FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended - January 31, 2003 OR

[ ]      TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
          For the transition period from

                        Commission file number 333-30838

                           EXHAUST TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

WASHINGTON                                         91-1970433
(State or other juristiction of                    (Employer Identification No.)
incorporation or organization

                               230 North Division
                            Spokane, Washington 99202
          (Address of principal executive offices, including zip code.)

                                 (509) 838-4447
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
     None

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

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 no disclosure of delinquent  filers  pursuant to Item 405 of Regulation
S-B is contained  herein,  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.
                                       [ ]

State Issuer's revenues for its most recent fiscal year.
January 31, 2003     $1,062,381


<PAGE>

The  aggregate  market  value of the  registrant's  voting  common stock held by
non-affiliates  was  $786,234 as of January 31, 2003 based on the average of the
bid and ask prices quoted on the OTC Bulletin Board.  There are 1,917,645 shares
of common voting stock of the registrant held by non-affiliates.

Issuers involved in Bankruptcy Proceedings during the past Five Years.
         Not Applicable.

State the number of shares outstanding of each of the Issuer's classes of common
equity,  as of the latest  practicable  date: May 3, 2003 - 7,230,825  shares of
Common Stock

Documents Incorporated by Reference

1.   The Registrant's Form 10SB  Registration  Statement and exhibits filed with
     the Securities and Exchange  Commission,  SEC file  #000-25875 on April 27,
     1999, and all amendments thereto.

2.   The Registrant's Form SB-2  Registration  Statement and exhibits filed with
     the Securities and Exchange Commission, SEC file #333-30838 on February 22,
     2000, and all amendments thereto.

3.   All reports filed with the Securities and Exchange after February 22, 2000.

Transitional Small Business Issuer Format
     YES [ ]      NO [X]




















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<PAGE>

                                     PART I


Item 1. BUSINESS


General

     The Company was formed  under the laws of the state of  Washington  on July
21, 1998, to develop, manufacture and market two automotive devices.

The Devices

     The  two  devices  that  have  been  developed  and  are  currently   being
manufactured and marketed are the Turbolator and the Pneumatic Hand Tool Exhaust
Muffler (PHTEM). Both devices are available for sale.

     On July 21,  1998,  we  entered  into a  Licensing  Agreement  with  Robert
Sterling,  our President,  and Matthew Sterling,  the son of Robert Sterling for
the licensing of the development, manufacturing and marketing of the Turbolator.
Further,  on the same date,  we entered into a Licensing  Agreement  with Robert
Sterling,  for the  development,  manufacturing  and marketing of the PHTEM.  On
April 30, 2001 the  licensing  rights  territory  was increased to include world
wide rights.


The Turbolator

     The Turbolator was invented by Robert Sterling,  our President and a member
of the Board of  Directors,  and his son,  Matthew R. Sterling in 1990. A patent
was issued on October 18, 1994 (No.  5,355,673).  The  Turbolator  is  currently
being  marketed.  During the period the patent was pending,  the  Turbolator was
marketed and generated gross revenues of $160,364.  The revenue was earned prior
to our  formation  and was not  recognized  as  revenue  to us. In  addition  to
obtaining a patent for the Turbolator, Robert Sterling obtained a trademark with
the United States Trademark office on the name "Turbolator."

     The  Turbolator  is designed for  installation  on all  vehicles,  with the
exception of turbo-charged  vehicles. It is composed of a spring butterfly valve
mounted in a tube  housing.  The  butterfly  valve is  regulated by a pre-loaded
torsion spring. The tube housing or tip housing is installed directly behind the


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<PAGE>

catalytic converter or directly behind the muffler. The Turbolator comes in five
sizes  which are six inches  long with an 0utside  diameter  varying  from 2 7/8
inches to 4 1/8 inches  depending on the exhaust pipe size. Two  Turbolators are
installed for a vehicle equipped with dual exhausts.

     The purpose of the Turbolator is to regulate  exhaust flow from the engine.
By regulating  exhaust flow,  the device  creates a more  efficient fuel burning
engine,  thus creating more horsepower and torque without other modifications to
the engine.

     The  Turbolator  operates  in  conjunction  with the exhaust  system  "OEM"
computer controlled  electronic port fuel injection and emission control systems
already certified with the stock engine. Installation of the Turbolator does not
alter the OEM  location  of the oxygen  sensor and the  converter.  The  tune-up
specifications  for a  vehicle  remain  the same.  In lab  tests the  Turbolator
reduced certain emissions and improved fuel mileage.

Pneumatic Hand Tool Exhaust Muffler

     The  Pneumatic  Hand Tool  Exhaust  Muffler  (the  "PHTEM") was invented by
Robert E. Sterling,  in 1997. Mr.  Sterling  applied for a patent on January 13,
1998 and the patent has been approved. The PHTEM is currently being marketed.

     The PHTEM is a tool with a noise  muffling  system  that can  reduce  sound
levels and remove  entrained  solid and oil  contaminates  from the  exhaust air
before it is discharged  into the  atmosphere.  The PHTEM is used in air powered
tools.  The PHTEM has a handle with an exhaust  passage  where the  contaminates
pass. The PHTEM includes a number of washers positioned longitudinally about the
inner tube. The combination of the inner tube and washers are located within the
handle  exhaust  passage.  An end cap is  provided in closing off the inner tube
distal end. During use,  exhaust air enters the inner tube,  flows out the inner
tube airflow openings into the washers,  and out the end cap. The handle muffles
the sound of the tool and retains the contaminates therein.

     Messrs  Sterling and Sterling have  registered  the  trademark  "AirCat" to
market a line of air powered tools which they have designed that uses the PHTEM.
The tools include a patent  pending  handle design which has been  ergonomically
engineered  to better  position and balance the tool during use.  Several  tools
have been field tested during the past year and some are now in production.  The
tools incorporating the PHTEM are substantially quieter with essentially no loss
of power.





                                       4
<PAGE>

Testing

     We have conducted  independent  performance tests of the Turbolator through
an EPA approved California testing facility. Based upon the tests, we received a
California CARB  certificate  (CARB  #D-226-1).  The California CARB Certificate
certifies that the  Turbolator  meets,  or exceeds,  the air quality and vehicle
performance guidelines set forth in California. Because California's air quality
standards  are the most  stringent  in the  United  States,  such  certification
establishes that the Turbolator meets or exceeds the air qualification standards
in all other states. The tests further  established that the Turbolator improves
fuel economy and reduces carbon monoxide and hydrocarbon emissions.


Manufacturing

     We are currently retaining a non-related company in Taiwan to manufacture a
Pneumatic Hand Tool and install our muffler  assembly.  Our Company provides the
muffler  assembly  parts  which are  purchased,  from our  specifications,  from
various parts manufacturers.  The Taiwan company provides us with a PHTEM, boxed
and ready for shipment to our customers.

     The Turbolator is currently being manufactured by a non- related company in
Spokane, Washington. A completed unit is provided to us and we box the unit and
ship it to customers.


Distribution

     The Company serves  customers  primarily  through channels of distributors,
dealers/tech reps, company direct sales and catalog distribution.

     Sales of PHTEM tools are made through distributors,  who purchase the items
from the  Company and resell  them to the end users.  The  Company is  currently
updating it's website to include a shopping cart for direct sales online.  Sales
of the Turbolator is on an as needed basis from the Company.


Marketing

     The Company  markets its products to a wide variety of customers  including
repair facilities,  manufacturing and assembly operations.  The major challenges
in these sectors  include a highly  competitive and cost conscious  market.  The
company believes it is a competitive participant in the market for air tools.




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<PAGE>

     The Company is actively  updating  their  marketing  plan as new product is
developed  and enters the market.  The Company  markets  it's  products  through
advertising  mediums  such as  magazine  ads,  trade  show  venues  and  through
incentive  advertising with catalog  companies.  The Company is currently in the
process of updating  it's website to include a shopping  cart,  catalog and more
technical  information  for consumers to view online.  A new  marketing  plan to
introduce  new product to the  consumer  this fall is currently in the works for
new tools which will  directly  compete  with the  competition  currently in the
marketplace.


Licensing Agreements

     On August 31,2001, we entered into a non-exclusive licensing agreement with
Double Dynasty Co., Ltd., a Taiwan trading and manufacturing  company tp produce
and use certain noise reduction rights that we own. The rights include the right
to  manufacture,  use,  market and sell our noise  reduction  rights  worldwide,
except the United States and Canada.  For the year ended January 31, 2003 Double
Dynasty  was to pay a minimum  annual  royalty of  $500,000  against 5% of gross
sales.  Double  Dynasty  sales did not exceed the  minimum  royalty for the year
ended  January 31,  2003.  On February 1, 2003 the  agreement  was modified to a
minumum annual royalty of $250,000 against 5% of gross sales. Double Dynasty may
terminate  the license upon 180 days written  notice to us. We may terminate the
license  upon sixty days  written  notice if Double  Dynasty  fails to provide a
royalty payment of more than $250,000 per year for any two consecutive years; if
Double  Dynasty  defaults in making  proper  reports to us; and upon  default by
Double Dynasty.  We may also terminate the license on thirty days written notice
if Double  Dynasty  becomes  bankrupt or  insolvent.  We are also  obligated  to
indemnify  Double  Dynasty  if Double  Dynasty  is sued as a result of a patent,
proprietary  right,  or trademark  infringement.  Double Dynasty is obligated to
indemnify us if we are sued as a result of Double  Dynasty  breaching any of the
terms of the license.

     Effective October,  2001, we entered into a licensing arrangement with Tool
&  Hoist  Division   ("Licensee")  of  Ingersoll  Rand  Company,  a  New  Jersey
corporation,  pursuant  to which the Company  granted  the  Licensee a worldwide
license of the  Company's  noise  reduction  technology.  Except for (1) certain
rights  retained  by the  Company  to use  the  noise  reduction  technology  in



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<PAGE>

conjunction  with the  Company's  "AIRCAT"  products  in the  United  States and
Canada,  and (2) certain  rights  previously  granted to another  licensee,  the
license  is  exclusive.  In  consideration  for the  license  granted  under the
agreement  with the Licensee,  the Licensee paid the Company an advance  royalty
payment.  Under the terms of the agreement,  the Licensee is required to pay the
Company royalties in connection with sales of products  containing the Company's
noise reduction  technology.  The Licensee paid the Company a minimum royalty of
$150,000  for the calendar  year 2002.  The royalty  obligation  ceases upon the
expiration of the Company's  rights in the noise  technology.  In the event of a
default by the Licensee, the license will continue, and the Licensee will remain
obligated to pay the required royalties.  The agreement has no termination date,
meaning that it may continue  indefinitely.  The  agreement may be terminated by
the Licensee upon 90 days prior written notice.


Govermental Regulation

     There  are  no  governmental  regulations  which  effect  the  manufacture,
development or sale of the Turbolator or PHTEM.

Employees

     We have no full-time employees. See "Management."



ITEM 2. DESCRIPTION OF PROPERTIES.

      We own no real property.

     Our offices are located at 230 North Division,  Spokane,  Washington 99202.
These are the offices of Robert Sterling,  our President and major  shareholder.
On February 1, 2002, the Company began paying rent and related  office  expenses
to Robert  Sterling  on an as needed  basis and based on space  required  by the
Company. At this time we have not made any plans to change office location.


ITEM 3. LEGAL PROCEEDINGS

     There are no material legal  proceedings to which the Company is subject to
or which are anticipated or threatened.



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<PAGE>

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

      There were no matters submitted to the shareholders during the fourth
quarter, which ended January 31, 2003.

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

     The Company's stock trades on the NASD'S OTCBB under the symbol "EXHS". The
Company began trading on the OTCBB on December 24, 2001.  There has been limited
trading activity and the trading price has ranged from $0.31 to $2.05.

     We have no outstanding options or warrants, or other securities convertible
into,  common  equity.  Of the shares of common stock  outstanding  as of May 3,
2003,  6,462,280  shares may only be resold in  compliance  with Rule 144 of the
Securities  Act of 1933  with  the  exception  of the one  year  holding  period
contained therein.

     At January 31, 2003,  there were 36 holders of record including shares held
by brokerage  clearing houses,  depositories or otherwise in unregistered  form.
The beneficial owners of such shares are not known to us.

     We have not  declared any cash  dividends.  We are not subject to any legal
restrictions  respecting  the payment of dividends,  except that they may not be
paid to render us insolvent. Dividend policy will be based on our cash resources
and needs and it is  anticipated  that all available cash will be needed for our
operations in the foreseeable future.


ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

Plan of Operation

     The following Plan of Operation contains forward-looking statements,  which
involve risks and uncertainties. Our actual results could differ materially from
those  anticipated  in these  forward-looking  statements as a result of certain
factors, including those set forth elsewhere in this document.




                                       8
<PAGE>

     Our plan and focus during the next twelve months include the following:

     1.   Increase  present  sales and marketing  efforts by our direct  contact
          sales and the set-up of an internet shopping cart.

     2.   Create new product lines with our technology.

     3.   Expand  our  worldwide  market  by  introducing  new  products  to our
          licensees.

     4.   Develop a warehousing network.


     The  development  and  marketing of new  automotive  technology  is capital
intensive. We have funded operations to date from revenues, sale of common stock
and  advances  made by our  Chief  Executive  Officer  through  a line of credit
agreement  and other  advances.  We have  utilized  funds  obtained  to date for
organizational purposes, complete certain research and development and inventory
build-up for our marketing efforts. We will continue to conduct product research
and development for new products.

     We do not  currently  intend to  purchase a plant or to expend  significant
amounts for additional equipment in the next twelve months.

Sales and Other Revenue:

     For the year ended  January  31, 2003 our sales and other  revenue  totaled
approximately  $1,062,000  as compared to  approximately  $517,000  for the year
ended January 31, 2002 as a result of increased royalties because of new license
agreements and increased sales because of sales effort and expanded customers.

Operating Expenses:

     For the  year  ended  January  31,  2003  our  operating  expenses  totaled
approximately  $412,000 as compared to approximately $273,000 for the year ended
January 31, 2002.  This  increase of  approximately  $139,000 was  primarily the
result of 1) payments to Robert E. Sterling, President and majority stockholder,
for management  fees, rent and office  expenses  approximating  $171,000,  2) an


                                       9
<PAGE>

increase of approximately $15,000 in research and development costs in search of
new products,  3) a decrease of approximately  $46,000 in professional  services
because of a reduction in accounting  fees, 4) an increase in travel expenses of
approximately  $11,000 primarily for shows displaying our products, 5) increases
in repairs and maintenance of  approximately  $10,000 because of warranty claims
and decreases in supplies and commissions of approximately $22,000.


Other Income (Expenses):

     Other  income  (expenses)  consist of  interest  expense  incurred by us on
borrowings  on the related  party line of credit and bank loan.  During the year
ended January 31, 2003 we recognized  interest expense of approximately  $59,000
as compared to  approximately  $67,000 for the prior year primarily  because the
bank line of credit was paid off. Other income  increased  $36,000 because of an
adjustment of prior accounting fees.

Net Income (Loss):

     Primarily  as a result of the  foregoing  factors,  our  operating  results
improved from a net loss  approximating  $152,000 for the year ended January 31,
2002 to a net income approximating $210,000 for the year ended January 31, 2003.
This increase of  approximately  $362,000 lead to a $0.05 increase in the income
per share to $0.03 for the year ended January 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

Financial Condition:

     For the year ended January 31, 2003 we used cash in operating activities of
approximately  $107,000 as compared to approximately $484,000 for the year ended
January 31, 2002.  This  decrease in the cash used in operating  activities  was
because of increased  sales and other  revenue.  As of January 31, 2003 we had a
cash balance of $60,193 in cash and cash equivalents.

     At January 31, 2003 we had a deferred tax asset of approximately  $191,000.
We do not  believe  that our present  condition  or past  results  makes it more
likely than not that we will be able to realize the benefit of this deferred tax
asset.  As such, a valuation  allowance  has been  established  equal to the net
deferred tax asset.







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<PAGE>

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      Financial Statements begin on the following page.

Exhaust Technologies, Inc.
Report of Independent Certified Public Accountant  .    .    .    . F-2
Balance Sheets .   .   .   .   .   .   .   .   .   .    .    .    . F-3
Statements of Loss .   .   .   .   .   .   .   .   .    .    .    . F-4
Statements of Changes in Stockholders' (Deficit) Equity .    .    . F-5
Statements of Cash Flows   .   .   .   .   .   .   .    .    .    . F-6
Summary of Accounting Policies .   .   .   .   .   .    .    .    . F-7 to F-11
Notes to Financial Statements  .   .   .   .   .   .    .    .    . F-12 to F-15









































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<PAGE>

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

     (a) At its board  meeting on April 9, 2003,  the Board of  Directors of the
Registrant engaged Dan R. Harmon,  C.P.A.,  P.S., as its independent auditor for
2003.

     (b) The  accounting  firm of  Williams & Webster,  P.S.,  Certified  Public
Accountants as dismissed.  There were no disagreements  with Williams & Webster,
P.S. on any matter of accounting principles or practices,  financial disclosure,
or auditing scope or procedure or any reportable events.

     (c) At its board  meeting on May 7,  2001,  the Board of  Directors  of the
Registrant engaged Williams & Webster,  P.S.,  Certified Public Accountants,  as
its independent auditor for 2001.

     (d) The accounting  firm of BDO Seidman,  LLP was dismissed.  There were no
disagreements  with BDO Seidman,  LLP on any matter of accounting  principles or
practices,   financial  disclosure,  or  auditing  scope  or  procedure  or  any
reportable events.

     (e) The former  principal  accountant's  report on the Company's  financial
statements during the last two years contained no adverse opinions or disclaimer
of opinions and were not qualified or modified as to uncertainty, audit scope or
accounting principles.

     (f)  During the last two fiscal  years and  during the  subsequent  interim
periods, there were no disagreements with the former principal accountant on any
matter of accounting principles or practices,  financial statement  disclosures,
or auditing scope or procedures.


                                    PART III


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

Officers and Directors

     Each of our directors is elected by the  stockholders to a term of (1) year
and serves  until his or her  successor  is elected and  qualified.  Each of our
officers  is  elected  by the board of  directors  to a term of one (1) year and
serves until his or her successor is duly elected and qualified,  or until he or
she is removed from office.  The board of directors has no nominating,  auditing
or compensation committees.



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<PAGE>

                                   MANAGEMENT


     The following  table sets forth the name,  age and position of each Officer
and Director of the Company:

Name                   Age        Position

Robert E. Sterling     61         President and a member of the
                                  Board of Directors

Ronald L. Allen        63         Vice President and a member of
                                  the Board of Directors

William A. Sutherland  58         Secretary/Treasurer and a
                                  member of the Board of
                                  Directors

     The  authorized  number of directors  of the Company is presently  fixed at
ten. Each  director  serves for a term of one year that expires at the following
annual shareholders'  meeting.  Each officer serves at the pleasure of the Board
of Directors and until a successor has been qualified and  appointed.  There are
no family  relationships,  or other  arrangements or  understandings  between or
among any of the directors, executive officers or other person pursuant to which
such person was selected to serve as a director or officer.

     Set forth below is certain biographical information regarding each director
and executive officer of the Company:

Robert E. Sterling - President and a member of the Board of
                     Directors

     Mr. Sterling,  one of our founders,  has been our President and a member of
the Board of  Directors  since  our  inception.  Mr.  Sterling  is the  founding
principal  and sole  owner  of Bob  Sterling  Enterprises,  Inc.,  a  Washington
corporation, located in Spokane, Washington. Sterling Entersprises was formed in
1967 and conducts business through itself and several subsidiary corporations in
general contracting, real estate and retail stores. Since 1967, Mr. Sterling has
owned Midas  Muffler  Shops in  Washington  and Idaho and has from  time-to-time
owned and  operated  Midas  Muffler  Shops in Hawaii  (1978) and Nevada (1979 to
1984).  Mr. Sterling has also served as an officer and director of the following
publicly traded  corporations:  Gold Express Corporation (1984 to 1989) and Gold
Coin Mining, Inc. (1984 to 1989).


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<PAGE>

Ronald L. Allen - Vice President and a member of the Board of
                  Directors.

     Mr. Allen, one of our founders, has been our Vice President and a member of
the Board of Directors  since our  inception.  Mr. Allen has been engaged in the
commodity  futures  business  since  1973 and  owned  Merchants  Futures  of the
Northwest  (1994 to 2002,  a  commodity  brokerage  company  located in Spokane,
Washington.  Mr.  Allen has served as an officer and  director of the  following
publicly traded corporations: Gold Capital, Inc. (1983); Remco Enterprises, Inc.
(1978) and, Calco Enterprises, Inc. (1981).

William A. Sutherland - Secretary/Treasurer, Chief Financial
                        Officer, and a member of the Board of
                        Directors

     Mr.  Sutherland,  one of our  founders,  has been our  Secretary/Treasurer,
Chief  Financial  Officer  and a member  of the  Board of  Directors  since  our
inception.  Since 1970,  Mr.  Sutherland  has been  involved  in the  automotive
industry as a consultant  (1979 to the present) and  automobile  dealer (1975 to
1989). He has owned Lincoln,  Mercury,  and Mercedes Benz car dealerships and is
currently  a  consultant  to a number of auto  dealerships  located in  Spokane,
Washington.

Involvement in Certain Legal Proceedings

     We have no legal  proceedings  during  the past five  years,  no present or
former director,  executive  officer or person nominated to become a director or
an  executive  officer  has been the  subject  matter of any legal  proceedings,
including bankruptcy,  criminal proceedings,  or cival proceedings.  Further, no
legal  proceedings  are known to be  contemplated  by  governmental  authorities
against  any  director,  executive  officer  and  person  nominated  to become a
director.


                              CERTAIN TRANSACTIONS

     On  July  21,  1998 we  entered  into a  Licensing  Agreement  with  Robert
Sterling,  our President,  and Matthew Sterling,  the son of Robert Sterling for
the licensing of the development, manufacturing and marketing of the Turbolator.
Further,  on the same date,  we entered into a licensing  agreement  with Robert
Sterling,  for the  development,  manufacturing  and marketing of the PHTEM. The
foregoing agreements were subsequently amended to extend the time period that we
have to generate revenues from the sale of our products.




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<PAGE>

     On July 31,  1998,  we  issued  4,500,000  shares  of  Common  Stock to the
following pursuant to Regulation 504 of the Securities Act of 1933 (the "Act"):

Name                    Total consideration and shares acquired

Robert E. Sterling      4,250,000 shares for the Licensing
                        Agreement and 50,000 shares for services
                        as a director

Ronald L. Allen         50,000 shares for services as a director

William A. Sutherland   50,000 shares for services as a director

Matthew R. Sterling     100,000 shares for the Licensing
                        Agreement

Total                   4,500,000 shares for Licensing Agreements
                        and Services valued at $45,841

     We received cash  advances  under a line of credit  totaling  $500,000 from
Robert Sterling. Outstanding borrowings under the line of credit accrue interest
at 11% per annum and mature on May 25, 2003. The  borrowings are unsecured.  The
line of credit was paid off on April 10, 2003.

     In April 2001,  we sold  469,275  shares of common  stock to Wang Wen Yuan,
pursuant to  Regulation  S of the  Securities  Act of 1933 in  consideration  of
$500,000, consisting of $200,000 in cash and the balance in the form of a Credit
Note to be used against future inventory purchases.  Wang Wen Yuan is related to
a company that currently manufactures our air tools.

     In April  2001,  we  issued  1,063,180  shares  of  common  stock to Robert
Sterling,  our president and 265,795 shares of common stock to Matthew Sterling,
his son, in exchange for the  expansion  of the  licensing  rights  territory to
world-wide for the turbolator and PHTEM.

     In June 2002,  we issued an  additional  179,825  shares of common stock to
Wang Wen Yuan adjusting the transaction previously entered into April 2001.

     In January 2003, we sold 500,000 shares of common stock to Wang Wen Yuan in
exchange for a Credit Note to be used against future inventory purchases.






                                       15
<PAGE>

     In the future,  we may borrow  money from our officers  and  directors,  if
necessary.  If we do so, the terms of the loans will be no less  favorable to us
than those that can be obtained from  unaffiliated  third  parties.  We will not
loan money to our officers and  directors.  Forgiveness of a loan between us and
an affiliate must be approved by a majority of the board of directors who do not
have an interest in the transaction and who have access, at our expense,  to our
counsel or an independent counsel.

     All of our current  transactions  were  approved and ratified by all of our
directors.  In each case, our directors had access to our counsel or any counsel
of their choosing.  All past transactions  which are now closed had at least two
disinterested directors at the time of each transaction.


ITEM 10.  EXECUTIVE COMPENSATION.

Summary Compensation

     The following table sets forth the compensation paid to our officers during
fiscal 2003. This information includes the dollar value of base salaries,  bonus
awards and number of stock options granted,  and certain other compensation,  if
any.

SUMMARY COMPENSATION TABLE [1]
(a)          (b)      (c)     (d)      (e)        (f)
                                              Restricted
                                              Stock Award(s), Securities
                                     Other    Underlying Options/
Name and                             Annual   SARs, All LTIP
Principal                            Compen-  Payouts, Other
Position     Year   Salary   Bonus   sation   Compensation

Robert E.    2003    -          -   168,000 [4]     -
 Sterling    2002  20,000 [3]   -      -            -
  President  2001  20,000 [3]   -      -            -
             2000  30,000 [3]   -    10,000 [2]     -
             1999    -          -      -            -
             1998    -          -      -            -

Ronald L.    2003    -          -      -            -
 Allen       2002    -          -      -            -
  Vice       2001    -          -      -            -
  President  2000    -          -    10,000 [2]     -
             1999    -          -      -            -
             1998    -          -      -            -






                                       16
<PAGE>

William A.   2003    -          -      -            -
 Sutherland  2002    -          -      -            -
  Secretary- 2001    -          -      -            -
  Treasurer  2000    -          -    10,000 [2]     -
             1999    -          -      -            -
             1998    -          -      -            -

[1]  All compensation received by the officers and directors has been disclosed.

[2]  Represents  the  value of  50,000  shares  issued  to each  individual  for
     services as a director.

[3]  Mr. Sterling was entitled to  compensation of $20,000,  $20,000 and $30,000
     for services performed during fiscal 2002, 2001 and 2000, respectively. Mr.
     Sterling  elected to waive the  compensation  (expense was recorded with an
     offset to contributed capital).

[4]  Represents management fees of $108,000,  rent of $36,000 and office expense
     of $24,000 paid to a company owned by Robert E. Sterling.

     Thereare no stock option, retirement,  pension, or profit sharing plans for
     the benefit of our officers and directors.

Option/SAR grants

     No individual grants of stock options,  whether or not in tandem with stock
appreciation  rights  ("SARs")  and  freestanding  SARs  have  been  made to any
executive  officer or any director  since our inception,  accordingly,  no stock
options have been exercised by any of the officers or directors in fiscal 2002.

Long-Term Incentive Plan Awards

     We do not have any  long-term  incentive  plans that  provide  compensation
intended to serve as incentive  for  performance  to occur over a period  longer
than one fiscal year,  whether such  performance is measured by reference to our
financial performance, our stock price, or any other measure.

Compensation of Directors

     Each  member of the Board of  Directors  received  50,000  shares of common
stock to serve on the Board of Directors  during fiscal 1999.  The directors did
not  receive  any other  compensation  for  serving  as  members of the Board of
Directors.  The Board has not implemented a plan to award options.  There are no
contractual arrangements with any member of the Board of Directors.




                                       17
<PAGE>

                                 INDEMNIFICATION

     The  Washington  Corporation  Act and certain  provisions  of the Company's
Bylaws under certain  circumstances provide for indemnification of the Company's
Officers,  Directors and controlling  persons against liabilities which they may
incur  in  such  capacities.  A  summary  of the  circumstances  in  which  such
indemnification  is provided for is contained  herein,  but this  description is
qualified  in its  entirety  by  reference  to the  Company's  Bylaws and to the
statutory provisions.

     In general,  any Officer,  Director,  employee or agent may be  indemnified
against expenses,  fines,  settlements or judgments arising in connection with a
legal  proceeding to which such person is a party, if that person's actions were
in good faith, were believed to be in the Company's best interest,  and were not
unlawful.  Unless such person is  successful  upon the merits in such an action,
indemnification  may be  awarded  only  after  a  determination  by  independent
decision  of the  Board  of  Directors,  by legal  counsel,  or by a vote of the
shareholders,  that the applicable  standard of conduct was met by the person to
be indemnified.

     The circumstances under which indemnification is granted in connection with
an action  brought on behalf of the Company is  generally  the same as those set
forth above;  however with respect to such actions,  indemnification  is granted
only with respect to expenses  actually  incurred in connection with the defense
or settlement of the action. In such actions,  the person to be indemnified must
have acted in good faith and in a manner  believed to have been in the Company's
best interest, and have not been adjudged liable for negligence or misconduct.

     Indemnification  may also be granted  pursuant  to the terms of  agreements
which may be entered  in the future or  pursuant  to a vote of  shareholders  or
Directors.  The  statutory  provision  cited  above also grants the power to the
Company to purchase  and  maintain  insurance  which  protects  its Officers and
Directors  against any liabilities  incurred in connection with their service in
such a position,  and such a policy may be obtained by the Company.nding  shares
of Common Stock (the "Principal  Shareholders");  (2) each director and director
nominee; (3) each named executive officer;  and, (4) all directors and executive
officers as a group. At May 3, 2003, the number of shares of common stock of the
Company issued and outstanding was 7,230,825.






                                       18
<PAGE>

Name and Address
Beneficial                  Number of             Percentage
Owner  [1]                  Offering              of Ownership

Robert Sterling             5,213,180               72.10%
230 N. Division St.
Spokane, WA 99202

Wang Wen Yuan               1,149,100               15.89%
Keelung, Taiwan ROC

Matthew R. Sterling           295,795                4.09%
4821 North Larch Court
Spokane, WA 99216

Ronald Allen                   50,000                 .69%
3031 W. 22nd
Spokane, WA 99204

William Sutherland             50,000                 .69%
7202 S. Oak Road
Spokane, WA 99224

All Officers and
Directors as a Group
(3 Persons)                 5,313,180               73.48%


[1]  The persons  named above may be deemed to be a "parent" and  "promoter"  of
     our company,  within the meaning of such terms under the  Securities Act of
     1933, as amended,  by virtue of his/its direct and indirect stock holdings.
     Messrs.  Sterling,  Allen and  Sutherland  are the only  "promoters" of our
     company.



                                     PART IV

ITEM 11.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Reports on Form 8-K

     On May 7, 2001 the Company filed a Form 8-K  terminating  its  relationship
with its auditors BDO Seidman.  The  termination  was a result of a dispute over
the accounting fees that were being charged.






                                       19
<PAGE>

     On  November  25, 2001 the  Company  filed a Form 8-K  stating  that it had
entered into a license  agreement  granting the licensee a worldwide  license of
the Company's noise reduction technology.

     On April 23, 2003 the Company filed a Form 8-K terminating its relationship
with its  auditors  Williams & Webster,  P.S.  There were no  disputes  with the
auditors.

(b)
     The  following  Exhibits  are  incorporated  herein by  reference  from the
Registrant's  Form SB-2  Registration  Statement  filed with the  Securities and
Exchange Commission, SEC File #333-30838 on February 22, 2000. Such exhibits are
incorporated herein by reference pursuant to Rule 12b-32:


Exhibit No.    Document Description
-----------    --------------------

3.1            Articles of Incorporation.
3.2            Bylaws.
4.1            Specimen Stock Certificate.
10.3           Modification to Licensing Agreement for Turbolator.
10.4           Modification  to  Licensing  Agreement  for  Pneumatic  Hand Tool
               Exhaust Muffler.
10.5           Second Modification of Licensing Agreement for Turbolator.
10.6           Second Modification of Licensing Agreement for PHTEM.
10.7           Consulting and Marketing Agreement with Clarkstone.
10.8           Purchase Agreement with Apex Industries,Inc.






















                                       20
<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, on this day of November, 2003.


                                   EXHAUST TECHNOLOGIES, INC.
                                   (Registrant)



                                BY: /s/ Robert E. Sterling
                                   -----------------------------
                                   Robert E. Sterling, President


     In  accordance  with the Exchange Act, this report has been signed below by
the following  person on behalf of the  Registrant  and in the capacities and on
this day of November, 2003.


SIGNATURES                     TITLE                DATE


 /s/ Robert E. Sterling       President, Chief      November 13, 2003
--------------------------    Executive Officer
Robert E. Sterling            and Member of the
                              Board of Directors



 /s/ Ronald L. Allen          Vice President and    November 13, 2003
--------------------------    Member of the Board
Ronald L. Allen               of Directors



 /s/ William A. Sutherland    Secretary/Treasurer   November 13, 2003
--------------------------    and Chief Financial
William A. Sutherland         Officer and Member
                              of the Board of
                              Directors












                                       21
<PAGE>




To the Board of Directors and Stockholders
Exhaust Technologies, Inc.
Spokane, WA



                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------



I have audited the accompanying balance sheet of Exhaust  Technologies,  Inc., a
Washington  corporation,  as of January 31, 2003, and the related  statements of
operations,  stockholders' equity / (deficit),  and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  My  responsibility  is to express  an  opinion  on these  financial
statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects,  the financial position of Exhaust  Technologies,  Inc. as of
January 31, 2003 and the  results of its  operations  and its cash flows for the
year then ended in conformity with accounting  principles  generally accepted in
the United States.



/s/Dan R. Harman, C.P.A.,P.S.
Spokane, Washington

June 17, 2003





                                      F-2a


<PAGE>

To the Board of Directors and Stockholders
Exhaust Technologies, Inc.
Spokane, WA



                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------



We have audited the accompanying balance sheet of Exhaust Technologies,  Inc., a
state of  Washington  corporation,  as of  January  31,  2002,  and the  related
statements of operations,  stockholders' equity and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free 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 financial  statements  referred to above present fairly, in
all material respects,  the financial position of Exhaust Technologies,  Inc. as
of January 31, 2002,  and the results of its  operations  and its cash flows for
the year then ended in conformity with accounting  principles generally accepted
in the United States of America.

The  accompanying  financial  statements  have been prepared in conformity  with
accounting principles generally accepted in the United States of America,  which
contemplates  continuation  of the Company as a going  concern.  As discussed in
Note 1, the  Company  has  incurred  a loss of  $289,128  during  the year ended
January 31, 2002, which raises substantial doubt about their ability to continue




                                      F-2b


<PAGE>

as a going  concern.  Management's  plans  are  also  discussed  in Note 1.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of  recorded  assets,  or the  amounts  and
classification  of liabilities  that might be necessary in the event the Company
cannot continue in existence.





/s/Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
April 4, 2002


































                                      F-2c


<PAGE>
                           EXHAUST TECHNOLOGIES, INC.

                                 BALANCE SHEETS



                                                       January 31,   January 31,
                                                           2003          2002
                                                       -----------   -----------

                                     ASSETS
                                     ------

CURRENT ASSETS:
 Cash and cash equivalents                             $    60,193   $    11,890
 Accounts receivable, less allowance
  for doubtful accounts of $-0-
  and $4,256                                                78,442        22,986
 Accounts receivable-related party                            --          15,765
 Inventory                                                 405,889       346,662
 Inventory credit note                                     303,746       199,535
 Prepaid expenses                                            4,995         7,710
                                                       -----------   -----------

     TOTAL CURRENT ASSETS                                  853,265       604,548
                                                       -----------   -----------


EQUIPMENT                                                  159,203       154,620
 Less accumulated depreciation                              48,382        32,565
                                                       -----------   -----------

     TOTAL EQUIPMENT                                       110,821       122,055
                                                       -----------   -----------


OTHER ASSETS:
 Patents, net of accumulated
  amortization of $26,742 and
  $20,455 (Note 2)                                           4,692        10,979
                                                       -----------   -----------



                                                       $   968,778   $   737,582
                                                       ===========   ===========


          See accompanying summary of accounting policies and notes to
                              financial statements.

                                      F-3a


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                                 BALANCE SHEETS


                                                     January 31,    January 31,
                                                        2003           2002
                                                     -----------    -----------


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


CURRENT LIABILITIES:
 Note payable (Note 5)                               $      --      $   120,002
 Accounts payable                                         10,764        129,715
 Accrued interest                                         97,451        117,145
 Line of credit-related party
  (Note 3)                                                  --          500,000
 Current portion of long-term bank
  debt (Note 9)                                           97,702           --
                                                     -----------    -----------

     TOTAL CURRENT LIABILITIES                           205,917        866,862


LONG-TERM DEBT:
 Long-term portion of bank debt
  (Note 9)                                               402,298           --
                                                     -----------    -----------

     TOTAL LIABILITIES                                   608,215        866,862
                                                     -----------    -----------

Committments and contingencies
(Note 1)                                                    --             --
                                                     -----------    -----------



Stockholders' equity (deficit):
 Common stock, $.00001 par value;
  100,000,000 shares authorized;
  7,230,825 and 6,491,000 shares
  outstanding                                                 72             65
 Additional paid-in capital                              922,064        642,070
 Deficit                                                (561,573)      (771,415)
                                                     -----------    -----------

     Total stockholders' equity
     (deficit)                                           360,563       (129,280)
                                                     -----------    -----------


                                                     $   968,778    $   737,582
                                                     ===========    ===========


          See accompanying summary of accounting policies and notes to
                              financial statements.
                                      F-3b


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS


                                                         Year          Year
                                                        Ended         Ended
                                                     January 31,    January 31,
                                                         2003          2002
                                                     -----------    -----------

SALES AND OTHER REVENUE:
 Sales of product                                    $   562,415    $   366,767
 Royalty income                                          499,966        150,000
                                                     -----------    -----------

   Total revenue                                       1,062,381        516,767

Cost of sales                                            429,486        340,372
                                                     -----------    -----------

   Gross profit                                          632,895        176,395
                                                     -----------    -----------

Operating expenses:
 Management fees                                         108,000           --
 Compensation                                             55,920         66,920
 Advertising                                              54,297         45,388
 Office expense                                           36,018          9,322
 Rent                                                     36,000           --
 Professional services                                    33,913         80,126
 Research and
  development                                             24,670          9,512
 Travel                                                   21,295         10,465
 Repairs and maintenance                                  14,354          4,000
 Insurance                                                 8,928          8,419
 Bad debts                                                 6,634          9,467
 Amortization                                              6,287          6,287
 Telephone                                                 3,427           --
 Supplies                                                  2,270         13,650
 Dues and subscriptions                                       68            275
 Commissions                                                --            9,317
                                                     -----------    -----------

Total operating expenses                                 412,081        273,148
                                                     -----------    -----------

Income (loss) from operations                            220,814        (96,753)
                                                     -----------    -----------

Other income (expense):
 Miscellaneous income                                     48,057         12,040
 Interest expense                                        (59,029)       (66,915)
                                                     -----------    -----------

   Total other income (expense)                          (10,972)       (54,875)
                                                     -----------    -----------

          See accompanying summary of accounting policies and notes to
                              financial statements.

                                      F-4a


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS


                                                          Year          Year
                                                         Ended         Ended
                                                      January 31,   January 31,
                                                          2003          2002
                                                      -----------   -----------


Net income (loss) before tax                              209,842      (151,628)

Income taxes                                                 --            --
                                                      -----------   -----------

Net income (loss)                                     $   209,842   $  (151,628)
                                                      ===========   ===========


Comprehensive income (loss)                           $   209,842   $  (151,628)
                                                      ===========   ===========


Net income (loss) per share -
 basic and diluted                                    $      0.03   $     (0.02)
                                                      ===========   ===========




Weighted average number
 of common shares - basic and
 diluted                                                6,641,522     6,052,523
                                                      ===========   ===========



















          See accompanying summary of accounting policies and notes to
                              financial statements.
                                      F-4b


<PAGE>
<TABLE>
<CAPTION>

                           EXHAUST TECHNOLOGIES, INC.

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                      Years ended January 31, 2003 and 2002


                           Common Stock         Additional
                    -------------------------     Paid-in      Accumulated
                       Shares        Amount       Capital        Deficit         Total
                    -----------   -----------   -----------    -----------    -----------
<S>                 <C>           <C>           <C>            <C>            <C>
Balance,
 January 31,
 2001                 4,692,750   $        47   $   122,088    $  (619,787)   $  (497,652)

Contributed
 services                  --            --          20,000           --           20,000

April 30, 2001:
 Common stock
 issued to
 inventors for
 world-wide
 licensing
 rights
 at less than
 $0.01 per
 share                1,328,975            13           (13)          --             --

April 30, 2001:
 Common stock
 issued for
 cash and
 inventory
 credit at
 $1.06 per
 share                  469,275             5       499,995           --          500,000

Net loss for
 the period                --            --            --         (151,628)      (151,628)
                    -----------   -----------   -----------    -----------    -----------

Balance
 January 31,
 2002                 6,491,000            65       642,070       (771,415)      (129,280)

June 18, 2002:
 Common stock
 issued for
 cash at $.50
 per share               60,000          --          30,000           --           30,000


          See accompanying summary of accounting policies and notes to
                              financial statements.
                                      F-5a


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                      Years ended January 31, 2003 and 2002


                           Common Stock         Additional
                    -------------------------     Paid-in      Accumulated
                       Shares        Amount       Capital        Deficit         Total
                    -----------   -----------   -----------    -----------    -----------

June 18, 2002:
 Adjustment
 to stock
 issued in
 2001 for
 cash and
 inventory
 credit                 179,825             2            (2)          --             --

January 31, 2003:
Common stock
 issued for
 inventory
 credit at
 $.50 per
 share                  500,000             5       249,996           --          250,001


Net income for
 the period                --            --            --          209,842        20, 842
                    -----------   -----------   -----------    -----------    -----------


Balance
 January 31,
 2003                 7,230,825   $        72   $   922,064    $  (561,573)   $   360,563
                    ===========   ===========   ===========    ===========    ===========
</TABLE>








           See accompanying summary of accounting policies and notes
                            to financial statements.
                                      F-5b


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS

                                                         Year           Year
                                                        Ended          Ended
                                                     January 31,    January 31,
                                                        2003           2002
                                                     -----------    -----------

CASH INCREASE (DECREASE):
Cash flows from
 operating
 activities:
 Net income (loss)                                   $   209,842    $  (151,628)

Adjustments to
 reconcile net income
 (loss) to net cash
 used in operating
 activities:
  Amortization                                             6,287          6,287
  Depreciation                                            15,817         14,738
  Contributed
   services                                                 --           20,000

Changes in assets
 and liabilities:
  Accounts receivable                                    (64,385)       (15,343)
  Inventory                                              (59,227)      (118,828)
  Inventory credit note                                 (104,211)      (199,535)
  Prepaid expenses                                         2,715          4,435
  Accounts payable                                      (118,951)       (99,812)
  Accrued interest                                         5,000         55,833
                                                     -----------    -----------

Net cash used in
 operating
 activities                                             (107,113)      (483,853)
                                                     -----------    -----------

Cash flows from
 investing
 activities:
  Cash paid for
   equipment                                              (4,583)        (3,081)
                                                     -----------    -----------

Net cash used
 in investing
 activities                                               (4,583)        (3,081)
                                                     -----------    -----------


          See accompanying summary of accounting policies and notes to
                              financial statements.
                                      F-6a


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS
                                   (Continued)


                                                         Year           Year
                                                        Ended          Ended
                                                     January 31,    January 31,
                                                        2003           2002
                                                     -----------    -----------


Cash flows from
 financing
 activities:
 Net proceeds from
  sale of common
  stock                                                  280,001        500,000
 Principal payments on note                             (120,002)        (4,998)
                                                     -----------    -----------


Net cash provided
 by financing
 activities                                              159,999        495,002
                                                     -----------    -----------

Net increase in cash and
 cash equivalents                                         48,303          8,068

Cash and cash
 equivalents, beginning of
 period                                                   11,890          3,822
                                                     -----------    -----------

Cash and cash equivalents,
 end of period                                       $    60,193    $    11,890
                                                     ===========    ===========


Supplemental
 disclosures of cash
 flow information:
 Cash paid during the
  period for:
  Interest                                           $    54,029    $      --
  Income taxes                                       $      --      $      --
                                                     ===========    ===========








          See accompanying summary of accounting policies and notes to
                              financial statements.
                                      F-6b


<PAGE>
                           EXHAUST TECHNOLOGIES, INC.


                         SUMMARY OF ACCOUNTING POLICIES
                  For the Years Ended January 31, 2003 and 2002

Nature of Business

Exhaust  Technologies,  Inc.  ("Exhaust  Technologies"  or "the  Company") is an
enterprise  which  holds  exclusive  worldwide  manufacturing,  developing,  and
marketing rights for the Turbolator, a tube-housing designed for installation on
vehicles to regulate exhaust flow from the engine. In addition,  the Company was
granted exclusive worldwide manufacturing,  developing, and marketing rights for
the Pneumatic  Hand Tool Exhaust  Muffler  ("PHTEM"),  a noise  muffling  system
installed  on  pneumatic  wrenches  which can reduce the sound levels and remove
contaminates  from the exhaust air before  discharging into the atmosphere.  The
Company  has granted  exclusive  licensing  rights to others for the PHTEM.  The
Company was incorporated pursuant to the laws of the State of Washington in July
1998. The Company's fiscal year end is January 31.

Cash Equivalents

For  financial  reporting  purposes,  the Company  considers  all highly  liquid
investments with an original  maturity of three months or less when purchased to
be a cash  equivalent.  Financial  instruments,  which  potentially  subject the
Company to a concentration of credit risk, consist of cash and cash equivalents.
Cash and cash  equivalents  consist of funds  deposited with various high credit
quality financial institutions.

Inventory

Inventory consists of saleable products, supplies and component parts. Inventory
is stated at the lower of cost (first-in, first-out method) or market.

Equipment

Equipment is recorded at cost.  Depreciation and amortization are provided using
the straight-line  method over the useful lives of the respective assets,  which
range from 5 to 10 years. Major additions and betterments are capitalized.  Upon
retirement or disposal,  the cost and the related  accumulated  depreciation  or
amortization  are removed from the accounts and any gain or loss is reflected in
operations.  Equipment  with a nominal value was  contributed by the founders at
inception, and accordingly, no asset has been recognized. Equipment held for use
in production is recorded at cost.

                                      F-7


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                         SUMMARY OF ACCOUNTING POLICIES
                  For the Years Ended January 31, 2003 and 2002
                                   (Continued)

Patents and Licenses

The costs  associated  with  acquiring  exclusive  licensing  rights to patented
technology  have been  capitalized  and are being  charged to expense  using the
straight-line method of amortization over five years, the estimated useful lives
of the patents.

In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121,  "Accounting  for the Impairment of Long-lived  Assets and for
Long-lived  Assets to be Disposed of" and ("SFAS") No. 144,  "Accounting for the
Impairment or Disposal of Long-Lived Assets",  management of the Company reviews
the  carrying  value of its  intangible  assets  on a regular  basis.  Estimated
undiscounted  future cash flows from the intangible assets are compared with the
current  carrying  value.  Reductions to the carrying  value are recorded to the
extent  the net book  value of the  property  exceeds  the  estimate  of  future
undiscounted cash flows.

Income Taxes

The  Company  follows  the  provisions  of  Statement  of  Financial  Accounting
Standards No. 109,  "Accounting  for Income Taxes" (SFAS No. 109).  SFAS No. 109
requires a company to  recognize  deferred  tax assets and  liabilities  for the
expected future income tax consequences of events that have been recognized in a
company's financial statements.  Under this method, deferred tax liabilities and
assets are determined based on the temporary  differences  between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the temporary differences are expected
to reverse.

Revenue Recognition

Revenues and costs of revenues are recognized when products are shipped.

Estimates

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


                                       F-8


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                         SUMMARY OF ACCOUNTING POLICIES
                  For the Years Ended January 31, 2003 and 2002
                                   (Continued)

Fair Value of Financial Instruments

The Company's  financial  instruments  as defined by SFAS No. 107,  "Disclosures
about Fair Value of Financial  Instruments,"  include cash and cash equivalents,
accounts   receivable,   accounts  payable,   accrued  expenses  and  short-term
borrowings.  All such  financial  instruments  are accounted for on a historical
cost basis,  which,  due to the short maturity of these  financial  instruments,
approximates fair value at January 31, 2003 and 2002.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Net Loss Per Share

SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face
of all income  statements  issued after  December 15, 1997 for all entities with
complex  capital  structures.  Basic EPS is computed as net loss  divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential  dilution  that could occur from common  shares  issuable
through stock options,  warrants and other convertible  securities.  The Company
had no  dilutive  potential  common  stock  at  January  31,  2003  and 2002 and
therefore, basic and diluted EPS are the same in each period.

Comprehensive Income

In accordance with SFAS No. 130, the Company's  Statements of Operations reports
"Comprehensive  Income",  which is defined as the change in the Company's equity
during the year from  transactions  and events other than those  resulting  from
investments by and  distributions to owners.  Comprehensive  income includes net
income and other changes in assets and  liabilities  not reported in net income,
but instead reported as a separate  component of stockholders'  equity,  such as
the following:  Foreign currency translation  adjustments,  unrealized gains and
losses  on  investments,  hedging  activities,  and  minimum  pension  liability
adjustments. The Company had no such items of Comprehensive Income for the years
ended January 31, 2003 and 2002.





                                       F-9


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                         SUMMARY OF ACCOUNTING POLICIES
                  For the Years Ended January 31, 2003 and 2002
                                   (Continued)



Recent Accounting Pronouncements

The Financial  Accounting Standards Board ("FASB") recently issued the following
statements:

       FASB 144 - Accounting for the Impairmrnt or Disposal of Long-Lived
                  Assets
       FASB 145 - Rescission of SFAS 4, 44, and 64 and Amendment of SFAS 13
       FASB 146 - Accounting for Costs Associated with Exit or  Disposal
                  Activities
       FASB 147 - Acquisitions of Certain Financial Institutions
       FASB 148 - Accounting for Stock-Based Compensation FASB 149 - Amendment
                  of SFAS 133 on Derivative Instruments and Hedging Activities
       FASB 150 - Accounting for Certain Financial Instruments with
                  Characteristics of both Liabilities and Equity

These FASB statements did not, or are not expected to, have a material impact on
the Company's financial position and/or results of operations.


Derivative Instruments

At January 31, 2003, the Company has not engaged in any transactions  that would
be considered derivative instruments or hedging activities.


Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk  consist  principally  of cash and trade  accounts  receivable.  The
Company   places  its  temporary  cash   investments   in  reputable   financial
institutions.  At January 31, 2003, the Company had  substantially  all cash and
cash equivalents on deposit with one financial institution.






                                      F-10


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                         SUMMARY OF ACCOUNTING POLICIES
                  For the Years Ended January 31, 2003 and 2002
                                   (Concluded)

Significant Customers

During  the  year  ended  January  31,  2003,   two   customers   accounted  for
approximately 36% and 24%, respectively, of the Company's net sales.


Advertising Costs


All advertising costs are recognized as expense in the year incurred. No portion
of these costs is considered direct response cost requiring capitalization.


Warranty Expenses


The Company  warrants its products  against  defects in design,  materials,  and
workmanship  generally  for  1  year.  Costs  related  to  warranty  claims  are
recognized  as  expense  in  the  year  incurred.  This  policy  does  not  vary
significantly from generally accepted accounting principles, which would require
an accrual of estimated warranty costs to be made in the period in which revenue
is recognized.























                                      F-11


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                        NOTES TO THE FINANCIAL STATEMENTS
                 For the Years Ended January 31, 2003 and 2002


1.   Going Concern

From the  Company's  inception in July,  1998 through its year ended January 31,
2002, it incurred  operating  losses,  had a working  capital  deficit,  limited
revenues,  and an  untested  market  for  its  products.  These  factors  raised
substantial  doubt as to the Company's  ability to continue as a going  concern.
Accordingly,  the Company's financial statements during those periods included a
qualification as to the Company's ability to continue as a going concern.

During the year ended  January 31, 2003,  the Company began  receiving  revenues
from sales of its  products and royalty  payments  from  license  agreements  as
described in Note 6. As a result,  the Company's  financial  statements  for the
year ended January 31, 2003 reflect net income and an operating profit, positive
working capital and stockholders'  equity,  and an expectation that sales of the
Company's   products  and  royalty  income  will  continue  in  future  periods.
Management believes that the issues that previously gave rise to a going-concern
qualification no longer exist. Accordingly, the going- concern qualification has
been removed effective with the 2003 financial statements.


2.   Patents

In 1998, the Company acquired  exclusive  ninety-nine (99) year licensing rights
to  manufacture,  develop and market the  Turbolator and the PHTEM in the United
States from the Company's  president and his son  ("inventors")  under  separate
licensing  agreements.  The  licenses  were  acquired  through  the  issuance of
4,350,000  shares of common  stock,  valued at $15,841,  which  represented  the
inventors'  historical cost basis in the licenses.  Pursuant to the terms of the
agreements  and  subsequent  modifications,  the Company is required to generate
sales of the turbolator  and the PHTEM of at least $100,000 per year,  beginning
in fiscal 2002 and continuing for all years  thereafter,  in order to retain the
licensing rights. On April 30, 2001 the licensing rights territory was increased
to include world-wide rights.







                                      F-12


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                        NOTES TO THE FINANCIAL STATEMENTS
                 For the Years Ended January 31, 2003 and 2002
                                   (Continued)


3.   Related Party Transactions


The Company had a line of credit with the Company's  president which allowed for
unsecured  borrowings up to $700,000.  Outstanding  borrowings under the line of
credit aggregated $500,000 at January 31, 2003 and 2002,  respectively,  accrued
interest at 11% per annum,  and matured on May 25, 2003. On April 10, 2003,  the
$509,442  balance  outstanding  on this line of credit was  refinanced by a bank
loan as described in Note 9.

The  Company   utilizes  office  space  provided  by  the  president  and  major
shareholder  of the  Company.  The Company  paid $36,000 rent for the year ended
January 31,  2003.  In  addition,  the Company  paid the  president  $108,000 in
management fees for the same period.

No rent or  management  fees were paid to the  president  during  the year ended
January 31, 2002.

A stockholder,  who is also the supplier of all our pneumatic hand tools and has
entered into a license  agreement with the Company,  has provided the Company an
inventory  credit note in exchange  for common stock and royalty  payments  that
allows the  Company to  purchase  product as  needed.  At January  31,  2003 the
Company had $36,462 available to purchase product.

4.   Income Taxes

At  January  31,  2003 and 2002,  the  Company  had net  deferred  tax assets of
approximately $139,500 and $262,000, principally arising from net operating loss
carryforwards  for income tax  purposes.  As  management  of the Company  cannot
determine  that it is more  likely than not that the  Company  will  realize the
benefit of the net deferred tax asset,  a valuation  allowance  equal to the net
deferred  tax asset has been  established  at  January  31,  2003 and 2002.  The
difference in the expected  federal benefit and the actual tax benefit  recorded
is due to the increase in the valuation allowance.

At January 31, 2003, the Company has net operating loss  carryforwards  totaling
approximately $410,500, which expire in the years 2019 through 2022.

                                      F-13


<PAGE>

                           EXHAUST TECHNOLOGIES, INC.

                        NOTES TO THE FINANCIAL STATEMENTS
                  For the Years Ended January 31, 2003 and 2002
                                   (Continued)


5.   Short-term Note Payable

On January 17, 2001 the Company  borrowed  $125,000  from U.S.  Bank.  This loan
accrued  interest at prime plus 1.5% and was due on December 31, 2002.  The loan
was co-signed by the president and major shareholder of the Company.  Collateral
for the loan included real estate owned by the  president.  The loan was paid in
full on December 30, 2002.

6.   License Agreements

In 2001, the Company entered into two separate  agreements  licensing  rights to
their  patents.  The  licenses  are  enforceable  for the  life of the  patents.
Quarterly  royalties are payable to the Company  including a minimum royalty due
annually.  The  Company  has also  retained  the right to  produce  and sell its
products in the United States and Canada under its branded trademark.

7.   Common Stock

In April,  2001 the  Company  issued  1,063,180  shares of its common  stock and
265,795  shares of its  common  stock to  Robert  E.  Sterling  and  Matthew  R.
Sterling,  respectively, in exchange for the world-wide rights to the Turbolator
and PHTEM.

In April,  2001 the Company sold 469,275 shares of common stock to a non-related
party pursuant to  "Regulation S" of the Securities and Exchange  Commission for
$500,000, consisting of $200,000 in cash and the balance in the form of a Credit
Note to be used against future  inventory  purchases.  The  purchasing  party is
related to a company that is currently  manufacturing  the  Company's  specialty
line of air tools.

In April, 2002 the Company issued 179,825 shares of common stock at par value as
a subsequent  price  adjustment  related to an original stock issuance in April,
2001 whereby the Company  issued  469,275 shares of common stock for $500,000 of
cash and inventory credit.

In January,  2003 the Company  sold  500,000  shares of common stock to the same
shareholder  that purchased  stock in April,  2001 pursuant to "Regulation S" of
the Securities and Exchange Commission for $250,000 in the form of a Credit Note
to be used against future inventory purchases.

                                      F-14


<PAGE>1

                           EXHAUST TECHNOLOGIES, INC.

                        NOTES TO THE FINANCIAL STATEMENTS
                 For the Years Ended January 31, 2003 and 2002
                                   (Concluded)



8.   Prior Development Stage

The  Company  was  formed on July 21,  1998,  and was in the  development  stage
through  January 31,  2001.  The year ending  January 31, 2002 is the first year
during which it is considered an operating company.


9.   Subsequent Event

On April 10, 2003,  the Company  borrowed  $509,442  from a bank,  with interest
payable  at 7% per  annum.  The  loan is  collateralized  by all  assets  of the
Company, the guarantee of Bob Sterling Enterprises, Inc. (a company owned by the
President of Exhaust  Technologies,  Inc.),  assignment of a $300,000 promissory
note due RES  Enterprises,  Inc.  (another  company  owned by the  President  of
Exhaust  Technologies,  Inc.), and the personal guarantee of M. Louise Sterling,
the wife of Robert E. Sterling, who is the president and majority stockholder of
Exhaust  Technologies,  Inc.  The loan is payable  $15,000 per month,  including
interest,  and matures July 15, 2006. The Company used the proceeds of this note
to pay off its line of credit due Robert E. Sterling.  Accordingly,  the line of
credit,  which had a balance  outstanding  of $500,000 at January 31, 2003,  has
been classified as long-term debt at January 31, 2003.


















                                      F-15