================================================================================

                     U.S. 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 December 31, 1998

|_|   TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
      for the transition period from ____ to ____

                           Commission File No. 0-26682

                      TECHNOLOGY FLAVORS & FRAGRANCES, INC.
                 (Name of Small Business Issuer in its Charter)


                  Delaware                                     11-3199437
       (State or other Jurisdiction of                      (I.R.S. Employer
       Incorporation or Organization)                    Identification Number)


                              10 Edison Street East
                           Amityville, New York 11701
                    (Address of Principal Executive Offices)

                                 (516) 842-7600
                (Issuer's Telephone Number, Including Area Code)

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

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

      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 is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

      The Issuer's revenues for the fiscal year ended December 31, 1998 were
$13,888,242.

      The aggregate market value of Registrant's voting stock (Common Stock)
held by non-affiliates on March 15, 1999 was approximately $5,776,280 based on
the closing sale price of the Common Stock on such date of U.S.$0.655 per share,
as reported by the Toronto Stock Exchange.

      The number of shares outstanding of each class of the issuer common equity
as of March 15, 1999 was:

        Common Stock, $0.01 par value                 12,449,623
                    Class

      Documents Incorporated by Reference:  None

      Transitional Small Business Disclosure Format: Yes |_| No |X|

<PAGE>

                      TECHNOLOGY FLAVORS & FRAGRANCES, INC.
                          Annual Report on Form 10-KSB
                                TABLE OF CONTENTS

                                                                            Page
PART 1 ....................................................................    1
      ITEM 1-DESCRIPTION OF BUSINESS ......................................    1
      ITEM 2-DESCRIPTION OF PROPERTY ......................................    6
      ITEM 3-LEGAL PROCEEDINGS ............................................    6
      ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..........    6
PART II ...................................................................    7
      ITEM 5-MARKETS FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ....    7
      ITEM 6-MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ....    9
      ITEM 7-FINANCIAL STATEMENTS .........................................   12
      ITEM 8-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE ..........................   12
PART III ..................................................................   13
      ITEM 9-DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
             CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
             OF THE EXCHANGE ACT ...........................................  13
      ITEM 10-EXECUTIVE COMPENSATION .......................................  17
      ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT ..............................................   21
      ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..............   22
      ITEM 13-EXHIBITS AND REPORTS ON FORM 8-K ............................   23
SIGNATURES ................................................................   25
FINANCIAL STATEMENTS ......................................................  F-1


                                        i
<PAGE>

                                          PART I

ITEM 1-DESCRIPTION OF BUSINESS

Introduction

      Technology Flavors & Fragrances, Inc. ("TFF" or the "Company") develops,
manufactures and markets flavors and fragrances that are incorporated by its
customers into a wide variety of consumer and institutional products including
natural and artificially flavored beverages, confections, foods, tobaccos,
pharmaceuticals, aromatherapy essential oils, perfumes, and health and beauty
products. The Company's proprietary formulations are currently used in more than
1,200 products sold by more than 500 companies worldwide, approximately 50 of
which are Fortune 1,000 companies. The Company's executive offices,
manufacturing, research and development, sales and marketing, and distribution
facilities are located in Amityville, New York. The Company also has sales,
marketing and warehouse facilities located in Inglewood, California, Toronto,
Canada and Santiago, Chile.

      Unless the context otherwise requires, (i) the term "Company" refers to
Technology Flavors & Fragrances, Inc., a Delaware corporation, together with its
wholly-owned subsidiaries, Technology Flavors & Fragrances, Inc. (Canada), and
Technology Flavors & Fragrances Chile S.A., and (ii) all references to "dollars"
refer to U.S. dollars.

History

      The Company was incorporated in New York in 1989 under the name "Aroma
Globe, Inc." In May 1991, the Company changed its name to "Technology Flavors &
Fragrances, Inc." when it acquired the assets and business of another company by
that name. Since then, the Company has expanded its operations primarily through
acquisitions of other businesses and internal growth.

      In July 1993, the Company acquired most of the assets of the Fragrance
Division ("F&C Fragrance Division") of F&C International Inc. for $5,441,000 in
cash. The acquisition was funded by bank debt of approximately $3,500,000 and
the sale, in a private offering, of 1,080,268 shares of the Company's common
stock, $0.01 par value per share (the "Common Stock") for net proceeds of
$1,499,000. The F&C Fragrance Division was engaged in the business of
developing, manufacturing, marketing and selling, domestically and
internationally, fragrance products for personal care, cosmetic and toiletry,
household, industrial and commercial products. The acquisition provided the
Company with a library of over 12,000 proprietary formulations and an
introduction to certain large U.S. manufacturers of household and personal care
products and industrial and commercial products. The F&C Fragrance Division
serviced its fragrance customers from its production facility in Brooklyn, New
York, its marketing and research development facilities in Allendale, New
Jersey, and two warehousing facilities located in southern California and
Toronto, Canada. The Company thereafter consolidated the manufacturing,
marketing and research and development activities of the F&C Fragrance Division
at its Amityville, New York facilities and moved a portion of the warehousing
function to an adjoining building in Amityville, New York. In November 1993, the
Company reincorporated in Delaware and merged with Canamerica Corp., a private
corporation owned by Mr. Philip Rosner, one of the Company's principal
stockholders. Mr. Rosner was issued 200,000 shares of Common Stock in the
merger.

      In March 1994, the Company completed concurrent offerings of a total of
5,000,000 shares of Common Stock, of which (i) 4,670,000 shares were sold to the
public in the Canadian Provinces of Ontario and British Columbia at a price of
Cdn. $2.00 per share, and (ii) 330,000 shares were sold privately in the United
States for the equivalent price of U.S. $1.44 per share. In addition, the Common
Stock was listed on the Toronto Stock Exchange in March 1994. The proceeds of
these sales were used to pay debt incurred to acquire the assets of the F&C
Fragrance Division.

      On December 6, 1995, the Company acquired substantially all of the assets
and assumed the trade obligations and certain other liabilities of Seafla, Inc.
("Seafla"), a Milford, Ohio producer of savory and dairy flavors (the "Seafla
Acquisition"). In consideration therefor, the Company paid Seafla $3,000,000 in
cash and issued a 12% promissory note for $888,019, payable in five annual
installments of $177,604 (the "Seafla Note"). The Company funded the cash
portion of the Seafla purchase price through bank borrowings of $3,500,000. The
Company operated Seafla's business as the Seasoning Division of the Company (the
"Seasoning Division"). Products from the Seasoning Division were purchased
principally by manufacturers of dairy products, snack foods and baked goods.

      On October 16, 1997, the Company entered into a credit agreement with a
bank providing for a $6,000,000 revolving credit facility and a $750,000 term
loan facility (the "1997 Credit Facility"). The 1997 Credit Facility replaced
the Company's then existing $5,500,000 credit line and was used to pay off
$750,000 of $1,500,000 of the Company's 9% Convertible Subordinated Notes due
October 17, 1998 (the "Notes"), which were issued in October 1996 (such
replacement and repayment collectively, the "October 1997 Refinancing"), while
the remaining aggregate principal amount of $750,000 of the Notes were converted
into 387,655 shares of Common Stock, based on the weighted average share price
during the preceding ten trading days prior to the closing. See "Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources."


                                       1
<PAGE>

      On August 25, 1998, the Company sold substantially all of the assets and
certain liabilities of its Seasoning Division to Mane-Seafla, Inc. ("Mane"), a
subsidiary of Mane USA, Inc., for $5.5 million in cash, less an aggregate of
$1,003,454 in principal and interest assumed by the Purchaser which was owed
under a promissory note to a former director and executive officer of the
Company in connection with the Company's acquisition of the Seasoning Division
in December 1995. Of the total purchase price paid, $275,000 is being held in
escrow until August 25, 2000 to secure certain indemnification obligations of
the Company (the "Escrow"). In connection with the transaction, the Company
realized a net gain of approximately $1.1 million, excluding the $275,000 held
in Escrow. The financial information contained in this Annual Report on Form
10-KSB for years 1998 and 1997 has been restated for presentation purposes to
reflect the Company's discontinued operations relating to the sale of its
Seasoning Division.

      In connection with the sale of the Seasoning Division, the net cash
proceeds from the sale of approximately $4,000,000, after deducting closing
costs, was used by the Company to pay down the outstanding term loan balance
under the 1997 Credit Facility of $637,500, and a portion of the outstanding
revolving loans of such credit facility. Accordingly, the Company and the lender
reduced the maximum borrowings available to the Company under the 1997 Credit
Facility from $6,750,000 to $2,750,000. The Company's 1997 Credit Facility
expires on June 30, 1999. On March 9, 1999, the Company entered into a letter of
intent regarding a three year $3.0 million credit facility with another lender
to refinance its existing revolving credit facility. The closing of the new
credit facility is subject to numerous conditions, including a customary lender
audit review, an appraisal and final credit approval. See "Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources".

Industry Overview

      The flavor and fragrance industry sells primarily to manufacturers of
consumer products. The cost of the flavor or fragrance component of a consumer
product typically represents a small portion of the total cost of the consumer
product. As a result, in selling such products, the Company believes that price
is a less significant factor than product performance and customer service.

      The Company believes that changes in consumer buying habits and
preferences over the past few years have impacted on the industry as a whole.
The Company believes that these changes have contributed to a demand for new and
innovative products. The Company believes that currently there is a trend toward
more natural foods in the marketplace, requiring manufacturers to produce more
naturally-flavored products. Not only has this translated into a steady shift
from artificial to natural ingredients, but it is also placing greater emphasis
on achieving flavors that more effectively impart "natural" tastes in processed
foods. The Company believes that a growing desire among consumers to adopt a
healthier lifestyle is increasing the demand for lighter, healthier foods. This
has posed new challenges for the Company to develop ways of replacing the tastes
which are lost when sugar, salt, fat, and cholesterol are reduced or eliminated
from traditional food preparations.

      The Company believes that another important trend in the industry is the
growing consumption of processed foods. It is estimated that more than 80% of
the food consumed today is in processed form, with over 1,000 natural and
synthetic flavoring agents being used to produce these foods. The Company
believes that as the demand for microwaveable products and prepared and frozen
convenience foods continues to rise, so, too, will the need for new flavor
products to counteract the adverse effects of microwaving and freezing.

      The Company believes that the trend towards natural, healthier products
also includes soaps, shampoos, cosmetics, detergents, and other cleaning
products, air fresheners, and numerous other household items.

Products

      The Company's principal product categories include natural flavors,
artificial flavors and fragrances. The five largest end-user categories of the
Company's products are beverages, baked goods, confections, cosmetics and
tobacco. The Company's flavor products, produced from its proprietary
formulations, are sold primarily to the beverage, food and tobacco industries.
Examples of consumer products containing the Company's flavor products include
confections, toothpaste, chewing gums, prepared foods, ice creams, animal feeds,
candy, tobacco, alcoholic and non-alcoholic beverages, poultry, seafood and
processed meats.


                                       2
<PAGE>

      Areas in which the Company believes currently offer growth opportunities
include flavor products to enhance "natural foods" products to restore the
flavors in non-fat and low fat, sugar, salt and cholesterol foods, and flavor
products able to withstand the effects of microwaving and freezing (i.e.,
convenience foods).

      The Company's fragrance products, produced from its proprietary
formulations, are sold primarily to the personal care, cosmetic and toiletry,
and household and industrial product industries. Fragrances are used by
customers in the manufacture of a wide variety of consumer products such as
soaps, detergents, household cleaners, cosmetic creams, lotions and powders,
after-shave lotions, deodorants, air fresheners, perfumes, colognes,
aromatherapy oils and hair care products.

Marketing and Distribution

      The Company's distribution strategy principally involves the utilization
of Company sales and marketing personnel strategically located in regions in the
U.S., Canada and South America, and to a lesser extent, independent sales
brokers. Typically, Company research and development personnel accompany sales
personnel in making sales presentations to new and existing customers. The
Company believes that this strategy has worked effectively to promote the
Company's new products.

Research and Development

      The Company's research and development ("R&D") activities are conducted
principally at its Amityville, New York facilities. The Company maintains R&D
labs as well as applications labs, both of which it believes are necessary for
the development of high quality flavor and fragrance compounds. In 1996, the
Company installed a Processed Flavor Laboratory that utilizes amino acids and
sugars in a water medium to produce meat, poultry and roasted flavors and
aromas. The Company currently offers new and innovative products developed in
this laboratory.

      The Company believes that one of the most fundamental challenges in
creating flavor and fragrance formulations, from a technical standpoint, is the
development of flavors and fragrances which are able to (i) withstand the rigors
of processing, storage, and final preparation, and (ii) maintain the integrity
of the basic taste and scent characteristics for the useful life of the final
product. In the case of certain products, such as perfumes, colognes and frozen
foods, the potential shelf-life of the product may be a period of up to one
year.

      The Company works in association with existing and potential customers to
develop a flavor or fragrance for a new consumer product. During this process,
which generally lasts between 6 and 12 months, the Company typically presents
the customer with several samples from the Company's proprietary formulations.
Generally, a particular flavor or fragrance formulation is created and produced
for one customer.

      In the last two years, the Company has furnished over 10,000 samples to
existing and potential customers. The typical lag time between initial sample
tests and when customers place production orders has historically ranged from 6
to 18 months.

      During the past several years, the flavor industry has had to respond to
new demands by consumers for (i) products with little or no cholesterol, fat,
sugar or salt, (ii) products that withstand microwaving or freezing, and (iii)
products that contain more natural ingredients. Each of these demands results in
taste differences from what consumers have come to expect so that new flavor
formulations are necessary to satisfy taste expectations. Consequently, the
Company believes its research and development abilities are increasingly
important for flavor products.

      The Company spent $1,396,000 and $1,604,000 in R&D on continuing
operations during 1998 and 1997, respectively, and expects to spend
approximately the same amount in 1999 as it did in 1998.

Raw Materials

      The Company utilizes a significant number of different raw materials in
the preparation of its flavor and fragrance formulations. Considerable effort is
devoted to ensuring that these ingredients remain uniform and consistent over
time n a critical process since many of the raw materials used by the Company
are inherently unstable and/or are derived from plants that vary naturally with
seasons and crop years. Accordingly, shipments of raw materials received by the
Company are routinely tested and analyzed for compliance with specifications set
by the Company.


                                       3
<PAGE>

      The Company purchases raw materials from numerous suppliers. For the year
ended December 31, 1998, no single supplier supplied the Company with more than
approximately 16% of the Company's raw material requirements. Although there can
be no assurance, the Company believes that alternate sources of raw materials
are available in the event of an interruption in the supply of raw materials
from a single supplier.

Seasonality

      Historically, the Company's sales tend to be higher in the calendar
quarters ending June 30 and September 30, primarily due to higher consumer
demand from the Company's beverage customers during those periods. There can be
no assurance that the seasonality of the Company's business will not have a
material adverse affect on the Company's operations.

Competition

      The flavor and fragrance industry is highly fragmented with a few large
companies, such as International Flavors & Fragrances Inc., Haarmann & Reimer
Corporation and Firmenich, Inc., competing against many smaller companies.
Certain of the Company's competitors have substantially greater financial,
marketing and other resources than the Company. Recently, there have been trends
towards increased industry consolidation as companies vertically integrate with
suppliers and expand horizontally through acquisitions. The Company believes
that its competitiveness depends upon its creativity, responsiveness and
reliability, as well as the diversity of its customers and products. Management
expects that the Company will continue to sell to large companies that do not
purchase all of their flavor and fragrance products from a single supplier and
to smaller companies that the Company's large competitors choose not to service.

Customers

      The Company's formulations from continuing operations are currently used
in more than 1,200 products sold by more than 500 companies worldwide,
approximately 50 of which are Fortune 1,000 companies. The Company cooperates
with its customers in the development of specific flavors or fragrances for a
particular end product. For the year ended December 31, 1998, no one customer
accounted for more than 10% of the Company's sales, and the top ten customers
accounted for approximately 37% of the Company's sales. For the year ended
December 31, 1997, one customer accounted for approximately 21% of the Company's
sales.

Export Sales

      For the years ended December 31, 1998 and 1997, export sales from
continuing operations were approximately 33% and 40%, respectively, of total
sales. The Company's export sales are made to entities located primarily in
Canada and South America. Receivables from such foreign sales at December 31,
1998 and 1997 amounted to 50% and 51%, respectively, of total accounts
receivable.

Backlog

      Customers purchase the Company's products as required, and normally
delivery can be made within two to four weeks thereafter. Consequently, backlog
is not a significant indicator of the volume of the Company's business over an
extended period of time.

Foreign Operations

      Approximately 9% and 6% of the Company's net sales from continuing
operations for the years ended December 31, 1998 and 1997, respectively, were
derived from sales denominated in foreign currencies, principally in Canada. The
effect of foreign currency exchange rate fluctuations on such revenues is
largely offset to the extent expenses of the Company's international operations
are incurred and paid for in the same currencies as those of its sales.

Governmental Regulations

      Production of many of the Company's products involves the manufacturing of
flavors for foods and beverages, the handling of alcohol and the generation,
storage, transportation and disposal of hazardous waste. Accordingly, the
Company's operations are subject to extensive federal, state and local laws and
regulations relating to such matters, and to the safety and health of the
Company's employees. Although there can be no assurance, the Company believes
that it currently complies in all material respects with such laws and
regulations. The Company could be subject to, among other things, sanctions,
penalties (including significant fines), and suspension or revocation of
required licenses or permits for failure to comply with applicable governmental
laws or regulations. Any of these actions could have a material adverse effect
on the results of the operations of the Company in any given year, or materially
effect the Company's liquidity or financial condition over a longer period of
time. At this time, the Company is unable to anticipate the impact, if any, that
subsequent


                                       4
<PAGE>

changes or new interpretations to applicable laws and regulations may have on
the Company's business, financial condition or results of operations.

Employees

      At March 15, 1999, the Company had 56 employees, of which 54 persons were
employed full time. Of the Company's 54 full time employees, 6 were employed in
management, 8 were employed in administrative, 6 were employed in sales and
marketing, 17 were employed in production, 13 were employed in research and
development and quality control, and 4 were employed in customer service. The
Company considers its relationship with its employees to be satisfactory. None
of the Company's employees is subject to a collective bargaining agreement.

Proprietary Rights

      The Company considers its flavor and fragrance formulas to be proprietary
information and trade secrets. The Company does not, however, generally rely on
patents, copyrights or trademarks to protect its proprietary rights in
formulations. There can be no assurance that the Company's current protections
will be adequate or that the Company's competitors will not independently
develop flavors and fragrances that are substantially equivalent or superior to
the Company's flavors and fragrances.

      A substantial portion of the Company's technology and know-how are trade
secrets. The Company has a policy of requiring its employees and contractors to
protect its proprietary information through written agreements. In addition, the
Company has a policy of requiring its prospective business partners to enter
into non-disclosure agreements before any of the Company's proprietary
information is revealed to them. There can be no assurance that the measures
taken by the Company to protect its technology, products and other proprietary
information will adequately protect the Company. Further, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information and technologies, or otherwise gain access to the
Company's trade secrets.

      The Company may be required to take various forms of legal action, from
time to time, to protect its proprietary rights. Because of the rapid evolution
of technology and uncertainties in intellectual property laws both in the United
States and internationally, there can be no assurance that the Company's current
or future products or technologies will not be subject to claims of
infringement. Any litigation regarding claims against the Company or claims made
by the Company against others could result in significant expense to the
Company, divert the efforts of its technical and management personnel and have a
material adverse effect on the Company, whether or not such litigation is
ultimately resolved in favor of the Company. In the event of an adverse result
in any such litigation, the Company may be required to expend significant
resources to develop non-infringing products or obtain licenses from third
parties. There can be no assurance that the Company would be successful in such
development or that any such licenses would be available on commercially
reasonable terms, if at all.

Forward-Looking Statements

      Certain statements contained in this Annual Report on Form 10-KSB,
including, without limitation, statements containing the words "believes,"
"anticipates," "may," "intends," "expects" and words of similar import,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company (or industry
results, performance or achievements) expressed or implied by such
forward-looking statements to be substantially different from those predicted.
Such factors might include, among others, the following: general economic and
business conditions, both nationally and in the regions in which the Company
operates; competition; changes in business strategy or development plans; the
delays in development or testing of the Company's products; technological,
manufacturing, quality control or other problems which could delay the sale of
the Company's products; the Company's inability to obtain appropriate licenses
from third parties, protect its trade secrets, operate without infringing upon
the proprietary rights of others and prevent others from infringing on the
proprietary rights of the Company; the Company's inability to obtain sufficient
financing to continue operations; and changes in demand for products of the
Company's customers. Certain of these factors are discussed in more detail
elsewhere in this Form 10-KSB, including, without limitation, under the caption
"Management's Discussion and Analysis or Plan of Operation".


                                       5
<PAGE>

ITEM 2-DESCRIPTION OF PROPERTY

      The Company's principal properties are its 36,000 square foot headquarters
and production facility at 10 Edison Street East in Amityville, New York, and an
adjoining 9,000 square foot warehouse. The Company's lease for its principal
executive offices, production facility and warehouse in Amityville, New York
expires in 2006. The Company also leases marketing, warehouse and customer
service facilities in Inglewood, California, Toronto, Canada, and Santiago,
Chile. The Company believes that it can renegotiate existing leases as they
expire or will lease alternative properties on acceptable terms. The Company
believes its present facilities are adequate for its current and anticipated
operations.

ITEM 3-LEGAL PROCEEDINGS

      Except as provided below, the Company is not a party to any pending legal
proceedings other than ordinary litigation incidental to its business.

      Strategic Growth International, Inc. v. Technology Flavors & Fragrances,
Inc. In February 1998, the Company's former investor relations consultant,
Strategic Growth International, Inc. ("SGI") commenced an action against the
Company in the Supreme Court of the State of New York, County of Nassau, seeking
damages for the Company's alleged failure to perform its obligations under an
agreement between the parties concerning certain consulting services to be
performed by SGI. SGI, whose services were terminated by the Company in October
1997, was seeking damages in the amount of $124,950. On October 26, 1998, SGI
and the Company entered into a settlement agreement for up to the full amount of
the claim based upon the extent to which SGI exerises certain warrants
previously issued to SGI in connection with its engagement by the Company. See
"Executive Compensation - Consulting Agreements."

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

      There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1998.


                                       6
<PAGE>

PART II

ITEM 5-MARKETS FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Toronto Stock Exchange. The Company's Common Stock has been listed on the
Toronto Stock Exchange ("TSE") since March 28, 1994 (Symbol: "TFF"). The
following table sets forth the reported high and low closing prices (as reported
by the TSE) for the Company's Common Stock for each calendar quarter from
January 1, 1997 through March 15, 1999, in Canadian dollars and translated into
U.S. dollars at the exchange rates in effect on those dates.

<TABLE>
<CAPTION>

                                                      High                    Low
                                                      ----                    ---
1997
<S>                                        <C>                      <C>   
  First Quarter .......................... Cdn. $2.25 (U.S. $1.64)   Cdn. $1.75 (U.S. $1.29)
  Second  Quarter ........................ Cdn. 2.50 (U.S. 1.80)     Cdn.  1.70 (U.S. 1.23)
  Third Quarter .......................... Cdn. 2.83 (U.S. 2.05)     Cdn.  2.00 (U.S. 1.45)
  Fourth  Quarter ........................ Cdn. 2.69 (U.S. 1.96)     Cdn.  1.70 (U.S. 1.19)

1998
  First Quarter .......................... Cdn. $2.75 (U.S. $1.93)   Cdn. $1.75 (U.S. $1.23)
  Second  Quarter ........................ Cdn.1.80 (U.S. 1.22)      Cdn. 1.35 (U.S. 0.92)
  Third  Quarter ......................... Cdn. 1.55 (U.S. 1.01)     Cdn. 0.55 (U.S. 0.36)
  Fourth  Quarter ........................ Cdn. 1.00 (U.S. 0.65)     Cdn. 0.50 (U.S. 0.33)

1999
  First Quarter  (through March 15, 1999) .Cdn. $1.40 (U.S. $0.924) Cdn. $0.80 (U.S. $0.48)
</TABLE>

      The closing price of the Common Stock on the TSE on March 15, 1999 was
Cdn. $1.00 (U.S. $0.655).

      OTC Bulletin Board. Information regarding the Company's Common Stock is
also available through the OTC Bulletin Board (Symbol: "TFFI"). The Company's
Common Stock was first quoted on the OTC Bulletin Board on March 12, 1996. The
following table sets forth the range of high and low closing prices (as reported
by the OTC Bulletin Board) for the Company's Common Stock for each calendar
quarter from January 1, 1997 through March 15, 1999 in U.S. dollars.

                                                 High         Low
                                                 ----         ---

1997

   First  Quarter ........................  U.S. $ 1.625      U.S. $1.1875
   Second  Quarter .......................  U.S  1.6563       U.S. 1.125
   Third  Quarter ........................  U.S. 2.0938       U.S. 1.4688
   Fourth  Quarter .......................  U.S. 1.9688       U.S. 1.125

1998
   First  Quarter ........................  U.S. $ 2.00       U.S. $ 1.25
   Second  Quarter .......................  U.S. 1.313        U.S. 0.969
   Third  Quarter ........................  U.S. 1.094        U.S. 0.419
   Fourth  Quarter .......................  U.S. 0.70         U.S. 0.34

1999
   First Quarter (through  March 15, 1999)  U.S. $ 1.00       U.S. $  0.43

      The closing price of the Common Stock on the OTC Bulletin Board, on March
15, 1999, was U.S. $0.781.

Holders

      At March 15, 1999, the Company had approximately 850 stockholders of
record.


                                       7
<PAGE>

Dividends

      The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends for the foreseeable future. The
declaration and payment of dividends on the Common Stock is at the discretion of
the Board of Directors and will depend on, among other things, the Company's
operating results, financial condition, capital requirements, contractual
restrictions or prohibitions and such other factors as the Board of Directors
may deem relevant. In addition, the Company's 1997 Credit Facility restricts the
payment of cash dividends.

Recent Sales of Unregistered Securities

      The following information relates to unregistered securites sold by the
Company during the year ended December 31, 1998.

1996 Stock Option Plan

      On December 11, 1998, pursuant to the terms of a consulting agreement
between IC Holdings III, LLC, a Maryland limited liability company, the Company
granted options under the Company's 1996 Stock Option Plan to purchase 30,000
shares of Common Stock at an exercise price per share of $1.00. The market price
of the Common Stock on the OTC Bulletin Board on December 11, 1998, the date of
the grant, was $0.50. Of such options, options to purchase 5,000 shares of
Common Stock vested on December 11, 1998. The remaining options to purchase
25,000 shares of Common Stock vest in equal monthly installments over the twelve
month period following December 11, 1998.

Other Stock Option Grants

      During the year ended December 31, 1998, the Company granted options to
purchase an aggregate of 800,000 shares of Common Stock outside of the Company's
1993 Stock Option Plan and 1996 Stock Option Plan.

      Of the 800,000 non-plan options granted, options to purchase 100,000
shares of Common Stock were granted to each of Bruce S. Foerster, Werner F.
Hiller and Irwin D. Simon upon their initial election to the Board of Directors
on June 29, 1998, subject to stockholder and TSE approval. Options to purchase
200,000 shares of Common Stock were also granted to Sean Deson upon Mr. Deson's
initial election to the Board of Directors on June 29, 1998, subject to
stockholder and TSE approval. Options to purchase 100,000 shares of Common Stock
were also granted to each of Andrew M. Brown, Daniel P. DeClark and Bruce G.
Seitz upon their appointment to an advisory committee to the Company on June 29,
1998. The options granted to each of Messrs. Foerster, Hiller, Simon, Deson,
Brown, DeClark and Seitz were granted at an exercise price of $0.9687 per share,
the market price of the Common Stock on the OTC Bulletin Board on June 29, 1998,
the date of such grants. Such options vest in equal annual installments over
five years.

      On February 28, 1999, the Company terminated the services of the Advisory
Committee, and, as a result, the stock options granted to the members thereto
shall expire three months from the date of termination, unless exercised within
that period. See "Item 9-Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act - Advisory
Committee."

      All of the foregoing sales of securities made pursuant to the grant of
options both under and outside the 1996 Stock Option Plan were made in reliance
upon an exemption from the registration provisions of the Securities Act of
1933, as amended, set forth in Section 4(2) thereof as transactions by an issuer
not involving any public offering.


                                        8
<PAGE>

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

1998 Overview

      In 1998, the Company focused its efforts on achieving goals identified in
its strategic business plan. Such goals included expanding the Company's sales
and marketing activities and implementing cost containment and operating
efficiency improvements. During the third quarter of 1998, the Company
implemented numerous corporate changes which included: (a) the divestiture of
the Seasoning Division, (b) a significant reduction of its debt by applying the
proceeds received from the sale of the Seasoning Division, and (c) the
implementation of additional cost reduction efforts designed to achieve
profitability based on the Company's then current base sales level relative to
its continuing operations.

      During the fourth quarter of 1998, after giving effect to the sale of the
Seasoning Division, the application of the net proceeds therefrom to the
reduction of debt, and the initial implementation of the cost reduction plan,
the Company's corporate changes contributed to a net profit of $106,000 on
increased sales relative to its continuing flavor and fragrance operations.

Results of Operations

      The following information for the years ended December 31, 1998, 1997 and
1996 has been derived from the Company's audited consolidated financial
statements and should be read in conjunction with such statements and the notes
thereto included elsewhere in this Annual Report on Form 10-KSB. Such
information has been restated for presentation purposes to reflect the Company's
discontinued operations relating to the sale of its Seasoning Division. For
information regarding export sales, backlog and foreign operations of the
Company, see "Item 1 - Description of Business."

<TABLE>
<CAPTION>
                                                             Years ended December 31,
                                         --------------------------------------------------------------
                                                 1998                 1997                   1996
                                         -------------------  --------------------   ------------------
                                                      (dollar amounts in thousands)

<S>                                     <C>           <C>     <C>            <C>    <C>           <C>   
Net sales ...........................   $ 13,888      100.0% $ 18,022        100.0% $ 15,762      100.0%
Gross profit ........................      5,600       40.3     7,008         38.9     5,944       37.7
Operating expenses:
  Selling ...........................      2,714       19.5     2,942         16.3     2,812       17.8
  General and administrative ........      1,918       13.8     1,959         10.9     2,742       17.4
  Research and development ..........      1,396       10.1     1,604          8.9     1,588       10.1
  Amortization expense ..............        354        2.5       566          3.2       552        3.5
  Write-down of intangible assets
      and other charges .............      2,120       15.3        --           --        --         --
Loss from operations ................     (2,902)      20.9       (62)          .4    (1,750)      11.1
Interest expense, net ...............        108         .8       231          1.3       116         .7
Provision for income taxes ..........          2         --         9           --         2         --
Loss from continuing operations .....     (3,012)      21.7      (301)         1.7    (1,868)      11.8
Discontinued operations:
    Gain on disposal of discontinued
      operations ....................      1,080        7.8        --           --        --         --
    Loss from discontinued operations       (105)        .8      (347)         1.9      (670)       4.3
Net loss ............................     (2,036)      14.7      (648)         3.6    (2,538)      16.1
</TABLE>

      Net sales. Net sales decreased 22.9% to $13,888,000 in 1998 from
$18,022,000 in 1997 due principally to a decrease in demand for a new product
line offered by the Company to a significant customer, which generated
significant sales in 1997 and, to a lesser extent, a general weakening in demand
for products of the flavor industry. Net sales increased 14.3% to $18,022,000 in
1997 from $15,762,000 in 1996 due principally to shipments of new flavor and
fragrance products to new and existing customers and increased marketing
activities and shipments of the new product line mentioned above to a
significant customer during the first two quarters of 1997.

      Gross profit. Gross profit, as a percentage of sales, increased to 40.3%
on sales of $13,888,000 in 1998 as compared to 38.9% on sales of $18,022,000 in
1997. The Company recorded a $280,000 charge to cost of sales during the third
quarter of 1998 primarily to reduce the carrying value of product inventory.
Higher gross margin percentages generated on 1998 product shipments as compared
to 1997 were primarily due to a concentration of high gross margin sales on
certain flavor products, and higher margins on new flavor and fragrance
products, which were offset by the impact of lower sales volume. Gross profit,
as a percentage of sales, increased to 38.9% on sales of $18,022,000 in 1997, as
compared to 37.7% on sales of $15,762,000 in 1996, generally due to favorable
differences in product mix.


                                       9
<PAGE>

Operating expenses:

      Selling expenses. Selling expenses decreased to $2,714,000 in 1998 from
$2,942,000 in 1997. Included in selling expenses in 1998 were $150,000 of costs
associated with the Company's share of certain co-operative start-up marketing
and advertising costs with a customer in connection with the customer's future
product launches. Such costs are to be paid in three annual installments
beginning in December 1998. Without giving effect to these co-operative costs,
selling expenses decreased by $378,000 in 1998 as a result of the Company's cost
reduction program implemented during the latter part of 1998 and lower sales
commissions and freight-out costs on decreased sales. Selling expenses increased
to $2,942,000 in 1997 from $2,812,000 in 1996 due principally to the additional
hiring of sales professionals during the latter part of 1997.

      General and administrative expenses. General and administrative expenses
decreased to $1,918,000 in 1998 from $1,959,000 in 1997. During the third
quarter of 1998, the Company recorded bad debt expense of $194,000 due
principally to bankruptcy proceedings relating to one customer. Without giving
effect to this charge, general and administrative expenses decreased by $235,000
in 1998 as a result of the Company's cost reduction program implemented during
the latter part of 1998. General and administrative expenses decreased to
$1,959,000 in 1997 from $2,742,000 in 1996 primarily due to the effects of the
Company's 1996 cost reduction program which was fully implemented in early 1997.
Such reduction principally came from reduced administrative personnel and
support costs, professional and consulting fees and travel costs.

      Research and development expenses. Research and development expenses
decreased to $1,396,000 in 1998 from $1,604,000 in 1997 as a result of the
Company's cost reduction program implemented during the latter part of 1998.
Research and development expenses of $1,604,000 in 1997 were consistent with the
level of expenditures incurred in 1996.

      Amortization expense. Amortization expense decreased to $354,000 in 1998
from $566,000 in 1997 due principally to the amortization of deferred charges in
1997 associated with the Company's $1.5 million convertible note financing,
which notes were converted and terminated in October 1997. Amortization expense
of $566,000 in 1997 was consistent with the level of expense incurred in 1996.

      Write down of intangible assets and other charges. Due primarily to the
continued competitiveness of the flavor and fragrance industry and the relative
weakness of the market for flavors in 1998 and the Company's focus on increasing
product sales, management determined that certain previously acquired product
formulations, which have historically been included in intangible assets, have
been impaired. The Company has determined that the future undiscounted cash
flows estimated to be generated from certain purchased product formulations was
less than the carrying amount of such formulations. Accordingly, the Company
recorded a write-down of such intangible assets to their estimated fair values
resulting in a $1,723,000 one-time non-cash charge in 1998.

      Other charges in 1998 principally consisted of: (a) $186,000 in severence
costs related to the termination of certain employees resulting from the
implementation of a cost reduction program in September 1998, and (b) $124,950
for the settlement of litigation brought against the Company in February 1998 by
Strategic Growth International, Inc., the Company's former investor relations
consultant (see "Item 3 Legal Proceedings").

      Interest expense, net. Interest expense decreased to $108,000 in 1998 from
$231,000 in 1997 primarily due to the reduction of long-term debt and lower
interest rates as a result of the October 1997 Refinancing. See "Liquidity and
Capital Resources."

      Provision for income taxes. Provision for income taxes represents state
franchise taxes. There is no federal income tax provision since the Company had
net losses for 1998, 1997 and 1996.

      Net loss. Net loss increased to $2,036,000 in 1998 from a net loss of
$648,000 in 1997. Net loss decreased to $648,000 in 1997 from a net loss of
$2,538,000 in 1996.

Liquidity And Capital Resources

      For the year ended December 31, 1998, cash provided by operating
activities totalled $147,000, while in 1997, cash used in operating activities
totalled $242,000. At December 31, 1998, working capital decreased to $1,799,000
from $4,998,000 at December 31, 1997. The outstanding balance of the Company's
revolving credit facility was $1,613,000 at December 31, 1998 and was classified
as a current liability. Such debt was classified as long term at December 31,
1997 (see below and Note 8 to the Consolidated Financial Statements).

      Historically, the Company's financing needs have been met through the
issuances of equity and debt securities. On October 16, 1997, the Company
entered into a credit agreement with a bank providing for a $6,000,000 revolving
credit facility and a $750,000 term loan facility (the "Credit Facility"). The
Credit Facility, which expires on June 30, 1999, replaced the Company's then
existing $5,500,000 credit line and allowed the Company to repay $750,000 of the
principal amount of the Company's then outstanding 9% Convertible Subordinated
Notes. Outstanding borrowings under the Credit Facility initially bore interest
at the Company's option at the London Interbank Offered Rate ("LIBOR") plus
2.5%, or at one-half of 1% above the bank's prime rate. Outstanding borrowings
are collateralized by substantially all of the assets of the Company and are
subject to eligibility requirements relating to the Company's receivables and
inventories. In December 1997, the Company violated certain financial covenants
under the Credit Facility. In March 1998, the Company and the lender under the
Credit Facility entered into a waiver and amendment agreement (the "1998
Amendment") which waived


                                       10
<PAGE>

compliance by the Company with certain covenants for and amended certain
financial covenants for 1998 and beyond. In June 1998, the Company violated
certain financial covenants under the Credit Facility. In August 1998, the
lender waived compliance by the Company with such covenants for the six months
ended June 30, 1998. In connection with the 1998 Amendment, the Company paid the
bank $75,000 on July 1, 1998.

      On August 25, 1998, the Company sold substantially all of the assets and
certain liabilities relating to its Seasoning Division to Mane for $5.5 million
in cash, less an aggregate of $1,003,454 in principal and interest assumed by
Mane with respect to a promissory note issued to a former director and executive
officer of the Company in connection with the Company's acquisition of the
Seasoning Division in December 1995. Of the total purchase price paid, $275,000
is being held in escrow until August 25, 2000 to secure certain indemnification
obligations of the Company. The net cash proceeds from the sale of the Seasoning
Division of approximately $4,000,000, after deducting closing costs, was used to
pay down the Company's remaining outstanding term loan balance under the Credit
Facility of $637,500 and a portion of the outstanding revolving loans of such
credit facility. In connection with the Company's sale of the Seasoning Division
on August 25, 1998, the lender: (a) reduced the maximum borrowings available to
the Company under the Credit Facility from $6,750,000 to $2,750,000, (b)
eliminated two financial covenants and modified two other financial covenants,
and (c) increased the lending rate on outstanding borrowings to LIBOR plus 375
basis points, or 1% above the bank's prime rate, at the Company's option. At
December 31, 1998, approximately $1,613,000 remained outstanding under the
Credit Facility and approximately $1,092,000 was available for borrowings
against the Company's borrowing base, and the outstanding borrowings under the
Credit Facility bore interest at the rate of approximately 8.7% per annum. As of
March 15, 1999, approximately $1,988,000 remained outstanding under the Credit
Facility and approximately $755,000 was available for borrowings. Under the
Credit Facility, the Company is prohibited from incurring any indebtedness other
than, among other things, existing indebtedness, subordinated debt (with the
consent of the bank), and unsecured trade indebtedness in the ordinary course of
business, and is restricted in its ability to, among other things, incur liens,
make investments, sell assets, make acquisitions and pay dividends. On March 1,
1999, the Company and the lender to the Credit Facility entered into an
amendment (the "1999 Amendment") which extended the maturity date of the Credit
Facility from March 31, 1999 to June 30, 1999. Pursuant to the 1999 Amendment,
the lending rate was increased to 22% above the bank's prime rate and the
Company was required to pay $15,000 to the bank.

      On March 9, 1999, the Company entered into a letter of intent with another
lender regarding a three year $3.0 million credit facility (the "1999 Credit
Facility") to refinance its existing revolving credit facility. The consummation
of any financing with respect to the 1999 Credit Facility would be subject to
numerous closing conditions including a customary lender audit review, an
appraisal and final credit approval. The Company believes it has adequate
capital to fund current operations until June 30, 1999, by which time the
Company expects the 1999 Credit Facility will be in place. Should the 1999
Credit Facility not close as anticipated, the Company will be required to seek
further extensions of its existing Credit Facility or obtain additional
financing from other sources in order to continue its operations and pay the
outstanding indebtedness under the Credit Facility. There can be no assurance
that additional funds will be available when needed, or if available, will be on
favorable terms or in the amounts required by the Company. If adequate funds are
not available to the Company when needed, it may be required to delay, scale
back or eliminate some or all of its operations, which would have a material
adverse effect on the Company's business, results of operations and prospects.
In addition, in the event the Company does not refinance the indebtedness
outstanding under the Credit Facility by June 30, 1999, the loan may be
accelerated and the lender may foreclose on the collateral, which would cause
the Company to be materially and adversely affected.

Year 2000 Compliance

      The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. It may also include additional business and
competitive differentiation. In addition to the well known calculation problems
with the use of 2-digit date formats as the year changes from 1999 to 2000, the
Year 2000 is a special case leap year which may cause similar problems in many
systems unless remediated.

      In 1997, the Company developed a plan with respect to evaluating and
upgrading its information and non-information technology systems (collectively,
"Information Systems") so that such systems would be Year 2000 compliant. During
the latter part of 1997, the Company's management information systems personnel
performed a comprehensive review and assessment of the Information Systems to
verify that they were Year 2000 compliant. In connection with such review, the
Company found certain minor software applications to be non-Year 2000 compliant.
In response to such findings, the Company upgraded its non-Year 2000 compliant
software and conducted several tests, the results of which indicate that the
Company's Information Systems are now Year 2000 compliant. The historical and
currently projected costs relating to these upgrades and the testing for Year
2000 compliance are not material, and were expensed as incurred.


                                       11
<PAGE>

      The Company is currently making inquiries of its suppliers and customers 
to receive assurances that they are Year 2000 compliant. The Company believes
that it will complete this review by the end of the second quarter of 1999.
There can be no assurance that the Company will not be adversely affected by
unanticipated Year 2000 issues, including the failure of a material supplier or
customer to become Year 2000 compliant.

      The Company has not developed a "worst case" scenario with respect to Year
2000 issues, and has no Year 2000 contingency plan other than to conduct
business with alternative suppliers identified by the Company as Year 2000
compliant, with whom the Company already conducts business.

      If the Company or third parties with whom it has relationships were to
cease or not successfully complete Year 2000 remediation efforts, the Company
could encounter disruptions in its business. The Company believes that such
disruptions would not have a material adverse effect on its business, financial
condition and results of operations. However, the Company could be materially
and adversely impacted by widespread economic or financial market disruption, or
by the Year 2000 computer system failures of third parties that may generally
occur as a result of the Year 2000 issues. See "Item 1 - Description of Business
- Forward-Looking Statements."

ITEM 7-FINANCIAL STATEMENTS

      The audited consolidated financial statements of the Company for the years
ended December 31, 1998 and 1997 begin on page F-1 of this Annual Report on Form
10-KSB.

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

      None.


                                       12
<PAGE>

                                    PART III

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

Information Concerning the Company's Board of Directors and Executive Officers

      The following table sets forth certain information, as of March 15, 1999,
concerning the Company's directors and executive officers:

Name                        Age  Positions with the Company
----                        ---  --------------------------
Philip Rosner ...........   63   Chairman of the Board, Director and President
A. Gary Frumberg ........   65   Director and Executive Vice President
Joseph A. Gemmo .........   53   Vice President, Chief Financial Officer and
                                 Secretary
Ronald J. Dintemann .....   55   Vice President-Operations
Harvey Farber ...........   58   Senior Vice President-Flavor Division
Sean Deson ..............   35   Director
Bruce S. Foerster .......   58   Director
Werner F. Hiller ........   62   Director
Irwin D. Simon ..........   39   Director

      The business experience of each of the persons listed above for at least
the last five years is as follows:

      Philip Rosner has been the Chairman of the Board of Directors and
President of the Company since its inception in 1989. Mr Rosner has been engaged
in the flavor and fragrance industry for over forty-five years. Prior to 1989,
Mr. Rosner was the President of Globe Extracts, Inc. and for fifteen years
before that, was President of Felton Worldwide, Inc., both of which produced and
marketed flavors and fragrances.

      A. Gary Frumberg has been a Director and an Executive Vice President of
the Company since 1989. Prior to 1989, Mr. Frumberg served as Vice
President-International Sales of Felton Worldwide, Inc.

      Joseph A. Gemmo has been Vice President and Chief Financial Officer of the
Company since August 1996 and Secretary since June 1998. From January 1994 to
April 1996, Mr. Gemmo was the Chief Financial Officer of Bio-Botanica, Inc., a
developer and manufacturer of herbal extracts. Prior to that, Mr. Gemmo was the
Chief Financial Officer of General Aerospace Materials Corp. from 1989 to 1994.

      Ronald J. Dintemann has been Vice President-Operations of the Company
since May 1989 after serving as Vice President-Operations of Globe Extracts,
Inc. for two years.

      Harvey Farber has been Senior Vice President-Flavor Division of the
Company since October 1997. From October 1995 through October 1997, Mr. Farber
was Senior VicePresident-Flavor Development of the Company. Before Mr. Farber
joined the Company, he was the Vice President-Flavor Development at J. Manheimer
Inc. for twelve years.

      Sean Deson has been a Director of the Company since June 1998. Mr. Deson
is currently a Senior Vice President of the Investment Banking Division of
Donaldson, Lufkin & Jenrette ("DLJ"). Mr. Deson has served in various capacities
at DLJ since 1990, primarily as an advisor, financier and investor. Mr. Deson
also serves as a member of the Board of Directors of SpecChem International
Holdings, L.L.C., an international specialty chemicals producer, and
Versity.com, an internet community company.

      Bruce S. Foerster has been a Director of the Company since June 1998. Mr.
Foerster is currently the President of South Beach Capital Markets Advisory
Corporation, which he founded in January 1995 and which offers advice on capital
markets and corporate finance issues. From June 1992 to December 1994, Mr.
Foerster was a Managing Director in Equity Syndicate at Lehman Brothers and has
over twenty-six years of investment banking experience. Mr. Foerster is also a
director of Aurora Capital, Inc. On or about April 1, 1999, Mr. Foerster expects
to join South Beach Capital Markets Incorporated, a Miami, Florida investment
bank, as a founder and principal.

      Werner F. Hiller has been a Director of the Company since June 1998. Since
1996, Mr. Hiller has been a consultant to GS Companies ("ConAgra") and
previously served as the President of General Spice Companies, a division of
ConAgra, from 1990 to 1996. From 1965 to 1990, Mr. Hiller was the founder,
co-owner and Executive Vice President and Treasurer of General Spice Companies.


                                       13
<PAGE>

      Irwin D. Simon has been a Director of the Company since June 1998. Mr.
Simon has been the President and Chief Executive Officer of The Hain Food Group,
Inc., a natural and specialty foods company listed on Nasdaq, since 1993. Prior
to 1993, Mr. Simon spent fifteen years in various sales and marketing positions,
including Vice President of Marketing of Slim-Fast Foods Company, and Eastern
Regional Director of Haagen-Dazs Shops, a division of Grand Metropolitan, PLC.

      All directors of the Company serve until the next annual meeting of
stockholders or until their respective successors are duly elected and
qualified. Officers serve at the discretion of the Board of Directors, subject
to rights, if any, under their contracts of employment. There are no family
relationships among the directors and executive officers of the Company. See
"Director Compensation" and "Executive Compensation."

Meetings of the Board of Directors and Committees

      The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board of Directors are informed about the
Company's affairs through presentations, reports and documents distributed to
them, through operating and financial reports routinely presented at meetings of
the Board of Directors and committee meetings and through other means. In
addition, directors of the Company discharge their duties throughout the year
not only by attending Board of Directors meetings but also through personal
meetings and other communications, including telephone contact with management
and others regarding matters of interest and concern to the Company.

Board Committees

      The Company's Board of Directors has an Executive Committee, an Audit
Committee and a Compensation Committee. The members of these Committees are
appointed by the Board of Directors.

      Executive Committee. The Executive Committee of the Board of Directors may
exercise, except when the Board of Directors is in session and to the extent
permitted by the General Corporation Law of the State of Delaware, all of the
powers of the Board of Directors in the management of the affairs of the
Company. The current members of the Executive Committee are Messrs. Rosner,
Deson, Hiller and Foerster.

      Audit Committee. The Audit Committee recommends to the Board of Directors
the firm to be selected each year as independent auditors of the Company's
financial statements and to perform services related to such audit. The Audit
Committee also has responsibility for (i) reviewing the scope and results of the
audit with the independent auditors, (ii) reviewing the Company's financial
condition and results of operations with management, (iii) considering the
adequacy of the internal accounting, bookkeeping and control procedures of the
Company, and (iv) reviewing any non-audit services and special engagements to be
performed by the independent auditors and considering the effect of such
performance on the auditors' independence. The current members of the Audit
Committee are Messrs. Deson and Foerster.

      Compensation Committee. The Compensation Committee recommends to the Board
of Directors the compensation to be paid to the Company's executive officers and
other key managerial personnel, reviewing new or existing employee compensation
programs, periodically reviewing management perquisites and other benefits. The
current members of the Compensation Committee are Messrs. Hiller and Simon.

      The Company has not established a nominating committee and/or a corporate
governance committee as recommended by the TSE Report (as defined herein),
however, the Company believes that the nomination of directors and other issues
normally considered by these committees can be effectively managed by the Board
of Directors due to its relatively small size, or by the Audit Committee which
is composed of "unrelated directors." See "Statement of Corporate Governance
Practices."

Director Compensation

      Each outside director of the Company is paid a $10,000 annual fee plus
$500 for each formal meeting attended. In addition, directors are reimbursed for
reasonable expenses actually incurred in connection with attending each formal
meeting of the Board of Directors or any committee thereof. See "Item 5 -
Markets for Common Equity and Related Stockholder Matters - Recent Sales of
Unregistered Securities - Other Stock Option Grants."


                                       14
<PAGE>

Statement of Corporate Governance Practices

      The Company's Common Stock is listed on the Toronto Stock Exchange. The
by-laws of the TSE require listed companies to disclose their approach to
corporate governance on an annual basis and within the context of certain
guidelines proposed in the December 1994 report issued by The Toronto Stock
Exchange Committee on Corporate Governance in Canada (the "TSE Report"). The
report focuses on the importance of each company addressing the governance issue
in its own context and the receipt by the company's stockholders of an
explanation for each company's approach to governance. There is no requirement
for the Company to comply with the guidelines in the TSE Report, and the report
itself recognizes that each company should have the flexibility to develop its
own approach to corporate governance.

      Of particular significance is the fact that the Company is organized under
the laws of the State of Delaware, and therefore is subject to that State's laws
and principles of corporate governance. The Company is of the opinion that its
approach to corporate governance is in compliance with Delaware law and the
principles of the TSE Report.

Unrelated Directors

      Much of the discussion in the TSE Report focuses on the composition of a
company's board of directors and, in particular, the number of "unrelated
directors." In the TSE Report, an "unrelated director" is a director who is free
from any interest and any business or other relationship which could, or could
reasonably be perceived to, materially interfere with that director's ability to
act with a view to the best interests of the company, other than an interest
arising from such director's status as a stockholder. The TSE Report also
focuses on the importance of having an appropriate portion of the board of
directors which is free from any interest or relationship with a "significant
stockholder" of the company (i.e., a shareholder controlling more than 50% of a
company's common stock). The Company does not have a "significant stockholder"
within the meaning of the TSE Report.

      The Company believes that four of its six directors (i.e., Messrs. Deson,
Foerster, Hiller and Simon) are "unrelated" within the meaning of the TSE
Report. The Company believes that the number of unrelated directors is
appropriate for the effective operations of the Company.

      The Board of Directors has no formal policy setting out which specific
matters must be brought by the President and management to the Board of
Directors for approval, although generally all transactions are presented by
management for approval by the Board of Directors.

Response to Stockholders

      Management is available to stockholders to respond to questions and
concerns on a prompt basis. The Board of Directors believes that the Company is
generally responsive to the inquiries of stockholders and others interested in
the Company.

Expectations of Management

      The Board of Directors works closely with members of management. The
Board's access to information relating to the operations of the Company, through
membership on the Board of several key members of management and, as necessary,
attendance by other members of management at the request of the Board are
important elements to the effective and informed functioning of the Board of
Directors.

      The Board of Directors expects the Company's management to take the
initiative in identifying opportunities and risks affecting the Company's
business and finding means to deal with such opportunities and risks for the
benefit of the Company.

Advisory Committee

      In June 1998, the Company established an Advisory Committee (the
"Committee") composed of three individuals with expertise in corporate finance
and the flavor and fragrance industry, including product development, sales and
regulatory affairs. Members of the Committee met with management and key
employees of the Company on an ad hoc basis. Committee members assisted the
Company in matters of corporate finance and in identifying product development,
sales and potential acquisition opportunities, reviewing with management the
progress of the Company's specific projects and recruiting and evaluating the
Company's staff.

      In connection with their services as members of the Committee, the Company
granted to each Committee member non-plan stock options, subject to stockholder
and TSE approval, to purchase 100,000 shares of Common Stock at an exercise
price of $0.9687, the market price of the Common Stock on the OTC Bulletin Board
on the date of the grant.

      On February 28, 1999, the Company terminated the services of the
Committee. The stock options granted to the members of the


                                       15
<PAGE>

Committee shall expire three months from the date of termination, unless
exercised within that period.

Compliance With Section 16(a) of the Securities Exchange Act of 1934

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who benefically own
more than 10% of the Company's Common Stock (collectively, the "Reporting
Persons") to file with the Securities and Exchange Commission (the "Commission")
(and, if such security is listed on a national securities exchange, with such
exchange), various reports as to ownership of such Common Stock. Such Reporting
Persons are required by Commission regulations to furnish the Company with
copies of all Section 16 (a) reports they file. Based solely upon a review of
copies of Section 16(a) reports and representations received by the Company from
Reporting Persons, and without conducting any independent investigation of its
own, in 1998, all Forms 3, 4 and 5 were timely filed with the Commission and
each exchange on which the Common Stock is traded, except as hereinafter set
forth. Each of Messrs. Deson, Foerster, Hiller and Simon failed to timely file
reports on Form 3 upon becoming directors of the Company, and did not timely
report one transaction on each of such reports on Form 3. In addition, Mr.
Hiller failed to timely report one transaction on Form 4.


                                       16
<PAGE>

ITEM 10-EXECUTIVE COMPENSATION

      The following summary compensation table sets forth the aggregate
compensation paid to or earned by the Company's Chairman of the Board and
President and the other four most highly compensated executive officers of the
Company (other than the Chairman of the Board and President) whose total annual
salaries and bonuses exceeded $100,000 for the year ended December 31, 1998 (the
"Named Executive Officers"):

                                SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                     Awards       
                                                                     ------       Payouts 
                                          Annual        Annual     Securities     ------- 
                                       Compensation  Compensation  Underlying    All Other
Name and Principal Position      Year     Salary        Bonus     Options/SARs Compensation(1)   
---------------------------      ----     ------        -----     ----------------------------   

<S>                              <C>     <C>             <C>        <C>        <C>    
Philip Rosner.................   1998    $225,930        --              --     $16,072
Chairman of the Board and        1997     225,962        --              --      16,820
President                        1996     235,000        --         100,000(2)   17,216

A. Gary Frumberg..............   1998     207,692        --              --      15,820
Director and                     1997     192,308        --              --      17,761
Executive Vice President         1996     199,903        --         100,000(2)   17,010

Harvey Farber.................   1998     172,415        --              --      11,359
Senior Vice President-Flavor     1997     163,461        --          75,000(3)   10,436
Division                         1996     161,509        --          10,000       8,429
                                                                               

                                 1998     140,192        --              --      15,010
Ronald J. Dintemann...........   1997     129,808        --          25,000(4)   15,500
Vice President-Operations        1996     134,085        --          75,000(2)   22,580

Joseph A. Gemmo...............   1998     135,000        --              --       8,576
Vice President and Chief         1997     116,346        --         150,000(5)   15,500
Financial Officer                1996      43,125        --              --       2,930
</TABLE>

----------

(1)   Represents Company reimbursed automobile expenses of such executive,
      including business usage.

(2)   Represents stock options granted in 1994 under the Company's 1993 Stock
      Option Plan, including options granted to Messrs. Rosner, Frumberg and
      Dintemann, and options granted in April 1994 to certain of the Company's
      directors, executive officers and employees. The exercise prices of such
      options were reduced in October 1995 by the Board of Directors and
      approved by the Company's stockholders in October 1996. See "-1993 Stock
      Option Plan."

(3)   Includes (a) 25,000 shares of Common Stock issued to Mr. Farber as
      additional compensation pursuant to his amended employment agreement, and
      (b) 50,000 shares of Common Stock issuable to Mr. Farber pursuant to stock
      options granted under the 1996 Stock Option Plan. See "-Employment
      Agreements."

(4)   Represents 25,000 shares of Common Stock issuable to Mr. Dintemann
      pursuant to stock options granted under the 1996 Stock Option Plan.

(5)   Represents 150,000 shares of Common Stock issuable to Mr. Gemmo pursuant
      to stock options granted in August 1996 under the 1996 Stock Option Plan.
      Of such options, options to purchase 100,000 shares, were repriced from
      $2.0625 to $1.31 on December 1, 1997, the current market price at the time
      of repricing.


                                       17
<PAGE>

Option Grants in 1998

      The Board of Directors of the Company did not grant any stock options to
any of the Named Executive Officers during the year ended December 31, 1998.

Aggregate Option Exercises in 1998 and 1998 Year-End Option Values

      The following table provides certain information concerning each exercise
of stock options during the year ended December 31, 1998 by each of the Named
Executive Officers and the year-end value of unexercised options. The stock
options listed below were granted without tandem stock appreciation rights. The
Company has no freestanding stock appreciation rights outstanding.

<TABLE>
<CAPTION>

                      Number of
                        Shares                Number of Unexercised           Value of Unexercised
                      Acquired                     Options at               In-the-Money Options at
                          on       Value        December 31, 1998             December 31, 1998($)(1)
Name                   Exercise  Realized($) Exercisable/Unexercisable      Exercisable/Unexercisable
----                   --------  ----------  --------------------------      -------------------------

<S>                     <C>        <C>          <C>                             <C>
Philip Rosner.......     --         --            100,000/0                     $   --/--
A. Gary Frumberg....     --         --            100,000/0                         --/--
Harvey Farber.......     --         --          27,500/32,500                       --/--
Ronald J. Dintemann.     --         --          80,000/20,000                       --/--
Joseph A. Gemmo.....     --         --         120,000/30,000                       --/--
</TABLE>

----------

(1)   Value of unexercised "in-the-money" options is equal to the difference
      between the closing per share of the Common Stock on the TSE at December
      31,1998 (U.S. $0.40) and the option exercise price per share multiplied by
      the number of shares subject to options. No options were "in-the-money" at
      December 31,1998.

Employment Agreements

      In October 1995, the Company entered into a five-year employment agreement
with Mr. Rosner which provides that he will serve as the President of the
Company. The agreement provides for an annual base salary (adjustable in
accordance with the Consumer Price Index) of $235,000. Effective January 1,
1998, Mr. Rosner's annual base salary was increased by the Company to $244,400
per year. Effective May 1, 1998, Mr. Rosner voluntarily reduced his annual
salary from $244,400 to $200,000 for the remainder of 1998. The agreement
contains, among other things, customary termination and confidentiality
provisions. See "Certain Relationships and Related Transactions Transactions
with Directors and Executive Officers."

      In October 1995, the Company entered into a five-year employment agreement
with Mr. Frumberg which provides that he will serve as an Executive Vice
President of the Company. The agreement provides for an annual base salary
(adjustable in accordance with the Consumer Price Index) of $200,000. Effective
January 1, 1998, Mr. Frumberg's annual base salary was increased by the Company
to $208,000. The agreement contains, among other things, customary termination
and confidentiality provisions. See "Certain Relationships and Related
Transactions - Transactions with Directors and Executive Officers."

      In October 1995, the Company entered into a three-year employment
agreement with Mr. Farber to serve as the Senior Vice President-Flavor Division
of the Company. Pursuant to his employment agreement, Mr. Farber is entitled to
receive an annual base salary of $160,000. In addition, the employment agreement
provides that Mr. Farber may receive an annual bonus, payable at the sole
discretion of the Company. In December 1997, the employment agreement was
amended to provide that Mr. Farber will receive an annual base salary of
$176,800 commencing January 1, 1998 for the balance of the term of the
agreement. Pursuant to such amendment, in 1997 the Company issued to Mr. Farber
25,000 shares of Common Stock as additional compensation. Mr. Farber's
employment agreement contains, among other things, customary termination and
confidentiality provisions. Mr. Farber's employment agreement expired in October
1998 and was not renewed, although Mr. Farber continues to be employed by the
Company in the same position.

      In January 1996, the Company entered into a five-year employment agreement
with Ronald J. Dintemann to serve as Vice President-Operations of the Company.
Pursuant to his employment agreement, Mr. Dintemann is entitled to receive and
annual base salary (adjustable in accordance with the Consumer Price Index) of
$135,000. Effective January 1, 1998, Mr. Dintemann's annual base salary was
increased by the Company to $140,400. Mr. Dintemann's employment agreement
contains, among other things, customary termination and confidentiality
provisions.


                                       18
<PAGE>

      On August 2, 1996, the Company entered into a three-year employment
agreement with Joseph A. Gemmo to serve as the Company's Vice President and
Chief Financial Officer effective August 19, 1996. Pursuant to his employment
agreement, Mr. Gemmo is entitled to receive an annual base salary of $115,000.
Effective August 1997, Mr. Gemmo's annual base salary was increased by the
Company to $130,000. Effective January 1, 1998, Mr. Gemmo's annual base salary
was increased by the Company to $135,200. In addition, pursuant to his
employment agreement, Mr. Gemmo received options to purchase 100,000 shares of
Common Stock on August 2, 1996. Mr. Gemmo's employment agreement also provides
that Mr. Gemmo may receive an annual bonus, payable at the sole discretion of
the Company. On December 1, 1997, the Company's Board of Directors authorized
the Company to reprice the options granted to Mr. Gemmo on August 2, 1996 to
purchase 100,000 shares of Common Stock from $2.0625 to $1.31 per share, the
market price of the Common Stock at the time of repricing, and to pay Mr. Gemmo
a minimum cash bonus of $50,000 in the event the Company undergoes a "change of
control." 

1993 Stock Option Plan

      In November 1993, the Company adopted, and the stockholders approved, the
1993 Stock Option Plan (the "1993 Option Plan") pursuant to which the Company
may grant options to its employees to purchase up to 500,000 shares of Common
Stock. The options granted under the 1993 Option Plan may be exercised during
the ten-year period after they are granted, at an exercise price equal to the
mean between the high and low selling prices of the Common Stock on the TSE on
the date of grant. Options granted to any person who beneficially owns ten
percent (10%) or more of the Common Stock may not be exercised after the fifth
anniversary of the date of the grant and must be granted at an exercise price
equal to 110% of the market price at the date of the grant.

1996 Stock Option Plan

      In 1996, the Company's then existing Board of Directors adopted, and the
stockholders approved the 1996 Stock Option Plan (the "1996 Option Plan"). Under
the 1996 Option Plan, the maximum number of shares of Common Stock that may be
subject to options may not exceed an aggregate of 1,000,000 shares. This number
may be adjusted in certain events, such as a stock split, reorganization or
recapitalization. Employees (including officers and directors who are employees)
of the Company or its subsidiaries are eligible for the grant of incentive
options under the 1996 Option Plan. Directors who are not employees or officers
are not eligible to receive incentive stock options, but may receive
non-qualified options. Options may also be granted to other persons, provided
that such options shall be non-qualified options. In the event of incentive
options, the aggregate fair market value of the Common Stock with respect to
which such options become first exercisable by the holder during any calendar
year cannot exceed $100,000. This limit does not apply to non-qualified options.
To the extent an option that otherwise would be an incentive option exceeds this
$100,000 threshold, it will be treated as a non-qualified option.

      In the case of an incentive option, the exercise price cannot be less than
the fair market value (as defined in the 1996 Option Plan) of the Common Stock
on the date the option is granted and, if an optionee is a stockholder who
beneficially owns 10% or more of the outstanding Common Stock, the exercise
price of incentive options may not be less than 110% of the fair market value of
the Common Stock. The term of an option cannot exceed ten years and, in the case
of an optionee who owns 10% or more of the outstanding Common Stock, cannot
exceed five years.

      The 1996 Option Plan will terminate automatically and no options may be
granted more than ten years after the date the 1996 Option Plan was approved by
the Company's Board of Directors. The 1996 Option Plan may be terminated at any
prior time by the Board of Directors. Termination of the 1996 Option Plan will
not affect options that were granted prior to the termination date.

      As of March 15, 1999, options to purchase an aggregate of 326,500 and
527,500 shares of Common Stock were outstanding under the 1993 and 1996 Option
Plans, respectively.


                                       19
<PAGE>

Consulting Agreements

      In December 1998, the Company entered into a one-year consulting agreement
with IC Holdings III, LLC ("ICH") to provide investor relations services. Under
this agreement, the Company agreed to pay ICH a retainer fee of $5,000 per month
plus reasonable expenses and granted to ICH stock options to purchase 30,000
shares of the Company's Common Stock at an exercise price of $1.00 per share.
The market price of the Common Stock on the TSE on the date of grant was $0.50
per share. Under the stock option agreement entered into by the Company and ICH
in connection with the grant of such options, options to purchase 5,000 shares
were exercisable immediately on the date of grant, and options to purchase the
remaining 25,000 shares become exercisable in equal monthly amounts over the 12
month period of the agreement. The options expire in 5 years.

      In October 1995, the Company entered into a one-year consulting agreement
with Strategic Growth International, Inc. ("SGI"), pursuant to which SGI, on
behalf of the Company, agreed to (i) arrange and conduct meetings with the
professional investment community and investors groups, (ii) develop and
implement a comprehensive investor relations program, and (iii) provide
professional staff services to assist the Company in carrying out its programs
and objectives (the "SGI Agreement"). Stanley Altschuler and Richard E. Cooper,
beneficial owners of 8.2% and 5.5% of the Company's Common Stock, respectively,
are each 50% stockholders of SGI. Under the SGI Agreement, the Company paid SGI
a retainer fee of $8,000 per month plus reasonable expenses and issued to SGI
warrants (the "SGI Warrants") to purchase an aggregate of 600,000 shares of
Common Stock at an initial exercise price of $0.56, the market price of the
Common Stock on the TSE on the date of issuance, subject to adjustment in
certain circumstances pursuant to the terms and conditions set forth in that
certain Warrant Agreement dated October 25, 1999, as amended (the "Warrant
Agreement"). The Warrant Agreement expires on October 24, 2000. See "Item
11-Security Ownership of Certain Beneficial Owners and Management."

      In October 1996, the SGI Agreement expired by its terms. The Company
continued to engage SGI for its services under the SGI Agreement pursuant to its
terms on a month to month basis up until October 1997, at which time the
arrangement was terminated by the Company. In February 1998, SGI commenced an
action against the Company in the Supreme Court of the State of New York, County
of Nassau, seeking damages for the Company's alleged failure to perform its
obligations under the SGI Agreement. SGI sought damages in the amount of
$124,950. On October 26, 1998, SGI and the Company entered into a settlement
agreement for the full amount of the claim, based upon the extent to which SGI
exercises the SGI warrants issued to SGI in connection with its engagement by
the Company. See "Item 3-Legal Proceedings."


                                       20
<PAGE>

ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information as of March 15, 1999
regarding the beneficial ownership of Common Stock by (A) each person known by
the Company to own beneficially more than 5% of the Common Stock, (B) each
director of the Company, (C) each of the Named Executive Officers, and (D) all
executive officers and directors of the Company as a group (9 persons):

                                  Number of Shares          Percentage  
Name                            Beneficially Owned(1)   Beneficially Owned
----                            ---------------------   ------------------
Philip Rosner(2).................  2,275,465 (3)(4)             18.1 %
A. Gary Frumberg(2)..............  1,442,199 (3)                11.5 %
Richard R. Higgins...............    929,500                    7.5 %
Stanley Altschuler...............  1,065,000 (5)                 8.2 %
Richard E. Cooper................    720,000 (6)                 5.5 %
Sean Deson (2)...................         -- (7)                   *
Bruce S. Foerster (2)............         -- (8)                   *
Werner F. Hiller(2) .............     10,000 (8)                   *
Irwin D. Simon (2) ..............         -- (8)                   *
Ronald J. Dintemann (2)..........    149,111 (9)                 1.2 %
Harvey Farber(2) ...............      54,100(10)                   *
Joseph A. Gemmo(2) .............     120,000(11)                   *
All directors and executive 
  officers as a group (9 persons)  4,050,875                    31.5%

----------

*     Less than 1%

(1)   As used in this table, a beneficial owner of a security includes any
      person who, directly or indirectly, through contract, arrangement,
      understanding, relationship or otherwise has or shares (i) the power to
      vote, or direct the voting of, such security or (ii) investment power
      which includes the power to dispose or to direct the disposition of, such
      security. In addition, a person is deemed to be the beneficial owner of a
      security if that person has the right to acquire beneficial ownership of
      such security within 60 days of the date shown above.

(2)   The business address of each of Messrs. Rosner, Frumberg, Dintemann,
      Farber and Gemmo is c/o Technology Flavors & Fragrances, Inc., 10 Edison
      Street East, Amityville, New York 11701. The business address of Mr. Deson
      is c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
      Avenue, New York, New York 10172. The business address of Mr. Foerster is
      c/o South Beach Capital Markets Advisory Corporation, 4045 Sheridan
      Avenue, Suite 432, Miami Beach, Florida 33140. The business address of Mr.
      Hiller is 55 Dugway, Watchung, New Jersey 07060. The business address of
      Mr. Simon is c/o The Hain Food Group, Inc., 50 Charles Lindbergh
      Boulevard, Uniondale, New York 11553.

(3)   Includes 100,000 shares of Common Stock issuable upon the exercise of
      options granted on April 8, 1994 to each of Messrs. Rosner and Frumberg.

(4)   Includes 36,438 shares of Common Stock held by Mr. Rosner's wife. Mr.
      Rosner disclaims beneficial ownership of the shares held by his wife.

(5)   Includes 470,000 shares of Common Stock personally owned by Mr.
      Altschuler. Also includes 595,000 shares of Common Stock issuable upon the
      exercise of the SGI Warrants held by SGI, of which Mr. Altschuler is a 50%
      stockholder. See"-Note 6." Accordingly. Mr. Altschuler may be deemed to
      own the 595,000 shares of Common Stock underlying the SGI Warrants, which
      are currently exercisable. Mr. Altschuler may therefore be deemed to
      beneficially own an aggregate of 1,065,000 shares of Common Stock. Mr.
      Altschuler has sole voting and dispositive power over the 470,000 shares
      of Common Stock which he personally owns. Mr Altschuler shares dispositive
      power over the SGI Warrants and, upon the exercise of such warrants, would
      share voting power over the shares of Common Stock underlying such
      warrants. See "Executive Compensation-Consulting Agreements."

(6)   Includes 125,000 shares of Common Stock personally owned by Mr. Cooper.
      Also includes 595,000 shares of Common Stock issuable upon the exercise of
      the SGI Warrants by SGI, of which Mr. Cooper is a 50% stockholder. See
      "-Note 5." Accordingly, Mr. Cooper may be deemed to own the 595,000 shares
      of Common Stock underlying the SGI Warrants, which are currently
      exercisable. Mr. Cooper may therefore be deemed to beneficially own an
      aggregate of 720,000 shares of Common Stock. Mr. Cooper has sole voting
      and dispositive power over the 125,000 shares of Common Stock which he
      personally owns. Mr. Cooper shares dispositive power over the SGI Warrants
      and, upon exercise of such warrants, would share voting power over the
      shares of Common Stock underlying such warrants. See "Executive
      Compensation-Consulting Agreements."

(7)   Does not include non-plan options to purchase 200,000 shares of Common
      Stock that have not yet vested which were granted to Mr. Deson upon his
      election to the Board of Directors on June 29, 1998. Such options are
      subject to stockholder and TSE approval and have an exercise price equal
      to $0.9687, the closing price of the Common Stock on the OTC Bulletin
      Board on the date of the grant. Such options vest in equal increments over
      a period of five years from the date of the grant, and expire ten years
      from the date of the grant.


                                       21
<PAGE>


(8)   Does not include non-plan options to purchase 100,000 shares of Common
      Stock that have not yet vested which were granted to each to Messrs.
      Foerster, Hiller and Simon upon their election to the Board of Directors
      on June 29, 1998. Such options are subject to stockholder and TSE approval
      and have an exercise price equal to $0.9687, the closing price of the
      Common Stock on the OTC Bulletin Board on the date of the grant. Such
      options vest in equal increments over a period of five years from the date
      of the grant, and expire ten years from the date of the grant.

(9)   Includes ten-year options to purchase 80,000 shares of Common Stock
      granted to Mr. Dintemann on April 8, 1994 and excludeoptions to purchase
      an additional 20,000 shares that have not yet vested. Such unvested
      options vest in equal installments of 5,000 shares per year.

(l0)  Includes ten-year options to purchase 27,500 shares of Common Stock
      granted to Mr. Farber on January 23, 1996 and February 27, 1997 and
      excludes options to purchase an additional 32,500 shares that have not yet
      vested. A total of 2,500 shares of such unvested options vest on January
      23, 2000, while the remaining unvested options vest in equal installments
      of 10,000 shares on each February 27, 2000, 2001 and 2002.

(11)  Represents ten-year options to purchase 120,000 shares of Common Stock
      granted to Mr. Gemmo and excludes options to purchase an additional 30,000
      shares that have not yet vested. Such unvested options vest in equal
      installments of 10,000 shares on each February 27, 2000, 2001 and 2002.

ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Principal Shareholders

      None

Transactions with Directors and Executive Officers

      The following table sets forth certain information regarding loans made by
the Company to its directors and executive officers which were outstanding as of
December 31, 1998 (collectively, the "Loans"). On March 15, 1999, the loans were
amended to change the maturity date from December 31, 1999 to March 15, 2002. As
of March 15, 1999, the aggregate indebtedness owed to the Company pursuant to
the Loans was $274,129, including accrued interest thereon. The Loans are
secured by shares of the Company's Common Stock owned by Messrs. Rosner and
Frumberg, and bear interest at a bank's prime rate and are due in equal annual
installments of principal and interest through March 15, 2002.

                       Table of Indebtedness of Directors
                        and Executive Officers of Company

<TABLE>
<CAPTION>
                                                    Amount                Amount
                                                  Outstanding          Outstanding
                                   Involvement       as of                as of
Name and Principal Position        of Issuer   December 31, 1998(1)   March 15, 1999(1)
---------------------------        ---------   --------------------   -----------------
<S>                                  <C>          <C>                  <C>     
Philip Rosner, Chairman of the 
  Board and President                Lender       $191,976              $195,106
A. Gary Frumberg, Director and
  Executive Vice President           Lender         77,756                79,023
</TABLE>

-----------

(1)   Includes accrued interest.


                                       22
<PAGE>

ITEM 13-EXHIBITS AND REPORTS ON FORM 8-K.

      (a) The exhibits listed below are filed as part of this Annual Report on
Form 10-KSB.

<TABLE>
<CAPTION>
 Exhibit
  Number                                   Document
  ------                                   --------
   <S>   <C>                                                                          <C>  
     3.1  Certificate of Incorporation and By-Laws.                                    (A)
     4.1  Form of Certificate Representing Share of Common Stock.                      (A)
     5.1  Opinion of Baer Marks & Upham LLP.
    10.1  Lease for Property in Amityville, New York.                                  (A)
    10.2  1993 Employee Stock Option Plan.                                             (A)
    10.3  Seafla, Inc. Asset Purchase Agreement dated December 6, 1995.                (B)
    10.4  Purchase Agreement, dated as of October 17, 1996, between the Company and
          the Purchasers listed therein.                                               (D)
    10.5  General Security Agreement, dated as of October 17, 1996, between the
          Company and the Purchasers listed therein.                                   (D)
    10.6  Class A Warrant Certificates.                                                (D)
    10.7  Class B Warrant Certificates.                                                (D)
    10.8  Letter Agreement, dated as of November 1, 1996, by and between the Company
          and the Purchasers listed therein.                                           (D)
    10.9  Escrow Agreement relating to shares of Messrs. Rosner and Frumberg.          (A)
   10.10  Amendment to Amended and Restated Promissory Note of the Company issued to
          RRHDH, Inc. dated March 26, 1997.                                            (E)
   10.11  Recognition, Subordination & Limited Waiver Agreement, dated October
          17, 1996, by and among the Company, North Fork Bank and the Purchasers
          under the Purchase Agreement dated October 17, 1996.                         (E)
   10.12  North Fork Bank Consolidated, Modified Revolving Credit Note, dated
          October 22, 1996.                                                            (E)
   10.13  Waiver and Amendment, dated April 9, 1997 between North Fork Bank and the
          Company.                                                                     (E)
   10.14  Amendment to Consolidated, Modified Revolving Note.                          (E)
   10.15  Warrant Certificate to North Fork Bank.                                      (E)
   10.16  1996 Employee Stock Option Plan.                                             (F)
   10.17  Credit Agreement, dated as of October 16, 1997, among the Company and The
          Chase Manhattan Bank.                                                        (F)
   10.18  Guarantee, dated October 16, 1997, given by Technology Flavors &
          Fragrances, Inc. (Canadian Subsidiary) to The Chase Manhattan Bank.          (F)
   10.19  Intercreditor Agreement, dated as of October 16, 1997, among The Chase
          Manhattan Bank, Seafla, Inc. and the Company.                                (F)
   10.20  Security Agreement, dated as of October 16, 1997, between the Company and
          The Chase Manhattan Bank.                                                    (F)
   10.21  Waiver and Amendment, dated March 27, 1998, between The Chase Manhattan
          Bank and the Company.                                                        (G)
  *10.22  Waiver, dated August 14, 1998, between The Chase Manhattan Bank and the
          Company.
  *10.23  Amendment, dated September 30, 1998, between The Chase Manhattan Bank
          and the Company.
  *10.24  Amendment, dated March 1, 1999, between The Chase Manhattan Bank and
          the Company.
  *10.25  Promissory Note of Philip Rosner issued to the Company, dated March 15,
          1999. 
  *10.26  Stock Pledge Agreement, dated March 15, 1999, between Philip
          Rosner and the Company. 
  *10.27  Promissory Note of A. Gary Frumberg issued to the Company, dated 
          March 15, 1999.
  *10.28  Stock Pledge Agreement, dated March 15, 1999, between A. Gary Frumberg
          and the Company.
   10.29  Asset Purchase Agreement, dated August 25, 1998, between the Company,
          Mane-Seafla, Inc. and Mane USA, Inc.                                         (H)
    11.1  Statement re: Computation of Per Share Earnings (not required pursuant to
          Item 601(b) of Regulation S-B).                                              
    16.1  Letter on Change of Certified Accountants.                                   (B)
    16.2  Letter, dated June 11, 1996, from Coopers & Lybrand, L.L.P.                  (C)
    21.1  Subsidiaries of the Company.                                                 (F)
   *27.1  Financial Data Schedule.
</TABLE>

(A)   Incorporated by reference to the Company's Registration Statement on Form
      10-SB (File No. 0-26682) filed with the Commission on August 28, 1995.

(B)   Incorporated by reference to the Company's Report on Form 8-K filed with
      the Commission on December 20, 1995.

(C)   Incorporated by reference to the Company's Report on Form 8-K, filed with
      the Commission on June 12, 1996.

(D)   Incorporated by reference to the Company's Report on Form 8-K filed with
      the Commission on November 4, 1996.


                                       23
<PAGE>

(E)   Incorporated by reference to the Company's Report on Form 10-KSB, as
      amended, filed with the Commission for the year ended December 31, 1996.

(F)   Incorporated by reference to the Company's Registration Statement on Form
      SB-2 (File No. 333-44841) filed with the Commission on January 23, 1998.

(G)   Incorporated by reference to the Company's Report on Form 10-KSB filed
      with the Commission for the year ended December 31, 1997.

(H)   Incorporated by reference to the Company's Report on Form 8-K filed with
      the Commission on September 9, 1998.

* Filed herewith.

      (b) Reports on Form 8-K.

      During the fourth quarter of 1998, on November 5, 1999, the Company filed
with the Securities and Exchange Commission a Form 8-K/A to its report on Form
8-K filed on September 9, 1998. Such report on Form 8-K/A related to the filing
of certain proforma financial information relative to the Company's sale of the
Seasoning Division on August 25, 1998.


                                       24
<PAGE>

                                        SIGNATURES

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

                                  Technology Flavors & Fragrances, Inc.


Dated: March 23, 1999             By: /s/ JOSEPH A. GEMMO
                                      --------------------------------
                                          Joseph A. Gemmo
                                      Vice President and Chief Financial Officer

In accordance with 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/ PHILIP ROSNER        Chairman of the Board, President       March 23, 1999
----------------------   and Director (Principal    
    Philip Rosner        Executive Officer)            


/s/ A.GARY FRUMBERG      Executive Vice President and Director  March 23, 1999
----------------------
   A. Gary Frumberg


/s/ JOSEPH A. GEMMO      Vice President, Chief Financial        March 23, 1999
----------------------   Officer and Secretary           
   Joseph A. Gemmo       (Principal Financial and  
                         Accounting Officer)


/s/ SEAN DESON           Director                               March 23, 1999
----------------------                               
     Sean Deson              


/s/ BRUCE S. FOERSTER    Director                                March 23, 1999
----------------------
  Bruce S. Foerster


/s/ WERNER F. HILLER    Director                                 March 23, 1999
----------------------
   Werner F. Hiller


/s/ IRWIN D. SIMON       Director                                March 23, 1999
----------------------
   Irwin D. Simon


                                       25
<PAGE>

                                  Exhibit Index
Exhibit
Number                             Description
------                             -----------

10.22  Waiver, dated August 14, 1998, between The Chase Manhattan Bank and the
       Company.

10.23  Amendment, dated September 30, 1998, between The Chase Manhattan Bank and
       the Company.

10.24  Amendment, dated March 1, 1999, between The Chase Manhattan Bank and the
       Company.

10.25  Promissory Note of Philip Rosner issued to the Company, dated March 15,
       1999.

10.26  Stock Pledge Agreement, dated March 15, 1999, between Philip Rosner and
       the Company.

10.27  Promissory Note of A. Gary Frumberg issued to the Company, dated March
       15, 1999.

10.28  Stock Pledge Agreement, dated March 15, 1999, between A. Gary Frumberg
       and the Company.

27.1   Financial Date Schedule.


                                       26
<PAGE>

                          Index to Financial Statements
                                                                            Page
                                                                            ----

Report of Independent Auditors                                               F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997                 F-3

Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997                                                   F-4

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998 and 1997                                             F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997                                                   F-6

Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998 and 1997                                                   F-8


                                      F-1
<PAGE>

                         Report of Independent Auditors

To the Stockholders and Board of Directors of
Technology Flavors & Fragrances, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Technology
Flavors & Fragrances, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Technology Flavors & Fragrances, Inc. and Subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.

                                          /s/ ERNST & YOUNG LLP

Melville, New York
March 15, 1999


                                      F-2
<PAGE>

                           Technology Flavors & Fragrances, Inc.
                               Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                         At December 31,
                                                                  ----------------------------
                                                                      1998           1997
                                                                  -----------     ------------
                                          ASSETS
<S>                                                               <C>             <C>         
Current assets:
  Cash and cash equivalents ...................................   $    317,034    $    576,175
  Receivables (less allowance for doubtful accounts
    of $235,000 in 1998 and $145,000  in 1997) (Note 3) .......      2,526,729       2,197,586
  Inventories (Note 4) ........................................      2,802,284       3,347,439
  Prepaid expenses and other current assets ...................         32,757          58,879
  Current assets of discontinued operations (Note 9) ..........             --         904,894
                                                                  ------------    ------------
    Total current assets ......................................      5,678,804       7,084,973
Fixed assets, net (Note 5) ....................................        604,511         727,322
Intangible assets, net (Notes 6 and 10) .......................      1,108,058       3,097,476
Other assets ..................................................        371,656          38,466
Notes receivable from related parties (Note 7) ................        269,732         279,520
Non-current assets of discontinued operations (Note 9) ........             --       3,147,337
                                                                  ------------    ------------
    Total assets ..............................................   $  8,032,761    $ 14,375,094
                                                                  ============    ============

                                       LIABILITIES

Current liabilities:
  Accounts payable ............................................   $  1,621,887    $    921,997
  Accrued expenses ............................................        611,150         418,652
  Revolving credit facility (Note 8) ..........................      1,612,634              --
  Current portion of long-term debt (Note 8) ..................         34,562          27,212
    Current liabilities of discontinued operations (Note 9) ...             --         718,997
                                                                  ------------    ------------
    Total current liabilities .................................      3,880,233       2,086,858
Long-term debt (Note 8) .......................................         40,616       1,966,275
Deferred credits ..............................................        321,727          34,367
Long-term debt of discontinued operations (Note 9) ............             --       4,738,019
                                                                  ------------    ------------
                                                                     4,242,576       8,825,519

Commitments (Note 12)

                                   STOCKHOLDERS' EQUITY

Common stock:
  $.01 par value, authorized 20,000,000 shares,
     issued 12,449,623 and 12,374,623, respectively ...........        124,496         123,746
Paid-in capital ...............................................     10,178,011      10,138,161
Accumulated deficit ...........................................     (6,512,322)     (4,476,048)
Unearned compensation arising from stock awards of discontinued
  operations (Note 9) .........................................             --        (236,284)
                                                                  ------------    ------------
    Total stockholders' equity ................................      3,790,185       5,549,575
                                                                  ------------    ------------
    Total liabilities and stockholders' equity ................   $  8,032,761    $ 14,375,094
                                                                  ============    ============
</TABLE>


                                      F-3
<PAGE>

                          Technology Flavors & Fragrances, Inc.
                           Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                           For the years ended      
                                                                              At December 31,         
                                                                      ----------------------------   
                                                                          1998           1997           
                                                                      ------------    ------------   
                                                                               (Note 9)
<S>                                                                   <C>             <C>         
Net sales .........................................................   $ 13,888,242    $ 18,022,348
Cost of sales .....................................................      8,288,245      11,013,889
                                                                      ------------    ------------ 
      Gross profit ................................................      5,599,997       7,008,459
                                                                      ------------    ------------ 
Operating expenses:
  Selling .........................................................      2,713,869       2,941,765
  General and administrative ......................................      1,917,868       1,958,448
  Research and development ........................................      1,396,158       1,603,545
  Amortization expense ............................................        354,375         566,243
  Write-down of intangible assets and other charges ...............      2,119,760              --
                                                                      ------------    ------------ 
      Total operating expenses ....................................      8,502,030       7,070,001
                                                                      ------------    ------------ 
Loss from operations ..............................................     (2,902,033)        (61,542)
Interest expense, net .............................................       (107,787)       (230,921)
                                                                      ------------    ------------ 
Loss before provision for income taxes ............................     (3,009,820)       (292,463)
Provision for income taxes ........................................         (1,730)         (8,840)
                                                                      ------------    ------------ 

Loss from continuing operations ...................................     (3,011,550)       (301,303)
Discontinued operations:
   Gain on disposal of discontinued operations ....................      1,080,157              --
   Loss from discontinued operations ..............................       (104,881)       (346,855)
                                                                      ------------    ------------ 
                                                                           975,276        (346,855)
                                                                      ------------    ------------ 
Net loss ..........................................................   $ (2,036,274)   $   (648,158)
                                                                      ============    ============
Net (loss) income per common share:
   Continuing operations ..........................................   $       (.24)   $       (.02)
   Discontinued operations ........................................            .08            (.03)
                                                                      ------------    ------------ 
Net loss per common share .........................................   $       (.16)   $       (.05)
                                                                      ============    ============ 

Weighted average shares outstanding ...............................     12,399,623      12,038,875
                                                                      ============    ============
</TABLE>

                                  See accompanying notes.


                                      F-4
<PAGE>

                           Technology Flavors & Fragrances, Inc.
                      Consolidated Statements of Stockholders' Equity
                      For the years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                 Common Stock
                                             --------------------          Paid-In      (Accumulated     
                                             Shares        Amount          Capital        Deficit)
                                             ------        ------          -------        --------
<S>                                       <C>           <C>             <C>             <C>          
Balance at December 31, 1996 ...........  11,993,406    $    119,934    $  9,409,706    $ (3,827,890)

   Shares issued in connection
     with convertible debt financing ...     387,655           3,877         670,590                          
   Shares issued in connection
     with exercise of warrants .........       5,000              50           2,750                          
   Shares issued in connection with
     employment agreement ..............      25,000             250          24,750                          
   Cancellation of treasury stock ......     (36,438)           (365)         (9,635)                         
   Amortization of unearned
     compensation ......................
   Warrants issued to a bank in
     connection with obtaining
     covenant modifications ............                                      20,000                          
   Options issued for consulting
     services ..........................                                      20,000                
    Net loss ...........................                                                    (648,158)
                                          ----------     -----------    -------------    -----------

Balance at December 31, 1997 ...........  12,374,623         123,746      10,138,161      (4,476,048)


Shares issued in connection with
   exercise of stock options ...........    75,000             750            42,750                          
Redemption of warrants .................                                     (20,000)                         
Options issued for consulting
    services ...........................                                      17,100                          
Amortization of unearned
   compensation ........................                                                                      
Write-off of unearned compensation
   associated with discontinued
   operations ..........................     187,779
Net loss ...............................                                                  (2,036,274)
                                          ----------     -----------    -------------    -----------

Balance at December 31, 1998 ...........  12,449,623     $   124,496    $ 10,178,011     $(6,512,322)
                                          ==========     ============   =============    ===========

                                             Unearned
                                             Compensation           Treasury Stock
                                            Arising from        ----------------------
                                            Stock Awards         Stock          Amount      Total
                                            ------------         -----          ------      -----

Balance at December 31, 1996 ...........  $   (317,295)        (36,438)    $  (10,000)   $  5,374,455                      
                                                                                                           
   Shares issued in connection                                                                             
     with convertible debt financing ...                                                      674,467    
   Shares issued in connection                                                                             
     with exercise of warrants ..........                                                       2,800      
   Shares issued in connection with                                                                        
     employment agreement ..............                                                       25,000      
   Cancellation of treasury stock ......                        36,438          10,000                     
   Amortization of unearned                                                                                
     compensation ......................        81,011                                         81,011       
  Warrants issued to a bank in                                                                             
     connection with obtaining                                                                   
     covenant modifications ............                                                       20,000      
  Options issued for consulting                                                                   
     services ..........................                                                       20,000
   Net loss ............................                                                     (648,158)
                                          ------------    ------------    ------------    ------------     
                                                                                                        
Balance at December 31, 1997 ...........       (236,284)             --              --     5,549,575    
                                                                                                        
Shares issued in connection with                                                                           
   exercise of stock options ...........                                                       43,500  
Redemption of warrants .................                                                       20,000
Options issued for consulting                                                                 
    services ...........................                                                       17,100
Amortization of unearned                                                                       
   compensation ........................        48,505                                         48,505
Write-off of unearned compensation                                                                         
   associated with discontinued                                                                
   operations ..........................       187,779                                        187,779
Net loss ...............................                                                   (2,036,274)
                                          ------------    ------------    ------------    ------------
Balance at December 31, 1998 ...........  $         --    $         --    $         --    $ 3,790,185
                                          ============    ============    ============    ============
</TABLE>

                                  See accompanying notes.


                                      F-5
<PAGE>

                         Technology Flavors & Fragrances, Inc.
                          Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                        For the years ended         
                                                                                           At December 31,          
                                                                             ------------------------------------     
                                                                                   1998                  1997          
                                                                             -----------------   ----------------     
<S>                                                                          <C>                      <C>         
Cash flows from operating activities:
  Net loss ................................................................. $(2,036,274)             $  (648,158)
  Adjustments to reconcile net loss to net cash provided by
       (used in) operating activities
    Net gain on sale of Seasoning Division .................................  (1,080,157)                     --
    Depreciation and amortization ..........................................     507,106               1,360,217
    Write-down of intangible assets ........................................   1,723,000                      --
    Provision for bad debts ................................................     195,710                  27,709
    Deferred rent ..........................................................      12,360                  12,360
    Loss on disposal of fixed assets .......................................      15,697                      --
    Non-cash consulting charge .............................................      17,100                      --
    Changes in assets and liabilities:
      Accounts receivable ..................................................    (524,853)                809,207
      Inventories ..........................................................     545,155                 285,106
      Prepaid expenses and other current assets ............................      26,122                  29,177
      Other assets .........................................................    (146,147)               (180,246)
      Accounts payable .....................................................     699,890              (1,613,129)
      Accrued expenses .....................................................     192,498                (324,419)
                                                                             -----------             ----------- 
     Net cash provided by (used in) operating activities ..................     147,207                (242,176)
                                                                             -----------             ----------- 
Cash flows from investing activities:
    Net proceeds from sale of Seasoning Division ...........................   3,911,656                      --
    Purchase of fixed assets ...............................................     (45,617)               (141,074)
    Proceeds from notes receivable .........................................       9,788                   1,491
                                                                             -----------             ----------- 
    Net cash provided by (used in) investing activities ....................   3,875,827                (139,583)
                                                                             -----------             -----------
Cash flows from financing activities:
    Proceeds from long-term debt financing .................................     700,000               6,264,600
    Repayment of long-term debt ............................................  (5,005,675)             (5,536,235)
    Proceeds from exercise of stock options ................................      43,500                   2,800
    Payment for redemption of warrants .....................................     (20,000)                     --
                                                                             -----------             -----------
      Net cash (used in) provided by financing activities ..................  (4,282,175)                731,165
                                                                             -----------             -----------
(Decrease) increase in cash ................................................    (259,141)                349,406
Cash-beginning of year .....................................................     576,175                 226,769
                                                                             -----------             -----------
Cash-end of year ...........................................................    $317,034             $   576,175
                                                                             ===========             ===========
Supplemental information:
    Cash paid during the year for interest ................................. $   447,000             $   636,000
                                                                             ===========             ===========
    Cash paid during the year for income taxes ............................. $     8,800             $     2,600
                                                                             ===========             ===========
</TABLE>

                                 See accompanying notes.


                                      F-6
<PAGE>

                          Technology Flavors & Fragrances, Inc.
                    Consolidated Statements of Cash Flows (Continued)

Supplemental disclosures of non-cash investing and financing activities:

      Equipment acquired under a capital lease obligation amounted to $33,000 in
      1997.

      In December 1997, the Company issued 25,000 shares of Common Stock valued
      at $25,000 to an officer of the Company as additional compensation
      pursuant to an employment agreement.

      In April 1997, the Company issued 100,000 warrants to a bank valued at
      $20,000 in connection with the bank's amendment of a certain financial
      covenant in 1997 and 1996.

      In January 1997, the Company issued options to purchase 125,000 shares of
      Common Stock to a consultant valued at $20,000 in connection with a
      consulting agreement.

      In June 1998, the Company issued options to purchase an aggregate of
      300,000 shares of Common Stock to three Advisory Committee members
      appointed by the Board of Directors for consulting services valued at
      $17,100 for 1998.

                                See accompanying notes.


                                      F-7
<PAGE>

                         Technology Flavors & Fragrances, Inc.
                       Notes to Consolidated Financial Statements
                     For the years ended December 31, 1998 and 1997

1. Description of Business and Basis of Presentation

      Technology Flavors & Fragrances, Inc. (the "Company") is a manufacturer of
flavor and fragrance products used to provide or enhance flavors or fragrances
in a wide variety of consumer and industrial products.

      The accompanying consolidated financial statements of the Company for 1997
have been restated for presentation purposes to reflect the Company's
discontinued operations relating to the sale of its Seasoning Division (the
"Division") on August 25, 1998 to Mane-Seafla, Inc., a subsidiary of Mane USA,
Inc. (collectively, "Mane"). See Note 9.

2. Summary of Significant Accounting Policies

Consolidation

      The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Inventories

      Inventories are stated at the lower of cost, determined using the
first-in, first-out method, or market. The cost of raw materials is determined
using the specific identification method.

Long-Lived Assets

      The Company periodically reviews the carrying value of its long-lived
assets in determining the ultimate recoverability of their unamortized values
using future undiscounted cash flow analyses. Such a review has been performed
by management and an impairment loss has been recognized for the year ended
December 31, 1998. See Note 10.

Fixed Assets

      Machinery and equipment are recorded at cost and depreciated over their
estimated useful lives ranging from 5 to 10 years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or estimated useful life of the assets. Maintenance and repairs are charged to
expense as incurred and renewals and improvements, which extend the life of the
assets, are capitalized.

Intangible Assets

      Amortization of intangible assets is provided using the straight-line
method over the estimated useful lives of the assets. Annually, the Company
assesses the realizability of its capitalized formulations based upon the yearly
level of product utilization and forecasted sales data. See Note 10.

Research and Development Costs

      Research and development costs are expensed as incurred.

Income Taxes

      The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount currently estimated to be realized.


                                      F-8
<PAGE>

                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

2. Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation

      The financial condition and results of operations of the Company's
subsidiaries are measured using local currency as the functional currency.
Balance sheet accounts are translated at the exchange rate in effect at the end
of the year, and income statement accounts are translated at the average rate of
exchange prevailing during the year. Translation adjustments arising from
differences in exchange rates between years have not been material.

Earnings Per Share

      In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.

Revenue Recognition

      The Company recognizes revenue when inventory is shipped and title legally
transfers to the purchaser.

Advertising Costs

      The Company expenses advertising costs as incurred. Advertising costs of
continuing operations were approximately $155,000 in 1998 and $31,000 in 1997.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

      Cash and cash equivalents, notes receivable and long-term debt are
reflected in the accompanying consolidated balance sheets at amounts considered
by management to reasonably approximate fair value. The Company estimates the
fair value of its fixed rate note receivable and long-term debt by using a
discounted cash flow analysis.

Recent Accounting Pronouncements

      Comprehensive Income

      In 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income," which the Company adopted in 1998. The effect of such adoption was not
material.

      Segment Disclosures

      In 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which the Company adopted in 1998. The
effect of such adoption was not material because it was determined that the
Company operates as one segment.


                                      F-9
<PAGE>


                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

3. Receivables

                                                 December 31,   December 31,
                                                     1998           1997
                                                     ----           ----
Trade..........................................    $2,318,445   $2,075,214
Alcohol drawbacks..............................        61,574       42,320
Other..........................................       146,710       80,052
                                                   ----------   ----------
                                                   $2,526,729   $2,197,586
                                                   ==========   ==========

      In 1998 and 1997, the allowance for doubtful accounts of continuing
operations increased by an additional provision of $194,000 and $28,000,
respectively, and was reduced by bad debt write-offs of $104,000 and $13,000,
respectively. Included within trade receivables at December 31, 1998 and 1997 is
an amount due from a party related to an executive and principal shareholder of
the Company in the amount of approximately $215,000 and $250,000, respectively.

4. Inventories

                                                  December 31,   December 31,
                                                     1998           1997
                                                     ----           ----
Raw materials..................................    $1,718,553   $2,479,679
Finished goods.................................     1,083,731      867,760
                                                   ----------   ----------
                                                   $2,802,284   $3,347,439
                                                   ==========   ==========

5. Fixed Assets

                                                  December 31,   December 31,
                                                     1998           1997
                                                     ----           ----
Machinery and equipment........................    $1,156,962   $1,166,914
Leasehold improvements.........................       576,188      609,131
Furniture and fixtures.........................       488,443      520,916
                                                   ----------   ----------
                                                    2,221,593    2,296,961
Less: accumulated depreciation and amortization    (1,617,082)  (1,569,639)
                                                   ----------   ----------
                                                   $  604,511   $  727,322
                                                   ==========   ==========

      Depreciation and amortization expense of continuing operations relating to
fixed assets for the years ended December 31, 1998 and 1997 was approximately
$153,000 and $201,000, respectively.

6. Intangible Assets

                                    Amortization   December 31,   December 31,
                                      Period          1998           1997
                                      ------          ----           ----
Formulations......................     10-13       $1,048,979   $4,492,959
Organization costs................         5               --       44,640
Customer lists....................     10-13           86,105      260,000
Trademarks........................         5               --       14,095
                                                   ----------   ----------
                                                    1,135,084    4,811,694
Less: accumulated amortization....                    (27,026)  (1,714,218)
                                                   ----------   ----------
                                                   $1,108,058   $3,097,476
                                                   ==========   ==========


                                      F-10
<PAGE>

                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

6.  Intangible Assets (Continued)

      Amortization expense of continuing operations relating to intangible
assets for the years ended December 31, 1998 and 1997 was approximately $266,000
and $363,000, respectively. See Note 10.

7. Notes Receivable From Related Parties

      Notes receivable from related parties consist of amounts owed by two
executives and principal shareholders of the Company and are secured by shares
of the Company's Common Stock. The notes bear interest at a bank's prime rate
and are due in annual installments of principal and interest through March 15,
2002. On March 15, 1999, the notes were amended to change the maturity date from
December 31, 1999 to March 15, 2002.

8. Debt

                                                  December 31,   December 31,
                                                     1998           1997
                                                     ----           ----
Revolving Credit Facility......................    $1,612,634    $1,887,634
Capital leases ................................        75,178       105,853
                                                   ----------    ----------
      Total debt ..............................     1,687,812     1,993,487
Less: current maturities.......................     1,647,196        27,212
                                                   ----------    ----------
      Total long-term debt .................       $   40,616    $1,966,275
                                                   ==========    ==========


      On October 16, 1997, the Company entered into a credit agreement with a
bank which provided for a $6,000,000 Revolving Credit Facility and a $750,000
Term Loan Facility (the "1997 Facility"). Initially, the 1997 Facility bore
interest at the Company's option based on the London Interbank Offered Rate
("LIBOR") plus 2-1/2% (which equated to approximately 1/4 of 1% below the bank's
prime rate) or 2 of 1% above the bank's prime rate. Outstanding borrowings are
secured by substantially all of the assets of the Company, subject to the
Company's borrowing base which includes eligible receivables and inventories.
The 1997 Facility requires the maintenance of certain financial and other
covenants. In December 1997, the Company was in violation of two financial
covenants in the credit agreement relating to the 1997 Facility. In March, 1998,
the Company and the lender entered into a waiver and amendment agreement (the
"1998 Amendment") which waived compliance by the Company with certain covenants
for 1997 and amended certain financial covenants for 1998. In connection with
the Amendment, the Company paid the bank $75,000 on July 1, 1998. In June 1998,
the Company was in violation of certain financial covenants under the 1997
Facility and, in August 1998, the lender waived compliance by the Company with
such covenants for the six months ended June 30, 1998.

      In connection with the Company's sale of its Seasoning Division (see Note
9), the net cash proceeds from the sale of approximately $4,000,000, after
deducting closing costs, was used to pay down the Company's outstanding term
loan balance under the 1997 Facility of $637,500 and a portion of the
outstanding revolving loan of such credit facility with the lender. As of
December 31, 1998, approximately $1,613,000 of borrowings remained outstanding
under the revolving loan portion of the 1997 Facility. In connection with the
Company's sale of the Seasoning Division on August 25, 1998, the lender: (a)
reduced the maximum borrowings available to the Company under the 1997 Facility
from $6,750,000 to $2,750,000, (b) eliminated two financial covenants and
modified two other financial covenants, and (c) increased the lending rate on
outstanding borrowings to LIBOR plus 375 basis points, or 1% above the bank's
prime rate, at the Company's option. At December 31, 1998, approximately
$1,092,000 was available for borrowings against the Company's borrowing base
under the 1997 Facility and the outstanding borrowings under the 1997 Facility
bore interest at the rate of approximately 8.7% per annum.

      On March 1, 1999, the Company and the lender entered into an amendment
agreement (the "1999 Amendment") which extended the maturity date of the 1997
Facility from March 31, 1999 to June 30, 1999. Pursuant to the 1999 Amendment,
the lending rate on outstanding borrowings was increased to 22% above the bank's
prime rate, and the Company was required to pay $15,000 to the bank. On March 9,
1999, the Company entered into a letter of intent with another lender regarding
a three year $3.0 million credit facility the ("1999 Credit Facility") to
refinance its existing revolving credit facility. The consummation of any
financing with respect to the 1999 Credit Facility would be subject to numerous
closing conditions, including a customary lender audit review, an appraisal and
final credit approval.


                                      F-11
<PAGE>

                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

9. Discontinued Operations

      On August 25, 1998, the Company sold substantially all of the assets and
certain liabilities relating to its Seasoning Division, located in Milford,
Ohio, to Mane, USA for $5,500,000 in cash, less an aggregate of $1,003,454 in
principal and interest assumed by Mane, USA which was owed by the Company under
a promissory note to a former director and executive officer of the Company in
connection with the Company's acquisition of the Seasoning Division in December
1995. Of the total purchase price paid, $275,000 is being held in escrow until
August 25, 2000 to secure certain indemnification obligations of the Company.
This has been recorded in Other Assets while the corresponding deferred gain was
recorded in Deferred Credits. The results of operations of the Seasoning
Division have been accounted for as discontinued operations in the accompanying
consolidated financial statements.

      The Company recognized a net gain of approximately $1,080,000 on the sale
of the Seasoning Division. Net losses attributable to the discontinued
operations have been shown separately in the Company's consolidated statements
of operations for all years presented. Net sales of the discontinued operations
were $3,412,312 and $5,661,959 for the years ended December 31, 1998 and
December 31, 1997, respectively. Interest expense allocated to the discontinued
operations amounted to $291,000 and $473,000 for 1998 and 1997, respectively,
and was based on the reduction in long-term debt from the net proceeds received
from the sale of the discontinued operations.

      The assets and liabilities of the discontinued Seasoning Division as of
December 31, 1997 are summarized as follows:

                    Current assets              $  904,894
                    Fixed assets, net              549,297
                    Intangible assets, net       2,461,517
                    Other assets                   136,523
                                               ----------- 
                          Total assets           4,052,231
                    Current liabilities           (718,997)
                    Long-term debt              (4,738,019)
                                               ----------- 
                          Total liabilities     (5,457,016)
                          Net liabilities      $(1,404,785)
                                               =========== 

10. Write-Down of Intangible Assets and Other Charges

      Due primarily to the continued competitiveness of the flavor and fragrance
industry and the relative weakness of the market for flavors in 1998, and the
Company's focus on increasing product sales, management determined that certain
previously acquired product formulations, which have historically been included
in intangible assets, have been impaired. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company has
determined that the future undiscounted cash flows estimated to be generated
from certain purchased product formulations was less than the carrying amount of
such formulations. Accordingly, the Company recorded a write-down of such
intangible assets to their estimated fair values resulting in a $1,723,000
non-cash charge to earnings in 1998.

      Other charges principally consist of: (a) $186,000 in severance costs
related to the termination of certain employees resulting from the
implementation of a cost reduction program in September 1998, and (b) $124,950
for the settlement of litigation brought against the Company in February 1998 by
Strategic Growth International, Inc., ("SGI") the Company's former investor
relations consultant. In February 1998, SGI commenced an action against the
Company seeking damages for the Company's alleged failure to perform its
obligations under an agreement between the parties concerning certain consulting
services to be performed by SGI. SGI, whose services were terminated by the
Company in October 1997, was seeking damages in the amount of $124,950. On
October 26, 1998, SGI and the Company entered into a settlement agreement for up
to the full amount of the claim based upon the extent to which SGI exercises
certain warrants previously issued to SGI in connection with its engagement by
the Company.

11. Income Taxes

      The income tax provision for the years ended December 31, 1998 and 1997
represents current state income taxes.


                                      F-12
<PAGE>

                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

11. Income Taxes (Continued)

      A reconciliation of the income tax provision (benefit) of continuing
operations at the statutory rate to income tax expense at the Company's
annualized estimated effective tax rate for the years ended December 31, 1998
and 1997 is as follows:


                                                          1998           1997
                                                          ----           ----
Computed tax benefit at federal statutory rate ...   $(1,023,927)   $  (102,443)
State and local income tax benefit net of federal
 tax benefit .....................................      (120,462)       (12,052)
Discontinued operations ..........................       371,929       (128,446)
Non-deductible officers' life insurance premiums
 and travel and entertainment expenses ...........        13,202         14,697
Limitation on net operating loss carryforward ....       649,964        197,459
Other ............................................       111,024         39,625
                                                     -----------    -----------
Provision for income taxes .......................   $     1,730    $     8,840
                                                     ===========    ===========

      The components of deferred taxes as of December 31, 1998 and 1997 are as
follows:

                                                       1998              1997
Deferred tax assets                                    ----              ---- 
   Accounts receivable .....................      $    89,300       $    62,700
   Capitalized inventory costs .............           19,878            35,263
   Depreciation ............................           97,421            13,533
   Intangibles .............................          748,975            94,421
   Net operating loss carryforward .........        1,083,933         1,383,587
   Other ...................................            4,863            13,059
                                                  -----------       -----------
                                                    2,044,370         1,602,563
Valuation allowance ........................       (2,044,370)       (1,602,563)
                                                  -----------       -----------
Net deferred tax asset .....................      $        --       $        --
                                                  ===========       ============

     The Company has net operating loss carryforwards relating to US operations
of approximately $2,504,000 which expire at various dates from 2007 through
2014.

12. Commitments

Lease Obligations

      During 1994, the Company received a rent abatement of $150,000 relating to
its Amityville, New York facility. As a result of the abatement, the Company
paid no rent for the first six months of the lease term and paid reduced rent
for the next seventeen months. The lease includes a provision for annual
increases in rental payments. The Company has recorded rent expense using the
straight-line method based on the minimum rent payable over the 12-year period
of the lease.


                                      F-13
<PAGE>


                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

12. Commitments (Continued)

      Future minimum commitments under noncancelable operating leases, are as
follows:

     Year ended
     December 31,
     ------------

     1999 ......................................................  $294,990
     2000 ......................................................   228,979
     2001 ......................................................   213,373
     2002 ......................................................   208,832
     2003 ......................................................   208,832
     Thereafter ................................................   487,274
                        
      Rental expense charged to continuing operations for the years ended
December 31, 1998 and 1997 was $375,000 and $397,000, respectively.

Employment Contracts

      The Company is obligated under employment contracts, providing for annual
compensation, expiring on various dates through December 2000. Certain contracts
also call for additional compensation based on sales volumes.

      Future fixed compensation under these contracts, not including commissions
based upon sales volume, as of December 31, 1998 is as follows:


Year ended
December 31,
------------

     1999..................................................... $ 1,152,000
     2000.....................................................     547,000

13. Stockholders' Equity

Warrants/Stock Grants/Non-employee Stock Option Grants

      In December 1998, the Company issued stock options to purchase 30,000
shares of Common Stock to an investor relations consulting firm. The 1998
expense related to such options was not material.

      In June 1998, the Company issued stock options to purchase 100,000 shares
of Common Stock to each of three Advisory Committee members appointed by the
Company's Board of Directors in connection with consulting services valued at an
aggregate of $17,100 for 1998.

      In December 1997, the Company issued 25,000 shares of Common Stock valued
at $25,000 to an officer of the Company as additional compensation pursuant to
an employment agreement.

      In April 1997, the Company issued warrants to purchase 100,000 shares of
Common Stocks to a bank, which were valued at $20,000, in connection with the
bank's 1996 waivers and 1997 amendment. Such warrants were redeemed in October
1998 in exchange for a $20,000 payment to the bank.

      In January 1997, the Company issued stock options to purchase 125,000
shares of Common Stock to a consultant valued at $20,000 in connection with a
consulting agreement for financial advisory services.


                                      F-14
<PAGE>

                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

13. Stockholders' Equity (Continued)

Stock Option Plans

      The Company has granted stock options under two separate plans: the 1996
Option Plan and the 1993 Option Plan.

      Under the 1996 and 1993 Option Plans, employees (including officers and
directors who are employees) of the Company or its subsidiaries are eligible for
the grant of Incentive Options to purchase up to a maximum of 1,000,000 and
500,000 shares, respectively, which vest ratably over periods ranging from three
to five years. Options may also be granted to other persons, provided that such
options shall be Non-Qualified Options. In the case of an Incentive Option, the
exercise price cannot be less than the fair market value of the shares on the
date the Option is granted, and if an optionee is a shareholder who beneficially
owns 10% or more of the outstanding Common Stock, the exercise price of the
Incentive Options cannot be less than 110% of such fair market value. The
exercise price of Non-Qualified Options shall be determined by the Company's
Board of Directors or the Committee appointed by the Board of Directors.

Stock Based Compensation Plans

      The Company continues to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock-based compensation plans. Under APB
25, because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

      Pro forma information regarding net loss and net loss per share is
determined as if the Company had accounted for its stock options granted
subsequent to December 31, 1994, using the fair value method estimated at the
date of grant using a Black-Sholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 5.5% and 6.3%; no
dividend yield; volatility factor of the expected market price of the Company's
Common Stock of 53% and 50%; and a weighted-average expected life of the options
of 8 and 6 years at December 31, 1998 and 1997, respectively.

      The Black-Sholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

      For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:


                                                       1998        1997
                                                       ----        ----

Net loss from continuing operations as reported..  $(3,011,550) $(301,303)
Pro forma net loss from continuing operations....   (3,172,468)  (406,232)
Net loss per share from continuing operations as
  reported.......................................         (.24)      (.02)
Pro forma net loss per share from continuing
  operations.....................................         (.26)      (.03)

      FASB No. 123 method of accounting has not been applied to options granted
prior to January 1, 1996. As a result, the pro forma compensation cost may not
be representative of that to be expected in future years.


                                      F-15
<PAGE>

                          Technology Flavors & Fragrances, Inc.
                 Notes to Consolidated Financial Statements (Continued)
                     For the years ended December 31, 1998 and 1997

13. Stockholders' Equity (Continued)

      The following table summarizes stock option activity for the years ended
December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                   1998                 1997
                                          --------------------  --------------------
                                                  Weighted Avg.         Weighted Avg.
                                                     Exercise              Exercise
                                          Options     Price    Options     Price
                                          -------     -----    -------     -----
<S>                                       <C>          <C>       <C>        <C>  
Outstanding at beginning of year .....    1,201,000    $ 1.08    629,500    $ .86
Granted ..............................       30,000      1.00    691,000     1.42
Exercised ............................      (75,000)      .58         --       --
Canceled .............................     (223,500)     1.49   (119,500)    1.87
                                          ---------             --------         
Outstanding at end of year ...........      932,500      1.00  1,201,000     1.08
                                          =========     =====  =========    =====

Exercisable at end of year ...........      666,650              581,200
                                          =========            =========
Weighted average fair value of options
   granted during the year ...........                  $ .67              $ .68
                                                        =====               =====
</TABLE>

      The following table summarizes information on stock options outstanding at
December 31, 1998:

                                                          Weighted Average 
                          Options      Options       Remaining Contractual Life
Exercise Price          Outstanding  Exercisable              in Years
--------------          -----------  -----------              --------
$.58-.64...............  416,500       416,500                   2.9
1.00-1.15..............   40,000        18,750                   9.2
1.28 - 1.6875..........  476,000       231,400                   8.4
                         -------       -------                   ---
                         932,500       666,650                   7.5
                         =======       =======                   ===

      At December 31, 1998, 492,500 shares of common stock were reserved for the
future issuance of stock options.

      On June 29, 1998, the Company granted non-qualified stock options to
purchase an aggregate of 800,000 shares of Common Stock to the Company's Board
of Directors and Advisory Committee which are subject to the approval of the
Company's stockholders and Toronto Stock Exchange, which have not occurred to
date.

14. Employee Savings Plan

      The Company has an employee savings plan covering all non-union employees
meeting certain age and length of service requirements, pursuant to Section 401k
of the Internal Revenue Code. Participants may contribute a percentage of
compensation, but not in excess of the maximum allowable by law.

      The Plan provides for a voluntary matching contribution by the Company
which is one half of the amount contributed by the participant up to a maximum
of 3% per annum. The Company temporarily discontinued its matching contribution
from October 1997 through March 1998 at which time it was reinstated to a
maximum of 1% per annum. Matching contributions amounted to $23,000 and $67,000
for the years ended December 31, 1998 and 1997, respectively. Employees vest in
the employer contribution at the rate of 25% per year.


                                      F-16
<PAGE>

                      Technology Flavors & Fragrances, Inc.
             Notes to Consolidated Financial Statements (Continued)
                 For the years ended December 31, 1998 and 1997

15. Other Information

Concentrations of Credit Risk

      Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily trade accounts receivable. Ongoing
credit evaluation of customers' financial condition are performed and generally
no collateral is required. Credit losses have typically been within management's
expectations.

      At December 31, 1998 and 1997, five customers accounted for approximately
42% and 35% of the accounts receivable balance, respectively. For the year ended
December 31, 1998, no one customer accounted for more than 10% of the Company's
net sales from continuing operations. For the year ended December 31, 1997, one
customer accounted for 21% of the Company's net sales from continuing
operations.

      For the years ended December 31, 1998 and 1997, export sales were
approximately 33 % and 40%, respectively, of total sales from continuing
operations. The Company's export sales are made to entities located primarily in
Canada and South America. Receivables from such foreign sales at December 31,
1998 and 1997 amounted to 50% and 51%, respectively, of total accounts
receivable.

      Cash and cash equivalent balances are held primarily at one financial
institution and may, at times, exceed the amount insurable. The Company believes
it mitigates its risks by investing in or through major financial institutions.
Recoverability of investment is dependent upon the performance of the issuer.

16. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles

      These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. During 1998 and
1997, there were no material items which would be required to be recorded in
order for the Company's financial statements to be in accordance with accounting
principles generally accepted in Canada.


                                      F-17