<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

(Mark One)

/ X  /   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

               For the fiscal year ended March 31, 1999

                                 OR

/   /    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from ________ to _________

                      Commission file number     33-96882-LA

                      CARING PRODUCTS INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

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

         DELAWARE                                        98-0134875
(State or other jurisdiction                  (IRS Employer Identification No.)
     of incorporation)
                              --------------------

                5843 WOODLAWN AVE. N, SEATTLE, WASHINGTON 98103
                     PO Box 9288, SEATTLE, WASHINGTON 98109
                         (principal executive offices)

                                 (206) 523-7065
                (Issuer's telephone number, including area code)

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

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

         Securities registered under Section 12(g) of the Exchange Act:
         Common Stock, $.01 par value

         Warrants to purchase common stock.

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  X      No
    ----       -----

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

         State issuer's revenue for its most recent fiscal year.  $ 1,235,918.

         State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act.) $695,335.

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS

         Not applicable.

         APPLICABLE ONLY TO CORPORATE REGISTRANTS

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of July 9, 1999: 3,056,343 shares of common stock, $.01
par value (the "Common Stock").

         Transitional Small Business Disclosure Format (check one):

         Yes          No   X
             -----       -----

DOCUMENTS INCORPORATED BY REFERENCE

Part III  Certain exhibits                        Included in prior filings made
Listed in response to Item 13(a)               under the Securities Act of 1933.

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

         Caring Products International, Inc. and its subsidiaries
(collectively, the "Company" or "CPI") has designed a line of proprietary
urinary incontinence products with disposable liners which have been sold
under the Rejoice name. These products provide a practical, convenient and
cost effective solution to the special needs of incontinent adults. The
Company's primary product incorporates a two-piece incontinence management
system consisting of a reusable light-weight cotton pant specifically
designed to look and feel like conventional underwear and a disposable,
highly absorbent liner.

         The Company subcontracts the manufacture of its pants and liners on
a non contractual basis, as well as the conversion, storage and delivery
(fulfillment) services necessary to bring the products to market. The
Company's primary sales efforts have been dedicated to expanding distribution
of the Rejoice adult incontinence product line in the United States and
seeking partnership arrangements for the distribution of its products in
Europe. In addition, the Company is seeking to diversify its product line
interests through development of other consumer products which can be sold to
retail chains, catalog or direct mail accounts.

CORPORATE HISTORY

         The Company, Caring Products International, Inc., a Delaware
corporation, resulted from a series of corporate reorganizations and related
transactions, as follows:

         First West Canada Capital Corporation ("FWCC") was originally
incorporated under the laws of the Province of British Columbia on December
6, 1984. On December 20, 1993, FWCC renounced its original jurisdiction of
incorporation and became a Wyoming corporation. On December 23, 1993, FWCC
merged into FWCC Merger Corp., a wholly owned subsidiary of FWCC, which was
incorporated in the State of Delaware on December 7, 1993. Prior to the
merger, which effected the reincorporating of FWCC as a Delaware corporation,
FWCC was an inactive corporation whose shares were listed for trading on the
VSE.

         On November 4, 1992, Caring Products International, Inc. was
incorporated under the laws of the State of Delaware ("Old Caring Products").
On December 30, 1993, Old Caring Products merged with and into FWCC Merger
Corp., and FWCC Merger Corp. became the surviving corporation. In connection
with this merger, the then existing officers and directors of FWCC Merger
Corp. resigned, the then existing officers and directors of Old Caring
Products became the officers and directors of FWCC Merger Corp. and the name
of the surviving entity was changed to Caring Products International, Inc.

         In June 1999, Caring Products International, Inc. announced the
spin-off of Creative Products International, Inc., a wholly owned subsidiary,
to shareholders of record as of June 30, 1999.

         Caring Products Industries, Ltd., a British Columbia corporation, is
a wholly owned subsidiary of Caring Products International, Inc. and until
March 1996 principally engaged in pant production. C.P. International, Inc.,
a Delaware corporation, is also a wholly owned subsidiary of Caring Products
International, Inc., and its principal business is the sale and marketing of
the Company's products. Creative Products International, Inc., is a wholly
owned subsidiary of the Company organized to complete development and
commercialize various children's products. The term, "the Company" as used
herein, consist of Caring Products International, Inc. and its wholly owned
subsidiaries, Caring Products Industries, Ltd., Creative Products
International, Inc. and C.P. International, Inc.

         Unless otherwise indicated, all share and per share data contained
herein gives effect to a one-for-six reverse stock split and one-for-four
reverse stock split (the "Reverse Stock Splits") of the Company's Common
Stock effected on June 16, 1997 and October 20, 1997, respectively.

                                       2
<PAGE>
PRODUCTS

         The Company has designed a line of adult incontinence products that
it believes offers to those who suffer from light and moderate incontinence a
more dignified and less costly alternative to their traditional options, such
as adult disposable diapers, belted undergarments or guards. The competing
incontinence products designed for individuals with light bladder control
problems are similar to many feminine hygiene products which do not prevent
side seepage when a person is moving or sitting down. The Company has not
designed products for the incontinence sufferer, usually bedridden
individuals, who require products for heavier bladder control and protection
for bed linen. The Company believes that the daily cost of using Rejoice
incontinence products is significantly less than the cost of using competing
brand name disposable diapers, belted undergarments and guards.

         The Company's adult incontinence and toilet training products
consist of a reusable light-weight cotton pant specifically designed to look
and feel like conventional underwear and a disposable, highly absorbent, thin
liner. The liner fits securely into a patented channel in each pant which the
Company believes provides reliable protection against side seepage even when
the wearer is moving or sitting down. The Company's pants are manufactured in
a pull-on style and a wide range of sizes.

         The Company believes that the performance of its two-piece
incontinence management system with the proprietary channel design and high
absorbency characteristics of its disposable liner is significantly better
than many other incontinence products. The Company believes that its channel
technology and superabsorbent polymer liner offer the following advantages:

         PANT CHANNEL TECHNOLOGY. The Company's proprietary pant design, with
a built-in fabric channel or "Safety Splash Guard" at the crotch of each
pant, is designed to hold the liner in place. In addition, the channel may
contain some excess fluid prior to absorption by the disposable liner
especially when the wearer is walking or sitting. The channel is made of a
fluid-resistant fabric that is heat sealed at the seams, not simply stitched,
to help protect against leakage. In November 1994, the Company was issued a
United States patent for its channel design. See "Patents, Trademarks and
Proprietary Rights."

         SUPERABSORBENT POLYMER LINER. The other component of the Company's
two-piece incontinence management system is a highly absorbent disposable
liner. The liner contains airlaid non-woven paper throughout, with thermally
bonded superabsorbent polymers ("SAPs") that have been dispersed to increase
product strength, absorbency and surface dryness. The thermal bonding of the
SAPs keeps the liner from bunching and crimping when the liner is wet, which
allows the entire liner (not just the surface like most incontinence products
that use SAPs) to retain its shape over longer periods of time, benefiting
individuals who may not be able to change frequently. The SAPs used in the
liner are designed to contain moisture within the liner even when pressure is
applied from sitting for long periods. This superabsorbent design feature
assists in the reduction of moisture, allowing the wearer to maintain a
higher degree of dryness and comfort while reducing the potential for diaper
rash and odor. In addition to the liners' absorbency features, the Company's
liners are substantially smaller in size than conventional disposable diapers
and undergarments used for adult urinary incontinence.

         The Company currently offers for sale the following Rejoice products
to the adult market:

         REJOICE. Rejoice, the Company's principal product, is a men's and
women's pull-on pant and a unisex 11-inch disposable liner. Rejoice pants have
been designed to look and feel like conventional underwear. Rejoice is
targeted for more active people presently using a full-sized disposable
diaper, belted undergarment or guard in a consumer outpatient setting. Other
users of Rejoice include patients within a home healthcare or out-patient
rehabilitation setting, disabled individuals, especially people using
wheelchairs, individuals with disease-related incontinence and individuals
recovering from a stroke or who have serious arthritis and cannot manage a
disposable diaper or standard pull-on underwear by themselves.

                                       3
<PAGE>

         REJOICE EXTRACARE. Rejoice ExtraCare is an 18-inch disposable liner
product designed as an enhancement for disposable or reusable diaper products
worn by bedridden patients. Rejoice ExtraCare can be used as a substitute for
other diaper enhancement products such as disposable bed sheets or "chux".
This liner product is primarily sold in healthcare oriented retail outlets
such as surgical supply stores and home healthcare catalogs.

OTHER DEVELOPMENT STAGE PRODUCTS

         The Company has developed a toddler toilet training product which
incorporates the Company's two-piece incontinence system. The product was
designed for boys and girls aged 18 months to four years to ease the
transition from diapers to conventional underwear. The Company has also
developed other complementary products which can assist parents in toilet
training as well as other parenting needs. The Company believes that the
commercialization of its toilet training products and other complementary
products will require significant marketing and advertising resources for
commercialization in retail markets. As such, the Company is seeking a
licensing or joint venture partner or partners to assist in bringing this
product line to the national markets. There is no assurance that the Company
will be able to complete development of these products, identify a
well-financed marketing and product distribution partner or that these
product lines will be successfully brought to market and gain consumer
acceptance.

         On June 30, 1999 the Company transferred approximately $170,000 of
intellectual property associated with these children's products to its
wholly-owned subsidiary, Creative Products International, Inc. The Company
also announced in late June, the spin-off of Creative Products International,
Inc. to shareholders of record as of June 30, 1999. Shareholders will receive
one share of Creative Products International, Inc. common stock for every two
shares of Caring Products International, Inc. stock owned on the record date.
Creative Products International, Inc. is a development stage company. There
is no assurance that it will be able to secure adequate financial, management
and marketing resources to complete product development and organize a
financially viable operating company. There is also no assurance that
Creative Products will be able to develop an active market for its securities
once the spin-off is complete. All activities related to the marketing and
distribution of the adult incontinence product will remain in the Company.

SALES AND MARKETING

         The Company has targeted home consumers with light and moderate
incontinence such as individuals recovering from surgery, with neurological
diseases, women with interstitial cystitis and other chronic bladder
infections, or spinal injuries. These individuals are likely to have
permanent rather than temporary incontinence problems and require greater
daily usage of liners than individuals with very light or light incontinence.

         The Company's marketing efforts for the Rejoice products have been
focused both in the retail and the healthcare markets. The Company has
utilized different marketing strategies for the retail and healthcare
segments of its business. The Rejoice pant product is packaged to include a
product UPC code and can stand alone on a retail store shelf. Rejoice is
packaged in a convenient carry bag containing a starter supply of liners and
pants. This product is distributed to certain healthcare markets, including
surgical supply stores, hospital supply companies and healthcare oriented
catalogs.

                                       4

<PAGE>

         RETAIL MARKET. The Company has focused on sales to the product user
or the consumer who purchases incontinence products for a family member.
Historically, the Company has concentrated on gaining distribution at stores
which also offer pharmacy or other healthcare products because of favorable
consumer demographics of store traffic and greater willingness of store
buyers or store owners to stock incontinence products. In addition, the
Company sells its adult incontinence product to various catalog companies,
mail order suppliers, drug wholesalers and home consumers.

         The Company began selling Rejoice in retail locations in the United
States in September 1995, and the product is now available in several drug
chains, independent pharmacies, and surgical supply stores. As is customary
in the industry, the Company does not have any supply agreements with any of
such stores. In addition, the Company has to pay upfront listing allowances
or "slotting fees" to gain shelf space in chain drug stores and participate
in in-store advertising programs, and accept charges for product that is
damaged on the store shelf from chain mishandling, pilferage of product
contents or other damage which affects the appearance of the product to
consumers and is considered no longer in saleable condition to the retail
chain. These costs of gaining and maintaining shelf space vary by chain, but
have increased significantly during the period following the rapid
consolidation of the retail drug chain industry in 1996 and 1997 in which the
industry is now dominated by four drug store chains plus a small number of
mass merchants with national distribution.

         There is no assurance that the number of retail accounts will be
maintained or continue to grow or that Rejoice will gain long-term market
acceptance in the varied retail markets, which are very competitive and
increasingly costly to enter. Because of the high costs of maintaining a
national advertising presence and participating in certain in-store
advertising programs, which was beyond the Company's resources, distribution
of Rejoice ended at Walgreens in late May, 1999, other than through special
order through drug wholesalers. Continued consolidation of drug store chains,
which has happened in the past, could result in increased costs to the
Company, which it cannot adequately forecast. The Company lost the account of
Hills Department stores due to bankruptcy during the fiscal year ended March
31, 1999. While there was no loss of the Company's receivables due to Hills'
bankruptcy, the Company's customer base could be affected by any of its
customers seeking protection from creditors under bankruptcy laws. Further
consolidation of drug store chains could result in the Company having a small
number of customers that, on an individual basis, account for a significant
percentage of the Company's revenues, the loss of any of which could have a
material adverse effect on the Company. Similar consolidation of the direct
mail/catalog segment of the adult incontinence industry or significant
consumer shifts in buying patterns away from traditional direct mail,
catalog, chain drug or independent pharmacies to the internet could further
erode the Company's customer base. The Company currently does not sell its
products over the internet.

         HEALTHCARE MARKETS. The primary market for healthcare sales of
incontinence products is to inpatient and outpatient hospital facilities,
rehabilitation facilities, home healthcare providers, nursing homes, hospice
centers and surgical supply stores. The Company's marketing strategy for the
healthcare market is to sell its products through hospital distribution
companies, home healthcare companies, medical/surgical suppliers and
distributors, durable medical equipment ("DME") suppliers and hospital buying
groups.

         The Company has targeted healthcare accounts, which serve patients
during recovery and rehabilitation. Rejoice is being positioned as a more
dignified, comfortable product, which does not restrict or discourage patient
movement or participation during physical therapy.

          The Company sells various Rejoice products to healthcare markets
through product sampling programs and literature made available to physicians'
offices and healthcare buyers. To date, sales to the healthcare market have
not been material. There is no assurance that the Rejoice products will gain
acceptance in the varied healthcare markets, which are very competitive and
affected by Medicaid and Medicare reimbursement regulations, which can change
at any time.

                                       5

<PAGE>

         MARKETING PROGRAMS. The Company has devoted considerable resources
to advertising and educating members of the medical community and home
consumers about the product advantages of Rejoice. The marketing activities
are expected to include, but not be limited to, providing direct mail product
information when requested by urologists, gerontologists and home healthcare
specialists.

         Due to the higher than expected costs of gaining and maintaining
distribution at chain drug stores as well as increased competition in the
marketplace from marketers with greater financial resources than the Company,
the Company announced in February 1999, that it intended to review all of its
strategic options, including licensing the Company's incontinence product to
domestic or international industry participants and/or seeking acquisitions
of companies or products which can utilize the Company's database of
physicians, home consumers or network of retail brokers which assist in
gaining distribution of products to retail grocery, drug or mass merchandiser
chains. The Company is also evaluating a shift in sales focus from the drug
chain industry to less costly catalog, independent pharmacy and direct mail
accounts which do not require the same high levels of advertising and store
support. There is also no assurance that the Company will be able to lower
the costs of maintaining its customer base or be able to develop a profitable
business through distribution of Rejoice to the direct mail and catalog
market. There is no assurance that the Company will be able to identify a
marketing or licensing partner for Rejoice to participate in the retail chain
markets, which represents a sizable portion of the United States market for
incontinence products sold to home consumers or their caregivers. There is no
assurance that the Company will be able to identify other complementary
acquisitions which can utilize some of the Company's internal marketing and
data resources. The Company has not generated a profit since its inception
and has relied on raising new equity to support its marketing plans. There is
no assurance that the Company will be able to raise new sources of working
capital or equity to continue the Company's business operations.

MANUFACTURING AND FULFILLMENT

         The Company "outsources" certain operating and manufacturing
processes and functions, and it expects to continue to do so for the
foreseeable future. The Company currently subcontracts production of pants in
Mexico and conversion of thermally-bonded raw liner material in the United
States.

          The Company has produced its adult incontinence pants through
subcontractors located in Canada and Mexico under non-exclusive supply
agreements. The Company has been advised by the Mexican subcontractor that it
has the capacity to produce 90,000 pants per month, which it can expand to
meet any foreseeable demand by the Company. Although the Company has made the
strategic decision to subcontract its pant manufacturing, it is not dependent
on any single contractor and believes it could quickly commence production
with other manufacturers in Mexico, Puerto Rico, Taiwan or China. The Company
presents purchase orders for pant product as it requires additional inventory
to serve its wholesale customers, however the Company does not anticipate
that it will add to its inventory of pant product until a distribution and/or
marketing partner is identified for US or international markets or it is
presented with non-cancelable purchase orders with appropriate security for
payment.

          LINER MANUFACTURING AND CONVERSION. The raw material for the
Company's liners is manufactured in an airlaid thermal bonding process using
SAPs. This process creates cloth-like products made from natural cellulose
fibers that are stronger, softer and more absorbent than other conventional
wet laid paper products. In the airlaid process, wood pulp is dried into
individual fibers, transported by air (rather than water as in conventional
papermaking) and then deposited uniformly with the assistance of a vacuum.
Once the fibers are laid uniformly, the rest of the paper making process
concentrates on progressively strengthening the material through compression
under heat and pressure and the application of adhesive binders. The use of
an airlaid process allows multi-layer introduction of SAPs uniformly over the
entire liner product.

                                       6

<PAGE>

          The airlaid raw material for the Company's liners had been
manufactured under a supply agreement, which was due to expire in August 2003
with Buckeye Cellulose Corporation, formerly known as Merfin Hygienic
Products Ltd. ("Buckeye"), a producer of airlaid paper. In July 1998 the
Company ended its exclusive supply agreement with Buckeye without penalty and
is now able to purchase raw material from Buckeye or any other supplier of
airlaid raw material in the US or in international markets for its
incontinence or children's absorbent products. To date, the Company has not
encountered any difficulties in obtaining its requisite supply of liner raw
material for its adult incontinence or its children's products.

          The airlaid rollstock material produced by an airlaid paper
manufacturer is shipped to subcontractors in the United States where it is
converted into finished liners according to the Company's specifications. The
process of liner conversion involves slitting the finished rolls of raw
materials into designated liner lengths, covering each liner with a soft
cotton-like coverstock, adding a self-adhesive strip to each liner and
packaging the liners for shipment to one of the Company's fulfillment centers
in Harrisburg, Pennsylvania, Sparks, Nevada, Dallas, Texas or in Vancouver,
Canada. See "--Warehousing and Shipping."

          The Company's liners have been converted by two conversion
companies in the United States, both of whom have advised the Company that
they have ample capacity to satisfy the Company's liner conversion needs.
There are several companies located in the United States and Europe who could
perform liner conversion services for the Company. The Company can present
purchase orders for liner product as it requires additional inventory to serve
its wholesale customers, however the Company does not intend to add to its
current inventory position until it enlists a distribution and/or marketing
partner for US or international markets or is presented with non-cancelable
purchase orders with adequate security for payment.

          WAREHOUSING AND SHIPPING. The Company currently uses various
companies for warehousing and shipping (fulfillment) services in Harrisburg,
Pennsylvania, Sparks, Nevada, Dallas, Texas and Vancouver, Canada. However,
the Company believes that there are numerous options for obtaining
warehousing and fulfillment services and that it would not be difficult to
make arrangements for additional or different service providers.

RESEARCH AND DEVELOPMENT

         In prior years, the Company has devoted time and financial resources
to research and development activities to develop its current products and
improvements to those products. These costs have declined in recent years,
with expenditures of $48,053 in 1998 and $95,790 in 1999, respectively. The
Company does not anticipate that research and development will represent a
significant portion of its expenses in the future.

BACKLOG

          The Company generally ships within three to ten days of receipt of
a purchase order depending upon the size of the order. Accordingly, backlog
is not significant for the Company.

COMPETITION

          The disposable incontinence products industry is highly competitive
and consists of several large and medium sized companies as well as numerous
smaller companies. Many of the Company's competitors have financial,
marketing and other resources substantially greater than those of the
Company's, as well as a substantially longer history of operations than the
Company. Competition in the industry is generally based on price,
performance, comfort as well as the ability to adequately advertise product
features and benefits to consumers on a national basis.

                                       7

<PAGE>

          The Company believes that its ability to compete depends on
elements both within and outside its control, including the success and
timing of new product developments by the Company and its competitors,
product performance and price, distribution and customer service. The Company
believes that its competitive position is based primarily on the
characteristics of its products which represent an improvement over
plastic-cased diaper products in terms of consumer comfort and dignity, cost,
product discretion and protection against side seepage. Although the Company
believes it offers products with price and performance characteristics
competitive with other manufacturers products, there is no assurance that new
products can be developed, manufactured or marketed successfully in the
future. In order to be successful, the Company must continue to respond
promptly and effectively to its competitors' innovations and be in a position
to promote and market such innovations to consumers. There is no assurance
that the Company will be able to compete successfully in the disposable
incontinence products industry.

         The retail market is dominated by major national brand product
manufacturers including Kimberly Clark's Depend-Registered Trademark- and
Poise-Registered Trademark- brands, Johnson & Johnson's Serenity-Registered
Trademark- brand and Proctor & Gamble's Attends-Registered Trademark- brand,
which was recently sold to Paper Pak, another industry competitor. In
addition to these companies which collectively dominate the market, the
retail market for disposable incontinence products is made up of medium sized
and small companies, as well as a small, but fast growing, private label
segment currently dominated by Confab, Inc.

          Proctor & Gamble Company, Kimberly Clark Corporation and INBRAND
Corporation dominate the healthcare market. Several medium sized and numerous
smaller firms account for the balance of the healthcare market.

PATENTS AND TRADEMARKS

         In November 1994, the U.S. Patent and Trademark Office issued a
patent to the Company covering the Company's channel pant design, that
expires on July 30, 2012. Management believes that favorable rulings on
certain patent claims will help protect against new entrants into the
combination two-piece incontinence and training pant market with similar
designs that specifically guard against side-seepage.

         There is no assurance that additional products that the Company
develops will be patentable, that the issued patent will provide the Company
with any competitive advantages or will not be challenged by any third
parties, or that the patents of others will not have an adverse effect on the
Company's business. Furthermore, there is no assurance that competitors will
not be able to design around the Company's patented products or develop or
acquire substantially equivalent trade secrets and proprietary technology
independent of the Company. Competitors of the Company may have filed
applications for, or may have received patents and may obtain additional
patents and proprietary rights relating to products that compete with those
of the Company. Litigation and other proceedings, which could result in
substantial cost to the Company, may be necessary to enforce any patents
issued to the Company to determine the scope and validity of third party
proprietary rights. In addition, there is no assurance that any patents
issued to the Company will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection or
commercial advantage to the Company.

                                       8

<PAGE>

         The Company uses a number of trademarks and logos in connection with
the sale and advertising of its products. The Company believes that its
trademarks and logos are of considerable value to its business and intends to
continue to protect them to the fullest extent possible.

         The Company also relies upon trade secrets, know-how, improvements
to technology, confidentiality agreements and the pursuit of collaborative
and licensing opportunities to develop and maintain its competitive
positions. Although the Company protects its proprietary technology in part
by confidentiality, agreements with its employees, consultants and certain
contractors, there can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be
independently discovered by its competitors.

         On June 30, 1999 the Company transferred approximately $170,000 of
intellectual property to Creative Products International, Inc. a wholly owned
subsidiary of the Company. As part of the agreement, the Company will retain
certain royalty free license rights for use of the patent in the adult
incontinence market.

EMPLOYEES

         During the fiscal year, the Company steadily reduced the number of
salaried staff as part of a administrative cost-cutting effort. As of March
31, 1999, the Company employed several part-time administrative and
accounting staff as well as varying numbers of people on an hourly full-time
basis and 4 persons on a full-time salaried basis. Of the full time staff, 1
was employed in operations and 3 in marketing and sales. The Company does not
have a collective bargaining agreement with any of its employees, and the
Company considers its employee relations to be satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTIES

         During the fiscal year, the Company maintained its executive and
marketing office at 200 First Avenue West, Suite 200, Seattle, Washington.
The office, covering approximately 4,800 square feet, is rented pursuant to a
lease from First Avenue West Building LLC, which, to the best of the
Company's knowledge, has no affiliation with any of the officers, directors
or principal stockholders of the Company. The lease was terminated on June
30, 1999 without penalty and now maintains temporary office space without a
lease at 5843 Woodlawn Ave, Seattle, Washington.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         The Company did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year ending March 31, 1999.


                                       9

<PAGE>

                                    PART II

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

(a) (1)  MARKET INFORMATION

         The Company's Common Stock traded on the Vancouver Stock Exchange
("VSE") under the symbol "CPI" since January 1994, following its merger with
FWCC Merger Corp., and under the symbol "CRP" since June 16, 1997, and under
the symbol "CPM" since November 4, 1997, and has also traded on the OTC
Bulletin Board under the symbol "CGPD" since August 14, 1997 and under the
symbol "CGPDD" from October 21, 1997 through November 20, 1997, and
commencing November 21, 1997, under the symbol "CGPD". On December 15, 1997,
the Common Stock began trading on the Nasdaq SmallCap Market under the symbol
"BDRY". On June 21, 1999, the common stock began to trade on OTC Bulletin
Board under the ticker symbol "BDRY" due to failure to maintain minimum bid
price on the Nasdaq SmallCap Market.

         The following table sets forth the high and low closing prices for
the Common Stock on the VSE for the periods indicated (i) stated in Canadian
dollars and, except as noted, without giving effect to the Reverse Stock
Splits and (ii) as adjusted, in U.S. dollars and retroactively giving effect
to the Reverse Stock Splits.

<TABLE>
<CAPTION>
                                                                                As Adjusted
                                                           ----------------------------------------------
                                                              Actual (Cdn.$)               (US$) (1)
                                                           -------------------       --------------------
                                                            High         Low          High           Low
                                                           ------       ------       ------        ------
<S>                                                        <C>          <C>          <C>           <C>
Fiscal Year Ended March 31, 1998
First Quarter through June 16, 1997 ..................     $  .85       $  .51       $14.40        $ 8.64
First Quarter from June 17, 1997(2) ..................       4.00         2.50        11.29          7.06
Second Quarter (2) ...................................       3.00         1.10         8.47          3.11
Third Quarter (3) (4) ................................       7.00         1.50        19.77         10.87
Fourth Quarter through January 23, 1998 (3) (4) (5)...       5.00         4.80        14.12         13.55
</TABLE>

----------
(1)      Canadian dollars have been converted at the noon buying rate on March
         31, 1998 of U.S.$1.00 = Cdn. $1.4166. These adjusted prices are not
         indicative of what the price might have been if the Reverse Stock
         Splits had occurred prior to June 16, 1997 or October 20, 1997, as the
         case may be, nor is any representation made that the Canadian dollar
         amounts could have been, or could be, converted into U.S. dollars at
         such rate or at any other rate on March 31, 1998.

(2)      Reflects the Reverse Stock Split effected on June 16, 1997.

(3)      Reflects the Reverse Stock Splits effected on June 16, 1997 and October
         20, 1997.

(4)      At the request of the Company, the Common Stock was not traded on the
         VSE from October 20, 1997 until November 3, 1997 in order to permit the
         Company to comply with certain requirements of the VSE, attendant to
         the Reverse Stock Split effected on October 20, 1997.

(5)      On December 15, 1997, the Company applied to cease trading on the VSE,
         which was effective January 23, 1998.

                                       10

<PAGE>

The following table sets forth the high and low bid prices for the Common
Stock on the OTC Bulletin Board for the periods indicated.  All prices are
stated in U.S. dollars and reflect the Reverse Stock Splits as indicated.

<TABLE>
<CAPTION>
                                                                                      Actual
                                                                             ----------------------
                                                                               High           Low
                                                                             -------        -------
<S>                                                                          <C>            <C>
Fiscal Year Ending March 31, 1998
Second Quarter from August 14, 1997 through September 30, 1997(1).......      $ 1.88        $ 1.00
Third Quarter through October 20, 1997 (1)..............................        1.63          1.13
Third Quarter from October 21, 1997 through December 15, 1997(2)........        6.50         2.625
</TABLE>

-----------
(1)   Reflects only the Reverse Stock Split effected on June 16, 1997.

(2)   Reflects the Reverse Stock Splits effected on June 16, 1997 and October
      20, 1997.

The following table sets forth the high and low bid prices for the Common Stock
on the Nasdaq SmallCap Market for the periods indicated. All prices are stated
in U.S. dollars:

<TABLE>
<CAPTION>
                                                                        Actual
                                                                 -------------------
                                                                 High            Low
                                                                 -----          -----
<S>                                                              <C>            <C>
Fiscal Year Ending March 31, 1998
Third Quarter from December 15 through December 31, 1997..        $3.87         3.00
Fourth Quarter ...........................................         4.00         2.625

<CAPTION>
                                                                        Actual
                                                                 -------------------
                                                                 High            Low
                                                                 -----          -----
<S>                                                              <C>            <C>
Fiscal Year Ending March 31, 1999
First Quarter .........................................           $2.88        $1.69
Second Quarter ........................................            3.44         1.75
Third Quarter .........................................            1.94          .25
Fourth Quarter ........................................            1.19          .41
</TABLE>

On July 9, 1999, the closing price of the Common Stock on the OTC Bulletin Board
Market was $.21875.

(a) (2)  RECENT SALES OF UNREGISTERED SECURITIES

         No securities that were not registered under the Securities Act of
1933 as amended (the "Act") have been issued or sold by the Registrant within
the past three years, except as described below. The share information below
does not reflect the Reverse Stock Splits except as otherwise noted.

         1. On May 8, 1997, the Company obtained an additional bank line of
credit and issued to the guarantor thereof, Bradstone Equity Partners Inc.
(f/k/a H.J. Forest Products Inc.), warrants to purchase 31,667 shares (post
reverse splits) of Common Stock at $7.44 per share at any time until May 8,
1998 and thereafter at $8.64 per share until May 8, 1999. Bradstone Equity
Partners Inc. is a Canadian publicly held corporation. These warrants were
issued pursuant to Regulation S. On May 5, 1998, the Company reduced the
exercise price of the warrants to $1.875 per share.

                                       11

<PAGE>

         2. From time to time during the past three years, the Company has
granted options and issued warrants to officers, directors and employees of
the Company. The grants of options have been made at exercise prices ranging
from $12.00 to $24.00 per share and the grants of warrants have been made at
exercise prices ranging from $7.44 to $19.20 per share. To date, no options
have been exercised. On May 5, 1998, the Company canceled and reissued all
options outstanding under the 1993 and 1996 Stock Incentive Plans and reduced
the exercise price to $1.875 per share (representing the closing price per
share of the common stock on that date). To the extent options or warrants
have been issued by the Company to U.S. persons, they have been issued to
sophisticated investors pursuant to the exemption for transactions not
involving a public offering provided in Section 4(2) of the Act, and the
securities have been appropriately legended.

         3. In connection with the settlement of certain litigation, on
October 22, 1997, the Company issued to three plaintiffs two-year warrants to
purchase an aggregate of 8,000 shares of Common Stock at an exercise price of
$3.34 per share. These warrants were issued to sophisticated investors
pursuant to the exemption for transactions not involving a public offering
provided in Section 4(2) of the Act, and the securities have been
appropriately legended.

         4. On December 15, 1997, the Company completed a public offering
(the Offering) of 1,750,000 units at $5.00 per unit, each unit consisting of
one share of the Company's Common Stock and a five-year warrant to purchase
one additional share at a price equivalent to 150% of the unit price, or
$7.50. Pursuant to the underwriters agreement, the exercise price of the
warrants was reduced to $6 at March 31, 1999.

         5. On May 5, 1998, the Company issued to Bradstone Equity Partners,
Inc. warrants to purchase 50,000 shares of Common Stock at $1.875 per share
at any time until May 4, 2000. Bradstone Equity Partners, Inc. is a Canadian
publicly held corporation. These warrants were subsequently amended to expire
May 4, 2003. These warrants were issued pursuant to Regulation S.

         6. On January 31, 1999, the Company issued to two non-executive
employees warrants to purchase one share of common stock at $1.875 until
January 31, 2004. The amount of warrants issued was 130,000. The warrants
have been issued to sophisticated investors pursuant to the exemption for
transactions not involving a public offering provided in Section 4(2) of the
Act, and the securities have been appropriately legended.

         7. On January 31, 1999, the Company issued to a non-executive
employee warrants to purchase 18,750 shares of common stock at $5 until
January 31, 2004. The warrants have been issued to sophisticated investors
pursuant to the exemption for transactions not involving a public offering
provided in Section 4(2) of the Act, and the securities have been
appropriately legended.

         8. On June 30, 1999 the Company issued a total of 275,000 restricted
shares under the 1999 Restricted Share plan to 4 employees of the Company.
These shares have been issued to sophisticated investors pursuant to the
exemption for transactions not involving a public offering provided in
Section 4(2) of the Act, and the securities have been appropriately legended.

         (b) HOLDERS

         The number of record holders of the Company's Common Stock as of
March 31, 1999 was 117.

         (c) DIVIDENDS

         The Company has never paid a dividend on its Common Stock. It is the
present policy of the Company not to pay cash dividends on the Common Stock.
Any payment of cash dividends on the Common Stock in the future will be
dependent upon the Company's financial condition, results of operations,
current and anticipated cash requirements, plans for expansion, as well as
other factors that the Board of Directors deems relevant.

                                       12

<PAGE>

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

         THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED
ELSEWHERE IN THIS FORM 10-KSB.

OVERVIEW

         From the date of the Company's incorporation in November 1992
through September 1995 when it began marketing Rejoice, the Company was
principally engaged in various activities, including product development,
technology acquisition, recruitment of employees, identification of sources
of subcontracted production, organization of marketing and production
headquarters, market research and testing, trademark and patent filings and
the raising of funds to support the Company's substantial product development
expenses. Revenues from various product test-marketing programs in retail,
catalog, direct mail and healthcare markets during that period were nominal.

         In order to consolidate the Company's marketing and production
management activities into a single location, the Company moved its
headquarters to Seattle, Washington from New York in August 1995.

         Until March 1996, the Company produced pants in its own facility in
Burnaby, British Columbia. Thereafter, the facility provided cutting and
other services to support a Canadian pant subcontractor. The Company secured
a new source of pant production during the fiscal year ended March 31, 1997
from a large underwear manufacturer located in Northern Mexico. That producer
offers the Company a lower per unit pant cost than the Company's per unit
pant cost at its own facility in Canada or through a Canadian-based pant
subcontractor. During Fiscal 1998, the Company closed its manufacturing
facility in Burnaby. The Company anticipates it can readily purchase pants
that it will continue to manufacture its pant and liner products through
subcontractors located in the United States and Mexico.

         In September 1995, the Company shipped product to its first regional
drug store chain for storewide distribution and shelf placement. In
subsequent years the Company expanded product distribution to include larger
chain drug stores, Veterans hospitals, catalogs, independent pharmacies and
surgical supply stores as well as promotional distribution on televised home
shopping stations and other specialty product outlets.

         As discussed below, the fiscal years ended March 31, 1998 and March
31, 1999 were characterized by nominal sales offset by significant expenses
associated with financing, product production and distribution, product
promotion, one time provision for chain allowances and certain reductions to
inventory valuation due to slower moving items or items which are no longer
promoted by the Company. The Company expects to continue to incur losses in
the foreseeable future.

         Quarter to quarter, the Company's sales can fluctuate with the
introduction of a large retail or drugstore chain, which requires higher
initial product requirements to stock store shelves. Additionally, gross
margins can fluctuate based on the mix of sales to healthcare and retail
customers, as well as the type of products sold. Gross profit margins are
also affected by the type of product sold and the manufacturing origin of the
product.

         In November, 1998, the Company dismissed its Chief Executive Officer
and Chairman of the Board, Mr. William Atkinson, for "cause" after the
Company's Board of Directors conducted an investigation of the circumstances
surrounding the former CEO designating Company funds as security for a
personal guarantee. Sandra Sternoff, the Company's Chief Financial Officer,
resigned in October, 1999. Susan Schreter became acting CEO of the Company.

         Given the increasing marketing and advertising costs associated with
increasing and maintaining distribution for its incontinence products at
larger retail drug chain stores, increased competition, and executive
management changes, in early 1999, the Company announced its intent to
evaluate all of its strategic options including licensing the Company's
products, potential acquisitions and or mergers, obtaining new sources of
equity and cost-cutting measures. There is no assurance that any of these
measures will improve the Company's cash flow, reduce the Company's losses,
or increase the sales and/or distribution for the Company's products without
increased expense to the Company.

                                       13

<PAGE>

RESULTS OF OPERATIONS

         COMPARISON OF THE FISCAL YEAR ENDED MARCH 31, 1998 TO THE FISCAL
YEAR ENDED MARCH 31, 1999

         Revenues decreased from $1,973,063 in Fiscal 1998 to $1,253,918 in
Fiscal 1999, a decrease of 36%. During Fiscal 1998 and the first quarter of
Fiscal 1999, the Company increased the number of retail outlets carrying the
Rejoice products through in-store programs, radio advertising and other
promotional activities to support brand introduction and consumer awareness.
However, during the second, third and fourth quarters of Fiscal 1999, the
lack of significant cash available for radio advertising to support a
nationwide network of retail stores as well as continued cash available for
higher than expected slotting fees and participation in costly required
in-store advertising programs affected the Company's ability to generate new
chain distribution or participate in existing larger chain store programs.
Reductions in consumer advertising further affected customer awareness to
generate steady re-order activity for a new brand entrant in many markets.
There was no significant change in the Company's pricing to its customers
from Fiscal 1998 to Fiscal 1999.

         Cost of sales increased from $1,322,375 in Fiscal 1998 to $2,161,229
in Fiscal 1999, an increase of 63%. This increase reflected a one time chain
allowance taken during the third fiscal quarter of $150,000, costs associated
with returned goods from retail vendors, December promotional pricing, and
type of product sold. For the fiscal year ended 1999, the Company generated a
gross loss of $925,311 as compared to a gross profit on sales of $650,688 in
Fiscal 1998. The combination of declining sales and higher than expected
product costs as detailed above accounted for the loss.

         Total operating expenses decreased from $3,721,927 in Fiscal 1998 to
$3,417,016 in Fiscal 1999, a decrease of 8% reflecting the Company's
over-all administrative and marketing cost cutting actions taken during the
second half of the fiscal year. Sales and marketing costs decreased 18% from
$2,197,210 in Fiscal 1998 to $1,795,920 in Fiscal 1999. Specific reductions
included the reduction in new distribution which typically requires slotting
fees ("listing fees"), one time product merchandising trays and other charges
associated with gaining new distribution including sales commissions. The
Company also incurred higher expenses in association with training and
marketing activities within the healthcare market, and higher inventory
storage costs resulting from higher inventory levels caused by lower than
anticipated levels of sales in Fiscal 1998.

         General and administrative expenses increased 6% from $1,454,088 in
Fiscal 1998 to $1,538,518 in Fiscal 1999. Despite reductions in the Company's
primary office administrative costs, the Company did incur higher than
expected legal fees associated with investigating the circumstances
surrounding the pledging of corporate assets by the former CEO, legal costs
associated with gaining the release of the Company's assets from a Canadian
institution and other costs associated with evaluating the Company's
strategic alternatives, as detailed above. The Company increased its
allowance for doubtful accounts in light of the Company's evaluation of
future participation in larger retail accounts in which the costs of
maintaining distribution are higher than catalog and other healthcare
oriented accounts.

         Depreciation and amortization expense increase from $70,629 in
Fiscal 1998 to $82,578 in Fiscal 1999, a 17% increase. The increase in
expense is related to affects of certain computer equipment purchases in late
1998 and certain filing of new trademark and copyrights associated with the
children's product lines.

         The Company generated interest income of $104,245 during Fiscal 1998
as compared to $85,231 in Fiscal 1999, a decrease of 18%. The decrease in
interest income is attributable to lower average deposit balances. Interest
expense decreased from $384,666 in Fiscal 1998 to $9,992 in Fiscal 1999, a
decrease of 97%. The decrease in interest expense related to the decrease in
short-term and long-term borrowing, as well as the recognition of the
unamortized deemed interest as expense upon the repayment of borrowings under
the Company's line of credit in December 1997 (Fiscal 1998.)

         As a result of the above, the Company generated a loss of $4.2
million in Fiscal 1999 as compared to $3.4 million in Fiscal 1998, an
increase of 23%. The Company's net loss per share in Fiscal 1999 was $1.53
per share as compared to $2.24 per share in Fiscal 1998.

                                       14

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations through private
placements of its equity securities as well as various debt financing
transactions. During Fiscal 1997, the Company supported its operations from
various short-term, unsecured borrowings from related parties, which totaled
$571,300 at March 31, 1997. In April 1997, $366,300 of such borrowings were
repaid and the $205,000 balance of such borrowings was repaid in June 1997,
in both cases using proceeds received from the Company's bank line of credit.

         In April 1997, Bradstone Equity Partners Inc., f/k/a/ H.J. Forest
Products Inc. ("Bradstone"), guaranteed a Cdn. $1.75 million credit facility
for the Company from the Toronto Dominion Bank. In July 1997, the guarantee
was increased by $1.25 million to an aggregate of approximately $3 million.
The guarantee was through April 1, 1998. Borrowings under the line of credit
bore interest at the Canadian prime rate plus .25% and were due on demand.
The Company issued to the guarantor warrants to purchase 31,667 shares of
Common Stock exercisable at $7.44 per share at any time until May 8, 1998 and
thereafter at $8.64 per share until May 8, 1999. The warrants were recorded
on issuance at their estimated fair market value of $163,592 with a
corresponding reduction in the recorded value of the line of credit. The debt
discount was being amortized to interest expense over the term of the line of
credit.

         In May 1997, the Company borrowed $780,000 out of a total possible
draw down of $1.25 million under a note payable to Bradstone. In July 1997,
the Company received the remaining $470,000 under the note payable to
Bradstone. Interest was payable thereunder at the Canadian prime rate plus 3%
and the principal was due in May 1998. In December 1997, the note payable to
Bradstone was repaid, including accrued interest of $65,983.

         In October 1997, Paulson Investment Company, Inc. ("Paulson"), one
of the representatives of the underwriters of the Company's public offering
completed in December 1997, made a $200,000 non-interest bearing loan to the
Company, and, in November 1997, Paulson made a $350,000 non-interest bearing
loan to the Company. The loans were to be repaid by the Company out of the
net proceeds of the public offering. The Company repaid these loans in
December 1997.

         On December 15, 1997, the Company completed a public offering ("the
Offering") of 1,750,000 units at $5.00 per unit, each unit consisting of one
share of the Company's common stock and a five-year warrant to purchase one
additional share at a price equivalent to 150% of the unit price. Proceeds
from the Offering were $6,823,972, net of offering costs.

         As of March 31, 1999, the Company's principal sources of liquidity
included cash of $707,847, net accounts receivable of $353,263 after
allowance for doubtful accounts of $460,000 and inventories of $560,338. The
Company's projected net realizable value of its inventory was reduced by $1
million to reflect certain slower moving inventory, certain items which can
be sold only at a single drug store chain, certain goods that are no longer
actively marketed by the Company. Additional reduction in inventory position
reflects continued sales of the Company's products. The Company's operating
activities used cash of $2,679,458 for the year ended March 31, 1999. The
Company anticipates that the levels of both inventories and accounts
receivable collection will vary commensurate with the Company's sales and
differences between the retail and healthcare markets addressed.

         The Company's future liquidity will be dependent on the Company's
ability to continue to sell its inventory, raise new equity or debt, collect
its receivables and reduce its operating expenses. There is no assurance that
the Company will be able to generate the funds needed to offset its current
and future obligations on a timely basis.

          On December 14, 1997, US $350,160.05 was deposited into an account
at the direction of the Company's former Chief Executive Officer, Mr. William
H.W. Atkinson to secure an undisclosed personal commitment between the CEO
and his brother. On January 12, 1998, the former CEO signed a personal
guarantee form and designated Company funds as security for the personal
guarantee. The existence of the pledge was brought to the Company's attention
by the depository in late September. The Board of Directors immediately
initiated an investigation with respect to the pledge and related matters. On
November 8, 1998, the Board took action to prevent the application of the
Company's funds to support the personal guarantee, removed Mr. Atkinson as
Chairman, and terminated his employment contract with the Company, pursuant
to its terms. Susan Schreter, the Company's President, subsequently assumed
the responsibilities of CEO. On November 13, 1998 the depository notified the
Company that it had placed a hold on the Company's accounts pending an
investigation of documentation. The Company responded and filed a lawsuit
against the depository demanding the release of the Company's funds. On
February 9, 1999, the Company settled its litigation with the depository. A
total of US $360,913.65, representing both US and Canadian dollar accounts,
was returned to the Company and the Company was released by the depository
from further potential liability under the unauthorized guarantee signed by
Mr. Atkinson. Both accounts at the depository were subsequently closed. The
loss, not including legal expenses of over $100,000, was approximately US
$57,000.

                                       15

<PAGE>

OTHER MATTERS

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

          During 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information ("SFAS
131") which establishes standards for the way public business enterprises are
to report information about operating segments in annual financial statements
and requires those enterprises to report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes the related disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS 131 had no significant
impact on the Company's consolidated financial statements.

FORWARD LOOKING STATEMENTS

         This Form 10-KSB and other reports and statements filed by the
Company from time to time with the Securities and Exchange Commission
(collectively the "Filings") contain or may contain forward-looking
statements and information that are based upon beliefs of, and information
currently available to, the Company's management, as well as estimates and
assumptions made by the Company's management.

         When used in the Filings, the words "anticipate", "believe",
"estimate", "expect", "future", "intend", "plan" and similar expressions, as
they relate to the Company or the Company's management, identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to risks, uncertainties
and assumptions relating to the Company's operations and results of
operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries which constitute the
customers of the Company, the costs of product development and other risks
and uncertainties, including, in addition to any uncertainties with respect
to management of growth, increases in sales, the competitive environment,
hiring and retention of employees, pricing, new product introductions,
product productivity, distribution channels, enforcement of intellectual
property rights, possible volatility of stock price and general industry
growth and economic conditions. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended or planned.

ITEM 7.  FINANCIAL STATEMENTS.

         The following consolidated financial statements of Caring Products
International, Inc. are included in Item 7:

         Consolidated Balance Sheets at March 31, 1998 and 1999.

         Consolidated Statements of Operations for the Years Ended March 31,
1998 and 1999.

         Consolidated Statement of Stockholders' Equity for the Years Ended
March 31, 1998 and 1999.

         Consolidated Statements of Cash Flows for the Years Ended March 31,
1998 and 1999.

         Notes to Consolidated Financial Statements.

                                       16

<PAGE>



                      CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                       Consolidated Financial Statements

                            March 31, 1998 and 1999

                  (With Independent Auditors' Reports Thereon)


                                       17

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Caring Products International, Inc.:

We have audited the accompanying consolidated balance sheets of Caring
Products International, Inc. and subsidiaries as of March 31, 1998 and March
31, 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Caring Products International, Inc. and subsidiaries as of March 31, 1998
and March 31, 1999, and the results of their operations and their
consolidated cash flows for the years then ended in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company incurred a net loss of $4,258,727 and a
negative gross profit of $925,311 during the year ended March 31, 1999. These
factors, among others, as discussed in Note 3 to the financial statements
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/  GRANT THORNTON LLP

Seattle, Washington
June 17, 1999 (except for Notes 8 & 11(c)
as to which the date is June 30, 1999)

                                       18
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                    March 31

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                       1998                  1999
                                                                                   ------------         ------------
<S>                                                                                <C>                  <C>
Current assets:
     Cash                                                                          $  3,415,569         $    707,847
     Accounts receivable, less allowance for doubtful
        accounts of $23,279 in 1998 and $460,000 in 1999                                600,795              353,263
     Inventories                                                                      2,263,333              560,338
     Prepaid expenses                                                                    15,782               25,208
                                                                                   ------------         ------------
                           Total current assets                                       6,295,479            1,646,656
Equipment, net                                                                          221,245              143,798
Intangible assets, net                                                                  204,205              173,580
Other assets                                                                             18,041               18,041
                                                                                   ------------         ------------
                                                                                   $  6,738,970         $  1,982,075
                                                                                   ------------         ------------
                                                                                   ------------         ------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable                                                                   $  1,040,096         $    326,745
Accrued liabilities                                                                      68,788               43,826
Customer deposits                                                                             -              244,575
                                                                                   ------------         ------------
                           Total current liabilities                                  1,108,884              615,146
Commitments and contingencies                                                                 -                    -

Stockholders' equity:
Preferred stock, par value $.01 per share; authorized,
        1,000,000 shares; none outstanding Common stock, par value $.01 per
     share; authorized                                                                        -                    -
        75,000,000 shares; issued and outstanding,
        2,781,343 in March 31, 1998 and 1999                                             27,814               27,841
Additional paid-in capital                                                           19,686,115           19,681,685
Accumulated deficit                                                                 (14,083,843)         (18,342,570)
                                                                                   ------------         ------------
                           Total stockholders' equity                                 5,630,086            1,366,929
                                                                                   ------------         ------------

                                                                                   $  6,738,970         $  1,982,075
                                                                                   ------------         ------------
                                                                                   ------------         ------------
</TABLE>

See accompanying notes to consolidated financial statements

                                       19

<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                            Years ended March 31

<TABLE>
<CAPTION>
                                                               1998               1999
                                                           -----------         -----------
<S>                                                        <C>                 <C>
Revenues                                                   $ 1,973,063         $ 1,235,918
Cost of sales                                                1,322,375           2,161,229
                                                           -----------         -----------

                           Gross profit (loss)                 650,688            (925,311)
Operating expenses:
     Selling                                                 2,197,210           1,795,920
     General and administrative                              1,454,088           1,538,518
     Amortization and depreciation                              70,629              82,578
                                                           -----------         -----------

                           Total operating expenses          3,721,927           3,417,016
                                                           -----------         -----------
                           Loss from operations             (3,071,239)         (4,342,327)

Other income (expense):
     Interest income                                           104,245              85,231
     Interest expense                                         (384,666)             (9,992)
     Other, net                                               (101,020)              8,361
                                                           -----------         -----------
                                                              (381,441)             83,600
                                                           -----------         -----------

                           Net loss                        $(3,452,680)        $(4,258,727)
                                                           -----------         -----------
                                                           -----------         -----------

Net loss per common share                                  $     (2.24)        $     (1.53)
                                                           -----------         -----------
                                                           -----------         -----------

Weighted average common shares                               1,539,562           2,781,343
                                                           -----------         -----------
                                                           -----------         -----------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       20

<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Years ended March 31

<TABLE>
<CAPTION>
Increase (Decrease) in cash                                        1998                 1999
                                                                -----------         -----------
<S>                                                             <C>                 <C>
Cash flows from operating activities:
     Net loss                                                   $(3,452,680)        $(4,258,727)
     Adjustments to reconcile net loss to net
      cash used in operating activities:
     Amortization and depreciation                                   94,426             116,333
     Provision for losses in accounts receivable                          -             436,721
     Provision for losses in inventory                                    -           1,094,983
     Write-off of intangible assets                                       -              15,000
     Loss from disposal of equipment                                 28,564                 573
     Deemed interest                                                163,592                   -
     Change in operating assets and liabilities:
     Accounts receivable                                             24,290            (189,189)
     Inventories                                                    169,250             608,012
     Prepaid expenses                                                 3,259              (9,426)
     Other assets                                                    (9,106)                  -
     Accounts payable                                                10,678            (713,351)
     Accrued liabilities                                           (106,218)            (24,962)
     Customer deposits                                                    -             244,575
                                                                -----------         -----------
                   Net cash used in operating activities         (3,073,945)         (2,679,458)
                                                                -----------         -----------


Cash flows from investing activities:
     Purchase of equipment                                          (72,697)                  -
     Acquisition of intangible assets                                (3,834)            (23,834)
     Proceeds from disposal of equipment                             17,740                   -
                                                                -----------         -----------
                   Net cash used in investing activities            (58,791)            (23,834)
                                                                -----------         -----------

Cash flows from financing activities:
     Net proceeds from issuance of common stock
        and capital contributions                                 6,823,972                   -
     Decrease in restricted cash                                  2,694,671                   -
     Repayment of lines of credit, net                           (2,500,000)                  -
     Payment on deferred offering costs                                   -              (4,430)
     Repayment of long-term debt                                    (17,611)                  -
     Proceeds from notes payable to related parties               1,994,650                   -
     Repayment of notes payable to related parties               (2,565,950)                  -
                                                                -----------         -----------
                   Net cash provided by (used in)
                      financing activities                        6,429,732              (4,430)
                                                                -----------         -----------

                   Increase (decrease) in cash                    3,296,996          (2,707,722)
Cash at beginning of period                                         118,573           3,415,569
                                                                -----------         -----------
Cash at end of period                                           $ 3,415,569         $   707,847
                                                                -----------         -----------
                                                                -----------         -----------

Supplemental disclosure of cash flow information -
     cash paid during the period for interest                   $   384,666         $     9,992
                                                                -----------         -----------
                                                                -----------         -----------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       21

<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                       Years ended March 31, 1998 and 1999

<TABLE>
<CAPTION>
                                                 Common stock               Additional                              Total
                                         ---------------------------         paid-in         Accumulated        stockholders'
                                           Shares          Amount            capital            deficit            equity
                                         ----------     ------------      ------------       ------------       -------------
<S>                                      <C>            <C>               <C>                <C>                <C>

      Balance at April 1, 1997           1,031,343      $     10,314      $ 12,716,051       $(10,631,163)      $  2,095,202
Fair value of warrants issued
   with line of credit guarantee                 -                 -           163,592                  -            163,592
Proceeds from offering of common
   stock, net of issuance costs          1,750,000            17,500         6,806,472                  -          6,823,972
Net loss                                         -                 -                 -         (3,452,680)        (3,452,680)
                                         ----------     ------------      ------------       ------------       ------------
      Balance at March 31, 1998          2,781,343            27,814        19,686,115        (14,083,843)         5,630,086
Offering expenses                                -                 -            (4,430)                 -              4,430)
Net loss                                         -                 -                 -         (4,258,727)        (4,258,727)
                                         ----------     ------------      ------------       ------------       ------------
      Balance at March 31, 1999          2,781,343      $     27,814      $ 19,681,685       $(18,342,570)      $  1,366,929
                                         ----------     ------------      ------------       ------------       ------------
                                         ----------     ------------      ------------       ------------       ------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       22

<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 1998 and 1999


(1)  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

     (a)  DESCRIPTION OF BUSINESS

          Caring Products International, Inc. (CPI) is organized under the laws
          of the state of Delaware. CPI's business is the marketing of
          proprietary adult urinary incontinence products, primarily in the
          United States.

     (b)  BASIS OF PRESENTATION

          These consolidated financial statements are prepared in accordance
          with generally accepted accounting principles in the U.S. and present
          the financial position, results of operations and changes in financial
          position of CPI and its wholly-owned subsidiaries (collectively, the
          "Company"). All material inter-company balances and transactions have
          been eliminated in consolidation.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  INVENTORIES

          Inventories are stated at the lower of cost, as determined by the
          first-in, first-out method, or market (net realizable value).

     (b)  EQUIPMENT

          Equipment is stated at cost less accumulated depreciation and
          amortization. Depreciation and amortization is calculated using the
          straight-line method over the estimated useful lives of the assets
          ranging from 2 to 5 years.

     (c)  INTANGIBLE ASSETS

          Intangible assets, representing technology purchased and costs of
          patents, copyrights and trademarks, are stated at cost. Amortization
          is recorded using the straight-line method over the assets' estimated
          useful lives which do not exceed 10 years. The Company periodically
          reviews its intangible assets to assess recoverability. Impairment
          is recognized in operating results when intangible assets are
          deemed unrecoverable.

          At March 31, 1999, the Company has written off $15,000 of its
          intangible assets to reflect certain trademarks that are no longer
          used in the Company's business. On June 30, 1999, the Company
          transferred approximately $170,000 of intellectual property
          associated with its children's products to Creative Products
          International, Inc., a wholly owned subsidiary of the Company. See
          Note 7.

     (d)  REVENUE RECOGNITION

          The Company recognizes revenue and establishes provisions for
          estimated product returns when its products are shipped to customers.
          Products of the Company held by various third party storage and
          delivery companies are not recognized in revenue, but are included in
          inventory.

                                       23

<PAGE>

     (e)  MARKETING AND ADVERTISING

          The Company recognizes the production costs of advertising in the
          period the services are provided. Costs related to one-time listing
          allowances (slotting fees) to enter large, retail chains are expensed
          as incurred. Advertising costs totaled approximately $442,000 and
          $515,000 as of March 31, 1998 and 1999, respectively.

     (f)  RESEARCH AND DEVELOPMENT

          Research and development costs are expensed as incurred.

     (g)  FOREIGN CURRENCY TRANSLATION

          The Company considers the U.S. dollar to be its functional currency.
          The Company has a wholly owned subsidiary, located in Canada.
          Accordingly, transactions by the subsidiary denominated in Canadian
          dollars are re-measured at the exchange rates in effect at the date of
          the transaction. At each balance sheet date, monetary balances
          denominated in currencies other than the U.S. dollar are re-measured
          using current exchange rates.

          Gains and losses resulting from foreign currency transactions are
          included in other, net, in the consolidated statements of operations.
          Gains and losses arising from these transactions for each of the years
          ended March 31, include a loss of $73,502 and $133,205 for 1998 and
          1999, respectively.

     (h)  INCOME TAXES

          The Company follows the asset and liability method of accounting for
          income taxes. Under the asset and liability method of accounting for
          income taxes, deferred tax assets and liabilities are recognized based
          on the estimated future tax consequences attributable to differences
          between the financial statement carrying amount of existing assets and
          liabilities and their respective tax bases. Deferred tax assets and
          liabilities are measured using enacted tax rates in effect for the
          year in which those temporary differences are expected to be recovered
          or settled. The effect on deferred tax assets and liabilities of a
          change in tax rates is recognized in income in the period that
          includes the enactment date.

     (i)  LOSS PER SHARE

          Loss per share is based on the weighted average number of shares
          outstanding during each period. The weighted average number of
          common shares was 2,781,343 and 1,539,562 as of March 31, 1999 and
          March 31, 1998 respectively. The computation for loss per share
          assuming dilution for the years ended March 31, 1999 and March 31,
          1998 was anti-dilutive and therefore is not included.


                                       24

<PAGE>

     (j)  USE OF ESTIMATES

          The preparation of consolidated 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 these estimates.

      (k) RECLASSIFICATIONS

          Certain reclassifications have been made to the 1998 statements in
          order to conform to the 1999 presentation.

(3)  GOING CONCERN

     As shown in the consolidated financial statements, the Company incurred
     a net loss of $4,258,727 in 1999 and $3,452,680 in 1998. The Company
     also incurred a negative gross profit of $925,311 in March 31, 1999.
     These factors, as described below, raise substantial doubt about the
     Company's ability to continue as a going concern. The Company's ability
     to continue as a going concern is contingent upon its ability to
     maintain positive cash flow from operating and financing activities. The
     Company's plans with respect to these matters are described below.

     In order to reduce general and administrative expenses, the Company has
     terminated its lease agreement and moved into a lower cost space as
     described in Note 10. The Company has also significantly reduced the
     number of its employees and decreased its selling and marketing
     expenses, which have historically been a high component of the Company's
     cash needs. The Company is reviewing all of its strategic options at
     this time.

(4)  CONCENTRATION OF RISK

     The Company maintains cash equivalents with various financial institutions
     located in the U.S. and Canada. The Company's policy is to limit the
     exposure at any one financial institution and to invest solely in highly
     liquid investments that are readily convertible to cash.

     The Company sells its products to various customers located primarily in
     the U.S. The Company performs ongoing credit evaluations of its customers'
     financial condition, and generally requires no collateral as security
     against accounts receivable. During the year ended March 31, 1998, two
     customers accounted for approximately 48% of total revenues. Approximately
     55% of the Company's revenues were from one customer during the year ended
     March 31, 1999. At March 31, 1998 and 1999, one customers accounted for
     approximately 75% and 58%, respectively, of the net accounts receivable
     balance.

(5)  REVERSE STOCK SPLITS

     In June 1997, the Company completed a one-for-six reverse stock split of
     its issued and outstanding common stock, and in October 1997, the Company
     completed an additional one-for-four reverse stock split of its issued and
     outstanding common stock. These consolidated financial statements have been
     restated to reflect the reverse stock splits.

(6)  INVENTORIES
     Inventories consisted of the following:

<TABLE>
<CAPTION>
                                  March 31,       March 31,
                                   1998             1999
                                 ----------      ----------
<S>                              <C>             <C>
Finished goods                   $2,154,395      $  545,338
Work-in-process                      86,228               -
Raw materials and packaging          22,710          15,000
                                 ----------      ----------
                                 $2,263,333      $  560,338
                                 ----------      ----------
                                 ----------      ----------
</TABLE>

     The company wrote down $1,094,983 of inventory to account for certain
     products that were held more than a 12 month period, products specifically
     packaged for a retail chain on a specific market in which the Company's
     products are no longer in active distribution, and various children's
     products produced for test marketing or consumer test purposes.

                                       25

<PAGE>

(7)  EQUIPMENT

     Equipment consists of the following:

<TABLE>
<CAPTION>
                                                    March 31,      March 31,
                                                      1998           1999
                                                    ---------     ---------
<S>                                                 <C>           <C>
Computer equipment                                  $106,100      $106,100
Office equipment                                      66,838        66,265
Plant equipment                                      122,445       122,445
Leasehold improvements                                 5,670         5,670
                                                    --------      --------
                                                     301,053       300,480

Less accumulated depreciation and amortization        79,808       156,682
                                                    --------      --------

         Net equipment                              $221,245      $143,798
                                                    --------      --------
                                                    --------      --------
</TABLE>

(8)   INTANGIBLE ASSETS

      Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                    March 31,     March 31,
                                      1998          1999
                                    --------      --------
<S>                                 <C>           <C>
Purchased technology                $250,000      $250,000
Patents and trademarks               130,922       154,756
                                    --------      --------
                                     380,922       404,756

Less accumulated amortization        176,717       231,176
                                    --------      --------

         Net intangible assets      $204,205      $173,580
                                    --------      --------
                                    --------      --------
</TABLE>

         On June 30, 1999, the Company transferred approximately $170,000 of
         intellectual property including copyrights and trademarks related to
         its development stage children's products to Creative Products
         International, Inc. During June 1999, the Board of Directors approved
         the spin-off of Creative Products International, Inc. to shareholders
         of record on June 30, 1999. Shareholders of record of the Company will
         receive one share of Creative Products International, Inc. common stock
         for every two shares of Caring Products International, Inc. stock.

(9)  RELATED PARTIES

     At March 31, 1998 and 1999, accounts payable included $8,710 and $72,638 in
     payables to related parties, respectively, for legal services. During the
     years March 31, 1998 and 1999, the Company paid approximately $56,500 and
     $20,000, respectively, in consulting fees to a related party.

                                       26

<PAGE>

(10) COMMITMENTS

     The Company leases certain equipment under operating lease agreements that
     expire through 2002. Aggregate minimum payments to be made under these
     agreements at March 31, 1999 are approximately as follows: 2000 - $17,700;
     2001 - $12,000; and 2002 - $850. Rental expense for leased equipment during
     the years ended March 31, 1998 and 1999 totaled $12,669 and $16,726
     respectively.

     During 1999, the Company leased office facilities under an operating lease
     agreement, which was terminated without penalty in June 1999. Rent expense
     for leased facilities during the years ended March 31, 1998 and 1999
     totaled $88,220 and $89,949 respectively.

(11) STOCKHOLDERS' EQUITY

     (a)  PUBLIC OFFERING

     On December 15, 1997, the Company completed a public offering ("the
     Offering") of 1,750,000 units at $5.00 per unit, each unit consisting of
     one share of the Company's common stock and a five-year warrant to purchase
     one additional share at a price equivalent to 150% of the unit price.
     Proceeds from the Offering were $6,823,972, net of offering costs. All of
     the Company's outstanding debt was repaid in December 1997 with proceeds
     from the Offering. Pursuant to the terms of the underwriter's agreement,
     warrants issued in conjunction with the completion of the public offering
     were reduced from $7.50 to $6 per share at fiscal year end 1999.


     (b)  WARRANTS

     At March 31, 1998 and March 31, 1999 the Company had warrants
     outstanding to purchase common shares as follows:

<TABLE>
<CAPTION>
                                                                                           March 31
                                                                                    ----------------------
                                                                                     1998            1999
                                                                                    -------         -------
<S>                                                                                 <C>             <C>
      Warrants issued in conjunction with the Private Placement
         whereby one warrant entitles the holder to purchase one
         share at $15.03; subsequently amended to expire
         on May 4, 2000 with an increase in warrant amount which
         can be exercised at $1.875                                                  135,708        203,563
      Warrants issued pursuant to the guarantee of the bank line
         of credit whereby one warrant entitled the holder to
         purchase one share at $7.44 through May 8, 1998 and
         thereafter at $8.64 through May 8, 1999; subsequently
         amended to $1.875 through May 8, 1999                                        31,667         31,667
      Warrants issued whereby one warrant entitles the holder to
         purchase one share at $3.34 until October 21, 1999                            8,000
      Warrants issued to non executive employee to purchase one share
         at $5.00 until January 31, 2004                                                   -         18,750
      Warrants issued to two non executive employees to purchase one
         share at $1.875 until January 31, 2004                                            -        130,000
      Warrants issued to non employee to purchase one share
         at $1.875 until May 4, 2003                                                       -         50,000
      Warrants issued in conjunction with completion of public
         offering at a price of $7.50, subsequently reduced exercise price to
         $6 pursuant to underwriter's agreement, until
         December 15, 2002                                                         1,750,000      1,750,000
                                                                                   ---------      ---------
                  Total warrants outstanding                                       1,925,375      2,183,980
                                                                                   ---------      ---------
                                                                                   ---------      ---------
</TABLE>

                                       27

<PAGE>

      (c)  RESTRICTED COMMON STOCK

      On February 1, 1999 the Company approved the 1999 Restricted Stock Plan
      which provides for the issuance of up to 275,000 shares of the Company's
      common stock under certain conditions to the Company's management. On June
      30, 1999, the Company issued a total of 275,000 share certificates to
      several employees including 130,000 to an executive and director of the
      Company.

(12) EMPLOYEE BENEFIT PLANS

     (a)  RETIREMENT PLAN
          In March 1997, the Company established a 401(k) savings and retirement
          plan covering all full time employees who are at least 21 years of age
          and have at least three months of service. Under the plan, employees
          may defer up to 15% of their pretax salary, but not more than the
          statutory limits. The Company did not match employee contributions to
          the plan for the years ended March 31, 1998 and March 31, 1999. The
          plan was dissolved as of December 31, 1998 due to lack of
          participation.

     (b)  STOCK OPTION PLANS

          As of March 31, 1998, and March 31, 1999, the Company had two
          incentive stock option plans which are described below:

          1993 INCENTIVE PROGRAM: Under the 1993 Incentive Program, as amended
          and restated, 87,167 shares of common stock plus 10% of any increase
          in the number of shares of common stock issued and outstanding from
          the date of the program agreement to the date the program was formally
          adopted by the Company's Board of Directors are available for grant to
          eligible employees and consultants of the Company. The aggregate fair
          market value of stock which becomes exercisable by an individual
          grantee pursuant to the plan is limited to $100,000 in any calendar
          year.

          Stock options under the 1993 Incentive Program vest immediately for
          individuals on the Board of Directors of the Company, after two years
          of service for all employees, and after two years of affiliation with
          the Company for consultants. Although the program allows stock options
          to be issued for a maximum term of ten years, all stock options
          outstanding have a maximum term of five years from the date of grant.
          Stock options are granted at an exercise price equal to the closing
          bid price on the date of the Board of Directors' approval or higher.
          In November 1996, the Company's Board of Directors resolved that no
          additional stock options would be granted under the 1993 Incentive
          Program.

          1996 INCENTIVE PROGRAM: Under the 1996 Incentive Program, 208,333
          shares of common stock less any shares outstanding under the 1993
          Incentive Program, plus any shares forfeited under the 1996 and 1993
          Incentive Programs, shares purchased by the Company on the open market
          and shares surrendered to the Company in payment of the exercise price
          of stock options issued under the 1996 and 1993 Incentive Programs are
          available for grant to eligible employees and consultants of the
          Company. No award may be granted which will result in the awards
          outstanding under the plan to be more than 25% of the total number of
          shares the Company has outstanding.

          Stock options under the 1996 Incentive Program vest immediately for
          individuals on the Board of Directors of the Company, after two years
          of service for all employees and after two years of affiliation with
          the Company for consultants. Although the program allows stock options
          to be issued for a maximum term of ten years, all stock options
          outstanding have a maximum term of five years from the date of grant.
          Stock options are granted at an exercise price equal to the closing
          bid price on the date of the Board of Directors' approval.

                                       28

<PAGE>

          In August 1997, the Company amended its 1996 Incentive Program to,
          among other things, modify the total shares of common stock available
          for grant to eligible employees and consultants of the Company from
          208,333 to 625,000. The amendment was approved by the Company's
          stockholders in October 1997. At March 31, 1998 there were 139,358
          stock options under the 1993 and 1996 Plans outstanding with a
          weighted average exercise price of approximately $16.08. The options
          were adjusted for a 1:6 and 1:4 reverse stock split in fiscal 1998. At
          March 31, 1999 there were 572,000 stock options under the 1993 and
          1996 Plans outstanding at an exercise price of $1.875 of which 572,000
          are vested. On May 5, 1998, the Company cancelled all shares under the
          1993 and 1996 Plans outstanding and re-issued 552,000 stock options at
          an exercise price of $1.875, which expire on May 3, 2003. The Company
          also issued 20,000 stock options at an exercise price of $1.875 which
          expire on July 6, 2003.

          In August 1997, the Company granted 306,250 stock options, subject to
          certain contingencies to certain employees at an exercise price of $5
          which expire on August 27, 2002. At March 31, 1998 there were 300,000
          stock options outstanding. During the fiscal year ended March 31,
          1999, 187,500 of these options were retired. There were 112,500 stock
          options outstanding as of March 31, 1999 of which 112,500 were vested.

          The Company applied APB Opinion No. 25 and related interpretations in
          accounting for its plans. Accordingly, no compensation cost has been
          recognized for its stock option awards. Had compensation cost for the
          Company's stock option awards been determined consistent with SFAS No.
          123, the Company's net loss would have been increased to the pro forma
          amounts indicated below:

<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31
                                                     --------------------------
                                                       1998             1999
                                                     ----------       ----------
                  <S>                                <C>              <C>
                  Net loss:
                           As reported               $3,452,680       $4,258,727
                           Pro forma                 $3,583,052       $4,869,327
                  Net loss per share:
                           As reported               $     2.24       $     1.53
                           Pro forma                 $     2.33       $     1.75
</TABLE>

          The fair value of option grants is estimated using the Black-Scholes
          option pricing model with the following weighted average assumptions
          used for grants in fiscal year 1999: expected volatility of 173.47%;
          risk free interest rate of 6.50%; expected lives of five years; and a
          zero percent dividend yield. The following weighted average
          assumptions were used for grants in fiscal year 1998: expected
          volatility of 83.4%; risk free interest rate of 6.50%; expected lives
          of four years; and a zero percent dividend yield. The weighted average
          grant-date fair value of re-priced stock options was $1.79 per share.
          On May 5,1998, the Company canceled and reissued all outstanding stock
          options under the 1993 and 1996 Plans at an exercise price of $1.875
          which expire on May 3, 2003. On July 6, 1998 the Company issued 20,000
          stock options at a price of $1.875 to a consultant which expire July
          6, 2003. The weighted fair market value average for stock options
          issued during the fiscal year ended March 31, 1998 was $.78. The
          weighted fair market value average for stock options issued or
          repriced during the fiscal year ended March 31, 1999 was $1.79.

                                       29

<PAGE>

         The following is a summary of stock options outstanding at March 31,
1998:

<TABLE>
<CAPTION>
                                                            OPTIONS OUTSTANDING
                                                            --------------------
                                                              WEIGHTED-AVERAGE
                                            NUMBER                REMAINING         NUMBER OF OPTIONS
         EXERCISE PRICES                 OUTSTANDING           CONTRACTUAL LIFE        EXERCISABLE
         ---------------                 -----------           ----------------     -----------------
         <S>                             <C>                   <C>                  <C>
         $  19.68                           73,858                  2.90                  73,858
         $  12.00                           65,500                  3.66                  49,667
         $   5.00                          300,000                  4.41                  75,000
</TABLE>


         The following is a summary of stock options outstanding at March 31,
1999:

<TABLE>
<CAPTION>
                                                            OPTIONS OUTSTANDING
                                                            --------------------
                                                              WEIGHTED-AVERAGE
                                            NUMBER                REMAINING         NUMBER OF OPTIONS
         EXERCISE PRICES                 OUTSTANDING           CONTRACTUAL LIFE        EXERCISABLE
         ---------------                 -----------           ----------------     -----------------
         <S>                             <C>                   <C>                  <C>
         $  1.875                           20,000                 4.27 years             20,000
         $  1.875                          552,000                 4.09 years            552,000
         $  5.00                           112,500                 3.41 years            112,500
</TABLE>

     (13) INCOME TAXES

          The Company accounts for income taxes on the liability method, as
          provided by Statement of Financial Accounting Standards 109,
          ACCOUNTING FOR INCOME TAXES (SFAS 109).

          The Company had net deferred tax assets, primarily consisting of net
          operating loss carryforwards, of approximately $1,650,000 and
          $1,448,000 arising in the years ended March 31, 1998 and 1999,
          respectively. Total U.S. Federal net operating loss carryforwards of
          approximately $8,100,000 at March 31, 1999 expire in the years 2009
          to 2019, but are further limited, as discussed below.

          The Company has not recorded an income tax benefit in the years ended
          March 31, 1998 and 1999 due to the recording of a valuation allowance
          as an offset to the net deferred tax assets. A valuation allowance is
          provided due to uncertainties relating to the realization of the
          deferred tax assets. During Fiscal 1998, the deferred tax asset and
          corresponding valuation allowance were decreased by approximately
          $1,818,000 to reflect limitations due to an effective change of
          ownership arising from the sale of common stock. A significant portion
          of the U.S. Federal net operating loss will expire unused because of
          this change. Further, due to potential limitations under Section 382
          of the Internal Revenue Code, some of the new operating losses may not
          be available and subsequent changes in ownership may result in further
          limitations. As of March 31, 1999, the valuation allowance was
          increased by $1,448,000.

                                       30

<PAGE>

          The income tax provision reconciled to the tax computed at the
          statutory Federal rate for Fiscal 1998 was as follows:

<TABLE>
                  <S>                                 <C>
                  Tax at statutory rate              $ 1,448,000
                  Valuation allowance                 (1,448,000)
                                                      ----------
                                    TOTAL             $        -
                                                      ----------
                                                      ----------
</TABLE>

     (14) FAIR VALUE OF FINANCIAL INSTRUMENTS

          The Company's financial instruments include cash, money market funds,
          receivables, and accounts payable. The fair value of these financial
          instruments approximates their carrying amounts based on current
          market indicators, such as prevailing interest rates.


     (15) CONTINGENCIES

          The Company is subject to various claims and contingencies related to
          lawsuits, taxes and other matters arising in the normal course of
          business. Management believes the ultimate liability, if any, arising
          from such claims or contingencies is not likely to have a material
          adverse effect on the Company's results of operations or financial
          condition.

                                       31

<PAGE>

     (a)  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

          None.

                                    PART III


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

     Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Common Stock of
the Company to file reports of ownership and change in ownership with the
Securities and Exchange Commission and the exchange on which the Common Stock is
listed for trading. Executive officers, directors and more than ten percent
stockholders are required by regulations promulgated under the Exchange Act to
furnish the Company with copies of all Section 16(a) reports filed. Based solely
on the Company's review of copies of the Section 16(a) reports filed for the
fiscal year ended March 31, 1999, the Company believes that all reporting
requirements applicable to its executive officers, directors, and more than ten
percent stockholders were complied with for the fiscal year ended March 31,
1999.

     The following table sets forth information concerning the directors and
executive officers of the Company as of March 31, 1999:

<TABLE>

     <S>                             <C>     <C>
     Susan A. Schreter (1)(4)        37      President, and acting CEO and
                                             Chairman of the Board

     Anthony A. Cetrone (1) (3)      70      Director

     Michael M. Fleming (2) (3)      50      Director

     Paul Stanton (2)                61      Vice Chairman of the Board

     Dr. Herbert Sohn                71      Director
</TABLE>
     (1)  Member of the Executive Committee.
     (2)  Member of the Audit Committee.
     (3)  Member of the Compensation Committee.
     (4)  Change in Executive Management

William H.W. Atkinson co-founded the Company in November 1992 and was Chairman
of the Board until December, 1998. He became the Company's Chief Executive
Officer in May

                                       32
<PAGE>

1994. Mr. Atkinson's employment as Chief Executive Officer of the Company was
terminated for cause on November 8, 1998. Mr. Atkinson subsequently resigned as
a director and Chairman of the Board in December, 1998. The Company's Chief
Financial Officer, Sandra Sternoff, resigned from the Company in October, 1998.
Ms. Sternoff subsequently worked for the Company on a non-officer basis through
December 1998. All stock options granted Ms. Sternoff and Mr. Atkinson were
forfeited.

The Company's by-laws provide that the size of the Board of Directors shall
initially be fixed by the Incorporator, and thereafter may be changed by
resolution of the Board. The Company's Board of Directors currently is fixed at
eight members, and there are three vacancies. Members of the Board serve until
the next annual meeting of stockholders and until their successors are elected
and qualified. Meetings of the Board are held when and as deemed necessary or
appropriate. Officers are appointed by and serve at the discretion of the Board.
There are no family relationships among any of the Company's officers and
directors.

SUSAN A. SCHRETER co-founded the Company in November 1992 and has served as
president and a director since inception. From July 1985 to December 1992, she
was founder and President of Beta International, Inc., New York, New York, a
firm providing consulting services to growing companies, private business
investors and buy-out funds in the areas of acquisition, due diligence, cash
flow planning, strategic business planning and capital investment. From February
1992 to January 1995, Ms. Schreter served as a director of Omnicorp Limited, a
provider of environmental services. Ms. Schreter currently serves as acting
Chief Executive Officer and Chairman of the Board.

ANTHONY A. CETRONE, a director of the Company since September 1993, has been
President and Chief Executive Officer of Micron Medical Products ("Micron
Medical"), Fitchburg, Massachusetts, a medical products company, since April
1988. Micron Medical has been a subsidiary of Arrhythmia Research Technology,
Inc., Austin, Texas, a company that manufactures cardiological medical products
("Arrhythmia Research") since November 1992. Since October 1991, he has also
served as the Chairman of the Board of Micron Products, the parent of Micron
Medical. From January 1993 to February 1995, Mr. Cetrone also served as the
President and Chief Executive Officer of Arrhythmia Research and has served on
Arrhythmia's Board since November 1992.

MICHAEL M. FLEMING is partner of the law firm of Ryan, Swanson & Cleveland,
Seattle, Washington, where he has been affiliated since November 1992. He
specializes in real estate, dispute resolution, securities and environmental
matters. Since July 1988, Mr. Fleming has also served as the President and owner
of Kidcentre, Inc., a provider of childcare services in Seattle, Washington.
Since April 1985, he has also been the President and owner of Fleming Investment
Co., Seattle, Washington, a private investment company. Mr. Fleming was elected
to the Company's Board of Directors in November 1992.

DR. HERBERT SOHN was elected to the Board of Directors in August 1997. Since
1989, Dr. Sohn has served as an attending urologist at the Louis A. Weiss
Memorial Hospital in Chicago. He has also served as a clinical associate
professor of surgery at the Abraham Lincoln School of Medicine at the University
of Illinois since 1973. A graduate of the Chicago Medical School, Dr. Sohn
completed residencies in urology and surgery at the University Hospitals of
Cleveland. He also received a Juris Doctorate degree from the John Marshall Law
School.

                                       33

<PAGE>

PAUL STANTON was elected to the Board of Directors in September 1996 and has
served as Vice Chairman of the Board since joining the board. He also has served
as a consultant to the Company since February 1996. Mr. Stanton has been
employed as President of Paul Stanton & Associates, which provides strategic
analysis and consulting services to product manufacturers and retail drug
chains, since January 1996. From February 1986 to December 1995, he was Vice
President of General Merchandise and Drug Store Merchandising of Pathmark, an
East Coast supermarket chain.

COMMITTEES OF THE BOARD OF DIRECTORS

     The Company's Board of Directors has established three committees:
Executive Committee, Compensation Committee and Audit Committee. The Board
appoints the members of the various committees and those members serve at the
discretion of the Board.

     The Executive Committee, can consist of up to three members, has been
delegated the authority to exercise all powers and authority of the Board of
Directors in the management of the business and affairs of the Company,
including the right to authorize: (I) the purchase of stock; (ii) adopt an
agreement of merger or consolidation; (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Company's properties
or assets; (iv) recommend to the stockholders a dissolution of the Company or a
revocation of dissolution; (v) amend the by-laws; or (vi) authorize the
declaration of a dividend. The Executive committee meets at such times, as it
deems appropriate.

     The Compensation Committee has been established to review and make
recommendations to the Board regarding the compensation to be paid by the
Company and its subsidiaries to their executive officers, key employees and
consultants, including, without limitation, the grant of incentive awards under
the Company's incentive program. See -- "Stock Option Plans." The Compensation
Committee consists solely of independent directors and meets at such times, as
it deems appropriate.

     The Audit Committee has been established to review and monitor the general
policies and practices of the Company and its subsidiaries with regard to
accounting, financial reporting, internal auditing and financial controls and to
serve as a channel of communication between the Board of Directors and the
Company's independent certified accountants. At least a majority of the Audit
Committee consists of independent directors. The Audit Committee meets at such
times, as it deems appropriate.


ITEM 10.  EXECUTIVE COMPENSATION

     SUMMARY COMPENSATION TABLE. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three fiscal years ended March 31, 1997, 1998 and 1999 of the Company's
President and acting Chief Executive Officer.(the "Named Executive Officer"). No
other executive officer of the Company received salary and bonuses of $100,000
or more in the fiscal year ended March 31, 1999.

                                       34

<PAGE>

                          SUMMARY COMPENSATION TABLE*

<TABLE>
<CAPTION>
                                                                       LONG-TERM
                                                        ANNUAL       COMPENSATION
                                                     COMPENSATION       AWARDS
                                                     ------------    ------------
OPTIONS/SAR'S
NAME OF PRINCIPAL POSITION                   YEAR       ( $ )            ( # )
--------------------------                   ----      --------        -------
<S>                                          <C>       <C>             <C>
Susan A. Schreter, President and Director    1999      $125,000        215,000
                                             1998      $125,000        112,500
                                             1997      $125,000         13,583
</TABLE>

* Columns in the Summary Compensation Table that were not relevant to the
compensation paid to the Named Executive Officers were omitted. No employee of
the Company receives any additional compensation for his or her services as a
director. Non-management directors receive no salary for their services as such,
but receive a fee of $2,000 for each meeting attended, and may participate in
the Company's stock option plans. The Board of Directors has authorized payment
of reasonable travel or other out-of-pocket expenses incurred by non-management
directors in attending meetings of the Board of Directors and committees
thereof.

In January 1999, the Company approved the 1999 Restricted Stock Plan of which a
total of 275,000 shares were authorized for issuance to various employees of the
Company. On June 30, 1999, Ms. Schreter was awarded a total of 130,000 shares
under the Plan. Stock option grants reflected for Ms. Schreter for the fiscal
year ended March 31, 1999 reflect shares cancelled and subsequently reissued on
May, 1998 at an exercise price of $1.875.

EMPLOYMENT AGREEMENT. In December 1993, the Company entered into three-year
employment agreement with Ms. Schreter, the Company's President and acting Chief
Executive Officer. This agreement was subsequently amended as of March 1996 to
provide, among other things, for an additional three-year term. Each agreement
may be terminated for "cause" (as defined in the agreements) and under
circumstances set forth in the agreements. Under the terms of the agreement, Ms.
Schreter is entitled to receive an annual base salary of $125,000, or such
higher salary as may be approved by the Board of Directors from time to time.
Each year during the term of their agreements, Ms. Schreter is entitled to
receive stock options in an amount equal to at least 20% of the aggregate number
of options offered under the Company's option and incentive plans to all
officers, key executives, directors, professional or administrative employees or
consultants or advisors, any of its subsidiaries or any of its agents (as
defined in the respective plans), or to a cash payment to compensate for the
shortfall in the event this provision is not complied with. Ms. Schreter is also
entitled to participate in any bonus or profit sharing plan that may be adopted
from time to time by the company, and to specified additional bonus payments and
option grants upon termination under certain specified circumstances.

Upon a change in control, as defined in the agreements, Ms. Schreter will be
entitled to receive, in addition to other compensation and benefits due her,
her then-effective base salary for a period of three years from the date of
termination, plus all benefits, other than the bonus and stock options (or the
value thereof), to which she would have been entitled had she continued her
employment. In addition, the agreement provides that Ms. Schreter is entitled to
receive all rights, privileges and fringe benefits afforded to other senior
executives of the Company and to payment or reimbursement for reasonable
expenses incurred in the performance of her respective services under the
agreement. The agreements also contain confidentiality provisions.

                                       35

<PAGE>

     OPTION GRANTS. The following tables shows at March 31, 1999, certain
information regarding options granted to the Named Executive Officers.

                       OPTION GRANTS IN FISCAL YEAR 1999
                               (INDIVIDUAL GRANT)

<TABLE>
<CAPTION>

                     NUMBER OF          PERCENT TO
                    SECURITIES         TOTAL OPTIONS
                    UNDERLYING           GRANTED TO
                      OPTIONS           EMPLOYEES IN      EXERCISE OR BASE     EXPIRATION
NAME                GRANTED (#)        FISCAL YEAR (1)    PRICE ($/SHARE)       DATE (2)
----                -----------        ---------------    ----------------     ----------
<S>                 <C>                <C>                <C>                  <C>
Susan A. Schreter       215,000                    38%              $1.875       5/3/03
</TABLE>

(1)  Based on options to purchase 572,000 shares of Common Stock granted to
     employees, directors and consultants, including executive officers, in
     Fiscal 1999.

(2)  The terms of such options are consistent with those of options granted to
     other employees and directors under the Company's Stock Option Plans. The
     options vested immediately because of length of service. The Plans
     provisions permitting the Board of Directors to, among other things,
     accelerate vesting of options in the event of a change in control of the
     Company.

FISCAL YEAR END OPTIONS/OPTION VALUES TABLE. The following table sets forth
information regarding exercises of stock options during the fiscal year ended
March 31, 1999 by the Named Executive Officers and the year-end values of
exercised and unexercised options by such Named Executive Officers:


      AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1999
                      AND FISCAL YEAR-END OPTION/SAR VALUE

<TABLE>
<CAPTION>
                                                                            VALUE OF
                                                                          UNEXERCISED
                                                          NUMBER OF       IN-THE-MONEY
                                                         UNEXERCISED       OPTIONS AT
                                                      OPTIONS AT FISCAL    FISCAL YEAR
                       SHARES                            YEAR END (#)       END (#)
                    ACQUIRED ON      VALUE REALIZED      EXERCISABLE/     EXERCISABLE/
NAME                EXERCISE (#)          ($)            UNEXERCISABLE    UNEXERCISABLE
----                ------------     --------------   -----------------   -------------
<S>                 <C>              <C>              <C>                 <C>
Susan A. Schreter        0                 $0          327,500(1)/0(2)     $0(1)/$0(2)
</TABLE>

     (1)  Exercisable options.
     (2)  Unexercisable options.

     On August 27, 1997, the Company awarded Susan A. Schreter stock options to
purchase 112,500 shares of Common Stock (the "Schreter Options") at an exercise
price of $5, under an amendment to the 1996 Stock Option Plan adopted by the
Board of Directors on such date and subsequently approved by the requisite vote
of the stockholders. The number of the Schreter Options will be reduced pro rata
if the total number of stock exceeds 7.7% of the total number of shares of
Common Stock issued and outstanding (excluding shares Isabel upon exercise of
outstanding options and warrants) upon completion of the Offering. The Options
vest in four equal semi-annual installments commencing six months from the date
of grant. The Options terminate upon the expiration of five

                                       36

<PAGE>

years from the date of grant, or, if sooner, three months after termination of
Ms. Schreter as an employee of the Company for any reason (or such shorter
period as required by the VSE, if any) and, if her employment is terminated for
cause, her respective Options terminate immediately. In addition, the Options
are subject to the terms and conditions of the 1996 Stock Option Plan. See
"Management -- Stock Option Plans."

     On May 1998, the Company cancelled 215,000 shares previously issued to Ms.
Schreter and reissued them at an exercise price of $1.875. These stock options
expire on May 3, 2003.

STOCK OPTION PLANS

     The Company's 1993 Incentive Program (the "1993 Stock Option Plan") was
adopted by the Board of Directors and approved by the Company's stockholders in
November 1993. The Company's 1996 Incentive Program (the "1996 Stock Option
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in November 1996. Pursuant to the terms of the 1996 Stock Option
Plan, no further awards will be made under the 1993 Stock Option Plan. The 1993
Stock Option Plan and the 1996 Stock Option Plan are sometimes collectively
referred to as the "Stock Option Plans." The Stock Option Plans were adopted to
provide a means by which selected officers, employees, directors and consultants
to the Company could be given an opportunity to purchase stock in the Company.
The purpose of the Stock Option Plans is to promote the growth of the Company by
enabling the Company to attract and retain the best available persons for
positions of substantial responsibility and to provide certain key employees
with additional incentives to contribute to the success of the Company.

     Under the 1993 Stock Option Plan, 87,167 were initially reserved for
issuance. The 1993 Stock Option Plan further provides for an increase of 10% of
any increase in the number of shares issued and outstanding over the number of
shares outstanding on December 20, 1993, the date the 1993 Stock Option Plan was
adopted. No further awards will be made under the 1993 Stock Option Plan.

     Under the 1996 Incentive Program, the aggregate number of shares of Common
Stock that may be issued or transferred is 208,333 (the "Base Amount"), plus (i)
any shares of Common Stock which are forfeited under the 1993 Stock Option Plan
or the 1996 Stock Option Plan after the Board's adoption of the 1996 Stock
Option Plan; plus (ii) the number of shares of Common Stock repurchased by the
Company in the open market and otherwise with an aggregate price no greater than
the cash proceeds received by the Company from the sale of shares under the 1993
Stock Option Plan or the 1996 Stock Option Plan; plus (iii) any shares of Common
Stock surrendered to the Company in payment of the exercise price of options
issued under the 1993 Stock Option Plan or the 1996 Stock Option Plan; provided,
that the aggregate number of shares available for grants at any given time will
be reduced by the aggregate of all shares previously issued or transferred
pursuant to the Stock Option Plans plus the aggregate of all shares which may
become subject to issuance or transfer under then-outstanding and then-currently
exercisable grants under the Stock Option Plans; and provided, further, that no
award may be issued that would bring the total of all outstanding awards under
the 1996 Stock Option Plan to more than 25% (the "Maximum Percentage") of the
total number of the shares of Common Stock at the time outstanding. The maximum
number of shares for which options may be granted under the 1996 Stock Option
Plan to any employee during any calendar year is 41,667 (the "Annual Amount").

                                       37

<PAGE>

     On August 27, 1997, the Board of Directors adopted an amendment to the 1996
Stock Option Plan (the "Amendment"), pursuant to which the Base Amount was
increased from 208,333 shares to 625,000 shares, the Annual Amount was increased
from 41,667 shares to 150,000 shares and the Maximum Percentage was increased
from 25% to 35%. The Company's stockholders approved the Amendment on October 6,
1997, which was subject by its terms and under applicable regulatory
requirements to the completion of the Offering which was completed in December
1997. Pursuant to the Amendment, stock option grants may be made prior to such
stockholder approval, but in no event may such grants be exercised until such
approval is obtained.

     During the fiscal year ended March 31, 1999, 490,500 stock options were
retired and 20,000 shares were issued to a consultant to the Company at an
exercise price of $1.875. In addition a total of 552,000 stock options under the
1993 and 1996 Stock Option plan were cancelled and reissued at a price of
$1.875. These options retire on May 3, 2003.

     The Stock Option Plans provide for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, restricted stock grants and restored grants
(collectively, "Grants") as approved by the Board of Directors or a committee
thereof (the "Committee"). Incentive stock options granted under the Stock
Option Plans are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Non-qualified stock options granted under the Stock Option Plans are
intended not to qualify as incentive stock options under the Code.

     Eligible participants under the Stock Option Plans include executive,
professional or administrative employees, directors, executive officers,
consultants or advisors of the company and its direct or indirect subsidiaries,
all of whom are collectively referred to as "Grantees." Incentive stock options
may be granted under the Stock Option Plans only to selected employees
(including officers) of the Company and its affiliates. All Grantees may be
awarded Grants other than incentive stock options.

     The maximum term of incentive stock options under the Stock Option Plans is
10 years, except that in certain cases, as discussed below, the maximum term if
five years. The exercise price of incentive stock options under the Stock Option
Plans may not be less than the fair market value of the Common Stock subject to
the option on the date of the option grant and, in some cases, as discussed
below, may not be less than 110% of such fair market value. The exercise price
of non-qualified options under the Stock Option Plans is determined by the
Board, which has agreed not to grant on-qualified options that have an exercise
price less than 85% of the fair market value of the Common Stock subject to the
option on the date of the option grant.

     No incentive stock option may be granted under the Stock Option Plans to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of option does not exceed five years from the date of grant.
For incentive stock options granted under the Stock Option Plans, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which such options are exercisable for the first time by
any Grantee during any calendar year (under all such plans of the Company and it
affiliates) may not exceed $100,000.

                                       38

<PAGE>

     Grants under the 1993 Stock Option Plan terminate within such period
determined by the BOARD up to 90 days after the grantee ceases to be employed by
the Company or any affiliate of the Company, unless (I) termination of
employment is due to such person's permanent and total disability (as defined in
the Code), in which case the Grant may be exercised at any time within twelve
months of such termination; (ii) the grantee dies while employed by the Company
or any affiliate of the Company, in which case the Grant may be exercised (to
the extent the option was exercisable at the time of the grantee's death) within
such period determined by the Board between six and twelve months of the
grantee's death by the person or persons to whom the rights to such option
passed by will or by the laws of descent and distribution; or (ii) the Grant by
its terms specifically provides otherwise. Grants under the 1996 Stock Option
Plan may be exercised only while the Grantee is in the employment or consultancy
of the Company, except that the Board or Committee may provide for partial or
complete exceptions to this requirement. The Stock Option Plans terminate on the
tenth anniversary of their respective effective dates unless terminated earlier
by the Board or extended by the Board.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The following table sets forth certain information, as of March 31, 1999
(adjusted to reflect the Reverse Stock Splits effected on June 16, 1997 and
October 20, 1997) with respect to the beneficial ownership of the Company's
Common Stock by (I) each stockholder to the best available knowledge of the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock; (ii) each director, (iii) the Named Executive Officers and (iv)
all executive officers and directors as a group.

<TABLE>
<CAPTION>
                                             NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER         SHARES (1)       PERCENT OWNED
OFFERING                                     ----------       -------------
--------
<S>                                          <C>              <C>
Wayne M. Hammersly                            175,000               6%
     811 Southwest Front Avenue, Suite 200
     Portland, Oregon  97204

Susan A. Schreter (2)                         366,394              13%
     200 First Avenue West, Suite 200
     Seattle, WA  98119

Anthony A. Cetrone (3)                         30,095               1%

Michael M. Fleming (3)                         30,095               1%

Paul Stanton (4)                               22,500               *

Dr. Herbert Sohn (5)                           27,000               *

All Executive Officers and Directors
     as a Group (5 persons)                   476,084              17%
     (See footnotes on following page.)
</TABLE>

                                       39

<PAGE>

*    Less than 1%.

(1)  Beneficial ownership of directors, officers and 5% or more stockholders
     includes both Outstanding Common Stock and shares issuable upon exercise of
     warrants or options that are currently exercisable or will become
     exercisable within 60 days of July 4, 1999. Except as indicated in the
     footnotes to this table and pursuant to applicable community property laws,
     the persons named in the table have sole voting and investment power with
     respect to all shares of Common Stock beneficially owned by them.

(2)  Includes 327,500 shares issuable upon exercise of currently outstanding
     stock options. Does not include 130,000 restricted shares issued June 30,
     1999.

(3)  Includes 30,000 shares issuable upon exercise of currently outstanding
     stock options.

(4)  Includes 22,500 shares issuable upon exercise of currently exercisable
     stock options. (5) Includes 27,000 shares issuable upon exercise of
     currently exercisable stock options.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     It is the policy of the Company with respect to insider transactions, that
all transactions between the Company, its officers, directors, principal
stockholders and their affiliates be on terms no less favorable to the Company
than could be obtained from unrelated third parties in arms-length transactions,
and that all such transactions shall be approved by a majority of the
disinterested members of the Board of Directors. The Company believes that the
transactions described above complied with such policy.

     In October 1997, Paulson Investment Company, Inc. ("Paulson"), one of the
Representatives of the underwriters of the Offering, loaned the Company a total
of $550,000. The loans were non-interest bearing and were repaid by the Company
out of the net proceeds of the Offering in December 1997.


ITEM 13.  EXHIBITS

(a)  EXHIBITS:

     27.1 Financial Data Schedule .

                                       40

<PAGE>

                                   SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
Washington, on July 13, 1999.


                                        CARING PRODUCTS INTERNATIONAL, INC.

                                        By:  /s/  Susan A. Schreter
                                            -------------------------------
                                            Susan A. Schreter
                                            Acting Chairman of the Board and
                                            President

     In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:

       SIGNATURE                         TITLE                        DATE
       ---------                         -----                        ----

/s/ Susan A. Schreter         President and Acting Chairman      July 13, 1999
-------------------------
Susan A. Schreter

/s/ Anthony A. Cetrone        Director                           July 13, 1999
-------------------------
Anthony A. Cetrone

/s/ Michael M. Fleming        Director                           July 13, 1999
-------------------------
Michael M. Fleming

/s/ Paul Stanton              Director                           July 13, 1999
-------------------------
Paul Stanton

/s/ Herbert Sohn              Director                           July 13, 1999
-------------------------
Herbert Sohn

                                       41