<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                      For the Year Ended December 31, 2001
                          Commission File No. 33-90696

                         ANDEAN DEVELOPMENT CORPORATION
                 (Name of Small Business Issuer in Its Charter)

                FLORIDA                                    65-0420146
     (State of Other Jurisdiction of                   (I.R.S. Employer
     Incorporation or Organization)                   Identification No.)

  1224 Washington Avenue, Miami Beach, Florida                      33139
   (Address of Principal Executive Offices)                      (Zip Code)

                             1224 Washington Avenue
                           Miami Beach, Florida 33139
                                 (305) 866-3360
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

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

                         COMMON STOCK, $.0001 PAR VALUE
                                (Title of Class)

                    REDEEMABLE COMMON STOCK PURCHASE WARRANTS
                                (Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports, and (2) has
been subject to such filing requirements for the past 90 days.

Yes [X]  No [_]

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

     State issuer's revenues for its most recent fiscal year: $796,478.

<PAGE>

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 2002, computed by reference to the price at which
the stock was sold on that date: $64,807.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

     2,820,100 shares of Common Stock, $.0001 par value, as of December 31,
2001.

     Transitional Small Business Disclosure Format (check one)
     Yes [_] No [X]

DOCUMENTS INCORPORATED BY REFERENCE

     None

                                                                               2

<PAGE>

                         ANDEAN DEVELOPMENT CORPORATION
                              Report on Form 10KSB
                   For the Fiscal Year Ended December 31, 2001

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                            PAGE
<S>                                                                         <C>

                                     PART I

Item 1.   Description of the Business ......................................   4
Item 2.   Description of the Property ......................................  12
Item 3.   Legal Proceedings ................................................  13
Item 4.   Submission of Matters to Vote of Security Holders ................  13

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters .........  14
Item 6.   Management's Discussion and Analysis .............................  15
Item 7.   Financial Statements .............................................  22
Item 8.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure .............................................  23

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons .....  24
Item 10.  Executive Compensation ...........................................  26
Item 11.  Security Ownership of Certain Beneficial Owners And Management ...  27
Item 12.  Certain Relationships and Related Transactions ...................  28

                                     PART IV

Item 13.  Exhibits and Reports on Form 8-K .................................  28

Signatures .................................................................  30
</TABLE>

                                                                               3

<PAGE>

                                     PART I

                         ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

GENERAL

            Andean Development Corporation ("ADC" or the "Company") was
incorporated in Florida on October 19, 1994 and is presently a holding company
for Errazuriz y Asociados Ingenieros S.A. ("AE&A"), and E&A Ingesis S.A.
("INA"), both Chilean corporations located in Santiago, Chile. Except as
otherwise specifically noted, ADC, AE&A and INA are collectively referred to
herein as the "Company."

            AE&A provides engineering and project management services for water
and energy related private and public works and provides technical assistance
for both turnkey and non-turnkey major works, mainly related to the development
and construction of energy, water and sewage treatment projects in Chile. INA
acts as the agent in the sale of major electrical and mechanical equipment. See
"Core Business."

            INA is also developing, in a joint venture with genteAndina S.A.,a
Chilian company specializing in education ("genteAndina"), a communication
network and related software for (i) rural area remote education, and (ii) post
graduate professional education "at home" for Union leaders and key employees in
Chile, which, if successful, could be adopted and developed in other countries
in South America. On April 1, 2001, the Company executed an agreement with an
unrelated company, genteAndina, in which the Company has or will invest
approximately $500,000 in exchange for guaranteed interest income of 1/2%
monthly and 35% of the profits of genteAndina. genteAndina will continue
developing the software and projects previously undertaken by the Company. As of
December 31, 2001, approximately $425,000 was advanced to genteAndina under this
agreement and is included in deposits and other in the accompanying consolidated
financial statements.

               The Company, supported by the government of Chile and by certain
Chilean institutions, is developing at the Company's cost:

    .    Software to be used to educate the school populations of indigenous
         rural communities located in isolated areas in the mountains of Chile
         or close to its coast line, and

    .    Software to teach leadership, and other related matters, to union
         leaders in Chile, highly qualified employees of the government of
         Chile, and to certain private industries such as Corporacion del Cobre
         de Chile, Chilean Copper Corporation ("Codelco").

               The Company has entered into an agreement with Codelco, through
one of the Company's sponsoring institutions, Fundacion Tucapel Jimenez Alfaro,
by which the Company will provide educational services to union leaders at
Codelco's Andina Division. Codelco is the industry leader in the Chilean mining
industry and the Company anticipates, but cannot guarantee,

                                                                               4

<PAGE>

that once the Codelco project proves successful, other Chilean companies will
execute similar agreements.

            Currently, the Company is well positioned in its core business
segment to take advantage of an economic upturn in the large projects sector,
since the Company is well established in its marketplace and has maintained
customers who are established in their specialties.

            The Company is also the majority owner (83.6%) of a non-operating
subsidiary, Consonni USA, Inc. ("Consonni USA"), the assets of which consist of
cash and notes receivables. In 2000, the Company sold the operating subsidiary
of Consonni U.S.A., hereafter referred to as "Consonni".

            On August 31, 2001, the Company extended the expiration date of its
Redeemable Common Stock Purchase Warrants (the "Warrants") from November 13,
2001 to November 13, 2003. The Company originally issued the Warrants in
connection with a stock offering on Registration Statement Form SB-2 (SEC File
No. 333-90696) which was declared effective by the Securities and Exchange
Commission on November 13, 1996.

BACKGROUND

         The Company was incorporated as a Florida corporation on October 19,
1994 under the name "Igenor U.S.A., Inc." On January 10, 1995, the Company
changed its name to "Andean Development Corporation." The Company undertook a
reorganization upon the closing of its November 1996 initial public offering,
but which was given effect as of December 31, 1994, whereby AE&A and INA became
majority owned (99.99%) subsidiaries of the Company pursuant to share exchange
agreements. Chilean corporate law requires that a Chilean corporation have no
less than two different shareholders at any given time and thus, one share of
INA is owned by AE&A and one share of AE&A is owned by INA.

         AE&A was organized on February 28, 1991, in Santiago, Chile, as a
Chilean limited partnership under the name "Errazuriz y Asociados Ingenieros
Limitada." On September 21, 1994, AE&A was reorganized as a Chilean corporation
and its name was changed to "Errazuriz y Asociados Ingenieros S.A."

         INA was organized on June 11, 1986, in Santiago, Chile as a Chilean
limited partnership under the name "Ingenieria Norconsult Andina Limitada."
Initially INA was a joint venture between Norconsult SA, a worldwide engineering
consulting company based in Oslo, Norway ("Norconsult ") and Errazuriz y
Asociados Arquitectos S.A. ("EAA"). Norconsult subsequently sold its
participation to Igenor Ingenierie et Gestion, S.A., a Swiss corporation
("Igenor"). On September 15, 1994, pursuant to Chilean law, INA was reorganized
from a limited partnership to a Chilean corporation, and its name was changed to
"Igenor Andina S.A." In 2000, EAA sold its interests to INA.

HISTORY AND ECONOMIC OVERVIEW

         Since the inception of INA in 1986, the Company has expanded its
engineering and project management activities to the sale of equipment,
commercial work and to support of manufacturers or international consortiums in
the sale of large turnkey projects. Following its November 1996

                                                                               5

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initial public offering, the Company diversified its business. Pursuant to the
Company's initial business plan, and consistent with the strategy that the
Company initiated in 1996 of investing in businesses that should provide a
steady cash flow to offset the irregularity of the incomes of its core
business, the Company purchased interests in related and unrelated businesses.
For example, in 1997 the Company purchased an interest in Ingesis S.A., an
engineering company specializing in software and in Negociaciones y Servidumbre,
S. A., an engineering company specializing in evaluations and negotiations of
land needed for infrastructure projects; in 1998 the Company purchased an
interest in Construcciones Electromecanicas Consonni, S.A. ("Consonni"), a
manufacturing facility of industrial electric equipment. While not related to
the core business, the Company also diversified by purchasing an equity position
in a winery in 1997 and in a vineyard in 1998. The purpose of this equity
participation in those companies was to create in the medium term a steady cash
flow, an increase in the net revenues and, in general, to expand and diversify
the Company's business.

         The Company's services have historically been provided to both private
companies and governmental agencies, with most of the Company's revenues coming
from the private sector. Many of the largest utilities in Chile, Argentina and
Peru have been regular customers of the Company, such as ENDESA S.A., GENER
S.A., COLBUN S.A. (the three largest Chilean utilities); EDEGEL S.A., the
largest Peruvian utility and COSTANERA S.A. and CBA S.A. two very noteworthy
Argentinean utilities. Codelco (copper), Petrox S.A. (petrochemical) Puerto
Ventanas S.A. (a Chilean Port), among others, are regular customers of the
Company. The Company has also been a consultant to some multinational well-known
companies as Mitsubishi and Siemens.

         Through the Company's relationship with Consonni and its presence in
Spain, the Company developed customers in Spain, such as IBERDROLA S.A. and
other utilities and most of the major Spanish corporations in the petrochemical
and refineries industries, such as REPSOL S.A.

         While the Company generated some revenues during 1999 and 2000, due to
the impact of adverse economic conditions in the core business segment, the core
business incurred losses which were only partially compensated during 1999 by
the revenues obtained by Consonni.

         This business structure did not achieve the intended results.
Furthermore, shareholders of the Company expressed their objections to the
diversification of the Company under the then current business structure. It was
difficult and costly to manage geographically and across separate and distinct
markets. The legal and accounting expenses incurred in order to comply with
federal securities became excessive and while CONUSA generated revenues, it
failed to achieve the level of profitability that offset the additional costs
and management time that was required.

             In 2000, the Company has revised its business strategy:

          .    to simplify the Company's corporate structure by combining
               subsidiaries that had the same core business function (business
               derived from engineering and sales) but were historically
               organized as separate entities;

          .    to develop the educational software business of AE&A, which has
               the endorsement and support of the government of Chile; which
               management believes can be a source of substantial revenue and
               profits; and

                                                                               6

<PAGE>

           .   to sell all the Company's interests in Chilean subsidiaries whose
               business was inconsistent with the Company's core business and
               its new education software business.

            The result of the consolidation and sale of the Company's
subsidiaries is as follows:

                                                                      Ownership
             Subsidiary                   Domicile                    Percentage
             ----------                   --------                    ----------

Errazuriz y Asociados Ingenieros S.A.     Chilean Corporation            100%

E&A Ingesis S.A.                          Chilean Corporation            100%

CONUSA*                                   U.S. Corporation              83.6%

         *CONUSA's remaining assets consist of the balance of a promissory note
payable in the principal outstanding amount of $736,000 with eight remaining
payments of approximately ninety two thousand U.S. dollars (U.S. $92,000)
payable June 30 and January 31 of each year.

         The effect of revising the Company's business strategy has been to
accomplish the following:

            .   consolidate the Company's business activities as a means to make
                the Company more attractive to investors;

            .   reduce the enormous and redundant legal and auditing expenses
                for numerous subsidiaries located in three continents; and

            .   concentrate the attention of the Company's management and
                resources for the core business and the educational software
                business.

             Currently, the Company, is well positioned in the core business
segment to take advantage of an economic upturn in the large projects sector,
since the Company is well established in its marketplace and has maintained
customers who are established in their specialties. Furthermore, the Company has
invested a considerable amount of effort and financial resources in the
development of software through INA. (See "Business Strategy, 2. Educational
Software, Hardware and Communications, (ii) Post Grade professional education").

                                                                               7

<PAGE>

         BUSINESS STRATEGY: CORE BUSINESS

              The core business of the Company comprises of two major segments:
(i) Engineering and development of energy, water and sewage projects and (ii)
Education software, hardware and communications.

1.       Engineering

              (a) Energy. AE&A, in association with Norconsult, generates
revenues through the design, coordination, project management and quality
assurance of tunnels, material handling, civil works and power islands for
thermal and hydroelectric power plants. Management expects revenues to be
produced through joint ventures with large international consortiums in the
preparation of tenders for turnkey projects & public works. The Company's
services include forecasting of market trends, selection of secondary suppliers,
imparting knowledge of the decision making procedures and desired scheduling of
projects, advising on local materials, products, engineering and subcontractors
and coordination with the customer during the construction and commissioning
steps. In addition, although to a lesser extent, the Company has obtained some
direct representations in certain energy, water, and sewage projects. See "Major
Representations".

              (b) Water & Sewage. Management expects AE&A to generate revenue
through the design, construction, quality assurance and project management of
installations to produce drinkable water, treat sewage, dispose of waste,
industrial and chemical refuse and sewage, desalt sea water for industrial and
human use.

2.       Educational Software, Hardware & Communications.

              The Company is continuing to develop this segment. This
segment focuses on two separate but related subdivisions; (i) Rural area remote
education, and (ii) post grade professional education "at home" for Union
leaders and top employees.

(i).     Rural area remote education: The Company has completed the design, of a
         communication system that will provide high-speed connection to the
         Internet and to television in remote rural regions. The Company will
         also provide the preparation, training of users and maintenance of
         software dedicated to the transmittal of education information to
         remote regions.

(ii).    Post grade professional education "at home" for Union leaders and top
         employees: The Company completed its first experimental lessons for a
         group of 35 union leaders at Andina, one of the four mines of Codelco.
         The lessons were given during November and December, 2001 and the
         Company is expecting to start new operations during May, 2002,
         following the completion of this pilot project. The Company, through
         genteAndina and the "Fundacion Tucapel Jimenez", won a tender at the
         Chilian Ministerio del Trabajo to start lessons for Union leaders in 3
         Chilian cities, Santiago, Osorno and Antofagasta, in collaboration with
         four well known Chilean Universities. These lessons will start in May
         2002. management believes that these programs can be adapted and
         developed in other countries throughout South America

                                                                               8

<PAGE>

3.       Selected companies for which the Company has worked on a non-exclusive
         basis:


         ABB                               Energy            Hydro and Thermal
                                                             Power Plants

         ABB Solyvent Ventec               Mining            Blowers

         ABB Lummus                        Petrochemical     Polyethylene Plant

         Babcock & Wilcox, Cranes          Port              Cranes for bulk
                                                             cargo handling

         Babcock & Wilcox Espanola         Energy            Mejillones Power
                                                             Plant

         GEC Mechanical Handling           Ports             Cement Storage &
                                                             Conveyors

         Ibermatica S.A.                   Informatics       Education, Computer
                                                             Technology

         Mitsubishi Corporation            Energy            Thermoelectric CC
                                                             Power Plants

         Siemens A.G.                      Energy            Hydro and Thermal
                                                             Power Plants

         Westinghouse Electric Co.         Energy            Combined Cycle
                                                             Plants




4.       Major Representations

         Norconsult                               Norway            Engineering

         Pridesa, SA                              Spain             Water
                                                                    Treatments,
                                                                    Tailings

         TPO Ltd., Pratt & Whitney Div.           USA               Energy

         Union Espanola de Explosivos             Spain             Mining
                                                                    Explosives



5.       Recent Projects

                  The Company has a history of being associated with the main
contractor or supplier on numerous significant energy, water and sewage
projects. The Company's business associations have included Pangue, Bayesa, San
Ignacio, Nehuenco, Mejillones and Tocopilla in Chile; Yanango, Chimay and Santa
Rosa in Peru; and Central CBA and Costanera, in Argentina. The Company has also
been retained as a consultant or supplier to build new units related to these
projects.

                  In 2001, the Company participated in many projects, while many
others projects were postponed until 2002. Those more noteworthy projects in
2001 were:

                                                                               9

<PAGE>

     .   Costanera S.A., Maintenance Contract for
                the Power Plant                                     Started 2000

                Advisor for resolving coordination and
                customer requests


     .   Endesa Chile - Advisory for the deviation
                Dam, engineering                                    Started 2001

                Engineering related to Ralco Project.

     .   Endesa Chile - Engineering of a Tunnel System              Started 2001

                Main tunnel system of Pangue Project

     .   Polyethylene Plant for Petroquimica Cabo Negro             Started 2001

                Advisors, Chilean side for a project in
                Punta Arenas Chile.

     .   Codelco, genteAndina, Fundacion Tucapel Jimenez            Oct/Dec 2001

                2 months lessons for Union leaders
                (Andina Mine)

No assurances can be given however that these project will be finalized.

MARKETING AND SALES

         The Company's marketing and sales efforts are currently undertaken by
management, the Company's in-house engineers and other technical employees. A
substantial amount of the Company's marketing is accomplished by word of mouth,
personal contact, leads, and solicitation. The Company also uses written
marketing materials, including brochures, and does limited advertising in trade
journals and publications in Chile.

COMPETITION

         The Company believes that each aspect of its business is competitive
and that competition is based not only on price but also on quality of service.
The Company's competitors include a number of international companies with local
offices in Santiago, Chile. A number of the Company's competitors are better
capitalized, have more experienced management and may have greater access to
resources. While these larger competitors may bid on the same projects as the
Company, and although there can be no assurances that the offers will be
competitive, the Company believes that it has and will continue to participate
effectively in the bid process. To the Company's knowledge, the majority of its
competitors relies on the engineering expertise of local subcontractors (such as
the Company) or on engineering companies located abroad.

      The Company's remote education segment is, in the opinion of management,
unique in the market and does not have any competition as yet. Although
management believes that the

                                                                              10

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uniqueness of the education segment and the Company's dominance of this market
makes it unlikely or impracticable for a competitor to enter this market, it is
possible that a future competitor may offer an identical but similar product
that will compete with the Company. The Company is working with some private
corporations interested in the geographic area of the Mapuche Area (south of
Chile) to apply this idea to the education of this isolated and ignored
communities.

      Internet education to executives and employees of the Government and
industries has the special characteristic of being prepared and sponsored by the
Unions, the Government and some well known universities, like Universidad Padre
Hurtado and P. Universidad Catolica. These lessons are specially dedicated to
graduate degree students and to persons interested in information related with
the workers field. While there is considerable competition in the provision of
Internet based education to post graduates, management of the Company believe
that the Company's focus on a very specific market and the Company's support by
the Government, the Unions represented by Fundacion Tucapel Jimenez and the
Universities will provide the Company with a competitive advantage.

GOVERNMENT REGULATIONS

      The Company business in South America is subject to the normal range of
governmental regulations and supervision universally applicable to commercial
activities, including labor laws, social security laws, public health,
environmental laws, securities laws and anti-trust laws.

      Some of the activities of the Company, like sewage treatment and the
disposal of effluents from plants, installations of satellite or any other kind
of antennas, design of dams and design and construction of power or
communications lines, are subject to special regulations that vary from one
country to the other. This requires the Company to comply with each countries
unique rules and regulations. The Company obtains legal counsel specialized in
each jurisdiction's rules and regulations.

FOREIGN INVESTMENT LAWS AND REGULATIONS

      The Chilean Constitution requires that any citizen of their country or
foreigner may freely develop any activity in Chile so long as the activity in
that country does not contravene existing laws dealing with public morals,
public safety or national security and follows the laws that regulate such
activity. It also establishes the principle of non-discrimination, thus
guaranteeing foreign investors equal protection under their national laws.
Additionally, Chile's laws prohibit any discretionary acts by the government or
other entity against the rights of persons or property in derogation of this
principle. Foreign investors may transfer capital and net profits abroad. There
are no exchange control regulations which restrict the repatriation of the
investment or earnings except that the remittance of capital may take place
starting a year after the date the funds were brought into the country, but net
profits can be remitted at any time, after deduction of applicable withholding
income taxes. Therefore, equity investments in each respective country by
persons who are not residents of that country follow the same rules as
investments made by their citizens.

FOREIGN CORRUPT PRACTICES ACT

                                                                              11

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      Substantially all of the Company's operations are transacted in South
America. To the extent that the Company conducts operations and sells its
products outside the United States, the Company is subject to the Foreign
Corrupt Practices Act which makes it unlawful for any issuer to pay or offer to
pay any money or anything of value to any foreign official, foreign political
party or official thereof or any candidate for foreign political office
("Foreign Officials") or any person with knowledge that all or a portion of such
money or thing of value will be offered, given, or promised, directly or
indirectly, to any Foreign Official.

      The Company has not made any offers, payments, promises to pay, or
authorization of any money or anything of value to any Foreign Official and has
implemented a policy to be followed by its officers, directors, employees and
anyone acting on its behalf, that no such payments can or will be made. The
Company has made all employees cognizant of the need for compliance with the
Foreign Corrupt Practices Act and any violation of the Company policy results in
dismissal. Further, the Company conducts periodic reviews of this policy with
all employees to ensure full compliance.

EMPLOYEES

      As of December 31, 2001, the Company employed 14 full-time employees,
three of whom are managers, seven of whom are engineers/professionals and four
of whom are administrative employees. Employees of the Company are not
represented by labor unions. The Company considers its relationship with its
employees to be good.

ITEM 2. DESCRIPTION OF PROPERTY

Facilities

      The Company leases approximately 4,300 square feet of office in Santiago,
Chile. The lease commenced on November 1, 1997 and will terminate on October 30,
2005. Monthly rental payments were approximately $6,666. Rent expense for the
year ended December 31, 2000 totaled approximately $80,000.

      Current and future minimum rental payments under the lease are as
follows:

<TABLE>
<CAPTION>
               Year Ending                                   Annual
              December 31,                                  Payments
              ------------                                  --------
              <S>                                           <C>
                  2002                                      $ 80,000
                  2003                                        80,000
                  2004                                        80,000
                  2005                                        80,000
                  2006 and thereafter                         80,000
                                                            --------
                                                            $400,000
</TABLE>

                                                                              12

<PAGE>

      The Company leases a common space in Miami, Florida at a monthly rate of
$900. The lease commenced on June, 2000 and will terminate on June 30, 2002.

      The Company has relocated their corporate offices in the United States to
Miami Beach, Florida.

ITEM 3. LEGAL PROCEEDINGS

      The Company is not a party to any pending legal proceeding, the resolution
of which the management of the Company believes would have a material adverse
effect on the Company's results of operations or financial condition, nor to any
other pending legal proceedings other than ordinary, routine litigation
incidental to its business.

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

      None.

                                                                              13

<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Following the Company's initial public offering of its common stock, par
value $.0001 ("Common Stock"), and redeemable common stock purchase warrants
("Warrants") on October 29, 1996, the Company's Common Stock and Warrants were
traded principally on the National Association of Security Dealers Automatic
Quotation - Small Cap Market System under the symbols "ADCC" and "ADCCW",
respectively. On March 15, 2000, the Nasdaq Listing Qualifications Panel
delisted the Company's securities from the Nasdaq SmallCap Market. The
securities were then listed on the over-the-counter Bulletin Board until May 15,
2000. On May 15, 2000, the securities were delisted from the over-the-counter
Bulletin Board and the securities currently are listed on the "pink sheets."

      The following table sets forth the high and low bid quotations for the
Common Stock and Warrants for the periods indicated, as reported by NASDAQ or as
reflected in the "pink sheets." These quotations reflect prices between dealers,
do not include retail mark-ups, markdowns or commissions and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
                              Common Stock                   Warrants
                           ------------------            -----------------
      Period                 High       Low               High        Low
      ------               -------     ------            ------      -----
<S>                        <C>         <C>               <C>         <C>
Quarter ended on:
March 31, 2000             1-11/16      1-/32             10/32       3/32
June 30, 2000               1-1/32       3/16               5/8      1/128
September 30, 2000             5/8        3/8             1/128      1/128
December 31, 2000            19/32       3/16             1/128      1/128
March 31, 2001                $.25       $.14             10/32       3/32
June 30, 2001                 $.14       $.10               5/8      1/128
September 30, 2001            $.14       $.06             1/128      1/128
December 31, 2001             $.12       $.04             1/128      1/128
</TABLE>

      On December 31, 2001, the closing bid price for the Common Stock was $.05,
and 1/128 for the Warrants.

      In 1997, the Company declared dividends of $.10 per share which
approximated $282,000. In December 1997, the Company paid $137,000 of the
$282,000. The balance was paid on January 31, 1998. Also during 1998, the
Company declared dividends of $.20 per share to be paid in four installments on
dates to be determined by the Board of Directors of the Company. During July
1999, the first installment was paid ($.05 per share). On March 30, 2001, the
board of directors of the Company eliminated the payment of the accrued
dividends still outstanding of approximately $423,000, due to the decline in the
financial condition of the Company from the dates the dividends were declared.


                                                                              14

<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

      Management's Discussion and Analysis contains various "forward looking
statements" within the meaning of the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act 1995. Such statements consist of any statement other than
a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may", "expect", "anticipate", "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology.

      The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.

      The Company does not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by management of the
Company over time means that actual events are bearing out as estimated in such
forward-looking statements.

      The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
in Part II, Item 7 of this Report.

Results of Operations (2001 compared to 2000)

Gross Revenues, Costs of Operations and Gross Profit

Gross revenues. Gross revenues decreased from $2,759,417 in 2000 to $796,478 in
2001, a decrease of $1,962,939. The decrease in gross revenues is a result of
the sale of certain subsidiaries during fiscal 2000, general economic
conditions, including financial instability in Argentina and implementation of
the business strategy.

Cost of Operations. Cost of Operations decreased from $1,968,744 in 2000 to
$154,365 in 2001, a decrease of $1,814,379. This decrease comes primarily from a
decrease in operational costs following the sale of certain subsidiaries during
fiscal 2000 and a decrease of operational costs resulting from the
implementation of the business strategy.

Gross Profit. Gross profit decreased from $790,673 in 2000 to $642,113 in 2001,
a decrease of $148,560. The decrease in gross profit is a result of the sale of
certain subsidiaries during fiscal 2000 and the decrease in revenues and
operating costs as a result of the implementation of the business strategy.

Selling and Administrative Expenses, Incomes from Operations and Other Income
(Expenses)

Selling and Administrative Expenses. Selling and Administrative Expenses
decreased from $847,484 in 2000 to $388,941 in 2001, a decrease of $458,543.
This decrease is primarily a result

                                                                              15

<PAGE>

of the sale of certain subsidiaries during fiscal 2000 and the decrease in
revenues and operating costs as a result of the implementation of the business
strategy.

Income (Loss) from Operations. Income increased from a loss of ($56,811) in 2000
to income of $253,172 for 2001, a difference of $309,983 primarily from the sale
of certain subsidiaries during fiscal 2000 and a decrease of operational costs
resulting from the implementation of the business strategy.

Other Income (Expenses). Expenses decreased from $2,085,930 in 2000 to $671,804
in 2001, a decrease of $1,414,126. This decrease is primarily as a result of the
sale of certain subsidiaries during fiscal 2000 and the decrease in revenues and
operating costs as a result of the implementation of the business strategy.

Net Loss and Income Tax. Income taxes decreased from $27,682 in 2000 to none in
2001, a decrease of $27,682, primarily due to the decrease in gross revenues and
to the realization of previous years net operating losses.

Net Loss. Net loss decreased from a loss of $3,087,904 in 2000 to loss of
$404,355 in 2001, an difference of $3,492,259. This decrease in net loss is
primarily as a result of the sale of certain subsidiaries during fiscal 2000 and
the decrease in operating costs as a result of the implementation of the
business strategy.

Liquidity and Capital Resources

      The Company has financed its operations and other working capital
requirements principally from operating cash flow and bank financing.

Current Assets

Cash. As of December 31, 2001, the Company had $931 in cash as of December 31,
2001 as compared to $213,589 as of December 31, 2000, an decrease of $212,658.
This decrease in cash is a result of the decrease in revenues and operating
costs as a result of the implementation of the business strategy.

Accounts receivable. Accounts receivable decreased from $2,511,838 at December
31, 2000 to $185,687 at December 31, 2001, a decrease of $ 2,326,151. This was a
result of the sale of certain subsidiaries during fiscal 2000 and a decrease of
revenues as a result of the implementation of the business strategy.

Inventory and other current assets. As of December 31, 2000, the Company had
$51,408 in inventory as compared to none as of December 31, 2001, a decrease of
$51,408. This was a result of the sale of certain subsidiaries during fiscal
2000 and a consequence of the implementation of the business strategy.

Total Current Assets. As of December 31, 2000, the Company had $3,105,274 in
total assets as compared to $682,808 as of December 31, 2001, a decrease of
$2,422,466. This was a result of the sale of certain subsidiaries during fiscal
2000 and a decrease of revenues as a result of the implementation of the
business strategy.

                                                                              16

<PAGE>

Property, plant and equipment. Property, plant and equipment decreased from
$503,651 at December 31, 2001 to $379,842 at December 31, 2001, a decrease of
$123,809, primarily due to the sale of certain subsidiaries during fiscal 2000
and as a result of the implementation of the business strategy.

Other assets. Other assets decreased from $2,344,650 at December 31, 2000 to
$1,682,047 at December 31, 2001, a decrease of $662,603. This decrease is a
result of the implementation of the business strategy which does not include
investments in subsidiaries.

Liabilities

Current liabilities. Current liabilities decreased from $2,597,055 at December
31, 2000 to $217,673 at December 31, 2001 a decrease of $2,379,382. This
decrease is as a result of the sale of certain subsidiaries during fiscal 2000,
the business strategy of reducing debt through consolidation and limiting
expenditures, and a decrease in operating costs as a result of the
implementation of the business strategy.

Long-term liabilities. Long-term liabilities decreased from $495,382 at December
31, 2000 to $114,930 at December 31, 2001, a decrease of $380,452. This decrease
is a result of the sale of certain subsidiaries during fiscal 2000, the business
strategy of reducing debt through consolidation and limiting expenditures, and a
consequence of the implementation of the business strategy.

The Company anticipates that its cash requirements will increase during fiscal
2002 as a result of the implementation of the business strategy. The Company
will focus on its Core Business and increasing its revenues. The Company
currently anticipates that its available cash resources and cash generated from
operations will be sufficient to meet its presently anticipated working capital
and capital expenditure requirements for the next twelve months. As of December
31, 2001, there were no commitments for long term capital expenditures. If the
Company is unable to achieve profitability, or seeks further expansion,
additional funding will become necessary. No assurances can be given that either
equity or debt financing will be available.

Results of Operations (2000 compared to 1999)

Gross Revenues, Costs of Operations and Gross Profit

Gross revenues. Gross revenues decreased from $4,607,538 in 1999 to $2,759,417
in 2000, a decrease of $1,848,121. The decrease in gross revenues is a result of
the sale of certain subsidiaries during fiscal 2000.

Cost of Operations. Cost of Operations decreased from $3,240,902 in 1999 to
$1,968,744 in 2000, a decrease of $1,272,158. This decrease comes primarily from
a decrease in operational costs following the sale of certain subsidiaries
during fiscal 2000 and the decrease in revenues from Consonni.

                                                                              17

<PAGE>

Gross Profit. Gross profit decreased from $1,366,636 in 1999 to $790,673 in
2000, a decrease of $575,963. The decrease in gross profit is a result of the
sale of certain subsidiaries during fiscal 2000 and the decrease in revenues
from Consonni.

Selling and Administrative Expenses, Incomes from Operations and Other Income
(Expenses)

Selling and Administrative Expenses. Selling and Administrative Expenses
decreased from $2,002,628 in 1999 to $847,484 in 2000, a decrease of $1,155,144.
This decrease is primarily the result of the sale of certain subsidiaries during
fiscal 2000 and the decrease in revenues from Consonni.

Income (Loss) from Operations. Losses decreased from ($635,992) in 1999 to a
loss of ($56,811) in 2000, a decrease of $579,181 primarily from the sale of
certain subsidiaries during fiscal 2000 and increased revenues from the Chilean
operations.

Other Income (Expenses). Expenses decreased from $2,215,452 in 1999 to
$2,085,930 in 2000, a decrease of $129,522. Other income and expenses included a
write off of goodwill in the amount of $1,256,932 for the year ended December
31, 2000.

Net Income and Income Tax. Income taxes increased from $13,412 in 1999 to
$27,682 in 2000, an increase of $14,270.

Net Profit (Loss) Net losses increased from $2,961,591 in 1999 to $3,087,904 in
2000, an increase of $126,313, primarily from the loss on the sale of Consonni
of approximately $1,451,000 and writing off of goodwill for $1,256,932.

Liquidity and Capital Resources

      The Company has financed its operations and other working capital
requirements principally from operating cash flow and bank financing.

Current Assets

Cash and Short Term Investments. As of December 31, 2000, the Company had
$213,589 in cash as compared to $125,163 as of December 31, 1999, an increase of
$88,426. As of December 31, 2000, the Company had no short-term investments as
compared to $145,794 in December 31, 2000.

Accounts receivable. Accounts receivable decreased from $4,243,673 at December
31, 1999 to $2,511,838 at December 31, 2000. This was due to the decrease in
revenues during 2000 as a result of the sale of certain subsidiaries during
fiscal 2000.

Inventory and other current assets. As of December 31, 1999, the Company had
$923,393 in inventory as compared to $51,408 as of December 31, 2000, a decrease
of $871,985, due to the sale of certain subsidiaries during fiscal 2000.

Total Current Assets. As of December 31, 1999, the Company had $5,743,882 in
total assets as compared to $3,105,274 as of December 31, 2000, a decrease of
$2,638,608. This was primarily

                                                                              18

<PAGE>

due to the sale of certain subsidiaries during fiscal 2000 offset against the
receipt of promissory notes in the amounts of $194,809 and $148,000.

Property, plant and equipment. Property, plant and equipment decreased from
$3,362,741 at December 31, 1999 to $503,651 at December 31, 2000, a decrease of
$2,859,090, primarily due to the sale of certain subsidiaries during fiscal
2000, including Bodegas Garcia Errazuriz S.A. (the vineyard).

Other assets. Other assets decreased from $4,890,084 at December 31, 1999 to
$2,344,650 at December 31, 2000, a decrease of $2,545,434. This decrease is
primarily the result of a decrease in investments in subsidiaries in 2000, a
write off of goodwill, and the sale of subsidiaries during fiscal 2000.

Liabilities

Current liabilities. Current liabilities decreased from $4,542,524 at December
31, 1999 to $2,597,055 at December 31, 2000, a decrease of $1,945,469 of a
result of the sale of certain subsidiaries during fiscal 2000.

Long-term liabilities. Long-term liabilities decreased from $3,460,958 at
December 31, 1999 to $495,382 at December 31, 2000, a decrease of $2,965,576.
This decrease is a result of the sale of certain subsidiaries during fiscal
2000.

                                  RISK FACTORS

      The following risk factors, as well as the risks described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may cause actual results to differ materially from those in any
forward-looking statements contained in the MD&A or elsewhere in this report or
made in the future by the Company or its representatives. Such forward-looking
statements involve known risks, unknown risks and uncertainties and other
factors, which may cause the actual results, performance or achievements
expressed or implied by such forward-looking statements to differ significantly
from such forward looking statements.

Risk of Business Strategy

      Results of operations in the future will be influenced by numerous
factors, including market acceptance of the Company's products, particularly its
educational software, in Chile and possibly through South America, the Company's
capacity to develop and manage its projects, competition, and the ability of the
Company to control costs. The Company derives some of its revenues from
Argentina which has been adversely affected by Argentina's volatile economy and
political instability. There can be no assurance that revenue growth will be
sustained or that these products or businesses will be profitable. Additionally,
the Company will be subject to the entire risks incidental to a business
entering new markets. Accordingly, there can be no assurances that the Company
will be able to maintain its business strategy, expand its operations, or
develop and sustain profitable operations.

Reliance on Third Party Manufacturers May Disrupt Operations

                                                                              19

<PAGE>

      The core business of the Company does not manufacture or sell any
equipment. Rather, the Company, on a contract basis, relies on third-party
manufacturers for the equipment sold. Reliance on such manufacturers may subject
the Company to various risks associated with scheduling and timely production
and delivery of equipment, availability of completed products, as well as
administrative problems dealing with one or more manufacturers or suppliers.
These risks include, among others, the possibility of a change in the amount of
commission payable and a postponement of a commission owed to the Company. While
the Company has never been subject to any material disruptions in its
operations, any such disruption could have a material adverse effect on the
Company.

Competition

      In its core business, the Company is engaged in a highly competitive
segment of an industry which is very active and consistently attracts new
competitors. The Company, in its core business, competes directly or indirectly
with a number of companies, many of which are larger, better capitalized, more
established and have greater access to resources necessary to produce a
competitive advantage. The Company's major competitors represent well-known
manufacturers in Chile and include Gildemeister S.A.C. (Caterpillar), Sigdo
Koppers Comercial S.A.C. (Dresser International Bridgestone), Pfeninger and Co.
(Sulzer Escher Wyss, Joy Manufacturing) and the local offices of larger
manufacturers or traders such as Marubeni, Babcock Wilcox, Mitsubishi, General
Electric, and GEC Alsthom.

Control by Management and Present Shareholders of the Company

      Pedro Pablo Errazuriz, the President, Chief Executive Officer and Chairman
of the Board of the Company, and his immediate family, directly or indirectly,
own approximately 71% 55% of the Company's issued and outstanding Common stock.
Since holders of the Common Stock do not have any cumulative voting rights and
directors are elected by plurality vote, Mr. Errazuriz is in a position to
control the election of directors as well as the other affairs of the Company.

Dependence on Key Personnel

      The success of the Company is highly dependent upon the continued services
of Pedro Pablo Errazuriz and of Mr. Jose Luis Yrarrazaval, Vice Chairman of the
Board, Chief Financial Officer and Director. The loss of the services of any of
these individuals could have a material adverse effect on the business of the
Company.

      The Company's business strategy provides that, at the appropriate time and
once the Company has achieved consistent and sustainable significant revenues,
it will become necessary for the Company to hire additional experienced
professional individuals to meet its expanding needs. The Company intends to use
certain of its existing staff to perform a number of these duties and to
participate in the selection of new personnel, as required. Such individuals may
include engineers, technicians, management, marketing personnel or specialized
consultants. While the Company believes that by offering competitive salaries
and benefit packages, it will be able to solicit and hire qualified individuals,
no assurances can be made that such individuals will accept employment with the
Company or will continue to be employed by the Company, or that qualified
individuals will be available to the Company when needed.

                                                                              20

<PAGE>

Considerations Relating to Chile

      In the past, geopolitical frictions have existed between countries located
in the southern areas of South America, which includes Argentina, Brazil,
Bolivia, Chile, Paraguay, Peru and Uruguay (the "Southern Cone" countries). This
tension has resulted in difficulties in foreign trade, and particularly the
inherent adverse effects that may develop when goods (including equipment sold
through the Company) are delayed by customs. Additionally, there have been
problems with citizens of one Southern Cone country freely traveling to other
Southern Cone countries. Furthermore, countries have been reluctant to hire
nationals of one country for executive positions in other Southern Cone
countries.

      Although recently, travel and commerce among the Southern Cone countries
have become increasingly easier and the Company has not been adversely affected
by geopolitical, economical, legal or other problems inherent in doing business
with foreign countries, there can be no assurances that such problems will not
occur in the future.

Currency Fluctuations

      Economic policies in Chile and any future changes in the value of the
Chilean peso against the United States dollar could aversely affect the value of
the Company's common stock. The Chilean peso has been subject to large
devaluations in the past and may be subject to significant fluctuations in the
future.

      Currency fluctuations may have an effect on the Company's current
activities by the fact that the Company's operational expenses (costs) are tied
to the Chilean peso, while revenues are generally tied to the United States
dollar or other foreign currencies (depending from whom equipment is purchased
or for whom services are provided). A weakening of the United States dollar (or
other foreign currencies) against the Chilean peso means that while the
Company's revenues may remain unaffected by the weakening of the United States
dollar against the currencies, the Company's costs (which are paid in these
currencies) will increase. Conversely, if the Chilean peso is weak against
foreign currencies, the cost of local goods and services are less expensive.

While currency fluctuations have not had a material effect on the financial
condition of the Company, no assurances can be made that any such currency
fluctuation will not adversely affect the Company.

Foreign Corrupt Practices Act

      Substantially all of the Company's operations are transacted in South
America and Spain. To the extent that the Company conducts operations and sells
its products outside the United States, the Company is subject to the Foreign
Corrupt Practices Act which makes it unlawful for any issuer to corruptly pay or
offer to pay, any money or anything of value to any foreign official, foreign
political party or official thereof or any candidate for foreign political
office ("Foreign Officials") or any person with knowledge that all or a portion
of such money or thing of value will be offered, given, or promised, directly or
indirectly, to any Foreign Official.

Volatility of Stock Prices

                                                                              21

<PAGE>

      The over-the-counter markets for securities such as the Company's common
stock historically have experienced extreme price and volume fluctuations during
certain periods. Other factors that also may affect the market price of the
Company's common stock include, but are not limited to the following:

         .  New product developments

         .  Fluctuations in the financial markets

         .  Changes in market valuations of companies in our industry

         .  General economic conditions

         .  Quarterly variations in the Company's results of operations

         .  The loss of a major customers, suppliers or business partners

         .  The addition or departure of key personnel


There has been a limited trading market for the common stock of the Company.

      The Company's common stock is traded on the "pink sheets.". The common
stock has only a limited trading market. The Company cannot assure the
shareholders that a more active trading market will develop or, if developed,
that it will be maintained. As a result, a shareholder might find it difficult
to dispose of, or to obtain accurate quotations as to the value of, the common
stock.

The listing of the Company on the "pink sheets" subjects trading of the common
stock to additional regulations.

      Our common stock has a limited trading market as it is listed on the "pink
sheets" and the trading price of the common stock is less than $5.00 per share.
Trading in the common stock is therefore subject to the requirements of Rule
15g-9 promulgated under the Exchange Act. Under such rule, broker-dealers who
recommend low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. The
common stock is also subject to the Securities Enforcement Remedies and Penny
Stock Reform Act of 1990, which requires additional disclosure in connection
with any trades involving a stock defined as a penny stock (generally, according
to recent regulations adopted by the Securities and Exchange Commission, any
equity security not traded on an exchange or quoted on Nasdaq that has a market
price of less than $5.00 per share, subject to certain exceptions). Such
requirements could severely limit the market liquidity of the common stock.

ITEM 7. FINANCIAL STATEMENTS

See "Index to Financial Statements" for a description of the financial
statements included in this Form 10-KSB.

                                                                              22

<PAGE>

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

      None.

                                                                              23

<PAGE>

                                    PART III

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

EXECUTIVE OFFICERS AND DIRECTORS

The directors and executive officers are as follows:

<TABLE>
<CAPTION>
       NAME                        AGE                         POSITION
       ----                        ---                         --------
<S>                                <C>                  <C>
Pedro Pablo Errazuriz              65                   Chairman of the Board, Chief Executive Officer
Jose Luis Yrarrazaval              62                   Vice Chairman of the Board/Chief Financial
                                                        Officer/Secretary Director
Alberto Coddou                    63                    Director
Sergio Jimenez                    64                    Director
</TABLE>


PEDRO PABLO ERRAZURIZ has served as Chief Executive Officer and Chairman of the
Board of Directors of the Company since October 19, 1994, and its President
since January 11, 1995. He has also served as the President and sole Director of
Andean Export Corporation since February 9, 1995, and as Director of Andean
Engineering & Finance Corp. since its inception in July 1997. Mr. Errazuriz has
also served as Chairman of the Board of Directors of Kvaerner Chile S.A., a
subsidiary of Kvaerner A.S., a Norwegian-based manufacturer of electrical and
mechanical equipment) since 1992 and as the exclusive agent for Kvaerner Turbin
A.B. (Sweden) since 1994. Since 1986, Mr. Errazuriz has acted as an exclusive
agent in Chile for Norconsult. Mr. Errazuriz received an engineering degree from
the Catholic University of Chile in 1959.

JOSE LUIS YRARRAZAVAL has been a member of the Board of Directors of the Company
since March 20, 1995 and has served as Chief Financial Officer from March 20,
1995. In January, 1998, he was appointed Vice Chairman of the Board of Directors
of the Company. He also has served as Executive Vice President and a Director of
INA and AE&A since March 20, 1995. Between November 1993 and October 1997, Mr.
Yrarrazaval served as the General Manager of both AE&A and INA, which
responsibilities included all financial matters and personnel management.

ALBERTO CODDOU has served as a member of the Board of Directors of the Company
since March 20, 1995, and as a member of the Board of Directors of AE&A since
March 20, 1995. Mr. Coddou has been a partner with the law firm of Figueroa &
Coddou in Santiago, Chile since 1965. He has also been an Assistant Professor of
Law at the University of Chile, School of Law from 1959 through 1982. In May
1995, Mr. Coddou was appointed Chairman of the Board of Directors and Legal
Representative of Consorcio Periodistico de Chile S.A., the owners and editors
of a Chilean newspaper called La Epoca.

SERGIO JIMENEZ has served on the Board of Directors of the Company since March
20, 1995. Through June 1997 he was the President of the Santiago Water and
Sewage Company "EMOS". In June 1995, Mr. Jimenez was appointed as a member of
the Board of Directors of ENAP (Empresa

                                                                              24

<PAGE>

Nacional del Petroleo), the Chilean oil company owned by the government. Mr.
Jimenez is also a partner and Managing Director of Consultora Jimenez y Zanartu
Limitada, which consults on engineering projects for segments of the Chilean
government related to public works. Mr. Jimenez is a civil engineer, having
received his degree from the University of Chile, in Santiago and has a post
graduate degree in Project Evaluation from the University of Chile.

BOARD OF DIRECTORS

      Directors are elected at the Company's annual meeting of shareholders and
serve for one year until the next annual shareholders' meeting or until their
successors are elected and qualified. Officers are elected by the Board of
Directors and their terms of office are at the discretion of the Board. All of
the Company's executive officers are full-time employees of the Company. The
Company pays its Directors a fee of $1,000 per meeting attended, and reimburses
all Directors for their expenses in connection with their activities as
directors of the Company. Directors of the Company who are also employees of the
Company do not receive additional compensation for their services as directors.

COMMITTEES OF THE BOARD OF DIRECTORS

      The Company has five committees: the Audit Committee, Compensation and
Investment Committee, Nominating Committee, Employee Stock Option Committee, and
the Directors Stock Option Committee. As of December 31, 2001, the members of
these committees consisted of Jose Luis Yrarrazaval, Alberto Coddou and Sergio
Jimenez. Messrs. Coddou and Jimenez are considered by the Company to be
independent directors.

      The principal functions of the Audit Committees are to recommend the
annual appointment of the Company's auditors concerning the scope of the audit
and the results of their examination, to review and approve any material
accounting policy changes affecting the Company's operating results and to
review the Company's internal control procedures. The Investment and
Compensation Committee reviews and recommends investments, compensation and
benefits for the executives of the Company. The Nominating Committee seeks out
qualified persons to act as members the Company's Board of Directors. The
Employee Stock Option Committee and the Directors Stock Option Committee
administer and interpret the Company Stock Option Plan and the Directors Stock
Option Plan and are authorized to grant options pursuant to the terms of these
plans.

      During the year ended December 31, 2001, the Company's Board of Directors
held two meetings. All of the directors attended this meeting, either personally
or through telecommunications. During the year ended December 31, 2000 the
Investment and the Compensation Committee met two times. The functions of the
other committees were performed by the entire Board of Directors during 2001.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that the Company directors and executive officers, and persons who own more than
ten percent (10%) of the Company's outstanding common stock, file with the
Securities and Exchange Commission (the

                                                                              25

<PAGE>

"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock. Such persons are required by the Commission to furnish the
Company with copies of all such reports they file. The Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and written representation, as of December 31, 2000, all of the Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
Beneficial owners have been satisfied.

ITEM 10. EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS

      The following table sets forth compensation awarded to, earned by or paid
to the Company's Chief Executive Officer.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
NAME AND                                                                 OTHER ANNUAL
PRINCIPAL POSITION            YEAR        SALARY           BONUS         COMPENSATION
---------------------------  ------      ---------       --------      ----------------
<S>                          <C>         <C>             <C>           <C>
Pedro P. Errazuriz            2001        $ 0.00          $ 0.00        $   20,000.00*
  President                   2000        $ 0.00          $ 0.00        $   20,000.00*
  Chief Executive Officer     1999        $ 0.00          $ 0.00        $   20,000.00*
  Chairman
</TABLE>


      * This is allocated to an annual automobile allowance

INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS

      Pursuant to the Company's Stock Option Plan (the "Stock Option Plan") and
Directors Stock Option Plan (the "Directors Plan"), 175,000 shares of Common
Stock and 75,000 shares of Common Stock, respectively, are reserved for issuance
upon exercise of options. The Plans are designed to serve as an incentive for
retaining qualified and competent employees and directors. Both the Stock Option
Plan and the Directors Plan apply to Andean Development Corporation and each of
its subsidiaries. Only non-employee directors are eligible to receive options
under the Directors Plan.

      The Company's Board of Directors, or a committee thereof, administers and
interprets the Stock Option Plan and is authorized to grant options thereunder
to all eligible employees of the Company, including officers and directors
(whether or not employees) of the Company. The Stock Option Plan provides for
the granting of "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code), non-statutory stock options and "reload options."
Options may be granted under the Stock Option Plan on such terms and at such
prices as determined by the Board, or a committee thereof, except that in the
case of an incentive stock option granted to a 10% shareholder, the per share
exercise price will not be less than 110% of such fair market value. The
aggregate fair market value of the shares covered by incentive stock options
granted under the Plans that become exercisable by a grantee for the first time
in any calendar year is subject to a $100,000 limit.

                                                                              26

<PAGE>

      The purchase price for any option under the Stock Option Plan may be paid
in cash, in shares of Common Stock or such other consideration that is
acceptable to the Board of Directors or the committee thereof. If the exercise
price is paid in whole or in part in Common Stock, such exercise may result in
the issuance of additional options, known as "reload options," for the same
number of shares of Common Stock surrendered upon the exercise of the underlying
option. The reload option would be generally subject to the same provisions and
restrictions set forth in the Stock Option Plan as the underlying option except
as varied by the Board of Directors or the committee thereof. A reload option
enables the optionee to ultimately own the same number of shares as the optionee
would have owned if the optionee had exercised all options for cash.

      Options granted under the Stock Option Plan are exercisable after the
period or periods specified in the option agreement, and options granted under
the Directors Plan are exercisable immediately. Options granted under the Plans
are not exercisable after the expiration of five years from the date of grant
and are not transferable other than by will or by the laws of descent and
distribution. The Plans also authorize the Company to make loans to optionees to
enable them to exercise their options.

      No options have been issued under either plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of December 31, 2001, the number of
shares of Common Stock which were owned beneficially by (i) each person who is
known by the Company to own beneficially more than 5% of its Common Stock, (ii)
each director, (iii) each executive officer and (iv) all directors and executive
officers as a group. As of December 31, 2001, there were 2,820,100 shares issued
and outstanding.

<TABLE>
<CAPTION>
NAME AND ADDRESS                                 AMOUNT OF             PERCENT
OF BENEFICIAL OWNER(1)                          BENEFICIAL            OF CLASS(3)
                                               OWNERSHIP(2)
----------------------------------------- -----------------------     -----------
<S>                                       <C>                         <C>
Alberto Coddou(4)                                   0                    0%
Pedro P. Errazuriz(5)(7)                        1,511,500                53.6%
Sergio Jimenez                                      0                    0%
Jose Luis Yrarrazaval                             11,450                 *

All directors and executive officers
as a group (6 persons)                          1,522,950                 54.%
Igenor, Ingenierie et Gestion, S. A.(7)         1,425,000                50.5%
Berta Dominguez(6)(8)                           1,425,000                50.5%
</TABLE>

---------------
*Less than one percent.

                                                                              27

<PAGE>

(1) Unless otherwise indicated, the address of each beneficial owner is Avenida
Americo Vespucio Sur #100, Piso 16, Las Condes Santiago, Chile.

(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof. Based on 2,820,100
shares issued and outstanding as of the date hereof.

(3) Based on 2,820,100 issued and outstanding as of the date hereof.

(4) Mr. Coddou's address is Santa Lucia 280-OF.12, Santiago, Chile.

(5) Includes 1,450,000 shares of Common Stock owned by Igenor, Ingenierie et
Gestion, S.A., a Swiss corporation ("Igenor") of which Mr. Pedro P. Errazuriz
owns 50% the outstanding capital stock. Also includes 86,500 shares of Common
Stock owned directly by Mr. Pedro P. Errazuriz.

(6) The principal shareholders of Igenor are Mr. Pedro P. Errazuriz (50%), the
Chairman of the Company's Board of Directors; Mrs. Berta Dominguez (49.50%), the
wife of Mr. Pedro P. Errazuriz; Mr. Pedro Pablo Errazuriz Dominguez, a son of
Mr. Pedro P. Errazuriz and Mrs. Berta Dominguez (0.25%); and Pierre Yves
Montavon (0.25%), an unrelated third party. The address for this company is c/o
Etude Montavan-Mermier, 22, rue Etienne Dumont, 1211 Geneve 3, Switzerland.

(7) Consists of 1,425,000 shares of Common Stock owned by Igenor, of which Mrs.
Berta Dominguez owns 49.50% of the outstanding capital stock. Mrs. Berta
Dominguez is the wife of Mr. Pedro P. Errazuriz, the Company's Chairman of the
Board of Directors.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions Between the Company and its Officers, Directors and Affiliates

    The Company held a note receivable from Mr. Errazuriz, the Company's
Chairman of the Board. The original note balance amounted to $606,031 payable in
four annual installments with interest at 8-1/2% per year beginning January 15,
1998. As of December 31, 2000, the balance of this note approximated $214,000.
The balance on the note was collected during 2001.

    All transactions between the Company and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
the Company than those available from unaffiliated parties.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

The following documents are filed as a part of this report or are incorporated
by reference to previous filings, if so indicated:

(a) Exhibits

3.1 Company's Amended and Restated Articles of Incorporation(1)

                                                                             28

<PAGE>

3.2        Company's Revised Amended and Restated Bylaws(1)
4.1        Form of Warrant Agreement together with the form of Warrant
           Certificate(1)
4.1(a)     Revised Form of Warrant Agreement together with the form of Warrant
           Certificate(1)
4.2        Revised Form of Representatives' Warrant Agreement together with the
           revised Form of Representatives' Purchase Warrant Certificate(1)
4.2(a)     Form of Representatives Warrant and Registration Rights Agreement
           together with the revised Form of Representatives' Purchase Warrant
           Certificate(1)
4.2(b)     Revised Form of Representative's Warrant Agreement together with the
           revised Form of Representative's Purchase Warrant Certificate(1)
4.3        Specimen of Common Stock Certificate.(1)
4.4        Specimen of Warrant Certificate (to be included in the revised Form
           of Warrant Agreement in Exhibit 4.1(a) (1)
4.4(b)     Specimen of Warrant Certificate (to be included in the revised Form
           of Warrant Agreement in Exhibit 4.2(b) (1)
10.1       Stock Option Plan(1)
10.1(a)    Revised Stock Option Plan(1)
10.2       Directors Stock Option Plan(1)
10.2(a)    Revised Directors Stock Option Plan(1)
10.4       Agreement between ESSAN and Bayesa for the Final Disposal of the
           Antofagasta Sewage (New translation with Appendices No. 1-5 but
           without maps)(1)
10.19      Letter from Westinghouse Electric Corporation to the Company, dated
           July 31, 1995.(1)
10.19(a)   Special Sales Representative Agreement between Westinghouse Electric
           Company S.A. and Errazuriz Y Asociados
           Ingenieros S.A.(1)
10.20      Credit Line Agreement between Bayesa and Banco Security, dated July
           19, 1995.(1)
10.21      Buy/Sell of Shares, Concession of Rights, Commitments To Social
           Modifications and Changes in Debt Balances between C.E. Consonni &
           Ecesa.(2)
21         Subsidiaries of Registrant(1)
23.1       Consent of Independent Auditors(3)

(1)        Incorporated by reference from the Company's Registration Statement,
           as amended, on Form SB-2 filed with the Securities and Exchange
           Commission and declared effective on October 29, 1996.
(2)        Filed as exhibit 2.1 to the Company's Form 8-K dated March 26, 2001
           and incorporated herein by reference.
(3)        Filed herewith.

(b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K during
the fourth quarter of the year ended December 31, 2001.

                                                                            29

<PAGE>

                                   SIGNATURES

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

      Andean Development Corporation

      By: /s/ Pedro P. Errazuriz
         ---------------------------
      Pedro P. Errazuriz, President, Chief Executive Officer

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

Dated:  April 11, 2002               By: /s/ Pedro P. Errazuriz
                                         ---------------------------------------
                                         Pedro P. Errazuriz, President, Chief
                                         Executive Officer and Chairman of the
                                         Board of Directors (Principal executive
                                         officer)

Dated: April 11, 2002                By: /s/ Jose Luis Yrarrazaval
                                         ---------------------------------------
                                         Jose Luis Yrarrazaval, Chief Financial
                                         Officer, Secretary and Director
                                         (Principal financial and accounting
                                         officer)

Dated: April 11, 2002                By: /s/ Alberto Coddou
                                         ---------------------------------------
                                         Alberto Coddou, Director

Dated: April 11, 2002                By: /s/ Sergio Jimenez
                                         ---------------------------------------
                                         Sergio Jimenez, Director

                                                                             30

<PAGE>

                         ANDEAN DEVELOPMENT CORPORATION
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

                                                                             31







<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 AND 2000


                                                                            Page
                                                                            ----

Independent Auditors' Report ................................................F-2

Consolidated Balance Sheets .................................................F-3

Consolidated Statements of Operations .......................................F-5

Consolidated Statements of Shareholders' Equity .............................F-6

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

Notes to Consolidated Financial Statements ..................................F-9

                                                                             32

<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

To the Board of Directors and Shareholders
of Andean Development Corporation and Subsidiaries
Miami, Florida

We have audited the accompanying consolidated balance sheets of Andean
Development Corporation and Subsidiaries (the "Company") as of December 31, 2001
and 2000 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Andean Development
Corporation and Subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.




Miami, Florida
March 22, 2002

                                                                            33

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 2001 and 2000



                                   A S S E T S
<TABLE>
<CAPTION>

                                                                2001                         2000
                                                         ------------------           ------------------
<S>                                                      <C>                          <C>
Current Assets:
   Cash                                                   $            931             $        213,589
   Accounts receivable                                             185,687                    2,511,838
   Notes receivable                                                435,911                      148,000
   Inventory                                                            -                        51,408
   Other current assets                                            168,279                      180,439
                                                          ----------------             ----------------

         Total Current Assets                                      790,808                    3,105,274
                                                          ----------------             ----------------

Property, Plant and Equipment, net                                 379,842                      503,651
                                                          ----------------             ----------------

Other Assets:
   Goodwill                                                             -                       205,157
   Notes receivable from related parties and other               1,631,273                    1,739,558
   Investments in unconsolidated subsidiaries                        2,543                      243,168
   Deposits and other                                              425,251                      156,767
                                                          ----------------             ----------------

                                                                 2,059,067                    2,344,650
                                                          ----------------             ----------------

                                                          $      3,229,717             $      5,953,575
                                                          ================             ================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                             34


<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                     Consolidated Balance Sheets (Continued)

                           December 31, 2001 and 2000



                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                           2001                     2000
                                                                     ---------------           ---------------
<S>                                                                  <C>                       <C>
Current Liabilities:
   Obligations with banks                                              $     35,310             $     989,571
   Current maturities of long-term debt                                      34,923                        -
   Accounts payable and accrued expenses                                     98,237                 1,607,484
   Due to related parties                                                    49,203                        -
                                                                       ------------             -------------

         Total Current Liabilities                                          217,673                 2,597,055
                                                                       ------------             -------------

Long-Term Liabilities:
   Long-term debt, excluding current portion                                 75,503                        -
   Staff severance indemnities                                               39,427                    72,364
   Dividends payable                                                             -                    423,018
                                                                       ------------             -------------

                                                                            114,930                   495,382
                                                                       ------------             -------------

Minority Interest                                                           196,019                   572,182
                                                                       ------------             -------------

Shareholders' Equity:
   Preferred stock, $.0001 par value, 5,000,000 shares
     authorized, no shares issued and outstanding                                -                         -
   Common stock, $.0001 par value, 20,000,000 shares
    authorized, 2,820,100 shares issued and outstanding                         282                       282
   Additional paid-in capital                                             5,660,187                 5,724,320
   Accumulated deficit                                                   (2,620,489)               (3,124,172)
   Accumulated other comprehensive income (loss)                           (338,885)                 (311,474)
                                                                       ------------             -------------

         Total Shareholders' Equity                                       2,701,095                 2,288,956
                                                                       ------------             -------------

                                                                       $  3,229,717             $   5,953,575
                                                                       ============             =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                             35

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations

                     Years Ended December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                                                                  2001                        2000
                                                                         ------------------          -----------------
<S>                                                                      <C>                         <C>
Revenues                                                                 $          796,478          $       2,759,417
Cost of Operations                                                                  154,365                  1,968,744
                                                                         ------------------          -----------------

Gross Profit                                                                        642,113                    790,673
Selling and Administrative Expenses                                                 388,941                    847,484
                                                                         ------------------          -----------------
                                                                                    253,172                    (56,811)
                                                                         ------------------          -----------------
Other Income (Expense):
   Interest income (expense), net                                                   (17,766)                   (98,303)
   Equity in earnings from unconsolidated subsidiaries                                    -                     96,168
   Impairment of goodwill                                                                 -                 (1,256,932)
   Other                                                                            (87,674)                  (484,583)
   Depreciation and amortization                                                    (81,344)                  (342,280)
                                                                         ------------------          -----------------
                                                                                   (186,784)                (2,085,930)
                                                                         ------------------          -----------------

Income (Loss) from Continuing Operations Before
  Income Taxes and Minority Interest                                                 66,388                 (2,142,741)
Income Taxes                                                                              -                     27,682
                                                                         ------------------          -----------------

Income (Loss) from Continuing Operations                                             66,388                 (2,170,423)

Discontinued Operations (See Note 7):
   Income from operations, net                                                            -                    501,301
   Loss on sale, net                                                                      -                 (1,450,522)
                                                                         ------------------          -----------------
         Total Loss from Discontinued Operations                                          -                   (949,221)
                                                                         ------------------          -----------------

Income (Loss) Before Minority Interest                                               66,388                 (3,119,644)
Minority Interest                                                                    14,277                     31,740
                                                                         ------------------          -----------------

Net Income (Loss)                                                                    80,665                 (3,087,904)

Other Comprehensive Income (Loss):
   Foreign currency translation adjustment                                          (26,710)                   (75,923)
                                                                         ------------------          -----------------

Comprehensive Income (Loss)                                              $           53,955          $      (3,163,827)
                                                                         ==================          =================

Per Common Share:
   Net Income (Loss) From Continuing Operations                          $            0.024          $           (0.77)
   Discontinued Operations, net                                                           -                      (0.34)
   Minority Interest                                                                  0.005                       0.01
                                                                         ------------------          -----------------
Net Loss Per Share - Basic                                               $            0.029          $           (1.10)
                                                                         ==================          =================

Weighted Average Shares Outstanding - Basic                                       2,820,100                  2,820,100
                                                                         ==================          =================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              36

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                 Consolidated Statements of Shareholders' Equity

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                            Retained Earnings   Accumulated Other        Total
                                           Common            Additional       (Accumulated        Comprehensive       Shareholders'
                                            Stock          Paid-In Capital       Deficit)         Income (Loss)          Equity
                                         ------------      ---------------  -----------------   -----------------   ---------------
<S>                                      <C>               <C>              <C>                 <C>                 <C>
Balance at December 31, 1999             $        282      $    5,724,320     $      (36,268)   $      (235,551)    $     5,452,783

Net loss                                            -                   -         (3,087,904)                 -          (3,087,904)

Foreign currency translation adjustment             -                   -                  -            (75,923)            (75,923)
                                         ------------      --------------     --------------    ---------------     ---------------

Balance at December 31, 2000                      282           5,724,320         (3,124,172)          (311,474)          2,288,956

Net income                                          -                   -             80,665                  -              80,665

Rescinded dividends                                 -                   -            423,018                  -             423,018

Adjustment to additional paid-in capital
  in acquisition of treasury stock                  -             (64,133)                 -                  -             (64,133)

Foreign currency translation adjustment             -                   -                  -            (27,411)            (27,411)
                                         ------------      --------------     --------------    ---------------     ---------------

Balance at December 31, 2001             $        282      $    5,660,187     $   (2,620,489)   $      (338,885)    $     2,701,095
                                         ============      ==============     ==============    ===============     ===============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              37

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                    2001                        2000
                                                                             ----------------             ---------------
<S>                                                                        <C>                          <C>
Cash Flows from Operating Activities:
   Net income (loss)                                                          $        80,665              $   (3,087,904)
   Income from discontinued operations                                                      -                    (501,301)
   Loss on sale of discontinued operations                                                  -                   1,450,522
   Minority interest                                                                 (376,163)                    (31,740)
                                                                             ----------------             ---------------

                                                                                     (295,498)                 (2,170,423)
   Adjustments to reconcile net loss to net cash
    provided by operating activities:
     Depreciation and amortization                                                     81,344                     342,280
     Equity in earnings from unconsolidated subsidiaries                                    -                      96,168
     Impairment of goodwill                                                                 -                   1,256,932
     Foreign currency translation adjustment                                          (27,411)                    (75,923)
     Changes in assets and liabilities:
       (Increase) decrease in:
         Accounts receivable                                                        2,326,151                     674,278
         Notes receivable                                                            (287,911)                    313,500
         Inventory                                                                     51,408                     (15,501)
         Other current assets                                                          12,160                     113,005
         Deferred charges                                                                   -                     138,984
         Deposits and other                                                           (63,327)                    158,054
       Increase (decrease) in:
         Accounts payable and accrued expenses                                     (1,509,247)                    804,126
         Deferred revenue                                                                   -                    (511,489)
         Staff severance indemnities                                                  (32,937)                    (29,267)
         Income taxes payable                                                               -                      22,178
                                                                             ----------------             ---------------

Net Cash Provided by Operating Activities                                             254,732                   1,116,902
                                                                             ----------------             ---------------

Cash Flows from Investing Activities:
   Purchase of property, plant and equipment                                          (18,932)                     (1,542)
   Sale of real estate held for investment                                                  -                      96,872
   Investments in unconsolidated subsidiaries                                         302,022                     149,267
   Proceeds from (purchase of) short-term investments                                       -                      60,058
                                                                             ----------------             ---------------

Net Cash Provided by (Used in) Investing Activities                                   283,090                     304,655
                                                                             ----------------             ---------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              38

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (Continued)

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                  2001                         2000
                                                                             ----------------             ---------------
<S>                                                                          <C>                         <C>
Cash Flows from Financing Activities:
   Net proceeds (payments to) from related parties                           $        157,488            $       (601,216)
   Net (repayments) proceeds from obligations with bank                              (954,261)                    548,018
   Adjustment to additional paid-in capital                                           (64,133)                          -
   Principal payments on long-term debt                                                     -                  (1,279,933)
   Proceeds from long-term debt                                                       110,426                           -

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

Net Cash Used in Financing Activities                                                (750,480)                 (1,333,131)
                                                                             ----------------            ----------------

Net (Decrease) Increase in Cash                                                      (212,658)                     88,426

Cash at Beginning of Year                                                             213,589                     125,163
                                                                             ----------------            ----------------

Cash at End of Year                                                          $            931            $        213,589
                                                                             ================            ================


Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for interest                                    $         17,766            $        148,998
                                                                             ================           =================


   Net assets disposed of on sale of discontinued operations:
     Property, plant and equipment                                           $         57,096            $      2,516,810
     Goodwill                                                                               -                   1,169,270
     Due to public entities                                                                 -                  (3,327,290)
                                                                             ----------------            ----------------

                                                                             $         57,096            $        358,790
                                                                             ================            ================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              39

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                     Years Ended December 31, 2001 and 2000


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization - Andean Development Corporation ("ADC" or the "Company")
         ------------
         was incorporated in the State of Florida on October 19, 1994. ADC
         operates its lines of business principally in Chile, Peru, Argentina
         and Spain. The Company provides engineering and project management
         services for energy and private works projects and sells, as agent,
         major electrical and mechanical equipment. The Company also advises and
         assists large private utilities and government agencies in obtaining
         land easements from private owners for installation of electrical
         lines, sewer plant infrastructure, piping and roads and develops
         educational and training software.

         Basis of Presentation - The accompanying consolidated financial
         ---------------------
         statements include the accounts of ADC and the following consolidated
         subsidiaries:

<TABLE>
<CAPTION>
                                                                                              Ownership
                                Subsidiary                              Domicile             Percentage
                                ----------                              --------             ----------
<S>                                                                     <C>                  <C>
         Errazuriz y Asociados Ingenieros, S. A. ("EAI")                  Chile                 100%
          Chilean Corporation

         Errazuriz y Asociados Ingenis, S.A.                              Chile                 100%
          ("E&A Ingesis, S.A.") Chilean Corporation

         CONUSA* U.S. Corporation                                         Spain                83.6%
</TABLE>

         *CONUSA owns a 19% interest in Consonni (located in Bilbao, Spain) and
         a 92% interest in Equipos de Control Electrico S.A. ("ECESA").

         ADC and the above subsidiaries are collectively referred to as the
         Company. All significant intercompany balances and transactions have
         been eliminated in consolidation.

         During 2000, the Company sold 100% of its ownership in the following
         previously consolidated subsidiaries:

         . June 30, 2000 - Aguas y Ecologia, S. A., Negociaciones y Servidumbre,
           S. A. and Nysacar, S. A.

         . August 31, 2000 - Bodegas Garcia Errazuriz, S. A.




The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              40

<PAGE>

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
              (Continued)

         On December 12, 2000, Consonni USA, Inc. ("CONUSA"), a 83.6% owned
         subsidiary of the Registrant, sold approximately 78% of its capital
         stock in Construcciones Electromecanicas Consonni, S.A. ("Consonni") to
         unrelated minority shareholders of Consonni. The purchase price was
         approximately U.S. $1,200,000. As a consequence of this transaction,
         CONUSA will retain only a 19% equity interest in Consonni.

         The initial payment of approximately $266,700 has been received by
         CONUSA. The balance is to be paid to CONUSA over five years as follows:

         Approximately $80,000 on June 20, 2001; and

         Nine semiannually payments of approximately $85,000 commencing December
         2001

         The Company recognized a loss of approximately $1,451,000 on the sale
         of its interest in Consonni and income from discontinued operations of
         approximately $501,000, which are stated separately in the accompanying
         consolidated statements of operations. In addition, as a result of the
         sale, the remaining goodwill of $1,256,932, connected with the original
         acquisition of Consonni, was considered impaired and written off.

         In addition, The Company consolidated its subsidiaries Errazuriz y
         Asociados Division Comercial S.A., Ingesis S.A. and Igenor Andina S.A.
         into one company, named E&A Ingesis S.A. E&A Ingesis S.A. will
         concentrate its business on the education segment of the Company. The
         engineering activities shall be conducted through Errazuriz y Asociados
         Ingenieros S.A. and the Spanish sales and trading will continue to be
         operated by ECESA.

         The Company's proportionate share of income or loss for subsidiaries
         sold during the year is included in the accompanying consolidated
         statements of operations as discontinued operations.

         Functional Currency - The consolidated financial statements have been
         -------------------
         translated in accordance with the provisions set forth in Statement of
         Financial Accounting Standards No. 52, from Chilean pesos and Spanish
         pesetas (the functional currencies) into U.S. dollars (the reporting
         currency). The exchange rate used at December 31, 2001 and 2000 for
         assets and liabilities was 656.20 and 573.73 Chilean pesos to U.S.
         $1.00, respectively, and 187.84 and 176.68 Spanish pesetas to U.S.
         $1.00, respectively. Shareholders' equity and components are translated
         at historical rates. The weighted average exchange rates used during
         the years ended December 31, 2001 and 2000, respectively, for results
         of operations were 643.09 and 537.64 Chilean pesos to U.S. $1.00,
         respectively, and 185.85 and 179.86 Spanish pesetas to U.S. $1.00,
         respectively. The effects of exchange rate changes are reflected as a
         separate component of shareholders' equity.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              41

<PAGE>

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
              (Continued)

         Revenue Recognition - The Company earns revenue principally from
         -------------------
         commissions associated with the sale of equipment and from fees for the
         performance of engineering services and providing technical assistance
         in the development of specialized projects.

         Revenues for fees associated with services are recognized when
         performed and are based on standard billing rates.

         The Company earns commissions on the sale of equipment. For turnkey
         jobs, commissions are earned when the contracts are signed and "Orders
         to Proceed" are issued. In some instances, due to the significant time
         the Company is required to wait for payment, commissions that the
         Company initially believed it had earned are changed. Due to the
         Company's inability to determine the amount of commissions, the
         Company, commencing in 1999, recognizes commissions only when they are
         received. This change in policy is not deemed to have a material impact
         on the Company's consolidated financial statements.

         Concentrations of Credit Risk - Financial instruments which potentially
         -----------------------------
         subject the Company to concentrations of credit risk consist
         principally of cash, periodic temporary investments of excess cash, and
         trade receivables. The Company places its cash with high credit quality
         financial institutions. A significant portion of the Company's sales
         are to several large customers and, as such, the Company is directly
         affected by the well-being of those customers. However, the credit risk
         associated with trade receivables is minimal due to the significant
         size of the Company's customers and the Company's ongoing efforts to
         monitor the credit worthiness of its customers.

         Fair Values of Financial Instruments - The fair value of a financial
         ------------------------------------
         instrument is the amount at which the instrument could be exchanged in
         a current transaction between willing parties. The fair value of cash,
         short-term investments, accounts receivable, notes receivable, accounts
         payable and notes payable approximate the carrying amounts at December
         31, 2001 and 2000.

         Property, Plant and Equipment - Property, plant and equipment are
         -----------------------------
         recorded at cost. Depreciation is computed using the straight-line
         method over the estimated useful lives of the assets, usually five to
         seven years.

         Staff Severance Indemnities - The Company provides for certain lump sum
         ---------------------------
         severance indemnities that are required to be paid by Chilean law to
         its employees at the end of their employment. The obligation is
         calculated based on the present value of the vested benefits to which
         an employee is entitled, the expected service lives of the employees
         and current salary levels. The Company believes that the above
         calculation is not materially different from the calculation required
         by SFAS 87, which would reflect expected future salary increases.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              42

<PAGE>

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
              (Continued)

         Foreign Operations - The Company is a holding company for foreign
         ------------------
         entities, operating primarily in South America and Spain. In South
         America and Spain, the potential for both economic and political change
         in the business environment is different from that of the United
         States. Therefore, the Company's results of operations and financial
         position could be materially affected by sudden changes in the business
         and political environments in the countries that the Company operates.

         Income Taxes - Deferred tax assets and liabilities are recognized for
         ------------
         the future income tax consequences attributable to the differences
         between the financial statement carrying amounts of existing assets and
         liabilities and their respective income tax bases. Deferred tax assets
         and liabilities are measured using enacted tax rates expected to apply
         to taxable income in the years in which those temporary differences are
         expected to be recovered or settled. The effect on deferred tax assets
         and liabilities of a change in tax rates is recognized as income or
         loss in the period that includes the enactment date.

         Income tax expense totaled $-0- and $27,682 for the years ended
         December 31, 2001 and 2000, respectively.

         Earnings Per Common Share - Basic earnings per common share are based
         -------------------------
         on the weighted average number of shares outstanding of 2,820,100 for
         the years ended December 31, 2001 and 2000, after giving effect to
         common stock equivalents that would have a dilutive effect on earnings
         per share. Warrants issued with exercise prices greater than the
         existing market value of the Company stock are deemed anti-dilutive and
         are not components of earnings per share.

         Recent 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" ("SFAS 133"). SFAS 133 requires the recognition of
         the fair value of all derivative instruments on the balance sheet.
         Subsequent to the issuance of SFAS 133, the FASB received many requests
         to clarify certain issues causing difficulties in implementation. In
         June 2000, the FASB issued SFAS 138, which responds to those requests
         by amending certain provisions of SFAS 133. These amendments include
         allowing foreign-currency exposures that reduce the need for
         third-party derivatives and redefining the nature of interest rate risk
         to avoid sources of ineffectiveness. The impact of adopting SFAS 133,
         as amended by SFAS 138, is not significant.

         In February 1999, the Financial Accounting Standards board Issued
         Statement of Financial Accounting Standards No. 135 "Recission of FASB
         Statement No. 75 and Technical Corrections" which is effective for
         financial statements issued after February 15, 1999. There is no impact
         to the Company's financial reporting or presentation due to the
         adoption of SFAS No. 135.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              43

<PAGE>

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         In December 1999, the Securities and Exchange Commission issued Staff
         Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
         ("SAB 101"). SAB 101 provides guidance on the recognition, presentation
         and disclosure of revenues in financial statements and requires
         adoption no later than the fourth quarter of fiscal 2001. The Company
         is currently evaluating the impact of SAB 101 and its related
         interpretations to determine the effect it will have on the Company's
         consolidated financial position and results of operations.

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

         Reclassifications - Certain amounts in the 2000 consolidated financial
         -----------------
         statements have been reclassified for comparative purposes to conform
         with the presentation in the 2001 consolidated financial statements.

NOTE 2 - OTHER CURRENT ASSETS

         Other current assets consist of the following at December 31:

                                          2001                   2000
                                    ----------------       ---------------

         Recoverable taxes          $        154,386       $       158,013
         Other                                13,893                22,426
                                    ----------------       ---------------

                                    $        168,279       $       180,439
                                    ================       ===============



The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              44

<PAGE>

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET

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

<TABLE>
<CAPTION>
                                                           2001                   2000
                                                      ------------            ------------
<S>                                                   <C>                     <C>
         Vehicles                                     $    268,942            $    250,010
         Office equipment and computers                    144,755                 144,755
         Furniture, fixtures and improvements              371,795                 447,823
                                                      ------------            ------------

         Total property, plant and
           equipment, at cost                              785,492                 842,588

         Less accumulated depreciation
           and amortization                               (405,650)               (338,937)
                                                      ------------            ------------

                                                      $    379,842            $    503,651
                                                      ============            ============
</TABLE>

         Depreciation expense approximated $81,000 and $342,000 for the years
         ended December 31, 2001 and 2000, respectively.

NOTE 4 - RELATED PARTY TRANSACTIONS

         The Company conducts a substantial amount of its business with
         companies that are affiliated with shareholders of the Company. As a
         result, fees for services or commissions on sales have been received
         from or paid to affiliated companies.

NOTE 5 - NOTE RECEIVABLE FROM RELATED PARTY AND OTHER

         During 1997, the Company received a note from Pedro Pablo Errazuriz,
         the Company's Chairman of the Board, in the amount of $606,031, payable
         in four annual installments, plus interest at 8 1/2% per year,
         commencing January 15, 1998. The note was in exchange for the purchase
         of real estate. As of December 31, 2000, the balance of this note
         approximated $214,000. The balance on the note was collected during
         2001.

         The amounts due from the affiliated companies totaled $1,403,709 and
         $902,499 at December 31, 2001 and 2000, respectively. At December 31,
         2001, funds payable to affiliated companies totaled $49,203 (none in
         2000).

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              45

<PAGE>

NOTE 6 - DISCONTINUED OPERATIONS

         During the year 2000, the Company adopted a formal plan to sell the net
         assets of Consonni, S.A. and certain Chilean subsidiaries. The disposal
         date of Consonni was December 19, 2000.

         The following represents the results of operations of the discontinued
         subsidiaries during the year ended December 31, 2000:

<TABLE>
<CAPTION>
                                                 Consonni, S. A.             Combined
                                                     (Spain)           Chilean Subsidiaries        Total
                                                ------------------     ---------------------  ---------------
            <S>                                 <C>                    <C>                    <C>
            Revenues                            $    9,319,985         $       77,007         $    9,396,992
            Cost of sales                           (7,569,478)               (95,173)            (7,664,651)
                                                --------------         --------------         --------------

            Gross margin                             1,750,507                (18,166)             1,732,341

            General and administrative
              expenses                                (864,500)               (49,261)              (913,761)

            Other - net                               (379,868)                62,589               (317,279)
                                                --------------         --------------         --------------

            Net income (loss) from
             discontinued operations            $      506,139         $       (4,838)        $      501,301
                                               ==============         ==============         ==============
</TABLE>

NOTE 7 - OBLIGATION WITH BANKS

         Obligations with banks consist of lines-of-credit with local Chilean
         banks. Interest rates on all lines-of-credit are based on the
         Asociacion de Bancos y Entidades Financieras (T.A.B.) rate, which
         represents a daily average of the interest paid by banks on its
         deposits. The rate is then adjusted upwards approximately 1.5% for the
         banks profit, and then an additional 1.0% - 1.7% reflecting the
         individual risk of the bank on the individual loan.

         These lines-of-credit are secured by an assignment of the Company's
         accounts receivable. Obligations with banks under lines-of-credit
         amounted to approximately $35,000 and $990,000 at December 31, 2001 and
         2000, respectively.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              46

<PAGE>

NOTE 8 - LONG-TERM DEBT

         Long-term debt consists of the following at December 31, 2001:

         Notes payable, collateralized by trade receivables
         with interest payable at 9% and payable monthly             $  110,426


         Less current portion                                           (34,923)
                                                                     ----------

         Total long-term debt                                        $   75,503
                                                                     ==========



NOTE 9 - RESEARCH AND DEVELOPMENT

         The Company is developing software to educate and to provide job
         training for residents of the rural communities in Chile via the
         Internet. The Company expects to market the final product to the
         Chilean government and private educational institutions.

         The Company incurred and expensed research and development costs of
         approximately $272,000 in 2000. Subsequent to December 31, 2000, the
         Company discontinued its direct involvement in this project.

         On April 1, 2001, the Company executed an agreement with an unrelated
         company, genteAndina, S. A. in which the Company will invest
         approximately $500,000 in exchange for guaranteed interest income
         of1/2% monthly and 35% of the profits of genteAndina, S. A.
         genteAndina, S. A. will continue developing the software and projects
         previously undertaken by the Company.

         As of December 31, 2001, approximately $425,000 was advanced to
         genteAndina, S. A. under this agreement and is included in deposits and
         other in the accompanying consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              47

<PAGE>

NOTE 10 - SHAREHOLDERS' EQUITY

          During 1998, the Company declared dividends of $.20 per share to be
          paid in four installments on dates to be determined by the Board.
          During July 1999, the first installment was paid ($.05 per share). The
          balance of approximately $423,000 was still outstanding at December
          31, 2000.

          On March 30, 2001, the board of directors of the Company rescinded the
          dividends still payable of approximately $423,000.

NOTE 11 - INCOME TAXES

          The Company is subject to income taxes in Chile and Spain.
          Reconciliations between the statutory income tax rate in these
          countries, and the Company's effective income tax rate as a percentage
          of income before income taxes is as follows:


                                                      2001          2000
                                                     -------       -------

          Chilean statutory tax rate                  15.0%         15.0%
          Other, net                                    .4            .4
                                                      ----         -----

          Effective income tax rate                   15.4%         15.4%
                                                      ====         =====

          Spanish effective income tax rate              -          30.0%
                                                      ====         =====



NOTE 12 - COMMITMENTS AND CONTINGENCIES

          Lease
          -----

          The Company leases offices in Santiago, Chile under various operating
          leases. Monthly rental payments were approximately $6,700 during 2001
          and 2000, respectively. Rent expense was $80,000 for the years ended
          December 31, 2001 and 2000.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              48

<PAGE>

NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)

          Future minimum rental payments under the lease are as follows:

                   Years Ending                             Annual
                   December 31,                            Payments
                   ------------                           ----------
                       2002                               $  80,000
                       2003                                  80,000
                       2004                                  80,000
                       2005                                  80,000
                       2006                                  80,000
                                                          ---------

                                                          $ 400,000
                                                          =========

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              49

<PAGE>


                         ANDEAN DEVELOPMENT CORPORATION

                                AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 AND 2000

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 AND 2000


<TABLE>
<CAPTION>
                                                             Page
                                                             ----
<S>                                                          <C>
Independent Auditors' Report ............................... F-2

Consolidated Balance Sheets ................................ F-3

Consolidated Statements of Operations ...................... F-5

Consolidated Statements of Shareholders' Equity ............ F-6

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

Notes to Consolidated Financial Statements ................. F-9
</TABLE>

                                       F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

To the Board of Directors and Shareholders
of Andean Development Corporation and Subsidiaries
Miami, Florida

We have audited the accompanying consolidated balance sheets of Andean
Development Corporation and Subsidiaries (the "Company") as of December 31, 2001
and 2000 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Andean Development
Corporation and Subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.

Miami, Florida
March 22, 2002

                                      F-2

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                    ASSETS

                                                                              2001                         2000
                                                                        ----------------             ----------------
<S>                                                                     <C>                          <C>
Current Assets:
   Cash                                                                 $            931             $        213,589
   Accounts receivable                                                           185,687                    2,511,838
   Notes receivable, net - current portion                                       327,911                      148,000
   Inventory                                                                           -                       51,408
   Other current assets                                                          168,279                      180,439
                                                                        ----------------             ----------------

         Total Current Assets                                                    682,808                    3,105,274
                                                                        ----------------             ----------------

Property, Plant and Equipment, net                                               379,842                      503,651
                                                                        ----------------             ----------------

Other Assets:
   Goodwill                                                                            -                      205,157
   Notes receivable from related parties and
     other, net                                                                1,415,273                    1,739,558
   Investments in unconsolidated subsidiaries                                      2,543                      243,168
   Deposits and other                                                                  -                      156,767
   Advances under agreement                                                      264,231                            -
                                                                        ----------------             ----------------

                                                                               1,682,047                    2,344,650
                                                                        ----------------             ----------------

                                                                        $      2,744,697             $      5,953,575
                                                                        ================             ================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-3

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                     Consolidated Balance Sheets (Continued)

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                       LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                            2001                           2000
                                                                      -----------------             ----------------
<S>                                                                   <C>                           <C>
Current Liabilities:
   Obligations with banks                                              $         35,310             $        989,571
   Current maturities of long-term debt                                          34,923                            -
   Accounts payable and accrued expenses                                         98,237                    1,607,484
   Due to related parties                                                        49,203                            -
                                                                       ----------------             ----------------

         Total Current Liabilities                                              217,673                    2,597,055
                                                                       ----------------             ----------------

Long-Term Liabilities:
   Long-term debt, excluding current maturities                                  75,503                            -
   Staff severance indemnities                                                   39,427                       72,364
   Dividends payable                                                                  -                      423,018
                                                                       ----------------             ----------------

         Total Long-Term Liabilities                                            114,930                      495,382
                                                                       ----------------             ----------------

Minority Interest                                                               196,019                      572,182
                                                                       ----------------             ----------------

Shareholders' Equity:
   Preferred stock, $.0001 par value, 5,000,000 shares
     authorized, no shares issued and outstanding                                     -                            -
   Common stock, $.0001 par value, 20,000,000 shares
    authorized, 2,820,100 shares issued and outstanding                             282                          282
   Additional paid-in capital                                                 5,660,187                    5,724,320
   Accumulated deficit                                                       (3,105,509)                  (3,124,172)
   Accumulated other comprehensive income (loss)                               (338,885)                    (311,474)
                                                                       ----------------             ----------------

         Total Shareholders' Equity                                           2,216,075                    2,288,956
                                                                       ----------------             ----------------

                                                                       $      2,744,697             $      5,953,575
                                                                       ================             ================
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-4

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                2001                        2000
                                                                         ------------------          -----------------
<S>                                                                     <C>                          <C>
Revenues                                                                 $          796,478          $       2,759,417
Cost of Operations                                                                  154,365                  1,968,744
                                                                         ------------------          -----------------

Gross Profit                                                                        642,113                    790,673
Selling and Administrative Expenses                                                 388,941                    847,484
                                                                         ------------------          -----------------
                                                                                    253,172                    (56,811)
                                                                         ------------------          -----------------
Other Income (Expense):
   Interest income (expense), net                                                   (17,766)                   (98,303)
   Equity in earnings from unconsolidated subsidiaries                                    -                     96,168
   Impairment of goodwill                                                                 -                 (1,256,932)
   Provision for bad debts                                                         (324,000)                         -
   Other                                                                           (248,694)                  (484,583)
   Depreciation and amortization                                                    (81,344)                  (342,280)
                                                                         ------------------          -----------------
                                                                                   (671,804)                (2,085,930)
                                                                         ------------------          -----------------

Loss from Continuing Operations Before
  Income Taxes and Minority Interest                                               (418,632)                (2,142,741)
Income Taxes                                                                              -                     27,682
                                                                         ------------------          -----------------

Loss from Continuing Operations                                                    (418,632)                (2,170,423)

Discontinued Operations (See Note 1 and 6):
   Income from operations, net                                                            -                    501,301
   Loss on sale, net                                                                      -                 (1,450,522)
                                                                         ------------------          -----------------
         Total Loss from Discontinued Operations                                          -                   (949,221)
                                                                         ------------------          -----------------

Loss Before Minority Interest                                                      (418,632)                (3,119,644)
Minority Interest                                                                    14,277                     31,740
                                                                         ------------------          -----------------

Net Loss                                                                           (404,355)                (3,087,904)

Other Comprehensive Income (Loss):
   Foreign currency translation adjustment                                          (27,411)                   (75,923)
                                                                         ------------------          -----------------

Comprehensive Loss                                                       $         (431,766)         $      (3,163,827)
                                                                         ==================          =================

Earnings (Loss) Per Common Share:
   Net loss from continuing operations                                   $           (0.153)         $           (0.77)
   Discontinued operations, net                                                           -                      (0.34)
   Minority interest                                                                  0.005                       0.01
                                                                         ------------------          -----------------

Net Loss Per Share - Basic                                               $          (0.1481)         $           (1.10)
                                                                         ==================          =================

Weighted Average Shares Outstanding - Basic                                       2,820,100                  2,820,100
                                                                         ==================          =================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-5

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                 Consolidated Statements of Shareholders' Equity

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                             Retained Earnings   Accumulated Other        Total
                                                Common       Additional        (Accumulated        Comprehensive       Shareholders'
                                                 Stock     Paid-In Capital        Deficit)         Income (Loss)          Equity
                                            -------------- ---------------  -----------------   -----------------      -------------
<S>                                         <C>            <C>              <C>                 <C>                    <C>
Balance at December 31, 1999                $          282 $    5,724,320    $     (36,268)        $    (235,551)      $  5,452,783

Net loss                                                 -              -       (3,087,904)                    -         (3,087,904)

Foreign currency translation adjustment                  -              -                -               (75,923)           (75,923)
                                            -------------- --------------    -------------         --------------      -------------

Balance at December 31, 2000                           282      5,724,320       (3,124,172)             (311,474)         2,288,956

Net loss                                                 -              -         (404,355)                    -           (404,355)

Rescinded dividends                                      -              -          423,018                     -            423,018

Adjustment to additional paid-in capital
  on acquisition of treasury stock                       -         64,133)               -                     -            (64,133)

Foreign currency translation adjustment                  -              -                -               (27,411)           (27,411)
                                            -------------- --------------    -------------         -------------       -------------

Balance at December 31, 2001                $          282 $    5,660,187    $  (3,105,509)        $    (338,885)      $  2,216,075
                                            ============== ==============    =============         =============       =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-6

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                 2001                       2000
                                                                           ----------------           ----------------
<S>                                                                        <C>                        <C>
Cash Flows from Operating Activities:
   Net loss                                                                $       (404,355)          $     (3,087,904)
   Income from discontinued operations                                                   -                    (501,301)
   Loss on sale of discontinued operations                                               -                   1,450,522
   Minority interest                                                               (376,163)                   (31,740)
                                                                           ----------------           ----------------

                                                                                   (780,518)                (2,170,423)
   Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
     Depreciation and amortization                                                   81,344                    342,280
     Provision for bad debt                                                         324,000                         -
     Equity in earnings from unconsolidated subsidiaries                                 -                      96,168
     Impairment of goodwill                                                              -                   1,256,932
     Foreign currency translation adjustment                                        (27,411)                   (75,923)
     Changes in assets and liabilities:
       (Increase) decrease in:
         Accounts receivable                                                      2,326,151                    674,278
         Notes receivable                                                          (179,911)                   313,500
         Inventory                                                                   51,408                    (15,501)
         Other current assets                                                        12,160                    113,005
         Deferred charges                                                                -                     138,984
         Deposits and other                                                         205,157                    158,054
         Advances                                                                  (264,231)                        -
       Increase (decrease) in:
         Accounts payable and accrued expenses                                   (1,509,247)                   804,126
         Deferred revenue                                                                -                    (511,489)
         Staff severance indemnities                                                (32,937)                   (29,267)
         Income taxes payable                                                            -                      22,178
                                                                           ----------------           ----------------

Net Cash Provided by Operating Activities                                           205,965                  1,116,902
                                                                           ----------------           ----------------

Cash Flows from Investing Activities:
   Purchase of property, plant and equipment                                        (18,932)                    (1,542)
   Sale of real estate held for investment                                               -                      96,872
   Investments in unconsolidated subsidiaries                                       233,195                    149,267
   Proceeds from (purchase of) short-term investments                                    -                      60,058
                                                                           ----------------           ----------------

Net Cash Provided by Investing Activities                                           214,263                    304,655
                                                                           ----------------           ----------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-7

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (Continued)

                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                  2001                       2000
                                                                             ---------------            ---------------
<S>                                                                          <C>                         <C>
Cash Flows from Financing Activities:
   Net proceeds (payments to) from related parties                           $       275,082            $      (601,216)
   Net (repayments) proceeds from obligations with bank                             (954,261)                   548,018
   Adjustment to additional paid-in capital from acquisition of                      (64,133)                        -
    treasury stock
   Principal payments on long-term debt                                                   -                  (1,279,933)
   Proceeds from long-term debt                                                      110,426                         -
                                                                             ---------------            ---------------

Net Cash Used in Financing Activities                                               (632,886)                (1,333,131)
                                                                             ---------------            ---------------

Net (Decrease) Increase in Cash                                                     (212,658)                    88,426

Cash at Beginning of Year                                                            213,589                    125,163
                                                                             ---------------            ---------------

Cash at End of Year                                                          $           931            $       213,589
                                                                             ===============            ===============


Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for interest                                    $        17,766            $       148,998
                                                                             ===============            ===============


   Net assets disposed of upon sale of discontinued operations:
     Property, plant and equipment                                           $        57,096            $     2,516,810
     Goodwill                                                                             -                   1,169,270
     Due to public entities                                                               -                  (3,327,290)
                                                                             ---------------            ---------------

                                                                             $        57,096            $       358,790
                                                                             ===============            ===============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-8

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                     Years Ended December 31, 2001 and 2000

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              Organization - Andean Development Corporation ("ADC" or the
              ------------
              "Company") was incorporated in the State of Florida on October 19,
              1994. ADC operates its lines of business principally in Chile,
              Peru, Argentina and Spain.

              The Company provides engineering and project management services
              for energy and private works projects and sells, as agent, major
              electrical and mechanical equipment. The Company also advises and
              assists large private utilities and government agencies in
              obtaining land easements from private owners for installation of
              electrical lines, sewer plant infrastructure, piping and roads.

              The Company in the past had developed educational and training
              software. The Company discontinued developing its software in
              2001. See Note 9.

              Basis of Presentation - The accompanying consolidated financial
              ---------------------
              statements include the accounts of ADC and the following
              consolidated subsidiaries:

<TABLE>
<CAPTION>
                                                                                       Ownership
                              Subsidiary                           Domicile           Percentage
                              ----------                           --------           ----------
              <S>                                                  <C>                <C>
              Errazuriz y Asociados Ingenieros, S. A.              Chile                 100%
               ("EAI") Chilean Corporation

              Errazuriz y Asociados Ingesis, S.A.                  Chile                 100%
               ("E&A") Chilean Corporation

              Consonni, U.S.A., Inc.                               Spain                 83.6%
              ("CONUSA") U.S. Corporation
</TABLE>

              CONUSA owns a 19% interest in Construcciones Electromecanicas,
              S.A. Consonni (located in Bilbao, Spain) and a 92% interest in
              Equipos de Control Electrico S.A. ("ECESA").

              ADC and the above subsidiaries are collectively referred to as the
              Company. All significant intercompany balances and transactions
              have been eliminated in consolidation.

                                       F-9

<PAGE>

                 ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

          During 2000, the Company sold 100% of its ownership in the following
          previously consolidated subsidiaries:

          .   June 30, 2000 - Aguas y Ecologia, S. A., Negociaciones y
              Servidumbre, S. A. and Nysacar, S. A.

          .   August 31, 2000 - Bodegas Garcia Errazuriz, S. A.


          On December 12, 2000, CONUSA, a 83.6% owned subsidiary of the
          Registrant, sold approximately 78% of its capital stock in Consonni to
          unrelated minority shareholders of Consonni. The purchase price was
          approximately U.S. $1,200,000. As a consequence of this transaction,
          CONUSA will retain only a 19% equity interest in Consonni.

          The initial payment of approximately $266,700 has been received by
          CONUSA. The balance is to be paid to CONUSA over five years as
          follows:

          Approximately $80,000 on June 20, 2001; and

          Nine semiannually payments of approximately $85,000 commencing
          December 2001

          The Company recognized a loss of approximately $1,451,000 on the sale
          of its interest in Consonni and income from discontinued operations of
          approximately $501,000, which are stated separately in the
          accompanying consolidated statements of operations for the year ended
          December 31, 2000. In addition, as a result of the sale, the remaining
          goodwill of $1,256,932, connected with the original acquisition of
          Consonni, was considered impaired and written off during the year
          ended December 31, 2000.

          In addition, The Company consolidated its subsidiaries Errazuriz y
          Asociados Division Comercial S.A., Ingesis S.A. and Igenor Andina S.A.
          into one company, named E&A Ingesis S.A.

          E&A will concentrate its business on the education segment of the
          Company. The engineering activities shall be conducted through E.A.I.
          and the Spanish sales and trading will continue to be operated by
          ECESA.

          The Company's proportionate share of income or loss for subsidiaries
          sold during the year ended December 31, 2000 is included in the
          accompanying consolidated statements of operations as discontinued
          operations.

                                      F-10

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          Functional Currency - The consolidated financial statements have been
          -------------------
          translated in accordance with the provisions set forth in Statement of
          Financial Accounting Standards No. 52, "foreign currency translation"
          from Chilean pesos and Spanish pesetas (the functional currencies)
          into U.S. dollars (the reporting currency). The exchange rate used at
          December 31, 2001 and 2000 for assets and liabilities was 656.20 and
          573.73 Chilean pesos to U.S. $1.00, respectively, and 187.84 and
          176.68 Spanish pesetas to U.S. $1.00, respectively. Shareholders'
          equity and components are translated at historical rates. The weighted
          average exchange rates used during the years ended December 31, 2001
          and 2000, respectively, for results of operations were 643.09 and
          537.64 Chilean pesos to U.S. $1.00, respectively, and 185.85 and
          179.86 Spanish pesetas to U.S. $1.00, respectively. The effects of
          exchange rate changes are reflected as a separate component of
          shareholders' equity.

          Revenue Recognition - The Company earns revenue principally from
          -------------------
          commissions associated with the sale of equipment and from fees for
          the performance of engineering services and providing technical
          assistance in the development of specialized projects.

          Revenues for fees associated with services are recognized when
          performed and are based on standard billing rates.

          The Company earns commissions on the sale of equipment. For turnkey
          jobs, commissions are earned when the contracts are signed and "Orders
          to Proceed" are issued. In some instances, due to the significant time
          the Company is required to wait for payment, commissions that the
          Company initially believed it had earned are changed. Due to the
          Company's inability to determine the amount of commissions, the
          Company, commencing in 1999, recognizes commissions only when they are
          received. This change in policy is not deemed to have a material
          impact on the Company's consolidated financial statements.

          The Company earned no revenues from its educational and software
          development activities in 2001 and 2000.

          Concentrations of Credit Risk - Financial instruments which
          -----------------------------
          potentially subject the Company to concentrations of credit risk
          consist principally of cash, periodic temporary investments of excess
          cash, and trade receivables. The Company places its cash with high
          credit quality financial institutions. A significant portion of the
          Company's sales are to several large customers and, as such, the
          Company is directly affected by the well-being of those customers.
          However, the credit risk associated with trade receivables is minimal
          due to the significant size of the Company's customers and the
          Company's ongoing efforts to monitor the credit worthiness of its
          customers.

                                      F-11

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)



NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          Fair Values of Financial Instruments - The fair value of a financial
          ------------------------------------
          instrument is the amount at which the instrument could be exchanged in
          a current transaction between willing parties. The fair value of cash,
          short-term investments, accounts receivable, notes receivable,
          accounts payable and notes payable approximate the carrying amounts at
          December 31, 2001 and 2000.

          Property, Plant and Equipment - Property, plant and equipment are
          -----------------------------
          recorded at cost. Depreciation is computed using the straight-line
          method over the estimated useful lives of the assets, usually five to
          seven years.

          Staff Severance Indemnities - The Company provides for certain lump
          ---------------------------
          sum severance indemnities that are required to be paid by Chilean law
          to its employees at the end of their employment. The obligation is
          calculated based on the present value of the vested benefits to which
          an employee is entitled, the expected service lives of the employees
          and current salary levels. The Company believes that the above
          calculation is not materially different from the calculation required
          by SFAS 87, which would reflect expected future salary increases.

          Foreign Operations - The Company is a holding company for foreign
          ------------------
          entities, operating primarily in South America and Spain. In South
          America and Spain, the potential for both economic and political
          change in the business environment is different from that of the
          United States. Therefore, the Company's results of operations and
          financial position could be materially affected by sudden changes in
          the business and political environments in the countries that the
          Company operates.

          Income Taxes - Deferred tax assets and liabilities are recognized for
          ------------
          the future income tax consequences attributable to the differences
          between the financial statement carrying amounts of existing assets
          and liabilities and their respective income tax bases. Deferred tax
          assets and liabilities are measured using enacted tax rates expected
          to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled. The effect on
          deferred tax assets and liabilities of a change in tax rates is
          recognized as income or loss in the period that includes the enactment
          date.

          Income tax expense totaled $27,682 for the year ended December 31,
          2000. There was no income tax for the year 2001.

          Earnings Per Common Share - Basic earnings per common share are based
          -------------------------
          on the weighted average number of shares outstanding of 2,820,100 for
          the years ended December 31, 2001 and 2000, after giving effect to
          common stock equivalents that would have a dilutive effect on earnings
          per share. Warrants issued with exercise prices greater than the
          existing market value of the Company stock are deemed anti-dilutive
          and are not components of earnings per share.

                                      F-12

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)



NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          Recent 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" ("SFAS 133"). SFAS 133 requires the recognition of
          the fair value of all derivative instruments on the balance sheet.
          Subsequent to the issuance of SFAS 133, the FASB received many
          requests to clarify certain issues causing difficulties in
          implementation. In June 2000, the FASB issued SFAS 138, which responds
          to those requests by amending certain provisions of SFAS 133. These
          amendments include allowing foreign-currency exposures that reduce the
          need for third-party derivatives and redefining the nature of interest
          rate risk to avoid sources of ineffectiveness. The impact of adopting
          SFAS 133, as amended by SFAS 138, is not significant.

          In February 1999, the Financial Accounting Standards board Issued
          Statement of Financial Accounting Standards No. 135 "Recission of FASB
          Statement No. 75 and Technical Corrections" which is effective for
          financial statements issued after February 15, 1999. There is no
          impact to the Company's financial reporting or presentation due to the
          adoption of SFAS No. 135.

          In December 1999, the Securities and Exchange Commission issued Staff
          Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
          ("SAB 101"). SAB 101 provides guidance on the recognition,
          presentation and disclosure of revenues in financial statements and
          requires adoption no later than the fourth quarter of fiscal 2001. The
          adoption of this SAB had no impact on the Company's financial
          statements.

          In July 2001, The Financial Accounting Standards Board ("FASB") issued
          SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
          Other Intangible Assets. SFAS No. 141 requires that the purchase
          method of accounting be used for all business combinations initiated
          after June 30, 2001. Use of the pooling-of-interests method will be
          prohibited after that date. SFAS No. 142 changes the accounting for
          goodwill and intangible assets with indefinite lives from an
          amortization method to an impairment-only approach and requires
          intangible assets with finite lives to be amortized over their useful
          lives. Thus, amortization of goodwill and intangible assets with
          indefinite lives will cease upon adoption of the statement. SFAS No.
          142 is required to be applied in fiscal years beginning after December
          15, 2001. Upon the adoption of SFAS No. 142 there is no impact to the
          Company's financial reporting or presentation due to the adoption of
          SFAS No. 141 and SFAS No. 142.

                                      F-13

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

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

          Reclassifications - Certain amounts in the 2000 consolidated financial
          -----------------
          statements have been reclassified for comparative purposes to conform
          with the presentation in the 2001 consolidated financial statements.

NOTE 2 -  OTHER CURRENT ASSETS

          Other current assets consist of the following at December 31:

                                                  2001                 2000
                                             --------------      -------------

          Recoverable taxes                   $     154,386      $     158,013
          Other                                      13,893             22,426
                                              -------------      -------------

                                              $     168,279      $     180,439
                                              =============      =============

NOTE 3 -  PROPERTY, PLANT AND EQUIPMENT, NET

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

                                                       2001            2000
                                                   -------------    -----------

          Vehicles                                 $     268,942    $   250,010
          Office equipment and computers                 144,755        144,755
          Furniture, fixtures and improvements           371,795        447,823
                                                   -------------    -----------

          Total property, plant and
            equipment, at cost                           785,492        842,588

          Less accumulated depreciation

            and amortization                            (405,650)      (338,937)
                                                   -------------    -----------

                                                   $     379,842    $   503,651
                                                   =============    ===========

                                      F-14

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)



NOTE 3 -  PROPERTY, PLANT AND EQUIPMENT, NET (Continued)

          Depreciation expense approximated $81,000 and $342,000 for the years
          ended December 31, 2001 and 2000, respectively.

NOTE 4 -  RELATED PARTY TRANSACTIONS

          The Company conducts a substantial amount of its business with
          companies that are affiliated with shareholders of the Company. As a
          result, fees for services or commissions on sales have been received
          from or paid to affiliated companies.

NOTE 5 -  NOTE RECEIVABLE FROM RELATED PARTY AND OTHER

          During 1997, the Company received a note from Pedro Pablo Errazuriz,
          the Company's Chairman of the Board, in the amount of $606,031,
          payable in four annual installments, plus interest at 8 1/2% per year,
          commencing January 15, 1998. The note was in exchange for the purchase
          of real estate. As of December 31, 2000, the balance of this note
          approximated $214,000. The balance on the note was collected during
          2001.

          Note receivable from related party and other, consist of the following
          at December 31:

<TABLE>
<CAPTION>
                                                                          2001                  2000
                                                                    ----------------      ----------------
              <S>                                                      <C>                   <C>
              Pedro Pablo Errazuriz                                    $           -         $     213,750
              Coficomex                                                      324,000               324,000
              Sale of shares of Consonni                                   1,250,171             1,097,308
              Sale of shares of Ecesa                                        213,633                     -
              Bayesa                                                         279,380               252,500
              Less valuation reserve                                        (324,000)                    -
                                                                       -------------         -------------

                                                                           1,743,184             1,887,550

              Less current portion                                          (327,911)             (148,000)
                                                                       -------------         -------------

                                                                       $   1,415,273         $   1,739,558
                                                                       =============         =============
</TABLE>

                                      F-15

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 6 -  DISCONTINUED OPERATIONS

          During the year 2000, the Company adopted a formal plan to sell the
          net assets of Consonni, S.A. and certain Chilean subsidiaries. The
          disposal date of Consonni was December 19, 2000.

          The following represents the results of operations of the discontinued
          subsidiaries during the year ended December 31, 2000:

<TABLE>
<CAPTION>

                                                    Consonni, S. A.      Combined
                                                      (Spain)         Chilean Subsidiaries          Total
                                               ---------------------  ---------------------     ---------------
              <S>                                 <C>                   <C>                     <C>
              Revenues                            $    9,319,985         $       77,007         $    9,396,992
              Cost of sales                           (7,569,478)               (95,173)            (7,664,651)
                                                  --------------         --------------         --------------

              Gross margin                             1,750,507                (18,166)             1,732,341

              General and administrative
                expenses                                (864,500)               (49,261)              (913,761)

              Other - net                               (379,868)                62,589               (317,279)
                                                  --------------         --------------         --------------

              Net income (loss) from
               discontinued operations            $      506,139         $       (4,838)        $      501,301
                                                  ==============         ==============         ==============
</TABLE>


NOTE 7 -  OBLIGATION WITH BANKS

          Obligations with banks consist of lines-of-credit with local Chilean
          banks. Interest rates on all lines-of-credit are based on the
          Asociacion de Bancos y Entidades Financieras (T.A.B.) rate, which
          represents a daily average of the interest paid by banks on its
          deposits. The rate is then adjusted upwards approximately 1.5% for the
          banks profit, and then an additional 1.0% - 1.7% reflecting the
          individual risk of the bank on the individual loan.

          These lines-of-credit are secured by an assignment of the Company's
          accounts receivable. Obligations with banks under lines-of-credit
          amounted to approximately $35,000 and $990,000 at December 31, 2001
          and 2000, respectively.

                                      F-16

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)



NOTE 8 -  LONG-TERM DEBT

          Long-term debt consists of the following at December 31, 2001:

<TABLE>

              <S>                                                                       <C>
              Notes payable, collateralized by trade receivables
               with interest payable at 9% and payable monthly                          $        110,426

              Less current portion                                                               (34,923)
                                                                                        ----------------

              Total long-term debt                                                      $         75,503
                                                                                        ================
</TABLE>

NOTE 9 -  RESEARCH AND DEVELOPMENT

          The Company incurred and expensed research and development costs of
          approximately $161,000 and $272,000 in 2001 and 2000.

          The Company discontinued its research and development of educational
          software and on April 1, 2001 executed an agreement with an unrelated
          company, Gente Andina, S. A. The Company will invest approximately
          $500,000 in exchange for guaranteed interest income of1/2% monthly and
          35% of the profits of Gente Andina, S. A. Gente Andina, S. A. will
          continue developing the software and projects previously undertaken by
          the Company. As of December 31, 2001, approximately $264,000 was
          advanced to Gente Andina, S. A. under this agreement.


NOTE 10 - SHAREHOLDERS' EQUITY

          During 1998, the Company declared dividends of $.20 per share to be
          paid in four installments on dates to be determined by the Board.
          During July 1999, the first installment was paid ($.05 per share). The
          balance of approximately $423,000 was still outstanding at December
          31, 2000.

          On March 30, 2001, the board of directors of the Company rescinded the
          dividends still payable of approximately $423,000.

                                      F-17

<PAGE>

                ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


NOTE 11 - INCOME TAXES

          The Company is subject to income taxes in Chile and Spain.
          Reconciliations between the statutory income tax rate in these
          countries, and the Company's effective income tax rate as a percentage
          of income before income taxes is as follows:

<TABLE>
<CAPTION>
                                                                          2001                       2000
                                                                    -----------------          ---------------
              <S>                                                   <C>                        <C>
              Chilean statutory tax rate                                    15.0%                     15.0%
              Other, net                                                       4                         4
                                                                        --------                  --------

              Effective income tax rate                                     15.4%                     15.4%
                                                                        ========                  ========

              Spanish effective income tax rate                             30.0%                     30.0%
                                                                        ========                  ========
</TABLE>


NOTE 12 - COMMITMENTS AND CONTINGENCIES

          Lease
          -----

          The Company leases offices from a related party in Santiago, Chile
          under various operating leases. Monthly rental payments were
          approximately $6,700 during 2001 and 2000, respectively. Rent expense
          was $80,000 for the years ended December 31, 2001 and 2000.

          Future minimum rental payments under the lease are as follows:

                   Years Ending                 Annual
                   December 31,                Payments
                   ------------              ------------

                       2002                  $     80,000
                       2003                        80,000
                       2004                        80,000
                       2005                        80,000
                       2006                        80,000
                                             ------------

                                             $    400,000
                                             ============

                                      F-18