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

                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended September 30, 2000

                          Commission file number 27859

                          RAD SOURCE TECHNOLOGIES, INC.
                 (Name of Small Business Issuer in its charter)

            FLORIDA                                     65-0882844
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

               475 RAMBLEWOOD DRIVE, CORAL SPRINGS, FLORIDA 33071
               (Address of principal executive offices) (Zip Code)

                                 (954) 755-1827
                           (Issuer's telephone number)

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

              Securities registered under Section 12(g) of the Act:
                          COMMON STOCK, PAR VALUE $.001

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 requirments for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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]

Issuer's revenues for its most recent fiscal year  were $646,488

The aggregate market value of the voting and non-voting common equity held by
non-affiliates based on the average bid and asked price at December 21, 2000 was
$556,473. At December 21, 2000, the issuer had 2,545,040 shares of common stock,
par value $.001 issued and outstanding.


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                                TABLE OF CONTENTS

                                     Part I
                                                                            Page
                                                                            ----
Item 1.  Description of Business                                               1

Item 2.  Description of Property                                               4

Item 3   Legal Proceedings                                                     4

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

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters              4

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

Item 7.  Financial Statements                                                 11

Item 8.  Changes In and Disagreements With Accountants on
                  Accounting and Financial Disclosure                         12

                                    Part III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act                    12

Item 10. Executive Compensation                                               13

Item 11. Security Ownership of Certain Beneficial Owners and Management       13

Item 12. Certain Relationships and Related Transactions                       15

Item 13. Exhibits and Reports on Form 8-K                                     16


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                  CAUTION REGARDING FORWARD-LOOKING INFORMATION

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

THIS ANNUAL REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION
RELATING TO THE COMPANY THAT ARE BASED ON THE BELIEFS OF THE COMPANY OR
MANAGEMENT AND ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE
COMPANY OR MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE",
"BELIEVE", "ESTIMATE", "EXPECT" AND "INTEND" AND SIMILAR EXPRESSIONS, AS THEY
RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW OF THE
COMPANY REGARDING FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES
AND ASSUMPTIONS, INCLUDING THE RISKS AND UNCERTAINTIES NOTED. SHOULD ONE OR MORE
OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS
PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN
AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. IN EACH INSTANCE,
FORWARD-LOOKING INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE ACCOMPANYING
MEANINGFUL CAUTIONARY STATEMENTS HEREIN.

PART I

References herein to the "Company" refer to Rad Source Technologies, Inc. and
its subsidiary.

Item 1. Description of Business

BUSINESS DEVELOPMENT

The Company was incorporated in the State of Florida on July 2, 1990 as Computer
Vending, Inc. On December 24, 1998, the Company entered into an agreement with
Rad Source, Inc. (hereinafter "Rad Source"), a Florida corporation, and the
holders of 100% of their issued and outstanding shares, whereby the Company
acquired all of the outstanding shares of Rad Source in exchange for
759,422(post-split) newly issued shares of the Company. At the closing of the
transaction, the shareholders of Rad Source obtained control of the Company, and
the Company changed its name to Rad Source Technologies, Inc. The then existing
directors and executive officers resigned and were replaced by designees of Rad
Source, which became the wholly owned subsidiary.

Rad Source was incorporated in the State of Florida in October of 1996 and
conducted research and developed products based on x-ray technology. On
September 9, 1999, the Company reverse split the stock on a three for one share
basis. All references to the shares contained in this report reflect the stock
split of September 9, 1999, unless otherwise indicated.

BUSINESS OF THE COMPANY

The Company is in the business of researching, developing and producing
commercially viable products that utilize x-ray technology to satisfy various
application requirements across various industries. The Company's historical
efforts have been in the area of developing equipment which can be substituted
for that which utilizes radioactive isotopes to produce radiation. However,
x-ray technology can be used in a variety of industries and the Company believes
its expertise can be applied to a wide variety of applications in addition to
radiation, including imaging.

The Company has developed and currently sells certain equipment that produces
radiation utilizing x-rays, thereby eliminating the need for radioactive
sources. Radiation equipment is used in a variety of applications ranging



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from medical equipment sterilization to biological research. Radiation
eliminates reproduction, and therefore its applications generally require the
destruction of harmful organisms (applications include food and medical product
sterilization, where bacteria would otherwise be a human threat) or the effects
of active cells (as is the case with white blood cells in blood irradiation
applications, which otherwise would harm immuno-deficient patients). Unlike the
Company's equipment, radioactive source equipment is highly regulated and
requires certain safety precautions due to the nature of the source. That is,
the source, generally cesium or cobalt, is a radioactive isotope and its
radiation emissions cannot be "turned off". If the source were to escape its
containment, its emissions are highly hazardous.

The Company has produced two commercially available products, the RS 3000 Blood
Irradiator and the RS 2000 Biological Irradiator. These products utilize x-rays
to produce radiation and compete with radioactive isotope based equipment. These
products require electricity to produce radiation and therefore must be turned
on to produce radiation and can be turned off to eliminate the production of
radiation. The Company sold its first RS 3000 in August 1999 and its first RS
2000 in January 2000. Although the Company has offered these products globally,
it has only sold them in the U.S.

The RS 3000 Blood Irradiator is designed to be used by hospitals and blood
centers for the irradiation of blood and blood products. The RS 3000 is a
non-nuclear, x-ray irradiator and has been approved by the U.S. Food and Drug
Administration ("FDA"). Irradiated blood is used by healthcare institutions for
immuno-deficient patients (e.g., the elderly, infants and children, cancer and
AIDS patients, transplant patients, etc.). Blood irradiation equipment is a
global market and is dominated by two large companies which produce
nuclear-based equipment only (i.e., they utilize radioactive isotopes as their
radiation source). These nuclear-based products have been serving the market for
about 20 years as opposed to the RS 3000 which was only recently introduced to
the market. The competitive radioactive source equipment is generally subject to
stringent regulation. For example, in the U.S., the Nuclear Regulatory
Commission ("NRC")requires compliance with its rules and regulations for
operators of radioactive source equipment. This means federal licensing,
periodic reporting, minimum personnel and recurrent training, and nuclear
material disposal compliance are applicable. Since the Company's equipment is
not radioactive sourced, operators of the Company's equipment are not subject to
NRC regulations. Additionally, minimum radiation shielding requirements for
radioactive source equipment cause it to weigh substantially more than the
Company's competitive equipment - up to 7 times as much. This virtually
eliminates the mobility of competitive nuclear-based equipment and generally
requires restrictive location of the equipment to reinforced flooring only.
Because of the significant operational and regulatory requirements of
radioactive isotope based competitive equipment, the Company believes its x-ray
based products open the market to viable users who would otherwise not wish to
contend with such regulatory and operational restrictions inherent with nuclear
equipment.

The Company was recently notified by the U.S. patent office that it has been
granted a U.S. patent on the RS 3000. The Company is awaiting assignment of its
official patent number.

The Company also produces the RS 2000 which is used by research institutions for
conducting biological experiments used in such areas as cancer and genetic
research. This, again is a global market dominated by nuclear-based equipment
produced by only a couple of large, global competitors. The Company introduced
the RS 2000 to this market in 1999 and delivered the first unit in early 2000.
The competitive nuclear-based equipment is subject to the same regulations,
operational characteristics and restrictions as those competitive with the RS




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3000, previously outlined. Manufacturing the RS 2000 is not subject to FDA
approval, but FDA and USDA regulations cover its applications.

The Company's products are sold directly by in-house personnel and through
independent sales representatives. The Company's customer base is varied and the
Company is not dependent on any single customer for its revenues.

The Company utilizes various vendors to supply components for its products.
Assembly of its products is outsourced to subcontract integrators. Any inability
by our vendors and subcontractors to deliver components or integrate our
products will require the Company to re-source such components or integration.
Although, there are various other qualified vendors and integrators, the Company
would anticipate time delays in shifting to alternate sources which could affect
the Company adversely.

The Company has no trademarks, franchises, concessions, or labor contracts. The
Company's machines produce radiation electronically and are based on technology
developed and research conducted by its President and Director, Randol Kirk. Mr.
Kirk currently owns the technology used for the machines. The Company has a
license agreement with Mr. Kirk, which allows the Company to sell the two
products utilizing this technology. Under the terms of the licensing agreement
between the Company and Mr. Kirk, Mr. Kirk is to be paid a five percent (5%)
royalty on the sales of the Company's products that incorporate the licensed
technology (the RS 3000 and RS 2000). This agreement terminates September 2009.
The agreement is renewable at the option of the Company. Upon default by the
Company, Mr. Kirk may terminate the licensing agreement. A default will occur if
the combined amount of compensation and royalty received by Mr. Kirk is less
than $12,000 per fiscal quarter. If that occurs, the Company could lose its
rights to the licensed technology on which its principal products are based.
This would have a significantly adverse effect on the Company. As of December
15, 2000, Mr. Kirk has waived any past royalty which otherwise would have been
due him.

The Company's RS 3000 is subject to regulation by the FDA. The RS 2000 is not
directly subject to such regulation. The RS 3000 and RS 2000 are subject to
Federal Regulations that promulgates certain radiation safety specifications.
The Company's continued sale of its existing products and the development and
sale of possible future products will require continued regulatory compliance.
Also, commercial distribution in certain foreign countries is subject to
government regulation. The process of obtaining required regulatory approvals
can be lengthy, expensive and uncertain. Moreover, regulatory approvals, if
granted, may include significant limitations on the indicated uses for which a
product may be marketed. The FDA also regulates the content of advertising and
marketing materials relating to medical devices. There can be no assurance that
the advertising and marketing materials related to the products will be in
compliance with such regulations. The Company is also subject to other federal,
state, local and foreign laws, regulations and recommendations relating to the
production and use of its products. Failure to comply with applicable regulatory
requirements could result in, among other things, fines, suspensions of
approvals, seizures or recalls of products, operating restrictions and criminal
prosecutions. Furthermore, changes in existing regulations or adoption of new
regulations could affect the timing of, or prevent us from obtaining, future
regulatory approvals. The effect of government regulation could delay us for a
considerable period of time or prevent the marketing and full commercialization
of future products or services that the Company may develop and/or to impose
costly requirements on us. There can also be no assurance that additional
regulations will not be adopted or current regulations will not be amended in
such a manner as to adversely affect the operations.



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The manufacture and use of irradiation equipment is highly regulated, and there
can be no assurance that the Company will be able to comply with existing or
future regulations or that the regulatory environment in which the Company
operates will not change significantly and thus adversely effect the Company.

In the past two fiscal years, the Company has spent approximately $263,000 on
research and development. The Company's research and development costs are not
borne directly by its customers.

To the best of management's knowledge, the Company is not currently subject to
any special compliance requirements of any environmental laws and the Company
does not anticipate any significant costs in maintaining compliance in the
future.

The Company has four employees of which three are full-time. None of the
employees are members of a union.

Item 2. Description of Property

The Company's office is located at 475 Ramblewood Drive, Suite 207, Coral
Springs, Florida 33071. The facility is approximately five hundred (500) square
feet of office space. The Company leases this space on a month-to-month basis at
a rate of $560.00 per month. The Company is seeking new offices with more space
(approximately 1,000 square feet) to accommodate its growth and enhance its
operations. The new office space is anticipated to be at a higher monthly
rental.

Item 3. Legal Proceedings

As of December 21, 2000 there are no material legal proceedings pending against
the Company. From time to time the Company may become involved in routine
litigation incidental to its business.

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

None.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's Common Stock is traded on the NASDAQ Over the Counter Bulletin
Board ("OTCBB") under the symbol IRAD. The following bid quotations have been
reported for the period beginning March 16, 1999, the date of the initial
quotation, and ending September 30, 2000:

                                                     Bid Quotation
                                                -----------------------
Quarterly Period                                 High             Low
----------------                                ------           ------

March 16, 1999 - March 31, 1999                 $5.125           $4.25

April 1, 1999 - June 30, 1999                   $4.75            $2.25




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July 1, 1999 - September 30, 1999               $3.625           $0.125

October 1, 1999 - December 31, 1999             $1.875           $0.516

January 1, 2000 - March 31, 2000                $1.50            $0.516

April 1, 2000 - June 30, 2000                   $1.25            $0.406

July 1, 2000 - September 30, 2000               $0.688           $0.188

Such quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission. Such quotes are not necessarily representative of actual
transactions or of the value of the securities, and are in all likelihood not
based upon any recognized criteria of securities valuation as used in the
investment banking community.

As of December 21, 2000 there were approximately 80 holders of record of the
Company's common stock, $0.001 par value.

The Company has never declared dividends. The Company has no restrictions
limiting the ability to pay dividends, but the Company does not anticipate
paying dividends in the near future.


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

Financial Condition

The Company's working capital and working capital ratio has deteriorated from
the prior year-end to a deficit of $342,942 from $192,595 in 1999, and 0.30 from
0.51, respectively. This is primarily the result of increased accruals and
payables caused by increased production and operations of the Company. Although
the Company's cash flow from operations has improved from a $581,114 use of cash
in 1999 to a $23,184 source of cash in 2000, continued losses from operations in
2000 resulted in funding through payables and accruals. The Company's increase
in its working capital deficit and poor liquidity during 2000 are considered the
result of its inability to achieve profitability. The Company must become
profitable, raise additional equity either directly or through the conversion of
existing debt to equity and must continue to rely on vendors, service providers
for periodic payment deferrals and/or cost reductions, to improve liquidity and
sustain its operations. Toward these ends, the Company sold 135,000 Rule 144
restricted shares of common stock in November 2000, for the sum of $50,000, the
backlog of product orders as of December 23, 2000 grew to approximately
$370,000, and the Company has maintained relationships with its primary vendors
who continue to respond to the Company's production requirements.
Notwithstanding positive trends in revenues and cash flows, it should be noted
that there remains a high degree of risk and uncertainty with respect to the
Company's ability to continue its positive revenue and cash flow trends. Related
risks and uncertainties are noted below and throughout this annual report.

Over the next twelve months, the Company anticipates continuing operational
growth, and therefore, an increase in costs and operating expenses related to



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payroll, additional sales efforts, and product development. Therefore, there
will be an ongoing need for capital over the next twelve months.

Regarding the Company's satisfaction of these cash requirements over the next
twelve months, management believes it will meet these only if the Company is
successful in maintaining its sales growth and favorable cash flow trend, as
well as utilizing other actions (raising additional capital or deferring
payments) to maintain its operations. In the event the trends change and methods
that were utilized by the Company to maintain necessary liquidity for operations
are no longer available, the effect on the Company would be adverse.

Results of Operations

Year ended September 30, 2000 compared to September 30, 1999.

Revenues increased by 966% to $646,488 as the result of increased unit sales.
2000 was the Company's first full year of sales of its RS 3000 Blood Irradiator.
Cost of sales increased at a rate less than the sales increase (639%) due to the
fact that the Company provided a substantial discount to its first customer in
1999 and the discounts were discontinued during 2000.

Research and Development costs have decreased as the result of completing the
design and development of the RS 3000 and RS 2000, both of which were available
for commercial sale in 2000 and efforts in 2000 began to be more marketing
oriented. The Company continues to evaluate other products for development. This
expense is expected to continue and will vary, depending on managements
evaluation of potential products and projects. Research and development costs
fluctuate because of the Company's significant capital constraints.

Selling, general and administrative expenses grew 15% to $397,544 from $345,014.
This is the general result of increased unit sales and operations to support
growth that have contributed to additional employees and resultant payroll cost
increases, as well as related support cost increases.

There was no stock issued for services in 2000, as compared to an expense of
$3,567,161 in 1999.

The Company's interest expense decreased by $11,190, or 79% primarily as the
result of the decrease in average interest bearing debt from 1999 to 2000.

Issues and Uncertainties


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The forward-looking statements included herein are based on current assumptions
that the Company will continue to develop, market, manufacture and ship products
on a timely basis, that competitive conditions within the Company's markets will
not change materially or adversely, that the Company will continue to identify
and satisfy customer needs for products and services, that the Company will be
able to retain and hire key personnel, that its equipment, processes,
capabilities and resources will remain competitive and compatible with the
current state of technology, that risks due to shifts in customer demand will be
minimized, and that there will be no material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
that are based on incomplete information and are subject to many factors that
may materially affect results.

Because of these and other factors affecting the Company's operating results,
past financial performance should not be considered an indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods. The following factors also may materially
affect results and therefore should be considered.

The Company generates all of its revenues from the RS 3000 and the RS 2000, the
vast majority being from the RS 3000. Although the Company has performed testing
and has refined these products, the Company's introduction and sale of the
products has been recent. Therefore, the Company has no significant historical
commercial performance data on the equipment. Should product performance issues
arise in the future which cannot be corrected by the Company, the Company's
operations would be detrimentally affected.

The Company primarily competes with a number of very large and well capitalized
competitors. Although the Company has successfully sold its products to
potential customers of the competitors, and the Company is confident of its
products' competitive advantages, there can be no assurance that these
competitors or others will not undertake steps to undermine the Company's sales
efforts or the Company's further penetration of the market through price
discounts, product enhancements, rebates or similar methods which could
drastically reduce or eliminate the sale of the Company's products. Because of
its competitors' greater resources, the Company's marketing efforts may be far
less successful in comparison to its competitors'. The Company's competitors
have the resources and funding to advertise and promote their products that the
Company cannot match.

Although management anticipates an ongoing market for the use of radiation for
blood and blood products as well as for research purposes, there can be no
assurances that other breakthroughs, otherwise competitive technology, or
blood treatment may not be developed which would make the Company's products
less attractive or even obsolete. Since these are the only products of the
Company, this could have a detrimental effect.

There can be no assurance that the patent for the RS 3000 or other patents
applied for in the future will afford protection from material infringement or
that such patents will not be challenged. There also can be no assurance that
the technology will not infringe upon the patents of others. In the event that
any such infringement claim is successful, there can be no assurance that the
Company will be able to negotiate with the patent holder for a license, in which
case the Company could be prevented from utilizing the subject matter



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claimed by such patent. In addition, there can be no assurance that the Company
will be able to redesign the products to avoid infringement. The inability to
utilize the subject matter of patents claimed by others, or to redesign the
products to avoid infringement, could have a material adverse effect on the
business.

Any of the products may be subject to recall for unforeseen reasons. The medical
device industry has been characterized by significant malpractice litigation. As
a result, the Company faces a risk of exposure to product liability, errors and
omissions or other claims in the event that the use of the X-ray equipment,
components, accessories or related services or other future potential products
is alleged to have resulted in a false diagnosis or injury. There can be no
assurance that the Company will avoid significant liability. Any such claim
against the Company could adversely affect the business.

The Company's founder, Mr. Kirk is primarily responsible for the Company's
existing products' performance and technical characteristics. The Company
expects that additional products will be designed, developed, and/or produced
primarily in concert with Mr. Kirk. Therefore, any loss of Mr. Kirk's services
for any reason will have a significantly unfavorable effect on the Company. The
Company holds a $1.0 million key-man insurance policy on Mr. Kirk.

The Company has experienced substantial fluctuations in its annual and quarterly
operating results, and such fluctuations may continue in future periods. The
Company's operating results are affected by a number of factors, many of which
are beyond the Company's control. Factors contributing to fluctuations in the
Company's operating results include unforeseen design or manufacturing delays,
price competition, functional competition (other means of accomplishing the same
or similar end result), the inability to pass on cost overruns, the timing of
expenditures in anticipation of increased sales, and customer product delivery
requirements. In addition, the amount and timing of orders placed by customers
may vary due to a number of factors, including budget timing and impact, changes
in strategy, and variation in product demand attributable to, among other
things, competitive factors, and general economic conditions. Any one of these
factors, or a combination thereof, could adversely affect the Company's annual
and quarterly results of operations.

The Company's customers generally require short delivery cycles, and a
substantial portion of the Company's backlog is typically scheduled for delivery
within 90 days. Quarterly sales and operating results therefore depend in large
part on the volume and timing of orders received during or immediately prior to
the quarter, which are difficult to forecast in advance. The short lead-time for
the Company's backlog also affects its ability to accurately project production
and inventory levels. In addition, a significant portion of the Company's
operating expenses is relatively fixed in nature and planned expenditures are
based in part on anticipated orders. Any inability to adjust spending quickly
enough to compensate for any revenue shortfall may magnify the adverse impact of
such revenue shortfall on the Company's results of operations.

The products of the Company require one or more components or integration
services that are ordered from, or which may be available from, only one source
or a limited number of sources. Delivery problems relating to components or
integration services purchased from any of the Company's suppliers could have a
material adverse impact on the financial performance of the Company. From time
to time, the Company's suppliers allocate capacity among their customers in
response to labor and/or material shortages. In some cases, these shortages will
substantially curtail production. While the Company has not experienced
sustained periods of shortages in the recent past,




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there can be no assurance that shortages will not occur in the future. Any such
shortages could have a material adverse effect on the Company's operating
results.

The level and timing of orders placed by customers vary due to the customers'
attempts to balance their cash flow, changes in customers' strategies, and
variations in demand for the customers' products. Due in part to these factors,
most of the Company's customers do not commit to firm orders for more than
several weeks in advance of requirements. The Company's inability to forecast
the level of customers' orders with certainty makes it difficult to schedule
production and optimize utilization of its integrators' capacity. In the past,
the Company has been required to incur other marginal expenses in order to meet
the anticipated demands of its customers. From time to time, anticipated orders
from some of the Company's customers have failed to materialize and delivery
schedules have been deferred as a result of changes in a customer's business
needs, both of which have adversely affected the Company's operating results. On
other occasions, customers have required rapid increases in production that have
placed an excessive burden on the Company's resources. There can be no assurance
that the Company will not experience similar fluctuations in customer demand in
the future.

The Company's sales have varied significantly as customer demand for the
Company's products increases and decreases. The Company's future operating
results will depend on management's ability to manage periods of both growth and
downturn, to be able to hire, train and retain qualified employees, and to
forecast revenues and control expenses. Unexpected declines in revenues, without
corresponding and timely reductions in expenses, could have a material adverse
effect on the Company's business, results of operations, or financial condition.

The Company's continued growth and success depend to a significant extent on the
continued service of senior management and other key employees. Competition for
skilled business, product development, technical and other personnel is intense.
There can be no assurance that the Company will be successful in recruiting new
personnel and retaining existing personnel. The loss of one or more key
employees could have a material adverse effect on the growth of the Company.

The market price of the Company's Common Stock has experienced significant
fluctuations and may continue to fluctuate in the future. The market price of
the Common Stock may be significantly affected by factors such as changes in
requirements or demands for the Company's services, the announcement of new
products or product enhancements by the Company or its competitors,
technological innovations by the Company or its competitors, quarterly
variations in the Company's or its competitors' results of operations, changes
in prices of the Company's or its competitors' products and services, changes in
revenue and revenue growth rates of the Company, speculation in the press or
analyst community, and general market conditions or market conditions specific
to particular industries. The stock prices for many companies in the technology
sector have experienced wide fluctuations that often have been unrelated to
their operating performance. Such fluctuations may adversely affect the market
price of the Company's Common Stock.





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Item 7.  Financial Statements

TABLE OF CONTENTS

                                                                         Page
                                                                         ----

Report of Independent Certified Public Accountants                        F-1

Consolidated Balance Sheet                                                F-2

Consolidated Statements of Operations                                     F-3

Consolidated Statement of Changes in Stockholders' Deficit                F-4

Consolidated Statements of Cash Flows                                     F-5

Notes to Consolidated Financial Statements                                F-7





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               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Rad Source Technologies, Inc. and subsidiary

We have audited the consolidated balance sheet of Rad Source Technologies, Inc.
and subsidiary, as of September 30, 2000, and the related consolidated
statements of operations, consolidated changes in stockholders' deficit, and
consolidated cash flows for the years ended September 30, 2000 and 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rad Source
Technologies, Inc. and subsidiary, as of September 30, 2000, and the results of
its operations and cash flows for the years ended September 30, 2000 and 1999,
in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered losses from
operations and has a net capital deficiency that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Sweeney Gates & Co.

December 15, 2000





                                      F-1
<PAGE>   15




                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2000

ASSETS

 Current assets:
      Cash and cash equivalents                                    $    52,320
      Accounts receivable                                               59,246
      Inventory                                                         32,914
      Prepaid expense                                                    5,312
                                                                   -----------

         Total current assets                                          149,792

 Computer equipment, less accumulated
      depreciation of $1,084                                             6,291
 Other assets                                                            2,430
                                                                   -----------

                                                                   $   158,513
                                                                   ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

 Current liabilities:
      Note payable                                                      10,000
      Accounts payable                                                 259,118
      Accrued expenses                                                 114,146
      Accounts payable - stockholders                                   72,670
      Notes payable to stockholders                                     36,800
                                                                   -----------

         Total current liabilities                                     492,734
                                                                   -----------

 Stockholders' deficit:
      Common stock, par value $.001; 50,000,000 shares authorized;
         2,410,040 issued and outstanding                                2,410
      Additional paid-in capital                                     4,414,652
      Accumulated deficit                                           (4,751,283)
                                                                   -----------

         Total stockholders' deficit                                  (334,221)
                                                                   -----------
                                                                   $   158,513
                                                                   ===========



       The accompanying notes are an integral part of these consolidated
                             financial statements.




                                       F-2
<PAGE>   16


                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999



                                                   2000                1999
                                                -----------         -----------

Sales                                           $   646,488         $    60,647
Cost of sales                                       392,910              53,150
                                                -----------         -----------

     Gross profit                                   253,578               7,497
                                                -----------         -----------

Expenses:
     Research and development                        30,132             232,526
     Selling, general and administrative,
       including non-cash compensation expense
       of $0 and $3,687,675, respectively           397,544           3,912,175
                                                -----------         -----------

        Total expenses                              427,676           4,144,701
                                                -----------         -----------

Loss before other income (expense)                 (174,098)         (4,137,204)
                                                -----------         -----------

Other income (expense):
     Interest income                                  3,911               3,655
     Other income                                        16                 739
     Interest expense                                (2,930)            (14,120)
     Other expense                                       --             (99,921)
                                                -----------         -----------

        Total other income (expense)                    997            (109,647)
                                                -----------         -----------

Net loss                                        $  (173,101)        $(4,246,815)
                                                ===========         ===========

Earnings per share - basic and diluted          $     (0.07)        $     (3.63)
                                                ===========         ===========

Weighted average shares outstanding               2,410,040           1,170,196
                                                ===========         ===========



       The accompanying notes are an integral part of these consolidated
                             financial statements.





                                       F-3
<PAGE>   17

                          RAD SOURCE TECHNOLOGIES, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>

                                                        Common stock            Additional
                                                  -------------------------       paid-in       Accumulated
                                                    Shares          Amount        capital         deficit          Total
                                                  ---------     -----------     -----------     -----------      -----------
<S>                                               <C>           <C>             <C>             <C>              <C>
Balance, September 30, 1998                         759,422     $       759     $       116     $  (331,330)     $  (330,455)

Recapitalization                                      1,800               2              --              --                2

Sale of common stock                                613,333             613         673,396              --          674,009

Issuance of stock for unsecured advances
  net of founders shares contributed to the
  Company                                             2,111               2          54,498              --           54,500

Issuance of stock for services                    1,033,374           1,034       2,312,968              --        2,314,002

Services paid by stock contributed by
   founder                                               --              --       1,253,160              --        1,253,160

Compensation for stock options
    issued (Note 7)                                      --              --         120,514              --          120,514

Net loss                                                 --              --              --      (4,246,852)      (4,246,852)
                                                  ---------     -----------     -----------     -----------      -----------

Balance, September 30, 1999                       2,410,040           2,410       4,414,652      (4,578,182)        (161,120)

Net loss                                                 --              --              --        (173,101)        (173,101)
                                                  ---------     -----------     -----------     -----------      -----------

Balance, September 30, 2000                       2,410,040     $     2,410     $ 4,414,652     $(4,751,283)     $  (334,221)
                                                  =========     ===========     ===========     ===========      ===========


</TABLE>


       The accompanying notes are an integral part of these consolidated
                             financial statements.






                                       F-4
<PAGE>   18







                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                       2000                 1999
                                                                    -----------         -----------
<S>                                                                 <C>                 <C>
Cash flow (used) by operating activities:
   Net loss                                                         $  (173,101)        $(4,246,851)
    Depreciation                                                            504                 580
    Issuance of stock for services                                           --           3,567,161
    Non-cash compensation for stock options                                  --             120,514
    Write-off of obsolete inventory                                          --              36,959
    Adjustments to reconcile net loss to net cash
      used in operating activities:
    Change in assets and liabilities:
       Decrease (increase) in:
         Accounts receivable                                            (14,453)             (1,705)
         Prepaid expenses                                                   388                  --
         Inventories                                                     88,389            (121,303)
         Other receivable                                                    --             (15,000)
         Long-term receivable                                            28,087             (28,087)
         Other assets                                                    (1,930)            (33,787)
       Increase (decrease) in:
         Accounts payable                                                48,542             166,951
         Accounts payable - stockholders                                (15,121)             87,791
         Accrued expenses                                                61,879            (114,337)
                                                                    -----------         -----------

            Net cash provided (used) by operating activities             23,184            (581,114)
                                                                    -----------         -----------

Cash flows used by investing activities:
         Purchase of property and equipment                              (3,908)             (3,468)
                                                                    -----------         -----------

             Net cash used by investing activities                       (3,908)             (3,468)
                                                                    -----------         -----------

(Continued)
</TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.




                                       F-5
<PAGE>   19

                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                       2000                 1999
                                                                    -----------         -----------
<S>                                                                 <C>                 <C>
Cash flows provided from financing activities:
         Sale of common stock                                       $        --         $   673,777
         Note payable to stockholders                                     5,000               5,112
         Proceeds from notes payable                                         --              10,000
         Payments on notes payable                                           --             (78,500)

                                                                    -----------         -----------
             Net cash provided (used) by financing activities             5,000             610,389
                                                                    -----------         -----------

             Net increase (decrease) in cash                             24,276              25,807

Cash, beginning of period                                                28,044               2,237
                                                                    -----------         -----------

Cash, end of period                                                 $    52,320         $    28,044
                                                                    -----------         -----------

Additional information:
    Interest paid during the year                                   $        --         $     2,684
                                                                    ===========         ===========

    Income taxes paid during the year                               $        --         $        --
                                                                    ===========         ===========

Supplemental schedule of non-cash financing activities:
    Payment of unsecured advances through issuance of stock         $        --         $    54,500
                                                                    ===========         ===========


</TABLE>


       The accompanying notes are an integral part of these consolidated
                             financial statements.



                                       F-6
<PAGE>   20
                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND BASIS OF PRESENTATION

Rad Source Technologies, Inc. (the "Company") was incorporated in the State of
Florida on July 2, 1990, as Computer Vending, Inc. It changed its name to Rad
Source Technologies, Inc. on December 17, 1998. The Company had no assets,
liabilities or operations prior to merging on December 24, 1999 with Rad Source,
Inc. ("Rad Source"). The merger was accounted for as a reverse acquisition, and
accordingly, the financial statements of the Company are those of Rad Source
since its inception on October 11, 1996 through December 24, 1999, and
thereafter the financial statements of the Company. The stockholders of Rad
Source received 759,422 (or 2,278,267 pre-split) shares of common stock of the
Company in the merger.

The primary business of the Company is to develop, patent, manufacture, market
and sell a new irradiation concept for food and commercial irradiation. Revenue
is generated from the sale of irradiation products in the United States. The
Company was in the development stage through September 30, 1999.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation - The consolidated financial statements include the
accounts of the Company and Rad Source, Inc. All material intercompany accounts
and transactions have been eliminated.

Cash and cash equivalents - The Company considers all unrestricted deposits and
highly liquid investments, readily convertible to known amounts, with an
original maturity of three months or less, to be cash equivalents.

Accounts receivable - The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required. If an
amount becomes uncollectable, an expense is charged to operations.

Inventory - Inventory is valued at the lower of cost or market and consists of
component parts held by a subcontractor.

Property and equipment - Property and equipment are stated at cost. Major
renewals and improvements are capitalized, while maintenance and repairs are
expensed when incurred. The cost and accumulated depreciation for equipment
sold, retired, or otherwise disposed of are relieved from the accounts, and
resulting gains or losses are reflected in income. Depreciation is provided over
the estimated useful lives of the respective assets using the straight-line
method.





                                      F-7
<PAGE>   21



                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the recoverability of
its property and equipment, and other assets in accordance with Statement of
Financial Accounting Standards Board ("FASB") No.121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such intangible assets
relate. No impairments were recognized during the years ended September 30, 2000
and 1999.

REVENUE RECOGNITION - Revenue is recognized when the product ships, title and
risk transfers to the customer and collection of the resulting receivable is
reasonably assured.

COST OF SALES - The Company subcontracts the manufacturer and assembly of its
products. Cost of sales includes materials, supplies, assembly, freight and
warranty expense.

ADVERTISING COSTS - Advertising costs are charged to operations as incurred.
Advertising expense for the years ended September 30, 2000 and 1999 were $22,481
and $17,633, respectively.

RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to expense as incurred.

INCOME TAXES - The Company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and liabilities are
computed for the difference between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. A valuation allowance is
recognized if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred asset will not be recognized.
Income tax expense is the tax payable or refundable for the period, plus or
minus the change during the period in deferred tax assets and liabilities.

INCOME (LOSS) PER SHARE - The Company accounts for earnings per share according
to Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 requires presentation of basic and diluted earnings or loss per share.
Since the Company experienced losses, no diluted earnings per share are
presented. Earnings or loss per share is computed by dividing net income or loss
by the weighted average number of shares outstanding during the period.





                                      F-8
<PAGE>   22



                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenue and expenses during the reporting
period. Actual results could differ from those estimated.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's financial
instruments approximate their carrying value.

RECENT ACCOUNTING PRONOUNCEMENTS - In June 1999, FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000, with earlier application encouraged. The Company does not currently use
derivative instruments and, therefore, does not expect that the adoption of SFAS
133 will have any impact on its financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements and requires adoption during the year ended December 31,
2001. The Company is currently evaluating the impact of SAB 101 to determine
what effect, if any, it may have on the Company's consolidated financial
position and results of operations.

3. UNCERTAINTY - GOING CONCERN

The Company's continued existence is dependent upon its ability to resolve its
liquidity problems, principally by obtaining equity, increasing sales and
achieving profitable operations. While undertaking the above, the Company must
continue to operate on cash flow generated from operations and loans from
officers and stockholders. The Company experienced a loss of $173,101 and
$4,246,851 during 2000 and 1999, respectively, and has a net deficiency in
equity of $334,221 and a net working capital deficiency of $342,942 as of
September 30, 2000. These factors raise substantial doubt about the Company's
ability to continue as a going concern.





                                      F-9
<PAGE>   23


                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3. UNCERTAINTY - GOING CONCERN (continued)

Management's plans in regard to this matter are to increase its marketing
efforts and increase sales of units in an effort to generate positive cash flow.
Additionally, the Company must raise equity either directly or through the
conversion of existing debt to equity, and must continue to rely on vendors and
service providers for periodic payment deferrals and cost reductions to improve
liquidity, and sustain operations and loans from management and stockholders.
The financial statements do not include any adjustment that might result from
the outcome of this uncertainty.

4. RELATED PARTY TRANSACTIONS

Various directors and stockholders have loaned the Company $36,800 through
unsecured demand notes bearing interest at 10% per annum.

At September 30, 2000, the Company owes one vendor, who is also a stockholder,
$52,131. Additionally, the Company owes officers and stockholders $15,539, which
is included in accounts payable-stockholders at September 30, 2000.

5. NOTES PAYABLE

Notes payable at September 30, 2000 consisted of the following:

      Unsecured demand note payable, bearing interest at 9%,
         guaranteed by the President of the Company               $   10,000
                                                                  ==========

During the years ended September 30, 2000 and 1999, the Company recorded
interest expense of $2,930 and $14,120, respectively.

6. SALE OF SECURITIES

On December 24, 1998, Rad Source purchased the Company for $100,000. The
transaction was accounted for as a reverse merger and, therefore, the financial
statements are those of Rad Source since its inception on October 11, 1996.
Because there were no assets, liabilities or operations acquired, the $100,000
paid was charged to other non-operating expense. In connection with this
transaction, the prior stockholder retained 1,800 shares of common stock.






                                      F-10
<PAGE>   24


                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6. SALE OF SECURITIES (continued)

In December 1998 and January 1999, the Company sold, pursuant to a private
placement, 113,333 shares of common stock for $574,009, net of expenses of
$105,991. On September 16, 2000, the Company sold 500,000 shares of common stock
for $100,000.

During the year ended September 30, 1999, the Company issued 20,667 shares of
common stock, of which 18,556 shares were contributed by one of the founders,
for a net of 2,111 new shares of common stock issued for previous cash advances
of $54,500.

During the year ended September 30, 1999, the Company issued 1,016,707 shares of
common stock for consulting services in the amount of $2,214,002 and 16,667
shares for legal services in the amount of $100,000. The charge to expense was
based on the fair market value of the securities issued at the time of issuance.

Also during the year ended September 30, 1999, the founder contributed 198,860
of the original 759,422 shares that were reissued in the recapitalization in
payment for consulting services totaling $1,193,160, based on the fair market
value of the securities at the time of issue. In addition, the founder
contributed 10,000 shares for legal fees amounting to $60,000.

7.       STOCK OPTIONS

The following table summarizes information about stock options at September 30,
2000:

<TABLE>
<CAPTION>

                  Outstanding Stock Options                               Exercisable Stock Options
   ---------------------------------------------------------        --------------------------------------
                                    Weighted                                      Weighted
                                    Average         Weighted                      Average       Weighted-
                                   Remaining        Average                      Remaining       Average
     Exercise                     Contractual       Exercise                    Contractual     Exercise
   Price Range        Shares          Life           Price          Shares          Life          Price
   -----------        ------      -----------        -----          ------      -----------     ---------

<S>                  <C>             <C>           <C>             <C>               <C>       <C>
   $    0.20         600,000         1.96          $   0.20        600,000           1.96      $  0.20
   =========         =======         ====          =========       =======           ====      =======

</TABLE>







                                      F-11
<PAGE>   25


                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCK OPTIONS (continued)

The following table summarizes stock option activity for the year ended
September 30, 2000.

                                                                      Weighted-
                                                                       Average
                                                                      Exercise
                                                         Shares         Price
                                                        --------      ---------
      Outstanding on October 1, 1999                     807,000       $ 0.20
      Expired                                           (207,000)      $ 0.20
      Outstanding                                        600,000       $ 0.20
      Exercisable                                        600,000       $ 0.20
      Shares available for options
       That may be granted                                    --

      Weighted average fair value of
         options granted                               $     .17
                                                       =========

The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation." In
accordance with SFAS No. 123, the Company expensed $120,514 as compensation for
options granted to consultants during the fiscal year ended September 30, 1999.
As permitted by SFAS No. 123, the Company chose to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations for stock
options issued to employees. Accordingly, no compensation cost was recognized
for 100,000 options granted to one employee. As required by SFAS 123, pro forma
disclosures regarding net income and earnings per share must be computed as if
the Company had accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1999. No options were granted during the year ended September 30,
2000.

                                                            For the year ended
                                                            September 30, 1999
                                                            ------------------
       Risk free interest rate                                    5.67%
       Expected lives                                                3
       Expected volatility                                        1.62
       Expected dividend yield                                      --






                                      F-12
<PAGE>   26



                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7. STOCK OPTIONS (continued)

The Company's pro forma information under SFAS 123 for the years ended September
30, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>

                                                    2000                               1999
                                         ------------------------           ------------------------
                                            As               Pro               As               Pro
                                         Reported           Forma           Reported           Forma
                                         --------           -----           --------           -----
<S>                                     <C>               <C>             <C>                <C>
         Net loss                       $(173,101)        $(173,101)      $(4,246,852)       $(4,263,898)
                                        =========         =========       ===========        ===========
         Net loss per share - basic
         and diluted                    $   (0.07)        $   (0.07)      $     (3.63)       $     (3.65)
                                        =========         =========       ===========        ===========

</TABLE>

8. INCOME TAXES

The Company had available at September 30, 2000, a net operating loss
carryforward for federal and state tax purposes of approximately $4,750,000 that
could be applied against taxable income in subsequent years from September 30,
2012 to 2020. The tax effect of the net operating loss is approximately
$1,787,000, and a full valuation allowance has been recorded, since realization
is uncertain.

There were no significant differences for book and tax reporting purposes during
the years ended September 30, 2000 and 1999. Components of the Company's
deferred income taxes are as follows at September 30:

                                                   2000          1999
                                                ----------    ----------

         Net operating loss carryforward        $4,750,000    $ 4,565,000
                                                ==========    ===========

         Net deferred tax asset                     65,000      1,722,000
         Less valuation allowance                  (65,000)    (1,722,000)
                                                ----------    -----------

         Net deferred tax asset                 $       --    $        --
                                                ==========    ===========







                                      F-13
<PAGE>   27



                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY,
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7. INCOME TAXES (continued)

The net change in the valuation allowance for the years ended December 31, 2000
and 1999 was an increase of $65,000 and $1,472,000, respectively.

Reconciliation of the differences between income taxes computed at the federal
and state statutory tax rates and the provision for income taxes for the years
ended September 30, 2000 and 1999 is as follows:

                                                           2000         1999
                                                          -------     --------
       Income tax loss at federal statutory tax rate      (34.00)%    (34.00)%
       State taxes, net of federal benefit                 (3.63)%     (3.63)%
       Change in valuation allowance                       37.63 %     37.63 %
                                                          --------    --------

       Provision for income taxes                             -- %        -- %
                                                          ========    ========


9. COMMITMENTS AND CONTINGENCIES

The Company entered into a vehicle lease on December 31, 1996 for a term of 39
months at $430 per month. The lease expired on March 31, 2000. The Company
leases office space on a month to month basis for $560 per month.

Rental expense for the vehicle and office leases charged to income for the years
ended September 30, 2000 and 1999 was $7,745 and $ 11,880 respectively.

The Company's products are assembled by subcontractors. Should the
subcontractors discontinue assembling for the Company, the Company might
experience delays in shipping its products. However, the Company believes it can
replace the subcontractors with a minimal disruption to operations.




                                      F-14
<PAGE>   28

                  RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY,
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10. LICENSE AGREEMENT

The Company has a licensing agreement with its President to pay a royalty fee of
5% of the net selling price of licensed technologies. The term of the agreement
is for ten (10) years and it expires on September 14, 2009. If the President
does not receive at least $12,000 per quarter in royalty fees and salary, then
all rights based on the agreement may be terminated by the President and all
rights to the technologies revert to the President. As of September 30, 2000,
the President waived any right to payments otherwise due under the agreement.
The Company is dependent upon these technologies for its product line.

11. SUBSEQUENT EVENTS

On November 6, 2000, the Company's board of directors approved the 2000 Stock
Option Plan (the "2000 Plan") and reserved 800,000 shares of the Company's
common stock for issuance. Also, as of December 1, 2000, the Company granted
170,000 stock options from the 2000 Plan at an exercise price equal to the
closing price for the Company's common stock on December 1, 2000. The stock
options are exercisable for a period of three years from the date of grant and
vest equally over the three-year period.

During November 2000, the Company sold 135,000 shares of restricted 144 common
stock to an individual and his wife for $50,000. The individual is the president
of one of the Company's vendors.





                                      F-15



<PAGE>   29



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

         None

PART III

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

Directors and Executive Officers

         The following sets forth the names and ages of the officers and
directors. The term of the directors is annual and they serve until the
Company's next stockholder meeting.

Richard Adams, 54. Mr. Adams has served as a Director of the Company since
December 24, 1998. He holds a B.A. from Michigan State University. Mr. Adams has
had a long and distinguished career in management in the healthcare and medical
field, during which, he co-founded Epsilon Medical Corporation with Mr. Kirk in
1991, as well as aided in the development of the (D.I.A.) Scan Portable
Fluoroscopy Unit. From 1978 to the present, Mr. Adams was the owner and
President of LifeCare Imaging International, Ltd, a fifteen (15) year old
manufacturer of mobile medical suites.

William Hartman, 40.  Mr. Hartman has been a Director of the Company since
March 1999, and has been Executive Vice-President and Chief Financial Officer
since August 2000. Mr. Hartman has been employed by the Company since April 2000
to provide strategic and financial consulting services. Previous thereto, he has
provided similar services to the Company and others, including services related
to business combinations, corporate finance, and business planning. From August
1998 to May 1999, Mr. Hartman was a senior manager for Neff Corporation, an NYSE
listed industrial equipment sales and leasing company, where he performed
corporate reporting, planning and financial analysis functions. From October
1996 to June 1998, Mr. Hartman served as a financial advisor to a holding
company for aviation investments, and from April 1998 to June 1998 served as CEO
of an affiliated U.S. Part 121 freight airline. From July 1995 to October 1996,
Mr. Hartman served as vice-president of finance and administration for Turbo
Power, Inc., an FAA certified aircraft engine overhaul facility. Mr. Hartman is
a CPA and holds a BS in Accounting from Miami University as well as MBA and MAcc
degrees from Miami University. He began his career in 1984 with Price
Waterhouse.

Adrian Kesala, 56. Mr. Kesala has been a director of the Company since December
24, 1998. Mr. Kesala served as the Senior Staff Radiologist at the
Columbus-Cuneo-Cabrini Medical Center in Chicago, Illinois from 1978 to 1985. He
also worked as an Assistant professor of Radiology at Northwestern University in
Chicago, Illinois from 1978 to 1990, and as the Director of Radiology at Swedish
Covenant Hospital in Chicago, Illinois from 1985 to 1990. Presently, Mr. Kesala
is in the active practice of radiology at Resurrection Medical Center, Chicago,
Illinois, where he has been since 1991.

Randol Kirk, 52. Mr. Randol Kirk is the founder of Rad Source and has served as
President and Chief Executive Officer of the Company since December 1998. Mr.
Kirk received his Bachelor of Arts from the University of Iowa and a Masters in
Business Administration from DePaul University. Mr. Kirk's professional career
as an entrepreneur in the healthcare and diagnostic imaging field has spanned
over twenty-five (25) years. Prior to founding Rad




                                       12
<PAGE>   30


Source, Mr. Kirk was the co-founder and President of Epsilon Medical Corporation
("Epsilon") from 1991 to 1995. Epsilon was a company that provided diagnostic
evaluations for stroke patients in skilled nursing facilities and used equipment
designed by Mr. Kirk. He sold the company to Integrated Health Services in 1995.
In 1996 Mr. Kirk founded Rad Source, Inc. to develop and sell safer,
non-regulated radiation application x-ray equipment as an alternative to nuclear
equipment. From 1996 to date, Mr. Kirk's efforts have been directed to capital
raising activities and developing the Company's RS 2000 and RS 3000 irradiators.

Robert Munson, 58. Robert Munson has served as Director of Marketing of the
Company since December 24, 1998. Mr. Munson began his career with Medical Supply
Company ("MSC") of Florida in 1965, where he rose to Vice President and
eventually partner. After the sale of MSC, he was Vice President of Sales and
Marketing for Medical Resources International, which manufactured and
distributed medical gloves, from 1988 to 1991.

Item 10. Executive Compensation

The following tables and notes present, for the three fiscal years ended
September 30, 2000, the compensation paid by the Company to the Company's chief
executive officer.

Summary Compensation Table

<TABLE>
<CAPTION>

                                                                  Long Term Compensation
                                 Annual                        ---------------------------
                              Compensation                               Awards              Payouts
                           -----------------                   ---------------------------   --------
       (a)          (b)       (c)      (d)          (e)            (f)            (g)           (h)           (i)
    ---------       ----   --------  -------   --------------   ----------    ------------    -------     ------------
    Name and                                                    Restricted     Securities
    Principle                                   Other Annual      Stock        Underlying      LTIP        All Other
    Position        Year   Salary $  Bonus $   Compensation $    Award $      Options/SARs    Payouts     Compensation
    ---------       ----   --------  -------   --------------   ----------    ------------    -------     ------------
<S>                 <C>    <C>          <C>          <C>         <C>            <C>            <C>            <C>
 Randol Kirk,       2000   105,000      0            0              0              0             0              0
 President, CEO     1999    20,000      0            0            74,800        100,000(1)       0              0
                    1998    48,000      0            0              0              0             0              0

</TABLE>

(1) These options are vested and exercisable by the holder until September 30,
    2002 at an exercise price of $0.20.

Options/SAR Grants Table:

<TABLE>
<CAPTION>

                      Number of                % of Total
Name/ion              Underlying                Options
Position              Securities                Granted                 Exercise Price    Expiration Date
--------              ----------               ----------               --------------    ---------------
<S>                   <C>                       <C>                      <C>               <C>
Randol Kirk,          100,000                   20%                      $0.20             9/15/2002
President, CEO

</TABLE>


Item 11. Security Ownership of Certain Beneficial Owners and Management

The table below sets forth information with respect to the beneficial ownership
of the common stock by (a) each person known by us to be the beneficial owner of
five percent or more of the outstanding common stock, and (b) all executive
officers and directors both individually and as a group,




                                       13
<PAGE>   31

as of November 6, 2000. Unless otherwise indicated, the Company believes that
the beneficial owner has sole voting and investment power over such shares.

Security Ownership of Certain Beneficial Owners:

<TABLE>
<CAPTION>

                      Name and Address of                Number of Shares       Percentage Ownership
Title of Class        Beneficial Owner                   Beneficially Owned     of Class
--------------        -------------------                ------------------     --------------------
<S>                   <C>                                 <C>                   <C>
Common Stock          Rich Adams                           258,334               10.2%
                      475 Ramblewood Dr.
                      Ste. 207
                      Coral Springs, FL 33071

Common Stock          Will Hartman                         318,333               12.5%
                      475 Ramblewood Dr.
                      Ste. 207
                      Coral Springs, FL 33071

Common Stock          Adrian Kesala                        277,778               10.9%
                      475 Ramblewood Dr.
                      Ste. 207
                      Coral Springs, FL 33071

Common Stock          Randy Kirk                           744,618               29.3%
                      475 Ramblewood Dr.
                      Ste. 207
                      Coral Springs, FL 33071

Common Stock          Robert Munson                        235,334                9.2%
                      475 Ramblewood Dr.
                      Ste. 207
                      Coral Springs, FL 33071


</TABLE>

Security Ownership of Management:

<TABLE>
<CAPTION>

                      Name and Address of                Number of Shares       Percentage Ownership
Title of Class        Beneficial Owner                   Beneficially Owned     of Class
--------------        -------------------                ------------------     --------------------
<S>                   <C>                                 <C>                   <C>
Common Stock            Rich Adams                         258,334              10.2%
                        475 Ramblewood Dr.
                        Ste. 207
                        Coral Springs, FL 33071

Common Stock            Will Hartman                       318,333              12.5%

                        475 Ramblewood Dr.
                        Ste. 207
                        Coral Springs, FL 33071

Common Stock            Adrian Kesala                      277,778              10.9%
                        475 Ramblewood Dr.
                        Ste. 207
                        Coral Springs, FL 33071

Common Stock            Randy Kirk                         744,618              29.3%
                        475 Ramblewood Dr.
                        Ste. 207
                        Coral Springs, FL 33071

Common Stock            Robert Munson                      235,334               9.2%
                        475 Ramblewood Dr.
                        Ste. 207
                        Coral Springs, FL 33071

Common Stock            Total Officers & Directors (5)    1,834,397             72.1%


</TABLE>

                                       14
<PAGE>   32


Change in Control

There are no arrangements, which may result in a change in control of the
Company.

Item 12. Certain Relationships and Related Transactions

On September 15, 1999, the Company entered into an employment agreement with Mr.
Randol Kirk for him to provide management, product research and development, and
other activities within his field of expertise to the Company. This agreement is
for a term of three years from the date of execution, and provides for a salary
of $120,000 for the first year of employment, $140,000 for the second year of
employment and $150,000 for the third year of employment under the agreement. In
addition, the agreement requires that the Company give the employee an option to
purchase 100,000 shares of the common stock at $0.20 per share and 400,000
shares of restricted common stock, both of which were provided to Mr. Kirk.

This agreement is terminable upon mutual agreement of the parties, action by the
Board of Directors in the event of illness or disability or material default or
breach of the agreement.

There is currently an exclusive licensing agreement between the Company and Mr.
Randol Kirk, the founder and President. Under the terms of this agreement,
Randol Kirk is to be paid a five percent (5%) royalty based upon the total net
selling price of the licensed technology and licensed products made, used or
sold by the Company. Licensed technology and products consists of the
irradiation devices. This agreement began on September 15, 1999 and is for a
term of ten (10) years. The agreement is renewable by the Company. Under the
agreement, royalties are to be paid monthly, within ten (10) days after the end
of the month in which they become due. Upon default in making any payment not
cured within thirty (30) days of notice, Mr. Kirk may terminate the licensing
agreement. If the amount of royalty received by Mr. Kirk is less than $12,000
per fiscal quarter, including company compensation, the agreement between the
parties will be terminated. As such, the rights to the licensed technology would
revert back to Mr. Kirk. Should this occur, the operations of the Company could
be adversely affected.

The Company is not a subsidiary of any parent company.



                                       15
<PAGE>   33

Item 13.  Exhibits and Reports on Form 8-K

EXHIBIT INDEX

Exhibit Description
-------------------

2     Share Exchange Agreement (incorporated by
         reference to Rad Source Technologies, Inc.
         Form 10SB, Amendment 1,Exhibit 2 filed
         November 16, 1999.)

3.1   Articles of Incorporation (incorporated by
         reference to Rad Source Technologies, Inc.
         Form 10SB, Amendment 1, Exhibit 3.1 filed
         November 16, 1999.)

10.1  Bylaws (incorporated by reference to Rad
         Source Technologies, Inc. Form 10SB, Amendment 1,
         Exhibit 3.2 filed November 16, 1999.)

4     Specimen Share Certificate (incorporated by
         reference to Rad Source Technologies, Inc.
         Form 10SB, Amendment 1, Exhibit 4 filed
         November 16, 1999.)

10.1  License Agreement between Randol Kirk
         and the Company (incorporated by reference to Rad Source
         Technologies, Inc. Form 10SB, Amendment 1, Exhibit 10.1 filed
         November 16, 1999.)

10.2  Employment Agreement between Randol
         Kirk and the Company (incorporated by reference to Rad Source
         Technologies, Inc. Form 10SB, Amendment 1, Exhibit 10.2 filed
         November 16, 1999.)

10.3  Agreement between Rad Source Technologies Inc.,
         and Capital International Holdings Inc. (incorporated
         by reference to Rad Source Technologies, Inc.
         Form 10SB, Amendment 1, Exhibit 10.3 filed
         November 16, 1999.)

10.4  Agreement between Rad Source Technologies
         Inc. and USI Inc. (incorporated by reference to Rad Source
         Technologies, Inc. Form 10SB, Amendment 1, Exhibit 10.4 filed
         November 16, 1999.)

10.5  2000 Stock Option Plan

21    List of Subsidiaries of Rad Source
         Technologies Inc. (incorporated by reference to Rad Source
         Technologies, Inc. Form 10SB, Amendment 1, Exhibit 21 filed
         November 16, 1999.)

27    Financial Data Schedule





                                       16
<PAGE>   34
SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                        RAD SOURCE TECHNOLOGIES INC.


Dated:  December 28, 2000               /s/ Randol Kirk
        ------------------              --------------------------------------
                                        Randol Kirk, Chief Executive Officer




Dated:  December 28, 2000               /s/ William Hartman
          ------------------            ----------------------------------------
                                        William Hartman, Chief Financial Officer

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.

Dated:   December 28, 2000                   /s/ Randol Kirk
                                             -----------------------------------
                                                 Randol Kirk, Director



Dated:   December 28, 2000                   /s/ Robert Munson
                                             -----------------------------------
                                                 Robert Munson, Director



Dated:   December 28, 2000                   /s/ William Hartman
                                             -----------------------------------
                                                 William Hartman, Director



Dated:   December 28, 2000                   /s/ Richard Adams
                                             -----------------------------------
                                                 Richard Adams, Director



Dated:   December 28, 2000                   /s/ Adrian Kesala
                                             -----------------------------------
                                                 Adrian Kesala, Director





                                       17