SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

    [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                  For the fiscal year ended December 31, 2000

                                       or

    [ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
         For the transition period from _____________ to ______________

                         Commission File Number 0-27958

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



                 North Carolina                             13-3368271
       (State or other jurisdiction of                      ----------
        incorporation or organization)                (IRS Employer ID Number)

   2399 26th Avenue North, St. Petersburg, FL                 33734
   ------------------------------------------                 -----
    (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code: (727) 822-4411

Securities registered pursuant to Section 12(b) of the Act: None

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

                               Title of each class

                     Common Stock, $.001 per share par value

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

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

As of April 12, 2001, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $30,572,325.


As of April 12, 2001, the number of shares outstanding of the registrant's
common stock was 26,379,633 shares.


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                            FLANDERS CORPORATION
                                  FORM 10-K
                    FOR THE YEAR ENDED DECEMBER 31, 2000


                              TABLE OF CONTENTS

PART I .......................................................................3
  Item 1.  Business ..........................................................3
  Item 2.  Properties .......................................................12
  Item 3.  Legal Proceedings ................................................13
  Item 4.  Submission of Matters to a Vote of Security Holders ..............14

PART II .....................................................................15
  Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters ..........................................................15
  Item 6.  Selected Financial Data ..........................................16
  Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations ........................................17
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......27
  Item 8.  Financial Statements and Supplementary Data ......................27
  Item 9.  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure .............................................27

PART III ....................................................................28
  Item 10. Directors and Executive Officers of the Registrant ...............28
  Item 11. Executive Compensation ...........................................29
  Item 12. Security Ownership of Certain Beneficial Owners and Management ...32
  Item 13. Certain Relationships and Related Transactions ...................34

PART IV .....................................................................35
  Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..35

SIGNATURES ..................................................................38

FINANCIAL STATEMENTS

  Report of Grant Thornton LLP Independent Certified Public Accountants ....F-2
  Consolidated Balance Sheets ..............................................F-3
  Consolidated Statements of Operations ....................................F-4
  Consolidated Statements of Stockholders' Equity ..........................F-5
  Consolidated Statements of Cash Flows ....................................F-6
  Notes to Consolidated Financial Statements ...............................F-8
  Financial Statement Schedule ............................................F-25


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                                   PART I

Item 1.    Business

OVERVIEW

We design, manufacture and sell air filters and related products, and are
focused on providing complete environmental control systems for end uses ranging
from controlling contaminants in residences and commercial office buildings
through specialized manufacturing environments for semiconductors and viruses.

Currently, we are one of the largest domestic manufacturers of air filters,
which are utilized by many industries, including those associated with
commercial and residential heating, ventilation and air conditioning systems
(commonly known as "HVAC" systems), semiconductor manufacturing, ultra-pure
materials, biotechnology, pharmaceuticals, synthetics, nuclear power and nuclear
materials processing. We also design and manufacture much of our own production
equipment to automate our processes in order to decrease labor costs associated
with our standard products. We also produce glass-based air filter media for
many of our products. Our customers include Abbott Laboratories, The Home Depot,
Inc., Motorola, Inc., Merck & Co., Inc., Upjohn Co., Wal-Mart Stores, Inc.,
Westinghouse Electric Corp., and several large computer chip manufacturers.

The vast majority of our current revenues come from the sale of after-market
replacement filters, since air filters are typically placed in equipment
designed to last much longer than the filters.

GENERAL DEVELOPMENT OF BUSINESS

Flanders Corporation was incorporated on July 2, 1986 in the State of Nevada,
and is currently domiciled in North Carolina.

INVESTMENT BANKING

On March 21, 2000, we announced that we had engaged the investment banking firm
PaineWebber Incorporated to help us explore strategic alternatives, including
the possible sale of the Company.

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This annual report, including all documents incorporated herein by reference,
includes certain "forward-looking statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934, including, among others, those statements preceded by,
following or including the words "believe," "expect," "anticipate" or similar
expressions. These forward-looking statements are based largely on the current
expectations of management and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. In addition to the other risks described in the "Factors That May
Affect Future Results" discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II of this annual report,
important factors to consider in evaluating such forward-looking statements
include risk of product demand, market acceptance, economic conditions,
competitive products and pricing, difficulties in product development,
commercialization and technology. In light of these risks and uncertainties,
there can be no assurance that the events contemplated by the forward-looking
statements contained in this annual report will, in fact, occur.


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STRATEGY

We have embarked on a program to increase earnings, and hence shareholder value,
by improving our operating efficiency. We are seeking to grow primarily through
the introduction of qualitatively superior new products to our major
marketplaces, primarily through existing customers.

    INTRODUCE NEW PRODUCTS

    In the last two years, we have focused our development efforts into products
    which address the actual technical requirements of maintaining clean air to
    promote health. Maintaining ultra-clean air in residential and commercial
    settings requires continuous and complete replacement of "used" air
    contaminated by contact with hair, skin, carpet, solvents, cigarette smoke
    and other common particle sources with air filtered through a combination of
    pre-filters, HEPA filtration, and odor removal. This typically requires
    high-velocity directed air flow for stand-alone units, necessary to prevent
    air from recirculating in only a small area, or upgraded and augmented
    blowers for central or zoned HVAC systems necessary to push air through more
    effective filters. Most currently available air filters for commercial,
    industrial and residential use, including those advertised as "high-MIRV
    rating" filters, are primarily useful for protecting motors, coils and other
    components from airborne grease condensation and other contaminants which
    reduce the life of the HVAC equipment, and have little or no effect on
    reducing airborne contamination which is harmful to humans.

    Comprehensive Indoor Air Cleaners for Residences. During 2000, we completed
    the development of two lines of high-capacity indoor air cleaners intended
    for residential use: Airia Portable Room Air Cleaners are stand-alone units
    which deliver ultra-clean air to a specific area of a residence; and Airia
    Wholehouse Electronic Air Cleaners are in-duct units installed as an
    integral part of a home's forced air heating and cooling systems, which
    deliver ultra-clean air throughout an entire house. The stand-alone units,
    to be offered through retailers and wholesale distributors, offer several
    advantages over competing units including:

     -  high-speed blowers which reduce the problems experienced by competing
        models which recirculate already-clean air through a small volume of
        space, effectively providing clean air only to areas as small as two
        feet square;

     -  A complete selection of high-end air filtration technologies, including,
        depending on the model selected, HEPA filtration to remove microscopic
        particles, pre-filters to remove large particles and extend the life of
        the HEPA cartridges, carbon filtration to remove odors, and
        electrostatic filtration to filter smoke and microscopic particles
        without substantially obstructing air flow.

    The in-duct units will be sold as home improvement projects through
    retailers, HVAC wholesalers and specialty distributors, and will deliver
    ultra-clean conditioned air to an entire residence through existing
    forced-air heating or cooling systems. Both product lines will require users
    to regularly purchase and install replacement filters.

    Capitalize on Commercial and Industrial Products. During 2000, we
    established a complete line of air filtration products to be used in the
    automotive and aeronautics industries. We were able to adapt our bulk
    manufacturing processes to the high-capacity synthetic media required for
    this end use. These products have been certified to meet E.P.A. test method
    319, a standard regarding filtration of particulates from paint booth
    applications. These products may now be used in a variety of regulated
    activities, including the removal of potential environmental contaminants
    from spray booth exhaust and the protection of end products from external
    contaminants. During 2000, we secured contracts with several aeronautics and
    automobile manufacturers which will begin shipping in significant volume
    during 2001.

    Indoor Air Cleaners for Commercial Offices. We are adapting our residential
    air cleaner line to the needs of commercial offices, for use in individual
    rooms and local air control zones. These units will be sold through our
    current network of wholesale HVAC distributors and air filter sales and
    service providers. Marketing for these products will include adapted sales
    literature, technical seminars and electronic multimedia presentations. We
    believe these products will also serve as a "hook" for our indoor air
    quality and remediation services.


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    Offer Indoor Air Quality Diagnosis and Remediation Services. During 1999, as
    part of the acquisition of the Tidewater group of companies, we acquired a
    small engineering firm specializing in monitoring air quality using
    automated real-time data collection techniques over a period of months,
    diagnosing any potential indoor air quality problems and suggesting
    remediation programs. We believe we will be able to leverage this expertise
    into value-added sales to our existing industrial and commercial customers,
    and the filter sales and service companies which supply them, increasing our
    revenues by adding value-added consulting and monitoring services.

    IMPROVE OPERATING EFFICIENCY

    Enhance Manufacturing Efficiency Due to Restructuring. We have identified
    approximately 350 positions, or approximately thirteen percent of our labor
    force, which were not required for efficient operation of our plants, and
    have implemented a reduction in force to remove these positions. This
    reduction in force is expected to save approximately $8 million in direct
    and indirect labor costs in 2001.

    Provide Positive and Negative Incentives to Return to Financial Model. All
    operating facilities and departments, including corporate headquarters, will
    be required to reduce wages by ten percent, either through additional
    reductions in force or through salary and wage reductions, including senior
    management wage reductions of ten percent, until we meet internally
    established budgets and financial goals, as determined by the Board of
    Directors, effective April 19, 2001.

    Centralize Overhead Functions. During 2000, we consolidated all of the sales
    forces of our various subsidiaries into a single, consistent national sales
    team, eliminating overlapping territories, duplication of literature,
    centralizing travel coordination and adding focus to our sales efforts.
    During 2000, we consolidated benefit administration and risk management to
    reduce administrative staff and allow savings in workers' compensation and
    other insurance coverages associated with larger groups. We are continuing
    to centralize and eliminate duplication of efforts between subsidiaries in
    the following areas: purchasing, production planning, shipping coordination,
    accounting and personnel management.

    Increase Prices to Problem Accounts. During 1999 and 2000, we received
    national contracts from major retailers which required our first exposure to
    new "point-of-sale" distribution requirements. The contracts had pricing
    predicated upon certain erroneous assumptions regarding the costs of these
    distribution methods, and these problems were exacerbated by increases in
    fuel and related shipping expenses. We are working with these accounts to
    achieve acceptable levels of profit, simplify their distribution
    requirements, or replace them with more profitable accounts.

    Expand Mexican Manufacturing to Reduce Direct Labor Costs. We expect to have
    completed an expansion of our Tijuana, Mexico, plant, which will produce our
    standard spun-glass and pleated filters, in all grades, for sale in the
    western U.S., by the end of June 2001. We will be moving some of the
    production equipment from our plants in San Diego and Nevada to this
    expansion.

    Vertical Integration. In December 1997, we acquired a small glass media
    manufacturing plant in Salt Lake City, Utah, which produced spun-glass media
    for our highest-volume products, flat panel filters, using traditional
    processes, supplying perhaps 5% of our demand for this material. This plant
    was also in the process of building a more efficient plant for producing the
    spun-glass media used in these filters. In 1998, we began to build the
    second generation of equipment for this purpose. By September 2000, we had
    completed and installed enough of this equipment to realize significant
    production. We plan to establish a duplicate plant in North Carolina to
    alleviate forecast shortages in this material. See ""Source and Availability
    of Raw Materials."

    Strategic Acquisitions. We continue to search for opportunities to acquire
    new businesses, although our criteria for evaluating these businesses has
    moved toward acquiring regional distributors and resellers, and away from
    acquiring competing air filter manufacturers. We are looking for potential
    acquisitions with the following characteristics: (i) dominant positions in
    local or regional markets, (ii) a stable customer base distinct from our
    existing customers, and (iii) a history of consistent and healthy earnings.
    Acquiring resellers and distributors with these characteristics allows us to
    increase operating margins by removing at least one layer of "middlemen,"
    and their compounding mark-ups and commissions from the sales and


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    distribution process, allowing us to charge higher prices while maintaining
    competitive pricing with end users. At the present time, we do not have any
    binding agreements with respect to future acquisitions.

    Electronic Commerce. We believe there are significant cost savings and error
    reduction opportunities in allowing our customers to enter orders, examine
    specifications, receive confirmations, and check on the status of their
    orders, via the Internet. In September 1999, we began an initiative to
    analyze all other areas of our business for plans to implement savings by
    using the Internet to automate communications with current customers,
    potential customers, end users and investors. We believe there are
    opportunities for significant cost reductions in customer service, shipping
    errors, orders administration, customer pre-qualification, lead generation
    and documentation storage. We anticipate completion of the first iteration
    and implementation of this process in the year 2001, and plan to make the
    Internet a central part of our future strategy for growth and cost
    minimization. We do not anticipate significant direct retail sales from
    electronic commerce in the foreseeable future, because shipping bulky
    packages of inexpensive filters in less than truckload quantities is
    prohibitively expensive.

    INCREASE MARKET SHARE

    Use Facilities Located Throughout the United States to Increase Market
    Share. Through acquisition and the establishment of new plants, we have
    placed facilities within one day's over-the-road shipping of most major
    population centers in the United States. We believe this ability to
    regionalize production and distribution will improve our business in several
    ways: (i) Decrease cost of sales by reducing the average distance between
    our plants and our customers, and hence decrease the cost of outbound
    freight; (ii) increase responsiveness by decreasing the average time
    required to ship products to customers; and (iii) increase our share of
    national accounts' total business by having manufacturing facilities in
    closer proximity to customers' regional distribution centers. The ability to
    service all major population centers with regional manufacturing centers is
    critical for our business, allowing us to compete on price against less
    broadly based competitors without sacrificing margins, as well as the
    ability to respond more rapidly than most of our competition.

    Continued Emphasis on Quality and Performance. A continued emphasis on
    product quality and on-time shipments has allowed us to capture market share
    serving several industries in recent years.


INDUSTRY BACKGROUND

The McIlvaine Company, a leading industry analyst, estimated that the worldwide
air filtration market would be approximately $3.2 billion in 1999 and $3.4
billion in 2000, with the United States being the largest market for air filters
because of the prevalence of forced air heating and cooling. McIlvaine also
estimated the air filtration market would grow at an annual rate of 8% per year
through 2003. They indicated that the driving forces behind growth in the air
filtration market would be using higher-performance filters in commercial and
residential spaces instead of current low-efficiency models, and the use of air
filters in new applications. Management believes the forces driving the air
filtration market are evolving, beginning in the past decade and continuing for
the next several years, from preserving machinery and equipment to maintaining
indoor air quality. In addition, we expect many high-growth technology
industries to increase their reliance on air filters to remove microscopic and
gaseous contaminants from sensitive manufacturing processes associated with
semiconductor manufacturing, pharmaceutical production, ultra-pure materials
manufacturing and biotechnology. Companies are devoting resources to air
filtration products to enhance process efficiency and employee productivity.

Air filters are used in many different applications, including the following:

 -  Commercial and Residential HVAC Systems. Replacement filters are an
    essential requirement for the efficient operation of commercial and
    residential HVAC systems.

 -  Residential air cleaners. Stand-alone air cleaners which produce
    ultra-clean air in a defined area are also gaining in popularity among
    allergy sufferers and asthmatics, although follow-up sales of replacement
    filtration cartridges have been limited.


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 -  General Industrial. Air filters are used in standard industrial settings
    to provide cleaner work environments; for example, auto makers use air
    filtration systems to remove "oil mist" contaminants from the air in their
    plants, and industrial paint booth users utilize air filtration to remove
    paint particles from the air.

 -  Semiconductors. HEPA and carbon filters are necessary to meet the
    increasingly stringent manufacturing environment requirements of
    semiconductor manufacturers, where microscopic airborne contaminants can
    ruin microchips during production, having a large impact on manufacturing
    yield and profitability. Carbon filters are also being increasingly used to
    filter gaseous contaminants from semiconductor manufacturing areas.

 -  Pharmaceuticals. Pharmaceutical companies are increasingly using
    cleanrooms to prevent cross-contamination between different products and
    different lots of the same product being manufactured at the same facility.
    The increasing use of cultured microbes for drug production is also expected
    to increase demand for high-end containment environments.

 -  Biotechnology. Containment systems for the manipulation of viruses and
    bacteria using genetic engineering techniques are critical to the
    biotechnology industry.

 -  Nuclear Power and Materials Processing. Filtration systems are necessary
    to radioactive containment procedures for all nuclear facilities.


RECENT TRENDS

Recent trends in the air filter industry, as well as changes in laws and
governmental regulations during the past five years, all encourage an increased
awareness of the benefits of the use of air filtration products. Some of these
trends and changes are:

    Indoor Air Quality and Health. We believe there is an increase in public
    concern regarding the effects of Indoor Air Quality on employee productivity
    and health, as well as an increase in interest in standards for detecting
    and solving IAQ problems. For example, the American Society of Heating
    Refrigeration and Air-Conditioning Engineers (ASHRAE) has recently
    established certain minimum standards for ventilation and indoor air quality
    for commercial and industrial settings. The World Health Organization has
    recently been studying the effects of air quality on human health, including
    widely publicized epidemiological studies indicating that airborne
    contaminants kill more people than automobile accidents.

    Lack of Legitimate Competing Products. We believe there is an increase in
    public and regulatory frustration with spurious and misleading claims made
    by other manufacturers in the air filtration industry. This trend is
    evidenced by recent rulings by the Federal Trade Commission disallowing
    claims of "cleaning the air in an entire room" made by several manufacturers
    of "area HEPA filtration systems" as well as medical benefits claimed by
    manufacturers of "passive electrostatic" washable synthetic filters.

    Hazardous Working Environments. Several studies recognize that air quality
    in working facilities has an impact upon human health. OSHA regulations, in
    particular, have made IAQ a consideration in a wide variety of industries,
    ranging from those industries using spray-paint booths to those using
    automobile assembly lines.

    Sick Building Syndrome. Sick Building Syndrome, which is characterized by
    lethargy, frequent headaches, eye irritation and fatigue, has recently been
    shown to be a valid concern, and is a major design consideration in new and
    renovated commercial and industrial buildings. The identification of "sick"
    buildings, and solutions for mitigation, involve complex issues which need
    to be examined on a case-by-case basis by qualified engineers; solutions
    typically include improving the HVAC and filtration systems of the "sick"
    buildings.


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    Hazardous Emission Regulation and Resultant Liability. Electrical utilities
    became subject to emissions regulations under Title 4 of the Clean Air Act.
    In addition, OSHA's Hazardous Communication Standard, the Toxic Release
    Inventory and community "right to know" regulations regarding liability for
    claims made by employees or neighboring communities have made many
    industries, in particular the chemical and semiconductor industries, more
    aware of clean air regulations. As a result, these industries have taken
    voluntary steps, including the utilization of air filtration systems, to
    bring emissions of potentially hazardous substances into line with
    regulatory standards.

MARKETING

During 2000, we restructured and centralized our sales and marketing structure
and produced a group of unified air filtration products catalogs, which we
believe allows us to focus our marketing efforts more precisely, and ensures
consistency of presentation and pricing across all customers. Previously, each
subsidiary had its own sales and marketing infrastructure, its own product
lines, and its own marketing strategy, which contributed to waste and
inefficiency, and more importantly, market confusion. Our new marketing efforts
are targeted to the needs of individual customers and groups of customers. Each
customer or group of customers is targeted with some combination of the
following: mass marketing allowances and incentive programs for retailers,
educational point of purchase materials and enhanced signage for consumers,
enhanced and unified technical literature for HVAC equipment manufacturers and
wholesalers, targeted technical presentations for specialized manufacturing
environments, and industry-specific technical seminars for filter sales and
service organizations.

Much of our marketing effort consists of personal visits to customers and
distributors through an extensive tiered network of contract salespeople.
Periodic visits are enhanced by mass mailings announcing new products,
participation in trade shows for exposure and lead generation, technical
articles and advertisements in trade periodicals, and a newly redesigned catalog
containing all Flanders products. During 2000, we restructured and unified all
of our product offerings, so that each subsidiary no longer generates its own
marketing literature. We also re-wrote the bulk of our catalog and promotional
materials to include all product lines in a consistent and easy-to-access format
which can be used by all of our customers.

Besides developing new sales leads and contacts, we are also focused on
increasing the effectiveness of our existing distributors and contract salesmen,
by allowing them to offer our products as a complete "single-source" for air
filtration products. We believe this will allow them to increase their sales for
the following reasons:

    Technical Support and Education. We are developing a range of technical
    reference and training materials, along with full-day seminars on various
    aspects of air quality. These seminars will increase the effectiveness of
    our distribution network, encouraging "upselling" and continuing the process
    of encouraging true awareness of indoor air quality and the methods of truly
    dealing with the issues involved.

    Dependability and Responsiveness. Our ability to express-ship via standard
    ground freight to any major population center within one day is a key
    competitive advantage. We also believe that our expansion program and
    general production capacity also allow us to handle relatively large orders
    with shorter lead times than any of our competitors.

    Product Quality. We are known as a manufacturer of high performance air
    filtration products. We currently offer filters of 99.999997% on particles
    0.1 microns or larger, which we believe is the highest efficiency rating
    available anywhere. We have also been recognized for consistency and quality
    of our products by several third-party rating organizations.

    Name Recognition. We believe that each of our product lines has high name
    recognition in its target markets. Our representatives and distributors have
    indicated that they believe their sales will increase with additional
    products associated with Flanders.

    Single-Source Supplier. We provide a full line of air filtration products.
    The ability to work with a single source for filters will enable
    representatives to operate more efficiently, only needing to be trained on
    one filtration system, maintain contacts with a single organization and
    order from a central source.


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    Product Promotion and Innovation. We plan to continue to introduce new
    applications we are developing for filtration products. Representatives and
    distributors will be able to take advantage of the additional name
    recognition and public knowledge associated with the marketing of the new
    products. We believe these representatives will see this as a competitive
    advantage to selling our products.

PRODUCTS

We design, manufacture and market a broad range of air filters and related
products, including:

 -  Residential heating and air conditioning filters, typically sold through
    retailers under the Flanders~Precisionaire brand name.

 -  Residential air cleaners, developed in 2000, which offer a range of
    different filtration types ranging from single-room HEPA units which clean
    the air in a room to near-cleanroom levels to in-duct electrostatic
    precipitators which remove large quantities of airborne contaminants from
    entire residences without negatively impacting the efficiency of HVAC
    systems.

 -  Industrial mid-range specialty filters which fall under specifications
    which are categorized by efficiency ratings established by the American
    Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE),
    used in a wide variety of industries, including paint facilities, automobile
    factories, chemical treatment plants, mushroom farms, coal mines, oil
    refineries and power plants

 -  Commercial and industrial filters for use in office and general
    manufacturing environments, typically sold through wholesalers and
    distributors

 -  High Efficiency Particulate Air (HEPA) filters (at least 99.97% efficient)
    in various grades, for use in semiconductor facilities, nuclear containment
    vessels, disease containment facilities, and other critical applications

 -  Absolute Isolation Barriers which are customized stand-alone units,
    typically manufactured of stainless steel, used in various industries which
    require absolute control over contaminants, atmospheric composition and
    containment

 -  Carbon filters, both in bonded panels and activated charcoal beds, used to
    remove gaseous contaminants, odors and toxic chemical vapors in various
    commercial and industrial applications

 -  Specialized air filter housings, for use in multi-stage filtration
    applications

 -  Other related products, including tubing insulation, ductwork and
    equipment cleaning chemicals, custom air handlers and specialized filter
    housings.

MANUFACTURING

We manufacture air filters, housings, Absolute Isolation Barriers and related
equipment at several facilities in the United States, which range in size from
18,000 square feet to approximately 400,000 square feet. The major plants are:

 -  Ten separate manufacturing facilities located in Bartow, Florida, Terrell,
Texas, Salt Lake City, Utah, Henderson, Nevada, Momence, Illinois,
Smithfield, North Carolina, San Diego, California, Tijuana, Mexico and
Auburn, Pennsylvania, produce a broad range of commercial, residential and
industrial filters.

 -  One facility in Washington, North Carolina, produces high-end HEPA
    products for cleanrooms.

 -  One facility in Bath, North Carolina, manufactures HEGA filters, high-end
    containment environments, housings, custom filter assemblies and other
    custom filtration products and systems which require extensive custom
    design, production and lot tracking, including products used in the
    production and containment of potentially dangerous biologically engineered
    microorganisms.

 -  One facility in Stafford, Texas, produces mid-range custom filter housings
    and air handlers.

In addition, we design, manufacture and assemble the majority of our automated
production equipment.


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Our manufacturing operations are subject to periodic inspection by regulatory
authorities. Because of the nature of some of our products, these agencies
include, in some cases, the Department of Energy, the Food and Drug
Administration and other agencies responsible for overseeing sensitive
technologies. One of the considerations in deciding which types of products each
facility will manufacture is the segregation of highly-regulated products to a
minimal number of facilities to reduce the overhead associated with regulatory
monitoring and compliance.

Each of our manufacturing facilities utilizes testing and design strategies
appropriate to the products manufactured. These range from standard statistical
process quality controls for residential replacement filters to individual
testing and certification with patented proprietary particle scanning
technologies for each laminar-grade HEPA filter. We believe that our ability to
comprehensively test and certify HEPA filters is a competitive advantage.

SOURCE AND AVAILABILITY OF RAW MATERIALS

Our principal raw materials are cardboard, fiberglass fibers, extruded glass,
sheet metal, extruded aluminum, adhesives, resins and wood. All of these raw
materials, except fiberglass fibers, are readily available in sufficient
quantities from many suppliers. We are currently facing a potential shortage of
Madiglioni fiberglass, the base material for our spun-glass filters, which are
our largest individual product line in terms of unit sales. Because of this
shortage, we may have to fill any demand in excess of production capacity with
alternative products, primarily pleated filters.

COMPETITION

The air-filtration market is fragmented and highly competitive. There are many
companies which compete in our market areas. We believe that the principal
competitive factors in the air filtration business include product performance,
name recognition, price, product knowledge, reputation, customized design,
timely delivery and product maintenance. We believe that we compete favorably in
all of these categories. Competitors include successful companies with
resources, assets, financial strength and market share which may be greater than
ours. Major competitors include American Air Filter International, Farr Company,
HEPA Corporation, Purolator Products Air Filtration Company, Donaldson Company,
Inc. and Clark Corporation.

PATENTS, TRADEMARKS AND LICENSES

We currently hold 19 patents relating to filtration technology, including
patents relating to HEPA filters and fabrication methods, filter leak testing
methods, laminar flow cleanrooms, components of isolation barriers, and the
baking soda impregnation method used in the manufacture of Arm & Hammer Pleated
Filters.

We have obtained and own the following federal trademark registrations:
PRECISIONAIRE(R), EZ FLOW(R), SMILIE(R), AIRVELOPE(R), CHANNEL-CEIL(R),
CHANNEL-HOOD(R), PUREFORM(R), ECONO-CELL(R), GAS-PAK(R), PUREFRAME(R),
DIMPLE PLEAT(R), BLU-JEL(R), VLSI(R), CHANNEL-SEAL-ADAPTER(R),
SUPERFLOW(R), FLANDERS(R), CHANNEL-WALL(R), SUPERSEAL(R), AIRPURE(R) and
PURESEAL(R). The Company also has applied for federal trademark
protection for the following marks: FLANDERS ABSOLUTE ISOLATION(TM),
FLANDERS/CSC(TM), TECH-SORB(TM) and FUTUREFLO(TM). Although management
believes that the patents and trademarks associated with our various
product lines and subsidiaries are valuable, we do not consider any of
them to be essential to our business.

We currently license some of our products to foreign specialty HVAC and ASHRAE
filter manufacturers who produce products under their own name and with their
own identifying labels.

CUSTOMERS

We are not dependent upon any single customer. One customer, Wal-Mart Stores,
Inc., accounted for 9%, 10%, and 10% of net sales during 2000, 1999 and 1998,
respectively. Home Depot, Inc., accounted for 13%, 12% and 10% of net sales
during 2000, 1999 and 1998, respectively. No other single customer accounted for
10% or more of net sales. Other significant customers include Abbott
Laboratories, Motorola, Inc., Intel Corporation, Merck & Co., Inc., Upjohn Co.,
Westinghouse Electric Corp., and several large computer chip manufacturers.


                                      10

<PAGE>


BACKLOG

We had approximately $18,400,000 in firm backlog on December 31, 2000, compared
to $12,700,000 on December 31, 1999. Firm backlog includes orders received and
not begun and the unfinished and unbilled portion of contracts in progress.
Orders are typically not cancelable without penalty, except for certain stable
filter supply contracts to nuclear facilities operated by the United States
government. Backlog varies from week to week, based on the timing and mix of
orders received. All backlog at December 31, 2000, is expected to be shipped by
the end of the second quarter of 2001.

EMPLOYEES

The Company employed 2,719 full-time employees on December 31, 2000; 2,355 in
manufacturing, 20 in development and technical staff, 61 in sales and marketing,
and the remaining 283 in support staff and administration. The Company believes
that its relationship with its employees is satisfactory. Manufacturers'
representatives are not employees of the Company.

RESEARCH AND DEVELOPMENT

Our research and development is focused in the following areas:

    Automated equipment design, to increase the efficiency and profitability of
    production lines used for mass production of off-the-shelf filters.

    Alternative filtration media types, including evaluation of new synthetic
    media products, which might either increase efficiency or decrease media
    costs; the Company's Arm & Hammer Pleated Filters are an application of this
    type of research.

    Improved media production techniques, particularly at Precisionaire's spun
    fiberglass production facility in Salt Lake City, Utah, and FFI's HEPA paper
    mill in Washington, North Carolina; during the past ten years, the Company
    has increased the efficiency of its filters through advances in media
    formulation and production techniques from 99.97% to 99.999997%.

    Application development, where new methods and products are developed from
    existing technologies; the Company's in-house air cleaners are an
    application of this type of research.

Research and development costs for 2000, 1999, and 1998 were approximately
$1,174,000, $763,000 and $2,250,000, respectively. Research and development
costs were expensed and included in general and administration expenses during
the period incurred.

GOVERNMENT REGULATION

Our operations are subject to certain federal, state and local requirements
relating to environmental, waste management, health and safety regulations. We
attempt to operate our business in compliance with all applicable government,
environmental, waste management, health and safety regulations and we believe
that our products meet standards from applicable government agencies. There can
be no assurance that future regulations will not require us to modify our
products to meet revised safety or other requirements.

SEASONALITY

Historically, our business has been seasonal, with a substantial percentage of
sales occurring during the second and third quarters of each year. In addition,
demand for our general commercial and industrial products appears to be highly
influenced by the weather, with higher sales generally associated with extremes
of either hot or cold weather, and lower sales generally associated with
temperate weather. Because of these seasonal and weather-related demand
fluctuations, quarter-to-quarter performance may not be a good predictor of
future results.


                                      11

<PAGE>


EXPORT SALES

We sell products for and to end users outside of the United States through
domestic specialty cleanroom contractors. These sales are counted as domestic
sales. We also sell products through foreign distributors, primarily in Europe,
and through Flanders International, Ltd., a wholly-owned subsidiary located in
Singapore which sells to customers in the Far East. Sales through foreign
distributors and Flanders International amounted to less than 5% of net sales
for each of the last three fiscal years. Assets held outside the United States
are negligible.


Item 2.    Properties

The following table lists our principal facilities. Management believes that
these properties are adequate for its current operational needs, but we may at
some point relocate, reorganize or consolidate various facilities for reasons of
operating efficiencies, or may open new plants to take advantage of perceived
new economic opportunities.


<TABLE>
<CAPTION>
                                               Approximate Floor     Monthly
Principal Facility       Location               Space (sq. ft.)      Expense    Lease/Type
-----------------------  --------------------  -----------------    ---------   ----------
<S>                      <C>                   <C>                  <C>         <C>
Manufacturing and
office facility          Washington, North          251,000         $ 13,775     Owned(1)
                         Carolina

Manufacturing, service
and office facility      Bath, North                 44,282            N/A       Owned
                         Carolina

Manufacturing plant      Bartow, Florida            175,000           29,121     Owned(1)

Manufacturing plant      Terrell, Texas             168,000           29,858     Owned(1)

Manufacturing plant      Auburn, Pennsylvania        91,000            7,097     Owned(1)

Office space and
headquarters             St. Petersburg, Florida     18,000            N/A       Owned

Office space and
Warehouse                Richmond, Virginia          10,000            2,200     Leased

Office space and
Warehouse                Virginia Beach, Virginia    25,000            6,850     Leased

Warehouse and
distribution center      Henderson, Nevada          100,000           26,000     Leased

Manufacturing plant      Momence, Illinois          210,000           44,062     Owned(1)(2)

Sales office and
warehouse                Singapore                   10,000            3,350     Leased

Manufacturing and
warehouse                Smithfield, North          138,000           27,520     Leased(4)
                         Carolina

Manufacturing plant      Smithfield, North
                         Carolina                   399,090            N/A(3)    Owned

Manufacturing and
office facility          Stafford, Texas             18,000            N/A       Owned

Manufacturing plant      Salt Lake City, Utah       170,000            N/A       Owned

Plant and office
facility                 San Diego, California       97,000           37,697     Leased

Manufacturing plant      Tijuana, Mexico            118,000           42,800     Leased

</TABLE>


                                      12

<PAGE>


 1  This property is encumbered by a mortgage.

 2  This mortgage is paid quarterly rather than monthly; the quarterly
    payments are $132,187.

 3  This property is used as security for an Industrial Revenue Bond with face
    value of $4,500,000. Monthly payments are for interest only on the bond, and
    vary from month to month based on the interest rate during the period. At
    December 31, 2000, the interest rate on the bond was 5.14%.

 4  This building is owned by a partnership which includes, as minority
    partners, two of the Company's officers and directors.


Item 3. Legal Proceedings

During 2000, we settled our lawsuit with Intel Corporation (The Superior Court
of the State of Arizona, in and for the County of Mariposa, Case No. CV
98-19817), wherein Intel asserted that filters supplied to Intel were defective
because of a change in the formulation of urethane used as a sealant in the
filters. As part of the settlement, the Company agreed to pay Intel $1.5 million
accept the return of the filters as payment for its account receivable from
Intel, and provide Intel with HEPA filters for future work.

In a related matter (U.S. District Court for the Eastern District of North
Carolina, Case No. 4-99-CV-93-H(3)), the Company has sued Conap, the supplier of
the urethane sealant, for supplying a sealant which did not meet specifications
for the project. The amount and probability of any settlement or award is
unknown at this time.

We are involved in a dispute with a benefit plan administrator (U.S. District
Court, Middle District of Florida, Tampa Division, Case No. CIV 1971-T-17-F,
Liberty Mutual v. Flanders Corporation et al). Liberty Mutual was the Workers'
Compensation administrator and stop-loss insurer for some of the Company's
subsidiaries. They have alleged that they are owed insurance premiums and
administrative fees. We have counter-sued, claiming that Liberty Mutual was
negligent in its duties as administrator of our claims, that it made payments on
our behalf which were specifically disallowed, that they refused to follow
instructions given to them by us, that they failed to meet minimal acceptable
standards for administering claims, and that such failures constituted a
material dereliction of their responsibilities as administrator, as well as
other claims related to malfeasance and negligence. The amount and probability
of any settlement or award related to this litigation is unknown at this time.
Among the issues being considered is the matter of currently unresolved workers'
compensation claims whose estimate of potential loss may change as a result of
this litigation. While management believes it has reserved an adequate amount
for settlement of these claims, there is no guarantee that the Company's actual
liability will not exceed its current estimate. Accordingly, these matters, if
resolved in a manner different from management's estimate, could have a material
effect on the operating results or cash flows in any one future accounting
period.

Additionally, from time to time, we are a party to various legal proceedings
incidental to our business. None of these proceedings are material to our
business, operations or financial condition.

In the opinion of the Company, although the outcome of any legal proceeding
cannot be predicted with certainty, the ultimate liability of the Company in
connection with its legal proceedings will not have a material adverse effect on
the Company's financial position, but could be material to the results of
operations in any one future accounting period.


                                      13

<PAGE>


Item 4.    Submission of Matters to a Vote of Security Holders

We held our annual meeting of shareholders on December 18, 2000. During the
meeting, holders of 14,933,405 shares, representing approximately 57% of
26,379,633 shares outstanding on the record date, attended either in person or
by proxy. Holders of 14,911,805 shares (approximately 99.9% of shares present)
voted to elect as members of the Board of Directors each of Robert R. Amerson,
Steven K. Clark, J. Russell Fleming and Linwood Allen Hahn; holders of 21,600
shares chose to vote against the election of each of the above-named directors.
As a result, Messrs. Amerson, Clark, Fleming and Hahn were elected for an
additional one-year term as directors.

Holders of 14,933,405 shares (approximately 99.9% of shares present) voted to
ratify the firm of Grant Thornton LLP as the Company's independent auditors for
the fiscal year ended December 31, 2000; holders of 21,600 shares voted against
the ratification. As a result, Grant Thornton's appointment as the Company's
auditors for 2000 was ratified.


                                      14

<PAGE>


                                   PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters


PRICE RANGE OF COMMON STOCK

The Company's common stock is listed on the Nasdaq National Market System under
the symbol "FLDR." The following table sets forth, for the periods indicated,
the high and low closing prices of the Company's common stock as reported by the
Nasdaq National Market System. Such quotations do not include retail mark-ups,
mark-downs, or other fees or commissions.

<TABLE>
<CAPTION>
                                                      High           Low
                                                   ---------      ---------
<S>                                                <C>            <C>
Fiscal 2000
Fourth Quarter ended December 31, 2000             $ 2 19/32      $ 1  3/8
Third Quarter ended September 30, 2000               3 11/16        1  5/8
Second Quarter ended June 30, 2000                   4  1/8         1  5/16
First Quarter ended March 31, 2000                   4  1/8         2  9/16

Fiscal 1999
Fourth Quarter ended December 31, 1999             $ 3  1/8       $ 2  1/4
Third Quarter ended September 30, 1999               3  3/8         2  3/8
Second Quarter ended June 30, 1999                   3 13/16        2  1/2
First Quarter ended March 31, 1999                   5  1/8         2  9/16
</TABLE>

APPROXIMATE NUMBER OF EQUITY SECURITYHOLDERS

On April 12, 2001, Flanders' common stock closed at $1.77. As of April 12, 2001,
there were approximately 350 holders of record of the Company's common stock.
The Company estimates there are approximately 2,500 beneficial owners of the
Company's common stock.

DIVIDENDS

We have not declared or paid cash dividends on our common stock. Currently, we
intend to retain any future earnings to finance the growth and development of
the business, therefore we do not anticipate paying cash dividends in the
foreseeable future. In the future, the Board of Directors may decide to change
this policy, based upon its evaluation of our earnings, financial position,
capital requirements and any factors the Board of Directors may consider to be
relevant. Under the terms of our revolving credit line we cannot pay dividends
without the prior written consent of the bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Notes to Consolidated Financial Statements - Note H."

SALES OF UNREGISTERED SECURITIES

The Company did not sell any unregistered common shares or other unregistered
securities during 1998, 1999 and 2000.


                                      15

<PAGE>


Item 6.    Selected Financial Data

The following financial data is an integral part of, and should be read in
conjunction with, the "Consolidated Financial Statements" and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SELECTED HISTORICAL OPERATIONS DATA (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                               ---------------------------------------------------------
                                                  2000        1999        1998        1997       1996
                                               ----------  ----------  ----------  ---------- ----------
<S>                                            <C>         <C>         <C>         <C>        <C>
Net sales                                      $ 194,072   $ 171,392   $ 154,765   $ 131,899  $  73,056
Gross profit                                      36,917      43,975      37,660      32,880     19,459
Operating expenses                                40,733      33,802      28,108      23,510     13,460
Operating income (loss) from continuing
  operations                                      (3,816)     10,172       9,551       9,370      5,999
Earnings (loss) from continuing operations
  before income taxes                             (6,940)     10,174      10,991       9,850      5,771
Provision (benefit) for income taxes              (2,443)      4,671       4,450       3,751      2,178
Earnings (loss) from continuing operations        (4,497)      5,503       6,541       6,098      3,594
Loss from discontinued operations                 (2,702)     (2,686)     (1,253)       (259)       -
Net earnings (loss)                            $  (7,199)   $  2,817   $   5,289   $   5,839  $   3,594
                                               ==========  ==========  ==========  ========== ==========


Earnings (loss) per share from continuing
  operations
    Basic                                      $   (0.18)  $    0.22   $    0.26   $    0.33  $    0.27
                                               ==========  ==========  ==========  ========== ==========
    Diluted                                    $   (0.18)  $    0.21   $    0.24   $    0.28  $    0.23
                                               ==========  ==========  ==========  ========== ==========

Earnings (loss) per share
    Basic                                      $   (0.28)  $    0.11   $    0.21   $    0.32  $    0.27
                                               ==========  ==========  ==========  ========== ==========
    Diluted                                    $   (0.28)  $    0.11   $    0.20   $    0.27  $    0.23
                                               ==========  ==========  ==========  ========== ==========

Weighted average common shares outstanding
    Basic                                         25,298      25,344      25,134      18,509     13,171
                                               ==========  ==========  ==========  ========== ==========
    Diluted                                       25,298      26,525      27,107      22,477     16,384
                                               ==========  ==========  ==========  ========== ==========
</TABLE>


SELECTED HISTORICAL BALANCE SHEET DATA (In thousands)

<TABLE>
<CAPTION>
                                                                      December 31,
                                               ---------------------------------------------------------
                                                  2000        1999        1998        1997       1996
                                               ----------  ----------  ----------  ---------- ----------
<S>                                            <C>         <C>         <C>         <C>        <C>
Working capital                                $  13,644   $  45,421   $  47,972   $  55,179  $  22,570
Total assets                                     180,222     165,642     167,780     145,881     86,518
Long-term obligations(1)                          49,370      32,328      31,406      14,771     42,156
Total shareholders' equity                        98,151     107,817     109,603     106,207     25,353
</TABLE>

____________________

 1  Long-term obligations include long-term notes payable, long-term debt,
    including current maturities, convertible debt, and committed capital.


                                      16

<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

The following discussion should be read in conjunction with "Item 6 - Selected
Consolidated Financial Data" and "Consolidated Financial Statements," all
included elsewhere herein. The information set forth in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
includes forward-looking statements that involve risks and uncertainties. Many
factors, including but not limited to those discussed below under "Factors That
May Affect Future Results" could cause actual results to differ materially from
those contained in these forward-looking statements.

OVERVIEW

Flanders is a full-range air filtration product company engaged in designing,
manufacturing and marketing high performance, mid-range and standard-grade air
filtration products and certain related products and services. Our focus has
evolved from expansion through acquisition to increasing the quality and
efficiency of our high-volume replacement filtration products, and using these
benefits to compete more effectively in the marketplace. We also design and
manufacture much of our own production equipment and also produce glass-based
media for many of our air filtration products. From 1996 to 1999, we experienced
significant growth from the acquisition of other air filtration related
companies. As a result, historical results of operations for the periods
presented should be evaluated specifically in the context of these acquisitions.
Historical results of operations do not reflect any future operating
efficiencies and improvements from integrating and consolidating the acquired
businesses into our operations. There can be no guarantee that we will be able
to achieve these objectives and gains in efficiency.

RESULTS OF OPERATIONS

    2000 Compared to 1999

    The following table summarizes the Company's results of operations as a
    percentage of net sales for 2000 and 1999.

<TABLE>
<CAPTION>
                                                        2000                1999
                                                ------------------  ------------------
<S>                                             <C>         <C>     <C>         <C>
    Net sales                                   $ 194,072   100.0%  $ 171,392   100.0%
    Gross profit                                   36,917    19.0      43,975    25.7
    Operating expenses                             40,733    21.0      33,802    19.7
    Operating income (loss) from continuing
      operations                                   (3,816)   (2.0)     10,172     5.9
    Earnings (loss) from continuing operations
      before income taxes                          (6,940)   (3.6)     10,174     5.9
    Provision (benefit) for income taxes           (2,443)   (1.3)      4,671     2.7
    Earnings (loss) from continuing operations     (4,497)   (2.3)      5,503     3.2
    Loss from discontinued operations              (2,702)   (1.4)     (2,686)   (1.6)
    Net earnings (loss)                         $  (7,199)   (3.7)   $  2,817     1.6
</TABLE>

    Net Sales: Net sales for 2000 increased by $22,680,000 or 13.2%, to
    $194,072,000, from $171,392,000 for 1999. The increase in net sales was due
    to the Company's success in capturing additional market share, which was
    achieved mainly through (i) attracting work from new customers through
    offering superior pricing and service programs; (ii) securing additional
    business from existing customers in expanded geographical regions; and (iii)
    the development and placement of new lines of filtration products with new
    customers for end users in new industries.

    Other Charges and Special Items: During the last half of 2000, we formalized
    our plan to consolidate our west coast operations, and recorded other
    charges and special items totaling approximately $10,600,000 in connection
    with settling our outstanding litigation with Intel, consolidating
    operations, combining organizations, plant start-up expenses and for other
    nonrecurring items arising during the period. These expenses were booked as
    approximately $7,900,000 in cost of goods sold, $1,200,000 in operating


                                      17

<PAGE>


    expenses and $1,500,000 in other expenses. Amounts booked for settlement of
    the Intel litigation included repurchasing inventory at a loss and cash
    payments - see "Litigation." Other one-time charges included costs for
    inventory adjustments, write-offs, plant start-up expenses, duplicate assets
    and other miscellaneous items. Without these one time charges and special
    items, earnings from continuing operations would have been approximately
    $2,600,000, or $0.10 per share.

    Gross Profit. Gross profit for 2000 decreased $7,058,000, or 16.1%, to
    $36,917,000, which made up 19.0% of net sales, from $43,975,000 for 1999,
    which made up 25.7% of net sales. Excluding the one-time charges noted
    above, gross profit for 2000 would have increased by $842,000, or
    1.9%, to $44,817,000, which represented 23.1% of net sales, compared to
    $43,975,000, which represented 25.7% of net sales for 1999. The decrease in
    gross profit excluding one-time charges percentage was principally
    attributable to:

     -  Delays in implementing our price increases associated with delays in
        the production of marketing materials and associated reorganized and
        consolidated marketing efforts. Anticipated benefits from this
        reorganization, the first stage of which was completed in mid-September,
        were not completed in time to have a material beneficial impact on our
        2000 results.

     -  An increase in the percentage of our labor force employed through
        temporary services compared to 1999, caused by the continued tightness
        in the labor pool of qualified seasonal workers, which increased average
        labor costs per hour during the period and resulted in a net increase in
        comparable expenses of approximately $700,000.

     -  Price concessions made to secure new contracts with distributors for
        mid-range industrial end-users led to a decrease in average selling
        price to industrial distributors of approximately 2%.

     -  Expanded facilities in Salt Lake City, Utah and Tijuana, Mexico, which
        were brought partially online during 2000, experienced additional
        expenses associated with completing expansions, reorganizing production
        schedules, hiring and training additional laborers, and other
        inefficiencies typical of reorganized and expanded manufacturing
        operations.

     -  Fuel surcharges for inbound shipments of raw materials, which were
        attributable to a general increase in domestic diesel fuel costs caused
        by escalating political instability in the Middle East as well as OPEC
        supply constraints.

     -  During 1999 and 2000, we received national contracts from major
        retailers which required our first exposure to new "point-of-sale"
        distribution requirements. The contracts had pricing predicated upon
        certain erroneous assumptions regarding the costs of these distribution
        methods, and these problems were exacerbated by increases in fuel and
        related shipping expenses.

     -  Labor overruns and redundant personnel. See "Outlook" below.

    Operating Expenses. Operating expenses for 2000 increased $6,931,000, or
    20.5%, to $40,733,000, compared to $33,802,000 in 1999. Excluding one-time
    charges, operating expenses for 2000 would have increased
    $5,731,000, or 17.0%, to $39,533,000, which represented 20.4% of net sales,
    from $33,802,000, which represented 19.7% of net sales in 1999.

    The increase in operating expenses excluding one-time charges was
    principally attributable to:

     -  Fuel surcharges on outbound shipments of finished goods to customers
        and other shipping cost increases primarily attributable to a sharp
        increase in diesel fuel costs amounted to approximately $2,800,000.

     -  A reevaluation of accounts receivable reserves due to economic
        downturn and an increase in the number of potentially bad receivables
        caused bad debt expense in 2000 to be approximately $1,450,000 higher in
        2000 than in 1999, an increase of approximately 3800%.

     -  Other increases in operating expenses were held to 4.4%, with
        increases in sales commissions, outbound freight and other expenses
        directly related to sales volume balanced by reductions in redundant
        administrative staff, consolidation of positions between subsidiaries
        and other savings from our ongoing consolidation and cost reduction
        program.


                                      18

<PAGE>


    Nonoperating income (expense) from continuing operations: Net nonoperating
    income (expense) from continuing operations decreased approximately
    $3,125,000, to an expense of approximately $3,124,000 for 2000, from income
    of $1,000 in 1999. Excluding the one-time charge for the settlement of our
    outstanding litigation with Intel of $1,500,000, nonoperating income
    (expense) from continuing operations decreased approximately $1,625,000,
    which consisted primarily of an increase in interest expense of $1,537,000
    caused by higher average balances on the Company's credit facilities and a
    higher average interest rate on the Company's lines of credit, which have
    variable rates linked to standard interest rate indices.

    Discontinued Operations: In December 1999, the Company adopted a formal plan
    to close Airseal West, a wholly owned subsidiary, and sell its various
    assets and product lines to unrelated third parties. The closure was
    completed in the first quarter of 2001, although various assets remain held
    for sale. The assets to be sold consist primarily of non-filtration assets
    consisting of inventories, manufacturing equipment, designs and intellectual
    properties. As there are no firm purchase commitments in place regarding the
    sale of these assets, the remaining net assets of Airseal West have been
    written down to $0. The estimated net loss of the discontinued operations of
    approximately $2,702,000 and $2,686,000 in 2000 and 1999, respectively,
    consists of net losses from discontinued operations of $1,820,000 and
    $1,793,000, respectively, approximately $893,000 of estimated losses on the
    disposal of assets which were accrued in 1999, and an additional $883,000 of
    estimated losses on the disposal of assets accrued in 2000.

    Provision for Taxes: Our blended state and federal tax rate, excluding the
    effect of nondeductible expenses consisting primarily of amortization of
    goodwill of approximately $900,000 per year and one-time adjustments, was
    approximately 40.0% for both 2000 and 1999.

    Earnings (loss) from Continuing Operations: Earnings (loss) from continuing
    operations for 2000 decreased $10,000,000, or 182%, to a loss of $4,497,000,
    or ($0.18) per share, from $5,503,000, or $0.22 per share basic ($0.21
    diluted) for 1999. The decrease in earnings is primarily attributable to
    one-time charges and decreases in gross profit percentage discussed above.


    1999 Compared to 1998

    The following table summarizes the Company's results of operations as a
    percentage of net sales for 1999 and 1998.

<TABLE>
<CAPTION>
                                                       1999                1998
                                                ------------------  ------------------
<S>                                             <C>         <C>     <C>         <C>
    Net sales                                   $ 171,392   100.0%  $ 154,765   100.0%
    Gross profit                                   43,975    25.7      37,660    24.3
    Operating expenses                             33,802    19.7      28,108    18.2
    Operating income from continuing
      operations                                   10,172     5.9       9,551     6.2
    Earnings from continuing operations
      before income taxes                          10,174     5.9      10,991     7.1
    Provision for income taxes                      4,671     2.7       4,450     2.9
    Earnings from continuing operations             5,503     3.2       6,541     4.2
    Loss from discontinued operations              (2,686)   (1.6)     (1,253)   (0.8)
    Net earnings                                $   2,817     1.6   $   5,289     3.4
</TABLE>

    Net Sales: Net sales for 1999 increased by $16,627,000 or 10.7%, to
    $171,392,000, from $154,765,000 for 1998. The increase in net sales was due
    to: (i) the acquisitions of Eco-Air and the Tidewater group, which
    contributed approximately $15,334,000 of net sales; and (ii) the Company's
    success in attracting work and expanding its original core business, which
    grew by approximately 1% between 1999 and 1998 and contributed an additional
    $1,293,000 to net sales.


                                      19

<PAGE>


    Gross Profit: Gross profit for 1999 increased $6,315,000, or 16.8%, to
    $43,975,000, which represented 25.7% of net sales, compared to $37,660,000,
    which represented 24.3% for 1998. This increase in gross margin percentage
    was primarily due to:

     -  Higher margins on sales made through our direct sales offices, which
        made significant contributions to sales of our products for the first
        time during the last half of 1999;

     -  Margin improvement from our ongoing automation projects;

     -  Operational efficiencies at our newest facilities in Nevada, Illinois
        and North Carolina, which are gradually increasing over time and should
        increase to the levels experienced historically at other plants during
        the next twelve to eighteen months; and

     -  Internally produced spun-glass media for our residential and
        commercial flat-panel furnace and air conditioning filters began in
        significant quantities during the fourth quarter of 1999, providing an
        estimated savings of approximately $100,000.

     -  Hurricane Floyd which caused us to close four of our plants in the
        eastern United States for periods ranging from 0.5 days to 5.5 days.
        There is an associated insurance claim whose amount has not yet been
        determined, which will be booked as "other income" during the period in
        which the amount becomes fully determined.

    Operating Expenses: Operating expenses during 1999 increased $5,694,000, or
    20.3% to $33,802,000, representing 19.7% of net sales, compared to
    $28,108,000 for 1998, which represented 18.2% of net sales. The increase in
    operating expenses was primarily due to the acquisitions of Eco-Air and the
    Tidewater group, which added approximately $5,031,000 in operating expenses.
    Excluding these acquisitions, operating expenses increased $663,000 from
    1999 compared to 1998. This increase is primarily due to the establishment
    of direct sales offices during the last part of 1998 and all of 1999, which
    offset the increase in gross profit margin attributable to direct office
    operations. Other factors affecting operating expenses included decreased
    expenditures for new product development expenditures between 1999 and 1998,
    the consolidation and centralization of overhead functions, increased in
    outbound freight expenses related to increased sales and higher fuel costs,
    and increased sales commission expenses associated with increased sales.

    Discontinued Operations: In December 1999, we adopted a formal plan to close
    Airseal West, a wholly-owned subsidiary, and sell its various assets and
    product lines to unrelated third parties. The date of closure was
    approximately April 30, 2000. All dispositions of assets are expected to be
    completed before December 31, 2000. The assets to be sold consist primarily
    of accounts receivable, inventories, manufacturing equipment, designs and
    other intellectual properties. The estimated net loss of the discontinued
    operations of approximately $2,686,000 represents approximately $1,793,000
    of losses incurred during 1999 and $893,000 of estimated loss on the
    disposal of the assets of Airseal West (both figures net of income tax
    benefit). During 1998, operating losses from Airseal West were approximately
    $1,253,000, net of income tax benefit.

    Provision for Taxes: Our income tax provision for 1999 increased $221,000,
    or 5.0%, to $4,671,000, from $4,450,000 for 1998, which represented 45.9%
    and 40.5% of earnings from continuing operations before income taxes,
    respectively. Our tax provision increased because of larger amounts of
    nondeductible expenses, primarily amortization of goodwill, and certain
    one-time adjustments related to estimated accrued income taxes. Our blended
    state and federal tax rate, excluding the effect of nondeductible expenses
    consisting primarily of amortization of goodwill of approximately $900,000
    per year and one-time adjustments, is approximately 40.0%.

    Earnings from Continuing Operations: Earnings from continuing operations for
    1999 decreased $1,038,000, or 15.9%, to $5,503,000, or $0.22 per share basic
    ($0.21 diluted), compared to $6,541,000, or $0.26 per share basic ($0.24
    diluted), for 1998. The decrease in earnings is primarily attributable to
    decreases in net nonoperating income (expense), consisting primarily of
    additional interest expense and reduced interest income, and an increase in
    our effective income tax rate.


                                      20

<PAGE>


EFFECTS OF INFLATION

The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.

LIQUIDITY AND CAPITAL RESOURCES

Working capital was $13,644,000 at December 31, 2000, compared to $45,421,000 at
December 31, 1999. This includes cash and cash equivalents of $1,333,000 and
$824,000 at December 31, 2000 and 1999, respectively.

Trade receivables increased $4,458,000, or 15.4%, to $33,481,000 at December 31,
2000 from $29,023,000 at December 31, 1999. The increase in receivables is
primarily due to increases associated with the increased volume of net sales
(approximately $4,000,000) and timing differences in shipments and payments
received. Our allowance for doubtful accounts receivable increased $1,291,000,
or 265%, to $1,778,000 at December 31, 2000 from $487,000 at December 31, 1999.
The increase in this allowance was due to a perceived increase in the number of
potentially bad accounts due to the current economic downturn. We intend to
vigorously pursue all collection efforts on these perceived bad accounts.

Continuing operations consumed $543,000 of cash in 2000, compared to generating
$5,290,000 of cash during 1999. The difference in cash flows was primarily
related to the difference in net earnings from continuing operations, partially
mitigated by increases in accounts payable. Financing activities for continuing
operations provided $11,216,000 of cash in 2000, compared to $5,262,000 of cash
consumed during 1999 of cash, primarily from advances on our revolving credit
facility and other debt financing. Investing activities for continuing
operations consumed $9,659,000 of cash during 2000, compared to $11,210,000
consumed during 1999, consisting primarily of the purchase of property, plant
and equipment.

On February 9, 2000, we completed the extension of our $45,000,000 revolving
credit facility with SunTrust Bank, N.A. The credit facility consists of a
$30,000,000 working capital facility and a $15,000,000 line of credit to support
issuances of letters of credit. Outstanding balances on the working capital
facility bear interest at our option, at either (a) the "prime" rate of interest
publicly announced by SunTrust Bank, which was 9.5% at December 31, 2000, or (b)
the "LIBOR" rate as reported by the Wall Street Journal, which was 6.7338% at
December 31, 2000, plus an amount equal to 1.00% to 1.95%, depending on the
ratio of total liabilities to tangible net worth. As of December 31, 2000, we
had used $26,007,000 of the working capital facility and had issued $9,400,000
of letters of credit against the line of credit, leaving approximately $4
million available for future borrowings and $5.6 million available for future
letters of credit. Unless this credit facility is renewed, it will expire in
June 2002. At December 31, 2000, we were in violation of certain financial loan
covenants. We are currently negotiating with our banks to receive a waiver for
these violations. As a result of these violations, the outstanding balance on
our $30 million working capital facility has been classified as short-term debt.
If we are unable to get a waiver for these loan covenant violations, we may be
required to repay or refinance the outstanding balance using a different bank.

As of March 1, 2000, we entered into a Loan Agreement and issued a Note to the
Johnston County Industrial Facilities and Pollution Control Financing Authority
and such authority issued Industrial Development Revenue Bonds for an aggregate
of $4,000,000, to be used in the construction of a glass recycling facility in
Johnston County, North Carolina. This new facility is expected to be completed
by the end of the first quarter of 2001. The Note has a term of 15 years and
bears interest at a variable rate determined by the remarketing agent of the
Bonds on a weekly basis equal to the minimum rate necessary to sell such Bonds
at their par value. In May 2000, we entered into an interest rate swap which is
a hedge which effectively fixes the interest rate of the Bonds to a rate of
5.14% per annum. The Bonds are collateralized by a $4,000,000 letter of credit
which expires in June 2002.

Continuing expansion may require substantial capital investment for the
manufacture of filtration products. Although we have been able to arrange debt
facilities or equity financing to date, there can be no assurance that
sufficient debt financing or equity will continue to be available in the future,
or that it will be available on acceptable terms. Failure to obtain sufficient
capital could materially adversely impact our growth strategy.

In 1998, the Board of Directors authorized the repurchase of up to two million
shares of our common stock, which repurchase was completed in September 2000. On
September 22, 2000, the Board of Directors authorized the


                                      21

<PAGE>


repurchase of up to an additional two million shares of common stock. As of
April 12, 2001, approximately 221,000 shares had been repurchased under this
authorization. These shares may be acquired in the open market or through
negotiated transactions. These repurchases may be made from time to time,
depending on market conditions, share price and other factors. These repurchases
are to be used primarily to satisfy our obligations under stock option and
purchase plans or any other authorized incentive plans, or for issuance pursuant
to future equity financing.

Outlook

During the first quarter of 2001, we instituted force reductions to eliminate
approximately 250 redundant positions and regain efficiency at several of our
manufacturing plants, and anticipate an additional reduction of approximately
100 redundant positions. This force reduction is expected to save approximately
$8 million annually, beginning in the first quarter of 2001. In addition, all
operating facilities and departments, including corporate headquarters, will be
required to reduced wages by ten percent beyond the above-described reductions
in force, either through additional reductions in force or through salary and
wage reductions, including senior management wage reductions of ten percent,
effective April 19, 2001, until we meet our budgets for financial and
operational performance, as determined by the Board of Directors.

We are currently introducing new products for the retail marketplace, our Airia
indoor air cleaners and wholehouse residential air cleaning systems. In contrast
to our standard retail filters, the bulk of which sell for unit prices between
$0.50 and $10, these new products will sell for substantially more (between $200
and $5,000, with replacement packs ranging from $3/mo. to $15/mo). These are new
products which are substantially different in features, appearance and
performance from competing products, and we have no actual market data on how
successful they will be, and hence have no way of estimating their impact on the
financial results of the Company. Any sales of these units in significant
quantities will require additional financial resources, either through equity or
financing, to finance working capital requirements for production and sale of
these products. For example, placement of an initial stocking order of the
lowest-priced unit by a national retailer with 5,000 locations would result in
new sales in excess of $15 million, with commensurate working capital
requirements. At this point, we cannot estimate when or how much working capital
may be required to finance these new products, and cannot be certain that
contingency plans currently in place will be sufficient.

Despite the recent downturn in consumer and commercial spending for computers
and other electronic devices using semiconductors, our orders for cleanroom
filtration products are currently strong, with a substantial backlog for these
products. However, several analysts have predicted that capital spending for new
semiconductor plants will be cut back in the next six months, and that several
currently planned or in progress facilities will be placed on hold or canceled.
Other analysts have commented that this sector currently has much lower
visibility and ability to forecast than has been the norm. Hence, we believe it
is reasonably likely that current orders for filters to be placed in new
semiconductor facilities may be canceled with little or no notice. While these
contracts typically allow for reimbursement of expenses incurred through date of
cancellation, we will not realize any profits on any canceled contracts.

We have collected data that indicates that residential filter users replace
their filters, on average, approximately once per year. Manufacturers of
residential furnace and air conditioning systems recommend that these filters be
changed every month. A minor trend toward increased maintenance of these
residential heating and cooling systems could have a positive impact on our
business.

We believe there is currently a gradually increasing public awareness of the
issues surrounding indoor air quality and that this trend will continue for the
next several years. We also believe there is an increase in public concern
regarding the effects of indoor air quality on employee productivity, as well as
an increase in interest by standards-making bodies in creating specifications
and techniques for detecting, defining and solving indoor air quality problems.
We further believe there will be an increase in interest in our Absolute
Isolation Barriers in the future because these products may be used in both
semiconductor and pharmaceutical manufacturing plants to prevent
cross-contamination between different lots and different processes being
performed at the same facility. These products also increase production yields
in many applications.

Our most common products, in terms of both unit and dollar volume, are
residential throw-away spun glass filters, which usually sell for prices under
$1.00. Any increase in consumer concern regarding air pollution, airborne
pollens, allergens, and other residential airborne contaminants could result in
replacement of some of these products with higher value products. Our higher
value products include our NaturalAire higher-efficiency filters for


                                      22

<PAGE>


residential use, with associated sales prices typically over $5.00 each. Any
such trend would have a beneficial effect on our business. If our residential
air cleaners are successful, we believe replacement filter sales, and the
increased awareness of indoor air quality engendered by the simple presence of
the air cleaners, will help to create and/or accelerate this trend.

Currently, the largest domestic market for air filtration products is for
mid-range ASHRAE-rated products and HVAC systems, typically used in commercial
and industrial buildings. To date, our penetration of this market has been
relatively small. We believe our ability to offer a "one stop" supply of air
filtration products to HVAC distributors and wholesalers may increase our share
of this market. We also believe that our recently developed modular air handlers
and environmental tobacco smoke systems will enable us to expand sales to these
customers. We intend our new products to serve as high profile entrants with
distributors and manufacturers' representatives, who can then be motivated to
carry our complete product line.

This Outlook section, and other portions of this document, include certain
"forward-looking statements" within the meaning of that term in Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, including, among others, those statements preceded by, following or
including the words "believe," "expect," "intend," "anticipate" or similar
expressions. These forward-looking statements are based largely on the current
expectations of management and are subject to a number of assumptions, risks and
uncertainties. Our actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include those discussed below under the heading
"Factors That May Affect Future Results" as well as:

 -  the shortage of reliable market data regarding the air filtration market,

 -  changes in external competitive market factors or in our internal
    budgeting process which might impact trends in our results of operations,

 -  anticipated working capital or other cash requirements,

 -  changes in our business strategy or an inability to execute our strategy
    due to unanticipated changes in the market,

 -  product obsolescence due to the development of new technologies, and

 -  various competitive factors that may prevent us from competing
    successfully in the marketplace.

In light of these risks and uncertainties, there can be no assurance that the
events contemplated by the forward-looking statements contained in this Form
10-K will in fact occur.

Factors That May Affect Future Results

Failure to Manage Future Growth Could Adversely Impact Our Business Due to the
Strain on Our Management, Financial and Other Resources

If our business continues to grow, the additional growth will place burdens on
management to manage such growth while maintaining profitability. We have no
guarantee that we will be able to do so. Due to our recent acquisitions and
expansions, our net sales increased by approximately 405% from 1995 through
2000, (a compound annual growth rate of 32%). We may not continue to expand at
this rate. Our ability to compete effectively and manage future growth depends
on our ability to:

 -  recruit, train and manage our work force, particularly in the areas of
    corporate management, accounting, research and development and operations,

 -  manage production and inventory levels to meet product demand,

 -  manage and improve production quality,

 -  expand both the range of customers and the geographic scope of our
    customer base, and

 -  improve financial and management controls, reporting systems and
    procedures.

Any failure to manage growth effectively could have a material adverse effect on
our business, financial condition and results of operations.


                                      23

<PAGE>


Any Delay in Procuring Financing for New Products or Failure to Adequately
Ramp-Up Production Capacity to Meet Demand Could Adversely Impact Our Business
Due to Strain on Financial Resources.

During 2001 we are introducing and mass marketing products which, if successful,
will require large amounts of additional financing and/or capital. This
financing may need to be available on short notice. Any failure to obtain such
financing, or delay in financing, could cause the failure of the new products
due to inability to deliver on time, and could adversely impact relationships
with current major accounts. In addition, delays in an untried supply chain, new
production chains, and other delays common to the launch of a new product line
could also adversely impact the success of the products, as well as current
relationships with major accounts.

Failure to Negotiate Appropriate Loan Covenant Waivers or Obtain Alternate
Financing on Beneficial Terms Could Negatively Impact Our Business and
Shareholders

As of December 31, 2000, we were in violation of certain loan covenants on our
$30 million operating capital line which have not been waived. If our current
and ongoing attempts to obtain waivers from our banks are unsuccessful, and we
are unable to obtain alternate financing on beneficial terms, we could be forced
to obtain financing or raise equity under terms which would not be favorable to
us in order to continue to operate our business, which could have a
significantly adverse impact on our business and operations or lead to
significant dilution to our existing shareholders.

We Must Develop, Produce and Sell New Products That Keep Up With Rapid
Technological Change to Maintain Approximately 15% of Our Revenues and Maintain
Value of Our Inventory and Other Assets

As of December 31, 2000, approximately 15% of our revenues resulted from sales
of high-end filtration products that are especially vulnerable to new technology
development. Our ability to remain competitive in this area will depend in part
upon our ability to:

 -  anticipate technological changes,

 -  develop new and enhanced filtration systems that meet our customers'
    needs, and

 -  introduce these systems at competitive prices in a timely and cost-
    efficient manner.

We have no assurance that we will successfully anticipate future technological
changes or that technologies or systems developed by others will not render our
technology obsolete. Additionally, we have no assurance that the products we
develop will be commercially viable. A failure to successfully anticipate future
technological changes could also require us to write down inventories, equipment
or other assets associated with obsolete products or dispose of these assets at
a price lower than book value, which could have a material adverse effect on our
financial condition and results of operations.

Our Business May Suffer if Our Competitive Strategy is Not Successful

Our continued success depends on our ability to compete in an industry that is
highly competitive. This competition may increase as new competitors enter the
market. Several of these competitors may have longer operating histories and
greater financial, marketing and other resources than we do. Additionally, our
competitors may introduce new products or enhancements to products that could
cause a decline in sales or loss of market acceptance of our existing products.
Under our current competitive strategy, we endeavor to remain competitive by:

 -  increasing our market share,

 -  expanding our market through the introduction of new products which
    require periodic replacement, and

 -  improving operating efficiencies.

Although our executive management team continues to review and monitor our
strategic plans, we have no assurance that we will be able to follow our current
strategy or that this strategy will be successful.

Our Market Share May Not Continue to Increase if we are Unable to Acquire
Additional Synergistic Businesses

In the past several years we have significantly increased our market share by
acquiring synergistic businesses. Although we intend to continue to increase our
market share in this manner, we have no assurance that future acquisition
opportunities will be available. Additionally, in the future we may not have
access to the substantial debt or equity financing to finance potential
acquisitions. Moreover, these types of transactions may result in


                                      24

<PAGE>


potentially dilutive issuances of equity securities, the incurrence of
additional debt and amortization of expenses related to goodwill and intangible
assets, all of which could adversely affect our profitability. Our strategy of
growth through acquisition also exposes us to the potential risks inherent in
assessing the value, strengths, weaknesses, and potential profitability of
acquisition candidates and in integrating the operations of acquired companies.
We do not currently have any binding agreements with respect to future
acquisitions.

Our Business May Suffer if Our Strategy to Increase the Size and Customer Base
of the Air Filtration Market is Unsuccessful

We are developing new products as part of our strategy to increase the size and
customer base of the air filtration market. We have no assurance that this
strategy will be successful. We have no guarantee that any new products we
develop will gain acceptance in the marketplace, or that these products will be
successful. Additionally, we have no assurance we will be able to recoup the
expenditures associated with the development of these products. To succeed in
this area we must:

 -  increase public awareness of the issues surrounding indoor air quality,

 -  adequately address the unknown requirements of the potential customer base,

 -  develop new products that are competitive in terms of price, performance
    and quality, and

 -  avoid significant increases in current expenditure levels in development,
    marketing and consumer education.

We May Experience Critical Equipment Failure Which Could Have a Material Adverse
Effect on Our Business

If we experience extended periods of downtime due to the malfunction or failure
of our automated production equipment, our business, financial condition and
operations may suffer. We design, manufacture and assemble the majority of the
automated production equipment used in our facilities. We also use other
technologically advanced equipment for which manufacturers may have limited
production capability or service experience. If we are unable to quickly repair
our equipment or quickly obtain new equipment or parts from outside
manufacturers, we could experience extended periods of downtime in the event of
malfunction or equipment failure.

If Automation of Our Production Lines Fails to Produce the Projected Results,
Our Business Will Suffer

We have only recently substantially completed a program to increase our gross
margins by automating portions of our production lines. Although the designs
have been extensively tested in the field, we have no assurance that the new
equipment will produce the expected beneficial results on our gross margins.
Additionally, we are not certain that any increases in efficiencies will not be
offset in the marketplace by competitors making similar improvements to their
facilities.

Our Plan to Centralize Overhead Functions May Not Produce the Anticipated
Benefits to Our Operating Results

We are currently implementing plans to centralize and eliminate duplication of
efforts between our subsidiaries in the following areas:

 -  purchasing,

 -  production planning,

 -  shipping coordination,

 -  marketing,

 -  accounting,

 -  personnel management,

 -  risk management, and

 -  benefit plan administration.

We have no assurance that cutting overhead in this fashion will have the
anticipated benefits to our operating results. Additionally, we have no
assurance that these reorganizations will not significantly disrupt the
operations of the affected subsidiaries.

Our Success Depends on Our Ability to Retain and Attract Key Personnel

Our success and future operating results depend in part upon our ability to
retain our executives and key personnel, many of whom would be difficult to
replace. Our success also depends on our ability to attract highly qualified


                                      25

<PAGE>


engineering, manufacturing, technical, sales and support personnel for our
operations. Competition for such personnel, particularly qualified engineers, is
intense, and there can be no assurance that we will be successful in attracting
or retaining such personnel. Our failure to attract or retain such persons could
have a material adverse effect on our business, financial condition and results
of operations.

Our Current Distribution Channels May be Unavailable if Our Manufacturers'
Representatives Decide to Work Primarily With One of Our Competitors

We provide our manufacturers' representatives with the ability to offer a full
product line of air filtration products to existing and new customers. Some of
our competitors offer similar arrangements. We do not have exclusive
relationships with most of our representatives. Consequently, if our
representatives decide to work primarily with one of our competitors, our
current distribution channels, and hence, our sales, could be significantly
reduced.

Management Controls a Significant Percentage of Our Stock

As of April 12, 2001, our directors and executive officers beneficially held
approximately 43.6% of our outstanding common stock. As a result, such
shareholders effectively control or significantly influence all matters
requiring shareholder approval. These matters include the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in
control.

We May be Required to Issue Stock in the Future That Will Dilute the Value of
Our Existing Stock

If we issue the following securities, such securities may dilute the value of
the securities that our existing stockholders now hold.

We have granted warrants to purchase of total of 540,000 of our shares of common
stock to various parties with exercise prices ranging from $5.54 to $14.73 per
share. All of the warrants are currently exercisable. As a result, if the
warrant holders exercise these warrants, we will issue shares of stock that will
generally be available for sale in the public market.

We have granted options to purchase a total of 4,718,200 shares of common stock
to various parties with exercise prices ranging from $2.50 to $9.50 per share.
The majority of these options are currently exercisable. Additionally, most of
the common stock issuable upon the exercise of these options is registered on a
Form S-8. As a result, if the option holders exercise these options, we will
issue shares of stock that will generally be available for sale in the public
market.

Our Shareholders May Not Realize Certain Opportunities Because of Our Charter
Provisions and North Carolina Law

Our Articles of Incorporation and Bylaws contain provisions that are designed to
provide our board of directors with time to consider whether a hostile takeover
offer is in our best interest and the best interests of our shareholders. These
provisions may discourage potential acquisition proposals and could delay or
prevent a change of control in our business. Additionally, we are subject to the
Control Shares Acquisition Act of the State of North Carolina. This act provides
that any person who acquires "control shares" of a publicly held North Carolina
corporation will not have voting rights with respect to the acquired shares
unless a majority of the disinterested shareholders of the corporation vote to
grant such rights. This could deprive shareholders of opportunities to realize
takeover premiums for their shares or other advantages that large accumulations
of stock would typically provide.

Our Business Can be Significantly Affected by Environmental Laws

The constantly changing body of environmental laws and regulations may
significantly influence our business and products. These laws and regulations
require that certain environmental standards be met and impose liability for the
failure to comply with such standards. While we endeavor at each of our
facilities to assure compliance with environmental laws and regulations, we
cannot be certain that our operations or activities, or historical operations by
others at our locations, will not result in civil or criminal enforcement
actions or private actions that could have a materially adverse effect on our
business. We have, in the past, and may, in the future, purchase or lease
properties with unresolved potential violations of federal or state
environmental regulations. In these transactions, we have been successful in
obtaining sufficient indemnification and mitigating the impact of the issues
without recognizing


                                      26

<PAGE>


significant expenses associated with litigation and cleanup. However, purchasing
or leasing these properties requires us to weigh the cost of resolving these
issues and the likelihood of litigation against the potential economic and
business benefits of the transaction. If we fail to correctly identify, resolve
and obtain indemnification against these risks, they could have a material
adverse impact on our financial position.

Because of the foregoing factors, as well as other variables affecting our
operating results, past financial performance should not be considered a
reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rate risks. Market risk is the potential
loss arising from adverse change in market rates and prices, such as foreign
currency exchange and interest rates. For the Company, these exposures are
primarily related to the sale of product to foreign customers and changes in
interest rates. The Company does not have any derivatives or other financial
instruments for trading or speculative purposes.

The fair value of the Company's total debt at December 31, 2000 was
approximately $49,370,000. Market risk was estimated as the potential decrease
(increase) in future earnings and cash flows resulting from a hypothetical 10%
increase (decrease) in the Company's estimated weighted average borrowing rate
at December 31, 2000. Although most of the interest on the Company's debt is
indexed to a market rate, there would be no material effect on the future
earnings or cash flows related to the Company's total debt for such a
hypothetical change.

The Company's financial position is not materially affected by fluctuations in
currencies against the U.S. dollar, since assets held outside the United States
are negligible. The Company's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels or local currency prices, as the preponderance of its foreign sales occur
over short periods of time or are demarcated in U.S. dollars.

Item 8. Financial Statements and Supplementary Data

        Attached, beginning at page F-1.


Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

On November 23, 1999, the Board of Directors approved (i) the engagement of
Grant Thornton LLP as the independent auditors for Flanders Corporation and (ii)
the dismissal of McGladrey & Pullen LLP as such independent auditors. The
shareholders ratified this selection in our annual meeting held December 21,
1999.

During the three years ended December 31, 1998 and the subsequent interim period
through November 23, 1999, (i) there were no disagreements with McGladrey &
Pullen, LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to its satisfaction would have caused it to make reference in
connection with its report to the subject matter of the disagreement, and (ii)
McGladrey & Pullen, LLP did not advise the registrant regarding any "reportable
events" as defined in Item 304 (a)(1)(v) of Regulation S-K.

The accountants' report of McGladrey & Pullen, LLP on the consolidated financial
statements of Flanders Corporation and subsidiaries as of and for the years
ended December 31, 1998, 1997 and 1996 did not contain any adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.

Neither Grant Thornton LLP or its members has any financial interest, direct or
indirect in the Company nor has Grant Thornton LLP or any of its members ever
been connected with the Company as a promoter, underwriter, trustee, director,
officer or employee.


                                      27

<PAGE>


                                  PART III


Item 10.    Directors and Executive Officers of the Registrant

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is information regarding (i) the current directors of the
Company, who will serve until the next annual meeting of shareholders or until
their successors are elected or appointed and qualified, and (ii) the current
executive officers of the Company, who are elected to serve at the discretion of
the Board of Directors.

<TABLE>
<CAPTION>

    Name            Age    Title
<S>                  <C>   <C>
Robert R. Amerson    50    President, Chief Executive Officer and Director

Linda Palmatier      47    Vice President Retail Sales

Steven K. Clark      48    Chief Operating Officer, Vice President Finance/Chief
                           Financial Officer and Director

Knox Oakley          42    Vice President Fore-Market Sales

John Houmis          53    Vice President Engineering

Linwood Allen Hahn   52    Director

J. Russell Fleming   51    Director
</TABLE>

Robert R. Amerson. Mr. Amerson has been President and Chief Executive Officer
since 1988. Mr. Amerson is also a Director, a position he has held since 1988.
He joined us in 1987 as Chief Financial Officer. Mr. Amerson has a Bachelor of
Science degree in Business Administration from Atlantic Christian College.

Linda Palmatier. Ms. Palmatier, has been Vice President of Retail Sales for the
Company since October 2000. From December 1998 to October 2000, Ms. Palmatier
was the Company's Director of Procurement. From December 1996 through December
1998, she worked as a designer/sales representative for Com-Net Software
Specialist and Signature Electronics. From August 1995 through December 1996,
she worked as Director of Merchandising for J. Bill Circuit, Inc., a contract
manufacturer of electronics. Ms. Palmatier holds a Bachelor of Science degree in
business statistics from Virginia Commonwealth University and a Master of
Science degree in humanities from the University of Richmond..

Steven K. Clark. Mr. Clark was named as Vice President Finance, Chief Financial
Officer and Director in December 1995 and Chief Operating Officer in November
1999. Mr. Clark acted as a consultant from November, 1995 through December,
1995. From July 1992 through October 1995, he was the Chief Financial Officer of
Daw Technologies, Inc., a specialty cleanroom contractor and major customer of
the Company. While Chief Financial Officer of Daw Technologies, Mr. Clark was
late in filing a Form 3 amendment and certain Form 4s and Form 5s. He agreed to
a cease and desist order with respect to these violations. No violations other
than the timeliness of filing those reports were alleged by the Securities and
Exchange Commission ("SEC"). Prior to this he was a senior partner of Miller and
Clark, an accounting and management services firm. Mr. Clark spent four years
with Price Waterhouse, and an additional four years with Arthur Andersen, both
accounting firms. He is a Certified Public Accountant, has Bachelor of Arts
degrees in Accounting and Political Science and a Master of Business
Administration Degree, all from the University of Utah.

Knox Oakley. Mr. Oakleyhas been Vice President of Fore-Market Sales since
October 2000 and Vice President of Sales for Flanders Filters, Inc., a
subsidiary of the Company, since June 1994. Mr. Oakley received his Bachelor of
Science degree in biology from the Citadel.


                                      28

<PAGE>


John Houmis. Mr. Houmis has been Vice President Engineering since December 1998.
He has direct responsibility for manufacturing engineering, quality control and
production control systems. From May 1998 to December 1998, he was Director of
Special Project - Plants for Precisionaire, a wholly owned subsidiary. From 1993
to October 1997, Mr. Houmis was the general manager of Precisionaire's main
manufacturing facility in Florida. Mr. Houmis has Bachelor of Science and Master
of Science degrees in engineering from the University of South Florida.

Linwood Allen Hahn. Mr. Hahn was elected as a Director in December 1999. Mr.
Hahn practices Real Property Law, Estates, Municipal Law and Corporate Law in
Greenville, North Carolina. Mr. Hahn graduated from he University of North
Carolina at Chapel Hill with a BA degree in 1970, the University of Tennessee
College of Law, JD degree in 1973. He is currently a member of the North
Carolina State Bar Association and the North Carolina Trial Lawyer's Association
as well as serving on the advisory boards of several private charitable
organizations.

J. Russell Fleming. Mr. Fleming was elected as a Director in December 1999. Mr.
Fleming is Owner/President of Cape Point Development Co., Inc., located in
Greenville, North Carolina, specializing in land development and
commercial/multi-family construction. Mr. Fleming is also Owner/President of New
East Management & Realty, Inc., also located in Greenville, NC, which manages
residential and commercial rental properties. Mr. Fleming attended East Carolina
University prior to obtaining his General Contractor and Real Estate Broker
licenses.


Item 11.    Executive Compensation

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board of Directors consists of
Messrs. Hahn and Fleming, both non-employee directors, and Messr. Amerson, the
Chief Executive Officer. The Audit Committee of the Company's Board of Directors
consists of Messrs. Hahn and Fleming, both non-employee directors, and Messr.
Clark, the Chief Financial Officer, who chairs the committee.

SUMMARY COMPENSATION TABLE

The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to each of the Company's other executive officers whose
annual salary, bonus and other compensation exceeded $100,000 in 2000.

<TABLE>
<CAPTION>

                                                    Annual Compensation                  Long-Term Compensation
                                            -------------------------------------  -----------------------------------
                                                                                            Awards            Payouts
                                                                                   -------------------------  --------
                                                                                                Securities
                                                                        Other      Restricted   Underlying
                                                                       Annual        Stock       Options/      LTIP
                                                                       Compen-      Award(s)       SARs       Payouts
Name and Principal Position         Year    Salary ($)   Bonus ($)   sation ($)       ($)           (#)         ($)
------------------------------------------  -----------  ----------  ------------  -----------  ------------  --------
<S>                                 <C>        <C>       <C>         <C>           <C>           <C>
Robert R. Amerson                   2000(1)    250,000        -           -              -             -          -
  President and CEO                 1999       254,808        -           -              -       1,000,000(2)     -
                                    1998       250,000        -           -              -             -          -
Steven K. Clark                     2000(1)    250,000        -           -              -             -          -
  Vice President Finance/CFO        1999       250,000        -           -              -       1,000,000(2)     -
                                    1998       250,000        -           -              -             -          -
John Houmis                         2000       100,719        -           -              -             -          -
  Vice President Engineering        1999       106,164        -           -              -             -          -
                                    1998(3)     59,828        -           -              -             -          -
</TABLE>

 1  Mr. Amerson and Mr. Clark each had an annual salary of $250,000, plus a
    possible bonus each year, under their respective Employment Agreements, as
    amended. Subsequent to year end, these salaries were reduced by ten percent,
    to $225,000 per year. See "Employment Agreements."


                                      29

<PAGE>


 2  Messrs. Amerson and Clark each had options to purchase 1,000,000 shares at
    $2.50 per share whose expiration date was extended, on December 22, 1999,
    from February 22, 2001 to February 22, 2006. This extension resulted in the
    establishment of a new measurement date for the value of the options for
    financial statement reporting purposes. On the date of grant, the closing
    market price for the Company's stock was equal to or above the options'
    strike price.

 3  Mr. Houmis' compensation for 1998 reflects seven months' salary.


AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

The following table sets forth the aggregate number and value of stock options
and SAR's exercised during the last year by the Company's Chief Executive
Officer and by each of the Company's other executive officers whose annual
salary, bonus and other compensation exceed $100,000.

<TABLE>
<CAPTION>
                                                      Number of Securities
                          Shares                     Underlying Unexercised      Value of Unexercised
                         Acquired                    Options/SARs at Fiscal     In-the-Money Options/
                            On          Value             Year-End (#)         SARs at Fiscal Year-End
          Name         Exercise (#)  Realized ($)  Exercisable/Unexercisable  Exercisable/Unexercisable
---------------------  ------------  ------------  -------------------------  -------------------------
<S>                    <C>            <C>             <C>                      <C>
Robert  R. Amerson       1,150,000    $  431,250      2,000,000 /    -                -    /    -
Steven K. Clark          1,150,000    $  431,250      2,000,000 /    -                -    /    -
John Houmis                  -             -                  - /    -                -    /    -

</TABLE>

COMPENSATION OF DIRECTORS

Directors who are Company employees receive no additional or special
remuneration for serving as directors. The Company's non-employee Directors are
paid $500 plus out-of-pocket expenses for each meeting of the Board of Directors
and after being a Director for at least six months receive an automatic option
to purchase 5,000 shares of the Company's common stock on January 1 of every
year at or above the market price of the common stock on the date of grant for
every year they remain a director. During 1999, each of the non-employee
directors received an option to purchase 50,000 shares of the Company's common
stock at an exercise price of $2.50 per share.

EMPLOYMENT AGREEMENTS

Messrs. Amerson and Clark have employment agreements effective as of December
15, 1995 ("Employment Agreements"). The Employment Agreements, as amended,
provide for an annual base salary of $250,000 for both Mr. Amerson and Mr. Clark
and terminate in 2010. The Employment Agreements also provide that the executive
shall be entitled to the following termination payments: (i) 100% of his current
base salary if the employment is terminated as a result of his death or
disability; (ii) up to 200% of his current base salary if the employment is
terminated by the Company for any reason other than death, disability or for
cause, or (iii) up to 250% of the executive's gross income during the year
preceding his termination if the Employment Agreement is terminated by the
executive for good reason or by the Company for any reason other than death,
disability or cause and the termination occurs within two years after a change
of control of the Company has occurred.

OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS

Board Meetings and Committees

During 2000, the Board of Directors met four times and also executed various
resolutions and written actions in lieu of meetings. All directors were in
attendance at each of these meetings. The Board of Directors has an Audit
Committee and a Compensation Committee. The Audit Committee reviews the results
and scope of the audit and other services provided by the Company's independent
auditors, reviews and evaluates the Company's internal audit and control
functions, and monitors transactions between the Company and its employees,
officers and directors. The Compensation Committee administers the Company's
equity incentive plans and designates compensation levels


                                      30

<PAGE>


for officers and directors of the Company. The Audit Committee met four times
during 2000. The Compensation Committee met two times during 2000.

Currently, the Audit Committee consists of Messrs. Hahn, Fleming and Clark. The
Compensation Committee consists of Messrs. Hahn, Fleming and Amerson.

Long-Term Incentive Plan

During 1996, the Company adopted the Long Term Incentive Plan to assist the
Company in securing and retaining key employees and consultants. The LTI Plan
authorizes grants of incentive stock options, nonqualified stock options, stock
appreciation rights ("SARs"), restricted stock performance shares and dividend
equivalents to officers and key employees of the Company and outside consultants
to the Company. There are 1,986,800 shares of Common Stock reserved for award
under the LTI Plan. During 2000, 1999 and 1998, the Company awarded options to
purchase 12,500, 52,850 and 216,850 shares of Common Stock under the LTI Plan,
respectively.

The Plan is administered by the Compensation Committee. The Compensation
Committee determines the total number and type of awards granted in any year,
the number and selection of employees or consultants to receive awards, the
number and type of awards granted to each grantee and the other terms and
provisions of the awards, subject to the limitations set forth in the LTI Plan.

Stock Option Grants. The Compensation Committee has the authority to select
individuals who are to receive options under the LTI Plan and to specify the
terms and conditions of each option so granted (incentive or nonqualified), the
exercise price (which must be at least equal to the fair market value of the
common stock on the date of grant with respect to incentive stock options), the
vesting provisions and the option term. Unless otherwise provided by the
Compensation Committee, any option granted under the LTI Plan expires the
earlier of ten years from the date of grant or, three months after the
optionee's termination of service with the Company if the termination of
employment is attributable to (i) disability, (ii) retirement, or (iii) any
other reason, or 15 months after the optionee's death. As of April 12, 2001,
there are 598,680 options outstanding under the LTI Plan.

Stock Appreciation Rights. The Compensation Committee may grant SARs separately
or in tandem with a stock option award. A SAR is an incentive award that permits
the holder to receive (per share covered thereby) an equal amount by which the
fair market value of a share of common stock on the date of exercise exceeds the
fair market value of such share on the date the SAR was granted. Under the LTI
Plan, the Company may pay such amount in cash, in common stock or a combination
of both. Unless otherwise provided by the Compensation Committee at the time of
grant, the provisions of the LTI Plan relating to the termination of employment
of a holder of a stock option will apply equally, to the extent applicable, to
the holder of a SAR. A SAR granted in tandem with a related option will
generally have the same terms and provisions as the related option with respect
to exercisability. A SAR granted separately will have such terms as the
Compensation Committee may determine, subject to the provisions of the LTI Plan.
As of April 12, 2001, no SARs are outstanding under the LTI Plan.

Performance Shares. The Compensation Committee is authorized under the LTI Plan
to grant performance shares to selected employees. Performance shares are rights
granted to employees to receive cash, stock, or other property, the payment of
which is contingent upon achieving certain performance goals established by the
Compensation Committee. As of April 12, 2001, no performance shares are
outstanding under the LTI Plan.

Restricted Stock Awards. The Compensation Committee is authorized under the LTI
Plan to issue shares of restricted common stock eligible participants on such
terms and conditions and subject to such restrictions, if any, outstanding under
the LTI Plan. As of April 12, 2001, no restricted shares have been awarded under
the LTI Plan.

Dividend Equivalents. The Compensation Committee may also grant dividend
equivalent rights to participants subject to such terms and conditions as may be
selected by the Compensation Committee. Dividend equivalent rights entitle the
holder to receive payments equal to dividends with respect to all or a portion
of the number of shares of stock subject to an option award or SARs, as
determined by the Committee. As of April 12, 2001, no dividend equivalents are
outstanding under the LTI Plan.


                                      31

<PAGE>


Item 12.    Security Ownership of Certain Beneficial Owners and Management

The following table sets forth all individuals known by the Company to
beneficially own 5% or more of the Company's common stock, and all officers and
directors of the registrant, with the amount and percentage of stock
beneficially owned, as of April 12, 2001. Except as indicated in the following
footnotes, each listed beneficial owner has sole voting and investment power
over the shares of common stock held in their names.

<TABLE>
<CAPTION>
                                                                 Percentage of
     Name and Address                Shares of Common Stock  Outstanding Shares of
   of Beneficial Owner                 Beneficially Owned       Common Stock(1)
   -------------------               ----------------------  ---------------------
<S>                                     <C>                        <C>

Robert R. Amerson(2)                         7,914,370               27.89%
531 Flanders Filters Road
Washington, NC  27889

Linda Palmatier                                  -                     *
2399 26th Avenue North
St. Petersburg, FL  33713

Steven K. Clark(2)                           5,170,183               18.22%
2399 26th Avenue North
St. Petersburg, FL  33713

Knox Oakley(3)                                  82,725                 *
531 Flanders Filters Road
Washington, NC  27889

John Houmis                                      -                     *
2399 26th Avenue North
St. Petersburg, FL  33713

Linwood Allen Hahn(4)                           52,500                 *
531 Flanders Filters Road
Washington, NC  27889

J. Russell Fleming(4)                           70,000                 *
531 Flanders Filters Road
Washington, NC  27889

Thomas T. Allan                              1,590,232                6.03%
3114 Barracks Road
Charlottesville, VA  22901

Franklin Resources, Inc.                     1,390,286                5.27%
777 Marivers Island Blvd., 6th Fl.
San mateo, CA  94404

Dimensional Fund Advisors, Inc.              2,094,700                7.94%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA  90401

Becker Capital Management, Inc.              1,886,900                7.15%
1211 SW Fifth Avenue, Suite 2185
Portland, OR  97204

All Executive Officers and Directors
  as a Group (8 persons)(2)(3)(4)           13,289,778               43.57%
</TABLE>


                                      32

<PAGE>


 *  Represents less than 1% of the total issued and outstanding shares of
    common stock.

 1  Applicable percentage of ownership is based on 26,379,633 shares of common
    stock outstanding as of April 12, 2001, together with all applicable options
    for unissued securities for such shareholders exercisable within sixty days.
    Shares of common stock subject to options exercisable within sixty days are
    deemed outstanding for computing the percentage ownership of the person
    holding such options, but are not deemed outstanding for computing the
    percentage of any other person.

 2  Includes 1,000,000 shares which are subject to an option to purchase such
    shares from the Company at $2.50 per share and 1,000,000 shares which are
    subject to an option to purchase such shares from the Company at $7.50 per
    share.

 3  Includes 10,000 shares which are subject to an option to purchase such
    shares from the Company at $7.50 per share, and 10,000 shares which are
    subject to an option to purchase such shares from the Company at $7.125 per
    share.

 4  Includes 50,000 shares which are subject to an option to purchase such
    shares from the Company at $2.50 per share.


Item 13. Certain Relationships and Related Transactions

At December 31, 2000, Steven K. Clark owed the Company $3,836,169 of principal
and $224,231 of accrued interest which he previously borrowed to settle claims,
to make certain payments under an indemnity agreement he entered into with the
Company, to exercise options and to purchase certain shares from Thomas T.
Allan, a former officer and director. On April 24, 1999, the Board of Directors
agreed to consolidate several then existing notes from Mr. Clark and refinance
Mr. Clark's debts to the Company, whereby Mr. Clark issued a note to the Company
in the amount of $2,569,871 with interest accruing at the rate of LIBOR plus 1%,
payable in full on December 31, 2010 or upon demand by the Company. On November
15, 2000, the Board of Directors agreed to finance the exercise of Mr. Clark's
options, whereby Mr. Clark issued a note to the Company in the amount of
$1,150,000 with interest accruing at the rate of LIBOR plus 1%, payable in full
on December 31, 2010 or upon demand by the Company.

At December 31, 2000, Robert R. Amerson owed the Company $1,972,557 of principal
and $167,822 of accrued interest which he previously borrowed to settle claims,
to make certain payments under an indemnity agreement he entered into with the
Company, to purchase certain shares from Thomas T. Allan, a former officer and
director of the Company, and for other unspecified reasons. On April 24, 1999,
the Board of Directors agreed to consolidate several then existing notes and
refinance Mr. Amerson's debt to the Company, whereby Mr. Amerson issued a note
to the Company in the amount of $1,555,802 with interest accruing at the rate of
LIBOR plus 1%, payable in full on December 31, 2010 or upon demand by the
Company, and canceled all of the other above-described notes. On April 21, 2000,
the Board of Directors agreed to loan Mr. Amerson an additional $400,000 with
interest accruing at the rate of LIBOR plus 1%, payable in full on December 31,
2010 or upon demand by the Company.

The Company made payments totaling $316,391 and $1,381 in 2000 and 1999,
respectively, to two vendors: Superior Die-Cutting, a supplier of raw materials;
and Wal-Pat II, a real estate partnership; each of which were partially owned by
Robert R. Amerson and Steven K. Clark (twenty-five percent each) at December 31,
2000. At December 31, 2000, the Company owed a total of $76,994 and $11,757,
respectively, to these vendors, which amounts are included in trade accounts
payable.


                                      33

<PAGE>


                                   PART IV


Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

The following constitutes a list of Financial Statements, Financial Statement
Schedules and Exhibits required to be used in this report.

    (a)(1)  Financial Statements:  Financial Statements are included beginning
            at page F-1 as follows:

            Report of Grant Thornton LLP Independent Certified Public
            Accountants ....................................................F-2

            Consolidated Balance Sheets at December 31, 2000 and 1999 ......F-3

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

            Consolidated Statements of Stockholders' Equity for the
            years ended December 31, 2000, 1999 and 1998 ...................F-5

            Consolidated Statements of Cash Flows for the years
            ended December 31, 2000, 1999 and 1998 .........................F-6

            Notes to Consolidated Financial Statements .....................F-8

    (a)(2)  Financial Statement Schedules

            Report of Grant Thornton LLP Independent Certified Public
            Accountants ...................................................F-26

            Schedule II.  Valuation and Qualifying Accounts ...............F-27

            All schedules not listed have been omitted because they are not
            applicable or the information has been otherwise supplied in the
            Registrant's financial statements and schedules.

    (a)(3)  Exhibits:

      3.1   Articles of Incorporation for Flanders Corporation, filed with the
            Form 8-A dated March 8, 1996, incorporated herein by reference.

      3.2   Bylaws of Flanders Corporation, filed with the Form 8-A dated March
            8, 1996, incorporated herein by reference.

     10.1   Indemnification Agreement between Flanders Corporation, Steven K.
            Clark, Robert Amerson and Thomas Allan, filed with the December 31,
            1995 Form 10-K, incorporated herein by reference.

     10.2   Stock Purchase Agreement between Flanders Corporation and the
            Shareholders of Eco-Air Products, Inc. dated May 7, 1998, filed
            with the June 30, 1998 Form 8-K, incorporated herein by reference.

     10.3   Amendment dated May 20, 1998 to Stock Purchase Agreement by and
            between the Registrant and the Shareholders of Eco-Air Products,
            Inc. dated May 7, 1998, filed with the June 30, 1998 Form 8-K,
            incorporated herein by reference.


                                      34

<PAGE>


     10.4   Promissory Note from Precisionaire, Inc. to SunTrust Bank, Tampa
            Bay, in the amount of $2,134,524 dated August 28, 1997, filed with
            the September 15, 1997 Form S-1 (Reg No. 333-33635), and
            incorporated herein by reference.

     10.5   Assumption Agreement between POF Realty, Precisionaire, Inc., Polk
            County Industrial Development Authority and SunTrust Bank, dated
            August 1, 1997, filed with the September 15, 1997 Form S-1 (Reg No.
            333-33635), and incorporated herein by reference.

     10.6   Mortgage Deed and Security Agreement between Precisionaire, Inc.
            and Sun Trust Bank, Tampa Bay dated August 28, 1997, filed with the
            September 15, 1997 Form S-1 (Reg No. 333-33635), and incorporated
            herein by reference.

     10.7   Credit Agreement between Flanders Corporation, SunTrust Bank, Tampa
            Bay and Zions First National Bank, dated November 10, 1997, filed
            with the December 31, 1997 Form 10-K, and incorporated herein by
            reference.

     10.8   Loan Agreement between Will-Kankakee Regional Development Authority
            and Flanders Corporation dated December 15, 1997, filed with the
            December 31, 1997 Form 10-K, and incorporated herein by reference.

     10.9   Letter of Credit Agreement between Flanders Corporation and
            SunTrust Bank, Tampa Bay, dated April 1, 1998, filed with the Form
            10-Q dated March 31, 1998, and incorporated herein by reference.

    10.10   Credit Agreement between Flanders Corporation, SunTrust Equitable
            Securities Corporation and SunTrust Bank, dated February 9, 2000,
            filed with the Form 10-K dated December 31, 1999, and incorporated
            herein by reference.

    10.11   Loan Agreement between Flanders Corporation and the Johnston County
            Industrial Facilities and Pollution Control Financing Authority,
            dated April 1, 1998, filed with the Form 10-Q dated March 31, 1998,
            and incorporated herein by reference.

    10.12   Loan Agreement between Flanders Corporation and the Johnston County
            Industrial Facilities and Pollution Control Financing Authority,
            dated March 1, 2000, filed with the Form 10-K dated December 31,
            1999, and incorporated herein by reference.

    10.13   Flanders Corporation 1996 Director Option Plan, filed with the Form
            10-K dated December 31, 1995, and incorporated herein by reference.

    10.14   Employment Agreement between Elite Acquisitions, Inc., Flanders
            Filters, Inc., and Steven K. Clark, filed with the December 31,
            1995 Form 10-K, incorporated herein by reference.

    10.15   Amendment to Employment Agreement between Elite Acquisitions, Inc.,
            Flanders Filters, Inc., and Steven K. Clark, filed with Form S-1
            dated October 21, 1996 (Reg. No. 333-14655) and incorporated herein
            by reference.

    10.16   Amendment to Employment Agreement between Elite Acquisitions, Inc.,
            Flanders Filters, Inc., and Steven K. Clark, filed with the Form
            10-K dated December 31, 1997 and incorporated herein by reference.

    10.17   Amendment to Employment Agreement between Elite Acquisitions, Inc.,
            Flanders Filters, Inc., and Steven K. Clark, filed with the Form
            10-K dated December 31, 1999, and incorporated herein by reference.

    10.18   Employment Agreement between Elite Acquisitions, Inc., Flanders
            Filters, Inc. and Robert R. Amerson, filed with the December 31,
            1995 Form 10-K, incorporated herein by reference.

    10.19   Amendment to Employment Agreement between Elite Acquisitions, Inc.,
            Flanders Filters, Inc., and Robert R. Amerson, filed with Form S-1
            dated October 21, 1996 (Reg. No. 333-14655) and incorporated herein
            by reference.

    10.20   Amendment to Employment Agreement between Elite Acquisitions, Inc.,
            Flanders Filters, Inc., and Robert R. Amerson, filed with the Form
            10-K dated December 31, 1997 and incorporated herein by reference.


                                      35

<PAGE>


    10.21   Amendment to Employment Agreement between Elite Acquisitions, Inc.,
            Flanders Filters, Inc., and Robert R. Amerson, filed with the Form
            10-K dated December 31, 1999, and incorporated herein by reference.

    10.22   Stock Option Agreement between Elite Acquisitions, Inc. and Robert
            R. Amerson, filed with the December 31, 1995 Form 10-K,
            incorporated herein by reference.

    10.23   Stock Option Agreement between Flanders Corporation and Robert R.
            Amerson dated February 22, 1996, filed with Form S-8 on July 21,
            1997, incorporated herein by reference.

    10.24   Amendment to Stock Option Agreement between Flanders Corporation
            and Robert R. Amerson dated December 22, 1999, filed with the Form
            10-K dated December 31, 1999, and incorporated herein by reference.

    10.25   Stock Option Agreement between Flanders Corporation and Robert R.
            Amerson dated June 3, 1996, filed with Form S-8 on July 21, 1997,
            incorporated herein by reference.

    10.26   Stock Option Agreement between Elite Acquisitions, Inc., and
            Steven K. Clark, filed with the December 31, 1995 Form 10-K,
            incorporated herein by reference.

    10.27   Stock Option Agreement between Flanders Corporation and Steven
            K. Clark dated February 22, 1996, filed with Form S-8 on July 21,
            1997, incorporated herein by reference.

    10.28   Amendment to Stock Option Agreement between Flanders Corporation
            and Steven K. Clark dated December 22, 1999, filed with the Form
            10-K dated December 31, 1999, and incorporated herein by reference.

    10.29   Stock Option Agreement between Flanders Corporation and Steven K.
            Clark dated June 3, 1996, filed with Form S-8 on July 21, 1997,
            incorporated herein by reference.

    10.30   Note Agreement between Steven K. Clark and Flanders Corporation,
            dated April 24, 1999, filed with the Form 10-K dated December 31,
            1999, and incorporated herein by reference.

    10.31   Note Agreement between Robert R. Amerson and Flanders Corporation,
            dated April 24, 1999, filed with the Form 10-K dated December 31,
            1999, and incorporated herein by reference.

    21      Subsidiaries of the Registrant.

    23.1    Consent of Grant Thornton LLP for incorporation by reference of
            their report into Form S-8 filed on July 21, 1997, filed herewith.

    24      Power of Attorney (included on Signature page of this report).

        (b) Reports on Form 8-K.

            None.

        (c) Financial Statement Schedules:  See (a)(2) above.


                                      36

<PAGE>


                                 SIGNATURES



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

Dated this 12th day of April, 2001.

                                        FLANDERS CORPORATION


                                        By  /s/ Robert R. Amerson
                                            ---------------------
                                        Robert R. Amerson
                                        President, Chief Executive Officer,
                                        and Director


                                        By   /s/ Steven K. Clark
                                            ---------------------
                                        Steven K. Clark
                                        Vice President/Chief Financial Officer,
                                        Principal Accounting Officer, Chief
                                        Operating Officer and Director

KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Steven K. Clark, his attorney-in-fact, to sign
any amendments to this report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all the said attorney-in-fact may lawfully do or cause
to be done by virtue hereof.

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


        Signature                            Title                     Date


 /s/ Robert R. Amerson       President, Chief Executive Officer      4/12/01
-------------------------    and Director                          ------------
 Robert R. Amerson

                             Chief Operating Officer, Vice
                             President/Chief Financial Officer,
/s/ Steven K. Clark          Principal Accounting Officer and        4/12/01
-------------------------    Director                              ------------
 Steven K. Clark


 /s/ Linwood Allen Hahn
-------------------------                                            4/12/01
 Linwood Allen Hahn          Director                              ------------


/s/ J. Russell Fleming
-------------------------                                            4/12/01
 J. Russell Fleming          Director                              ------------



                                      36

<PAGE>





                             FLANDERS CORPORATION


                      CONSOLIDATED FINANCIAL STATEMENTS

                Years Ended December 31, 2000, 1999 and 1998


<PAGE>


             REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS







Board of Directors
Flanders Corporation


We have audited the accompanying consolidated balance sheets of Flanders
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

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


/s/ Grant Thornton LLP

Salt Lake City, Utah
March 21, 2001

                                      F-2

<PAGE>


                   FLANDERS CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                                December 31,

<TABLE>
<CAPTION>

ASSETS                                                  2000             1999
-------------------------------------------------  --------------  --------------
<S>                                                <C>             <C>
Current assets
  Cash and cash equivalents                        $   1,333,128    $    824,220
  Receivables:
    Trade, less allowance for doubtful accounts:
      2000 $1,777,973; 1999 $487,321                  33,481,302      29,023,225
    Other                                                514,202       1,415,794
  Inventories (Note C)                                28,299,766      25,901,700
  Deferred taxes (Note L)                              3,020,545       1,849,481
  Other current assets                                 6,094,903       1,959,725
  Net assets of discontinued operations (Note D)            -          5,217,737
                                                   --------------  --------------
            Total current assets                      72,743,846      66,191,882
Related party receivables (Note O)                       385,696          59,814
Other assets (Note E)                                  2,985,180       4,113,491
Intangible assets, net (Note F)                       29,185,805      30,022,487
Property and equipment, net (Notes G, H and I)        74,921,196      65,253,828
                                                   --------------  --------------
                                                   $ 180,221,723   $ 165,641,502
                                                   ==============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------
Current liabilities
  Current maturities of long-term debt and
    capital lease obligation (Notes H and I)       $  32,832,253   $   1,115,184
  Accounts payable (Note J)                           20,267,236      15,760,022
  Accrued expenses (Note K)                            6,000,140       3,895,274
                                                   --------------  --------------
            Total current liabilities                 59,099,629      20,770,480
Long-term capital lease obligation (Note I)            3,403,664            -
Long-term debt, less current maturities (Note H)      13,134,219      31,212,985
Deferred taxes (Note L)                                6,432,927       5,840,654
Commitments and contingencies
  (Notes H, I, M, N and O)
Stockholders' equity (Notes B, N, O and P)
  Preferred stock, no par value, 10,000,000
    shares authorized; none issued                         -               -
  Common stock, $.001 par value; 50,000,000
    shares authorized; issued and outstanding:
    26,379,633 in 2000; 25,435,583 in 1999                26,380          25,436
  Additional paid-in capital                          90,898,258      91,798,188
  Notes receivable (Note O)                           (7,891,208)     (6,323,308)
  Retained earnings                                   15,117,854      22,317,067
                                                   --------------  --------------
                                                      98,151,284     107,817,383
                                                   --------------  --------------
                                                   $ 180,221,723   $ 165,641,502
                                                   ==============  ==============
</TABLE>


   The accompanying notes are an integral part of these financial statements
                                      F-3
<PAGE>


                   FLANDERS CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                           Year Ended December 31,

<TABLE>
<CAPTION>


                                                        2000            1999            1998
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
Net sales                                          $ 194,071,897   $ 171,392,281   $ 154,764,804
Cost of goods sold (Notes N, O and P)                157,154,700     127,417,753     117,104,977
                                                   --------------  --------------  --------------
      Gross profit                                    36,917,197      43,974,528      37,659,827
Operating expenses (Notes N, O and P)                 40,733,468      33,802,204      28,108,372
                                                   --------------  --------------  --------------
      Operating income (loss) from
        continuing operations                         (3,816,271)     10,172,324       9,551,455
Nonoperating income (expense) from continuing
  operations:
    Other income (expense), net (Note M)                (329,530)      1,258,440       2,014,881
    Interest expense                                  (2,794,027)     (1,257,157)       (574,950)
                                                   --------------  --------------  --------------
                                                      (3,123,557)          1,283       1,439,931
                                                   --------------  --------------  --------------
      Earnings (loss) from continuing operations
        before income taxes                           (6,939,828)     10,173,607      10,991,386
Provision (benefit) for income taxes (Note L)         (2,442,846)      4,670,682       4,450,079
                                                   --------------  --------------  --------------
      Earnings (loss) from continuing operations      (4,496,982)      5,502,925       6,541,307
Discontinued operations (Note D)
  Loss from operations of discontinued subsidiary
    (including tax benefit of $1,111,800 in
    2000; $1,134,799 in 1999 and $852,244 in 1998)    (1,819,688)     (1,792,417)     (1,252,739)
  Loss on disposal of subsidiary (including tax
    benefit of $539,200 in 2000 and $565,604
    in 1999)                                            (882,543)       (893,374)          -
                                                   --------------  --------------  --------------
Loss from discontinued operations                     (2,702,231)     (2,685,791)     (1,252,739)
                                                   --------------  --------------  --------------
    Net earnings (loss)                            $  (7,199,213)  $   2,817,134   $   5,288,568
                                                   ==============  ==============  ==============
Earnings (loss) per share from continuing
  operations (Note Q)
    Basic                                          $       (0.18)  $        0.22   $        0.26
                                                   ==============  ==============  ==============
    Diluted                                        $       (0.18)  $        0.21   $        0.24
                                                   ==============  ==============  ==============
Loss per share from discontinued operations
    Basic                                          $       (0.11)  $       (0.11)  $       (0.05)
                                                   ==============  ==============  ==============
    Diluted                                        $       (0.11)  $       (0.10)  $       (0.04)
                                                   ==============  ==============  ==============
Net earnings (loss) per share
    Basic                                          $       (0.28)  $        0.11   $        0.21
                                                   ==============  ==============  ==============
    Diluted                                        $       (0.28)  $        0.11   $        0.20
                                                   ==============  ==============  ==============
Weighted average common shares
  outstanding (Note Q)
    Basic                                             25,297,520      25,344,433      25,133,820
                                                   ==============  ==============  ==============
    Diluted                                           25,297,520      26,525,429      27,106,924
                                                   ==============  ==============  ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements
                                      F-4
<PAGE>


                   FLANDERS CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                Additional
                                                     Common      Paid-In        Notes         Retained
                                                     Stock       Capital      Receivable      Earnings
                                                   ---------  -------------  -------------  -------------
<S>                                                <C>        <C>            <C>            <C>
Balance, January 1, 1998                           $ 25,663   $ 93,243,030   $ (1,273,200)  $ 14,211,365
  Issuance of 110,000 shares of common stock to
    acquire remaining interest in a subsidiary
    from minority stockholders                          110        522,390          -              -
  Issuance of 121,264 shares of common stock upon
    non-cash exercise of stock options                  121           (121)         -              -
  Purchase and retirement of 731,350 shares of
    common stock                                       (731)    (3,284,827)         -              -
  Issuance of 461,000 shares of common stock upon
    exercise of options                                 461      1,152,039          -              -
  Issuance of receivables related to exercise
    of options                                         -              -          (722,500)         -
  Payment on receivables related to exercised
    options                                            -              -           235,700          -
  Income tax benefit of stock options exercised        -           253,795          -              -
  Registration of Company common stock                 -           (77,487)         -              -
  Valuation and release from escrow of 7,000
    shares of common stock related to
    acquisitions                                       -            28,438          -              -
  Net earnings                                         -             -              -          5,288,568
                                                   ---------  -------------  -------------  -------------
Balance, December 31, 1998                           25,624     91,837,257     (1,760,000)    19,499,933
  Issuance of 94,544 shares of common stock
    related to certain acquisitions                      95            (95)         -              -
  Interest on notes receivable secured by
    common shares                                     -              -           (254,094)         -
  Reclassification of receivables to
    shareholders                                      -              -         (4,309,214)         -
  Issuance and release from escrow of 245,899
    shares of common stock related to certain
    acquisitions                                      -            988,028          -              -
  Purchase and retirement of 283,300 shares of
    common stock                                       (283)    (1,027,002)         -              -
  Net earnings                                        -              -              -          2,817,134
                                                   ---------  -------------  -------------  -------------
Balance, December 31, 1999                           25,436     91,798,188     (6,323,308)    22,317,067
  Issuance of 2,300,000 shares of common stock
    upon exercise of options                          2,300      2,297,700     (1,150,000)         -
  Issuance of notes receivable                        -              -           (357,304)         -
  Interest on notes receivable secured by common
    shares                                            -              -            (60,596)         -
  Cancellation of 150,000 shares related to unmet
    contingent conditions of acquisitions              (150)           150          -              -
  Purchase and retirement of 1,206,000 shares of
    common stock                                     (1,206)    (3,197,780)         -              -
  Net loss                                            -              -              -         (7,199,213)
                                                   ---------  -------------  -------------  -------------
Balance, December 31, 2000                         $ 26,380   $ 90,898,258   $ (7,891,208)  $ 15,117,854
</TABLE>


   The accompanying notes are an integral part of these financial statements
                                      F-5
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                           Year Ended December 31,


<TABLE>
<CAPTION>


                                                        2000            1999            1998
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
Increase (decrease) in cash and cash equivalents

CASH FLOWS FROM OPERATING ACTIVITIES
  Earnings (loss) from continuing operations       $  (4,496,982)  $   5,502,925   $   6,541,307
  Adjustments to reconcile earnings (loss) from
    continuing operations to net cash provided
    by (used in) operating activities:
      Depreciation and amortization                    8,535,653       6,122,134       4,854,043
      Provision (credit) for doubtful accounts         1,290,652         (64,404)        111,159
      Allowance for obsolete inventory                 1,197,710          93,586          32,414
      (Gain) loss on sale of property and
        equipment                                          -             127,703         (41,221)
      Gain on sale of real estate                          -               -             (48,767)
      Deferred income taxes                             (578,791)       (308,627)        185,814
      Income tax benefit from exercise of stock
        options                                            -               -             253,795
      Interest income on notes receivable                (60,596)       (254,094)          -
      Change in working capital components, net
        of effects from acquisitions:
          Receivables                                 (5,748,728)     (3,607,050)     (2,898,921)
          Inventories                                 (3,422,092)     (1,480,901)     (6,245,876)
          Other current assets                           200,398        (365,743)       (326,868)
          Accounts payable                             4,281,921         173,435      (2,628,592)
          Accrued expenses                             2,035,571        (350,953)        135,699
          Income taxes payable                        (3,777,814)       (298,458)        925,243
                                                   --------------  --------------  --------------
    Net cash provided by (used in) continuing
      operations                                        (543,098)      5,289,553         849,229
    Net cash used in discontinued operations            (339,116)     (1,153,100)     (1,646,011)
                                                   --------------  --------------  --------------
    Net cash provided by (used in) operating
      activities                                        (882,214)      4,136,453        (796,782)
                                                   --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisitions, net of cash acquired                     -          (1,786,692)    (15,455,160)
  Purchase of property and equipment                (8,839,263)     (9,301,802)    (15,050,371)
  Proceeds from sale of property and equipment           -              39,000          96,005
  Proceeds from sale of real estate                      -               -             259,253
  Disbursements on notes receivables                  (634,067)       (960,709)     (2,402,404)
  Disbursements for trademarks and trade names            -             (6,216)         (9,224)
  Disbursements for goodwill                           (29,946)          -               -
  Disbursement on deferred expenses                     (9,549)       (318,855)       (248,923)
  Proceeds from repayment of notes receivable
    related to exercise of options and warrants            -             -             235,700
  Decrease in cash designated for equipment
    additions                                              -             -             856,441
  Decrease (increase) in other assets                 (146,325)      1,125,027        (347,856)
                                                   --------------  --------------  --------------
    Net cash used in investing activities of
      continuing operations                         (9,659,150)    (11,210,247)    (32,066,539)
    Net cash used in investing activities of
      discontinued operations                          (77,155)       (424,769)     (2,218,183)
                                                   --------------  --------------  --------------
    Net cash used in investing activities           (9,736,305)    (11,635,016)    (34,284,722)
                                                   --------------  --------------  --------------
</TABLE>

                                - Continued -
   The accompanying notes are an integral part of these financial statements
                                      F-6
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
                           Year Ended December 31,


<TABLE>
<CAPTION>

                                                        2000            1999            1998
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Net proceeds (payments) from revolving
    credit agreement                                  14,637,367      (1,630,250)     12,900,000
  Proceeds from long-term borrowings                   3,901,989           -           4,500,000
  Principal payments on long-term borrowings          (5,274,805)     (2,604,392)     (1,096,416)
  Purchase and retirement of common stock             (3,198,986)     (1,027,285)     (3,285,558)
  Proceeds from exercise of options and warrants       1,150,000           -             430,000
  Cost to register common stock                            -               -             (77,487)
                                                   --------------  --------------  --------------
    Net cash provided by (used in) financing
      activities of continuing operations             11,215,565      (5,261,927)     13,370,539
    Net cash used in financing activities of
      discontinued operations                            (88,138)        (87,975)        (70,930)
                                                   --------------  --------------  --------------
    Net cash provided by (used in) financing
      activities                                      11,127,427      (5,349,902)     13,299,609
                                                   --------------  --------------  --------------
    Net increase (decrease) in cash and cash
      equivalents                                        508,908     (12,848,465)    (21,781,895)
CASH AND CASH EQUIVALENTS
    Beginning of year                                    824,220      13,672,685      35,454,580
                                                   --------------  --------------  --------------
    End of year                                    $   1,333,128   $     824,220   $  13,672,685
                                                   ==============  ==============  ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid, net of $246,207, $395,074 and
    $295,089 interest capitalized to property and
    equipment for 2000, 1999 and 1998, respectively:
      Continuing operations                        $   2,440,251   $   1,365,866   $     814,934
                                                   ==============  ==============  ==============
      Discontinued operations                      $      13,368   $      20,492   $      22,642
                                                   ==============  ==============  ==============
  Income taxes paid:
      Continuing operations                        $     421,654   $   3,257,773   $   2,486,778
                                                   ==============  ==============  ==============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
  Valuation and release from escrow of 0, 245,899
    and 7,000 shares of common stock related to
    acquisitions for 2000, 1999 and 1998,
    respectively                                   $       -       $     970,528   $      28,438
                                                   ==============  ==============  ==============
  Issuance of 1,150,000, 0 and 289,000 shares of
    common stock upon exercise of options in
    exchange for receivable in 2000, 1999 and
    1998, respectively                             $   1,150,000   $       -       $     722,500
                                                   ==============  ==============  ==============
  Capital lease obligation incurred for use of
    property and equipment                         $   3,700,000   $       -       $     116,580
                                                   ==============  ==============  ==============
  Issuance of stock in exchange for minority
    interest                                       $       -       $       -       $     522,500
                                                   ==============  ==============  ==============
  Exchange of assets for minority interest         $       -       $     866,139   $       -
                                                   ==============  ==============  ==============
ACQUISITION OF COMPANIES (Note 11)
  Working capital acquired, net of cash and
    cash equivalents received                      $       -       $     592,288   $   2,635,781
  Fair value of other assets acquired,
    principally property and equipment                     -             698,647       1,742,794
  Goodwill                                                 -             647,369      11,106,585
  Long-term debt assumed                                   -            (151,612)        (30,000)
                                                   --------------  --------------  --------------
                                                   $       -       $   1,786,692   $  15,455,160
                                                   ==============  ==============  ==============
</TABLE>


   The accompanying notes are an integral part of these financial statements
                                      F-7
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note A. Nature of Business and Summary of Significant Accounting Policies


The nature of the business and a summary of the significant accounting policies
consistently applied in the preparation of the accompanying consolidated
financial statements follows.

1. Nature of business

The Company designs, manufactures and sells air filters and related products. It
is focused on providing complete environmental control systems for end uses
ranging from controlling contaminants in residences and commercial office
buildings through specialized manufacturing environments for semiconductors and
viruses. The Company also designs and manufactures much of its own production
equipment to automate processes to decrease labor costs associated with its
standard products. The Company also produces glass-based air filter media for
many of its products. The vast majority of the Company's current revenues come
from the sale of after-market replacement filters, since air filters are
typically placed in equipment designed to last much longer than the filters.

The Company has only one segment, filtration products. The Company sells some
products for end users outside of the United States through domestic specialty
cleanroom contractors. These sales are accounted for as domestic sales. The
Company also sells products through foreign distributors, primarily in Europe,
and a wholly owned subsidiary, which sells to customers in the Far East. Sales
through foreign distributors and its wholly owned foreign subsidiary total less
than 5% of net sales. Assets held outside the United States are negligible.

2. Financial statement presentation

The accounting and reporting policies of Flanders Corporation and Subsidiaries
(the Company) conform with accounting principles generally accepted in the
United States of America and with general practices in the manufacturing
industry.

3. Principles of consolidation

The consolidated financial statements include the accounts and operations of the
Company and its subsidiaries, all of which are wholly owned, except for one
subsidiary which was only 80 percent owned for the year ended December 31, 1998.
All material intercompany accounts and transactions have been eliminated in
consolidation. Amounts of minority interest are insignificant.

4. Significant customers

Net sales for the years ended December 31, 2000, 1999 and 1998 included sales to
the following major customers, together with the receivables due from those
customers:

<TABLE>
<CAPTION>
                          Amount of Net Sales                 Trade Receivable Balance
                                                                 As of December 31,
               ----------------------------------------  -------------------------------------
                   2000          1999          1998         2000         1999         1998
               ------------  ------------  ------------  -----------  -----------  -----------
<S>            <C>           <C>           <C>           <C>          <C>          <C>
Customer A     $ 16,527,125  $ 16,441,644  $ 16,030,892  $ 1,677,274  $ 1,385,692  $ 1,112,788
Customer B       24,772,898    21,148,340    16,197,490    3,256,765    2,937,626    2,286,944
</TABLE>

                                      F-8
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note A. Nature of Business and Summary of Significant Accounting
        Policies - Continued


5. Use of estimates

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

6. Cash and cash equivalents

The Company maintains its cash in bank deposit accounts, which at times exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk
on cash and cash equivalents. For purposes of reporting cash flows, the Company
considers all cash accounts (including $3.6 million at December 31, 2000, in
bond funds restricted or designated for building and equipment acquisitions) and
certificates of deposit which have an original maturity of three months or less
when purchased to be cash equivalents.

7. Fair value of financial instruments

The carrying amount of cash equivalents approximates fair value at December 31,
2000 and 1999 because of the short maturity of those instruments. Based on the
borrowing rates currently available to the Company for bank loans with similar
maturities and similar collateral requirements, the fair value of notes payable
and long-term debt approximates the carrying amounts at December 31, 2000 and
1999.

8. Inventories

Inventories are valued at lower of cost (first-in, first-out method) or market.

9. Goodwill

The Company has classified as goodwill the cost in excess of fair value of the
net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized on a straight line basis over 40
years. At each balance sheet date, the Company evaluates goodwill for impairment
by comparing expectations of non-discounted future cash flows excluding interest
costs with the carrying value of goodwill for each subsidiary having a material
goodwill balance. Based upon its most recent analysis, the Company believes that
no impairment of goodwill exists at December 31, 2000.

10. Trademarks and trade names

Trademarks and trade names are being amortized on a straight line basis over 17
years. At each balance sheet date, the Company evaluates the value of trademarks
and tradenames for impairment by comparing expectations of non-discounted future
cash flows excluding interest costs with the carrying value of trademarks and
tradenames for each trademark or tradename having a material unamortized
balance. Based upon its most recent analysis, the Company believes that no
impairment of trademarks and tradenames exists at December 31, 2000.

                                      F-9
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note A. Nature of Business and Summary of Significant Accounting
        Policies - Continued


11. Property and equipment

Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over estimated useful lives. Amortization of capital leases
is included in depreciation expense. The carrying amount of all long-lived
assets is evaluated periodically to determine if adjustment to the depreciation
and amortization period or to the unamortized balance is warranted. Based upon
its most recent analysis, the Company believes that no impairment of property
and equipment exists at December 31, 2000.

12. Revenue recognition

All sales are recognized when shipments are made to customers.

13. Income taxes

Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

14. Research and development

Research and development expenses and ongoing costs associated with improving
existing products and manufacturing processes are expensed in the period
incurred. Costs associated with research and development amounted to
approximately $1,174,000, $763,000 and $2,250,000 for 2000, 1999 and 1998,
respectively.

15. Earnings (loss) per share

The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128 requires the
presentation of basic and diluted EPS. Basic EPS are calculated by dividing
earnings (loss) available to common shareholders by the weighted average number
of common shares outstanding during each period. Diluted EPS are similarly
calculated, except that the weighted average number of common shares outstanding
includes common shares that may be issued subject to existing rights with
dilutive potential, except during loss periods when their inclusion would be
antidilutive.

16. Stock Options

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options rather than adoptiong the
alternative fair value accounting provided for under FASB Statement 123,
"Accounting for Stock-Based Compensation" (SFAS 123).

17. Advertising

The costs of advertising are expensed as incurred.

18. Warranty

The costs of warranties on the Company's products have not been historically
significant and are expensed as incurred.

                                      F-10
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note A. Nature of Business and Summary of Significant Accounting
        Policies - Continued


19. Self-Insurance

The Company is self-insured for certain losses relating to workers' compensation
claims and medical benefits. The Company has purchased stop-loss coverage in
order to limit the exposure to any significant levels of workers' compensation
liability claims.

Self-insured losses are accrued based upon the Company's estimate of the
aggregate liability for uninsured claims incurred using the Company's historical
experience.

20. Reclassifications

Certain account balances for 1999 and 1998 have been reclassified with no effect
on net earnings or retained earnings to be consistent with the classification
adopted for the year ended December 31, 2000.


Note B. Mergers and Acquisitions

Effective April 1, 1999, the Company purchased the Tidewater group of companies,
consisting of Tidewater Air Filter Fabrication Company, Inc., Newport
Manufacturing, Inc., and Bio-Tec Inc., for a total cost of acquisition, net of
cash received, of approximately $1,787,000 in a transaction recorded as a
purchase. Goodwill of approximately $647,000 was recorded in this transaction.
Tidewater is an air filter distributor and service organization. Prior to the
acquisition, Tidewater was an exclusive distributor of a competitor's products.
Newport Manufacturing is an air filter manufacturer with some limited
manufacturing capacity for specialty products. Bio-Tec is an indoor air quality
consulting firm. The Company's financial statements include the operating
results of the Tidewater group of companies from April 1, 1999.

On May 7, 1998, the Company agreed to acquire substantially all of the
outstanding stock of Eco-Air Products, Inc. ("Eco-Air") in a transaction
recorded as a purchase. The total cost of the acquisition, net of cash acquired,
was approximately $15,455,000, plus the Company's common stock equivalent in
value to $5,000,000 or cash if certain performance criteria are met. In
connection with this purchase, the Company recorded approximately $11,107,000 of
goodwill. Upon achieving certain performance criteria, common stock will be
issued or a liability recorded for cash payment over a five year period and will
be added to goodwill associated with the purchase transaction and amortized over
the remaining amortization period of the respective goodwill asset. The
acquisition of Eco-Air was funded by utilizing a revolving credit facility which
provides a line of credit up to a maximum principal amount of $30,000,000. The
effective date of the acquisition for financial statement purposes was June 30,
1998. The Company's financial statements include the operating activities and
assets of Eco-Air from that date. As of December 31, 2000, no shares have been
issued or liability recorded to the Eco-Air sellers as a result of not having
met the performance criteria.

Summarized below are the 1998 unaudited pro forma results of operations of the
Company as though Eco-Air had been acquired at the beginning of the fiscal year
ended December 31, 1998.

<TABLE>
<CAPTION>
<S>                                                     <C>
Revenues                                                $ 178,473,654
                                                        =============
Earnings from continuing operations                     $   6,594,619
                                                        =============
Earnings per common share from continuing operations:
  Basic                                                 $        0.26
                                                        =============
  Diluted                                               $        0.24
                                                        =============
</TABLE>

Pro forma results of operations of the Company as though Tidewater had been
acquired as of January 1, 1998 are not presented because amounts of pro forma
differences are not significant.


                                      F-11
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note C. Inventories

Inventories consists of the following at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Finished goods                                     $  12,423,309   $  12,041,722
Work in progress                                       2,440,136       1,665,953
Raw materials                                         14,822,031      12,382,025
                                                   --------------  --------------
                                                      29,685,476      26,089,700
Less allowances                                        1,385,710         188,000
                                                   --------------  --------------
                                                   $  28,299,766   $  25,901,700
                                                   ==============  ==============
</TABLE>


Note D. Discontinued Operations

During 1997, the Company established a new subsidiary, Airseal West, Inc., to
serve as a manufacturer of industrial air handlers, custom housings, and related
products for the western U.S. The market opportunities envisioned by this
venture failed to materialize, and Airseal West focused its primary efforts on
perceived opportunities in businesses and products unrelated to air filtration,
including sporting goods, vending equipment and other general manufacturing.

In December 1999, the Company adopted a formal plan to close Airseal West,
a wholly owned subsidiary, and sell its various assets and product lines
to unrelated third parties. During the year ended December 31, 2000,
approximately $3 million of fixed assets and inventory were purchased by
other subsidiaries, with other assets remaining held for sale. As there
are no firm purchase commitments in place regarding the sale of these
assets, management estimates that there will be no proceeds from the
disposal of the remaining assets at this time. During the first quarter of
2001, the Company ceased operations and completed the closure of the
discontinued operations.

Operating results of Airseal West for 2000, 1999 and 1998 are shown separately
in the accompanying statement of operations and combined into the heading, "Loss
from operations of discontinued subsidiary."

Net sales of Airseal West for 2000, 1999 and 1998 were approximately $1,710,000,
$2,354,000 and $2,237,000, respectively. These amounts are not included in net
sales in the accompanying statement of operations.

Net assets of Airseal West consist of the following at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Accounts receivable                                $     374,952   $     952,379
Inventories                                                -           1,348,888
Other current assets                                       -              48,439
Property and equipment, net                                -           3,487,864
Accounts payable                                        (228,241)       (429,075)
Accrued liabilities                                      (69,295)        (25,204)
Long-term debt                                           (77,416)       (165,554)
                                                   --------------  --------------
                                                   $       -       $   5,217,737
                                                   ==============  ==============
</TABLE>


                                      F-12
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note E. Other Assets

Other assets consist of the following at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Real estate held for sale                          $      56,000   $   1,578,218
Notes receivable                                       1,255,420         960,709
Deposits                                                 490,267         295,643
Deferred expenses, net of accumulated
  amortization of $338,010 in 2000 and
  $214,001 in 1999                                     1,071,807       1,118,937
All other                                                111,686         159,984
                                                   --------------  --------------
                                                   $   2,985,180   $   4,113,491
                                                   ==============  ==============
</TABLE>


Note F. Intangible Assets

Intangible assets consist of the following at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Goodwill, net of accumulated amortization of
  $2,555,832 in 2000 and $1,773,144 in 1999        $  28,405,089   $  29,160,232
Trademarks and trade names, net of accumulated
  amortization of $256,468 in 2000 and
  $174,929 in 1999                                       780,716         862,255
                                                   --------------  --------------
                                                   $  29,185,805   $  30,022,487
                                                   ==============  ==============
</TABLE>


Note G. Property and Equipment

Property and equipment and estimated useful lives consist of the following at
December 31:

<TABLE>
<CAPTION>
                                                                                     Estimated
                                                        2000             1999       Useful Lives
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
Land                                               $   3,772,114   $   3,862,886          -
Buildings                                             37,650,718      28,107,676     15-40 years
Machinery and equipment                               48,268,362      38,411,695        10 years
Office equipment                                       7,553,043       6,187,553         5 years
Vehicles                                               1,351,045       1,141,145         5 years
Construction in progress                               2,777,843       6,382,453          -
                                                   --------------  --------------
                                                     101,373,125      84,093,408
Less accumulated depreciation                         26,451,929      18,839,580
                                                   --------------  --------------
                                                   $  74,921,196   $  65,253,828
                                                   ==============  ==============
</TABLE>

Total depreciation expense charged to operations totaled $7,612,348, $5,544,018
and $4,435,744 for 2000, 1999 and 1998, respectively.



                                      F-13
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note H. Pledged Assets and Debt

A summary of the Company's debt, and collateral pledged thereon, consists of the
following at December 31:

<TABLE>
<CAPTION>
                                                          2000             1999
                                                     --------------  --------------
<S>                                                  <C>             <C>
Long-term debt:

Lower of prime or LIBOR plus defined percentage
  line of credit agreements (7.338% at December
  31, 2000) (A).                                     $  26,007,117   $  11,369,750

Prime plus 0.25 percent (9.75% at December 31,
2000) notes payable to a mortgage company due in
monthly payments of $30,096 including interest
through January 2006, at which time all unpaid
principal is due, collateralized by a deed of
trust on land and buildings with a carrying value
of approximately $3,530,000 at December 31, 2000.        1,283,156       1,570,104

10.125 percent note payable to a mortgage company,
due in monthly payments of $13,775, including
interest through July 2004, collateralized by a
first deed of trust on real property.                      483,622         593,818

Various notes payable to a bank with interest at
prime plus .25 percent (9.75% at December 31,
2000) due in monthly installments of $12,038,
including interest, expiring at various times
through April 2004, collateralized by a deed of
trust on real property.                                  1,045,297       1,114,020

6.5 percent note payable to a regional development
authority, due in varying quarterly installments,
plus interest, through December 2017,
collateralized by a security agreement and
financing statement on real and personal property.       5,505,000       5,680,000

Note payable to a bank with interest at 7.9
percent until June 2001 when interest rate changes
to prime plus 0.25 percent, due in monthly
payments of $7,098 including interest through June
2017 subject to a call option in June 2007,
collateralized by a deed of trust on real
property.                                                  808,905         833,623

Industrial revenue bond with a variable tax exempt
interest rate as determined by a remarketing
agent, collateralized by a $4,000,000 letter of
credit which expires April 1, 2015.                      3,901,989           -

Note payable to an industrial development
authority, with an interest rate of 83 percent of
prime rate (7.9% at December 31, 2000), due in
monthly installments of $11,333 plus interest
through January 2005, collateralized by a deed of
trust on real property.                                    566,800         702,810

Industrial revenue bond with a variable tax exempt
interest rate as determined by a remarketing
agent, with rate effectively fixed at 5.14% by an
interest-rate swap, collateralized by a $4,500,000
letter of credit which expires April 1, 2013.            4,500,000       4,500,000

Note payable to a bank with interest at LIBOR plus
an adjusted base rate, as defined, due in monthly
installments of $17,788 plus interest, with a
balloon payment due on June 30, 2002, of
$1,120,625, collateralized by a second deed of
trust and security agreement on real property.           1,440,804       1,654,256

Real estate contract payable to a company for
purchase of land and buildings.                              -           3,994,000
</TABLE>



                                      F-14
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note H.    Pledged Assets and Debt - Continued

<TABLE>
<CAPTION>
                                                          2000             1999
                                                     --------------  --------------
<S>                                                  <C>             <C>
Various contracts payable including capital lease
obligations; interest rates from 6.3 percent to
9.6 percent at December 31, 2000 and 1999,
collateralized by certain equipment; due in
monthly payments aggregating approximately $9,000
including interest, expiring at various dates
through May 2003.                                          226,782         315,788
                                                     --------------  --------------
                                                        45,769,472      32,328,169
Less current maturities                                 32,635,253       1,115,184
                                                     --------------  --------------
                                                     $  13,134,219   $  31,212,985
                                                     ==============  ==============
</TABLE>

(A) These are amounts outstanding on revolving credit facilities with banks
    which provide lines of credit up to a maximum principal amount of
    $45,000,000 at December 31, 2000 and 1999. The lines of credit bear interest
    rates at the option of the Company at either 1) prime rate, which was 9.5%
    at December 31, 2000, or 2) LIBOR, which was 6.338% at December 31, 2000,
    plus an amount equal to 1.00% to 1.95%, depending on the ratio of total
    liabilities of the Company to its tangible net worth. The line of credit
    agreements expire June 28, 2002. The line of credit is collateralized by the
    pledge of all common stock of the subsidiaries owned by the Company.

In connection with the lines of credit agreements and notes payable to a
regional development authority and bank, the Company has agreed to certain
restrictive covenants which include, among other things, not paying dividends
and maintenance of certain financial ratios at all times including a minimum
current ratio, minimum tangible net worth, a maximum ratio of total liabilities
to tangible net worth and a minimum fixed charge coverage ratio.

At times during 2000, and at December 31, 2000, we were in violation of certain
financial loan covenants. We are currently negotiating with our banks to receive
a waiver for these violations. As a result of these violations, the outstanding
balance on our $30 million working capital facility and $5.5 million due to a
regional development authority have been classified as short-term debt.

Aggregate maturities required on long-term debt as of December 31, 2000 are due
in future years as follows:

<TABLE>
<CAPTION>

           Year Ending December 31,
           ------------------------
           <S>                          <C>
                    2001                $ 32,635,253
                    2002                   2,217,521
                    2003                     782,268
                    2004                     929,411
                    2005                     319,249
                    Later years            8,885,770
                                        -------------
                                        $ 45,769,472
                                        =============
</TABLE>



                                      F-15
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note I. Leases

The Company leases certain facilities and equipment under long-term
non-cancellable operating leases, which may be renewed in the ordinary course of
business, including a building lease with a related party (Note O). During 2000,
the Company leased certain manufacturing and warehousing space under a capital
lease with an original term of ten years and two consecutive ten-year renewal
options. Leased capital assets are included in property and equipment as follows
at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Buildings                                          $   3,700,000   $        -
Accumulated depreciation                                 (61,667)           -
                                                   --------------  --------------
                                                   $   3,638,333   $        -
                                                   ==============  ==============
</TABLE>


Future minimum payments, by year and in aggregate, under capital leases and
operating leases with initial or remaining terms of one year or more consist of
the following at December 31, 2000:

<TABLE>
<CAPTION>
        Year Ending December 31,                   Capital leases  Operating leases
        ------------------------                   --------------  ----------------
<S>                                                <C>             <C>
                2001                               $     506,089   $     2,282,358
                2002                                     521,272         1,818,032
                2003                                     536,910         1,367,530
                2004                                     553,018         1,348,065
                2005                                     569,608         1,276,776
                Later years                            2,724,927         3,296,295
                                                   --------------  ----------------
            Total minimum lease payments               5,411,824   $    11,389,056
            Less amount representing interest          1,811,160   ================
                                                   --------------
            Present value of net minimum payments      3,600,664
            Current portion                              197,000
                                                   --------------
            Long-term portion                      $   3,403,664
                                                   ==============
</TABLE>

Total rent expense charged to operations was approximately $2,900,000,
$2,900,000 and $2,000,000 for 2000, 1999 and 1998, respectively.


Note J. Accounts Payable

Accounts payable consist of the following at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Accounts payable, trade                            $  19,841,058   $  15,017,193
Commissions payable                                      384,796         543,365
Customer deposits                                         41,382         199,464
                                                   --------------  --------------
                                                   $  20,267,236   $  15,760,022
                                                   ==============  ==============
</TABLE>



                                      F-16
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note K. Accrued Expenses

Accrued expenses consist of the following at December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Payroll                                            $   1,721,570   $   1,486,216
Insurance, including workers compensation                703,953       1,053,794
Sales and use taxes                                       75,702         144,951
Interest                                                 193,580          28,680
All other                                              3,305,335       1,181,633
                                                   --------------  --------------
                                                   $   6,000,140   $   3,895,274
                                                   ==============  ==============
</TABLE>


Note L. Income Taxes

The Company's provision (benefit) for income taxes is as follows for the years
ended December 31:

<TABLE>
<CAPTION>
                                                        2000            1999            1998
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
Current:
  Federal                                          $  (2,784,617)  $   2,485,920   $   2,655,933
  State                                                 (775,119)        792,986         756,088
  Foreign                                                 44,681           -               -
                                                   --------------  --------------  --------------
                                                      (3,515,055)      3,278,906       3,412,021
                                                   --------------  --------------  --------------
Deferred:
  Federal                                               (501,298)       (250,675)        162,098
  State                                                  (77,493)        (57,952)         23,716
                                                   --------------  --------------  --------------
                                                        (578,791)       (308,627)        185,814
                                                   --------------  --------------  --------------
Total                                                 (4,093,846)      2,970,279       3,597,835
Allocated to discontinued operations                  (1,651,000)     (1,700,403)       (852,244)
                                                   --------------  --------------  --------------
Total provision (benefit) from continuing
  operations                                       $  (2,442,846)  $   4,670,682   $   4,450,079
                                                   ==============  ==============  ==============
</TABLE>

The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 34% to pretax income due to the
following for years ended December 31:

<TABLE>
<CAPTION>
                                                        2000            1999            1998
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
Computed "expected" tax expense (benefit)          $  (3,839,640)  $   1,967,719   $   3,021,374
Increase (decrease) in income taxes
  resulting from:
    Nondeductible expenses                               337,608         377,919         150,210
    Nontaxable income                                      -              (1,061)        (23,874)
    State income taxes net of federal
      tax benefit                                       (591,814)        427,769         515,233
    Change in valuation allowance                          -              (2,094)        (17,479)
    Tax credits                                            -               -             (47,629)
    Adjustment to estimated income tax accrual                           200,000           -
                                                   --------------  --------------  --------------
                                                   $  (4,093,846)  $   2,970,252   $   3,597,835
                                                   ==============  ==============  ==============
</TABLE>



                                      F-17
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note L. Income Taxes - Continued


Net deferred tax assets and liabilities consist of the following components as
of December 31:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Deferred tax assets:
  Accounts receivable allowance                    $     638,728   $     181,935
  Inventory allowances                                 1,451,632         861,637
  Accrued expenses                                       843,582         740,261
  Prepaid expenses                                        68,270          65,648
  Contributions carryover                                 18,333           -
                                                   --------------  --------------
                                                       3,020,545       1,849,481
Deferred tax liabilities:
  Property and equipment                              (6,432,927)     (5,840,654)
                                                   --------------  --------------
                                                   $  (3,412,382)  $  (3,991,173)
                                                   ==============  ==============
</TABLE>

The components giving rise to the net deferred tax assets and liabilities
described above have been included in the accompanying consolidated balance
sheets at December 31 as:

<TABLE>
<CAPTION>
                                                        2000             1999
                                                   --------------  --------------
<S>                                                <C>             <C>
Current assets                                     $   3,020,545   $   1,849,481
Noncurrent liabilities                                (6,432,927)     (5,840,654)
                                                   --------------  --------------
                                                   $  (3,412,382)  $  (3,991,173)
                                                   ==============  ==============
</TABLE>


Note M. Commitments and Contingencies

1. Employment Agreements:

The President and Chief Executive Officer, and the Chief Operating Officer/Vice
President Finance/Chief Financial Officer, both have employment agreements which
expire in December 2010. In addition to a base salary and bonuses which may be
paid at the discretion of the Board of Directors, the agreements provide for a
termination payment of the minimum amount due under the employment contract if
the officer had served his full term, in the event the officer's employment is
terminated under various circumstances.

The Company may pay discretionary cash bonuses to its officers and employees.
The Company did not pay bonuses for 2000, 1999 and 1998.



                                      F-18
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note M. Commitments and Contingencies - Continued


2. Litigation

During 2000, the Company settled its lawsuit with a customer regarding a
purchase of allegedly defective filters. As part of the settlement, the Company
agreed to pay the customer $1.5 million, accept the return of the filters as
payment for its account receivable, and provide the customer with HEPA filters
for future work. The Company has sued the supplier of the urethane sealant used
in the allegedly defective filters for supplying a sealant which did not meet
specifications for the project. The amount and probability of any settlement or
award is unknown at this time.

The Company is involved in a dispute with a former workers' compensation
administrator and stop-loss insurer for some of the Company's subsidiaries. The
administrator has alleged that they are owed insurance premiums, claims
reimbursement and administrative fees. The Company has counter-sued, claiming
that the administrator was negligent in its duties as administrator of our
claims, that it made payments on our behalf which were specifically disallowed,
that they refused to follow instructions given to them by us, that they failed
to meet minimal acceptable standards for administering claims, and that such
failures constituted a material dereliction of their responsibilities as
administrator, as well as other claims related to malfeasance and negligence.
The amount and probability of any payment or settlement is unknown at this time.
Among the issues being considered is the matter of currently unresolved workers'
compensation claims whose estimate of potential loss may change as a result of
this litigation. While management believes it has reserved an adequate amount
for settlement of these claims, there is no guarantee that the Company's actual
liability will not exceed its current estimate. Accordingly, these matters, if
resolved in a manner different from management's estimate, could have a material
effect on the operating results or cash flows in any one future accounting
period.

From time to time, the Company is a party as plaintiff or defendant to various
legal proceedings related to our normal business operations. In the opinion of
management, although the outcome of any legal proceeding cannot be predicted
with certainty, the ultimate liability of the Company in connection with its
legal proceedings will not have a material adverse effect on the Company's
financial position, but could be material to the results of operations in any
one future accounting period.

Note N. Employee Benefit Plans

The Company has a defined contribution 401(k) salary reduction plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986 ("Salary
Savings Plan"). The Salary Savings Plan allows eligible employees, as defined in
the plan document, to defer up to 15 percent of their eligible compensation,
with the Company contributing an amount determined at the discretion of the
Company's Board of Directors. The Company contributed approximately $230,000,
$195,000 and $168,000 to the Salary Savings Plan for the years ended December
31, 2000, 1999 and 1998, respectively.

The Company's employee benefit program also includes health, accident, dental,
life insurance and disability benefits. Substantially all the Company's
subsidiaries have elected to self-insure the health and accident insurance at an
individual maximum ranging from $30,000 to $90,000 per employee per claim year.
A stop loss policy is maintained for subsidiaries that are self-insured, which
covers 100 percent of liability over amounts ranging from $30,000 to $80,000 per
occurrence per individual per plan year. The employer's portion of claims
charged to operations totaled approximately $2,045,000, $1,100,000 and
$1,160,000 for 2000, 1999 and 1998, respectively.



                                      F-19
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note N. Employee Benefit Plans - Continued

During 1996, the Company adopted the Long Term Incentive Plan ("LTI Plan") to
assist the Company in securing and retaining key employees and consultants. The
LTI Plan authorizes grants of incentive stock options, nonqualified stock
options, stock appreciation rights ("SARs"), restricted stock performance shares
and dividend equivalents to officers and key employees of the Company and
outside consultants to the Company. There are 1,986,800 shares of Common Stock
reserved for award under the LTI Plan. During 2000, 1999 and 1998, the Company
awarded options to purchase 12,500, 52,850 and 216,850 shares of Common Stock
under the LTI Plan, respectively (Note P).

During 1996, the Company also adopted the 1996 Director Option Plan which
provides for the grant of stock options to outside directors of the Company who
were elected or appointed after February 1, 1996, and who were not existing
directors on the effective date of the plan. Each such outside director who is
serving as a director on January 1 of each calendar year will automatically be
granted an option to acquire up to 5,000 shares of Common Stock on such date,
assuming such outside director had been serving for at least six months prior to
the date of grant. The Company has reserved 500,000 shares of its Common Stock
for issuance under the 1996 Director Option Plan which expires in 2006. During
2000, 1999 and 1998, the Company awarded options to purchase 0, 105,000 and
115,000 shares, respectively, of Common Stock under the 1996 Director Option
Plan (Note P).

Note O. Related Party Transactions and Balances

At December 31, 2000 and 1999, the Company had notes receivable classified as
contra-equity of $7,891,208 and $6,323,308, respectively, due from various
directors, officers and employees with interest thereon varying between 6.31%
and 8.75%, maturing at various dates to December 2010 and callable on demand by
the Company.

These notes include a note receivable of $1,150,000 due from
an officer and director with interest at LIBOR plus 1%, maturing in December
2010, callable on demand by the Company, for a subscription of stock related to
the exercise of stock options.

During November 2000, the Company entered into a five-year operating leases
whereby the Company is leasing 138,000 square feet of a building 50% owned by
two officers and directors of the Company for $27,520 per month. The Company
believes this lease is at prevailing market rates.

On January 2, 2001, the Company purchased and leased back $797,000 in
manufacturing equipment from a supplier of raw materials 50% owned by two
officers and directors. The Company also loaned this supplier $500,000, secured
by a building and used to pay off an existing mortgage, and $400,000 to repay a
credit line secured by inventory, receivables and other current assets. The
Company made payments of $233,831 and $1,381 in 2000 and 1999, respectively, to
this supplier. At December 31, 2000 and 1999, the Company owed to this supplier
and included in trade accounts payable a total of $76,991 and $11,757,
respectively.



                                      F-20
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note P.  Stock Options and Warrants

During 2000, the Company granted options to purchase 12,500 shares of common
stock under its LTI Plan at a weighted average exercise price of $2.53 per
share. All options granted during 2000 were non-qualified fixed price options,
and were not exercisable at December 31, 2000.

The following table summarizes the activity related to all Company stock options
and warrants for 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                                   Weighted Average
                                             Shares                    Exercise Price               Exercise Price
                                   ---------------------------            per Share                   per Share
                                                    Stock     ----------------------------------------------------------
                                     Warrants      Options        Warrants         Options      Warrants      Options
                                   -------------------------------------------------------------------------------------
<S>                                <C>             <C>          <C>             <C>              <C>          <C>
Outstanding at January 1, 1998         637,239      7,292,920   $5.54 - 14.73   $1.00 - 9.50     $    9.57    $    3.51
  Granted                                 -           331,850         -          3.94 - 8.50           -           4.69
  Exercised                               -          (611,000)        -          1.00 - 2.50           -           2.13
  Canceled or expired                     -           (83,400)        -          1.00 - 9.50           -           2.83
                                   ------------    -----------
Outstanding at December 31, 1998       637,239      6,930,370    5.54 - 14.73    1.00 - 9.50          9.57         3.70
  Granted                                 -           157,850         -          2.50 - 4.75           -           2.97
  Exercised                               -              -            -               -                -            -
  Canceled or expired                  (25,000)       (82,520)       9.63        2.50 - 9.50          9.63         5.29
                                   ------------    -----------
Outstanding at December 31, 1999       612,239      7,005,700    5.54 - 14.73    1.00 - 9.50          9.57         3.66
  Granted                                 -            12,500         -          2.50 - 2.63           -           2.53
  Exercised                               -        (2,300,000)        -              1.00              -           1.00
  Canceled or expired                  (72,239)          -       5.34 - 8.16          -               6.07          -
                                   ------------    -----------
Outstanding at December 31, 2000       540,000      4,718,200    5.54 - 14.73    2.50 - 9.50          10.04        4.96
                                   ============    ===========
Exercisable at December 31, 2000       540,000      4,705,700    5.54 - 14.73    2.50 - 9.50          10.04        4.97
                                   ============    ===========
Exercisable at December 31, 1999       612,239      6,847,850    5.54 - 14.73    1.00 - 9.50           9.57        3.68
                                   ============    ===========
Exercisable at December 31, 1998       637,239      6,753,520    5.54 - 14.73    1.00 - 9.50           9.57        3.69
                                   ============    ===========
</TABLE>

During 1999, the expiration date of options to purchase 2,000,000 shares at
$2.50 per share was extended from February 2001 to February 2006, which resulted
in a new measurement date under interpretations to APB Opinion No. 25.

The warrants and options expire at various dates ranging from February 2000 to
December 2008. A further summary of information related to fixed options
outstanding at December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                      Weighted Average             Weighted Average
  Range of Exercise             Number             Remaining Contractual            Exercise Price
       Prices          Outstanding / Exercisable        Life (Years)           Outstanding / Exercisable
---------------------- -------------------------- -------------------------   ----------------------------
<S>                      <C>                                <C>                     <C>
$2.50 to 4.75            2,412,100 / 2,399,600              4.95                    $2.64 / 2.65
5.38 to 7.50             2,273,600 / 2,273,600              0.55                     7.35 / 7.35
8.50 to 9.50                32,500 / 32,500                 0.95                     9.19 / 9.19
</TABLE>



                                      F-21
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note P. Stock Options and Warrants - Continued

As permitted under accounting principles generally accepted in the United States
of America, grants under the LTI Plan and other grants of options are accounted
for following APB Opinion No. 25 and related Interpretations. Accordingly, no
compensation cost has been recognized for grants under the LTI Plan, since all
options granted had an exercise price at or above the market price of the
Company's common stock on the date of grant. Had compensation cost for the LTI
Plan been determined based on the grant date fair values of awards using the
Black-Scholes option pricing model (the method described in FASB Statement No.
123), reported net earnings (loss) and earnings (loss) per common share would
have been changed to the pro forma amounts shown below for the years ended
December 31:

<TABLE>
<CAPTION>
                                                        2000            1999            1998
                                                   --------------  --------------  --------------
<S>                                                <C>             <C>             <C>
Net earnings (loss):
  As reported                                      $  (7,199,213)  $   2,817,134   $   5,288,568
  Pro forma                                        $  (7,199,213)  $   1,136,155   $   4,962,085
Basic earnings (loss) per share:
  As reported                                      $       (0.28)  $        0.11   $        0.21
  Pro forma                                        $       (0.28)  $        0.04   $        0.20
Diluted earnings (loss) per share:
  As reported                                      $       (0.28)  $        0.11   $        0.20
  Pro forma                                        $       (0.28)  $        0.04   $        0.18
Weighted average fair value per option of
  options granted during the year                  $        2.17   $        1.53   $        1.40
</TABLE>

In determining the pro forma amounts above, the value of each grant is estimated
at the grant date using the Black-Scholes option pricing method prescribed in
FASB Statement No. 123, with the following assumptions: Dividend rate of 0%;
risk-free interest rates based upon the zero-coupon rate on the date of grant
for the expected life of the option; and expected price volatility on the date
of grant. Weighted average assumptions for options granted in 2000, 1999 and
1998 were as follows: Dividend rate of 0%; average risk-free interest rate of
6.00%, 5.66% and 5.18%, respectively; average expected lives of 5, 5 and 4.3
years, respectively; and average expected price volatility of 125%, 67% and 40%,
respectively.



                                      F-22
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note Q. Earnings (Loss) per Share

The following data show the amounts used in computing net earnings (loss) per
common share from continuing operations. The following data also show the
weighted average number of shares and dilutive potential common stock.

<TABLE>
<CAPTION>
                                                                                                        Per Share
                                                                                                         Amounts
                                                                                                      ---------------
                                                               Numerator          Denominator          Net Earnings
                                                            ----------------    -----------------     ---------------
                                                                          Year Ended December 31, 2000
                                                            ---------------------------------------------------------
<S>                                                           <C>                   <C>                 <C>
Basic and diluted loss per share, loss from continuing
  operations available to common stockholders                 $    (4,496,982)        25,297,520        $     (0.18)
                                                              ================       ============       ============
Effect of assumed exercise of options and warrants and
  issuance of contingent shares excluded from calculation,
  because inclusion would be antidilutive

                                                                          Year Ended December 31, 1999
                                                            ---------------------------------------------------------
Basic earnings per share, earnings from continuing
  operations available to common stockholders                 $     5,502,925         25,344,433        $      0.22
                                                                                                        ============
Effect of dilutive securities:
  Options and warrants                                                  -              1,159,996
  Contingent shares                                                     -                 21,000
                                                              ----------------       ------------
Diluted earnings per share, earnings from continuing
  operations available to common stockholders plus assumed
  exercise of options and warrants and issuance of
  contingent shares                                           $     5,502,925         26,525,429        $      0.21
                                                              ================       ============       ============

                                                                          Year Ended December 31, 1998
                                                            ---------------------------------------------------------
Basic earnings per share, earnings from continuing
  operations available to common stockholders                 $     6,541,307         25,133,820        $      0.26
                                                                                                        ============
Effect of dilutive securities:
  Options                                                               -              1,949,177
  Contingent shares                                                     -                 21,000
  Warrants                                                              -                  2,927
                                                              ----------------       ------------
Diluted earnings per share, earnings from continuing
  operations available to common stockholders plus
  assumed exercise of options and warrants and
  issuance of contingent shares                               $     6,541,307         27,106,924        $      0.24
                                                              ================       ============       ============
</TABLE>



                                      F-23
<PAGE>


                    FLANDERS CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note R. Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                            Quarters Ended
                                       ----------------------------------------------------------
                                        March 31,       June 30,     September 30,   December 31,
                                           2000           2000           2000           2000
                                       -------------  -------------  -------------  -------------
<S>                                    <C>            <C>            <C>            <C>
Net sales                              $ 44,099,274   $ 50,033,661   $ 50,422,300   $ 49,516,662
Gross profit                             12,749,461     11,335,321      7,021,910      5,810,505
Operating income (loss) from
  continuing operations                   3,447,686      2,072,017     (2,491,726)    (6,844,248)
Earnings (loss) from continuing
  operations                           $  1,901,025   $    959,349   $ (1,845,452)  $ (5,511,904)
                                       =============  =============  =============  =============
Earnings (loss) from continuing
  operations per share:
    Basic                              $       0.08   $       0.04   $      (0.07)  $      (0.22)
    Diluted                                    0.08           0.04          (0.07)         (0.22)
Common stock prices:
  High                                 $      4 1/8    $     4 1/8   $     3 11/16  $     2 19/32
  Low                                         2 9/16         1 5/16        1  5/8         1  3/8

                                        March 31,       June 30,     September 30,  December 31,
                                           1999           1999           1999           1999
                                       -------------  -------------  -------------  -------------
Net sales                              $ 37,629,851   $ 44,706,108   $ 48,658,081   $ 40,398,241
Gross profit                              9,860,706     12,191,179     13,734,386      8,188,257
Operating income (loss) from
  continuing operations                   2,479,216      3,856,610      4,280,124       (443,626)
Earnings (loss) from continuing
  operations                           $  1,249,208   $  2,008,580   $  2,257,560   $    (12,423)
                                       =============  =============  =============  =============
Earnings (loss) from continuing
  operations per share:
    Basic                              $       0.05   $       0.08   $       0.09   $      -
    Diluted                                    0.05           0.08           0.09          -
Common stock prices:
    High                               $      5 1/8   $     3 13/16  $      3 3/8   $      3 1/8
    Low                                       2 9/16        2  1/2          2 3/8          2 1/4
</TABLE>

The Company recorded significant adjustments to the fourth quarter of 2000
that are not attributable to any specific quarter. These adjustments
include approximately $1.2 million of decreases in inventory valuations, a
$1.5 million increase in the allowance for doubtful accounts, and other
charges for write-offs, previously capitalized costs and other
miscellaneous items.



                                      F-24
<PAGE>






                            FLANDERS CORPORATION
                        FINANCIAL STATEMENT SCHEDULE


<PAGE>



             REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                        ON THE SUPPLEMENTAL SCHEDULE





Board of Directors
Flanders Corporation


Our audits were made for the purpose of forming an opinion on the 2000 and 1999
basic consolidated financial statements taken as a whole. The consolidated
Supplemental Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our 2000 and 1999 audits of the basic
consolidated financial statements and, in our opinion, the 2000 and 1999
information is fairly stated in all material respects in relation to the 2000
and 1999 basic consolidated financial statements taken as a whole.


/s/  Grant Thornton LLP

Salt Lake City, Utah
March 21, 2001




                                      F-24
<PAGE>



                    FLANDERS CORPORATION AND SUBSIDIARIES
               SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                  Additions
                                                            ----------------------
                                                 Balance at Charged to  Charged to                         Balance
                                                 Beginning   Cost and     Other                            at End
                                                 of Period   Expense     Accounts      Deductions         of Period
                                                 ---------- ----------  ----------     ----------         ----------
<S>                                              <C>        <C>         <C>           <C>                 <C>
For the year ended December 31, 2000
  Allowance for doubtful accounts                $ 487,321  $1,489,129  $   -         $ (198,477)(1)      $1,777,973
  Allowance for inventory value                    188,000   1,197,710      -               -              1,385,710
                                                 ---------- ----------  ----------    -----------         ----------
    Total                                        $ 675,321  $2,686,839      -         $ (198,477)         $3,163,683
                                                 ========== ==========  ==========    ===========         ==========
For the year ended December 31, 1999
  Allowance for doubtful accounts                $ 551,725  $   39,620  $   -         $ (104,024)(1)      $  487,321
  Allowance for inventory value                     94,414      93,586      -               -                188,000
  Valuation allowance for deferred tax assets        2,094        -         -             (2,094)(2)            -
                                                 ---------- ----------  ----------    -----------         ----------
    Total                                        $ 648,233  $  133,206  $   -         $ (106,118)         $  675,321
                                                 ========== ==========  ==========    ===========         ==========
For the year ended December 31, 1998
  Allowance for doubtful accounts                $ 380,566  $  148,168     60,000     $  (37,009)(1)      $  551,725
  Allowance for inventory value                     62,000      32,414      -               -                 94,414
  Valuation allowance for deferred tax assets       19,573        -         -            (17,479)(2)           2,094
                                                 ---------- ----------  ----------    -----------         ----------
    Total                                        $ 462,139  $  180,582  $  60,000     $  (54,488)         $  648,233
                                                 ========== ==========  ==========    ===========         ==========
</TABLE>

(1)    Uncollected receivables written-off, net of recoveries.
(2)    Reduction in allowance.


                                      F-27