U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                                       OR

                  [    ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                           OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998
               Commission File Number: 33-18099-NY and 33-23169-NY

                           QUEST PRODUCTS CORPORATION
        (Exact Name of small business issuer as specified in its charter)

          DELAWARE                                              11-2873662
(State or other jurisdiction of                          (IRS Employer I.D. No.)
Incorporation or organization)

                 6900 Jericho Turnpike, Syosset, New York 11791
                    (Address of principal executive offices)

Issuer's telephone number, including area code: (516) 364-3500

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

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Securities  Exchange Act of 1934,  during the  preceding 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.

                                YES _X_   NO ___

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not  contained in this form and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.

                                       _X_

The  registrant's  operating  revenues  for its most  recent  fiscal  year  were
$44,781.

The number of shares outstanding on September 30, 1999 was 174,162,985 shares of
Common Stock, .00003 par value.

Continued...

<PAGE>

The aggregate market value of the voting Common Stock held by non-affiliates (1)
of the registrant  based on the average of the high and low bid prices ($.05) of
the Company's Common Stock, as of October 31, 1999, is approximately  $6,114,610
based  upon  the  122,292,193  shares  of  Registrant's  Common  Stock  held  by
non-affiliates.

(1)  "Affiliates"  solely for purposes of this item refers to those persons who,
during the three months  preceding  the filing of this Form 10-KSB were officers
or  directors  of the  Company  and/or  beneficial  owners  of 5% or more of the
Company's outstanding stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


Transitional Small Business Disclosure Format: (check one)    Yes___     No_X_

                                        2

<PAGE>

                           QUEST PRODUCTS CORPORATION
                                   Form 10-KSB
                       Fiscal Year Ended December 31, 1998

                                Table of Contents

<TABLE>
<CAPTION>
PART I                                                                                      PAGE
------                                                                                      ----
<S>         <C>                                                                           <C>
Item 1.     Business                                                                         4 - 7
Item 2.     Properties                                                                           7
Item 3.     Legal Proceedings                                                                7 - 8
Item 4.     Submission of Matters to a Vote of Security Holders                                  8

PART II

Item 5.     Market for Company's Common Equity and Related Stockholder Matters.                  9
Item 6.     Management's Discussion and Analysis of Financial Condition and Results        10 - 12
            of Operations.
Item 7.     Financial Statements                                                          F1 - F15
Item 8.     Changes in or Disagreement with Accountants on Accounting and Financial             13
            Disclosure.

PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons; Compliance       13 - 15
            with Section 16(a) of the Exchange Act.
Item 10.    Executive Compensation                                                         15 - 16
Item 11.    Security Ownership of Certain Beneficial Owners and Management                 16 - 18
Item 12.    Certain Relationships and Related Transactions                                      18

PART IV

Item 13.    Exhibits and Reports on Form 8-K                                               18 - 19


Signatures                                                                                      20
Supplemental Information                                                                        21
</TABLE>

                                        3

<PAGE>

PART 1

ITEM 1. Business

The Company

     Quest Products  Corporation (the Company) is a corporation  organized under
the laws of Delaware on July 17, 1987, has a limited  operating  history and has
operated at a loss since  inception.  Since the completion of its initial public
offering in April 1989,  the Company had primarily  concentrated  its efforts in
two areas:  the  establishment  of medical  credibility  through clinical trials
performed at an independent  testing facility and the test marketing of PHASEOUT
(also referred to as the "Product" or the "device') throughout the United States
and internationally via various channels of distribution.

     The Company's primary product,  PHASEOUT, is a patented device developed to
help  a  person  quit  smoking  without  the  use  of any  drugs,  chemicals  or
attachments.  The  device  was  designed  to  gradually  reduce  the  amounts of
nicotine, tar and carbon monoxide consumed from cigarette smoke.

     During the last four years, the Company has been  concentrating its efforts
in three areas:  (1) test  marketing the product  domestically  through  various
channels of distribution (2) entering into international distribution agreements
utilizing  television  infomercials  and  commercials,  and (3) distributing the
product into domestic retail chain drug stores.

The Product

     The  PHASEOUT  device is a simple,  easy to use,  mechanical,  light-weight
instrument  that allows the smoker to continue  to smoke their  preferred  brand
cigarettes  and at the  same  time,  gradually  and  sequentially  reduce  their
nicotine  intake  by  over  80%.  This  weaning  process  is the  same  type  of
detoxification  methodology that has proved successful with many other addictive
substances.  Once the smoker has been weaned, their chances to quit for good are
greatly enhanced.  PHASEOUT's  weaning  methodology has an important  additional
psychological benefit for all smokers. It allows the smoker to continue to smoke
their preferred brand until they are ready to quit. Of course,  to achieve these
results  under  normal  smoking  conditions,  smokers  must  avoid  compensatory
practices,  such as smoking more cigarettes and blocking the  ventilation  holes
created by the PHASEOUT device.

     The  PHASEOUT  system  works  without  the use of any drugs,  chemicals  or
attachments  The average  retail price to consumers is $29.95 plus  shipping and
handling. The wholesale price ranges between $10.00 and $17.00.

     The Company is currently  having the product  manufactured by one vendor in
South Korea.  This source of supply will be able to produce all future  PhaseOut
units required for sale.

     The  Company  had  received  a  "warning  letter"  from  the  Food and Drug
Administration  "FDA" in mid  1993,  stating  that the  PhaseOut  product  was a
medical device and subject to the  provisions of the FDA. The Company  responded
through legal  counsel,  taking the position that the PhaseOut  product is not a
medical  device  within the meaning of the Food,  Drug and  Cosmetics Act "FDCA"
(see Item 3, Legal Proceedings).

                                        4

<PAGE>

How PhaseOut Works

     A smoker  inserts their entire  unopened  pack of  cigarettes  (filtered or
unfiltered - soft pack or box) into the PHASEOUT device. With a simple press and
release that takes just seconds, PHASEOUT processes all of the cigarettes within
the pack.

     The device strategically creates from one to four microfine perforations in
the lip end of each cigarette. These perforations filter and ventilate the smoke
drawn through the cigarette,  thereby  reducing the amount of nicotine and other
toxins inhaled by the smoker.

     One miniature filter  (perforation) is created in Phase one,  filtering out
up to 26% of the  nicotine,  and similar  amounts of other toxins such as carbon
monoxide and tar.  Additional  perforations  are created as the smoker  proceeds
through each of the four Phases.  With each  additional  perforation  there is a
progressive  reduction  of  nicotine  and other  harmful  substances  based upon
controlled laboratory studies. By Phase IV, 80.7% of the nicotine,  91.6% of the
tar, 89.2% of carbon monoxide and 90% of all other tobacco  constituents  (Total
Particulate  Matter) have been eliminated.  As discussed above, these reductions
under normal  smoking  conditions  depend upon proper use of the product and the
treated  cigarettes by smokers.  The suggested period on each phase is two weeks
(eight  week  total),  however,  smokers  can  tailor  the  program to their own
individual liking and proceed at their own pace, under their own timetable.  The
smoker is in control. There is no pressure, no fear of failure. Importantly, any
change in the taste,  flavor or draw of the  cigarette is lessened as the smoker
proceeds through the program due to the gradual transition from phase to phase.

The Smoking Cessation Market

     Cigarette smoking is the number one cause of preventable  illness and death
in the United States.  In excess of 450,000  deaths were directly  attributed to
cigarette  smoking  last year.  More than one of every six deaths in the U.S. is
caused  by  cigarette  smoking.  Of the  country's  total  health  care  budget,
approximately  25% ($65  billion)  is spent  for  smoking  related  illness  and
disease.  This does not include an additional  $35 billion in lost  productivity
and higher insurance costs.

     In the United States,  there are currently  reported to be approximately 46
million  smokers  and  worldwide  the number of smokers is  estimated  to be 1.2
billion.

Scientific and Clinical Testing

Scientific

     The United States Testing  Company,  Inc., an independent  testing facility
which  tests  cigarettes  in  accordance  with  government  standards  for major
cigarette  manufacturers,  conducted  laboratory tests on the use of PHASEOUT on
cigarettes. These tests were based upon the F.T.C. method, which is used to rate
the tar,  nicotine and carbon  monoxide  yields of cigarettes sold in the United
States.  Their findings were reported in Determination  of Percent  Reduction of
Tar, Nicotine and Carbon Monoxide of Cigarettes with the Use of Phase-Out device
for Perforating Packaged Cigarettes/U.S.  Patent #4,231,378 . This report showed
reductions of tar, nicotine and carbon monoxide yields ranging from 26% in Phase
I to 92% in Phase IV using the PHASEOUT method.

                                        5

<PAGE>

Additional Studies

     The Company  conducted a  scientific  study at  Ameritech  Laboratories  to
demonstrate  the  condensation  of  nicotine  and  tars  within  the  filter  of
cigarettes due to the use of the PhaseOut  device.  This study  demonstrated  an
increase of nicotine  content within the filter,  proportionate to the number of
PhaseOut  perforations in the cigarette.  The study concluded that the increased
weight of the filter was due to the  condensation of nicotine due to the cooling
effect of the  external  air  introduced  through  the wholes  pierced  into the
cigarette filters by the PhaseOut device.

Patents

     The United  States  Patent  Office has issued two patents for the  PhaseOut
System  (Patent  Number  4,231,378  issued  November  4, 1980 and Patent  number
5,218,976  issued June 15,  1993).  The Company has  received  patents in China,
Taiwan and Japan.  In  addition,  the Company has applied for patents in fifteen
(15) foreign countries, including England, France, Germany and Italy.

Marketing (Domestic)

     The  focus  of the  Company's  marketing  to date  has  been to  create  an
awareness for the product through the use of various direct  response  marketing
venues.  Some of these are: the use of a thirty minute  television  infomercial,
short form television  commercials,  sixty second radio commercials,  mail order
catalogs, print advertising and through credit card mailings (syndication).

     During 1998,  the Company  entered into a joint venture  agreement with SAS
Group,  Inc.  whereby  distribution  began of the PhaseOut product into domestic
retail chain drug stores totalling  approximately  12,000 stores. The Company is
primarily  responsible for the  manufacturing of the product and SAS Group, Inc.
is primarily responsible for the sale and distribution of the product.

Marketing (International)

     On August 21, 1995,  the Company  entered  into an  agreement  with a South
Korean  trading  company  for the  distribution  and  manufacture  of a modified
(design)  PhaseOut  product in South Korea.  Because of the improved  design and
reduced size of this PhaseOut device, it will be utilized in the Japanese market
as well.  South Korea has 10 million  smokers and Japan has 35 million  smokers.
Distribution in South Korea is expected to begin in the 2nd quarter of 2000.

New Products

     In October 1999,  the Company has  successfully  completed  development  of
adjustable polarized  sunglasses,  which allow the wearer to change the color of
the  sunglass  lenses to a variety  of colors  without  changing  the  lenses or
altering  the frame.  The Company  will strive to begin  worldwide  distribution
during 2000.

                                        6

<PAGE>

Competition

     The Company competes with numerous products and techniques  designed to aid
smokers to stop smoking.  Many of the companies  promoting  these  products have
been in existence for longer  periods of time, are better  established  than the
Company,  have financial  resources  substantially  greater than the Company and
have more extensive facilities than those which now or in the foreseeable future
will become  available to the Company.  In addition,  other firms may enter into
competition with the Company in the near future.

     One type of significant  competitive  product is the nicotine patch,  which
requires a  prescription  by  licensed  physicians  for  treatment  of  nicotine
withdrawal. This appears to be the quit smoking method that is now most commonly
prescribed.  However,  management  expects to counter the initial success of the
patch program because there are stirrings of adverse publicity regarding patches
due to their side effects and usage limitations.

     In addition to the nicotine patch,  other  pharmaceutical  companies are in
the process of introducing  alternate nicotine delivery methods in the form of a
nasal spray, which will have many of the same side effects as the nicotine patch
and will most probably require a prescription  when first brought to the market.
Recently,  the FDA has  allowed  the  nicotine  gum,  which  was  formerly  only
available by prescription, to be sold over-the-counter.

Employees

     At the present time, the Company has six employees, including the Company's
two officers and directors and four administrative and secretarial personnel.

Item 2. Properties

     The Company leases  approximately 2,600 square feet of office space at 6900
Jericho Turnpike, Syosset, New York 11791.

Item 3.  Legal Proceedings

     In June,  1993,  the Company  received a "Warning  Letter"  from the FDA in
which the FDA stated its belief that the  Product is a "medical  device" and is,
therefore,  subject to the  provisions  of the FDA.  Since the  Company has been
marketing the product without seeking or obtaining  pre-marketing  approval from
the FDA, if the FDA's  position  is correct,  the  Company's  activities  are in
violation of the Food Drug and Cosmetics Act and the FDA would have the right to
enjoin  further  marketing by the Company of the  product.  The Company does not
believe that the product is a medical  device within the meaning of the FDCA and
has  advised the FDA of its  position  through the  Company's  Washington,  D.C.
counsel,  Hyman,  Phelps & McNamara,  specializing  in FDA  matters.  The answer
submitted  on July 7,  1993,  by the  Company  counsel  took the  position  that
PHASEOUT is a mechanical  device that treats just the cigarette (not the smoker)
by creating additional internal filters within the existing filter or cigarette.
However,  in an effort to cooperate  with the FDA, the Company  proposed to make
substantial  revisions to the promotional  statements for the product to make it
clearer to the public that the  product is not  intended to be used as a medical
device.  Neither the Company  nor its counsel has  received  any written or oral
response from the FDA since that time.  However,  no assurance can be given that
the FDA will not in the future seek to enjoin the  Company  from  marketing  the
product without  complying with the FDCA and seeking other remedies  against the
Company.

                                        7

<PAGE>

     Management  believes  that the FDA  letter  came as a result  of the  FDA's
investigation   of  the  smoke   cessation   industry.   As  a  result  of  that
investigation,  the FDA  banned  the  sale  of  certain  over-the-counter  smoke
cessation product using active  ingredients as of December,  1993.  PHASEOUT was
not affected by this ban.

     The Company was advised by the FTC by letter dated  October 20, 1993,  that
the FTC was conducting a non-public,  informal inquiry to determine  whether the
Company had engaged in deceptive or unfair practices in violation of the Federal
Trade Commission Act (the "FTC Act") in connection with certain of the Company's
advertising  claims.  In that  connection,  the FTC  requested  that the Company
provide it with certain  information  and documents and also requested a meeting
on June 9. 1994, with the Company's officers.  The Company supplied the FTC with
all the information they requested.

     On  August  20,  1996,  a consent  order  was  agreed to with the FTC which
settled  charges that various  advertising  claims for the PhaseOut device ("the
device") were unsubstantiated or false. The order required the Company to send a
postcard to  identifiable  past  purchasers of the device  notifying them of the
commission's  action and  advising  them that the device has not been  proven to
reduce the risk of smoking  related  diseases or make  cigarettes  "safer".  The
order also  prohibits  the  Company  from making  certain  claims in its current
advertising.   The  Company   cost  to  comply  with  this  order  was  $15,102,
representing  the cost of identifying each purchaser and to mail the post cards.
On April 7, 1999, the Company received a letter from the FTC concluding,  on the
assumption  that the  information  submitted is accurate and  complete,  that no
action is indicated.

     In February 1995, the Company's former attorney,  John B. Lowy,  brought an
action against the Company in New York State Supreme Court,  New York County for
unpaid attorney fees and disbursements of approximately  $39,000.  In July 1997,
the Company  agreed to pay the balance owed of $16,603.  Payments of $7,000 were
made in 1997 against this liability. The remaining balance of $9,603 was paid in
monthly installments of $1,000 through October 1998.

     In  January  1998,  the  Company's  former  advertising  agency,   Popofsky
Advertising,  Inc.,  brought  an action  against  the  Company in New York State
Supreme  Court,  New York County for unpaid  services  rendered in the amount of
$74,000.  In March 1998, the parties  reached an agreement to settle all claims.
The Company paid Popofsky  Advertising,  Inc. $50,000 in installments of $15,000
in December 1998, and the final $35,000 in July 1999.

     In July 1997, the Company's former attorney,  who is a relative of a former
director, brought an action against the Company in New York State Supreme Court,
New York County for unpaid  attorney  fees and  disbursements  of  approximately
$18,000.  During  1997,  $5,000  was paid by the  Company  and,  therefore,  the
financial  statements  include a liability for approximately  $13,000 payable to
this party.  In October  1999,  the Company  and the former  attorney  agreed to
settle this  action  whereby the  Company  issued  300,000  shares to the former
attorney in payment of any and all liabilities.

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

                                      NONE

                                        8

<PAGE>

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

(a) Market information - The principal U.S. market in which the Company's Common
Shares ($.00003 par value) were tradable is in the over-the-counter market.

     The Class A Warrants  expired on  November 2, 1993 and the Class B Warrants
expired on December 31, 1997. The aforesaid  securities are not traded or quoted
on any  automated  quotation  system.  The OTC  Bulletin  Board  symbol  for the
Company's  Common Stock is "QPRC".  The following  table sets forth the range of
high and low bid quotes of the Company's Common Stock per quarter as provided by
the National Quotation Bureau (which reflect  inter-dealer prices without retail
mark-up,  mark-down  or  commission  and may not  necessarily  represent  actual
transactions).

                                            Bid Price
Period                                      High                          Low
------                                      ----                          ---

Quarter Ended March 31, 1997                .02                          .01
Quarter Ended June 30, 1997                 .016                         .01
Quarter Ended September 30, 1997            .012                         .008
Quarter Ended December 31, 1997             .012                         .008
Quarter Ended March 31, 1998                .018                         .018
Quarter Ended June 30, 1998                 .014                         .011
Quarter Ended September 30, 1998            .012                         .009
Quarter Ended December 31, 1998             .011                         .008

(b) Holders -- As of December 31, 1998, the approximate  number of the Company's
shareholders was 515.

c)  Dividends  -- The Company has not paid or declared  any  dividends  upon its
Common Stock since its inception and, by reason of its present  financial status
and its contemplated financial requirements,  does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future.

                                        9

<PAGE>

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations

     During 1998, the Company began  distribution  of the PhaseOut  product into
retail chain stores,  totalling approximately 12,000 stores, through an informal
joint venture with SAS Group, Inc.  ("SAS"),  for which it is entitled to 50% of
the income.  There is no written  agreement for this joint venture.  SAS handles
all  the  marketing  and  operational  activities  of  the  joint  venture.  The
investment in the joint venture is accounted for under the equity method whereby
the investment  account is increased for  contributions  by the Company plus its
share of the income of the joint venture and reduced for  distributions  and its
share of any losses  incurred by the joint  venture.  The  Company's  results of
operations  include  its 50% share of the  income  from the joint  venture  as a
separate line item. As such,  sales,  cost of sales and selling  expenses of the
joint venture in 1998 are reported in this separate "equity in net income of the
joint venture" line item.

     Sales  decreased  by  $255,803  principally  because  of the  change in the
Company's  operations as described above. For 1998, the Company sold 3,375 units
at an average  price of $13.27 for sales of $44,781 and the joint  venture  sold
62,659 units at an average price of $16.42 for sales of $1,028,595. For 1997 the
Company sold 35,911 units at an average price of $8.37 for sales of $300,584.

     Cost of sales  decreased by $126,764  principally  because of the change in
the Company's operations as described above. For 1998 the Company's average cost
was $5.55 for a cost of sales of $18,735.  For 1997 the  Company's  average cost
was $4.05 for a total cost of sales of $145,499.  The average cost for the joint
venture  was $2.18 for a cost of sales of  $136,433  due to a  decrease  in unit
cost, which resulted from a change in suppliers.

     Selling expenses decreased by $252,299 principally because of the change in
the  Company's  operations  as described  above.  For 1998 the Company  incurred
$25,428 and the joint venture incurred  $347,504.  For 1997 the Company incurred
$277,727. The decrease in the Company's expense was primarily attributable to an
approximately  $102,000  decrease in expenses  incurred in  connection  with the
after  market  automobile  products  program  which  ended in January  1998,  an
approximately  $71,000 decrease in promotional  packaging and advertising and an
approximately  $25,000 decrease in clinical study expenses. In 1998, the selling
expenses of the joint venture consisted primarily of advertising,  royalties and
commissions.

     General and administrative expenses increased by approximately $48,000 from
$495,000 in 1997 to $543,000 in 1998. This increase is primarily attributable to
a $63,000  increase in salaries  and related  payroll  costs,  and a $15,000 net
decrease in various other administrative costs.

     Interest expense decreased by approximately $15,000 from $33,000 in 1997 to
$18,000 in 1998 due to interest no longer being charged by a major vendor.

     During 1997, the Company  negotiated a $61,000 reduction in the amount owed
to a major vendor.

                                       10

<PAGE>

Liquidity and Capital Resources

     Cash of $192,673 was used for  operations  for the year ended  December 31,
1998 as compared to $367,809 used last year.  Cash decreased  during the year by
$14,988.

     The Company's  working capital has  deteriorated  due to the use of current
assets for operations. Working capital and current ratios were:

                                    December 31,            December 31,
                                       1998                    1997
                                       ----                    ----
Working capital
(deficiency)                        $(1,108,922)            $(880,433)
Current ratios                         0.15:1                  0.10:1

     In order to meet short-term  marketing goals, in July 1997 certain officers
and  directors  agreed to  acquire  an  aggregate  of  10,000,000  shares of the
Company's  common stock  (representing  8% of total shares  outstanding)  for an
aggregate purchase price of $100,000.  The Company is also seeking an additional
$400,000  of  financing  under the same terms and  conditions  as offered to the
officers  and  directors.  As of December  31,  1998,  the Company has  received
$368,700.  There  is no  assurance  that  the  Company  will be  able to  obtain
additional financing.

Year 2000

     The "Year 2000 issue" refers to the potential  harm from computer  programs
that  identify  dates by the last two digits of the year  rather  than using the
full four digits. Such programs could fail due to  misidentification of dates on
or after  January  1,  2000.  If such a failure  were to occur to the  Company's
internal  computer-based  systems  or  to  the  crucial  computer-based  systems
operated by third parties, the Company could be unable to process  transactions,
send invoices,  or engage in similar normal business operations.  Such failures,
if  they  occurred,  would  have a  material  adverse  effect  on the  Company's
business, results of operations and financial condition. However, because of the
complexity of the issues,  the number of parties involved and the fact that many
of the issues are outside the Company's  control,  the Company cannot reasonably
predict with certainty the nature or likelihood of such effects.

     The Company has  conducted a review of most of its internal  computer-based
systems.  Much of the software used by the Company has been developed internally
and is regularly  modified and updated to meet the changing  requirements of its
business. The Company expects that its critical internal systems will be able to
process  relevant  date  information  in the  future to permit  the  Company  to
continue to provide its services  without  significant  interruption or material
adverse effect on its business,  results of operations and financial  condition.
However,  there  can be no  assurances  that the  Company  will  not  experience
unanticipated negative consequence caused by undetected errors or defects in the
technology used in its internal systems.

     Notwithstanding the Company's expectation that its own systems will be able
to  process  Year  2000  date  information,   the  Company's   business  depends
significantly on receiving  uninterrupted services by other parties. The Company
has made inquiries of some of these parties regarding their respective levels of
preparedness  for Year 2000 issues as they may affect the  Company.  The Company
will continue to make such inquiries and will monitor the public  disclosures of
such companies  regarding their Year 2000 status.  So far, the responses to such
inquiries have been generally  non-committal regarding levels of preparedness or
willingness  to provide  assurances  to the  Company.  In almost all cases,  the
Company is not in a position to require either  affirmative action or assurances
by these  parties  regarding  continued  provision of services in the Year 2000.
Accordingly, while the Company has not been advised by any

                                       11

<PAGE>

of these other companies on which it depends that they do not expect to be ready
for Year 2000  issues,  the  Company  does not  believe it is in a  position  to
project the  likelihood  of such  parties'  abilities  to provide  uninterrupted
services  to the  Company.  The  failure  of any of these  companies  to provide
uninterrupted service to the Company would likely have a material adverse effect
on the Company's business and its results of operations and financial condition.

     The Company does not separately  identify costs incurred in connection with
Year 2000 compliance activities.  To date, however, the Company does not believe
such costs to be  significant  because they  generally have been incurred in the
normal  course of  internally  modifying  and  updating the  Company's  software
programs.  Future  expenditures  are not expected to be significant  and will be
funded out of cash flows.

Item 7. Financial Statements



                                       12

<PAGE>

                          Independent Auditors' Report


To the Board of Directors and Shareholders
Quest Products Corporation

We have audited the accompanying  balance sheet of Quest Products Corporation as
of December 31, 1998, and the related  statements of  operations,  shareholders'
(deficit),  and cash flows for the years ended December 31, 1998 and 1997. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Quest Products  Corporation as
of December 31, 1998,  and the results of its  operations and its cash flows for
the years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.

As  discussed  in Note 10 to the  financial  statements,  the  Company  has been
subject to certain  governmental  regulatory  matters by the U.S.  Food and Drug
Administration.  At present time,  neither the Company nor its legal counsel can
predict the ultimate  outcome of the matters  addressed  by this  agency.  These
matters,  if pursued by this agency,  may have a material  adverse effect on the
operations of the Company.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 3 to the
financial  statements,  the Company has had recurring net operating losses since
its  inception,  has relied upon debt and equity  financing to provide funds for
operations  and, as of December 31, 1998,  current  liabilities  exceed  current
assets  by  $1,108,922.  These  conditions  raise  substantial  doubt  about the
Company's  ability to continue as a going concern.  The financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.


RAICH ENDE MALTER LERNER & CO.
East Meadow, New York
September 8, 1999 except for Notes 6 and 10b
for which the date is November 23, 1999

                                     - F1 -

<PAGE>

QUEST PRODUCTS CORPORATION
Balance Sheet
December 31, 1998
================================================================================




Assets
     Current Assets
       Cash                                                             $ 12,600
       Inventory                                                           7,500
                                                                        --------

                                                                          20,100
                                                                        --------

     Investment and Advances - PhaseOut Partners                         339,612

     Furniture and Equipment - at cost - net of accumulated
       depreciation of $26,805                                            21,610

     Patents - at cost - net of accumulated amortization of
          $12,815                                                         36,620

     Security Deposits                                                     3,506
                                                                        --------

                                                                         401,348
                                                                        --------
                                                                        $421,448
                                                                        ========



See notes to financial statements.


                                     - F2 -

<PAGE>



QUEST PRODUCTS CORPORATION
Balance Sheet
December 31, 1998
================================================================================




Liabilities and Shareholders' (Deficit)
     Current Liabilities
       1992 convertible debentures - including accrued interest
         of $6,900                                                  $    16,900
       Accounts payable                                                 540,160
       Accrued officer and director's compensation                      451,493
       Loans from director and officer                                   84,938
       Accrued expenses                                                  35,531
                                                                    -----------

                                                                      1,129,022
                                                                    -----------

     Other Liabilities
       Shareholder's loan                                               191,850
                                                                    -----------

     Commitments and Contingencies

     Shareholders' (Deficit)
       Series A Convertible Preferred Stock - par value $.001 -
         authorized 600,000 shares - no shares issued and
         outstanding
       Series B Convertible Preferred Stock - par value $.001 -
         authorized 5,000,000 shares - no shares issued and
         outstanding
       Common Stock - par value $.00003 - authorized
         200,000,000 shares - 160,912,985 shares issued and
         outstanding                                                      4,827
       Capital in excess of par                                       3,555,925
       Accumulated (deficit)                                         (4,460,176)
                                                                    -----------

                                                                       (899,424)
                                                                    -----------

                                                                    $   421,448
                                                                    ===========


See notes to financial statements.

                                     - F3 -

<PAGE>

QUEST PRODUCTS CORPORATION
Statements of Operations
================================================================================


<TABLE>
<CAPTION>
                                                               For the Years Ended
                                                                   December 31,
                                                          ------------------------------
                                                               1998              1997
                                                          -------------    -------------

<S>                                                       <C>              <C>
Sales - net                                               $      44,781    $     300,584

Cost of Sales                                                    18,735          145,499
                                                          -------------    -------------

                                                                 26,046          155,085
                                                          -------------    -------------

Selling Expenses                                                 25,428          277,727

General and Administrative Expenses                             543,389          494,685
                                                          -------------    -------------

                                                                568,817          772,412
                                                          -------------    -------------

(Loss) Before Other Income (Expenses) and
   Equity in Net Income of PhaseOut Partners                   (542,771)        (617,327)
                                                          -------------    -------------

Other Income (Expenses)
     Interest income                                                 15            3,966
     Interest (expense)                                         (17,634)         (33,167)
     Settlement of trade payable claim                               --           61,000
                                                          -------------    -------------

                                                                (17,619)          31,799
                                                          -------------    -------------

(Loss) Before Equity in Net Income of PhaseOut Partners        (560,390)        (585,528)

Equity in Net income of PhaseOut Partners                       272,329               --
                                                          -------------    -------------


Net (Loss)                                                $    (288,061)   $    (585,528)
                                                          =============    =============

Basic and Diluted Net (Loss) Per Share                    $         -0-   $        (.01)
                                                          =============    =============

Weighted Average Number of Shares
     Outstanding (to nearest 1,000,000)                     152,000,000      116,000,000
                                                          =============    =============
</TABLE>

See notes to financial statements.

                                     - F4 -

<PAGE>

QUEST PRODUCTS CORPORATION
Statements of Shareholders' (Deficit)
For the Years Ended December 31, 1998 and 1997
================================================================================




<TABLE>
<CAPTION>
                                          Number of
                                        Common  Stock    Amount      Capital in
                                           Shares        $.00003      Excess of    Accumulated
                                        (Post-Split)    Par Value     Par Value     (Deficit)
                                         =====================================================

<S>                                      <C>           <C>           <C>           <C>
Balance - December 31, 1996              108,369,929   $     3,251   $ 3,080,051   $(3,586,587)
   Proceeds from sale of stock            22,547,118           676       171,824            --
   Stock issued for accrued services
     rendered - officers and directors     7,166,666           215       108,535            --
   Net (loss)                                     --            --            --      (585,528)
                                         -----------   -----------   -----------   -----------


Balance - December 31, 1997              138,083,713         4,142     3,360,410    (4,172,115)
   Proceeds from sales of stock           22,829,272           685       195,515            --
   Net (loss)                                     --            --            --      (288,061)
                                         -----------   -----------   -----------   -----------


Balance - December 31, 1998              160,912,985   $     4,827   $ 3,555,925   $(4,460,176)
                                         ===========   ===========   ===========   ===========
</TABLE>


See notes to financial statements.


                                     - F5 -

<PAGE>

QUEST PRODUCTS CORPORATION
Statements of Cash Flows                                             Page 1 of 2
================================================================================



                                                           For the Years Ended
                                                              December 31,
                                                         ----------------------
                                                            1998         1997
                                                         ======================

Cash Flows from Operating Activities
   Net (loss)                                            $(288,061)   $(585,528)
   Adjustments to reconcile net (loss) to net cash
     (used for) operating activities:
       Depreciation                                          7,462        2,704
       Amortization                                          3,041        3,041
       Expenses paid through the issuance of stock              --       48,750
       Accrued interest                                     17,634       18,009
       Equity in net income of PhaseOut Partners          (272,329)          --
       (Increase) decrease in:
         Accounts receivable                                 2,712        1,575
         Inventories                                        60,961       58,952
         Advances for clinical study                            --       25,000
         Prepaid expenses                                    1,496        3,918
       Increase (decrease) in:
         Accounts payable                                  (43,818)     (30,349)
         Accrued officer compensation                      308,000      143,493
         Accrued expenses                                   10,229      (57,374)
                                                         ---------    ---------

                                                          (192,673)    (367,809)
                                                         ---------    ---------

Cash Flows from Investing Activities
   Acquisition of equipment                                     --       (5,500)
   Acquisition of patents                                       --       (2,435)
   Refund of security deposits                                 631           --
   Investment and advances - PhaseOut Partners             (67,283)          --
                                                         ---------    ---------

                                                           (66,652)      (7,935)
                                                         ---------    ---------

Cash Flows from Financing Activities
     Proceeds from sales of common stock                   196,200      172,500
     Repayment of notes payable - vendor                        --      (20,940)
     Loans from directors                                   50,000        5,000
Repayments to directors                                     (1,863)      (3,600)
     Repayments to shareholder                                  --      (10,000)
                                                         ---------    ---------

                                                           244,337      142,960
                                                         ---------    ---------


See notes to financial statements.

                                     - F6 -

<PAGE>

QUEST PRODUCTS CORPORATION
Statements of Cash Flows                                             Page 2 of 2
================================================================================



                                                           For the Years Ended
                                                              December 31,
                                                         ----------------------
                                                            1998         1997
                                                         ======================

Net Decrease in Cash                                     $ (14,988)   $(232,784)

Cash - beginning                                            27,588      260,372
                                                         ---------    ---------

Cash - end                                               $  12,600    $  27,588
                                                         =========    =========



Supplemental Disclosures
     Non-cash investing and financing transactions:
         Stock issued for accrued services rendered      $      --    $  60,000
                                                         =========    =========





See notes to financial statements.

                                     - F7 -

<PAGE>

QUEST PRODUCTS CORPORATION
Notes to Financial Statements
December 31, 1998
================================================================================


1 -  The Company

     Quest  Products  Corporation  (the  "Company")  was organized as a Delaware
     Corporation  on July 17, 1987 and operated as a  development  stage company
     through  1993.  The  Company's  purpose  is to market  and  distribute  its
     patented "Phase-Out" system smoking cessation device (the "product").

     The Company had primarily marketed the product in the United States through
     direct  response   marketing   including   radio,   television   spots  and
     infomercials.  This  domestic  marketing  was  curtailed in 1996 due to the
     ongoing negotiations with the Federal Trade Commission ("FTC") as discussed
     in Note 10a.

     In 1998, the Company began distribution of the product into domestic retail
     chain drug stores  through  PhaseOut  Partners,  an informal  joint venture
     arrangement  ("the Joint  Venture")  with SAS Group Inc.  ("SAS") for which
     there  is  no  written  agreement.   SAS  handles  all  the  marketing  and
     operational  activities of the joint venture. The Company invested $67,283,
     consisting  of cash and inventory  and shares  equally in the profits.  The
     investment in PhaseOut  Partners is accounted for under the equity  method,
     whereby  the  investment  account is  increased  for  contributions  by the
     Company  plus its share of the income of the joint  venture and reduced for
     distributions and its share of any losses incurred by the joint venture.

     Following are condensed financial data of PhaseOut Partners:

               Year Ended December 31, 1998
               Net sales                                  $1,028,595
               Gross profit                                  892,162
               Net income                                    544,658

               As of December 31, 1998
               Current assets                               $611,941

               Equity                                       $611,941

     The Company also distributes the product overseas.

2 -  Summary of Significant Accounting Policies


     a.   Inventory  -  Inventory  is valued at cost (on a  first-in,  first-out
          basis) which is not in excess of market value.  Inventory is comprised
          entirely of finished goods.

                                                                       Continued

                                     - F8 -

<PAGE>

     b.   Furniture and Equipment - Furniture and equipment are carried at cost.
          Depreciation  is  computed  on  the  straight-line   method  over  the
          estimated useful lives (three to seven years) of the assets.

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

     d.   Patents - Patents  represent  a patent  dated  June 15,  1993 that was
          acquired  by the  Company on  October  25,  1994 and a foreign  patent
          acquired  in 1997.  The  acquisition  cost has  been  capitalized  and
          amortized (straight-line method) over the life of 16 years.

     e.   Stock-Based Compensation - Statement of Financial Accounting Standards
          ("SFAS") No. 123 Accounting for Stock-Based Compensation,  encourages,
          but  does  not  require  companies  to  record  compensation  cost for
          stock-based employee compensation plans at fair value. The Company has
          chosen to continue to account for stock-based  compensation  using the
          intrinsic  value method  prescribed  in  Accounting  Principles  Board
          Opinion No. 25,  Accounting for Stock Issued to Employees.  APB No. 25
          requires no recognition of  compensation  expense for the  stock-based
          compensation  arrangements  provided by the Company where the exercise
          price is equal to the market price at the date of the grants.

     f.   Basic and Diluted  Earnings  (Loss) per Share - Basic earnings  (loss)
          per share is computed by dividing  net income  (loss) by the  weighted
          average  numbers  of shares of common  stock  outstanding  during  the
          period. Diluted earnings (loss) per share is computed giving effect to
          all diluted  potential common shares that were outstanding  during the
          period.  Dilutive  potential  common shares consist of the incremental
          common shares issuable upon the exercise of stock options.  For fiscal
          1998,  potentially dilutive securities that related to shares issuable
          upon the  exercise  of  stock  options  granted  by the  Company  were
          excluded,  as  their  effect  was  antidilutive.  See  Note  4 of  the
          financial statements.

     g.   Advertising  - The Company and the joint  venture  expense the cost of
          advertising  as incurred.  Advertising  expense was -0- and $21,000 in
          1998 and 1997  respectively.  The joint venture's  expense was $51,000
          and -0- in 1998 and 1997 respectively.

     h.   Revenue  Recognition  - The  Company's  customers  include  end users,
          retailers and  distributors.  Revenue,  less reserves for returns,  is
          generally recognized upon shipment to the customer.

          The Joint Venture's  customers are primarily retail chain drug stores.
          For  customers  to whom  sales  are  subject  to  return,  revenue  is
          recognized  upon  collection,  at which  time  the sale is  considered
          final. For customers to whom sales are not subject to return,  revenue
          is recognized upon shipment.

                                                                       Continued

                                     - F9 -

<PAGE>

3 -  Status of the Company

     The financial statements have been prepared on a going-concern basis, which
     contemplates  the realization of assets and the satisfaction of liabilities
     in the normal course of business over a reasonable length of time.

     The Company has had recurring net operating  losses since its inception and
     has made use of privately-placed debt and equity financing to provide funds
     for operations. As of December 31, 1998, current liabilities exceed current
     assets by $1,108,922.  Those factors,  as well as the Company's  relatively
     recent  entry  into  the  marketplace,  create  an  uncertainty  about  the
     Company's ability to continue as a going concern.

     The Company has intentions of expanding and refining its marketing  efforts
     to improve the  efficiency  of these efforts and to increase  revenues.  In
     addition,  the  Company  is  continuing  its  efforts  to obtain  long-term
     financing through the issuance of long-term debt and equity securities.

     The  financial  statements  do not  include any  adjustments  that might be
     necessary should the above or other factors affect the Company's ability to
     continue as a going concern.

4 -  Warrants and Convertible Debentures

     The pro forma  information  required by SFAS 123  regarding  net income and
     earnings per share has been  presented as if the Company had  accounted for
     its warrants under the fair value method. The fair value of each warrant is
     estimated  on the date of the  warrant  using  the  Black-  Scholes  option
     pricing model with the following weighted average assumptions:

                                                   1998           1997
                                                -------------------------
          Assumptions:
            Expected life of warrants           3.6 years       4.7 years
            Risk free interest rate                  6.0%             5.5%
            Volatility of stock                       66%             553%
            Expected dividend yield                   --               --

          The weighted  average fair value of the warrants  granted  during 1998
          and 1997 was $173,561 and $220,000,  respectively.  Had the fair value
          of the warrants  been  amortized  to expense over the related  service
          period,  the  pro  forma  impact  on  earnings  of  the  stock-  based
          compensation  for the warrants under the provision  would have been as
          follows:

                                                   1998           1997
                                                -------------------------
          Net (Loss):
            As reported                         $(288,061)     $(585,528)
            Pro forma                           $(660,223)     $(844,053)

          Earnings Per Share:
            As reported                         $   - 0 -      $    (.01)
            Pro forma                           $   - 0 -      $    (.01)

                                                                       Continued

                                     - F10 -

<PAGE>

          In  accordance  with SFAS 123,  the  weighted  average  fair  value of
          warrants is required to be based on a  theoretical  statistical  model
          using the preceding assumptions.  In actuality, the Company's warrants
          do not trade on a secondary exchange and, therefore, the employees and
          directors  cannot  derive any benefit from holding the warrants  under
          these plans without an increase in the market price of Company  stock.
          Such an  increase  in  stock  price  would  benefit  all  shareholders
          commensurately.

     a.   Warrants  -Presented  below is a summary of warrant  activity  for the
          years shown: All warrants are immediately exercisable upon grant.

                                                                Weighted Average
                                                Warrants         Exercise Price
                                              ----------------------------------
          Balance - December 31, 1996          31,248,011             0.08
            Granted                            24,297,118             0.04
            Expired                            (3,034,000)            0.25
                                              -----------

          Balance - December 31, 1997          52,511,129             0.05
            Granted                            12,272,216             0.04
                                              -----------

          Balance - December 31, 1998          64,783,345             0.05
                                              ===========


     The  following  table   summarizes   information  for  warrants   currently
     outstanding and exercisable at December 31, 1998:

                                          Warrants Outstanding
                           ---------------------------------------------------
           Range of                        Weighted Average   Weighted Average
            Prices            Number       Remaining Life      Exercise Price
          -----------      ---------------------------------------------------
         $.015 - .025       5,750,000         3 years               0.02
          .030 - .040      16,500,000         3 years               0.03
          .050 - .075      37,377,284         2 years               0.05
          . 10 - .15        5,156,061         1 year                0.13
                           ----------

         $.015 - .150      64,783,345         2 years               0.05
                           ==========

     b.   1992 Convertible  Debentures - In 1992, the Company initiated a series
          of private  placement  offerings  of two and  three-year  Subordinated
          Convertible  Debentures  with an annual  interest rate of 10% and with
          variable conversion rates (ranging from $.05 to $.10 per share). These
          offerings  raised a total of  $117,500.  The  Company is in default on
          interest  payments and is in violation of  covenants.  Of the original
          $117,500 raised,  $107,500 has been paid back or converted into stock.
          As of December 31, 1998,  $10,000 of principal  and $6,900 of interest
          remain unpaid or unconverted on these debentures.

                                                                       Continued

                                     - F11 -

<PAGE>

5 -  Related Party Transactions

     a.   Loans from  Former  Officer  and  Director - A former  officer is owed
          $33,953 by the Company.  The amount is payable with a stated  interest
          rate of 11%.  Effective June 30, 1997, the former officer agreed to no
          longer charge interest.

          During 1998, the Company received $50,000 from a director payable with
          a stated interest rate of 10%.  Accrued  interest at December 31, 1998
          amounted to $986.

     b.   Officer's and Director's Compensation - During 1996, an investor group
          brought in by two individuals  acquired an 18% ownership  interest for
          $500,000.  In addition,  if and when any warrants existing at the time
          of the $500,000 investment to purchase common stock of the Company are
          exercised  or,  if  during  the next five  years  the  Company  raises
          additional funds through  issuance of equity,  then the investors will
          be issued,  without  additional  payment,  additional shares of common
          stock of the Company  pro rata so that they will own in the  aggregate
          18% of the then outstanding shares of common stock of the Company. The
          two  individuals  were  awarded  seats on the Board of  Directors  and
          officers  positions.  In addition,  the two individuals  each received
          9,778,975 warrant shares with the same anti-dilution provisions as the
          investor  group.  The two  individuals  had consulting  agreements for
          which the Company accrued fees of $5,000 per month for each individual
          from  July,  1996  through  November,  1997.  During  1997,  these two
          individuals  each agreed to receive  3,333,333 shares of stock in lieu
          of $50,000 in accrued consulting fees. In December,  1997, the Company
          entered into  employment  contracts with each of these two individuals
          for  $150,000  per year for five years  from  December,  1997  through
          November, 2002 and issued options to purchase 7,500,000 shares each at
          an exercise price of $.03 per share.  As of December 31, 1998, the two
          individuals  were owed  $192,500 each in accrued  consulting  fees and
          salaries.  As of December 31, 1998, the investor group owns 28,064,340
          shares and the two  individuals  have warrants to purchase  31,877,284
          shares under these anti-dilution provisions.

          A former  director,  who was previously the Company's  chief executive
          officer,  entered  into a  consulting  agreement  with the Company for
          $2,000 per month from  October,  1997 through  September,  1998. As of
          December 31, 1998,  he is owed $66,493 in accrued  salary,  consulting
          fees and expenses.

6 -  Shareholder's Loan

     During 1996, the Company received  $200,000 from an individual as a loan in
     connection with the Company's  media  campaign.  Repayments of $35,000 were
     made in cash and $7,500 in stock.  In November  1999,  the  Company  issued
     2,875,000 shares of Company stock in repayment of the $157,500 loan balance
     and any accrued interest.  Consequently, this debt has been reclassified to
     long term liabilities at December 31, 1998.

                                                                       Continued

                                     - F12 -

<PAGE>

7 -  Income Taxes

     The Company has available net operating loss carryforwards of approximately
     $5,300,000,  which expire in 2002 until 2013. Deferred income taxes reflect
     the net tax  effects  of net  operating  loss  carryforwards  and result in
     deferred tax assets of approximately $1,590,000 and $1,350,000 respectively
     at December  31, 1998 and 1997,  respectively,  which were fully  offset by
     valuation   allowances  due  to  uncertainties   surrounding  the  ultimate
     realization of these assets.


8 -  Lease Commitments

     The Company is obligated  under a lease for office space through  November,
     2001.   Rental   expense  was  $60,361  and  $38,760  for  1998  and  1997,
     respectively.  The future minimum lease payments  required under this lease
     are as follows:

                          1999                 $ 60,449
                          2000                   62,626
                          2001                   49,941


9 -  Economic Dependence

     The Company purchased 100% of its products from one vendor in 1998 and from
     two other vendors in 1997.

10 - Contingencies

     a.   Regulatory  Matters  - On  June  1,  1993,  the  U.S.  Food  and  Drug
          Administration  ("FDA")  sent a  warning  letter to the  Company.  The
          letter  stated that due to the  Company's  marketing  and  promotional
          materials  used at the  time for the  product,  the FDA  believed  the
          product  was being  sold as a medical  device and should be subject to
          regulation  as a medical  device  under  the  Federal  Food,  Drug and
          Cosmetic  Act ("FDC  Act"),  and that the product was in  violation of
          certain provisions of that Act.

     The Company  believes  that the product is not a medical  device within the
     meaning of the FDC Act and has advised the FDA of its position. However, in
     an act of  cooperation  with  the  FDA,  the  Company  volunteered  to make
     revisions  in its  promotional  material in order to make it clearer to the
     public that the product is not intended to be used as a medical device.

     Since these  revisions  have been made,  the Company has not  received  any
     communications from the FDA about this matter. However, no assurance can be
     given that the FDA will not in the future  continue its  investigation  and
     prohibit the Company from marketing the product,  or invoke other remedies,
     without the Company  complying with medical device status  requirements  of
     the FDC Act.

                                                                       Continued

                                     - F13 -

<PAGE>

          On October 20, 1993, the Federal Trade Commission  ("FTC") advised the
          Company that they were  conducting a non-public,  informal  inquiry to
          determine  whether  the Company  had  engaged in  deceptive  or unfair
          practices in violation of the Federal Trade Commission Act ("FTC Act")
          in connection with certain advertising claims made by the Company. The
          Company  provided certain  information and documents  requested by the
          FTC.

          On August 20, 1996,  a consent  order was agreed to with the FTC which
          settled charges that various  advertising  claims for the product were
          unsubstantiated  or false.  The order  required  the Company to send a
          postcard to identifiable past-purchasers of the product notifying them
          of the FTC's  action and  advising  them that the product has not been
          proven  to  reduce  the  risk  of  smoking-related  diseases  or  make
          cigarettes  safer.  The order also  prohibits  the Company from making
          certain  claims in its  current  advertising.  The  Company's  cost to
          comply with this order was $15,102.

          On  April  7,  1999,  the  Company  received  a  letter  from  the FTC
          concluding,  on the  assumption  that  the  information  submitted  is
          accurate and complete, that no action is indicated.

     b.   Other - In February 1995, the Company's former attorney, John B. Lowy,
          brought an action against the Company in New York State Supreme Court,
          New  York  County  for  unpaid  attorney  fees  and  disbursements  of
          approximately  $39,000.  In July 1997,  the Company  agreed to pay the
          balance owed of $16,603.  Payments of $7,000 were made in 1997 against
          this  liability.  The remaining  balance of $9,603 was paid in monthly
          installments of $1,000 through October 1998.

          In January 1998, the Company's  former  advertising  agency,  Popofsky
          Advertising,  Inc.,  brought an action against the Company in New York
          State Supreme Court,  New York County for unpaid services  rendered in
          the amount of $74,000. In March 1998, the parties reached an agreement
          to settle all claims.  The Company  paid  Popofsky  Advertising,  Inc.
          $50,000 in  installments  of $15,000 in December  1998,  and the final
          $35,000 in July 1999.

          In July 1997, the Company's  former  attorney,  who is a relative of a
          former  director,  brought an action  against  the Company in New York
          State  Supreme  Court,  New York County for unpaid  attorney  fees and
          disbursements of approximately  $18,000.  During 1997, $5,000 was paid
          by the Company and,  therefore,  the  financial  statements  include a
          liability for approximately  $13,000 payable to this party. In October
          1999, the Company and the former attorney agreed to settle this action
          whereby the Company issued  300,000  shares to the former  attorney in
          payment of any and all liabilities.


11 - Disclosure About Fair Value of Financial Instruments

     The carrying  amounts of cash,  accounts  receivable,  accounts payable and
     other current assets and liabilities  approximate fair value because of the
     short maturity of these items.

     The  carrying  amounts of various  loans  payable  exceed the fair value by
     approximately $3,000, based on an estimated borrowing rate of 10%.

                                                                       Continued

                                     - F14 -

<PAGE>

     These  fair  value   estimates   are   subjective  in  nature  and  involve
     uncertainties and matters of significant judgment and, therefore, cannot be
     determined  with  precision.  Changes in  assumptions  could  significantly
     affect these estimates.

12 - Fourth Quarter Adjustment - Unaudited

     For the three months  ended  December  31,  1998,  the Company  recorded an
     adjustment  to  reclassify  the results of the  operations of the Company's
     investment  in the Joint  Venture from separate line items to a single line
     item. This  reclassification  had no effect on the Company's net income.  A
     reconciliation of the effect of this adjustment follows:

<TABLE>
<CAPTION>
                                                                     1998
                                                              Three months ended
                                                        March 31    June 30   Sept. 30
                                                        --------   --------   --------
<S>                                                     <C>        <C>        <C>
     Net sales as previously reported                   $282,072   $ 54,876   $117,330

     Less sales allocated to Joint Venture               262,602     50,247    112,325
                                                        --------   --------   --------

     Net sales as restated                              $ 19,470   $  4,629   $  5,005
                                                        ========   ========   ========


     Gross profit as previously reported                $232,747   $ 30,952   $101,581

     Less gross profit allocated to Joint Venture        219,940     28,392     98,268
                                                        --------   --------   --------

     Gross profit as restated                           $ 12,807   $  2,560   $  3,313
                                                        ========   ========   ========


     Selling expenses as previously reported            $171,071   $ 24,979   $ 63,302

     Less selling expenses allocated to Joint Venture    151,526     21,368     61,552
                                                        --------   --------   --------

     Selling expenses as restated                       $ 19,545   $  3,611   $  1,750
                                                        ========   ========   ========


     General and administrative expenses as
          previously reported                           $148,310   $132,600   $138,509
     Less general and administrative expenses
          allocated to Joint Venture                       2,626        502      1,123
                                                        --------   --------   --------
     General and administrative expenses
          as restated                                   $145,684   $132,098   $137,386
                                                        ========   ========   ========
</TABLE>

                                                                       Continued

                                     - F15 -

<PAGE>

Item  8. Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures.

                                      NONE


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

     The following table sets forth certain information concerning the directors
and executive officers of the Company:

Name                         Age                    Position(s) with the Company
----                         ---                    ----------------------------

Burton A. Goldstein          63               Chairman of the Board of Directors
                                              Secretary, Chief Executive Officer

Herbert M. Reichlin          57                            President, Treasurer,
                                               Chief Operating Officer, Director

Richard Bruno                53                                         Director

James F. Leary               69                                         Director

Luther H. Hodges, Jr.        62                                         Director

Alfred Fabricant             45                                         Director

Richard Mascola              62                                         Director

     Directors   are  elected  to  serve  until  the  next  annual   meeting  of
stockholders  and until their  successors  have been elected and have qualified.
Officers  are  appointed  to serve until the  meeting of the Board of  Directors
following the next annual  meeting of  stockholders  and until their  successors
have been elected and have qualified. Each director receives $1,500 annually for
attendance fees, warrants for 500,000 shares at market price each February,  and
out-of-pocket travel expenses.

     A summary of the  business  experience  of each officer and director of the
Company is as follows:

     BURTON A.  GOLDSTEIN  has been  Chairman of the Board of  Directors  of the
Company  since March 10, 1997 and became its  Secretary  in December  1997.  Mr.
Goldstein  is  President  of American  Employer  Services  Corp.,  a provider of
employee benefit consulting  services to industry and associations.  A chartered
Life  Underwriter,  Mr.  Goldstein  is also  active in estate  preservation  for
business owners and wealthy individuals.

     HERBERT M.  REICHLIN has been a Director and Treasurer of the Company since
July 30, 1996 and became its  President  in  December  1997.  Mr.  Reichlin is a
Certified  Public  Accountant  and is also the  President  of  Program  Resource
Organization, a consulting company to the health industry.


                                       13

<PAGE>

     RICHARD BRUNO has been a Director of the Company since June 1998.  Prior to
retirement,  Mr.  Bruno was employed as Managing  Director of NASDAQ  trading at
Paine Webber Inc. from 1964 thru June 1998.

     JAMES F. LEARY has been a Director of the Company  since August  1994.  Mr.
Leary the President and Founder of Sunwestern  Management,  Inc., Dallas, Texas,
engaged in venture capital investing through two limited partnerships.  Prior to
Sunwestern's  inception in 1981, Mr. Leary was Senior  Executive Vice President,
Chief  Financial  Officer and Director of the  Associates  Corporation  of North
America, Dallas, Texas. Prior to his tenure with Associates, he served as Senior
Vice  President of The National Bank of North America (now National  Westminster
Bank USA) and as an Assistant Treasurer of CIT Financial Corporation.  Mr. Leary
is Vice Chairman of Finance of Search Capital Group,  Inc.,  Dallas, TX (NASDAQ)
and is a director of MaxServ, Inc. (NASDAQ), several open-end mutual stock funds
under the management of Capstone Asset Management Company,  and Anthem Financial
Services,  Inc.  Mr.  Leary has a B.A.  degree in Business  Administration  from
Georgetown  University  1951,  an MBA in  Banking  and  Finance  from  New  York
University  1953, and is also a graduate of the Advanced  Management  Program of
the Harvard University Graduate School of Business in 1956.

     LUTHER H. HODGES,  JR. has been a Director of the Company since April 1995.
He  currently  serves as a member of the  faculty  of the  Anderson  Schools  of
Management, the University of New Mexico; Chairman of the Board of the Santa Fe,
LLC and is a  Director  of Search  Capital  Corporation,  Dallas,  Texas;  and a
director of Safety Floor International,  Bethesda,  MD., Zomeworks  Corporation,
Albuquerque,  and CWF Energy Company,  Dallas, Texas.  Additionally,  Mr. Hodges
manages two closely  held  investment  partnerships  and  operates  the Santa Fe
Buyers Brokerage Company, a licensed real estate broker in New Mexico. He serves
on the Governor's  Economic  Development  Commission  and the State  Treasurer's
Investment  committee in New Mexico.  Mr.  Hodges is also a trustee of the North
American   Institute  in  Santa  Fe  and  the  National  Symphony  Orchestra  in
Washington, D.C. Previously, Mr. Hodges was Chairman and Chief Executive Officer
of Washington Bancorporation (1983-89), a regional bank holding company, and The
National  Bank of  Washington  (1981-89)  and served as Chairman of the Board of
Starlight Publishing Company,  Albuquerque,  N.M. He served as Undersecretary of
the U.S.  Department  of Commerce  (1979) and as the first  Deputy  Secretary of
Commerce (1980). He had been a democratic candidate for the United States Senate
from North  Carolina  (1978)  and from  1962-1977  served in various  management
positions  at  the  North  Carolina  National  Bank  (presently  Nations  Bank),
including  Chairman of the Board  (1974-77).  Mr. Hodges has long been active on
the  Board  of  Directors  of  numerous  community,  educational  and  corporate
organizations.  Mr.  Hodges was  educated at the  University  of North  Carolina
(1957) and at the Harvard Graduate School of Business  Administration (1961). He
served to the rank of Lieutenant, United States Navy.

     ALFRED  FABRICANT has been a Director since October 7, 1997. Mr.  Fabricant
is the founding  partner of the New York law firm of Fabricant & Yeskoo LLP. Mr.
Fabricant  was  educated  at the  University  of  Miami  (1975)  and at the John
Marshall Law School (1978).

                                       14

<PAGE>

     DR.  RICHARD F. MASCOLA has been a Director  since  December 16, 1997.  Dr.
Mascola  is a  practicing  Doctor  of Dental  Surgery  and is  President  of the
American  Dental  Association.  Dr. Mascola was educated at Holy Cross (1958) at
New York University College of Dentistry,  D.D.S. and at Brookdale Dental Center
of New York University.

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

     The Company does not have any securities registered under Section 12 of the
Securities Exchange Act of 1934, and, accordingly, compliance with Section 16(a)
thereof is not required or applicable.


Item 10. Executive Compensation

     The following table sets forth the annual  long-term  compensation  for the
Company's Chief Executive  Officer,  and the only other executive officer during
the Company's last three fiscal years:

                           Summary Compensation Table

                                                     Annual          Long-Term
                                                  Compensation     Compensation
                                                                    Securities
                                                                    Underlying
Name and Principal Positions              Year       Salary         Warrants (#)
--------------------------------------------------------------------------------

Burton A. Goldstein                       1998      $150,000         4,511,108
(Chief Executive Officer)                 1997      $ 67,500        10,648,559
                                          1996      $ 30,000         9,778,975

Herbert M. Reichlin                       1998      $150,000         4,511,108
(President and Chief Operating Officer)   1997      $ 67,500        10,648,559
   Chief Operating Officer)               1996      $ 30,000         9,778,975


                                       15

<PAGE>

Warrant Grants in Last Fiscal Year

     The following  table sets forth  certain  information  concerning  warrants
granted during 1998 to the named executives:

                                Individual Grants

                          Number of         % of Total      Exercise
                         Securities      Warrants Granted   or Base
                         Underlying      to Employees in     Price    Expiration
Name                  Warrants Granted     Fiscal Year     ($/share)     Date
--------------------------------------------------------------------------------

Burton A. Goldstein        500,000              4%            0.04      2/15/01
                           500,000              4%            0.015     2/15/03
                         3,511,108             29%            0.05      7/10/01

Herbert M. Reichlin        500,000              4%            0.04      2/15/01
                           500,000              4%            0.015     2/15/03
                         3,511,108             29%            0.05      7/10/01

Aggregated  Warrant  Exercises in Last Fiscal Year and Fiscal  Year-End  Warrant
Values

     The following table summarizes  warrants exercised during 1998 and presents
the  value of  unexercised  warrants  held by the  named  executives  at  fiscal
year-end:

                                                   Number of
                                                   Securities
                                                   Underlying        Value of
                          Shares                   Unexercised      Unexercised
                         Acquired                  Warrants at     In-the-Money
                            on         Value       Fiscal Year-      Warrants at
                         Exercise     Realized     End (#) All     Fiscal Year-
Name                        (#)         ($)        Exercisable        End ($)
--------------------------------------------------------------------------------

Burton A. Goldstein          0           0          24,938,642           0

Herbert M. Reichlin          0           0          24,938,642           0

Item 11. Security Ownership of Certain Beneficial Owners and Management

(a)  Security Ownership of Certain Beneficial Owners -- The persons set forth on
     the charts  below are known to the Company to be the  beneficial  owners of
     more than 5% of the  Company's  outstanding  voting  Common Stock as of the
     date hereof.

                                       16

<PAGE>

(b)  Security  Ownership of Management -- Information  concerning the number and
     percentage  of shares of voting Common Stock of the Company owned of record
     and beneficially by management, is set forth on the charts below:

<TABLE>
<CAPTION>
                                                        Shares of Common Beneficially Owned
Name and Address                                       ------------------------------------
Of Beneficial Owner                                Shares Owned    Shares Acquirable               Percent Owned
-------------------                                ------------    Within 60 Days (1)              -------------
                                                                   ------------------

<S>                                                 <C>               <C>                             <C>
Burton A. Goldstein                                 5,333,333         24,938,642                      16.3%
6900 Jericho Turnpike
Syosset, New York 11791

Herbert M. Reichlin                                 5,333,333         24,938,642                      16.3%
6900 Jericho Turnpike
Syosset, New York 11791

James F. Leary                                        998,653          2,000,000                       1.8%
6900 Jericho Turnpike
Syosset, New York 11791

Luther H. Hodges, Jr                                3,412,143          2,000,000                       3.3%
6900 Jericho Turnpike
Syosset, New York 11791

Alfred Fabricant                                    2,806,434            750,000                       2.2%
6900 Jericho Turnpike
Syosset, New York 11791

Richard Mascola                                     2,806,434            750,000                       2.2%
6900 Jericho Turnpike
Syosset, New York 11791

Richard Bruno                                       2,500,000            250,000                       1.7%
6900 Jericho Turnpike
Syosset, New York 11791

Bernard Gutman                                     15,430,462(2)                                       9.6%
1950 S. Ocean Drive
Hallandale, Florida 33009

Products & Patents, Ltd. ("P&P")                    1,350,349                                          0.8%
1950 S. Ocean Drive
Hallandale, Florida 33009

All Directors and Officers and Beneficial Owners   94,248,076                                         43.5%
of more than 5% of the Company's Common Stock
</TABLE>

(1)  Under the rules of the Securities and Exchange  Commission  (the "SEC"),  a
     person is deemed to have  "beneficial  ownership"  of any Common Stock over
     which that person has or shares voting or investment power, plus any Common
     Stock  that  person  may  acquire  within 60 days,  including  through  the
     exercise of a stock option or the conversion of a convertible security.

                                       17

<PAGE>

(2)  Includes  1,350,349  shares held by P&P  inasmuch  as Bernard  Gutman is an
     officer and director of P&P.  Mr.  Gutman has sole  discretionary  power of
     these shares. P&P currently has no active business operations.

Item 12. Certain Relationships and Related Transactions

a.   Loans from Director and Former  Officer - A former  officer is owed $33,953
     by the Company.  The amount is payable with a stated  interest rate of 11%.
     Effective  June 30, 1997,  the former  officer  agreed to no longer  charge
     interest.

     During 1998, the Company  received  $50,000 from a director  payable with a
     stated interest rate of 10%. Accrued interest at December 31, 1998 amounted
     to $986.

b.   Officer's and  Director's  Compensation  - During 1996,  an investor  group
     brought  in by two  individuals  acquired  an 18%  ownership  interest  for
     $500,000. In addition, if and when any warrants existing at the time of the
     $500,000  investment to purchase  common stock of the Company are exercised
     or, if during  the next five  years the  Company  raises  additional  funds
     through  issuance of equity,  then the  investors  will be issued,  without
     additional  payment,  additional  shares of common stock of the Company pro
     rata so that they  will own in the  aggregate  18% of the then  outstanding
     shares of common stock of the  Company.  The two  individuals  were awarded
     seats on the Board of Directors and officers  positions.  In addition,  the
     two  individuals  each  received  9,778,975  warrant  shares  with the same
     anti-dilution  provisions as the investor  group.  The two  individuals had
     consulting  agreements  for which the  Company  accrued  fees of $5,000 per
     month for each individual from July, 1996 through  November,  1997.  During
     1997,  these two  individuals  each agreed to receive  3,333,333  shares of
     stock in lieu of $50,000 in accrued consulting fees. In December, 1997, the
     Company  entered  into   employment   contracts  with  each  of  these  two
     individuals  for  $150,000  per year for five  years  from  December,  1997
     through November, 2002 and issued options to purchase 7,500,000 shares each
     at an exercise  price of $.03 per share.  As of December 31, 1998,  the two
     individuals  were  owed  $192,500  each  in  accrued  consulting  fees  and
     salaries.

     A  former  director,  who was  previously  the  Company's  chief  executive
     officer,  entered into a consulting  agreement  with the Company for $2,000
     per month from October,  1997 through  September,  1998. As of December 31,
     1998, he is owed $66,493 in accrued salary, consulting fees and expenses.

Item 13. Exhibits and Reports on Form 8-K

(A)  Exhibits

         3.1  Articles of Incorporation (4)

         3.2  By-laws (4)

       10.01  Agreement dated August 21, 1995 with J&R Intercontinental (3)

       10.02  Consulting  Agreement  dated July 9, 1996  between the Company and
              Herbert M. Reichlin (2)

       10.03  Consulting  Agreement  dated July 9, 1996  between the Company and
              American Employer Service Corporation (2)

       10.04  Warrant  Agreement  dated July 9, 1996  between  the  Company  and
              Herbert M. Reichlin (2)

       10.05  Warrant  Agreement  dated July 9, 1996  between  the  Company  and
              Burton A. Goldstein (2)

                                       18

<PAGE>



       10.06  Warrant  Agreement  dated July 9, 1996  between  the  Company  and
              Milton J. Walters (2)

       10.07  Securities Purchase Agreement dated July 9, 1996 (2)

       10.08  Agreement dated April 30, 1997 with Kingdom Blinds  Manufacturing,
              Inc. (1)

       10.09  Employment  Agreement  dated  December 1, 1997 between the Company
              and Burton A. Goldstein. (1)

       10.10  Employment  Agreement  dated  December 1, 1997 between the Company
              and Herbert M. Reichlin. (1)

       10.11  Consulting  Agreement  dated  December 9, 1997 between the Company
              and Bernard Gutman. (1)

              (1)  Incorporated by reference to Exhibits to Form 10K for fiscal
                   year ended December 31, 1997.

              (2)   Incorporated by reference to Exhibits to Form 10K for fiscal
                    year ended December 31, 1996.

              (3)   Incorporated by reference to Exhibits to Form 10K for fiscal
                    year ended December 31, 1995.

              (4)   Incorporated by reference to Exhibits to Form 10K for fiscal
                    year ended December 31, 1989.

(B)  Reports on Form 8-K

     No reports on Form 8-K were filed during the last quarter of 1998.

                                       19

<PAGE>

                                   SIGNATURES

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

                                                  QUEST PRODUCTS CORPORATION

Dated:   December 1, 1999                         By: /s/:
                                                    ----------------------------
                                                  Herbert M. Reichlin, President


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

      SIGNATURES AND TITLE                                           DATE
      --------------------                                           ----

                                                               December 15, 1999
-----------------------------------
Burton A. Goldstein
Chairman of the Board of Directors
Secretary, Chief Executive Officer

                                                               December 15, 1999
-----------------------------------
Herbert M. Reichlin
President, Treasurer, Chief
Operating Officer, Director

                                                               December 15, 1999
-----------------------------------
Richard Bruno
Director

                                                               December 15, 1999
-----------------------------------
James F. Leary
Director

                                                               December 15, 1999
-----------------------------------
Luther H. Hodges, Jr.
Director

                                                               December 15, 1999
-----------------------------------
Alfred Fabricant
Director

                                                               December 15, 1999
-----------------------------------
Richard Mascola
Director

                                       20

<PAGE>

                            SUPPLEMENTAL INFORMATION

     Supplemental  Information  to be Furnished  with Reports Filed  Pursuant to
Section 15(d) of the Act by Registrants  Which Have Not  Registered  Pursuant to
Section 12 of the Act.


                                      NONE

                                       21