U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

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

                   For the fiscal year ended December 31, 2000

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

                         Commission file number: 0-21811

                         Torque Engineering Corporation
                 (Name of small business issuer in its charter)

             Delaware                                     83-0317306
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                           Identification No.)

                    2932 Thorne Drive, Elkhart, Indiana 46514
          (Address of principal executive offices, including ZIP Code)

Issuer's telephone number:  (219) 264-2628

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days. Yes [ X ] No
[ ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         The issuer's  revenues for its most recent  fiscal year ended  December
31, 2000 were $718,801.

         The  aggregate  market  value of the  2,833,500 shares of the issuer's
outstanding  common stock held by non-affiliates of the issuer was $3,541,875 as
of March 15, 2001, based on the closing bid price of $1.25 per share as reported
on the OTC Bulletin Board on that date.

         The  issuer  had  8,536,299  shares  of its  common  stock  issued  and
outstanding as of March 15, 2001, the latest  practicable date before the filing
of this report.


<PAGE>


                         TORQUE ENGINEERING CORPORATION
                      INDEX TO ANNUAL REPORT ON FORM 10-KSB

                                                                            Page

PART I.........................................................................3
         Item 1.  Description of Business......................................3
         Item 2.  Description of Property......................................3
         Item 3.  Legal Proceedings............................................3
         Item 4.  Submission of Matters to a Vote of Security Holders..........3
PART II........................................................................4
         Item 5.  Market for Common Equity and Related Stockholder Matters.....4
         Item 6.  Management's Discussion and Analysis.........................7
         Item 7.  Financial Statements.........................................0
         Item 8.  Changes In and Disagreements With Accountants on
                  Accounting and Financial Disclosure.........................20
PART III......................................................................21
         Item 9.  Directors, Executive Officers, Promoters and
                  Control Persons; Compliance with Section 16(a)
                  of the Exchange Act........................................ 21

         Item 10. Executive Compensation......................................24
         Item 11. Security Ownership of Certain Beneficial Owners and
                  Management..................................................25
         Item 12. Certain Relationships and Related Transactions..............27
         Item 13. Exhibits and Reports on Form 8-K............................28


                                       2
<PAGE>






                                     PART I

         The matters addressed in this report on Form 10-KSB, with the exception
of the historical  information  presented,  contain  forward-looking  statements
involving risks and  uncertainties.  Torque  Engineering's  actual results could
differ  materially  from those  expressed  or  implied in these  forward-looking
statements as a result of certain factors,  including those factors set forth in
the  Description  of Business,  Risk Factors and  Disclosure  Regarding  Forward
Looking Statements section and elsewhere in this report.

Item 1.    Description of Business.

         Torque  Engineering  Corporation was formerly known as Quintessence Oil
Company.  Quintessence  Oil was formed  under  Wyoming  law on June 26,  1996 to
purchase,  develop  and  operate  oil and  gas  leases.  On  December  3,  1996,
Quintessence Oil voluntarily filed a registration  statement on Form 10 with the
SEC to become a publicly reporting company. Prior to May 28, 1999,  Quintessence
Oil  was  essentially  inactive  and  had no  operations.  Quintessence  Oil had
previously  acquired one  undeveloped  oil and gas lease,  but had not initiated
drilling or other production operations.

         In May 1999, Quintessence Oil's new management began the first phase of
a  transition  from an  inactive  oil  and  gas  company  to a  manufacturer  of
high-performance production engines for the boating and transportation industry.
On May 28, 1999, Quintessence Oil issued 1,500,000 shares of its common stock to
acquire  IPSL,  Inc.  Prior to that,  on May 1, 1999,  IPSL acquired from Glaval
Corporation  the  proprietary  rights to continue  to  research  and develop the
Torque  V-12,  an  aluminum,  gasoline-powered  engine for the luxury  off-shore
marine industry.  By acquiring IPSL and other assets,  Quintessence Oil obtained
those  same  proprietary   rights.  On  November  17,  1999,   Quintessence  Oil
re-incorporated  under  Delaware law and changed its name to Torque  Engineering
Corporation.

         Torque  Engineering's  current  management has experience in the design
and production of high-performance,  marine race and pleasure engines. Beginning
in  1986,  under  the  name  Lightning   Performance   Products,   Inc.,  Torque
Engineering's  current  president,  Raymond B. Wedel,  Jr.,  developed  and sold
after-market  performance-enhanced  parts and  equipment  for marine  racing and
pleasure engines.

         The  high-performance   marine  race  and  pleasure  engines  Lightning
Performance  originally  produced were custom-made.  As a result, the market for
these  products was extremely  limited.  In early 1992, Mr. Wedel sold Lightning
Performance to Richard  Streffling  where Lightning  Performance,  as an Indiana
corporation under the name Torque Engineering,  continued operations.  Mr. Wedel
joined  that  business  after  the sale  and  began  to  transition  it from the
production  of race engines to the  development  of a  light-weight,  high-power
marine  engine  which could be built on a  production-line  basis for the luxury
performance pleasure craft industry.

                                       3
<PAGE>

         In 1997,  Mr. Wedel left the prior Torque  Engineering  to pursue other
opportunities in the marine industry.  However, that company,  utilizing many of
the same  employees  who worked for Mr.  Wedel,  continued to develop the Torque
V-12. In 1999 IPSL  purchased the assets and  proprietary  rights to continue to
research and develop the Torque V-12 from the prior Torque Engineering entity.

         On May 21,  1999,  Quintessence  Oil and IPSL  entered  into a Plan and
Agreement of Reorganization  under which  Quintessence Oil agreed to acquire all
of the issued and  outstanding  shares of common stock of IPSL.  Under the plan,
IPSL's sole shareholder, Michel Attias, irrevocably granted Quintessence Oil the
right  to  exchange  1,500,000  shares  of  its  common  stock  for  all  of the
outstanding  shares of common  stock of IPSL at any time prior to June 15, 1999.
On May 28, 1999  Quintessence  Oil exercised its right to close the  transaction
and to acquire  IPSL and the  assets  and  proprietary  rights to  research  and
develop  the  Torque  V-12.   As   described   above,   Quintessence   Oil  then
reincorporated and changed its name to Torque Engineering Corporation.

         Since  acquiring  IPSL and the rights to develop  and  manufacture  the
Torque V-12,  Torque  Engineering  has  formulated a plan of operation  based on
management's  belief  that  even  as boat  manufacturers  increase  the  size of
pleasure  craft,  marine  industry  consumers are unwilling to settle for lesser
performance than what is available in smaller craft. Management believes that in
order to provide the same level of  performance,  the standard  automotive-based
gasoline  V-8 engine is being  asked to perform  beyond its  engineered  limits.
Owners of luxury  offshore  pleasure  craft  are  therefore  forced to resort to
installing three or four high performance V-8 engines or installing  heavier and
noisier diesel engines. As a result, Torque Engineering has developed and is now
manufacturing  and marketing the Torque V-12, a  high-powered,  12-cylinder,  14
liter/860 cubic inch V-12 aluminum marine engine.  Torque Engineering  presently
offers the Torque V-12 in the following three models:

o        The TORQ 1000 - 900 horsepower engine with 1050 ft.-lbs. of torque,

o        The TORQ 1100 - 1,050 horsepower engine with 1100 ft.-lbs. of torque,
         and

o        The TORQ 1200 - 1,150 horsepower engine with 1150 ft.-lbs. of torque.

Products

         The Torque V-12 is an all-aluminum, electronically fuel-injected engine
designed to run on premium  gasoline.  The engine has a broad torque band, which
allows the Torque V-12 to generate  significant power at low throttle  settings,
thus providing for greater fuel economy. As of March 15, 2001 Torque Engineering
is  unaware  of  any  other  marine   engine   manufacturer   that  produces  an
all-aluminum,  naturally aspirated,  gasoline-powered  V-12 engine that provides
the same performance characteristics of the Torque V-12 engines.

                                       4
<PAGE>

         In September  1999, the Torque V-12 became an available  power plant in
the Carlson Model 2000, 33 foot sport cruiser boat line. Torque Engineering will
display  this boat at various  marine  industry  trade  shows  throughout  2001.
Currently, Magnum, Cigarette, NorTech, Predator, Advantage and Skater boats also
list the  Torque  V-12 as a power  plant  selection  for  some of their  current
models.

         The Torque V-12 is designed for  installation in luxury marine pleasure
craft.  After  significant   production  of  the  Torque  V-12  begins,   Torque
Engineering  anticipates  that it will  analyze  whether  the Torque V-12 may be
commercially  adapted to other uses,  including potential military,  industrial,
agricultural  or mining  uses.  Torque  Engineering  has  engaged in the past in
discussions  with various third parties about  adapting the Torque V-12 to other
marine uses outside of the luxury  pleasure craft  industry.  These  discussions
continued during the year ended December 31, 2000.  However,  these  discussions
continue  to be of an  extremely  broad  and  preliminary  nature.  There  is no
assurance  that  Torque  Engineering  will adapt its Torque  V-12 to  additional
marine or other uses, or that the Torque V-12 will be appropriate for uses other
than in the luxury marine pleasure craft market.

         Retail  prices for the Torque  V-12  range  from  $91,159 to  $112,838.
Torque  Engineering  offers a one-year limited warranty on all three Torque V-12
models.  Each warranty  limits the total number of hours a purchaser may use the
Torque V-12 during the one-year  warranty  period and still remain  eligible for
warranty  protection.  The warranty  period for the TORQ 1000 covers 75 hours of
total use and for the TORQ 1100 and TORQ 1200 covers 50 hours of total use.

Product Market

         Torque  Engineering's  products are  designed  for the marine  pleasure
craft industry. That industry is divided primarily into the high-end stern drive
segment and the outboard  segment.  The Torque V-12 is targeted toward the stern
drive segment.

         More  specifically,   Torque  Engineering's  Torque  V-12  engines  are
currently  targeted  toward a limited niche market for  purchasers and owners of
high-powered,  luxury  performance  pleasure  craft  sold  in  the  U.S.  Torque
Engineering  believes  this niche  market is generally  characterized  as having
consumers who are concerned primarily with:

o        the performance of the high-powered engines they purchase,

o        the dependability of those engines, and

o        the overall useful life of those high-powered engines.

                                       5
<PAGE>

Prices  for the marine  craft for which the Torque  V-12  engines  are  designed
generally range from $250,000 to $1,000,000.

Industry overview

         According  to  the  National  Marine  Manufacturers'  Association,  the
recreational  boating industry generated  approximately $22.2 billion in overall
sales in 1999 and $25.6 billion in 2000.

         There were  99,000 new sales of inboard  and stern drive boats in 2000.
Of these, approximately 20,000 were 25' or more in length.  Approximately 90% of
these  boats would have two or more  engines.  Torque  Engineering's  management
hopes to capture  2-1/2% to 4% of this market over the next three to five years.
However, there can be no assurance Torque Engineering will be able to do so.

         Management believes  recreational marine industry sales are impacted by
factors such as:

o        the general state of the economy,

o        interest rates,

o        consumer spending,

o        technology,

o        dealer effectiveness,

o        demographics,

o        weather conditions,

o        fuel availability and price, and

o        government regulations.

         During the period from 1983 to 1992, the  recreational  marine industry
experienced  both its largest growth (from 1983 to 1988) and its largest decline
(from  1988 to 1992) in over 30 years.  The growth  was  stimulated  not only by
increasing real disposable  income,  but also by readily obtainable marine loans
that  required no down  payment  and could be  financed  over a term of over ten
years.  The  contraction  in sales  from  1988 to 1992 was due to the  recession
during the early  1990s and to the  increased  level of sales in the late 1980s.
Many boat owners had loan balances in the early 1990s that exceeded the value of
their boats, which made trade-up sales more difficult to obtain. In addition, in
1990 the U.S.  government imposed a luxury tax on boats sold at prices in excess
of $100,000. However, the luxury tax was repealed in 1993 and boats over 24 feet
continue to be one of the largest growth sectors in the market.

                                       6
<PAGE>

         Torque  Engineering  also  believes  there  are three  primary  factors
affecting the recreational marine industry today.

o                          There are an increasing  number of consumers over the
                           age of  50.  These  older  consumers  typically  have
                           larger  discretionary income per capita and increased
                           leisure time. Torque Engineering  believes that these
                           consumers are  purchasing  larger and more  luxurious
                           boats.

o                          Torque  Engineering   believes  there  is  increasing
                           interest  in   upgrading   existing   boats   through
                           equipment-based  accessories and repowerment.  Torque
                           Engineering's  research  indicates that approximately
                           1% of the  existing  boat engines in use are replaced
                           on an annual basis.

o                          Women   are   increasingly   influencing   or  making
                           purchasing  decisions.  Torque Engineering  estimates
                           there  are  currently   approximately  500,000  women
                           powerboat  owners in the U.S.  and that the number is
                           expected to grow.

Manufacturing

         Torque  V-12  engines  were   developed  and  are  produced  in  Torque
Engineering's Elkhart, Indiana manufacturing facility using  computer-controlled
machining centers.

         In  November  1999,  Torque  Engineering   completed   installation  of
additional  computer-controlled  machining centers it uses to manufacture Torque
V-12  engine   components.   Haas  Automation   manufactured   these  additional
computer-controlled   machining  centers  and  Torque   Engineering  leased  the
machining centers from CNC Associates, Inc.

         The Torque V-12 engine is machined  and also  hand-assembled  by Torque
Engineering's employees at the Elkhart, Indiana production facility. Each engine
is tested on a dynamometer  and research is conducted using a 41 foot test boat.
Management  believes that this  manufacturing  arrangement will be sufficient as
production begins to meet consumer demand for the Torque V-12.

Raw Materials

         Torque Engineering plans to produce internally as many of the necessary
components for the Torque V-12 as possible.  Torque Engineering expects that the
computer-controlled  manufacturing  machines  acquired  in  November  1999  will
facilitate  the internal  component  production  process.  Additionally,  Torque
Engineering  utilizes components acquired in May 1999 as part of the acquisition
of IPSL, Inc.

                                       7
<PAGE>

However,  subcontractors  and supplies will still be needed for some components,
such as  crankshafts,  electronic  controls,  and raw aluminum  block  castings.
Torque Engineering  solicits  competitive  quotes for these components  whenever
possible.  Whenever  the price of a component  can be  substantially  reduced by
volume buying Torque  Engineering  plans to do so. Torque  Engineering  believes
that adequate sources of supply exist and will continue to exist, at competitive
prices, for all of Torque Engineering's raw material requirements.

Major Customers

         For the year ended  December  31, 2000,  approximately  97.5% of Torque
Engineering's  revenues were  generated  from sales to one  customer,  Cigarette
Racing Team,  Inc. We cannot assure you that  Cigarette  Racing Team,  Inc. will
continue to be a major customer.

Marketing

         Torque  Engineering  currently  markets  its Torque  V-12  engines on a
direct sale basis through leads derived from trade shows,  magazine articles and
personal  contacts  of our  employees  in the  power  boating  industry.  Torque
Engineering  markets its  products not only to boat  manufacturers,  but also to
pleasure boat users in an effort to increase demand through consumer requests to
boat  manufacturers  for the Torque V-12 as an  available  power plant in luxury
pleasure craft.

Distribution

         Torque  Engineering does not currently have a distribution  network set
up for the Torque V-12. If Torque  Engineering's  sales increase  substantially,
Torque  Engineering  may in the  future  establish  Service  Representatives  in
various areas to service its products.  Torque Engineering believes that it will
be able to  adequately  ship the Torque V-12 to  manufacturers  who purchase the
Torque V-12 through normal shipping avenues.

Competition

         Torque Engineering anticipates that it will face intense competition in
the market in which  Torque  Engineering  will  produce and sell its Torque V-12
engines.  The marine  engine  production  market  generally has high barriers to
entry due to the capital  investment  and  technological  expertise  required in
manufacturing  marine  engines.  As  a  result,  the  marine  engine  market  is
concentrated  among large U.S.,  Japanese and European  manufacturers.  Industry
estimates are that U.S.-based Brunswick Corporation  maintains  approximately 70
to 80 percent of the stern drive  market  segment  with Volvo Penta  Corporation
enjoying a large portion of the remaining  market share.  In the outboard engine
market,  management  believes  Brunswick and Outboard Motor Corporation  control
roughly 80 percent of the market.

                                       8
<PAGE>

         In the niche  market for  high-powered  marine  engines in which Torque
Engineering will participate, there are several manufacturers who build gasoline
engines  with 700 or more  horsepower,  including  Volvo  Penta  and  Brunswick.
Management's experience is that generally these engines are either modified V-8s
with enhanced aspiration such as turbo-chargers,  or diesel fueled engines. As a
result,  Torque  Engineering  does not believe that these  engines are competing
with the Torque V-12 on an identical product line basis.

         Nonetheless, Torque Engineering's competitors,  including Brunswick and
Volvo  Penta are  large,  vertically  integrated  companies  that  have  greater
resources, including financial resources, than Torque Engineering.  Economies of
scale give these  companies  distinct  advantages  in the market.  For  example,
Brunswick and its subsidiaries have established dealer networks that offer sales
as well as service and  warranty  repair and  production  schedules  afford them
larger margins than other competitors in the market. The vertical integration of
Torque  Engineering's  competitors  allow  them  to  offer  consumers  different
combinations of boat, engine and stern drive packages at various pricing levels.

         There  is  no  assurance  that  Torque  Engineering  will  be  able  to
successfully  compete  against these companies in the stern drive segment of the
marine engine market.

Intellectual Property

         In  developing  its  business  strategy  for  the  Torque  V-12  Torque
Engineering  expects to rely on patented and other  proprietary  technology.  In
addition,  Torque Engineering expects to rely on confidentiality  agreements and
other  contractual  covenants to establish and protect its  technology and other
intellectual  property  rights.  Wherever  legally  permissible and appropriate,
Torque  Engineering  plans  to file  patent  applications  and to  register  its
trademarks.

         Torque  Engineering  has  registered  the  trademark  "Torque"  for its
products and also holds a U.S.  patent for its Torque V-12 engines'  lubrication
system which patented system has a substantial  impact on the useful life of the
Torque V-12. This patent was granted on August 18, 1998 to Torque Engineering as
the assignee of Raymond B. Wedel and Richard Moser.  Torque  Engineering  cannot
assure you that any future patent applications it submits will result in patents
being  issued or that,  if issued,  such  patents or  pre-existing  patents will
afford adequate  protection  against  competitors  with similar  technology.  In
addition,  Torque Engineering's  competitors may independently  develop superior
technology.

         Torque Engineering also cannot assure you that any patents issued to or
licensed by Torque  Engineering will not be infringed upon or designed around by
others, that others will not obtain patents that Torque Engineering will need to
license  or  design  around  or that  Torque  Engineering's  products  will  not
inadvertently  infringe  upon the valid patents of others.  In addition,  Torque
Engineering  cannot  assure you that the Torque  Engineering  patent will not be
invalidated or that Torque  Engineering  will have adequate funds to finance the
high cost of defending or prosecuting patent validity or infringement issues.

                                       9
<PAGE>

Research and Development

         Torque Engineering maintains an ongoing research & development program.
In September 1999, Torque  Engineering  completed a private placement of 461,540
shares  of  common  stock to raise a total of  $1,500,005  for  working  capital
purposes,  including continued  development of the Torque V-12 engine. A portion
of the  proceeds of this private  offering  were used as a down payment to lease
the  computer-controlled  manufacturing equipment Torque Engineering uses in the
production of its Torque V-12 engines.  In 2000,  Torque  Engineering  completed
private  placements  of  578,359  shares  of  common  stock  to raise a total of
$913,000 of which a portion  supported  ongoing  research & development with the
balance used for overhead and the purchase of raw materials.

         Management  believes that Glaval Corporation spent significant funds on
research  and  development  prior  to  IPSL's  acquisition  of  the  assets  and
proprietary   rights  to  develop  and  manufacture   the  Torque  V-12.   These
expenditures  were  included  as part of the  acquisition  price and will not be
passed on to customers.  The portion of funds spent after May 1, 1999 to convert
to a production  line is  considered  overhead  which will be prorated  over the
manufacturing  cost of the V-12 engines in accordance  with  generally  accepted
accounting principles.

Environmental and Regulatory Matters

         Torque  Engineering  is subject to regulation  under  various  federal,
state and local laws  relating to the  environment  and to  employee  safety and
health.   These  laws  include  those  relating  to  the  generation,   storage,
transportation,   disposal  and  emission  into  the   environment   of  various
substances,  those  relating to drinking  water quality  initiatives,  and those
which allow regulatory  authorities to compel or seek reimbursement for clean-up
of environmental  contamination at its owned or operated sites and at facilities
where its waste is or has been  disposed.  Permits are required for operation of
Torque  Engineering's  business,  and these  permits  are  subject  to  renewal,
modification  and,  in certain  circumstances,  revocation.  Torque  Engineering
believes that it is in substantial compliance with environmental laws and permit
requirements.

         The  EPA  has  adopted  regulations  governing  emissions  from  marine
engines.  The regulations relating to outboard engines phase in over nine years,
beginning  in model year 1998 and  concluding  in model year 2006.  For personal
watercraft the  regulations  phase in over eight years,  beginning in model year
1999 and concluding in model year 2006. Marine engine manufacturers are required
to reduce hydrocarbon  emissions from outboard engines,  on average, by 8.3% per
year beginning with the 1998 model year, and emissions from personal  watercraft
by 9.4% per year  beginning  in model  year  1999.  These  regulations  apply to
two-stroke  engines  and to  personal  watercraft,  such as jet skis.  Since the
Torque V-12 is a four-stroke  engine,  Torque  Engineering does not believe that
compliance with these standards will have a material  adverse effect on the cost
of its engine products or its future sales.

                                       10
<PAGE>

         Certain states,  including California,  have adopted environmental laws
that require marine  engines to comply with future  federal  annual  hydrocarbon
emissions  standards  more  quickly  than  federal law  requires.  While  Torque
Engineering  has not been able to fully  assess the impact that these  standards
will have on its  business,  Torque  Engineering  does not  believe  these  more
stringent state  requirements will have a material adverse effect on the cost of
its engine products or its future sales.

         Torque  Engineering  cannot  predict the  environmental  legislation or
regulations  that may be enacted in the future or how existing or future laws or
regulations will be administered or interpreted.  Compliance with more stringent
laws  or  regulations,  as well as more  vigorous  enforcement  policies  of the
regulatory  agencies or stricter  interpretation  of existing  laws, may require
expenditures by Torque Engineering.

Employees

         As of March 15, 2001, Torque Engineering employed a total of 17 people,
all of which are employed full time.

Risk Factors and Disclosure Regarding Forward Looking Statements

         The above  description of our business should be read together with the
financial  statements  and the related  notes  included in another  part of this
report  and  which  are  deemed  to be  incorporated  into  this  section.  This
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  Our actual results may differ  materially from those anticipated
in those forward-looking  statements.  All statements,  other than statements of
historical  facts,  included in this report that address  activities,  events or
developments  that we  expect,  believe or  anticipate  will or may occur in the
future, including the following matters are forward looking statements:

      o our ability to manufacture the Torque V-12 on a production-line basis,
      o the size of the limited niche market in which we plan to sell the Torque
        V-12,
      o business strategies, and
      o expansion and growth of our operations.

         The  statements  are based on  assumptions  and analyses  made by us in
light of our experience and our perception of:

      o historical trends,
      o current conditions,
      o expected future developments, and
      o other factors we believe are appropriate in the circumstances.

         Those statements are affected by a number of assumptions including:

                                       11
<PAGE>

      o risks and uncertainties,
      o general economic and business conditions,
      o the business opportunities that may be presented to and pursued by us,
      o changes in laws or regulations  and other  factors,  many of
        which are beyond our  control,  and
      o availability to obtain additional financing on favorable conditions.

         Torque  Engineering's actual results could differ materially from those
expressed or implied in these forward-looking  statements as a result of certain
factors, including the following risk factors:

We have a limited operating history.

         Torque  Engineering  is a  manufacturing  business  that has a  limited
operating  history.  Limited  production  commenced  in late 2000 with the first
Torque V-12 engines  being shipped in the fourth  quarter.  Prior to May 1999 we
were an inactive public company originally formed for the purpose of purchasing,
developing  and  operating  oil and gas  leases.  Our  business  strategy  is to
continue to transition Torque Engineering away from the oil and gas business and
to  manufacture  an  aluminum,  gasoline-powered  V-12  engine  for  use  in the
performance  pleasure boat marine industry.  We expect to incur operating losses
and negative  operating  cash flows as we begin to increase our  operations.  We
cannot  assure you that we will succeed in our  transition  or that we will have
sufficient funds to continue operations until we reach profitability.

We cannot  assure you that the market for the Torque V-12 will be  sufficient to
cover our operating expenses.

         Sales of the  Torque  V-12 are  currently  targeted  toward  owners  of
performance  pleasure craft.  This market is a limited niche market in which the
price of the boats for which the Torque V-12 is  designed in many cases  exceeds
$500,000.  We cannot  assure you that sales of  engines in this  market  will be
sufficient to allow us to become profitable in the future.

We cannot  assure you that we will be able to adapt the Torque V-12 to any other
use outside of the luxury marine engine market.

         Our current business  strategy is to market and sell the Torque V-12 in
the  high-performance  marine engine  industry.  Because this is a limited niche
market,  we also  anticipate  we will  attempt to adapt the Torque V-12 to other
industries  and uses in order for us to increase  our future  profitability.  We
cannot assure you that we will be able to adapt the Torque V-12 to other uses or
to other industries.

We have not yet manufactured the Torque V-12 on a full production basis.

                                       12
<PAGE>

         Our current  business  strategy is to manufacture  the Torque V-12 on a
production  basis,  as opposed to customizing the Torque V-12 per our customers'
requests. In 1999 and 2000 we continued the tooling, fixturing,  programming and
installation of equipment in preparation for production.  The initial production
engines we  completed  and  shipped in the later part of 2000.  We have begun to
implement  quantity  production of the Torque V-12 but cannot assure you that we
will not experience initial or recurring quality control or cost problems.

We have not yet established a distribution channel for the Torque V-12.

         We currently market the Torque V-12 through OEM boat manufacturers,  an
internet  website,  trade  show  appearances,  magazine  articles  and  personal
contacts of the members of our company in the pleasure craft marine industry. We
cannot assure you that these marketing efforts will prove sufficient to allow us
to be profitable.

We expect intense competition.

         Although we are not aware of any other  gasoline-powered  aluminum V-12
engine with performance  characteristics  similar to the Torque V-12, we believe
that if the Torque V-12 becomes popular with consumers, other manufacturers will
design and market their own aluminum  V-12  engines that will  directly  compete
with the Torque V-12. Many of our competitors  have  significantly  greater name
recognition  and financial and other  resources than we do. We cannot assure you
that we will  succeed  in the  face of  strong  competition  from  other  engine
manufacturers.

Our success is dependent on our key personnel.

         We believe that our success will depend on the continued  employment of
and active efforts of our senior  management team,  including  Raymond B. Wedel,
Jr. and Richard D. Wedel.  None of our senior  management  team currently has an
employment agreement.  If one or more members of our senior management team were
unable or unwilling to continue in their present  positions,  our business could
be materially adversely affected.

Item 2.  Description of Property.

         Torque  Engineering's  business  office and  manufacturing  facility is
located at 2932 Thorne Drive, Elkhart,  Indiana 46514. Torque Engineering leases
a 33,000 square foot industrial type metal building on approximately 4 1/2 acres
in an industrial park area in Elkhart, Indiana. The initial term of lease is for
three years. The lease provides Torque Engineering the option to renew the lease
for two successive  three year terms.  Torque  Engineering also has an option to
acquire the property  during the initial term of the lease.  Torque  Engineering
believes that the property is sufficient for its current operating plans.

                                       13
<PAGE>

Item 3.  Legal Proceedings.

         As of March 15, 2001, Torque  Engineering is not a party to any pending
legal proceeding and none of its property is subject to any legal proceeding.

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

         There were no items submitted to a vote of security  holders during the
fourth quarter of the year ended December 31, 2000.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         (a)      Principal  Market or Markets.  Torque Engineering common stock
is traded in the  over-the-counter  market,  and is presently  quoted on the OTC
Bulletin Board under the symbol "TORQ."  Trading on the OTC Bulletin Board began
on May 14, 1998 and prior to October 22, 1999 the trading symbol was "QTSN". The
following  table sets  forth the high and low bid prices of the common  stock on
the OTC Bulletin Board during each quarter from January 1, 1999 through December
31, 2000. These prices reflect interdealer  quotations,  without retail mark-up,
mark-down  or  commissions,  and  may  not  represent  prices  at  which  actual
transactions occurred.

                                                                   Bid

                         Quarter Ended                     High           Low
                         -------------                     ----           ---
                         March 31, 1999                    .010           .010
                         June 30, 1999                    9.875           .010
                         September 30, 1999               6.250          2.125
                         December 31, 1999                3.250          1.125

                         March 31, 2000                   6.000          1.125
                         June 30, 2000                    4.000          1.000
                         September 30, 2000               4.125          1.437
                         December  31, 2000               4.125           .656


         (b)      Approximate  Number of Holders of Common Stock.  The number of
holders  of record  of Torque  Engineering  common  stock at March 15,  2001 was
approximately 400. This includes 1,191,540 shares held by brokers.

         (c)      Dividends.  Holders  of Torque  Engineering  common  stock are
entitled  to  receive  dividends  if  declared  by the  board of  directors.  No
dividends  on the  common  stock  have  been paid by  Torque  Engineering  since
inception and Torque  Engineering  does not anticipate  paying  dividends in the
foreseeable future.

                                       14
<PAGE>

         (d)      Recent Sales of Unregistered Securities. During the past three
years,  Torque  Engineering  has sold securities in the  transactions  described
below without  registering  the  securities  under the  Securities  Act of 1933.
Unless  otherwise  indicated,  no  underwriter,  sales or  placement  agent  was
involved in the transactions.

         1. In March  1999,  a total of  4,870,000  shares of common  stock were
issued to fifteen individuals, including Torque Engineering's current president,
Raymond B.  Wedel,  Jr.,  current  chief  executive  officer,  Richard D. Wedel,
current vice president and chief financial officer,  I. Paul Arcuri, and current
secretary,  Donald  Christensen.  Those  shares  were  issued in reliance on the
exemption  from  registration  provided by Section 4(2) of the Securities Act of
1933.

         2. In May 1999,  1,500,000 shares of common stock were issued to Michel
Attias,  the sole  shareholder of IPSL,  Inc., in exchange for all of the issued
and  outstanding  shares of IPSL  capital  stock.  These  shares  were issued in
reliance on the  exemption  from  registration  provided by Section  4(2) of the
Securities Act of 1933.

         3. In September  1999,  a total of 461,540  shares of common stock were
issued to Clement M. Lange,  Glen A. Lange,  Joey Lange and Sheila Wendholt at a
price of $3.25 per share or a total  amount of  $1,500,005.  These  shares  were
issued in reliance on the exemption from  registration  provided by Section 4(2)
of the Securities Act of 1933.

         4. In November 1999,  Torque  Engineering  issued options to purchase a
total of 80,000 shares of common stock to various Torque  Engineering  employees
under the Torque Engineering 1999 stock option plan. These stock options vest at
a rate of 20% per year  beginning  one year after the grant of the  options.  On
November 12, 1999, the board of directors  approved the immediate vesting of 20%
of those stock options issued to all but one of the Torque Engineering employees
who were  granted an option.  That  employee's  option vests 20% on the one year
anniversary  of the option grant.  The exercise  price of these stock options is
$1.80625 per share.

         In November 1999, Torque  Engineering issued options to purchase 10,000
shares of  common  stock to the  following  members  of the board of  directors:
Richard D. Wedel,  Raymond B. Wedel, Jr., and Donald Christensen.  These options
are  immediately  exercisable at a price of $3.25 per share for a period of five
years from the date of the option grant. Torque Engineering also granted I. Paul
Arcuri,  its chief financial  officer,  an option to purchase  100,000 shares of
common stock at an exercise price of $3.25 per share. Mr. Arcuri's option vested
one-third at the time of the option  grant,  and the remainder  vests  one-third
twelve  months  from the date of the option  grant,  and  one-third  twenty-four
months from the date of the option grant. Torque Engineering also granted Donald
Christensen,  an officer and a director,  an option to purchase 30,000 shares of
common  stock at an  exercise  price of $3.25  per share  with the same  vesting
provisions as for Mr. Arcuri's option.

                                       15
<PAGE>

         5. In December  1999,  a total of 1,400 shares were issued to Mark Sorg
and  Eugene  Sobczak in  exchange  for  marketing  services  provided  to Torque
Engineering in the amount of $2,688. These shares were issued in reliance on the
exemption  from  registration  provided by Section 4(2) of the Securities Act of
1933.

         6. In February 2000,  Torque  Engineering  issued an option to purchase
10,000 shares of common stock to an employee under the Torque  Engineering  1999
stock option plan.  This stock option was  immediately 20% vested and vests at a
rate of 20% per year  thereafter.  The  exercise  price of the  stock  option is
$1.80625 per share.

         7. In June 2000, a total of 266,667  shares of common stock were issued
to Clement M. Lange at a price of $1.50 per share or a total amount of $400,000.
These shares were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933.

         8. In October 2000, a total of 4,000 shares of common stock were issued
to Glen  S.  Graber  at a  price  of  $3.25  per  share  or a  total  amount  of
$13,000.These  shares were issued in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933.

         9. In November  2000,  Torque  Engineering  issued  options to purchase
10,000  shares  of  common  stock  to the  following  members  of the  board  of
directors:  Richard D. Wedel, Raymond B. Wedel, Jr., Donald Christensen, I. Paul
Arcuri and Clement M. Lange.  These  options are  immediately  exercisable  at a
price of $3.25 per share for a period of five  years from the date of the option
grant.

         10. In November  2000,  a total of 307,692  shares of common stock were
issued to Clement  M. Lange at a price of $1.625 per share or a total  amount of
$500,000.   These  shares  were  issued  in  reliance  on  the  exemption   from
registration provided by Section 4(2) of the Securities Act of 1933.

         11. In  February  2001, a total of 125,000  shares of common stock
were issued to Messrs. Richard D. Wedel, Raymond B. Wedel, Jr. and Michel Attias
at a price of $2.00 per share or a total amount of  $250,000.  These shares were
issued in reliance on the exemption from  registration  provided by Section 4(2)
of the Securities Act of 1933.

         The stock  options  described  above were  granted in  reliance  on the
exemption  from  registration  provided by Section 4(2) of the Securities Act of
1933.

         The facts relied on to make the exemption from registration provided by
Section 4(2) of the  Securities Act of 1933 available for the sale of securities
discussed in paragraphs 1 through 10 above were:

o        the limited number of purchasers,

                                       16
<PAGE>

o        the sophistication or accreditation of the purchasers,

o        their access to material information about Torque Engineering,

o        the information furnished to them by Torque Engineering,

o        the absence of any general solicitation or advertising, and

o        restrictions on transfer of the securities  issued to them as indicated
         by a legend on the certificates representing such securities.


Item 6.   Management's Discussion and Analysis.

         The  following  discussion  of the  financial  condition and results of
operations  of Torque  Engineering  should be read  together  with the financial
statements  included in this report.  This discussion  contains  forward-looking
statements that involve risks and  uncertainties.  Our actual results may differ
materially from those expressed or implied in those  forward-looking  statements
as a result of  factors  discussed  in  various  cautionary  statements  in this
report,  including those discussed in the Risk Factors and Disclosure  Regarding
Forward-Looking Statements section.

Overview

         Torque  Engineering was a development  stage company through  September
30, 2000, which has devoted most of its efforts toward  establishing its planned
transition  from an  inoperative  oil and gas  company  to a  manufacturer  of a
lightweight, high-powered marine engine built on a production line basis for the
luxury  performance  pleasure boat industry.  During the year ended December 31,
2000,  we became an  operating  company.  Torque  Engineering  had a net loss of
$2,752,608 and negative cash flows from  operating  activities of $1,468,442 for
the year ended December 31, 2000, and an accumulated deficit of $4,088,936 as of
December  31,  2000.  These  conditions  raise  substantial  doubt about  Torque
Engineering's  ability to  continue  as a going  concern.  Torque  Engineering's
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

         Torque  Engineering's  ability  to  continue  as  a  going  concern  is
dependent on management's ability to:

o        Increase production-line manufacturing of the Torque V-12,

o        increase sales of the Torque V-12, and

o        obtain  adequate  levels of additional  financing from new investors or
         existing shareholders.

                                       17
<PAGE>

Management is  endeavoring  to obtain new sources of financing and to generate a
sufficient  market for the Torque V-12 such that the full scale  production  can
begin.  We can not assure  you,  however,  that  adequate  levels of  additional
financing can be obtained or that full scale  production of the Torque V-12 will
begin.

         Effective  May 28, 1999,  Torque  Engineering  acquired  IPSL, a Nevada
corporation,  in  exchange  for the  issuance  of  1,500,000  shares  of  Torque
Engineering  common  stock.  IPSL  owns  property  and  equipment  which  Torque
Engineering is using in the manufacture of Torque V-12 engines.

Results of Operations

         Revenues

         For the year ended December 31, 2000,  Torque  Engineering had revenues
of  $718,801  substantially  attributable  to the  sale of six (6)  Torque  V-12
engines and other parts.  Cost of sales for the manufacture of the products sold
during 2000 were $1,607,494 representing a gross loss of $888,693. The high cost
of goods sold for the year ended December 31, 2000 is primarily  attributable to
a noncash charge  incurred for  depreciation.  In addition,  a large part of the
increased  cost of sales is  comprised  of  salary  for  labor  incurred  in the
production  of  Torque  V-12  engines,  building  rent and  other  manufacturing
overhead  costs.  For the year ended December 31, 1999,  Torque  Engineering had
revenues of $91,300  attributable  to the sale of one Torque V-12. Cost of sales
for  the  manufacture  of  the  Torque  V-12  sold  during  1999  were  $72,726,
representing a gross profit of $18,574.

         Operating Expenses

         Payroll and other compensation decreased to $240,538 for the year ended
December  31, 2000 from  $392,795 for the year ended  December  31,  1999.  This
decrease is primarily  attributable  to the  reclassification  of certain salary
expense of employees  directly involved in the production of Torque V-12 engines
to cost of goods sold.  Depreciation  increased to $1,118,079 for the year ended
December 31, 2000,  from  $643,703  for the year ended  December 31, 1999.  This
increase is  primarily  attributable  to the fact that Torque  Engineering  took
depreciation  for the entire year ended  December 31, 2000.  Torque  Engineering
began taking depreciation during the year ended December 31, 1999 only after the
acquisition  of IPSL,  Inc. in May 1999.  The  increase in rental  expense  from
$70,168 for the year ended  December  31,  1999 to  $120,000  for the year ended
December  31,  2000 is  also  attributable  to the  payment  of  rent on  Torque
Engineering's  manufacturing  facility  for the entire year ended  December  31,
2000.  General and  administrative  expenses  increased to $384,817 for the year
ended  December 31, 2000 from $321,016 for the year ended December 31, 1999. The
increase was primarily  attributable to marketing and related travel expenses in
connection with the establishment and execution of Torque Engineering's business
plan.

                                       18
<PAGE>

         Net Loss

         Net loss  increased to $2,752,608  for the year ended December 31, 2000
from  $1,325,744  for the year  ended  December  31,  1999.  This  increase  was
primarily  attributable to the increase in general and  administrative  expenses
discussed  above,  and  $1,118,079  of  depreciation  of property and  equipment
acquired  through the IPSL  acquisition in order to establish and execute Torque
Engineering's  business plan. Net unrealized losses on marketable securities for
the years  ended  December  31,  2000 and  December  31,  1999 were  $30,932 and
$180,131, respectively.

Liquidity and Capital Resources

         Future Capital Requirements

         Management  anticipates that the capital requirements to conduct Torque
Engineering's  business plan may be significant and we cannot assure you that we
will be able to obtain  those  funds or obtain  the  required  capital  on terms
favorable to us. We plan to satisfy our capital requirements for the next twelve
months by selling our  securities,  obtaining  financing  from third parties and
from  funds  from the  ongoing  manufacture  and sale of  Torque  V-12  engines.
Management further  anticipates that any funds obtained will be used for working
capital,  administrative  expenses,  and towards the research and development of
the Torque V-12 for other potential uses in the marine and other industries.  If
we are unable to obtain financing from third parties, the sale of our securities
or some other source, or if our funds from ongoing  operations are insufficient,
it is unlikely that we will continue as a going concern.

         Cash Flows

         For the year ended  December 31, 2000,  Torque  Engineering  raised net
cash of $913,000 from private placements of its common stock. For the year ended
December 31, 1999, Torque Engineering raised net cash of $1,500,005 from private
placements of its common stock.  Of the net cash raised from private  placements
during the year ended December 31, 2000, $900,000 was raised from a director and
significant shareholder.  In addition, two stockholders,  one of whom is also an
officer and director,  provided  operating  funds in the amount of $60,000.  The
proceeds from these private placements and from these stockholders were used for
working capital. Marketable securities through the IPSL acquisition were written
down to $1,213,  resulting in net unrealized losses on marketable securities for
2000 of $30,932.

         A total of $1,468,442 was used for operating activities during the year
ended  December  31, 2000 as  compared  to  $687,414  used during the year ended
December  31,  1999.  The  increase  in cash used in  operating  activities  was
primarily  attributable  to  increased  general  and  administrative   expenses,
production  and overhead  expenses and the purchase of raw materials  related to
the  implementation  of management's  business plan. As a result,  cash and cash
equivalents  decreased  to $160,113  for the year ended  December  31, 2000 from
$798,019 for the year ended December 31, 1999.

                                       19
<PAGE>

         Torque  Engineering  believes  it  does  not  have  sufficient  cash to
continue  operations  and to  manufacture  the Torque V-12 on a  production-line
basis  to  generate  revenues  for  the  next  twelve  months.  However,  Torque
Engineering  intends to identify  other  sources of capital and to  aggressively
seek out additional  capital if available on favorable terms and as necessary to
continue operations and to increase sales and revenues. Management is continuing
to evaluate the company's projected capital needs for the future development and
manufacture  of Torque V-12 engines.  Although  management  believes the current
cash,  revenues to be generated  from sales and financing will be sufficient for
the next twelve months,  we cannot assure you that Torque  Engineering  will not
need additional funds to implement management's business plan.

         New Accounting Pronouncement

         The  Financial  Accounting  Standards  Board has  recently  issued  new
accounting  pronouncement,  Statement of Financial Accounting Standards ("SFAS")
No.  133,  as  amended  by SFAS No.  137 and  138,  "Accounting  for  Derivative
Instruments and Hedging  Activities" that  establishes  accounting and reporting
standards  for  derivative   instruments  and  related   contracts  and  hedging
activities. This statement is effective for all fiscal quarters and fiscal years
beginning after June 15, 2000.

         Torque   Engineering   believes  that  the  future   adoption  of  this
pronouncement will not have a material effect on Torque Engineering's  financial
position or results of operations.

Item 7.  Financial Statements.

         The independent auditors' report and the financial statements listed on
the  accompanying  index at page F-1 of this  report  are  filed as part of this
report and incorporated herein by reference.

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

         On April 25, 2000, the management of Torque Engineering  reported under
Items 4 and 5 on Form 8-K that it had engaged Weinberg & Co., P.A., to audit its
consolidated  financial  statements  for the year ended  December 31,  1999.  In
addition,  management  reported that between  April 17th and 19th,  2000, it had
learned  that no audit  of  Quintessence  Oil's  financial  statements  had been
performed for the years ended December 31, 1997 or 1998. On May 19, 2000, Torque
Engineering's  new  management  filed an amended Form 8-K reporting  that it had
learned that no audit had ever been performed on  Quintessence  Oil's  financial
statements.

                                       20
<PAGE>

         Current management, engaged Weinberg & Co., P.A., to audit Quintessence
Oil's financial statements for the year ended December 31, 1996 as well. Audited
financial  statements  for the years ended  December  31, 1996,  1997,  and 1998
respectively,  were filed as part of this report on Form  10-KSB,  December  31,
1999. Current  management  devoted  substantial effort to correct that reporting
deficiency.  As a  consequence  of its  efforts  to  provide  audited  financial
information  for the years ended  December  31,  1996,  1997,  and 1998,  Torque
Engineering's  quarterly  report on Form 10-QSB for the period  ending March 31,
2000 was filed on June 1, 2000.

                                    PART III

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

                  (a)      Directors and Executive Officers.  The names and ages
                           of the  directors  and  executive  officers of Torque
                           Engineering are as follows:


Name                   Age    Position                                 Since

Raymond B. Wedel, Jr.  59     President and Director                    1999

Donald A. Christensen  70     Secretary and Director                    1999

Richard D. Wedel       53     Chairman, Chief Executive Officer
                              and Director                              1999


I. Paul Arcuri         46     Vice President, Chief Financial Officer
                              and Director                              1999

Clement Lange          65     Director                                  1999

Michael Bennett        53     Chief Operating Officer                   2000


         Each director  serves until the next annual meeting of  shareholders or
until his successor is elected and qualified.

         The  following   sets  forth   information   concerning  the  principal
occupations  and business  experience  of the current  officers and directors of
Torque Engineering:

Raymond B. Wedel, Jr.

         Raymond B.  Wedel,  Jr.  has been the  President,  and Chief  Operating
Officer  of Torque  Engineering  since  1999.  From 1992  until  1997 he was the
President of Torque Engineering,

                                       21
<PAGE>

a business of Glaval Corporation, which is the predecessor to the current Torque
Engineering.  At the time of  acquisition,  Quintessence  obtained  the right to
continue  business  under the old name.  From 1986  until  1992,  Mr.  Wedel was
Vice-President of Lightning Performance  Products,  also a predecessor to Torque
Engineering.  Mr. Wedel has an extensive background in the marine industry going
back to the 1970's.  During 1997-1998 Mr. Wedel served as the Chief  Operational
Officer of Sonic Jet Performance,  Inc. a manufacturer of personal  water-craft,
recreational,  and fire-rescue boats, with factories in California,  Florida and
China.  He has a B.S. degree in Business  Administration  from the University of
Evansville in Indiana.

Michael Bennett

         From 1997 until 2000,  Michael  Bennett  served as  Business  Unit Vice
President and General  Manager of Dayco  Industries a Division of Mark IV. Dayco
is a  $600,000,000  per year  supplier of power  transmission  parts,  hydraulic
hoses, and fluid transfer hose. While there he directed seven (7)  manufacturing
facilities and 1,800 employees,  including  Operations  Research and Development
Applications and Product Development. He is a native of the U.K., and in 1970 he
graduated in Mechanical  Engineering  from Coventry  College,  England.  He then
served  approximately  six years as an industrial  engineer for  Chrysler,  U.K.
Subsequently,  he served for approximately  twenty years at various locations as
Facilities  Manager,  and later as Vice President and Director of Operations for
Purolator  Products,  a  $350,000,000  per year  major  supplier  of  automotive
(OEM/aftermarket)  and  heavy-duty  filtration  products.  Mr.  Bennett has also
studied at Carnegie Mellon University, completing their Program for Executives.

Donald A. Christensen

         Mr.  Donald A.  Christensen  has been the  secretary  and a director of
Torque   Engineering  since  March  1999.  He  is  a  business,   financial  and
international  trade  consultant with an engineering  degree and extensive large
corporate  management  experience.  He currently serves as president of European
Whitestone  Company and has served in that capacity since 1992. From August 1997
to July 1998 Mr.  Christensen  was a director of  Horizontal  Ventures,  Inc., a
public company  specializing in horizontal  drilling sources for the oil and gas
industry  which is now  known as GREKA  Energy  Corporation.  He has a degree in
Engineering from the University of Missouri.

Richard D. Wedel

         Mr. Richard D. Wedel has been the chief executive  officer and chairman
of the board of directors  since 1999.  He is a financial  consultant  and since
1998,  has been president of Wedel  Consultants,  a firm involved in mergers and
acquisitions.  Since 1999 he has been the  Chairman  of the Board of  Integrated
Homes, Inc.,  (INHI), a publicly traded company.  Integrated Homes is a provider
of  bundled  voice  &  data  communication  systems  and  services  for  planned
development communities.  From 1997 through 1998, he was chief operating officer
and a director of Horizontal Ventures, Inc. From 1982 through 1997 Mr. Wedel was
president and a director of Petro Union Inc., an energy resource exploration and
production  company  which merged with  Horizontal  Ventures,  Inc. He is a past
chairman of the American Petroleum Institute Eastern U.S. Advisory Board. He has
a degree in Business Administration from the University of Evansville.

                                       22
<PAGE>

I. Paul Arcuri

         Mr.  I. Paul  Arcuri  was  elected  to  Torque  Engineering's  board of
directors in December  1999. He has served as president and financial  principal
of the Carney Group, Inc., an investment banking firm, member of N.A.S.D.  since
1985. He has been a registered  Broker since 1978 and was an Investment  Advisor
registered with the Securities Exchange commission.  He has extensive background
in financial  management  involving cash flow, cost and budgeting  analysis with
emphasis on operations  management.  He was a Director and Chairman of Gibraltar
Savings and Loan Association from 1987 through 1992. He has a B.A. in Accounting
from St. Thomas University/Biscayne College in Miami, Florida.

Clement Lange

         Mr.  Clement  Lange  was  elected  to  Torque  Engineering's  board  of
directors in December  1999. He is the chairman and chief  executive  officer of
Best Chairs Incorporated, a large, privately owned manufacturing company located
in Ferdinand,  Indiana.  Mr. Lange is the co-founder of Best Chairs and has been
its chairman and chief executive officer since 1993. Best Chairs  specializes in
residential upholstered occasional seating.

         Family Relationship:

         Raymond B. Wedel, Jr. and Richard D. Wedel are brothers.

Section 16(a) Beneficial Reporting Compliance

         Under U.S. securities laws,  directors,  executive officers and persons
holding  more than 10% of Torque  Engineering's  common  stock must report their
initial  ownership  of the common  stock and any  changes in that  ownership  on
reports  that must be filed  with the SEC and  Torque  Engineering.  The SEC has
designated  specific  deadlines  for these reports and Torque  Engineering  must
identify in this Form 10-KSB those  persons who did not file these  reports when
due.

         Based upon information provided to Torque Engineering by its directors,
executive  officers and persons  holding  more than 10% of Torque  Engineering's
common stock, Torque Engineering believes that Michel Attias filed one late Form
4 to report six (6) transactions, Michael Bennett inadvertently failed to file a
Form 3 and Clement  Lange  indadvertently  failed to file a Form 4 to report one
transaction.  Torque Engineering also believes Raymond B. Wedel, Jr., Richard D.
Wedel, Donald Christensen, I. Paul Arcuri and Clement Lange inadvertently failed
to file their respective Form 5s in connection with Torque  Engineering's  grant
of stock options to these officers and directors.

                                       23
<PAGE>

Item 10. Executive Compensation.

         The  following   table   summarizes  the  total   compensation   Torque
Engineering awarded or paid to Torque  Engineering's chief executive officer for
the year ended  December 31, 2000. The current chief  executive  officer was not
employed  by Torque  Engineering  prior to March  1999.  In  addition,  no other
executive  officer of Torque  Engineering had a total annual salary and bonus in
excess of $100,000 for 2000.  Accordingly,  Torque Engineering's chief executive
officer is the only executive  officer of Torque  Engineering named in the table
under SEC rules.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                         Annual Compensation                    Long Term
                                                                              Compensation


Name and Principal                                                                                    All Other
Position                        Year         Salary ($)        Bonus($)         Options (#)        Compensation ($)
--------                        ----         ----------        --------         -----------        ----------------
<S>                             <C>          <C>               <C>              <C>                       <C>
Richard D. Wedel,               2000         50,000 (1)          -0-            10,000(2)                -0-
Chief Executive Officer
                                1999         50,000              -0-            10.000(2)                -0-
---------------------------------
</TABLE>

(1)   Mr. Wedel's annual salary for 2001 is $50,000.
(2)   In 1999  and  2000  Mr.  Wedel  received,  as a  member  of the  board  of
      directors,  options to purchase 10,000 shares of Torque Engineering common
      stock.  These options are  immediately  vested and are  exercisable  for a
      period of five years from the grant date.

                             2000 OPTION/SAR GRANTS
                               (Individual Grants)

                                Percent of total

<TABLE>
<CAPTION>

                            Number of Securities      Percent of total
                                 Underlying             options/SARS                Exercise or
                                Options/SARS          granted to employees          base price         Expiration
                 Name             granted(#)             in fiscal year               ($/Sh)            date
                 ----             ----------             -------------                ------            ----
<S>                               <C>                    <C>                          <C>               <C>
         Richard D. Wedel         10,000                 16%                          $3.25/Sh          11-12-05

</TABLE>

                                       24
<PAGE>


            AGGREGATED OPTION/SAR EXERCISES IN 2000 OPTION/SAR VALUES

<TABLE>
<CAPTION>


                                                                                                                   Value of
                                                                                                                 unexercised in-
                                                                                        Number of unexercised     the- money
                                                                                        options/ SARS at        options/SARS at
                                     Shares                                             FY-end (#)                FY-end ($)
                                  acquired on            Value                          exercisable/             exercisable/
                 Name             exercise (#)           realized ($)                   unexercisable            unexercisable
                 ----             ------------           ------------                   -------------            -------------
<S>                                                                                     <C>                      <C>
         Richard D. Wedel              --                ---                            20,000/0                 0/$0(1)
        ------------------------ ---------------         --------------                 ----------------------   -------------------
</TABLE>

(1)      The exercise  price for Mr.  Wedel's  options  exceeded the closing bid
         quotation for Torque Engineering common stock on the OTC Bulletin Board
         as of December 31, 2000.


         Other than the options to purchase 10,000 shares of Torque  Engineering
common  stock  at an  exercise  price of  $3.25  per  share  granted  to  Torque
Engineering's five directors in 2000, directors did not receive compensation for
their services in 2000. Non-employee directors are reimbursed for their expenses
incurred to attend meetings.

         Michael  Bennett was  employed  as chief  operating  officer  beginning
November 1, 2000.  In January  2001,  the board of directors  authorized  Torque
Engineering's  officers to negotiate the terms of a written employment agreement
with Mr.  Bennett.  The parties are currently in the process of negotiating  the
terms of such agreement.

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

         The  following  table  sets  forth  information   regarding  beneficial
ownership as of March 15, 2001 of Torque  Engineering common stock by any person
who  Torque  Engineering  knows to be the  beneficial  owner of more  than  five
percent  of  Torque  Engineering's   voting  securities,   and  by  each  Torque
Engineering  director and  executive  officer and by the directors and executive
officers  of Torque  Engineering  as a group.  As of March 15,  2001  there were
8,536,299 shares of common stock issued and outstanding.

         All  beneficial  owners  listed  below have sole voting and  investment
power with respect to the shares shown, unless otherwise indicated.



                                       25
<PAGE>






NAME AND ADDRESS OF BENEFICIAL OWNER      SHARES              PERCENT OF CLASS
------------------------------------      ------              ----------------
Officers and Directors

Raymond B. Wedel, Jr.
1415 Meadow Lane                          1,611,702(1)        18.8%
Elkhart, IN   46514


Richard D. Wedel                          1,483,334(2)        17.3%
3900 Woodcastle
Evansville, IN 47711

Clement Lange                             1,234,629(3)        14.4%
4481 W. Holland Road, East
Huntingburg, IN   47532

Donald Christensen                           50,000(4)        less than 1%
48 South Evanston Way
Aurora, CO   80012

I. Paul Arcuri                              176,666(5)        2.1%
c/o Torque Engineering Corporation
2432 Thorne Drive
Elkhart, IN 46674

Michael Bennett                                      0          0%
c/o Torque Engineering Corporation
2432 Thorne Drive

Elkhart, IN 46674

All officers and directors as a group     4,556,331(6)        52.4%
(6 persons)

Other Beneficial Owners

Michel Attias                                1,303,134        15.3%
4 Riviera Avenue
Costa De Caza, CA   92679
-------------------

(1)      Excludes 740,000 shares owned by Mr. Wedel's brother, Richard D. Wedel.
         Includes  316,668  shares  owned by Raymond B. Wedel,  Jr.'s wife.  Mr.
         Wedel  disclaims  beneficial  ownership  of such  shares.  Excludes  an
         aggregate of 633,332  shares owned by Mr. Wedel's adult children who do
         not live with him. Also includes 20,000 shares Mr. Wedel is entitled to
         acquire  within 60 days pursuant to options  granted to him as a member
         of the board of directors.  Excludes 10,000 shares owned by Wanda Pride
         and 10,000 shares owned by Blanche  Wedel.  Ms. Pride and Ms. Wedel are
         Mr. Wedel's sisters.  Mr. Wedel disclaims  beneficial ownership of such
         shares.

(2)      Includes  400,000  shares owned by Richard D. Wedel's  wife.  Mr. Wedel
         disclaims beneficial ownership of such shares.  Includes 400,000 shares
         owned by Mr. Wedel's minor son who lives with him. Also includes 20,000
         shares Mr.  Wedel is  entitled  to acquire  within 60 days  pursuant to
         options granted to him as a member of the board of directors.  Excludes
         10,000  shares owned by Wanda Pride and 10,000  shares owned by Blanche
         Wedel.  Ms.  Pride and Ms.  Wedel are Mr.  Wedel's  sisters.  Mr. Wedel
         disclaims beneficial ownership of such shares.

                                       26
<PAGE>

(3)      Excludes 61,540 shares owned by Mr. Lange's adult children, all of whom
         maintain separate residences from Mr. Lange. Includes 10,000 shares Mr.
         Lange is  entitled  to  acquire  within 60 days  pursuant  to an option
         granted to him as a member of the board of directors

(4)      Includes 20,000 shares Mr. Christensen is entitled to acquire within 60
         days pursuant to options to purchase  20,000 shares granted to him as a
         member of the board of  directors  and 20,000  shares  vested  under an
         option to purchase 30,000 shares granted to him as secretary.

(5)      Includes  66,666  shares  vested  under an option to  purchase  100,000
         shares granted to him as  vice-president  and chief financial  officer.
         Also includes 10,000 shares Mr. Arcuri is entitled to acquire within 60
         days  pursuant to an option  granted to him as a member of the board of
         directors

(6)      Includes  options to acquire  156,666  shares of Torque's  common stock
         exercisable within 60 days.


Item 12. Certain Relationships and Related Transactions.

         Effective May 28, 1999,  Torque  Engineering  acquired the  outstanding
common  stock of IPSL,  a Nevada  corporation,  in exchange  for the issuance of
1,500,000 shares of Torque Engineering  common stock to Michel Attias,  then the
sole   shareholder  of  IPSL  and  now  a  significant   shareholder  of  Torque
Engineering.  The principal reason for Torque Engineering's  acquisition of IPSL
was to acquire  certain  property and  equipment to be used to  manufacture  the
Torque  V-12,  which  property  and  equipment  IPSL  acquired  from an  Indiana
corporation under the name of Torque Engineering in April 1999.

         During the year ended  December 31, 1999,  Torque  Engineering  through
IPSL made  repayments  on prior loans to IPSL by  affiliates of Michel Attias in
the total amount of $280,031.

         In June 2000, Torque Engineering sold 266,667 shares of common stock to
Clement Lange, a member of the board of directors, at a price of $1.50 per share
for a total  purchase  price  of  $400,000.  In  November  2000,  Clement  Lange
purchased an additional  307,692  shares of common stock at a per share price of
$1.625, for a total price of $500,000.

         During  September,   October  and  December  2000,  Torque  Engineering
received  a total of $60,000 in  operating  funds from two of its  stockholders,
Richard D. Wedel and Michel  Attias.  Mr.  Wedel is an officer  and  director of
Torque Engineering.  In addition,  $11,656 of reimbursable expenses were owed to
Richard D.  Wedel as of  December  31,  2000.  Those  loans  were  converted  to
non-interest bearing promissory notes due June 30, 2001.

         During  February  2001,  Clement  Lange,  a  member  of  the  board  of
directors,  acquired  250,000  shares of common  stock from  Richard  D.  Wedel,
Raymond Wedel and Michel Attias in exchange for  $250,000.  In addition,  Torque
Engineering  issued to Richard  D.  Wedel,  Raymond  D. Wedel and Michel  Attias
125,000  shares  of  common  stock  at a price of $2.00  per  share  for a total
purchase  price of $250,000.  Richard  Wedel and Raymond  Wedel are officers and
directors of Torque Engineering.

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

                                       27
<PAGE>

(a)      The following exhibits are furnished as part of this report:

Exhibit No.                Description

2.1      Form of  Agreement  and Plan of Merger by and  among  Quintessence  Oil
         Company and Torque  Engineering  Corporation (Filed as Exhibit A to the
         Registrants  Definitive  Proxy  Statement filed with the Securities and
         Exchange Commission on September 24, 1999).

2.2      Plan and Agreement of  Reorganization  dated May 21, 1999 between IPSL,
         Inc.  and  Quintessence  Oil  Company.(Filed  as  exhibit  2.2  to  the
         registrants  annual  report on Form 10-KSB  filed on May 25, 2000 (file
         no. 000-21811)

2.3      Bill of Sale  between  IPSL  and  Torque  Engineering  Corporation,  an
         Indiana corporation, dated as of April 29, 1999(Filed as exhibit 2.3 to
         the  registrants  amended  annual report on Form 10-KSB filed on August
         10, 2000 (file no. 000-21811).

3.1      Articles  of  Incorporation  of  Quintessence  Oil  Company  (filed  on
         December  3,  1996  as  exhibit  3.1 to the  registrant's  Registration
         Statement  on Form 10 (File No.  0-21811)  and  incorporated  herein by
         reference).

3.2      Certificate of Incorporation of Torque  Engineering  Corporation.(Filed
         as Exhibit B to the Registrants  Definitive  Proxy Statement filed with
         the Securities and Exchange Commission on September 24, 1999).

3.3      Bylaws  of  Quintessence  Oil  Company  (filed on  December  3, 1996 as
         exhibit 3.2 to the registrant's Registration Statement on Form 10 (File
         No. 0-21811) and incorporated herein by reference).

3.4      Bylaws of Torque Engineering Corporation as amended (Filed as Exhibit C
         to the Registrants Definitive Proxy Statement filed with the Securities
         and Exchange Commission on September 24, 1999).

10.1     Lease Rental  Agreement  between  Quintessence and CNC Associates dated
         October  6,  1999,  Lease No.  99870001(Filed  as  exhibit  10.1 to the
         registrants  amended  annual  report on Form 10-KSB filed on August 10,
         2000 (file no. 000-21811).

                                       28
<PAGE>

10.2     Lease Rental  Agreement  between  Quintessence and CNC Associates dated
         October  6, 1999,  Lease No.  99870002  (Filed as  exhibit  10.2 to the
         registrants  amended  annual  report on Form 10-KSB filed on August 10,
         2000 (file no. 000-21811).

10.3     Lease Rental  Agreement  between  Quintessence and CNC Associates dated
         October  6,  1999,  Lease No.  99870003(Filed  as  exhibit  10.3 to the
         registrants  amended  annual  report on Form 10-KSB filed on August 10,
         2000 (file no. 000-21811).

10.4     Lease Rental  Agreement  between  Quintessence and CNC Associates dated
         October  6,  1999,  Lease No.  99870004(Filed  as  exhibit  10.4 to the
         registrants  amended  annual  report on Form 10-KSB filed on August 10,
         2000 (file no. 000-21811).

10.5     Real Estate  Lease for Torque  Engineering  by and  between  Richard W.
         Strefling Industries, Inc. and Quintessence Oil Company dates April 29,
         1999.  (Filed as exhibit 10.5 to the registrants  annual report on Form
         10-KSB filed on May 25, 2000 (file no. 000-21811)

10.6     Torque Engineering Corporation 1999 Stock Option Plan (Filed as Exhibit
         E  to  the  Registrants  Definitive  Proxy  Statement  filed  with  the
         Securities and Exchange Commission on September 24, 1999).

10.7     Corporate  Note  dated  September  28,  2000 for  $30,000 to Richard D.
         Wedel.*

10.8     Corporate Note dated October 4, 2000 for $15,000 to Richard D. Wedel.*

10.9     Corporate Note dated October 12, 2000 for $15,000 to Michel Attias.*

10.10    Corporate  Note  dated  December  31,  2000 for  $11,656  to Richard D.
         Wedel.*

99.1     IPSL, Inc. (A Development Stage Company) Financial Statements as of May
         28, 1999.  (Filed as exhibit 99.1 to the  registrants  annual report on
         Form 10-KSB filed on May 25, 2000 (file no. 000-21811)

------------------
* Filed herewith

(b) Reports on Form 8-K. Torque Engineering did file a report on Form 8-K during
April 2000 and an amended Form 8-K on May 19, 2000.



                                       29
<PAGE>




                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY

                                    CONTENTS

PAGE     1        INDEPENDENT AUDITORS' REPORT

PAGE     2        CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999

PAGE     3        CONSOLIDATED STATEMENTS OF OPERATIONS  AND COMPREHENSIVE LOSS
                  FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

PAGES    4        CONSOLIDATED  STATEMENTS OF CHANGES IN STOCKHOLDERS'  EQUITY
                  FOR THE YEAR ENDED DECEMBER 31, 2000

PAGES    5 - 6    CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
                  DECEMBER 31, 2000 AND 1999

PAGES    7 - 19   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<PAGE>




                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of:
  Torque Engineering Corporation


We  have  audited  the  accompanying   balance  sheets  of  Torque   Engineering
Corporation  and  Subsidiary  as of  December  31, 2000 and 1999 and the related
statements of operations and comprehensive loss, changes in stockholders' equity
and  cash  flows  for  the  years  ended  December  31,  2000  and  1999.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  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, the consolidated  financial statements referred to above present
fairly in all material  respects,  the financial  position of Torque Engineering
Corporation  and  Subsidiary as of December 31, 2000 and 1999 and the results of
their  operations and their cash flows for the years ended December 31, 2000 and
1999 in conformity with accounting  principles  generally accepted in the United
States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in Note 15 to the
financial  statements,  the  Company  has a  loss  from  current  operations  of
$2,752,608 and has negative cash flows from  operating  activities of $1,468,442
that raise  substantial  doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 15. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

WEINBERG & COMPANY, P.A.



Boca Raton, Florida
February 21, 2001

                See accompanying notes to consolidated financial
                                  statements.




                                      F-1
<PAGE>




                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2000 AND 1999

                                  ASSETS

<TABLE>
<CAPTION>
                                                                  2000                  1999
                                                                 -----                 -----
Current assets

<S>                                                           <C>                 <C>
  Cash and cash equivalents                                   $    160,113        $    798,019
  Accounts receivable                                              311,159                2,289
  Advances to suppliers                                            109,180                 -
  Inventory                                                        789,135            1,165,010
  Marketable securities                                              1,213               32,145
  Prepaid expenses                                                  50,008                4,768
                                                                 ---------           ----------
     Total Current Assets                                        1,420,808            2,002,231

PROPERTY & EQUIPMENT - NET                                       9,451,698           10,454,045
                                                                 ---------           ----------

TOTAL ASSETS                                                  $ 10,872,506        $  12,456,276
------------                                                    ==========           ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

  Accounts payable and accrued expenses                       $    341,069        $      82,051
  Obligations under capital leases - current portion               127,278               32,837
  Due to related parties                                            71,656               28,708
                                                                ------------       --------------
       Total Current Liabilities                                   540,003              143,596

LONG-TERM LIABILITIES

  Obligations under capital leases                                 454,363              575,536
                                                                ------------       --------------

Total Liabilities                                                  994,366              719,132
                                                                ------------       --------------

STOCKHOLDERS' EQUITY

  Common stock, $.00001 par value, 50,000,000 shares
    authorized, 8,411,299 and 7,832,940 shares issued
    and outstanding, respectively                                       84                   78
  Additional paid in capital                                    14,243,709           13,330,715
  Accumulated deficit                                           (4,088,936)          (1,336,328)
  Accumulated other comprehensive loss                            (211,063)            (180,131)
                                                                ------------       --------------
                                                                 9,943,794           11,814,334
  Less Treasury Stock at cost (6,750 Shares)                       (56,970)             (56,970)
  Less Deferred compensation expense                                (8,684)             (20,220)
                                                                ------------       --------------
       Total Stockholders' Equity                                9,878,140           11,737,144
                                                                ------------       --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $  10,872,506      $    12,456,276
                                                                ============       ==============
</TABLE>



                See accompanying notes to consolidated financial
                                  statements.

                                      F-2
<PAGE>



                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                         For the Year Ended  For the Year Ended
                                                                           December 31, 2000   December 31, 1999
                                                                         -------------------  ------------------

<S>                                                                      <C>                  <C>
SALES                                                                    $       718,801      $         91,300

COST OF SALES                                                                  1,607,494                72,726
                                                                            --------------       ---------------


GROSS PROFIT (LOSS)                                                             (888,693)               18,574
                                                                            --------------       ---------------

OPERATING EXPENSES

    Payroll and other compensation                                               240,538               392,795
    Depreciation                                                               1,118,079               643,703
    Rent                                                                         120,000                70,168
    Other selling, general and administrative                                    384,817               321,016
                                                                            --------------       ---------------
      Total Operating Expenses                                                 1,863,434             1,427,682
                                                                            --------------       ---------------

LOSS FROM OPERATIONS                                                          (2,752,127)           (1,409,108)
                                                                            --------------       ---------------

OTHER INCOME (EXPENSE)

    Interest income                                                               10,514                14,506
    Interest expense                                                             (40,130)                 -
    Consulting                                                                      -                  120,500
    Loss on marketable securities                                                   -                  (51,642)
    Other                                                                            427                  -
                                                                            --------------       ---------------
      Total Other Income (Expense)                                               (29,189)               83,364
                                                                            --------------       ---------------

NET LOSS BEFORE EXTRAORDINARY ITEMS                                           (2,781,316)           (1,325,744)

EXTRAORDINARY ITEMS

    Gain on extinguishment of debt                                                28,708                  -
                                                                            --------------       ---------------

NET LOSS                                                                      (2,752,608)           (1,325,744)

OTHER COMPREHENSIVE LOSS

    Unrealized loss on marketable securities - net                               (30,932)             (180,131)
                                                                            --------------       ---------------

COMPREHENSIVE LOSS                                                       $    (2,783,540)     $     (1,505,875)
------------------
                                                                            ==============       ===============

Loss per share before extraordinary gain                                 $         (.347)     $         (0.232)
Extraordinary gain                                                                  .004                  -
                                                                            --------------       ---------------

Net loss per share - basic and diluted                                   $         (.343)     $         (0.232)
                                                                            ==============       ===============

Weighted average number of shares outstanding during the period
  -basic and diluted                                                           8,012,677             5,717,440
                                                                            ==============       ===============


</TABLE>

                See accompanying notes to consolidated financial
                                  statements.

                                      F-3
<PAGE>



                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                            Additional                   Other              Deferred
                                           Common Stock     Paid-in     Accumulated Comprehensive Treasury Compensation
                                        Shares     Amount   Capital         Deficit      Loss      Stock     Expense      Totals
                                        ------     -------  -----------    --------    --------    ------    -------      -------

<S>                                     <C>          <C>       <C>         <C>            <C>        <C>       <C>        <C>
Balance December 31, 1998               1,000,000    10        42,490      (10,584)       -          -         -             31,916

Recapitalization                        4,870,000    48           (48)        -           -          -         -             -

Stock issued for acquisition of IPSL    1,500,000    15    11,759,985         -           -          -         -         11,760,000

Acquired treasury stock, net                 -       -             -          -           -         (56,970)   -            (56,970)

Stock issued for cash                     461,540     5     1,500,000         -           -            -       -          1,500,005

Stock issued for marketing services         1,400    -          2,688         -           -            -       -              2,688

Stock options issued                         -       -         25,600         -           -            -      (20,220)        5,380

Unrealized losses on available-for-sale
 securities                                  -       -             -          -         (180,131)      -       -           (180,131)

Net Loss, 1999                               -       -             -      (1,325,744)       -          -       -         (1,325,744)
                                        -----------  ----  ------------   ----------    --------    -------   -------    ----------

BALANCE, DECEMBER 31, 1999              7,832,940   $78   $13,330,715    $(1,336,328)  $(180,131)  $(56,970) $(20,220)  $11,737,144

Stock issued for cash                     578,359     6       912,994                                  -                    913,000

Deferred compensation expensed               -        -             -            -           -         -       11,536        11,536

Unrealized loss on available for sale
 securities                                  -        -                                  (30,932)      -       -            (30,932)

Net Loss, 2000                               -        -                   (2,752,608)       -          -       -         (2,752,608)
                                        -----------  ----  ------------   ----------    --------    -------   -------    ----------

BALANCE, DECEMBER 31, 2000              8,411,299   $84   $14,243,709    $(4,088,936)  $(211,063)  $(56,970) $ (8,684)  $ 9,878,140
                                        =========== ====  ============    ==========    ========    =======   =======    ==========

</TABLE>
                See accompanying notes to consolidated financial
                                  statements.
                                      F-4
<PAGE>



                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                               For the Year Ended           For the Year Ended
                                                                               December 31, 2000             December 31, 1999
                                                                            -------------------------     ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                      <C>                           <C>
   Net loss                                                              $               (2,752,608)   $              (1,325,744)
  Adjustments to reconcile net loss to net cash used in operating
     activities:
  Depreciation and amortization                                                           1,118,079                      643,703
  Compensation expense incurred in exchange for stock options                                11,536                        5,380
  Gain on extinguishment of debt                                                            (28,708)                        -
  Marketing expense incurred in exchange for common stock                                      -                           2,688
  Write-off of investment                                                                      -                           2,000
  Write-off of organization costs                                                              -                           4,125
  Loss on marketable securities                                                                -                          51,642
  Changes in operating assets and liabilities:
    (Increase) decrease in:
     Accounts receivable                                                                   (308,870)                      (2,289)
     Advances to suppliers                                                                 (109,180)                        -
     Prepaid expenses                                                                       (45,240)                      (4,768)
     Inventories                                                                            375,875                     (146,202)
    Increase (decrease) in:
     Accounts payable and accrued expenses                                                  270,674                       82,051
                                                                            -------------------------     ------------------------
       Net cash used in operating activities                                             (1,468,442)                    (687,414)
                                                                            -------------------------     ------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchase of property and equipment                                                       (103,607)                     (50,681)
  Proceeds from sale of available-for-sale-securities                                          -                         316,158
                                                                            -------------------------     ------------------------
       Net cash (used in) provided by investing activities                                 (103,607)                     265,477
                                                                            -------------------------     ------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

   Issuance of common stock                                                                 913,000                    1,500,005
   Payments on capital lease obligations                                                    (38,857)                     (25,809)
   Repayment of loans                                                                          -                        (280,031)
  Proceeds from loans                                                                        60,000                         -
                                                                            -------------------------     ------------------------
       Net cash provided by financing activities                                            934,143                    1,194,165
                                                                            -------------------------     ------------------------

NET INCREASE (DECREASE) IN CASH                                                            (637,906)                     772,228

Cash and cash equivalents at beginning of YEAR                                              798,019                       25,791
                                                                            -------------------------     ------------------------

Cash and cash equivalents at end of YEAR                                 $                  160,113    $                 798,019
                                                                            =========================     ========================

Cash paid for interest                                                   $                    4,278    $                    -
                                                                            =========================     ========================

</TABLE>
                See accompanying notes to consolidated financial
                                  statements.

                                      F-5
<PAGE>
                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental disclosure of non-cash investing and financing activities:

During 2000, the Company acquired equipment totaling $12,125 under capital lease
obligations.

During 2000,  the Company  converted  accounts  payable with a shareholder  to a
related party note payable in the amount of $11,656.

During May 1999, the Company  acquired IPSL in exchange for 1,500,000  shares of
its common stock having a fair value of $11,760,000.

During 1999,  the Company  acquired  equipment  totaling  $634,182 under capital
lease obligations.





                See accompanying notes to consolidated financial
                                  statements.

                                      F-6
<PAGE>



                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999


NOTE  1           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
-------           -----------------------------------------------------------

                  (A) Organization

                  On June 26, 1996,  Quintessence Oil Co.  ("Quintessence")  was
                  incorporated  in Wyoming to engage in oil and gas  activities.
                  Quintessence never commenced  substantial  operations,  and in
                  March 1999 common stock was issued to a new  management  group
                  and an acquisition of IPSL,  Inc.  ("IPSL") was consummated in
                  May 1999 (See Note 13).

                  On November 17, 1999, Torque Engineering Corporation ("Torque"
                  or  the   "Company")   was   incorporated   in  Delaware   and
                  Quintessence  was merged into Torque to effect a domicile  and
                  name change. The transaction was treated as a recapitalization
                  and the  effect  is shown  retroactively  in the  accompanying
                  consolidated financial statements.

                  The Company designs and manufactures high performance offshore
                  marine performance production engines.

                  The Company was in the development  stage through December 31,
                  1999.  The year  ended  December  31,  2000 is the first  year
                  during which it is considered an operating company.

                  (B) Principles of Consolidation

                  The consolidated  financial statements include the accounts of
                  the  Company  and  its  wholly-owned  subsidiary,   IPSL.  All
                  intercompany balances and transactions have been eliminated in
                  consolidation.

                  (C) Use of Estimates

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

                  (D) Cash and Cash Equivalents

                  For  purposes  of  the  cash  flow  statements,   the  Company
                  considers   all  highly  liquid   investments   with  original
                  maturities  of three months or less at the time of purchase to
                  be cash equivalents.

                                      F-7
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  (E)  Concentration  of  Credit  Risk

                  The  Company  maintains  its  cash in bank  deposit  accounts,
                  which, at times,  exceed federally insured limits. At December
                  31, 2000,  the Company had $51,438 in deposits  which exceeded
                  federally insured limits.  The Company has not experienced any
                  losses in such accounts as of December 31, 2000.

                  (F) Marketable Securities

                  The Company invests in various marketable equity  instruments.
                  The Company  accounts for such  investments in accordance with
                  Statement   of   Financial   Accounting   Standards   No.  115
                  "Accounting  for  Certain   Investments  in  Debt  and  Equity
                  Securities" ("SFAS 115") (See Notes 1(M) and 4)).

                  Management  determines the appropriate  classification  of its
                  investments at the time of acquisition  and  reevaluates  such
                  determination  at each balance sheet date.  Available-for-sale
                  securities are carried at fair value,  with  unrealized  gains
                  and losses,  net of tax,  reported as a separate  component of
                  stockholders'     equity.     Investments     classified    as
                  held-to-maturity are carried at amortized cost. In determining
                  realized gains and losses,  the cost of the securities sold is
                  based on the specific identification method.

                  (G) Inventory

                  Inventory is stated at the lower of cost (first-in, first-out)
                  or net  realizable  value,  and consists of  purchased  parts,
                  engines-in-process and completed engines (See Note 6).

                  (H) Property and Equipment

                  Property  and  equipment  are  stated at cost and  depreciated
                  using the  straight-line  method over the  estimated  economic
                  useful lives of 3 to 10 years.  Expenditures  for  maintenance
                  and  repairs  are  charged  to  expense  as  incurred.   Major
                  improvements are capitalized (See Note 7).

                  (I) Stock Options

                  In accordance with Statement of Financial Accounting Standards
                  No. 123,  ("SFAS  123") the Company has elected to account for
                  Stock Options issued to employees under Accounting  Principles
                  Board  Opinion  No.  25 ("APB  Opinion  No.  25") and  related
                  interpretations. The Company accounts for stock options issued
                  to non-employees  under the fair value method of SFAS 123 (See
                  Note 9(B)).

                                      F-8
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  (J) Revenue Recognition

                  The Company recognizes revenue upon shipment of products.

                  (K) Advertising Costs

                  In  accordance   with  the  Accounting   Standards   Executive
                  Committee  Statement  of  Position  93-7 ("SOP  93-7"),  costs
                  incurred for producing and  communicating  advertising  of the
                  Company  are  charged  to  operations.  For  the  years  ended
                  December 31, 2000 and 1999,  the company  charged  $74,461 and
                  $25,986, respectively.

                  (L) Income Taxes

                  The Company  accounts  for income  taxes  under the  Financial
                  Accounting  Standards Board Statement of Financial  Accounting
                  Standards No. 109  "Accounting  for Income Taxes"  ("Statement
                  109").   Under   Statement   109,   deferred  tax  assets  and
                  liabilities  are  recognized  for the future tax  consequences
                  attributable  to differences  between the financial  statement
                  carrying  amounts of existing assets and liabilities and their
                  respective tax bases.  Deferred tax assets and liabilities are
                  measured  using enacted tax rates expected to apply to taxable
                  income in the years in which those  temporary  differences are
                  expected to be recovered or settled.  Under Statement 109, the
                  effect on deferred tax assets and  liabilities  of a change in
                  tax rates is  recognized in income in the period that includes
                  the enactment date.

                  (M) Comprehensive Income (Loss)

                  The Company accounts for Comprehensive Income (Loss) under the
                  Statement  of   Financial   Accounting   Standards   No.  130,
                  "Reporting   Comprehensive   Income"  ("Statement  No.  130").
                  Statement  No. 130  establishes  standards  for  reporting and
                  display of  comprehensive  income and its  components,  and is
                  effective for fiscal years beginning after December 15, 1997.

                  The unrealized  gains and losses,  net of tax,  resulting from
                  the valuation of  available-for-sale  securities at their fair
                  market  value  at year end (see  Note 1 (F)) are  reported  as
                  Other   Comprehensive   Income  (Loss)  in  the  Statement  of
                  Operations  and  as  Accumulated  Other  Comprehensive  Income
                  (Loss)  in  Stockholders'  Equity  and  in  the  Statement  of
                  Stockholders' Equity.

                  (N) New Accounting Pronouncements

                  The Financial  Accounting  Standards Board has recently issued
                  accounting  pronouncements,  Statement  No.  133 as amended by
                  Statement  Nos.  137  and  138   "Accounting   for  Derivative
                  Instruments   and  Hedging   Activities,"   that   establishes
                  accounting and reporting standards for derivative  instruments
                  and related contracts and hedging  activities.  This statement
                  is  effective  for  all  fiscal   quarters  and  fiscal  years
                  beginning after June 15, 2000.

                                      F-9
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  The Company believes that its adoption of these pronouncements
                  will not have a  material  effect on the  Company's  financial
                  position or results of operations.

                  (O) Loss Per Share

                  Basic  and  diluted  net loss per  common  share for the years
                  ended  December 31, 2000 and 1999 and for the period from June
                  26, 1996  (inception)  to December 31, 2000 is computed  based
                  upon the weighted average common shares outstanding as defined
                  by  Financial  Accounting  Standards  No. 128,  "Earnings  Per
                  Share". Common stock equivalents have not been included in the
                  computation  of diluted  loss per share since the effect would
                  be  anti-dilutive.  At  December  31, 2000 and 1999 there were
                  240,000 common stock options issued and outstanding that could
                  potentially dilute earnings per share in future periods.

                  (P) Business Segments

                  The  Company   applies   Statement  of  Financial   Accounting
                  Standards No. 131 "Disclosures about Segments of an Enterprise
                  and Related Information".  The Company operates in one segment
                  and therefore segment information is not presented.

                  (Q) Fair Value of Financial Instruments

                  Statement  of   Financial   Accounting   Standards   No.  107,
                  "Disclosures  about  Fair  Value  of  Financial  Instruments",
                  requires  disclosures of  information  about the fair value of
                  certain  financial  instruments for which it is practicable to
                  estimate that value. For purposes of this disclosure, the fair
                  value of a  financial  instrument  is the  amount at which the
                  instrument could be exchanged in a current transaction between
                  willing  parties,  other than in a forced sale or liquidation.
                  The carrying  amounts of the  Company's  accounts  receivable,
                  accounts  payable,  accrued  liabilities,  and  current  loans
                  payable  approximates  fair value due to the relatively  short
                  period to maturity for these instruments.

                  (R) Impairment of Long-Lived Assets

                  The Company  has adopted  Statement  of  Financial  Accounting
                  Standards No. 121 (SFAS 121) "Accounting for the Impairment of
                  Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed
                  Of." Under the provisions of this  statement,  the Company has
                  evaluated its long-lived assets for financial impairment,  and
                  will  continue  to  evaluate  them as  events  or  changes  in
                  circumstances  indicated  that  the  carrying  amount  of such
                  assets may not be fully recoverable.

                                      F-10
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  The Company evaluates the  recoverability of long-lived assets
                  not held for sale by  measuring  the  carrying  amount  of the
                  assets  against the  estimated  undisclosed  future cash flows
                  associated  with them.  At the time such cash flows of certain
                  long-lived  assets are not  sufficient to recover the carrying
                  value of such  assets,  the assets are  adjusted to their fair
                  values.

NOTE  2           ACCOUNTS RECEIVABLE AND CONCENTRATIONS

                  Accounts  receivable  at  December  31,  2000  and  1999  were
                  $311,159  and  $2,289,  respectively,  and  are  deemed  fully
                  collectable.

                  At December  31, 2000 and 1999,  approximately  97.5% and 90%,
                  respectively,   of  accounts  receivable  were  due  from  one
                  customer.  Sales during 2000 and 1999 primarily related to six
                  engine sales and one engine sale,  respectively,  to the above
                  customer (See Note 16).

NOTE  3           ADVANCES TO SUPPLIERS

                  Beginning in 2000, the Company  maintains  deposits on account
                  with various vendors.  The Company,  upon executing a purchase
                  order with these vendors, is required to provide a deposit for
                  which goods are shipped against.  As of December 31, 2000, the
                  Company had a balance with these vendors of $109,180. Included
                  in the advances to  suppliers  balance at December 31, 2000 is
                  an amount of $34,750  which  represents  deposits  on purchase
                  orders with two vendors aggregating $335,820 (See Note 8(C)).

NOTE  4           MARKETABLE SECURITIES

                  The Company's marketable securities, purchased principally for
                  the  purpose of selling  them in the near  future,  as defined
                  under  SFAS  115,  are  comprised  of equity  securities,  all
                  classified  as   available-for-sale   securities,   which  are
                  reported  at their  fair value  based  upon the quoted  market
                  prices of those  investments  at the year ended  December  31,
                  with unrealized losses reported as other comprehensive loss in
                  a separate  component of  stockholders'  equity until they are
                  sold.  Any  realized  gains  or  losses  are  included  in net
                  earnings at the time of sale (See Note 1(F)).

                  The composition of marketable  securities at December 31, 2000
                  is as follows:

                                      F-11
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Cost                Fair Value

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

<S>                                                                      <C>                     <C>
                  Common stock                                           $            212,276    $            1,213
                                                                            ===================     =================

                  Investment  expenses for the year ended  December 31, 2000 and
1999 consisted of the following:

                                                                                   2000                   1999
                                                                            -------------------     -----------------
                  Net  realized   loss  on  the  sale  of  marketable
                    securities                                           $              -        $          (51,642)
                                                                            ===================     =================

                  Unrealized losses included in other comprehensive loss for the
                  years  ended  December  31,  2000  and 1999  consisted  of the
                  following:

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

                                                                         $            (30,932)   $         (180,131)
                                                                            ===================     =================
</TABLE>

NOTE  5           PREPAID EXPENSES

                  During 2000,  prepaid expenses primarily included the value of
                  a  boat  engine   exchanged  for   promotional  and  marketing
                  services.  The value of the engine exchanged was $64,759,  and
                  as  of  December  31,  2000,   $16,190  had  been  charged  to
                  operations.  Due to the  cost and  fair  value  of the  engine
                  exchanged being equivalent to marketing  services,  no gain or
                  loss is recognized on the exchange.

NOTE  6           INVENTORY
<TABLE>
<CAPTION>

                  Inventory at December 31, 2000 and 1999  consisted of
                  the following:

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

<S>                                                                      <C>                     <C>
                  Purchased parts                                        $            376,532    $          307,067
                  Engines in process                                                  184,405               367,943
                  Completed engines                                                   228,198               490,000
                                                                            -------------------     -----------------
                                                                         $            789,135    $        1,165,010
                                                                            ===================     =================
</TABLE>

                  During 2000,  management  specifically  identified two engines
                  that  were no  longer  held  for  commercial  sale  and  their
                  carrying value of $104,008 was charged to selling, general and
                  other administrative  expenses for the year ended December 31,
                  2000. The Company is maintaining these two engines for product
                  testing and marketing.

                                      F-12
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

NOTE  7           PROPERTY AND EQUIPMENT

                  Property and equipment at December 31, 2000 and 1999 consisted
                  of the following:

<TABLE>
<CAPTION>
                                                                                   2000                   1999
                                                                            -------------------     -----------------

<S>                                                                      <C>                     <C>
                  Special tooling                                        $          9,309,965    $        9,269,944
                  Machinery and equipment                                           1,155,278             1,146,664
                  Equipment under capital leases                                      646,307               634,182
                  Vehicles                                                              8,706                 5,206
                  Computer equipment                                                   13,660                12,596
                  Furniture and fixtures                                               79,673                29,156
                                                                            -------------------     -----------------
                                                                                   11,213,589            11,097,748
                  Less: Accumulated depreciation                                   (1,761,891)             (643,703)
                                                                            -------------------     -----------------

                         Property and equipment - net                    $          9,451,698    $       10,454,045
                                                                            ===================     =================

                  Depreciation expense for the years ended December 31, 2000 and
                  1999 was $1,118,079 and $643,703, respectively.
</TABLE>

NOTE  8           COMMITMENTS AND CONTINGENCIES

                  (A) Capital Leases

                  As of December  31, 2000 the Company had an  aggregate  of six
                  machines under non-cancelable capital lease agreements.  As of
                  December  31,  1999  the  Company  had an  aggregate  of  four
                  machines under non-cancelable capital lease agreements.

                  Future  minimum lease  payments under the capital lease are as
                  follows at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                  2000                    1999


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

<S>                                                                      <C>                     <C>
                  Total future minimum lease payments                    $           708,398     $          748,464
                  Less: interest                                                    (126,757)              (140,091)
                                                                            ------------------      -----------------
                                                                                     581,641                608,373
                  Less: current portion                                             (127,278)               (32,837)
                                                                                                    -----------------
                                                                            ------------------
                  Long-term obligation under capital leases              $           454,363     $          575,536
                                                                            ==================      =================
</TABLE>

                  Future  minimum  lease  payments for the capital  leases as of
                  December 31, 2000 are as follows:

                   2001                                 $       127,278
                   2002                                         128,372
                   2003                                         134,911
                   2004                                         144,932
                   2005                                          46,148
                                                           --------------
                                                        $       581,641
                                                           ==============

                                      F-13
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  (B) Operating Lease Agreement

                  The Company leases  corporate  office space under an operating
                  lease. The lease has a remaining term through 2002.

                  Future  minimum lease  payments for the operating  lease as of
                  December 31, 2000 are as follows:

                  2001                                 $       120,000
                  2002                                          40,000
                                                          --------------
                                                       $       160,000
                                                          ==============

                  Rent  expense for the years ended  December  31, 2000 and 1999
                  amounted to $120,000 and $70,168, respectively.

                  (C) Purchase Commitments

                  During  December  2000, the Company  entered into  commitments
                  with two vendors to purchase  inventory  aggregating  $335,820
                  (See Note 3).

NOTE  9           STOCKHOLDERS' EQUITY

                  (A) Private Placement

                  In  September   1999,   the  Company   offered   common  stock
                  subscriptions  pursuant to Rule 506 of  Regulation D section 4
                  (2) of the  Securities  Act of 1933, as amended.  The purchase
                  price was $3.25 per share.

                  As of December 31, 2000 and 1999, cash of $913,000 for 578,359
                  shares  and  cash  of  $1,500,005,   for  461,540  shares  was
                  received, respectively.

                  (B) Stock Options

                  On October 7, 1999,  the 1999 Stock  Option Plan (the  "Plan")
                  was  adopted  by the Board of  Directors  of the  Company  and
                  approved by the Company's stockholders. The Plan was developed
                  to provide a means whereby directors,  officers, employees of,
                  and certain persons  rendering  services to the Company or any
                  subsidiary  may be granted  stock to purchase  common stock of
                  the Company.

                                      F-14
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  The  Plan  authorizes  options  up to  500,000  shares  of the
                  Company's  common  stock and is  administered  by the Board of
                  Directors of the Company or a committee of two or more members
                  of the Board of Directors (the "Plan Committee").  The Company
                  grants  incentive and  nonqualified  stock options.  Incentive
                  stock  options are only granted to employees of the Company or
                  any   subsidiary   thereof.   The  exercise   price  which  is
                  established  by the Plan Committee may not be less than 85% of
                  the fair market value of the common stock at the time of grant
                  for nonqualified  stock options,  may not be less than 100% of
                  the fair market value of the common stock at the time of grant
                  for  incentive  stock options and may not be less than 110% of
                  the fair market value of the common stock at the time of grant
                  if incentive  stock  options are granted to  employees  owning
                  more than ten  percent of the total  voting  power or value of
                  all  classes  of stock of the  Company.  The term of the stock
                  options  is  determined  by the Plan  Committee  and shall not
                  exceed  ten  years  from  the  date of  grant.  In the case of
                  incentive stock options which are granted to employees  owning
                  more than ten  percent of the total  voting  power or value of
                  all classes of stock of the  Company,  the term may not exceed
                  five  years.  During the year ended  December  31,  1999,  the
                  Company  issued  240,000  stock  options  under  the  plan  to
                  employees and Board of Director members. The Company cancelled
                  10,000  options  under the plan to  employees  during the year
                  ended  December 31, 2000 and also granted 60,000 options under
                  the plan to  employees  and  directors  during  the year ended
                  December 31, 2000.

                  In accordance  with SFAS 123, for options issued to employees,
                  the   Company   applies   APB   Options  No.  25  and  related
                  interpretations   in  accounting   for  the  options   issued.
                  Accordingly,  compensation  costs of  $11,536  and  $5,380 and
                  deferred   compensation   expense   of  $8,684   and   $20,220
                  respectively,  were  recognized  as of  December  31, 2000 and
                  1999,  computed in accordance with the intrinsic value method.
                  Had   compensation   cost  for  the  Company's   options  been
                  determined  based on the fair  market  value of the options at
                  the grant date,  consistent  with SFAS 123, the  Company's net
                  loss for the year ended  December 31, 2000 and 1999 would have
                  been increased to the pro-forma amounts indicated below.

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

                  Net loss            As reported   $ (2,752,608)  $ (1,325,744)
                                      Pro forma     $ (3,045,648)  $ (1,463,953)

                  Net loss per share  As reported   $      (.344)  $      (.232)
                                      Pro forma     $      (.380)  $      (.256)

                                      F-15
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

                  The effect of applying  Statement  No. 123 is not likely to be
                  representative  of the  effects  on  reported  net  income for
                  future  years due to,  among  other  things,  the  effects  of
                  vesting.

                  For financial  statement  disclosure  purposes the fair market
                  value of each stock option  granted was  estimated on the date
                  of  grant  using  the  Black-Scholes  Option-Pricing  Model in
                  accordance with SFAS 123 using the following  weighted-average
                  assumptions:  expected  dividend yield 0%, risk-free  interest
                  rate of 5.125% in 2000 and 5.86% in 1999,  volatility  229% in
                  2000 and 118% in 1999 and expected term of three years.

                  A summary  of the  options  issued to  employees  and Board of
                  Director members as of December 31, 2000 is presented below:


<TABLE>
<CAPTION>


                                                                                                         Weighted
                                                                                Number of               Average
                                                                                  Options            Exercise Price
                  Stock Options

<S>                                                                                   <C>         <C>
                    Balance at beginning of period                                    240,000     $            2.77
                    Granted                                                            60,000     $            3.01
                    Exercised                                                            -                     -
                    Cancelled                                                         (10,000)                (1.81)
                    Forfeited                                                            -        $            -
                                                                              -----------------      ----------------
                    Balance at end of period                                          290,000     $            2.67
                                                                              -----------------      ----------------
                  Options exercisable at end of period                                250,626     $            2.93
                                                                              -----------------      ----------------
                  Weighted average fair value of options granted
                    during the period                                                    -        $            3.01

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

</TABLE>

<TABLE>
<CAPTION>

                                        Options Outstanding                                     Options Exercisable
               -----------------------------------------------------------------------    ---------------------------------
                                                          Weighted

                                       Number             Average          Weighted            Number           Weighted
                    Range Of       Outstanding At        Remaining          Average        Exercisable At        Average
                    Exercise        December 31,        Contractual        Exercise        December, 31,        Exercise
                      Price             2000                Life             Price              2000              Price
                    -----------    ----------------    ---------------    ------------    -----------------    ------------

<S>              <C>                       <C>                   <C>            <C>                <C>               <C>
                 $       1.81              80,000                7.5            1.81               55,360            1.81
                 $       3.25             210,000                3.5            3.25              195,266            3.25
                                   ----------------    ---------------    ------------    -----------------    ------------
                                          290,000                5.5            2.77              250,626            1.55
                                   ================    ===============    ============    =================    ============


</TABLE>

                                      F-16
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

NOTE  10          INCOME TAXES

                  The Company and its  subsidiary  have elected to file separate
                  tax returns.  Income tax expense (benefit) for the years ended
                  December  31,  2000  and  1999  for  the  parent   company  is
                  summarized as follows:
<TABLE>
<CAPTION>

                                                                                  2000                   1999
                                                                            ------------------     ------------------
                  Current:
<S>                                                                      <C>                    <C>
                    Federal                                              $              -       $              -
                    State                                                               -                      -
                    Deferred-Federal and State                                      (934,900)              (226,400)
                    Change in Valuation Allowance                                    934,900                226,400
                                                                            ------------------     ------------------
                  Income tax expense (benefit)                           $              -       $              -
                                                                            ==================     ==================

                  The  Company's  tax expense  differs from the  "expected"  tax
                  expense for the years  ended  December  31, 2000 and 1999,  as
                  follows:

                                                                                  2000                   1999
                                                                            ------------------     ------------------
                  U.S. Federal income tax provision (benefit)            $          (934,900)   $          (226,400)
                  Effect of net operating loss carryforward                          934,900                226,400
                                                                            ------------------     ------------------

                                                                         $              -       $              -
                                                                            ==================     ==================

                  The tax  effects of  temporary  differences  that gave rise to
                  significant portions of deferred tax assets and liabilities at
                  December 31 are as follows:

                                                                                  2000                   1999
                                                                            ------------------     ------------------
                  Deferred tax assets:
                    Net operating loss carryforward                      $         1,164,900    $           230,000
                                                                            ------------------     ------------------
                       Total gross deferred tax assets                             1,164,900                230,000
                    Less valuation allowance                                      (1,164,900)              (230,000)
                                                                            ------------------     ------------------

                  Net deferred tax assets                                $              -       $              -
                                                                            ==================     ==================
                  At December  31,  2000,  the Company  has net  operating  loss
                  carryforwards  of  approximately  $3,426,000 for U.S.  Federal
                  income tax purposes  available to offset future taxable income
                  expiring on various dates through 2020.

                  The valuation  allowance at January 1, 2000 was $230,000.  The
                  net change in the  valuation  allowance  during the year ended
                  December 31, 2000 was an increase of approximately $934,900.
</TABLE>

                                      F-17
<PAGE>

                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

NOTE  11          EXTRAORDINARY ITEM

                  In June  2000,  Torque  Engineering's  subsidiary  IPSL,  Inc.
                  confirmed the  extinguishment of debts from certain affiliates
                  and a principal  shareholder of IPSL, Inc.,  totaling $28,708.
                  As a result,  an  extraordinary  gain was realized  during the
                  year ended December 31, 2000 (See Note 14).

NOTE  12          RECAPITALIZATION

                  In March 1999, the Company issued 4,870,000 common shares to a
                  new management  group in  consideration  of the new management
                  group  seeking an  acquisition  candidate.  This  issuance was
                  treated  as a  recapitalization  of the  Company  with the par
                  value of the stock charged to additional paid-in capital.

NOTE  13          ACQUISITION

                  Effective May 28, 1999, the Company  acquired the  outstanding
                  common stock of IPSL, a Nevada  corporation,  incorporated  on
                  April  27,  1998,  in  exchange  for  1,500,000  shares of the
                  Company's  common  stock.  The  acquisition  was accounted for
                  under  the  purchase  method of  accounting  and the stock was
                  valued at $7.84 per share, based on the average quoted trading
                  price  before and after the purchase  was  determined  and the
                  announcement  was  made.  The  resulting  purchase  price  was
                  $11,760,000  and was  allocated,  based  upon  an  independent
                  appraisal  performed for  allocation  purposes,  to the assets
                  acquired and liabilities assumed as follows:

                  Marketable securities             $           637,045
                  Inventory                                   1,018,808
                  Special tooling                             9,256,014
                  Machinery and equipment                     1,122,509
                  Furniture, fixtures, and other                 34,363
                  Loan fee payable                             (200,875)
                  Loan to stockholder                          (107,864)
                                                       ------------------
                                                    $        11,760,000
                                                       ==================

                  The table below reflects the pro forma combined results of the
                  Company as if the  acquisition  had taken  place at January 1,
                  1998:

                  Net Sales                        $            91,300
                  Net Loss                         $        (1,928,287)
                  Loss per share                   $            (0.337)


                                      F-18
<PAGE>


                  TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
                        NOTES TO CONSOLIDATED STATEMENTS
                        AS OF DECEMBER 31, 2000 AND 1999

NOTE  14          RELATED PARTIES

                  As of  December  31,  2000  and  1999  the  Company  owed  two
                  principal  stockholders  $71,656  and  $28,708,  respectively.
                  Pursuant  to  an  agreement  entered  into  between  IPSL  and
                  affiliates  of a  principal  stockholder  of IPSL prior to the
                  acquisition  (see Note 13),  the Company  owed the  affiliates
                  $28,708 at December  31, 1999  relating to prior loans made to
                  the Company.  During 2000 the debt was  cancelled and recorded
                  as a gain on extinguishment of debt.

                  During 2000, the Company  received  $60,000 in operating funds
                  from two  stockholders.  In addition,  $11,656 of reimbursable
                  expenses  was owed to one of the  stockholders  as of December
                  31, 2000.  All loans from the  stockholders  were converted to
                  non-interest bearing notes payable due June 30, 2001.

                  Consulting  income as of December 31, 1999 included  $118,500,
                  received from a principal stockholder. There was no consulting
                  income  received  from related  parties  during the year ended
                  December 31, 2000.

NOTE  15          GOING CONCERN

                  The  accompanying  financial  statements  have  been  prepared
                  assuming  that the Company will  continue as a going  concern.
                  The Company has a loss from current  operations  of $2,752,608
                  and  negative   cash  flows  from   operating   activities  of
                  $1,468,442  at  December  31,  2000.  These  conditions  raise
                  substantial doubt about the Company's ability to continue as a
                  going concern.

                  In view of these  matters,  realization  of a major portion of
                  the assets in the accompanying balance sheet is dependent upon
                  continued  operations  of  the  Company,   which  in  turn  is
                  dependent  upon the  Company's  ability  to meet  its  working
                  capital   requirements,   and  the   success   of  its  future
                  operations.  Management  believes that action  presently being
                  taken  to  revise  the   Company's   operating  and  financial
                  requirements  provide  the  opportunity  for  the  Company  to
                  continue as a going concern.

NOTE  16          SUBSEQUENT EVENTS

                  During  January 2001, the Company sold one engine for $102,035
                  to its major customer (See Note 2).

                  In February 2001, the Company sold $125,000 shares of Rule 144
                  restricted common stock valued at $2.00 per share for $250,000
                  to three stockholders.


                                      F-19
<PAGE>

                                   SIGNATURES

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

                                                TORQUE ENGINEERING CORPORATION


Date: March 28, 2001                         By: /s/ Raymond B. Wedel, Jr.
                                                -------------------------
                                                Raymond B. Wedel, Jr., President

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

/s/ Raymond B. Wedel, Jr.                       Date: March 28, 2001
------------------------
Raymond B. Wedel, Jr.
President and Director


                                                Date: March _____, 2001
----------------------------------
Donald A. Christensen
Director


/s/ Richard D. Wedel                            Date: March 28, 2001
--------------------
Richard D. Wedel
Chairman, Chief Executive Officer
and Director



/s/ I. Paul Arcuri                              Date: March 28, 2001
------------------
I. Paul Arcuri
Vice President, Chief Financial
Officer and Director



                                                Date: March _____, 2001
----------------------------------
Clement Lange
Director