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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                  For the fiscal year ended October 31, 2000.

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

           For the transition period from ___________ to ___________.

                 Commission file number________________________.

                   SUSTAINABLE DEVELOPMENT INTERNATIONAL, INC.
         ---------------------------------------------------------------
                 (Name of small business issuer in its charter)


                  Nevada                               86-0857752
      -------------------------------       ------------------------------------
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
      incorporation or organization)



       10240 124th Street, Suite 208                       T5N 3W6
           Edmonton, AB, Canada                            -------
    -----------------------------------                   (Zip Code)
 (Address of principal executive offices)


                    Issuer's telephone number (780) 488-9193

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

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, $0.001 par value

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. [X] Yes [ ] No


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

                                       i

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The Company experienced a net loss in the amount of $1,443,180.00 during fiscal
year 2000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant on October 31, 2000, was between $2,993,117.10 and $3,691,511.10
(computed by reference to the low and high bid of such common equity on such
date). This calculation does not reflect a determination that persons are
affiliates for any other purposes.

The number of shares of Common Stock, $0.001 par value, outstanding on October
31, 2000, was 18,075,100 shares, held by approximately 60 stockholders.

Documents incorporated herein by reference: None.

Transitional Small Business Disclosure Format: Yes [ ]; No [X].

This form 10KSB contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are necessarily based on
certain assumptions and are subject to significant risks and uncertainties. Such
assumptions are indicated by terminology such as, "believes," "it appears," "the
Company is informed," and the like, while such forward-looking statements are
indicated by terminology such as, "plans," "intends," and similar words which
refer to future conditions. These forward-looking statements are based on
management's expectations as of the date hereof, and the Company does not
undertake any responsibility to update any of these statements in the future.
Actual future performance and results could differ from that contained in or
suggested by these forward looking statements as a result of risk factors set
forth in this Form 10KSB.

In this form 10KSB, references to the "Company," "we," "us," and "our" refer to
SUSTAINABLE DEVELOPMENT INTERNATIONAL, INC.


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                   SUSTAINABLE DEVELOPMENT INTERNATIONAL, INC.

                                   Form 10-KSB
                   For the Fiscal Year Ended October 31, 2000

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
<S>                                                                                  <C>
PART I................................................................................1

    Item 1.  Description of Business..................................................1

    Item 2.  Description of Property.................................................14

    Item 3.  Legal Proceedings.......................................................15

    Item 4.  Submission of Matters to a Vote of Security Holders.....................15

PART II..............................................................................15

    Item 5.  Market for Common Equity and Related Stockholder Matters................15

    Item 6.  Management's Discussion and Analysis or Plan of Operation...............17

    Item 7.  Financial Statements....................................................26

    Item 8.  Changes In and Disagreements With Accountants on Accounting and
             Financial Disclosure....................................................27

PART III.............................................................................27

    Item 9.  Directors, Executive Officers, Promoters and Control Persons;
             Compliance With Section 16(a) of the Exchange Act.......................27

    Item 10. Executive Compensation..................................................31

    Item 11. Security Ownership of Certain Beneficial Owners and Management..........33

    Item 12. Certain Relationships and Related Transactions..........................34

    Item 13. Exhibits and Reports on Form 8-K........................................35

SIGNATURES...........................................................................36
</TABLE>

                                      iii

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                                     PART I
ITEM 1. DESCRIPTION OF BUSINESS.

        Sustainable Development International, Inc., a Nevada corporation, is a
development stage company formed in 1998 to commercialize innovative
technologies in the alternative power system and environmental energy-from-waste
industries. Our goals are to acquire technology rights and licenses from patent
holders and others, secure market presence, and raise sufficient capital to
build, own and operate facilities throughout the world. In conjunction with our
goals, we are currently evaluating numerous sources and methods of power
generation, including development plans for an electrical generating facility
and technologies for hydrogen-based energy production. We have also obtained the
rights in Germany for technologies which may provide an alternative to present
waste disposal methods for automotive waste oil by converting such waste oil
into light heating oil and high quality diesel fuel.

        During fiscal year 2000, the Company also engaged in activities in
healthcare information management and certain natural resource extraction
opportunities. (See Item 6(F), "Management Discussion of Company Activities of
Fiscal Year 2000 and Plan of Action.") While the Company has decided subsequent
to year-end that it shall limit its current activities to the energy sector,
these fields may provide opportunities that the Company will pursue in the
future.

A.  Products and Services.

        The Company utilizes and controls divisions, subsidiary corporations
and partnerships for the development of its products and services. An overview
of the products and services offered by each such division or subsidiary during
and subsequent to fiscal year 2000, and certain subsequent developments, is
provided below.

        i. SDI Power Incorporated

               General.

               The Company is assessing the construction of a 50 Megawatt
        combined cycle electrical generating facility to be located in Alberta,
        Canada, through its wholly owned subsidiary, SDI Power Incorporated.
        Such facility would use heat energy produced by natural gas to drive a
        first-stage turbine, and then use the recycled waste heat in a secondary
        stream turbine to maximize the efficiency of the energy input.

               The development of this project is conditioned upon the ability
        of the Company and SDI Power Incorporated to enter into a power purchase
        agreement with a purchaser of the energy produced by the proposed
        facility. In addition, the Company and SDI Power Incorporated must
        obtain all necessary governmental and regulatory approvals before they
        may proceed with the development or construction of such a facility.
        While the Company has targeted fall 2001 for the initiation of this


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        project, at this stage there is no guarantee of the project advancing.

               Industry Description.

               The majority of methods of electrical energy production, whether
        derived from coal, gas, nuclear or renewable geothermal, convert heat to
        electricity. This industry is dominated by the use of conventional
        proven gas turbine technology with several thousands of running hours to
        produce electricity.

               Due to modern reliance upon electrical power, a primary concern
        in this industry is electrical security. The electricity production
        industry is encountering difficulties in meeting growing electricity
        demand. It appears that aging infrastructures are reaching their
        capacities in areas of growing demand, and several industries, including
        the expanding healthcare sector, computer software development
        industries, and production industries cannot function without a constant
        supply of electricity. Interruptions can cause significant damage to
        business operations. Regional economic growth may be limited as a result
        of energy uncertainty.

               Electrical security appears to be a permanent issue, and the
        Company believes that the expansion of smaller electrical generating
        facilities closer to consumers is one plausible solution to ensure the
        security of electrical energy.

               Market Analysis.

               In the western United States and Canada, demand for electricity
        is growing, and current industry analysts are forecasting a 50% increase
        in energy demand in the region over the coming 20-year period. Such
        increasing demand may suggest that several thousand Megawatts of
        electrical generating capacity throughout the region will need to be
        built. In addition to growing demand, the market is influenced by a
        currently diminishing electrical supply as current generators are being
        forced to close for repairs. The increased use of such current
        generators to satisfy demand has necessitated repairs, resulting in 1%
        of the present 900 generators in the western United States and Canada
        being presently closed for repair. From Alberta, the Company may be able
        to sell electricity to the Oasis system, a marketing agency for power.
        The Oasis system serves many states and Canadian provinces along the
        west coast and may provide the Company an opportunity to enter the
        market of producing electricity for use by consumers in this region of
        increasing demand.

               The Company has identified a potential site for the construction
        of its proposed 50-Megawatt combined-cycle generation facility in the
        Calgary, Alberta, area. In addition to the aforementioned market
        conditions for the western United States and Canada, the Calgary area
        has an increasing need for electrical power. There are currently no
        independent power producers producing electrical power in the Calgary
        area. Additionally, the electrical transmission lines providing
        electricity from northern Alberta to the Calgary area are facing
        challenges because of their limited transmission capacity. The current
        market allows independent power


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        producers to produce electrical energy and sell to the Alberta Power
        Pool market. The majority of systems in this area must be fed by natural
        gas, because coal, nuclear and other forms of energy are not available.

               Calgary has been growing annually with the population increasing
        from 657,118 in 1988 to its present population of 953,000 in 2000.
        Annual growth for 2000 was 5.8% and is expected to continue at 3% during
        2001 through 2005. Overall, Alberta is expanding with an annual growth
        rate of 5% for 2000, and anticipated growth of 4.5 - 5.0% in 2001. With
        Alberta as a whole experiencing growth, the electrical generating
        capacities of other regions are being sought for Alberta's growing
        demands. The Alberta Power Pool is forecasting a demand of several
        hundred Megawatts in the Calgary area, while the province of Alberta is
        forecasting a need for several thousand additional Megawatts of
        electrical energy.

               In the Calgary marketplace, three natural gas-fired electrical
        generating facilities with a combined output over 450 Megawatts are
        being proposed by other companies. In the whole of Alberta with a
        population of less than 3 million, a further 4000 Megawatts is being
        discussed by several firms for domestic and export needs. Our proposed
        facility is considered a small "Independent Power Producer" project in
        the eyes of the Alberta Power Pool. The Alberta Power Pool has a mandate
        to purchase the generating capacities of small "Independent Power
        Producer" facilities, at market rates, prior to the purchase of the
        capacities of larger facilities to encourage the development of smaller
        regionally based generating facilities in high-demand zones.

               Pricing and Stability of Raw Materials.

               A combined cycle generation facility requires natural gas to
        obtain sufficient heat to generate electricity. Natural gas is a
        commodity traded daily on the spot market with highly volatile pricing.
        In order to minimize project risk, term supply contracts of three years
        are offered in certain jurisdictions to ensure price stability and
        economic viability of the project in the short run. Matching yearly
        terms for the sale of the output electricity, or a price with the fuel
        input floating, increases the long-term viability of the contemplated
        energy project.

               The ability of the Company and SDI Power Incorporated to succeed
        in the production of electricity through the use of our proposed
        combined cycle generation facility is dependant upon our ability to
        obtain such three-year contracts for natural gas resources or otherwise
        minimize the effects of price fluctuations. There can be no guarantee
        that we will be able to meet such goals.

               Government, Environmental and Regulatory Considerations.

               The government of Alberta assists electrical power producers in
        meeting the requirements imposed by regulations. A government program
        called The Alberta Advantage, implemented in conjunction with the
        department of Economic


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        Development and Tourism in Alberta, provides firms with assistance in
        obtaining all the necessary contacts to ensure projects are approved in
        a timely manner. In Alberta, an energy project must obtain approvals
        from the Energy and Utilities Board, Alberta environment, and the City
        of Calgary planning department. The Alberta Power Pool requires the
        provider of electrical energy to become a participant in the power pool
        for energy trading, and the producer must be registered with ESBI
        Alberta, Inc., the third party transmission authority for Alberta. The
        entire environmental and regulatory approval process nearly always can
        be completed in less than 12 months.

               Key trends or changes with the target market.

               It appears that deficiencies in supplies of electricity are
        increasing throughout the United States, causing consumers concern and
        reason to seek regional electricity security. Many businesses cannot
        operate efficiently while this problem exists, or can only effectively
        operate with standby resources or through the payment of peak demand
        pricing. As the demand for electricity in the United States increases,
        causing electrical prices to increase, Alberta producers have become the
        beneficiaries of better energy prices by entering into the northwest
        electrical energy grid. In 2000, electrical producers in Alberta could
        negotiate and sell to American customers at prices more than 300%
        greater than prices common in Alberta only two years ago. It appears
        that the electrical generating market has become a producers market,
        allowing producers to obtain better prices at the expense of end
        consumers.

                Several regions are providing incentive based credits to
        construct new generating facilities in high need areas to meet demand,
        and avoid the large capital expenditure of improving transmission
        networks. More regional or local production of electricity, close to its
        end use, is being encouraged, including onsite facilities to maximize
        the use of the waste heat for heating and cooling. The Alberta Power
        Pool is providing locally based credits up to $0.003 per kilowatt to
        encourage the construction of facilities within a 30 radius of the
        Calgary market place. Industrial users, including refineries, are
        building co-generation facilities on site to ensure they have electrical
        energy for their processing. These incentives provide additional
        justification for the Company's decision to construct its proposed
        electrical generating facility in the Calgary area.

               The Company believes that smaller regional facilities, in the 50
        to 200 Megawatt size, rather than larger 1000 Megawatt facilities, will
        become an increasing trend in years to come. In the last three years,
        over 200 Megawatts of new, onsite generating capacity have been obtained
        in Alberta through the construction of new facilities, each of which
        produces five to several hundred Megawatts of electricity. As a result,
        a trend has been set by existing producers and corporations to consider
        onsite generation, or become a customer of locally based smaller
        facilities. The Company believes the demand for new electrical producers
        is quite large. Accordingly, we believe that the addition of our
        proposed 50 Megawatt facility to the Alberta market and the northwest
        electrical grid will not face significant barriers to


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        entry, as this represents less than 1% of the entire current electrical
        energy production of Alberta.

               Competition.

               Many firms throughout the western United States and Canada are
        developing electrical generating facilities to meet the demands of the
        current market. Although the Company and SDI Power Incorporated are
        informed that other firms may be taking steps to develop and construct
        energy production facilities similar in nature or capabilities to our
        proposed combined cycle electrical generating facility, only one
        particular competitor in the Calgary area has been identified at this
        time.

               In May 2000, Calpine Corporation, a company located in San Jose,
        California, and doing business in Alberta, announced its plans to
        construct a facility to be known as the Calgary Energy Centre to
        increase the security of electrical supply in the Calgary area. This 250
        Megawatt combined cycle facility represents the largest of the three to
        be built in the Calgary area. Calpine Corporation also announced its
        purchase of Encal Energy, another producer of electricity in the Calgary
        area, for $1.8 billion (Cdn) in February 2000. Such acquisition has been
        explained by Calpine Corporation as a measure to ensure a secure natural
        gas feedstock for its numerous proposed and operating electrical
        generation sites. This facility will not be able to supply a portion of
        the current and projected demand for the Calgary area.

               Competitive Operating Advantage.

               The keys to the success of the Company in the Alberta and western
        region electrical generating markets are our abilities to reduce costs
        involved in building an electrical generating facility and to secure our
        equipment at a depreciated value from third party, exclusive sources.
        There are over six engineering firms in Alberta specializing in the
        planning, design and building of smaller facilities, such as that
        proposed by the Company, providing the Company with possible resources
        for experienced, competitive costing for our proposed facility.

               Additionally, the Company desires to utilize selected used
        equipment in construction. Such selected used equipment has been either
        fully reconditioned or has been maintained and serviced under contract
        from the initial turbine supplier or an authorized dealer of the
        manufacturer of the equipment. Through the use of such materials, our
        capital costs will be only a fraction of what larger corporations are
        facing by using new equipment. We believe that because our
        capitalization requirements would thus be significantly less than these
        larger corporations, our financial servicing costs should also be less.
        The Company intends that, through the above-mentioned methods of
        reducing costs, our return on investment will be greater than that of
        our competition.



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        ii. Watergas Incorporated (hydrogen generation).

               General.

               During March 2000, the Company entered into an agreement with FT
        Canada Limited, an Edmonton based company, to create Watergas
        Incorporated and explore the production of a hydrogen generator FT
        Canada had developed. Such agreement was the result of earlier research
        and negotiations performed by the Company and provided for the Company's
        ownership of 70% of Watergas Incorporated and FT Canada's ownership of
        30% of Watergas Incorporated. Watergas Incorporated was to be the entity
        used for the development of the FT Canada hydrogen generator. The
        agreement between FT Canada and the Company has been subject to numerous
        modifications because of research discoveries during fiscal year 2000.
        As of the end of fiscal year 2000, Watergas Incorporated was a wholly
        owned subsidiary of the Company.

               The hydrogen generator developed by FT Canada and subject to the
        Company's agreement with FT Canada uses a method of electrolysis to
        produce "direct hydrogen." In this process, an electric current is
        applied to water in the presence of an electrolyte. The water molecule
        bond is broken to release hydrogen and oxygen. This method of hydrogen
        production allows producers to obtain "direct hydrogen" for later use or
        sale to consumers. "Direct hydrogen" can be used as a source of clean
        energy or a means of enhancing systems that currently use hydrocarbons
        such as natural gas, diesel and gasoline. The generator developed by FT
        Canada is believed to provide a more efficient process of electrolysis
        than other currently available methods through its use of an
        electrolytic cell that uses electrical energy in the presence of an
        electrolyte to convert water to hydrogen and oxygen. FT Canada produced
        several pre-production units, and their capabilities were demonstrated
        in Edmonton and Calgary in October 2000. The technologies used in the FT
        Canada hydrogen generator are occasionally referred to herein as the
        Watergas technologies.

               Subsequent to year-end, discoveries were made by both FT Canada
        and the Company regarding the FT Canada hydrogen generator which led to
        modifications to the agreement between FT Canada and the Company. Such
        modifications provided for the transfer of all ownership of Watergas
        Incorporated to FT Canada. (See Item 6(F)-iii, "Management Discussion of
        Company Activities of Fiscal Year 2000 and Plan of Action," "Watergas
        Incorporated.") The Company retains, through its non-exclusive license
        of the FT Canada hydrogen generator, rights to manufacture products and
        applications of the Watergas technologies.

               Although the nature of the Company's relationship with FT Canada
        may be subject to additional modification, the Company currently plans
        to begin marketing two distinct hydrogen applications in the spring of
        2001. These applications rely upon the Watergas technologies and provide
        for (1) air conditioning, heating and water heating in homes through the
        use of direct hydrogen, and (2) a method of increasing


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        the efficiency of automobile engines by incorporating hydrogen
        production and use into standard automobile engines. (See "Competitive
        Operating Advantage," below.)

        Both of these proposed applications require further development by the
        Company but offer the Company potential use of the Watergas technologies
        in products that may be sold to the public or the automotive industry.
        The Company has not yet developed marketing plans for the sale of these
        proposed applications but shall do so once the development of each
        application is completed.

               The Company also intends to explore other hydrogen related
        technologies independent of the Watergas technologies. (See Item 6(F),
        "Management Discussion of Company Activities of Fiscal Year 2000 and
        Plan of Action.")

               Industry Description.

               Hydrogen production over the past fifty years has primarily
        occurred by means of electrolysis or steam reforming for several diverse
        applications. Primary applications include industrial and commercial
        uses, but technological developments may allow for smaller-scale use of
        hydrogen. Such small-scale uses and the diversity of current primary
        uses of hydrogen allow applications in many industries in which
        traditional fuels or means of energy production exist. Hydrogen
        applications seek to reduce emissions and improve efficiency in other
        existing industries, including the automobile industry and other
        industries currently reliant upon fossil fuels.

               Electrolysis, the basic process used in the FT Canada hydrogen
        generator, is a common traditional method of hydrogen production. (See
        "General," above.) Alternatively, steam reforming is a method of
        separating hydrogen molecules from methanol molecules through the
        heating of methanol. This method of hydrogen production may be performed
        on a smaller scale than traditional electrolysis, but it has been shown
        to produce trace emissions as it burns methanol and hydrogen during
        heating.

                The Company believes systems that can use or produce direct
        hydrogen for a number of applications will eliminate the need for
        hydrogen storage and open up the world to a clean hydrogen economy in
        the coming decades. While the Watergas technologies provide
        modifications of existing hydrogen generator technologies, the
        applications being developed by the Company and other possible
        applications of the Watergas technologies will allow the Company to
        enter into and affect numerous industries, including the automotive
        industry and other industries currently reliant upon fossil fuels.

               Market Analysis.

               The majority of hydrogen currently produced is used for
        commercial and larger industrial processes. Historically, hydrogen
        production has been performed in facilities using systems which produce
        at least 700 gallons of hydrogen per hour. In Alberta, hydrogen is
        primarily a byproduct of the refining industry and is used in the


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        production of chemicals and applications, yet no infrastructure exists
        to utilize such production for vehicle or residential applications. The
        only current producer of small-scale hydrogen that the Company is aware
        of is a hydrogen fueling station in Germany, which provides costly
        liquid hydrogen to less than a 100 vehicles.

               Due to the high cost of building hydrogen generator facilities,
        marginal economics of hydrogen generation and limitations in the market
        for hydrogen, few facilities and systems with lower production rates
        have been developed. The cost of such systems and facilities has served
        as a significant barrier to entry for firms seeking to generate hydrogen
        on a small scale.

               Recent changes within the hydrogen production industry, however,
        have created a demand for hydrogen production facilities which reduce
        the need for costly hydrogen storage. (See "Key trends or changes with
        the target market," below.) Currently, hydrogen is stored as liquid
        hydrogen, metal hydrides or compressed gas. These methods of storage
        place substantial demands upon storage facilities. The Company believes
        that smaller hydrogen generating facilities may help to meet the
        emerging demands of the market by reducing the need for hydrogen
        storage. The Company's applications of the Watergas technologies are
        intended to make such smaller facilities feasible.

               Pricing and Stability of Raw Materials.

               The price per hydrogen generator with output of fewer than 700
        gallons per hour varies considerably among suppliers and technologies
        used. The cost of production per generator is stable with the majority
        of the components being readily available. Overall pricing on a per unit
        basis will decrease as volumes of production increase, while current
        inflation rates are not a major pricing consideration. The components of
        the units are currently not in mass production, resulting in a higher
        estimated cost of production. Once sales increase, the costs will likely
        become competitive. The components the Company will need for the
        production of its home and automotive applications of the Watergas
        technologies include electrical components, stainless steel components,
        and casings for home Watergas furnaces. Using established providers for
        these components and subject to economies of scale, the Company
        currently projects a cost per home unit of $1,500 to $4,000, with
        automotive applications ranging from $1,500 to $3,000 to produce.

               Government Regulations and Regulatory Compliance.

               All product applications developed for direct hydrogen usage must
        obtain necessary UL (Underwriters Laboratories) and CSA (Canadian
        Standards Association) approvals. In the case of home heating systems,
        additional local regulations must be applied including but not limited
        to hydrogen storage and pressure considerations. Hydrogen, when
        combusted, does not produce any negative emissions. However,
        considerations must be examined for applications that combine
        hydrocarbons and hydrogen, creating various emissions. In these
        instances and

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        depending on the application and jurisdiction of its end use, several
        other industrial and environmental approvals would be required. There
        can be no guarantee that products developed will meet the required
        approval of a particular application or jurisdiction, yet the Company
        intends to provide its best efforts to meet the requirements presented
        for the necessary approvals.

               Competition.

               We are aware of a number of generators that produce hydrogen in
        smaller quantities than traditional hydrogen generator facilities, but
        all such competitors use processes which demand significant expenditures
        of energy to separate the water into hydrogen and oxygen. Potential
        competitors in Asia include a firm called Green Gas and a process called
        Brown's gas. The companies that produce these products promote their
        hydrogen generators to produce a mixed hydrogen and oxygen mixture for
        use in industrial welding, metal cutting and jewelry applications. Both
        use a form of electrolysis for industrial and commercial applications
        but do not currently engage in production for home or automotive uses.
        Possibly our greatest source of competition is an established firm
        called Stuart Energy. Stuart Energy has several years of experience
        marketing commercial applications of hydrogen generators. Such
        applications, however, all utilize high production hydrogen systems.
        While the Company does not believe that Stuart Energy currently produces
        any products which will directly compete with the proposed products of
        the Company, the Company cannot predict the likelihood or ability of
        Stuart Energy to compete with the proposed products of the Company.

               Although the Company acknowledges that it will face competition
        from existing hydrogen generating facilities and companies which may
        develop products and services similar to those provided by the Company,
        we intend to provide products which will be capable of displacing
        conventional products. Accordingly, the Company is unable to predict at
        this time the ability of competitors to compete with the Company's
        applications of the Watergas technologies and may only compare its plans
        for product development with existing products of competitors.

                Key trends or changes with the target market.

               The availability of low-use hydrogen applications is increasing,
        and the development of low production hydrogen generators is codependent
        on the establishment of these new applications. While the Company
        believes that there are numerous unexplored uses of hydrogen, current
        developments in the market are largely focused on automobile
        applications.

               Increasing limitations being placed on automobile emissions
        suggest that technologies which provide alternatives to conventional
        fuels may be needed in the future. Many of the large producers of
        automobiles have responded to emissions controls by exploring
        alternative fuel sources. One such alternative fuel source, known as
        methanol fuel cell technology, uses a "proton exchange membrane" in the


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        conversion of the energy stored in hydrogen into electricity. This form
        of application uses the basic process of steam reforming from methanol,
        but does so in fuel cells which may be used in automobiles. Methanol
        fuel cells have been developed by Toyota for use in their RAV 4
        sport-utility vehicle, as well as by Volkswagen and Volvo for prototype
        vehicles revealed at EXPO 2000 in Hanover, Germany. Additionally,
        Georgetown University has been engaged in the development of methanol
        fuel cell technologies for use in transit buses. The Company believes
        that these developments indicate the possibility of methanol fuel cells
        to develop into an alternative to fossil fuels in the automotive
        industry.

               Other forms of fuel cells, heating and cooling systems and
        emission reduction systems that use hydrogen are also being developed by
        other companies. The Company believes that, as such applications become
        commercially viable, the need for cost-effective, small-scale producers
        of hydrogen will increase. As applications for hydrogen expand, new
        technologies and methods of generation are discovered and improvements
        to existing systems develop, the current market for small-scale hydrogen
        generators and related technologies will likely become more competitive,
        and the FT Canada hydrogen generator and the Company's applications of
        the Watergas technologies will face potential competition or
        obsolescence.

               Competitive Operating Advantage.

               The FT Canada hydrogen generator, marketed under the trade name
        Watergas, has been able to produce as little as 50 gallons of hydrogen
        per hour. This is done through the use of an efficient process that
        minimizes the electricity required to separate the water into hydrogen
        and oxygen, thus minimizing costs of small-scale production. The Company
        believes that the technologies underlying the FT Canada hydrogen
        generator, the Watergas technologies, poses the capability of providing
        an advantage in the developing market of hydrogen production. If
        patterns of growth in small-scale applications of hydrogen fuels
        continue, the Watergas technology may provide the Company with
        advantages over its competitors. Such advantages, however, rely upon
        continued development of applications for hydrogen and the abilities of
        competitors to develop technologies and products which may compete with
        those developed by the Company.

               The automotive application of the Watergas technologies that the
        Company is developing would not rely upon methanol fuel cells, as
        technologies of possible competitors do, but rather would use
        electricity from the electrical system of the vehicle to transform water
        to hydrogen through electrolysis. The hydrogen would then be fed into
        the vehicle's fuel or air intake to increase the efficiency of the
        fossil fuel used by the vehicle by increasing the amount of the fossil
        fuel burned in combustion. This application is expected to reduce the
        fossil fuel needed for vehicles implementing the technology.
        Additionally, the Company is exploring other methods of incorporating
        the Watergas technologies into existing fossil fuel uses to increase
        efficiency. This application and related applications may be
        significantly affected by decisions made within the automotive and other
        industries. If such industries use the


                                       10
<PAGE>   14
        methanol fuel cells, the applications proposed by the Company may face
        significant barriers.

               The second application of the Watergas technologies proposed by
        the Company uses a hydrogen generator to produce hot water, heating and
        air conditioning for homes. Such applications could allow a reduction in
        emissions compared to currently used natural gas furnaces and water
        heaters and electrical air conditioners. These applications of hydrogen
        may be able to reduce emissions compared to current methods but are
        dependent upon the availability and efficiency of hydrogen generators
        and hydrogen appliances.

               The Company plans to use the Watergas technologies or other
        similar hydrogen generating technologies in its development of future
        applications for hydrogen. If possible, the Company will seek patents
        for such new uses of hydrogen. The Company believes that its
        applications currently under development are unique within the present
        market and may allow the Company to enter into new markets and develop
        new applications for the Watergas technologies.

               Intellectual Property.

               The ability of the Company to enter into and succeed in the
        hydrogen generating and application industries is dependent upon its
        ability to obtain and protect proprietary technology. We currently rely
        upon the combination of the Limited Technology License Agreement made
        with FT Canada, Canadian and domestic trade secret laws, and
        non-disclosure agreements to protect our proprietary technology. There
        can be no guarantee that such methods of protection will be sufficient
        to protect the Company's interests, and it remains uncertain as to
        whether the Company will be able to obtain or develop additional
        technologies or products as they become needed.

        iii. Waste Oil Reprocessing.

               Since the inception of the Company and through the end of fiscal
        year 2000, we have pursued interests in waste oil reprocessing methods.
        We have obtained the rights in Germany from Enviro-Mining, Inc., a
        corporation currently owned and controlled by Harold Jahn, the Company's
        President, Chief Financial Officer, Secretary, Treasurer and Chairman of
        the Board, for technologies which can produce a high-grade, low-sulfur
        diesel fuel meeting European standards for diesel fuel (the "EMI
        Process"). (See Item 12(A), "Enviro-Mining, Inc., Limited Technology
        License Agreement.") The EMI Process is an alternative to the present
        waste disposal methods which convert automotive waste oil into light
        heating oil and high-quality diesel fuel.

               We have added separate innovations to the EMI Process to provide
        greater stability to the products, which meet the


                                       11
<PAGE>   15
        lower sulfur standards required in Europe. Our objective is to develop
        an efficient and appropriate process which will meet the operating,
        technical and business requirements for the application of this process
        within the European marketplace. At this time, we are investigating
        three separate locations for this waste oil reprocessing technology but
        will not move forward until other cash flow is established from SDI
        Power Incorporated or the marketing of the Watergas applications.

        iv.    Additional Ventures of the Company During Fiscal Year 2000.

               In addition to research and development conducted in connection
        with SDI Power Incorporated, Watergas Incorporated and our interests in
        waste oil reprocessing, during fiscal year 2000 the Company engaged in
        activities in the fields of healthcare information management and
        natural resource extraction. Such activities have been a source of
        financial loss for the Company and, accordingly, have been discontinued
        as of January 2001. (See Item 6(F), "Management Discussion of Company
        Activities of Fiscal Year 2000 and Plan of Action.")

               Through a division of the Company known as Sustainable Health,
        the Company entered into a joint-venture agreement with an Edmonton
        based corporation for the creation of Pro-Active Incorporated, a company
        to be engaged in the development of healthcare information management
        systems, a customized database, and intelligent identification cards. On
        August 14, 2000, however, the joint venture agreement with the Edmonton
        corporation was terminated. (See Item 6(F)-v, "Management Discussion of
        Company Activities of Fiscal Year 2000 and Plan of Action," "Sustainable
        Health.")

               Through its creation of Intercontinental Granite Incorporated in
        November 1999, the Company entered into the business of mineral
        extraction. Pursuant to an agreement entered into between the Company
        and Joseph Budinski, Intercontinental Granite Incorporated acquired
        rights for a white granite mineral deposit. Pursuant to the terms of the
        agreement, the Company granted Mr. Budinski 20% ownership of
        Intercontinental Granite Incorporated and 100,000 shares of the
        Company's Common Stock. Subsequently, Intercontinental Granite
        Incorporated acquired additional mineral rights from the Alberta
        Department of Mining. Since forming Intercontinental Granite
        Incorporated, the Company has received negative feedback from potential
        investors who do not favor the link between the Company and a company
        seeking to engage in mineral extraction. The Company is currently making
        efforts to raise revenue to purchase the outstanding 20% ownership of
        Intercontinental Granite Incorporated. In doing so, the Company seeks to
        be able to sell Intercontinental Granite Incorporated in the future. The
        Company does not desire to remain in the business of mineral extraction.
        (See Item 6(F)-vi, "Management Discussion of Company Activities of
        Fiscal Year 2000 and Plan of Action," "Intercontinental Granite
        Incorporated.")

               In connection with its activities with Intercontinental Granite
        Incorporated, the Company entered into a letter of intent to acquire
        Certech Ceramic Tile and Galeria Deux Mille, Inc. Such acquisition would
        have provided the Company with retail


                                       12
<PAGE>   16
        outlets for the sale of granite products produced from the
        Intercontinental Granite Incorporated resources. Subsequent to fiscal
        year end, however, the proposed acquisition did not occur and the
        Company forfeited approximately $100,000 in funds that were advanced to
        Galeria Deux Mille, Inc., and 500,000 shares of the Company's Common
        Stock. (See Item 6(F)-vii, "Management Discussion of Company Activities
        of Fiscal Year 2000 and Plan of Action," "Galeria Design Centre
        Incorporated.")

               In November 1999, the Company completed its due diligence
        pertaining to a letter of intent to acquire four limestone deposits from
        Canadian based Mountain Lime and Marble. Such due diligence produced
        insufficient documentation for estimates about proven reserves,
        indicating that the proposed acquisition would prove too costly for the
        Company. As a result, the letter of intent was canceled and the Company
        no longer seeks to pursue such interests. (See Item 6(F)-viii,
        "Management Discussion of Company Activities of Fiscal Year 2000 and
        Plan of Action," "Mountain Lime and Marble.")

B.  Employees.

        As of October 31, 2000, we had 2 full-time employees, Harold Jahn and
Peggy Hilts. Our employees are located at our headquarters in Alberta, Canada.
None of our employees are subject to any collective bargaining agreement.

        We are dependent upon Harold Jahn, our President, Chief Executive
Officer, Secretary, Treasurer and Chairman of the Board. We also rely upon the
consulting services provided by Amin Visram, our former Senior Vice President,
and Neil Driscoll, our former Chief Financial Officer and Treasurer. We have
entered into an employment agreement with Mr. Jahn. Further, upon receipt of
additional capital, we intend to apply for key man life insurance on the life of
Mr. Jahn in the amount of $1,000,000.

        Our proposed personnel structure can be divided into three broad
categories: management and professional, administrative, and project personnel.
As in most small companies, the divisions between these three categories are
somewhat indistinct, as employees are engaged in various functions as projects
and workload demands.

        Our future success depends on our ability to attract and retain other
qualified personnel, for which competition is intense. The loss of Mr. Jahn or
our inability to attract and retain other qualified employees could have
materially adverse effects on our operations and financial condition.

C.      Risks Associated with Year 2000 Problem.

        We have had no noticeable impact as the result of the year 2000 problem.
As is the case with most other companies using computers in their operations, we
recognize the need to ensure that our operations will not be adversely impacted
by software and/or system failures related to such "Year 2000" noncompliance.
During the fourteen months preceding January 1, 2000, the Company upgraded
components of its internal computer and related

                                       13
<PAGE>   17
information and operational systems. Throughout fiscal year 2000, the Company
continued to assess the need for further system redesign and believes that it
has taken the appropriate steps to ensure Year 2000 compliance. Based on
information currently available, we believe that the costs associated with Year
2000 compliance and the consequences of incomplete or untimely resolution of the
Year 2000 problem will not have a materially adverse effect on our business,
financial condition or results of operations in any given year. However, even if
our internal systems are not materially affected by the Year 2000 problem, our
business, financial condition and result of operations could be materially
adversely affected through disruption in the operation of the enterprises with
which we interact. There can be no assurance that third party computer products
used by us are Year 2000 compliant. Further, even though we believe that our
current products are Year 2000 compliant, there can be no assurance that under
actual conditions such products will perform as expected or that future products
will be Year 2000 compliant.

        The Company, being a development stage company, has readily available
hard copy accounting records, invoices, and other paper trails that were updated
prior to year-end 1999 and year-end 2000. Since we have not commenced
substantial operations, third party non-compliance with the Year 2000 issue is
expected to have minimal impact on us. In contracting with new vendors,
manufactures and plants, we are pre-establishing the third party's compliance
with Year 2000 issues.

D.  Additional Information.

        We provide annual reports to our security holders and make quarterly
reports available for inspection by our security holders. The annual reports
include financial statements. We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected at public reference
facilities of the Commission at Judiciary Plaza, 450 Fifth Street N.W.,
Washington D.C. 20549; Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; 7 World Trade Center, New York, New York, 10048;
and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed
rates. For further information, the Commission maintains a website that contains
reports, proxy and information statements, and other information regarding
reporting companies at http://www.sec.gov. Although we maintain a website at
www.1sustainable.com, such site is currently under development and may include
information that is not current.

ITEM 2. DESCRIPTION OF PROPERTY.

        Our main offices are located at 10240 124th Street, Suite 208, Edmonton,
Alberta, Canada, and our telephone number is (780) 488-9193, fax number (780)
488-9100. The facility is a leased, approximately 600 square foot facility,
utilized as our administrative and


                                       14
<PAGE>   18
        professional offices. The Company believes that its headquarters is in
        an ideal location for the pursuit of marketing activities throughout
        North America.

ITEM 3. LEGAL PROCEEDINGS.

        The Company is not presently a party to any material litigation, nor to
the knowledge of management is any litigation threatened against us which may
materially affect us.

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

        No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of our fiscal
year ended October 31, 2000.

                                     PART II

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

    A.  Over-The-Counter Trading.

        Our Common Stock is traded over-the-counter through the National
Association of Securities Dealers Automated Quotation Bulletin Board System,
under the symbol "SUDI." The following table sets forth the quarterly high and
low bid prices for our Common Stock during the period in which our Common Stock
has been traded over-the-counter, as reported by the National Quotations Bureau,
Inc. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and may not necessarily represent actual transactions.


<TABLE>
<CAPTION>
                                           Low Bid                 High Bid
<S>                                         <C>                      <C>
1999
        September through October           $0.25                     $1.85
2000
        November through January            $0.32                     $1.25
        February through April              $0.375                    $1.10
        May through July                    $0.35                     $1.05
        August through October              $0.15                     $0.80
</TABLE>

NOTE: We started trading on September 3, 1999. As of October 31, 2000, we had
approximately 60 stockholders of the 18,075,100 shares issued and outstanding.
We have never declared or paid dividends on our Common Stock. We intend to
follow a policy of retaining earnings, if any, to finance the growth of the
business and do not anticipate paying any cash dividends in the foreseeable
future. The declaration and payment of future dividends on the Common Stock will
be the sole discretion of the Board of Directors and will depend on our
profitability and financial condition, capital requirements, statutory and
contractual restrictions, future prospects and other factors deemed relevant.

                                       15

<PAGE>   19

    B.  Issuance of unregistered securities.

        During fiscal years 1998, 1999 and 2000, the Company conducted three
private offerings for the sale of its Common Stock. Such offerings and sales
were made to friends, family members and persons or entities with prior business
relationships with the Company, pursuant to exemptions from securities
registration provided by Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"). Under the first offering, made in September 1998,
706,596 shares of the Company's Common Stock were sold at the price of $0.25 per
share to 51 investors. In its second private offering, made in October 1998, the
Company sold 200,000 shares of its Common Stock at the purchase price of $1.00
per share to one investor. (Such offerings were made pursuant to exemptions from
securities registration provided by Rule 504 of the Securities Act.) A third
private offering of unregistered securities, made pursuant to Rule 506 of the
Securities Act, was made by the Company in February 2000. This offering included
the sale of 488,300 shares of the Company's Common Stock at the price of $0.50
per share to 18 investors.

        On June 11, 1998, the Company entered into a Limited Technology
Licensing Agreement with Enviro-Mining, Inc., whereby the Company agreed to
issue to Enviro-Mining, Inc., 1,200,000 shares of its Common Stock, valued at
$0.25 per share (aggregate value of $300,000.00), as compensation for such
license agreement. Such offering and transaction were exempted from securities
registration pursuant to Section 4(2) of the Securities Act. (See Item 6(F)-iv,
Management Discussion of Company Activities of Fiscal Year 2000 and Plan of
Action," "Watergas Incorporated," and Item 12(A), "Watergas/FT Canada Limited
Technology License Agreement.")

        In November 1999, the Company entered into an agreement with Joseph
Budinski and Intercontinental Granite Incorporated, a subsidiary of the Company,
for the acquisition of mineral rights for white granite deposits in western
Canada. The Company granted Mr. Budinski 100,000 shares of its Common Stock
pursuant to such agreement, in reliance upon an exemption from securities
registration provided by Section 4(2) of the Securities Act. Such shares were
valued at $1.00 per share (aggregate value of $100,000.00). (See Item 6(F)-vi,
Management Discussion of Company Activities of Fiscal Year 2000 and Plan of
Action," "Intercontinental Granite Incorporated.")

        The Company entered into a Technology Licensing Agreement with FT Canada
Limited for the licensing of the Watergas technologies in September 2000.
Pursuant to such agreement, the Company was to issue 1,900,000 shares of its
Common Stock as consideration. Such issuance was to be made pursuant to an
exemption from securities registration provided in Section 4(2) of the
Securities Act. Subsequent to year end, however, the terms of the licensing
agreement were modified, whereas FT Canada Limited is to forego cash and equity
compensation provided in the original license agreement in exchange for
ownership of Watergas Incorporated. (See Item 6(F)-iii, Management Discussion of
Company Activities of Fiscal Year 2000 and Plan of Action," "Watergas
Incorporated," and Item 12(B), "Watergas/FT Canada Limited Technology License
Agreement.")

                                       16
<PAGE>   20
        Subsequent to year end, the Company, through an agreement made with
Galleria Deux Mille, Inc., transferred 500,000 shares of its Common Stock in
consideration for the proposed acquisition of Galleria Deux Mille, Inc. (See
Item 6(F)-vii, "Management Discussion of Company Activities of Fiscal Year 2000
and Plan of Action," "Galeria Design Centre Incorporated.") Such transaction
was exempted from securities registration pursuant to Section 4(2) of the
Securities Act.

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

        The following discussion and analysis should be read in conjunction with
our Financial Statements and the notes thereto appearing elsewhere in this
document.

A.  Risk Factors and Cautionary Statements.

        This discussion contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results and events could differ materially from
those projected, anticipated, or implicit, in the forward-looking statements as
a result of the risk factors set forth below and elsewhere in this report. With
the exception of historical matters, the matters discussed herein are
forward-looking statements that involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements concerning anticipated
trends in revenues and net income, the date of introduction or completion of our
products, projections concerning operations and available cash flow. The Company
is susceptible to threats from competitors, changing target markets, and its
ability to raise funds for operating costs, among other things. Our actual
results could differ materially from the results discussed in such
forward-looking statements. The following discussion of our financial condition
and results of operations should be read in conjunction with our financial
statements and the related notes thereto appearing elsewhere herein.

B.  Overview.

        We were organized in May 1998, and are a development stage company,
engaged in the business of commercializing innovative technologies in the
alternative power system and environmental waste reprocessing industries. We
have a limited operating history and have not generated revenues from the sale
of any products. Our activities have been limited to start-up procedures.
Consequently, we have incurred the expenses of start-up and licensing, as well
as the costs of certain failed ventures. Future operating results will depend on
many factors, including the following: our ability to raise adequate working
capital, the demand for our services and products, the level of competition, and
our ability to satisfy governmental regulations and deliver Company services and
products while maintaining quality and controlling costs.


                                       17
<PAGE>   21
C.  Results of Operations.

        i. Period from May 26, 1998 (Inception), to October 31, 1999.

               During our first year of operation, the Company achieved two main
        goals: the formation of our organization to pursue our business strategy
        and obtaining the licensing of technology required to pursue our
        objectives in the realm of waste oil reprocessing. (See Item 12(A),
        "Enviro-Mining, Inc., Technological License Agreement.")

        ii. Period from October 31, 1999, to October 31, 2000.

               Our second year of operation allowed us to achieve additional
        goals in the development of our organization in pursuance of our
        business strategy: obtaining an additional license of technology
        required to pursue our objectives and undergoing changes in management.
        During the second year of operation, however, the Company faced numerous
        difficulties as it attempted to pursue interests other than those in the
        energy sector. (See Item 12(F), "Management Discussion of Company
        Activities of Fiscal Year 2000 and Plan of Action," below.)

D.  Revenues.

        We are a development stage enterprise as defined in SFAS #7 (Statements
of Financial Accounting Standards, produced by the Financial Accounting
Standards Board), and have yet to generate any revenues from sales. We are
devoting substantially all of our present efforts to: (1) developing our
management team and administrative network, (2) developing our products for
introduction into the market, and (3) obtaining sufficient capital to commence
full operations.

        Our expenses increased from $52,111, for the 157 days of operations in
1998, to $181,236 in 1999, largely as the result of our completing our 12(g)
reporting requirements with the Securities Act of 1934, as amended, and our
commencement of trading on the National Association of Securities Dealers Over
The Counter Bulletin Board ("NASD OTC:BB"). Our expenses increased to $1,316,694
during fiscal year 2000 as a result of considerable project development
activities.

E.  Liquidity and Capital Resources.

        We have not generated revenues from sales during our period of
operations, and it is unknown when we will generate such revenues. The receipt
of funds from private offerings for the sale of our Common Stock and loans
obtained through private sources by us are anticipated to offset our near term
cash equivalents for the next 12 months. Since inception, we have financed our
cash flow requirements through issuance of Common Stock. As we commence
operational activities, we may continue to experience net negative cash flows
from operations, pending receipt of sales revenues. Furthermore, we may be
required to obtain additional financing to fund operations through Common Stock
offerings and bank


                                       18
<PAGE>   22
loans, to the extent available, or to obtain additional financing, to the extent
necessary, to augment our working capital.

        We intend to generate sales revenues by establishing operational
facilities under development in our target markets, including the proposed 50
Megawatt combined cycle electrical generating facility. However, we will
continue the research and development of our products, increase the number of
our employees and expand our facilities where necessary to meet development and
completion deadlines. We believe that existing capital and anticipated funds
from operations will not be sufficient to sustain operations and planned
expansion in the next twelve months. Consequently, we will seek additional
financing in order to make additional funds available.

        No assurance can be made that such financing will be available, and, if
available, it may take either the form of debt or sales of Company equity. In
either case, the financing could have negative impact on our financial
conditions and our stockholders.

        The Company anticipates that it will incur operating losses in the next
twelve months. The Company's lack of operating history makes predictions of
future operating results difficult to ascertain. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as that of environmental
energy production. Such risks for the Company include, but are not limited to,
an evolving and unpredictable market and the management of growth.

        To address these risks, the Company must, among other things, obtain a
customer base, implement and successfully execute our business strategy, develop
an effective marketing strategy, continue to develop and upgrade our technology
and products, provide superior customer services and order fulfillment (once in
operation), respond to competitive developments, and attract, retain and
motivate qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so can have a
materially adverse effect on the Company's business prospects, financial
condition and results of operations.

        Subsequent financing is needed to provide funds to develop the products
and services proposed by the Company and allow the Company to meet goals of its
business plan. Additional funds will be necessary to take the products to
market. We hope to enter into additional funding arrangements through strategic
partnerships, mergers, equity offerings or debt offerings. Nothing has been
secured as of this time.

F.  Management Discussion of Company Activities of Fiscal Year 2000 and Plan
    of Action.

        i. General.

               The Company controls divisions, has formed subsidiary
        corporations and engages in partnerships through which it seeks to
        obtain its goals. The activities and objectives of the respective
        divisions and partnerships, as well as other objectives of



                                       19
<PAGE>   23
        the Company, are provided below. Projections and objectives are
        forward-looking statements and are subject to risk factors which could
        substantially affect the ability of the Company and its divisions and
        partnerships to pursue such objectives.

               The Company believes that, in order to enjoy a more sustainable
        interdependent global economy and community, the world's finite
        resources require better long-term management. Accordingly, the Company
        believes that the acceptance of mid to long-term renewable energy
        strategies must be integrated into global energy strategies. The
        Company does not expect fossil fuels, such as oil, gas and coal, to
        suddenly disappear from the world's energy requirements, rather
        believing that a realistic transition of energy use over a 50 year
        period may be necessary to provide all interests time to adapt.

               Many of the Company's strategies reflect the foregoing viewpoint,
        and we are making attempts to enter 20-50 year energy supply contracts
        in international markets with fixed prices in order to encourage
        economic planning and regional stability. By selecting more renewable
        sources of energy, regions of the world may not need to become concerned
        over cyclical oil and gas fluctuations that may cause harm to economic
        growth. New technology developments in energy conservation, and
        improvements in the processes of energy production and transmission, can
        assist the world in meeting current and future energy demands.
        Ultimately, the Company believes that renewable sources of energy are
        economically necessary and instrumental to the protection of the global
        environment.

        ii. SDI Power Incorporated.

               This corporation, formed and operated as a wholly-owned
        subsidiary of the Company, has been focused on several electrical
        generating facilities in various parts of the world on a wholly-owned
        basis or in conjunction with joint venture business partners.

               In the last fiscal year, SDI Power Incorporated has had several
        meetings with regulatory officials in the Alberta market to consider
        building, owning, and operating a 50 Megawatt, natural gas fired,
        combined cycle electrical facility in the Calgary area. A potential
        client has been identified for the output of this site, and negotiations
        are currently ongoing.

               Presentations were made to several energy ministers in northeast
        Africa in December of 1999, and discussions continue to potentially
        obtain permits for both thermal and renewable electrical generation in
        this region. Further discussions with energy ministers visiting Calgary,
        Alberta, in spring of 2000 provided opportunities and established
        relationships to consider further work in northeast Africa. In July
        2000, we were invited to participate in a larger power supply contract
        project in the Middle East with a Canadian corporation, Canwest Group
        International. Unfortunately the Company did not have the financial
        resources or personnel to proceed.


                                       20
<PAGE>   24
        A number of presentations were made by the Company to commercial
        building owners during fiscal year 2000, but such presentations did not
        result in any contracts being signed. The Company believes that this
        failure was primarily due to unstable energy prices. Such instability
        may have complicated the decision of whether or not to proceed with SDI
        Power Incorporated. During fiscal year 2000, the price per kilowatt and
        natural gas rates in our target areas shifted on a weekly basis. The
        majority of 300 kilowatt to 10-megawatt onsite co-generation facilities
        require five to ten year term contracts, and the majority of our
        intended clients decided to wait to see where the prices would settle.
        Unfortunately, prices continue to be very unstable.

               At the present time, SDI Power Incorporated is focusing all of
        its attention on only one 50 Megawatt site to be potentially built in
        2001. Our goal is to demonstrate a completed project with needed cash
        flow prior to exploring other opportunities thus providing the Company
        with a track record. Once cash flow is established, other identified 50
        Megawatt sites will be our focus. Smaller onsite co-generation
        facilities under 10 Megawatts will only be considered on a case-by-case
        basis at the request of established clientele. Although the market
        exists today for several smaller sites, we shall concentrate on the 50
        Megawatt facility to gain market penetration. Once firmly established
        with required revenues, the Company hopes to expanded its employee base
        and devote some of its activities to the development of smaller
        facilities, providing less than 10 Megawatts of production, thus
        entering into the market for smaller electricity producers.

               Provided we are able to meet short-term revenue demands, our
        goals for 2001 through 2004 include the development and production of
        several conventionally built thermal combined cycle electrical
        generating facilities with production in the 50 to 500 Megawatt range.
        This plan would allow for the Company to gradually penetrate new
        markets, and gain market share in select existing jurisdictions. After
        2004, we plan to shift our focus to substitute or expand our capacities
        by introducing more sustainable forms of electrical production. These
        renewable forms of electrical generation include solar, biomass, wind,
        geothermal, hydro, and ocean current production.

               In addition, SDI Power Incorporated desires to explore
        alternative energy management and storage technologies to identify
        economically viable methods of storing off-peak electrical production to
        be reintroduced into the peak demand time periods. Several thousands of
        Gigawatt hours of electricity go unused from excess off-peak capacity
        each year throughout the world. Hydrogen may become a viable method of
        energy storage, which may solve this inefficiency.

               iii. Watergas Incorporated.

               In December 1999, the Company was introduced to FT Canada
        Limited, an Edmonton based research and development company, to explore
        a hydrogen

                                       21
<PAGE>   25
        generator they had developed. The process used by the FT Canada hydrogen
        generator efficiently converted water into a hydrogen/oxygen mix through
        a process of electrolysis, as described above in Item 1(A)-ii, "Watergas
        Incorporated." Initially, the Company and FT Canada mutually agreed to
        trademark the product Watergas. After several months of due diligence,
        both parties agreed in March 2000 to form a third company called
        Watergas Incorporated. SDI was to retain 70% of the new corporation and
        FT Canada was to own the remaining 30%.

               Throughout the months leading up to September 2000, both parties
        conducted further testing of the process used by the FT Canada hydrogen
        generator. On September 26th, 2000, both parties agreed to proceed under
        an exclusive global Technology Licensing Agreement for the FT Canada
        hydrogen generator, rather than participate in the joint ownership of
        Watergas Incorporated. The license agreement required the Company to pay
        to FT Canada $1,000,000 Canadian in cash and shares of the Company's
        Common Stock, plus additional monthly research and development funding.
        Under the licensing agreement, the Company was to market the hydrogen
        generator through the wholly owned subsidiary of the Company, Watergas
        Incorporated. FT Canada thus gave up its 30% equity position of Watergas
        Incorporated. By the terms of the Technology Licensing Agreement, FT
        Canada agreed to be responsible for continued research and development
        to expand our targeted applications of the Watergas technologies. The
        terms of this license agreement have substantially changed subsequent to
        the end of fiscal year 2000, as discussed below.

               As of September 2000, Watergas Incorporated was intended to
        market the hydrogen generator internationally, and direct FT Canada in
        its research for client-specific improvements or alterations for the
        Watergas hydrogen generator. Watergas Incorporated was to focus on the
        development and commercialization of onboard hydrogen generators for
        vehicles in the trucking, passenger and mass transportation industries,
        and other applications.

               A truck engine test was planned in November 2000, subsequent to
        the Company's year-end, at the University of Alberta Engine Laboratory.
        Such test was to assess the effect of a particular application of
        Watergas technologies on truck engine operating efficiencies and
        emissions. The testing was only partially completed and the results were
        inconclusive. The University had scheduled two days of testing on a
        set-up that was originally configured for testing the use of catalysts
        and production of soot on an Isuzu 4BEl direct injection diesel engine.
        This was not an ideal condition for testing the Watergas application,
        and, after an initial test run, the testing was postponed.

               The original Technology Licensing Agreement stipulated critical
        third party testing of the Watergas hydrogen generator and the
        development of prototype units for specific applications. Pursuant to
        such requirements for third party testing, in June and December 2000,
        the Watergas hydrogen generator was tested by the Alberta Research
        Council (an Alberta government research institution, "ARC"). The

                                       22
<PAGE>   26
        December test was to determine the effect of a novel additive added to
        the electrolyte. The ARC tests measured power input, product gas flow
        rate and composition of the Watergas hydrogen generator and the
        efficiency of its conversion of electrical energy to heat energy. The
        tests indicated that the additive improved the efficiency of the
        Watergas hydrogen generator at rates between 6% and 14%. Further
        analysis is needed to factor the cost of the additive.

               On December 19, 2000, subsequent to the end of fiscal year 2000,
        the Company and FT Canada mutually agreed to amend the Technology
        Licensing Agreement after evaluating the progress made on the
        pre-commercialization and technology testing strategies undertaken
        jointly by both parties. The December 19, 2000, amendment to the license
        agreement eliminated all outstanding financial obligations of the
        Company to FT Canada ($950,000 due for the license agreement, $40,000
        per month for R&D expenditures and other bonus payments). Effective upon
        said amendment, Watergas Incorporated became wholly owned by FT Canada,
        rather than the Company.

               The Company continues to have an international license for
        Watergas technologies on a non-exclusive basis for all applications,
        except in Korea and Japan. Both the Company and FT Canada have committed
        to work synergistically to commercialize the Watergas generator and
        applications based on the Watergas technologies. FT Canada has agreed to
        license rights to the Company to manufacture specific Watergas
        applications and products for captive markets under development by the
        Company. The Company intends to expand its testing of new applications
        for the Watergas hydrogen generator in 2001 with other strategic
        partners.

               The Company is currently exploring applications for Watergas in
        the areas of vehicles, fuel cells, hydrogen storage, home heating, air
        conditioning and water heating systems, as described above in Item
        1(A)-ii, "Watergas Incorporated."

        iv. Waste Oil Reprocessing

               During fiscal year 1999 and the beginning of fiscal year 2000,
        the Company devoted substantial energy and resources to the development
        of a waste oil reprocessing system and facilities in connection with an
        agreement entered into between the Company and Enviro-Mining, Inc. (See
        Item 12(A), "Enviro-Mining, Inc., Limited Technology License
        Agreement.") During fiscal year 2000, however, management of the Company
        decided that the Company did not possess the resources needed to build a
        proposed waste oil reprocessing facility in Germany. Accordingly, the
        Company has engaged in other activities, planning to return to waste oil
        reprocessing when financial resources permit.

               The difficulties with a waste oil reprocessing facility include
        the long-term risk associated with the sale of our final product, a
        low-sulfur diesel fuel. At the present time, we may be able to secure
        our waste oil supplies, yet do not control the price of our diesel sales
        beyond a 6 month contractual basis. Therefore, it is



                                       23
<PAGE>   27
        the intention of the Company to delay proceeding with any of these sites
        until energy prices stabilize and we have cash reserves to protect
        ourselves against a period of lower diesel prices.

               The management of the Company believes it to be in the Company's
        best interest not to pursue its interests in waste reprocessing at this
        time. Upon its receipt of increased revenues, however, the Company may
        engage in such activities. The agreement between the Company and
        Enviro-Mining, Inc., provided certain deadlines for the Company's
        construction of waste oil reprocessing facilities. In accordance with
        the decision of management, we have received an extension of five years
        for the commencement of construction of our first plant in Germany for
        oil recycling.

               Although the extension of the agreement with Enviro-Mining, Inc.,
        provides us with additional time in which to pursue other ventures and
        achieve profitability, there can be no assurance the Company will be
        able to generate the funds required to commence construction of the
        waste oil reprocessing facility in Germany, or to complete construction
        once started. In the event we are unable to commence construction during
        the extension period, or in the alternative, obtain additional
        extensions, the licensing rights held by us would be canceled, leaving
        us with substantially no assets or means of generating revenues in the
        waste reprocessing industry.

        v. Sustainable Health.

               In December 1999, the Company, through Sustainable Health, a
        division of the Company, entered a joint venture agreement with an
        Edmonton based company to form Pro-Active Incorporated. Sustainable
        Health's share was 60%. The primary purpose of Pro-Active Incorporated
        was to manage healthcare information through the use of integrated
        systems, a customized database and intelligent identification cards.

               On August 14, 2000, Sustainable Health and its joint venture
        partner agreed to terminate its joint development. The Company did not
        wish to provide further capital, and our focus on energy projects and
        our hydrogen developments was expanding, placing a great amount of
        pressure on our resources. The 60% interest of Pro-Active Incorporated
        held by the Company through Sustainable Health was sold to the Edmonton
        based company for one dollar, and the Company has no further
        obligations, participation or commitment in this venture.

               Sustainable Health remains a division of the Company, but it
        currently has no assets or ongoing activities. The Company may find use
        for this division once other revenues are firmly established.

                                       24
<PAGE>   28
        vi. Intercontinental Granite Incorporated

               This corporation was created in November 1999, with the Company
        owning 8,000,000 of 10,000,000 shares. The balance of 2,000,000 shares
        of Intercontinental Granite and 100,000 shares of the Company's Common
        Stock were issued to Joseph Budinski for the acquisition of a
        high-quality white granite mineral deposit in Western Canada, with
        proven reserves of $2,000,000. On May 31, 2000, a second granite deposit
        near Fort Chipewyan, Alberta, was secured by Intercontinental Granite
        Incorporated under a 10-year exploration permit from the Alberta
        Department of Mining. This unconfirmed deposit has only established
        geological reports. There have been no economic reports or
        feasibility studies completed.

               The Company attempted to find project financing solely for the
        development of the mineral deposits of Intercontinental Granite
        Incorporated in the amount of $2,000,000. Unfortunately, the
        availability of funding for mineral mining decreased greatly from 1998
        through 2000 as technology and internet stocks became the focus of
        investments. As a result, Intercontinental Granite Incorporated remained
        dormant in 2000. In addition, feedback from the investment community did
        not favor having both mineral developments and alternative energy
        production as areas of the Company's business.

               In connection with its efforts to now sell Intercontinental
        Granite Incorporated, the Company is in the process of acquiring the
        remaining 20% it does not currently own of Intercontinental Granite
        Incorporated. The Company desires to raise funds for such acquisition
        through the sale of 400,000 shares of the Common Stock of the Company
        from treasury. The Company has received an offer from a third party for
        the purchase of Intercontinental Granite Incorporated, but such sale is
        conditioned upon the Company's acquisition of all outstanding shares of
        Intercontinental Granite.

        vii. Galeria Design Centre Incorporated.

               During spring 2000, a letter of intent was signed by the Company
        for the acquisition of Certech Ceramic Tile and Galeria Deux Mille, Inc.
        These established Canadian retail businesses would have provided retail
        outlets for the sale of granite products, including flooring and
        countertops. In the long term, products from Intercontinental Granite
        Incorporated could have been sold to Galeria Deux Mille, Inc., rather
        than other suppliers. After completing due diligence, our interest was
        to acquire only certain assets of Galeria Deux Mille Incorporated to be
        operated in a new division of the Company called Galeria Design Centre
        Incorporated. During the months of May through December, in its efforts
        to meet all the conditions of the pending sale, the Company provided
        advances to Galeria Deux Mille, Inc., to assist its cash flow management
        and growing sales.

               As of the end of fiscal year 2000, the Company's goal from this
        acquisition was to establish an ongoing revenue flow for the Company,
        while its other projects

                                       25
<PAGE>   29
        were under development. Unfortunately, certain conditions of the sale
        were not met, and the sale did not proceed in December of 2000. Funds
        advanced from the Company to Galeria Deux Mille Incorporated subsequent
        to year end, in the amount of approximately $100,000, were forfeited,
        along with 500,000 shares of the Common Stock of the Company.

        viii. Mountain Lime and Marble.

               In November 1999, SDI completed its due diligence pertaining to a
        letter of intent to acquire four limestone deposits from Canadian based
        Mountain Lime and Marble. The acquisition of the limestone was to be
        used in environmental applications. Applications predicted at the time
        of the letter of intent included water and pulp mill effluent treatment
        facilities and applications in the neutralization of tailing pond
        effluent in the Alberta tar sands of northern Alberta. Furthermore, the
        existing supplies of high-grade limestone, used in cement production,
        were shrinking in the Alberta market place, allowing for an opportunity
        to fill this need.

               The result of the Company's due diligence was its discovery that
        the supporting documentation did not provide accurate records of proven
        reserves, and a drilling program of $200,000 to delineate the deposit
        would prove too costly for the Company. As a result, the letter of
        intent was cancelled.

         ix. Energy Mandate

               Effective as of January 2001, the Company intends to divest
        itself of all activities not related to the energy sector. For the time
        being, the Company desires to commit all its resources to the
        development of technologies and businesses focused only in the energy
        field and related environmental spin-offs.

               Pursuant to such decision of the Company, it will continue its
        activities in the commercialization of Watergas applications and in
        establishing electrical facilities through SDI Power Incorporated. (See
        Item 1(A)-ii, "Products and Services," "SDI Power Incorporated," and
        Item 1(A)-iii, "Watergas Incorporated," above.) The Company's interests
        in health care, waste reprocessing and mining may be pursued at a later
        time, but management has determined that presently such interests are
        not beneficial for the Company. Notwithstanding the foregoing, the
        Company will continue in its efforts to acquire complete ownership of
        Intercontinental Granite Incorporated so as to permit its sale.

ITEM 7.  FINANCIAL STATEMENTS.

        See Index to Financial Statements and Financial Statement Schedules
appearing on pages 35 and F-1 through F-11, respectively, of this Form 10-KSB.


                                       26
<PAGE>   30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

        No changes to report.

                                    PART III

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

A.  Section 16(a): Beneficial Ownership Reporting Compliance.

        Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires our executive officers, directors and persons who beneficially own more
than 10% of a registered class of our equity securities to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Such executive
officers, directors, and greater than 10% beneficial owners are required to
furnish us with copies of all Section 16(a) forms filed by such reporting
persons. Based solely on representation from certain reporting persons, we
believe that all filing requirements applicable to our executive officers,
directors and greater than 10% beneficial owners were complied with.

B.      Directors and Executive Officers.

<TABLE>
<CAPTION>
<S>                             <C>    <C>
      Name                       Age      Title
      ----                       ---      -----
      Harold Jahn                31       President, CEO, Secretary, Treasurer, Chairman of the Board
      Amin Visram                50       Former Senior Vice President
      R. Neil Driscoll           54       Former Chief Financial Officer and Treasurer
</TABLE>

        i. Harold Jahn-President, Chief Executive Officer, Secretary,
        Treasurer, and Chairman of the Board.

               Mr. Jahn has served as the Company's President, Chief Executive
        Officer, Secretary and Chairman of the Board since May 1998.
        Additionally, Mr. Jahn has previously served as the Company's Treasurer
        and has resumed this position for fiscal year 2001. In such roles, Mr.
        Jahn serves as the primary executive and financial officer of the
        Company, performing and overseeing all daily executive and financial
        tasks. Mr. Jahn is currently subject to an employment agreement made
        with the Company.

               From mid 1995 until present, Mr. Jahn has been president of
        Enviro-Mining, Inc., a company co-founded by Mr. Jahn as a solution for
        recycling needs in the mining industry. Enviro-Mining, Inc.'s mission
        has expanded, developing a broader recycling mandate internationally
        with the inclusion of innovative technologies in power generation and
        mining equipment worldwide. From July 1991, to July 1997, Mr. Jahn was
        involved in real estate sales. Mr. Jahn graduated from the University of
        Alberta with a Bachelor of Arts degree in International Relations and
        Political


                                       27
<PAGE>   31
        Science and minor in International Economics in 1991. His education
        contributed to his knowledge of numerous business and government issues,
        developed creativity in problem solving, strengthened his concerns for
        sustainable development and fostered an ability to manage projects in a
        timely manner.

        ii. Amin Visram-former Senior Vice President.

               Amin Visram replaced Lew Mansell as our Senior Vice President on
        October 1, 2000, serving in such position pursuant to an oral agreement
        for employment. (See Note following the discussion of the Directors and
        Executive Officers of the Company.) Since late October 2000, however,
        the Company has been unable to continue to retain Mr. Visram as its
        Senior Vice President. Although a written agreement for employment was
        proposed, the proposed employment agreement has not been consummated.
        Since late October 2000, Mr. Visram has agreed to act as an independent
        consultant, providing the Company with business advice on an as-needed
        basis. In such role, Mr. Visram has not been granted the ability to act
        on the Company's behalf and has not assumed any responsibilities for the
        Company other than those arising from his status as an independent
        consultant. Mr. Visram is not currently, nor was he on October 31, 2000,
        employed as an officer of the Company. Mr. Visram's involvement with the
        Company as a consultant is subject to his withdrawal at any time. Such
        withdrawal may force the Company to seek other persons to provide
        business advisory services for the Company.

               Mr. Visram's undergraduate degree in Mechanical Engineering is
        supplemented by a Masters degree in Engineering Management from the
        University of Alberta, Edmonton. He is a graduate of an Executive
        Program in Business Management for the University of British Columbia,
        Vancouver, and has a postgraduate diploma in Business Management from
        the University of Delft, Netherlands.

               Mr. Visram has had over twenty years of diversified industrial
        development and business management experience, acquired both in the
        private and public sectors. For ten years he managed multi-million
        dollar projects in a senior position with the Canadian federal
        government. His extensive experience in this position included planning,
        development and implementation of over 150 industrial projects
        representing investments of over $500 million. He was also the Program
        Manager of the $750 million Alberta component of the Canadian National
        Infrastructure Program. The industrial projects ranged from
        manufacturing plant establishments, service industry projects, oil, gas
        and other energy sector projects to high technology and environmental
        projects.

        Prior to his appointment with the Canadian federal government, he spent
        about five years with Spar Aviation Services, Inc., as its Production
        and Industrial Engineering Manager, where he was responsible for the
        production of Lockheed aircraft components and the assembly and
        manufacturing of the Westinghouse Air Brake Company construction
        graders. Mr. Visram also operates a successful



                                       28
<PAGE>   32
        recruitment business and teaches Environmental Protection and
        Enforcement for a Criminal Justice Program at the University of
        Athabasca in Alberta. He has also worked for a special project of UNIDO
        (United Nations Industrial Development Organization) in Africa and a
        large international venture capital and industrial development company.

        iii. R. Neil Driscoll, CA-former Chief Financial Officer and
        Treasurer.

               Mr. Driscoll agreed to act as our Chief Financial Officer and
        Treasurer in July 2000, upon the resignation of Garry R. Knull. Since
        fiscal year end 2000, however, Mr. Driscoll has resigned from such
        positions within the Company and currently serves as an independent
        consultant for the Company. Such current involvement by Mr. Driscoll has
        been obtained through arms-length negotiation, and Mr. Driscoll is not
        an employee acting on a continuing basis for the Company. While Mr.
        Driscoll may assist the Company in certain financial and accounting
        activities, the daily oversight of the Company's finances is now
        performed by the Company's Treasurer, Harold Jahn.

               Mr. Driscoll is not currently party to an employment agreement
        with the Company, rather operating as an independent consultant in the
        provision of financial services at an hourly billing rate. Due to the
        nature of the involvement of Mr. Driscoll with the Company, his services
        may be subject to withdrawal at any given time. Such withdrawal would
        force the Company to seek other persons for financial consultant
        services.

               Mr. Driscoll received a Bachelor of Science from the University
        of Alberta, Edmonton, and qualified as a Chartered Accountant after
        completion of studies through the Institute of Chartered Accountants of
        Alberta. He has also taken numerous professional development courses as
        ongoing education throughout his career, including an in-depth tax
        course offered by the Canadian Institute of Chartered Accountants.

               Throughout over 25 years of experience as a Chartered Accountant,
        Mr. Driscoll has been intricately involved in financial planning,
        domestic and international tax planning, the preparation of business
        plans, offering memoranda and prospectuses, and has served as a senior
        financial officer of a large public corporation. In addition, he has
        performed financial and tax consulting services for numerous clients as
        an independent consultant. Currently, Mr. Driscoll conducts business as
        an independent financial and tax consultant in Edmonton, Alberta, and
        serves as a Director of Seven Air Inc., a corporation located in
        Edmonton. Seven Air Inc. was incorporated to operate a chartered airline
        service, but is currently inactive.

        NOTE: Mr. Lew Mansell, our former Senior Vice President, has joined our
        technology partner, FT Canada Limited, as its Vice President of Business
        Development. FT Canada Limited is the licensor of the Watergas
        technologies to the Company and is located in Edmonton, Alberta. Mr.
        Mansell will be responsible for


                                       29
<PAGE>   33
        product development activities, government testing and certification of
        the Watergas hydrogen generator. These goals are to be accomplished in a
        timely manner to meet the marketing schedules of Watergas Incorporated.
        Management does not currently foresee any potential conflicts of
        interests arising from Mr. Mansell's employment with FT Canada Limited.

C.  Limitation of Liability of Directors.

        Pursuant to Nevada general corporation law, our Articles of
Incorporation exclude personal liability for our Directors for monetary damages
based upon any violation of their fiduciary duties as Directors, except as to
liability for any breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
any transaction from which a Director receives an improper personal benefit.
This exclusion of liability does not limit any claim or cause of action which a
Director may have to be indemnified from, and does not affect any Director's
liability under federal or applicable state securities laws. We have agreed to
indemnify our Directors against expenses, judgments and amounts paid in
settlement in connection with any claim against a Director, provided he acted in
good faith and in a manner he believed to be in our best interests.

D.      Board of Directors, Committees and Compensation.

        i. Compensation Committee.

        The Board of Directors does not have a Compensation Committee. During
fiscal year 2000, Harold Jahn, in his capacity as Chairman of the Board, oversaw
the compensation of our executive officers.

        ii. Board of Director's Report on Executive Compensation.

        General.

               As noted above, our Board of Directors does not have a
        Compensation Committee and, accordingly, during the fiscal year ended
        October 31, 2000, Harold Jahn, acting on behalf of the Board of
        Directors, reviewed and approved the compensation of our executive
        officers.

        Overall Policy; Significant Factors.

               During fiscal year 2000, the compensation decisions made by the
        Board of Directors in respect to our executive officers were influenced
        by our limited revenues. As a development-stage company, we were subject
        to all of the normal capital requirements to sustain growth. Therefore,
        stock compensation was granted in lieu of salaries, commissions or other
        compensation for services rendered. This practice may be extended into
        the future on a case-by-case basis and, accordingly, filed with the
        Commission. The compensation paid to the executive officers of the
        Company was



                                       30
<PAGE>   34
        determined by the Board of Directors based on competitive factors.
        Unfortunately, such officers have not yet received all compensation owed
        to them for prior services, due to the limited revenues of the Company.
        As we continue to mature, certain additions to the executive staff will
        be required. As we are required to seek talent in outside markets, we
        will be required to provide a competitive compensation package.

               As an overall policy, however, the Board continues to believe
        that long-term compensation tied to the creation of stockholder value
        should constitute a significant component of the compensation to be
        earned by our executive officers. In this respect, it will be the
        Board's policy to attempt to restrain base cash compensation (subject to
        competitive pressures), while providing the incentive for management to
        increase stockholder value by providing such officers with significant
        numbers of market-price stock that will not confer value upon the
        officers unless and until the Company's share price rises. The Board of
        Directors expects that stock options will constitute a significant
        component of the compensation package provided to executive officers.
        The Board believes that cash bonuses are, at times, appropriate based
        upon the performance of the Company's business compared to our internal
        expectations and general business conditions.

ITEM 10. EXECUTIVE COMPENSATION.

<TABLE>
<CAPTION>
                                               SUMMARY COMPENSATION TABLE

                                                                     Long Term Compensation
                                    Annual Compensation                Awards            Payouts

         (a)            (b)     (c)     (d)         (e)          (f)          (g)         (h)          (i)
                                                              Restricted  Securities
                                               Other Annual   Stock       Underlying     LTIP         All Other
  Name and Principle          Salary   Bonus   Compensation   Award(s)   Options/SARs  Payouts    Compensation
  Position              Year    ($)     ($)         ($)          ($)          (#)         ($)          ($)
<S>                    <C>    <C>      <C>       <C>          <C>         <C>           <C>         <C>
Harold Jahn,           1999   $36,000
President, CEO,        2000   $36,000
Secretary, Treasurer,
Chairman(1)

Amin Visram, former    2000   $ 4,746
Senior Vice President
Neil Driscoll, former  2000   $15,000
CFO and Treasurer(2)

</TABLE>



    1.  Sustainable Development Group,Inc., currently controlled by Harold
        Jahn, received 9,500,000 shares of founders stock in 1998. The founders
        stock holdings of Sustainable Development Group, Inc., have been reduced
        to 7,725,000 pursuant to an agreement made between Sustainable
        Development Group, Inc., and Inveq Services, Inc., a company currently
        controlled by Lew Mansell. Enviro-Mining, Inc., also currently
        controlled by Harold Jahn, received 2,000,000 shares of founders stock
        in


                                       31
<PAGE>   35
        1998. Subsequent to the founding of the Company, Enviro-Mining, Inc.,
        has further acquired 1,260,000 shares of the Company's Common Stock, but
        has since disposed of 3,200,000 of its shares.

    2.  Neil Driscoll provided services for the indicated compensation from the
        Company during fiscal year 2000, but has not yet received all such
        compensation due to the Company's limited financial resources. The
        Company intends to satisfy its obligations to Mr. Driscoll once funds
        become available to do so.

   A.   Stock Option Plan.

        Although the Company has proposed a stock option plan, no plans have yet
been adopted and no options have been granted as of this date. We intend to
adopt a stock option plan, which would provide for the issuance of an aggregate
of 1,714,280 shares of Common Stock (the "Stock Option Plan").

        The Stock Option Plan, if adopted, would be intended to encourage
directors, officers, employees and consultants of the Company to acquire
ownership of the Company's Common Stock. The Stock Option Plan would be intended
to foster in participants a strong incentive to put forth maximum effort for the
success and growth of the Company, to aid in retaining individuals who put forth
such efforts and to assist in attracting the best available individuals to the
Company in the future. Officers (including officers who are members of the Board
of Directors), directors and other key employees and consultants of the Company
and our divisions and subsidiaries would be eligible to receive options under
the proposed Stock Option Plan.

        In addition to the foregoing, the Stock Option Plan, if adopted, would
enable us to secure persons of requisite business experience to serve on the
Board of Directors, motivate directors to enhance our future growth by
furthering their identification with our interests and our stockholders, and
assist the Company in retaining Directors.

   B.   Other Significant Benefit Arrangements.

        i. Employees Stock Option Plan.

               At the date of this filing there are no formal employee stock
        option plans. However, management will ask the Board of Directors to
        review the possible implementation of such a program as management
        believes employees' ownership interest in the company is positive both
        in terms of employee morale and in personnel retention.

        ii. Profit Sharing 401(k) Plan.

               No segment of the Company currently provides a 401(k) plan for
        any of our employees. It is, however, expected to be a matter for our
        Board of Directors to review, as management believes such programs are
        beneficial both to our employees themselves and as a means of attracting
        and retaining quality personnel.


                                       32
<PAGE>   36

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The following table sets forth information, as of the date of this
report, relating to the beneficial ownership of our common stock by those
persons known to us to beneficially own more than 5% of our capital stock, by
each of our directors, proposed directors and executive officers, and by all of
our directors, proposed directors and executive officers as a group. The address
of each person is care of the Company.

<TABLE>
<CAPTION>

Name of Beneficial Owner(1) or Director          Number of Shares of Class  Percent of Class
----------------------------------------         -------------------------  ----------------
<S>                                               <C>                        <C>
Sustainable Development Group, Inc.(2)                   7,725,000                 42.74%

Enviro-Mining, Inc.(3)                                      60,000                  0.33%

Inveq Securities, Inc.(2)                                1,775,000                  9.82%

Harold Jahn, President, CEO, Secretary,                    313,043                  1.73%
Treasurer, Chairman of the Board

Neil Driscoll, former CFO and Treasurer(4)                   7,500                  0.04%

Management as a group                                    8,105,543                 44.84%

</TABLE>


    1.  As used in this table, "beneficial ownership" means the sole or shared
        power to vote, or to direct the voting of, a security, or the sole or
        share investment power with respect to a security (i.e., the power to
        dispose of, or to direct the disposition of, a security). In addition,
        for purposes of this table, a person is deemed, as of any date, to have
        "beneficial ownership" of any security that such person has the right to
        acquire within 60 days after such date.

    2.  Sustainable Development Group,Inc., controlled by Harold Jahn,
        President, CEO, Secretary, Treasurer and Chairman of the Board of the
        Company, received 9,500,000 shares of founders stock in 1998. Pursuant
        to an agreement made between Sustainable Development Group, Inc., and
        Inveq Securities, Inc., currently controlled by Lew Mansell, Sustainable
        Development Group, Inc., transferred 1,775,000 of its shares of Common
        Stock to Inveq Securities, Inc.

    3.  Enviro-Mining, Inc., currently controlled by Harold Jahn, President,
        CEO, Secretary, Treasurer and Chairman of the Board of the Company,
        received 2,000,000 shares of founders stock upon the Company's
        inception. In addition, Enviro-Mining received 1,200,000 shares of the
        Company's Common Stock as compensation for the Limited Technology
        License Agreement involving Enviro-Mining's process for waste oil
        reprocessing. (See Item 12(A), "Enviro-Mining, Inc., Limited Technology
        License Agreement.") Enviro-Mining also acquired 60,000 shares of the
        Company's Common Stock at the price of $0.25 per share under the private
        offering made


                                       33
<PAGE>   37
        in September 1998. As of October 31, 2000, 3,200,000 of Enviro-Mining,
        Inc.'s shares of the Company's Common Stock had been sold, thus reducing
        its holdings to 60,000 shares.

    4.  Mr. Driscoll served as the Company's Chief Financial Officer and
        Treasurer between July and November 2000, but no longer serves in such
        positions. Mr. Driscoll currently acts as an independent consultant for
        the Company, and the daily financial activities of the Company are
        overseen by its current Treasurer, Harold Jahn.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

A.  Enviro-Mining, Inc., Limited Technology License Agreement.

        On June 11, 1998, we entered into a license agreement with
Enviro-Mining, Inc., regarding the licensing of the Company by Enviro-Mining,
Inc., to use certain patented technology in connection with the recycling of
waste oil into low-sulfur diesel ("Limited Technology License Agreement"). (See
Item 6(F)-iv, "Management Discussion of Company Activities of Fiscal Year 2000
and Plan of Action," "Waste Oil Reprocessing.") The license is for a period of
thirty (30) years, commencing on June 11, 1998, with renewable 10-year terms.
The Limited Technology License Agreement requires the payment of certain minimal
annual payments, and in the event of default in the payments, we could lose our
rights to continue utilizing the technology. Furthermore, the Limited Technology
License Agreement provides that we "must commence construction in the first
twelve (12) months of this agreement, a plant of minimum capacity of 90,000 tons
of waste oil input in the Territory." The territory contemplated by the Limited
Technology License Agreement is Germany. The agreement, dated June 11, 1998,
further states that it shall be just cause for termination of our license and
marketing rights if we have not commenced construction of the first plant within
the first year of the agreement, and an additional commercial scale plant every
year thereafter for the next 5 years.

        On May 11, 1999 the Limited Technology License Agreement was amended to
reflect an extension until June 11, 2000 for us to comply with the commencement
of construction and delayed payment of the license fee of $300,000. Pursuant to
a subsequent amendment, made on June 11, 2000, the agreement has been extended
for an additional five years and no royalties or other fees are due until a
facility is completed. Enviro-Mining, Inc., received 1,200,000 shares of the
Company's Common Stock in lieu of the license fee of $300,000.00.

B.  Watergas/FT Canada Limited, Technology License Agreement

        On September 26, 2000, we entered into a Technology Licensing Agreement
with FT Canada Limited for the development of Watergas Incorporated. By the
terms of the initial Technology Licensing Agreement, FT Canada was to forego
prior equity holdings in Watergas Incorporated in exchange for $1,000,000
Canadian and 1.9 million shares of the Company's Common Stock.



                                       34
<PAGE>   38
        Such agreement, however, was amended numerous times due to results from
testing. (See Item 6(F)-iii, "Management Discussion of Company Activities of
Fiscal Year 2000 and Plan of Action," "Watergas Incorporated.") The current
agreement with FT Canada eliminates any financial or equity obligations of the
Company to FT Canada and provides that FT Canada retains ownership of Watergas
Incorporated and the Watergas technologies. Furthermore, the current agreement
provides the Company with a non-exclusive international license (excludes Korea
and Japan) for all applications of the Watergas technologies.

C.      Enviro-Mining, Inc.

        Harold Jahn, our President, Chief Executive Officer, Secretary,
Treasurer and Chairman of the Board, currently owns and controls Enviro-Mining,
Inc. As noted above, the Company has entered into a Technology License Agreement
with Enviro-Mining, Inc., for the Enviro-Mining process of waste oil
reprocessing. During fiscal year 2000, Enviro-Mining held 3,260,000 shares of
the Company's Common Stock.. As of October 31, 2000, however 3,200,000 shares of
its holdings in the Company had been sold, reducing its holdings to 60,000
shares. Through his ownership and control of Enviro-Mining, Inc., Harold Jahn
currently controls such equity holdings and their voting rights in the Company.

D.  Sustainable Development Group, Inc.

        Harold Jahn, our President, Chief Executive Officer, Secretary,
Treasurer and Chairman of the Board, currently owns and controls Sustainable
Development Group, Inc. Sustainable Development Group, Inc., is the single
largest shareholder of the Company's Common Stock, owning 7,725,000 shares.
Through his ownership of Sustainable Development Group, Inc., Harold Jahn
currently controls such equity holdings and their voting rights in the Company.

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


A.      Documents filed as part of this Report

    i. Financial Statements:

        a.   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

           <S>                                                                    <C>
           1. Independent Auditors Report.......................................... F-1

           2. Financial Statements:
                  Consolidated Statements of Loss and Deficit...................... F-2
                  Consolidated Balance Sheet................ ...................... F-3
                  Consolidated Statement of Cash Flows............................. F-4
                  Consolidated Statement of Changes in Stockholders' Equity ....... F-5
                  Notes to Consolidated Financial Statements.................F-6 - F-11
</TABLE>

    ii. Reports on Form 8-K.
        a.   During the fiscal year 2000, the Company did not file any such
             reports.



                                       35
<PAGE>   39
                                   SIGNATURES

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

/s/ Harold Jahn
--------------------------------------
Sustainable Development International,
Inc.
By Harold Jahn, President

Date   April 2, 2001
    ----------------------------------

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

By /s/ Harold Jahn
  ------------------------------------
   Harold Jahn, Chairman of the Board,
   Chief Executive Officer and
   Treasurer

Date April 2, 2001
    ----------------------------------


                                       36
<PAGE>   40
                          [GRANT THORNTON LETTERHEAD]

         AUDITORS' REPORT

         To the Stockholders of
         Sustainable Development International Inc.
         (A Development Stage Company)


         We have audited the consolidated balance sheets of Sustainable
         Development International Inc. (A Development Stage Company) as at
         October 31, 2000 and 1999 and the consolidated statements of loss and
         deficit, cash flows, and changes in consolidated stockholders' equity
         for each of the two years then ended. These consolidated financial
         statements are the responsibility of the Company's management. Our
         responsibility is to express an opinion on these consolidated financial
         statements based on our audit.

         We conducted our audit in accordance with generally accepted auditing
         standards used in the United States. Those standards require that we
         plan and perform an audit to obtain reasonable assurance whether the
         financial statements are free of material misstatements. 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.

         In our opinion, these consolidated financial statements present fairly,
         in all material respects, the financial position of the Company as at
         October 31, 2000 and 1999 and the results of its operations and its
         cash flows for each of the two years then ended in accordance with
         generally accepted accounting principles in the United States.

         The accompanying financial statements have been prepared on the basis
         that the Company will continue as a going concern which assumes the
         realization of assets and settlement of liabilities in the normal
         course of business. Since its inception, the Company has been engaged
         in organizational and pre-operating activities. Further, the Company
         has generated no revenues and incurred losses. Continuation of the
         Company's existence is dependent upon its ability to obtain additional
         capital and its ability to successfully develop technologies and
         sustain profitable operations. The uncertainty related to these
         conditions raise substantial doubt about the Company's ability to
         continue as a going concern. The accompanying financial statements do
         not include any adjustments that might result from the outcome of this
         uncertainty.




         Edmonton, Canada
         February 12, 2001                                 Chartered Accountants


                                                                             F-1
<PAGE>   41

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Expressed in United States Dollars)
Years Ended October 31                                             2000              1999
----------------------------------------------------------------------------------------------

                                         Cumulative from
                                          May 27, 1998 to
                                         October 31, 2000
                                         ----------------
<S>                                      <C>                   <C>                <C>
Expenses
  Advertising                               $     18,322       $     17,905       $        267
  Amortization                                    24,344             10,177             10,000
  Consulting fees                                997,598            889,756             84,441
  Engineering services and consulting            236,500            236,500                 --
  Management fees (Note 7)                       121,120             67,120             36,000
  Office                                          21,238             19,510              1,728
  Professional fees                               91,641             47,780             38,873
  Service charges                                  2,685              1,677                553
  Travel                                          33,071             22,747              9,374
  Wages                                            3,522              3,522                 --
                                            ------------       ------------       ------------

Loss before other items                        1,550,041          1,316,694            181,236
                                            ------------       ------------       ------------

Other items
   Project expenses                              148,190            141,510              6,680
   Gain on foreign exchange                      (23,800)           (15,024)            (8,776)
   Interest revenue                               (6,355)                --             (6,355)
                                            ------------       ------------       ------------
                                                 118,035            126,486             (8,451)
                                            ------------       ------------       ------------

Net loss                                    $ (1,668,076)      $ (1,443,180)      $   (172,785)
                                            ============       ============       ============

Basic and fully diluted loss per share                         $     (0.098)      $     (0.013)
                                                               ============       ============

Weighted average number of shares                                14,716,984         13,718,361
                                                               ============       ============

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

Deficit accumulated through
  development stage, beginning of year                         $   (224,896)      $   (52,111)

Net loss                                                         (1,443,180)          (172,785)
                                                               ------------       ------------

Deficit accumulated through
  development stage, end of year                               $ (1,668,076)      $   (224,896)
                                                               ============       ============

----------------------------------------------------------------------------------------------
</TABLE>

GRANT THORNTON [LOGO]


        See accompanying notes to the consolidated financial statements.


                                                                             F-2
<PAGE>   42
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
October 31                                                   2000              1999
--------------------------------------------------------------------------------------
<S>                                                      <C>               <C>
ASSETS
Current
   Cash                                                  $       146       $   155,042

Deposit                                                           --            16,925
Equipment (net of accumulated depreciation of $177)            1,000                --
Development costs (Note 2)                                    26,200                --
Mineral rights (Note 3)                                      100,000                --
Due from related party (Note 7)                              173,626            94,764
Licensing agreements (Note 4)                              1,021,083           285,833
                                                         -----------       -----------

                                                         $ 1,322,055       $   552,564
                                                         ===========       ===========

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

LIABILITIES
Current
   Payables and accruals                                 $   137,522       $    93,452
                                                         -----------       -----------


STOCKHOLDERS' EQUITY
Capital stock (Note 5)                                     2,852,609           684,008
Deficit                                                   (1,668,076)         (224,896)
                                                         -----------       -----------
                                                           1,184,533           459,112
                                                         -----------       -----------

                                                         $ 1,322,055       $   552,564
                                                         ===========       ===========

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

</TABLE>

GRANT THORNTON [LOGO]

        See accompanying notes to the consolidated financial statements.


                                                                             F-3
<PAGE>   43
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
Years Ended October 31                                           2000              1999
-------------------------------------------------------------------------------------------

                                         Cumulative from
                                          May 27, 1998 to
                                         October 31, 2000
                                         ----------------
<S>                                      <C>                  <C>               <C>

Increase (decrease) in cash

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                    $(1,668,076)      $(1,443,180)      $  (172,785)
Adjustment to reconcile net loss from
continuing operations to net cash used
in operating activities
   Amortization                                  24,344            10,177            10,000
   Services settled with shares               1,094,951         1,051,600            20,000

Increase (decrease) in:
   Deposits                                          --            16,925           (16,925)
   Payables and accruals                        197,873           104,421            79,463
                                            -----------       -----------       -----------
Net cash used in operating activities          (350,908)         (260,057)          (80,247)
                                            -----------       -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock                       884,807           244,150                --
Advances to related parties                    (173,626)          (78,862)          (94,764)
                                            -----------       -----------       -----------
Net cash provided from (used in)
   financing activities                         711,181           165,288           (94,764)
                                            -----------       -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment                            (1,177)           (1,177)               --
Increase in development costs                   (26,200)          (26,200)               --
Purchase of licensing agreement                (332,750)          (32,750)               --
                                            -----------       -----------       -----------
Net cash used in investing activities          (360,127)          (60,127)               --
                                            -----------       -----------       -----------

Net increase (decrease) in cash                     146          (154,896)         (175,011)

Cash

   Beginning of year                                 --           155,042           330,053
                                            -----------       -----------       -----------

   End of year                              $       146       $       146       $   155,042
                                            ===========       ===========       ===========

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

</TABLE>



        See accompanying notes to the consolidated financial statements.


                                                                             F-4
<PAGE>   44
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT INTERNATIONAL INC. (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Expressed in
United States Dollars)
Years Ended October 31, 2000
--------------------------------------------------------------------------------------
                                                                                       Additional
                                            Number of          Par         Common       Paid-in-
                                             Shares           Value         Stock        Capital         Deficit          Total
                                           -----------      --------      --------     -----------     -----------     -----------
<S>                                        <C>              <C>           <C>          <C>             <C>             <C>
Balance, May 27, 1998                               --      $     --      $     --     $        --     $        --     $        --

Shares issued to founding
  stockholders, May 1998                    11,500,000          .001        11,500         (11,492)             --               8

Common shares issued for
  transfer of Licensing Agreement,
  June 1998                                  1,200,000          .001         1,200         298,800              --         300,000

Common shares issued for cash
  consideration of $0.25 per share
  by private placement, September 1998         706,596          .001           707         175,943              --         176,650

Common shares issued for services,
  June 1998 to October 1998                     93,404          .001            93          23,257              --          23,350

Common shares issued for cash
  consideration of $1.00 per share
  by private placement, October 1998           200,000          .001           200         199,800              --         200,000

Expenses on issuance of share
  capital                                           --            --            --         (36,000)             --         (36,000)

Net loss                                            --            --            --              --         (52,111)        (52,111)
                                           -----------      --------      --------     -----------     -----------     -----------
Balance, October 31, 1998                   13,700,000          .001        13,700         650,308         (52,111)        611,897

Common shares issued for
  services, November 1998                       20,000          .001            20          19,980              --          20,000

Net loss                                            --            --            --              --        (172,785)       (172,785)
                                           -----------      --------      --------     -----------     -----------     -----------
Balance, October 31, 1999                   13,720,000          .001        13,720         670,288        (224,896)        459,112

Common shares issued for
  services during the year at
  $0.66 per share                            1,260,000          .001         1,260         830,340              --         831,600

Common shares issued for
  services during the year at
  $1.0625 per share                             56,800          .001            57          60,294              --          60,351

Common shares issued for
  mineral rights during the year at
  $1.00 per share                              100,000          .001           100          99,900              --         100,000

Common shares issued for Licensing
  agreement, October 2000 (Note 8)           1,900,000          .001         1,900         710,600              --         712,500

Common shares issued for
  services during the year at
  $0.40 per share                              550,000          .001           550         219,450              --         220,000

Common shares issued for cash
  consideration of $0.50 per share
  by private placement, February 2000          488,300          .001           488         243,662              --         244,150

Net loss                                            --            --            --              --      (1,443,180)     (1,443,180)
                                           -----------      --------      --------     -----------     -----------     -----------

Balance, October 31, 2000                   18,075,100      $   .001      $ 18,075     $ 2,834,534     $(1,668,076)    $ 1,184,533
                                           ===========      ========      ========     ===========     ===========     ===========
</TABLE>

GRANT THORNTON [LOGO]

                                                                             F-5
<PAGE>   45
------------------------------------------------------------------------------
SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
October 31, 2000

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

1.      NATURE OF OPERATIONS

Sustainable Development International, Inc., a Nevada corporation, is a
Development Stage Company formed on May 27, 1998 to encourage sustainable
development by commercializing innovative technologies in environmental
industries.

The Company's goal is to acquire technology rights and licenses from patent
holders for proven technologies, then secure a market, and finally raise the
necessary capital to build, own, and operate facilities throughout the world.

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

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's accounting and reporting policies conform to generally accepted
accounting principles and industry practice in the United States. The amounts
reported in these financial statements are in United States dollars.

The consolidated financial statements include the accounts of Sustainable
Development International Inc., its wholly owned subsidiaries, Sustainable
Health Inc. and Watergas Inc., and its 80% interest in Intercontinental Granite
Inc.

USE OF ESTIMATES

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

LICENSING AGREEMENTS

Licensing agreements are recorded at cost. Licensing agreements are assessed for
future recoverability or impairment on an annual basis by estimating future net
undiscounted cash flows and residual values or by estimating replacement or
appraised values. If the net carrying amount of the licensing agreements exceeds
the estimated net recoverable amount, the agreements are written down with a
charge against income.

Amortization of licensing agreements is being recorded in the financial
statements on a straight-line basis over the life of the agreements, which is 30
years.

GRANT THORNTON [LOGO]

                                                                             F-6

<PAGE>   46
------------------------------------------------------------------------------

SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
October 31, 2000

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

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont')

FUNCTIONAL CURRENCY

The functional currency of the Company is the Canadian dollar. The financial
statements are presented in United States dollars using the principles set out
in Statement of Financial Accounting Standards No. 52 "Foreign Currency
Translation" (SFS No. 52). Assets and liabilities are translated at the rate of
exchange in effect at the close of the period. Revenues and expenses are
translated at the weighted average of exchange rates in effect during the
period. The effects of exchange rates fluctuations on translating foreign
currency assets and liabilities into United States dollars are included as part
of the accumulated deficit component of stockholders' equity.

ISSUANCE OF CAPITAL STOCK

Issuances of capital stock in consideration for services performed are based on
the market value of the shares given up at the time the shares become
distributable.

DEVELOPMENT COSTS

Development costs are capitalized once technical feasibility has been
established for the product, the Company has identified a market for the
product, and intends to market the developed product. Once commercial
development of the product is completed these costs are amortized using the
straight-line method over five years. The Company continually evaluates whether
events and circumstances have occurred that indicate the remaining useful life
of development costs may warrant revision or that the remaining balance may not
be recoverable.

LOSS PER SHARE

The Company reports loss per share in accordance with the provisions of SFAS No.
128, Earnings Per Share. SFAS No. 128 requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic loss per share excludes dilution and is
computed by dividing income available to common shares by the weighted average
common shares outstanding during the period. Diluted loss per share takes into
account the potential dilution that could occur if securities or other contracts
to issue common stock were exercised and converted into common stock.

MINERAL RIGHTS

Mineral rights are recorded at cost. Mineral rights are assessed for future
recoverability or impairment on an annual basis by estimating future net
undiscounted cash flows. If the net carrying amount of the mineral rights
exceeds the estimated net recoverable amount, the rights are written down with a
charge against income.

GRANT THORNTON [LOGO]

                                                                             F-7

<PAGE>   47
------------------------------------------------------------------------------

SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
October 31, 2000

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

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont')

INCOME TAXES

Income taxes are provided based on the liability method for financial reporting
purposes. Deferred and prepaid taxes are provided for on temporary differences
in the basis of assets and liabilities which are recognized in different periods
for financial and tax reporting purposes.

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

3.      MINERAL RIGHTS

During the year, the Company acquired the mineral rights for a mineral deposit
near Hope, British Columbia, Canada.

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

4.      LICENSING AGREEMENTS

a)      On June 11, 1998 Sustainable Development International Inc. entered into
        a Limited Technology License Agreement with Enviro-Mining Inc., an
        Alberta, Canada Corporation.

        The Agreement commits Sustainable Development International Inc. to pay
        an amount equal to or less than $300,000 to Enviro-Mining Inc. as a
        production royalty. Enviro-Mining Inc. has provided an extension of the
        original agreement and has delayed payment, without any penalties.

        This licensing agreement allows the Company to use a process that is
        related to an oil refining technology for the production of a high grade
        low sulphur #2 diesel and associated products from waste lubrication
        oil.

        The Agreement could be terminated if Sustainable Development
        International Inc. does not commence construction of a waste oil
        reprocessing facility by June 11, 2005, at a minimum plant capacity of
        90,000 Tonnes of waste oil input.

b)      On September 26, 2000 Sustainable Development International Inc. entered
        into a Limited Technology License Agreement with FT Canada Inc., a
        Canada Corporation. The Agreement commits Sustainable Development
        International Inc, to certain royalties and performance bonuses as well
        as continuing financial commitments regarding research and development
        expenditures.

        The licensing agreement granted the Company exclusive right to produce,
        merchandise, market, distribute, and promote products manufactured by
        The Watergas Process as well as have exclusive license for the two
        patents pending in Canada.

GRANT THORNTON [LOGO]

                                                                             F-8
<PAGE>   48
------------------------------------------------------------------------------

SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
October 31, 2000

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

4.      LICENSING AGREEMENTS (cont'd)

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                            ----------      ----------
                                           Accumulated       Net Book        Net Book
                               Cost        Amortization       Value           Value
                            ----------      ----------      ----------      ----------
<S>                         <C>             <C>             <C>             <C>
License agreement with
  Enrivo-Mining Inc.        $  300,000      $   24,167      $  275,833      $  285,833
License agreement with
  F.T. Canada Inc.             745,250              --         745,250              --
                            ----------      ----------      ----------      ----------

                            $1,045,250      $   24,167      $1,021,083      $  285,833
                            ==========      ==========      ==========      ==========
</TABLE>

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

5.      CAPITAL STOCK

<TABLE>
<CAPTION>
                                                            2000            1999
                                                         ----------      ----------
<S>                                                      <C>             <C>
AUTHORIZED:

50,000,000 Common voting shares, $.001 par value
10,000,000 Preferred shares

ISSUED:

18,075,100 (1999 - 13,720,000) common voting shares      $   18,075      $   13,720
Additional paid-in capital                                2,834,534         670,288
                                                         ----------      ----------
                                                         $2,852,609      $  684,008
                                                         ==========      ==========
</TABLE>

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

6.      FINANCIAL INSTRUMENTS

a)      Fair value

The Company's financial instruments include cash, amounts due from a related
party, and payables and accruals. The calculation of a fair value for the
amounts due from a related party is indeterminable due to the uncertainty of
future cash flows. The fair value of all remaining financial instruments
approximate their carrying values.

b)      Foreign currency risk

The Company has transactions occurring that are denominated in foreign
currencies, and thus is exposed to the financial risk of fluctuations arising
from changes in foreign exchange rates and the degree of volatility of these
rates. The Company does not use derivative instruments to

GRANT THORNTON [LOGO]

                                                                             F-9
<PAGE>   49
------------------------------------------------------------------------------

SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
October 31, 2000

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

6.      FINANCIAL INSTRUMENTS (cont'd)

reduce its exposure to foreign currency risk. It is management's opinion that
foreign currency risk is not significant.

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

7.      RELATED PARTY TRANSACTIONS

a)      During the year advances were made to Enviro-Mining Inc., a stockholder
        of the Company related to a director, to assist with acquiring new
        technologies. Also, Enviro-Mining Inc., paid certain expenses on behalf
        of the Company.

        The net amount receivable from Enviro-Mining Inc., $173,626 (1999 -
        $94,764) is non-interest bearing with no set terms of repayment.

b)      During the year, management fees were paid to a director of the Company
        totalling $36,000 (1999 - $36,000). This transaction has been reflected
        in the financial statements at its exchange amount.

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

8.      SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                 2000            1999
                                                              ----------      ----------
<S>                                                           <C>             <C>
Schedule of non-cash investing and financing activities:

Acquisition of Mineral Rights                                 $  100,000      $       --
Acquisition of Licensing Agreement                               712,500              --
Settlement of accounts payable                                    60,351              --
Consideration for consulting services
   performed to October 1999                                          --          20,000
Consideration for consulting services
   performed to May 2000                                         831,600              --
Consideration for engineering services
   performed to October 2000                                     220,000              --
                                                              ----------      ----------

Total issuance of capital stock                               $1,924,451      $   20,000
                                                              ==========      ==========
</TABLE>

GRANT THORNTON [LOGO]

                                                                            F-10
<PAGE>   50
------------------------------------------------------------------------------

SUSTAINABLE DEVELOPMENT INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
October 31, 2000

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

9.      INCOME TAXES

At October 31, 2000 and 1999, the Company had net operating loss carry forwards
of approximately $1,443,180 and $224,896 which will be available to offset
taxable income during the carry forward period through 2007. These net operating
loss carry forwards give rise to deferred tax assets of $1,443,180 and $224,896
as of October 31, 2000 and 1999, respectively, which have been fully offset by a
valuation allowance as the assets do not meet the criteria that it is more
likely than not they will be realized. Therefore no tax benefit is realized in
the statement of operations.

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

10.     SUBSEQUENT EVENTS

a)      On December 19, 2000, the Company signed an amendment to the licensing
        agreement described in Note 4b. This amendment eliminates all
        outstanding financial obligations of the Company to F.T. Canada Inc.,
        such as certain royalty payments, performance bonuses and obligations
        regarding research and development expenditures.

b)      Subsequent to the year end 500,000 shares of the Company were issued as
        partial consideration for a retail project.

c)      On January 15, 2001, 564,636 common voting shares were issued to
        consultants of the Company pursuant to a Shareholder's resolution, in
        settlement of accounts payable and services subsequent to the year-end
        of $97,400.

d)      Subsequent to the year-end the Company is in the process of acquiring
        the remaining 20% interest in its subsidiary Intercontinental Granite
        Inc. The Company has an offer then to sell the entire interest to a
        third party and the sale is conditional on acquiring all the outstanding
        shares.

GRANT THORNTON [LOGO]



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