<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 AMENDMENT NO. 2
                                       TO
                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

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

                         Commission File Number 0-28081

                             CONSTELLATION 3D, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
   <S>                                 <C>                                <C>

                                              805 Third Avenue
               Delaware                   New York, New York 10169              13-4064492
   --------------------------------    -------------------------------    ----------------------
   (State or other jurisdiction of     (Address of principal executive      (I.R.S. Employer
    incorporation or organization)       offices including zip code)      Identification Number)
   --------------------------------     ------------------------------    ----------------------
</TABLE>

                                 (212) 308-3572
                        ---------------------------------
                         (Registrant's telephone number,
                              including area code)

           Securities registered pursuant to Section 12(b) of the Act:

          Title of each class          Name of each exchange on which registered
        -----------------------        -----------------------------------------
                 None                                     None

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.00001 Par Value
                        ---------------------------------
                                 Title of Class

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the common stock on December 7,
2001 as reported on the NASDAQ National Market, was approximately $32,780,866.
Shares of common stock held by each officer and director, by each person who
owns 5% or more of the outstanding common stock, and by Constellation 3D Trust
LLC, a wholly owned subsidiary of the Registrant, have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

     As of January 11, 2002, the Registrant had 50,713,087 shares of common
stock outstanding, excluding 500,000 shares held by Constellation 3D Trust LLC,
a wholly owned subsidiary of the Registrant.

<PAGE>

The Registrant hereby amends its annual report on Form 10-K as follows:

                                                          Constellation 3D, Inc.
                                                   (A Development Stage Company)


                                               Consolidated Financial Statements
                                               ---------------------------------

                                    Years ended December 31, 2000, 1999 and 1998
                                         and from inception (September 25, 1997)
                                                       through December 31, 2000

<PAGE>


                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)

Index to Financial Statements
--------------------------------------------------------------------------------
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S>                                                                         <C>
Report of Independent Certified Public Accountants ......................... F-1

Consolidated Financial Statements

      Balance Sheets as of December 31, 2000 and 1999 ...................... F-2

      Statements of Operations for the years ended December 31, 2000, 1999
      and 1998, and the period from September 25, 1997 (inception) to
      December 31, 2000 .................................................... F-3

      Statement of Changes in Stockholders' Equity (Deficit) for the years
      ended December 31, 2000, 1999 and 1998 ............................... F-4

      Statements of Cash Flows for the years ended December 31, 2000, 1999
      and 1998, and the period from September 25, 1997 (inception) to
      December 31, 2000 .................................................... F-6

Notes to Consolidated Financial Statements ................................. F-8

</TABLE>



<PAGE>


Report of Independent Certified Public Accountants

Board of Directors and Stockholders of
Constellation 3D, Inc.

We have audited the accompanying consolidated balance sheet of Constellation 3D,
Inc. (a development stage company) and its subsidiaries ("the Company") as of
December 31, 2000 and 1999 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 2000, 1999 and 1998 and for the period from September 25, 1997
(inception) through December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, based on our audit, the consolidated financial statements
referred to above, present fairly, in all material respects, the financial
position of Constellation 3D, Inc. (a development stage company) and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for the years ended December 31, 2000,1999, and 1998 and
for the period from inception (September 25, 1997) through December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ BDO Seidman LLP

BDO Seidman LLP
New York, New York

February 21, 2001 (except for Note 11(c) which is as of March 11, 2001 and Note
11(d) which is as of March 29, 2001)


                                       F-1

<PAGE>
<TABLE>
<CAPTION>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)

CONSOLIDATED BALANCE SHEETS
                                                                                    December 31,       December 31,
                                                                                        2000               1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                <C>
ASSETS

Current Assets

   Cash and cash equivalents                                                         $  8,728,600       $  2,030,139
   Prepaid and other                                                                      245,372            150,989
-----------------------------------------------------------------------------------------------------------------------
Total Current Assets                                                                    8,973,972          2,181,128

Furniture and Equipment, net                                                              426,293            241,100
-----------------------------------------------------------------------------------------------------------------------
Total Assets                                                                         $  9,400,265       $  2,422,228
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
   Accounts payable and accrued expenses                                             $  1,924,773       $  1,268,404
   Due to related parties                                                                 267,283            360,711
   Convertible Line of Credit, net of discount of $312,968                                720,278                  -
   Current portion of convertible notes payable, net of discount of                     2,224,906            650,577
     $1,880,847 and $0
   Due to shareholder                                                                           -          1,316,712
-----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                               5,137,240          3,596,404
Convertible Notes Payable                                                                       -          2,105,480

Other Long Term Liabilities                                                                39,237             39,969
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                       5,176,477          5,741,853
-----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies

Stockholders' Equity (Deficit)
   Preferred stock, no par value; 10,000,000 shares authorized, 0 issued and
    outstanding                                                                                 -                  -
   Common stock, $.00001 par value; 100,000,000 shares authorized, 43,192,775
    and 41,001,609 issued and outstanding                                                     432                410
   Additional paid in capital                                                          35,141,895          7,351,299
   Deficit accumulated during the development stage                                   (30,918,539)       (10,671,334)
-----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit)                                                    4,223,788         (3,319,625)
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficit)                                 $  9,400,265       $  2,422,228
=======================================================================================================================
                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       F-2

<PAGE>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                    Cumulative Amounts
                                                      From Inception                           Year Ended December 31,
                                                   (September 25, 1997)         ----------------------------------------------------
                                                 Through December 31, 2000           2000              1999              1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                            <C>                 <C>              <C>
  OPERATING EXPENSES
    Research and development                           $ 10,097,976             $  4,658,082        $ 2,413,239      $ 1,534,948
    General and administrative                            9,083,440                4,369,384          1,986,392        1,660,477
    Marketing                                             5,784,561                5,686,926             97,635                -
------------------------------------------------------------------------------------------------------------------------------------

  Total operating expenses                               24,965,977               14,714,392          4,497,266        3,195,425
------------------------------------------------------------------------------------------------------------------------------------

  OTHER EXPENSES
    Interest expense (income), net                        5,786,098                5,433,399            305,833           (6,985)
    Taxes                                                   166,464                   99,414             63,588            3,462
------------------------------------------------------------------------------------------------------------------------------------

  Net loss                                             $(30,918,539)            $(20,247,205)       $(4,866,687)     $(3,191,902)
====================================================================================================================================

  Net loss per share - basic and diluted                                        $      (0.49)       $     (0.15)     $     (6.80)
====================================================================================================================================

  Weighted average number of shares of
   common stock outstanding - basic and
   diluted                                                                        41,644,812         32,148,978          469,275
====================================================================================================================================
</TABLE>

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


                                       F-3

<PAGE>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                            Deficit
                                              Common Stock                                Accumulated
                                     -----------------------------      Additional         During the
                                         Shares           Amount      Paid-in Capital   Development Stage      Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>            <C>               <C>               <C>
Balance, December 31, 1997                     600     $       -       $        3       $ (2,612,745)     $(2,612,742)

Issuance of common stock for
   cancellation of shareholders
   advances, December 27, 1998           3,749,400            37        4,888,500                  -        4,888,537

Recapitalization, December 27, 1998     25,464,000           255             (255)                 -                -

Net Loss                                         -             -                -         (3,191,902)      (3,191,902)
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998              29,214,000           292        4,888,248         (5,804,647)        (916,107)

Debt settlement through the
   issuance of common stock -
   April 1, 1999                            36,000            -           241,490                 -           241,490

Common stock issued in connection
   with reverse acquisition -
   October 1, 1999                      11,109,765           112          953,093                 -           953,205

Conversion of notes payable -
   October 22, 1999                        608,835             6        1,014,719                 -         1,014,725

Sale of common stock for cash (net
   of issuance cost of $24,995)
   November 1, 1999                         25,509             -           99,999                 -            99,999

Issuance of common stock for
   services November 8, 1999                 7,500             -           28,750                 -            28,750

Beneficial conversion discount of
   convertible debt - November 11,
   1999                                          -             -          125,000                 -           125,000

Net loss                                         -             -                -        (4,866,687)       (4,866,687)
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999              41,001,609           410        7,351,299       (10,671,334)       (3,319,625)

Deferred interest relating to
   issuance of detachable warrants                                      3,880,000
   - March 24, 2000                              -             -                                  -         3,880,000

Beneficial conversion discount of
   convertible debt - March 24, 2000             -             -          120,000                 -           120,000

Noncash stock-based compensation
   relating to issuance of stock
   options to consultant - May 11,
   2000                                          -             -        4,293,000                 -         4,293,000

Issuance of common stock for cash -
   August 17, 2000                          25,000             -          250,000                 -           250,000

Warrants issued relating to legal
   services rendered - August 18,
   2000                                          -             -           50,000                 -            50,000

Deferred interest relating to
   issuance of detachable options
   on line of credit  - August 23,
   2000                                          -             -          763,000                 -           763,000

Deferred interest relating to
   issuance of detachable warrants
   on line of credit - August 23,
   2000                                   -                    -          117,000                 -           117,000
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Continued


                                       F-4

<PAGE>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

                                    Continued

<TABLE>
<CAPTION>
                                                                                            Deficit
                                                Common Stock                              Accumulated
                                       -----------------------------     Additional        During the
                                            Shares         Amount     Paid-in Capital   Development Stage       Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                 <C>       <C>                <C>                 <C>
Conversion of loan payable - August
   23, 2000                                138,102             1        1,402,162                 -         1,402,163

Conversion of notes payable -
   August 23, 2000                         166,097             2        1,686,397                 -         1,686,399

Issuance of common stock for cash
   (net of issuance cost of
   $384,945) - August 23, 2000             492,459             5        4,615,050                 -         4,615,055

Issuance of warrants and
   modification of conversion terms
   in connection with conversion of
   debt and shareholder loans -                                         1,730,000
   August 23, 2000                               -             -                                  -         1,730,000

Warrants issued in connection with
   the acquisition of patents -                                            56,000
   August 28, 2000                               -             -                                  -            56,000

Issuance of common stock for cash
   (net of issuance cost of
   $80,017) - August 31, 2000              197,026             2        1,920,407                 -         1,920,409

Conversion of notes payable -
   September 12, 2000                      380,000             4          681,570                 -           681,574

Issuance of common stock for cash -
   September 12, 2000                       14,774             -          144,000                 -           144,000

Issuance of common stock for cash
   (net of issuance cost of
   $384,945)- September 19, 2000           492,459             5        4,615,050                 -         4,615,055

Conversion of notes payable -
   October 12, 2000                         49,500             1          544,506                 -           544,507

Issuance of warrants and
   modification of conversion terms
   in connection with convertible                                          53,000
   debt - October 12, 2000                      -              -                                  -            53,000

Noncash stock-based compensation
   relating to issuance of stock
   options to directors - November                                         36,321
   9, 2000                                      -              -                                  -            36,321

Issuance of common stock on
   cashless exercise of stock
   options - December 7, 2000              235,749             2               (2)                -                 -

Noncash stock-based compensation
   relating to issuance of stock
   options to consultants - December                                      833,135
   29, 2000                                     -              -                                  -           833,135

Net loss                                        -              -                -       (20,247,205)      (20,247,205)
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2000              43,192,775   $       432     $ 35,141,895      $(30,918,539)     $  4,223,788
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>



                                       F-5

<PAGE>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                       Cumulative Amounts
                                                         From Inception
                                                      (September 25, 1997)                     Year Ended December 31,
                                                       Through December 31,   ------------------------------------------------------
                                                               2000               2000                1999               1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                   <C>                <C>                <C>
Cash Flows From Operating Activities
    Net loss                                           $  (30,918,539)       $ (20,247,205)     $   (4,866,687)    $   (3,191,902)
       Adjustments to reconcile net loss to net
          cash used in operating activities:
          Noncash stock-based compensation                  5,191,206            5,162,456              28,750                  -
          Beneficial conversion feature                       245,000              120,000             125,000                  -
          Discount amortization on deferred interest        2,566,185            2,566,185                   -
          Depreciation                                        152,042               72,679              40,438             33,129
          Write down of furniture and equipment                49,750                    -              49,750                  -
          Interest expense relating to issuance of
            warrants                                        1,115,000            1,115,000                   -                  -
          Interest expense relating to modification of
            debt conversion rates                             668,000              668,000                   -                  -
          Warrants issued relating to services rendered       106,000              106,000                   -                  -
          Change in assets and liabilities:
               Prepaid and other                             (245,372)             (94,383)              5,338           (135,214)
               Accounts payable                             1,923,181              656,369             844,441            150,343
               Accrued interest on debt                       434,504              380,876              53,625                  -
------------------------------------------------------------------------------------------------------------------------------------

Net Cash Used in Operating Activities                     (18,713,043)          (9,494,023)         (3,719,345)        (3,143,644)
------------------------------------------------------------------------------------------------------------------------------------

Cash Flows From Investing Activities
    Purchase of furniture and equipment                      (739,241)            (257,872)           (145,986)          (200,197)
    Sale of furniture and equipment                            80,405                    -              80,405                  -
    Business acquisition, net of cash acquired              1,019,413                    -           1,019,413                  -
------------------------------------------------------------------------------------------------------------------------------------

Net Cash Provided by (Used in) Investing
    Activities                                                360,577             (257,872)            953,832           (200,197)
------------------------------------------------------------------------------------------------------------------------------------

Cash Flows From Financing Activities
    Proceeds from issuance of common stock                 16,533,056           11,544,519             100,000          4,888,537
    Proceeds from issuance of convertible debt              7,700,000            4,000,000           3,100,000                  -
    Proceeds from borrowings on line of credit              1,000,000            1,000,000                   -                  -
    Proceeds from (payments to) shareholders loan           1,541,490                    -           1,541,490         (4,152,521)
    Net changes in other long-term debt                        39,237                 (735)             (6,856)            20,480
    Net advances from (repayments to) related party           267,283              (93,428)            (62,079)          (108,277)
------------------------------------------------------------------------------------------------------------------------------------

Net Cash Provided by Financing Activities                  27,081,066           16,450,356           4,672,555            648,219
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
    Equivalents                                         $   8,728,600         $  6,698,461       $   1,907,042     $   (2,695,622)

Cash and Cash Equivalents, beginning of period                      -            2,030,139             123,097          2,818,719
------------------------------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents, end of period                $   8,728,600         $  8,728,600       $   2,030,139     $      123,097
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Continued
                                       F-6

<PAGE>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    Continued
<TABLE>
<CAPTION>
=====================================================================================================================
<S>                                                         <C>             <C>              <C>              <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for taxes                                         $ 166,464       $   99,414       $   63,588       $3,462
Cash paid for interest                                      $ 211,500       $  211,500       $        -       $    -

Non-cash Financing and Investing Activities
Deferred financing cost related to detachable warrants     $4,760,000       $4,760,000       $        -       $    -
Conversion of notes payable                                 3,927,205        2,912,480        1,014,725            -
Conversion of loans payable                                 1,643,653        1,402,163          241,490            -
Net assets disposed of upon acquisition                        66,028                -           66,028            -
Stock issued in reverse acquisition                           953,205                -          953,205            -

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

                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       F-7

<PAGE>

                             CONSTELLATION 3D, INC.
                          (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 NOTE 1. Description of Business and Summary of Significant Accounting Policies

     The accompanying consolidated financial statements include the accounts of
Constellation 3D, Inc. and each of its wholly owned subsidiaries ("C3D" or the
"Company") after elimination of intercompany balances and transactions.

     The Company was incorporated in Florida on December 27, 1995, under the
name Latin Venture Partners, Inc. The name of the Company was changed to C3D
Inc. on March 24, 1999 in anticipation of a transaction with Constellation 3D
Technology Limited, a British Virgin Islands company ("Constellation Tech"). On
December 29, 1999, the Company changed its name from C3D Inc. to Constellation
3D, Inc.

     On October 1, 1999, C3D completed an asset purchase agreement and acquired
substantially all the operations of Constellation 3D Technology Limited
("Constellation Tech") for total consideration of 29,250,000 shares of the
Company's $.00001 par value common stock, and assumption of substantially all
liabilities and obligations of Constellation Tech. Constellation Tech is a
related party by virtue of it owning a majority of the shares of the Company's
common stock as well as having common directors and officers.

     The acquisition of Constellation Tech was treated as a reverse acquisition
whereby C3D was acquired by Constellation Tech, with the balance sheets being
combined using each company's historical cost basis. The results of operations
include that of both companies from the date of acquisition forward. The
financial statements for the period prior to the date of acquisition are those
of Constellation Tech. The Financial Statements reflect the operations beginning
on September 25, 1997 as the Company's operations from December 27, 1995 (date
of incorporation) to September 24, 1997 were insignificant. As the transaction
was a reverse acquisition with a public shell with no operations, no pro forma
information related to this transaction is provided. As disclosed in the
original Form 10-K, Constellation Tech had beneficial ownership of 67.4% of the
Company's issued and outstanding shares of common stock. As of December 7, 2001,
Constellation Tech currently has the power to vote 26,089,283 shares of common
stock of the Company, representing 40.9% of the issued and outstanding shares of
common stock.

     Constellation Tech is owned by the following entities: United European
Enterprises, Ltd., a Nevis company ("United European"), owns approximately 55.5%
of the voting shares of Constellation Tech; United European is owned by almost
90% of the Company's scientists and certain of the Company's officers and
directors, including Eugene Levich, Leonardo Berezowsky and Lev Zaidenberg;
Constellation Group Investments Inc., a British Virgin Islands company, owns
approximately 54.9% of the voting shares of United European; Alex-L Foundation,
the Lion & Heart Foundation and Lediligi Foundation, three Liechtenstein Trusts,
have beneficial ownership of all of the voting shares of Constellation Group
Investments, Inc. Markus Banzer, Hubert Buchel and Criterion Treuunternehmen
reg., are the respective sole trustees of the foregoing trusts. No individual,
trust or business entity controls the three trustees. Certain members of
Professor Eugene Levich's family are among the beneficiaries of the Alex-L
Foundation. Certain members of Lev Zaidenberg's family are among the
beneficiaries of the Lion & Heart Foundation. Leonardo Berezowsky and certain
members of his family are among the beneficiaries of the Lediligi Foundation.


                                       F-8

<PAGE>

     The equity section of the balance sheet and the net loss per share of the
Company are retroactively restated to reflect the effect of the exchange ratio
established in the asset purchase agreement. Accordingly, the 29,250,000 shares
of common stock issued by Constellation 3D, Inc. to Constellation Tech in
connection with the reverse acquisition have been adjusted to appear on the
consolidated statement of stockholders' equity (deficit) as the 29,250,000
shares of common stock outstanding on the statement of stockholders' equity
(deficit) prior to the reverse acquisition. Similarly the consolidated statement
of stockholders' equity (deficit) section has been adjusted to reflect the
"issuance" of 11,109,765 shares of common stock, as of the date of the reverse
acquisition, when in fact such shares were actually issued Constellation 3D,
Inc. prior to the reverse acquisition.

     The Company has developed what it believes to be a state-of-the-art
optical, data storage product that it believes surpasses the physical limits of
two-dimensional memory technology. Research and development work on the
Company's technology has been conducted and is being conducted in the United
States, Israel, Russia and Ukraine. The Company operates in one business
segment.

     On December 27, 1999, as approved by the requisite number of shares at the
Annual Meeting of Shareholders, C3D Inc. changed its name to Constellation 3D,
Inc. and amended its Articles of Incorporation to (i) increase its authorized
common stock, par value $.00001, from 50,000,000 shares to 100,000,000 shares;
and (ii) to increase its authorized preferred stock, par value $.00001, from 0
to 10,000,000 shares. On January 18, 2000, a three-for-one forward split of
C3D's Common Stock took effect for shareholders of record as of December 16,
1999, and all per share information for all prior periods have been adjusted
accordingly.

Cash and Cash Equivalents - The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.

Furniture and Equipment - Furniture and equipment are stated at cost.
Depreciation and amortization are computed utilizing straight-line and
accelerated methods over estimated useful lives ranging from three to seven
years.

Marketing Costs - The Company expenses the cost of marketing and advertising as
incurred. Marketing expense includes a noncash compensation charge of $4,805,671
for the year ended December 31, 2000. (See Note 8)

Income Taxes - The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of deferred
tax assets and liabilities for the expected future income tax consequences of
events that have been recognized in a company's financial statements or tax
return. Under this method, deferred tax assets and liabilities are determined
based on the temporary differences between the financial statement carrying
amounts and their tax basis using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse. Valuation allowances
are provided when management determines that the realization of deferred tax
assets fails to meet the more likely than not standard imposed by SFAS 109.

Fair Value of Financial Instruments - Carrying amounts reported in the balance
sheet for cash and cash equivalents, accounts payable, accrued expenses, and
amounts due to related parties and shareholders approximate fair value because
of their immediate or short-term nature. The fair value of long-term debt and


                                       F-9

<PAGE>

convertible debt plus the related discount approximates their carrying value
because the stated rates of the debt either reflect recent market conditions or
are variable in nature.

Revenue Recognition - The Company is conducting research and development
activities to develop new multi-layer data storage media and currently has no
operating revenues. It is the intent of this company to enter into strategic
alliances to license its technology to its strategic partners.

Research and Development - Costs will be expensed as incurred until
technological feasibility has been obtained, product design has been completed
and a working model has been developed and tested.

Foreign Currency Translation - The financial statements of the subsidiaries are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). The
functional currency of the operations of the Company's subsidiary in Israel is
conducted in the U.S. dollar since most of its financing and other activities
are in US dollars. Transactions and balances originally denominated in dollars
are presented in their original amounts. Balances in non-dollar currencies are
translated into dollars using historical and current exchange rates for
non-monetary and monetary balances, respectively. For non-dollar transactions
reflected in the statements of operations, the exchange rates at the transaction
dates are used. Depreciation expenses are based on historical exchange rates.
The resulting translation gains or losses are carried to (income) expense. The
Company's subsidiary in Russia maintains accounting records in Russian ruble.
The ruble is considered the subsidiary's functional currency. Transactions and
balances not already measured in dollars have been re-measured into dollars as
applied to entities in highly inflationary economies. Revenues, costs, capital
and non-monetary assets and liabilities are translated at historical exchange
rates prevailing on the transaction date. Monetary assets and liabilities are
translated at the exchange rates prevailing on the balance sheet date.
Translation gains and losses from remeasurement of monetary assets and
liabilities that are not denominated in U.S. dollars are not material to the
consolidated operations of the Company, and accordingly, a statement of
comprehensive income (loss) is not presented.

Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS 123"), establishes a fair value
method of accounting for stock-based compensation plans and for transactions in
which a company acquires goods, financings or services from non-employees in
exchange for equity instruments. SFAS 123 also allows companies to account for
stock-based employee compensation in accordance with Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," or SFAS
123. The Company elected to follow APB 25 which measures compensation expense
for employee stock options as the excess, if any, of the fair market price of
the Company's stock at the measurement date over the amount an employee must pay
to acquire stock. (See Note 8)

The values ascribed to restricted stock awards are based on the fair value of
the Company's common stock at the date of the grant. The fair values ascribed to
warrants that are issued in connection with financing arrangements and
professional services agreements are amortized over the expected life of the
underlying debt or the term of the agreement.

Net loss per share - Basic loss per share assumes no dilution, and is computed
by dividing net loss by the weighted average number of common shares outstanding
during each period. Diluted earnings per share reflect, in periods in which they
have a dilutive effect, the effect of common shares issuable upon exercise of
stock options, warrants and contingent shares based on the treasury method of
computing such effects, and are not included in the calculation of loss per
share, as their effect was anti-dilutive. All per share information has been


                                       F-10

<PAGE>

adjusted to reflect the three-for-one stock split declared on December 16, 1999.
The assumed exercise of stock options and warrants, as well as the issuance of
common stock upon conversion of convertible debt, aggregating 12,428,168 shares
at December 31, 2000, would potentially dilute basic earnings per share.

Accounting Estimates - The Company's financial statements are prepared in
conformity with generally accepted accounting principles of the United States,
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from these estimates.

Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of periodic
temporary investments of excess cash. The Company places its temporary excess
cash investments in high quality short-term money market instruments through
high quality credit financial institutions. At times, such investments may be in
excess of the FDIC insurance limit. A significant portion of the Company's cash
is in one institution.

Reclassifications - Certain reclassifications have been made to the prior
period's financial statement amounts to conform to the current period's
presentation.

Recent Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
statement establishes accounting and reporting standards requiring that every
derivative instrument (including some types of derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133, as amended by SFAS No. 137 defining SFAS No. 133's
effective date, is effective for the Company on January 1, 2001. The adoption of
SFAS 133 did not have a material effect on its financial position or results of
operations.

In March 2000, the Financial Accounting Standards Board released Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN
44"). FIN 44 addresses certain practice issues related to Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). FIN
44 applies only to companies that have chosen not to adopt SFAS 123, Accounting
for Stock-Based Compensation, for transactions with employees. Among other
issues, FIN 44 clarifies (a) the definition of an employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occur after either December 15, 1998 or January 12, 2000. To the
extent that FIN 44 covers events occurring during the periods after December 15,
1998 or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying FIN 44 are recognized on a prospective basis from July 1,
2000. The Company's adoption of FIN 44 did not have a material effect the
Company's financial position or results of operations.


                                       F-11

<PAGE>

During the fourth quarter of 2000, the Emerging Issues Task Force (EITF) issued
consensus 00-27 "Application of EITF No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingency Adjustable
Conversion Ratios, to certain Convertible Instruments" ("EITF No. 00-27"). EITF
No. 00-27 requires the remeasurement of the original issue discount on
convertible debt with characteristics similar to the convertible debt issued by
the Company during years ended December 31, 2000 and 1999. This accounting
change required the value of the warrants issued with the convertible debt to be
included in calculating the beneficial conversion value. The adoption of EITF
No. 00-27 did not have a material effect on the Company's financial position or
previously reported results of operations.

NOTE 2. Development Stage Operations

     The Company has been in the development stage since its inception. It has
had no operating revenues to date, has accumulated losses of $30,918,539, and
will require additional working capital to complete its business development
activities and generate revenues adequate to cover operating and further
development expenses.

     The Company believes it can raise additional working capital through future
sales of its common stock or subordinated debt in private placement
transactions. However, there can be no assurance that the Company will be
successful in its efforts to raise these funds.

NOTE 3. Furniture and Equipment

Furniture and equipment consists of the following:

                                                  December          December
                                                     31,               31,
                                                    2000              1999
--------------------------------------------------------------------------------

Furniture and equipment                       $    578,335      $    320,463

Less: accumulated depreciation                     152,042            79,363
--------------------------------------------------------------------------------
Furniture and equipment, net                  $    426,293      $    241,100
--------------------------------------------------------------------------------


                                       F-12

<PAGE>

NOTE 4.  Convertible Notes Payable (See Note 8)

Convertible notes payable consist of the following:

<TABLE>
<CAPTION>
                                                December 31,      December 31,
                                                    2000              1999
--------------------------------------------------------------------------------
<S>                                              <C>               <C>
Convertible note payable, interest at LIBOR
+ 3%, due on demand (a)                           $       --       $  650,577

Convertible note payable, interest at 8%,
due October 31, 2001 (b)                                  --          505,480

Convertible note payable, interest at 8%,
due October 31, 2001 (c)                                  --        1,600,000

Convertible note payable, interest at 10%,
due September 24, 2001 (d)                         4,105,753               --
--------------------------------------------------------------------------------

                                                   4,105,753        2,756,057

Less: amount representing interest on
detachable stock purchase warrants
(See Note 8)                                       1,880,847               --
--------------------------------------------------------------------------------
                                                   2,224,906        2,756,057

Less: current maturities                           2,224,906          650,577
--------------------------------------------------------------------------------
                                                  $       --       $2,105,480
--------------------------------------------------------------------------------
</TABLE>

(a)  Pursuant to a Term Sheet dated October 15, 1998, Agrotec Ltd./Formula
Ventures Ltd., loaned $600,000 to Memory Devices (MD) (1996) Ltd., a subsidiary
of Constellation 3D Holdings Limited. Pursuant to a Loan Conversion Rights
Agreement, dated December 2, 1998, the principal and interest on the $600,000
loan was convertible into preferred shares of the Company at a price equal to
75% of a calculated share value. The share value was the quotient of (i) the
lowest valuation of the Company used in a financing of the Company between
December 2, 1998 and the conversion date over (ii) the issued and outstanding
share capital of the Company, on a fully diluted basis. In the event that a
financing did not occur, the valuation of the Company, was required to be agreed
upon by the parties. The parties agreed upon a conversion price of $1.79. On
July 1, 1999, Constellation Tech acquired all the assets of Constellation 3D
Holdings Limited, including the stock of Memory Devices (MD)(1996) Ltd.

                                       F-13

<PAGE>

     On September 12, 2000, an aggregate principal of $600,000 plus accrued
interest of approximately $81,574 on the debt was converted by Formula Ventures
L.P., FV-PEH L.P., and Formula Ventures (Israel) L.P. into 380,000 shares of
common stock at the conversion price of $1.79 per share. Since the debt was
converted pursuant to the original conversion terms, the Company did not
recognize an additional interest expense.

(b)  In November 11, 1999 the Company issued $500,000 in principal amount of 8%
convertible subordinated debentures due October 31, 2001 to Wilbro Nominees
Limited ("Wilbro"). The original conversion terms provided that the notes would
be converted at the price of the lesser of (A) the average market price of the
common stock over a period of twenty (20) trading days preceding any applicable
date of conversion (the "Conversion Date") less a discount of 20%, or (B) the
average market price of the common stock over a period of twenty (20) days
preceding any applicable Conversion Date (such price being referred to herein as
the "Initial Conversion Price"), provided that, in the event of (A) above, no
discount shall apply unless such average market price of the Common Stock is at
least $5.00 per share. On the date of issuance, the Company recorded interest
expense of $125,000 for the value ascribed to the beneficial conversion feature.

     In order to induce Wilbro to convert its debentures into common stock, the
Company agreed to: (i) amend the then applicable conversion price, which ranges
from $8.68 to $16.77, to $11.00; and (ii) offer Wilbro 15,000 common stock
purchase warrants. On October 12, 2000, an aggregate of $500,000 in principal
amount and accrued interest of $44,507 of the debentures was converted by Wilbro
into 49,500 shares of common stock at a conversion price of $11.00 per share. As
a result of the amendment of the conversion price, the Company recognized an
additional interest expense of $18,000 based on the excess of the fair value of
the common stock transferred in excess of the fair value of the common stock
issuable pursuant to the original conversion terms. The Company also recognized
an addition to paid in capital of stockholders' equity. Wilbro also received
one-year warrants to purchase 15,000 shares of common stock at an exercise price
of $10.1531. The fair value ascribed to the warrants was approximately $35,000.
Such amount was recorded as an interest expense and as an addition to paid-in
capital of stockholders' equity.

(c)  On December 24, 1999 the Company issued $1,600,000 in principal amount of
8% subordinated debentures due October 31, 2001 to Winnburn Advisory
("Winnburn"). The original conversion terms provided that the notes would be
converted at the price of the greater of (A) the average market price of the
common stock over a period of twenty (20) trading days preceding any applicable
date of conversion (the "Conversion Date"), or (B) $16.67.

     In order to induce Winnburn to convert its debentures into common stock,
the Company agreed to: (i) amend the then applicable conversion price, $16.67,
to $10.1531; and (ii) offer Winnburn 83,048 and 66,439 common stock purchase
warrants. On August 23, 2000, an aggregate of $1,600,000 and accrued interest of
$86,399 of was converted by Winnburn into 166,097 shares of common stock. As a
result of the amendment of the conversion price, the Company recognized an
additional interest expense of $650,000 based on the excess of the fair values
of the common stock transferred over the fair value of the common stock issuable
pursuant to the original conversion terms. The Company also recognized an
addition to paid-in capital of stockholders' equity. Winnburn also received
one-year warrants to purchase 83,048 shares of common stock at an exercise price
of $10.1531 per share and five-year warrants to purchase 66,439 shares of common
stock at an exercise price of $14.6656 per share. The fair value ascribed to the
warrants was approximately $590,000. Such amount was recorded as interest
expense and as an additional paid-in capital of stockholders' equity.

                                       F-14

<PAGE>

(d)  On March 24, 2000, C3D issued a 10% subordinated convertible debenture for
the principal amount of $4,000,000 to Sands Brothers Venture Capital Associates
LLC ("Sands Brothers VC"). The subordinate convertible debenture can be
converted at any time into shares of common stock of the Company at a conversion
price of $17.65 and expires on September 24, 2001. Sands Brothers VC has the
right to demand repayment of all or any portion of the principal amount of the
convertible debenture and interest outstanding before the maturity date in the
event that C3D receives more than $25,000,000 in gross financing through the
sale of debt and/or equity securities or a change of control of the Company
occurs. C3D granted the subordinate convertible debenture holder certain
registration rights with respect to the underlying Common Stock.

NOTE 5.  Convertible Line of Credit (See Note 8 and 11)

     On August 23, 2000, the Company entered into a certain Loan Agreement with
Constellation 3D Technology Limited, a British Virgin Islands company
("Constellation Tech") and an affiliate of the Company, pursuant to which
Constellation Tech agreed to open a credit line of up to $6,000,000 for the
Company expiring on February 23, 2001. The credit line was amended to extend the
availability until December 31, 2001. The interest rate for each withdrawal will
be the interest rate of three-month LIBOR plus 3%. Constellation Tech has the
right to convert the loan amount into equity at a price per share of 90% of the
average closing price of the Company's common stock for the 12 trading days
prior to August 23, 2000, which was $10.72.

     In connection with this credit line, Constellation Tech received a
three-year warrant (the "Signing Warrant') to purchase 20,000 shares of the
Company's common stock, which warrant had an exercise price of $11.50 and is
exercisable from August 23, 2000 to August 23, 2003.

     In connection with the credit line, Constellation Tech also had the right
to receive a three-year warrant to purchase 10,000 shares of the Company's
common stock upon each withdrawal made by the Company from this credit line. The
exercise price of such warrants is equal to $11.50. The Company withdrew
$1,000,000 on August 23, 2000 and therefore received a total of 30,000 warrants
on such date. The fair value ascribed to the 30,000 warrants was approximately
$117,000 and was be recorded as deferred financing cost and is to be amortized
as interest expense over the remaining term of the credit line. The Company made
no additional withdrawals under the credit line.

     Up to one year from the Company's last withdrawal from the credit line,
Constellation Tech has the right (the "Right") to purchase up to 103,306 shares
of common stock per $1,000,000 of principal extended. The right has an exercise
price of $9.648 and the Right may only be exercised if the aggregate exercise
price is at least $2,000,000. The Right expires one year from the day of the
last withdrawal. The fair value ascribed to the Right was approximately
$763,000, and was recorded as deferred financing cost and amortized to interest
expense over the term of the credit line. At December 31, 2000, the Company has
utilized $1,000,000 of this credit facility.

     Constellation Tech is a related party. Constellation Tech as of December 7,
2001, has the power to vote 26,089,283 shares of common stock of the Company,
representing 40.9% of our issued and outstanding shares of common stock.

                                       F-15

<PAGE>

NOTE 6.  Income Taxes

     At December 31, 2000 and 1999, the Company has net deferred tax assets of
$4,730,000 and $519,000 available to offset future US and foreign source income,
respectively, primarily due to net operating loss carryforwards of $2,425,000
and deferred start-up costs of $9,398,000, which begin to expire in 2019. The
net operating loss carryforwards may be restricted by the change in ownership
rules under internal revenue code section 382. The Company's effective tax rate
was estimated at 40%. A 100% valuation allowance has been recorded against the
deferred tax asset as management, due to the uncertainty about its ability to
generate taxable income, has yet to establish the recoverability of this asset.

     The Company recognized current tax expense of $99,414, $63,588 and $3,462
for the years ended December 31, 2000, 1999 and 1998, respectively. Tax expense
for all periods presented represent Russian and Israeli tax legislation
requiring taxes to be provided for cash receipts.


NOTE 7.  Related Party Transactions

     The Company retained all key employees under informal agreements during the
years ended December 31, 2000, 1999 and 1998. These agreements may be cancelled
at any time. The expense of these agreements totaled $540,000, $437,500 and
$400,000 for the years ended December 31, 2000, 1999 and 1998, respectively. As
of December 31, 2000 and 1999, due to related parties included $91,875 and
$190,000, respectively, of unpaid expenses under those agreements.

     The Company assumed amounts due to a related party for $164,385 at the time
of the reverse acquisition on October 1, 1999 (see Note 1), which was paid
during the year ended December 31, 2000.

     On October 29, 1999 and November 18, 1999, the Company borrowed $300,000
and $1,000,000, respectively, from Epicenter Venture Finance Limited
("Epicenter"). The aggregate $1,300,000 loan was unsecured and had an annual
interest rate of 10%. The loan was scheduled to mature on the earlier July 31,
2000 or upon the Company securing various levels of financing. Interest amounted
to approximately $85,000 and $17,000 during the years ended December 31, 2000
and 1999 respectively.

     In order to induce Epicenter to convert its loan into common stock, the
Company agreed to offer Epicenter: (i) the right to convert the note into common
stock at a conversion rate of $10.1531 per share, and (ii) 55,241 common stock
purchase warrants. On August 23, 2000, the principal amount of $1,300,000 plus
interest of $102,163 on the loan was converted by Epicenter into 138,102 shares
of common stock. The shareholder also received one-year warrants to purchase
69,051 shares of common stock at an exercise price of $10.1531 per share and
five-year warrants to purchase 55,241 shares of common stock at an exercise
price of $14.6656 per share. The fair value ascribed to the warrants was
approximately $490,000. Such amount was recorded as interest expense and as an
additional paid-in capital of stockholders' equity.


NOTE 8.  Stockholders' Equity (Deficit) (See Note 11)

     For accounting purposes, on December 27, 1998, stockholders of
Constellation Tech converted approximately $4,888,537 of stockholder advances
into 3,749,400 shares of Constellation Tech's common


                                       F-16

<PAGE>

stock. Additionally, for accounting purposes, Constellation Tech was
recapitalized on December 27, 1998 through the issuance of an additional
25,464,000 shares of common stock to existing shareholders of Constellation
Tech. For accounting purposes, after the recapitalization, together with the
issuance of 36,000 shares of common stock for debt settlement on April 1, 1999,
the number of issued shares of Constellation Tech's common stock amounted to
29,250,000.

     On October 1, 1999, the Company completed an asset purchase agreement and
acquired substantially all the operations of Constellation Tech for total
consideration of 29,250,000 shares of the Company's $.00001 par value common
stock, and assumption of substantially all liabilities and obligations of
Constellation Tech.

     The 29,250,000 shares of common stock issued by Constellation 3D, Inc. to
Constellation Tech in connection with the reverse acquisition have been adjusted
to appear on the consolidated statement of stockholders' equity (deficit) as the
29,250,000 shares of common stock outstanding on the statement of stockholders'
equity (deficit) prior to the reverse acquisition. Similarly the consolidated
statement of stockholders' equity (deficit) section has been adjusted to reflect
the "issuance" of 11,109,765 shares of common stock, as of the date of the
reverse acquisition when in fact such shares were actually issued by
Constellation 3D, Inc. prior to the reverse acquisition.

     During the year ended December 31, 2000, the Company issued a total of
10,500,000 shares of Common Stock to Constellation 3D Trust LLC, a wholly owned
subsidiary of the Company. Constellation 3D Trust LLC intends to use the shares
to raise debt or equity capital and contribute the proceeds thereof to the
Company. For the purposes of the Company's consolidated financial statements,
the issuance of the 10,500,000 shares of Common Stock are not considered to be
issued or outstanding because the Common Stock has remained under the control of
the Company and will be cancelled if no financing transaction is completed. On
September 15, 2000, 10,000,000 of the shares of Common Stock were cancelled.

     On March 24, 2000, the Company issued a 10% subordinated convertible
debenture for the principal amount of $4,000,000 to Sands Brothers VC. The
subordinate convertible debenture can be converted at any time into shares of
Common Stock of the Company at a conversion price of $17.65 and expires on
September 24, 2001. The market value for the Company's stock on March 24, 2000
was $46.50. The excess of the fair value of the conversion formula over the fair
value of the stock was deemed to be a beneficial conversion feature valued at
$120,000, which was recorded as interest expense and an increase to additional
paid-in capital.

     Upon closing of the $4,000,000 subordinated convertible debenture to Sands
Brothers VC on March 24, 2000, and pursuant to the terms of the agency agreement
originally signed on December 1, 1999 (the "Agency Agreement" and "Warrant
Agreement"), by and between the Company and Sands Brothers & Co. Ltd. ("Sands
Brothers"), the Company issued to Sands Brothers detachable warrants to purchase
1,050,000 shares of Common Stock at an exercise price of $3.67 per share and
warrants to purchase 2,400,000 shares of Common Stock at an exercise price of
$15.13 per share expiring December 1, 2004. As of the date of settlement, the
Company valued the warrants issued to Sands Brothers at an aggregate of
$10,137,700 and valued the warrants that Sands Brothers retained at an aggregate
of $706,593.

     The Company granted the warrant holder certain registration rights with
respect to the underlying Common Stock and the option to exercise the stock
warrants in lieu of any cash payment in exchange for the


                                       F-17

<PAGE>

number of shares of Common Stock that amount to the difference between the
market price and the exercise price of the stock warrants.

     Proceeds from the subordinated convertible debenture issued with the
detachable stock purchase warrants are allocated between the debenture and the
warrants based on their relative fair values as required by Accounting
Principles Board Opinion No. 14. The value ascribed to the detachable warrants
for accounting purposes was $3,880,000 based on the proceeds of the subordinated
convertible debenture to the Company. The $3,880,000 value was recorded as a
debt discount and will be amortized as a component of interest expense over the
term of the related debt. This amount is presented as an addition to paid-in
capital of stockholders' deficit and as an offset to the related liability in
the accompanying December 31, 2000 balance sheet.

     On August 17, 2000, the Company entered into a Common Stock Investment
Agreement pursuant to which the Company sold to TCO Investment, Inc ("TCO")
25,000 shares of the Company's common stock for an aggregate of $250,000. The
Company also issued TCO. adjustment warrants as an inducement to purchase the
25,000 shares of common stock of the Company and provide TCO certain investment
value protection in case the market price of the Company's common stock declined
below $11.68 The adjustment warrants were exerciseable until August 17, 2005 and
had an exercise price of $0.0. The aggregate fair value ascribed to the warrants
was $73,391.

     As an inducement for TCO Investment, Inc to purchase 25,000 shares of
common stock, on August 18, 2000, the Company issued Guldborg International and
Farpell Inc., the principals of TCO Investment, Inc., five-year warrants to
purchase 15,000 and 10,000 shares of the Company common stock, respectively. The
warrants have an exercise price of $11.50 and expire on August 18, 2005. The
aggregate fair value ascribed to the warrants was $190,875. The placement
commission and the warrants were accounted for as a cost of financing.
Accordingly, the proceeds of the sale were recorded net of the placement
commission.

     On August 18, 2000, the Company granted Blank Rome Comisky & McCauley LLP a
warrant to purchase 5,555 shares of the Company's common stock in order to
reduce the amount of the Company's outstanding legal fees due to Blank Rome
Comisky & McCauley LLP by Fifty Thousand Dollars ($50,000.00). Blank Rome
Comisky & McCauley LLP has served as the Company's legal counsel. The warrant
currently is exercisable at a price of $0.001 per share and will terminate on
July 31, 2005.

     On August 23, 2000, the Company entered into the Common Stock Investment
Agreement with Halifax Fund, L.P., a private fund organized under the laws of
the Cayman Islands, providing for a $5 million equity financing ($4,615,055, net
of cost of financing), through a sale of 492,459 shares of the Company's common
stock to Halifax Fund, L.P. In connection with this equity financing, the
Company issued the following warrants to Halifax Fund, L.P.: (1) five-year
warrants to purchase 196,984 shares of the Company's common stock at the initial
exercise price of $14.6656 per share, (2) adjustment warrants to purchase a
number of shares of common stock pursuant to a certain formula set forth in the
written agreement, and (3) one-year warrants to purchase 246,229 shares of
common stock at the initial exercise price of $10.15313 per share.

     On September 19, 2000, the Company entered into a Letter Agreement with
Halifax Fund, L.P., amending the Common Stock Investment Agreement of August 23,
2000. According to the Letter Agreement, Halifax Fund, L.P., provided to the
Company an additional $5,000,000 equity financing ($4,615,055, net of cost of
financing), in consideration for the same number of shares and warrants as
purchased by it in connection with the first $5,000,000 financing described
above. Therefore, Halifax Fund, L.P. has purchased in the aggregate (1)



                                       F-18

<PAGE>

984,918 shares of the Company's common stock, (2) adjustment warrants to
purchase a number of shares of common stock pursuant to a certain formula set
forth in the written agreement, (3) five-year warrants to purchase 393,968
shares of the Company's common stock, and (4) one-year warrants to purchase
492,458 shares of the Company's common stock for a total consideration of $10
million. The adjustment warrants, the five year warrants and the one year
warrants had a fair market value of $3,135,118, $3,295,723 and $2,593,432,
respectively. In connection with this sale, the Company granted Halifax certain
registration rights with respect to the shares of common stock and the shares to
be issued upon the exercise of the above described warrants.

     The adjustment warrants were issued to the Halifax as an inducement to
purchase the 984,918 shares of common stock of the Company and the adjustment
warrants were intended to provide Halifax Fund, L.P. certain investment value
protection in case the market price of the Company's common stock declined below
$11.68. The adjustment warrants were exercisable until September 19, 2005 and
had an exercise price of $0.0. The adjustment warrants were exercisable into
such number of shares as is derived by subtracting 984,918 from the quotient of
(i) 1,150,000 over (ii) the average of the 20 lowest daily trades for a share of
common stock during the period starting 15 trading days after the day on which a
registration statement covering the initial shares is first declared effective
by the commission and ending on the 100th trading day thereafter. All the shares
issued pursuant to the exercise of the adjustment warrants were treated as
adjustments to the initial investments and were recorded in the stockholders'
equity section as a credit to common stock, for the par value of the shares, and
a debit to additional paid in capital.

     In connection with the sale of the foregoing securities to Halifax Fund,
L.P., the Company paid placement fees to the Shemano Group and Koor Underwriters
and Issuers Ltd. The Shemano Group, Inc., received $500,000 (5% of the
$10,000,000 purchase price) as a placement commission and five-year warrants to
purchase 400,000 shares of the Company's common stock at an exercise price of
$14.4456 per share. The Shemano warrants had a fair value of $3,346,183. The
Koor Underwriters and Issuers Ltd. received $200,000 (2% of the $10,000,000
purchase price) as a placement commission and five-year warrants to purchase
200,000 shares of the Company's common stock at an exercise price of $14.4456
per share. The Koors Underwriters warrants had a fair value of $1,673,091. The
placement commission and the warrants were accounted for as a cost of financing.
Accordingly, the proceeds of the sale were recorded net of the placement
commission.

     On August 22, 2000, in consideration of the assignment of patents to the
Company by Mr. Schwartz, the Chief Technology Officer of the Company at the
time, and Reflekt Technology, Inc., a Massachusetts corporation, of which Mr.
Schwartz is the President, sole director and sole stockholder, the Company
granted jointly to Mr. Schwartz and Reflekt Technology, Inc. a warrant to
purchase 10,000 shares of the Company's common stock. The patents were valued by
the Company's officers based upon the patents' perceived benefit to the Company
and the projected cost of independently developing comparable patented
technology for use in the Company's products.

     The warrant has an exercise price of $11.25 per share and is exerciseable
until August 22, 2004. The fair value ascribed to the warrants was approximately
$56,000. Such amount was recorded as a non-cash compensation charge to
operations.

     On August 31, 2000, the Company sold 197,026 shares of the Company's common
stock for an aggregate consideration of $2,000,426 ($1,920,409, net of financing
costs, ) to a group consisting of the following seventeen investors: I. Nahori,
Y. Hershkovitz, O. Ackerman, T. Barak, Z. Korech, T. Edri, O. Ron,



                                       F-19

<PAGE>

E. Miro, A. Shilontchik, Y. Peleg, A. Ben-Ami, G. Altshuler, Koor Underwriters
and Issuers Ltd., Menorah Gaoon Investment Ltd., Shalom and Yafa Bilgori, The
Hebrew University Employee Fund, and S. Tov, collectively called Koor's
Investors. In connection with this equity financing, the Company issued the
following warrants to Koor's Investors: (1) five-year warrants to purchase
78,813 shares of the Company's common stock at the initial exercise price of
$14.6656 per share, (2) adjustment warrants to purchase a number of shares of
common stock pursuant to a certain formula set forth in the written agreement,
and (3) one-year warrants to purchase 98,513 shares of common stock at the
initial exercise price of $10.15313 per share. The adjustment warrants, the five
year warrants and the one year warrants had a fair market value of $578,397,
$659,733, and $519,357, respectively.

     The adjustment warrants were issued to the Koor's investors as an
inducement to purchase the 197,026 shares of common stock of the Company and
were intended to provide the Koor's investors certain investment value
protection in case the market price of the Company's common stock declined below
$11.68. The adjustment warrants were exerciseable until August 31, 2005 and had
an exercise price of $0.0. The adjustment warrants were exercisable into such
number of shares as is derived by subtracting 197,026 from the quotient of (i)
2,300,490 over (ii) the average of the 20 lowest daily trades for a share of
common stock during the period starting 15 trading days after the day on which a
registration statement covering the initial shares is first declared effective
by the commission and ending on the 50th trading day thereafter.

     In connection with the sale of the foregoing securities to Koor's
Investors, the Company paid Koor Underwriters and Issuers Ltd. a placement fee.
Koor's Underwriters and Issuers Ltd received $80,017 (4% of the $2,000,426
purchase price) as a placement commission and five-year warrants to purchase
295,539 shares of the Company's common stock at a price of $14.6656. The
warrants had a fair market value of $2,473,917. The Company also paid a 17%
Value Added Tax on the cash payments. The placement commission and the warrants
were accounted for as a cost of financing. Accordingly, the proceeds of the sale
were recorded net of the placement commission.

     On September 12, 2000, the Company entered into the Common Stock Investment
Agreement with Jacqueline Hershkovitz. According to the Common Stock Investment
Agreement, J. Hershkovitz purchased, for aggregate cash consideration of
$150,000, (1) 14,774 shares of common stock at a price of $10.15313 per share,
(2) adjustment warrants to purchase a number of shares of common stock pursuant
to a certain formula set forth in the written agreement, (3) five year warrants
to purchase 5,910 shares of common stock at an exercise price of $14.6656 per
share, and (4) one year warrants to purchase 7,387 shares of common stock at an
exercise price of $10.15313 per share. The adjustment warrants, the five year
warrants and the one year warrants had a fair market value of $42,424, $38,526
and $26,644.

     The adjustment warrants were issued to Ms. Hershkovitz as an inducement to
purchase the 14,774 shares of common stock of the Company provide J. Hershkovitz
certain investment value protection in case the market price of the Company's
common stock declined below $11.68. The adjustment warrants were exercisable
until September 12, 2005 and had an exercise price of $0.0. The adjustment
warrants were exercisable into such number of shares as is derived by
subtracting 14,774 from the quotient of (i) 172,500 divided by (ii) the average
of the 20 lowest daily trades for a share of common stock during the period
starting 15 trading days after the day on which a registration statement
covering the initial shares was first declared effective by the commission and
ending on the 50th trading day thereafter. All the shares issued pursuant to the
exercise of the adjustment warrants were treated as adjustments to the initial
investments and were recorded in


                                       F-20

<PAGE>

the stockholders' equity section as a credit to common stock, for the par value
of the shares, and a debit to additional paid in capital.

Warrants

     Unless more specifically indicated otherwise, the Company estimates the
fair value of each warrant which was valued at the grant date by using the Black
Scholes option-pricing model with the following weighted average assumptions
used for grants during the year ended December 31, 2000: no dividend yield;
expected life equal to the term to maturity of the subject warrant; expected
volatility of 80%; and risk-free interest rates of 5.76% to 6.26%.

     During December 2000, the Company granted warrants to non-employee
consultants who provide services to purchase 375,000 and 100,000 shares of the
Company's common stock at an exercise price of $10.1531 to $14.6656 per share
respectively. The warrants to purchase the Company's common stock vest over 12
months and expire in 2003 through 2005. In connection with the issuance, the
Company recorded a non-cash expense to general and administrative expenses of
$277,880, representing the fair value of the warrants granted, calculated using
the Black-Scholes option-pricing model. Compensation expense will be recorded
over the vesting period.

The following table summarizes information about warrants outstanding at
December 31, 2000:

<TABLE>
<CAPTION>
                                                                                        Fair Market
                                            Exercise                                   Value on Grant
   Grant Date              Shares             Price             Expiration Date             Date
-----------------------------------------------------------------------------------------------------
<S>                      <C>                <C>               <C>                      <C>

March 24, 2000           1,050,000          $   3.67          December 1, 2004            $45,975,000
March 24, 2000           2,400,000          $  15.13          December 1, 2004            $86,382,000
August 17, 2000             25,000          $  11.50          August 17, 2005             $   191,000
August 18, 2000              5,555          $  0.001          July 31, 2005               $    50,000
August 22, 2000             10,000          $  11.25          August 22, 2004             $    56,000
August 23, 2000             30,000          $  11.50          August 23, 2003             $   117,000
August 23, 2000            152,099          $10.1531          August 23, 2001             $   585,000
August 23, 2000            121,680          $14.6656          August 23, 2005             $   495,000
August 31, 2000             98,513          $10.1531          August 31, 2001             $   519,000
August 31, 2000            374,352          $14.6656          August 31, 2005             $ 3,134,000
September 12, 2000           7,387          $10.1531          September 12, 2001          $    27,000
September 12, 2000           5,910          $14.6656          September 12, 2005          $    39,000
September 19, 2000         492,458          $10.1531          September 19, 2001          $ 2,593,000
September 19, 2000         993,968          $14.6656          September 19, 2005          $ 8,315,000
October 12, 2000            15,000          $10.1531          October 12, 2001            $    35,000
December 4, 2000           120,000          $10.1531          December 1, 2005            $   310,000
December 4, 2000           250,000          $10.1531          December 31, 2003           $   477,000
December 4, 2000           100,000          $14.6656          December 31, 2005           $   242,000
-----------------------------------------------------------------------------------------------------
                         6,251,922          $  12.13
=====================================================================================================
</TABLE>

           The table does not include adjustment warrants issuable in
                   connection with certain equity financings.


                                       F-21

<PAGE>

Stock Options

     On March 8, 1999, certain board members were granted options to purchase up
to 525,000 shares of the Company's common stock at $1.33 per share. These
options vested immediately expiring in June 2004. No expense was recognized upon
granting of the options as the exercise price was equal to the estimated market
value, as evidenced by the sale of 1,359,765 shares of common stock to unrelated
third parties completed on March 15, 1999 but not issued until May 15, 1999. On
December 7, 2000, the Company received notification of the option holder's
intent to exercise 300,000 options on a cashless basis. The Company issued
235,749 common shares. As of December 31, 2000, there were 225,000 options
outstanding relating to this grant.

     On December 27, 1999, the Company adopted the 1999 stock option plan (the
"Plan"). The Plan allows the Company to grant both qualified and nonqualified
stock options at prices not less than fair market value at date of grant to
officers, key employees, directors or anyone who provides services to the
Company. A maximum of 4,617,540 shares was approved to be issued under the Plan.
As of December 31, 2000, there were 4,468,050 options under this Plan
outstanding.

     Options granted under the Plan expire not more than ten years from the date
of grant. Generally, options vest in five years. All stock options issued under
the plan have been granted at exercise prices at or above the market value of
the Company's common stock on the date of the grant.

     On May 11, 2000 the Company granted options to a non-employee consultant
who provided business development services to purchase 450,000 shares of the
Company's common stock at an exercise price of $5.00 per share when the fair
value was $14.50. The option to purchase the shares vested on June 30, 2000 and
will expire in May 2005. In connection with the issuance, the Company recorded a
non-cash compensation charge to operations of $4,293,000, representing the fair
value of the issuance, calculated using the Black-Scholes option-pricing model.
This amount is included in the marketing expense for the year ended December 31,
2000.

     On August 22, 2000, the Company issued options to purchase 390,000 shares
of common stock to Vladimir Schwartz, the Chief Technology Officer, as
compensation for services. Of the total grant, 140,000 options vest immediately
and 250,000 options vest after one year from the date of the grant. The exercise
price is $11.25 per share, which was the market price at the time of grant, and
expires on August 22, 2004. The fair market value of the options was $2,563,143.
Consistent with APB 25, accounting treatment for employee stock options, the
option grant did not result in an accounting charge.

     On November 9, 2000 the Company granted options to three directors of the
Company to purchase 5,000 shares each of the Company's common stock at an
exercise price of $1.00 per share. The option to purchase the shares vests on
May 26, 2001 and will expire in May 2006. In connection with the issuance, the
Company recorded a non-cash compensation expense of $36,321 with an offsetting
credit to additional paid in capital, representing the fair value of the
issuance. Compensation expense will be recorded over the vesting period.

     During the fourth quarter of 2000, the Company granted options to
non-employee consultants who provide services to purchase 215,000 shares of the
Company's common stock at an exercise price of $6.25 per share. The options to
purchase the Company's common stock vests over the next four years and will
expire in December 2005. In connection with the issuance, the Company recorded a
non-cash expense to operations of

                                      F-22

<PAGE>

$555,255, representing the fair value of the options granted. The non-cash
expense amount is represented as $512,671 in marketing expenses and $42,584 in
general and administrative expenses for the year ended December 31, 2000.
Compensation expense will be recorded over the vesting period.

     SFAS No. 123 requires the Company to provide pro forma information
regarding net loss as if compensation cost of the Company's stock option plan
had been determined in accordance with the fair value based method prescribed in
SFAS No. 123. The weighted average fair value of options granted during the
years ended December 31, 2000 and 1999 were $6.52 and $4.73 respectively. The
Company estimates the fair value of each stock option at the grant date by using
the Black Scholes option-pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 2000 and 1999:
no dividends yield for any period; expected lives of 1 to 5 years; expected
volatility of 80% and 46% respectively; weighted average risk-free interest
rates of 6.6% and 5.1% respectively.

     Under the accounting provisions of FASB Statement 123 for options to
employees and directors, the Company's net loss and net loss per share would
have been adjusted to the pro forma amounts indicated below. There is no effect
on pro forma net loss per share for 1998 and for the period from inception
(September 25, 1997) to December 31, 1997.

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                            ---------------------------------
                                                 2000                 1999
-----------------------------------------------------------------------------
<S>                                          <C>                 <C>
Pro forma net loss ....................      $42,928,779         $  5,547,700
Pro forma net loss per share:

Basic and Diluted .....................      $     (1.03)        $      (0.17)
-----------------------------------------------------------------------------
</TABLE>

     A summary of the status of the Company's stock option plan as of December
31, 2000 and changes during the period from inception (September 25, 1997)
through December 31, 2000 is presented below:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                             Number       Weighted average
                                                           of shares       exercise price
------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
 Options outstanding at September 25,1997 (inception) ...       --                --
------------------------------------------------------------------------------------------
 Options granted in 1999 ................................     525,000         $ 1.33
------------------------------------------------------------------------------------------
 Options outstanding at December 31, 1999 ...............     525,000         $ 1.33
------------------------------------------------------------------------------------------
 Options granted in 2000 ................................   5,814,617         $ 9.60
------------------------------------------------------------------------------------------
 Options exercised in 2000 ..............................   (300,000)         $ 1.33
------------------------------------------------------------------------------------------
 Options forfeited in 2000 ..............................    (90,000)         $10.69
------------------------------------------------------------------------------------------
 Options outstanding at December 31, 2000 ...............   5,949,617         $ 9.27
------------------------------------------------------------------------------------------
 Options exercisable at December 31, 2000 ...............   2,779,317         $ 8.67
------------------------------------------------------------------------------------------
</TABLE>

                                       F-23

<PAGE>

     The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:

<TABLE>
<CAPTION>
                                             Options Outstanding                                    Options Exercisable
                        -------------------------------------------------------------    -----------------------------------------
                                                  Weighted Average                             Number
                              Number                Remaining                               Exercisable
       Range of         Outstanding as of          Contractual       Weighted Average         as of               Weighted Average
    Exercise Price      December 31, 2000          Life (Years)       Exercise Price     December 31, 2000        Exercise Price
    --------------      -----------------        ----------------    ---------------     -----------------        ----------------
    <S>                 <C>                      <C>                 <C>                 <C>                      <C>
        $  1.00              15,000                    5.40              $ 1.00                      -                 $    -
        $  1.33             225,000                    3.46              $ 1.33                225,000                 $ 1.33
        $  5.00             450,000                    4.37              $ 5.00                450,000                 $ 5.00
        $  6.25             863,500                    4.99              $ 6.25                145,000                 $ 6.25
        $ 10.00              20,000                    5.00              $10.00                      -                 $    -
        $ 10.22              18,000                    4.40              $10.22                      -                 $    -
        $ 10.69           3,781,550                    4.37              $10.69              1,622,750                 $10.69
        $ 10.72             186,567                    0.60              $10.72                186,567                 $10.72
        $ 11.25             390,000                    3.64              $11.25                150,000                 $11.25
    --------------       ----------                    ----            --------              ---------                 ------
    $1.00 - $11.25        5,949,617                    4.78              $ 9.27              2,779,317                 $ 8.81
    --------------       ----------                    ----            --------              ---------                 ------
</TABLE>

NOTE 9. Commitments

     The Company has entered into operating lease agreements for buildings used
for office space and research activities. The leases expire on various dates
between the years 2001 and 2004. Future minimum lease payments approximate
$293,000, $190,000, $82,000, and $26,844 for the years ended December 31, 2001,
2002, 2003, and 2004, respectively. Rent expense was approximately $295,000,
$160,000 and $116,800 for the years ended December 31, 2000, 1999 and 1998,
respectively.

     The Company has entered into consulting and employment contracts in the
normal course of business. The contracts expire on various dates between the
years 2001 and 2002. Future minimum contract payments approximate $287,500 and
$75,000 for the years ended December 31, 2001 and 2002, respectively. Expenses
related to these contracts was approximately $45,000 for the year ended December
31, 2000.

NOTE 10. Legal Proceedings

     (a) On June 9, 2000, Challis International Limited commenced a lawsuit in
the Supreme Court of the State of New York, County of New York, against
Constellation 3D Technology Limited and the Company. The complaint alleges that
Challis entered into several contracts with Constellation Tech or its
predecessor-in-interest pursuant to which Constellation Tech agreed to provide
Challis with 11.946% of the shares it would receive in the Company. Although
none of the contracts upon which Challis bases its claims were with the Company,
Challis seeks to hold the Company liable by alleging that the Company is the
alter ego of Constellation Tech. Although the Company is not a party to any of
the contracts, Challis alleges that since one of the Company's officers signed
an appendix to one of the contracts, the Company is therefore directly liable.
In addition, Challis alleges that the contracts entitle it to 3,494,205 shares
of the Company's common stock. The complaint seeks an order directing the
Company to issue proper certificates to Challis for 3,494,205 shares or,


                                       F-24

<PAGE>

alternatively, the fair market value of the shares, plus any incidental damages.
The Company does not believe that the ultimate outcome of the litigation will
have an adverse effect on the Company's financial position, results of
operations and cash flows. The Company intends to vigorously to defend this
lawsuit.

     (b) On February 9, 2001, Clearview Capital (UK) Ltd. ("Clearview")
commenced a lawsuit against the Company in the United States District Court for
the Southern District of New York. The complaint alleges that the Company
entered into a contract with Clearview which provided that for a period of three
years commencing October 26, 1999, should financings take place between the
Company and a party or affiliate of a party as defined in the contract then the
Company would be obligated to pay Clearview cash commissions of 6% of the
financings, plus warrants equal to 15% of the financings with an exercise price
of 110% of the market. Although the Company was not provided financing by any of
the party's included on Clearview's list, Clearview alleges that financing
provided by the Halifax Fund, L.P. falls within the parameters of the contract,
thereby obligating the Company to pay Clearview a commission. The complaint
seeks damages of (i) $600,000 in cash; (ii) warrants to purchase $750,000 of the
Company's shares with an exercise price of $12.65 per share; and (iii) warrants
to purchase $750,000 of the Company's shares with an exercise price of $14.03
per share. The Company is unable to determine with any certainty the ultimate
outcome of the litigation but does not believe that an adverse outcome will have
a material adverse effect on the Company's financial position, results of
operations and cash flows. The Company intends vigorously to defend this
lawsuit.

     (c) On October 20, 2000, the Company filed a registration statement on Form
S-1 with the Securities and Exchange Commission with respect to the registration
of common shares of stock held by certain security holders of the Company (the
"Registration Statement"). On December 22, 2000, the Company received a letter
from outside counsel to Sands Brothers & Co., Ltd. ("Sands"), claiming that the
Company breached certain alleged agreements with Sands by failing to include in
the Registration Statement shares underlying warrants to purchase 3,450,000
shares of the Company's common stock to which Sands claimed it was entitled (the
"Alleged Warrants"). Sands claimed that it had been damaged, at a minimum, in
the amount of $32,128,125 (less the exercise price) by the Company's alleged
failure to register shares underlying the Alleged Warrants. In addition, Sands
claimed that the Company breached certain agreements with Sands by failing to
compensate Sands for certain financing the Company received from third parties,
by failing to pay financial advisory fees allegedly owed to Sands, and by
failing to give Sands a right of first refusal on certain third party financing.
In the December 22, 2000 letter, Sands demanded: (i) that the shares underlying
the Alleged Warrants be included in a registration statement; (ii) that the
Company compensate Sands for financing it received from certain investors; (iii)
that the Company pay Sands $36,000 in financial advisory fees; and (iv) that the
Company pay Sands damages for its alleged failure to abide by the alleged first
refusal obligations. The Company contends that Sands has failed to fulfill its
obligations to the Company and accordingly is not due the compensation demanded.
Because Sands has failed to fulfill their obligations to the Company under
agreements between the parties, the Company believes that the claims asserted in
their December 22, 2000 letter are without merit. Although there can be no
assurance that the dispute will not result in litigation, the Company believes
that the ultimate outcome of such litigation will not have a material adverse
effect on the Company's business, financial position, results of operations and
cash flows. The Company intends to vigorously defend any lawsuit filed by Sands.

     (d) On January 15, 2001, the Company received a letter from outside counsel
to High Tech Investments Corp. Ltd. ("High Tech"), demanding, among other
things, that the Company pay $5 million to High Tech and issue to High Tech
shares of stock in an amount equal to two percent of the outstanding stock in
the Company. According to High Tech, it is owed these amounts based on alleged
agreements between the Company and High


                                       F-25

<PAGE>

Tech that were signed in October 1999, according to which High Tech would market
the Company in Japan and would promote the Company's business relationship with
various Japanese companies. If High Tech's demands are not met, High Tech has
threatened "to exercise all legal means available to it to cause the agreements
to be performed" and to seek to recover damages for the Company's purported
non-performance. The Company has maintained the position that High Tech has no
right to payment under the purported agreements and intends to vigorously oppose
any attempt by High Tech to enforce these purported agreements. On March 7,
2001, the Company filed a declaratory judgment suit in the Supreme Court for the
State of New York seeking a declaration that the purported agreements with
Hi-Tech are not valid contracts and that Hi-Tech is not entitled to any payment
from the Company.

NOTE 11. Subsequent Events

     (a) On January 30, 2001, at the annual meeting of shareholders of the
Company, the shareholders approved the redomicile of the Company's place of
incorporation from Florida to Delaware by merging the Company with and into its
newly-created wholly-owned subsidiary Constellation 3D, Inc., a Delaware
corporation (the "Subsidiary"). On February 8, 2001, Articles of Merger were
filed with the Florida Secretary of State and a Certificate of Merger was filed
with the Delaware Secretary of State, which formally resulted in the redomicile
of the Company to the State of Delaware. As a result of the redomicile of the
Company, the par value was adjusted from $0.001 per share of common stock to a
par value of $0.00001 and all per share information for all prior periods have
been adjusted accordingly. Further, the Company's charter no longer authorized
the issuance of 10 million shares of preferred stock following the Delaware
re-domiciliation.

     (b) On February 14, 2001, the Koor investors exercised their adjustment
warrants and were issued warrants to purchase an additional 243,152 shares of
common stock for no additional consideration for a period of 60 days. On the
same day, another stockholder exercised their adjustment warrants and were
issued an additional 19,704 warrants to purchase shares of common stock for no
additional consideration for a period of 60 days.

     (c) On March 11, 2001, the line of credit with Constellation Tech was
amended such that the $6,000,000 would be available until December 31, 2001,
with a maximum limit of $1,000,000 per withdrawal for any consecutive 30-day
period.

     (d) On March 29, 2001, the Company received a firm offer from an affiliate
of a major investor for an equity credit line of at least $25 million which is
available to the Company at the Company's option through April 30, 2001.


                                       F-26

<PAGE>

NOTE 12. Quarterly Financial Data (Unaudited)

The following is a summary of selected quarterly financial data for 2000 and
1999.

<TABLE>
<CAPTION>

1                                     -----------------------------------------------------------------------
                                             First               Second           Third           Fourth
                                            Quarter              Quarter         Quarter         Quarter
                                      -----------------------------------------------------------------------
<S>                                   <C>                     <C>             <C>             <C>
Net loss:
2000............................                $2,816,973        $7,201,987      $5,244,999      $4,983,246
1999............................                 $ 648,919        $1,008,539      $1,105,256      $2,103,973

Net loss before noncash charges (1):

2000............................                $2,635,864        $2,300,435      $2,655,353      $2,845,233
1999............................                $  635,864        $  948,284      $1,097,149      $1,941,214

Net loss per share:
2000 Basic and Diluted..........                      0.07              0.18            0.13            0.11
1999 Basic and Diluted..........                      0.02              0.03            0.04            0.06
                                      --------------------- ----------------- --------------- ---------------
</TABLE>


(1) The Company recorded noncash charges during the years ended December 31,
2000 and 1999. During the year ended December 31, 2000, these charges consisted
primarily of stock-based compensation, discount amortization of deferred
interest and interest expense relating to the issuance of warrants. The charges
amounted to $181,109, $4,901,552, $2,589,646 and $2,138,013 during the quarters
ended March 31, 2000, June 30, 2000, September 30, 2000 and December 31, 2000,
respectively.


                                      F-27

<PAGE>

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Constellation 3D, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

January 10, 2002.

                                   CONSTELLATION 3D, INC.


                                   By:/s/ Eugene Levich
                                      -----------------------------------------
                                   Name: Eugene Levich
                                   Title: President and Chief Executive Officer

                                      F-28