SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND  EXCHANGE
         ACT OF 1934 (Fee required)

         For the fiscal year ended December 31, 1998

[ ]      TRANSITION  REPORT  UNDER  SECTION  13  OR  15(d) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934 (No Fee Required)

         For the transition period from ______ to _______.

Commission File Number 000-21627

                 Safe Alternatives Corporation of America, Inc.
          -------------------------------------------------------------
                 (Name of small business issuer in its charter)

            Florida                                            06-1413994
-------------------------------                          --------------------
(State or other jurisdiction of                          (I.R.S. Employer
 Incorporation or organization)                           Identification No.)

                 440 Main Street, Ridgefield, Connecticut 06877
        ----------------------------------------------------------------
                (Current Principal Executive Offices) (Zip Code)

                27 Governor Street, Ridgefield, Connecticut 06877
        ----------------------------------------------------------------
                 (Former Principal Executive Offices) (Zip Code)

Issuer's Telephone Number: (203) 438-4918

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

Securities  registered under Section 12(g) of the Exchange Act: $.0001 Par Value
Common Stock

                                      Name of each exchange on which registered:
                                                         NASD OTC Bulletin Board

Page 1 of 46 Pages. Exhibits are indexed on page 41.
                       (Cover page continued on next page)


                                       1
<PAGE>

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the Registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days.             Yes No X

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

State issuer's revenues for its most recent fiscal year:  $270,230.

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock sold,  or the average bid
and asked prices of such stock,  as of a specified  date within the past 60 days
(see  definition of affiliate in Rule 12b-2 of the Exchange Act): As of December
31, 1998, the aggregate  market value of the  13,695,960  shares of Common Stock
held by non-affiliates of the Registrant was $1,247.

As of December 31, 1998, there were 13,695,960 shares of Common Stock issued and
outstanding.


                   DOCUMENTS INCORPORATED BY REFERENCE: None.

Transitional Small Business Disclosure Format (check one):  Yes   No X













                                       2
<PAGE>

               CAUTION: FORWARD-LOOKING STATEMENTS AND INFORMATION

     This  Form  10-KSB   contains   certain   forward-looking   statements  and
information  within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
which are  intended  to be  covered by the safe  harbors  created  thereby.  The
forward-looking statements and related information are based upon the beliefs of
the Company or management at the time covered by this report.  When used in this
document,  the words "anticipate",  "believe",  "estimate," "expect",  "should",
"could", and "intend" and similar expressions,  as they relate to the Company or
its management, are intended to identify forward-looking  statements.  Investors
are cautioned that all forward-looking  statements and information involve known
and unknown risks,  uncertainties,  assumptions,  and other factors that reflect
the  view of the  Company's  management  regarding  future  events.  The  actual
results,  performance or achievements of the Company may be materially different
from the  views  expressed  or  implied  by the  forward-looking  statements  or
information should one or more of these risks or uncertainties  materialize,  or
should underlying assumptions prove incorrect. In each instance, forward-looking
information should be considered in light of this, and should not be regarded as
a representation by the Company or any other person that the objectives,  plans,
statements or information will be achieved.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS:

Business Development:
--------------------

     Safe  Alternatives   Corporation  of  America,  Inc.  (the  "Company")  was
organized  in 1976,  under  the name  Knight  Airlines,  Inc.,  to engage in the
commuter  airline  business.  In October 1978, the Company engaged in an initial
public  offering of its Common Stock in Florida,  pursuant to an exemption  from
registration under Regulation A promulgated under the Securities Act of 1933, as
amended (the  "Securities  Act"). To the Company's best knowledge,  there was no
market for trading of the Common  Stock  until the  Company's  Common  Stock was
included for trading on the NASD's Electronic  Bulletin Board in March 1997. The
Company  operated as a commuter  airline from its inception  through April 1983,
when it ceased  operations  and all of the  assets of the  Company  were sold to
satisfy all outstanding  indebtedness.  From April 1983, through September 1995,
the Company  was  dormant.  In May 1994,  the name of the Company was changed to
Portsmouth Corporation.

     On September 15, 1995, pursuant to the terms of an Asset Purchase Agreement
and Plan of Reorganization dated as of August 21, 1995 (the "Agreement") between
Safe  Alternatives   Corporation  of  America,   Inc.,  a  Delaware  corporation
("SAC-Delaware")  and the  Company,  the Company  purchased  the  business  (the
"Business"),  including,  without limitation, all of the assets of SAC-Delaware,
and assumed all of the liabilities of SAC-Delaware (the  "Reorganization"),  and
commenced   operations   under  its  present   business   plan.   Prior  to  the
Reorganization,  the Company had no meaningful operations. On March 4, 1996, the
Company changed its name to Safe  Alternatives  Corporation of America,  Inc. (a
Florida corporation).


                                       3
<PAGE>

     In connection with the  Reorganization,  SAC-Delaware  was liquidated,  and
SAC-Delaware  distributed  to each  stockholder  0.2736  shares of the Company's
Common Stock for each share of SAC-Delaware that was owned. Consequently, all of
the share and per-share figures included herein reflect the Reorganization.  The
Agreement provided for the Company's purchase of all of SAC-Delaware's assets in
consideration   for,   among  other  things,   (i)  the  assumption  of  all  of
SAC-Delaware's  liabilities,  (ii) the issuance and delivery to  SAC-Delaware of
8,000,000 shares of the Common Stock, representing approximately 94% of the then
issued and outstanding shares of Common Stock as of the date of the Closing; and
(iii) a six percent royalty (the "Royalty") on the gross revenues of the Company
attributable to the assets acquired by the Company  pursuant to the terms of the
Agreement, payable on a pro rata basis to the stockholders of SAC-Delaware.  The
Royalty is payable on a  quarterly  basis  during the sixty  months  immediately
following the closing of the  Reorganization,  and the  cumulative  total of all
Royalty  payments is limited to a maximum of  $8,500,000.  The Royalty  does not
apply to any revenues  generated by the sale of the  Company's  paint  stripping
product, AmeriStrip(TM), or its NaturalCool(TM) product, which technologies were
acquired after the  Reorganization.  The Company does not anticipate  paying any
royalties as described  above,  because the  Company's  current and  anticipated
sales efforts are focused on products not subject to the Royalty.

     Since the  Reorganization,  the  Company has changed its focus from being a
"public shell,"  without assets or a business,  to a company  concentrating  its
resources on the research,  development  and commercial  exploitation of certain
technologies (the "Technologies") which it either owns,  exclusively licenses or
licenses   non-exclusively,   or  in  which  it  has   marketing   rights.   See
"Technologies."

     In January 1997, the Board  authorized an agreement with M & A Acquisitions
whereby M & A Acquisitions would receive a finder's fee of 3% of gross sales for
the Company  acquiring the  worldwide  manufacturing  and marketing  rights from
Natural  Cool,  Inc. The Company  acquired  Natural  Cool,  Inc. in its entirety
during the first half of 1998.

     On July 15, 1998,  the Company  entered in to an agreement for the purchase
of the assets of Norfield Corporation, a Connecticut corporation with offices in
Danbury, Connecticut ("Purchase Agreement").  Norfield Corporation had filed for
Chapter 11 Bankruptcy  Protection in June 1996,  and the Purchase  Agreement was
subject to the approval of the Bankruptcy Court, which was received on September
14,  1998.  On  September  18,  1998,  in order to obtain  financing  to acquire
Norfield's  assets,  the Company assigned the Norfield Purchase Agreement to the
Norfield  Investor  Group (which  consisted of Nicky Hunt and Sean McNamara) and
agreed to issue options to purchase  1,000,000  shares of the  Company's  common
stock at a price of ten cents ($.10) per share  exercisable for a period of five
(5) years from September 18, 1998. The Norfield Investor Group agreed to pay all
amounts due under the Norfield Purchase Agreement at Closing,  including the sum
of $235,000 and the Company received a license and lease  ("Norfield  Lease") of
all the assets so acquired by the Norfield Investor Group. Pursuant to the terms
of the Norfield Lease,  the Company was to have made a payment of  approximately
$250,000 in December 1998.  Because the Company was unable to make that payment,
the Norfield  Corporation declared a default on the Norfield Lease and exercised
its  security  interest  in the Lease held by the  Company and all of the assets
that were  subject to the Lease were  returned  to  Norfield  Corporation  as of
December  31,  1998.  The Company did not receive any revenue or pay any sums of
money as a result of this transaction.


                                       4
<PAGE>

Principal Products and Their Markets:
------------------------------------

     The Company's products are primarily in the following areas:

         1.    AmeriStrip(TM) - Paint Stripping Chemicals  (world-wide license).
AmeriStrip is currently  being marketed and sold in limited  sample  quantities.
The  Company's  paint  stripping  product is used to remove  lead-based  paints,
latex, alkyd,  varnish,  polyurethane,  and epoxy resin coatings from structural
metal, cement, fiberglass, wood, mica and plaster. The Company's paint stripping
product is applied using an airless spray gun, paint brush or spatula.  For most
applications,  the Company believes, based on its research and in-house testing,
that the stripper will remove substantially all of the paint,  exposing the bare
surface  within a 24-hour  period.  The  Company's  line of paint  strippers  is
biodegradable,  water washable,  non-caustic,  and ethylene  chloride-free.  See
"Technologies".

         2.    Water-Based  Foams for Insulation  Material  (continental  United
States license). The foam product was in the final stages of development and the
Company was evaluating the appropriate  mechanism for application of the product
onto its  intended  surface.  During 1998,  the Company  engaged in some limited
testing  of this  product  with  Underwriter's  Laboratories,  but was unable to
continue to  commercialize  this product  during 1998 because the Company lacked
the financial resources.

         3.    NaturalCool(TM)   Systems  -  Ambient  Air  Exchanger  (worldwide
marketing  and  manufacturing  rights).  The  NaturalCool  system is a patented,
energy-saving   air  circulation   system,   designed  to  supplement   existing
refrigeration  systems for  commercial  refrigeration  units such as walk-in and
reach-in  coolers.  The systems operate by taking in relatively cold ambient air
from outside,  filtering the air to remove  particulates,  and  introducing  the
cooler air into an operating  cooler,  and  exhausting  mild air from within the
cooler  back  out to the  outdoors.  Each  system  consists  of a  modular  unit
fabricated of non-corrosive  stainless steel,  operates totally independently of
the cooler's existing compressor,  operates without Freon or other environmental
pollutants,   meets  all  applicable  electrical  codes,  and  has  received  UL
(Underwriters' Laboratories) approval. See "Technologies."

     The marks, NaturalCool(TM) and AmeriStrip(TM),  are trademarks owned by the
Company.


                                       5
<PAGE>

Marketing, Sales and Methods of Distribution:
--------------------------------------------

     Marketing  Agreement.  In 1996 and  1997,  the  Company  believed  that its
marketing resources would most effectively be deployed by contracting an outside
vendor to market its products. Consequently, as of November 1, 1996, the Company
replaced all of its in-house sales force,  consisting of five salesmen and three
representatives,  with an outside  vendor,  SSC. SSC  represented to the Company
that it had experience  selling similar products on a national basis. SSC was to
develop sales in governmental markets and in the private sector.

     The Company entered into two agreements with SSC Marketing, Inc. ("SSC"): a
consulting agreement (the "Consulting  Agreement") dated as of November 1, 1996,
and a customer service agreement (the "Service  Agreement") dated as of December
15, 1996.  Under the terms of the Consulting  Agreement,  SSC was to provide the
Company  with a  comprehensive  sales and  marketing  program for the  Company's
products,  including  hiring sales  representatives,  developing sales contacts,
marketing plans,  advertising  campaigns,  customer service programs,  and sales
accounting and reporting systems.  Under the Consulting  Agreement,  the Company
was to pay SSC a flat fee of $8,000 per month,  an additional  fee of $4,000 for
each sales  manager  engaged by SSC to service  the  Company's  account,  with a
minimum of three such sales managers to be so engaged, plus approved expenses of
SSC and its sales  managers.  In  addition,  in the event the  Company's  annual
revenues exceeded $2,600,000,  the Company would have been obligated to pay each
sales manager a 2% commission on gross  revenues  generated in their  respective
territories,   and,  in  the  event  the  Company's  annual  revenues   exceeded
$2,800,000,  the Company would have been obligated to pay SSC a 5.5%  commission
on the Company's gross revenues, with the $8,000 monthly payments to be credited
against the payment of such commissions.

     Under the terms of the  Service  Agreement,  SSC was to provide the Company
with order entry, billing,  order tracking,  sales forecasting and planning, and
information  processing services.  The agreement provided for the Company to pay
SSC an additional  $5,000 per month for such services,  provided that, if at any
time the volume of the Company's  business  exceeded SSC's ability to adequately
perform such services,  the parties shall agree upon an increased fee. A failure
to so agree would result in termination of the Service Agreement.

     At the time it  entered  into such  agreements,  based  upon the  Company's
experience  with its in-house  sales team,  and based further upon the contacts,
reputation and experience of SSC,  management  believed that contracting for its
marketing and sales needs would  provide the Company with a greater  opportunity
to market its  products to more  customers  in less time.  Through  December 31,
1997, however, SSC's efforts produced aggregate sales of less than $100 worth of
products.  The Company  terminated  the SSC agreements as of March 15, 1998, and
brought its sales and marketing efforts in-house.  On May 29, 1998, SSC filed an
action  against  the  Company.  The Company  responded  to this suit and brought
counterclaims against SSC. The action was settled. It was dismissed in September
1999, and  subsequently the Company  delivered  500,000 shares of its restricted
common  stock to SSC's  designee  pursuant to the terms of the  settlement.  See
"Item 3 -Legal Proceedings."


                                       6
<PAGE>

     The Company no longer  out-sources  its sales and marketing  functions.  In
April 1998,  the Company hired Mr. Robert Berger to lead its sales and marketing
efforts and an additional  salesperson to assist in such functions.  The Company
focused  its sales and  marketing  efforts on a  product-by-product  basis,  but
because  the  Company  lacked the  funds,  there  were no  significant  sales or
marketing  during 1998.  Mr. Berger and the additional  salesperson  resigned in
December 1998.

     Paint Stripping Chemicals - AmeriStrip.  AmeriStrip was the Company's first
product  to be  offered  in the  marketplace.  The  product  has  been  sold  to
contractors  for the New York  City  Housing  Authority,  to the New  York  Port
Authority, to Sherwin Williams retail stores, and to contractors working for the
school  construction  authority  in New York City to remove  lead paint from the
City's  public  schools,  as well as to other  customers.  The  Company's  sales
efforts to place its paint stripping  product with contractors using the product
to de-lead New York City public  schools  accounted  for more than fifty percent
(50%) of the Company's 1997 revenues and seventy-three percent (73%) of its 1998
revenues.

     Although the Company placed advertisements in several magazines,  including
magazines intended for commercial contractors and the do-it-yourself market, and
offered  its  products  for sale  over the  Internet  (www.ameristrip.com),  the
Company believes that its sales efforts were severely  curtailed by insufficient
working capital.

     NaturalCool.  The  Company's  in-house  sales  staff  targeted  a number of
industries for the NaturalCool  products,  initially  focusing  primarily on the
convenience  store market.  Other  potential  purchasers  include liquor stores,
grocery  chains,   florists  and  the  walk-in  cooler  industry.   The  Company
established relationships with refrigeration distributors and suppliers (but did
not enter into any formal distribution agreements) and with restaurant equipment
suppliers.  In some cases,  the  suppliers  purchase  units from the Company and
install  them in a new or renovated  restaurant  facility.  In these cases,  the
Company does not incur the installation  expenses associated with sales directly
to the end-user.

     The Company also marketed these products directly to the end-user customers
through  advertising and trade  association  membership  marketing.  The Company
began using utility  company  rebate  programs as a means of  generating  sales.
Under these programs, certain utility companies offer rebates to their customers
for installing  energy-saving  equipment.  Even where the utilities do not offer
rebates, some utility companies will recommend  energy-saving equipment to their
customers.  The Company is also offering the NaturalCool  products for sale over
the Internet at www.naturalcool.com.

     Foams.  The Company was unable to fund any sales or  marketing  efforts for
its foam products in 1998 due to its financial position.


                                       7
<PAGE>

     Other  Technologies.  During  1998,  the Company  stopped the  research and
development of other technologies due to its financial  condition.  For the same
reason,  management  stopped seeking the acquisition of other  technologies  for
commercial exploitation.

Competitive Position:
--------------------

     There are many other  companies that offer similar or competitive  products
to the products  offered by the  Company.  The  industries  in which the Company
markets and sells its  products are  characterized  by  substantial  and intense
competition.  Almost  all of  the  companies  offering  similar  or  competitive
products,   both  domestic  and  foreign,  are  substantially  larger  and  have
substantially greater resources,  distribution  capabilities and experience than
the  Company.  It is also  likely  that there will be other  competitors  in the
future.  The  following  is a list of  certain of the  companies  with which the
Company competes:  (1) Paint Stripping  Chemicals - Peel-A-Way Corp.,  Minnesota
Mining and  Manufacturing,  and Back to Nature; (2) NaturalCool - Cool Breeze as
well as several localized companies.

     The  Company's  objective is to develop  environmentally-friendly  products
which would  compete with the existing  paint  stripping,  foams and ambient air
exchange technologies available that are produced by competitors of the Company.
The  Company  cannot  provide  any  assurances  that the  Company  will  develop
competitive  products,  that a market for such products  (assuming that they are
developed) will develop,  that the Company will be able to develop  marketing or
distribution  channels,  or that competitors  having greater financial and other
resources  will not, or have not,  devoted  those  resources to the research and
development  of new or existing  products  which will compete with the Company's
products. There can be no assurance that the Company will be able to effectively
compete against any competitor.

     During 1998, the Company did not possess the financial resources to operate
its business, continue research and development or market its products. In 1997,
the Company was seeking  additional capital from a variety of potential sources.
Since that time, the Company has relied for working capital upon the proceeds of
loans  from  shareholders  and upon  the  proceeds  of a  private  placement  of
convertible  notes  consummated  in April  1998.  See "Item 5. Market For Common
Equity  And  Related   Stockholder   Matters  -  Recent  Sales  Of  Unregistered
Securities."

     The Company continued to provide information  regarding its Technologies to
venture  capital firms and other funding  sources during 1998, but no additional
capital funding was received.  Even if the Company is able to obtain  additional
capital there can be no assurances  that the structure or terms of such proposed
financing will be on acceptable terms. See "Item 6. Management's  Discussion and
Analysis or Plan of Operation."




                                       8
<PAGE>

Sources and Availability of Raw Materials and Principal Suppliers:
-----------------------------------------------------------------

     NaturalCool.  All of the raw materials for manufacturing these products are
off-the-shelf and readily available to the Company from numerous suppliers.  The
Company does not anticipate any difficulty obtaining raw materials in quantities
and at  prices  acceptable  to the  Company.  The  units  are  assembled  at the
Company's Newport, VT facility.

     Paint  Stripping.  The  Company  uses  its own  formulation  for its  paint
stripper. The Company purchases the raw materials used in the formulation from a
number of suppliers.  The Company believes that there will be no shortage of raw
materials.  The Company uses  contract  blenders to blend the  formulation.  The
Company  believes  that there  exist  sufficient  contract  blenders  capable of
handling the Company's requirements.

     Foam. By the end of 1998,  the Company had  determined  not to market or to
sell the foam products.

Dependence on Major Customers:
-----------------------------

     As of the end of 1998, the Company had no major customers.

Intellectual Properties:
------------------------

     Technologies/Licenses.

            NaturalCool:  In February  1997,  the Company  sublicensed  from Mr.
Clement Royer, on a worldwide basis, the right to market the NaturalCool  system
products, Mr. Royer having previously received a license to market such products
from Natural  Cool,  Inc., a Vermont  corporation.  Natural Cool,  Inc.  holds a
master  license from the  inventors to market and  manufacture  the  NaturalCool
products on a worldwide basis. In May 1998, following the Company's  termination
of Mr. Royer, the Company obtained a license to market and manufacture  products
covered by the NaturalCool patent directly from the inventors and holders of the
patent. Subsequent to Mr. Royer's termination and prior to May 1998, the license
required  the  Company  to pay a  royalty  of $200 per  unit,  as each  unit was
manufactured,  and the Company was obligated to  manufacture  at least 500 units
per year. A payment of $20,000 was made to the licensor to initiate the license.
In May 1998, the Company purchased the NaturalCool  name,  inventory and related
assets,  and entered  into a new  license,  which  expires in May 2008,  for the
technology  directly  with the  inventors.  Under the new license the Company is
obligated to pay a royalty of $100 for each NaturalCool unit sold,  subject to a
minimum annual payment of $30,000, to be applied against royalties.  The minimum
royalty of $30,000  for the period  May,  1998  through  April 30, 1999 has been
prepaid by the Company.

            Foams. The Company entered into a license agreement,  dated December
9, 1992,  with Richard B. Kennedy (Mr.  Kennedy has since  deceased and his wife
has   succeeded  in   interest),   Richard  J.  Fricke  and  Patrick  J.  Crehan
(collectively,  "Licensor"),  whereby the Licensor  granted the Company:  (i) an
exclusive  right  to  exploit  within  the  continental  United  States  certain
inventions,  technology,  know-how and patent rights  relating to fire retardant
urethane foam with reduced smoke toxicity,  and improvements thereto,  excluding
those  applications  which are utilized in the packaging  foam industry and (ii)
the joint patent rights to manufacture, use, sell and sublicense the Technology.
Mr.  Fricke  has  renounced  any and all of his  interest  in the  license.  The
licensed  foam  Technologies  are  protected by a patent,  which patent is valid
through  December 4, 1999.  Although  the Company was in the final stages of its
research  and  development  in  1998  with  respect  to the  foam  products,  it
determined  not to complete the research and  development or to pursue the sales
and marketing of the foam products because of the Company's financial condition.


                                       9
<PAGE>

     Mrs.  Kathleen  Kennedy is the  successor-in-interest  to the estate of Mr.
Richard B.  Kennedy.  Each of the Kennedy  licenses has  substantially  the same
terms and conditions and each is valid until April 17, 2050,  unless the Company
fails to pay a royalty of four percent (4%) of the gross sales  derived from the
exploitation of the respective  Technology,  with certain  limitations for sales
derived from  inter-company  transfers or transactions  with  subsidiaries.  The
Company  also  agreed  to pay all  maintenance  fees  and fees  for  filing  and
prosecuting patent applications  pending at the time the licenses were executed.
All rights under the licenses are freely assignable by the Company. The licenses
were amended on August 23, 1993 to collectively  provide for a required  minimum
monthly  payment of $5,000,  in the aggregate,  and a required weekly payment of
$1,200 to Mrs. Kathleen Kennedy during her lifetime in lieu of progressive sales
minimums due beginning in 1993. The royalty payments described above nonetheless
survive. Failure to pay the minimum weekly and/or monthly payments may result in
the Company's loss of the exclusivity of such licenses. Failure to pay royalties
due under any license may result in the  termination of the  exclusivity of such
license.  Currently,  the Company is out of compliance  with the minimum payment
provisions  and has a  non-exclusive  license.  Mrs.  Kennedy  brought an action
against the  Company to obtain the  minimum  payments  under the  licenses.  The
action was  arbitrated  during  1999.  The Company lost the  exclusivity  of the
license in the  arbitration,  but was not  required  to pay any sums of money to
Mrs. Kennedy. See "Item 3. Legal Proceedings."

            Paint  Stripping:  Because  the  Company  developed  its  own  paint
stripping  products,  the Company does not intend to avail itself of the certain
supply agreement with Samax Enterprises, Inc

     Technologies/Proprietary Rights. Most of the Company's Technologies involve
trade secrets that are considered proprietary to the respective licensors of the
Technologies.   The  Company  takes  all  reasonable  measures  to  protect  the
Technologies,  including the timely update of patent related  innovations to the
respective  processes.  Certain of the Technologies  are unpatented  proprietary
technologies and in certain cases, because (i) the Company's financial resources
are insufficient to adequately  protect and/or prosecute such patents,  and (ii)
the Company believes that information  which may become available to competitors
during the patent process could put the Company's  products at competitive risk,
neither the inventor nor the Company believes that seeking patent  protection is
prudent. The Company does not currently manufacture its paint stripping product.
In the case of the paint stripping  product,  the Company contracts with private
blenders to manufacture it. In the case of NaturalCool, the Company manufactures
the units at its Newport, Vermont facility. The Company intends to contract with
outside  manufacturers  to manufacture any additional  products derived from the
Technologies, as they are brought to market. Although the Company has identified
certain   companies  that  it  would  consider   engaging  for  the  purpose  of
manufacturing some of the Company's  intended products,  no such agreements have
been executed.


                                       10
<PAGE>

            Paint  Stripping   Chemicals  -  AmeriStrip.   Because  the  Company
developed its own point stripping compound, the Company does not intend to avail
itself of that certain supply agreement with Samaz Enterprises, Inc.

The Company's paint stripping products are proprietary in nature. These products
are not patented,  but are covered by trade secrets.  It has been  determined by
the  Company  and the  manufacturer  that it is  preferable  not to seek  patent
protection,  but rather to protect this  Technology  through trade  secrets.  In
1998, the majority of the Company's sales of this product were to contractors in
the lead  abatement  field.  The Company  believes  that the sales effort of the
Company has been severely limited by the  insufficient  working capital position
of the Company.

            Irradiation  Technology.  Many  years  ago,  the  Company  developed
irradiation technology on a theoretical basis for the treatment of medical waste
that is proprietary in nature. The Company has not completed the development and
has not marketed this technology.

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

     The manufacture and sale of paint stripping  chemicals,  carbohydrate  foam
and ambient air exchanger equipment are subject, to varying degrees, to federal,
state and local regulation. The predominance of the regulatory burden however is
imposed upon the manufacturer,  such as the inventor/supplier,  of the Company's
paint  stripping  product  and not the  Company.  The  Company  must comply with
federal labeling  requirements for the Company's paint stripping product,  which
require a description of the various  chemicals  included in the product and the
hazards attendant to the use thereof.  The foam, for construction  purposes,  is
regulated by state and local building codes. Failure to properly comply with all
regulations  applicable  to the Company's  products  could result in the Company
incurring  substantial costs to comply or cease the manufacture of the offending
products and the possible imposition of civil and criminal penalties.

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

     During the years  ended  December  31,  1998 and 1997,  the  Company  spent
approximately  $21,000  and  $265,000,  respectively,  in  connection  with  its
research and development  efforts. The Company did not complete its research and
development on any potential  products,  other than the paint stripping product,
derived from the  Technologies,  and therefore,  there can be no assurances that
such potential products will be developed or that they will perform as intended.
Although management believed that they would be able to develop a fire retardant
foam insulation  product,  the Company lacked the funds to continue the research
or development of that or any other  product.  The Company's  efforts to develop
and market a fire retardant foam insulation product were discontinued in 1998.


                                       11
<PAGE>

     All of the Company's research and development efforts were conducted at the
Company's  laboratory  facility  in  Brookfield,   Connecticut.   See  "Item  2.
Properties."  In February  1998,  the Company  closed its  research  facility in
Brookfield,  CT. The closing of the facility may have a material  adverse effect
on the Company's  ability to perform  research and development on products other
than the paint stripper or NaturalCool.

Employees:
---------

     As of December 31, 1998, the Company had four (4) employees,  including two
(2) officers. As of such date, the Company did not have any consultants. None of
the Company's employees is represented by a labor organization,  and the Company
considers its relationship with employees to be satisfactory.

Reports Filed With The SEC:
--------------------------

     The Company is  attempting  to file its Forms  10-KSB for fiscal years 1998
through 2000.  The public may read and copy these  materials at the SEC's Public
Reference  materials at the SEC's  Public  Reference  Room at 450 Fifth  Street,
N.W., Washington, D.C. 20549. The public may obtain information on the operation
of the Public  Reference  Room by  calling  the SEC at  1-800-SEC-0330.  The SEC
maintains  an  internet  site  that  contains  reports,  proxy  and  information
statements, and other information regarding issuers at http://www.sec.gov.

ITEM 2.  PROPERTIES:

Principal Plants:
----------------

     The Company does not own any real property.

     The Company  formerly leased 12,000 square feet in a building located at 91
Commerce  Drive  in  Brookfield,   Connecticut  (the  "Brookfield  Lease").  The
Brookfield  Lease was  executed  by and  between  a trustee  acting on behalf of
Brookfield Commerce, a Connecticut  partnership,  as lessor, and the Company, as
lessee,  on February 22, 1993.  The Company used this  facility for research and
development of products,  marketing meetings and shipment of chemicals. The term
of the lease is for five years, commencing March 1, 1993 and ending February 28,
1998. The Company had the option to renew the lease for an additional  five-year
period, but elected not to renew the lease. The base rent on an annual basis was
$55,350 for the period through August 31, 1993,  $73,800 the next twelve months,
$76,752 for the twelve months thereafter, $79,822 for the next twelve months and
$83,015 until the lease expired. The lease was not renewed.


                                       12
<PAGE>

     The Company's corporate headquarters were formerly located in approximately
6,000 square feet of leased at 27 Governor Street, Ridgefield,  Connecticut (the
"Ridgefield  Lease"). The Ridgefield Lease was executed by and between a trustee
acting on behalf of the Joseph H. and Ellen Ann Donnelly Trust,  as lessor,  and
the  Company,  as  lessee,  on  September  30,  1992 for a term of three  years,
commencing  October 1, 1995. The base rent on an annual basis is $40,517 for the
first twelve  months,  $42,543 the next twelve months and $44,500 for the twelve
months  thereafter  until the lease expired.  The Company allowed the Ridgefield
Lease to expire in September  1998 and moved its  corporate  offices to 440 Main
Street,  Ridgefield  Connecticut  06877,  which is Mr. Fricke's law office.  Mr.
Fricke has provided space to the Company, without charge, since September 1998.

     The Company  leases,  on a month to month basis,  property at P.O. Box 625,
Derby Road, Newport,  Vermont 05855. The property contains  approximately 12,000
square feet. The Company paid rent of $3,000 per month until September 15, 1998,
at which time the rent  increased to $4,000 per month with an additional  rental
payment of $6,000 then becoming due.

     The Company  believes  its  facilities  are  suitable  and adequate for its
existing  operations  and those  reasonably  expected in the next twelve months.
With the exception of the NaturalCool  units, which are manufactured in Newport,
VT, and the  fulfillment  of Internet  sales and samples which is carried out in
Newport,  VT, the Company's  facilities are not suitable for  manufacturing  and
distributing products in significant quantities.  Therefore, the Company intends
to rely on  outside  manufacturers  to  manufacture  its  products  as they  are
developed and marketed.  The Company  currently does not possess the capacity to
manufacture  any of its products in anything  more than sample  quantities  in a
laboratory facility. Although the Company has identified certain companies which
it  would  consider  engaging  for  the  purpose  of  manufacturing  some of the
Company's  intended  products,  no such  agreements have been entered into as of
this date.  The AmeriStrip  product is being  manufactured  on a  batch-by-batch
basis.

ITEM 3.  LEGAL PROCEEDINGS:

     On May  29,  1998,  SSC  Marketing,  Inc.  ("SSC")  filed  an  action  (SSC
Marketing,  Inc. v. Safe  Alternatives)  against the Company in federal court in
the  Southern  District  of New York.  By  agreement,  the suit was moved to the
District of  Connecticut  (D. Conn.  File No. 3:  98cv1312  JBA).  The complaint
contained four counts, each requesting a judgment for $180,880 plus interest and
attorney's fees. The suit alleged breach of contract,  misrepresentation  by the
Company,  unjust  enrichment,  and quantum meruit.  The Company responded to the
complaint and brought  various  counterclaims  against SSC. This action  settled
and, in  September  1999,  was  dismissed.  The Company  subsequently  delivered
500,000 shares of its restricted  common stock to SSC's designee pursuant to the
settlement agreement.


                                       13
<PAGE>

     To the best of the Company's present knowledge, Mr. Melvin Kanan threatened
to bring an action against Mr.  Stephen  Thompson  and/or the Company  alleging,
among other things,  securities fraud violations.  The Company believes that Mr.
Thompson settled this litigation in 1998 by causing the Company to issue 110,000
shares of the Company's common stock to Mr. Kanan.

     The Company  commenced  an action  against Mr.  Clement  Royer,  the former
president of the Company's  Natural Cool Division,  in November 1997,  which was
settled in June 1998. The complaint sought the return of corporate records, test
data and the like, as well as  compensatory  damages and  attorney's  fees.  The
terms of the settlement  involved Mr. Royer's returning all corporate  documents
and disclaiming any rights to the NaturalCool product.

     An adversary  proceeding  was brought  against the Company in July 1997, in
U.S. Bankruptcy Court for the District of Connecticut,  by Richard Coan, Trustee
for the Bankruptcy Estate of Samuel E. Bernstein (U.S.  Bankruptcy Court,  Dist.
Conn.  Adversary  Proceedings  File No.  97-5078).  The suit seeks a judgment to
recover accrued but unpaid wages totaling approximately $100,000 for 1995, which
the Company  contends that Mr.  Bernstein  had waived his right to receive.  The
Trustee  seeks to avoid the waiver  under the  Bankruptcy  Code and  recover the
value of the waiver.  The Company is defending itself in the matter,  and cannot
predict  the  outcome  of the matter or whether a  settlement  will be  reached.
However,  the Company  believes that if the Trustee is successful in obtaining a
judgment  against  the  Company,  it should not be required to pay more than the
total debt owed to the debtor's creditors,  plus related fees, which the Company
believes to be approximately $26,000. The Company's financial statements for the
year ending  December 31, 1997 and 1998 include a provision  for loss of $26,000
to reflect this matter.

     Ms. Kathleen Kennedy,  the licensor under certain technology  licenses with
the Company, brought an arbitration action in 1999 against the Company, claiming
past due minimum royalty payments of approximately $145,000. The arbitrator held
that although the Company did not owe any money or damages to Ms.  Kennedy,  the
licenses  were now  non-exclusive  because of the  Company's  failure to pay the
licensing fees

     In July,  1998, an investor  group that has loaned  working  capital to the
Company and holds the Company's  promissory note in the principal amount of $1.3
million,  which group includes  Messrs.  Sean  McNamara,  Nicky Hunt and Richard
Hill, former directors of the Company,  commenced a legal action against certain
former  officers,  employees and consultants of the Company,  including  Messrs.
Stephen Thompson,  Robert Thompson,  Clement Royer and Paul Grillo.  The action,
initiated in Superior  Court for the Judicial  District of  Stamford/Norwalk  at
Stamford,  sought compensatory damages of not less than $685,000,  attachment on
the defendants' property to secure a judgment, and punitive damages. Pursuant to
Connecticut  procedures,  the matter first seeks a  pre-judgment  attachment  of
defendants' property. The causes of action stated in the complaint are fraud and
violation  of state  securities  law.  This action  settled in 1998 with Messrs.
Stephen  Thompson,  Robert Thompson,  Clement Royer, and Paul Grillo  delivering
some or all of their stock holdings in the Company to Messrs. McNamara, Hunt and
Hill. The Company was not a party to this action.


                                       14
<PAGE>

     Other than as set forth herein,  there are no legal actions pending against
the  Company  nor to the  knowledge  of the  Company  are any  such  proceedings
contemplated.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ending December 31, 1998.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:

Market Price of Common Stock:
----------------------------

     There has not been an active market for the Company's securities.  On March
6, 1997,  the Company's  Common Stock was accepted for trading on the Electronic
Bulletin  Board of the NASD under the symbol  SACA.  The Common  Stock traded in
very  limited  volumes,  and the  Company has not been able to obtain any quoted
prices for the stock prior to June 24, 1997.  The limited  market has caused the
securities to be subject to significant price fluctuations.

     The range of high and low bid and asked quotations for the Company's Common
Stock for fiscal years 1997 and 1998 are not  available to the Company as of the
date of filing this report due to the Company's lack of funds.  After reasonable
inquiry,  the  Company  was not able to find  the  requested  information  at an
economically feasible cost.

     A range of high and low  quotations  for the  Company's  Common  Stock  for
fiscal years 1997 and 1998 are listed below.  The  information was obtained from
the NASDAQ web site (www.nasdaq.com).  The prices reported may not be indicative
of the value of the Common Stock or the existence of an active  trading  market.
The Company does not know whether these quotations reflect  inter-dealer  prices
without  retail  mark-up,  markdown or  commissions.  These  quotations  may not
represent actual transactions.

                                    1997                         1998

                             Low             High        Low             High

     First Quarter*                                     $0.063          $0.200
     Second Quarter        $0.500           $1.500      $0.130          $0.390
     Third Quarter         $0.375           $2.250      $0.150          $0.560
     Fourth Quarter        $0.125           $0.750      $0.031          $0.280

     * On March 6, 1997, the Company's  Common Stock was accepted for trading on
the  Electronic  Bulletin Board of the NASD;  however,  the Company has not been
able to obtain any quoted prices for the stock prior to June 24, 1997.


                                       15
<PAGE>

Holders:
-------

     The Company had  approximately  1,626 holders of record of its Common Stock
as of December 31, 1998.

Dividend Policy:
---------------

     It is the policy of the Board of Directors to retain earnings,  if any, for
use in the maintenance and expansion of the Company's business.  The Company has
not declared any cash dividends to the holders of its capital stock and does not
anticipate declaring or paying dividends in the foreseeable future.

Recent Sales of Unregistered Securities:
---------------------------------------

     Since the  Reorganization,  through  December 31, 1997,  the Company issued
923,726 shares of restricted Common Stock to approximately 202 individuals,  for
the aggregate consideration of approximately  $1,650,000.  The Company believes,
based upon representation letters provided to it from such investors,  that such
issuances were made to approximately 135 "accredited  investors" as such term is
defined under Rule 501 of Regulation D promulgated  under the Securities Act and
to approximately 67 non-accredited  investors.  The Company made such sales with
the intention of relying upon the  exemption  afforded by Rule 506 of Regulation
D;  however,  the  Company  has  never  filed a Form D with the  Securities  and
Exchange Commission,  nor has the Company complied with filing requirements,  if
any, of the states in which sales were made. In certain  instances,  the Company
paid  what it  believed  to be  finder's  fees  to  individuals  who  introduced
investors to the Company.

     During  1997 and the first  half of 1998,  the  Investor  Group,  including
current  shareholders  and persons who were directors of the Company for part of
1997 and 1998, advanced working capital loans and committed to make loans to the
Company in the aggregate amount of approximately $1.0 million.  During the first
quarter of 1998,  in  consideration  for,  among  other  things,  not  demanding
immediate  repayment of the loans,  the Company and the Investor Group agreed to
exchange all of such outstanding  indebtedness for a convertible promissory note
(the  "Investor  Note"),  2,000,000  shares of the  Company's  common stock with
piggyback registrations rights (but which may not be traded until the $1,300,000
note is  converted)  and stock  options.  The Investor  Note is in the aggregate
principal amount of $1.3 million, and accrues interest at a rate of 8% per annum
beginning  January 1, 1998.  The Board  authorized  the  issuance of warrants in
connection  with the  Investor  Note that are  exercisable  for a period of five
years to  acquire  1,500,000  shares  of  common  stock at $.25  per  share  and
1,500,000  shares of common  stock at $.50 per  share.  In  connection  with the
Investor  Note,  the Company  also  issued  options to acquire  common  stock as
follows: options to purchase 2.6 million shares at an exercise price of $.01 per
share,  1.95  million  shares at an exercise  price of $.25 per share,  and 1.95
million  shares at an exercise  price of $.50,  all of which may be exercised at
any time  between June 30, 1999 and June 30, 2003,  the  expiration  date of the
options.  The  Investor  Note is  repayable  as follows:  $433,333 in  principal


                                       16
<PAGE>

amount,  plus interest,  was due and payable on or before  September 9, 1998; an
additional  $433,333 in principal  amount,  plus interest,  was due on or before
January 9, 1999; and any unpaid principal balance, plus interest,  was due on or
before  March 9, 1999.  In addition to any other  remedies  they may have if the
Company  fails  to make  the  principal  payment  on the  shareholder  loans  on
September 9, 1998,  the Company will be obligated to issue to the lender options
to acquire an additional  75,000 shares of common stock,  exercisable at a price
of $.01 per share, for each 30 days that the principal  payments are in default.
The Company did not make any of the payments required under these Investor Notes
and is currently in default. No demand has been received by the Company to issue
any additional options to the lenders and no additional options have been issued
under the  Investor  Note.  None of the warrants or the options that were issued
under the Investor Note has been exercised.

     On September 9, 1997, the Board of Directors authorized the issuance of the
following restricted stock and options in consideration of various loans:

PERSON                            SHARES                OPTIONS
------                            -------               -------

Michael Mareneck                   87,500                87,500
Basil Borque                       25,000                25,000
Sean McNamara                     142,000               143,000
Nicky Hunt                         50,000                50,000
Richard Hill                       12,500                12,500
John McNamara                      25,000                25,000
Michael Mareneck                   12,500                12,500

These options were  exercisable at a price of $.25 per share until  September 9,
2002, but were cancelled as a result of the foregoing $1.3 million transaction.

     In March and April,  1998, the Company issued its 6% Convertible Notes (the
"Notes") in the aggregate  principal  amount of $711,500 in a private  placement
under Rule 505 of Regulation D. Interest on the Notes is payable  semi-annually.
The principal amount of the Notes, together with unpaid interest thereon, is due
and  payable,  if not  earlier  converted,  on  March 3,  1999.  The  Notes  are
convertible  into shares of Common Stock at the option of the holder at any time
following  the  earlier  of (i) 90  days  after  the  filing  of a  registration
statement  with the SEC covering the shares to be received  upon  conversion  or
(ii)  the date the SEC  declares  such  registration  statement  effective.  The
conversion  price per share is the lesser of (i) 70% of the average  closing bid
price  per  share  of  Common  Stock  for the  five  trading  days  prior to the
conversion date or (ii) $0.25. Upon conversion,  any accrued and unpaid interest
is waived by the holder. The Company has the option to repurchase the Notes from
the holder prior to  registration  of the underlying  shares at a premium of 10%
over the purchase  price of the Notes.  The Company  agreed to file with the SEC
not later than June 3, 1998, and use its best efforts to have declared effective
not later than July 3, 1998, a registration statement registering for resale the
shares that would be issued upon  conversion of the Notes.  The Company has made
no payments on these notes;  has not repurchased  these Notes, and is in default
with regard to its registration obligation.


                                       17
<PAGE>

     As compensation to the placement agent, Alexander,  Wescott & Co, Inc., the
Company paid cash fees of 10% of the gross proceeds from the Investor  Notes. In
addition,  the  Company  paid a 3%  nonaccountable  expense  reimbursement,  and
certain other  out-of-pocket  expenses of the agent.  The Company also issued to
the agent  Warrants  exercisable  for  400,000  shares of  Common  Stock,  at an
exercise  price of $.30 per share,  expiring  June 28, 2003.  As of December 31,
1998, none of these warrants had been exercised.

     In lieu of cash  payments  for their  service  as  members  of the Board of
Directors  and committee  members,  The Company has agreed to issue stock and/or
options to the members of the Board of Directors. In 1997, the Company agreed to
issue to each of Messrs.  Sean  McNamara  and  Richard  Hill  200,000  shares of
restricted  common stock for their services.  On January 16, 1998 and in lieu of
monetary  compensation,  the Board of Directors authorized:  (1) the issuance of
stock options to the members of the Management Committee (Messrs. McNamara, Hunt
and Hill) to purchase 100,000 shares of the companies restricted common stock at
a price of $.01 per share and  exercisable  for a period of five years;  (2) the
issuance  of  stock  options  to the  members  of the  Management  Committee  to
purchase,  at $.01 per share,  $2,500  worth of stock (with the number of shares
being  determined by the last per share sales price of the month) for each month
and  exercisable  for a period  of five  years;  and (3) the  issuance  of stock
options to each member of the Board of Directors (Messrs.  McNamara,  Hunt, Hill
and Fricke) to  purchase,  at $.01 per share,  $500.00  worth of stock (with the
number of shares  being  determined  by the last per  share  sales  price of the
month) for each board meeting and exercisable  for a period of five years.  None
of these options have been issued and none of these options have been exercised.

     On June 1, 1998,  Nicky Hunt was  granted  options to purchase up to 40,000
shares of the Company's restricted common stock at a price of $.01 per share for
doing the due diligence in connection with Norfield Corporation.

     During  1998,  the Company  issued its  restricted  common stock to pay for
services to the Company,  as follows:  Sam Armato,  Jr., 50,000 shares;  Chester
Greenwood,  50,000 shares;  Kenneth  Hodgdon,  10,000  shares;  and Neil Rogers,
100,000  shares.   In  addition,   the  Company   authorized  the  following  as
compensation  and incentive pay:  100,000  shares of restricted  common stock to
Robert Berger;  and (2) 25,000 shares of restricted common stock plus options to
purchase 234,000 shares of restricted common stock exercisable for a period of 5
years at a price of $.01 per share to Robert Percheski.


                                       18
<PAGE>

     Certain  actual  and  threatened  litigation  was  settled  in  1998 by the
issuance  of the  Company's  common  stock,  as follows:  500,000  shares to SSC
Marketing,  Inc.  and  110,000  shares  to  Melvin  Kanan.  SEE  ITEM  3.  LEGAL
PROCEEDINGS.

     On December  21,  1998,  the Board  granted  options to purchase  2,500,000
shares of the  Company's  common stock to Mr.  Fricke and 500,000  shares to Ms.
Yrizarry (Mr.  Fricke's  former  spouse) at an exercise price of $.01 per share,
exercisable  until December 21, 2008 for remaining and serving as a director and
officer of the Company, together with the attendant liability, after the rest of
the  Board  and  management  had  resigned.  In 1999,  the  Company  substituted
2,500,000  shares and 500,000  shares of its common  stock to Mr.  Frick and Ms.
Yrizarry, respectively, in place of these options.

     No  filings  have  been  made with the SEC with  respect  to the  foregoing
transactions.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:

General:
-------

     Since the  Reorganization,  management  of the Company has  concentrated  a
significant  portion of its efforts on the  marketing  and sale of the Company's
paint stripping product and NaturalCool products.  Efforts to develop and market
the Company's foam products were terminated in 1998 due to the lack of financial
resources. The Company does not intend to engage in any research and development
in 1999 due to its  financial  condition.  Because  the  Company was not able to
obtain  any  additional  financing  and as a result  of the  resignation  of the
Company's Officers and all members of its Board of Directors, except Mr. Fricke,
in December  1998, the plan of operation for fiscal year 1999 as of December 31,
1998,  was to eliminate  virtually  all of its  corporate  overhead and to focus
exclusively  on AmeriStrip and  NaturalCool  products in the hope of producing a
positive cash flow and revenue.

     The Company  has had losses  from  operations  since its  inception.  It is
likely that the Company  will  continue  to have losses from  operations  in the
near-term  future  because  it is still in the  early  stages of  marketing  its
initial products and because the Company lacks financial resources.  There is no
assurance  that the Company will have profit from  operations  at any time after
1998.

     The report of the Company's  independent auditor contains a paragraph as to
the Company's ability to continue as a going concern. Among the factors cited by
the  auditors  as  raising  substantial  doubt as to the  Company's  ability  to
continue  as a  going  concern  are:  (i) the  Company  has  incurred  recurring
operating losses;  and, (ii) the Company has a working capital  deficiency.  See
Note 3 to the Financial Statements included herein.

     The Company does not anticipate any significant costs relating to upgrading
or reprogramming of its software for the year 2000.


                                       19
<PAGE>

Results of Operations for the Fiscal Years Ended December 31, 1998 and 1997:
----------------------------------------------------------------------------

     Sales;  Gross Margins;  Net Losses.  For the fiscal year ended December 31,
1998,  sales  increased to $270,230 from $134,464 in the prior year, an increase
of $135,766 due to modest sales growth of the Company's paint stripping  product
line and modest initial sales of the Company's NaturalCool product.

     The  Company's  gross margin on sales  decreased  from 35% in 1997 to 0% in
1998.  This due to the  Company's  decision to write-off  inventory  costs as of
December 31, 1998.  The Company  expects that, if it is successful in increasing
its sales,  its gross margins in future  periods  should  increase due to better
pricing from product manufacturers for larger manufacturing runs.

     For the year ended  December 31, 1998,  the Company  reported a net loss of
$(879,681),  or $(.067) per share, as compared with $(4,436,589),  or $(.38) per
share in the prior year,  a decreased  loss of  $3,556,908,  due  primarily to a
reduction  in  expenses  primarily  commissions  and  salaries.  The Company has
continued to incur net losses as sales of its products have not  materialized at
levels  sufficient to cover the Company's  cost of marketing and selling,  which
has  included   substantial   non-cash  expenses  associated  with  compensating
marketing  and selling  personnel in shares of the Company's  common stock.  The
decline in the net loss per share in 1998 from 1997 is due to a larger number of
shares outstanding  during 1998.  Without the extraordinary  item, the Company's
1997 operating loss was  approximately  $105,000 smaller than its 1996 operating
loss.  As  described  in Footnote 10 to the  financial  statements  for the year
ending December 31, 1997, the extraordinary  item relates to issuances of common
stock, aggregating 464,000 shares,  authorized by the Company's former President
under   circumstances  in  which  the  Company's  current   management  has  not
ascertained  whether  there  was  adequate,  or  any,   consideration  for  such
issuances.

     Selling,  General and Administrative  Expenses. For the year ended December
31, 1998, the Company incurred selling,  general and administrative  expenses of
$826,433,  as compared to $3,506,715 in the prior year. As noted above, however,
the  Company's  selling,  general  and  administrative  expenses  have  included
substantial non-cash expenses associated with compensating marketing and selling
personnel in shares of the Company's common stock.  Calculations with respect to
the percentage of selling, general and administrative expenses relative to sales
are not meaningful.

     During the fourth  quarter of 1997 and the first half of 1998,  the Company
and third  parties have taken a number of actions which are and will continue to
have the result of  significantly  reducing the Company's  selling,  general and
administrative  expenses.  These  include:  (1)  termination  of  the  Company's
agreements with SSC, pursuant to which the Company paid  approximately  $203,000
between  November 1, 1996 and December 31, 1997, which savings will be offset in
part by selling expenses associated with the temporary increase in the Company's
in-house sales staff;  (2)  resignation  and  termination  of certain  officers,
employees  and  consultants  who had been  compensated  in 1998  and  1997  with
substantial  amounts of common stock; and (3) closing the Company's  Brookfield,
CT laboratory facility.  As a result of these actions,  consulting and royalties
were reduced by approximately  90%, salaries were decreased by approximately 78%
and rent and other related costs were reduced by 25%.


                                       20
<PAGE>

     Research and  Development.  For the year ended December 31, 1998,  research
and  development  expenses  decreased from the prior year,  declining to $20,903
from $265,736 as of December 31, 1997.  The Company's  paint  stripping  product
line came to market.  The research and  development  of other product lines were
terminated  in 1998  due to the  Company's  financial  condition.  The  research
facility  in  Brookfield,   CT  was  also  closed  in  1998.  Based  upon  these
terminations and closures, the Company expects these expenses to further decline
in 1999. Calculations with respect to the percentage of research and development
expenses relative to sales are not meaningful.

     Extraordinary  Item.  For the year ended  December  31,  1997,  the Company
recorded an extraordinary  expense item of $(621,000).  As described in Footnote
10 to the  Financial  Statements,  this  expense  reflected  the issuance by the
Company of 464,000 shares of common stock to several third parties,  which stock
issuances  were  authorized  solely by the Company's  previous  Chief  Executive
Officer.  Management has been unable to ascertain from the records maintained by
the prior  Chief  Executive  Officer  and Chief  Financial  Officer,  or through
independent  investigation,  the nature of the  consideration  which was to have
supported such stock issuances.  In addition, to the extent that the Company may
learn the purported  consideration  for such issuances,  management  believes it
does not have any reasonable  means of determining,  particularly in the case of
non-cash consideration such as services rendered,  whether the consideration was
in  fact  received  by the  Company.  In that  regard,  promptly  following  the
resignation of the former Chief Executive Officer, management instituted certain
internal  controls  designed to reduce the likelihood of a future  occurrence of
this problem.  Specifically,  requests to the Company's  transfer agent to issue
stock must be signed by two officers, and no such stock issuance  authorizations
will be  delivered  without  a  proper  resolution  of the  Board  of  Directors
authorizing the issuance of stock

Balance Sheets:
--------------

     At December 31, 1998, the Company had current  assets of $74,438,  compared
to $202,942 at December 31, 1997.  The decrease in current  assets was primarily
attributable  to an  decrease  in  inventories  from  $159,473 to $0, due to the
Company's  decision to write-off the remaining  costs. At December 31, 1998, the
Company  had cash of $7,219,  compared  to cash of $12,282  December  31,  1997,
reflecting the slow pace of sales of the Company's products to date.

     Accounts  payable  and other  accrued  expenses  increased  to  $213,829 at
December 31, 1998,  from  $104,769 at December 31, 1997,  as a result of accrued
shareholder loan interest of $104,000.



                                       21
<PAGE>

     Stockholders' loans, net of current maturities,  increased to $1,300,000 at
December  31,  1998,  from  $526,665 at December  31,  1997,  as a result of the
Company  and  the  Investor  Group  agreeing  to  exchange  all of  the  current
outstanding  balance  of  $896,000  plus  accrued  interest,  for a  convertible
promissory  note of $1,300,000 and 2,000,000  shares of restricted  common stock
with  registration  rights.  See "Item 5.  Market For Common  Equity And Related
Stockholder Matters - Recent Sales Of Unregistered Securities."

     As of  December  31,  1998,  the  Company  had an  accumulated  deficit  of
$(17,000,515), which includes the net loss for fiscal year 1998 of $(879,681).

Liquidity and Capital Resources:
-------------------------------

     The  Company  has  never  generated  sufficient  revenues  to  finance  its
operations and has been able to remain in business solely as a result of raising
capital.  At December  31, 1998,  the Company had current  assets of $74,438 and
current liabilities of $2,240,329.  The Company's ability to continue as a going
concern in the near term is dependent upon obtaining additional financing. As of
December 31, 1998,  the Company did not have the financial  resources to operate
its business,  continue  research and  development  or market its products.  The
Company has been financing its operations through loans from shareholders, which
aggregated   approximately   $1,300,000   as  of  December  31,  1998  and  from
approximately  $726,500 in net proceeds from a private  placement of convertible
notes  completed  in April,  1998.  See "Item 5.  Market For  Common  Equity And
Related  Stockholder  Matters - Recent Sales Of  Unregistered  Securities."  The
Company continued to seek additional capital from an array of potential sources.
The Company provided  information  regarding its Technologies to venture capital
firms but the  Company's  efforts  did not result in the Company  obtaining  any
additional  capital.  By the end of 1998,  those  investors  who had  previously
provided capital for the Company were unwilling to advance any further funds. As
of year-end  1998,  the Company had not  identified  any  prospects  for raising
additional capital.

     The Company has entered into agreements with the respective licensors under
the licenses  with respect to the various  Technologies  under which the Company
has undertaken substantial ongoing financial commitments. The Company was unable
to obtain  additional  financing,  and the Company is currently in default under
such agreements. See "Item 1. The Company - Licenses."

     The Company estimated that it would require  approximately  $1.1 million in
financing in order to continue  operations for fiscal 1998 and the first half of
fiscal 1999. Much of that financing was provided through additional  shareholder
loans,  accruing  interest at 8%, and Convertible Notes issued in April 1998, in
the aggregate principal amount of $726,500. See "Item 5. Market or Common Equity
And Related Stockholder Matters - Recent Sales Of Unregistered  Securities." The
shareholders  who were providing funds to the Company do not have any commitment
to  continue  lending  money,  and the  Company  has been  forced to scale  back
operations.  The Company  agreed to repay  $433,333 in  principal  amount of the
shareholder  loans on or before  September 9, 1998;  an  additional  $433,333 in
principal  amount on or before  January 9, 1999;  and an additional  $433,333 in
principal  amount  on or  before  March 9,  1999.  The  principal  amount of the
Convertible Notes, together with unpaid interest thereon, is due and payable, if
not earlier  converted,  on March 3, 1999. The Company has not made any payments
on these Notes and is in default.  As of December 31, 1998,  the Company had not
identified a source of repayment of any of these obligations.


                                       22
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

     The  audited  financial  statements  of the Company as of and for the years
ending December 31, 1998 and 1997 are included beginning at Page F-1 below.

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

     The Company reported changes in its principal  independent auditors for the
year ending December 31, 1997 in then-current  reports on Form 8-K filed January
23 and April 17, 1998.

     As more fully set forth in Note 3 to the Financial Statements, the auditors
have stated that the Company's  recurring  operating  losses and working capital
deficiencies  for fiscal years 1997 and 1998 raise  substantial  doubt about its
ability  to  continue  as  a  going  concern.  The  Company  agrees  with  those
statements.

                                    PART III

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

     There  were many  changes  in the  composition  of the  Company's  Board of
Directors and Officers during 1998. By December 31, 1998, the only Directors and
Officers of the Company were as follows:

NAME                   AGE      POSITION
----                   ---      --------

Richard Fricke         54       President, Chief Executive Officer, and Director

Penny Yrizarry         34       Interim Secretary interim member of the Board

     Mr. Richard J. Fricke has served as President and Chief Executive  Officer,
except for a short period as set forth below, of the Company since January 1998.
He is also a Director of the Company.  He has been a practicing general practice
attorney in the State of Connecticut  since 1970 and was admitted to the bar the
same year.  From  1970-73,  he worked  with the law firm of Gregory & Adams,  in
Wilton,  Connecticut.  From 1973 to 1990,  he was a  partner  in the Law Firm of
Crehan & Fricke,  in  Ridgefield,  Connecticut.  Mr. Fricke filed for protection
under Chapter 7 of the federal  bankruptcy  laws in 1996. In addition to private
practice,  Mr. Fricke was Town Counsel for the town of Ridgefield,  Connecticut.
From 1973-81,  he served as Director of Village Bank & Trust Company and for the
Ridgefield  Community Center and the Ridgefield  Montessori  School.  Mr. Fricke
received his undergraduate  and law degrees from Cornell  University in 1967 and
1970,  respectively.  Mr. Fricke's biographies can be found in Marquis Who's Who
in America, Who's Who in the World, Who's Who in Business and Finance, and Who's
Who in the East. He is the ex-husband of Ms. Penny Yrizarry.


                                       23
<PAGE>

     Ms. Penny Yrizarry is the former wife of Richard J. Fricke and has acted as
the secretary and registered  agent for various  corporations.  Ms. Yrizarry was
previously employed as a paralegal.

     The  Company's  Board  of  Directors  and  Officers  changed,  as  follows,
throughout 1998:

DATE                       DESCRIPTION
----                       -----------
January 20, 1998           The Board of Directors  accepted the  resignation  of
                           Stephen J.  Thompson as President and Chairman of the
                           Board.

                           The Board of Directors  accepted the  resignation  of
                           Richard J. Fricke as Secretary of the Corporation and
                           then appointed him interim  President and Chairman of
                           the Board of Directors.

                           The Board of Directors  then  appointed Sean McNamara
                           as Secretary of the Company.

March 10, 1998             Stephen J. Thompson tendered his resignation from the
                           Board of Directors.

April 10, 1998             The Board of Directors  authorized  the employment of
                           Robert  Berger and Robert  Percheski;  appointed  Mr.
                           Berger as Vice President of Sales,  and appointed Mr.
                           Percheski as Chief Financial Officer.

September 22, 1998         The Board of Directors  accepted the  resignation  of
                           Richard J. Fricke as interim  President and appointed
                           Edwin Phelps as President of the Company.  Mr. Phelps
                           was also elected to the Company's Board of Directors.

December 1, 1998           Edwin Phelps  submitted  his  resignation,  which was
                           accepted, as a Director of the Company.

December 2, 1998           Edwin Phelps  submitted his  resignation as President
                           of the Company.

December 2, 1998           Nicky Hunt  confirmed his  resignation as a member of
                           the Board of Directors  and member of the  Management
                           Committee.

December 6, 1998           By this date,  Sean  McNamara  and  Richard  Hill had
                           resigned  as  members of the Board of  Directors  and
                           members of any committees. In addition, Robert Berger
                           had  resigned  as Vice  President  of  Sales  for the
                           Company.



                                       24
<PAGE>

December 7, 1998           Richard  Fricke,   the  only  remaining  Director  or
                           Officer of the  Company,  became the  Chairman of the
                           Board of Directors.

December 10, 1998          Robert  Percheski  submitted his  resignation  as the
                           Chief Financial Officer of the Company.

December 21, 1998          The Board of Directors appointed Penny Yrizarry as an
                           interim  member of the Board of Directors and interim
                           Secretary of the Corporation.  The Board of Directors
                           also  appointed  Richard  Fricke as  President of the
                           Company.


     The following biographies have, in substance, been taken from the Company's
1997 10-KSB.  The Company does not have sufficient  information to substantially
update these biographies.

     Mr. Sean F.  McNamara was a Director of the Company from October 1997 until
December  1998 and served as Secretary  from  January  1998 until  approximately
December  1998.  He joined the  Management  Committee  in  January  1998 and was
currently in the management of the Company until his  resignation.  Mr. McNamara
has spent the at least 16 years as the owner of a proprietary derivative trading
firm with offices in New York, Chicago, and Dublin, Ireland. Mr. McNamara served
on the board of the New York Futures  Exchange from 1984-88,  as Chairman of the
New Products  Committee  and Floor  Committee.  In 1990,  Mr.  McNamara  began a
four-year  effort to establish a futures and options  exchange (FINEX Europe) in
Dublin, Ireland. The Exchange opened in June 1994 and was the first US-regulated
futures  exchange  on foreign  soil.  Mr.  McNamara  served as  Chairman  of the
Exchange from 1994-96.  As of year-end 1997, Mr.  McNamara served as Chairman of
FINEX (a  financial  futures  Exchange  in NY and parent  organization  to FINEX
Europe).  As of December  1997,  Mr.  McNamara  was also a principal  in Capital
Resources  Advisors,  a privately-held  consulting firm in Chicago,  IL, serving
pension funds. Mr. McNamara was also a director of Financial Auction Network,  a
privately-held software development company, as of December 1997.

     Richard W. Hill was a director of the Company  October 1997 until  December
1998. He joined the Management Committee in January,  1998 and was active in the
management of the Company. Mr. Hill retired from Prudential Insurance Company as
President,  Small Business  Operations (SBO) in 1996. As President of SBO he had
bottom-line  responsibility  for  Prudential's  group life and health  insurance
programs for smaller employers  countrywide.  Mr. Hill joined Prudential in 1957
upon  graduation from Rutgers  University  with a BS in Mathematics.  During his
39-year  career with the company he held a wide variety of actuarial,  marketing
and  senior  management  positions  in  Prudential's  corporate,   regional  and
subsidiary  operations.  From 1975 through 1981, he was senior vice president in
charge of marketing and operations for  Prudential's  newly formed  Property and
Casualty Insurance  subsidiary  (PruPAC),  which became one of the country's ten
largest auto and home insurers.  Through the mid-1980s, he was vice president in
charge of  individual  insurance  sales and  marketing in  Prudential's  largest
region,  the ten-state  South Central  Region  headquartered  in  Jacksonsville,
Florida. As of December 1997, Mr. Hill was a Trustee of Rutgers University and a
Board member and chair of the finance committee of Bayshore Community  Hospital,
Holmdel, New Jersey. He was a Fellow of the Society of Actuaries and a Chartered
Financial Consultant as of December 1997.


                                       25
<PAGE>

     Mr.  Nicky Hunt was a  director  of the  Company  from  January  1998 until
December  1998.  He served on its  Management  Committee  and was  active in the
management  of the  company.  Mr.  Hunt  began his career in Dublin in 1973 as a
foreign exchange dealer for the Central Bank of Ireland, followed by the Bank of
America,  and as chief foreign  exchange dealer at Allied Irish Investment Bank.
He became  treasury  manager of the Bank of Nova Scotia in 1979. From 1982-92 he
was Treasurer of the National Bank of Kuwait in  Singapore.  He was  responsible
for establishing a 24-hour trading operation,  expanding regional  relationships
and  significant  profit  generation.  He was  transferred  to London in 1990 to
assume  global  treasury  responsibilities  during the Gulf War. In 1992, he was
hired by the Bank of Ireland as  Treasurer of the London  operation.  In 1993 he
was  appointed  head of the Dublin  trading  operation  and relocated to Dublin.
Until his  retirement in March 1997,  Mr. Hunt was a director of Bank of Ireland
Group  Treasury.  He served as a member of the Senior  Management  Group and had
responsibilities in strategy, due diligence,  and treasury operations in London,
Dublin and New York.  He also  managed  relationships  with First New  Hampshire
Bank,  Bank of Ireland Home  mortgages  and other  subsidiaries.  As of year-end
1998,  Mr.  Hunt had a number of  business  interests  and was a  principal  and
non-executive  director of an Irish Software company.  Mr. Hunt is a resident of
Dublin, Ireland.

     Mr. Robert  Percheski has served as Chief Financial  Officer of the Company
from  March 18,  1998 until  December  10,  1998.  In 1997 Mr.  Percheski  was a
self-employed consultant in the area of financial operations and insurance. From
1974 to  1996,  he  worked  for  Prudential  Insurance,  most  recently  as Vice
President  and Chief  Financial  Officer,  Northeastern  Operations,  Prudential
Insurance & Financial Services,  from 1993-96.  Mr. Percheski holds a MBA degree
(accounting  concentration)  and  a  B.S.  in  Commerce  (finance),  from  Rider
University.  He  also  holds  the  following  industry  designations:  Chartered
Financial  Consultant,  Chartered Life Underwriter,  Certified Internal Auditor,
and Fellow Life Management Institute.

     Mr. Robert W. Berger served as Vice President,  Sales and Marketing for the
Company from April 8, 1998 until  December  1998.  From  December  1993 to April
1998, Mr. Berger was employed by Oxford Health Plans, a provider of group health
plans, in Edison,  NJ, as Regional Manager from 1997 to 1998, Sales Manager from
1996 to 1997,  and  Sales  Representative  from  1993 to 1996.  From May 1992 to
December  1993,  he was  employed as Service  Representative  with  Northwestern
National Life Insurance Company, in Bedminster, NJ.


                                       26
<PAGE>

     Mr.  Stephen J. Thompson was President and Chief  Executive  Officer of the
Company from September 15, 1995 until January 1998, the date of his  resignation
as an officer of the Company. He resigned as a director of the Company effective
March 10, 1998.  Prior to joining the Company,  Mr. Thompson worked primarily in
municipal and state government.  In 1993, a property holding company, Olympic of
Venice Place & Evers, Inc., a Connecticut  corporation in which Mr. Thompson had
been involved as president and treasurer,  voluntarily petitioned for bankruptcy
protection  under  Chapter  11 of the  Federal  bankruptcy  laws.  Mr.  Thompson
graduated from  Ridgefield High School and attended the University of Miami from
1972-1973 and Western Connecticut State College, Ancell School of Business, from
1977-1979. Mr. Stephen J. Thompson is the son of Mr. Robert F. Thompson.

     Mr.  Robert F.  Thompson was  Executive  Vice  President,  Chief  Financial
Officer and Chief Operating Officer of the Company from September 15, 1995 until
January 1998, the date of his resignation.  Mr. Thompson is a retired  Corporate
Officer of American Can Co. He  completed  twenty-nine  years with  American Can
Co., and at  retirement,  in 1988, he was  Assistant  Treasurer and Chief Credit
Officer.  Mr. Thompson  served as President of the Credit  Research  Foundation,
Columbia,  Maryland,  from 1989 to 1993.  Mr.  Thompson  serves as a director of
Morgan  Foods,  Inc.,  Austin,  Indiana,  and the New York Credit and  Financial
Management Association,  New York, New York. Mr. Thompson holds a B.A. degree in
Economics from St. Francis College, the Executive Award from the Graduate School
of Credit and Financial Management, Dartmouth College, and attended the Graduate
School of Business at New York University.  Mr. Robert F. Thompson is the father
of Mr. Stephen J. Thompson.

     Currently  all  directors  hold  office  until the next  annual  meeting of
shareholders and until their successors have been duly elected and qualified.

     Officers  are  elected  by and  serve  at the  discretion  of the  Board of
Directors

Board Committees:
-----------------

     The  Committees  that were  established  by the Board  became  inactive  at
year-end 1998 as a result of the  resignation of all of the members of the Board
of  Directors,  except  Mr.  Fricke.  Prior to that date,  the Board  Committees
consisted of:

     Audit  Committee.  The Audit Committee of the Board of Directors was formed
in December  1995 to review the results and scope of the annual  audit and other
services  provided  by the  Company's  independent  accountants,  to review  and
evaluate the Company's control functions and to monitor transactions between the
Company and its employees,  officers and directors.  Until January 1998, Stephen
J.  Thompson,  Richard J. Fricke and Robert F.  Thompson were the members of the
Audit Committee.  From April 2, 1998 until their  resignations in December 1998,
the members were Sean F. McNamara, Nicky Hunt and Richard W. Hill.


                                       27
<PAGE>

     Compensation Committee.  The Company's Compensation Committee was formed in
October  1996 to  review  and  approve  the  compensation  and  benefits  of the
Company's executive officers and make  recommendations to the Board of Directors
regarding such matters.  No interlocking  relationship exists between any member
of the Company's Board of Directors or Compensation  Committee and any member of
the board of directors or compensation  committee of any other company,  nor has
any such  interlocking  relationship  existed  in the  past.  The full  Board of
Directors   participated   in   deliberations   concerning   executive   officer
compensation until the resignation,  in December 1998, of all members except Mr.
Fricke. Until January 1998, Stephen J. Thompson, Richard J. Fricke and Robert F.
Thompson  were the  members of the  Compensation  Committee.  From April 2, 1998
until December  1998, the members were Sean F. McNamara,  Nicky Hunt and Richard
W. Hill.

     Management  Committee.  The Management  Committee of the Board of Directors
was formed during the first quarter of 1998 and,  until  December 1998 consisted
of Messrs.  McNamara, Hunt and Hill. Since its formation,  and until the date of
their resignations,  the Management  Committee took an active role in day-to-day
management decisions, corporate planning and corporate transactions.

ITEM 10.  EXECUTIVE COMPENSATION:

Director Compensation:
----------------------

     Although  the  Members of the Board of  Directors  did not receive any cash
fees for the  service on the Board or on any  committee  during  1998,  they are
entitled to be reimbursed for expenses incurred in attending Board and committee
meetings.  The  Company  did agree,  however,  to issue to each of Messrs.  Sean
McNamara and Richard Hill 200,000  shares of  restricted  common stock for their
services  for 1997.  In  addition,  the  Company  agreed  that in 1998:  (1) all
directors  would  receive  for their  services  as  directors  $500 worth of the
Company's  common  stock per month  valued at the last sales  price per share of
stock for each month in which a Board meeting was held but converted  into stock
options that are  exercisable at $.01 per share.  These options are  exercisable
for a period of five (5) years from their date of issue;  and (2) Each member of
the Management  Committee (3 members until December 1998) would receive  options
to purchase  100,000 shares of common stock as  compensation  for their services
exercisable at $.01 per share and expiring  within five (5) years of the date of
the meeting.  The members were are given options to purchase $2,500 worth of the
Company's  common  stock each month valued at the last sales price per share for
each month.  These options expire five (5) years from the date of issuance.  The
Company  has  authorized  the  issuance  of 300,000  options  pursuant  to these
provisions  for 1998.  None of these  options  has been issued and none of these
options has been  exercised.  On December 21, 1998, the Board granted options to
purchase  2,500,000  shares of the  Company's  common  stock to Mr.  Fricke  and


                                       28
<PAGE>

500,000 shares to Ms. Yrizarry (Mr. Fricke's former spouse) at an exercise price
of $.01 per share, exercisable until December 21, 2008 for remaining and serving
as a director and officer of the Company, together with the attendant liability,
after the rest of the Board and  management  had resigned.  In 1999, the Company
substituted 2,500,000 shares and 500,000 shares of its common stock to Mr. Frick
and Ms. Yrizarry, respectively, in place of these options.

Compliance With Section 16(A) Of The Exchange Act:
--------------------------------------------------

     Based  solely  upon a review of Forms 3, 4 and 5, and  amendments  thereto,
furnished to the Company with respect to fiscal year 1998, the Company  believes
that (1) Mr. Sean F. McNamara and Mr. Richard W. Hill each failed to file a Form
3 upon becoming directors of the Company in October 1997; (2) Mr. Hill failed to
file a Form 4 or Form 5 reporting two transactions  involving the acquisition of
shares of the Company's  Common Stock;  (3) Mr. Richard J. Fricke failed to file
timely an initial  report on Form 3 statement of initial  ownership of shares of
the  Company's  Common  Stock,  and has  failed  to file any Forms 4 or a Form 5
reporting  two  transactions,  one in  February  1997,  and one in August  1997,
involving the  acquisition  from the Company of shares of Common Stock;  and (4)
Mr. Stephen  Thompson and Mr. Robert  Thompson,  former members of the Company's
management, each failed to file a Form 3 statement of initial ownership, and Mr.
Stephen  Thompson  failed  to  file  any  Forms  4 or a  Form  5  reporting  two
transactions,  one in  February  1997  and one in  August  1997,  involving  the
acquisition from the Company of shares of Common Stock.

            The  Company  did not  receive  any  Form 3, 4 or 5 from  any of its
Officers or Directors  during 1998. Thus, the Company believes that: (1) Messrs.
Hill,  McNamara and Fricke and Ms. Yrizarry each failed to file a Form 4 or Form
5  reporting  two  transactions  involving  the  acquisition  of  shares  of the
Company's common stock; (2) Mr. Hunt failed to file a Form 4 or Form 5 reporting
three  transactions  involving the acquisition of shares of the Company's common
stock;  (3)  Messrs.  Percheski  and  Berger  failed  to file a Form 4 or Form 5
reporting one  transaction  involving the acquisition of shares of the Company's
common stock.

Officer Compensation:
--------------------

     The following table sets forth compensation received by the Company's Chief
Executive  Officer and the  remaining  most highly paid  executive  officers and
directors for the three fiscal years ended December 31, 1998.






                                       29
<PAGE>
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                             Long Term Compensation

                 Annual Compensation               Awards                           Payouts
                --------------------               ------                           -------

-----------------------------------------------------------------------------------------------------------
                                                        Restricted  Securities
                                                        Stock       Underlying
Name and                                Other Annual    Award(s)    Options/SARs
Principal                       Bonus   Compensation    $ (Notes    (Notes 4 &      LTIP      All Other
Position        Year   Salary   $       (Notes 2,3,4)   4 & 10-12)  7-11)           Payouts   Compensation
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
<S>             <C>    <C>      <C>     <C>             <C>         <C>           <C>       <C>
-----------------------------------------------------------------------------------------------------------
Stephen J.
Thompson
President,
CEO (until
1/98) &
Director
(until 3/98)     1998   $0               $.10 (Note 7)                     1,000
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                        $18,000
                        (Notes
                 1997   1-5)             $438,374          343,040
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                        $34,000
                        (Notes
                 1996   1-5)             $190,425           85,000
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Richard J.
Fricke
President &                                                                                   $5,593 health
CEO (from                                                                                          and life
1/98 until                                                                                        insurance
9/98 &                                                                                            premiums.
during                                                                                             (Note 3)
12/98),
Secretary
(until 1/98)                                   $280.45                                        $3,525 office
& Director       1998   $58,846            (Notes 4,7)     300,000     2,504,500             space (Note 6)
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                        $18,000
                        (Notes
                 1997   1-6)             $438,374          343,040
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                        $34,000
                        (Notes
                 1996   1-6)             $190,425           85,000
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Sean
McNamara,
Secretary
(from 1/98
to 12/98) &
Director
(until                                            $2.51
12/98)           1998   $0                  (Notes 7,8)                   25,125
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   $0
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------

                                       30
<PAGE>

-----------------------------------------------------------------------------------------------------------
Richard
Hill,
Director
(until                                            $2.51
12/98)           1998   $0                  (Notes 7,8)                   25,125
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   $0
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Nicky
Hunt,
Director
(until                                            $6.51
(12/98)          1998   $0                (Notes 7,8,9)                   65,125
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   $0
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Robert
Berger,
Vice
President -
Sales (4/98                                      $10.00
until 12/98)     1998   $0                    (Note 10)    100,000
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Robert
Percheski,
Chief                                                                                            $19,928 as
Financial                                                                                        consulting
Officer                                                                                            fees for
(4/98 until                                                                                      accounting
12/98)           1998   $0                       $25.90      25,000       234,000                 services.
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Edwin
Phelps,
President &
Director
(9/98 until                                        $.15
12/98)           1998   $0                     (Note 7)                     1,500
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------
Penny
Yrizarry,
Interim
Secretary                                        $50.05
& Director       1998   $0                 (Notes 7,12)     500,000           500
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1997   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
                 1996   N/A
--------------- ------ -------- ------- --------------- ----------- ------------- --------- ---------------
-----------------------------------------------------------------------------------------------------------

</TABLE>

                                       31
<PAGE>

            1.    Messrs. Thompson and Fricke had employment contracts entitling
them to an aggregate cash  compensation  of $725,000  through 1997. In 1998, Mr.
Fricke received  $58,846 and Mr.  Thompson  received $0,  respectively.  In 1997
Stephen  J.  Thompson  and  Richard  F.  Fricke  each  received  $18,000 in cash
compensation  and in 1996 they each received  $34,000.  Each of these  executive
officers has waived his rights with respect to salary arrearages through 1998.

            2.    In addition to their base salaries,  the Company established a
Medical  and  Dental  Reimbursement  Plan for each of Stephen  J.  Thompson  and
Richard J. Fricke  providing for  reimbursement  of up to $10,000 of medical and
dental expenses annually incurred by such officers. The Company has not received
any requests for reimbursements under this plan.

            3.    In 1997 and  1996,  the  Company  paid  $14,093  and  $14,136,
respectively,  for the health  insurance  premiums  for Stephen J.  Thompson and
Richard J. Fricke,  in the  aggregate.  In 1998, the Company paid $1,023 for the
health  insurance  premiums for Mr.  Fricke.  In 1997 and 1996, the Company paid
$3,471 and $7,289  respectively,  for the life insurance premiums for Stephen J.
Thompson  and Richard J. Fricke,  in the  aggregate.  In 1998,  the Company paid
$4,570 for the life insurance premiums for Mr. Fricke.

            4.    Other Annual Compensation  includes for each of Messrs. Fricke
and Stephen Thompson: for 1998, Mr. Fricke received 300,000 shares of restricted
common  stock  valued at $.0001  per share or $30.00 and  currently  exercisable
options to purchase  2,500,000  shares of  restricted  common  stock at $.01 per
share until December 21, 2008, valued at $.0001 per share or $250.00;  for 1997,
250,000  shares of common  stock valued at $1.125 per share,  and 93,040  shares
valued at $1.50 per share; and for 1996, 85,000 shares valued at $1.99 per share
of Common Stock.

            5.    Under the  terms of their  respective  employment  agreements,
Stephen J. Thompson and Richard J. Fricke were each  originally  entitled to (i)
an annual bonus equal to ten percent (10%) of the Company's net income, and (ii)
an annual Common Stock option bonus of stock options  exercisable  for ten years
at an  exercise  price of $.01 per share for one  percent  (1%) of the number of
shares of Common Stock issued and  outstanding  as of the end of the fiscal year
for which such  options are  granted.  These  agreements  have been  terminated,
including  the rights to any stock  options,  and neither  person is entitled to
further compensation under such arrangements.

            6.    Mr. Fricke received office space and secretarial services from
the Company  through August 1998 to support his  independent  law practice.  The
value of such  services is estimated to be  approximately  $3,525,  based on Mr.
Fricke  spending less than 5% of his time on his  independent law practice prior
to  September  1998.  Thereafter,  Mr.  Fricke  moved his law office to 440 Main
Street,  Ridgefield,  Connecticut  and has been  providing  a  location  for the
Company, without charge, since that date.


                                       32
<PAGE>

            7.    Each  member of the Board of  Directors  received  options  to
purchase $500 worth of the Company's  restricted common stock at a price of $.01
per share for each Board Meeting,  with the number of shares to being determined
by the last  sales  price per share  during the month in which the  meeting  was
held.  Options to  purchase a total of 21,000  shares  with a value of $.0001 or
$2.10 were awarded as follows: Mr. Thompson options for 1,000 shares; Mr. Fricke
options  for 4,500  shares;  Mr.  McNamara  options for 4,500  shares;  Mr. Hill
options for 4,500;  Mr. Hunt options for 4,500 shares;  Mr.  Phelps  options for
1,500 shares; and Ms. Yrizarry options for 500 shares.

            8.    Each member of the Management  Committee  received  options to
purchase  100,000  shares of the Company's  restricted  common stock at $.01 per
share said options to be exercised  within 5 years from the date of the meeting.
In  addition,  each  member of the  Management  Committee  received  options  to
purchase $2,500 worth of the Company's restricted common stock per month at $.01
per share,  exercisable  for a period of 5 years.  The number of shares is to be
determined  by the last sales price of the  Company's  common during each month.
Options to  purchase a total of 82,500  shares  with a total value of $8.25 were
awarded as follows: Mr. McNamara options for 20,625 shares; Mr. Hill options for
20,625 shares, and Mr. Hunt options for 20,625 shares.

            9.    The Company  authorized the issuance of currently  exercisable
options to purchase  40,000 shares of the Company's  restricted  common stock at
$.01 per share to Mr. Hunt for specific  services  that he performed  during the
second quarter of 1998. These options will expire on June 1, 1998.

            10.   The Company  authorized  the issuance of 100,000 shares of its
restricted common stock to Mr. Berger in connection with his joining the Company
and as  compensation  for his agreement to receive a below market salary.  These
shares were issued in 1999.

            11.   The Company  authorized  the issuance of 25,000  shares of the
Company's  restricted  common stock and the  issuance of  currently  exercisable
options to purchase 234,000 shares of the Company's  restricted  common stock at
$.01 per share as partial  compensation  for his service as the Company's  Chief
Financial  Officer.  These options expire on April 1, 2003. The 25,000 shares of
the Company's stock were issued in 1999.

            12.   The Company  authorized the issuance of currently  exercisable
options to purchase 500,000 shares of the Company's  restricted  common stock to
at $.01 per share to Ms.  Yrizarry to become an interim  officer and director of
the Company after everyone else had resigned except Mr. Fricke and to assume the
liability attendant thereto. These options expire on December 21, 2008.

Employment Agreements:
----------------------

     Each of the Company's  Executive  Officers executed an employment  contract
with substantially  similar provisions  concerning  covenants not to compete and
confidentiality.



                                       33
<PAGE>

     Richard J.  Fricke's  employment  agreement was executed on August 13, 1991
(the  "Fricke  Employment  Agreement")  and  provided,  other than the  standard
provisions   described  above,  that  he  would  be  Corporate  Counsel  for  an
undetermined term. After the execution of the Fricke Employment  Agreement,  the
Board of Directors  appointed Mr. Fricke to the additional position of Secretary
and Director.  Mr. Fricke was subsequently succeeded as Secretary by Mr. Sean F.
McNamara.  Pursuant to the terms of the Fricke Employment Agreement, in addition
to his salary,  Mr.  Fricke was entitled to a bonus of ten percent  (10%) of the
annual net income of the Company and an annual  stock option bonus of options to
purchase 1% of the number of shares of Common Stock issued and outstanding as of
the end of the fiscal year for which such options are granted,  exercisable  for
ten  years at an  exercise  price  of $.01  per  share.  The  Fricke  Employment
Agreement also provided that the Company pay for Mr. Fricke's automobile, health
and  major  medical  insurance  and  life  insurance.  Mr.  Fricke's  Employment
Agreement,  including the rights to any stock options, terminated in March 1998.
Nothing is due or owing to Mr. Fricke under the Employment Agreement. Mr. Fricke
continues to be employed by the Company without an employment agreement.

     Stephen J. Thompson's  employment agreement was executed on August 13, 1991
(the  "Thompson  Employment  Agreement")  and provided,  other than the standard
provisions  described  above,  that he would be Chief  Executive  Officer of the
Company for an undetermined term. After the execution of the Thompson Employment
Agreement,  the Board of  Directors  appointed  Mr.  Thompson to the  additional
position  of  President  and  Director.  Pursuant  to the terms of the  Thompson
Employment  Agreement,  in  addition  to his stated  salary,  Mr.  Thompson  was
entitled to a bonus of ten percent (10%) of the annual net income of the Company
and an annual  stock  option  bonus of options to  purchase  1% of the number of
shares of Common Stock issued and  outstanding  as of the end of the fiscal year
for which such  options are  granted,  exercisable  for ten years at an exercise
price of $.01 per share.  The Thompson  Employment  Agreement also provided that
the Company would pay for Mr.  Thompson's  automobile,  health and major medical
insurance and life insurance. This agreement was terminated upon the resignation
of Mr.  Thompson  and there is nothing due or owing to Mr.  Thompson  under this
contract.

     Robert F. Thompson's  employment agreement was executed on January 31, 1996
and provided,  other than the standard provisions described above, that he would
serve as the Company's Chief Operating Officer and Chief Financial Officer. This
agreement was  terminated  upon the  resignation of Mr.  Thompson,  and there is
nothing due or owing to Mr. Thompson under this contract.

     The Company does not have any  compensatory  plan or  arrangement  with any
employee  relating  to  the  termination  of  employment  of  the  employee,   a
change-in-control  of the Company, or a change in  responsibilities  following a
change-in-control.

Limitation Of Liability And Indemnification Matters:
----------------------------------------------------

     The Company's By-Laws provide for the  indemnification,  to the full extent
allowed by Florida law, of its directors, officers, employees and agents who are
or were a party, or are threatened to be made a party to any threatened, pending
or completed  legal action,  suit or proceeding by reason of the fact that he or
she is or was serving a director,  officer,  employee or agent of the Company or
is or was serving in such capacity at another  entity at the Company's  request.
The extent,  amount and eligibility for such indemnification are determined by a
majority vote of a quorum of disinterested directors, or by a majority vote of a
quorum of disinterested shareholders.


                                       34
<PAGE>

     Section 607.0850 of the Florida Business Corporation Act empowers a Florida
corporation to indemnify any person who is a party to any proceeding (other than
an  action by or in the  right of such  corporation)  by reason of the fact that
such  person  is  or  was  a  director,  officer,  employee  or  agent  of  such
corporation,  or is or was  serving  at the  request  of such  corporation  as a
director,  officer,  employee  or agent of another  corporation  or  enterprise,
provided that he acted in good faith and in a manner he  reasonably  believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal  action or  proceeding,  had no reasonable  cause to believe his
conduct was unlawful.  A Florida  corporation  may indemnify any person who is a
party to any  proceeding  by or in the right of the  corporation  under the same
conditions,  except  that  no  indemnification  is  permitted  without  judicial
approval if the officer or director is adjudged to be liable in the  proceeding.
Where an officer, director,  employee or agent of a corporation is successful on
the merits or  otherwise  in the defense of any action  referred  to above,  the
corporation  must  indemnify  him against  the  expenses  which he actually  and
reasonably incurred in connection therewith.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors,  officers and controlling  persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the  Commission  such  indemnification  is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

     The Company is not aware of any claims,  whether possible or asserted,  for
indemnification.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table shows,  as of December 31, 1998,  the shares of Common
Stock  beneficially  owned by all of the persons who served as the  directors or
officers  of the  Company  during  1998 as well  as the  principal  shareholders
(greater  than 5%) of the  Company  individually  and, as to the  directors  and
officers,  as a group.  The address of each person or entity,  unless  otherwise
noted, is c/o Safe Alternatives  Corporation of America,  Inc., 440 Main Street,
Ridgefield,  Connecticut.  As of December 31, 1998,  the Company's only Officers
and Directors were Mr. Fricke and Ms. Yrizarry.

     The  number  of  shares  beneficially  owned by each  person  or  entity is
determined  under  rules of the  Securities  and  Exchange  Commission,  and the
information is not necessarily  indicative of beneficial ownership for any other
purpose. Under such rules,  beneficial ownership includes any shares as to which


                                       35
<PAGE>
<TABLE>
<CAPTION>

the person has the sole or shared voting power or investment  power and also any
shares  which the person  has the right to  acquire as of a date  within 60 days
after the relevant date through the exercise of any stock option or other right.

                                                                                              Percent
Beneficial Owner and Address          Position                     Number of Shares Owned     of Class %
----------------------------          --------------------------   ----------------------     ----------
<S>                                   <C>                          <C>                        <C>
Sean F. McNamara                      Secretary (from 1/98 to               1,855,965           12.27
35 Spring Hose Lane                   12/98),  Director and           (Notes 1,2 & 3)
Basking Ridge, NJ 07920               Member of the Management
                                      Committee (until 12/98)

Richard W. Hill                       Director & Member of the                679,598            4.85
5 Barrister Lane                      Management Committee            (Notes 1,2 & 4)
Middleton, NJ 07748                   until (12/98)

Nicky Hunt                            Director & Member of the                803,700            5.54
Coolbawn, 2 Ailesbury Road            Management Committee            (Notes 1,2 & 5)
Ballsbridge, Dublin 4 Ireland         until (12/98)

Richard J. Fricke                     President & CEO (from                 5,793,792           34.08
25 Buckingham Ridge Road              1/98 to 9/98 & during                  (Note 6)
Wilton, CT 06897                      12/98), Secretary (until
                                      1/98) & Director

Robert Percheski                      Chief Financial Officer                 259,000            1.86
37 Cameron Drive                      (from 4/98 until 12/98)                (Note 7)
Marlorough, MA 01752

Robert W. Berger                      Vice-President--Sales                   100,000             .72
1308 Centenial Avenue                 (4/98 - 12/98)                         (Note 8)
Suite 108
Piscataway, NJ 08854

Stephen J. Thompson                   President and CEO until                 756,660            5.52
11 Girolametti Court                  1/98, Director until 3/98              (Note 9)
Ridgefield, CT 06877

Penny Yrizarry                        Interim Secretary &                   4,991,039           29.37
104 Cherry Lane                       Director (from 12/98)                 (Note 10)
Wilton, CT 06897

All Directors and Officers as a                                             9,744,715           48.91
Group for all Directors and
Officers during 1998

All Directors and Officers as a                                             5,293,792           31.14
Group for Directors and Officers as
of 12/31/98

</TABLE>

            1.    Does not include options which the Company has agreed to issue
to the  Investor  Group in relation to the $1.3 million note held by such group,
because  those  options  are not first  exercisable  until  June 30,  1999.  The
beneficial owners of such options,  all of which have an expiration date of June
30, 2003, will include:  (a) Mr. McNamara to acquire options on 1,002,000 shares
with an exercise  price of $.01,  765,000 shares with an exercise price of $.25,
and  765,000  shares  with an  exercise  price of $.50;  (b) Mr. Hunt to acquire
options on 460,000 shares with an exercise price of $.01, 345,000 shares with an
exercise  price of $.25,  and 345,000 shares with an exercise price of $.50; and
(c) Mr. Hill to acquire  options on 130,000  shares  with an  exercise  price of
$.01,  97,000 shares with an exercise  price of $.25,  and 97,000 shares with an
exercise price of $.50.


                                       36
<PAGE>

            2.    Includes  currently  exercisable  options to purchase  225,000
restricted shares of the Company's restricted common stock that became due under
the terms of the $1.3 million  Investor Note upon the  Company's  failure to pay
principal and interest when due, as follows:  Mr. McNamara,  142,000 shares; Mr.
Hunt, 64,575 shares; and Mr. Hill, 18,225 shares.  This also includes a total of
2,000,000  shares of the Company's  restricted  common stock that was authorized
(but not issued) as part of the  consideration for the exchange of the former $1
million  note for the  Investor  Note.  This stock has piggy  back  registration
rights  but may  not be  traded  until  the  Investor  Note  is  converted.  The
distribution of this stock is as follows:  Mr. McNamara  1,264,000  shares,  Mr.
Hunt 574,000 shares, and Mr. Hill 162,000 shares.

            3.    Includes  300,000  restricted  shares of the Company's  common
stock that Mr. McNamara  received as compensation  for serving as an Officer and
Director and as a Member of the Management  Committee during 1997 and 1998. Also
includes  options to purchase 25,125 shares of the Company's  restricted  common
stock as  compensation  for  serving as an Officer,  Director  and member of the
Management Committee during 1998.

            4.    Includes  200,000  shares of the Company's  restricted  common
stock that Mr. Hill received as compensation  for services as a Company Director
for 1997 and 1998.  This also includes  options to purchase 25,125 shares of the
Company's  restricted common stock as compensation for serving as a Director and
member of the Management Committee during 1998.

            Although the total  includes  136,480 shares and options to purchase
125,000  shares of the company's  common stock held by Kevin Hill,  his son, and
3,648 shares held by Walter Hill, his father,  Mr. Hill  disclaims  ownership of
these shares.

            5.    Includes (a) 100,000  shares of common stock which the Company
has agreed to issue to Mr. Hunt (but has not yet issued in  connection  with his
services as a member of the Management  Committee for 1998; (b) 40,000 shares of
common  stock  which the Company has agreed to issue (but has not yet issued) to
Mr. Hunt for specific  services  performed for the Company in the second quarter
of 1998; and (c) options to purchase  25,125 shares of the Company's  restricted
common  stock as  compensation  for  serving  as a  Director  and  member of the
Management Committee during 1998.



                                       37
<PAGE>

            6.    Includes (a) 300,000 shares of the Company's restricted common
stock as  compensation  for his services as an Officer and Director during 1998;
(b) currently exercisable options to purchase 2,500,000 restricted shares of the
Company's common stock at an exercise price of $.01 per share, exercisable until
December  21, 2008,  for his  continued  service,  together  with the  liability
exposure attendant thereto,  as an Officer and Director of the Company after the
remainder of the Company's  Officers and Directors resigned in December 1998. In
1999,  the Company  converted  the award of these  options  into an award of the
Company's  restricted  common stock; (c) options to purchase 4,500 shares of the
Company's  restricted common stock as compensation for serving as an Officer and
Director of the Company  during  1998;  and (d) 2,954  shares owned by The Ridge
Group.

            Although  the  following  are  included  in the  total,  Mr.  Fricke
specifically  disclaims any ownership in the following shares: (a) 82,080 shares
held by the Fricke Family Trust;  (b) 637,300 shares held by Mr. Fricke's former
spouses;  (c) 82,080 shares held by his father;  (d) 15,473 shares that he holds
as Trustee; and (e) 123,120 held by his grown children.

            7.    Includes  25,000  shares of common stock which the Company has
authorized,  but not issued, to Mr. Percheski in connection with his joining the
Company and options  which the Company has agreed to issue,  but has not issued,
to Mr.  Percheski to acquire 234,000 shares of common stock at an exercise price
of $.10 per share. These options expire in April 2003.

            8.    An  incentive   bonus  of  100,000  shares  of  the  Company's
restricted  common stock was  authorized  and awarded to Mr. Berger in 1998, but
the stock was not issued until 1999.

            9.    Includes  options to purchase  1,000  shares of the  Company's
restricted  common stock received as compensation  for serving as an Officer and
Director of the Company  during 1998.  Also  includes  136,800  shares which are
owned  by Mr.  Thompson's  spouse.  Mr.  Thompson  has in  the  past  disclaimed
beneficial ownership of such shares.

            10.   Includes a currently  exercisable  options to purchase 500,000
restricted shares of the Company's common stock at an exercise price of $.01 per
share,  exercisable until December 21, 2008, for her service,  together with the
liability exposure attendant thereto, as Interim Secretary and a Director of the
Company after the remainder of the Company's  Officer and Directors,  accept Mr.
Fricke,  resigned in December 1998. These options were converted, by the Company
into  500,000  shares of the  Company's  common  stock in 1999.  This total also
includes  options to purchase 500 shares for Board  meetings.  Mr. Fricke is Ms.
Yrizarry's  former spouse,  and he disclaims any  beneficial  ownership of these
shares.

            This total also includes  4,353,739 shares owned by Mr. Fricke,  her
former spouse. She specifically  disclaims ownership of these shares. This total
does not include any shares  owned or held by: (a) the Frick Family  Trust;  (b)
Mr.  Fricke's  father or his children from a former  marriage;  (c) Mr. Frick as
Trustee or (d) The Ridge Group.


                                       38
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

     During  1997 and the first  half of 1998,  the  Investor  Group,  including
current  shareholders  and persons who were directors of the Company for part of
1997 and 1998, advanced working capital loans and committed to make loans to the
Company in the aggregate amount of approximately $1.0 million.  During the first
quarter of 1998,  in  consideration  for,  among  other  things,  not  demanding
immediate  repayment of the loans,  the Company and the Investor Group agreed to
exchange all of such outstanding  indebtedness for a convertible promissory note
(the  "Investor  Note"),  2,000,000  shares of the  Company's  common stock with
piggyback registrations rights (but which may not be traded until the $1,300,000
note is  converted)  and stock  options.  The Investor  Note is in the aggregate
principal amount of $1.3 million, and accrues interest at a rate of 8% per annum
beginning  January 1, 1998.  The Board  authorized  the  issuance of warrants in
connection  with the  Investor  Note that are  exercisable  for a period of five
years to  acquire  1,500,000  shares  of  common  stock at $.25  per  share  and
1,500,000  shares of common  stock at $.50 per  share.  In  connection  with the
Investor  Note,  the Company  also  issued  options to acquire  common  stock as
follows: options to purchase 2.6 million shares at an exercise price of $.01 per
share,  1.95  million  shares at an exercise  price of $.25 per share,  and 1.95
million  shares at an exercise  price of $.50,  all of which may be exercised at
any time  between June 30, 1999 and June 30, 2003,  the  expiration  date of the
options.  The  Investor  Note is  repayable  as follows:  $433,333 in  principal
amount,  plus interest,  was due and payable on or before  September 9, 1998; an
additional  $433,333 in principal  amount,  plus interest,  was due on or before
January 9, 1999; and any unpaid principal balance, plus interest,  was due on or
before  March 9, 1999.  In addition to any other  remedies  they may have if the
Company  fails  to make  the  principal  payment  on the  shareholder  loans  on
September 9, 1998,  the Company will be obligated to issue to the lender options
to acquire an additional  75,000 shares of common stock,  exercisable at a price
of $.01 per share, for each 30 days that the principal  payments are in default.
The Company did not make any of the payments required under these Investor Notes
and is currently in default. No demand has been received by the Company to issue
any additional options to the lenders and no additional options have been issued
under the  Investor  Note.  None of the warrants or the options that were issued
under the Investor Note has been exercised.

     On September 9, 1997, the Board of Directors authorized the issuance of the
following restricted stock and options in consideration of various loans:

PERSON                            SHARES                OPTIONS
------                            -------               -------

Michael Mareneck                   87,500                87,500
Basil Borque                       25,000                25,000
Sean McNamara                     142,000               143,000
Nicky Hunt                         50,000                50,000
Richard Hill                       12,500                12,500
John McNamara                      25,000                25,000
Michael Mareneck                   12,500                12,500

These options were  exercisable  until  September 9, 2002 at a price of $.25 per
share but were cancelled as a result of the foregoing $1.3MM loan.


                                       39
<PAGE>

     In lieu of cash  payments  for their  service  as  members  of the Board of
Directors  and committee  members,  The Company has agreed to issue stock and/or
options to the members of the Board of Directors. In 1997, the Company agreed to
issue to each of Messrs.  Sean  McNamara  and  Richard  Hill  200,000  shares of
restricted  common stock for their services.  On January 16, 1998 and in lieu of
monetary  compensation,  the Board of Directors authorized:  (1) the issuance of
stock options to the members of the Management Committee (Messrs. McNamara, Hunt
and Hill) to purchase 100,000 shares of the companies restricted common stock at
a price of $.01 per share and  exercisable  for a period of five years;  (2) the
issuance  of  stock  options  to the  members  of the  Management  Committee  to
purchase,  at $.01 per share,  $2,500  worth of stock (with the number of shares
being  determined by the last per share sales price of the month) for each month
and  exercisable  for a period  of five  years;  and (3) the  issuance  of stock
options to each member of the Board of Directors (Messrs.  McNamara,  Hunt, Hill
and Fricke) to  purchase,  at $.01 per share,  $500.00  worth of stock (with the
number of shares  being  determined  by the last per  share  sales  price of the
month) for each board meeting and exercisable  for a period of five years.  None
of these options have been issued and none of these options have been exercised.

     On June 1, 1998,  Nicky Hunt was  granted  options to purchase up to 40,000
shares of the Company's restricted common stock at a price of $.01 per share for
doing the due diligence in connection with Norfield Corporation.

     During  1998,  the Company  issued its  restricted  common stock to pay for
services to the Company,  as follows:  Sam Armato,  Jr., 50,000 shares;  Chester
Greenwood,  50,000 shares;  Kenneth  Hodgdon,  10,000  shares;  and Neil Rogers,
100,000  shares.   In  addition,   the  Company   authorized  the  following  as
compensation  and incentive pay:  100,000  shares of restricted  common stock to
Robert Berger;  and (2) 25,000 shares of restricted common stock plus options to
purchase 234,000 shares of restricted common stock exercisable for a period of 5
years at a price of $.01 per share to Robert Percheski.

     On December  21,  1998,  the Board  granted  options to purchase  2,500,000
shares of the  Company's  common stock to Mr.  Fricke and 500,000  shares to Ms.
Yrizarry (Mr.  Fricke's  former  spouse) at an exercise price of $.01 per share,
exercisable  until December 21, 2008 for remaining and serving as a director and
officer of the Company, together with the attendant liability, after the rest of
the  Board  and  management  had  resigned.  In 1999,  the  Company  substituted
2,500,000  shares and 500,000  shares of its common  stock to Mr.  Frick and Ms.
Yrizarry, respectively, in place of these options.



                                       40
<PAGE>

     In July,  1998, the Investor Group  commenced  legal action against certain
former  officers,  employees and consultants of the Company,  including  Messrs.
Stephen Thompson,  Robert Thompson,  Clement Royer and Paul Grillo.  The action,
initiated in Superior  Court for the Judicial  District of  Stamford/Norwalk  at
Stamford,  sought compensatory damages of not less than $685,000,  attachment on
the defendants' property to secure a judgment, and punitive damages. Pursuant to
Connecticut  procedures,  the matter first seeks a  pre-judgment  attachment  of
defendants' property. The causes of action stated in the complaint are fraud and
violation  of state  securities  law.  This action  settled in 1998 with Messrs.
Stephen Thompson, Robert Thompson, Clement Royer, and Paul Grillo delivering the
majority of their stock  holdings in the Company to Messrs.  McNamara,  Hunt and
Hill. The Company was not a party to this action.

     The Company agreed to provide Richard J. Fricke, President, Chief Executive
Officer and Director of the Company,  with office space,  facilities,  fixtures,
equipment  supplies  and  secretarial  services  and to allow him to operate and
maintain a legal practice independent of the Company.  This agreement terminated
as of August 1998.  The value of such services is estimated to be  approximately
$3,525 through August 1998. Thereafter, Mr. Fricke moved his law practice to 440
Main  Street,  Ridgefield,  Connecticut  and has been  providing  space  for the
Company, without charge, since that date.

     Mr. Fricke also is one of the licensors under the foam Technology  license;
however,  he  renounced  his  interest  in the  license  in 1998.  See  "Item 1.
Description of Business - Licenses."

     The Ridge Group, a Connecticut  general partnership in which Mr. Fricke and
Stephen J. Thompson - a former Director,  President and Chief Executive  Officer
of the Company,  and a beneficial owner of approximately 10% of the Common Stock
- - each owned a 50% equity  interest,  has  loaned  the  Company  approximately
$384,000 in demand obligations at no interest. In addition, Stephen Thompson has
in his individual  capacity loaned the Company an additional  $108,100 in demand
obligations  at no interest.  These loans have been forgiven and Mr.  Thompson's
interest in the Ridge Group has been terminated.

     Mrs. Kathleen Kennedy, a shareholder of the Company,  is licensor under the
Technology licenses for the Company's foam, coatings and sealants, and recycling
solvents Technologies.

     The Company  believes that the terms of the  transactions  discussed herein
are at least as favorable  to the Company as those which the Company  could have
negotiated with unaffiliated parties.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.  The following  exhibits are filed  herewith or  incorporated  by
                reference herein.


                                       41
<PAGE>

            Exhibit
            No.                 Description
            -------             -----------


            3.1*                Certificate of Incorporation of the Company

            3.2*                By-Laws of the Company

            4*                  Copy of specimen certificate representing shares
                                of common stock,  $.0001 par value per share, of
                                the Company

            10.1*               Asset    Purchase    Agreement   and   Plan   of
                                Reorganization   between  the  Company  and  SAC
                                Delaware dated August 21, 1995

            10.2*               Lease  Agreement  between  Nicholas R. Dinapoli,
                                Jr., as Trustee for Brookfield  Commerce and the
                                Company  for  property  located at 27  Governors
                                Street, Ridgefield,  Connecticut, dated February
                                22, 1993

            10.3*               Lease Agreement between Nicholas R. Dinapoli, as
                                trustee for Brookfield Commerce, and the Company
                                for  property  located  at  91  Commerce  Drive,
                                Brookfield, Connecticut, dated February 22, 1993

            10.4*               Supply  Agreement for paint  stripping  products
                                between Samax Enterprises,  Inc. and the Company
                                dated January 5, 1996

            10.5*               License  Agreement  for  coatings  and  sealants
                                Technologies  between Richard B. Kennedy and the
                                Company as licensee dated December 9, 1992

            10.6*               License Agreement for packaging  applications of
                                foam  Technologies  between  Richard B. Kennedy,
                                Patrick  J.  Crehan  and  Richard  J.  Fricke as
                                licensors  and the  Company  as  licensee  dated
                                December 9, 1992

            10.7*               License    Agreement    for    fire    retardant
                                applications   of  foam   Technologies   between
                                Richard  B.  Kennedy,   Patrick  J.  Crehan  and
                                Richard J. Fricke as  licensors  and the Company
                                as licensee dated December 9, 1992

            10.8*               Amendment to  Technology  License  Agreements of
                                foam  Technologies  between  Richard B. Kennedy,
                                Patrick  J.  Crehan  and  Richard  J.  Fricke as
                                licensors  and the  Company  as  licensee  dated
                                August 23, 1993


                                       42
<PAGE>

            10.9*               Employment Agreement between the Company and Mr.
                                Stephen J.  Thompson  dated August 13, 1991,  as
                                amended

            10.10*              Employment Agreement between the Company and Mr.
                                Richard J.  Fricke  dated  August 13,  1991,  as
                                amended

            10.11*              Employment Agreement between the Company and Mr.
                                Robert F. Thompson dated January 31, 1996

            10.12*              Consulting Agreement between SSC Marketing,  Inc
                                and the Company dated as of November 1, 1996

            10.13*              Customer   Service    Agreement    between   SSC
                                Marketing,  Inc  and  the  Company  dated  as of
                                November 1, 1996

            10.14**             License  Agreement  between Clement H. Royer and
                                the  Company  dated  as of  February  19,  1997,
                                relating to NaturalCool technology

            10.15**             Chase-Royer Commercial Transaction among Rudolph
                                L. Chase,  Natural  Cool,  Ltd.,  Natural  Cool,
                                Inc., and Clement H. Royer, dated as of March 1,
                                1997,   relating  to  conveyance  of  rights  to
                                NaturalCool technology

            10.16**             Financial Accord among Rudolph L. Chase, Raymond
                                C.  Chase,  and  Clement H.  Royer,  dated as of
                                March  1,  1997,   relating  to   royalties   on
                                NaturalCool Technology

            10.17**             Agreement  between  Natural Cool,  Inc., and the
                                Company  dated as of May 6,  1998,  relating  to
                                acquisition of assets of Natural Cool, Inc.

            10.18**             License  Agreement  between  Rudolph  Chase  and
                                Raymond  Chase,  and the Company dated as of May
                                6, 1998,  relating to licensing  of  NaturalCool
                                patent rights

            10.19**             Promissory   Note   of   Natural   Cool,   Inc.,
                                guaranteed  by the  Company,  dated as of May 6,
                                1998,  relating  to  acquisition  of  assets  of
                                Natural Cool, Inc.

            10.20**             Bill of Sale of Rudolph Chase and Raymond Chase,
                                dated  as of May 6,  1998,  relating  to sale of
                                stock of Natural Cool, Inc. to the Company

            10.21**             Bill of Sale of Natural Cool,  Inc,  dated as of
                                May 6,  1998,  relating  to  sale of  assets  of
                                Natural Cool, Inc. to the Company


                                       43
<PAGE>

* Incorporated by reference from the Registrant's Registration Statement on Form
10-KSB filed December 31, 1996.

**  Incorporated  by reference  from the  Company's  Form 10-KSB for fiscal year
ended December 31, 1997 and filed as of September 3, 1998.

(b)  Reports on Form 8-K.

            The  following  Form 8-Ks were filed  during  the fiscal  year ended
December 31, 1998:

            FORM        DATE OF REPORT          DESCRIPTION
            ----        --------------          -----------

            8-K         January 23, 1998        Decision   not  to   renew   the
                                                engagement   of  the   Company's
                                                independent            auditors;
                                                Restatement   of  the  Company's
                                                sales,  and intention to restate
                                                the  Company's   1997  financial
                                                statements.

            8-K         March 10, 1998          Resignation    of   Stephen   J.
                                                Thompson  as a  Director  of the
                                                Company.

            8-K         April 14, 1998          The  Company's  engagement  of a
                                                new independent accountant.

            8-K         July 15, 1998           Acquisition of substantially all
                                                of  the   assets   of   Norfield
                                                Corporation


                                       44
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.

                                TABLE OF CONTENTS


Report of Independent Auditors -
  Green, Holman, Frenia and Company, LLP                                  F-1

Balance Sheets,
  December 31, 1998 and 1997                                              F-2

Statements of Operations,
  For the Years Ended December 31, 1998 and 1997                          F-3

Statements of Changes in Stockholders' Deficit,                           F-4
  For the Years Ended December 31, 1998 and 1997

Statements of Cash Flows,                                                 F-5
  For the Years Ended December 31, 1998 and 1997

Notes to Financial Statements                                          F-6--F-14




                                       45
<PAGE>

                                   SIGNATURES

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

                                  SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.

Date: 11/26/01                    By:    /s/ Richard J. Fricke
                                     -------------------------------------------
                                         Richard J. Fricke
                                         President & Chief Executive Officer








                                       46
<PAGE>


                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                    FINANCIAL STATEMENTS FOR THE YEARS ENDED
                           DECEMBER 31, 1998 AND 1997


<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                                TABLE OF CONTENTS



Independent Auditors' Report                                             F-1

Balance Sheets,
December 31, 1998 and 1997                                               F-2

Statements of Operations,
For the Years Ended December 31, 1998 and 1997                           F-3

Statements of Changes in Stockholders' Deficit,                          F-4
For the Years Ended December 31, 1998 and 1997

Statements of Cash Flows,                                                F-5
For the Years Ended December 31, 1998 and 1997

Notes to Financial Statements                                         F-6 - F-14


<PAGE>

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
Safe Alternatives Corporation of America, Inc.

We have audited the accompanying balance sheets of Safe Alternatives Corporation
of America,  Inc. as of December 31, 1998 and 1997 and the related statements of
operations,  changes in stockholders'  deficit and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Safe Alternatives  Corporation
of  America,  Inc.  as of  December  31,  1998 and 1997 and the  results  of its
operations,  stockholders'  deficit and cash flows for the year then  ended,  in
conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As more fully described in Note 3, the
Company  has  incurred  recurring  operating  losses  and has a working  capital
deficiency. These conditions raise substantial doubt about the Company's ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification of assets or the amounts and  classifications of liabilities that
may result from the outcome of this uncertainty.




                                  /s/  GREEN, HOLMAN, FRENIA AND COMPANY, L.L.P.
                                  Certified Public Accountants


Woodbridge, New Jersey
September 24, 2001


                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997



                                                                   1998            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
                                     ASSETS

Current Assets:
  Cash                                                        $      7,219    $     12,282
  Accounts receivable                                               67,219          31,187
  Inventory                                                           --           159,473
                                                              ------------    ------------

  Total current assets                                              74,438         202,942
                                                              ------------    ------------
Property and Equipment, Net                                         46,860         117,327
                                                              ------------    ------------

Other Assets:
  Intangible cost                                                  383,799            --
  Deposits and other noncurrent assets                                --            72,713
                                                              ------------    ------------

  Total other assets                                               383,799            --
                                                              ------------    ------------

                                                              $    505,097    $    392,982
                                                              ============    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT


Current Liabilities:
  Accounts payable and other accrued expenses                 $    213,830    $    104,769
  Current maturities of stockholders' loans                      1,300,000         625,100
  Convertible debentures                                           726,500            --
                                                              ------------    ------------

  Total current liabilities                                      2,240,330         729,869
                                                              ------------    ------------

Other Liabilities:
  Stockholders' loan, net of current
   maturities                                                         --           526,665
  Loss contingency                                                  26,000          26,000
                                                              ------------    ------------

  Total other liabilities                                           26,000         552,665
                                                              ------------    ------------

Stockholder's Deficit:
  Common stock, $.0001 par value,
   200,000,000 shares authorized;
   issued(including shares in treasury)
   13,695,960 shares in 1998 and
   12,471,120 in 1997                                                1,247           1,247
  Additional paid-in capital                                    15,235,876      15,227,876
  Accumulated deficit                                          (17,000,515)    (16,120,834)
  Subscriptions issuable                                             2,160           2,160
                                                              ------------    ------------

                                                                (1,761,232)       (889,551)
Treasury stock                                                          (1)             (1)
                                                              ------------    ------------

Total stockholders' deficit                                     (1,761,233)       (889,552)
                                                              ------------    ------------

                                                              $    505,097    $    392,982
                                                              ============    ============

</TABLE>

            See auditor's report and notes to financial statements.

                                       F-2
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                            STATEMENTS OF OPERATIONS
                           DECEMBER 31, 1998 AND 1997


                                             1998            1997
                                        ------------    ------------

Sales                                   $    270,230    $    134,464

Cost of Goods Sold                           358,432          72,890
                                        ------------    ------------

Gross Profit (Loss)                          (88,202)         61,574
                                        ------------    ------------
Operating Costs:
  Selling, general and administrative        794,819       3,506,715
  Research and development                    20,903         265,736
  Depreciation and amortization              121,231          57,806
                                        ------------    ------------

  Total operating costs                     (936,953)     (3,830,257)
                                        ------------    ------------

Loss from Operations                      (1,025,146)     (3,768,683)
                                        ------------    ------------

Other Income and Expenses:
  Convertible note fees                     (112,300)           --
  Interest expense - stockholders           (104,000)        (20,906)
  Estimated litigation settlement               --           (26,000)
  Forgiveness of shareholder loan            361,765            --
                                        ------------    ------------

  Total other income and expenses            145,465         (46,906)
                                        ------------    ------------

Loss Before Extraordinary Item              (879,681)     (3,815,589)

Extraordinary Item                              --          (621,000)
                                        ------------    ------------

Net Loss                                $   (879,681)   $ (4,436,589)
                                        ============    ============

Net Loss per Common Share               $      (.067)   $      (.038)
                                        ============    ============

Average Number of Common Shares           13,083,540      11,415,628
                                        ============    ============






            See auditors' report and notes to financial statements.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997




                      Common Stock                                                            Treasury Stock
              ---------------------------    Additional                                ---------------------------
                                              Paid-in      Accumulated   Subscription
                 Shares         Amount        Capital        Deficit       Issuable       Shares         Amount          Total
              ------------   ------------   ------------  ------------   ------------  ------------   ------------   ------------
<S>           <C>            <C>            <C>           <C>            <C>           <C>            <C>            <C>
Balance at
12/31/97        12,471,120   $      1,247   $ 15,227,876  $(16,120,834)  $      2,160       (11,682)  $         (1)  $   (889,552)

Proceeds
from Paid-
In Capital                                         8,000                                                                    8,000

Issuance of
common
shares           3,704,653              0                                                                                       0

Redemption
of common
shares          (2,479,813)             0                                                                                       0

Net Loss                                                      (879,681)                                                  (879,681)
              ------------   ------------   ------------  ------------   ------------  ------------   ------------   ------------

Balance at
12/31/98        13,695,960   $      1,247   $ 15,235,876  $(17,000,515)  $      2,160       (11,682)  $         (1)  $ (1,761,233)
              ============   ============   ============  ============   ============  ============   ============   ============

</TABLE>



            See auditors' report and notes to financial statements.

                                        F-4
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997



                                                     1998           1997
                                                 -----------    -----------

Cash Flows from Operating Activities:

Net Loss                                         $  (879,681)   $(4,436,589)

Adjustments to reconcile net loss to
 net cash used in operating activities:
  Depreciation and amortization                      121,231         57,806
  Estimated litigation settlement                       --           26,000
  Non-cash compensation and commissions                 --        3,030,769

  Changes in assets and liabilities:
   Accounts receivable                               (36,032)       (19,025)
   Advance to employees                                 --           19,927
   Inventories                                       159,473       (146,286)
   Deposits and other noncurrent assets               72,713        (60,149)
   Accounts payable and accrued expenses             129,262       (156,203)
                                                 -----------    -----------

Net Cash Used in Operating Activities               (433,034)    (1,683,750)
                                                 -----------    -----------


Cash Flows from Investments Activities:
  Additions to fixed assets                          (50,764)       (34,812)
                                                 -----------    -----------

Net Cash Used in Investing Activities                (50,764)       (34,812)
                                                 -----------    -----------

Net Cash Flows from Financing Activities:
  Principle payments on long-term debt              (255,765)          --
  Proceeds from issuance of convertible
   notes                                             726,500           --
  Proceeds from stockholders' loan                      --          832,700
  Repayment of stockholders' loan                       --         (148,000)
  Proceeds from paid-in capital                        8,000           --
  Net proceeds from issuance of common
   stock and subscriptions                              --        1,042,150
                                                 -----------    -----------

Net Cash Provided by Financing Activities            478,735      1,726,850
                                                 -----------    -----------


Net Increase (Decrease) in Cash                       (5,063)         8,288

Cash, Beginning of Year                               12,282          3,994
                                                 -----------    -----------

Cash, End of Year                                $     7,219    $    12,282
                                                 ===========    ===========




            See auditors' report and notes to financial statements.

                                       F-5
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


1.       Reorganization and Basis of Presentation
-------------------------------------------------

On September 15, 1995,  the  stockholders  of Safe  Alternatives  Corporation of
America,  Inc.,  a Delaware  corporation,  ("SAC  Delaware")  approved  an Asset
Purchase Agreement and Plan of Reorganization (the "Reorganization") whereby the
assets of SAC  Delaware  were sold to Safe  Alternatives  of  America,  Inc.,  a
Florida  corporation  then operating under the name Portsmouth  Corporation (the
"Company"),  in exchange for 8,000,000 shares of the Common Stock of the Company
and  the   assumption  of  SAC   Delaware's   liabilities.   Subsequent  to  the
Reorganization,  SAC Delaware was liquidated.  Pursuant to such liquidation, SAC
Delaware  distributed to each stockholder  0.2736 shares of the Company's Common
Stock  for  each  share  of SAC  Delaware  that was  owned.  As a result  of the
Reorganization,  the  stockholders of SAC Delaware  controlled 94% of the issued
and outstanding Common Stock of the Company and,  therefore,  the Reorganization
has been accounted for as the  acquisition  of the Company by SAC Delaware.  The
financial  statements  presented,  therefore,  include the historical  financial
statements  of  SAC  Delaware  prior  to  the   Reorganization.   Prior  to  the
Reorganization,  the Company had been an inactive  public entity with no assets,
liabilities,  or net worth.  The costs of this  transaction have been charged to
expense.

The issuance of 8,000,000  shares of the  Company's  Common Stock in  connection
with the Reorganization has been treated as a reverse stock split and the shares
of  issued  and   outstanding   Common  Stock  of  the  Company   prior  to  the
Reorganization have been restated for all periods presented.

Subsequent  to  the  Reorganization,  the  Company  changed  its  name  to  Safe
Alternatives Corporation of America, Inc.

Operations
----------

The Company has secured  exclusive  manufacturing,  marketing,  and distribution
rights  to  certain   patented,   patent   pending  and   application-in-process
technologies.  Such technologies are associated with paint stripping  chemicals,
water-based foams, and an ambient air exchanger.

2.       Summary of Significant Accounting Policies
---------------------------------------------------

Method of Accounting
--------------------

The financial  statements  are prepared  using the accrual basis of  accounting.
Generally accepted  accounting  principles  requires  management,  under certain
circumstances,  to make  estimates  and  assumptions  that  affect  the  amounts
reported in the financial  statements  and  accompanying  notes.  Actual results
could differ from those estimates.

Allowance for Doubtful Accounts
-------------------------------

The Company considers trade receivables to be fully collectible; accordingly, no
allowance for doubtful accounts is required.

Inventories
-----------

Inventories,  primarily  finished  goods,  are  stated  at  the  lower  of  cost
(first-in,  first-out method) or market value.  However,  as of the December 31,
1998 year-end, the Company elected to write-off 100% of inventory.



                                       F-6
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


2.       Summary of Significant Accounting Policies (continued)
---------------------------------------------------------------

Property, Plant and Equipment
-----------------------------

Property,  plant and equipment are recorded at cost. Depreciation is provided on
a  straight-line  basis over estimated  useful lives of the  respective  assets.
Leasehold  improvements  are  depreciated  over the shorter of the lease term or
economic life of the related improvement. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized.  When items
of  property,  plant and  equipment  are sold or retired,  the related  cost and
accumulated  depreciation  are removed from the accounts and any gain or loss is
included in the results of  operations.  Depreciation  expense was  $121,231 and
$49,696 for the years ended December 31, 1998 and 1997, respectively.

Organization Costs
------------------

Organization costs are amortized over 60 months using the straight-line  method.
Amortization expense was $0 and $8,110 for the years ended December 31, 1998 and
1997, respectively.

Earnings Per Share
------------------

The following data show the amounts used in computing earnings per share.



                                                   1998            1997
                                              ------------    ------------


  Loss used in basic EPS                      $   (879,681)   $ (4,436,589)
                                              ============    ============
  Weighted average number of common
    shares used in basic EPS                    13,058,480      11,415,628
                                              ============    ============

  Net loss per common share                   $      (.067)   $      (.038)
                                              ============    ============


3.       Going Concern
----------------------

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles, which contemplates continuation of the
Company  as a  going  concern.  However,  the  Company  has  incurred  recurring
operating losses and has a working capital deficiency.  At December 31, 1998 and
1997, current liabilities exceed current assets by $2,165,892 and $526,927,  and
total  liabilities  exceed  total  assets  by  $1,761,232  and  $889,552.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.

In view of these  matters,  realization  of a major portion of the assets in the
accompanying  balance  sheet  is  dependent  upon  continued  operations  of the
Company,  which  in turn is  dependent  upon the  Company's  ability  to  obtain
sufficient financing, and the success of its future operations. Management plans
to finance its  operations  with a combination  of sales of common stock and, in
the longer term, borrowings and revenues from product sales. Management believes
these  actions  provide the  opportunity  for the Company to continue as a going
concern.




                                       F-7
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


4.       Leases
---------------

The  Company  rents its office  space  under a  non-cancelable  operating  lease
agreement, which expires on September 30, 1998. In addition, the Company is also
leasing a laboratory and testing facility under a non-cancelable operating lease
expiring on February 28, 1998.

Rent expense was $77,328 and $138,868 for the years ended  December 31, 1998 and
1997, respectively.

5.       Stockholders' Deficit
------------------------------

Treasury Stock
--------------

Treasury stock  represents  11,682 shares (recorded at cost) being held in trust
(by Richard J. Fricke, an officer of the Company) to be used for future issuance
to employees,  investors,  and other potential  funding sources.  As the Company
directly  benefits from the sales of the shares in the trust,  these shares have
been recorded as treasury stock.

Shares Issued as Compensation and Commission
--------------------------------------------

During 1998 and 1997, respectively, 620,000 and 1,098,000 fully vested shares of
the Company's common stock were issued to outside consultants. The fair value of
shares awarded,  based upon the value of Common Stock sold during those periods,
were $0 and $1,508,150 for 1998 and 1997, respectively, and has been recorded as
compensation expense.

In  addition,  during 1998 and 1997,  respectively,  600,000  and 686,080  fully
vested  shares of the  Company's  Common  Stock were  issued to  officers of the
Company. The fair value of shares awarded,  based upon the value of Common Stock
sold during these periods, were $0 and $841,620 for 1998 and 1997, respectively,
and have been recorded as compensation expense.

6.       Income Taxes
---------------------

The Company has available  unused  operating loss  carryforwards at December 31,
1998 of  approximately  $8,799,681 for federal purposes and $8,770,681 for state
purposes that may be applied against future taxable income for federal and state
liability,  respectively.  Cumulative  net operating  loss  carryforwards  as of
December  31,  1997 as reported on the  Company's  federal and state  income tax
returns approximated $7,920,000 and $7,891,000.

The tax benefit of the cumulative  carryforwards  as of December 31, 1998 & 1997
is  approximately  $2,991,000  and  $2,690,000  for  federal  and  approximately
$790,000 and $828,000 state, offset in full by a valuation allowance.




                                       F-8
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


7.       License Agreements
---------------------------

The Company maintains four significant exclusive licensing agreements. Each such
license  has  substantially  the  same  terms  and  conditions.  Each  licensing
agreement  is valid until  April 17,  2050,  unless the  Company  fails to pay a
royalty of four percent of the gross sales derived from the  exploitation of the
respective   technology,   with  certain  limitations  for  sales  derived  from
inter-company transfers or transactions with subsidiaries.  The Company has also
agreed to pay all maintenance  fees and fees for filing and  prosecuting  patent
applications  pending at the time the licenses were  executed.  All rights under
the licenses are freely assignable by the Company.  The licenses were amended on
August 23, 1993 to collectively  provide for a required  minimum monthly payment
of $5,000,  in the  aggregate.  In addition,  a weekly payment of $1,200 to Mrs.
Kathleen  Kennedy during her lifetime is required in lieu of  progressive  sales
minimums due  beginning in 1993.  The four percent  royalty  payments  described
above, however, would nonetheless survive.

Failure to pay the minimum  weekly  and/or  monthly  payments  may result in the
Company's loss of the exclusivity of such licenses. Failure to pay royalties due
under any  license  may result in the  termination  of the  exclusivity  of such
license.

Currently,  the Company is out of compliance with the minimum payment provisions
and has a  non-exclusive  license.  Mrs.  Kennedy  brought an action against the
Company  to obtain  the  minimum  payments  under the  licenses.  The action was
arbitrated  during 1999. The Company lost the  exclusivity of the license in the
arbitration, but was not required to pay any sums of money to Mrs. Kennedy. (See
"Note 11").

During 1997, the Company modified the payment terms of the licensing agreements,
thus causing the agreements to become non-exclusive.

8.       Related Party Transactions
-----------------------------------

Stockholders' Loans
-------------------

During 1997 and the first half of 1998, the Investor  Group,  including  current
shareholders  and persons who were directors of the Company for part of 1997 and
1998,  advanced working capital loans and committed to make loans to the Company
in the aggregate amount of approximately $1.0 million.  During the first quarter
of 1998,  in  consideration  for,  among other things,  not demanding  immediate
repayment of the loans,  the Company and the  Investor  Group agreed to exchange
all of such  outstanding  indebtedness  for a convertible  promissory  note (the
"Investor Note"),  2,000,000 shares of the Company's common stock with piggyback
registrations  rights (but which may not be traded until the $1,300,000  note is
converted)  and stock options.  The Investor Note is in the aggregate  principal
amount of $1.3 million, and accrues interest at a rate of 8% per annum beginning
January 1, 1998.






                                       F-9
<PAGE>


                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


8.       Related Party Transactions (continued)
-----------------------------------------------


Stockholders' loans at December 31, 1998 and 1997, consisted of the following:

                                                          1998         1997
                                                       ----------   ----------
Unsecured demand note to a Partnership of two
stockholders, bearing no interest                      $     --     $  352,965

Unsecured demand note to a stockholder, bearing no
interest                                                     --          8,800

Unsecured notes to five  stockholders,  bearing
interest at 8%. One-third of the outstanding balance
is due September 1998,  including  interest.  The
remaining balance is due January 1999, including
interest                                                1,300,000      790,000
                                                       ----------   ----------

Total                                                   1,300,000    1,151,765

Less current maturities                                 1,300,000      625,100
                                                       ----------   ----------

Long-term debt, net of current maturities              $        0   $  526,665
                                                       ==========   ==========

Aggregate maturities required on stockholders' loans at December 31, 1998 are as
follows:

                   Year                              Amount
                   ----                              ------

                   1999                            $1,300,000
                   2000                                     -
                   2001                                     -
                   Thereafter                               -
                                                   ----------

                   Total                           $1,300,000
                                                   ==========

Officers' Compensation
----------------------

The  officers  of the  Company  have  employment  contracts  entitling  them  to
aggregate cash compensation of $725,000 plus incentive bonuses. Amounts actually
paid to the officers in 1998 and 1997 amounted to $58,846 and $36,000 in each of
the years, respectively. Each of the officers has waived his rights with respect
to salary arrearages. No bonuses have been paid out in any of the years.

Licensing Agreement
-------------------

An officer of the  Company  has an  interest  in one of the  licenses  discussed
above.  For the years  ended  December  31,  1998 and 1997,  there  have been no
payments to such officer under the aforementioned agreements.





                                      F-10
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


9.       Marketing Agreement
----------------------------

The Company has entered into two  agreements  with SSC - a consulting  agreement
(the "Consulting Agreement") dated as of November 1, 1996 and a customer service
agreement  (the "Service  Agreement")  dated as of December 15, 1996.  Under the
terms  of  the  Consulting  Agreement,  SSC  will  provide  the  Company  with a
comprehensive sales and marketing program for the Company's products,  including
hiring  sales  representatives,  developing  sales  contacts,  marketing  plans,
advertising  campaigns,  customer  service  programs,  and sales  accounting and
reporting  systems.  The Company will pay SSC a flat fee of $8,000 per month, an
additional  fee of $4,000 for each sales  manager  engaged by SSC to service the
Company's account, with a minimum of three such sales managers to be so engaged,
plus approved expenses of SSC and its sales managers.  In addition, in the event
SAC's  annual  revenues  exceed  $2,600,000,  the  Company  shall pay each sales
manager  a 2%  commission  on  gross  revenues  generated  in  their  respective
territories.  In the event the Company's annual revenues exceed $2,800,000,  the
Company shall pay SSC a 5.5% commission on the Company's  gross  revenues,  with
the  $8,000  monthly  payments  to be  credited  against  the  payment  of  such
commissions.  Under the terms of the  Service  Agreement,  SSC will  provide the
Company  with order  entry,  billing,  order  tracking,  sales  forecasting  and
planning,  and  information  processing  services.  The Company  will pay SSC an
additional $5,000 per month for such services, provided that, if at any time the
volume of SAC's  business  exceeds  SSC's  ability to  adequately  perform  such
services,  the parties shall agree upon an increased  fee. A failure to so agree
will result in termination of the Service Agreement.

In December 1997, the Company terminated this agreement for cause. Subsequently,
SSC  Marketing  filed a lawsuit  for  alleged  breach of  contract.  The Company
believes the suit is completely  without merit and intends to vigorously  defend
its position.

10.      Extraordinary Item
---------------------------

During  the year  ended  December  31,  1997,  the  former  President  and Chief
Executive  Officer of Safe  Alternatives  Corporation  of America,  Inc.  issued
464,000 shares in the Company to several  individuals  and unrelated  companies.
Management  has not been able to ascertain if there was any known or  documented
reason.  The  fair  market  value  of  these  issued  shares  totaled  $621,000.
Management  has  determined  not to proceed with any legal action in  connection
with this matter.

11.      Contingencies
----------------------

On May 29, 1998, SSC  Marketing,  Inc.  ("SSC") filed an action (SSC  Marketing,
Inc. v. Safe Alternatives)  against the Company in federal court in the Southern
District  of New  York.  By  agreement,  the suit was moved to the  District  of
Connecticut  (D. Conn.  File No. 3: 98cv1312 JBA). The complaint  contained four
counts,  each  requesting a judgment for $180,880 plus  interest and  attorney's
fees.  The suit alleged breach of contract,  misrepresentation  by the complaint
and brought  various  counterclaims  against  SSC.  This action  settled and, in
September 1999 was dismissed.  The Company subsequently delivered 500,000 shares
of its  restricted  common stock to SSC's  designee  pursuant to the  settlement
agreement.

In 1998 the Company arranged a settlement with SSC Marketing,  where the Company
agreed to transfer 500,000 shares of common stock for a general release.


                                      F-11
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


11.      Contingencies (continued)
----------------------------------

To the best of the Company's present  knowledge,  Mr. Melvin Kanan threatened to
bring an action against Mr. Stephen Thompson and/or the Company alleging,  among
other  things,  securities  fraud  violations.  The  Company  believes  that Mr.
Thompson settled this litigation in 1998 by causing the Company to issue 110,000
shares of the Company's common stock to Mr. Kanan.

The Company  commenced an action against Mr. Clement Royer, the former president
of the Company's  Natural Cool Division,  in November 1997, which was settled in
June 1998. The complaint sought the return of corporate  records,  test data and
the like, as well as compensatory  damages and attorney's fees. The terms of the
settlement   involved  Mr.  Royer's   returning  all  corporate   documents  and
disclaiming any rights to the NaturalCool product.

An adversary  proceeding  was brought  against the Company in July 1997, in U.S.
Bankruptcy Court for the District of Connecticut,  by Richard Coan,  Trustee for
the Bankruptcy Estate of Samuel E. Bernstein (U.S. Bankruptcy Court, Dist. Conn.
Adversary  Proceedings  File No  97-5078).  The suit seeks a judgment to recover
accrued but unpaid wages  totaling  approximately  $100,000 for 1995,  which the
Company contends that Mr. Bernstein had waived his right to receive. The Trustee
seeks to avoid the waiver under the Bankruptcy Code and recover the value of the
waiver.  The Company is defending  itself in the matter,  and cannot predict the
outcome of the matter or whether a  settlement  will be  reached.  However,  the
Company  believes  that if the  Trustee is  successful  in  obtaining a judgment
against the  Company,  it should not be required to pay more than the total debt
owed to the debtor's creditors, plus related fees, which the Company believes to
be approximately $26,000. The Company's financial statements for the year ending
December  31, 1997 and 1998  include a provision  for loss of $26,000 to reflect
this matter.

Ms. Kathleen Kennedy,  the licensor under certain  technology  licenses with the
Company,  brought an  arbitration  action in 1999 against the Company,  claiming
past due minimum royalty payments of approximately $145,000. The arbitrator held
that although the Company did not owe any money or damages to Ms.  Kennedy,  the
licenses  were now  non-exclusive  because of the  Company's  failure to pay the
licensing fees.

At March 31, 1998, a contingent  liability for payroll taxes attributable to the
issuance of stock as compensation  exists.  The amount of this liability has not
yet been determined as it is subject to certain valuation issues surrounding the
issuance of stock.






                                      F-12
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


12.      Acquisition
--------------------

On May 5, 1998,  the  Company  purchased  the assets of Natural  Cool,  Inc.  in
exchange for the Company's assumption of approximately  $152,700 of the seller's
debts.  The purchased assets consist of inventory,  fixed assets,  and all other
tangible and intangible property.

13.      6% Convertible Note
----------------------------

On March 10, 1998 the Company  entered into an Agency  Agreement  with Alexander
Wescott & Co., Inc. ("AWC") for the offer and sale of 6% Convertible Notes, with
maximum gross proceeds not to exceed $1,000,000.  The notes bear interest at the
rate of six percent (6%) per annum,  payable  semi-annually in arrears,  in cash
or, at the Company's option, in shares of Common Stock of the Company. The notes
mature on the earlier of (i) the first anniversary of the initial closing of the
proposed offer (April 10, 1999), and (ii) a sale of all or substantially  all of
the Company's  assets or a merger,  acquisition  or  consolidation  in which the
Company is not the  surviving  corporation.  The notes rank  senior to all other
indebtedness of the Company now or hereafter  existing,  other than indebtedness
to banks, in terms of priority and security,  and may not be prepaid without the
holder's  consent.  The  principal  amount of each Note shall be converted  into
shares of Common Stock,  at the option of the holder,  commencing on the earlier
of (a) ninety(90) days following the filing of the  Registration  Statement with
the Securities and Exchange  Commission and (b) the date the Commission declares
the Registration Statement effective.

The  conversion  price per share shall  equal the lower of (i)  seventy  percent
(70%) of the average  closing bid price per share of Common  Stock on the NASDAQ
for the five trading days  immediately  preceding the  conversion  date and (ii)
twenty-five cents ($.25).

AWC  is  to  receive  a  commission  of  10%  plus  3%  non-accountable  expense
reimbursement on the gross proceeds raised. In addition, AWC was issued warrants
exercisable  for 400,000 shares of Common Stock at an exercise price of $.30 per
share expiring June 28, 2003.

In March and April,  1998,  the  Company  issued its 6%  Convertible  Notes (the
"Notes") in the aggregate  principal  amount of $726,500 in a private  placement
under Rule 505 of Regulation D. Interest on the Notes is payable  semi-annually.
The principal amount of the Notes, together with unpaid interest thereon, is due
and payable, if not earlier converted, on March 3, 1999.

As of December 31, 1998 $726,500 of such notes had been  subscribed to, with the
proceeds held in escrow pending closing to occur in April.

As of December 31, 1998 none of these warrants have been exercised.

14.      Restricted Stock Sales
-------------------------------

During 1998, the Company issued its restricted  common stock to pay for services
to the Company, as follows:  Sam Armato, Jr., 50,000 shares;  Chester Greenwood,
50,000 shares; Kenneth Hodgdon,  10,000 shares; and Neil Rogers, 100,000 shares.
In addition,  the Company authorized the following as compensation and incentive
pay: 100,000 shares of restricted common stock to Robert Berger;  and (2) 25,000
shares of  restricted  common stock plus options to purchase  234,000  shares of
restricted  common stock  exercisable for a period of 5 years at a price of $.01
per share to Robert Percheski.


                                      F-13
<PAGE>

                 SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


15.      Intangible Asset
-------------------------

During  the  first  quarter  of 1998 the  company  and the  "Investor  Group" in
consideration for not demanding  immediate payment agreed to exchange all of the
outstanding  balance due plus  accrued  interest  of $916,201  for a new note at
$1,300,000  plus two (2) million shares of restricted  common stock. As a result
of this exchange, the Company recognized a non-cash transaction of $383,799 that
was required to gross up the original  note  balances to its current  balance of
$1,300,000. This amount has been capitalized as an intangible asset.

16.      Cash Flow Information
------------------------------

The Company  considers all short-term  investments with an original  maturity of
three months or less to be cash equivalents.

Cash paid for interest  and income  taxes for the years ended  December 31, 1998
and 1997 were zero.

17.      Subsequent Events
--------------------------


In 2001 the Company  settled its lawsuit with the  creditors  with the estate of
Samuel L. Beinstein for $10,000.

Also, in 1999 as per the board minutes,  the Company issued 13,000,000 shares of
common stock to an officer, who is the sole active officer.

In October 2001 the Company issued 4,000,000  shares of restricted  common stock
to the remaining shareholders in the Investor Group. These shares were issued in
consideration of a waiver by the members of the Investor Group of all money owed
to them and the waiver of all rights to or under any stock, options, warrants or
other rights to additional stock in the Company.












                                      F-14