<PAGE>   1

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

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

               Date of Report   Fiscal year ended December 31, 1999

(Mark one)

[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the fiscal year ended December 31, 1999

[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the transition period from ________ to _________


                       INTERNATIONAL FOAM SOLUTIONS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        FLORIDA                       000-28269                65-0412538
----------------------------      -----------------      ----------------------
(State or other jurisdiction        (Commission              (IRS Employer
     of incorporation)              file number)         identification number)

 1885 SOUTHWEST 4TH AVENUE BUILDING B-3 DELRAY BEACH, FLORIDA        33444
--------------------------------------------------------------      -----------
       (Address of principal executive offices)                     (Zip code)

Registrant's telephone number, including area code 561-272-6900
                                                   ---------------

                                      N/A
         -------------------------------------------------------------
         (Former name or former address, if changed since last report)

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


Title of each class                         Name of exchange on which registered
-------------------                         ------------------------------------

       None                                                  None

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

                          Common Stock, par value $.01
--------------------------------------------------------------------------------
                                (Title of class)


--------------------------------------------------------------------------------
                                (Title of class)

U.S. Securities and Exchange Commission
Washington, D.C.  20549

Form 10-KSB


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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No  [X]




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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [X]

Issuer's revenues for its most recent fiscal year   $71,562

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed as of May 31, 2000 was approximately $872,390, based on
the average bid and asked price of such common equity, on that date as quoted on
the OTC Bulletin Board.

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [X]


The number of shares outstanding of the issuer's common stock, as of May 31,
2000 were 18,339,252.

                Documents incorporated by reference: See Item 13




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PART I

Item 1.  Description of Business.

a)       BUSINESS DEVELOPMENT

         International Foam Solutions, Inc., ("IFS, Inc.") was incorporated
under the laws of the State of Florida in May 1993. IFS, Inc. produces and
markets a self-contained system, termed the "Styro Solve System," which utilizes
IFS, Inc.'s "Solution Machine" and a "Styro Solve" solution, for disposing of
and recycling polystyrene foam products. Polystyrene is a lightweight plastic,
composed of hydrogen and carbon atoms. It is derived from petroleum and natural
gas by-products, the most common of which, styrofoam, is utilized in the
packaging industry. IFS, Inc.'s Styro Solve System can also recycle other
polystyrene products, such as the material from which many computer monitors and
keyboards are made. To IFS, Inc.'s knowledge, IFS, Inc. offers the only safe,
efficient, economical and practical means of recycling such waste materials.

         IFS, Inc. has developed its Styro Solve System, including the machinery
required to process the Styro Solve solution and recycle polystyrene. IFS, Inc.,
and together with two outside manufacturers, have developed four models of its
Solution Machines, for use by various businesses, depending on their respective
polystyrene usage and recycling requirements. The smallest of the Solution
Machines is approximately the size of an outdoor U.S. Government issued mail
deposit box, suitable for smaller cafeterias serving up to eight hundred meals
per day, as well as other businesses which consume up to thirty pounds of
styrofoam per day; the largest of such machines can recycle approximately one
hundred pounds per hour.

         Due to limited capital resources, IFS, Inc.'s sales activities to date
have been minimal for its Styro Solve System. Prior to commencing its sales
activities, IFS, Inc. engaged in extensive beta site testing with a variety of
businesses in several locations, including a school district and several major
Fortune 500 companies, some of which continue to be current Company customers.
As a result of the beta site testing in prior years, IFS, Inc. believes it has
now developed an effective product and system for the recycling of polystyrene.

(b)      BUSINESS OF THE ISSUER

         (1) PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKETS

         IFS, Inc.'s principal products and services consist of two distinct
categories of products. One category is based on its Styro Solve System, for
consolidating, reducing and discarding polystyrene foam materials, which is
leased or sold to customers who have a need to discard used or excess
polystyrene products; the second category is the supply by IFS, Inc. of recycled
polystyrene beads and chips that are sold to plastic manufacturers as raw
material. IFS, Inc. has not generated any revenues from the sale of recycled
polystyrene beads and chips as IFS, Inc. does not presently have a recycling
plant in the U.S.




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         The Styro Solve System is made up of four fundamental components: the
Solution Machine (four models); the Styro Solve solution which is added to the
Solution Machine and sprayed on the polystyrene as it is shredded within the
Solution Machine, causing the compression (by removing the air) of the
polystyrene into a gel-like substance called "Polygel," the pick up and removal
of the Polygel; and finally, support services by IFS, Inc., including extended
warranties on equipment and a full educational program (videos, posters, teacher
and student guides, student questionnaires, training of food service and
custodial personnel) on the Styro Solve System.

         Styro Solve is IFS, Inc.'s brand name for the solvent used in the
Solution Machine to reduce the volume of polystyrene foam by approximately 90%
and convert the material into the Polygel. Styro Solve is based on a compound
derived from citrus oils, which may be readily obtained from the rinds and other
natural products of the citrus industry. An additional proprietary patent
pending on the process is also used in the manufacture of the Styro Solve
solution.

         The Styro Solve System provides for polystyrene materials to be placed
in a free-standing metal bin (the Solution Machine) that houses a shredder to
physically break down the foam materials, and a sprayer to douse the shredded
material with a non-toxic, environmentally safe solution (Styro Solve). The
Solution Machine is sold or leased to a customer and is physically located on
such customer's premises. The Solution Machine shreds the polystyrene and
automatically sprays Styro Solve solution on the shredded foam pieces. Shredding
the polystyrene speeds the reduction process because the small pieces dissolve
more quickly in the Styro Solve solution than large pieces. The Styro Solve
softens and dissolves the polystyrene. Air trapped in the foam is released
leaving the Polygel, which is deposited into a removable bag or container at the
base of the Solution Machine. The bags of Polygel are collected periodically
from the machine by the customer and placed in large drums or gaylords (large
square storage containers that rest on a single pallet) supplied by IFS, Inc.
for a fee, for later shipping at IFS, Inc.'s expense. There is a minimum of
eight hundred pounds of Polygel required prior to IFS, Inc. collecting the
Polygel from its customers. The Polygel undergoes a filtering and extrusion
process, during which impurities and the Styro Solve solution used earlier are
removed, leaving condensed polystyrene material in the form of hard plastic
beads or chips. Such polystyrene beads or chips may then be sold to plastic
manufacturers for use in other polystyrene products. The Styro Solve solution
removed during this step may be repackaged, reused (up to approximately eighteen
times) and resold to customers. IFS, Inc. is currently storing the Polygel until
such time as a recycling facility may be built. While IFS, Inc. has not
constructed a recycling facility in the U.S., a Japanese based licensee of IFS,
Inc.'s patent is currently operating a recycling facility on a limited basis in
Japan. Because of insufficient quantities of polygel being produced, the
Japanese company has recycled on a limited basis. IFS, Inc. believes, based upon
its current internal analysis, that the construction of a recycling facility in
the U.S. will not be viable until Polygel production reaches approximately four
million pounds per year. IFS, Inc. currently stores approximately 100,000 pounds





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of Polygel. The cost estimated to construct a recycling facility is $1.5
million, based upon its current internal analysis; IFS, Inc. has no immediate
plans or funds set aside for the construction of a recycling facility at this
time.

         IFS, Inc. does not presently manufacture or market its own recycled
products, but intends to do so, depending upon the availability of funding, of
which no assurances are given, in the event that a recycling facility may be
constructed. It is anticipated that such recycled products could include rebar
chairs (for concrete), signage, paperclip holders, mechanical pencils,
electronics casings, etc., and that, depending upon funding availability, IFS,
Inc. could either purchase or lease appropriate manufacturing equipment. IFS,
Inc. has estimated that the cost to recycle the Polygel, which would include
overhead, machinery, shipping, labor and similar expenses, would be
approximately $.20 per pound of recycled product. This amount would increase to
approximately $.33 per pound if the cost of marketing activities for the end
product, which could entail utilizing Company employees and/or outside
distributors/independent contractors, were considered. It is estimated by IFS,
Inc. that the end product could resell for approximately $4.00 per pound.

         Generally, IFS, Inc. plans to either sell or lease one of its four
models of its Solution Machines to prospective customers, depending upon their
particular polystyrene usage and recycling requirements. The retail price for
such machines are as follows: SM1100 (front load food service) -- $4,995.00;
SM2200 (top load food service) -- $5,995.00; SM 3300 (industrial grinder) --
$15,500.00; SM 3500 (industrial grinder/debulker combination) -- $29,995.00. The
Styro Solve Solution is sold by IFS, Inc. to its customers/end users on an as
needed basis, depending upon their particular polystyrene usage and recycling
requirements, in either five gallon containers at a suggested retail price of
$100, or in fifty-five gallon drums at a suggested retail price of $990.00.
Certain discounts are afforded to Company distributors. To date, virtually all
of IFS, Inc.'s current customers have purchased Solution Machines from IFS, Inc.
All of the models of Solution Machines are currently being utilized. One of IFS,
Inc.'s customers entered into a lease-to-own arrangement to acquire a Solution
Machine. IFS, Inc. has investigated several companies which have expressed
interest in providing lease-to-own financing to prospective customers, which
companies IFS, Inc. plans to introduce to prospective customers should they
desire to lease a Solution Machine rather than purchase the machine outright.

         IFS, Inc. currently utilizes the services of two unaffiliated
subcontractors to manufacture all four models of the Solution Machines so as not
to be wholly reliant on a single source manufacturer. IFS, Inc. assembles the
Solution Machines at its facility in Delray Beach, Florida. IFS, Inc. has found
both subcontractors to be comparable in cost, reliable and comparable in
purchase/financing terms with 50% of purchase price payable with the order and
the balance due in 30 days.

         Generally, IFS, Inc. maintains several of its four Solution Machine
models in inventory. Depending upon the availability of additional funding, of
which no assurances are given, IFS, Inc. plans to increase its inventory.




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         IFS, Inc. believes its principal market consists primarily of various
institutions and businesses which utilize and have a need to dispose of
polystyrene products, including participants in the food service industry such
as school, hospital and business cafeterias, and to a lesser extent, consumers
and the general public.

         IFS, Inc. sells its products by its own sales force and through
distributors. Currently, IFS, Inc. has two in-house salesmen, two domestic
distributors and four independent representatives.

         Current customers of IFS, Inc.'s distributors include a school district
located in Albany, NY, Time Warner, HBO, Estee Lauder, Hewlett-Packard and
University of Pennsylvania Hospital. Some of IFS' direct sales customers include
ARCO Alaska, Pitney Bowes, Warwick School District (Warwick, NY), BrandsMart
U.S.A., Brooks Medical Center (US Army), San Diego Anti-Nuclear Submarine
College (US Navy) and DAAP MEDCO (US Navy).

The chart below shows the approximate percentage of annual revenues generated by
distributors and IFS' sales force for the last three years:

              1997                     1998                   1999
              ----                     ----                   ----

         IFS        60.1%        IFS        86.1%        IFS        77.5%
         Dist.      39.9%        Dist.      13.9%        Dist.      22.5%

         IFS, Inc. also plans to target regions and companies in foreign
countries, pursuant to which it intends to enter into licensing agreements or
other arrangement with foreign companies for the manufacture and sale of IFS,
Inc.'s products. In a prior year, the Company entered into a license agreement
with a Japanese entity pursuant to which IFS, Inc. was paid one million dollars
in consideration for IFS, Inc. granting this entity exclusive rights in Japan to
use and develop IFS, Inc.'s existing patents. This agreement further provided
that if the Japanese entity builds recycling centers (termed "reconverting
facilities"), IFS, Inc. shall be paid a one time licensing fee based on
recycling capacity requirements which may apply to each facility. To date, the
agreement has not been further implemented by the Japanese entity due to local
economic conditions. IFS, Inc. understands from discussions with Styro Japan
that the Japanese economy was in an unstable condition, an effect of which
distracted potential clients from utilizing the recycling technology. Two
regions initially targeted by IFS, Inc. for foreign sales are the Far East and
European block countries. IFS, Inc. believes that due to, among other things,
the decline in the Japanese Yen, and due to IFS, Inc.'s lack of sufficient
capital to effectively market in these regions, IFS, Inc. has not been able to
develop business relationships in these regions.

         IFS, Inc. is currently testing its Styro Solve solution for other
proprietary applications.




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         (2) DISTRIBUTION METHODS

         IFS, Inc. distributes its products and services in essentially three
manners: (1) in-house employee and independent contractor sales, (2) independent
distributors and (3) outside independent contractors.

         In-house sales are generated primarily from IFS, Inc.'s executive
offices located in Delray Beach, Florida, where the executive officers of IFS,
Inc. actively pursue business leads for IFS, Inc.'s products. IFS, Inc.
presently has one independent sales contractor (who is viewed as an "in-house"
independent sales contractor as he focuses solely upon IFS, Inc.'s products and
services), located in the Chicago, Illinois area, who is primarily responsible
for securing customers in the area. IFS, Inc.'s officers are currently paid
salaries, but no bonuses or commissions on their sales of IFS, Inc.'s products.
The "in-house" independent sales contractor is paid commissions only.

         Currently, IFS, Inc. has two domestic distributors, one in the Anaheim,
California area and one in Houston, Texas. Distributors execute agreements with
IFS, Inc. for the area in which they desire to market IFS, Inc.'s products.
These distributorship agreements currently provide for sales to distributors at
wholesale prices. Distributors are essentially resellers, who purchase products
from IFS, Inc. and resell the products to their customers at a mark-up from the
price charged by IFS, Inc. to the distributors. Some agreements grant
distributors partial exclusive territorial rights for certain types of
businesses (e.g. California public schools). The distributorship agreements
further provide, in some instances, that distributors have options to distribute
IFS, Inc.'s products on a non-exclusive basis to other specified territories,
provided that the distributor meets certain sales conditions which may be
established by the distributorship agreement.

         On or about January 11, 1997, IFS, Inc. entered into an agreement with
Styro Japan Co., Ltd., a Japanese corporation ("StyroJapan"), whereby IFS, Inc.
sold StyroJapan an exclusive license to utilize and develop IFS, Inc.'s patented
process for recycling or reconverting polystyrenes in Japan. The license differs
from a distributorship agreement, as the former grants the use of the patented
recycling process, whereas the latter grants the right to sell IFS, Inc.'s
products, such as the Solution Machines and Styro Solve. Since 1997, there have
been no further licensing agreements.

         Outside representatives are paid commissions on sales. There are
currently 8 Company representatives servicing four states, North Carolina, South
Carolina, Florida and Illinois. Representatives generally execute an independent
representative agreement, pursuant to which, among other things, a commission is
payable based on sales by the representative. These agreements generally provide
that IFS, Inc. will provide the sales representative with leads and training,
and that the representative shall not compete with IFS, Inc.

         Depending upon the availability of additional funding, which may be
derived from operations as well from additional funding efforts, neither of






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which are assured, IFS, Inc. intends to retain, during approximately the next
twelve months, up to approximately four additional in-house sales
representatives, as well as to secure additional distributors and outside sales
representative relationships in other parts of the United States such as Texas,
Wisconsin, California, Washington, New York, and New Jersey.

         Due to limited capital resources, IFS, Inc. has not engaged in any
media-type advertising, although Company personnel have performed demonstration
of IFS, Inc.'s products and services before current and prospective customers,
as well as attended various industry trade shows. Depending on the availability
of additional funding, as discussed above, IFS, Inc. plans to engage in
advertising for its products and services utilizing infomercials, the internet,
radio and co-operative advertising with other companies including restaurants,
environmental groups and foam product manufacturers, as well as continue to
attend and present its products and services at industry trade shows. Emphasis
will be placed on education concerning the importance of recycling and
protecting the environment as well as promoting IFS, Inc.'s Styro Solve System
as the preferred safe and effective means of disposing of polystyrene waste.

         (3) STATUS OF PUBLICLY ANNOUNCED NEW PRODUCTS OR SERVICES

         IFS, Inc. has no new publicly announced products or services.

         (4) COMPETITIVE BUSINESS CONDITIONS

         At present, to IFS, Inc.'s knowledge, IFS, Inc.'s Styro Solve System is
the world's only environmentally safe and economically practical means of
recycling polystyrene products and materials. IFS, Inc. potentially faces
competition from two primary fronts: competing companies (technologies) and
substitute products. Currently, IFS, Inc. does not believe that it faces
significant competition from other companies. No assurances can be given,
however, that IFS, Inc. will not face competition from new entrants into the
industry, having substantially greater financial and other resources than IFS,
Inc., in view of the substantial use of polystyrene products in the U.S. economy
and world-wide, and in IFS, Inc.'s view, the perceived need for disposing of and
recycling such products.

         Three competing companies have participated or currently participate in
the polystyrene recycling market: National Polystyrene Recycling Company
("NPRC"), Dart Container Corporation ("Dart") and Resource Recovery Technology
("RRT"). One additional potential competitor, Styro Melt, was due to release
their line of recycling equipment, but has yet to do so.

         Until recently, IFS, Inc. considered its largest competitor to be NPRC,
which was originally formed as a joint venture between several major chemical
and petroleum companies. NPRC recently discontinued operations as a result of,
to IFS, Inc.'s knowledge, and among other factors, customer dissatisfaction in
having to wash and repack polystyrene materials prior to shipment to recycling
centers, utilization of valuable warehouse space to store original shipping
containers, incurring of labor costs to clean and package polystyrene materials
and incurring a fifteen cent per pound fee to recycle such materials.





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         Dart, based in Wisconsin, currently offers a compacting machine only to
the food service industry which compacts only Dart polystyrene products and
requires the compacted polystyrene to be returned to Dart for recycling when
full, with the required shipping charge. Additionally, Dart relied on NPRC for
its recycling needs.

         RRT based in Lakeland, Florida, utilizes a system similar in nature to
the Styro Solve System. RRT provides its customers with a large, six-foot
stainless steel container with a solvent that resides at the base of the
container. As polystyrene material is discarded into the bin, the solution melts
the foam into a fluid which is later removed. However, the polystyrene material
is not shredded to maximize use of the solution, which is itself a chlorine
based chemical which is potentially hazardous with environmental risks. Their
system is also quite expensive to operate. Upon information and belief, RRT
charges a five thousand dollar fee to have a container placed in a customer's
premises and one hundred forty dollars to periodically remove the gel fluid from
the machine. Each one hundred forty dollar charge will process approximately 100
pounds of polystyrene, amounting to one dollar forty cents per pound, which is
substantially higher than the cost per pound using IFS, Inc.'s Stryo Solve
System. Since direct access must be provided to RRT's containers in order to
pump out the waste, geographical limits are placed on the location of the
polystyrene container. Further, limits on the placement of the container may
also be imposed by requirements of the Environmental Protection Agency ("EPA")
due to the caustic nature of the solution.

         The second competitive challenge to IFS, Inc. is that of substitute
products; such products are primarily found in the food service industry where
three general categories of products compete. They include: disposable paper
products, disposable polystyrene foam products and non-disposable china products
(made from various materials).

         Two concerns in the decision to use polystyrene foam products are the
environmental concerns and the related public relations impact, and the economic
concerns of the traditional waste management options. Due to public relations
and other concerns, certain large corporations, such as McDonalds, have switched
from utilizing polystyrene to paper based containers. Concerning waste
management, foam products consume a tremendous amount of space for their weight.
Very large dumpsters and frequent emptying, both of which are expensive, are to
be expected in any operation for which polystyrene foam is a waste product.

         Paper products generally cost more than polystyrene equivalents. The
U.S. Food and Drug Administration mandates that all paper-based food service
ware be made from virgin materials. The production of paper materials requires
more energy, creates three times more pollution and costs significantly more
than analogous polystyrene products. Foam products are more sanitary, prevent
growth and spread of bacteria, more sturdy, more thermally efficient and can be
recycled instead of adding to landfills.





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         As to china and tableware, in addition to the high purchase price,
which will vary depending upon material and quality, non-disposable china and
tableware incur greater labor and clean up costs, including expensive
dish-washing equipment, detergents, water, electricity, labor, replacement of
broken pieces, inspection of sewage lines and inspection by local health
departments.

         In view of the foregoing, IFS, Inc. believes that polystyrene foam
products are economically superior to substitute products and that with the
development of the Styro Solve System, cafeterias and restaurants may have
little reason to avoid making use of these products.

         Based upon 1998 production figures published by the Plastic News
Magazine, the total polystyrene market aggregates approximately $8 to $10
billion in sales each year. The overall market for polystyrene recycling
continues to remain underdeveloped and under-marketed due to lack of awareness
of market opportunity and the current availability of technology to address
polystyrene environmental concerns. In many cases, companies and institutions
are unaware of the option or possibility of polystyrene foam recycling. Of the
few participants in this market, none are, in IFS, Inc.'s opinion, adequately
marketing the advantages of their products or the importance of recycling.

         (5) SOURCES AND AVAILABILITY OF RAW MATERIALS AND NAMES OF PRINCIPAL
SUPPLIERS. The specific chemical identities, other than the terpenes, comprising
IFS, Inc.'s Styro Solve solution, are considered by IFS, Inc. to be proprietary
trade secrets. The ingredients comprising IFS, Inc.'s Styro Solve solution are
readily available from a number of suppliers, including Chem Central, Inc.,
Florida Chemical, Inc., BASF, Inc., DuPont, Inc. IFS, Inc. utilizes two outside
manufacturers to manufacture its four models of Solution Machines and has found
both manufacturers to be timely and responsive to IFS, Inc.'s need for the
Solution Machines.

         (6) DEPENDENCE ON MAJOR CUSTOMERS. During 1999, three customers
accounted for 48% of the Company's sales. Substantially all of the Company's
1998 sales were made to two customers. Sales to customers constituting 10% or
more are as follows:

<TABLE>
<CAPTION>
     Customer                      Year Ended December 31,
------------------                 -----------------------
                                    1999             1998
                                   ------           ------
<S>                                <C>              <C>
Arco Alaska                          21%              40%
Spa Steel Products                   --               38%
Dippy Foods                          17%              --
Waste Management                     10%              --
</TABLE>

         (7) INTELLECTUAL PROPERTY. IFS, Inc. owns a U.S. patent for the process
by which polystyrene is reduced to the Polygel. The patent is titled "Reduction
in Polystyrene with Activated Agent." Patent # 5223543 and expires in 2010. IFS,
Inc. has a patent pending for another process by which polystyrene may be
reduced to Polygel. This patent pending is titled "Reduction in Polystyrene
Foams with Dibastic Esters." IFS, Inc. is in the process of applying for patents
on its Solution Machine design and for trademarks for the Styro Solve Solution,
Polygel and the Solution Machine, within approximately the next two to three
months.

         (8) GOVERNMENTAL APPROVAL. At this point in time, there is no need for
government approval of IFS, Inc.'s principal products or services.





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         (9) GOVERNMENTAL APPROVAL, REGULATION AND ENVIRONMENTAL COMPLIANCE. The
Styro Solve solution utilized in the Styro Solve System is non-hazardous and
biodegradable and therefore not subject to state or federal regulations that
would otherwise apply to hazardous substances. IFS, Inc. is and otherwise will
be subject to local, state and federal laws, rules and regulations concerning
the operation of businesses generally. On July 1, 1999 the US Environmental
Protection Agency, Region4 (EPA), along with the Florida Department of
Environmental Protection, Southeast District (FDEP), conducted a Resource
Conservation and Recovery Act (RCRA) compliance evaluation inspection at
International Foam Solutions, Inc. located in Delray Beach, Florida, for the
purpose of determining its compliance with the Resources Conservation and
Recovery Act (RCRA). The letter received form the EPA and signed by Jeffery T.
Pallas, Chief, Southeast Enforcement and Compliance Branch, dated January 21,
2000 states "that no violations of RCRA were discovered." The report further
states that "IFS does not generate, treat, store or dispose of hazardous wastes.
 .....and no violations were discovered."

         (10) RESEARCH AND DEVELOPMENT. IFS, Inc., on its own initiative, as
well as with third parties, is engaged in limited research and development
concerning potentially new proprietary applications for the Styro Solve
solution.

         (11) EMPLOYEES. As of December, 1999, IFS, Inc. had four (4) full-time
employees. IFS, Inc. also engages sales representatives and independent
distributors. None of IFS, Inc.'s employees is represented by a labor union, and
IFS, Inc. considers its employee relations to be good. IFS, Inc. does not
anticipate the number of employees to grow significantly over the next twelve
months. IFS, Inc. believes that its future success will depend in part on its
continued ability to attract, hire and retain qualified personnel.

Item 2.  Description of Property.

         IFS, Inc.'s executive offices are located in, and substantially all of
its operating activities are conducted from, its leased office space located at
1885 Southwest 4th Avenue, Building B-3, Delray Beach, FL 33444. IFS, Inc.
believes that it will be able to obtain suitable space as needed at competitive
market rates and has the physical ability to acquire additional office space at
its current location. IFS, Inc. leases approximately 3,000 square feet of office
and warehouse space and does not own any real estate. IFS, Inc. is not in the
business of investing in real estate or real estate mortgages.

Item 3.  Legal Proceedings.

     The Company is involved in certain legal proceedings which are described
below:

(1)  Greenfield v. IFS, et al., case no. 98-005083 in the Palm Beach Circuit
     Court. Leo Greenfield is an alleged stockholder of IFS who sued IFS for,
     among other things, breach of fiduciary duty and related causes of action.
     He has also sought to appoint a receiver of the corporation. He claims that
     many IFS transactions were conflict of interest transactions, and seeks to
     void same. The matter is in the discovery phase of the litigation. No trial




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     dates have been set. IFS' counsel and Mr. Greenfield have reached a verbal
     agreement to fully resolve the matter, however, Mr. Greenfield has failed
     to execute the documents. This case will be vigorously defended by IFS.

(2)  Florida First Capital Finance Corporation v. IFS, et al., case no.
     C1099-371-35, Orange County Circuit Court. The plaintiff sued IFS for
     default of a promissory note. IFS is currently behind in its payments in
     excess of approximately $50,000. While IFS has certain defenses to the
     plaintiff's claim, IFS nonetheless owes the plaintiff a certain sum of
     money under the strict terms of the promissory note. IFS is making
     arrangements to become current with the plaintiff through anticipated funds
     from its current private placement offering. However, the Plaintiff seeks
     to accelerate the loan, against which $200,000 has been borrowed by IFS.
     The litigation is in the discovery phase. The Plaintiff has not actively
     pursued this matter since June 1999. IFS is considering a potential
     counter-claim for defamation against this Plaintiff which could have the
     effect of offsetting, to an uncertain degree, the amount allegedly owed to
     the Plaintiff.

(3)  Dichiara v. IFS, case number CL 98-9930 AH, in the Palm Beach County
     Circuit Court. Mr. Dichiara is a former employee who has sued IFS for,
     among other things, breach of an employment contract. Dichiara claims he is
     entitled to a severance pay in the amount of approximately $80,000 under
     the employment contract because he alleges he was terminated without cause.
     The Plaintiff, if successful, would be entitled to his attorney's fees
     under applicable law. However, IFS entered into a new contract with
     Dichiara which, in IFS' opinion acted as a novation of the former agreement
     with Dichiara, and as such Dichiara was not entitled to the severance under
     the former employment agreement. A trial is scheduled for sometime in
     November, 2000. This case will be vigorously defended by IFS.

(4)  Ecological Technologies, Inc. v. IFS, case number 98-003218 in the Palm
     Beach County Circuit Court. This case has been partially resolved. The only
     remaining issue is a claim IFS is doing business in Japan, where the
     plaintiff claims he has exclusive territorial rights. No trial date has
     been set and the parties will engage in discovery on this separate claim
     for damages. IFS has taken the position that this claim is frivolous and
     IFS will vigorously defend this lawsuit.

(5)  Robert Kauffman v. IFS, et al., case number 99012968, in the Broward County
     Circuit Court. The former CEO of IFS has sued IFS for, among other things,
     breach of an employment agreement, claiming damages in excess of $150,000.
     However, based on information provided by IFS to the undersigned, Kauffman
     materially breached the employment agreement and was subsequently
     terminated for cause. This case is in the discovery phase and IFS intends
     to vigorously defend this matter.

(6)  IFS received a letter from WRC, Inc., who claims that it is owed eleven
     thousand one hundred sixty six dollars and seventy nine cents ($11,166.79)
     as a deficiency balance from a sale of cleaning equipment resulting from an
     alleged default under the lease. IFS denies that any sum is owed. No
     litigation has been filed and it has been over six months since the demand
     letter was written by WRC

(7)  Keefer v. International Foam Solutions, Inc., case no. 98-006525, Palm
     Beach County, Florida, Circuit Court. Mr. Keefer is a former employee who
     has sued the Company for alleged breach of an employment contract. Mr.




                                       12
<PAGE>   13


     Keefer claims he is entitled to a severance pay in the amount of
     approximately $56,000 under an employment contract because he alleges he
     was terminated without cause. However, it is the Company's position that
     Mr. Keefer walked off the job and effectively quit, and accordingly, is not
     entitled to any severance under the employment agreement. In February 2000,
     the Company settled this matter. The settlement requires that the Company
     issue restricted stock to the Plaintiff and make certain payments over the
     course of less than one year. The exact terms of the settlement are
     confidential by agreement of the parties.

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

         No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the security holders, through the
solicitation of proxies or otherwise.

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

Market Information

         IFS, Inc.'s Common Stock currently trades on the "Pink Sheets." Prior
to December 15, 1999, IFS, Inc.'s common stock was traded on the
Over-The-Counter Bulletin Board (OTC:BB) under the trading symbol "IFOS". IFS,
Inc.'s Common Stock was listed for trading on the OTC:BB on September 17, 1998,
at which time there was a trading market for such shares. Since such time there
has been a limited trading market for IFS, Inc.'s Common Stock. OTC Quotations
presented reflect inter-dealer prices with related retail mark-up or commission
and may not represent actual transactions. Effective November 15, 1999, IFS,
Inc. was no longer in compliance with the National Association of Securities
Dealers, Inc. (NASD(R)) filing requirements. Accordingly, the letter "E" was
appended to the trading symbol. IFS recently cleared comments at the SEC in
connection with its Form 10-SB, however, it cannot be re-listed on the OTC:BB
until such time as it is current in all of its filings. Once the NASD receives
notification that IFS, Inc. has fully complied with the filing requirements IFS,
Inc. intends to take the necessary actions to become relisted on the OTC:BB.

         The following table sets forth the average closing prices for the
Common Stock for each calendar quarter and subsequent interim period since the
Common Stock commenced actual trading, as reported by the National Quotation
Bureau, and represent the average closing price at the end of the business day:



                                       13
<PAGE>   14


Fiscal 1999                                 Closing Price
-----------                                 -------------

First Quarter                                  $.15

Second Quarter                                 $.25

Third Quarter                                  $.25

Fourth Quarter                                 $.065

Fiscal 1998                                 Closing Price
-----------                                 -------------

Third Quarter                                  $.75

Fourth Quarter                                 $.29

         There can be no assurance that an active public market for the Common
Stock will develop or be sustained. In addition, the shares of Common Stock are
subject to various governmental or regulatory body rules which affect the
liquidity of the shares.

         On December 31, 1999, there were 185 registered holders on record of
the common stock of the Company. On May 25, 2000 there were 181 registered
holders on record of the common stock of the Company.

         The Company has not paid any dividends on its common stock at any time.
Section 607.06401 of Florida Statutes prohibits the payment of dividends by any
corporation which, after taking into account such dividend, would not be able to
pay its debts as they become due or which would result in such corporation's
total assets being less than its total liabilities. This provision may prohibit
the Company from paying dividends unless the Company obtain significant new
capital. In addition, the Company's ability to pay cash dividend on its common
stock is limited due to covenants contained in its loan documents. The Company's
management does not anticipate paying any dividends for the foreseeable future.



                                       14
<PAGE>   15



Item 6.  Management's Discussion and Analysis or Plan of Operation.

         This Form 10-KSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
financial condition, results of operations and business of IFS, Inc., which
could cause actual results to differ materially from those anticipated. The
words "believe," "expect," "intend," "anticipate," "estimate," "plan" and
similar expressions identify certain of such forward looking statements, which
speak only as of the date of which they were made. All statements herein other
than those consisting solely of historical facts, that address activities,
events or development that IFS, Inc. expects or anticipates will or may occur in
the future, including such things as business strategy, measures to implement
strategy, competitive strengths, goals, projected revenues, costs and other
financial results. References to future success and other events may be
forward-looking statements.

(a) Financial Condition, Changes in Financial Condition and Results of
    Operations.



                                       15
<PAGE>   16

DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998

REVENUES

         Revenues for 1999 increased by approximately $24,000 (or 51%) over 1998
which in absolute dollars is not a significant increase over the prior year.
The Company believes the sales increase is partially attributable to the
increased sales activity by management.

COST OF SALES

         Cost of sales for the year 1999 increased by approximately $19,000 (or
54%) from 1998. The increase was directly attributable to the increase in sales.
For the same period, the gross profit margin decreased by 2% which resulted
mainly from an increase in freight-in expense.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative for the 1999 year increased by
approximately $441,000 (or 90%) from 1998. The increase was primarily
attributable to $82,000 of compensation expense from the granting of certain
stock options in 1999, increases in officer compensation of $97,000, increase in
research and development ($51,000), travel and marketing ($39,000), insurance
($20,000) and professional fees ($62,000).

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization decreased by $11,000. The decrease was
attributable to the fact that in 1998 the Company depreciated in full certain
assets.


OTHER INCOME (EXPENSE)

         Interest expense increased by $8,000 (or 27%). This increase is
attributable to increased outstanding debt during 1999 as compared to 1998,
combined with higher average interest rates.

PROVISION FOR INCOME TAXES

         No provision for current income taxes was required in either 1999 or
1998 due to the loss reported for such years (see Note 4 to the financial
statements). Further, given the uncertainties as to realization, the Company's
deferred tax assets have been fully reserved.





                                       16
<PAGE>   17


LIQUIDITY AND CAPITAL RESOURCES:

         During 1999, IFS, Inc.'s sources of cash, primarily from financing
activities included proceeds from the sale of common stock and the exercise of
options aggregating $714,170. In an effort to raise working capital and to fund
its operations, the Company offered restricted common shares to certain
accredited investors. During 1999, IFS, Inc. raised approximately $669,000 for
the sale of 4,142,000 shares to private investors.

         Operating activities used cash primarily due to IFS, Inc.'s continued
inability to achieve a profitable level of operations. The increase in cash used
in operating activities from $(166,421) in 1998 to $(574,537)in 1999, was
principally attributed to an increase in the net loss of $429,144.

         The material terms of the shareholder and bank loans as of December
31, 1999 consist of: (i) Equipment notes to Florida First Capital Finance Corp.
of $177,800 payable in monthly installments of $3,030 including principal and
interest at a fixed rate of 6.5%, maturing July 1, 2004, collateralized by
equipment. IFS, Inc. is in default under the terms of this loan and in violation
of certain convenants, (ii) Shareholder loans from Harvey Katz and Claudia
Iovino (also officers of the Company) of $67,746 payable in monthly principal
installments of $5,000 and interest computed at prime rate (due on March 1,
2001), (iii) Equipment loans from CMC, Inc. of $87,917 payable in monthly
installments of $3,555 including principal and interest, maturing in June 2003,
(iv) Shareholder loan from Harvey Katz and Claudia Iovino of $30,898 principal
and interest due 90 days after date of note, which is past due and accrue
interest at a 10% annual fixed rate, and (v) Related party loan from HKI, Inc.
of $20,000 principal and interest due 90 days after date of note, which is past
due and accrues interest at a 10% annual fixed rate.

         IFS, Inc. is a guarantor for a shareholder's loan to the Israel
Discount Bank, Ltd. During 1999, both the shareholder and IFS, Inc. (as
guarantor) were in default. In this connection, IFS, Inc. and its shareholders
entered in a forbearance agreement with the bank on June 19, 1999. Among other
things, the forbearance agreement provides for the collateralization of all of
IFS, Inc.'s assets and a rescheduling of the amounts due.

         IFS, Inc.'s financial statements are prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. During the latter part of 1997 and 1998 the
Company experienced protracted litigation which diverted management's efforts
from its core business, and effectively curtailed the Company's marketing
programs. During 1999 certain aspects of the previously mentioned litigation
were resolved and the Company was able to refocus and continue its marketing






                                       17
<PAGE>   18


efforts. IFS, Inc. has been in settlement negotiations to reduce the quantity of
outstanding litigation and the threat of any potentially adverse findings.
Management believes that resolving many of these matters through settlements
will enable it to focus much more of its attention on sales and to spend more of
its time on sales activities. Management believes that with the increased time
spent on marketing efforts, increased sales will result. Since it envisions
primarily an increase of time spent by management in marketing and sales
activities, as opposed to increased costs for, among other things, advertising,
the Company does not foresee the need for substantial, additional capital to
perform such increased marketing and sales activities. In the event that
substantial, additional capital is required, however, the Company would be
required to seek outside funding mechanisms, of which no assurances are given
that any funding would be made available to the Company or if made available, on
terms satisfactory to the Company.

         IFS, Inc. is currently a party to several lawsuits, which are in
various stages of litigation. Any material adverse decision against IFS, Inc. in
any of such lawsuits will, in all likelihood, have a material adverse effect
upon IFS, Inc. and its operations. See "PART II- ITEM 2. LEGAL PROCEEDINGS."

         By the end of 1999, IFS was informed that RFPs (Request For Proposal)
were being prepared for submission to IFS. RFPs are essentially request for bids
for the polystyrene recycling needs of the potential customer. RFPs are normally
submitted after on site testing. They are required for new, specific items and
are required by larger local, county and state agencies. RFPs are ordinarily
submitted for large purchases and for these purchases to occur over a period of
3-5 years.

         The types of potential clients that have submitted RFPs to IFS during
2000 include multiple school districts and large corporations with in-house
cafeterias. Most of these potential customers are either currently testing the
Styro Solve System or are scheduled to begin testing the Styro Solve System
within the next sixty days. School districts, unlike commercial businesses, may
have three different budget periods with different year ends (June 30, September
30 and December 31). The Styro Solve System is being considered for three school
districts' June 30 budget and if approved, IFS would begin shipment of products
in the third and fourth quarters of this year.

         During 2000, IFS has provided live demonstrations to approximately 25
potential customers and has received further interest, some of whom have
informed IFS that they are requesting funds for the Styro Solve System in their
budgets. Although no assurances can be given that any such potential customers
will in fact order IFS products, some of these potential customers have already
utilized, seen or tested the Styro Solve System and determined that they desire
IFS' products. Currently these potential customers have not submitted orders for
IFS products.

         Unlike the Internet, the market for IFS is not relatively new and
rapidly evolving. The market is established and there is long standing need for
reductions in waste disposal costs. New legislation in various parts of the
country have been enacted to reduce waste disposal by a 50% volume in landfills,
which management believes makes the Styro Solve System even more viable. IFS
believes that the Styro Solve System is the only economical, closed loop,
polystyrene recycling process available in the world today.





                                       18
<PAGE>   19


         In accordance with the Company's business plan, if IFS is able to
obtain additional funding, of which no assurances are given, IFS intends to
expand its operations and employee base, including sales, marketing, technical,
operational and customer support resources. IFS also intends to further develop
new and existing strategic relationships to expand its distribution channels,
such as with Dippy Foods in California.

         IFS, Inc. anticipates, based on current plans and assumptions relating
to revenues from operations, that revenues from operations and additional third
party funding or investment, if available, will be sufficient to satisfy the
Company's estimated cash requirements to continue its operations for the
foreseeable future. IFS, Inc. has no firm current arrangements with respect to,
or sources of, additional financing. There can be no assurance that any such
additional financing will be available to the Company, and if available, will
enable the Company to attain profitable operations or continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effect on the recoverability and classification of assets or the
amount of classification of liabilities that may result from the possible
inability of IFS, Inc. to continue as a going concern. Through December 31,
1999, the Company has incurred losses totaling $(6,178,421). Negative working
capital aggregated $(478,419) at December 31, 1999. In addition, the Company is
in violation of certain of its loan covenants.

         Going Concern Opinion. The Company's independent public accountants
have added an explanatory paragraph to their audit opinion issued in connection
with the 1999 and 1998 financial statements which states that the Company's
dependence on outside financing, working capital deficits, violation of certain
loan covenants and losses since inception, raise substantial doubt about the
Company's ability to continue as a going concern.

To the extent that IFS, Inc. is able to obtain financing of at least
approximately $2,000,000, IFS, Inc. intends to utilize such funds primarily for
sales and marketing activities as well as for reduction of outstanding long and
short term debt obligations and for the construction of a recycling facility.
Management anticipates that such funds, if obtained, of which no assurances are
given, together with cash flow from operations, will be sufficient to finance
IFS, Inc.'s working capital requirements for approximately the next twelve
months. To the extent IFS, Inc. is unable to secure such approximate amount of
financing, IFS, Inc. plans to utilize any funds received for the same purposes
and in the same order of priority on an approximate pro-rata basis, subject to
the discretion of management to reallocate the usage of such funds. To the
extent IFS, Inc. is only able to secure minimal financing, its level of
operations will be materially and adversely effected.

         IFS, Inc. has no material commitments for capital expenditures.
Solution Machines are purchased by IFS, Inc. on an "as needed" basis based upon
orders received from IFS, Inc.'s customers.

         Other than IFS, Inc.'s school customers, there are no seasonal aspects
that have had a material effect on IFS, Inc.'s financial condition or results of
operation.




                                       19
<PAGE>   20




         From time to time IFS, Inc. may evaluate potential acquisitions
involving complementary businesses, products or technologies. IFS, Inc. has no
present agreements or understanding with respect to any such acquisition. IFS,
Inc.'s future capital requirements will depend on many factors, including entry
into strategic alliances, increases in advertising, marketing and promotions,
growth of IFS, Inc.'s customer base, general economic conditions and other
factors including the results of future operations. IFS, Inc. currently has four
full time employees. Management does not currently expect that it will be
required to hire a significant number of additional employees in the next 12
months or until the larger RFP are received.

         During the 12 month period following the filing of this Form10KS-B,
IFS, Inc. intends to seek and obtain additional debt and/or equity financing to
further develop its business operations, principally sales and marketing. No
assurances are given that IFS, Inc. will be able to successfully obtain
sufficient debt and/or equity financing on terms acceptable to IFS, Inc. There
are no current commitments for financing IFS, Inc.'s operations. IFS, Inc.'s
inability, for whatever reason, to secure additional financing on terms
acceptable to IFS, Inc. will have a material adverse effect on IFS, Inc. and its
operations.

         IMPACT OF INFLATION

         To the extent permitted by competition, IFS, Inc. passes increased
costs attributable to inflation to its customers by increased sales prices over
a reasonable period of time. Also it is IFS, Inc.'s policy to place all of its
major supplier purchases out to bid.

         NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
The statement applies to all entities and is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. IFS, Inc. did not engage in
derivative instruments or hedging activities in any periods presented in the
financial statements and management does not expect this statement to have a
material impact on IFS, Inc.'s financial position, results of operation, or cash
flows.

Item 7.  Financial Statements.

         The financial statements and notes thereto are included herein
beginning at page F-1.







                                       20
<PAGE>   21


Item 8. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosures.

None

PART III.

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section (16) of the Exchange Act.

(a) Directors and Executive Officers

         As of December 31, 1999, the directors and executive officers of IFS,
Inc., their ages, positions in IFS, Inc., the dates of their initial election or
appointment as director or executive officer, and the expiration of the terms as
directors are as follows:
<TABLE>
<CAPTION>

Name                      Age        Position Officer                          Period Served as Director
----                      ---        ----------------                          -------------------------
<S>                        <C>       <C>                                        <C>
Harvey Katz                52        Chief Executive Officer/Director           1993 to present
Claudia Iovino             61        President/Director                         1993 to present
Antonio Bianco             50        Chief Operating Officer                    April 1999 to present
Diane Lucien               44        Director                                   Feb 1999 to present
</TABLE>


(b) Business Experience

         HARVEY KATZ - CHIEF EXECUTIVE OFFICER. In addition to his duties at
IFS, Inc. which commenced in 1993, Mr. Katz is a consultant to HKI, Inc., an
entity in which he is an investor, for which Mr. Katz previously served as
President from 1982 to 1998 (See also Item 7 below). As President of HKI, Inc.,
Mr. Katz developed that company's marketing plans for its NU Silver, Brass Plus,
and Dumpster Fresh products. Mr. Katz was formerly a Trust Accountant at
Continental Illinois National Bank, Assistant District Accountant at Berman
Truck Leasing, and President of both HKC Enterprises and HK Measure Service.

         Mr. Katz was educated at Loop City College, Loyola University, and the
University of Chicago, all in Chicago, Illinois. He has had articles published
by the University of Florida Department of Plastics Information regarding the
Styro Solve method of Polystyrene reduction. Mr. Katz served in the US Army
National Guard, where he was activated for the Vietnam War and ultimately
received an Honorable Discharge. Mr. Katz is Co-Chairman of the Broward County
Recycling Committee (for commercial purposes).

         CLAUDIA IOVINO - PRESIDENT AND DIRECTOR. Ms. Iovino has been employed
by and has served as a director of IFS, Inc. since 1993 and currently serves as
the President of IFS, Inc. From 1982 until this year, Ms. Iovino was the CEO of
HKI, Inc., an entity in which she holds a controlling interest. Ms. Iovino has
experience in many aspects of operating a growing company involved in the









                                       21
<PAGE>   22


development, manufacturing and marketing of chemical products and has experience
in the day-to-day operation of a small chemical plant, including sales
coordination.

         ANTONIO BIANCO - CHIEF OPERATING OFFICER. Prior to joining IFS, Inc. in
April 1999, Mr. Bianco was self employed as a management consultant from 1997 to
March 1999 and was Vice President/General Manager from 1993-1997 and Vice
President/Operations and Finance from 1989-1992 of Cool Care, Inc., a Deerfield
Beach, Florida based subsidiary of Dole Food Co., where he dealt with the design
and manufacture of equipment and refrigerated facilities for major retail and
wholesale food distributors internationally. Mr. Bianco is fluent in both French
and Italian.

         DIANNE LUCIEN - DIRECTOR. Ms. Lucien has owned and operated her own
consulting firm for the past ten years which specializes in accounting software
and management consulting. She received her B.S. degree in accounting from
Arizona State University. Prior to her consulting business, she was employed by
Deloitte, Haskins and Sells (now Deloitte Touche) in Arizona, New York and
Florida, in the audit and emerging business consulting department. Her practice
specializes in the manufacturing, job shop, distribution and service industries.

IFS, Inc.'s directors are elected at the annual meeting of stockholders and hold
office until their successors are elected and qualified. IFS, Inc.'s officers
are appointed by the Board of Directors and serve at the pleasure of the Board
and subject to employment agreements, if any, approved and ratified by the
Board.

(c) Directors of Other Reporting Companies

         None of IFS, Inc.'s executive officers or directors is a director of
any company that files reports with the Securities and Exchange Commission.

(d) Significant Employees - Not applicable.

(e) Family Relationships

         There are no family relationships between the director, executive
officers or any other person who may be selected as a director or executive
officer of IFS, Inc.

(f) Involvement in Certain Legal Proceedings

         None of the officers, directors, promoters or control persons of IFS,
Inc. have been involved in the past five (5) years in any of the following: (1)
Any bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time; (2) Any conviction in criminal
proceedings or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) Being subject to any order, judgment
or decree, not subsequently reversed, suspended or vacated, or any Court of





                                       22
<PAGE>   23




competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or (4) Being found by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities laws or
commodities law, and the judgment has not been reversed, suspended, or vacated.

(g) Compliance with Section 16(a) of the Exchange Act.

         Each of the officers and directors have recently filed their Form 3,
subsequent to the effective date of the registration statement. Forms 4 and 5
were not required for any of the directors or officers and no other reports,
other than this Form 10-KSB and as set forth herein, were filed on an untimely
basis.

Item 10.  Executive Compensation.

The following table sets forth certain summary information concerning aggregate
compensation paid to IFS, Inc.'s chief executive officers. No other officer
received compensation of $100,000 or more during the periods presented.
<TABLE>
<CAPTION>

                                                                Other                  Securities
                                                               Annual    Restricted    Underlying               All Other
Name and                                                      Compen-         Stock      Options/       LTIP      Compen-
Principal Position              Year      Salary      Bonus    sation        Awards          SARs    Payouts       sation
-------------------------- ---------- ----------- ---------- ---------   ----------- ------------- ---------- ------------
<S>                             <C>      <C>        <C>       <C>          <C>           <C>          <C>       <C>
Harvey Katz                     1999     $54,808    $19,500   $27,792(2)    N/A          N/A          N/A         N/A
Chief Officer                   1998      $2,884      N/A     $77,116(2)    N/A          N/A          N/A         N/A
                                1997    $120,750      N/A       N/A         N/A          N/A          N/A       $6,360(1)

                                          N/A         N/A       N/A         N/A
</TABLE>
--------------
(1)   Represents auto allowance.
(2)   Represents stock received in lieu of cash.




                                       23
<PAGE>   24
         Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
                               Option/SAR Values



<TABLE>
<CAPTION>



                                                                      Number of
                                                                     Securities                      Value of
                                                                     Underlying                     Unexercised
                                                                    Unexercised                   In-the-Money
              Shares Acquired                                      Options/SARs at               Options/SARs at
              on Exercise (#)           Value Realized($)             FY-End(#)                     FY-End ($)
         ----------------------------------------------------------------------------------------------------------
                                                            Exercisable/Unexercisable     Exercisable/Unexercisable
                                                            ----------- -------------     ----------- -------------

<S>                <C>                        <C>             <C>            <C>               <C>         <C>
Harvey Katz        None                       None            181,360        --               $ 0         $ --

</TABLE>

         On or about October 1, 1996, IFS, Inc. entered into an employment
agreement with Harvey Katz. Pursuant to this agreement, Mr. Katz was retained as
IFS, Inc.'s chief executive officer at an annual salary of $150,000, subject to
increases as provided therein, plus reimbursement for expenses, including, but
not limited to, automobile expenses. The agreement was amended in September 1998
to provide for Mr. Katz's salary to be $80,000.00 per year. On November 1, 1999,
the annual salary was increased to $95,500. The agreement further provides that
if Mr. Katz is terminated without cause as defined in the agreement, he will be
entitled to a severance payment equal to thirty six months of employment.

         On or about October 1, 1996, IFS, Inc. executed an employment agreement
with Claudia Iovino. Pursuant to this agreement, Ms. Iovino was retained as the
president of IFS, Inc. at an annual salary of $120,000, subject to increases as
provided therein, plus reimbursement for expenses, including, but not limited
to, automobile expenses. The agreement was amended in September 1998 to provide
for Ms. Iovino to serve as president of IFS, Inc. at an annual salary of $80,000
per year. The agreement further provides that if Ms. Iovino is terminated
without cause as defined in the agreement, she will be entitled to a severance
payment equal to thirty six months of employment.

         On or about October 1, 1996, IFS, Inc. entered into an employment
agreement with Anthony Dichiara. Pursuant to this agreement, Mr. Dichiara was
retained as IFS, Inc.'s treasurer at an annual salary, subject to increases as
provided therein, of $80,000. Mr. Dichiara later agreed to accepted a position
with the company as its controller. Mr. Dichiara has sued IFS, Inc. alleging
that he is due a severance pay based on the agreement retaining him as the
treasurer. It is IFS, Inc.'s position that the agreement retaining Mr. Dichiara
was mutually terminated and no further obligations were due under the agreement
retaining him as treasurer.

         On or about April 5, 1999, IFS, Inc. executed an employment agreement
with Antonio Bianco. Pursuant to this agreement, Mr. Bianco was retained as IFS,







                                       24
<PAGE>   25


Inc.'s chief operating officer at an annual salary of $50,000, subject to
increases as provided therein. On November 1, 1999, the annual salary was
increased to $75,000. The agreement also provides for Mr. Bianco to exercise
options to purchase IFS, Inc.'s common stock at a price of between $.10 and
$1.00 over a period of five years. The agreement further provides that if Mr.
Bianco is terminated without cause as defined in the agreement, Mr. Bianco will
be entitled to a severance payment equal to twelve months of employment.

         There is no standard or any other arrangements, pursuant to which any
director of the registrant was compensated for any services provided as a
director. Accordingly, no director was compensated for services provided as a
director for the periods presented.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

         The following table sets forth certain information as of about each
person who is known to IFS, Inc. to be the beneficial owner of more than 5% of
IFS, Inc.'s Common Stock:

         Security Ownership of Management:
<TABLE>
<CAPTION>

                      Name and Address                     Amount and Nature
Title of Class        Of Beneficial Owner                 of Beneficial Owner               Percent of Class
--------------        -------------------                 -------------------               ----------------

<S>                     <C>                                     <C>                              <C>
Common                  Harvey Katz,                            3,945,791(1)                     21%
                        Chief Executive Officer/
                        Director
                        50 East Rd. #7E
                        Delray Beach, FL

Common                  Antonio Bianco                            925,000(4)                      5%
                        Chief Operating Officer
                        5801 N.W. 74th Terr.
                        Parkland, FL

Common                  Claudia Iovino                          3,028,117(2)                     16%
                        President/Director
                        6364 Amberwoods Dr.
                        Boca Raton, FL

Common                  Diane Lucien, Director                     25,000(3)                   less than 1%
                        22732 S.W. 10th St.
                        Boca Raton, FL  33433

All directors and executive
officers as a group
(4 persons)                                                     8,413,435(5)                     45%

</TABLE>
---------------
(*)  All percentages are calculated based upon 18,339,252 shares issued and
     outstanding as of the date of filing this Form 10-KSB plus warrants and
     options exercisable within 60 days.

(1)  Includes warrants to purchase 181,360 shares of common stock; See Item
     10, "Executive Compensation."
(2)  Includes warrants to purchase 158,167 shares of common stock. See Item 10,
     "Executive Compensation" plus 647,500 shares of common stock jointly owned
     with husband plus 419,520 shares of common stock owned by a Company that
     Mrs. Iovino has a controlling interest.
(3)  Includes warrants to purchase 25,000 shares of common stock.
(4)  Includes options to purchase 150,000 shares of common stock; See Item 10,
     "Executive Compensation."
(5)  Includes warrants to purchase 339,527 shares of Common Stock.

(c)  Changes in Control. There is no arrangement which may result in a change of
     control.




                                       25
<PAGE>   26
Item 12.  Certain Relationships and Related Transactions.

         During the past two (2) years, IFS, Inc. has not entered into a
transaction with a value in excess of $60,000 with a director, officer or
beneficial owner of 5% or more of IFS, Inc.'s Common Stock, except as disclosed
in the following paragraphs:

         On or about May 20, 1993, IFS, Inc. entered into a five year agreement
with HKI, Inc., whereby IFS, Inc. granted to HKI the exclusive manufacturing and
bottling rights for the Styro Solve Solution. The agreement provided that as
long as HKI, Inc. could timely provide IFS, Inc. with the Styro Solve Solution,
IFS would purchase the Styro Solve Solution from HKI, Inc. The agreement
provided for two renewal periods of five years each. Such amounts aggregated
$4,000 in 1998 and $0 in 1999. Neither company renewed the agreement when it
expired on or about May 20, 1998. HKI, Inc. is a Florida Corporation related to
IFS due to its common ownership by Claudia Iovino. Mrs. Iovino, a principal of
IFS, Inc. owns a controlling interest in HKI, Inc.

         On or about October 21, 1997, IFS, Inc. borrowed from its officers,
Mrs. Claudia Iovino and Mr. Harvey Katz, $134,700. This loan is payable in
monthly principal installments of $5,000 and interest computed at prime rate.
Amounts outstanding as of December 31, 1999 totaled $67,746.

         IFS, Inc. is a guarantor for the shareholder's loan to the bank. During
1999, both the shareholder and IFS, Inc. (as guarantor) were in default. In this
connection, IFS, Inc. and its shareholders entered into a forbearance agreement
with the bank on June 19, 1999. Among other things, the forbearance agreement
provides for the collateralization of all of IFS, Inc.'s assets and a
rescheduling of the amounts due.





                                       26
<PAGE>   27


         During the year ended December 31, 1997, IFS, Inc. issued 181,360
shares of common stock to Harvey Katz, in satisfaction of accrued compensation
of $272,040 that was recorded in 1996. IFS, Inc. also granted warrants to
purchase 181,360 shares of common stock at $2.50 per share expiring on May 31,
2001. Additionally, during 1999, 300,000 shares of common stock were issued to
him for compensation aggregating $80,000.

         Through December 31, 1999, IFS, Inc. has borrowed from Harvey Katz and
Claudia Iovino, the amount of $105,600 for working capital. The loans bear
interest at 10% and are payable over a 90 day period. All loans are past due.
Amounts outstanding at December 31, 1999 aggregated $30,898.

         During the year ended December 31, 1997, IFS, Inc. issued 158,167
shares of common stock to Claudia Iovino in satisfaction of accrued compensation
of $237,250 that was earned and recorded in 1996. IFS, Inc. also granted
warrants to purchase 158,167 shares of common stock at $2.50 per share expiring
on May 31, 2001. Additionally, during 1999, 300,000 shares of common stock were
issued to her for compensation aggregating $80,000. Refer to Item 4 for further
details.

         Between April 1, 1999 and July 31, 1999, IFS, Inc. issued Antonio
Bianco, an officer, options to purchase 1,150,000 shares of IFS, Inc.'s common
stock at prices ranging from $.10 to $1.00. The options vest from April 1999 to
April 2000 and have expiration dates ranging from July 1999 to April 2002. IFS,
Inc. valued these options using the Black-Scholes Method. 450,000 options were
exercised during 1999.

         On or about May 1, 1998, IFS, Inc. executed an employment agreement
with Robert Kauffman for Mr. Kauffman to serve as IFS, Inc.'s chief executive
officer for a period of five years. The terms of the agreement generally
provided for Mr. Kauffman to act as chief executive officer at a $150,000 per
year salary. IFS, Inc. contends that Mr. Kauffman never activated the contract
or assumed the position for which he had been contracted and had otherwise
materially and repeatedly breached the agreement.

         IFS, Inc. currently shares office space with HKI, Inc., which is
currently owned primarily by Claudia Iovino, IFS, Inc.'s president. IFS, Inc.
subleases space from HKI, Inc. at a rent of $12,000 per year, which includes
electricity. The companies maintain their own telephone lines and currently pay
their own office expenses.



                                       27
<PAGE>   28



Item 13.  Exhibits and Reports on Form 8-K

<TABLE>
<CAPTION>

      EXHIBIT NO.           DESCRIPTION                                       LOCATION
      ----------            -----------                                      ---------

      <S>                   <C>                                               <C>
      3.                    Articles of Incorporation and bylaws              Incorporated by reference to Exhibit
                                                                              99.1 and 99.2 in Registrant's 10-SB,
                                                                              as amended, originally filed with the
                                                                              SEC on November 23, 1999.

      4.                    Instruments defining the rights of
                            holders and indentures                            Incorporated by reference to Exhibit
                                                                              99.5 and 99.8 in Registrant's 10-SB,
                                                                              as amended, originally filed with the
                                                                              SEC on November 23, 1999.

      10.                   Material contracts                                Incorporated by reference to Exhibit
                                                                              99.3, 99.4 and 99.6 in Registrant's
                                                                              10-SB, as amended, originally filed
                                                                              with the SEC on November 23, 1999.

      27.                   Financial Data Schedule                           Provided herewith


</TABLE>
















                                       28
<PAGE>   29



                                   SIGNATURES


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


                                             International Foam Solutions, Inc.


Date: June 2, 2000                           By: /s/ Harvey Katz
                                                -------------------------------
                                                     Harvey Katz, CEO

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



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

/s/ Harvey Katz                                            June 2, 2000
------------------------------------------
CEO and Chairman of the Board of Directors


/s/ Claudia Iovino                                         June 2, 2000
------------------------------------------
President and Director


/s/ Dianne Lucien                                          June 2, 2000
------------------------------------------
Director






                                       29
<PAGE>   30

                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                                      CONTENTS
--------------------------------------------------------------------------------

                                                                        Page
                                                                        ----

Report of Independent Certified Public Accountants                      F-2

Balance Sheet at December 31, 1999                                      F-3

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

Statements of Stockholders' Equity (Deficit) for the years ended
         December 31, 1999 and 1998                                     F-5

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

Notes to Financial Statements                                           F-7




                                      F-1
<PAGE>   31



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
International Foam Solutions, Inc.

We have audited the accompanying balance sheet of International Foam Solutions,
Inc. as of December 31, 1999 and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1999 and
1998. 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 audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Foam Solutions,
Inc. at December 31, 1999 and the results of its operations and its cash flows
for the years ended December 31, 1999 and 1998 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has cumulative losses since its inception in 1993, has a
working capital deficit, is in violation of certain loan covenants, and is
dependent upon outside financing to expand its operations. These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Miami, Florida
May 12, 2000                                                  BDO Seidman, LLP



                                      F-2
<PAGE>   32


                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                                 BALANCE SHEET
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>

DECEMBER 31,                                                                      1999
------------                                                                      ----
<S>                                                                           <C>
ASSETS (NOTES 5 AND 7)
CURRENT
     Cash                                                                     $     9,661
     Accounts receivable, less allowance for doubtful accounts $37,000              9,354
     Inventories                                                                  343,791
     Prepaid expenses and other                                                    12,159
                                                                              -----------
Total current assets                                                              374,965
PROPERTY AND EQUIPMENT, net (Note 3)                                              182,408
PATENTS, less accumulated amortization of $95,661                                 138,610
DEPOSITS AND OTHER                                                                 18,831
                                                                              -----------
                                                                              $   714,814
                                                                              ===========

LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
     Current maturities of notes payable (Notes 5 and 6)                      $   303,255
     Accounts payable (Note 7)                                                    267,399
     Accrued payroll                                                              139,366
     Accrued legal settlements                                                     83,000
     Other accrued expenses                                                        60,364
                                                                              -----------
Total current liabilities                                                         853,384
                                                                              -----------
Notes payable, less current portion (Note 5)                                       81,106
                                                                              -----------
Total liabilities                                                                 934,490
                                                                              -----------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 6)

STOCKHOLDERS' DEFICIT (NOTE 8)
     Common stock, par value $.01, 20,000,000
         shares authorized, 16,103,697 shares issued
         and outstanding (Note 6)                                                 161,037
     Additional paid-in capital                                                 6,115,076
     Deficit                                                                   (6,178,421)
     Note receivable secured by 1,913,525 shares of common stock                 (317,210)
     Treasury stock, at cost (39,764 shares)                                         (158)
                                                                              -----------
Total stockholders' deficit                                                      (219,676)
                                                                              -----------
                                                                              $   714,814
                                                                              ===========

</TABLE>

                               See accompanying notes to financial statements.


                                      F-3
<PAGE>   33


                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                      STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


FOR THE YEARS ENDED DECEMBER 31,                                   1999             1998
--------------------------------                             ------------       --------------
<S>                                                           <C>                <C>
REVENUES:
     Product sales                                            $     71,562       $     47,543
     Cost of sales (exclusive of depreciation and
         amortization shown separately below) (Note 7)              54,385             35,168
                                                              ------------       ------------
Gross profit                                                        17,177             12,375
                                                              ------------       ------------
OPERATING EXPENSES:
     Selling, general and administrative (Notes 6 and 8)           930,814            489,112
     Depreciation and amortization                                  57,423             68,502
     Abandonment of leasehold improvements                              --              5,000
                                                              ------------       ------------
                                                                   988,237            562,614
                                                              ------------       ------------
LOSS FROM OPERATIONS                                              (971,060)          (550,239)
                                                              ------------       ------------
OTHER INCOME (EXPENSE):
     Interest income                                                    --                 32
     Interest expense                                              (39,050)           (30,759)
                                                              ------------       ------------
Total other income (expense)                                       (39,050)           (30,727)
                                                              ------------       ------------
NET LOSS (NOTE 4)                                             $ (1,010,110)      $   (580,966)
                                                              ------------       ------------
NET LOSS PER SHARE
     Basic and diluted                                        $       (.07)      $       (.07)

WEIGHTED AVERAGE NUMBER OF
     OUTSTANDING SHARES
         Basic and diluted                                      15,328,001          8,568,869
                                                              ============       ============


</TABLE>

                               See accompanying notes to financial statements.


                                      F-4
<PAGE>   34


                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                                                      (NOTE 8)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                             COMMON STOCK          ADDITIONAL
                                         ---------------------       PAID-IN                      NOTE
                                           SHARES      AMOUNT        CAPITAL       DEFICIT     RECEIVABLE
                                           ------      ------        -------       -------     ----------

<S>                                      <C>         <C>           <C>           <C>            <C>
Balance at December 31, 1997             8,416,053   $    84,161   $ 4,708,165   $(4,587,345)   $        --

Issuance of common stock in exchange
for compensation and professional
services                                   270,000         2,700        76,299            --             --

Issuance of common stock for cash          139,211         1,392        62,062            --             --

Note receivable secured by common
stock                                       25,000           250         9,750            --        (10,000)

Treasury stock acquired                         --            --            --            --             --

Net loss for year                               --            --            --      (580,966)            --
                                        ----------   -----------   -----------   -----------    -----------

Balance at December 31, 1998             8,850,264        88,503     4,856,276    (5,168,311)       (10,000)

Issuance of common stock for cash        4,142,066        41,421       627,749            --             --

Issuance of common stock in exchange
for professional services                  172,842         1,728        66,226            --             --

Exercise of options for cash               450,000         4,500        40,500            --             --

Note receivable secured by common
stock                                    1,888,525        18,885       288,325            --       (307,210)

Issuance of common stock in
satisfaction of officers' accrued
compensation                               600,000         6,000       154,000            --             --

Compensation charges in connection
with issuance of options                        --            --        82,000            --             --

Net loss for  year                              --            --            --    (1,010,110)            --
                                        ----------   -----------   -----------   -----------    -----------
Balance at December 31, 1999            16,103,697   $   161,037   $ 6,115,076   $(6,178,421)   $  (317,210)
                                        ==========   ===========   ===========   ===========    ===========


</TABLE>



<TABLE>
<CAPTION>

                                                                TOTAL
                                            TREASURY         STOCKHOLDERS'
                                              STOCK         EQUITY (DEFICIT)
                                              -----         ----------------

<S>                                        <C>            <C>
Balance at December 31, 1997               $        --    $   204,981

Issuance of common stock in exchange
for compensation and professional
services                                            --         78,999

Issuance of common stock for cash                   --         63,454

Note receivable secured by common
stock                                               --             --

Treasury stock acquired                           (158)          (158)

Net loss for year                                   --       (580,966)
                                           -----------    -----------

Balance at December 31, 1998                      (158)      (233,690)

Issuance of common stock for cash                   --        669,170

Issuance of common stock in exchange
for professional services                           --         67,954

Exercise of options for cash                        --         45,000

Note receivable secured by common
stock                                               --             --

Issuance of common stock in
satisfaction of officers' accrued
compensation                                        --        160,000

Compensation charges in connection
with issuance of options                            --         82,000

Net loss for  year                                  --     (1,010,110)
                                           -----------    -----------
Balance at December 31, 1999               $      (158)   $  (219,676)
                                           ===========    ===========


</TABLE>


                               See accompanying notes to financial statements.


                                      F-5
<PAGE>   35


                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                       STATEMENTS OF CASH FLOWS
                                                                      (NOTE 11)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

FOR THE YEARS ENDED DECEMBER 31,                                                 1999                 1998
--------------------------------                                                 ----                 ----
<S>                                                                         <C>                 <C>
OPERATING ACTIVITIES:
   Net loss                                                                 $(1,010,110)        $  (580,966)
   Adjustments to reconcile net loss to net cash (used in) operating
     activities:
       Depreciation and amortization                                             57,423              68,502
       Issuance of common stock in exchange for professional
         services                                                                67,954              78,999
       Stock option and warrant compensation                                     82,000                  --
       Loss on disposal of fixed assets and leasehold
         improvements                                                                --               5,000
       Decrease (increase) in accounts receivable                                16,251             (18,529)
       Decrease (increase) in inventories                                        75,769             (22,491)
       (Increase) in prepaids and other                                              --              27,542
       Decrease (increase) in deposits and other                                   (803)              6,402
       Increase in accounts payable                                             163,865              29,755
       (Decrease) increase in accrued expenses and other                        (26,886)            239,365
                                                                            -----------         -----------
Total adjustments                                                               435,573             414,545
                                                                            -----------         -----------
Cash used in operating activities                                              (574,537)           (166,421)
                                                                            -----------         -----------

INVESTING ACTIVITIES:
   Capital expenditures                                                         (20,428)                 --
                                                                            -----------         -----------
Cash used in investing activities                                               (20,428)                 --
                                                                            -----------         -----------

FINANCING ACTIVITIES:
   Proceeds from notes payable                                                       --             208,714
   Payments of notes payable                                                   (110,689)           (107,657)
   Purchase of treasury stock                                                        --                (158)
   Proceeds from issuance of common stock and options                           714,170              63,454
                                                                            -----------         -----------
Cash provided by financing activities                                           603,481             164,353
                                                                            -----------         -----------
Net increase (decrease) in cash                                                   8,516              (2,068)
Cash at beginning of year                                                         1,145               3,213
                                                                            -----------         -----------
Cash at end of year                                                         $     9,661         $     1,145
                                                                            ===========         ===========
SUPPLEMENTAL DISCLOSURE:
   Cash paid for interest                                                   $    39,050         $    30,759
                                                                            ===========         ===========

</TABLE>


                               See accompanying notes to financial statements.


                                      F-6
<PAGE>   36


                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

1.      SUMMARY OF SIGNIFICANT     Organization and Business
        ACCOUNTING
        POLICIES                   International Foam Solutions, Inc, ("the
                                   Company"), was incorporated in May of 1993 to
                                   distribute a patented recycling technology
                                   for polystyrenes. Pursuant to the patent, the
                                   Company has developed a product called "Styro
                                   Solve" which reduces polystyrenes.
                                   Additionally, the Company has developed a
                                   variety of machines for the application of
                                   Styro Solve, and methods of recycling both
                                   the Styro Solve and the "polygel" which
                                   results from the reduction of polystyrenes.

                                   During 1999, three customers accounted for
                                   48% of the Company's sales. Substantially all
                                   the Company's 1998 sales were to two
                                   companies.

                                   Use of Estimates

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

                                   At December 31, 1999, a significant portion
                                   of inventory is in excess of the Company's
                                   requirements based on its recent level of
                                   sales. Management has developed a program to
                                   reduce this inventory to desired levels
                                   during 2000 and believes no loss will be
                                   incurred on its disposition. No estimate can
                                   be made of a range of amounts of loss that
                                   are reasonably possible should the program
                                   not be successful.

                                   Inventories

                                   Inventories consist principally of finished
                                   goods and are stated at the lower of cost or
                                   market. Cost is determined using the average
                                   cost method.



                                      F-7
<PAGE>   37
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   Property and Equipment

                                   Property and equipment is stated at cost less
                                   accumulated depreciation and amortization.
                                   Depreciation and amortization are calculated
                                   on a straight line basis based on the
                                   estimated useful lives of the respective
                                   assets, generally 5 to 15 years.

                                   Patents

                                   Patent costs consist principally of
                                   associated legal fees and are capitalized and
                                   amortized over their expected useful lives
                                   not to exceed estimated legal lives of 17
                                   years.

                                   Fair Value of Financial Instruments

                                   The Company's financial instruments consist
                                   principally of cash, accounts and notes
                                   payable and accrued expenses. The carrying
                                   amounts of such financial instruments as
                                   reflected in the accompanying balance sheet
                                   approximate their estimated fair value. The
                                   estimated fair value is not necessarily
                                   indicative of the amounts the Company could
                                   realize in a current market exchange or of
                                   future earnings or cash flows.

                                   Revenue Recognition

                                   Product sales revenue is generally recognized
                                   when goods are shipped. License fees are
                                   recognized over the period that the Company
                                   is obligated to perform services, if any.

                                   Income Taxes

                                   The Company accounts for income taxes
                                   pursuant to the provisions of Statement of
                                   Financial Accounting Standards No. 109,
                                   "Accounting for Income Taxes," which
                                   requires, among other things, a liability
                                   approach to calculating deferred income
                                   taxes. The asset and liability approach
                                   requires the recognition of deferred tax
                                   liabilities and assets for the expected
                                   future tax consequences of temporary
                                   differences between the carrying amounts and
                                   the tax bases of assets and liabilities.





                                      F-8
<PAGE>   38
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   Earnings Per Share

                                   Basic earnings per share excludes dilution
                                   and is computed by dividing income or loss
                                   available to common shares outstanding for
                                   the period by the weighted average of common
                                   shares outstanding. Diluted earnings per
                                   share is computed similarly to fully diluted
                                   earnings per share in accordance with the
                                   Accounting Principles Board ("APB") Opinion
                                   No. 15.

                                   For each calendar year 1999 and 1998, the
                                   Company's potentially issuable shares of
                                   common stock pursuant to outstanding stock
                                   purchase options and warrants have been
                                   excluded from the Company's diluted
                                   computation as their effect would be
                                   antidilutive to the Company's net loss.

                                   Asset Impairment

                                   The Company periodically reviews the carrying
                                   value of certain of its assets in relation to
                                   historical results, current business
                                   conditions and trends to identify potential
                                   situations in which the carrying value of its
                                   assets may not be recoverable. If such
                                   reviews indicate that the carrying value of
                                   such assets may not be recoverable, the
                                   Company would estimate the undiscounted sum
                                   of the expected future cash flows of such
                                   assets to ascertain if a permanent impairment
                                   exists. If a permanent impairment exists, the
                                   Company would determine the fair value using
                                   quoted market prices, if available, for such
                                   assets, or if quoted market prices are not
                                   available, the Company would discount the
                                   expected future cash flows of such assets.
                                   Impairments are recognized as a charge to
                                   operations when the expected future operating
                                   cash flows to be derived from such intangible
                                   assets are less than their carrying values.

                                   Recent Accounting Pronouncements

                                   In June 1999, the Financial Accounting
                                   Standards Board issued Statement of Financial
                                   Accounting Standards (SFAS) No. 133,
                                   "Accounting for Derivative Instruments and
                                   Hedging Activities," which establishes





                                      F-9
<PAGE>   39
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   accounting and reporting standards for
                                   derivative instruments and for hedging
                                   activities. It requires that an entity
                                   recognizes all derivatives as either assets
                                   or liabilities in the statement of financial
                                   position and measures those instruments at
                                   fair value. The statement, as amended,
                                   applies to all entities and is effective for
                                   all fiscal quarters of fiscal years beginning
                                   after June 15, 2000. The Company did not
                                   engage in derivative instrument transactions
                                   or hedging activities in any periods
                                   presented in the financial statements and
                                   management does not expect this statement to
                                   have a material impact on the Company's
                                   financial position, results of operations, or
                                   cash flows.

2. LIQUIDITY                       The accompanying financial statements have
                                   been prepared assuming the Company will
                                   continue as a going concern. This basis of
                                   accounting contemplates the recovery of the
                                   Company's assets and the satisfaction of its
                                   liabilities in the normal course of
                                   operations.

                                   During the latter part of 1997, 1998 and
                                   1999, the Company experienced protracted
                                   litigation which diverted management's
                                   efforts from its core business, and
                                   effectively curtailed the Company's marketing
                                   programs. The Company has been in settlement
                                   negotiations to reduce the quantity of
                                   outstanding litigation and the threat of any
                                   potentially adverse findings. Management
                                   believes that resolving many of these matters
                                   through settlements will enable it to focus
                                   much more of its attention on sales and to
                                   spend more of its time on sales activities.
                                   Management believes that with the increased
                                   time spent on marketing efforts, increased
                                   sales will result. Since it will be mostly an
                                   increase of time spent by management which
                                   will be utilized in marketing and sales
                                   activities as opposed to increased costs for,
                                   among other things, advertising, the Company
                                   does not foresee the need for substantial,
                                   additional capital to perform such increased
                                   marketing and sales activities. In the event
                                   that substantial, additional capital is
                                   required, however, the Company would be
                                   required to seek outside funding mechanisms,




                                      F-10
<PAGE>   40
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   of which no assurances can be given that any
                                   funding would be made available to the
                                   Company or if made available, on terms
                                   satisfactory to the Company. During 1999
                                   certain aspects of the previously mentioned
                                   litigation were resolved and the Company was
                                   able to refocus and continue its marketing
                                   efforts.

                                   Over the past three months, the Company has
                                   received a number of RFPs (Request For
                                   Proposal) which are essentially requests by
                                   school boards, corporations, etc., for bids
                                   from vendors, for certain products and
                                   services, which, in the Company's case, is
                                   for the polystyrene recycling needs of the
                                   potential customer. It has been the Company's
                                   experience that RFPs are normally submitted
                                   after on site testing and are required for
                                   new, specific items to be purchased by larger
                                   local, county and state agencies.

                                   The Company has recently received RFPs from
                                   potential customers that include multiple
                                   school districts and large corporations with
                                   in-house cafeterias. These customers are
                                   either currently testing the Styro Solve
                                   System or are scheduled to begin testing the
                                   Styro Solve System within the next 180 days.
                                   School districts, unlike commercial
                                   businesses, often have three different budget
                                   periods with different fiscal year ends (June
                                   30, September 30 and December 31). The Styro
                                   Solve System is currently being considered
                                   for the Food Service Budget for certain
                                   school districts June 30 budgets and if
                                   approved, will begin related shipments in the
                                   third and fourth quarters of the year 2000.

                                   The Company has provided live demonstrations
                                   to a number of potential customers and has
                                   received further interest, some of whom have
                                   informed the Company that they are allocating
                                   funds for the Stryo Solve System in their
                                   budgets. No assurances can be given that any
                                   such potential customers will in fact order
                                   the Company products.

                                   The Company anticipates, based on current
                                   plans and assumptions relating to revenues
                                   from operations, that revenues from
                                   operations and additional third party funding
                                   or investment, if available, will be
                                   sufficient to satisfy the Company's estimated
                                   cash requirements to continue its operations
                                   for the foreseeable future.



                                      F-11
<PAGE>   41
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   The Company believes that the Styro Solve
                                   System is the only economical, closed loop,
                                   polystyrene recycling process available in
                                   the world today.

                                   The Company has no firm current arrangements
                                   with respect to, or sources of, additional
                                   financing. There can be no assurance that any
                                   such additional financing will be available
                                   to the Company, and if available, will enable
                                   the Company to attain profitable operations
                                   or continue as a going concern. Through
                                   December 31, 1999, the Company has incurred
                                   losses since inception totaling $6,178,421
                                   and has negative working capital aggregating
                                   $478,419 as of December 31, 1999. In
                                   addition, the Company is in violation of
                                   certain of its loan covenants and has
                                   classified such debt as current.

                                   On February 2, 2000, the Company borrowed
                                   $100,000 from an individual, bearing interest
                                   at 15%, payable within the next twelve
                                   months. The note is unsecured and the holder
                                   of the note has the option to convert it into
                                   the Company's common stock for the price of
                                   $.10 per share on or before the due date of
                                   the note.

3. PROPERTY AND EQUIPMENT          Property and equipment is comprised of the
                                   following:

<TABLE>
<CAPTION>
                                   DECEMBER 31,                              1999
                                   -------------------------------------------------

<S>                                                                       <C>
                                   Warehouse equipment                    $ 111,869
                                   Office furniture                          64,415
                                   Computer hardware and equipment           50,118
                                   Field demonstration units                 63,261
                                   Vehicles                                  24,353
                                   -------------------------------------------------
                                                                            314,016
                                   Less accumulated depreciation           (131,608)
                                   -------------------------------------------------
                                                                          $ 182,408
                                   =================================================

</TABLE>



                                      F-12
<PAGE>   42



                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

4. INCOME TAXES                    At December 31, 1999, the Company had Federal
                                   net operating loss carryforwards of
                                   approximately $5,418,000 for income tax
                                   purposes. The net operating losses expire in
                                   varying amounts to 2019. Realization of any
                                   portion of the approximate $2,119,000 net
                                   deferred tax asset at December 31, 1999,
                                   resulting primarily from the net operating
                                   loss carryforward, is not considered more
                                   likely than not by management and,
                                   accordingly, a valuation allowance has been
                                   established for the full amount of such
                                   deferred asset.

                                   The net deferred tax asset is comprised of
                                   the following:
<TABLE>
<CAPTION>

                                   DECEMBER 31,                                                             1999
                                   -------------------------------------------------------------------------------
<S>                                                                                                       <C>
                                   Deferred tax assets:
                                      Net operating loss carryforward                             $    2,039,000
                                      Allowance for bad debts                                             14,000
                                      Inventory capitalization                                            24,000
                                      Accrued expenses                                                    31,000
                                      Other                                                               31,000
                                   -------------------------------------------------------------------------------
                                                                                                       2,139,000
                                   -------------------------------------------------------------------------------
                                   Deferred tax liability:
                                      Depreciation                                                       (20,000)
                                   -------------------------------------------------------------------------------
                                   Net deferred tax asset                                              2,119,000
                                   Deferred tax asset valuation allowance                             (2,119,000)
                                   -------------------------------------------------------------------------------

                                   Net deferred tax asset                                         $           --
                                   ===============================================================================

</TABLE>



                                      F-13
<PAGE>   43

                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

5. NOTES PAYABLE                  The Company's notes payable consists of the
                                  following:
<TABLE>
<CAPTION>

                                  December 31,                                                       1999
                                  --------------------------------------------------------------------------
<S>                                                                                           <C>
                                  Equipment note payable in monthly installments of
                                  $3,030 including principal and interest at a fixed rate
                                  of 6.5%, maturing July 1, 2004, collateralized by
                                  equipment.  The Company is in default under the terms
                                  of this loan and in violation of certain covenants.         $   177,800

                                  Shareholder loan payable in monthly principal
                                  installments of $5,000 and interest computed at prime
                                  rate (9.5% at December 31, 1999) due on March 1, 2001            67,746

                                  Equipment loan payable in monthly installments of
                                  $3,555 including principal and interest, maturing in
                                  June 2003. (42% at December 31, 1999)                            87,917

                                  Shareholder loans, principal and interest due 90 days
                                  after date of note.  All loans are past due and accrue
                                  interest at a 10% annual fixed rate.                             30,898

                                  Related party loan, principal and interest due 90 days
                                  after date of note.  Loan is past due and accrues
                                  interest at a 10% annual fixed rate                              20,000
                                  --------------------------------------------------------------------------
                                                                                                  384,361
                                  Less current maturities                                        (303,255)
                                  --------------------------------------------------------------------------
                                                                                              $    81,106
                                  ==========================================================================
</TABLE>


                                   At December 31, 1999 annual maturities of
                                   notes payable approximate the following:

<TABLE>
<CAPTION>
                                                                                                     AMOUNT
                                  ----------------------------------------------------------------------------
<S>                                                                                           <C>
                                      2000                                                    $     303,255
                                      2001                                                           28,511
                                      2002                                                           29,622
                                      2003                                                           22,973
                                  ----------------------------------------------------------------------------
                                                                                              $     384,361
                                  ============================================================================
</TABLE>



                                      F-14
<PAGE>   44


--------------------------------------------------------------------------------
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   As discussed in Note 7, the Company is a
                                   guarantor for two shareholders' loans to the
                                   bank. During 1999, both the shareholders and
                                   the Company (as guarantor) were in default.
                                   In this connection, the Company and its
                                   shareholders entered in a forbearance
                                   agreement with the bank on June 19, 1999.
                                   Among other things, the forbearance agreement
                                   provides for the collateralization of all of
                                   the Company's assets and a rescheduling of
                                   the amounts due. The accompanying financial
                                   statements give effect to the forbearance
                                   agreement.

6.      COMMITMENTS AND            Leases
        CONTINGENCIES
                                   The Company occupies premises under a
                                   month-to-month lease for $1,000 a month with
                                   HKI, Inc., a related party.

                                   Rent expense for years ended December 31,
                                   1999 and 1998 were $41,700 and $52,200,
                                   respectively. During May 1999 the Company's
                                   old lease for its facility and office space
                                   was terminated, and the Company entered into
                                   a new month-to-month lease of $1,000 per
                                   month. In connection with the Company's lease
                                   termination, the Company settled with the
                                   landlord for the balance of the rent relating
                                   to the unexpired lease term.

                                   Employment Agreements

                                   On October 1, 1996, the Company entered into
                                   employment agreements with two officers of
                                   the Company. Each agreement provides for a
                                   term of five years renewable annually upon
                                   mutual consent, with base annual salaries for
                                   the two officers aggregating approximately
                                   $250,000. These employment agreements provide
                                   that the officers may receive an incentive
                                   bonus based upon performance. In October
                                   1997, such agreements were modified to reduce
                                   annual salaries to $160,000. On November 1,
                                   1999, the agreements were modified to
                                   increase total annual salaries to $175,500.
                                   In connection with these employment
                                   agreements, in 1999, the Company recorded
                                   bonus expense in the amount of $24,650. In
                                   January 2000, in exchange for a bonus
                                   relating to 1999, the Company issued 379,290
                                   shares of common stock valued at $.065 per
                                   share which represents the market value of
                                   the common





                                      F-15
<PAGE>   45
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   stock at the date the bonus was granted.

                                   On April 5, 1999, the Company entered into an
                                   employment agreement with its chief operating
                                   officer. The agreement provides for a term of
                                   three years with base annual salary of
                                   $50,000 subject to salary revision every six
                                   months. On November 1, 1999, the annual
                                   salary was increased to $75,000. Under the
                                   terms of the agreement, the chief operating
                                   officer is entitled to a performance bonus
                                   based on sales and earnings (as defined). In
                                   connection with this agreement, the Company
                                   issued 1,150,000 options to purchase the
                                   Company's common stock over five years at
                                   exercise prices ranging from $0.10 to $1.00,
                                   of which 450,000 options were exercised
                                   during 1999. In connection with this
                                   employment agreement, in 1999, the Company
                                   recorded bonus expense in the amount of
                                   $17,550. In January 2000, in exchange for a
                                   bonus relating to 1999, the Company issued
                                   270,000 shares of common stock valued at
                                   $.065 per share which represents the market
                                   value of the common stock at the date the
                                   bonus was granted.

                                   Legal Proceedings

                                   The Company is involved in several legal
                                   proceedings for which the accompanying
                                   balance sheet as of December 31, 1999,
                                   includes accrued legal settlements of
                                   $83,000. The proceedings are as described
                                   below:

                                   (1)     Greenfield v. International Foam
                                           Solutions, Inc., et al., case no.
                                           98-005083 in Palm Beach Circuit
                                           Court, Palm Beach County, Florida.
                                           Leo Greenfield is an alleged Company
                                           stockholder who sued the Company for,
                                           among other things, breach of
                                           fiduciary duty and related causes of
                                           action. He has also sought to appoint
                                           a receiver for the corporation. He
                                           claims that many IFS transactions
                                           involved conflicts of interest and
                                           seeks to void same. The matter is in
                                           the discovery phase of the
                                           litigation. No trial dates have been
                                           set. The Company and Mr. Greenfield
                                           have reached a verbal agreement to
                                           fully resolve the matter, however, no
                                           written agreements have been executed
                                           although they have been sent to Mr.
                                           Greenfield for his signature several
                                           months ago. The Company intends to
                                           continue to vigorously defend this




                                      F-16
<PAGE>   46
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                           matter in the event that settlement
                                           documents are not executed. No amount
                                           of claim has been asserted, the
                                           Company and counsel believes that IFS
                                           will be successful in defending this
                                           matter.

                                   (2)     Florida First Capital Finance
                                           Corporation v. International Foam
                                           Solutions, Inc., et al., case no.
                                           C1099-371-35, Orange County Circuit
                                           Court, Orange County, Florida. In
                                           January 1999, the plaintiff sued the
                                           Company alleging that it is in
                                           default of a promissory note in the
                                           principal amount of $200,000. The
                                           Company contends it does not owe the
                                           full amount allegedly past due. The
                                           proceeding is in the discovery phase.
                                           No trial dates have been set. The
                                           Company has recorded the outstanding
                                           amount due of the promissory note on
                                           the accompanying balance sheet as of
                                           December 31, 1999.

                                   (3)     Keefer v. International Foam
                                           Solutions, Inc., case no. 98-006525,
                                           Palm Beach County, Florida, Circuit
                                           Court. Mr. Keefer is a former
                                           employee who has sued the Company for
                                           alleged breach of an employment
                                           contract. Mr. Keefer claims he is
                                           entitled to a severance pay in the
                                           amount of approximately $56,000 under
                                           an employment contract because he
                                           alleges he was terminated without
                                           cause. However, it is the Company's
                                           position that Mr. Keefer walked off
                                           the job and effectively quit, and
                                           accordingly, is not entitled to any
                                           severance under the employment
                                           agreement. In February 2000, the
                                           Company settled this matter. The
                                           settlement requires that the Company
                                           issue restricted stock to the
                                           Plaintiff and make certain payments
                                           over the course of less than one
                                           year. The exact terms of the
                                           settlement are confidential by
                                           agreement of the parties.

                                   (4)     D'Agostino v. International Foam
                                           Solutions, Inc., case no. 98-6523 AB,
                                           Palm Beach County, Florida Circuit
                                           Court. Mr. D'Agostino is a former
                                           employee who has sued the Company for
                                           breach of an employment contract.
                                           D'Agostino claims he is entitled to a
                                           severance pay in the amount of
                                           approximately $42,000 under an
                                           employment contract because he






                                      F-17
<PAGE>   47
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                           alleges he was terminated without
                                           cause. However, the Company
                                           terminated D'Agostino with cause and
                                           accordingly, D'Agostino was not
                                           entitled to the severance under the
                                           employment agreement. In February
                                           2000, the Company settled this
                                           matter. The settlement requires that
                                           the Company issue restricted stock to
                                           the Plaintiff and make certain
                                           payments over the course of less than
                                           one year. The exact terms of the
                                           settlement are confidential by
                                           agreement of the parties.

                                   (5)     Dichiara v. International Foam
                                           Solutions, Inc., case number CL
                                           98-9930 AH, in the Palm Beach County
                                           Florida Circuit Court. Mr. Dichiara
                                           is a former employee who has sued the
                                           Company for, among other things,
                                           alleged breach of an employment
                                           contract. Dichiara claims he is
                                           entitled to severance pay in the
                                           amount of approximately $80,000 under
                                           the employment contract because he
                                           alleges he was terminated without
                                           cause. However, the Company contends
                                           that it entered into a new agreement
                                           with Dichiara to be employed in a
                                           different capacity, which was treated
                                           as a novation of the former agreement
                                           with Dichiara, and as such Dichiara
                                           was not entitled to the severance
                                           under the former employment
                                           agreement. A trial has been scheduled
                                           for November 2000, and will be
                                           vigorously defended by the Company.

                                   (6)     Ecological Technologies, Inc., v.
                                           International Foam Solutions, Inc.,
                                           case number 98-003218 in the Palm
                                           Beach County, Florida Circuit Court.
                                           The Plaintiff sued the Company for
                                           breach of a promissory note and is
                                           attempting to foreclose on certain
                                           Japanese patent rights of the Company
                                           which were pledged as collateral for
                                           the note. A judgment was entered
                                           against the Company in the amount of
                                           approximately $11,000, which the
                                           Company has paid in full. The
                                           plaintiff also sued the Company for
                                           damages due to its allegation that
                                           the Company is doing business in
                                           Japan, where the plaintiff claims it





                                      F-18
<PAGE>   48
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                           has exclusive territorial rights, a
                                           claim which the Company denies. No
                                           trial date has been set and the
                                           parties will engage in discovery on
                                           this separate claim for damages. The
                                           Company will vigorously defend this
                                           lawsuit.

                                   (7)     Robert Kauffman v. International Foam
                                           Solutions, Inc., et al., case number
                                           99012968, in the Broward County
                                           Florida Circuit Court. Mr. Kauffman,
                                           who has alleged that he was the
                                           former CEO of the Company has sued
                                           the Company for, among other things,
                                           breach of an employment agreement,
                                           claiming damages in excess of
                                           $150,000 resulting from the Company's
                                           alleged breach of the employment
                                           agreement. It is the Company's
                                           position that Mr. Kauffman, although
                                           he executed the agreement, never
                                           activated the contract or assumed the
                                           role of CEO and otherwise materially
                                           failed to perform under the
                                           agreement. This case is in the
                                           discovery phase and the Company
                                           intends to vigorously defend this
                                           matter. In this connection, the
                                           Company does not believe it has any
                                           obligations to Mr. Kauffman.
                                           Accordingly, it is too early for
                                           management to assess the likelihood
                                           of success, therefore no amounts have
                                           been accrued as of December 31, 1999.

                                   (8)     Waterview Resolution Corp. ("WRC").
                                           WRC has sent the Company a demand
                                           letter seeking the payment of $11,167
                                           which WRC claims is a deficiency
                                           balance owed by the Company when WRC
                                           sold certain equipment in connection
                                           with an alleged default of an
                                           equipment lease. The Company denies
                                           that any sums are due under any lease
                                           agreement. The parties have not
                                           engaged in any settlement discussions
                                           and no claim has been filed, although
                                           WRC still claims such amount is due.
                                           Accordingly, it is too early for
                                           management to assess the likelihood
                                           of success, and therefore no amounts
                                           have been accrued.

                                   The Company is or may become involved in
                                   various lawsuits, claims and proceedings in
                                   the normal course of its business, including
                                   those pertaining to product liability,
                                   environmental, safety and health, and






                                      F-19
<PAGE>   49
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   employment matters. The Company records
                                   liabilities when loss amounts are determined
                                   to be probable and reasonably estimatable.
                                   Insurance recoveries are recorded only when
                                   claims for recovery are settled. Although
                                   generally the outcome of litigation cannot be
                                   predicted with certainty and some lawsuits,
                                   claims or proceedings may be disposed of
                                   unfavorably to the Company, management
                                   believes, based on facts presently known,
                                   that the outcome of such legal proceedings
                                   and claims, other than those previously
                                   disclosed, will not have a material adverse
                                   effect on the Company's financial position,
                                   liquidity, or future results of operations.

7.  RELATED PARTY TRANSACTIONS     The Company entered into an agreement with
                                   HKI, Inc. ("HKI") in a prior year, a company
                                   related through common ownership. Under the
                                   agreement, HKI acquired and resold the Styro
                                   Solve solution to the Company. In
                                   consideration for the solution HKI received a
                                   bottling fee of 5% to 10% of the cost of the
                                   solution depending on the volume of the
                                   purchases. Included in cost of sales for the
                                   year ended December 31, 1998 is approximately
                                   $4,000, pursuant to this agreement. In
                                   addition, $11,727 was owed to HKI at December
                                   31, 1999.

                                   The Company has borrowed funds from two
                                   shareholders with a balance at December 31,
                                   1999 of $30,898. The notes accrue interest at
                                   a rate of 10% and are currently past due.
                                   Additionally, the same shareholders loaned
                                   money to the Company, which they received
                                   from a line of credit with a commercial bank.
                                   At December 31, 1999, the balance of the loan
                                   was $67,746. Under the terms of the agreement
                                   with the commercial bank, the Company is
                                   guarantor of the amounts due to the bank by
                                   the two shareholders. In addition,
                                   substantially all assets of the Company are
                                   collateral for the loan.

8. STOCKHOLDERS' EQUITY            During 1999, the Company issued 4,142,066
   (DEFICIT)                       shares of common stock in private placement
                                   raising proceeds of $669,170. Additionally,
                                   600,000 shares of stock were issued to two
                                   officers for services rendered aggregating
                                   $160,000.



                                      F-20
<PAGE>   50
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   Between April 1, 1999 and July 31, 1999, the
                                   Company issued to an officer, options to
                                   purchase 1,150,000 shares of the Company's
                                   common stock at prices ranging from $.10 to
                                   $1.00 (Note 6). In connection with the
                                   issuance of these options, the Company
                                   recorded a compensation charge with a
                                   corresponding credit to paid in capital in
                                   the amount of $82,000. The options vest from
                                   April 1999 to April 2002 and have expiration
                                   dates ranging from July 1999 to April 2004.
                                   The Company valued these options using the
                                   Black-Scholes Method. 450,000 options were
                                   exercised during the year ended December 31,
                                   1999.

                                   During 1999, the Company issued 172,842
                                   shares of stock to individuals and
                                   consultants for services rendered. In
                                   connection with the issuance of the shares,
                                   the Company recorded a charge to consulting
                                   fees with a corresponding credit to paid-in
                                   capital in the amount of $67,954.
                                   Additionally, 1,888,525 shares of common
                                   stock were issued to investors; such amount
                                   is recorded as a note receivable of $307,210.

                                   During 1998, the Company issued 139,211
                                   shares of common stock raising proceeds of
                                   $63,454. The Company issued 270,000 shares of
                                   stock to individuals and consultants for
                                   services rendered. In connection with the
                                   issuance of the stocks, the Company recorded
                                   a charge to consulting fees with a
                                   corresponding credit to paid-in capital in
                                   the amount of $78,999. Additionally, 25,000
                                   shares of common stock were issued at $0.40
                                   per share; such amount is recorded as a
                                   subscription receivable of $10,000.

                                   On January 20, 2000, the Company's Board of
                                   Directors authorized the increase of the
                                   number of common shares to 50,000,000.

9. STOCK BASED COMPENSATION        The Company applies Accounting Principles
                                   Board ("APB") Opinion No. 25, ACCOUNTING FOR
                                   STOCK ISSUED TO EMPLOYEES, and related
                                   interpretations in accounting for
                                   options/warrants issued to employees. Under
                                   APB Opinion 25, because the exercise price of
                                   the Company's employee options/warrants was



                                      F-21
<PAGE>   51
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   equal to or greater than the market price of
                                   the underlying stock on the date of grant, no
                                   compensation cost was recognized.

                                   SFAS No. 123, Accounting for Stock-Based
                                   Compensation, requires the Company to provide
                                   pro forma information regarding net income
                                   (loss) as if compensation costs for the
                                   options/warrants issued to employees had been
                                   determined in accordance with the fair value
                                   based method prescribed in SFAS No. 123. The
                                   Company estimates the fair value of each
                                   option/warrant issued at the grant date by
                                   using the Black-Scholes option-pricing model
                                   with the following weighted-average
                                   assumptions used for grants for the periods
                                   below:
<TABLE>
<CAPTION>

                                                                                          1999          1998
                                  For the years ended December 31,
                                  ----------------------------------------------------------------------------
<S>                                                                                      <C>             <C>
                                  Dividend yield                                          NONE           N/A
                                  Expected volatility                                   46.10%           N/A
                                  Risk-free interest rates                               5.58%           N/A

</TABLE>


                              A summary of the status of the Company's warrants
                              as of December 31, 1999 and 1998, and changes
                              during the periods ending on those dates, as
                              presented below:
<TABLE>
<CAPTION>

                                                               DECEMBER 31, 1999            DECEMBER 31, 1998
                                                           ---------------------------   -------------------------
                                                                             WEIGHTED                    WEIGHTED
                                                                              AVERAGE                     AVERAGE
                                                                             EXERCISE                    EXERCISE
                                                               SHARES           PRICE         SHARES        PRICE
                      ----------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>                <C>        <C>
                      Outstanding at beginning
                          of the period                     2,993,154       $    2.37      2,993,154     $   2.37
                      Granted                                      --              --             --           --
                      Exercised                                    --              --             --           --
                      Forfeited                                    --              --             --           --
                      ----------------------------------------------------------------------------------------------
                      Outstanding at the
                          end of the period                 2,993,154       $    2.37      2,993,154     $   2.37
                      ----------------------------------------------------------------------------------------------
                      Warrants exercisable at
                           the end of the period            2,993,154       $    2.37      2,993,154     $   2.37

                      Weighted average fair value of
                          warrants granted during the
                          period                                   --       $      --             --     $     --
                      ==============================================================================================

</TABLE>


                                      F-22
<PAGE>   52
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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

                                   The following table summarizes information
                                   about the warrants outstanding at
                                   December 31, 1999.

<TABLE>
<CAPTION>
                                                                 WARRANTS OUTSTANDING             WARRANTS EXERCISABLE
                                                          ------------------------------------   -----------------------
                                                                          WEIGHTED
                                                                           AVERAGE    WEIGHTED                WEIGHTED
                                                              RANGE OF    REMAINING   AVERAGE                 AVERAGE
                                                              EXERCISE   CONTRACTUAL  EXERCISE     NUMBER     EXERCISE
                                                                PRICES       LIFE      PRICE    EXERCISABLE    PRICE
                                  ----------------------------------------------------------------------------------------

<S>                                                          <C>             <C>     <C>         <C>          <C>
                                  December 31, 1999         $1.50 - $3.75    1.33     $ 2.37     2,993,154    $   2.37
</TABLE>


                                   A summary of the status of the Company's
                                   options as of December 31, 1999 and changes
                                   during the year then ended is presented
                                   below:

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31, 1999
                                                                                        -------------------------------
                                                                                                              WEIGHTED
                                                                                                               AVERAGE
                                                                                                              EXERCISE
                                                                                               SHARES            PRICE
                                   --------------------------------------------------------------------------------------
<S>                                                                                         <C>                    <C>
                                   Outstanding at beginning of the period                          --      $        --
                                   Granted                                                  1,150,000              .38
                                   Exercised                                                 (450,000)            (.10)
                                   Forfeited                                                       --               --
                                   --------------------------------------------------------------------------------------
                                   Outstanding at the end of the period                       700,000      $       .57
                                   --------------------------------------------------------------------------------------
                                   Options exercisable at the end of the                      150,000      $       .20
                                   period

                                   Weighted average fair value of options
                                       granted during the period                                   --      $       .11
                                   ======================================================================================

</TABLE>

                                      F-23
<PAGE>   53
                                            INTERNATIONAL FOAM SOLUTIONS, INC.

                                                 NOTES TO FINANCIAL STATEMENTS

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


                                   The following table summarizes information
                                   about the options outstanding at December 31,
                                   1999.
<TABLE>
<CAPTION>

                                                                  OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                                          -------------------------------------  -----------------------
                                                                          WEIGHTED
                                                                           AVERAGE    WEIGHTED                 WEIGHTED
                                                           RANGE OF      REMAINING     AVERAGE                  AVERAGE
                                                           EXERCISE    CONTRACTUAL    EXERCISE        NUMBER   EXERCISE
                                                             PRICES           LIFE       PRICE   EXERCISABLE      PRICE
                                  ----------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>      <C>           <C>        <C>
                                  December 31, 1999       $.20 - $1.00        2.67     $   .57       150,000    $   .20
</TABLE>


                                   Under the accounting provisions of FASB
                                   Statement No. 123, the Company's net loss and
                                   loss per share would have been as follows:

<TABLE>
<CAPTION>

                                 FOR THE YEARS ENDED DECEMBER 31,                          1999            1998
                                 -------------------------------------------------------------------------------
<S>                                                                               <C>               <C>
                                 Pro forma net loss
                                     As reported                                  $  (1,010,110)    $ (580,966)
                                     Pro forma                                       (1,058,110)      (580,966)

                                 Pro forma net loss per common share - basic
                                     and dilutive
                                          As reported                                      (.07)          (.07)
                                          Pro forma                                        (.07)          (.07)

</TABLE>


11. NON-CASH FINANCING           During 1999, the Company issued 600,000 shares
                                 of common stock as satisfaction of accrued 1998
                                 officers' compensation of approximately
                                 $160,000. Cash paid for interest aggregated
                                 $39,100 and $30,800 in December 31, 1999 and
                                 1998, respectively.



                                      F-24