is
effective for the Company on January 1, 2001. In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133". The standard
clarifies certain elements of SFAS No. 133. Management has determined that
the implementation of SFAS No. 133 will not have a material impact on the
Company's financial statements.

    In December 1999 the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB clarifies certain elements of revenue recognition. Since
December, the SEC has issued several amendments that postponed the
implementation date until the fourth quarter of fiscal 2000. The implementation
of the SAB did not have a material impact on the Company's Financial Statements.

ITEM 7A QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

    The Company's financial instruments are generally not subjected to changes
in market value as a result of changes in interest rates due to the short
maturities of the instruments. The Company's fixed rate debt is not exposed to
cash flow or interest rate changes but is exposed to fair market value changes
in the event of refinancing this fixed rate debt. The Company does not have
significant exposure to fluctuations in foreign exchange rates.

    The Company had approximately $3,128,000 of variable rate borrowings
outstanding under its revolving credit agreement. A hypothetical 10% adverse
change in interest rates for this variable rate debt would have had an
approximate $35,000 negative effect on the Company's earnings and cash flows,
on an annual basis.

    For additional information about the Company's financial instruments, see
Note G and Note M.

                                      -24-
<PAGE>


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The following Consolidated Financial Statements of the Company and its
Subsidiaries appear on the following pages of this Form 10-K.

<TABLE>
<CAPTION>
                                                                     Page
<S>                                                                  <C>
Report of Independent Auditors                                       F-1

Consolidated Balance Sheets as of December 31, 2000 and 1999         F-2 & F-3

Consolidated Statements of Operations for the years ended
         December 31, 2000, 1999, and 1998.                          F-4

Consolidated Statements of Cash Flows for the years ended
         December 31, 2000, 1999 and 1998                            F-5

Consolidated Statements of Changes in Stockholders' Equity
         for the years ended December 31, 2000, 1999 and 1998        F-6

Notes to Consolidated Financial Statements                           F-7
</TABLE>


                                      -25-
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of MFIC Corporation:

    We have audited the accompanying consolidated balance sheets of MFIC
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, comprehensive loss, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2000. Our audits also included the financial
statement schedule listed in the index at Item 14 (a)(2). These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.

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

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MFIC
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP


Boston, Massachusetts
March 29, 2001, except for Note N, as to
which the date is April 13, 2001

                                       F-1
<PAGE>


MFIC CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
ASSETS                                                                            December 31,         December 31,
                                                                                      2000                 1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
Current Assets:
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                            $286,355             $196,172
-------------------------------------------------------------------------------------------------------------------
Accounts receivable, less allowance of $55,570 and $65,321 in 2000 and              2,862,489            2,710,684
1999, respectively
-------------------------------------------------------------------------------------------------------------------
Other receivables                                                                       3,490              108,607
-------------------------------------------------------------------------------------------------------------------
Accounts receivable- related party                                                     18,525               23,252
-------------------------------------------------------------------------------------------------------------------
Inventories                                                                         4,023,240            3,477,123
-------------------------------------------------------------------------------------------------------------------
Prepaid expenses                                                                      223,100              180,187
-------------------------------------------------------------------------------------------------------------------
Other current assets                                                                  137,752                    -
                                                                                    ---------            ---------
-------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                7,554,951            6,696,025
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Property
-------------------------------------------------------------------------------------------------------------------
Furniture, fixtures and office equipment                                              438,507              461,852
-------------------------------------------------------------------------------------------------------------------
Machinery and equipment                                                               579,617              929,330
-------------------------------------------------------------------------------------------------------------------
Leasehold improvements                                                                211,660              310,563
                                                                                      -------              -------
-------------------------------------------------------------------------------------------------------------------
                                                                                    1,229,784            1,701,745
-------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation and amortization                                      (654,828)            (859,875)
                                                                                    ---------            ---------
-------------------------------------------------------------------------------------------------------------------
     Net property                                                                     574,956              841,870
-------------------------------------------------------------------------------------------------------------------
Assets held for sale                                                                  213,142                    -
-------------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of $981,050 in 2000 and
$554,329 in 1999)                                                                   5,183,409            5,610,130
-------------------------------------------------------------------------------------------------------------------
Patents, licenses and other assets (net of accumulated amortization of
$567,321 in 2000 and $464,389 in 1999)                                                117,777               79,291
-------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                      $13,644,235          $13,227,316
                                                                                  ===========          ===========
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       F-2

-------------------------------------
See notes to consolidated financial statements
<PAGE>


MFIC CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity                                                 December 31,       December 31,
                                                                                         2000               1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>
Current Liabilities:
--------------------------------------------------------------------------------------------------------------------
Accounts payable                                                                      $1,816,086         $1,325,567
--------------------------------------------------------------------------------------------------------------------
Accrued expenses                                                                         105,366            154,653
--------------------------------------------------------------------------------------------------------------------
Accrued interest- related party                                                           70,085             77,500
--------------------------------------------------------------------------------------------------------------------
Accrued compensation and vacation pay                                                    157,971            119,712
--------------------------------------------------------------------------------------------------------------------
Customer advances                                                                        623,184            537,958
--------------------------------------------------------------------------------------------------------------------
Line of credit                                                                         2,724,015          3,075,815
--------------------------------------------------------------------------------------------------------------------
Current portion of term note payable                                                      95,004              -
--------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt- related party                                          62,500              -
                                                                                       ---------          ---------
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                              5,654,211          5,291,205
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies                                                               -                 -
--------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion- related party                                    237,500            775,000
--------------------------------------------------------------------------------------------------------------------
Term note                                                                                308,743              -
--------------------------------------------------------------------------------------------------------------------
Note payable - other                                                                     350,000              -
--------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
--------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share, 20,000,000 shares authorized;
7,588,948 and 6,061,307 shares issued at December 31, 2000
and 1999, respectively                                                                    75,889             60,613
--------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                            12,891,904         12,494,839
--------------------------------------------------------------------------------------------------------------------
Accumulated deficit                                                                   (5,193,342)        (4,720,234)
--------------------------------------------------------------------------------------------------------------------
Less: Treasury Stock, at cost, 250,219 and 242,719 shares at December 31,
2000 and 1999, respectively                                                             (680,670)          (674,107)
                                                                                        --------           --------
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                                             7,093,781          7,161,111
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $13,644,235        $13,227,316
                                                                                     ===========        ===========
--------------------------------------------------------------------------------------------------------------------

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


                                       F-3

-------------------------------------
See notes to consolidated financial statements
<PAGE>


MFIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                       Year ended           Year ended          Year ended
                                                                     Dec. 31, 2000        Dec. 31, 1999       Dec. 31, 1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                  <C>                  <C>
Revenues                                                              $15,725,695          $14,083,216          $ 8,869,679
----------------------------------------------------------------------------------------------------------------------------
Cost of goods sold                                                      8,688,465            7,990,398            4,954,826
----------------------------------------------------------------------------------------------------------------------------
Research and development                                                  835,136              927,582              935,880
----------------------------------------------------------------------------------------------------------------------------
Selling                                                                 3,482,866            2,934,668            2,363,844
----------------------------------------------------------------------------------------------------------------------------
General and administrative                                              2,786,598            2,564,656            1,713,592
                                                                        ---------            ---------            ---------
----------------------------------------------------------------------------------------------------------------------------
Total cost and expenses                                                15,793,065           14,417,304            9,968,142
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
 Loss from operations                                                     (67,370)            (334,088)          (1,098,463)
----------------------------------------------------------------------------------------------------------------------------
Interest expense                                                         (350,486)            (542,045)            (149,043)
----------------------------------------------------------------------------------------------------------------------------
Interest income                                                               248                9,835              119,492
----------------------------------------------------------------------------------------------------------------------------
Other (expense) income                                                   (250,000)                   -                    -
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Gain on sale of investments                                                     -              11,864               36,203
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Net loss before income taxes and extraordinary item                      (667,608)            (854,434)          (1,091,811)

----------------------------------------------------------------------------------------------------------------------------
Income tax provision                                                            -                    -             (413,630)
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Net loss before extraordinary item                                      $(667,608)           $(854,434)         $(1,505,441)
----------------------------------------------------------------------------------------------------------------------------
Gain on subordinated debt restructuring                                   194,500                    -                    -
                                                                        ---------            ---------          -----------
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Net loss                                                                $(473,108)           $(854,434)         $(1,505,441)
----------------------------------------------------------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and common equivalent
shares outstanding:
----------------------------------------------------------------------------------------------------------------------------
Basic                                                                   7,086,058            5,818,588            5,296,923
----------------------------------------------------------------------------------------------------------------------------
Diluted                                                                 7,086,058            5,818,588            5,296,923
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Basic amounts per common share:
----------------------------------------------------------------------------------------------------------------------------
Net loss per share before extraordinary gain                                $(.09)               $(.15)               $(.28)
----------------------------------------------------------------------------------------------------------------------------
Extraordinary gain per share                                                  .03                   --                   --
----------------------------------------------------------------------------------------------------------------------------
Basic net loss per share                                                    $(.06)               $(.15)               $(.28)
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Diluted amounts per common share:
----------------------------------------------------------------------------------------------------------------------------
Net loss per share before extraordinary gain                                $(.09)               $(.15)               $(.28)
----------------------------------------------------------------------------------------------------------------------------
Extraordinary gain per share                                                  .03                   --                   --
----------------------------------------------------------------------------------------------------------------------------
Diluted net loss per share                                                  $(.06)               $(.15)               $(.28)
----------------------------------------------------------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Comprehensive Loss
----------------------------------------------------------------------------------------------------------------------------
Net Loss                                                                $(473,108)           $(854,434)         $(1,505,441)
----------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on marketable securities                               --                   --              (45,558)
                                                                        ---------            ---------          -----------
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
Comprehensive Loss                                                      $(473,108)           $(854,434)         $(1,550,999)
                                                                        =========            =========          ===========
----------------------------------------------------------------------------------------------------------------------------

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

                                       F-4

------------------------------------------------
See notes to consolidated financial statements
<PAGE>


MFIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                              Year ended        Year ended        Year ended
                                                                            Dec. 31, 2000     Dec. 31, 1999     Dec. 31, 1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>              <C>
Cash flows from operations:
------------------------------------------------------------------------------------------------------------------------------
Net Loss                                                                       $(473,108)        $(854,434)       $(1,505,441)
------------------------------------------------------------------------------------------------------------------------------
Reconciliation of net loss to cash flows
from operations:
------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization                                                    804,823           692,948            321,251
------------------------------------------------------------------------------------------------------------------------------
Bad debt provision (recovery)                                                     (9,751)          (34,679)            30,000
------------------------------------------------------------------------------------------------------------------------------
Non cash provision for loss on legal settlement                                  150,000              -                  -
------------------------------------------------------------------------------------------------------------------------------
Extraordinary gain on debt restructuring                                        (194,500)             -                  -
------------------------------------------------------------------------------------------------------------------------------
Gain on sale of investments                                                         -              (11,864)           (36,203)
------------------------------------------------------------------------------------------------------------------------------
Gain on sale of assets                                                           (81,752)          (58,847)              -
------------------------------------------------------------------------------------------------------------------------------
Deferred income tax provision                                                       -                 -               413,630
------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash due to change in:
------------------------------------------------------------------------------------------------------------------------------
     Receivables and other receivables                                           (89,210)         (413,762)           391,771
------------------------------------------------------------------------------------------------------------------------------
     Inventories                                                                (461,121)          973,803            766,258
------------------------------------------------------------------------------------------------------------------------------
     Prepaid expenses                                                            (42,913)          (15,659)           (48,615)
------------------------------------------------------------------------------------------------------------------------------
     Other current assets                                                        (68,552)             -                  -
------------------------------------------------------------------------------------------------------------------------------
     Current liabilities                                                         546,802           692,936         (1,592,042)
                                                                                 -------           -------          ---------
------------------------------------------------------------------------------------------------------------------------------
Net cash from (used by) operations                                                80,718           970,442         (1,259,391)
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used by) investing activities:
------------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of investments                                                   -               11,864             36,203
------------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of assets                                                     152,989           169,394               -
------------------------------------------------------------------------------------------------------------------------------
Acquisition, net of cash acquired                                                   -                 -            (6,441,675)
------------------------------------------------------------------------------------------------------------------------------
Purchase of property                                                            (180,662)         (205,113)          (233,062)
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                            (27,673)          (23,855)        (6,638,534)
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used by) financing activities:
------------------------------------------------------------------------------------------------------------------------------
(Payments) proceeds from Comerica Bank line of credit                         (3,075,815)       (1,271,967)         4,347,782
------------------------------------------------------------------------------------------------------------------------------
Net proceeds from National Bank of Canada line of credit                       2,724,015              -                  -
------------------------------------------------------------------------------------------------------------------------------
Proceeds from term note                                                          475,000              -                  -
------------------------------------------------------------------------------------------------------------------------------
Payments on term note                                                            (71,253)             -                  -
------------------------------------------------------------------------------------------------------------------------------
Principal payments on long term debt                                                -              (25,000)              -
------------------------------------------------------------------------------------------------------------------------------
Financing costs and termination payments for debt refinancing                   (265,587)             -                  -
------------------------------------------------------------------------------------------------------------------------------
Issuance of restricted common stock                                              250,000              -                  -
------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock under employee stock purchase plan                        7,341              -                 7,724
------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock under employee stock option plan                           -                3,459             25,061
------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased                                                          (6,563)           (7,620)           (15,143)
                                                                                   -----             -----             ------
------------------------------------------------------------------------------------------------------------------------------
Net cash from (used by) financing activities                                      37,138        (1,301,128)         4,365,424
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                              90,183          (354,541)        (3,532,501)
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                                   196,172           550,713          4,083,214
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                         286,355           196,172            550,713
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
------------------------------------------------------------------------------------------------------------------------------
Assets acquired in exchange for notes or                                         200,000              -             2,825,000
common stock
------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest                                                           367,111           479,560            100,861
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       F-5

------------------------------------------------
See notes to consolidated financial statements
<PAGE>


MFIC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                          Numbers of     Common  Additional Accumulated    Accumulated     Number of  Treasury    Total
                           Shares of    Stock at  paid-in     deficit         Other        Shares of    Stock
                            Common     par value  capital                 Comprehensive    Treasury
                             Stock                                            Income         Stock
---------------------------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>     <C>         <C>              <C>             <C>     <C>        <C>
Balance at Dec. 31, 1997   5,136,804    $51,368 $10,442,840 $(2,360,359)     $55,638         220,719 $(651,344) $7,538,143
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Change in unrealized
depreciation on
marketable securities                                                        (45,558)                              (45,558)
---------------------------------------------------------------------------------------------------------------------------
Stock options exercised       16,250        163      24,898                                                         25,061
---------------------------------------------------------------------------------------------------------------------------
Proceeds from employee
stock purchase plan            3,929         39       7,685                                                          7,724
---------------------------------------------------------------------------------------------------------------------------
Issuance of stock in
conjunction with purchase
of Epworth and
Morehouse divisions          900,000      9,000   2,016,000                                                      2,025,000
---------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock                                                                    14,500   (15,143)    (15,143)
---------------------------------------------------------------------------------------------------------------------------
Net loss                                                     (1,505,441)                                        (1,505,441)
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1998   6,056,983     60,570  12,491,423  (3,865,800)      10,080         235,219  (666,487)  8,029,786
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Reclassification
adjustment for gain
included in net income                                                       (10,080)                              (10,080)
---------------------------------------------------------------------------------------------------------------------------
Proceeds from employee
stock purchase plan            4,324         43       3,416                                                          3,459
---------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock                                                                     7,500    (7,620)     (7,620)
---------------------------------------------------------------------------------------------------------------------------
Net loss                                                       (854,434)                                          (854,434)
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1999   6,061,307     60,613  12,494,839  (4,720,234)           0         242,719  (674,107) $7,161,111
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Issuance of restricted
common stock               1,500,000     15,000     390,000                                                        405,000
---------------------------------------------------------------------------------------------------------------------------
Issuance of common stock
under employee stock
purchase plan                 27,641        276       7,065                                                          7,341
---------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock                                                                     7,500    (6,563)     (6,563)
---------------------------------------------------------------------------------------------------------------------------
Net loss                                                       (473,108)                                          (473,108)
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
2000                       7,588,948    $75,889 $12,891,904 $(5,193,342)          $0         250,219 $(680,670) $7,093,781
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       F-6

------------------------------------------------
See notes to consolidated financial statements
<PAGE>

MFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

1.       Description of Business

         MFIC Corporation ("MFIC" or the "Company"), through its wholly-owned
         subsidiaries, Microfluidics Corporation ("Microfluidics") and
         MediControl Corporation ("MediControl"), its Microfluidics Division, as
         well as its operating divisions, Epworth Mill and Morehouse-COWLES
         specializes in producing and marketing a broad line of proprietary
         fluid materials processing systems used for a variety of grinding,
         mixing, milling, and blending applications across a variety of
         industries and for use in numerous applications within those
         industries. Microfluidizer(R) materials processor systems are produced
         at the Microfluidics Division, while dispersers, dissolvers, colloid
         mills, horizontal media and vertical media mills are produced at the
         Morehouse-COWLES Division. The Epworth Mill Division sells and
         distributes grinding media.

2.       Consolidation

         The consolidated financial statements of the Company include the
         accounts of the Company and its wholly owned subsidiaries, ("MFIC") and
         MediControl.

         All significant intercompany transactions have been eliminated.

3.       Cash Equivalents

         The Company considers securities with maturities of three months or
         less, when purchased, to be cash equivalents.

4.       Inventories

         Inventories are stated at the lower of cost or market. Cost is
         determined on a first-in, first-out basis.

5.       Assets Held for Sale

         Assets held for sale consist of inventory and fixed assets to be sold
         in connection with the Company's decision to sell its Ball Mill Repair
         business.

6.       Property

         The Company's property is recorded at cost. Depreciation is computed on
         the straight-line method, based upon useful lives of three to seven
         years. Leasehold improvements are amortized on the straight-line method
         based upon the shorter of the estimated useful lives or remaining life
         of the lease. Expenditures for maintenance and repairs are expensed as
         incurred. Upon retirement or sale of property and equipment, the cost
         of the disposed asset and the related accumulated depreciation are
         removed from the accounts and any resulting gain, or loss is credited
         or charged to operations.

         Depreciation expense totaled $278,201, $249,029, and $123,001 for the
         years ended December 31, 2000, 1999, and 1998, respectively.

7.       Patents, Licenses, Other Intangible Assets and Goodwill

         Patents, patent applications, rights, and goodwill are stated at
         acquisition cost. Amortization is recorded using the straight-line
         method over the shorter of the legal lives or useful life of the
         patents. Goodwill is being amortized over 15 years. Patents, licenses
         and other intangible assets are being amortized over a period of 3-15
         years.

8.       Impairment of Long-Lived Assets

         At each balance sheet date, the Company assesses whether there has been
         an impairment in the value of long-lived assets by determining whether
         projected undiscounted cash flows generated by the applicable asset
         exceeds its net carrying value as of the assessment date. The amount of
         goodwill impairment, if any, is measured based on projected discounted
         future operating cash flows using a discount rate reflecting the
         Company's average cost of funds. As of December 31, 2000, 1999 and 1998
         there were no such impairments.


                                       F-7
<PAGE>

9.       Income Taxes

         The Company provides for income taxes based on the provisions of
         Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
         for Income Taxes," which requires recognition of deferred tax assets
         and liabilities based on the expected future tax consequences of events
         that have been included in the financial statements or tax returns.
         Under this method, deferred tax assets and liabilities are determined
         based upon the difference between the financial statement and tax basis
         of assets and liabilities using enacted tax rates in effect for the
         year in which the differences are expected to be reversed. Under SFAS
         No. 109, the effect on deferred tax assets and liabilities of a change
         in tax rates is recognized as income or loss in the period of the
         change.

10.      Revenue Recognition

         Revenue from the sale of machines and spare parts is generally
         recognized upon shipment of the product or when the earnings process is
         complete. Rental income for the lease of equipment is recognized on a
         straight line basis over the term of the lease agreement. Rental
         income and equipment sales are classified in revenues in the
         consolidated statement of operations.

                                       F-8
<PAGE>


11.      Earnings (Loss) per Share

         Basic net income (loss) per share (EPS) is computed by dividing income
         available to common stockholders by the weighted average number of
         common shares outstanding for the period. Diluted net income (loss) per
         share (EPS) reflects the potential dilution that could occur if
         securities or other contracts to issue common stock were exercised or
         converted into common stock or resulted in the issuance of common stock
         unless the effects of such equivalent shares were antidilutive.

         A reconciliation of the numerators and denominators of the basic and
         diluted EPS computations for income (loss) per share from continuing
         operations is shown below. Options to purchase 1,761,575, 1,303,731,and
         1,416,587 shares of common stock were outstanding for the years ended
         2000, 1999 and 1998, respectively. All options outstanding during 2000,
         1999 and 1998 were excluded from the computation of diluted EPS because
         the effect of such options would have been antidilutive.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                2000             1999             1998
----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>               <C>
Average shares outstanding- basic                             7,086,058       5,818,588         5,296,923
                                                              ---------       ---------         ---------
----------------------------------------------------------------------------------------------------------
Basic loss per share before extraordinary gain                    $(.09)          $(.15)            $(.28)
                                                                  -----           -----             -----
----------------------------------------------------------------------------------------------------------
Extraordinary gain per share                                        .03             .00               .00
                                                                    ---             ---               ---
----------------------------------------------------------------------------------------------------------
Basic loss per share                                              $(.06)          $(.15)            $(.28)
                                                                  -----           -----             -----
----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
Effect of dilutive stock options                                   -               -                 -
----------------------------------------------------------------------------------------------------------
Average shares outstanding- diluted                           7,086,058       5,818,588         5,296,923
                                                              ---------       ---------         ---------
----------------------------------------------------------------------------------------------------------
Diluted loss per share before extraordinary gain                  $(.09)          $(.15)            $(.28)
                                                                  -----           -----             -----
----------------------------------------------------------------------------------------------------------
Extraordinary gain per share                                        .03             .00               .00
                                                                    ---             ---               ---
----------------------------------------------------------------------------------------------------------
Diluted loss per share                                            $(.06)          $(.15)            $(.28)
                                                                  -----           -----             -----
----------------------------------------------------------------------------------------------------------
</TABLE>


12. Use of Estimates

         The process of preparing consolidated financial statements in
         conformity with accounting principles generally accepted in the Untied
         States of America requires the use of 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
         these estimates.

13.  New Accounting Pronouncements

         In June 1998, The Financial Accounting Standards Board ("FASB") issued
         SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities," which was amended to be effective for fiscal years
         beginning after June 15, 2000 by SFAS No. 137, "Accounting for
         Derivative Instruments and Hedging Activities-Deferral of the
         Effective Date of FASB Statement No. 133". SFAS No. 133 requires that
         all companies record derivatives on the balance sheet as assets or
         liabilities, measured at fair value. Gains or losses resulting from
         changes in the values of those derivatives would be accounted for
         depending on the use of the derivative and whether it qualifies for
         hedge accounting. The standard is effective for the Company on January
         1, 2001. In June, 2000, the FASB issued SFAS No. 138, "Accounting for
         Certain Derivative Instruments and Certain Hedging Activities, an
         amendment of FASB Statement No. 133". The standard clarifies certain
         elements of SFAS No. 133. The implementation of SFAS No. 133 will not
         have a material impact on the Company's financial statements.

           In December 1999 the Securities and Exchange Commission ("SEC")
         released Staff Accounting Bulletin ("SAB") No. 101, "Revenue
         Recognition in Financial Statements." This SAB clarifies certain
         elements of revenue recognition. Since December, the SEC has issued
         several amendments that postponed the implementation date until the
         fourth quarter of fiscal 2000. The implementation of SAB No. 101 did
         not have a material impact on the Company's Financial Statements.

14.      Fair Value of Financial Instruments

         The carrying amount of cash and cash equivalents, accounts receivable,
         accounts payable and accrued liabilities approximates fair value due to
         the short term nature of these accounts. The Company's bank debt,
         because it carries a variable interest rate, is stated at its
         approximate fair market value. The Company's subordinated debt bears
         interest at 10%, which approximates fair market value.

15.      Certain fiscal 1999 and fiscal 1998 amounts have been reclassified
         to conform with fiscal 2000 presentations.

B.       INDUSTRY SEGMENT, EXPORT SALES AND MAJOR CUSTOMER:

         The Company has one business segment: the development, manufacture,
         marketing and sale of process and formulation equipment. The Company's
         sales are primarily to companies with processing needs in the chemical,
         pharmaceutical, food, cosmetic, and biotechnology industries.

         Sales to Europe were approximately $997,000, $1,024,000, and $832,000,
         and sales to Asia were approximately $1,805,000, $1,542,000, and
         $924,000, in 2000, 1999, and 1998, respectively.

         No customer accounted for over 10% of the Company's revenues in 2000,
         1999 and 1998.

                                      F-9
<PAGE>

C.       MARKETABLE SECURITIES:

         In 1999, the Company sold 6,720 shares of Cardiotech International,
         Inc. at a gain of $11,864. In 1998, the Company sold 3,940 shares of
         PolyMedica Industries, Inc. at a gain of $36,203. At December 31, 2000,
         the Company did not hold investments in marketable securities.

D.       INVENTORY

         The components of inventories are as follows at December 31:

<TABLE>
<CAPTION>
           ------------------------------------------------------------------
                                                 2000                 1999
           ------------------------------------------------------------------

           ------------------------------------------------------------------
<S>                                            <C>                <C>
           Raw materials                       $2,670,155         $2,070,913
           ------------------------------------------------------------------
           Work in progress                       473,095            320,151
           ------------------------------------------------------------------
           Finished goods                         879,990          1,086,059
                                                  -------          ---------
            -----------------------------------------------------------------
           TOTAL                               $4,023,240         $3,477,123
           ------------------------------------------------------------------
</TABLE>


E.       INTANGIBLE AND OTHER ASSETS

         The Company purchased the rights and title of certain liposome and
         microemulsion technology devices from Arthur D. Little in 1985. The
         unamortized license fee and patent are included in intangible assets
         and are being amortized using the straight line method over the useful
         life of the patent, 17 years. Patents and other intangible assets were
         purchased in 1991 as a result of a share exchange by MediControl
         stockholders. These patents and other intangible assets were amortized
         using the straight line method over five years. In addition, in 1995,
         the Company capitalized $96,680 of patent costs related to a
         cooperative research venture. Amortization of these assets charged to
         expense was $42,269 in 2000, and $43,920 in 1999 and 1998.

         Costs incurred in connection with the debt refinancing that occurred on
         February 28, 2000 are being amortized over three years, the initial
         term of the line of credit. The total of such costs was approximately
         $207,000.

                                      F-10
<PAGE>




F.       ACQUISITIONS

         On August 14, 1998 (the "Closing Date") MFIC purchased substantially
         all of the assets (the "Transferred assets") and assumed certain
         liabilities of Epworth Manufacturing Company of South Haven, Michigan
         ("Epworth") and Morehouse-COWLES, Inc. of Fullerton, California
         ("Morehouse" and together with Epworth, the "Sellers") pursuant to an
         Asset Purchase Agreement (the "Agreement") dated as of June 19, 1998 by
         and among MFIC, Epworth and Morehouse. Messrs. J.B. Jennings and
         Bret A. Lewis were the sole stockholders of both Epworth and Morehouse
         (the "Principals"). Epworth and Morehouse each manufactures and
         distributes a product line of crushing/grinding, mixing, dissolving
         and dispersion systems for solid or solids materials processing that
         are marketed together under the EMCO U.S.A. trade name.

         In accordance with the Agreement, MFIC paid or delivered to the Sellers
         the following as consideration for the purchase price: (i) $5,508,480
         in cash, (ii) two subordinated promissory notes in the aggregate
         principal amount of $800,000 (the "Promissory Notes") and (iii) 900,000
         shares of MFIC's restricted common stock, $.01 par value per share,
         subject to the restrictions set forth in a Stockholders Agreement among
         MFIC and the Principals dated August 14, 1998 (the "Stockholders
         Agreement"). MFIC also incurred approximately $500,000 in expenses. In
         addition, MFIC assumed approximately $1,930,000 in accounts payable and
         accrued liabilities. The acquisition has been accounted for under the
         purchase method of accounting.

         The amount paid in excess of the identified fair market value of the
         assets purchased less liabilities assumed has been allocated to
         goodwill. This amount is being amortized over a fifteen year period,
         which the Company determined to be the useful life.

                                      F-11
<PAGE>

G.       INDEBTEDNESS

         Long-term debt as of the following dates consisted of:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                               December 31, 2000          December 31, 1999
------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                        <C>
10% note payable                                                         350,000                   $475,000
------------------------------------------------------------------------------------------------------------
10% subordinated note payable to related party                           300,000                    300,000
------------------------------------------------------------------------------------------------------------
Term note payable                                                        403,747
                                                                         -------
------------------------------------------------------------------------------------------------------------
Less current portion                                                    (157,504)                         -
                                                                        --------
------------------------------------------------------------------------------------------------------------
TOTAL                                                                   $896,243                   $775,000
                                                                        ========                   ========
------------------------------------------------------------------------------------------------------------
</TABLE>

         The subordinated notes are payable to Lake Shore Industries Inc. and
         J.M. Huber Corporation. See Note M to the Consolidated Financial
         Statements for further explanation of the note to Lake Shore Industries
         Inc.

         In a letter dated June 16, 2000, J.M. Huber Corporation ("Huber")
         informed MFIC Corporation that it purportedly was revoking its
         acceptance of seven model LV-40 Zinger(R) horizontal media mills that
         Huber had purchased from MFIC's Epworth Mill Division in 1998. The
         notice of revocation was accompanied by a claim for the repayment of
         the full purchase price of $384,948 and for incidental and
         consequential damages as a result of alleged breaches of express and
         implied warranties in the amount of $2,790,350. The Company denied any
         liability. At the request of Huber and as an accommodation, the
         Company, in both 2000 and 1999 performed certain services which, the
         Company believed, were accepted by Huber as a cure for problems
         encountered by Huber with the performance of this equipment. On October
         20, 2000, the Company entered into a settlement agreement with Huber
         pursuant to which, the Company paid $100,000 to Huber upon execution of
         the agreement, and executed a promissory note for $350,000 payable two
         years from the execution date, with interest payable quarterly in
         arrears at 10% per annum. The Company may prepay the note through April
         2001, with the note being discharged for $300,000 plus accrued and
         unpaid interest. Huber has transferred all interest in the seven Media
         Mills to the Company, and shipped the equipment to the Company for
         reconditioning and resale. The Company recorded a loss on this
         transaction of $250,000.

         From August 1998 to February 28, 2000, the Company operated under a
         revolving loan and security agreement with Comerica Bank. The
         outstanding balance was $3,075,815 at December 31, 1999, bearing
         interest at 12.25%. Since May 5, 1999, the Company had operated under a
         forbearance agreement to the Comerica Bank loan agreement, which
         restricted the level of borrowings, and prohibited the Company from
         paying dividends. The unused portion of the line of credit was $339,185
         at December 31, 1999.

         On February 28, 2000 (the "Closing Date") the Company entered into a
         revolving credit and term loan agreement with National Bank of Canada
         (the "Lender") providing the Company with a $4,475,000 three-year
         revolving credit and term loan facility (together the "Credit
         Facility"). The Credit Facility is comprised of: (i) a $4 million three
         year revolving line of credit ("Revolving Credit Line") with advances
         thereunder bearing interest at an interest rate equal to the prime rate
         (the "Prime Rate" for United States borrowings from the National Bank
         of Canada as publicly announced from time to time) plus one-half
         percent (.50%). All borrowings under the Revolving Credit Line are
         evidenced by a $4 million promissory note having a maturity date of
         February 28, 2003 (the "Revolving Note"), and (ii) a $475,000 term
         promissory note, amortized over a five year period but having a
         maturity date of February 28, 2003 and bearing interest at an interest
         rate equal to the Prime Rate plus three quarters of one percent (.75%).
         Loans under the Credit Facility are secured by a collateral pledge to
         the Lender of substantially all the assets of the Company and its
         subsidiaries. The Company's Microfluidics Corporation subsidiary has
         guaranteed the Company's obligations to the Lender under the Credit
         Facility. The Company has pledged to the Lender all shares of
         Microfluidics Corporation owned by the Company. From the proceeds of
         the initial loan, the Company repaid the outstanding balance owed to
         Comerica Bank of approximately $2,585,000.

         As one of the Lender's conditions precedent to the closing of the
         Finance Facility, the Company's Chairman, Irwin Gruverman, at the
         closing of the Credit Facility purchased, for $250,000, 1,000,000
         shares of restricted Common Stock of the Company. This purchase was
         approved by the Company's Board of Directors on December 30, 1999.

         The Credit Facility includes restrictive financial and non-financial
         covenants. The covenants include prohibition from paying dividends and
         limits capital expenditures to $200,000 per year. In addition, the
         financial covenants include quarterly calculations of tangible net
         worth, liabilities to worth ratio, net income, and debt service
         coverage. The Credit Facility also contains a subjective acceleration
         clause and a lock-box arrangement, whereby remittances from the
         Company's customers reduce the outstanding amount of the Revolving
         Credit Line.

         At December 31, 2000, the Company was in violation of the tangible net
         worth, liabilities to worth ratio, and net income covenants. The
         Company has received a waiver of these violations from the Lender as of
         December 31, 2000, but is required to meet such covenants thereafter.
         Due to the subjective acceleration clause, and the lock-box
         arrangement, the Revolving Credit Line is classified as a current
         liability in the Consolidated Balance Sheet.

         At December 31, 2000, the outstanding balance on the Revolving Credit
         Line was $2,724,015, having an interest rate of 10%. The balance
         outstanding on the term loan was $403,743, at an interest rate of
         10.25%.

         Management's Plans

         As discussed above, the Company violated the tangible net worth,
         liabilities to worth ratio, and net income covenants of the Credit
         Facility as of December 31, 2000. The Company's ability to continue
         planned operations is dependent upon access to financing under the
         Credit Facility, which is potentially impacted by the Company's
         ability to achieve future compliance with the financial covenants.
         Given the terms of the financial covenants and historical results,
         it is at least reasonably possible that the Company will be in
         violation of the financial covenants in the future. Borrowings
         outstanding under the Credit Facility are secured by a collateral
         pledge to the Lender of substantially all of the assets of the
         Company.

         Management of the Company is executing plans for a return to
         profitability, including the recent reorganization of its Epworth Mill
         Division and the concentration of manufacturing operations in an
         effort to improve costs and marketing leverage; however, there can be
         no assurance that the Company will be successful in implementing
         these plans.

H.       EMPLOYEE BENEFITS

         The Company offers a 401(k) profit-sharing plan (the "Plan"), to its
         employees. All Company and related entity employees who are eighteen
         years of age and have completed one hour of service are eligible to
         participate in the Plan. Employees may contribute from 1% to 20% of
         their compensation. The Company's contribution is discretionary, with
         contributions made from time to time as management deems advisable. The
         Company made no matching contributions in 2000 or 1999 and $23,842 in
         1998. Plan administration expenses of $226, $3,951, and $3,464 were
         incurred by the Company in 2000, 1999, and 1998, respectively. The
         Company instituted a cafeteria plan in 1992, giving the employees
         certain pre-tax advantages on specific payroll deductions.

                                      F-12
<PAGE>

I.       INCOME TAXES

         The provision/(benefit) for income taxes for the years ended are as
         follows:
<TABLE>
<CAPTION>
                                                   Federal             State             Total
   --------------------------------------------------------------------------------------------
 <S>                                               <C>                 <C>             <C>
   December 31, 2000
   --------------------------------------------------------------------------------------------
   Current                                              $0                 $0               $0
   --------------------------------------------------------------------------------------------
   Deferred                                              0                  0                0
   --------------------------------------------------------------------------------------------
   TOTAL                                                $0                 $0               $0
   --------------------------------------------------------------------------------------------

   --------------------------------------------------------------------------------------------
   December 31, 1999
   --------------------------------------------------------------------------------------------
   Current                                              $0                 $0               $0
   --------------------------------------------------------------------------------------------
   Deferred                                             $0                 $0               $0
                                                        --                 --               --
   --------------------------------------------------------------------------------------------
   TOTAL                                                $0                 $0               $0
                                                        ==                 ==               ==
   --------------------------------------------------------------------------------------------

   --------------------------------------------------------------------------------------------
   December 31, 1998
   --------------------------------------------------------------------------------------------
   Current                                              $0                 $0               $0
   --------------------------------------------------------------------------------------------
   Deferred                                        351,630             62,000          413,630
                                                   -------             ------          -------
   --------------------------------------------------------------------------------------------
   TOTAL                                          $351,630            $62,000         $413,630
                                                  ========            =======         ========
   --------------------------------------------------------------------------------------------
</TABLE>

         The approximate tax effect of each type of temporary difference and
         carryforward and the valuation allowance is as follows at December 31:

<TABLE>
<CAPTION>
                                                                 2000              1999
-------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
Net operating loss                                            $1,878,000        $1,655,000
-------------------------------------------------------------------------------------------
Research and development credit                                  172,000           186,000
-------------------------------------------------------------------------------------------
Inventory capitalization                                         414,000           323,000
-------------------------------------------------------------------------------------------
Accruals and Allowances                                           76,000            65,000
-------------------------------------------------------------------------------------------
Depreciation and amortization                                    (14,000)          (61,000)
                                                               ---------         ---------
-------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance              2,526,000         2,168,000
-------------------------------------------------------------------------------------------
Valuation allowance                                           (2,526,000)       (2,168,000)
                                                               ---------         ---------
-------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------
Net deferred tax asset                                                $0                $0
                                                                      ==                ==
-------------------------------------------------------------------------------------------
</TABLE>

                                      F-13
<PAGE>


         The Company has a federal net operating loss tax (NOL) carryforward of
         approximately $4,695,000 and research and development tax credit
         carryforwards of approximately $172,000 expiring at various dates
         beginning in 2001 through 2019. Ownership changes may result in future
         limitations on the utilization of net operating losses and research
         and development tax credit carryforwards.

         Based on the financial results known at December 31, 2000, the Company
         has established a valuation allowance against the deferred tax asset
         due to the uncertainty of earning sufficient taxable income to realize
         the benefit of these assets. Therefore the Company increased the
         valuation allowance by $358,000 and $323,000 in 2000 and 1999,
         respectively.

         The following schedule reconciles the difference between the federal
         income tax rate and the effective income tax rate for the years ended
         December 31,

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                 2000             1999             1998
------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------
<S>                                              <C>              <C>              <C>
Federal income tax rate                          (34.0%)          (34.0)%          (34.0)%
------------------------------------------------------------------------------------------
State income tax rate                             (6.0%)           (6.0)%           (6.0)%
------------------------------------------------------------------------------------------
Permanent differences                              3.4%             4.5%             0.4%
------------------------------------------------------------------------------------------
Change in valuation allowance                     36.6%            35.5%            77.5%
                                                  -----            -----            -----
------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------
TOTAL EFFECTIVE TAX RATE                             0%               0%            37.9%
                                                  =====            =====            =====
------------------------------------------------------------------------------------------
</TABLE>


J.       STOCKHOLDERS' EQUITY:

         The Company adopted the 1988 Stock Plan as the successor plan to the
         1987 Stock Plan, which, as amended at the 1997 stockholders' meeting,
         authorizes the grant of Stock Rights for up to 2,350,000 shares of
         Common Stock and the 1989 Non-Employee Director Stock Option Plan
         which, as amended at the 1996 stockholders' meeting, authorizes the
         grant of nonqualified stock options for up to 500,000 shares of Common
         Stock.

         Additionally, the Company has an employee stock purchase plan. Under
         the employee stock purchase plan, participants are granted options to
         purchase the Company's common stock twice a year at the lower of 85% of
         market value at the beginning or end of each period. Calculation of the
         number of options granted, and subsequent purchase of these shares, is
         based upon voluntary payroll deductions during each six month period.
         The number of options granted to each employee under this plan is
         limited to a maximum amount of 1000 for each six month period. The
         number of shares issued pursuant to this plan totaled 27,641, 4,324,
         and 3,929 in 2000, 1999, and 1998, respectively.

                                      F-14
<PAGE>

         The Company applies APB Opinion No. 25 and related interpretations in
         accounting for its plans. FASB Statement No. 123 "Accounting For
         Stock-Based Compensation"("FAS 123") was issued in 1995 and, if fully
         adopted, changes the method for recognition of cost on plans similar
         to those of the Company. Pro forma disclosures as if the Company
         adopted the cost recognition requirements under SFAS 123 are presented
         below.

         The Company's employee stock option plan provides for the granting of
         nonqualified stock options that 1.) are granted at prices which equate
         to or are above the market value of the stock on the date of the grant;
         2.) vest ratably over a three and one half to four year service vesting
         period and 3.) expire ten years subsequent to award.

         A summary of the status of the Company's stock options as of December
         31, 2000, 1999, and 1998, and changes during the year ended on those
         dates is presented below:

<TABLE>
<CAPTION>
                                 --------------------------------------------------------------------------------------
                                                2000                            1999                     1998
                                                Weighted                        Weighted                 Weighted
                                                Average                         Average                  Average
                                 --------------------------------------------------------------------------------------
                                 Shares         Exercise       Shares         Exercise      Shares       Exercise
                                                Price                         Price                      Price
                                 --------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                <C>        <C>               <C>     <C>                 <C>
Outstanding, at beginning           1,303,731          $1.13      1,416,587         $1.15      946,150          $2.37
 of year
-----------------------------------------------------------------------------------------------------------------------
Option shares:
-----------------------------------------------------------------------------------------------------------------------
-Granted                              583,500            .41         64,044           .71    1,701,625           1.34
-----------------------------------------------------------------------------------------------------------------------
-Exercised                                  0              0              0             0      (16,250)          1.54
-----------------------------------------------------------------------------------------------------------------------
-Cancelled                           (125,656)           .96       (176,900)         1.16   (1,214,938)          2.38
-----------------------------------------------------------------------------------------------------------------------
Outstanding, at end                 1,761,575           $.94      1,303,731         $1.13    1,416,587          $1.15
 of year
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


         In October, 1998 the Board of Directors approved a vote to reprice
         1,591,225 employee stock options. The options were originally issued
         between January 1990 through January 1998 and had original grant prices
         ranging between $1.16 and $6.25. The grant price for these options was
         lowered to $1.13 which reflected the market value of the stock as of
         the reprice date. The repriced options vest over either a three or four
         year period, depending upon when the original grants were issued. No
         compensation expense was recorded for the repricing.

                                      F-15
<PAGE>

         The table below summarizes options outstanding and exercisable at
         December 31, 2000:

<TABLE>
<CAPTION>
                       ---------------------------------------------------------------------------------------------------
                                    Options Outstanding                                Options Exercisable
--------------------------------------------------------------------------------------------------------------------------
                                                  Weighted
                                                  Average            Weighted            Exercisable           Weighted
                                                 Remaining           Average                As of              Average
Range of                      Number of         Contractual          Exercise            December 31,          Exercise
Exercise Price                 Options              Life              Price                  2000               Price
--------------------------------------------------------------------------------------------------------------------------
<S>       <C>                       <C>                   <C>             <C>                   <C>               <C>
           $.31 - 2.00              1,732,275             7.5                $.92               613,201              1.20
--------------------------------------------------------------------------------------------------------------------------
          $2.01 - 5.88                 29,300              .6                2.10                16,200              2.62
--------------------------------------------------------------------------------------------------------------------------
                 TOTAL              1,761,575             7.5                $.94               629,401              1.24
--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------
                                                                             2000                  1999              1998
--------------------------------------------------------------------------------------------------------------------------
Options Available for Future Grant                                        420,475               879,294           766,438
--------------------------------------------------------------------------------------------------------------------------
Weighted Average Fair Value of Options
Granted During the Year                                                     $0.38                 $0.63             $1.22
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

         The fair value of each option granted during 2000, 1999, and 1998 is
         estimated on the date of grant using the Black-Scholes option-pricing
         model with the following assumptions: (i) dividend yield of 0%; (ii)
         expected volatility of 146% in 2000 and 137% in 1999 and 1998; (iii)
         risk-free interest rate of 5.25% in 2000, 1999 and 1998; and (iv)
         Expected life of five years.

         Had compensation cost for the Company's 2000, 1999, 1998 grants for
         stock-based compensation plans been determined consistent with SFAS
         123, the Company's net loss, and basic and diluted net loss per share
         for 2000, 1999, 1998 would approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                         ------------------------------------------------------------------------------------------------
                                        As Reported                                         Pro forma
-------------------------------------------------------------------------------------------------------------------------
                                2000           1999             1998            2000          1999             1998
-------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>             <C>             <C>          <C>               <C>
Net loss                     $(473,108)      $(854,434)      $(1,505,441)    $(862,383)   $(1,209,813)      $(1,843,511)
                             ==========      ==========      ============    ==========   ============      ============
-------------------------------------------------------------------------------------------------------------------------
Net loss per share               $(.06)          $(.15)            $(.28)        $(.12)          (.21)            $(.35)
                                 ======          ======            ======        ======          =====            ======
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-16
<PAGE>


         On September 23, 1999, the Chief Executive Officer of the Company,
         Irwin J. Gruverman, was granted warrants to purchase up to 100,000
         shares of the Company's common stock at a per share price of $.52 a
         share, having an expiration date of July 2, 2004. As of December 31,
         2000, there were 100,000 warrants outstanding.

         At December 31, 2000, the Company has reserved 2,850,000 shares for
         issuance under the above mentioned stock plans and warrants.

K.       COMMITMENTS AND CONTINGENCIES:

         At December 31, 2000, the Company had operating leases for the rental
         of its facilities, which require the following minimum payments:

<TABLE>
<CAPTION>
                  -------------------------------------------
                               Minimum Payments
                  -------------------------------------------

                  -------------------------------------------
                  <S>                               <C>
                  2001                              $420,005
                  -------------------------------------------
                  2002                               286,805
                  -------------------------------------------
                  2003                               139,120
                  -------------------------------------------
                  2004                                66,000
                  -------------------------------------------
                  2005                                66,000
                  -------------------------------------------

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

         Rent expense for 2000, 1999, and 1998 was approximately $405,000,
         $499,000, and $282,000, respectively. The current leases are due to
         terminate at various times through August 2006.

                                      F-17
<PAGE>

L.       RELATED PARTY TRANSACTIONS

         During 2000, 1999, and 1998, the Company and G&G Corporation (G&G), an
         entity controlled by Mr. Gruverman, the Company's Chairman, entered
         into an arrangement whereby G&G reimbursed the Company for certain
         administrative expenses incurred for services performed by the Company.
         The Company was reimbursed approximately $75,780, $79,291, and $76,363
         by G&G during 2000, 1999, and 1998, respectively. At December 31, 2000,
         and 1999, G&G owed the Company $18,525 and $23,252 respectively.

         As discussed in Notes F and G, the Company owed the former Principals
         of Morehouse and Epworth $300,000 and $775,000 at December 31, 2000 and
         1999, respectively. Interest expense on the subordinated debt for 1999
         was $77,500. Interest capitalized on the $300,000 note in connection
         with the Settlement Agreement discussed in note M amounted to $88,750
         and is being amortized over 5 years. Total payments in 2000 were
         $17,916.

M.       SETTLEMENT AGREEMENT, DEBT RESTRUCTURING AND REFINANCING

         On December 20, 1999 the Company signed an agreement in principle (the
         "Agreement In Principle") with J.B. Jennings and Bret A. Lewis, the
         former owners of the Epworth Mill and Morehouse-COWLES businesses (the
         "Sellers"), Lake Shore Industries, Inc., and JLJ Properties, Inc.,
         entities owned and controlled by the Sellers. The Agreement In
         Principle set forth understandings among the parties concerning
         restructuring of the Company's subordinated debt and resolution of
         various disputes. On January 17, 2000 a definitive settlement agreement
         incorporating these subject matters was executed between the parties
         (the "Settlement Agreement"). In connection with the closing of the
         Credit Facility, and pursuant to a Settlement Agreement dated January
         17, 2000 with the Company's subordinated debt holders, the subordinated
         debt of the Company was restructured in the following manner. The
         outstanding August 14, 1998 $500,000 subordinated promissory note,
         having a remaining $475,000 principal balance together with accrued
         interest at the Closing Date in the approximate amount of $77,500, and
         accrued interest on the August 14, 1998 $300,000 subordinated note were
         converted to 500,000 shares of MFIC restricted common stock (the
         "Conversion Shares"). The fair market value of the Company's Common
         Stock on the date of the Agreement In Principle was $0.31 per share.
         MFIC was granted the right for a three-year period to repurchase the
         Conversion Shares at a purchase price of $1.75 per share. The August
         14, 1998 $300,000 subordinated note was replaced with a new $300,000
         subordinated promissory note dated February 28, 2000 (the "2000
         Subordinated Note"). The 2000 Subordinated Note has a maturity date of
         February 28, 2005 and bears interest at a rate of ten percent (10%) per
         annum. The note is payable interest only in its first year and then is
         payable in equal quarterly installments of principal together with
         outstanding interest thereon until maturity.

         A disputed lease between the Company and one of the Seller's entities
         for property located in South Haven, Michigan, which was the subject of
         a suit to terminate filed by the Company, was voluntarily dismissed in
         return for the payment by the Company of a total of $58,000. The
         initial payment in the amount of $30,000 was paid on January 19, 2000
         upon execution of the Settlement Agreement and the balance on February
         28, 2000. The Company dismissed with prejudice by joint stipulation its
         lawsuit to terminate the lease. The Company and the Sellers executed a
         mutual release of liability related to the August 14, 1998 Asset
         Purchase Agreement.

         As a result of the debt restructuring and refinancing, the Company
         recorded an extraordinary gain of approximately $195,000 in the first
         quarter of 2000.

N.       Subsequent Event

         After review of the results as of and for the quarter ended March
         31, 2001, the Company notified the National Bank of Canada that it
         was in violation of the tangible net worth and liabilities to worth
         ratio covenants contained in the Credit Facility for the quarter
         ended March 31, 2001. On April 13, 2001, the Company received a
         waiver of these violations from the National Bank of Canada, but
         is required to meet all covenant requirements thereafter. As a
         result of the waiver and management's expectations of future
         compliance, the non-current portion of the term promissory note has
         been classified as a non-current liability.

                                      F-18
<PAGE>

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information concerning directors and executive officers of the Company
required under this item is incorporated herein by reference to the Company's
definitive proxy statement pursuant to Regulation 14A, to be filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 2000.

Item 11. EXECUTIVE COMPENSATION

    The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's fiscal year ended December 31, 2000.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

    The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's fiscal year ended December 31, 2000.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's fiscal year ended December 31, 2000.

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1.)  Consolidated Financial Statements.

         The following Consolidated Financial Statements are included in Item 8:

            Consolidated Balance Sheets as of December 31, 2000 and 1999

            Consolidated Statements of Operations for the years ended December
            31, 2000, 1999 and 1998

            Consolidated Statements of Cash Flows for the years ended December
            31, 2000, 1999 and 1998

            Consolidated Statements of Changes in Stockholders' Equity for the
            years ended December 31, 2000, 1999 and 1998

            Notes to Consolidated Financial Statements

            Report of Independent Auditors

(a)(2.)  Financial Statement Schedules.

         The following Consolidated Financial Statement Schedule of the
         Registrant is filed as part of this report:

            Schedule II - Valuation and Qualifying Accounts and Reserves

                                      F-19

<PAGE>


      (a)(3.)   List of Exhibits.

                                  Exhibit Index

Exhibit                        Description of Exhibit
Number                         ----------------------
------

3(a)    Certificate of Incorporation for the Company, as amended (filed as
        Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A and as
        Exhibit 3.1(a) to the Company's Report on Form 10-Q for the quarterly
        period ended September 30, 1999 and incorporated herein by reference).

3(b)    Amended and Restated By-Laws for the Company (filed as Exhibit 3.3(b) to
        the Company's Annual Report on Form 10-K for the fiscal year ended
        December 31, 1996 and incorporated herein by reference).

10.1    1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual Report
        on Form 10-K for the fiscal year ended December 31, 1987 and
        incorporated herein by reference).

10.2    1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual Report
        on Form 10-K for the fiscal year ended December 31, 1998 and
        incorporated herein by reference).

10.3    1989 Non-Employee Directors Stock Option Plan (filed as Exhibit 10.1 to
        the Company's registration statement on Form S-8 filed October 22, 1996
        and incorporated herein by refernce).

10.4    Lease for 30 Ossipee Road, Newton, Massachusetts dated May 23, 1997
        between Microfluidics International Corporation and J. Frank Gerrity,
        Trustee of 1238 Chestnut Street Trust under Declaration of Trust dated
        May 23, 1969, recorded with Middlesex South Registry of Deeds in Book
        11682, Page 384 (filed as Exhibit 3.10(a) to the Company's form 10-Q for
        the quarterly period ended June 30, 1997 and incorporated herein by
        reference).

10.5    Letter of Understanding between Microfluidics International Corporation
        and Worcester Polytechnic Institute dated as of April 3, 1992 (filed as
        Exhibit 3.10(f) to the Company's Form 10-K for the fiscal year ended
        December 31, 1993 and incorporated herein by reference).

10.6    Agreement between Microfluidics International Corporation and
        Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(g)
        to the Company's Form 10-K for the fiscal year ended December 31, 1993
        and incorporated herein by reference) with amendments dated September 1,
        1994 and March 31, 1995.


                                      F-20
<PAGE>


10.7    Amendment to agreement dated September 1, 1994 between Microfluidics
        International Corporation and Catalytica, Inc. dated as of October 18,
        1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the fiscal
        year ended December 31, 1993, and incorporated herein by reference).

10.8    Amendment to agreement dated March 31, 1995 between Microfluidics
        International Corporation and Catalytica, Inc. dated as of October 18,
        1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the fiscal
        year ended December 31, 1993 and incorporated herein by reference).

10.9    License Agreement among Microfluidics International Corporation,
        Worcester Polytechnic Institute and Catalytica, Inc. dated as of October
        18, 1993 (filed as Exhibit 3.10(h) to the Company's Form 10-K for the
        fiscal year ended December 31, 1993, and incorporated herein by
        reference).

10.10   Amendment to agreement dated September 1, 1994 between Microfluidics
        International Corporation and Catalytica, Inc. dated as of October
        18, 1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the
        fiscal year ended December 31, 1993, and incorporated herein by
        reference).

10.11   Letter, dated August 15, 1995, from Microfluidics International
        Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to the
        Company's Form 10-K for the fiscal year ended December 31, 1995, and
        incorporated herein by reference).

10.12   Letter, dated December 31, 1995 from Microfluidics International
        Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(k) to the
        Company's Form 10-K for the fiscal year ended December 31, 1996, and
        incorporated herein by reference).

10.13   Warrant for the Purchase of Shares of Common Stock, dated July 14, 1993,
        in favor of Ladenburg, Thalmann & Co. Inc. (filed as Exhibit 3.10(l) to
        the Company's Form 10-K for the fiscal year ended December 31, 1996, and
        incorporated herein by reference).

10.14   Letter, dated December 31, 1996, from Microfluidics International
        Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(o) to the
        Company's Form 10-K for the fiscal year ended December 31, 1996, and
        incorporated herein by reference).

10.15   Agreement between Microfluidics International Corporation and
        Catalytica, Inc. dated January 1, 1995 regarding participation in and
        management of the Advanced Technology Program (ATP) (filed as Exhibit
        3.10(p) to the Company's Form 10-K for the fiscal year ended December
        31, 1996, and incorporated herein by reference).

10.16   Consulting Agreement with James Little. (filed as Exhibit 3.10(q) to the
        Company's Form 10-K for fiscal year ended December 31, 1996 and
        incorporated herein by reference).

10.17   Supplemental Agreement between Catalytica Advanced Technologies, Inc.
        and Microfluidics International Corporation dated December 31, 1997.

10.18   Letter dated December 31, 1997, from Microfluidics International
        Corporation to Irwin J. Gruverman and G & G Diagnostics Corp.

                                      F-21
<PAGE>
 10.19  1988 Stock Plan as amended (filed as Exhibit 10(a) to the Company's Form
        10-Q for the quarterly period ended March 31, 1997 and incorporated
        herein by reference.

 10.20  Asset Purchase Agreement dated as of June 19, 1998, by and among the
        Company, Epworth Manufacturing Company and Morehouse-COWLES, Inc. (filed
        as Exhibit 2.1 to Schedule 13D of Bret A. Lewis, File No. 005-35850, and
        incorporated herein by reference).

 10.21  Stockholders Agreement dated August 14, 1998, by and among the Company
        and J.B. Jennings and Bret A. Lewis (filed as Exhibit 2.2 to Schedule
        13D of Bret A. Lewis, File No. 005-35850, and incorporated herein by
        reference).

 10.22  $500,000 Subordinated Promissory Note issued by the Company to Epworth
        Manufacturing Company (filed as exhibit 99.2 to the Company's Form 8-K
        on August 27, 1998, File No. 000-11625, and incorporated herein by
        reference).

 10.23  $300,000 Subordinated Promissory Note issued by the company to Epworth
        Manufacturing Company (filed as exhibit 99.2 to the Company's Form 8-K
        on August 27, 1998, File No. 000-11625, and incorporated herein by
        reference).

 10.24  Revolving credit loan between Comerica Bank and the Company dated August
        12, 1998 (filed as Exhibit 10.1 to the Company's Form 10-Q for the
        quarterly period ended September 30, 1998 and incorporated herein by
        reference).

 10.25  Letter Dated December 31, 1998 from Microfluidics International
        Corporation To Irwin J. Gruverman (filed as exhibit 3.10(2) to the
        Company's Annual Report on Form 10-K for fiscal year ended December 31,
        1998 and incorporated herein by reference).

 10.26  Revolving Credit and Term Loan Agreement among MFIC Corporation and
        National Bank of Canada dated February 28, 2000.

 10.27  Revolving Credit Note of the Company in favor of National Bank of Canada
        in the amount of $4,000,000.00 dated February 28, 2000.

 10.28  Term Note of the Company in favor of National Bank of Canada in the
        amount of $475,000.00 dated February 28, 2000.

 10.29  Security Agreement of the Company in favor of National Bank of Canada
        dated February 28, 2000.

                                      F-22
<PAGE>


10.30   Trademark and Trademark Applications Security Agreement of the Company
        in favor of National Bank of Canada dated February 28, 2000.

10.31   Patent and Patent Applications Security Agreement of the Company in
        favor of National Bank of Canada dated February 28, 2000.

10.32   Unlimited Guaranty of Microfluidics Corporation in favor of National
        Bank of Canada Dated February 28, 2000.

10.33   Stock Pledge Agreement between the Company and National Bank of Canada
        dated February 28, 2000.

10.34   Subordination Agreement among the Company, Lake Shore Industries, Inc.
        and National Bank of Canada dated as of February 28, 2000.

10.35   Subordinated Promissory Note on the Company in favor of Lake Shore
        Industries, Inc. in the amount of $300,000.00 dated February 28, 2000.

10.36   Forbearance Agreements with Comerica.

10.37   Settlement Agreement dated January 17, 2000 by and among the Company,
        Bret A. Lewis, J. B. Jennings, Lake Shore Industries, Inc., and JLJ
        Properties, Inc., with $300,000 Subordinated Promissory Note dated
        February 28, 2000 issued by the Company to Lake Shore Industries, Inc.
        (FKA Epworth Manufacturing Company, Inc).

10.38   Letter dated December 31, 1999 from MFIC Corporation to Irwin J.
        Gruverman and G&G Diagnostics Corp.

10.39   Letter dated December 31, 1999 from MFIC Corporation to Irwin J.
        Gruverman.

*10.40  First Amendment to Revolving Credit and Term Loan Agreement between the
        Company and National Bank of Canada dated March 30, 2000.

*10.41  Lease between ABB and Microfluidics dated April 14, 2000 for space at
        Lampertheim, Germany

*10.42  Security agreement between MFIC Corporation and J.M. Huber Corporation
        dated October 18, 2000

*10.43  Settlement agreement between MFIC and J.M. Huber Corporation dated
        December 18, 2000.



                                      F-23
<PAGE>

*10.44  Termination agreement between Michael A. Lento and MFIC Corporation
        dated December 14, 2000.

*10.45  Letter dated December 31, 2000 from MFIC Corporation to Irwin J.
        Gruverman and G&G.

*10.46  Letter dated December 31, 2000 from MFIC Corporation to Irwin J.
        Gruverman.

*23(a)  Consent of Deloitte & Touche LLP

------------
*Filed herewith
**Management contracts or compensatory plan or arrangement required to be filed
  as an exhibit to this Form 10-K pursuant to of this report.

         (b)      Reports on Form 8-K.
                  None

         (c)      Exhibits.
                  The Company hereby files as part of this Form 10-K the
                  Exhibits listed in Item 14(a)(3) as set forth above.

         (d)      Financial Statement Schedules.
                  See (a)(2) above.


                                      F-24

<PAGE>


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Newton,
Commonwealth of Massachusetts, on the 26th day of March 2001.

                                MFIC CORPORATION

                                By:  /s/ Irwin J. Gruverman
                                     ----------------------
                                     Irwin J. Gruverman
                                     Chief Executive Officer


                                      F-25
<PAGE>

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


<TABLE>
<CAPTION>
Signature                                Title                                   Date
---------                                -----                                   ----

<S>                                      <C>                                     <C>
/s/ Irwin J. Gruverman                   Chief Executive Officer                 March 26, 2001
----------------------                   (Principal Executive Officer),
Irwin J. Gruverman                       Chairman of the Board of
                                         Directors and Secretary


/s/ James N. Little                      Director                                March 26, 2001
-------------------
James N. Little

/s/  Vincent Cortina                     Director                                March 26, 2001
--------------------
Vincent Cortina

/s/ Leo Pierre Roy                       Director                                March 26, 2001
------------------
Leo Pierre Roy

/s/Edward T. Paslawski                   Director                                March 26, 2001
----------------------
Edward T. Paslawski
</TABLE>

                                      F-26
<PAGE>


                                   SCHEDULE II

                                MFIC CORPORATION

                 Valuation and Qualifying Accounts and Reserves
              For the years ended December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                               Balance at   Additions Charged    Deductions      Balance at End
                                                              Beginning of     to Costs and          and           of Period
                                                                 Period          Expenses        Adjustments
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>                              <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000                            $65,321          $58,280           $(68,031)         $55,570
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1999                            100,000           18,291            (52,970)          65,321
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998--Note 1                     40,000           30,000             30,000          100,000
--------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
INVENTORY RESERVE
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000                            157,034           59,010            (22,000)         194,044
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1999                            147,034           10,000                 -           157,034
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998--Note 2                     82,000               -              65,034          147,034
--------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED AMORTIZATION RELATED TO GOODWILL AND OTHER
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000                         $1,021,718          526,653                  -       $1,548,371
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1999                            577,799          443,919                  -        1,021,718
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998                            379,549          198,250                  -          577,799
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Note 1: An amount totaling $30,000 was added to the allowance
         for doubtful accounts reserve as a result of the acquisition
         of Epworth Manufacturing and Morehouse--COWLES, Inc. on
         August 14, 1998.

         Note 2: An amount totaling $65,034 was added to the inventory
         reserve via the acquisition of Morehouse--COWLES, Inc. on
         August 14, 1998.



                                      S-1