SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB


(Mark One)

/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended July 31, 2002

                                       or

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

For the transition period from ___________________ to __________________


                       Commission File Number 33-19048-NY

                         MURRAY UNITED DEVELOPMENT CORP.
                         (Name of Small Business Issuer)

             Delaware                               22-2856171
----          ------
(State or other jurisdiction of         (I.R.S. employer identification
incorporation or organization)           no.)


P.O. Box 224, Landing, New Jersey                     07850
-------              ------
(Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code(908) 979-3025
                                                  ---

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 Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes     X         No
    -----------      ----------

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<PAGE>

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 the Registrant's knowledge, in definitive information or proxy
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X ].

The Registrant did not have any revenues during its fiscal year ended July 31,
2002.

As of October 23, 2002, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant as computed by reference to the
closing price of such stock on such date was approximately $2,602,930.

79,953,434 shares of the registrant's Common Stock were outstanding as of
October 23, 2002.

Transitional Small Business Disclosure Format:

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

Documents incorporated by Reference: NONE











                                        2

<PAGE>


INDEX TO FORM 10-KSB  -- PARTS I - IV


Part I                                                              Page
                                                                    ----
         -  Item 1.      Description of Business                      4
         -  Item 2.      Description of Property                     15
         -  Item 3.      Legal Proceedings                           15
         -  Item 4.      Submission of Matters to a                  15
                         Vote of Security Holders

Part II
         -  Item 5.      Market for Common Equity and                15
                         Related Stockholder Matters
         -  Item 6.      Management's Discussion and                 19
                         Analysis or Plan of Operation
         -  Item 7.      Financial Statements                        27
         -  Item 8.      Changes in and Disagreements                27
                         With Accountants on Accounting
                         and Financial Disclosure

Part III
         -  Item 9.      Directors, Executive Officers,              27
                         Promoters and Control Persons;
                         Compliance with Section 16(a)
                         of the Exchange Act
         -  Item 10.     Executive Compensation                      30
         -  Item 11.     Security Ownership of Certain               32
                         Beneficial Owners and Management
         -  Item 12.     Certain Relationships and Related           33
                         Transactions

Part IV
         -  Item 13.     Exhibits, Lists and Reports on              35
                         Form 8-K
                         Financial Statements Index                  36
                         Signatures                                  37
                         Certifications                              38
                         List of Exhibits                            40

                                        3

<PAGE>



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BACKGROUND

         Murray United Development Corporation (sometimes referred to in this
Report as the "Company") is a development stage corporation formed under
Delaware law on October 13, 1987 to exploit commercially an internal combustion
engine (referred to in this Report as the "Rotorcam Engine") that would run on
fuels other than gasoline, that would have significantly fewer parts, and that
would be lighter and operate more efficiently than conventional internal
combustion engines. Although the Rotorcam Engine is an internal combustion
engine, it differs from existing engines in that its four cylinders lie
radially, ninety degrees apart and rotate around the engine's central axis. The
Rotorcam Engine's cylinders radiate outward from a central axle like the spokes
of a wheel with the heads of the cylinders pointing inward. At the end of each
piston arm is a small wheel which runs along the inside of a large flat ring
that encloses the whole engine. The ring is oval in shape so that, when the
cylinders rotate around the central axle, the pistons are pushed in and out as
the wheels roll from the narrow part of the oval ring to the wide part. As they
rotate, a large port in each cylinder successively passes apertures through
which the air-fuel mixture enters and exhaust gases exit.

         In October 1987 we acquired from our predecessor, Rotorcam Technology
Corp., an assignment of license under which we obtained the exclusive right and
license to exploit all existing technology relating to the Rotorcam Engine,
which had previously been licensed to Rotorcam Technology Corp. by one of our
former officers.

         In July l993 we filed a lawsuit against two of our former officers and
directors (referred to herein as the "Murrays"). On November 18, 1993 we entered
into a settlement agreement terminating the litigation, under which we agreed to
pay to the Murrays $75,000, subject to certain contingencies, and to deliver a
promissory note in the principal amount of $50,000. In return, the Murrays
agreed to return to the Company ten million shares of Common Stock of the
Company that the Murrays owned at such time and to transfer to the Company title
to all of their patents for the Rotorcam Engine.

         Subsequently, certain of our shareholders brought a class action
lawsuit against the Murrays in the Superior Court of Morris County, New Jersey,
alleging fraud and misrepresentation. On June 25, 1996 a Stipulation of
Settlement was executed by us, the

                                        4

<PAGE>



plaintiff class and the Murrays, and on September 24, 1996 the Court approved
the settlement under which we paid the Murrays $26,769 and received in return,
on behalf of our shareholders, 27,306,100 shares of our Common Stock that were
previously owned by the Murrays. Of the 27,306,100 shares tendered by the
Murrays, 2,548,867 were transferred to the law firm that represented the
plaintiff class in partial payment of their legal fees and disbursements, and we
cancelled the remaining 24,757,233 shares.

         We continue to believe that pollution and depleting petroleum resources
continue to stimulate commercial interest in engines designed to run on
alternative fuels. Although numerous alternative engines have been researched
and developed by both the government and the private sectors, none has received
widespread commercial acceptance. We have been engaged in the research, design
and development of the Rotorcam Engine technology since our inception in 1988.
Since inception, we have spent, all together, approximately $854,653 on such
research and development. However, due principally to a shortage of operating
funds, we did not incur any expenses for research and development costs for the
Rotorcam Engine during our fiscal years ended July 31, 2002, 2001, and 2000.

         From March 1988 through December 1989, we carried out the design and
production of a prototype of the Rotorcam Engine. In January 1990 we tested the
Rotorcam Engine using gasoline fuel. The Rotorcam Engine achieved combustion,
operated under its own power and maintained a stable speed. After this testing,
we made certain modifications to the Rotorcam Engine and resumed testing to
obtain additional performance information and engineering data for further
development. Design changes to the prototype that we implemented in the latter
part of 1992 reduced the availability of the Rotorcam Engine for demonstration
purposes and the gathering of engineering data. We subsequently retrofitted the
prototype with new components, thereby restoring it to demonstrator status. In
September 1995 we successfully converted the engine to operate on propane.

         In March 1997 we entered into an agreement with the U.S. Merchant
Marine Academy at Kings Point, New York to house the Rotorcam Engine and related
equipment at the Academy's engineering and teaching facilities. We agreed to pay
the Academy $200 per month for one year for use of its facilities. The Academy
agreed to assist us with its preliminary analysis of the Rotorcam Engine and to
provide us with a letter of support in order to assist us in acquiring research
grants.

         In July 1998 we entered into an agreement with the Southwest Research
Institute of San Antonio, Texas ("SRI"). SRI is generally

                                        5

<PAGE>



considered to be one of the country's foremost independent research institutes
with approximately 2,500 scientists, engineers and support personnel. SRI
conducts an average of 1,500 nationally and internationally sponsored projects
each year. Under our agreement with SRI, SRI agreed to provide an engineering
study of the Rotorcam Engine at a cost of $9,750. SRI's study included an
evaluation of existing Rotorcam Engine hardware and data, including test data on
the current prototype, and design and analytical data that we had obtained to
date. In addition, SRI agreed to prepare an evaluation report summarizing its
findings and a technical and cost proposal for the next phase of work. In
September 1998, with the agreement and consent of the Merchant Marine Academy,
we moved the Rotorcam Engine from the Academy to SRI's facility in San Antonio,
Texas.

         In December 1998, SRI issued its report on the results of the testing
of the Rotorcam Engine (the "Report"). In the Report, SRI concluded that there
were three (3) significant advantages of the Rotorcam Engine over conventional
reciprocating engines: higher torque at a specified rpm, a potential of improved
cycle efficiency and energy savings, and the improvement of overall efficiency
and packaging resulting from the ability to eliminate a gear box. However, SRI
also concluded that certain advantages of the Rotorcam Engine that we had
previously believed existed, based on our prior research, were not supported by
the evidence that it had gathered during its review. In particular, SRI
concluded that the prototype did not necessarily possess advantages over
conventional reciprocating engines with respect to high power-to-weight ratio,
low manufacturing and maintenance costs, improved packaging, multi- fuel
potential, and variable compression ratio. In addition to its findings, the
Report recommended potential applications for the Rotorcam Engine, including
off-road power equipment, utility equipment and gensets.

         In response to the Report, assuming funding becomes available, which we
cannot provide you any assurances will happen, we determined to redesign and
rebuild a second generation prototype of the Rotorcam Engine ("Second
Prototype") to address the issues raised by SRI in its Report. We estimate that
the cost of such Second Prototype will be approximately $350,000 to $375,000 and
that it will take approximately 15 to 18 months from the time such funding
becomes available to complete.

         If the Second Prototype shows clear advantages of the Rotorcam Engine
over conventional reciprocating engines in a specific market, and if the
necessary funds are then available, we plan to commission the development of a
third prototype ("Third Prototype") of the engine. The Third Prototype would be
designed to address the

                                        6

<PAGE>



performance, cost, reliability and producability issues associated
with selected markets.

         We estimate that the cost to develop such a Third Prototype would be
between $2 million and $3 million and that it would take between 18 to 24 months
from the time the Second Prototype is completed and such funding becomes
available to complete. During this phase of development we plan to commission
the production of several variations of the Third Prototype that would be used
for different purposes, including performance development, durability
assessment, and demonstrators to be used in field testing.

         We are attempting to locate a funding source for the $350,000 to
$375,000 amount required to complete the Second Prototype. Possible sources for
funding include exercise of our 15,398,000 outstanding Class B Warrants, an
offering of the Company's equity securities, and/or borrowing from private
sources. We intend to attempt to raise the funds necessary to complete the
Second Prototype from such sources, but we cannot give you any assurances that
we will be able to do so. If we are unable to raise such funds, we may never be
able to further develop the Rotorcam Engine.

         On April 20, 2000, we filed a Registration Statement with the United
States Securities and Exchange Commission ("SEC"), which became effective on May
3, 2000. The Registration Statement, together with the qualification or
exemptions from qualification obtained in several states where holders of our
class B Warrants reside, permit such holders to exercise their Class B Warrants
under the laws of the United States and those states where we have either
qualified or obtained an exemption from qualifying the shares of our Common
Stock for which the Warrants are exercisable. To date, none of such Class B
Warrant holders have exercised their Class B Warrants due principally to the
fact that, with limited exceptions, the market price of our Common Stock has
been lower than the exercise price of the Class B Warrants since the effective
date of the Registration Statement. Unless the market price of our Common Stock
shall exceed the exercise price of the Class B warrants in the future, it is
unlikely that any of the holders of such Warrants will exercise them, and we may
not be able to raise the funds needed to develop the Second Prototype from such
source.

         We believe that if the Second Prototype is successfully completed, we
will be able to raise sufficient funds to complete the Third Prototype from
research grants, proceeds of the sale of our Common Stock upon exercise of our
Class B Warrants, licensing fees and/or equity financing. However, since a
decision to proceed with a Third Prototype will depend on the results obtained
from the Second Prototype, we cannot give you any assurances that we will

                                        7

<PAGE>



decide to build a Third Prototype or that we will, in fact, be able to obtain
sufficient funds to complete the Third Prototype. Since a Third Prototype is
essential to our ability to market the Rotorcam Engine, if we determine that it
is not advisable to produce the Third Prototype, or if we are financially unable
to do so, we may never be able to successfully market the Rotocam Engine.

         In view of the projected extended period of time that we estimate it
will take to complete the Second and Third Prototypes, assuming that we are able
to obtain the funds to complete such prototypes, of which we cannot provide you
any assurances, we are presently seeking opportunities that will permit us to
diversify into businesses in addition to the Rotocam Engine.

         Our current diversification efforts are focused on attempts to exploit
commercially certain technologies that we are in the process of developing. In
February 2002, we reached an agreement in principle with Mr. Anthony Campo, the
Chairman of the Company, and with Mr. Dwight Foster, Chief Executive Officer of
the Company, pursuant to which we would obtain a license to use and sell a
proprietary cleaning solution owned by Foster-Campo Corp, ("Foster- Campo"), a
corporation owned by Mr. Foster and Mr. Campo. The license originally was
limited to use of the cleaning solution formula to remove air pollutants from
flue gases and pollutants and contaminants from building air. Mr. Campo and Mr.
Foster have agreed to expand the license to include use of the Klenz-Safe
technology to contain and neutralize hazardous liquids and compounds and to
decontaminate equipment used in production of pharmaceuticals. Under the terms
of the proposed license, Foster- Campo will manufacture and supply the cleaning
solution to our customers and will invoice us for their cost of doing so without
any profit to Foster-Campo. Foster-Campo will receive a royalty payment of 50%
of our net profit on sales of the proprietary solution to our customers.
Calculation of our net profit will include, but not be limited to, amounts
Foster-Campo invoices us for supplying our customers with the cleaning solution.

         In June 2000 Penn State Energy Institute, which is a facility of Penn
State University, agreed to conduct laboratory tests of the application of the
Klenz-Safe solution to the reduction of sulfur from coal burning flue gas. When
coal burning flue gas was introduced through Klenz-Safe using the Company's
proprietary methodology, the capture rate of sulfur exceeded 99.2% and
maintained a minimum of 98% rate throughout the testing.

         Due to the success of the initial testing, Penn State Energy Institute
has informed management that it intends to apply for federal and state
governmental grants to conduct a pilot test of

                                        8

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Klenz-Safe's ability's to capture sulfur in coal burning flue gas. The pilot
study would be conducted in a working smoke stack to simulate real world
conditions. If such tests are conducted and are successful, we intend to seek
distribution partners to assist us in marketing and selling the Klenz-Safe
product to the coal burning utility market.

         We also engaged a certified indoor air quality laboratory to perform a
series of laboratory tests on Klenz-Safe to determine Klenz-Safe's ability to
remove pollutants and contaminants from building air. The tests simulated wet
scrubber equipment, which is commonly used device for removing pollutants from
building air. Based on generally known industry practices, management believes
that the range of pollutants captured by Klenz-Safe and the rate of such capture
have not been previously achieved in a single operation. The following were the
material findings of the laboratory tests:

                  Klenz-Safe captured 90% of carbon monoxide in tested air
                  streams;

                  Klenz-Safe captured 70% of both nitrogen dioxide and of
                  nitrous oxide in tested streams;

                  Klenz-Safe added no detectable volatile organic compounds to
                  the air stream at elevated temperatures, indicating that
                  Klenz-Safe could be applied to indoor air cleaning systems
                  without the need of additional filtering.

         In October 2002 we conducted field tests of Klenz-Safe in an actual
working wet scrubber. These tests confirmed the prior laboratory results that
Klenz-Safe is able to capture sulfur dioxide in wet scrubber equipment. During
these tests, Klenz-Safe captured 100% of the sulfur dioxide and a high
percentage of other air contaminants in the air passing through the wet
scrubber. Klenz-Safe compared favorably in capture efficiency to a caustic
solution used in the testing for purposes of comparison, though the caustic
solution was somewhat more economical. We are presently negotiating with
potential distributors for commercial sales of this product. However, we cannot
provide any assurances that we will be able to successfully commercialize the
Klenz-Safe product for use in wet scrubber equipment.

         While conducting these field tests, we discovered that the Klenz-Safe
technology could also be used to blanket and neutralize acid spills that release
toxic or hazardous fumes. After determining the formulation for the foam that is
able to be produced with our Klenz-Safe technology, we tested Klenz-Safe's

                                        9

<PAGE>



foam formulation on toxic and other harmful spills. We concluded that Klenz-Safe
is able to safely produce a neutralizing foam blanket for covering and
neutralizing compounds that release toxic and other hazardous fumes into the
environment. We are currently conducting further tests of this application and
demonstrating this application to potential customers.

         We are also conducting field tests of Klenz-Safe with certain
manufacturing companies that need to eliminate or lower volatile organic
compounds from their manufacturing facilities, and we have signed a
non-disclosure agreement with a major coal burning power utility to explore a
possible strategic partnership that would develop technology to remove or
eliminate sulfur from coal burning flue gas.

         To date, the cost of the research at Penn State was approximately
$9,000, and the cost of the research by the certified air quality laboratory was
approximately $5,000. Funding for such research was provided by loans to the
Company from our Chairman, Mr. Anthony Campo.


MARKETING

         If we are able to raise the capital needed to complete the Third
Prototype, then, during the period in which the Third Prototype is being
developed, we intend to determine appropriate markets for the Rotorcam Engine.
Based on SRI's Report, we currently believe that a market is available for the
Rotorcam Engine in off-road terrain equipment, such as earth-moving farm
equipment, tanks, pony engines, marine engines, generators, and co- generation
systems that are used to cool, as well as to provide an electrical power source
for, home and industry.

         Management presently believes that Klenz-Safe may be useful in the
following applications:

        o         Air pollution control in wet scrubber equipment, which
                  are commonly used to remove pollutants from building air

        o         Containment and neutralization of liquids and compounds

        o         Decontamination of equipment in pharmaceutical production

        o         Air filtration in indoor air quality control

        o         Flue and combustion gas scrubbing


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         We believe that potential markets for Klenz-Safe include the chemical
production, manufacturing, food processing, pharmaceutical production, utility
and indoor air quality control industries. We are presently seeking affiliations
with distribution firms and potential end users to solicit purchase order
contracts for sales of Klenz-Safe. However, we have not entered into any
distribution or other agreements with such potential business partners, and we
cannot provide any assurances that we will be able to do so in the future.
Moreover, although management believes that there are numerous potential markets
for the Company's Klenz-Safe technology, we cannot provide any assurances that
we will be able to successfully market and sell our Klenz-Safe products.


COMPETITION

         We believe that competition in the alternative engine market is intense
and that we are competing with other entities that have financial and other
resources far greater than our own. Our research and development efforts are
competing directly with major automobile manufacturers as well as with other
commercial and industrial companies that have established and well financed
research and development efforts in enhancement and improvements to existing
engines as well as in the development of alternative engines. Our limited
resources may hinder our ability to compete successfully. Moreover, unless we
receive substantial additional financing, it is unlikely that we will be able to
commercially exploit the Rotorcam Engine. Again, we cannot give you any
assurances that we will receive any additional funding.

         If we are able to obtain sufficient funds to commercially exploit the
Rotorcam Engine, we expect to compete primarily on the basis of technological
advantage, which will permit favorable product cost and performance
differentials. Since engine technology is subject to rapid and dramatic changes,
however, competitors may develop better approaches to such technology, that
would seriously and adversely affect our ability to compete with them.

         If we are able to commercialize Klenz-Safe, we expect to compete by
means of higher value in use through combining the advantages of differing
technologies in one product. Because the Company is still engaged in testing the
viability of the Klenz-Safe product, we are unable to assess the competitive
environment for Klenz-Safe. We will be better able to determine the competitive
market after completion and analysis of further testing.




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EMPLOYEES AND CONSULTANTS

         We currently have one employee, Mr. Dwight Foster, whom the Board
appointed as our President and Chief Executive Officer in December 1998. Mr.
Anthony Campo, who is our Chairman of the Board, Executive Vice-President,
Secretary and Treasurer, also provides us with general administrative services.
Mr. Robert Van Dine, our President, has rendered consulting services to us from
January 2000 to the present. Mr. Van Dine has not received any cash compensation
but has received a total of 2 million shares of our common stock for such
consulting services. We have previously, also retained the services of a
consultant on an as needed basis, who provides us with engineering services with
payment being made based on such consultants hourly rate.


NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

         If successfully developed, the Rotorcam Engine will be subject to a
series of governmental regulations with respect to safety, fuel efficiency and
pollution. We cannot provide you with any assurance that the Rotorcam Engine
will be able to meet these standards of pollution and safety. In addition, the
assembly and manufacture of products containing the Rotorcam Engine will be
subject to Federal and State regulations. We intend to comply with all
regulations that may be applicable to our business however, the compliance with
such regulations may cause delays and additional expense, which could adversely
affect the commercial viability of the Rotorcam Engine.

         Sales of our Klenz-Safe technology to power generating utilities will
require verification testing for pollutant capture. We expect that the cost of
compliance with such testing requirements will be minimal. We do not believe
that governmental approval will be required for other applications of our
Klenz-Safe product.


PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY
AGREEMENTS OF LABOR CONTRACTS, INCLUDING DURATION

         Under legal settlements signed in 1993 and 1996 with the Murrays, we
obtained title to seven U.S. patents and four international patents as well as
rights to various patents pending. Of these seven U.S. patents, three remain in
effect and four have expired due to lack of funds necessary to maintain such
patents. Each of the foreign patents and the rights to patents pending have

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also expired due to a lack of funds necessary to acquire or maintain such
patents.

         We have been granted trademark protection for the name "Klenz- Safe"
from the US Patent and Trademark Office (PTO). The method of application of the
Klenz-Safe formula for removal of sulfur from coal burning flue gas was
developed by a consultant to the Company, who has assigned to us his rights to
such know-how and his rights under a provisional patent application filed with
the PTO covering such know-how. In October 2002 we filed another application for
a provisional patent, which extends the Klenz-Safe technology into additional
indoor air quality applications. We cannot provide any assurances that PTO will
grant any patent on our Klenz-Safe technology.


STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE

         Penn State Energy Institute has informed management that it intends to
apply for federal and state governmental grants to conduct a pilot test of
Klenz-Safe's ability's to capture sulfur in coal burning flue gas. The pilot
study would be conducted in a working smoke stack to simulate actual conditions.
If such tests are successful, we intend to seek distribution partners to assist
us in marketing and selling the Klenz-Safe product to the coal burning utility
market. We cannot provide any assurances that such testing will occur or will be
successful. If such tests are performed, results are not expected to be
available for approximately one year.

         In October 2002 we conducted field tests of Klenz-Safe in an actual
working wet scrubber. Wet Scrubbers are used to remove contaminants from indoor
building air. These tests confirmed the prior laboratory results that Klenz-Safe
is able to capture sulfur dioxide in wet scrubber equipment. During these tests,
Klenz-Safe captured 100% of the sulfur dioxide and a high percentage of other
air contaminants in the air passing through the wet scrubber. Klenz-Safe
compared favorably in capture efficiency to a caustic solution used in the
testing for purposes of comparison, though the caustic solution was somewhat
more economical. We are presently negotiating with potential distributors for
commercial sales of this product. However, we cannot provide any assurances that
we will be able to successfully commercialize the Klenz-Safe product for use in
wet scrubber equipment.

         While conducting these field tests, we discovered that the Klenz-Safe
technology could also be used to blanket and neutralize acid spills that release
toxic or hazardous fumes. After

                                       13

<PAGE>



determining the formulation for the foam that is able to be produced with our
Klenz-Safe technology, we tested Klenz-Safe's foam formulation on toxic and
other harmful spills. We concluded that Klenz-Safe is able to safely produce a
neutralizing foam blanket for covering and neutralizing compounds that release
toxic and other hazardous fumes into the environment. We are currently
conducting further tests of this application and demonstrating this application
to potential customers.

         We are also conducting field tests of Klenz-Safe with certain
manufacturing companies that need to eliminate or lower volatile organic
compounds from their manufacturing facilities, and we have signed a
non-disclosure agreement with a major coal burning power utility to explore a
possible strategic partnership that would develop technology to remove or
eliminate sulfur from coal burning flue gas.


DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

         If we are successful in our attempts to produce an engine that is
commercially viable, we intend to attempt to enter into licensing or contract
manufacturing arrangements with other companies for production and sale of the
Rotorcam Engine.

         If we successfully commercialize our Klenz-Safe technology, we plan to
distribute our Klenz-Safe products through third party distribution channels
either on a commission or buy and resell basis.


REPORTS TO SECURITY HOLDERS

We have not in the past provided an annual report to our shareholders and do not
intend to do so until we are able to generate sufficient revenues to fund the
expense of such reports. We are subject to the disclosure rules of Regulation
S-B for a small business issuer under the Securities Act of 1933 and the
Securities Exchange Act of 1934 and are therefore required to file a Form 10-KSB
annually and Forms 10-QSB quarterly. In addition, we are required to file Forms
8-K and other information statements from time to time as required.

The public may read and copy any materials we file with the Securities and
Exchange Commission, ("SEC"), at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC

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<PAGE>



maintains an internet site (http://www.sec.gov). That contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with SEC.


ITEM 2.  PROPERTIES

We do not presently own or lease any properties.


ITEM 3. LEGAL PROCEEDINGS

We are not presently a party to any pending legal proceedings.


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

Not applicable.


                                     PART 11

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

         Our Common Stock has been quoted on the over-the counter market since
March 24, 1988 but has not been included in the NASDAQ system. The range of high
and low bid quotations as reported by the National Quotation Bureau, Inc.,
without adjustment for retail markup, markdown or commission, for the periods
indicated below are:

                         Year Ended July 31,

                       2002                         2001
                       ----                         ----
                High        Low              High          Low
                ----       ----              ----         -----
1st Quarter    $0.17       $0.076            $0.11        $0.06
2nd Quarter    $0.10       $0.035            $0.08        $0.041
3rd Quarter    $0.11       $0.03             $0.125       $0.02
4th Quarter    $0.065.     $0.02             $0.192       $0.04


         Reporting by the National Quotation Bureau, Inc. of quotations for our
Common Stock does not evidence an established public trading market for such
stock, and holders of our Common Stock may not be able to liquidate their
investment at acceptable prices. Moreover, such quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not be indicative

                                       15

<PAGE>



of actual trading transactions. As of October 22, 2002 there were approximately
820 holders of record of our Common Stock.

         Effective as of January 4, 2001, we issued 2,000,000 shares of our
common stock, $.0001 par value, to Mr. Frank Pecorella, who is a director of the
Company. These shares were issued in consideration of Mr. Pecorella's past
services to the Company. Mr. Pecorella has been serving as a director of the
Company since December 1998 without compensation. On January 4, 2001, the
closing price of our Common Stock as quoted on the Over the Counter Bulletin
Board was $0.0525 per share. Based solely on such market price, the value of the
grant to Mr. Pecorella was therefore approximately $105,000.

         On April 17, 2001, we issued 1,000,000 shares of our common stock to
Mr. Robert Van Dine and 250,000 shares of such common stock to Mr. Newell Dimen.
Such shares were issued as compensation for their services to the Company,
principally in connection with our efforts to diversify by engaging in the
testing of a proprietary cleaning solution for use in coal and oil burning smoke
stacks. On April 17, 2001, the closing price of our Common Stock as quoted on
the Over the Counter Bulletin Board was $0.034 per share. Based solely on such
market price, the value of the grant to Mr. Van Dine was therefore approximately
$34,000, and the value of the grant to Mr. Dimen was approximately $8,500.

         The shares issued to Mr. Pecorella, Mr. Dimen and Mr. Van Dine were
issued in reliance upon the exemption from the registration requirements of the
Securities Act of 1933 permitted by Section 4(2) of such Act. Such shares are
therefore "restricted securities" within the meaning of the Securities Act of
1933 and may not be transferred by any such individuals unless such shares are
registered or there is an exemption available with respect to such transfer.

         Effective on May 2, 2001, we issued 1,000,000 shares of our Common
Stock to James P. O'Day in satisfaction of $45,000 owed to Mr. O'Day for
accounting services previously performed by him and $5,000 of additional
accounting services to be performed after May 2, 2001. On May 2, 2001, the
closing price of our Common Stock was $0.05 per share. Based solely on such
market price, the value of the grant to Mr. O'Day was therefore approximately
$50,000.

         Effective on May 2, 2001, we issued 1,000,000 shares of our Common
Stock to Jubran Jubran in satisfaction of $40,000 owed to Mr. Jubran for tax and
financial consulting services previously performed by him for the Company and
$10,000 of additional financial consulting services to be performed after May 2,
2001.

                                       16

<PAGE>



On May 2, 2001, the closing price of our Common Stock was $.005 per share. Based
solely on such market price, the value of the grant to Mr. Jubran was therefore
approximately $50,000.

         The shares issued to Mr. O'Day and Mr. Jubran were issued in reliance
upon the exemption from the registration requirements of the Securities Act of
1933 pursuant to Section 4(2) of such Act. Such shares are therefore "restricted
securities" within the meaning of the Securities Act of 1933 and may not be
transferred by Mr. O'Day and Mr. Jubran unless such shares are registered or
there is an exemption available with respect to such transfer. The Company has
agreed to register the shares issued to Mr. O'Day and Mr. Jubran by filing a
registration statement on Form S-8 with the Securities and Exchange Commission.
Each of Mr. O'Day and Mr. Jubran have agreed, however, that notwithstanding any
registration of their shares, he will not sell or otherwise transfer more than
fifty (50%) percent of such shares until one year after the date of their
issuance.

         On April 9, 2002, Mr. Anthony Campo, the Chairman of the Board and
Executive Vice President of the Company, exercised a right to convert $37,500
indebtedness owed by the Company to Mr. Campo into 5,000,000 shares of our
Common Stock. The number of shares for which Mr. Campo exercised his conversion
right was computed at a rate of $.0075 for each such share of Common Stock. Mr.
Campo's conversion right contained in a Promissory Noted dated August 1, 2001 in
the principal amount of $1,337,552 issued by the Company to Mr. Campo. Under the
terms of the Promissory Note, Mr. Campo was given the right to convert all or
any portion of the unpaid principal and/or interest of the Note of a rate of one
share of Common Stock for each 3/4 of one cost of such principal and interest
converted, up to a maximum of 100,000,000 shares. The terms of such Promissory
Note are further described in our Form 10- KSB for the fiscal year ended July
31, 2001. The shares issued to Mr. Campo are exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933 and are "restricted" securities in
accordance with the terms of said Act.

         Mr. Campo had previously exercised his conversion right under the
August 1, 2001 Promissory Note on March 5, 2002. Under the March 5, 2002
exercise, Mr. Campo converted $37,500 of indebtedness into 5 million shares of
the Company's Common Stock. Such shares were also exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933 and are "restricted"
securities in accordance with the terms of the said Act.

         On April 11, 2002, the Board of Directors approved the issuance of 1
million shares of the Company's Common Stock to

                                       17

<PAGE>



Robert Van Dine in consideration for certain consulting services that Mr. Van
Dine had agreed to perform for the Company. Such services included (a) research
and development of methods of using the Klenz-Safe cleaning product for reducing
or eliminating pollutants from building air; (b) research and development of
other uses of the Klenz-Safe cleaning product; (c) marketing all technologies
using the Klenz-Safe cleaning product; and (d) upon request by the Board of the
Company, serving as an executive officer of the Company for a minimum of one
year. On April 30, 2002 the Board requested Mr. Van Dine to serve as its
President, and Mr. Van Dine assumed such position as of such date.

         On April 11, 2002, the Board of Directors approved the issuance of
250,000 shares of the Company's Common Stock to Newell Dimen in consideration
for certain consulting services that Mr. Dimen had agreed to perform on behalf
of the Company. Such services included (a) research and development of methods
of using the Klenz-Safe cleaning product for reducing or eliminating pollutants
from building air; (b) research and development of other uses of the Klenz-Safe
cleaning product; and (c) marketing all technologies using the Klenz-Safe
cleaning product.

         Under the consulting agreements with Mr. Van Dine and Mr. Dimen, such
individuals agreed that all copyrightable works and all inventions resulting
from their services would belong to the Company and that they would assist the
Company in obtaining patents and copyrights for such inventions and
copyrightable works in all countries.

         The shares issued to Mr. Van Dine and Mr. Dimen were issued
without registration pursuant to Section 4(2) of the Securities Act
of 1933 and are therefore "restricted" securities.  The closing
price of the Company's Common Stock on the day the shares were
issued to Mr. Van Dine and Mr. Dimen was $.041 per share.  Based
solely on such market price, the values of the shares issued to Mr.
Van Dine and Mr. Dimen were $41,000 and  $10,250, respectively.

         On April 11, 2002, the Board of Directors approved the issuance of a
non-qualified stock option (the "Option") for 6 million shares of the Company's
Common Stock to Dwight Foster, the Chief Executive Officer and a Director of the
Company. Mr. Foster had been serving as the Company's President and Chief
Executive Officer since December 1998 and as a Director since March 2000, in
each case without any compensation.

         The Option is exercisable, cumulatively, at an exercise price of $0.02
per share in accordance with the following schedule of vesting: 1 million shares
on October 11, 2002; 1 million shares on

                                       18

<PAGE>



April 11, 2003; 1 million shares on October 11, 2003; 1 million shares on April
11, 2004; 1 million shares on October 11, 2004; and 1 million shares on April
11, 2005. From and after April 11, 2005 the Option may be exercised as to all
optioned shares for which it had not been previously exercised.

         The Option expires 10 years after the date of grant. If Mr. Foster's
employment with the Company is terminated for any reason other than death, Mr.
Foster may exercise only that portion of the Option that was exercisable on the
date such employment terminated. The Option issued to Mr. Foster was issued
without registration of such Option or the underlying shares pursuant to Section
4(2) of the Securities Act of 1933. The closing price of the Company's Common
Stock on the date the Option was granted to Mr. Foster was $.041 per share.

         On April 17, 2001, The Board of Directors had approved a grant of a
non-qualified Option to Mr. Foster for 15 million shares of the Company's Common
Stock. Such option was never issued, however, and was subsequently rescinded.

         Holders of our Common Stock are entitled to receive dividends when and
as declared by the Board of Directors out of funds legally available to pay such
dividends. To date, no dividends have been declared or paid, and the Board of
Directors has no present intention of declaring dividends on our Common Stock in
the foreseeable future. Whether dividends are declared in the future will depend
upon our profitability, financial condition and other factors deemed relevant by
our Board of Directors.


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

         The following discussion provides information that we believe is
relevant to your assessment and understanding of our results of operations and
financial condition. This discussion should be read in conjunction with the
financial statements and notes to the financial statements appearing elsewhere
in this Report on Form 10- KSB.

         Statements in this Report on Form 10-KSB that are not statements of
historical or current fact constitute "forward- looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other unknown factors that could cause our actual results to be materially
different from the historical results or from any future results

                                       19

<PAGE>



that are expressed or implied by such forward-looking statements. In addition to
statements that explicitly describe such risks and uncertainties, you are urged
to consider statements labeled with the terms "believes," "belief," "intends,"
"anticipates" or "plans" to be uncertain and forward-looking. The
forward-looking statements contained in this Report on Form 10-KSB are also
subject generally to other risks and uncertainties that are described from time
to time in our reports filed with the SEC.


                    FISCAL YEAR ENDED JULY 31, 2002
     AS COMPARED TO FISCAL YEARS ENDED JULY 31, 2001 AND 2000

RESULTS OF OPERATIONS

         We have never derived any revenues from our operations and have
incurred cumulative losses from our inception on October 13, 1987 through July
31, 2002 of $4,092,463. Our revenues from inception through July 31, 2002,
totaling $66,465, were derived from interest earned. There was no change in
interest income earned in our fiscal year that ended on July 31, 2002, as was
the case in fiscal 2001, due to a continued shortage of funds for investment
purposes.

         Our cumulative loss from inception includes research and development
costs of $868,716. We incurred research and development costs of $14,063 in
fiscal 2002,principally in connection with the testing of our Klenz-Safe
product. We did not incur any expenses for research and development during
either fiscal 2001 and 2000.

         Our cumulative loss from inception includes general and administrative
expenses of $2,673,416. General and administrative expenses decreased by 51% to
$134,107 in fiscal 2002 from $292,979 in fiscal 2001. General and administrative
expenses increased by 521% to $292,979 in fiscal 2001 from a credit of $67,397
in fiscal 2000. The decrease in fiscal 2002 was due to a decrease in general and
administrative expenses, such as legal and accounting fees and other expenses.
The increase in fiscal 2001 was due principally to increases in such general and
administrative expenses.

         The cumulative loss from inception also includes past licensing fees of
$57,260 that had accrued and been paid to one of our former officers. It
includes interest expense of $559,536 on loans payable to our Chairman, Mr.
Anthony Campo, and to one of our former officers. Interest expense increased by
10% to $99,827 in fiscal 2002 from $90,943 in fiscal 2001 due to an increase in
interest costs associated with the amount outstanding on a

                                       20

<PAGE>



promissory note from the Company to Mr. Anthony Campo.  Interest expense also
increased to $90,943 in fiscal 2001 from $72,450 in fiscal 2000, or 26%.

         The net loss of $247,997 in fiscal 2002 decreased by $135,925 or 36%,
from fiscal 2001 due to decreased general and administrative costs.


LIQUIDITY AND CAPITAL RESOURCES

         As of July 31, 2002 we had cash and short-term investments totaling
$364 (compared to liquid assets of $2,270 at July 31, 2001), a working capital
deficiency of $1,906 (compared to a working capital deficiency of $7,526 at July
31, 2001), and a total stockholders' deficiency of $1,543,016 (compared to
$1,421,269 at July 31, 2001). Cash balances decreased in fiscal 2002 because of
the net loss of $247,997, whereas the decrease in working capital in fiscal 2001
was due to a net loss of $383,922. The stockholders' deficiency increased by
$121,747 due to the net loss incurred in July 31, 2002, as compared to a
$136,422 increase in stockholders' deficiency at July 31, 2001.

         As of July 31, 2002 we had current liabilities in excess of current
assets of $23,076 Since we have not been able to commercially use our
technology to generate any revenues through that date, we have suffered
recurring losses from operations from inception that have generated the net
capital deficiencies at July 31, 2002 and 2001 and significant working capital
deficiencies from time to time. We do not expect to generate any significant
revenues or positive cash flows during the twelve-month period subsequent to
July 31, 2002. Cash flows used by operating activities were $160,008 and
$198,220 in fiscal 2002 and fiscal 2001, respectively. The limited amount of
liquid resources that were available to us as of July 31, 2002 and our inability
to generate operating revenues and cash flows raise substantial doubt about our
ability to continue as a going concern.


PLAN OF OPERATION

         Management's current efforts are focused on attempts to exploit
commercially certain technologies that the Company is in the process of
developing. In February 2002, we reached an agreement in principle with Mr.
Anthony Campo, the Chairman of the Company, and with Mr. Dwight Foster, Chief
Executive Officer of the Company, pursuant to which we would obtain a license to
use and sell a proprietary cleaning solution owned by Foster-Campo Corp,

                                       21

<PAGE>



("Foster-Campo"), a corporation owned by Mr. Foster and Mr. Campo. The license
originally was limited to use of the formula to remove air pollutants from flue
gases and pollutants and contaminants from building air. Mr. Campo and Mr.
Foster have agreed to expand the license to include use of the Klenz-Safe
technology to contain and neutralize hazardous liquids and compounds and to
decontaminate equipment used in production of pharmaceuticals. Under the terms
of the proposed license, Foster-Campo will manufacture and supply the cleaning
solution to our customers and will invoice us for their cost of doing so without
any profit to Foster-Campo. Foster-Campo will receive a royalty payment of 50%
of our net profit on sales of the proprietary solution to our customers.
Calculation of our net profit will include, but not be limited to, amounts
Foster-Campo invoices us for supplying our customers with the cleaning solution.

         In June 2000 Penn State Energy Institute, which is a facility of Penn
State University, agreed to conduct laboratory tests of the application of the
Klenz-Safe solution to the reduction of sulfur from coal burning flue gas. When
coal burning flue gas was introduced through Klenz-Safe using the Company's
proprietary methodology, the capture rate of sulfur exceeded 99.2% and
maintained a minimum of 98% rate throughout the testing.

         Due to the success of the initial testing, Penn State Energy Institute
has informed management that it intends to apply for federal and state
governmental grants to conduct a pilot test of Klenz-Safe's ability's to capture
sulfur in coal burning flue gas. The pilot study would be conducted in a working
smoke stack to simulate actual conditions. If such tests are conducted and are
successful, we intend to seek distribution partners to assist us in marketing
and selling the Klenz-Safe product to the coal burning utility market. We cannot
provide any assurances that such testing will occur or will be successful. If
such tests are performed, results are not expected to be available for
approximately one year.

         We also engaged a certified indoor air quality laboratory to perform a
series of laboratory tests on Klenz-Safe to determine Klenz-Safe's ability to
remove pollutants and contaminants from building air. The tests simulated wet
scrubber equipment, which is commonly used device for removing pollutants from
building air. Based on generally known industry practices, management believes
that the range of pollutants captured by Klenz-Safe and the rate of such capture
have not been previously achieved in a single operation. The following were the
material findings of the laboratory tests:


                                       22

<PAGE>



                  Klenz-Safe captured 90% of carbon monoxide in tested air
                  streams;

                  Klenz-Safe captured 70% of both nitrogen dioxide and of
                  nitrous oxide in tested streams;

                  Klenz-Safe added no detectable volatile organic compounds to
                  the air stream at elevated temperatures, indicating that
                  Klenz-Safe could be applied to indoor air cleaning systems
                  without the need of additional filtering.

         In October 2002 we conducted field tests of Klenz-Safe in an actual
working wet scrubber. These tests confirmed the prior laboratory results that
Klenz-Safe is able to capture sulfur dioxide in wet scrubber equipment. During
these tests, Klenz-Safe captured 100% of the sulfur dioxide and a high
percentage of other air contaminants in the air passing through the wet
scrubber. Klenz-Safe compared favorably in capture efficiency to a caustic
solution used in the testing for purposes of comparison, though the caustic
solution was somewhat more economical. We are presently negotiating with
potential distributors for commercial sales of this product. However, we cannot
provide any assurances that we will be able to successfully commercialize the
Klenz-Safe product for use in wet scrubber equipment.

         While conducting these field tests, we discovered that the Klenz-Safe
technology could also be used to blanket and neutralize acid spills that release
toxic or hazardous fumes. After determining the formulation for the foam that is
able to be produced with our Klenz-Safe technology, we tested Klenz-Safe's foam
formulation on toxic and other harmful spills. We concluded that Klenz-Safe is
able to safely produce a neutralizing foam blanket for covering and neutralizing
compounds that release toxic and other hazardous fumes into the environment. We
are currently conducting further tests of this application and demonstrating
this application to potential customers.

         We are also conducting field tests of Klenz-Safe with certain
manufacturing companies that need to eliminate or lower volatile organic
compounds from their manufacturing facilities, and we have signed a
non-disclosure agreement with a major coal burning power utility to explore a
possible strategic partnership that would develop technology to remove or
eliminate sulfur from coal burning flue gas.

         Based on our tests of Klenz-Safe, management believes that Klenz-Safe
possesses the following environmentally beneficial attributes:

                                       23

<PAGE>



                 o         Klenz-Safe is a non-toxic, non-hazardous
                           composition that requires no special equipment to
                           protect the personnel using it

                  o        Klenz-Safe achieves a higher starting alkalinity and
                           has a longer operating life than can be obtained with
                           commercial caustic materials or lime slurries;
                           Klenz-Safe protects rather than corrodes metal
                           compounds and surfaces

         Management presently believes that Klenz-Safe may be useful in the
following applications:

        o         Air pollution control in wet scrubber equipment, which
                  are commonly used to remove pollutants from building air

        o         Containment and neutralization of liquids and compounds

        o         Decontamination of equipment in pharmaceutical production

        o         Air filtration in indoor air quality control

        o         Flue and combustion gas scrubbing

         We believe that potential markets for Klenz-Safe include the chemical
production, manufacturing, food processing, pharmaceutical production, utility
and indoor air quality control industries. We are presently seeking affiliations
with distribution firms and potential end users to solicit purchase order
contracts for sales of Klenz-Safe. However, we have not entered into any
distribution or other agreements with such potential business partners, and we
cannot provide any assurances that we will be able to do so in the future.
Moreover, although management believes that there are numerous potential markets
for the Company's Klenz-Safe technology, we cannot provide any assurances that
we will be able to successfully market and sell our Klenz-Safe products.

         To date, the cost of the research at Penn State was approximately
$9,000, and the cost of the research by the certified air quality laboratory was
approximately $5,000. Funding for such research was provided by loans to the
Company from our Chairman, Mr. Anthony Campo.

         We have been granted trademark protection for the name "Klenz- Safe"
from the US Patent and Trademark Office (PTO). The method of application of the
Klenz-Safe formula for removal of sulfur from coal burning flue gas was
developed by a consultant to the Company, who has assigned to us his rights to
such know-how and his rights

                                       24

<PAGE>



under a provisional patent application filed with the PTO covering such
know-how. In October 2002 we filed another application for a provisional patent,
which extends the Klenz-Safe technology into additional indoor air quality
applications. We cannot provide any assurances that PTO will grant any patent on
our Klenz-Safe technology.

         We also intend to continue our research and development efforts on the
Rotorcam Engine during the ensuing twelve month period, assuming we were able to
obtain funding for such efforts. In July 1998, principally, through the efforts
of Mr. Dwight Foster, our Chief Executive Officer, we were able to obtain the
services of Southwest Research Institute ("SRI") to evaluate our engine
technology. SRI is generally considered to be one of the country's foremost
independent research institutes with approximately 2,500 scientists, engineers
and support personnel. SRI conducts an average of 1,500 nationally and
internationally sponsored projects each year.

         Under our agreement with SRI, SRI agreed to provide an engineering
study of the Rotorcam Engine at a cost of $9,750. SRI's study included an
evaluation of existing Rotorcam Engine hardware and data, including test data on
the current prototype, and design and analytical data that we had obtained to
date. In addition, SRI agreed to prepare an evaluation report summarizing its
findings and a technical and cost proposal for the next phase of work.

         In December 1998, SRI issued its Report in which SRI concluded that
there were three (3) significant advantages of the Rotorcam Engine over
conventional reciprocating engines: higher torque at a specified rpm, a
potential of improved cycle efficiency and energy savings, and the improvement
of overall efficiency and packaging resulting from the ability to eliminate a
gear box.

         In response to the Report, assuming funding becomes available, which we
cannot provide you any assurances will occur, we have determined to redesign and
rebuild a Second Prototype to address the issues raised by SRI in its Report. We
estimate that the cost of such Second Prototype will be approximately $350,000
to $375,000 and that it will take approximately 15 to 18 months from the time
such funding becomes available to complete.

         If the Second Prototype shows clear advantages of the Rotorcam Engine
over conventional reciprocating engines in a specific market, and if the
necessary funds are then available, we plan to commission the development of a
Third Prototype, which would be

                                       25

<PAGE>



designed to address the performance, cost, reliability and producability issues
associated with the chosen market.

         We estimate that the cost to develop such a Third Prototype would be
between $2 million and $3 million and that it would take between 18 to 24 months
from the time the Second Prototype is completed and such funding becomes
available to complete. During this phase of development we plan to commission
the production of several variations of the Third Prototype that would be used
for different purposes, including performance development, durability
assessment, and demonstrators to be used in field testing.

         We are attempting to locate a funding source for the $350,000 to
$375,000 amount required to complete the Second Prototype. Possible sources for
funding include, exercise of our 15,398,000 outstanding Class B Warrants, an
offering our equity securities, and/or borrowing from private sources. We intend
to attempt to raise the funds necessary to complete the Second Prototype from
such sources but we cannot give you any assurances that we will be able to do
so. If we are unable to raise such funds, we may never be able to further
develop the Rotorcam Engine.

         On April 20, 2000, we filed a Registration Statement with the United
States Securities and Exchange Commission ("SEC"), which became effective on May
3, 2000. The Registration Statement, together with the qualification or
exemptions from qualification obtained in several states where holders of our
class B Warrants reside, permit such holders to exercise their Class B Warrants
under the laws of the United States and those states where we have either
qualified or obtained an exemption from qualifying the shares of our Common
Stock for which the Warrants are exercisable. To date, none of such Class B
Warrant holders have exercised their Class B Warrants due principally to the
fact that, with limited exceptions, the market price of our Common Stock has
been lower than the exercise price of the Class B Warrants since the effective
date of the Registration Statement. Unless the market price of our Common Stock
shall exceed the exercise price of the Class B warrants in the future, it is
unlikely that any of the holders of such Warrants will exercise them and we may
not be able to raise the funds needed to develop the Second Prototype from such
source.

         We believe that if the Second Prototype is successfully completed, we
will be able to raise sufficient funds to complete the Third Prototype from
research grants, proceeds of the sale of our Common Stock upon exercise of our
Class B Warrants, licensing fees and/or equity financing. However, since a
decision to proceed with a Third Prototype will depend on the results obtained
from the Second Prototype, we cannot give you any assurances that

                                       26

<PAGE>



we will decide to build a Third Prototype or that we will, in fact, be able to
obtain sufficient funds to complete such Third Prototype. Since a Third
Prototype is essential to our ability to market the Rotorcam Engine, any
determination by us that it is not advisable to produce the Third Prototype, or
our financial inability to do so, will have a materially adverse effect on our
ability to successfully market the engine.


ITEM 7.  FINANCIAL STATEMENTS

         The financial statements required by Item 7 of Form 10-KSB are set
forth where indicated in Item 13(a)1 of this Form 10-KSB.


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

         Not Applicable.


                                            PART III

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

         In December 1998, Mr. Anthony Campo resigned as President and Chief
Executive Officer of the Company but remained as Chairman of the Board, and the
Board appointed Mr. Dwight Foster as President and CEO and Mr. Campo as
Executive Vice President, Secretary and Treasurer. In December 1998, the Board
appointed Mr. Frank Pecorella as a Director of the Company, and in April 2000,
the Board appointed Mr. Dwight Foster as a Director of the Company to replace
Mr. Thomas Caltabiano, who resigned as a Director in April 2000. In April 2002,
The Board appointed Robert Van Dine as President to replace Mr. Foster who
simultaneously resigned such office but who remains the Chief Executive Officer
of the Company. Our present executive officers and directors, their ages and
present positions are as follows:

                                                             First year
Name                  Age      Position                      Elected/Appointed
-----                ----      --------                      ----
Anthony Campo         62       Chairman of the Board,            1993
                               Executive Vice President,
                               Secretary and Treasurer


                                       27

<PAGE>



Dwight Foster         53       Director and                      2000
                               Chief Executive Officer

Frank Pecorella       50       Director                          1998


Robert Van Dine       51       President                         2002


         All of our directors will hold office until the next meeting of
shareholders and until their successors have been duly elected and qualified.
All of our executive officers will hold office until the next annual meeting of
the directors and until their successors have been duly appointed and qualified.


ANTHONY S. CAMPO

         Mr. Anthony S. Campo has been a Director of the Company since January
1993. He was elected Chairman of the Board on July 28 1995 and was appointed
Secretary of the Company in December 1995 and President and Chief Executive
Officer in December 1997. In December 1998, Mr. Campo resigned as President and
Chief Executive Officer and was appointed as Executive Vice President, Secretary
and Treasurer of the Company. Mr. Campo has been President of Chester Hill
Manors, Inc. from June 1996 to the present and of The Campo Organization, Inc.
from December 1998 to the present. From June 1996 to December 1996, he was
President of Archwood Estates, Inc. Each of such companies developed and
constructed residential housing.


DWIGHT FOSTER

         Mr. Dwight Foster was elected President and Chief Executive Officer of
the Company in December 1998 and was appointed to the Board of Directors in
March 2000. Since September 1997, Mr. Foster has been acting as a liaison
between the Company and Southwest Research Institute, a well-known
not-for-profit research and development institute. From 1983 to the present Mr.
Foster has been the owner/operator of the National Automobile Dealers Exchange
Services, which represents automobile dealers at premier automobile auctions. In
addition, from 1972 to the present, Mr. Foster has been employed as a consultant
to start-up and emerging companies, advising such companies on product
development, marketing, public relations and financing. From February 1999 to
the present, Mr. Foster has acted as President of Sierra Cleansafe USA, Inc.,
which markets and sells environmentally safe cleaning products.

                                       28

<PAGE>




FRANK PECORELLA

         Mr. Frank Pecorella was appointed as a member of the Board of Directors
in December 1998. Since September 2001, Mr. Pecorella has been employed by Fleet
Bank/Quick & Reilly as an investment consultant. From March 2000 to August 2001,
Mr. Pecorella was employed by Citicorp Investment Services as an investment
consultant. From February 1999 to February 2000, Mr. Pecorella was employed by
Chase Investment Services as an investment consultant, and from January 1996 to
February 1999, Mr. Pecorella was employed by Citicorp Investment Services as an
investment consultant.


ROBERT VAN DINE

         Mr. Robert Van Dine was appointed President of the Company in April
2002. From approximately June 1998 to the present Mr. Van Dine has been a
consultant providing engineering and administrative services to two start-up
biotechnology companies. From January 2000 to the present Mr. Van Dine has been
a consultant to the Company providing engineering and administrative services to
us as well. From 1994 to 1998 Mr. Van Dine was employed as President by IMC,
Inc., a manufacturing technology consulting firm. Mr. Van Dine is a graduate of
the U.S. Naval Academy where he earned a Bachelor of Science degree in
engineering in 1973. Mr. Van Dine has served tours both in Vietnam and the
Middle East.

         There are no family relationships among our directors and officers.


Item 10. EXECUTIVE COMPENSATION

         Effective as of January 4, 2001, we issued 2,000,00 shares of our
Common Stock, $.0001 par value, to Mr. Frank Pecorella, who is a director of the
company. These shares were issued in consideration of Mr. Pecorella's past
services to the Company. Mr. Pecorella has been serving as a director of the
Company since December 1998 without any compensation.
         The shares issued to Mr. Pecorella were issued in reliance upon the
exemption from the registration requirements of the Securities Act of 1933
permitted by Section 4(2) of such Act. Such shares are therefore "restricted
securities" within the meaning of the Securities Act of 1933 and may not be
transferred by Mr. Pecorella unless such shares are registered or there is an
exemption available with respect to such transfer. The closing price of our
shares on January 4, 2001 was $.0525. Therefore, the

                                       29

<PAGE>



value of the grant to Mr. Pecorella, without considering any discount due to
the restricted character of such shares, was $105,000.

         On April 11, 2002, the Board of Directors approved the issuance of 1
million shares of the Company's Common Stock to Robert Van Dine in consideration
for certain consulting services that Mr. Van Dine had agreed to perform for the
Company. Such services included (a) research and development of methods of using
the Klenz-Safe cleaning product for reducing or eliminating pollutants from
building air; (b) research and development of other uses of the Klenz-Safe
cleaning product; (c) marketing all technologies using the Klenz-Safe cleaning
product; and (d) upon request by the Board of the Company, serving as an
executive officer of the Company for a minimum of one year. On April 30, 2002
the Board requested Mr. Van Dine to serve as its President, and Mr. Van Dine
assumed such position as of such date.

         On April 11, 2002, the Board of Directors approved the issuance of a
non-qualified stock option (the "Option") for 6 million shares of the Company's
Common Stock to Dwight Foster, the Chief Executive Officer and a Director of the
Company. In issuing such Option, the Board noted that Mr. Foster had been
serving as the Company's President and Chief Executive Officer since December
1998 and as a Director since March 2000, in each case without any compensation.

         The Option granted to Mr. Foster is exercisable, cumulatively, at an
exercise price of $0.02 per share in accordance with the following schedule of
vesting: 1 million shares on October 11, 2002; 1 million shares on April 11,
2003; 1 million shares on October 11, 2003; 1 million shares on April 11, 2004;
1 million shares on October 11, 2004; and 1 million shares on April 11, 2005.
From and after April 11, 2005 the Option may be exercised as to all optioned
shares for which it had not been previously exercised.

         The Option expires 10 years after the date of grant. If Mr. Foster's
employment with the Company is terminated for any reason other than death, Mr.
Foster may exercise only that portion of the Option that was exercisable on the
date such employment terminated. The Option issued to Mr. Foster was issued
without registration pursuant to Section 4(2) of the Securities Act of 1933. The
closing price of the Company's Common Stock on the date the Option was granted
to Mr. Foster was $.041 per share.





                                       30

<PAGE>



<TABLE>
<CAPTION>
                                       OPTION/SAR GRANTS IN LAST FISCAL YEAR



                                             INDIVIDUAL GRANTS
                 Number of            Percent of
                 Securities           Total                                Closing
                 Underlying           Options/           Exercise          Price on Date
                 Options/SARs         SARs Granted       Price             of Grant
Name             Granted              To Employees       ($/Sh)            ($/Sh)               Expiration Date
                                      In Fiscal
                                      Year
-----------      ------------               ----------                ---
<S>              <C>                  <C>                <C>               <C>                  <C>
Dwight           6,000,000            100 %              $0.02             $0.041               April 10, 2012
Foster
</TABLE>

         During the past three fiscal years, we have not paid any cash or other
compensation to any director or executive officer of the Company except for the
grants to Mr. Pecorella, Mr. Van Dine and Mr. Foster described above.

         Mr. Anthony Campo, our Chairman of the Board, Executive Vice President,
Secretary and Treasurer, received no compensation for his services to us during
our fiscal years ended July 31, 2002, 2001 or 2000. No other person served as an
executive officer of the Company during the fiscal year ended July 31, 2002,
and, except for the grant of stock to Mr. Pecorella and the Option granted to
Mr. Foster described above, none of our directors received any compensation for
serving in such capacity during our fiscal years ended July 31, 2002 or 2001.

         We do not have any employment agreement with any of our executive
officers, nor are there any compensatory plans or arrangements that would
provide compensation to any executive officer upon his resignation, retirement
or other termination of employment, or as a result of a change in control of the
Company or a change in such executive officer's responsibilities following a
change in control of the Company.


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         We have provided below information as of October 22, 2002 concerning
the beneficial ownership of our Common Stock by (i) all persons whom we know to
own beneficially 5% or more of our Common Stock, (ii) each of our directors and
executive officers individually, and (iii) all of our directors and executive
officers as a group.



                                       31

<PAGE>



Name and                   Amount and
Address of                 Nature of                         Percent
Beneficial Owner (1)(2)    Beneficial Ownership              of Class
----------    -------              --------
Anthony S. Campo (3)       104,503,500                        60.7 %

Dwight Foster (4)            1,596,510                         1.9 %

Frank Pecorella              3,390,000                         4.2 %

Robert Van Dine              2,000,000                         2.5 %

All Directors and
Executive Officers
as a Group (4 persons)     111,490,000                        64.2 %


(1)  Unless otherwise indicated, the address of each beneficial
owner is in care of the Company, P.O. Box 224, Landing, New Jersey
07850.

(2) Except as indicated below, all of such persons have sole investment and
voting power over the shares listed as being owned by them. Unless otherwise
indicated, we believe that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by them. A person is deemed to be the beneficial owner of securities, which may
be acquired by such person within 60 days from the date of this Report upon the
exercise of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants or
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable or convertible within 60 days of this
Report have been exercised or converted.

(3) In addition to 5,570,000 owned individually by Mr. Campo, includes (i)
2,150,000 shares held by Mr. Campo's wife, (ii) 4,772,400 shares held by Mr.
Campo's children, (iii) 1,100,000 shares that may be acquired by Mr. Campo upon
the exercise of Class B Warrants, (iv) 911,100 shares that may be acquired by
the children of Mr. Campo upon exercise of Class B Warrants, and (v) 90,000,000
shares that may be acquired by Mr. Campo upon the conversion of his Promissory
Note from the Company dated August 1, 2002 (see "Certain Transactions".)

(4) Includes 21,500 shares held by Mr. Foster's wife and 1,500,000 shares that
may be acquired by Mr. Foster within sixty(60) days upon exercise of the stock
option granted to him on April 11, 2002.

                                       32

<PAGE>



Does not include 4,500,000 shares that may be acquired upon exercise of such
option with respect to which such option is not exercisable within sixty (60)
days of the date hereof.


Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On April 20, 1994, in consideration of prior loans made to us by Mr.
Anthony Campo, we issued to Mr. Campo a promissory note in the amount of
$100,000. On November 15, 1994 we issued another promissory note to Mr. Campo
for $79,300 in return for additional loans that he had made to us. On March 9,
1995 we again issued a new note in the amount of $328,000 to Mr. Campo that
consolidated the amounts that we owed to him under the previous two notes and an
additional $149,200 that he had advanced to us between November 15, 1994 and
March 9, 1995.

         On October 20, 1995 we renegotiated the March 9, 1995 promissory note
and issued a new note in the amount of $568,000, which included the former
principal amount of $328,500, accrued interest thereon, additional cash advances
that Mr. Campo had made to us during fiscal 1995, and our purchase of an
engineering workstation and software from Mr. Campo. The new note bore interest
at 7.5 % per annum and matured on July 1, 1998. The note was convertible, in
whole or in part, into Common Stock of the Company at the conversion rate one
share of our Common Stock for each of $.0075 in principal of the note converted.
The conversion feature was subject to anti-dilution. We did not make any
payments to Mr. Campo under the October 20, 1995 promissory note.

         We subsequently issued a new promissory note to Mr. Campo, dated August
1, 1998, in the amount of $807,280, which consolidated amounts owed under the
$568,000 note; accrued interest on such note to July 31, 1998 in the amount of
$122,070; cash advances made by Mr. Campo to us or on our behalf between October
20, 1995 and July 31, 1998 in the amount of $60,090; cash advances in the amount
of $42,000 made by Mr. Campo between May 6, 1993 and July 14, 1993 for which he
had not previously been credited; and interest on such 1993 advances through
July 31, 1993 in the amount of $15,120. The August 1, 1998 note bore interest at
7.5% per annum and matured on July 3l, 2000. The note was convertible into our
Common Stock at a conversion rate of one share of our Common Stock for each
$.0075 in principal amount of the note converted up to a maximum of 100 million
shares. As of the maturity date of the August 1, 1998 Note, we had defaulted on
the payment of all obligations to pay principal of and interest on such Note.


                                       33

<PAGE>



         In September 2000, the Board approved the issuance of a new Note to Mr.
Campo dated August 1, 2000 in the principal amount of $1,193,294 to replace the
August 1, 1998 Note that matured on August 1, 2000. The principal amount of the
August 1, 2000 Note consolidated all amounts the Company owed Mr. Campo as of
August 1, 2000, including accrued interest thereon through July 31. 2000. Except
for the increased principal amount of the August 1. 2000 Note, the terms of such
Note were the same as the August 1, 1998 Note.

         In September 2001, the Board approved the issuance of a new Note to Mr.
Campo dated August 1, 2001 in the principal amount of $1,337,552 to replace the
August 1, 2000 Note that matured on August 1, 2001. The principal amount of the
August 1, 2001 Note consolidated all amounts the Company owed Mr. Campo as of
August 1, 2001, including accrued interest thereon through July 31, 2001. Except
for the increased principal amount of the August 1, 2001 Note, the terms of such
Note were the same as the August 1, 1998 and August 1, 2000 Notes. In March 2002
and April 2002, Mr. Campo exercised his conversion right under the August 2001
Note to acquire a total of 10,000,000 shares of our Common Stock in exchange for
retirement of $75,000 of debt under the Note.

         We defaulted in payment of all principal and interest payments due
under the August 2001 Note, which matured on July 31, 2002. In October 2002, the
Board approved the issuance of a new Note to Mr. Campo dated as of August 1,
2002 in the principal amount of $1,430,148 to replace the August 1, 2001 Note
that matured on August 1, 2002. The principal amount of the August 1, 2002 Note
consolidated all amounts the Company owed Mr. Campo as of August 1, 2002,
including accrued interest thereon through July 31, 2002 in the amount of
$99,827. Except for the increased principal amount of the August 1, 2002 Note
and the reduction of the number of shares that Mr. Campo may acquire upon
exercise of his conversion right to 90 million shares resulting from his
exercise of the conversion right for 10 million shares in March and April 2002,
the terms of such Note are the same as the August 1, 1998, August 1, 2000 and
August 1, 2001 Notes.

         Since we do not have any revenues, it is very doubtful that we will be
able to pay any interest or principal amounts due under the August 1, 2002. Note
until such time as we have operating revenues or until we raise funds from an
independent source, both of which events may not occur at any time.







                                       34

<PAGE>



                                     PART IV


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

(A)      Exhibits and Financial Statements:

         1. Financial Statements

         The following documents are included in Part II:

         (i)               Report of Independent Accountants
         (ii)              Balance Sheets as of July 31, 2002 and July 31,
                           2001
         (iii)             Statements of Income for the fiscal years ended
                           July 31,2002, 2001 and 2000
         (iv)              Statement of Cash Flows for the fiscal years ended
                           July 31,2002, 2001, and 2000
         (v)               Statements of Changes in Stockholders' Equity for
                           the fiscal years ended July 31, 2002, 2001
                           and 2000
         (vi)              Notes to Financial Statements


         2. The exhibits which are required by Item 601 of regulation S-B are
         listed in the Index to Exhibits beginning on page 40 of this Form
         10-KSB.


(B)      Reports on Form 8-K.

         Not Applicable.



                                       35

<PAGE>




                         MURRAY UNITED DEVELOPMENT CORP.
                              FINANCIAL STATEMENTS
                                      INDEX


                                                                      Page No.
                                                                     ---------
(i)      Report of Independent Accountants                          F-1

(ii)     Balance Sheets as of July 31, 2002
         and July 31, 2001                                          F-2

(iii)    Statements of Operations for the fiscal years
         ended July 31, 2002, 2001 and 2000                         F-3

(iv)     Statements of Changes in Stockholders'
         Equity (Deficiency) for the fiscal years ended
         July 31, 2002, 2001 and 2000                               F-4 to F-10

(v)      Statement of Cash Flows for the fiscal
         years ended July 31, 2002, 2001, and 2000                  F-11

(vi)     Notes to Financial Statements                              F-12 to F-18



                                       36

<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.

                                    MURRAY UNITED DEVELOPMENT CORPORATION
                                    ------------
                                    (Registrant)


                                    By:   /s/ Dwight Foster
                                       ---------
                                    Dwight Foster
                                    Chief Executive Officer


                                    Dated: October 28, 2002



                                    By:  /s/ Anthony S. Campo
                                       ---------
                                    Anthony S. Campo, Executive Vice President
                                    Secretary and Treasurer
                                    (Chief Financial Officer)


                                    Dated: October 28, 2002


         Pursuant to the requirements of 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.


                                    /s/ Anthony S. Campo
                                    -----
                                    Anthony S. Campo,
                                    Chairman of the Board

                                    /s/ Dwight Foster
                                    -----
                                    Dwight Foster, Director

                                    /s/ Frank Pecorella
                                    -----
                                    Frank Pecorella, Director


                                    Dated:  October 28, 2002



                                       37

<PAGE>




                                 CERTIFICATIONS



I, DWIGHT FOSTER, certify that:

         1. I have reviewed this annual report on Form 10-KSB of Murray United
Development Corporation;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by this
annual report; and

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this annual report.


                                          /s/ Dwight Foster
                                       ---

                                       Dwight Foster
                                       Chief Executive Officer
                                       (Principal Executive Officer & Director)



Date:  October 28, 2002



                                       38

<PAGE>



                                 CERTIFICATIONS



I, ANTHONY CAMPO, certify that:

         1. I have reviewed this annual report on Form 10-KSB of Murray United
Development Corporation;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by this
annual report; and

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this annual report.


                                            /s/ Anthony Campo
                                        --

                                        Anthony Campo
                                        Chairman of the Board of Directors,
                                        Executive Vice President, Secretary and
                                        Treasurer
                                        (Principal Financial and Accounting
                                        Officer)



Date:  October 28, 2002



                                       39

<PAGE>




                                List of Exhibits


Exhibit No.                           Exhibit                         Page No.
-----------                           -------                         --------

(3)      (a)      Articles of Incorporation and Bylaws                     *

         (b)      Amended and Restated Bylaws                              **


(10)     Material contracts

         (a)      Promissory Note dated August 1, 1998 from
                  the Company to Mr. Anthony S. Campo.                     ***

         (b)      Amendment dated March 15, 2000 to Company's
                  Promissory Note dated August 1, 1998. **

         (c)      Promissory Note dated August 1, 2000 from                ***
                  the Company to Mr. Anthony Campo.

         (d)      Promissory Note dated August 1, 2001 from                ****
                  the Company to Mr. Anthony Campo.

         (e)      Option Agreement between the Company and                 +
                  Dwight Foster covering grant of option on
                  April 11, 2002.

         (f)      Consulting Agreement dated as of April 11, 2002          +
                  between the Company and Robert Van Dine.

         (g)      Consulting Agreement dated as of April 11, 2002          +
                  between the Company and Newell Dimen.

         (h)      Assignment dated March 13, 2002 from Robert              +
                  Van Dine to the Company covering Robert Van Dine's
                  rights under provisional patent application
                  no. 60/313,087 relating to process of employing
                  proprietary cleaning solution to the treatment of
                  flue gases.

         (i)      Promissory Note dated August 1, 2002 from
                  the Company to Mr. Anthony Campo.


(23)     (a)      Consent of Albrecht, Viggiano,
                  Zureck & Company, P.C.



                                       40

<PAGE>



                  * Filed with the registrant's Registration Statement on Form
S-18 dated December 9, 1987 (Registration No. 33-19048-NY) and Amendment Nos. 2
and 3 thereto dated February 17, 1988 and February 22, 1988, respectively, and
incorporated herein by reference.

                  ** Filed with the registrant's Registration Statement on Form
SB-2 dated April 20, 2000 (amending its Form S-18 Registration Statement) and
incorporated herein by reference.

                  *** Filed with the registrant's Annual Report on Form 10-KSB
for the year ended July 31, 1998 and incorporated herein by reference.

                  **** Filed with the registrant's Annual Report on Form 10-KSB
for the year ended July 31, 2000 and incorporated herein by reference.

                  + Filed with the registrant's Quarterly Report on Form 10-QSB
for the quarter ended April 30, 2002 and incorporated herein by reference.


                                       41


<PAGE>



                      MURRAY UNITED DEVELOPMENT CORPORATION

                              FINANCIAL STATEMENTS

                       Years Ended July 31, 2002 and 2001




<PAGE>

                                TABLE OF CONTENTS



                                                                        Page
                                                                        ----

INDEPENDENT AUDITORS' REPORTS.....................................         F-1

FINANCIAL STATEMENTS

    Balance Sheets................................................          F-2

    Statements of Operations......................................          F-3

    Statements of Stockholders' Equity (Deficiency)...............   F-4 - F-10

    Statements of Cash Flows......................................         F-11

    Notes to Financial Statements.................................  F-12 - F-18










<PAGE>


                                      F -1

A L B R E C H T ,   V I G I A N O ,   Z U R E C K
&   C O M P A N Y ,   P . C .
                                                    CERTIFIED PUBLIC ACCOUNTANTS
                                                                25 SUFFOLK COURT
                                                             HAUPPAUGE, NY 11788
                                                                  (631) 434-9500


                               ACCOUNTANTS' REPORT


To the Board of Directors and Stockholders
Murray United Development Corporation
Landing, New Jersey

We have audited the accompanying balance sheets of Murray United Development
Corporation (a Company in the development stage) as of July 31, 2002 and 2001,
and the related statements of operations, cash flows and stockholders' equity
(deficiency) for the years ended July 31, 2002, 2001 and 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain a 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 Murray United Development
Corporation as of July 31, 2002 and 2001, and its results of operations and cash
flows for the years ended July 31, 2002, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, as of July 31, 2002, the Company has not generated any
operating revenues and has suffered recurring losses from operations from
inception and has a net capital deficiency. These matters raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

/s/ ALBRECHT, VIGIANO, ZURECK & COMPANY P.C.

Hauppauge, New York
October 31, 2002

<PAGE>

                                      F-2

                     MURRAY UNITED DEVELOPMENT CORPORATION
                     (A Company in the Development Stage)
                                BALANCE SHEETS
                            JULY 31, 2002 and 2001
<TABLE>
<CAPTION>

<S>                                                                       <C>                         <C>
ASSETS                                                                       2002                         2002
                                                                          ----------                   ---------
Current Assets
     Cash and cash equivalents                                            $      364                  $    2,270
     Loan receivable                                                           2,000                       2,000

Property, Plant, and Equipment, net                                           58,336                      66,669
                                                                          ----------                   ---------

     Total Assets                                                         $   60,700                  $   70,939
                                                                          ----------                   ---------

LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities
     Accounts payable                                                     $   25,440                   $   6,518
                                                                          ----------                   ---------

                                   Total Current Liabilities                  25,440                       6,518
Long-Term Liabilities                                                     ----------                   ---------
     Accrued compensation                                                    148,128                     148,128
     Accrued interest payable                                                 99,827                      90,943
     Notes payable - stockholder                                           1,330,321                   1,246,619
                                                                          ----------                   ---------

                                    Total Long Term Liabilities            1,578,276                   1,485,690
                                                                          ----------                   ---------

     Total Liabilities                                                     1,603,716                   1,492,208
                                                                          ----------                   ---------

Commitments

Stockholders' Equity (Deficiency)
     Capital stock - par value $.0001; authorized
        200,000,000 shares; issued and outstanding
        79,953,434 and 68,703,434 shares                                       7,996                       6,871
     Additional paid-in capital                                            2,541,451                   2,416,326
     Deficit accumulated in the development stage                          4,092,463)                 (3,844,466)
                                                                          ----------                   ---------

                              Total Stockholders' Equity (Deficiency)     (1,543,016)                 (1,421,269)
                                                                          ----------                  ----------

     Total Liabilities & Stockholders' Equity                             $   60,700                  $   70,939
                                                                          ----------                  ----------


                               See independent auditors' report and notes to financial ststements
</TABLE>

<PAGE>


                                                            F-3


<TABLE>

                                            MURRAY UNITED DEVELOPMENT CORPORATION
                                              (A Company in the Development Stage)
                                                   STATEMENTS OF OPERATIONS
                                           YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                          AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                      (DATE OF INCEPTION)





                                                                                                                       Cumulative
                                                                                                                      Amounts From
<CAPTION>
                                                                     2002              2001               2000          Inception
                                                                  ----------        ---------          ----------     ------------
<S>                                                            <C>                 <C>               <C>              <C>
Income
   Interest income                                               $     -0-         $      -0-        $      -0-       $     66,465

Expenses

   Research and development costs                                   14,063                -0-               -0-            868,716
   Licensing fees stockholder and affiliate                            -0-                -0-               -0-             57,260
   General and administrative expenses                             134,107            292,979           (67,397)         2,673,416
   Interest expense stockholder and affiliate                       99,827             90,943            72,450            559,536
                                                                 ---------         ----------        ----------       ------------
                                         Total Expenses            247,997            383,922             5,053          4,158,928
                                                                 ---------         ----------        ----------       ------------
                                               Net Loss          $(247,997)        $ (383,922)       $   (5,053)      $ (4,092,463)
                                                                 ---------         ----------        ----------       ------------
Net loss per common share                                        $  (0.003)        $   (0.006)             (nil)      $     (0.051)

Weighted average number of common
   shares outstanding                                           74,328,434         64,912,336        63,453,434         79,953,434
                                                                ----------         ----------        ----------       ------------


                               See independent auditors' report and notes to financial ststements

</TABLE>

<PAGE>

                                                             F-4

<TABLE>

                                             MURRAY UNITED DEVELOPMENT CORPORATION
                                             (A Company in the Development Stage)
                                          STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                            YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                           AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                       (DATE OF INCEPTION)





                                                                                      Deficit
                                               Common                               Accumulated
                                               Stock                   Additional      in the           Stock
                                             Number of                   Paid in    Developmental   Subscriptions
                                               Shares       Amounts      Capital        Stage         Receivable      Total
                                            -----------    ----------  -----------  -------------   -------------   --------
<S>                                         <C>             <C>        <C>          <C>               <C>           <C>
Issuance in October 1987 to
   Principal Stockholder                    49,000,000      $ 4,900                                   $ (4,900)

Issuance in October 1987 for cash            3,000,000          300     $ 49,800                          (100)      $50,000

Issuance through initial public
   offering of 15,000,000 units in
   February 1988 for cash at $.05
   per unit, net of Issuance cost of
   $220,900                                 15,000,000        1,500      527,600                                     529,100

Net Loss - 1988                                                                      $ (156,821)                    (156,821)

Exercise of Class A Warrants:

at $.045 per share                             312,588           31       14,035                                      14,066

at $.10 per share                               21,000            2        2,098                                       2,100

Costs relating to continuing
   registration of warrants                                              (29,532)                                    (29,532)

Reclassification of common stock              (333,588)         (33)     (16,133)                                    (16,166)

Net Loss - 1989                                                                        (362,922)                    (362,922)
                                            ----------      -------     --------      ---------       --------      --------

Balance, July 31, 1989                      67,000,000      $ 6,700     $547,868      $ (519,743)     $ (5,000)      $29,825
                                            ==========      =======     ========      ==========      ========      ========

                               See independent auditors' report and notes to financial ststements

</TABLE>


<PAGE>

<TABLE>
                                                F-5

                                 MURRAY UNITED DEVELOPMENT CORPORATION
                                (A Company in the Development Stage)
                            STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                               YEARS ENDED JULY 31, 2002, 2001 AND 2000
                             AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                           (DATE OF INCEPTION)





<CAPTION>
                                                                                         Deficit
                                          Common                                       Accumulated
                                           Stock                       Additional         in the            Stock
                                         Number of                      Paid in       Developmental     Subscriptions
                                          Shares         Amounts        Capital           Stage          Receivable         Total
                                        ----------      ---------      ----------     -------------     --------------     -------
<S>                                     <C>               <C>          <C>            <C>               <C>              <C>
Exercise of Class A Warrants:

at $.045 per share                      5,201,205         $ 520        $233,534                                          $ 234,054

at $.10 per share                         409,000            41          40,859                                             40,900

Exercise of Class B Warrants:

at $.15 per share                          25,000             3           3,747                                              3,750

Costs relating to continuing

   registration and solicitation of

   warrants                                                             (24,588)                                           (24,588)

Cash received for stock subscription                                                                        $5,000           5,000

Reclassification of common stock       (5,635,205)         (564)       (278,140)                                          (278,704)

Charge for stock bonus                                                   40,000                                             40,000

Net Loss - 1990                                                                        $ (422,314)                        (422,314)
                                       ----------      --------       ----------     -------------         -------       ---------
Balance, July 31, 1990                 67,000,000       $ 6,700        $563,280        $ (942,057)           $ -0-       $(372,077)
                                       ==========      ========       ==========     =============         =======       =========


                               See independent auditors' report and notes to financial ststements
</TABLE>

<PAGE>

                                                        F-6


<TABLE>

                                     MURRAY UNITED DEVELOPMENT CORPORATION
                                     (A Company in the Development Stage)
                                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                      YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                    AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                             (DATE OF INCEPTION)


                                                                                        Deficit
                                        Common                                       Accumulated
                                        Stock                       Additional         in the             Stock
                                      Number of                       Paid in       Developmental     Subscriptions
                                        Shares         Amounts        Capital           Stage           Receivable         Total
                                     ----------       ---------     ----------      -------------     -------------     ----------
<S>                                   <C>               <C>          <C>            <C>               <C>               <C>
Sale of 3,297,000 shares
   through private placement

at $.08 per share                     3,297,000         $  329       $244,871                                           $ 245,200

Exercise of Class A Warrants:

at $.10 per share                     3,152,472            315        314,933                                             315,248

Exercise of Class B Warrants:

at $.15 per share                        60,000              6          8,994                                               9,000

Costs relating to continuing

   registration of warrants                                           (80,607)                                             (80,607)

Reclassification of common stock    (3,212,472)          (321)       (323,927)                                            (324,248)
Net Loss - 1991                                                                      $  (354,727)                         (354,727)
                                     ----------       ---------     ----------      -------------     -------------     ----------
Balance, July 31, 1991               70,297,000        $ 7,029       $727,544        $(1,296,784)        $    -0-        $(562,211)
                                     ==========       =========     ==========      =============     =============     ==========


                               See independent auditors' report and notes to financial ststements

</TABLE>


<PAGE>


                                                         F-7

<TABLE>


                                      MURRAY UNITED DEVELOPMENT CORPORATION
                                      (A Company in the Development Stage)
                                   STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                      YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                     AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                (DATE OF INCEPTION)




<CAPTION>

                                                                                             Deficit
                                         Common                                            Accumulated
                                          Stock                          Additional          in the
                                        Number of                          Paid in        Developmental
                                         Shares           Amounts          Capital            Stage             Total
                                       ----------        ---------       -----------      -------------      -----------
<S>                                    <C>                   <C>          <C>              <C>                <C>
Exercise of Class A Warrants:

at $.10 per share                      3,779,425             $ 378        $ 377,565                           $ 377,943

Exercise of Class B Warrants:

at $.15 per share                          4,000                1               599                                 600

Exercise of underwriters warrants         63,000                6             4,719                               4,725

Costs relating to:

Exercise of warrants                                                        (33,191)                            (33,191)

Registration of privately placed

   shares                                                                   (55,496)                            (55,496)

Issuance for: Compensation at

   $.065 per share                        50,000                5             3,245                               3,250

Agency fee at $.10 per share              25,000                2             2,498                               2,500

Claim settlement at $.085 per share        1,000                1                84                                  85

Reclassification of common stock       9,181,265              918           618,200                             619,118

Charge for compensation                                                     180,900                             180,900

Net Loss - 1992                                                                           $   (606,508)        (606,508)
                                      ----------          -------       -----------       ------------        ---------
Balance, July 31, 1992                83,400,690          $ 8,340       $ 1,826,667       $ (1,903,292)       $ (68,285)
                                      ==========          =======       ===========       ============        =========




                               See independent auditors' report and notes to financial ststements


</TABLE>


<PAGE>

<TABLE>

                                                                 F-8


                                                   MURRAY UNITED DEVELOPMENT CORPORATION
                                                    (A Company in the Development Stage)
                                                 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                                    YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                                  AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                             (DATE OF INCEPTION)





<CAPTION>
                                                                                                           Deficit
                                                       Common                                            Accumulated
                                                        Stock                          Additional          in the
                                                      Number of                          Paid in        Developmental
                                                       Shares           Amounts          Capital            Stage             Total
                                                   -------------      ----------      ------------      -------------     ----------
                   Issuance For:

<S>                                                   <C>             <C>            <C>              <C>                <C>
Compensation at $.065 per share                       100,000             $ 10          $ 6,490                             $ 6,500

Exercise of Underwriters warrants at

   $.075 per share                                    500,000               50           37,450                              37,500

Exercise of Class B Warrants at

$.15 per share                                         13,000                1            1,949                               1,950

Retirement of 8,970,300 shares of stock            (8,970,300)            (897)                                                (897)

Net loss for 1993                                                                                       $   (470,621)      (470,621)
                                                   ----------          -------       -----------        ------------     ----------
Balance, July 31, 1993                             75,043,390          $ 7,504       $ 1,872,556        $ (2,373,913)    $ (493,853)
                                                   ==========          =======       ===========        ============     ==========



                               See independent auditors' report and notes to financial ststements

</TABLE>


<PAGE>



                                                        F-9

<TABLE>


                                         MURRAY UNITED DEVELOPMENT CORPORATION
                                        (A Company in the Development Stage)
                                     STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                        YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                      AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                 (DATE OF INCEPTION)

<CAPTION>

                                                                                                           Deficit
                                                       Common                                            Accumulated
                                                        Stock                          Additional          in the
                                                      Number of                          Paid in        Developmental
                                                       Shares           Amounts          Capital            Stage             Total
                                                    ------------      ----------       -----------      -------------      ---------
                   Issuance For:
                   -------------

<S>                                                 <C>                 <C>          <C>               <C>               <C>
Prior period adjustment                                                                                    $ 369,329      $ 369,329
Net loss for 1994                                                                                           (342,783)      (342,783)
                                                   ------------      ----------       -----------      -------------      ---------
Balance, July 31, 1994                              75,043,390          $ 7,504      $  1,872,556       $ (2,347,367)    $ (467,307)
                                                   ============      ==========       ===========      =============      =========
Issuance for: Compensation at $.015
   per share                                         2,000,000              200            29,800                            30,000

Net loss for 1995                                                                                           (354,155)      (354,155)
                                                   ------------      ----------       -----------      -------------      ---------
Balance, July 31, 1995                              77,043,390          $ 7,704      $  1,902,356       $ (2,701,522)    $ (791,462)
                                                   ============      ==========       ===========      =============      =========
Issuance for services                                2,000,000              200           262,814                           263,014

Issuance for services                                  340,000               34             6,766                             6,800

Private placement                                    8,182,833              818                                                 818

Retired shares                                      (2,055,556)            (205)          (92,294)                          (92,499)

Net loss for 1996                                                                                           (275,551)      (275,551)
                                                   ------------      ----------      ------------      -------------      ---------
Balance, July 31, 1996                              85,510,667          $ 8,551      $  2,079,642       $ (2,977,073)    $ (888,880)
                                                   ============      ==========      ============      =============     ==========



                               See independent auditors' report and notes to financial ststements

</TABLE>


<PAGE>

                                                                 F-10

<TABLE>

                                                 MURRAY UNITED DEVELOPMENT CORPORATION
                                             (A Company in the Development Stage)
                                            STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                                YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                             AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                          (DATE OF INCEPTION)
<CAPTION>

                                                                                                          Deficit
                                                       Common                                            Accumulated
                                                       Stock                          Additional          in the
                                                      Number of                         Paid in        Developmental
                                                       Shares           Amounts         Capital            Stage             Total
                                                    ------------      ----------       -----------      -------------      ---------
                   Issuance For:
                   -------------
<S>                                                    <C>               <C>           <C>                  <C>            <C>
Video fee                                              200,000           $ 20          $ 1,980              $ -0-          $ 2,000

Legal fees                                           2,548,867            254           37,979                              38,233

Retirement                                          (2,548,867)          (254)                                                (254)

Net loss for 1997                                                                                            (170,924)    (170,924)
                                                   ------------       ----------       -----------      -------------  ------------
Balance, July 31, 1997                              85,710,667        $ 8,571          $ 2,119,601       $ (3,147,997) $(1,019,825)
                                                   ============       ==========       ===========      =============  ============
Retired                                            (24,757,233)        (2,475)                                              (2,475)

Net loss for 1998                                                                                            (96,900)      (96,900)
                                                   ------------       ----------       -----------      -------------  ------------
Balance, July 31, 1998                              60,953,434        $ 6,096          $ 2,119,601      $ (3,244,897)  $(1,119,200)
                                                   ------------       ----------       -----------      -------------  ------------
Issuance for services                                2,500,000            250               49,750                          50,000

Net loss for 1999                                                                                        (210,594)        (210,594)
                                                   ------------       ----------       -----------      -------------  ------------
Balance, July 31, 1999                              63,453,434        $ 6,346          $ 2,169,351      $ (3,455,491)  $(1,279,794)
                                                   ------------       ----------       -----------      -------------  ------------
Net loss for 2000                                                                                             (5,053)       (5,053)
                                                   ------------       ----------       -----------      -------------  ------------
Balance, July 31, 2000                              63,453,434        $ 6,346          $ 2,169,351      $ (3,460,544)  $(1,284,847)
                                                   ------------       ----------       -----------      -------------  ------------

Issuance for services                                3,250,000            325              147,175                         147,500

Issuance for services                                2,000,000            200               99,800                         100,000

Net loss for 2001                                                                                           (383,922)     (383,922)
                                                   ------------       ----------       -----------      -------------  ------------
Balance, July 31, 2001                              68,703,434        $ 6,871          $ 2,416,326       $ (3,844,466) $(1,421,269)
                                                   ------------       ----------       -----------      -------------  ------------

Issuance for debt                                   10,000,000          1,000               74,000                          75,000

Issuance for services                                1,000,000            100               40,900                          41,000

Issuance for services                                  250,000             25               10,225                          10,250

Net loss for 2002                                                                                            (247,997)    (247,997)
                                                   ------------       ----------       -----------      -------------  ------------
Balance, July 31, 2002                              79,953,434        $ 7,996          $ 2,541,451       $ (4,092,463) $(1,543,016)
                                                   ------------       ----------       -----------      -------------  ------------


                               See independent auditors' report and notes to financial ststements

</TABLE>

<PAGE>

                                                                F-11

<TABLE>

                                                 MURRAY UNITED DEVELOPMENT CORPORATION
                                                  (A Company in the Development Stage)
                                                       STATEMENTS OF CASH FLOWS
                                                YEARS ENDED JULY 31, 2002, 2001 AND 2000
                                             AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
                                                          (DATE OF INCEPTION)

<CAPTION>

                                                                                                       Cumulative
                                                                                                      Amounts From
                                                                   2002          2001        2000      Inception
                                                                ----------   ----------   ----------  -------------
<S>                                                            <C>          <C>           <C>          <C>
Cash Flows from Operating Activities
  Net loss                                                     $ (247,997)  $ (383,922)   $  (5,053)   $ (4,092,463)
  Adjustments to reconcile net loss to net
    cash used by operating activities:
  Depreciation and amortization                                     8,333       10,175       12,018         202,160
  Expenses paid through issuance of
    common stock by:
    Company                                                        51,250      247,500         -0-          523,785
    Principal stockholder                                            -0-           -0-         -0-          220,900
  Change in operating assets and liabilities:
    Loan receivable                                                  -0-        (2,000)        -0-           (2,000)
    Accounts payable and accrued expences                          27,806      (69,973)    (137,352)        273,398
                                                                ---------    ----------   ---------    ------------
                     Net Cash Used by Operating Activities       (160,608)    (198,220)    (130,387)     (2,874,220)

Cash Flows from Investing Activities
  Purchase of Fixed assets                                           -0-           -0-          -0-        (260,497)
                                                                ---------    ----------   ---------    ------------
                    Net Cash Used by Investing Activities            -0-           -0-          -0-        (260,497)

Cash Flows from Financing Activities
  Proceeds from notes payable - stockholder                       158,702       190,694     138,145       1,456,988
  Payments from notes payable - stockholder                       (75,000)          -0-         -0-        (126,667)
  Proceeds from issuance of common stock                           75,000           -0-         -0-       1,804,760
                                                                ---------    ----------   ---------    ------------

                    Net Cash Provided by Operating Activities     158,702       190,694     138,145       3,135,081

     Net Increase (Decrease) in Cash and Cash Equivalents          (1,906)       (7,526)      7,758             364

Cash and Cash Equivalents Beginning of Year                         2,270         9,796       2,038             -0-
                                                                ---------    ----------   ---------    ------------
                    Cash and Cash Equivalents at End of Year  $       364   $     2,270   $   9,796    $        364
                                                                =========    ==========   =========    ============

Supplemental Disclosure of Cash Flow Information
  Cash paid during the year for interest                              -0-           -0-         -0-          32,420



                               See independent auditors' report and notes to financial ststements

</TABLE>









<PAGE>






                                      F-12

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND BUSINESS AND BASIS OF PRESENTATION

The Company was incorporated on October 13, 1987 under the laws of the State of
Delaware. It was organized to further develop and exploit certain commercial
technology for a rotary internal combustion engine that would utilize
alternative fuels. The patent and related rights to the use of the technology
have been assigned to the Company.

The Company has been in the development stage since inception. Activities of the
Company have been limited to the acquisition of funds from the sale of its
common stock; the acquisition of the licensing rights for, and subsequently,
title to, the engine technology; research and development related to the
development of an initial fuel-driven prototype of the engine that was
successfully tested on a preliminary basis in January 1990; additional testing
and development of the engine prototype to obtain performance data for the
demonstration of the engine to potential licensees; and research relating to the
ability of a proprietary cleaning solution, which will be licensed to the
Company, to remove air pollutants from coal burning flue gas and certain air
pollutants and contaminants from building air, as well as other industrial uses.
The proprietary cleaning solution, for which we have been granted trademark
protection under the name Klenz-Safe, is owned by a corporation whose sole
shareholders are Mr. Anthony Campo and Mr. Dwight Foster, the Chairman of the
Board and Chief Executive Officer of the Company, respectively. The Company
intends to continue research and development on the Klenz-Safe product during
the ensuing 12-month period. Funding will be provided through loans from the
Chairman of the Company, at his sole discretion. In addition, the Company
intends to continue its research and development efforts with respect to its
rotary engine during the next 12-month period, provided it is able to raise the
funds necessary to conduct such research, of which there can be no assurances

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, as of July 31, 2002, the
Company had not been able to commercially utilize its engine technology or
cleaning solution to generate revenues or cash flows from operating activities.
As a result, it has suffered recurring losses from operations from inception
that have generated the net stockholders' deficiency of $1,543,016 as of July
31, 2002 and have also generated significant working capital deficiencies from
time to time. Management does not expect the Company to generate any significant
revenues or positive operating cash flows during the twelve-month period
subsequent to July 31, 2002. The limited amount of liquid resources available at
July 31, 2002, and the inability to generate operating revenues and cash flows
raise substantial doubts about the Company's ability to continue as a going
concern.

The Company plans to continue research and development activities on at least a
limited basis through the twelve-month period subsequent to July 31, 2002.
However, management believes that, the net liquid assets available at July 31,
2002 will not be sufficient to enable the Company to meet its obligations and to
continue as a going concern during the ensuing twelve-month period even on this
limited basis without limiting research and development and other operating
activities more severely unless it obtains additional debt or equity financing
and/or government sponsored research grants.

<PAGE>
                                      F-13

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND BUSINESS AND BASIS OF PRESENTATION (CONCLUDED):

Management believes that continuation of the Company as a going concern during
the twelve-month period subsequent to July 31, 2002 and thereafter will depend
upon the Company's ability to obtain sufficient additional working capital to
fund research and development activities on its Klenz-Safe and rotary engine
technologies and the general and administrative expenses to be incurred during
the remaining development period. Potential sources of such working capital
include: the private or public sale of common stock (the Company has
historically depended primarily on the sale of equity securities to finance its
operations); the exercise of a substantial portion of the 15,398,000 outstanding
Class B warrants prior to their proposed expiration on March 11, 2003,
14,898,000 of which are exercisable at $0.15 per share and 500,000 of which are
exercisable at $.225 per share; and borrowing additional amounts from related
parties or other sources. However, there can be no assurances that such
financing will be available. The accompanying financial statements do not
include any adjustments that might result from the uncertainties related to the
ability of the Company to continue as a going concern.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid
temporary cash investments with an original maturity of three months or less to
be cash equivalents.

Depreciation

Depreciation of furniture and equipment is provided over the estimated useful
lives of the related assets using declining balance methods.

Estimates

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

Research and Development

Costs and expenses related to research and development are expensed as incurred.

Net Loss Per Common Share

Net loss per common share was computed on the basis of the weighted average
number of shares of common stock outstanding during each period. The effect of
assuming the exercise of outstanding warrants was antidilutive and, accordingly,
not included in the computation of net loss per share.

<PAGE>
                                      F-14

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of assets and liabilities for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled.

Deferred taxes also are recognized for operating losses that are available to
offset future federal income taxes. The Company accounts for investment tax
credits using the flow-through method, and thus reduces income tax expense in
the year the related assets are placed in service.

NOTE 3 - FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                July 31,
                                                          Estimated
                                                         2002               2001         Useful Lives
                                                    -  -
<S>                                                 <C>              <C>                   <C>
         Furniture                                  $         2,098  $         2,098         7 years
         Equipment                                          129,451          129,451         5 years
         Leasehold improvements                               3,947            3,947         3 years
         Patent                                             125,000          125,000        15 years
                                                    -  -
                                                            260,496          260,496
         Less accumulated depreciation                      202,160          193,827
                                                    -  -
                                                    $        58,336  $        66,669
                                                    ===============  ===============
</TABLE>

Depreciation expense totaled $8,333 and $10,175 for the years ended July 31,
2002 and 2001, respectively.

NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                              July 31,

                                                       2002               2001
                                                  -  -
<S>                                               <C>              <C>
         Professional fees                        $        24,919  $         6,518
         Other                                                521              -0-
                                                  -  -
                                                  $        25,440  $         6,518
                                                  ===============  ===============
</TABLE>



<PAGE>

                                      F-15

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001



NOTE 5 - NOTES PAYABLE - STOCKHOLDER

Effective April 15, 1994, the Company issued a promissory note (the "First
Note"), to Mr. Anthony Campo, the Chairman of the Board, Executive Vice
President, Secretary and Treasurer of the Corporation, to evidence cash advances
of $79,300. The First Note provided for an interest rate of 6% on the unpaid
balance and was due in equal installments for one-half of the principal amount
on April 15, 1996 and the remaining one-half on April 20, 1997. The First Note
had warrants attached to purchase 1,666,667 shares of common stock at an excise
price of $0.06 per common share and expired on April 30, 1997. On November 15,
1994, the Company issued a second promissory note (the "Second Note"), to Mr.
Anthony Campo to evidence cash advances to the Company amounting to $100,000.
The Second Note provided for an interest rate of 6% on the unpaid balance and
was due in equal installments for one-half of the principal amount on April 15,
1997 and the remaining one-half on April 15, 1999. The Second Note had warrants
attached to purchase 7,930,000 shares of common stock at an excise price of
$0.01 per common share, which expired on April 30, 1999.

Effective March 24, 1995, the Company restructured the obligations under the
First Note and the Second Note by issuing a new note payable to Mr. Campo in the
amount of $328,500. This restructured note (the "Third Note") provided for
interest at a rate of 6% per year on the outstanding principal balance in two
equal quarterly installments of principal beginning March 24, 1995 through April
30, 1999. This Third Note was issued with warrants attached to acquire
32,850,000 shares of common stock at the excise price of $0.01 per share, which
expired on April 30, 1999.

Effective October 20, 1995, the Company renegotiated the outstanding debt and
interest owed to Mr. Campo under the Third Note. The new note (the "Fourth
Note") bore interest at 7.5% per year and matured on July 1, 1999. The principal
amount of $568,000 plus interest was convertible into common shares of the
Company at $0.0075 per share. It was also agreed that any additional monies
loaned to the Company would bear interest at 7.5% per year.

Effective August 1, 1998, the Company consolidated the outstanding principal and
interest owed to Mr. Campo under the Fourth Note with additional cash advances
of $102,090 made by Mr. Campo, with accrued interest thereon at 7.5% per annum.
The new note in the amount of $807,280 bore interest at 7.5% per annum, matured
on August 31, 2000 and carried a conversion feature of one share for each
$0.0075 of debt converted. In March 2000, Mr. Campo agreed to limit the number
of shares for which he may convert the August 1, 1998 Note to 100,000,000 shares

Effective August 1, 2000, the Company consolidated the outstanding principal and
interest owed to Mr. Campo under the August 1, 1998 Note. The new note in the
amount of $1,193,294 bore interest at 7.5% per annum, matured on August 31, 2001
and carried a conversion feature of one share for each $0.0075 of debt
converted. As of July 31, 2001, the note balance increased to $1,246,619 as
additional funds were loaned to the Company by Mr. Campo.

<PAGE>

                                      F-16

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001


NOTE 5 - NOTES PAYABLE - STOCKHOLDER (continued)

Effective August 1, 2001, the Company consolidated the outstanding principal and
interest owed to Mr. Campo under the August 1, 2000 Note. The new note in the
amount of $1,337,552 bore interest at 7.5% per annum, matured on August 31, 2002
and carried a conversion feature of one share for each $0.0075 of debt
converted. During the year ended July 31, 2002 Mr. Campo exercised his right and
converted $75,000 of indebtedness owed by the Company into 10,000,000 shares.

As of July 31, 2002, the note balance increased to $1,330,321 as $158,702 of
additional funds were loaned to the Company by Mr. Campo.

The Company has defaulted on its principal payment due August 1, 2002 and its
quarterly interest payments due on November 1, 2000, February 1, 2001, May 1,
2001, August 1, 2001, November 1, 2001, and February 1, 2002, and May 1, 2002.
As of July 31, 2002, a total of $99,827 in unpaid interest is owed to Mr. Campo
under the August 1, 2001 note. Since the Company does not have any revenues, it
is doubtful that the Company will be able to pay any interest or principal
amounts due under the August 1, 2001 Note until such time as it has operating
revenues or raises funds from an independent source, both of which events may
not occur at any time. In addition to the right of converting amounts due under
the note into common stock, as described above, Mr. Campo has the right at any
time to declare amounts due under such note immediately due and payable. It is
not anticipated that any amounts under the note will be repaid with the next
year.

Accordingly, the balances of the restructured obligations were classified as
long-term debt at July 31, 2002 and 2001.

Subsequent to the fiscal year-end and effective August 1, 2002, the Company
consolidated the outstanding principal and interest owed to Mr. Campo under the
August 1, 2001 Note. The new note in the amount of $1,430,148 bears interest at
7.5% per annum and matures on August 1, 2003. This note also carries the
conversion feature of one share for each $0.0075 of debt converted, limited to
90,000,000 shares.

NOTE 6 - STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING

In October 1987, the Company issued 49,000,000 shares of common stock to Jerome
Murray and 5,989 shares of common stock to another officer in consideration for
$4,900 and $100, respectively. Payments for the shares were received in November
1989.

In an initial public offering of the Company's common stock on February 26,
1988, the Company sold 15,000,000 units at a price of $0.05 per unit. Each unit
consisted of one share of common stock, one Class A redeemable common stock
purchase warrant and one Class B redeemable common stock purchase warrant.
Proceeds, net of $220,900 of underwriting discounts and other registration
costs, amounted to $529,100. Concurrent with the public offering, the Company
issued warrants (the "underwriter's warrants") to the underwriter for nominal
consideration to purchase 1,500,000 units consisting of 1,500,000 shares of
common stock and certain other warrants to purchase additional shares (the other
warrants were not exercised and expired prior to July 31, 1991).

<PAGE>
                                      F-17

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001

NOTE 6 - STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING (continued)

The underwriter's warrants were exercisable through February 1993 at an exercise
price of $0.075 per unit. In February 1993, the Company received $37,500 from
the exercise of 500,000 underwriter warrants pursuant to which, the Company
issued 500,000 shares of common stock and 500,000 Class B stock purchase
warrants, whose exercise price is 150% of the Class B warrants, or $0.225 per
share, and expire on the same date as the Class B warrants.

The Class A warrants were exercisable through October 25, 1992 (as last extended
on June 25, 1991) at an exercise price of $0.10 per share. Effective for the
sixty day period from June 16, 1989, the Company reduced the exercise price of
the Class A warrants to $0.045 per share. The Class B warrants were exercisable
through March 11, 2001 at an exercise price of $0.15 per share. There were
3,779,425, 3,152,472, 409,000 and 21,000 Class A warrants exercised in fiscal
year ends 1992, 1991, 1990 and 1989, respectively, at $.10 per share and
5,201,205 and 312,588 Class A warrants exercised in 1990 and 1989, respectively
at $.045 per share. The remaining 2,124,310 Class A warrants expired in 1991.
There were 13,000, 64,000 and 25,000 Class B warrants exercised in 1993, 1991
and 1990, respectively, at $0.15 per share and 500,000 underwriter's warrants
exercised in 1993 at $0.075 per share. Proceeds, net of solicitation costs, from
exercises of Class A, Class B and underwriter's warrants were credited to
stockholders' equity.

As a result of the exercises and expiration of warrants, the Company has no
Class A warrants, 14,898,000 Class B warrants, and 500,000 underwriter's B
warrants outstanding as of July 31, 2000. The Class B warrants are redeemable at
any time at the option of the Company at a price of $0.0001 per warrant. Holders
of the Class B warrants have certain rights with respect to the registration of
those warrants under the Securities Act of 1933.

During 1991, the Company offered for purchase to qualified investors a minimum
total of 1,000,000 and a maximum total of 5,000,000 shares of common stock at
$0.08 per share and received $245,200 from the sale of 3,065,000 shares prior to
the closing of the offering on March 31, 1991. The Company issued an additional
232,000 shares as commissions in connection with certain of the sales for a
total of 3,297,000 shares issued.

NOTE 7 - INCOME TAXES

At July 31, 2002, the Company had net operating loss carry forwards of
approximately $3,000,000 available to reduce future Federal taxable income, and
tax credits of approximately $59,991 available to offset future Federal income
tax, that expire from 2003 through 2017.

Deferred income taxes are recognized for differences between the bases of assets
and liabilities for financial statement and income tax purposes. The utilization
of these tax attributes is contingent upon the Company's ability to generate
future taxable income and tax before the tax attributes expire as well as
Internal Revenue Code limitations. As a result, a valuation allowance equal to
the full extent of the deferred tax asset has been established. The change in
the deferred tax asset (as well as the valuation account) was approximately
$5,000 for the fiscal year ended July 31, 2002.

<PAGE>
                                      F-18

                      MURRAY UNITED DEVELOPMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             July 31, 2002 and 2001


NOTE 8 - COMMITMENTS

Registration Rights

As of July 31, 1999, the Company was obligated to file and incur the related
costs of post-effective amendments to the registration statement under the 1933
Act for its initial public offering covering periods in which any of the Class B
stock purchase warrants sold in that offering are exercisable. During the fiscal
year ended July 31, 2000, the above mentioned registration statement was filed.

Stock Options

On April 11, 2002, the Board of Directors approved the issuance of a
non-qualified stock option (the "Option") for 6 million shares of the Company's
Common Stock to Dwight Foster, the Chief Executive Officer and a Director of the
Company. In issuing such Option, the Board noted that Mr. Foster had been
serving as the Company's President and Chief Executive Officer since December
1998 and as a Director since March 2000, in each case without any compensation.

The Option granted to Mr. Foster is exercisable, cumulatively, at an exercise
price of $0.02 per share in accordance with the following schedule of vesting: 1
million shares on October 11, 2002; 1 million shares on April 11, 2003; 1
million shares on October 11, 2003; 1 million shares on April 11, 2004; 1
million shares on October 11, 2004; and 1 million shares on April 11, 2005. From
and after April 11, 2005 the Option may be exercised as to all optioned shares
for which it had not been previously exercised.

The Option expires 10 years after the date of grant. If Mr. Foster's employment
with the Company is terminated for any reason other than death, Mr. Foster may
exercise only that portion of the Option that was exercisable on the date such
employment terminated. The Option issued to Mr. Foster was issued without
registration pursuant to Section 4(2) of the Securities Act of 1933. The closing
price of the Company's Common Stock on the date the Option was granted to Mr.
Foster was $.041 per share.

NOTE 9 - CHANGE IN ACCOUNTING ESTIMATE

During the fiscal year ended July 31, 2000, the Company has reversed
professional fees that were accrued in prior years, which are no longer payable.
This change in accounting estimate has been recorded due to the fact that these
professionals have not pursued the Company in many years, nor does the Company
plan on paying these debts and the liabilities are no longer legally payable.
Accordingly, the Company has recorded this change in accounting estimate by
reducing both accounts payable and general and administrative expenses by
$199,853.