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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                        COMMISSION FILE NUMBER 000-23041

                        KARTS INTERNATIONAL INCORPORATED
           (Name of Small Business Issuer as Specified in Its Charter)

                 Nevada                                    75-2639196
        (State of Incorporation)            (I.R.S. Employer Identification No.)

        62204 Commercial Street
              P.O. Box 695

       Roseland, Louisiana 70456                            70456
(Address of Principal Executive Offices)                  (Zip Code)

                                 (504) 747-1111
                (Issuer's Telephone Number, Including Area Code)

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

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

         Check whether the issuer (1) has 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 issuer 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 the  issuer's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         The issuer's net revenues for the fiscal year ended  December 31, 2000,
were $8,854,343.

         The issuer had  7,498,392  shares of common  stock and  401,682  public
warrants outstanding as of February 28, 2001.

         The aggregate  market value of the voting and  non-voting  common stock
held by non-affiliates  of the issuer,  computed by reference to the average bid
and asked prices of such common stock as of March 2, 2001, was $1,199,743.

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<PAGE>
                      2000 ANNUAL REPORT (SEC FORM 10-KSB)

                                      INDEX

                       Securities and Exchange Commission
                           Item Number and Description

                                     PART I

ITEM 1.   BUSINESS.............................................................1
ITEM 2.   PROPERTIES..........................................................11
ITEM 3.   LEGAL PROCEEDINGS...................................................11
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12

                                     PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS.................................................14
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........15
ITEM 7.   CONSOLIDATED FINANCIAL STATEMENTS...................................19
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.................................19

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..........20
ITEM 10.  EXECUTIVE COMPENSATION..............................................21
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT..........................................................26
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................27

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................30

               SIGNATURES, FINANCIAL STATEMENTS AND EXHIBIT INDEX

Financial Statements.........................................................F-1
Signatures....................................................................35
Exhibit Index



                                      -i-

<PAGE>

                                     PART I

         Management believes that this Annual Report on Form 10-KSB for the year
ended  December  31,  2000  contains   forward-looking   statements,   including
statements  regarding,  among other items, the Company's future plans and growth
strategies and anticipated trends in the industry in which the Company operates.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, many of which are beyond
the  Company's  control.  Actual  results  could  differ  materially  from these
forward-looking  statements  as  a  result  of  the  factors  described  herein,
including,  among others,  regulatory or economic influences.  In light of these
risks and  uncertainties,  there can be no  assurance  that the  forward-looking
information  contained  in  this  Annual  Report  on  Form  10-KSB  will in fact
transpire or prove to be accurate.

ITEM 1.  BUSINESS

General

         Karts International Incorporated, a Nevada corporation (the "Company"),
through  its  wholly-owned  subsidiaries,   Brister's  Thunder  Karts,  Inc.,  a
Louisiana   corporation   ("Brister's"),   USA  Industries,   Inc.,  an  Alabama
corporation  ("USA"),  Straight Line  Manufacturing,  Inc.  ("Straight Line"), a
Michigan   corporation,   and  KINT,  L.L.C.,  a  limited  liability   Louisiana
corporation  ("KINT"),  designs,  manufactures and distributes  recreational fun
karts ("Fun Karts"),  also referred to as "go karts," and Mini Bikes.  Fun Karts
are four-wheeled,  gas-powered  vehicles typically equipped with engines of 5 to
13 horsepower and purchased by consumers  principally for off-road  recreational
use. Mini Bikes are two-wheeled,  gas-powered vehicles typically with engines of
3.5  to 6  horsepower  and  purchased  by  consumers  principally  for  off-road
recreational  use. The Company  shipped  approximately  10,200 Fun Karts and 600
Mini Bikes to dealers, distributors and merchandisers in 2000, which the Company
believes  represents  approximately  8% of the total  domestic  Fun Kart market.
Consolidated revenues of the Company for the fiscal year ended December 31, 2000
were   approximately   $8.9  million  as  compared  with  combined  revenues  of
approximately  $12.0  million for the fiscal year ended  December 31, 1999.  The
Company operates manufacturing  facilities in Roseland,  Louisiana and maintains
its executive offices in Roseland, Louisiana.

         The kart industry is comprised of three principal segments,  Fun Karts,
racing and concession  karts. Fun Karts, the largest segment,  are karts sold to
consumers for general  recreational use. Racing karts are specially designed for
use on established tracks in a controlled racing  environment.  Concession karts
are designed for use by amusement and entertainment centers, which provide karts
and facilities for customers' use on a rental basis.  Management  estimates that
in  2000   approximately   158,000  karts  were  sold  in  the  United   States.
Historically,  the  Company,  through its  subsidiaries,  has  concentrated  its
efforts in the Fun Karts market.

         The Company offers a product line of  approximately 40 Fun Kart models,
differentiated  by frame size,  drive  train,  seating  capacity,  tire size and
tread. The Company's models offer a wide range of standard and optional features
which enhance the safety,  operation,  riding comfort and performance of its Fun
Karts.  Such  features  include  the  exclusive,   patented  automatic  throttle
override;  full brush cage; safety flag; three kinds of drive trains,  including
live axle, single wheel pull and torque converter;  clutch  lubrication  system;
high speed bearings;  adjustable  throttle and seats;  steel rims; band and disc
brakes;  and Tecumseh  Products Company and Honda engines.  The end-users of the
Company's Fun Karts are  primarily 7- to  17-year-old  males,  living with their
parents in suburban and rural markets.  Typical Fun Kart  purchasers are parents
who purchase Fun Karts for their children.

         The  Company  relies on a broad and  diversified  national  independent
dealer network,  retail merchandisers and manufacturing  representatives to sell
its  products.  In 2000,  the Company  sold  approximately  60% of its  products
through  its  approximately  700  dealers,  primarily  lawn and  garden  stores,
motorcycle outlets,  hardware stores and specialty karts dealers,  located in 40
states.  Although there are no formal dealer  agreements,  the Company,  for the
benefit of certain of its higher volume dealers, will agree not to sell to other
retailers in a limited  geographic area surrounding the high volume dealer.  For
eligible dealers, the Company offers extended payment terms.

                                      -1-

<PAGE>

         In January 2000,  the Company  entered into a licensing  agreement with
Polaris Industries,  Inc., the world's largest maker of snowmobiles, to develop,
manufacture and sell a line of Polaris karts through the Polaris dealer network,
and to be the only licensed supplier of Fun Karts bearing the Polaris logo. This
relationship  resulted in sales of  approximately  900 units bearing the Polaris
logo in 2000.  This  agreement  is  expected  to add sales as future  models are
released and marketed through the Polaris Industries nationwide dealer network.

         The Company's  operating  strategy is: to increase its sales and market
share by producing  safe,  high-quality  and  reliable Fun Karts at  competitive
prices; to improve manufacturing efficiency;  and to continue diversification of
domestic  distribution  channels.  The Company's growth strategy is: to increase
its brand and product  recognition by innovative  marketing to its target users;
to broaden its product lines through  improved  product design and  development;
and to expand its geographic  presence and market share by continued emphasis on
expansion of its domestic dealer and retail merchandiser networks.

         Unless otherwise indicated herein, the financial,  business activities,
management  and other  pertinent  information  herein  relates on a consolidated
basis to the Company and its wholly owned subsidiaries, Brister's, USA, Straight
Line and KINT. The Brister's and USA  acquisitions in 1996 and the Straight Line
acquisition in 1998 were  accounted for using the purchase  method of accounting
for business combinations. The Company has allocated the total purchase price to
assets  acquired based on their relative fair value.  Any excess of the purchase
price over the fair value of the assets  acquired was  recorded as goodwill.  At
December 31, 1998, due to the Company's operating history, management recognized
an  impairment  to  the  future  recoverability  of  goodwill  and  charged  all
unamortized  goodwill  at that  date to  operations.  The  financial  and  other
information  regarding  the Company set forth herein  reflects,  for the periods
presented,  the  consolidated  results of operations of the Company,  Brister's,
USA, Straight Line and KINT for the respective periods owned.

         The  address  of the  Company's  principal  executive  office  is 62204
Commercial Street,  P.O. Box 695,  Roseland,  Louisiana 70456, and its telephone
number is (504) 747-1111.  The Company maintains its  manufacturing  facility at
Highway 51 South, Roseland, Louisiana 70456.

Recent Developments

         During  2000,  the  Company  closed its USA  manufacturing  facility in
Prattville,  Alabama and consolidated the manufacturing  operations to Roseland,
Louisiana.  Currently the Company has the vacant USA  manufacturing  facility in
Prattville, Alabama for sale. The Company has entered into a nine-year agreement
with the Town of Roseland to lease a 40,000 square foot  facility  approximately
1/2 mile from the Company's executive offices. This facility was constructed for
the Town of Roseland with the assistance of an economic  development  grant from
the State of  Louisiana.  The new  facility  was  substantially  complete  as of
year-end 2000, and the Company plans to expand its  manufacturing  capability to
the new plant in the first half of 2001.  When the new  facility  becomes  fully
operational, the Company expects that its production capacity will double.

         In 2000,  the Company  entered into a  Manufacturing  and  Distribution
Agreement with International Supply Company (ISC) for the design and development
of a specific  motorized  recreational  vehicle product licensed by ISC from TME
Limited of Lower Hutt New Zealand.  The agreement provides for the Company to be
the exclusive  manufacturer  and distributor of the subject designed product and
any  derivative  lines.  It is anticipated  that sales of products  designed and
licensed  under  the  agreement  will  begin in 2001.  As of  March  15,  2001 a
prototype of new Kart design has been completed and  engineering  tests to prove
the design are underway.

                                      -2-

<PAGE>

Operating Strategy

         Produce  Safe,  High  Quality  and  Reliable  Fun Karts at  Competitive
Prices. The Company believes that it is one of the leaders in the development of
safety-related  features  for Fun  Karts,  which,  along  with  price,  is a key
consideration  for  the  Fun  Kart  purchaser,  the  parent  of  the  seven-  to
17-year-old male. The Company believes it was the first  manufacturer in the Fun
Karts industry to provide full safety cages and adjustable seats,  which are now
standard  features  on most Fun Karts.  The  Company is the  exclusive  Fun Kart
manufacturer  installing its patented  automatic throttle override system on Fun
Karts.   Producing   high  quality,   reliable   products   increases   customer
satisfaction,  and the Company  believes  this is one of the key elements of its
success in the highly  competitive  karts  industry.  The Company  believes  its
strategy of selling its Fun Karts through  independent dealers and selected mass
merchandisers  helps to ensure that the Company's  products are competitive with
those of other manufacturers in terms of safety, consumer acceptability, product
design, quality and price.

         Continue to Improve Manufacturing Efficiency.  Management believes that
greater  productivity  will reduce operating  costs. By  standardizing  the base
frame  and  components  on each of the major  lines of Fun  Karts,  the  Company
expects to reduce  volume  purchase  prices and  decrease  assembly  costs.  The
Company has begun a modernization effort of its manufacturing facilities that is
projected to improve the quality of the  Company's  products  and promote  price
competitiveness of its Fun Karts. The Company has also begun the purchase of new
equipment  and in order to maintain  strict cost  controls as a means to enhance
the production of high quality Fun Karts.

         Diversification  of  Domestic  Distribution  Channels.  The  historical
marketing  strategy  of the  Company  has  been to  build a  broad  and  diverse
independent  dealer base by offering  safe,  high quality and reliable Fun Karts
that are competitively  priced and timely delivered.  Going forward, the Company
plans to continue with the established  agreements  with several  Manufacturer's
Representative  Organizations (MROs) that were selected based on the territories
served  (continental  US and  Canada),  customer  base and  product  lines being
represented.  The  relationship  established with these  organizations  provided
approximately seventy-five additional salesmen promoting the Company's products,
and also provided access to a number of mass merchants and retail chain outlets.
The Company's future  marketing  efforts are designed to maintain and expand its
independent  dealer network  throughout the continental United States and Canada
through  direct  communications  with  dealers,  engaging  additional  MROs  and
attendance  at industry  trade shows such as the  International  Lawn and Garden
Show.  The Company also plans to assist dealers with their selling and marketing
efforts with Company-sponsored seminars,  advertising,  including product videos
and brochures,  leaflets,  posters,  signs and other  miscellaneous  promotional
items  for use by  dealers.  In  addition  to the  MROs,  the  Company  has also
developed  plans to further  enhance the existing  Company  Sales and  Marketing
team.  The Company sales force will sell and market the mid and high end product
lines.

Growth Strategy

         Increasing Product Recognition By Innovative Marketing to Target Users.
A 1998  survey  estimated  that  Fun Kart  industry's  sales  were  made to only
approximately  0.7% of the estimated 20 million 7- to  17-year-old  males in the
United States, the Company's target users. The Company believes that if it is to
further penetrate its target market,  the Company must advertise in media easily
accessible by this group and attractively and prominently  display its Fun Karts
in locations  and at events  frequented  by young males and their  parents.  The
Company  advertises  its  products  in  national  youth-oriented  magazines  and
periodicals,  on the Internet and to a lesser extent,  on billboards,  radio and
television.  The Company is  currently  in the process of  selecting a marketing
firm to  establish  a  nation-wide,  well-recognized,  brand  name.  The Company
maintains  a home page on the  Internet  (thunderkarts.com,  sportskart.com  and
usafunkarts.com)  and has  sponsored  local events such as a Babe Ruth  Baseball
Tournament, Arbor Day festival and parades, and regional festivals.


                                      -3-

<PAGE>

         Improve Product Design and Development. The Company believes that it is
a leader in the development of safety features for its Fun Karts,  due primarily
to its emphasis on continuous  research and development of safety related items.
The Company,  primarily through the efforts of Charles Brister,  the Chairman of
the Board,  has  developed a number of  technological  advances,  including  the
automatic throttle override and automatic clutch lubrication systems, which have
significantly  improved its products.  The Company in 1998  employed  additional
engineering personnel primarily to continue the development of innovative safety
and  technological  features  for the  Company's  Fun Karts and to  develop  new
products,  including the Company's new off-road 3-2 h.p. Fun Bike.  During 1999,
the Company began  developing  two new karts,  an off road mini-bike and several
new design  features that will be part of the new Polaris go-kart line scheduled
for introduction  during the first quarter of 2000. The Company will continue to
develop and  distribute  optional Fun Kart parts and  accessories to dealers for
sales to Fun Kart  purchasers.  The Company may also  develop a line of helmets,
jackets, boots and other related items for its dealers and mass merchandisers to
complement sales of Fun Karts.

         Expansion of  Geographic  Presence.  The Company  intends to expand its
geographic presence and increase its market share within and outside of its core
and contiguous markets by continued emphasis on the development and expansion of
its dealer  and mass  merchandiser  networks,  establishing  relationships  with
independent  sales  representatives  to serve regions of the United States which
are currently  under  penetrated  by the Company and employ a marketing  firm to
expose  new  markets  to  the  Fun  Kart  Industry.  During  1999,  the  Company
established  a  distributor  in western  Canada and  believes  that the Canadian
market offers significant sales growth opportunity for the Company's products.

Product Lines

         The Company produces a full line of Fun Karts,  currently consisting of
approximately  40  models,  which are  variations  on several  different  frames
available  in a  variety  of  colors,  which  are sold at  prices  ranging  from
approximately  $500 to  $4,000.  The models are  differentiated  by drive  train
(single wheel pull,  live axle or torque  converter),  engine size (5 h.p. to 13
h.p.),  seating (single or double),  tires (turf, ATV, kleat), tires (4" to 8"),
frame size and suspension (shock  absorbers).  The Company markets its Fun Karts
under the brand names of Thunder Karts, USA Fun Karts and Polaris.

         The Company  believes  its Fun Karts enjoy a premier  image in its core
markets  and that its Fun Karts  have a  reputation  for  quality,  performance,
style,  comfort,  ride and handling.  The Company's models offer a wide range of
standard and optional  features,  which enhance the  operation,  safety,  riding
comfort and performance of its Fun Karts.  Such features  include band brakes or
disc brakes, automatic throttle override system, rack and pinion steering, shock
absorbers,  electric  start,  5 to 13  horsepower  engines,  clutch lube system,
powder paint, high speed bearings, safety flag and full brush cages.

         The Company is currently exploring the possibility of entering into the
four wheel ATV market. With the distribution channels that the Company currently
enjoys and the  popularity  of such  vehicles,  it is believed this product line
will compliment the Company's current products.

         The Company  believes that it is a leader in the  development of safety
features for its Fun Karts, due primarily to its emphasis on continuous research
and  development of safety related items.  The Company has developed a number of
technological advances,  including the automatic throttle override and automatic
clutch lubrication systems, which have significantly improved its products.

         The Company's  automatic  throttle  override  system was named the 1995
Product  of the  Year  for the  recreational  kart  industry  by Kart  Marketing
International,  a trade  magazine  for the kart  industry.  This safety  feature
prohibits throttling and braking at the same time, regardless of the position of
the gas pedal. If the brake pedal is depressed slightly,  the engine will revert
to the idle position  immediately,  and will not let throttling engage until the
pedal is released. Significant benefits of this system are enhancement of safety
for  inexperienced  drivers;  stopping of  simultaneous  braking and throttling;
easier braking; and extended brake life.

                                      -4-

<PAGE>

         Charles  Brister,  the Company's  Chairman,  has designed a safety fuel
tank  and  filler  cap  which  is a new  product  to  prevent  a small  internal
combustion  engine from operating  unless the fuel cap is firmly in place on the
tank. This apparatus will minimize the opportunity for a flash fire to start and
injure the  operator of equipment  which uses a small engine with an  integrated
fuel tank such as a lawn mower, go kart or string trimmer.

         The  safety  fuel tank and  filler  cap has been  designed  in  several
different configurations to accommodate the variety of integrated fuel tanks now
being produced.  It has been developed both as a product to be incorporated into
the design and  manufacture  of new fuel  tanks and as a  retrofit  for  engines
already in use. Utilizing either a magnetic,  photoelectric or mechanical switch
that is interfaced between the fuel tank and filler cap, the device disables the
engine's  ignition  system  when the filler  cap is moved from its fully  closed
position.  Disabling the ignition system on a small internal  combustion  engine
immediately  stops a running engine and then prevents it from  restarting  until
the fuel cap is replaced and the integrated switch sensors close the circuit.

         The Company has entered into an agreement with Mr. Brister securing the
rights to license this product for royalties. It is anticipated that the Company
will issue sub-licenses to fuel tank, fuel cap or small engine  manufacturers to
facilitate application of this technology to non go-kart related industries.

Manufacturing Operations

         The Company operates its manufacturing facility in Roseland, Louisiana.
Fun Kart  production  levels at the Company's plant vary depending on the season
and upon short-term product demand.  Historically,  between January and May, the
Company has utilized a ten-hour  workday four days a week at its plant. In June,
the workweek expands to five days and peaks in November at six days.  Management
believes  that  with the  addition  of the new  Roseland  plant  to its  current
facilities,  the Company will be able to meet the projected  increased  customer
demand for the  Company's  products for the  foreseeable  future while  limiting
extended  working  hours.  Additional  labor  at  reasonable  costs  is  readily
available in the vicinity of the Company's manufacturing facility.

         The Fun Karts  manufacturing  process is  primarily  one of welding and
assembly at various  workstations.  The Company  buys  directly  from mills both
pre-cut and uncut tubular steel used in the  manufacturing of the frames.  Since
the price  differential  between  pre-cut and uncut  tubular steel is relatively
small, it is more cost-effective, particularly for pieces that do not change, to
purchase   pre-cut  tubular  steel.  The  steel  is  cut  and  bent  during  the
manufacturing  process to the frame specifications for the Company's various Fun
Kart models.  Most of the other Fun Karts component  parts,  including  engines,
wheels,  tires,  seats,  steering  wheels,  steering tie rods and  miscellaneous
parts,  are purchased  from various  domestic  vendors.  The Company  depends on
Tecumseh and Honda for its engines,  and the loss of these vendors may cause the
Company to experience a temporary  delay in the  production of the Company's Fun
Karts.  The  Company  believes  other  engine  vendors  and  suppliers  of other
component parts necessary for the production of Fun Karts are readily available.

         Due to the  seasonality  of the  Fun  Kart  industry,  the  Company  is
pursuing the opportunities  that exist in the "Job Shopping" arena.  Preliminary
"Job Shop" projections are encouraging.  The existing  equipment can be utilized
year round as other "like" jobs are brought into the manufacturing facility. The
Company  believes this is a very good  strategic move that will allow for a more
steady  revenue  stream,  reduce  layoffs,  and  promote  stability  within  the
community.

Quality Control, Warranties and Service

         The  Company  adheres  to strict  quality  standards  and  continuously
refines its production  procedures to increase  productivity and reduce warranty
claims.  Each Fun Kart is inspected  during assembly for compliance with certain
quality control  standards.  The Company provides the purchaser of its Fun Karts
with a 90-day limited warranty against certain  manufacturing defects in the Fun
Kart's  construction.  There are also direct warranties that are provided by the
manufacturer of the engine and certain  component parts. The Company's Fun Karts
are typically serviced by the dealers. The Company has not historically incurred
any  significant  warranty  claims  and has  never  had a  recall  of any of its
products.

                                      -5-

<PAGE>

Patents and Proprietary Technology

         The Company  does not own any  patents,  trademarks  or service  marks.
However,  Charles  Brister,  Chairman of the Company,  owns certain  patents and
trademarks which are licensed to the Company and which allows the Company to use
certain brand names and utilize the automatic  throttle override system ("ATOS")
on its Fun Karts.

         The Company in 2000  entered into two license  agreements  with Charles
Brister,  the  Chairman of the Board and former  President  and Chief  Executive
Officer of the  Company.  The  license  agreements  cover an  accelerator  pedal
override  and clutch lube system for Fun Karts and a safety fuel tank and filler
cap apparatus for  gasoline-operated  engines.  See "Certain  Relationships  and
Related Transactions."

Sales and Marketing

         Sales.  The  Company  relies  on  a  broad  and  diversified   national
independent   dealer   network,    retail    merchandisers   and   manufacturing
representatives  to sell its products.  In 2000, the Company sold  approximately
60% of its products through its  approximately  700 dealers,  primarily lawn and
garden stores,  motorcycle outlets, hardware stores and specialty karts dealers,
located  in 40  states.  Although  there are no formal  dealer  agreements,  the
Company, for the benefit of certain of its higher volume dealers, will agree not
to sell to other  retailers in a limited  geographic  area  surrounding the high
volume dealer. For eligible dealers, the Company offers extended payment terms.

         The Company  believes that its  independent  dealer network enables the
Company to achieve  broader  distribution  of its  products  than if the Company
operated its own retail outlets. Selling through independent dealers also allows
the Company to avoid the  substantial  investment  in  management  and  overhead
associated with the operation of company-owned  retail stores. In addition,  the
Company's strategy of selling its products through  independent dealers helps to
ensure  that  the  Company's  Fun  Karts  are  competitive  with  those of other
manufacturers in terms of consumer  acceptability,  product design,  quality and
price.  Accordingly,  a  component  of the  Company's  business  strategy  is to
continually strengthen its dealer relations.  The Company believes its relations
with its independent dealers are good.

         While  there are no formal  dealer  agreements,  the  Company,  for the
benefit of its  dealers,  will  agree not to sell to other  dealers in a limited
geographic area  surrounding the location of a high volume dealer.  Credit terms
are typically 2% net 10 days,  net 30 days.  For dealers who meet certain credit
requirements,  the Company  offers a dealer floor plan  financing  program.  The
Company,  at  its  option,  will  allow  approved  dealers  up to  120  days  of
interest-free financing under the floor plan agreement

         In 2000,  the Company  entered into a licensing  agreement with Polaris
Industries,  Inc.,  the  world's  largest  maker  of  snowmobiles,  to  develop,
manufacture and sell a line of Polaris karts through the Polaris dealer network,
and to be the only licensed supplier of Fun Karts bearing the Polaris logo. This
relationship  resulted in sales of  approximately  900 units bearing the Polaris
logo in 2000.  This  agreement  is  expected  to add sales as future  models are
released and marketed through the Polaris Industries nationwide dealer network.

         In January  1998,  the  Company  formed a Louisiana  limited  liability
corporation,  KINT, L.L.C., as a wholly owned subsidiary.  The Company used this
entity to sell and market the Polaris kart line in 2000.

                                      -6-

<PAGE>

         The Company has two main modes of delivery to its dealers.  The Company
delivers  directly  to  Louisiana,   Alabama  and  Mississippi  dealers,   using
Company-owned  trucks  with  trailers  that can  carry up to 27 Fun  Karts.  All
Louisiana,  Alabama and Mississippi delivery routes are designed to be completed
during a single day. Other dealers and merchandisers  receive their Fun Karts by
common  carrier.  The Company strives to achieve a turnaround from order date to
shipment of one to two days in the  off-season,  and three to seven days in peak
season.  Fun  Karts  are  delivered   completely   assembled,   except  for  the
installation of the accompanying safety cages.

         Marketing. The historical marketing strategy of the Company has been to
build a broad and diverse  independent  dealer base,  primarily in the Southeast
and  Southwest  regions of the United  States,  the Company's  core markets,  by
offering safe, high-quality and reliable Fun Karts that are competitively priced
and timely  delivered.  The Company's future  marketing  efforts are designed to
maintain and expand its independent dealer network in the South and West regions
of the United States and in foreign markets through direct  communications  with
dealers  and  assisting  them with their  selling  and  marketing  efforts  with
Company-sponsored  seminars,  discounts  or  rebate  products  and  advertising,
including  product  videos and  brochures,  leaflets,  posters,  signs and other
miscellaneous promotion and items for use by dealers. The Company will also seek
to increase sales to retail  merchandisers with direct  communication,  engaging
additional   independent  sales   representatives   and  attendance  by  Company
representatives  at Fun Kart and  industry  related  trade  shows.  The  Company
believes that attendance at trade shows will allow it to promote its products to
a  diversified  group of dealers  and  merchandisers  currently  targeted by the
Company.

         The  Company's  advertising  and  promotional  materials  emphasize the
safety-related  features  built into the  Company's  Fun Karts.  The Company has
adopted this advertising strategy in order to promote the concept that it is fun
and safe for  children  to own and operate  Fun Karts.  The  Company  intends to
increase  potential  customers'  awareness  of its  products by  advertising  in
youth-oriented  magazines;  motorcycle,  lawn and garden,  hardware  and outdoor
power equipment trade magazines; displaying and promoting the Company's products
at NASCAR races and related events; and traditional  print,  billboard and, to a
lesser extent, television and radio media. The Company believes that if it is to
further penetrate its target market,  the Company must advertise in media easily
accessible by this group and attractively and prominently  display its Fun Karts
in locations  and at events  frequented  by young males and their  parents.  The
Company plans to employ the help of a marketing firm to expedite the penetration
of nation wide markets.

Seasonality

         Most Fun Karts are sold during the last  quarter of the  calendar  year
and are typically  purchased as Christmas  gifts by parents for their  children.
Sales of Fun Karts are  generally  the lowest  during the first  quarter of each
year. Since the Company  typically does not obtain long-term  purchase orders or
commitments  from its customers,  it must anticipate the future volume of orders
based  upon  the   historic   purchasing   patterns  of  its  dealers  and  mass
merchandisers and upon its discussions with its dealers and  representatives  of
mass merchandisers as to their future requirements. Cancellations, reductions or
delays by a major customer could have a material adverse impact on the Company's
business,  financial  condition and results of operations.  Traditionally,  many
dealers have sold Fun Karts only during the Christmas holiday season. Management
believes  that  with  the  continued  expansion  of it  business  with  the mass
merchandisers and the adding of the Polaris dealer network,  it will continue to
experience some mitigation of the historically  seasonal nature of the Company's
Fun Karts sales.  The Company  also  believes  the  seasonality  of the Fun Kart
industry  can be  offset  with a "Job  Shop"  effort.  These  other  jobs  would
potentially provide a steady stream of revenue, reduce the need for layoffs, and
improve the stability of the community.

Customers

         In  2000,  approximately  40%  of  the  Company's  sales  were  to  its
independent dealers and the Company projects that it will sell approximately 60%
of its Fun Karts to independent dealers, including the Polaris dealers, in 2001.
Brad Ragan  Tire,  a Goodyear  Tire  store,  accounted  for more than 10% of the
Company's 2000 sales.  This customer  purchased  approximately  15% of the units
sold which resulted in approximately  12% of the Company's 2000 net revenue.  In
January 2001, this customer  informed Karts  International  that it had made the
decision  to exit the Fun Kart  market.  Management  believes  that  replacement
customers  will be found in 2001 to replace  the lost  revenue  stream from this
customer,  and that the loss of this  customer  will not  materially  effect the
Company's  revenues  in  2001.  The  Company  does  not  believe  that  any  one
merchandiser,  dealer,  or group of  affiliated  dealers will account for 10% or
more of the Company's 2001 revenues.

                                      -7-

<PAGE>

Backlog

         The Company typically fills and ships customer orders within 10 days of
receipt of the order and, therefore, maintains no significant backlog.

Governmental Regulations

         Consumer  protection  laws  exist in many  states in which the  Company
markets  its  products.  Violation  of such  laws or  regulations  could  have a
materially  adverse  effect on the Company.  The Company  believes that it is in
compliance in all material  respects with all currently  applicable  federal and
state laws and regulations.  Federal, state and local environmental  regulations
are  not  expected  to  have a  material  effect  on the  Company's  operations.
Management  believes  certain  states,   including  California,   have  proposed
legislation  involving  emission  or  other  safety  standards  for the  type of
gas-powered  type engines  installed on the Company's Fun Karts.  The Company is
currently  unable to predict  whether  such  legislation  will be enacted in the
future and, if so, the ultimate impact on the Company and its operations.

Employees

         As of March 15, 2001, the Company  employed  approximately 50 employees
on a full-time  basis.  Lower than expected  sales in the fourth quarter of 2000
resulted in substantial reductions in hourly employment.

         Labor costs for the Company at its manufacturing facility is comparable
to labor  costs in its  respective  markets.  The  Company's  employees  are not
represented  by a union or subject to a  collective  bargaining  agreement.  The
Company  has never  experienced  a strike or work  stoppage  and  considers  its
relations with its employees to be excellent.

Competition

         The Fun Karts industry is highly competitive,  with new market entrants
every year,  and there is no assurance  that the Company will be able to compete
profitably  in this  industry in the future.  The Company  expects  that it will
continue to face intense  competition  as its business  strategies  are pursued.
Such  competition  may result in reduced sales,  reduced  margins,  or both. The
Company is and will be competing with larger,  better-capitalized companies that
may be better  positioned  to  respond  to shifts in  consumer  demand and other
market related changes.  If other companies  introduce new and modified products
before the  Company  achieves  significant  market  expansion,  the  Company may
experience  growth below projected  levels,  which could have a material adverse
effect on the Company's operating results. However, the Company believes that it
will be able to compete  effectively  with its competitors by  diversifying  its
product  line and  expanding  its market  share  through  implementation  of its
business strategies.

Business Risk Factors

         Uncertainty  of Ability of the Company to Continue as a Going  Concern.
The Company's financial  statements  (contained  elsewhere herein) were prepared
assuming  that the Company  will  continue  as a going  concern.  The  Company's
independent auditor, in its report regarding the Company's financial statements,
expressed  the  fact  that  the  Company  has  suffered  recurring  losses  from
operations and experienced seasonality of product demand which is focused in the
last four months of the calendar  year which  impacts cash flow during the first
eight months of the year.  These  factors raise  substantial  concerns as to the
Company's ability to continue as a going concern.  See "Management's  Discussion
and  Analysis or Plan of  Operation"  and Note B to the  Consolidated  Financial
Statements.

                                      -8-

<PAGE>

         Operating  Losses;  Recent Senior  Management  Turnover.  For the years
ended December 31, 2000, 1999 and 1998, the Company  experienced net losses from
operations of approximately $5,510,000, $2,108,000 and $3,985,000, respectively,
and has  utilized  cash in operating  activities  of  approximately  $6,524,000,
$3,484,000  and  $3,213,000,   respectively.   Additionally,   the  Company  has
experienced  senior  management  turnover  and change in  control  in 2000.  The
Company's  continued  existence  is  dependent  upon  its  ability  to  generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient  resources to retire existing  liabilities on a timely basis,
and to employ and retain experienced management personnel.

         No  Assurance  of Funding  for  Additional  Capital  Requirements.  The
Company may require  additional  financing to satisfy  working  capital and cash
flow  requirements for its business  operations.  There can be no assurance that
additional  financing  will be available,  or if available,  that such financing
will be on favorable terms. Any such failure to secure  additional  financing or
otherwise  maintain adequate liquidity could have a material adverse effect upon
the financial condition and results of operations of the Company.

         Substantial  Indebtedness;  Debt Service Capability.  The Company has a
substantial  amount of long-term and short-term debt under its credit facilities
and accounts  payable.  The credit  facilities  are secured  with the  Company's
accounts  receivable,  inventory  and  equipment  and are  subject  to  standard
affirmative  and negative  covenants,  including  maintaining  certain levels of
working capital and minimum  tangible net worth.  There can be no assurance that
the  operations  of the Company will generate  sufficient  cash flows to service
such debt. The Company's  leverage poses substantial risk in that it could limit
the Company's ability to respond to industry changes or economic  downturns,  as
well as its ability to satisfy its funding needs for operations or to raise debt
or equity capital.

         Dependence on Key  Personnel.  The  Company's  success will depend to a
large degree on its ability to retain the  services of its  existing  management
and to attract qualified  personnel in the future. On January 19, 1999,  Charles
Brister  resumed  the office of  President  and Chief  Executive  Officer of the
Company.  On February 5, 2001,  Mr.  Brister  resigned  as  President  and Chief
Executive Officer and was elected Chairman of the Board. Mr. Brister will remain
active in the day-to-day  operations of the Company. The loss of the services of
Mr.  Brister or any key  management  personnel  or the  inability to recruit and
retain qualified personnel in the future could have a material adverse effect on
the Company's business and results of operations.

         Dependence  on  Product   Development  and   Modification   and  Market
Acceptance.  The Company's continued growth is dependent upon increased consumer
awareness  and  acceptance  of the  Company's  existing  and  new  products.  No
assurances  can be given that the Company will be able to  successfully  develop
new products, modify existing products or that any new or modified products will
meet with consumer  acceptance in the marketplace or that the Company's  current
products will receive continued or increased consumer  acceptance.  No assurance
can be given that the  Company's  existing  products will continue to be sold at
acceptable  margin  levels  or  that  the  Company  will  be  able  to  develop,
manufacture and distribute new products at acceptable margin levels.

                                      -9-

<PAGE>

         Dependence on License  Agreement  with Executive  Officer.  Mr. Charles
Brister,  Chairman  and a principal  stockholder  of the  Company,  owns certain
patents,  technology  and  trademarks  which are licensed to the Company,  which
allows the Company to use certain brand names and utilize the automatic throttle
override  system and safety fuel tank and filler cap apparatus on its Fun Karts.
The termination of the license  agreement with Mr. Brister could have an adverse
effect upon the  Company's  ability to produce  its  current  line of Fun Karts.
Furthermore,  there can be no assurance  that if the license  agreement were not
renewed  that the Company  could find  suitable  substitutions  for the licensed
items and technology or that its Fun Karts,  produced without the licensed items
and  technology,  would receive the same market  acceptance.  Also,  there is no
assurance that the  technology  currently  licensed to the Company,  or that the
Company might license in the future, will not quickly become obsolete due to the
development  of other,  more advanced  technology by competitors of the Company.
See "Certain Relationships and Related Transactions."

         Dependence upon Company's  Ability to Manage Growth and Expansion.  The
Company's  ability to manage its growth,  if any, will require it to continue to
improve  and  expand its  management,  operational  and  financial  systems  and
controls.  Any  measurable  growth  in the  Company's  business  will  result in
additional demands on its management, administrative, operational, financial and
technical resources.  There can be no assurance that the Company will be able to
successfully  address these additional  demands.  There also can be no assurance
that the Company's  operating and financial  control systems will be adequate to
support its future  operations  and  anticipated  growth.  Failure to manage the
Company's  growth  properly  could have a  materially  adverse  effect  upon the
Company's business, financial condition and results of operations.

         Seasonality  and  Fluctuations  in  Quarterly  Operating  Results.  The
Company has  historically  experienced  stronger  demand for its products in the
third and fourth quarters of each calendar year. Operating results may fluctuate
due to factors such as the timing of the  introduction  of new  products,  price
reductions  by the  Company  and  its  competitors,  demand  for  the  Company's
products,  new product  mix,  delay,  cancellation  or  rescheduling  of orders,
performance of third party manufacturers,  available inventory levels,  seasonal
cost increases and general  economic  conditions.  A significant  portion of the
Company's  operating  expenses are relatively fixed. Since the Company typically
does not obtain long-term purchase orders or commitments from its customers,  it
must  anticipate the future volume of orders based upon the historic  purchasing
patterns of its dealers and mass merchandisers and upon its discussions with its
dealers  and  representatives  of  retail   merchandisers  as  to  their  future
requirements.  Cancellations, reductions or delays in orders by a large customer
or group of customers  could have a materially  adverse  impact on the Company's
business, financial condition and results of operations.

         Potential  Product  Liability and Insurance  Limits.  The nature of the
products  manufactured and marketed by the Company is such that the products may
fail due to material  inadequacies  or  equipment  failures.  Such a failure may
subject  the  Company to the risk of  product  liability  claims and  litigation
arising from injuries allegedly caused by the improper  functioning or design of
its  products.  As the Company  expands its product lines and  distributes  more
products  into  the  marketplace,  the  Company's  exposure  to  such  potential
liability  will also  increase.  The  Company  currently  maintains  $6  million
occurrence basis product  liability  insurance with a $50,000  deductible and $5
million  maximum per occurrence  coverage.  The Company has four pending product
liability  claims,  none of which are  expected  to exceed the  existing  policy
limits.  The  Company  has  never  had a claim  that  resulted  in an  award  or
settlement in excess of insurance  coverage.  The Company believes that if it is
successful  in the sale and  distribution  of a large  number and variety of Fun
Karts  and  related  products,  product  liability  claims  will be  inevitable,
particularly given the current litigious nature of American consumers.  There is
no assurance  that such  insurance  coverage will be sufficient to fully protect
the business and assets of the Company from all claims,  nor can any  assurances
be given that the Company  will be able to  maintain  the  existing  coverage or
obtain  additional  coverage at  commercially  reasonable  rates.  To the extent
product  liability  losses  are  beyond  the  limits  or scope of the  Company's
insurance  coverage,  the Company could  experience a materially  adverse effect
upon its business, operations, profitability and assets.

         Delisting of Securities  from Nasdaq SmallCap  Market.  On September 8,
1999,  Nasdaq  advised the Company  that its shares of Common Stock and Warrants
were  delisted  from  Nasdaq   SmallCap  Market  for  failing  to  maintain  the
maintenance  standards required for continued listing of the securities.  As the
Company's Common Stock and Warrants were dropped off the SmallCap  Market,  they
began trading on the NASD Electronic Bulletin Board  (Over-the-Counter  Bulletin
Board - OTCBB).


                                      -10-

<PAGE>
<TABLE>
<CAPTION>

         After  the  delisting,  the  sale of the  Company's  Common  Stock  and
Warrants became subject to certain regulations adopted by the Commission,  which
imposes   sales   practice   requirements   on   broker-dealers.   For  example,
broker-dealers selling such securities must, prior to effecting the transaction,
provide their customers with a document,  which discloses the risks of investing
in  the  Company's  Common  Stock  and  Warrants.  Furthermore,  if  the  person
purchasing  the  securities is someone  other than an accredited  investor or an
established  customer of the broker-dealer,  the broker-dealer must also approve
the  potential  customer's  account  by  obtaining  information  concerning  the
customer's financial situation, investment experience and investment objectives.
The  broker-dealer  must also make a determination of whether the transaction is
suitable for the customer and whether the customer has sufficient  knowledge and
experience  in  financial  matters to be  reasonably  expected  to be capable of
evaluating  the risk of  transactions  in the security.  While the  Commission's
rules may limit the number of potential  purchasers of the  securities,  trading
activity of the Company's Common Stock has increased since the delisting.

ITEM 2.  PROPERTIES

Facilities

         The following  table sets forth  information  concerning  the Company's
facilities:

                      Date Leased or                              Expiration of    Approximate
         Location        Acquired         Description              Lease Term    Square Footage
-------------------   --------------  --------------------------  -------------  --------------
<S>                  <C>              <C>                         <C>            <C>
Roseland, Louisiana        1998       Corporate Offices (1)            2000           4,800
Roseland, Louisiana        1996       Manufacturing facility(1)        2000          48,000
Roseland, Louisiana        2000       Manufacturing facility (2)       2009          40,000
Prattville, Alabama        1996       Manufacturing facility            (3)          25,000

</TABLE>

--------------------
(1)  The Company and Charles Brister, Chairman of the Company, have entered into
     a Real Estate lease agreement,  which has expired, for the facility,  which
     includes the corporate  offices.  The monthly  rental  payment is currently
     $6,025 on a month-to-month basis. The Company and Mr. Brister are currently
     negotiating  the  terms  for a new lease  for the  Roseland  facility.  The
     Company  believes the terms of the new lease will be comparable to existing
     market  rates  in  the  region.  See  "Certain  Relationships  and  Related
     Transactions."
(2)  The Company has entered  into a prepaid  lease  agreement  with the Town of
     Roseland,  Louisiana for a new manufacturing facility located approximately
     1/2 mile from the Company's  executive offices.  The $200,000 prepaid lease
     term began October 1, 2000 and runs through September 30, 2009. The prepaid
     lease will be amortized  at a monthly rate of $1,852.  The Town of Roseland
     constructed the facility with an economic  development grant from the State
     of Louisiana.
(3)  The  Prattville  facility is situated on a two-acre  tract of land owned by
     the  Company.  This  property is subject to a mortgage  held by a financial
     institution with a principal balance of approximately  $184,000 at December
     31, 2000 with interest at the financial institution's commercial base rate.
     The Company is obligated to make monthly payments of principal and interest
     of $2,626 until 2010. In 2000,  the Company  relocated  the USA  Industries
     manufacturing  operations  from  Prattville to its Roseland  facility.  The
     Company  is  currently  seeking  a  buyer  or  lessee  for  its  Prattville
     facilities.

ITEM 3.  LEGAL PROCEEDINGS

         The nature of the products  manufactured and marketed by the Company is
such  that the  products  may fail due to  material  inadequacies  or  equipment
failures.  Such a  failure  may  subject  the  Company  to the  risk of  product
liability  claims and litigation  arising from injuries  allegedly caused by the
improper  functioning  or design of its  products.  As the  Company  expands its
product lines and distributes more products into the marketplace,  the Company's
exposure to such potential  liability will also increase.  The Company currently
maintains $6 million occurrence basis product liability insurance with a $50,000
deductible and $5 million maximum per occurrence coverage.  The Company has four
pending  product  liability  claims,  none of which are  expected  to exceed the
existing  policy  limits.  The Company has never had a claim that resulted in an
award or settlement in excess of insurance  coverage.  The Company believes that
if it is successful in the sale and  distribution  of a large number and variety
of Fun Karts and related products,  product liability claims will be inevitable,
particularly given the current litigious nature of American consumers.  There is
no assurance  that such  insurance  coverage will be sufficient to fully protect
the business and assets of the Company from all claims,  nor can any  assurances
be given that the Company  will be able to  maintain  the  existing  coverage or
obtain  additional  coverage at  commercially  reasonable  rates.  To the extent
product  liability  losses  are  beyond  the  limits  or scope of the  Company's
insurance coverage,  the Company could experience a material adverse effect upon
its business, operations, profitability and assets.

                                      -11-

<PAGE>

         In addition to product  liability  claims,  the  Company,  from time to
time, is involved in lawsuits in the ordinary course of business.  Such lawsuits
have not  resulted in any  material  losses to date,  and the  Company  does not
believe that the outcome of any existing  lawsuits would have a material adverse
effect on its business.

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

         The  Company had no matters  requiring  of vote of  securities  holders
during the first  quarter of 2001.  On December 12,  2000,  the Company held its
annual  shareholders  meeting (the "Meeting").  Only holders of record as of the
close of  business  on October  31,  2000 (the  "Record  Date") of shares of the
Company's  common stock, par value $0.001 per share ("Common  Stock"),  Series A
Preferred  Stock and Series B Preferred  Stock were  entitled to vote on matters
presented at the Meeting.

         Each share of Common Stock  outstanding  on the Record Date is entitled
to one vote on each  matter to come before the  Meeting.  Each share of Series A
Preferred  Stock is convertible at any time at the option of the holder into two
shares of Common Stock and each share of Series B Preferred Stock is convertible
at any time at the option of the holder into two hundred shares of Common Stock.
Each share of Series A  Preferred  Stock is  entitled  to vote on each matter on
which the Common  Stock may vote and is  entitled  to two (2) votes based on the
number of shares of Common  Stock  into which the  Series A  Preferred  Stock is
convertible.  Each share of Series B Preferred Stock is entitled to vote on each
matter on which the Common  Stock may vote and is entitled to 200 votes based on
the number of shares of Common Stock into which the Series B Preferred  Stock is
convertible.  The Common Stock,  Series A Preferred Stock and Series B Preferred
Stock voted as a single class on all matters, which came before the Meeting.

         On the Record Date there were  outstanding  7,498,392  shares of Common
Stock,  4,000,000  shares of Series A Preferred  Stock (which shares of Series A
Preferred  Stock are  convertible  into  8,000,000  shares of Common  Stock) and
73,333  shares of Series B Preferred  Stock (which  shares of Series B Preferred
Stock are convertible into 14,666,600 shares of Common Stock). In the aggregate,
these shares  constitute all of the  outstanding  shares entitled to vote at the
Meeting.  The  holders  of such  securities  had the  right  to cast a total  of
30,164,992 votes at the Meeting.

         The  following  matters were  submitted  to a vote of the  shareholders
through solicitation of proxies or otherwise:

Election of Directors

         On the matter of the  election of  directors,  the  following  nominees
received the  following  votes  (including  the votes cast by the holders of the
Company's Series A and Series B Preferred Stock) for election:

                         Nominee             For        Against         Abstain
           ---------------------------  ------------  ------------  ------------
           Charles Brister               24,663,777      54,655         42,957
           Blair L. benGerald (1)        24,663,777      54,655         42,957
           Geoffrey Craig benRichard     24,663,777      54,655         42,957
           Timotheus J. benHarold        24,663,777      54,655         42,957
           Other Nominees                    -0-          -0-             -0-

--------------------
(1)  On February 5, 2001, Mr. benGerald resigned as Chairman of the Board and as
     a director. Mr. Brister was elected Chairman to replace Mr. benGerald.  See
     "Item 9 - Directors,  Executive  Officers,  Promoters and Central  Persons;
     Compliance with Section 16(a) of the Exchange Act."

                                      -12-

<PAGE>

Approval of the Amendment to the Company's Articles of Incorporation to Increase
the Number of Authorized Shares of Common Stock

         On the matter of amending the Company's  Articles of  Incorporation  to
increase the number of authorized  shares of Common Stock from 35,000,000 shares
to 90,000,000 shares:

                                    VOTES
         -------------------------------------------------------------------
         FOR                       AGAINST                          ABSTAIN
         24,626,408                74,063                            60,918

Approval of the Company's 2000 Stock Compensation Plan

         On the matter of approving the Company's 2000 Stock Compensation Plan:

                                    VOTES
         -------------------------------------------------------------------
         FOR                       AGAINST                          ABSTAIN
         24,335,396                76,516                           349,477





                                      -13-

<PAGE>


PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         Until  September 8, 1999, the Company's  Common Stock and Warrants were
traded on the Nasdaq SmallCap Market system under the symbol "KINT" and "KINTW",
respectively.  On September  8, 1999,  the  Company's  Common Stock and Warrants
began trading on the NASD Electronic Bulletin Board  (Over-the-Counter  Bulletin
Board - OTCBB). The following table sets forth the range of high and low closing
bid prices for the Common Stock and the  Warrants  for the periods  indicated as
reported by the National Quotation Bureau, Incorporated.  These prices represent
inter-dealer  prices,  without  adjustment  for retail  mark-ups,  mark-downs or
commissions and do not necessarily represent actual transactions.

                                                                Warrants
                                 Common Stock Bid Price         Bid Price
                                 ----------------------  -----------------------
         Calendar Year 2000        Low            High     Low            High
         -------------------     ------------ ---------  -----------  ----------
         First Quarter            $0.44          $1.00    $0.03           $0.10
         Second Quarter           $0.44          $0.76    $0.03           $0.05
         Third Quarter            $0.31          $0.58    $0.04           $0.06
         Fourth Quarter           $0.13          $0.41    $0.03           $0.04

                                                                Warrants
                                 Common Stock Bid Price         Bid Price
                                 ----------------------  -----------------------
         Calendar Year 1999        Low            High     Low            High
         -------------------     ------------ ---------  -----------  ----------
         First Quarter            $0.44          $1.00    $0.03           $0.31
         Second Quarter           $0.31          $0.56    $0.03           $0.19
         Third Quarter            $0.31          $0.81    $0.03           $0.16
         Fourth Quarter           $0.21          $0.38    $0.00           $1.06

                                                                Warrants
                                 Common Stock Bid Price         Bid Price
                                 ----------------------  -----------------------
         Calendar Year 1998        Low            High     Low            High
         -------------------     ------------ ---------  -----------  ----------
         First Quarter            $2.75          $3.75    $0.56           $1.19
         Second Quarter           $1.94          $3.63    $0.50           $0.88
         Third Quarter            $1.38          $3.38    $0.25           $0.69
         Fourth Quarter           $0.28          $1.88    $0.06           $0.25

         On  February  28,  2001,  the closing bid and ask prices for the Common
Stock were $0.16 and $0.16, respectively,  per share and the closing bid and ask
prices for the  Warrants  were $0.02 and $0.02 per  Warrant.  As of December 31,
2000,  7,498,392  shares of Common Stock were issued and outstanding and 401,682
Warrants were outstanding.

         Holders. As of December 31, 2000, the Company estimates that there were
approximately  428 record and beneficial  holders of the Company's Common Stock,
including those whose share are held in broker  accounts,  and  approximately 17
record and beneficial holders of the Warrants.

         Dividends.  The  Company has not paid or declared  any  dividends  with
respect to its Common Stock nor does it anticipate  paying any cash dividends or
other  distributions on its Common Stock in the foreseeable  future.  Any future
dividends  will be declared at the  discretion  of the Board of Directors of the
Company and will depend, among other things, on the Company's earnings,  if any,
its financial requirements for future operations and growth and such other facts
as the  Company  may then deem  appropriate.  The  Company  may issue  shares of
preferred stock in the future,  which may contain restrictions on the payment of
dividends.

                                      -14-

<PAGE>

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

Caution Regarding Forward-Looking Information

         This annual report  contains  certain  forward-looking  statements  and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to  the  Company  or  management.   When  used  in  this  document,   the  words
"anticipate,"   "believe,"   "estimate,"   "expect"  and  "intend"  and  similar
expressions,  as they relate to the Company or its  management,  are intended to
identify forward-looking statements. Such statements reflect the current view of
the  Company   regarding  future  events  and  are  subject  to  certain  risks,
uncertainties  and  assumptions,  including the risks and  uncertainties  noted.
Should  one or more of  these  risks or  uncertainties  materialize,  or  should
underlying assumptions prove incorrect,  actual results may vary materially from
those  described  herein  as  anticipated,   believed,  estimated,  expected  or
intended. In each instance,  forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.

Recent Developments

         During 1999, Charles Brister provided temporary loans to the Company to
provide interim working capital. These loans were documented by promissory notes
bearing interest at rates between 8% and 12% and payable at various dates. Notes
totaling  approximately  $395,000  were  converted  into  395,000  shares of the
Company's 9% Convertible  Preferred Stock in June 1999. As of December 31, 2000,
notes to Mr. Brister totaling approximately $150,000 were still outstanding.  In
the 1st quarter of 2001, Mr. Brister provided another  temporary working capital
loan to the Company for  $50,000.  At March 15,  2001,  promissory  notes to Mr.
Brister totaling approximately $200,000 were outstanding.  Additionally,  during
the 1st  quarter  of 2001,  The  Morgan  Creek  Company,  focused  on  community
development and goodwill,  provided  temporary funds to the Company of $687,000.
Morgan  Creek is a private  eleemosynary  corporation  serving as a trustee in a
number of faith based  endeavors  throughout  the world.  The Morgan Creek notes
payable do not bear interest.

         On June 3, 1999,  the Company  consummated  a $1.5 million  convertible
loan  transaction  with  The  Schlinger   Foundation  (the  "Foundation").   The
Foundation  also purchased  500,000  shares of 9% Preferred  Stock at a price of
$1.00 per share in the Company's private offering  consummated on June 30, 1999.
For  his  assistance  to the  Company  in  arranging  this  financing  with  the
Foundation and others,  the Company paid Blair L.  benGerald,  a director of the
Company from June 2000 to February 5, 2001, $205,000. Blair L. benGerald was not
an officer or director of the Company when he received this payment.

         On May 17, 2000, the Company and The Foundation entered into an Amended
and  Restated  Loan  Agreement,  which  provided  for  the  additional  loan  of
$1,000,000 to the Company at an interest rate equal to 3% plus the prime rate as
quoted in The Wall  Street  Journal.  Interest  is payable  on the $2.5  million
Amended and Restated Term Note ("Term Note") monthly as it accrues commencing on
June 30, 2000 and continuing on the last day of each successive month thereafter
during  the term of the Term Note  with the  principal  of the Term  Note  being
payable in one  installment of unpaid  principal and accrued unpaid  interest on
May 17, 2005.  The Term Note is secured with guaranty  agreements by each of the
Company's  wholly-owned  subsidiaries,  Straight Line  Manufacturing,  Inc., USA
Industries,  Inc., KINT, L.L.C. and Brister's Thunder Karts, Inc.  Additionally,
the Company and each of its subsidiaries have pledged substantially all of their
assets as additional collateral for the Term Note.

         Additionally, on May 17, 2000, the Company sold 4,000,000 shares of its
Series A Preferred  Stock to the  Foundation  for  $3,000,000  cash or $0.75 per
share.  The  holders of the Series A  Preferred  Stock have the right to elect a
majority of the members of the Company's  Board of  Directors.  Pursuant to this
right,  Blair L.  benGerald,  Geoffrey C. benRichard and Timotheus J. benHarold,
were  nominated  by the  Foundation  and  Board of  Directors  for  election  as
directors  of the  Company  in June 2000.  At the  Company's  annual  meeting on
December  12,  2000,  the three  nominees  were  re-elected  as directors of the
Company.  On February 5, 2001,  Blair L.  benGerald  resigned as a director  and
Chairman of the Board of the Company.

                                      -15-

<PAGE>

         On October 9, 2000,  the  Company  sold  73,333  shares of its Series B
Preferred Stock to the Foundation for $5,500,000 or $75.00 per share. Each share
of Series B Preferred  Stock is convertible at the option of the holder into 200
shares  of  Common  Stock of the  Company.  Each  outstanding  share of Series B
Preferred Stock has the right to 200 votes at any meeting of the stockholders of
the Company.

         On November  28, 2000 the Company  sold  another  14,667  shares of its
Series B Preferred  Stock to the  Foundation for $1,100,000 or $75.00 per share.
Each  share of Series B  Preferred  Stock is  convertible  at the  option of the
holder into 200 shares of Common Stock of the Company. Each outstanding share of
Series B  Preferred  Stock  has the  right to 200  votes at any  meeting  of the
stockholders of the Company.

         The proceeds from the financing  received from the Foundation were used
to pay  long-term  and trade  debt,  working  capital  and to  purchase  capital
equipment and inventory.

         On December 27,  2000,  The  Schlinger  Foundation  transferred  to the
Office  of the  Presiding  Almoner  of  Living  Waters,  and His  Successors,  a
Corporation  Sole  organized as a Church under 26 USC Section  507C1A and Nevada
revised  statutes  chapter  84 the  following  shares  of Karts  International's
Preferred Stock: 4,000,000 shares of the Company's Series A Preferred Stock, and
88,000 shares of the Company's Series B Preferred Stock.  These preferred shares
represent a combined voting power of the 25,600,000  shares of Common Stock into
which  they are  convertible  (8,000,000  for the Series A  Preferred  Stock and
17,600,000 for the Series B Preferred Stock,). This represents voting control of
the Company.  The Office of the Presiding  Almoner of Living Waters controls the
Corporation  Sole's decisions  pursuant to Statute,  but is not controlled by an
individual, save being an office.

See "Security Ownership of Certain Beneficial Owners and Management."

         In August 1999,  the Company  moved the  manufacturing  of the Straight
Line product line to its  Prattville,  Alabama  facility and closed its Michigan
facility.  The closing of the  Michigan  facility was part of an overall plan to
increase  capacity  utilization  while reducing  overhead  expenses  through the
consolidation of its operations.

         In the first quarter of 2000, the Company  relocated the USA Industries
manufacturing  operations as well as the discontinued Straight Line product line
from its Prattville,  Alabama facility to its Roseland,  Louisiana manufacturing
facilities. The closing of the Prattville facility is part of an overall plan to
reduce  manufacturing  and  overhead  expenses  through   consolidation  of  its
operations.  The  Company  is  currently  seeking  a  buyer  or  lessee  for its
Prattville facility.

         The  financial   information  discussed  herein  is  derived  from  the
historical  consolidated  financial statements of the Company for the respective
years  ended  December  31, 2000 and 1999.  The  following  discussion  reflects
historical consolidated financial data for the periods as indicated below.

Results of Operations

         Year Ended  December  31, 2000 as compared to Year Ended  December  31,
1999. The Company reported  revenues of approximately  $8.9 million for the year
ended  December 31, 2000,  compared to $12.0 million for year ended December 31,
1999, a 26% decrease. These results reflect an approximate 29% decrease in sales
volume of the Company's  products.  The Company's 2000 sales continued to show a
high degree of  seasonality,  and efforts to mitigate the historical  pattern by
expanding  its  sales  to  merchandisers  whose  demand  is less  seasonal  were
ineffective.  The  Company  intends to  continue  identifying  opportunities  to
establish new customers whose demand for the Company's  products would be during
the first half of the year.

         Management  believes  that the sales  decrease  was  largely due to the
expansion  of Murray,  Inc.  and Yerf Dog,  Inc.  into the mass  retail Fun Kart
market.  This  expansion  resulted in a  corresponding  "flooding"  of many mass
merchandisers  with  budget  priced  go-karts,  which drew away many  first-time
customers  who  bought  competing  products  at mass  merchandisers.  Management
believes that many of these  competing  products are of inferior  quality to the
Company's  product,  and that these quality  concerns will cause a return to the
Company's  product.  Year 2000 sales were also  negatively  affected by the wide
availability of so called "mini 4-wheelers".  These new market entrants competed
for revenue dollars that historically have been spent on go-karts. Year 2000 saw
sales of over 60,000 mini  4-wheelers.  This product was relatively  unknown two
years ago. The Company is investigating  entry into the 4-wheel ATV market,  and
expects to field a Karts  International  mini  4-wheeler  product during the 2nd
quarter of 2001.

                                      -16-

<PAGE>

         The Company  incurred  cost of sales of $10.9 million and $11.3 million
in 2000  and  1999,  respectively.  This  resulted  in  gross  profit/(loss)  of
approximately  ($2.1)  million  for the year ended  December  31,  2000 and $0.7
million for the year ended  December 31,  1999.  Gross profit for the year ended
December  31, 2000 was  negatively  affected by  decreased  sales  volumes.  The
consolidation of the Company's  manufacturing  activities allowed the Company to
improve utilization of its labor force and manufacturing  capacity,  however the
decrease in direct labor charges was more than offset by decreased  sales volume
and increases in other direct costs. The Company increased its selling prices in
2000,  especially on those units that it identified as being underpriced  during
their introductory period during 1999.

         Selling, general and administrative expenses totaled approximately $3.4
million for the year ended  December  31, 2000  compared to  approximately  $2.8
million for the year ended December 31, 1999.

         Other income  (expense)  totaled  approximately  $(1.3 million) for the
year ended  December  31,  2000  compared to $(0.2  million)  for the year ended
December 31, 1999. The increase in expense is largely  attributable  to a charge
to  operations  of  approximately  $0.6 million to record the  expiration of the
option to acquire Daytona  SuperKarts,  and the write-off of the note receivable
from Daytona SuperKarts as uncollectible,  as well as increased interest expense
of  approximately  $0.3 million,  and the write-off of some obsolete  inventory.
Interest expense increased to approximately $703,000 for the year ended December
31, 2000 from approximately  $396,000 for the year ended December 31, 2000. This
was largely due to the $1,000,000 in new debt.

         Net  loss for the  year  ended  December  31,  2000  was  approximately
$6,823,000  compared to a net loss of approximately  $2,366,000 incurred for the
year ended  December 31, 1999.  Basic loss per share was $0.98 and $0.42 for the
years ended December 31, 2000 and 1999, respectively.

         Year Ended  December  31, 1999 as compared to Year Ended  December  31,
1998. The Company reported revenues of approximately  $12.0 million for the year
ended  December 31, 1999,  compared to $8.2 million for year ended  December 31,
1998, a 46% increase.  These results reflect significant improvement in both the
volume and average selling price of the Company's products.  The Company's sales
continue to show a high degree of  seasonality,  however efforts to mitigate the
historical pattern by expanding its sales to mass merchandisers  whose demand is
less seasonal have been effective.  The Company intends to continue  identifying
opportunities to establish new customers whose demand for the Company's products
would be during the first half of the year.

         The Company incurred cost of sales of $11.3 million and $8.8 million in
1999  and  1998,   respectively.   This  resulted  in  gross   profit/(loss)  of
approximately  $0.7  million  for the year  ended  December  31,  1999 and ($0.6
million) for the year ended  December 31, 1998.  Gross profit for the year ended
December  31, 1999 was  favorably  effected  by  increased  volume and  improved
selling  margins.  Both unit sales increases and  consolidation of the Company's
manufacturing activities allowed the Company to improve utilization of its labor
force and  manufacturing  capacity  thereby  reducing the per unit  burden.  The
Company increased its selling prices in 1999,  especially on those units that it
identified as being underpriced  during their  introductory  period during 1998.
Other direct costs were controlled and remained  approximately the same as costs
incurred during 1998 while unit volume increased by approximately 25%.

         Selling, general and administrative expenses totaled approximately $2.8
million for the year ended  December  31, 1999  compared to  approximately  $3.4
million for the year ended  December 31,  1998.  The Company was  successful  in
reducing these expenses by approximately  18% through the cost reduction efforts
which  began  during  the  second  quarter  of 1999.  The  Company  reduced  its
management  and support  staff and  implemented  new cost  controls to bring its
expenses  back into line with its current  volume.  The Company will continue to
monitor its staffing and allow future  increases only to the extent necessary to
support increased sales and manufacturing activity.

                                      -17-

<PAGE>

         Other income  (expense)  totaled  approximately  $(0.2 million) for the
year ended  December  31,  1999  compared to $(6.1  million)  for the year ended
December  31,  1998.  The  decrease  in expense is largely  attributable  to the
one-time  charge to  operations of  approximately  $5.8 million to recognize the
impairment of future  recoverability of goodwill recorded in 1998.  Additionally
in  1998,  the  Company  charged  to  operations   approximately   $289,000  for
reorganization  expenses.  Interest expense increased to approximately  $396,000
for the year ended  December  31, 1999 from  approximately  $92,000 for the year
ended  December  31,  1998.  This was due to a higher  level of borrowing on the
Company's working capital lines of credit and the $1,500,000 in new debt.

         Net  loss  for  the  year  ended  December  31,  1999  was  reduced  to
approximately  $2,366,000 from a net loss of approximately  $10,073,000 incurred
for the year ended  December 31, 1998.  Basic loss per share was $0.42 and $2.05
for the years ended December 31, 1999 and 1998, respectively.

         Additional  Operations  Information.  The  Company  currently  has four
product  liability  lawsuits  outstanding,  none of which are expected to exceed
existing product liability  insurance policy limits. The Company has never had a
claim that resulted in an award or  settlement in excess of insurance  coverage.
There is no assurance  that the Company's  insurance  coverage of $6,000,000 per
occurrence  and  $5,000,000  aggregate  will be  sufficient to fully protect the
business and assets of the Company from all claims,  nor can any  assurances  be
given that the Company will be able to maintain the existing  coverage or obtain
additional coverage at commercially  reasonable rates.  Management believes that
it has process controls on its product operations,  product labeling, operator's
manuals,  and design  features which will assist in a successful  defense of any
present or future  product  liability  claim.  To the extent  product  liability
losses are beyond the limits or scope of the Company's insurance  coverage,  the
Company  could   experience  a  material   adverse  effect  upon  its  business,
operations, profitability and assets. See "Item 3 - Legal Proceedings."

Seasonality

         The Company  experiences  significant  seasonality in its sales pattern
with  approximately  50% of its revenue being  recorded in the fourth quarter of
the year.  Sales of Fun Karts are  generally the lowest during the first quarter
of each calendar year.  Since the Company  typically  does not obtain  long-term
purchase orders or commitments from its customers, it must anticipate the future
volume of orders based upon the historic  purchasing patterns of its dealers and
retail  merchandisers and its current on-going  discussions with its dealers and
representatives  of  retail  merchandisers  as  to  their  future  requirements.
Cancellations,   reductions   or  delays  by  a  large  volume  dealer  or  mass
merchandiser could have a materially  adverse impact on the Company's  business,
financial condition and results of operations.

         Traditionally,  many of the Company's  dealers have sold Fun Karts only
during the Christmas holiday season.  Many retail  merchandisers are constrained
by  limited  floor  space,  which  tends  to force  the  dealers  into  seasonal
purchasing of karts.  The Company  intends to increase  marketing to alternative
merchandisers  whose sales could mitigate the highly  seasonal buying pattern of
its  traditional  dealer  base.  The Company also intends to offset the seasonal
aspects of its current business  operations  through utilizing its manufacturing
capacity  in   alternative,   less  seasonal,   operations   such  as  job  shop
manufacturing.

Liquidity and Capital Resources

         At December 31, 2000, the Company had working capital of  approximately
$2.9 million as compared to negative  working  capital of  approximately  $(0.2)
million at December 31, 1999. The increase in working  capital is largely due to
a large  increase in the inventory  balance at year-end  2000,  and the shift of
current  (short-term)  liabilities to long-term  debt.  The Company  experienced
negative cash flow from  operations of  approximately  $6,524,000 and $3,484,000
for calendar 2000 and 1999, respectively.

                                      -18-

<PAGE>

         During the year ended December 31, 2000,  the Company  expended cash of
approximately  $729,000 on capital improvements;  consisting of expansion of its
manufacturing facilities, leasehold improvements and capital.

         The 2000 cash  consumption  by operating and investing  activities  was
funded  from the net  proceeds  from the sale of  4,000,000  shares  of Series A
Preferred Stock, 88,000 shares of Series B Preferred Stock,  1,639,995 shares of
Common  Stock,  and from the  issuance of an  additional  $1,000,000  of secured
debentures.

         The  Company's  continued  existence is  dependent  upon its ability to
generate  sufficient cash flows from operations to support its daily  operations
as well as provide  sufficient  resources  to retire  existing  liabilities  and
obligations on a timely basis.  See "Item 1 - Business;  Business Risk Factors -
Uncertainty of Ability of the Company to Continue as a Going Concern."

         Management  believes that efforts to raise  additional  capital through
the sale of equity securities and/or new debt financing will provide  additional
cash flows. However,  there can be no assurance that the Company will be able to
obtain additional funding or, that such funding, if available,  will be obtained
on terms favorable to or affordable by the Company.

         Management   believes  that  through   strategic   alignment  with  key
suppliers,  introducing a new marketing paradigm and plan, and introduction of a
new product  line it will see  significant  sales  volume and revenue  increases
which  will  allow  it to fund  ongoing  operations  from  internal  cash  flow.
Additionally,  the Company has  entered a job shop  venture  whereby it will use
excess or idle capacity for custom  manufacturing  and painting jobs.  There has
been a strong initial  response to the job shop venture,  and job shop sales are
projected to increase.

         Management believes that its new business plans will increase sales and
enable the Company to become  profitable.  Fun Karts are  recreational  products
however so there can be no certainty of success in plans to increase sales,  and
Fun Kart sales could be negatively  affected by an overall  downturn in national
economic conditions.

         The  Company's  management  does not believe that  inflation  has had a
significant  effect on the Company's  operations  during the last several years.
The Company's  management believes that USA and Brister's have historically been
able to pass on increased  costs of  production  to the price  charged for their
products;  however,  no assurance can be given that the Company will continue to
be able to pass on such increased costs in the future.

         The   Company   may  need   additional   financing   to  achieve   full
implementation  of its long-term growth strategy and for working capital.  There
can  be  no  assurance  that  additional  financing  will  be  available,  or if
available, that such financing will be on favorable terms.

ITEM 7.  CONSOLIDATED FINANCIAL STATEMENTS

         See Index to Consolidated Financial Statements beginning on Page F-2

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

         There are not and have not been any  disagreements  between the Company
and its  accountants  on any matter of  accounting  principles  or  practices or
financial statement disclosure.

                                      -19-

<PAGE>

                                    PART III

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

Directors and Executive Officers

         The  following  table sets forth  certain  information  concerning  the
directors and executive officers of the Company at March 26, 2001:

             Name                Age                    Position
-------------------------------  ---  -----------------------------------------
Charles Brister(1)(2)(3)         49   Chairman of the Board and Director
Timotheus J. benHarold(1)(2)(4)  38   President, Chief Executive Officer and
                                      Director
Edward H. Cook                   35   Vice President and Chief Financial Officer
Geoffrey Craig benRichard(2)     47   Vice  President  of  Legal  Affaires,
                                      Secretary and Director
John Brian Willms                32   Chief Information Officer

--------------------
(1)  Members of the Company's Compensation Committee.
(2)  Members of the Company's Audit Committee.
(3)  On February 5, 2001, Mr. Brister  resigned as President and Chief Executive
     Officer of the  Company.  Mr.  Brister  was  elected on February 5, 2001 as
     Chairman of the Board and will remain active in the  day-to-day  operations
     of the Company. Mr. Brister replaced Blair L. benGerald who had resigned as
     Chairman of the Board and Director on February 5, 2001.
(4)  Mr.  benHarold  was elected as  President  and Chief  Executive  Officer on
     February  5,  2001 to  replace  Mr.  Charles  Brister.  Mr.  benHarold  had
     previously  served as Executive Vice President - Corporate  Development for
     the Company.

         The Company  may employ such  additional  management  personnel  as the
Board  of  Directors  of the  Company  deems  necessary.  The  Company  has  not
identified nor reached an agreement or understanding  with any other individuals
to serve in such management positions, but does not anticipate any difficulty in
employing qualified individuals.

         Directors of the Company are elected by the stockholders at each annual
meeting and serve until the next annual meeting of  stockholders  or until their
successors  are duly  elected  and  qualified.  Officers  are  elected to serve,
subject to the discretion of the Board of Directors,  until their successors are
appointed or their earlier resignation or removal from office.

         Information  regarding the  directors and  management of the Company is
set forth below.

         Charles Brister is Chairman of the Board and a director of the Company.
He has served as  Chairman of the Board  since  February  5, 2001.  He served as
President and Chief Executive Officer from January 1999 to February 5, 2001 when
he  resigned.  He has been a  director  of the  Company  since  March  1996.  He
previously  served as President and Chief Executive Officer of Brister's Thunder
Karts, Inc.  ("Brister's"),  a wholly-owned subsidiary of the Company, from 1986
to April 1996.  From 1996 until his  election as President  and Chief  Executive
Officer of the Company in January  1999,  Mr.  Brister  managed his portfolio of
personal  investments.  Mr. Brister will continue to be active in the day-to-day
operations  of the  Company.  Mr.  Brister  also  serves as a director  of First
Guaranty Bank, Hammond, Louisiana.

         Timotheus  James benHarold has served as a director since June 2000 and
has  served as  President  and Chief  Executive  Officer  of the  Company  since
February  5,  2001 when he was  elected  to such  position  to  replace  Charles
Brister.  Mr.  benHarold  was employed as Executive  Vice  President - Corporate
Development  of the  Company  from June 2000 to  February 5, 2001 when he became
President and Chief Executive Officer.  He brings extensive  experience from the
business and marketing  consulting  fields. He has been a business and marketing
consultant in Dallas,  Texas since 1989. Mr.  benHarold also is a public speaker
on biblical life  management.  Mr. benHarold will be responsible for the overall
management and administration of the operations of the Company.

                                      -20-

<PAGE>

         Edward H. Cook has  served  the  Company  as Vice  President  and Chief
Financial  Officer  since  September  2000.  Mr.  Cook was  employed  with Texas
Instruments  from June 1988 until December 1994. From 1995 to August 2000 he was
employed with GTE Corporation which changed its name to Verizon Corporation as a
result of a merger with Bell Atlantic.  His recent experience includes tenure as
a Financial  Consultant to Verizon Corporation in Irving,  Texas. He also brings
extensive  corporate  experience in management  and financial  analysis from his
service with GTE Corporation and Texas Instruments Incorporated.

         Geoffrey Craig benRichard has been a director of the Company since June
2000 and currently  serves as Vice  President of Legal Affaires and Secretary of
the Company.  For more than the past five years, he has lectured as a pastor and
retired  lawyer  in the  field of  comparative  government,  self-determination,
constitutional  law and  ecclesiastical  law,  specializing in corporations sole
training.  He is an Almoner and Pastor of Christian Almshouse in the Olde Culdee
Church, both corporations sole.

         John Brian Willms has served the Company as Chief  Information  Officer
since November 2000. From 1991 to 1997, Mr. Willms was employed with J.C. Penney
& Co.  and from 1997 to  February  1999 he was  employed  with  Electronic  Data
Systems.  From  March 1999 to  December  1999,  he was  employed  with  Software
Spectrum.  From January 2000 until his employment  with the Company,  Mr. Willms
was  employed  with Data  Return.  Mr.  Willms  brings to the Company a depth of
experience in information systems management. His recent tenure includes systems
management   experience  with  Data  Return  Corporation,   and  Consulting  and
Infrastructure Management with Software Spectrum and Electronic Data Systems.

         There are no family  relationships  among any of the Company's officers
and directors.

Section 16(a) Beneficial Ownership Report Compliance

         The  Company  is not  aware  of  any  transactions  in its  outstanding
securities by or on behalf of any director,  executive  officer or 10% holder of
the Common  Stock,  which  would  require  the filing of any report  pursuant to
Section 16(a) that was not filed by the Company.

ITEM 10. EXECUTIVE COMPENSATION

         The  following  Summary  Compensation  Table sets forth,  for the years
indicated,  all cash  compensation  paid,  distributed  or accrued for services,
including  salary  and bonus  amounts,  by the  Company  to its Chief  Executive
Officer.  No other  executive  officer of the Company  received  remuneration in
excess of $100,000 during the referenced periods.  Certain  compensation related
tables   required  to  be  reported   have  been  omitted  since  no  applicable
compensation was awarded to, earned by or paid to any of the Company's executive
officers in any fiscal year to be covered by such tables.


                                      -21-

<PAGE>
<TABLE>
<CAPTION>

                           Summary Compensation Table

                                                        Annual Compensation       Long-Term Compensation
                                                    --------------------------  --------------------------
                                                                                          Awards
                                                                                --------------------------
                                                                                               Securities
                                                                  Other Annual   Restricted    Underlying
                  Name/Title                  Year  Salary/Bonus  Compensation  Stock Awards  Options/SARs
--------------------------------------------  ----  ------------  ------------  ------------  ------------
<S>                                           <C>   <C>           <C>           <C>           <C>
Charles Brister(1)..........................  2000  $200,000          $ -0-         -0-         450,000(3)
                                              1999  $150,000(2)       $ -0-         -0-         450,000(3)
Robert M. Aubrey, former Chief
Executive Officer and President(4)..........  1998  $140,625       $22,825(5)       -0-         200,000
----------------------------------------------------------------------------------------------------------
</TABLE>

--------------------
(1)  In January 1999,  Mr.  Brister was elected  President  and Chief  Executive
     Officer of the  Company.  On  February  5, 2001,  Mr.  Brister  resigned as
     President  and Chief  Executive  Officer of the Company.  He was elected on
     February 5, 2001 as Chairman of the Board.  Timotheus  James  benHarold was
     elected by the Board as President  and Chief  Executive  Officer to replace
     Mr. Brister.
(2)  Mr. Brister  agreed to accept shares of the Company's  Common Stock in lieu
     of his annual cash  compensation  of $150,000 for his service  during 1999.
     The Board of  Directors  of the  Company  has  authorized  the  issuance of
     185,084  shares  of  Common  Stock  to Mr.  Brister  in  lieu  of his  cash
     compensation  for 1999.  Such  shares will be issued and  delivered  to Mr.
     Brister in 2001.
(3)  See "Executive  Compensation - Employment  Agreements and Related  Matters"
     and "- Stock Options"
(4)  Effective  January 13, 1999,  Robert M. Aubrey  resigned as Chief Executive
     Officer,  President  and as a director of the  Company.  See  "--Employment
     Agreements and Related Matters."
(5)  Principally housing and transportation allowance.

Employment Agreements and Related Matters

         On October 19,  1999,  the  Company's  Board of  Directors  ratified an
Employment  Agreement  dated  August  1,  1999 with  Charles  Brister  (the "Old
Employment  Agreement") to serve as the Company's  President and Chief Executive
Officer  for a  period  of three  years  beginning  February  1,  1999,  with an
automatic one-year extension unless either the Company or Mr. Brister provides a
thirty (30) day written notice not to continue the Old Employment Agreement. The
Old Employment  Agreement provided Mr. Brister with an annual salary of $150,000
per year,  payable in either Common Stock of the Company or cash.  Further,  Mr.
Brister was granted 450,000  options to purchase shares of the Company's  Common
Stock at the  closing  bid price of the  Company's  Common  Stock on the date of
ratification  by the Board and the  options  vest as follows:  100,000  upon the
ratification of the Old Employment  Agreement by the Board of Directors (October
19,  1999),  150,000  on the  second  anniversary  date  of the  Old  Employment
Agreement,  and  200,000  on the third  anniversary  date of the Old  Employment
Agreement.  Additionally,  Mr.  Brister was  eligible to receive an annual bonus
which shall be in the form of (a) options to purchase up to 50,000 shares of the
Company's Common Stock,  which shall vest immediately upon grant and expire five
years from the grant date, and (b) cash, not to exceed 15% of Mr. Brister's base
salary. See "Executive Compensation - Summary Compensation Table."

         On June 1, 2000,  the  Company  and  Charles  Brister  entered  into an
Employment  Agreement  and as amended on October 23, 2000 (the "June  Employment
Agreement"),  which  superceded  the Old  Employment  Agreement.  Under the June
Employment Agreement,  Mr. Brister will serve the Company as President and Chief
Executive  Officer  for a period of three years  beginning  June 1, 2000 with an
automatic one-year extension unless either the Company or Mr. Brister provides a
30-day written notice not to continue the June  Employment  Agreement.  The June
Employment  Agreement provides Mr. Brister with an annual salary of $200,000 per
year  payable  in cash in  accordance  with the  Company's  established  payroll
procedures,  which may be  increased at any time at the sole  discretion  of the
Board of Directors of the Company. Additionally, Mr. Brister was granted 350,000
options to  purchase  shares of the  Company's  Common  Stock at the closing bid
price of the Company's  Common Stock as of August 21, 2000. The options vest and
are  exercisable  as follows:  (a) options to purchase  100,000 shares vested on
August  21,  2000 at an  exercise  price of $0.375  per  share;  (b)  options to
purchase   100,000  shares  shall  vest  and  be  exercisable  upon  the  second
anniversary date of the June Employment  Agreement;  and (c) options to purchase
150,000 shares shall vest and be exercisable upon the third  anniversary date of
the June Employment  Agreement.  The options expire June 1, 2005.  Additionally,

                                      -22-

<PAGE>
<TABLE>
<CAPTION>

Mr.  Brister may be  eligible  to receive an annual  bonus which shall be in the
form of (a)  options to  purchase up to 50,000  shares of the  Company's  Common
Stock,  which options shall vest immediately upon issuance and shall expire five
(5) years from the date of grant,  and (b) cash in an amount  established  by an
annual performance-based  management bonus program which will be approved by the
Board of  Directors.  Subject  to  certain  exceptions,  if the June  Employment
Agreement is terminated by the Company or Mr. Brister as a result of a change in
control (as defined in the June  Employment  Agreement),  Mr.  Brister  shall be
entitled to a cash payment of $200,000 and the immediate  vesting of all options
granted but not yet vested at the effective  date of such change in control,  as
full and final  satisfaction  of all obligations due and owing to Mr. Brister by
the  Company  under  the terms of the June  Employment  Agreement.  Mr.  Brister
resigned as President  and Chief  Executive  Officer on February 5, 2001 and was
elected  to  serve  as  Chairman  of the  Board.  This  resignation  voluntarily
terminated  the  employment  agreement  and Mr.  Brister's  options to  purchase
250,000 shares of common stock which had not vested as of February 5, 2001.

         Effective  January  30,  1998,  the  Company  entered  into  three-year
Employment Agreement (the "Aubrey Agreement") with Robert M. Aubrey, whereby Mr.
Aubrey agreed to serve as President and Chief Executive  Officer of the Company.
The Aubrey Agreement  provided Mr. Aubrey with an annual base salary of $150,000
and options to purchase  200,000  shares of Common Stock at an exercise price of
$3.25 per share.

         Effective  January  13,  1999,  Robert  M.  Aubrey  resigned  as  Chief
Executive  Officer,  President and as a director of the Company.  On January 20,
1999,  the Company and Mr. Aubrey  entered into a Settlement  Agreement and Full
and Final Release of All Claims (the "Settlement  Agreement") for the purpose of
satisfying and  discharging  all  obligations of the Company to Mr. Aubrey under
the Aubrey Agreement.  The Settlement  Agreement provided that the Company shall
forgive up to $19,000 of  non-reimbursable  expenses  incurred by Mr. Aubrey and
pay to Mr.  Aubrey  one  week  of  earned  vacation.  In  consideration  for the
foregoing,  Mr. Aubrey must adhere to the non-competition  and  non-solicitation
covenants set forth in the Aubrey  Agreement  until January 13, 2001. As part of
his  separation  from the Company,  the Company  issued to Mr. Aubrey options to
purchase  15,000 shares of Common Stock at an option exercise price of $1.06 per
share,  which  options were  granted to replace the options to purchase  200,000
shares of Common Stock that were canceled at separation.  The options are vested
and expire on January 20, 2004.

         To provide for  continuity  of  management,  the Company may enter into
employment agreements with other members of its executive management staff.

Stock Options

         The following table reflects options granted to the Company's President
and Chief Executive Officer during 2000:

                        Option/Grants in Last Fiscal Year

                                   Number of     Percent of
                                  Securities  Total Options                            Potential realizable value
                                  Underlying    Granted to                             at assumed annual rates of
                                   Options     Employees in    Exercise    Expiration   stock price appreciation
        Name/Title                 Granted     Fiscal 2000   Price ($/sh)     Date           for option term
--------------------------------  ----------  -------------  ------------  ----------  --------------------------
<S>                               <C>         <C>            <C>           <C>         <C>
Charles Brister, President        450,000(1)       100          $0.375         See         5%             10%
and Chief Executive Officer.....                                            footnote   ------------ -------------
                                                                               (1)       $58,500       $144,000
</TABLE>

--------------------
(1)  The options  were  granted to Mr.  Brister  pursuant to the Old  Employment
     Agreement,  which was  superceded  on June 1,  2000 by the June  Employment
     Agreement. Of the options to purchase 450,000 shares of Common Stock, which
     were to expire periodically from October 19, 2004 through October 19, 2006,
     options to purchase 100,000 shares are vested,  with the remaining  350,000
     options  being  terminated  and replaced  with options to purchase  350,000
     shares of Common Stock pursuant to the June  Employment  Agreement.  Of the
     options to purchase 350,000 shares,  100,000 vested on August 21, 2000. The
     remaining options to purchase 100,000 shares which vest on June 1, 2002 and
     the  options to  purchase  150,000  shares  which vest on June 1, 2003 were
     terminated as a result of Mr. Brister's  resignation as President and Chief
     Executive  Officer on  February 5, 2001.  The  options to purchase  200,000
     which are  vested  expire  June 1,  2005.  See  "Executive  Compensation  -
     Employment Agreements and Related Matters."

                                      -23-

<PAGE>
<TABLE>
<CAPTION>

                     Aggregate Fiscal Year-End Option Values

                                              Number of Securities Underlying       Market Value of Unexercised
                                           Unexercised Options at Fiscal Year-End  Options at Fiscal Year-End(1)
                                           --------------------------------------  ---------------------------------
              Name/Title                       Exercisable        Unexercisable      Exercisable     Unexercisable
------------------------------------------ ------------------- ------------------  --------------- -----------------
<S>                                        <C>                 <C>                 <C>             <C>
Charles Brister, President and Chief            200,000            250,000(2)           -0-              -0-
  Executive Officer.......................
</TABLE>

--------------------
(1)  The exercise price per share of all options issued by the Company was $0.37
     on date of grant.  The closing bid price of the  Company's  Common Stock as
     quoted on the NASD Electronic  Bulletin Board at year end was less than the
     $0.37 per share exercise price.
(2)  On February 5, 2001, as a result of Mr. Brister's  resignation as President
     and Chief Executive Officer, these options terminated.

1998 and 2000 Stock Compensation Plan

         On May 27,  1998,  the  stockholders  of the Company  approved the 1998
Stock  Compensation Plan of Karts  International  Incorporated (the "1998 Plan")
and reserved  1,000,000  shares of Common Stock for issuance under the plan. The
1998 Plan terminates on April 1, 2008 unless previously terminated by the Board.
On December 12, 2000, the  stockholders  of the Company  approved the 2000 Stock
Compensation Plan (the "2000 Plan"),  which initially reserves 750,000 shares of
Common Stock for issuance  under the 2000 Plan.  The 2000 Plan was  effective on
October 19, 2000 and terminates on October 19, 2010. The 1998 Plan and 2000 Plan
are both  administered by the  Compensation  Committee (the  "Committee") or the
entire Board.

         The 1998 and 2000 Plans  (collectively the "Plans") have similar terms.
Eligible  participants in the Plans include full time  employees,  directors and
advisors of the Company and its  subsidiaries.  Options  granted under the Plans
are intended to qualify as "incentive stock options"  pursuant to the provisions
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options which do not constitute incentive stock options ("nonqualified options")
as determined by the Committee.

         Under the Plans the Company may also grant  "Restricted  Stock" awards.
"Restricted  Stock"  represents  shares  of  Common  Stock  issued  to  eligible
participants  under the Plans  subject to the  satisfaction  by the recipient of
certain  conditions  and  enumerated  in the  specific  Restricted  Stock grant.
Conditions,  which may be imposed,  include,  but are not limited to,  specified
periods of  employment,  attainment  of personal  performance  standards  or the
overall performance of the Company.  The granting of Restricted Stock represents
an additional incentive for eligible participants under the Plans to promote the
development  of the Company,  and may be used by the Company as another means of
attracting  and  retaining  qualified  individuals  to serve as employees of the
Company or its subsidiaries.

         Incentive stock options may be granted only to employees of the Company
or a subsidiary  who, in the judgment of the Committee,  are responsible for the
management or success of the Company or a subsidiary and who, at the time of the
granting of the incentive stock option, are either an employee of the Company or
a  subsidiary.  No incentive  stock option may be granted under the Plans to any
individual  who  would,  immediately  before the grant of such  incentive  stock
option,  directly or  indirectly,  own more than ten percent  (10%) of the total
combined  voting  power of all classes of stock of the  Company  unless (i) such
incentive  stock  option is granted at an option price not less than one hundred
ten  percent  (110%)  of the fair  market  value of the  shares  on the date the
incentive  stock option is granted and (ii) such incentive  stock option expires
on a date not later than five years from the date the incentive  stock option is
granted.

                                      -24-

<PAGE>

         The purchase  price of the shares of the Common Stock offered under the
Plans must be one hundred  percent (100%) of the fair market value of the Common
Stock at the time the option is granted or such higher  purchase price as may be
determined  by the  Committee  at the time of grant;  provided,  however,  if an
incentive stock option is granted to an individual who would, immediately before
the grant,  directly or indirectly  own more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, the purchase price
of the shares of the Common Stock covered by such incentive stock option may not
be less than one  hundred ten  percent  (110%) of the fair market  value of such
shares on the day the incentive stock option is granted.  If the Common Stock is
listed upon an established stock exchange or exchanges, the fair market value of
the Common Stock shall be the highest  closing  price of the Common Stock on the
day the  option  is  granted  or, if no sale of the  Common  Stock is made on an
established stock exchange on such day, on the next preceding day on which there
was a sale of such stock. If there is no market price for the Common Stock, then
the  Board  and  the  Committee  may,  after  taking  all  relevant  facts  into
consideration, determine the fair market value of the Common Stock.

         Under the Plans,  an  individual  may be granted  one or more  options,
provided that the aggregate fair market value (determined at the time the option
is granted) of the shares covered by incentive options, which may be exercisable
for the first time during any calendar year, shall not exceed $100,000.

         Options are exercisable in whole or in part as provided under the terms
of the  grant,  but in no  event  shall  an  option  be  exercisable  after  the
expiration of ten years from the date of grant.  Except in case of disability or
death, no option shall be exercisable after an optionee ceases to be an employee
of the Company, provided that the Committee has the right to extend the right to
exercise  for a period  not  longer  than  three  months  following  the date of
termination  of  an  optionee's  employment.  If  an  optionee's  employment  is
terminated by reason of disability, the Committee may extend the exercise period
for a period not in excess of one year  following the date of termination of the
optionee's  employment.  If an optionee  dies while in the employ of the Company
and shall not have fully exercised his options,  the options may be exercised in
whole or in part at any time within one year after the  optionee's  death by the
executors or administrators of the optionee's estate or by any person or persons
who acquired the option directly from the optionee by bequest or inheritance.

         There presently are outstanding  options granted under the 1998 Plan to
purchase  712,000 shares of Common Stock at prices ranging from $0.3125 to $3.50
per share,  which options expire  periodically  from August 21, 2001 to December
31, 2005. On August 21, 2000, the Board of Directors approved lowering to $0.375
per share the  exercise  price on all  outstanding  employee  options  that were
exercisable  at a price greater than $0.375 per share.  The Board  believed this
action was in the best  interest of the Company since  substantially  all of the
outstanding  employee  options  were  granted  at per share  exercisable  prices
significantly  greater  than the current  market price of the  Company's  Common
Stock, which has ranged from $.25 to $.50 per share.

Other Stock Options

         In addition to options  granted under the Company's  1998  Compensation
Plan, the Company has outstanding  options that were granted to employees during
1996 and 1997 to purchase  39,484  shares of Common  Stock.  Such  options  were
granted  at  per  share  exercisable   prices  of  $4.88  to  $5.63  and  expire
periodically  at various  times until  January 31, 2003.  The exercise  price of
these  options  was  reduced  to $0.375 per share by the Board of  Directors  on
August 21, 2000.

                                      -25-

<PAGE>
<TABLE>
<CAPTION>

         There were no exercises of any options  during the years ended December
31,  2000 and 1999.  The  weighted  average  exercise  price of all  outstanding
options at December 31, 2000 and 1999, respectively, was $0.35 and $1.07.

Compensation of Directors

         Directors  of the Company  receive no  compensation  for serving on the
Board. The Company will reimburse directors for out-of-pocket  expenses incurred
for attending meetings.

Meetings and Committees of the Board of Directors

         The business of the Company is managed under the direction of the Board
of Directors.  The Board of Directors  met on seven  occasions  during  calendar
2000, and acted by unanimous  consent in lieu of meeting on one occasion  during
such period.

         The Board of Directors of the Company has  established  a  Compensation
Committee and Audit Committee.  The Compensation Committee makes recommendations
to the Board of Directors  regarding the compensation of executive  officers and
administers  the Company's  employee  benefit  plans,  if any. The  Compensation
Committee  did not meet  during  calendar  year  2000.  The Audit  Committee  is
comprised  of a majority  of  independent  directors  and its  functions  are to
recommend to the Board of Directors the engagement of the Company's  independent
public  accountants,  review with such accountants the plans for and the results
and scope of their  auditing  engagement  and certain other matters  relating to
their  services as  provided  to the  Company.  The Audit  Committee  met on one
occasion during calendar year 2000.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain  information with respect to the
ownership of the Company's shares of Common Stock,  Series A Preferred Stock and
Series B Preferred Stock as of March 2, 2001 by each of its directors, executive
officers and persons known by the Company to beneficially  own 5% or more of the
outstanding  shares of the Common Stock,  Series A Preferred  Stock and Series B
Preferred Stock, and all executive officers and directors as a group.

                                                              Shares Beneficially   Percentage of Shares
                           Name(1)                                   Owned           Beneficially Owned
  ----------------------------------------------------------  -------------------   --------------------
<S>                                                           <C>                   <C>
  Charles Brister(2)......................................         2,539,091                26.8
  Geoffrey Craig benRichard(3)............................            -0-                    -0-
  Timotheus James benHarold(4)............................            -0-                    -0-
  Edward H. Cook(5).......................................            -0-                    -0-
  J. Brian Willms(6)......................................            -0-                    -0-
  Halter Financial Group, Inc.(7).........................           478,260                 6.3
  The Schlinger Foundation(8).............................         3,174,512                31.3
  Office of  Presiding Almoner of Living Waters, and his          25,600,000                77.3
  successors, a corporation sole (9)
  Officers and directors as a group (5 persons)(10).......         2,539,091                27.4

</TABLE>

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

(1)  Unless otherwise indicated,  each person named in the table has sole voting
     and investment power with respect to the shares  beneficially  owned. Also,
     unless otherwise indicated, the address of each beneficial owner identified
     below is: c/o Karts  International  Incorporated,  62204 Commercial Street,
     P.O. Box 695, Roseland, Louisiana 70456.
(2)  Includes  options to purchase 100,000 shares of Common Stock at an exercise
     price of $0.375 per share,  exercisable until October 19, 2004,  options to
     purchase  100,000 shares of Common Stock at an exercise price of $0.375 per
     share until June 1, 2005 and 1,580,000 shares of Common Stock issuable upon
     conversion of 395,000  shares of the  Company's 9%  Cumulative  Convertible
     Preferred Stock ("9% Preferred Stock") owned by Mr. Brister.  Also includes
     185,084 shares, which the Board of Directors has authorized to be issued to
     Mr. Brister in lieu of his cash  compensation for 1999 which will be issued
     in 2001.  Mr.  Brister is the  Chairman  of the Board and a director of the
     Company.  See  "Executive  Compensation - Summary  Compensation  Table" and
     "Certain Relationships and Related Transactions."

                                      -26-

<PAGE>

(3)  Mr.  Geoffrey  Craig  benRichard  is  Vice  President  of  Legal  Affaires,
     Secretary and a director of the Company.
(4)  Mr. Timotheus James benHarold is President and Chief Executive  Officer and
     a director of the Company.
(5)  Mr. Cook is a Vice President and Chief Financial Officer of the Company.
(6)  Mr. Willms is the Chief Information Officer of the Company.
(7)  Includes  100,000 shares of Common Stock issuable upon conversion of 25,000
     shares of 9% Preferred Stock owned by Halter  Financial Group, Inc ("HFG").
     Timothy P. Halter is the principal  stockholder,  director and president of
     HFG and is therefore  deemed to have beneficial  ownership of the shares of
     Common Stock held by HFG. HFG and Mr. Halter's  address is 7701 Las Colinas
     Ridge, Suite 250, Irving, Texas 75036.
(8)  Includes  2,000,000  shares of Common Stock  issuable  upon  conversion  of
     500,000 shares of 9% Preferred Stock,  592,581 shares of Common Stock owned
     by the  Schlinger  Foundation  and 58,420  shares of Common  Stock owned by
     Evert Schlinger who is Trustee of the Schlinger  Foundation.  Additionally,
     the Schlinger  Foundation  may be deemed to share voting power over 581,931
     shares of Common  Stock with Mr.  Brister and  Richard N.  Jones,  a former
     officer of the Company,  pursuant to a Voting Agreement dated May 17, 2000.
     The Schlinger  Foundation's address is c/o Evert Schlinger,  Trustee,  1944
     Edison Street, Santa Ynez, California 93460. See "Certain Relationships and
     Related Transactions."
(9)  On December 27, 2000, The Schlinger Foundation transferred to the Office of
     the Presiding Almoner of Living Waters,  and His Successors,  a Corporation
     Sole  organized as a Church under 26 USC Section  507C1A and Nevada revised
     statutes chapter 84 the following shares of Karts International's Preferred
     Stock:  4,000,000  shares of the Company's  Series A Preferred  Stock,  and
     88,000 shares of the Company's  Series B Preferred  Stock.  These preferred
     shares represent a combined voting power of the 25,600,000 shares of Common
     Stock into which they are convertible (8,000,000 for the Series A Preferred
     Stock and 17,600,000 for the Series B Preferred  Stock,).  This  represents
     voting  control  of the  Company.  The Office of the  Presiding  Almoner of
     Living  Waters  controls  the  Corporation  Sole's  decisions  pursuant  to
     Statute, but is not controlled by an individual, save being an office.
(10) See  preceding  notes  for  an  explanation  of  options,  warrants  and 9%
     Preferred  Stock  included in this total.  Also includes  185,084 shares of
     Common Stock to be issued to Mr. Brister during 2001.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company and Charles Brister, the former Chief Executive Officer and
President of the Company and currently a director and Chairman of the Board, had
previously  entered  into a  lease  agreement  for  the  Roseland  manufacturing
facility,  including the corporate offices, which has expired. The monthly lease
payment for the Roseland facility is currently $6,025 on a month-to-month basis.
The Company and Mr. Brister are currently  negotiating the terms for a new lease
for the Roseland facility

         During 1999, Charles Brister provided temporary loans to the Company to
provide interim working capital. These loans were documented by promissory notes
bearing interest at rates between 8% and 12% and payable at various dates. Notes
totaling  approximately  $395,000  were  converted  into  395,000  shares of the
Company's 9%  Convertible  Preferred  Stock in June 1999.  At December 31, 2000,
promissory notes totaling approximately $150,000 were still outstanding.

         On August 1, 2000,  the  Company  and Charles  Brister  entered  into a
license  agreement (the "License  Agreement")  for  "Accelerator  Pedal Override
Apparatus for  Self-Propelled  Motorized Cart with Aligned Brake and Accelerated
Push-Rod Type Operator  Pedals" ("Pedal  Override") and for "Clutch Assembly for
Chain  Driven  Cart" (the  "Clutch  Lube")  which are subject to certain  patent
rights owned by Mr. Brister.  The term of the License  Agreement is for a period
of three (3) years.  In August 2000,  the Company paid Mr.  Brister  $40,000 for
arrearage royalty fees covering the Pedal Override and Clutch Lube under a prior
license agreement  between the Company and Mr. Brister.  Pursuant to the current
License  Agreement,  the  Company  has agreed to pay Mr.  Brister  royalties  as
follows:  (i) the  greater  of $20,000 or the sum of a royalty of $1.00 for each
Company  product sold by the Company or any of its  affiliates  or  subsidiaries
containing or utilizing the Pedal Override during the period beginning August 1,

                                      -27-

<PAGE>

2000 and ending July 31, 2001,  and a royalty of $0.50 for each Company  product
sold by the  Company or any of its  affiliates  or  subsidiaries  containing  or
utilizing the Clutch Lube during the period  beginning August 1, 2000 and ending
July 31, 2001,  (ii) the greater of $20,000 or the sum of a royalty of $1.00 for
each  Company  product  sold  by  the  Company  or  any  of  its  affiliates  or
subsidiaries  containing  or  utilizing  the Pedal  Override  during  the period
beginning  August 1, 2001 and ending July 31,  2002,  and a royalty of $0.50 for
each  Company  product  sold  by  the  Company  or  any  of  its  affiliates  or
subsidiaries containing or utilizing the Clutch Lube during the period beginning
August 1, 2001 and ending July 31, 2002, and (iii) the greater of $20,000 or the
sum of a royalty of $1.00 for each Company product sold by the Company or any of
its affiliates or subsidiaries containing or utilizing the Pedal Override during
the period  beginning  August 1, 2002 and ending July 31, 2003, and a royalty of
$0.50 for each Company  product sold by the Company or any of its  affiliates or
subsidiaries containing or utilizing the Clutch Lube during the period beginning
August 1, 2002 and ending  July 31,  2003.  The  Company  shall pay the  accrued
royalties  on January 1 and July 31 of each year  during the term of the License
Agreement.  Either party may  terminate the License  Agreement  upon thirty (30)
days  written  notice to the other party if the other  party  commits a material
breach of any term of the License Agreement and fails to cure such breach within
the 30-day period. Upon termination of the License Agreement for any reason, the
Company shall return to Mr. Brister the  technology and tangible  manifestations
or  copies  thereof  relating  to the Pedal  Override  and  Clutch  Lube and all
licenses granted under the License Agreement will be transferred and assigned by
the Company to Mr. Brister or to his designee.

         On October 10, 2000, the Company entered into a license  agreement with
Charles Brister (the "Technology  Agreement") for the right to use a safety fuel
tank and filler cap apparatus on its products (the "Technology")  which is owned
by Mr. Brister under certain patents and patent  applications.  In consideration
of the grant of the license to the  Technology,  the  Company  agreed to pay Mr.
Brister an annual license fee of $250,000.  The first annual license fee payment
is payable in two equal  payments  of  $125,000  each,  with the first  $125,000
payment being paid to Mr. Brister in August 2000 and the second $125,000 payment
due on December 31, 2000.  The December 31 payment has been  deferred  until the
Company's cash flow from operations improves.  The Technology Agreement is for a
period of three (3) years and shall be automatically renewed annually thereafter
unless  either of the  parties  provides  at least  sixty  (60)  days  notice of
non-renewal  prior to the  termination  date of the  Technology  Agreement.  The
Technology  Agreement is subject to termination  for  non-payment of the license
fee and  royalties  and for  certain  other  reasons.  In addition to the annual
license fee of $250,000,  the Company  shall pay Mr.  Brister a royalty of $1.00
for each Company product,  which utilizes the Technology.  However,  in no event
shall  royalties for a calendar year for use of the  Technology on the Company's
products  be less  than  $500,000  for the  first  full  year of the  Technology
Agreement  ending on December 31, 2001;  less than $500,000 for the license year
ending  December 31, 2002 and less than  $1,000,000  for the license year ending
December 31, 2003 and thereafter. In the event that royalties for a license year
do not equal the required minimum,  Charles Brister may, at his option,  convert
the exclusive license granted to the Company to a non-exclusive  license without
the right of the Company to  sub-license,  by thirty (30) days notice in writing
to the Company,  unless such  default is cured by the Company  within the 30-day
notice  period.  Subject to the terms of the Technology  Agreement,  the Company
shall  have the right to grant  sub-licenses  to others  for fees or at  royalty
rates to be determined by the Company.  As sub-license  income,  the Company has
agreed  to pay to Mr.  Brister  50% of  all  license  fees,  royalties,  advance
royalties, minimum royalties or other payments accrued or received in respect to
the granting or maintaining of sub-licenses,  provided,  however, in no instance
shall the amount paid to Mr.  Brister be less than $1.00 for each product  which
utilizes the Technology. Additionally, the Company has agreed during the term of
the Technology  Agreement to maintain  product  liability  insurance  naming Mr.
Brister as an additional insured to provide protection against claims and causes
of action  arising out of any  defects or failure to perform of the  Technology.
The amount of coverage shall be a minimum of $2,000,000  combined  single limit,
with a deductible  amount not to exceed $100,000 for each single  occurrence for
bodily injury and/or property damage.

         On June 3, 1999,  the Company  consummated  a $1.5 million  convertible
loan  transaction  with  The  Schlinger   Foundation  (the  "Foundation").   The
Foundation  also purchased  500,000  shares of 9% Preferred  Stock at a price of
$1.00 per share in the Company's private offering  consummated on June 30, 1999.
For  his  assistance  to the  Company  in  arranging  this  financing  with  the
Foundation and others,  the Company paid Blair L.  benGerald,  a director of the
Company from June 2000 to February 5, 2001, $205,000. Blair L. benGerald was not
an officer or director of the Company when he received this payment.

                                      -28-

<PAGE>

         On May 17, 2000, the Company and The Foundation entered into an Amended
and  Restated  Loan  Agreement,  which  provided  for  the  additional  loan  of
$1,000,000 to the Company at an interest rate equal to 3% plus the prime rate as
quoted in The Wall  Street  Journal.  Interest  is payable  on the $2.5  million
Amended and Restated Term Note ("Term Note") monthly as it accrues commencing on
June 30, 2000 and continuing on the last day of each successive month thereafter
during  the term of the Term Note  with the  principal  of the Term  Note  being
payable in one  installment of unpaid  principal and accrued unpaid  interest on
May 17, 2005.  The Term Note is secured with guaranty  agreements by each of the
Company's  wholly-owned  subsidiaries,  Straight Line  Manufacturing,  Inc., USA
Industries,  Inc., KINT, L.L.C. and Brister's Thunder Karts, Inc.  Additionally,
the Company and each of its subsidiaries have pledged substantially all of their
assets as additional collateral for the Term Note.

         Additionally, on May 17, 2000, the Company sold 4,000,000 shares of its
Series A Preferred  Stock to the  Foundation  for  $3,000,000  cash or $0.75 per
share.  The  holders of the Series A  Preferred  Stock have the right to elect a
majority of the members of the Company's  Board of  Directors.  Pursuant to this
right,  Blair L.  benGerald,  Geoffrey C. benRichard and Timotheus J. benHarold,
were  nominated  by the  Foundation  and  Board of  Directors  for  election  as
directors of the Company.  On December 12, 2000, the three nominees were elected
as directors of the Company. On February 5, 2001, Blair L. benGerald resigned as
a director and Chairman of the Board of the Company.

         On October 9, 2000,  the  Company  sold  73,333  shares of its Series B
Preferred Stock to the Foundation for $5,500,000 or $75.00 per share. Each share
of Series B Preferred  Stock is convertible at the option of the holder into 200
shares  of  Common  Stock of the  Company.  Each  outstanding  share of Series B
Preferred Stock has the right to 200 votes at any meeting of the stockholders of
the Company.

         On November  28, 2000 the Company  sold  another  14,667  shares of its
Series B Preferred  Stock to the  Foundation for $1,100,000 or $75.00 per share.
Each  share of Series B  Preferred  Stock is  convertible  at the  option of the
holder into 200 shares of Common Stock of the Company. Each outstanding share of
Series B  Preferred  Stock  has the  right to 200  votes at any  meeting  of the
stockholders of the Company.

         As a result of the  purchase  of the  Series A and  Series B  Preferred
Stock by the Foundation,  as previously reported,  there was a change of control
of the  Company.  Pursuant  to the terms of the sale of the  Series A  Preferred
Stock,  Blair L.  benGerald,  Geoffrey C.  benRichard and Timotheus J. benHarold
were elected as directors of the Company in June 2000.

         On December 27, 2000, the Foundation  transferred  4,000,000  shares of
the Company's Series A Preferred Stock and 88,000 shares of the Company's Series
 .B Preferred Stock to The Office of the Presiding Almoner of Living Waters,  and
His  Successors,  a Corporation  Sale organized as a Church under 26 USC Section
508CIA  and  Nevada  revised  statutes  chapter  84.  The  Series A and Series B
Preferred Stock represents  combined voting power of 25,600,000 shares of Common
Stock into which the Preferred Stock is convertible  (8,000,000 shares of Common
Stock for the 4,000,000 shares of Series A Preferred Stock and 17,600,000 shares
of Common Stock for the 88,000 shares of Series B Preferred Stock). The transfer
of the Preferred  Stock to The Office of the Presiding  Almoner of Living Waters
represents a change in control of the Company  since the Office of the Presiding
Almoner  has  the  right  to a total  of  25,600,000  votes  at any  meeting  of
shareholders which constitutes  approximately 77% of the total votes entitled to
vote with respect to any matters on which the holders of Common Stock,  Series A
Preferred  Stock and Series B Preferred  Stock shall have the right to vote. See
"Item 11 Security Ownership of Certain Beneficial Owners and Management."

         The Company and the Foundation have entered into a Registration  Rights
Agreement  dated May 17, 2000,  and as amended on October 9, 2000 which  granted
certain  registration rights to the Foundation for the shares of Common Stock of
the Company to be issued to the Foundation  upon  conversion of the Series A and
Series B Preferred Stock.

                                      -29-

<PAGE>

         The Foundation,  Charles Brister,  former President and Chief Executive
Officer of the  Company  and  currently  Chairman  of the Board,  and Richard N.
Jones, a former officer of the Company,  entered into a Voting  Agreement  dated
May 17, 2000 which  grants to the  Foundation  the right to vote an aggregate of
581,931  shares of Common  Stock  owned by Messrs.  Brister  and Jones until the
earlier of May 1, 2015 or such date that the Foundation does not own any capital
stock of the Company.

         In  connection  with the sale of the  Series A  Preferred  Stock to the
Foundation and the restructuring of the Term Note, Blair L. benGerald,  a former
director of the Company,  and an Almoner with the Office of the Presiding Priest
of Faith Works Mission,  and His Successors,  a Corporation Sole registered as a
church at Nevada,  acted as an  intermediary.  An honorarium  characterized as a
tithe and alms  bestowal in the amount of $340,000 was  delivered in May 2000 to
Blair L.  benGerald  by the Company for his  services  and in his  capacity as a
Presiding  Priest of the Faith Works Mission.  Additionally,  in connection with
the Company's sale of the Series B Preferred Stock to the  Foundation,  Blair L.
benGerald also acted as an  intermediary  and received in October 2000 $500,000,
and in November  2000  $100,000,  from the Company for his  services  and in his
capacity as Office of the  Presiding  Almoner of First Fruits  Mission,  and His
Successors, a Corporation Sole.

         The Company believes that all the foregoing related-party  transactions
were on terms no less favorable to the Company than could reasonably be obtained
from unaffiliated third parties. All future transactions with affiliates will be
approved by a majority of disinterested directors of the Company and on terms no
less  favorable  to the Company  than those that are  generally  available  from
unaffiliated third parties.

                                    PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

Exhibit
Number                            Description of Exhibit
--------------  ----------------------------------------------------------------
2.1*            Agreement  and Plan of  Merger,  dated  April 16,  1996,  by and
                between Sarah Acquisition Corporation and the Company.
2.2*            Stock Purchase  Agreement,  dated January 16, 1996, by and among
                Halter Financial Group, Inc. on behalf of the Company, Brister's
                Thunder Karts,  Inc., and Charles  Brister  (Schedules have been
                omitted, but will be furnished to the Commission upon request).
2.3*            Amendment to Stock Purchase Agreement,  dated March 15, 1996, by
                and among Halter Financial Group, Inc. on behalf of the Company,
                Brister's  Thunder Karts,  Inc., and Charles Brister  (Schedules
                have been omitted,  but will be furnished to the Commission upon
                request).
2.4*            Stock  Purchase  Agreement,  dated October 4, 1996, by and among
                the Company,  USA Industries,  Inc., Jerry Michael Allen, Angela
                T. Allen,  Johnny C. Tucker, and Carol Y. Tucker (Schedules have
                been  omitted,  but will be  furnished  to the  Commission  upon
                request).
2.5*            Consulting  Agreement,  dated  January 16, 1996,  by and between
                Halter Financial Group, Inc. and Sarah Acquisition Corporation.
3.1*            Articles of Incorporation of the Company.
3.2*            Bylaws of the Company.
3.3*            Certificate to Decrease Authorized Shares of Common Stock, dated
                March 12, 1997.
3.4+            Amended and  Restated  Bylaws of the Company  effective  May 16,
                2000.
3.5+            Certificate   of   Amendment  to  the   Company's   Articles  of
                Incorporation  as filed on  January  19,  2001  with the  Nevada
                Secretary of State.
4.1*            Specimen of Common Stock Certificate.

                                      -30-

<PAGE>

4.2*            Form of Warrant Agreement covering the Warrants.
4.3*            Form of  Redeemable  Common Stock  Purchase  Warrants  issued in
                connection with the sale of the Warrants.
4.4*            Form of Redeemable  Common Stock Purchase  Warrant issued in the
                Company's private offering of Units, completed November 15, 1996
                (the "1996 Warrants").
4.5*            Form of Common Stock  Purchase  Warrant  issued in the Company's
                offering of Units  pursuant to Rule 504,  completed July 2, 1996
                (the "Class A Warrants").
4.6*            Certificate  of  Designation  Establishing  Series of  Preferred
                Stock,  filed with the  Secretary of State of Nevada on November
                15, 1996.
4.7*            Specimen of Convertible Preferred Stock Certificate.
4.8***          Form of Stock Warrant  issued on March 8, 1999 to KBK Financial,
                Inc.
4.9****         Certificate  of  Designation,   Preferences  and  Rights  of  9%
                Cumulative  Convertible Preferred Stock filed with the Secretary
                of State of Nevada on May 3, 1999.
4.10+           Certificate of Designation Establishing Series B Preferred Stock
                of the Company filed with the Secretary of State of the State of
                Nevada on October 6, 2000.
4.11+           Certificate of Designation Establishing Series A Preferred Stock
                of the  Company  as  filed  on May  17,  2000  with  the  Nevada
                Secretary of State.
9.1+            Voting Agreement dated as of May 17, 2000, executed by and among
                the Company,  the Schlinger  Foundation  ("Schlinger"),  Charles
                Brister and Richard N. Jones.
10.1*           Lease Agreement,  dated March 18, 1996, by and between Northpark
                Properties, L.L.C. and the Company.
10.2*           License  Agreement,  dated  March 15,  1996,  by and between the
                Company and Charles Brister.
10.3*           Addendum "A" to License Agreement,  dated March 15, 1997, by and
                between the Company and Charles Brister.
10.4*           Royalty  Agreement,  dated  March 15,  1997,  by and between the
                Company and Charles Brister.
10.5*           $1,000,000  Subordinated  Promissory Note, dated March 15, 1996,
                payable to Charles Brister, executed by Brister's Thunder Karts,
                Inc., as maker.
10.6*           $200,000  Promissory  Note,  dated  April 1,  1996,  payable  to
                Charles Brister, executed by the Company, as maker.
10.7*           Commercial Security Agreement,  by and among Charles Brister, as
                secured party,  Brister's Thunder Karts, Inc., as borrower,  and
                Robert W. Bell and Gary C. Evans, as pledgors.
10.8*           $2,000,000 Promissory Note, dated March 15, 1996, payable to The
                Schlinger Foundation,  executed by the Company, as maker, and by
                Brister's Thunder Karts, Inc., as pledgor.
10.9*           Commercial  Security  Agreement,  by  and  among  The  Schlinger
                Foundation,  as secured  party,  the Company,  as borrower,  and
                Brister's Thunder Karts, Inc., as pledgor.
10.10*          Vendor  Agreement,  dated June 5, 1996, by and between  Wal-Mart
                Stores, Inc. and Brister's Thunder Karts, Inc.
10.11*          Vendor  Agreement,  dated  September  30,  1996,  by and between
                Wal-Mart Stores, Inc. and USA Industries, Inc.
10.12*          Floor Plan  Agreement,  dated  September  9, 1996,  by and among
                Deutsche  Financial  Services  Corporation,   the  Company,  and
                Brister's Thunder Karts, Inc.
10.13*          Guaranty of Vendor,  dated  September  9, 1996,  executed by the
                Company and Brister's  Thunder Karts,  Inc. in favor of Deutsche
                Financial Services Corporation.
10.14*          Employment Agreement,  as amended,  dated March 15, 1996, by and
                between the Company and V. Lynn Graybill.
10.15*          Consulting  Engagement  Letter,  dated February 19, 1997, by and
                between Charles Brister, as consultant, and the Company.
10.16*          Letter  Agreement,  dated January 21, 1997, by and between Bobby
                Labonte, as national spokesman for the Company, and the Company.
10.17*          Consulting  Agreement,  dated March 16, 1997, by and between the
                Company and Halter Financial Group, Inc.
10.18*          Form of  Private  Placement  Subscription  Participation  Option
                Notice,  dated March 6, 1997, relating to the Company's November
                1996 private offering.

                                      -31-

<PAGE>

10.19*          $300,000  Universal  Note,  dated  August 13,  1996,  payable to
                Deposit Guaranty  National Bank,  executed by Brister's  Thunder
                Karts, Inc., as borrower.
10.20*          Security  Agreement,  dated  August  13,  1996,  by and  between
                Brister's Thunder Karts,  Inc., as debtor,  and Deposit Guaranty
                National  Bank,  as  secured  party,  relating  to the  $300,000
                Universal Note referenced as Exhibit 10.19.
10.21*          Collateral Pledge Agreement, dated August 13, 1996, by Brister's
                Thunder  Karts,  Inc.,  as  pledgor,  relating  to the  $300,000
                Universal Note referenced as Exhibit 10.19.
10.22*          Guaranty,  dated  August 13, 1996,  executed by the Company,  as
                guarantor, for the benefit of Deposit Guaranty National Bank, as
                lender, and Brister's Thunder Karts, Inc., as borrower, relating
                to the $300,000 Universal Note referenced as Exhibit 10.19.
10.23*          $500,000 Loan  Agreement,  dated October 1, 1996, by and between
                USA Industries,  Inc., as debtor,  and Deposit Guaranty National
                Bank of Louisiana,  as secured  party,  relating to the $500,000
                Universal Note referenced as Exhibit 10.24.
10.24*          $500,000  Universal Note,  dated October 1, 1996, by and between
                USA Industries, Inc., as borrower, and Deposit Guaranty National
                Bank, as lender.
10.25*          Security  Agreement,  dated  October 1, 1996, by and between USA
                Industries,  Inc., as debtor, and Deposit Guaranty National Bank
                of  Louisiana,  as  secured  party,  relating  to  the  $500,000
                Universal Note referenced as Exhibit 10.24.
10.26*          Financing  Statement,  by and between USA  Industries,  Inc., as
                debtor,  and Deposit  Guaranty  National Bank of  Louisiana,  as
                secured  party,  relating to the  Universal  Note  referenced as
                Exhibit 10.24.
10.27*          Guaranty, dated October 1, 1996, executed by Karts International
                Incorporated,  as guarantor, for the benefit of Deposit Guaranty
                National Bank, as lender, and USA Industries, Inc., as borrower,
                relating to the $500,000  Universal  Note  referenced as Exhibit
                10.24.
10.28*          Placement  Agency  Agreement,  dated  November  8, 1996,  by and
                between the Company and Argent Securities, Inc.
10.29*          Option  Agreement,  dated March 15, 1996, by and between Charles
                Brister,  as seller,  and  Brister's  Thunder  Karts,  Inc.,  as
                Purchaser.
10.30*          Lease of Commercial  Property,  dated September 27, 1995, by and
                between Charles Brister, as lessor, and Brister's Thunder Karts,
                Inc.,  as lessee,  as amended by that certain  Amended  Lease of
                Commercial Property, dated November 30, 1995, as amended by that
                certain First Amendment to Lease of Commercial  Property,  dated
                March 15, 1996.
10.31*          Non-Competition  Agreement, dated March 15, 1996, by and between
                Charles Brister and the Company.
10.32*          Non-Competition Agreement (Louisiana),  dated March 15, 1996, by
                and between Charles Brister and the Company.
10.33*          Form of Non-Qualified Stock Option Agreement between the Company
                and the participants in the July 1996 Stock Option Plan.
10.34*          Form of Non-Qualified Stock Option Agreement between the Company
                and the participants in the January 1997 Stock Option Plan.
10.35*          Escrow Agreement, dated March 31, 1996, between Halter Financial
                Group, Inc., Securities Transfer Corporation and the Company.
10.36*          Letter  Agreement  between  Brister's  Thunder  Karts,  Inc. and
                Deposit  Guaranty  National Bank  extending the maturity date of
                the $300,000 Universal Note referenced in Exhibit 10.19.
10.37*          Letter  Agreement  between  The  Schlinger  Foundation  and  the
                Company,  dated August 28, 1997,  regarding the conversion of $1
                million  of the  principal  amount  of the  Schlinger  Note into
                250,000 shares of Common Stock.
10.38**         Employment Agreement, dated January 30, 1998, by and between the
                Company and Robert M. Aubrey.
10.39***        Loan  Agreement  dated  September  28,  1998 by and  between the
                Company and KBK Financial, Inc.

                                      -32-

<PAGE>

10.40***        First  Amendment  to Loan  Agreement  dated March 8, 1999 by and
                between the Company, USA Industries,  Inc. ("USA"), KINT, L.L.C.
                ("KINT"),  Brister's Thunder Karts,  Inc.  ("Brister's") and KBK
                Financial, Inc.
10.41***        Revolving Credit Promissory Note (Inventory) dated March 8, 1999
                executed in favor of KBK Financial, Inc. by the Company.
10.42***        Revolving  Credit  Promissory Note (Accounts  Receivable)  dated
                March 8, 1999  executed in favor of KBK  Financial,  Inc. by the
                Company.
10.43****       Loan  Agreement  dated  June 3, 1999  between  the  Company  and
                Schlinger.
10.44****       Convertible Term Note dated June 3, 1999 in the principal amount
                of $1.5 million executed by Company and payable to Schlinger.
10.45****       Security  Agreement  dated  June 3,  19999  by and  between  the
                Company and Schlinger.
10.46****       Waiver and First Amendment to Loan Agreement dated July 12, 1999
                by and between the Registrant and Schlinger.
10.47+          Employment  Agreement dated June 1, 2000 between the Company and
                Charles Brister.
10.48+          Amendment  No.  1  dated  October  23,  2000  to the  Employment
                Agreement  dated June 1, 2000  between  the  Company and Charles
                Brister.
10.49+          Amended and Restated Loan Agreement dated May 17, 2000, executed
                by the Company, as Borrower, and Schlinger, as Lender.
10.50+          Promissory  Note dated May 17, 2000 in the  principal  amount of
                $2.5 million payable by the Company to Schlinger.
10.51+          Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                Straight Line  Manufacturing,  Inc., a subsidiary of the Company
                ("SLM"),  to guarantee payment of the Note referenced in Exhibit
                10.50.
10.52+          Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                USA  Industries,  Inc., a subsidiary  of the Company  ("USA") to
                guarantee payment of the Note referenced in Exhibit 10.50.
10.53+          Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                KINT,  L.L.C., a subsidiary of the Company ("KINT") to guarantee
                payment of the Note referenced in Exhibit 10.50.
10.54+          Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                Brister's  Thunder  Karts,  Inc.,  a  subsidiary  of the Company
                ("Brister's")  to guarantee  payment of the Note  referenced  in
                Exhibit 10.50.
10.55+          Amended and Restated Pledge and Security Agreement dated May 17,
                2000,  executed by the Company in favor of  Schlinger  to secure
                payment of the $2.5 million Note referenced in Exhibit 10.50.
10.56+          Amended and Restated Pledge and Security Agreement dated May 17,
                2000,  executed by SLM and  Schlinger  to secure  payment of the
                $2.5 million Note referenced in Exhibit 10.50.
10.57+          Amended and Restated Pledge and Security Agreement dated May 17,
                2000,  executed by USA and  Schlinger  to secure  payment of the
                $2.5 million Note referenced in Exhibit 10.50.
10.58+          Amended and Restated Pledge and Security Agreement dated May 17,
                2000,  executed by KINT and  Schlinger to secure  payment of the
                $2.5 million Note referenced in Exhibit 10.50.
10.59+          Amended and Restated Pledge and Security Agreement dated May 17,
                2000,  executed by Brister's and Schlinger to secure  payment of
                the $2.5 million Note referenced in Exhibit 10.50.
10.60+          Stock Purchase Agreement between the Company and Schlinger dated
                May 17, 2000 regarding the sale of 4,000,000  shares of Series A
                Preferred  Stock of the Company to  Schlinger  for an  aggregate
                purchase price of $3,000,000 (exhibits and schedules omitted).
10.61+          Registration Rights Agreement dated as of May 17, 2000, executed
                by the Company and Schlinger.
10.62+          Stock  Purchase  Agreement  dated  October 9, 2000  between  the
                Company and the  Schlinger  Foundation  in  connection  with the
                purchase  by  Schlinger  of 73,333  shares of Series B Preferred
                Stock  of  the  Company  for  an  aggregate  purchase  price  of
                $5,500,000 (exhibits and schedules omitted).

                                      -33-

<PAGE>

10.63+          Stock Purchase  Agreement  between the Company and the Schlinger
                Foundation dated November 28, 2000 regarding the purchase by the
                Foundation of 14,667  shares of Series B Preferred  Stock of the
                Company for an aggregate purchase price of $1,100,000.
10.64+          License  Agreement  dated August 1, 2000 between the Company and
                Charles  Brister  providing  for the  Company  to use the  pedal
                override  and clutch  lube  systems on its  products  held under
                certain patent rights by Charles Brister.
10.65+          License Agreement dated October 10, 2000 between Charles Brister
                and the  Company  to  market  safety  fuel tank and  filler  cap
                apparatus  which is held under certain  patent rights by Charles
                Brister.
10.66+          License  Agreement  between  Polaris  Industries and the Company
                dated January 6, 2000.
10.67+          Amendment No. 1 to Registration  Rights  Agreement dated October
                9, 2000 by and among the Company and Schlinger.

21.1***         Subsidiaries of the Company.
27.1+           Financial Data Schedule

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

*     Previously filed as an exhibit to the Company's  Registration Statement on
      Form SB-2 (SEC File No. 333-24145) and incorporated by reference herein.
**    Previously  filed as an exhibit  to the  Company's  Annual  Report on Form
      10-KSB for the fiscal year ended December 31, 1997, as filed with the U.S.
      Securities and Exchange Commission on March 30, 1998.
***   Previously  filed as an exhibit  to the  Company's  Annual  Report on Form
      10-KSB for the fiscal year ended December 31, 1998.
****  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      with the  Commission on July 28, 1999 reporting an event which occurred on
      June 30, 1999.

+     Filed herewith.

(b)      Reports on Form 8-K: On  December  19,  2000,  the  Registrant  filed a
         Current  Report on Form 8-K  reporting  the results of the  shareholder
         votes at the annual meeting of shareholders held on December 12, 2000.



                                      -34-

<PAGE>

                                   SIGNATURES

         Pursuant  to the  requirements  of Section  13 or Section  15(d) of the
Securities  Exchange Act of 1934,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized, on March
29, 2001.

KARTS INTERNATIONAL INCORPORATED
          (Registrant)


By:  /s/ Timotheus James benHarold          By:   /s/ Edward Cook
   -------------------------------------       ---------------------------------
   Timotheus James benHarold, President,       Edward Cook, Vice President and
   Chief Executive Officer and Director        Chief Financial Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated:

            Signature                  Title                             Date

  /s/ Charles Brister              Chairman of the Board and     March 29, 2001
-------------------------------    Director
Charles Brister

  /s/ Timotheus James benHarold    President, Chief Executive    March 29, 2001
-------------------------------    Officer and Director
Timotheus James benHarold

  /s/ Edward Cook                  Vice President and Chief      March 29, 2001
-------------------------------    Financial Officer
Edward Cook

  /s/ Geoffrey Craig benRichard    Vice President of Legal       March 29, 2001
-------------------------------    Affaires, Secretary and
Geoffrey Craig benRichard          Director







                                      -35-

<PAGE>

                               KARTS INTERNATIONAL
                                  INCORPORATED
                                AND SUBSIDIARIES

                              Financial Statements
                                       and
                                Auditor's Report

                           December 31, 2000 and 1999








                               S. W. HATFIELD, CPA
                          certified public accountants

                      Use our past to assist your future sm




                                      F-1

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

                                    CONTENTS

                                                                            Page
                                                                            ----

Report of Independent Certified Public Accountants                           F-3

Consolidated Financial Statements

   Consolidated Balance Sheets
     as of December 31, 2000 and 1999                                        F-4

   Consolidated Statements of Operations and Comprehensive Income
     for the years ended December 31, 2000 and 1999                          F-6

   Consolidated Statement of Changes in Shareholders' Equity
     for the years ended December 31, 2000 and 1999                          F-7

   Consolidated Statements of Cash Flows
     for the years ended December 31, 2000 and 1999                          F-8

   Notes to Consolidated Financial Statements                               F-10




                                                                             F-2

<PAGE>


S. W. HATFIELD, CPA
certified public accountants

Member:    American Institute of Certified Public Accountants
               SEC Practice Section
               Information Technology Section
           Texas Society of Certified Public Accountants


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------


Board of Directors and Shareholders
Karts International Incorporated

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Karts
International  Incorporated  (a  Nevada  corporation)  and  Subsidiaries  as  of
December 31, 2000 and 1999 and the related consolidated statements of operations
and  comprehensive  income,  changes in shareholders'  equity and cash flows for
each of the years 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 audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Karts International
Incorporated  and  Subsidiaries  as of  December  31,  2000  and  1999,  and the
consolidated  results of its operations and its cash flows for each of the years
then ended in conformity with generally accepted accounting principles.

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

                                                    S. W. HATFIELD, CPA
Dallas, Texas
March 1, 2001

                      Use our past to assist your future sm
(secure mailing address)                             (physical delivery address)
P. O. Box 820395                               9002 Green Oaks Circle, 2nd Floor
Dallas, Texas  75382-0395                               Dallas, Texas 75243-7212
214-342-9635 (voice)                                          (fax) 214-342-9601
800-244-0639                                                      SWHCPA@aol.com
                                      F-3

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2000 and 1999

                                     ASSETS
                                     ------

                                                                2000            1999
                                                           ------------    ------------
<S>                                                        <C>             <C>
Current assets
   Cash on hand and in bank                                $    232,593    $    399,639
   Accounts receivable
     Trade, net of allowance for doubtful accounts
       of $45,250 and $198,065, respectively                  2,392,290       2,485,561
     Other                                                       11,433          16,473
   Inventory                                                  4,113,038       2,214,678
   Prepaid expenses                                             646,137         350,606
                                                           ------------    ------------
     Total current assets                                     7,395,491       5,466,957
                                                           ------------    ------------

Property and equipment - at cost                              3,237,367       2,458,695
   Accumulated depreciation                                    (837,209)       (522,023)
                                                           ------------    ------------
                                                              2,400,158       1,936,672
   Land                                                          32,800          32,800
                                                           ------------    ------------
     Net property and equipment                               2,432,958       1,969,472
                                                           ------------    ------------

Other assets
   Deposits and other                                            21,342          27,349
   Note receivable                                                 --           415,685
   Option to acquire an unrelated entity                           --           138,001
   Costs to facilitate loans, net of accumulated
     amortization of approximately $49,182 and
     $9,650, respectively                                       256,346          23,436
   Covenant not to compete, net of accumulated
     amortization of approximately $72,222 and
     $38,889, respectively                                       27,778          61,111
   Organization costs, net of accumulated amortization
     of approximately $104,542 and $82,691, respectively          4,713          26,564
                                                           ------------    ------------
     Total other assets                                         310,179         692,146
                                                           ------------    ------------

TOTAL ASSETS                                               $ 10,138,628    $  8,128,575
                                                           ============    ============

</TABLE>

                                  - Continued -



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

                                                                             F-4

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                           December 31, 2000 and 1999


                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

                                                      2000            1999
                                                 ------------    ------------
Current liabilities
   Notes payable to banks and others             $       --      $  2,724,005
   Notes payable to affiliates                        150,000         229,395
   Current maturities of long-term debt                56,025          57,482
   Accounts payable - trade                         2,940,788       2,068,404
   Other accrued liabilities                        1,005,473         587,502
   Accrued interest payable                            85,092          18,523
   Accrued dividends payable                          257,147            --
   Federal and State income taxes payable              45,100            --
                                                 ------------    ------------
     Total current liabilities                      4,539,625       5,685,311
                                                 ------------    ------------

Long-term liabilities
   Notes payable, net of current maturities
     Long-term debt, net of current maturities        269,878         266,100
     Banks and individuals                          2,500,000       1,500,000
                                                 ------------    ------------
     Total liabilities                              7,309,503       7,451,411
                                                 ------------    ------------

Commitments and contingencies

Shareholders' Equity
   Preferred stock - $0.001 par value
     10,000,000 shares authorized;
     5,638,000 and 1,550,000 issued and
      outstanding, respectively                         5,638           1,550
   Common stock - $0.001 par value
     14,000,000 shares authorized;
     7,498,392 and 5,574,298 shares
     issued and outstanding, respectively               7,498           5,574
   Additional paid-in capital                      24,976,651      15,611,373
   Accumulated deficit                            (22,160,754)    (14,941,333)
                                                 ------------    ------------
     Total shareholders' equity                     2,829,125         677,164
                                                 ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 10,138,628    $  8,128,575
                                                 ============    ============




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

                                                                             F-5

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                           December 31, 2000 and 1999


                                                                2000            1999
                                                           ------------    ------------
<S>                                                        <C>             <C>
Revenues
   Kart sales - net                                        $  8,854,343    $ 11,997,785
                                                           ------------    ------------

Cost of sales
   Purchases                                                  7,736,778       7,979,959
   Direct labor                                                 882,846       1,314,202
   Other direct costs                                         2,299,001       2,036,030
                                                           ------------    ------------
     Total cost of sales                                     10,918,625      11,330,191
                                                           ------------    ------------

Gross profit                                                 (2,064,282)        667,594
                                                           ------------    ------------

Operating expenses
   Research and development expenses                            127,377           7,775
   Selling expenses                                             488,564         459,253
   General and administrative expenses
     Salaries and related costs                               1,317,476       1,194,002
     Other operating expenses                                 1,329,276         974,389
   Depreciation and amortization                                182,885         139,976
                                                           ------------    ------------
     Total operating expenses                                 3,445,578       2,775,395
                                                           ------------    ------------

Loss from operations                                         (5,509,860)     (2,107,801)
                                                           ------------    ------------

Other income (expense)
   Interest expense                                            (702,907)       (396,219)
   Expiration of option to acquire another entity              (138,001)           --
   Write off of uncollectible note receivable                  (425,060)           --
   Write off of obsolete inventory                              (51,385)           --
   Interest and other income                                     56,650         155,314
                                                           ------------    ------------

Loss before income taxes                                     (6,770,563)     (2,348,706)

Provision for income taxes                                      (52,304)        (17,144)
                                                           ------------    ------------

Net loss                                                     (6,822,767)     (2,365,850)

Other comprehensive income                                         --              --
                                                           ------------    ------------

Comprehensive income                                       $ (6,822,767)   $ (2,365,850)
                                                           ============    ============

Loss per weighted-average share of
   common stock outstanding, computed
   on net loss - basic and fully diluted                   $      (0.98)   $      (0.42)
                                                           ============    ============

Weighted-average number of shares
   of common stock outstanding - basic and fully diluted      6,956,046       5,574,298
                                                           ============    ============

</TABLE>

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

                                                                             F-6

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                     Years ended December 31, 2000 and 1999

                                                                                                  Additional
                                           Preferred Stock                 Common Stock            paid-in        Accumulated
                                        Shares         Amount         Shares         Amount        capital          deficit
                                     ------------   ------------   ------------   ------------   ------------    ------------
<S>                                  <C>            <C>            <C>            <C>            <C>             <C>
Balances at January 1, 1999                  --     $       --        5,574,298   $      5,574   $ 14,377,782    $(12,575,483)

Sale of Preferred Stock                 1,550,000          1,550           --             --        1,548,450            --
   Less amounts related to costs
   and expenses of raising capital           --             --             --             --         (314,859)           --

Net loss for the year                        --             --             --             --             --        (2,365,850)
                                     ------------   ------------   ------------   ------------   ------------    ------------

Balances at December 31, 1999           1,550,000          1,550      5,574,298          5,574     15,611,373     (14,941,333)

Sale of common stock                         --             --        1,639,995          1,640        613,360            --
   Less amounts related to costs
   and expenses of raising capital           --             --             --             --          (50,500)           --

Sale of preferred stock                 4,088,000          4,088           --             --        9,595,912            --
   Less amounts related to costs
   and expenses of raising capital           --             --             --             --         (877,644)           --

Common stock issued for
   Partial settlement of
   accounts payable                          --             --           59,077             59         14,710            --
   Payment of preferred
   stock dividends                           --             --          225,022            225         69,532            --

Dividends paid or payable on
   preferred stock                           --             --             --             --             --          (396,654)

Net loss for the year                        --             --             --             --             --        (6,822,767)
                                     ------------   ------------   ------------   ------------   ------------    ------------

Balances at December 31, 2000           5,638,000   $      5,638      7,498,392   $      7,498   $ 24,976,743    $(14,941,333)
                                     ============   ============   ============   ============   ============    ============
</TABLE>

                                         Total
                                     ------------

Balances at January 1, 1999          $  1,807,873

Sale of Preferred Stock                 1,550,000
   Less amounts related to costs
   and expenses of raising capital       (314,859)

Net loss for the year                  (2,365,850)
                                     ------------

Balances at December 31, 1999             677,164

Sale of common stock                      615,000
   Less amounts related to costs
   and expenses of raising capital        (50,500)

Sale of preferred stock                 9,600,000
   Less amounts related to costs
   and expenses of raising capital       (877,644)

Common stock issued for
   Partial settlement of
   accounts payable                        14,769
   Payment of preferred
   stock dividends                         69,757

Dividends paid or payable on
   preferred stock                       (396,654)

Net loss for the year                  (6,822,767)
                                     ------------

Balances at December 31, 2000        $  2,829,125
                                     ============


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

                                                                             F-7

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           December 31, 2000 and 1999


                                                                2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Cash flows from operating activities
   Net loss for the year                                    $(6,822,767)   $(2,365,850)
   Adjustments to reconcile net loss to net
      cash provided by operating activities
       Depreciation and amortization                            441,991        299,699
       Bad debt expense                                         109,709        135,027
       Interest income accrued on note receivable                (9,375)       (37,572)
       Expiration of option to acquire another entity           138,001           --
       Write off of uncollectible note receivable               425,060           --
       Write off of obsolete inventory                           51,385           --
       Loss on abandonment of fixed assets                        5,200           --
   (Increase) Decrease in:
     Accounts receivable-trade and other                        (11,398)      (285,960)
     Inventory                                               (1,949,745)       (84,729)
     Prepaid expenses and other                                (301,035)      (177,116)
   Increase (Decrease) in:
     Accounts payable                                           372,177       (379,899)
     Other accrued liabilities                                  982,177       (587,321)
     Income taxes payable                                        45,100           --
                                                            -----------    -----------
Net cash used in operating activities                        (6,523,520)    (3,483,721)
                                                            -----------    -----------

Cash flows from investing activities
   Cash paid for property and equipment                        (728,848)      (222,078)
   Cash paid for other assets                                   (13,778)          --
   Cash paid to acquire option to purchase another entity          --          (14,457)
                                                            -----------    -----------
Net cash used in investing activities                          (742,626)      (236,535)
                                                            -----------    -----------

Cash flows from financing activities
   Increase (decrease ) in cash overdraft                          --           (9,153)
   Net activity on bank and other lines of credit            (2,724,005)     1,159,290
   Principal payments on long-term debt                         (59,503)       (34,592)
   Cash received on debenture payable                         1,000,000      1,500,000
   Cash received on notes payable to affiliates                    --          174,279
   Cash paid on notes payable to affiliates                     (62,056)       (43,759)
   Cash paid to facilitate loans payable                       (272,442)          --
   Cash received on sale of preferred stock                   9,600,000      1,525,000
   Cash received on sale of common stock                        615,000           --
   Cash paid for brokerage and placement fees related
     to sale of preferred and common stock                     (928,144)      (314,860)
   Cash paid for preferred stock dividends                      (69,750)          --
                                                            -----------    -----------
Net cash provided by financing activities                     7,099,100      3,956,205
                                                            -----------    -----------

Increase (decrease) in cash                                    (167,046)       235,949

Cash at beginning of year                                       399,639        163,690
                                                            -----------    -----------

Cash at end of year                                         $   232,593    $   399,639
                                                            ===========    ===========

</TABLE>

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

                                                                             F-8

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                           December 31, 2000 and 1999


                                                            2000       1999
                                                           --------   --------
Supplemental disclosure of interest
   and income taxes paid
     Interest paid for the year                            $596,807   $382,231
                                                           ========   ========
     Income taxes paid for the year                        $  2,064   $   --
                                                           ========   ========

Supplemental disclosure of non-cash
   investing and financing activities

     Vehicles and equipment purchased with notes payable   $ 61,824   $ 80,479
                                                           ========   ========

     Settlement of accounts payable with common stock      $ 14,769   $   --
                                                           ========   ========

     Preferred stock dividends paid with common stock      $ 69,757   $   --
                                                           ========   ========








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

                                                                             F-9

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Karts  International  Incorporated  (Company)  was  originally  incorporated  on
February 28, 1984 as Rapholz  Silver Hunt,  Inc.  under the laws of the State of
Florida.  On February 23, 1996, the Company was  reincorporated  in the State of
Nevada by means of a merger with and into Karts  International  Incorporated,  a
Nevada  corporation  incorporated  on  February  21,  1996.  The Company was the
surviving  entity  and  changed  its  corporate  name  to  Karts   International
Incorporated.

The Company  operates  through  four (4)  wholly-owned  subsidiaries,  Brister's
Thunder Karts,  Inc.,  USA  Industries,  Inc.,  KINT, L. L. C. and Straight Line
Manufacturing, Inc.

Brister's  Thunder Karts,  Inc.  (Brister's) (a Louisiana  corporation)  and USA
Industries, Inc. (USA) (an Alabama corporation) manufacture and sell "fun karts"
through dealers, distributors and mass merchandisers.

KINT, L.L.C. (KINT) (a Louisiana limited liability  corporation) was formed as a
sales and marketing company focusing on the sale of customized  promotional "fun
karts" to  various  national  companies.  This  subsidiary  initially  conducted
business  operations under the trade name of "Bird  Promotions".  In March 1999,
Company  management  ceased these  operations and  consolidated  these sales and
marketing  efforts within other operating  subsidiaries  of the Company.  During
2000,  Company  management  commenced  all  operations  relating  to  fun  karts
utilizing the Polaris Industries, Inc. logo within this subsidiary.

Straight  Line  Manufacturing,  Inc. (a Michigan  corporation)  (Straight  Line)
principally  manufactured  large, full suspension "fun karts".  During 2000, all
operations  formerly  contained  within Straight Line were  transferred to other
subsidiaries of the Company.

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

The accompanying consolidated financial statements contain the accounts of Karts
International Incorporated and its wholly-owned subsidiaries,  Brister's Thunder
Karts,  Inc., USA Industries,  Inc., KINT, LLC and Straight Line  Manufacturing,
Inc.  All  significant  intercompany  transactions  have  been  eliminated.  The
consolidated entities are collectively referred to as Company.

For  segment  reporting  purposes,  the Company  operates  in only one  industry
segment and makes all operating  decisions and allocates  resources based on the
best benefit to the Company as a whole.



                                                                            F-10

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE B - GOING CONCERN UNCERTAINTY

During the five years ended  December  31,  2000,  the  Company has  experienced
cumulative  net  losses  from  operations  and has  utilized  cash in  operating
activities of approximately  $13,000,000.  The Company's  continued existence is
dependent upon its ability to generate  sufficient cash flows from operations to
support its daily operations as well as provide  sufficient  resources to retire
existing liabilities and obligations on a timely basis.

During  2000,   the  Company   received   $615,000  and  $9,600,000  in  private
transactions  from the sale of common  and  preferred  stock,  respectively,  to
support Year 2000 operations and retire certain  short-term lines of credit from
a non-financial institution lender.

Further, during the first quarter of 2000, the Company acquired an exclusive OEM
licensing  agreement  to  manufacture  a line  of  "sport  karts"  from  Polaris
Industries,  Inc., a domestic  manufacturer of personal  watercraft and off-road
vehicles.

The Company  restructured its management  during the third and fourth quarter of
2000,  which it  believes  will  assist  in the  refocusing  of the  Company  on
operations  with greater  opportunity for  profitability  and is exploring other
opportunities  to  provide  revenues  outside  its core "fun kart"  business  to
compensate for seasonal slowdowns.

Current  management  is of the  opinion  that  these  events  will allow for the
provision of adequate liquidity for the subsequent 12 month period.  However, if
necessary,  there can be no  assurance  that the Company  will be able to obtain
additional  funding or, that such  funding,  if  available,  will be obtained on
terms favorable to or affordable by the Company.

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.   Cash and cash equivalents
     -------------------------

     The  Company  considers  all cash on hand  and in  banks,  certificates  of
     deposit and other highly-liquid investments with maturities of three months
     or less, when purchased, to be cash and cash equivalents.

     Cash  overdraft  positions may occur from time to time due to the timing of
     making bank deposits and releasing checks, in accordance with the Company's
     cash management policies.

2.   Accounts and advances receivable
     --------------------------------

     In the normal course of business,  the Company extends  unsecured credit to
     virtually  all of its  customers  which are located  throughout  the United
     States and are principally concentrated in the southeastern quadrant of the
     country.  Because of the credit risk  involved,  management has provided an
     allowance for doubtful accounts which reflects its opinion of amounts which
     will   eventually   become   uncollectible.   In  the  event  of   complete
     non-performance, the maximum exposure to the Company is the recorded amount
     of trade  accounts  receivable  shown on the  balance  sheet at the date of
     non-performance.

                                                                            F-11

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

3.   Inventory
     ---------

     Inventory  consists of steel,  engines and other related raw materials used
     in the manufacture of "fun karts".  These items are carried at the lower of
     cost or market using the  first-in,  first-out  method.  As of December 31,
     2000 and 1999, inventory consisted of the following components:

                                                   2000            1999
                                               -----------     -----------
         Raw materials                         $ 3,320,953     $ 1,701,639
         Work in process                           231,587         167,633
         Finished goods                            560,498         345,406
                                               -----------     -----------

                                               $ 4,113,038     $ 2,214,678
                                               ===========     ===========

4.   Property, plant and equipment
     -----------------------------

     Property and  equipment are recorded at  historical  cost.  These costs are
     depreciated over the estimated useful lives of the individual  assets using
     the straight-line method.

     Gains and losses from  disposition of property and equipment are recognized
     as incurred and are included in operations.

5.   Covenant not to compete
     -----------------------

     In conjunction with the acquisition of Straight Line  Manufacturing,  Inc.,
     the Company paid $100,000 to the former sole  shareholder  of Straight Line
     for a covenant not to compete for a period of at least three (3) years. The
     consideration  given was $50,000 cash and a note  payable for $50,000.  The
     covenant  is being  amortized  to  operations  over a period of three years
     using the straight line method.

6.   Organization costs
     ------------------

     Costs related to the restructuring  and  reorganization of the Company have
     been  capitalized and are being amortized over a five year period using the
     straight-line method.

7.   Income taxes
     ------------

     The Company  utilizes  the asset and  liability  method of  accounting  for
     income  taxes.  At December  31, 2000 and 1999,  the deferred tax asset and
     deferred tax liability  accounts,  as recorded when material,  are entirely
     the  result  of  temporary  differences.  Temporary  differences  represent
     differences  in the  recognition  of  assets  and  liabilities  for tax and
     financial  reporting  purposes,   primarily  accumulated  depreciation  and
     amortization.  No valuation  allowance  was provided  against  deferred tax
     assets,  where  applicable.  As of December 31, 2000 and 1999, the deferred
     tax asset  related to the Company's net  operating  loss  carryforward  was
     fully reserved.

                                                                            F-12

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

8.   Advertising
     -----------

     The Company does not conduct any direct  response  advertising  activities.
     For non-direct response advertising, the Company charges the costs of these
     efforts  to  operations  at the  first  time  the  related  advertising  is
     published. For various sales publications, catalogs and other sales related
     items, the Company  capitalizes the development and direct production costs
     and  amortizes  these costs over the  estimated  useful life of the related
     materials,  not to  exceed an  eighteen  (18)  month  period  from  initial
     publication of the materials.

9.   Income (Loss) per share
     -----------------------

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss) by the weighted-average  number of shares of common stock and common
     stock  equivalents  (primarily  outstanding  options and warrants).  Common
     stock equivalents  represent the dilutive effect of the assumed exercise of
     the  outstanding  stock  options and  warrants,  using the  treasury  stock
     method.  The calculation of fully diluted earnings (loss) per share assumes
     the dilutive effect of the exercise of outstanding  options and warrants at
     either the  beginning  of the  respective  period  presented or the date of
     issuance,  whichever  is later.  As of  December  31,  2000 and  1999,  the
     outstanding  warrants and options are deemed to be anti-dilutive due to the
     Company's net operating loss position.

NOTE D - CONCENTRATIONS OF CREDIT RISK

The Company  maintains  its cash accounts in financial  institutions  subject to
insurance coverage issued by the Federal Deposit Insurance  Corporation  (FDIC).
Under FDIC rules,  the Company and its  subsidiaries  are  entitled to aggregate
coverage of $100,000 per account type per separate  legal entity per  individual
financial  institution.  During the year ended  December 31, 2000 and 1999,  the
Company and its  subsidiaries  had credit risk  exposures  in excess of the FDIC
coverage as follows:

                                             Highest    Lowest    Number of days
                     Entity                 exposure   exposure    with exposure
        --------------------------------    --------   --------   --------------
Year ended December 31, 2000
----------------------------
        Karts International Incorporated    $129,619   $  6,163          14
          Brister's Thunder Karts, Inc.     $670,193   $    328         180
              USA Industries, Inc.          $150,392   $  1,360          29

Year ended December 31, 1999
----------------------------
        Karts International Incorporated    $155,329   $  5,683          31
          Brister's Thunder Karts, Inc.     $585,601   $    968         139
              USA Industries, Inc.          $181,416   $    400         114



                                                                            F-13

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE D - CONCENTRATIONS OF CREDIT RISK - Continued

Through May 2000,  the Company  utilized a lockbox system for the collection and
deposit of receipts on trade accounts  receivable for each operating  subsidiary
for the benefit of its then primary non-financial institution lender.

The Company uses a corporate cash concentration sweep account whereby all excess
cash funds are concentrated into one primary depository account with a financial
institution.  The Company and the  financial  institution  then  participate  in
uncollateralized   reverse-repurchase   agreements   which  are   settled  on  a
"next-business  day" basis for the investment of surplus cash funds. The Company
continues to have unsecured amounts invested in reverse repurchase agreements on
a daily basis  through  December  31,  2000.  As of December  31, 2000 and 1999,
respectively,  the  Company  had an  unsecured  outstanding  reverse  repurchase
agreement of approximately $-0- and $368,039,  respectively. The Company has not
incurred any losses as a result of any of these unsecured situations.

NOTE E - PROPERTY AND EQUIPMENT

Property and equipment consist of the following components:

                                                                    Estimated
                                          2000           1999      useful life
                                       ----------    ----------   -------------

         Building and improvements     $1,062,797    $1,030,269   5 to 25 years
         Equipment                      1,679,121     1,071,416   5 to 10 years
         Transportation equipment         240,607       218,618   3 to  5 years
         Furniture and fixtures           254,842       138,392     5 years
                                       ----------    ----------
                                        3,237,367     2,458,695
         Accumulated depreciation        (837,209)     (522,023)
                                       ----------     ---------
                                        2,400,158     1,936,672
         Land                              32,800        32,800
                                       ----------   -----------

         Net property and equipment    $2,432,958    $1,969,472
                                       ==========     =========

Total  depreciation  expense  charged to operations for the years ended December
31, 2000 and 1999 was approximately $321,986 and $233,282, respectively.

NOTE F - NOTE RECEIVABLE

In  December  1998,  the Company  acquired a $375,000  note  receivable  from an
unrelated individual payable by an unrelated corporation in exchange for 337,838
shares of  unregistered,  restricted  common stock.  The note  receivable  bears
interest  at 10.0% and is due and  payable  10 days after the  expiration  of an
option  which  the  Company  executed  to  acquire  100.0%  of  the  issued  and
outstanding  stock of the unrelated  corporation  making the note.  This note is
unsecured.

During the fourth  quarter of 2000,  the Company  became aware that the maker of
the  note  was  insolvent  and that  the  ultimate  realization  of the note was
doubtful. Accordingly, the note balance was charged to operations as of December
31, 2000.

                                                                            F-14

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE G - OPTION TO ACQUIRE AN UNRELATED ENTITY

Effective  December  1, 1998,  the Company  acquired  from an  unrelated  entity
certain assets for cash of $56,000.  The unrelated  entity is a concession  kart
manufacturer  located  in  Daytona  Beach,  Florida.  The  shareholders  of  the
unrelated entity ( Shareholders)  also granted the Company an option (Option) to
acquire 100.0% of the issued and  outstanding  shares of the unrelated  entity's
common stock based on a financial formula defined in the Option.

The Option  expires  upon the  expiration  of the 30-day  period  following  the
unrelated  entity's  fiscal year ending December 31, 2000. The Company issued to
the  Shareholders  an aggregate of 90,090 shares of Common Stock having a market
value of  approximately  $100,000  as payment  for the  Option.  The Option also
provides that unrelated entity can require the Company to exercise the Option if
unrelated  entity achieves  certain  financial goals during the Option term. The
Company  also  has  the  right  during  the  Option  term,  subject  to  certain
conditions,  to acquire for $100 certain intellectual property rights related to
the business of the unrelated entity.

The Company and  unrelated  entity also entered into a  manufacturing  agreement
(Manufacturing  Agreement) which provides that the Company will manufacture,  on
an exclusive basis, the unrelated  entity's  concession karts at a predetermined
per unit price. The Manufacturing Agreement will terminate on the later of March
31, 2001 or the date that the Option is terminated or exercised.

During the fourth quarter of 2000, the Company became aware of the insolvency of
the target company and, accordingly, provided for the abandonment and expiration
of this  option  as of  December  31,  2000  in the  accompanying  statement  of
operations.

NOTE H - NOTES PAYABLE TO BANKS AND OTHERS

The Company had two lines of credit with an aggregate  face value of $3,500,000.
One line of  credit  note was tied to the  Company's  aggregate  trade  accounts
receivable  balances,  not to exceed  $2,500,000  (A/R LOC).  The second line of
credit was tied to the Company's  aggregate  inventory  balances,  not to exceed
$1,000,000  (Inventory  LOC).  The total amounts which may be outstanding at any
one  time,  and the  corresponding  note  principal  advances,  are  tied to the
respective  "Borrowing  Base"  calculations  contained  in  the  Loan  Agreement
(Agreement).  During  the first  quarter of 2000,  the  lender  and the  Company
executed  two  additional  term notes in the amount of  $300,000  and  $930,000,
respectively.  These  notes  were of equal  term and  language  as the  lines of
credit.

These notes were paid in full during the second quarter of 2000.

As of December 31, 2000 and 1999,  respectively,  an aggregate of  approximately
$-0- and $2,724,005 was outstanding on these lines of credit and term notes. The
notes  required the interest and fees on the notes to be paid monthly and all of
the  Company's  trade  accounts  receivable  collections  are  deposited  to the
lender's benefit to a lockbox controlled by the lender.

The notes bore  interest at the Lender's Base Rate plus 3.0% (11.50% at December
31, 1999).  Further,  the Agreement  required a payment of a 1/12% servicing fee
per month on the face  amount of each  line of  credit  during  the term of each
respective line of credit.

                                                                            F-15

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE H - NOTES PAYABLE TO BANKS AND OTHERS - Continued

A recap of notes payable consist of the following:

                                                             2000        1999
                                                          ----------  ----------
         Accounts receivable line of credit               $     --    $1,724,915
         Inventory line of credit                               --       999,090
                                                          ----------  ----------

         Total notes payable                              $     --    $2,724,005
                                                          ==========  ==========

NOTE I - LONG-TERM DEBT TO RELATED PARTIES

Long-term debt consists of the following:

                                                             2000        1999
                                                          ----------  ----------
Four notes payable to the Company's Chairman
   of the Board aggregating $150,000.  Interest at
   12.0%.  Accrued interest payable monthly.
   Principal and accrued, but unpaid, interest is
   due on demand.  The notes are unsecured                $  150,000  $     --

$225,000 note payable to the Company's Chairman
   of the Board. Interest at 8.0%. Accrued interest
   payable monthly.  Principal and accrued, but
   unpaid, interest is due on demand.  The loan was
   unsecured                                                    --       212,055

$73,875 note payable to the former sole shareholder
   of Straight Line. Interest at 6.0%.  Principal only
   payment of $15,000  payable by January  31,  1999.
   Remaining principal and all accrued, but unpaid,
   interest is payable subject to the settlement of
   a product liability lawsuit against Straight Line
   Manufacturing, Inc. incurred prior to the Company's
   acquisition of Straight Line.  If the lawsuit is settled
   prior to March 31, 1999; 50.0% of the principal and
   all accrued,  but unpaid,  interest  will be due on
   October 1, 1999 and the balance will be due and payable
   on March  31,  2000.  If the lawsuit is settled between
   March 31, 1999 and March 31, 2000,  all principal
   and accrued, but unpaid,  interest will be due and
   payable 210 days after the lawsuit settlement date
   or March 31,  2000,  which ever is earlier.  If the
   lawsuit is settled after March 31, 2000, all principal
   and accrued, but unpaid, interest is due and payable
   30 days after the lawsuit settlement date.                   --        17,340
                                                          ----------  ----------

     Total related party long-term debt                   $  150,000  $  229,395
                                                          ==========  ==========



                                                                            F-16

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE J - LONG TERM DEBT TO BANKS AND OTHERS

Long-term  debt payable to banks and others consist of the following at December
31, 2000 and 1999:

                                                                                 2000             1999
                                                                             -----------      -----------
<S>                                                                          <C>              <C>
$22,678 capital lease payable to a finance company.
   Interest at 7.86%.  Payable in monthly installments
   of approximately $2,144, including accrued interest.
   Final payment due in April 2000.  Collateralized by
   equipment owned by Karts International Incorporated.                             --              6,792

Twocapital leases payable to a finance company
   aggregating $52,812.  Interest at 7.13% and 7.41%,
   respectively. Payable in monthly installments totaling
   approximately  $1,049,  including  accrued  interest.
   Final  payments due in August and September 2005,
   respectively. Collateralized by equipment owned by
   Karts International Incorporated.                                              49,701             --

Twocapital leases payable to a finance company
   aggregating  $9,011.  Interest at 28.83% and 16.95%,
   respectively. Payable in monthly installments totaling
   approximately $381, including accrued interest. Final
   payments due in November and June 2003, respectively.
   Collateralized by computer equipment owned by Karts
   International Incorporated.                                                     8,995             --

$20,770 installment note payable to a bank.  Interest
   at 7.75%.  Payable in monthly installments of
   approximately $419, including accrued interest.
   Final maturity in May 2002.  Collateralized by
   a vehicle owned by Brister's Thunder Karts, Inc.                                6,748           11,071

$23,122 installment note payable to a bank.  Interest
   at 8.25%.  Payable in monthly installments of
   approximately $726, including accrued interest.
   Final maturity in March 2001.  Collateralized by
   a vehicle owned by Brister's Thunder Karts, Inc.                                2,155           10,324

$17,829 installment note payable to a bank.  Interest at 8.25%.
   Payable in monthly installments of approximately $561,
   including accrued interest.  Final maturity in January 2002.
   Collateralized by a vehicle owned by Brister's Thunder Karts, Inc.              6,947           14,077

</TABLE>

                                                                            F-17

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE J - LONG TERM DEBT TO BANKS AND OTHERS - Continued

Long-term  debt payable to banks and others consist of the following at December
31, 2000 and 1999:

                                                                                  2000              1999
                                                                             ------------      ------------
<S>                                                                          <C>               <C>
$20,000 installment note payable to a bank.  Interest at 8.0%.
   Payable in monthly installments of approximately $406,
   including accrued interest.  Final maturity in June 2004.
   Collateralized by a vehicle owned by Brister's Thunder Karts, Inc.              14,802            18,322

$20,000 installment note payable to a bank.  Interest at 8.0%.
   Payable in monthly installments of approximately $406, including
   accrued interest.  Final maturity in July 2004.  Collateralized
   by a vehicle owned by Brister's Thunder Karts, Inc.                             15,092            18,587

$22,650 installment note payable to a bank.  Interest at 8.5%.
   Payable in monthly installments of approximately $466, including
   accrued interest.  Final maturity in October 2004.  Collateralized
   by a vehicle owned by Brister's Thunder Karts, Inc.                             17,849            21,706

$240,020 mortgage note payable to a bank.  Interest
   at the Bank's Commercial Base Rate (9.25% at
   December 31, 1998).  Payable in monthly installments
   of approximately $2,626, including accrued interest.
   Final maturity in August 2010.  Collateralized by
   land and a building owned by USA Industries, Inc.                              196,441           205,598

$18,198 installment note payable to a bank.  Interest
   at 8.25%.  Payable in monthly installments of
   approximately $572, including accrued interest.
   Final maturity in March 2001.  Collateralized by
   transportation equipment owned by USA
   Industries, Inc.                                                                 1,672             8,110

$14,000 installment note payable to an equipment
   finance company. Payable in monthly installments
   of approximately $345, including accrued interest.
   Final maturity in May 2002.  Collateralized by
   equipment owned by USA Industries, Inc.                                          5,501             8,995
                                                                             ------------      ------------

     Total long-term debt to banks and individuals                                325,904           323,582

     Less current maturities                                                      (56,025)          (57,482)
                                                                             ------------      ------------

     Long-term portion                                                       $    269,879      $    266,100
                                                                             ============      ============

</TABLE>

                                                                            F-18

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE J - LONG TERM DEBT TO BANKS AND OTHERS - Continued

Future maturities of long-term debt are as follows:

                                                       Year ending
                                                       December 31,     Amount
                                                       ------------    --------
                                                           2001        $ 56,025
                                                           2002          45,417
                                                           2003          44,657
                                                           2004          38,780
                                                           2005          28,260
                                                        2006 - 2010     112,765
                                                                       --------

                                                          Totals       $325,904
                                                                       ========

NOTE K - DEBENTURE PAYABLE

On June 3,  1999,  the  Company  consummated  a $1.5  million  convertible  loan
transaction  with The Schlinger  Foundation  (the  "Foundation"),  who is also a
shareholder in the Company.  The Foundation also purchased  500,000 shares of 9%
Preferred Stock at a price of $1.00 per share in the Company's  private offering
consummated  on June 30, 1999.  For his  assistance  to the Company in arranging
this  financing  with the  Foundation  and  others,  the  Company  paid Blair L.
benGerald,  a former director of the Company,  $205,000.  Mr. Blair L. benGerald
was not an officer or director of the Company when he received this payment.  On
May 17,  2000,  the  Company  and The  Foundation  entered  into an Amended  and
Restated Loan Agreement  which provided for the additional loan of $1,000,000 to
the Company at an interest rate equal to 3% plus the prime rate as quoted in The
Wall  Street  Journal.  Interest  is payable  on the $2.5  million  Amended  and
Restated  Term Note ("Term Note")  monthly as it accrues  commencing on June 30,
2000 and continuing on the last day of each successive month  thereafter  during
the term of the Term Note with the  principal of the Term Note being  payable in
one installment of unpaid principal and accrued unpaid interest on May 17, 2005.
The Term Note is  secured  with  guaranty  agreements  by each of the  Company's
wholly-owned  subsidiaries,  Straight Line Manufacturing,  Inc., USA Industries,
Inc., KINT, L.L.C. and Brister's Thunder Karts, Inc.  Additionally,  the Company
and each of its subsidiaries  have pledged  substantially all of their assets as
additional collateral for the Term Note.

The debenture  may be converted  into common stock of the Company at an exchange
rate of $0.375 per share at any time at the option of the  debenture  holder and
the Company may require  conversion if the closing price of the Company's common
stock is in  excess of $4.00 per share  for 25  consecutive  trading  days.  The
debenture  may be  prepaid  in total or in part on or after the 2nd  anniversary
date of the  debenture  upon 30 days  notice  being given by the Company and the
payment of a 12.0% liquidation charge of the amount being prepaid.



                                                                            F-19

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L - INCOME TAXES

The components of income tax (benefit)  expense for the years ended December 31,
2000 and 1999, respectively, are as follows:

                                          2000        1999
                                         --------    --------
       Federal:
         Current                         $   --      $(10,000)
         Deferred                            --           --
                                         --------    --------
                                             --       (10,000)
                                         --------    --------
       State:
         Current                          (52,204)     (7,144)
         Deferred                            --          --
                                         --------    --------
                                          (52,204)     (7,144)
                                         --------    --------

         Total                           $(52,204)   $(17,144)
                                         ========    ========

As of December 31, 2000,  the Company has a net operating loss  carryforward  of
approximately  $11,000,000 to offset future taxable  income.  Subject to current
regulations, this carryforward will begin to expire in 2012.

The Company's income tax expense for the years ended December 31, 2000 and 1999,
respectively, differed from the statutory federal rate of 34 percent as follows:

                                                                    2000           1999
                                                                -----------    -----------
<S>                                                             <C>            <C>
Statutory rate applied to earnings (loss) before income taxes   $(2,319,741)   $  (798,560)
Increase (decrease) in income taxes resulting from:
     State income taxes                                             (52,204)        (7,144)
     Other, including reserve for deferred tax asset              2,319,741        788,560
                                                                -----------    -----------

       Income tax expense                                       $   (52,204)   $   (17,144)
                                                                ===========    ===========
</TABLE>


NOTE M - RELATED PARTY TRANSACTIONS

The Company leases its  manufacturing  facilities  under an operating lease with
the former owner of Brister's,  who is also the Company's Chairman of the Board,
in addition to being a Company  shareholder  and director.  Concurrent  with the
1996 closing of the  acquisition of Brister's,  the Company and the former owner
executed a lease  agreement for a primary  two-year term which  expiring in 1998
and an additional  two-year renewal  extension which has expired as of September
30, 2000. The Company currently occupies its primary manufacturing facility on a
month-to-month  lease at a monthly  lease  payment of  approximately  $6,025 per
month.  Total  payments  under this  agreement  were  approximately  $72,300 and
$74,700 for each of the years ended December 31, 2000 and 1999, respectively.

Concurrent with the  acquisition of Brister's,  the Company and the former owner
of Brister's entered into a Real Estate Option Right of First Refusal Agreement.
This agreement  provides that the Company may, at its sole option,  purchase the
real property and improvements in Roseland,  Louisiana currently utilized by the
Company or its  subsidiary  for an aggregate  purchase  price of  $550,000.  The
option may be  exercised  commencing  on January 1, 1998 and expires on December
31, 2000.

                                                                            F-20

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE M - RELATED PARTY TRANSACTIONS - Continued

On August 1, 2000,  the Company and Charles  Brister,  the Company's  President,
entered into a license  agreement  (the "License  Agreement")  for  "Accelerator
Pedal Override  Apparatus for  Self-Propelled  Motorized Cart with Aligned Brake
and  Accelerated  Push-Rod  Type Operator  Pedals"  ("Pedal  Override")  and for
"Clutch Assembly for Chain Driven Cart" (the "Clutch Lube") which are subject to
certain patent rights owned by Mr. Brister. The term of the License Agreement is
for a period of three (3) years.  In August 2000,  the Company paid Mr.  Brister
$40,000 for arrearage  royalty fees covering the Pedal  Override and Clutch Lube
under a prior license agreement between the Company and Mr. Brister. Pursuant to
the  current  License  Agreement,  the  Company  has  agreed to pay Mr.  Brister
royalties  as  follows:  (i) the  greater  of $20,000 or the sum of a royalty of
$1.00 for each Company  product sold by the Company or any of its  affiliates or
subsidiaries  containing  or  utilizing  the Pedal  Override  during  the period
beginning  August 1, 2000 and ending July 31,  2001,  and a royalty of $0.50 for
each  Company  product  sold  by  the  Company  or  any  of  its  affiliates  or
subsidiaries containing or utilizing the Clutch Lube during the period beginning
August 1, 2000 and ending July 31, 2001,  (ii) the greater of $20,000 or the sum
of a royalty of $1.00 for each Company product sold by the Company or any of its
affiliates or subsidiaries containing or utilizing the Pedal Override during the
period beginning August 1, 2001 and ending July 31, 2002, and a royalty of $0.50
for  each  Company  product  sold by the  Company  or any of its  affiliates  or
subsidiaries containing or utilizing the Clutch Lube during the period beginning
August 1, 2001 and ending July 31, 2002, and (iii) the greater of $20,000 or the
sum of a royalty of $1.00 for each Company product sold by the Company or any of
its affiliates or subsidiaries containing or utilizing the Pedal Override during
the period  beginning  August 1, 2002 and ending July 31, 2003, and a royalty of
$0.50 for each Company  product sold by the Company or any of its  affiliates or
subsidiaries containing or utilizing the Clutch Lube during the period beginning
August 1, 2002 and ending  July 31,  2003.  The  Company  shall pay the  accrued
royalties  on January 1 and July 31 of each year  during the term of the License
Agreement.  Either party may  terminate the License  Agreement  upon thirty (30)
days  written  notice to the other party if the other  party  commits a material
breach of any term of the License Agreement and fails to cure such breach within
the 30-day period. Upon termination of the License Agreement for any reason, the
Company shall return to Mr. Brister the  technology and tangible  manifestations
or  copies  thereof  relating  to the Pedal  Override  and  Clutch  Lube and all
licenses granted under the License Agreement will be transferred and assigned by
the Company to Mr. Brister or to his designee.

On October 10, 2000, the Company  entered into a license  agreement with Charles
Brister (the "Technology Agreement") for the right to use a safety fuel tank and
filler cap  apparatus on its products (the  "Technology")  which is owned by Mr.
Brister under certain patents and patent  applications.  In consideration of the
grant of the license to the Technology, the Company agreed to pay Mr. Brister an
annual license fee of $250,000.  The first annual license fee payment is payable
in two equal  payments of $125,000 each,  with the first $125,000  payment being
paid to Mr.  Brister  in August  2000 and the  second  $125,000  payment  due on
December 31, 2000. The  Technology  Agreement is for a period of three (3) years
and shall be  automatically  renewed  annually  thereafter  unless either of the
parties  provides at least sixty (60) days  notice of  non-renewal  prior to the
termination  date of the  Technology  Agreement.  The  Technology  Agreement  is
subject to termination  for non-payment of the license fee and royalties and for
certain other reasons.  In addition to the annual  license fee of $250,000,  the
Company shall pay Mr. Brister a royalty of $1.00 for each Company  product which
utilizes the  Technology.  However,  in no event shall  royalties for a calendar
year for use of the  Technology on the Company's  products be less than $500,000
for the first full year of the Technology Agreement ending on December 31, 2001;
less than  $500,000 for the license year ending  December 31, 2002 and less than
$1,000,000 for the license year ending December 31, 2003 and thereafter.

                                                                            F-21

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE M - RELATED PARTY TRANSACTIONS - Continued

In the  event  that  royalties  for a license  year do not  equal  the  required
minimum,  Charles  Brister  may, at his option,  convert the  exclusive  license
granted  to the  Company to a  non-exclusive  license  without  the right of the
Company to  sub-license,  by thirty (30) days notice in writing to the  Company,
unless such  default is cured by the Company  within the 30-day  notice  period.
Subject to the terms of the  Technology  Agreement,  the Company  shall have the
right  to grant  sub-licenses  to  others  for  fees or at  royalty  rates to be
determined by the Company.  As sub-license income, the Company has agreed to pay
to Mr. Brister 50% of all license fees,  royalties,  advance royalties,  minimum
royalties  or other  payments  accrued or received in respect to the granting or
maintaining of sub-licenses,  provided, however, in no instance shall the amount
paid to Mr.  Brister  be less than $1.00 for each  product  which  utilizes  the
Technology.  Additionally,  the  Company  has  agreed  during  the  term  of the
Technology  Agreement to maintain product liability insurance naming Mr. Brister
as an  additional  insured to provide  protection  against  claims and causes of
action arising out of any defects or failure to perform of the  Technology.  The
amount of coverage shall be a minimum of $2,000,000  combined single limit, with
a deductible amount not to exceed $100,000 for each single occurrence for bodily
injury and/or property damage.

NOTE N - PREFERRED STOCK

Preferred stock consists of the following as of December 31, 2000 and 1999:

                                December 31, 2000       December 31, 1999
                              ---------------------   ---------------------
                               # shares   Par Value    # shares   Par Value
                              ---------   ---------   ---------   ---------

Convertible Preferred Stock   1,550,000   $   1,550   1,550,000   $   1,550
Series A Preferred Stock      4,000,000       4,000        --          --
Series B Preferred Stock         88,000          88        --          --
                              ---------   ---------   ---------   ---------

Total                         5,638,000   $   5,638   1,550,000   $   1,550
                              =========   =========   =========   =========

Through May 31, 1999, the Company sold $1,550,000 in Convertible Preferred Stock
(Preferred Stock) subject to a Private Placement Memorandum. The Preferred Stock
bears a dividend of 9.0%,  payable  semi-annually in either cash or common stock
of the Company.  The Preferred Stock is convertible  into shares of common stock
at a conversion  rate of $0.25 per share at the option of the holder at any time
between issuance and June 30, 2003. The Preferred Stock mandatorily  converts to
common stock on June 30, 2003. The Preferred  Stock is redeemable by the Company
on or after March 31, 2000,  in whole or part, at the option of the Company at a
redemption price of 109%, plus accrued  dividends,  if any. The dividend payable
at  December  31, 1999 was paid in  February  2000 with the  issuance of 225,022
shares of restricted, unregistered common stock.

                                                                            F-22

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE N - PREFERRED STOCK - Continued

In May  2000,  the  Company  authorized  the  issuance  of  4,000,000  shares of
Preferred Stock designated as "Series A Preferred Stock". These shares were sold
on May 17, 2000 for total gross proceeds of  $3,000,000.  The Series A Preferred
Stock bears a dividend at a rate of $0.075 per share per annum, payable on March
31, June 30,  September 30 and December 31,  commencing on June 30, 2000.  These
shares are  subject to a  liquidation  preference  equal to the sum of $0.75 per
share plus declared or accrued but unpaid  dividends.  The Company,  at its sole
option,  may redeem all or a portion  of the  issued  and  outstanding  Series A
Preferred  Stock on or after May 31, 2003 at a price of $1.50 per share plus all
declared or accrued but unpaid dividends.  The holders of the Series A Preferred
Stock have the right to convert  the issued and  outstanding  shares at any time
after the date of  issuance  at a rate of $0.375 per share plus all  declared or
accrued but unpaid dividends. These shares shall automatically be converted into
common  stock upon either the  Company's  sale of common stock with an aggregate
offering  price of  $10,000,000  and a per share  price of $5.00 and the written
consent or agreement of the holders of a majority of the then outstanding shares
of the Series A Preferred  Stock.  The dividend payable at December 31, 1999 was
paid in  February  2000 with the  issuance  of  225,022  shares  of  restricted,
unregistered common stock.

In October and November 2000, the Company sold an aggregate 88,000 shares of its
Series B Preferred  Stock to the  Foundation for $6,600,000 or $75.00 per share.
Each  share of Series B  Preferred  Stock is  convertible  at the  option of the
holder into 200 shares of Common Stock of the Company. Each outstanding share of
Series B  Preferred  Stock  has the  right to 200  votes at any  meeting  of the
stockholders of the Company.

The Company and the Foundation have entered into a Registration Rights Agreement
dated May 17,  2000,  and as amended on  October 9, 2000 which  granted  certain
registration  rights to the  Foundation  for the  shares of Common  Stock of the
Company  to be issued to the  Foundation  upon  conversion  of the  Series A and
Series B Preferred Stock.

NOTE O - COMMON STOCK TRANSACTIONS

During the first six months of 2000,  the Company  sold an  aggregate  1,639,995
shares of restricted,  unregistered common stock pursuant to a private placement
memorandum  for  gross  proceeds  of  approximately  $613,360.  Each  share  was
accompanied  by a  Warrant  to  purchase  one  additional  share of  restricted,
unregistered  common stock at a price of $0.50 per share.  These warrants expire
on May 31, 2005.

In February 2000, the Company issued 225,022 shares of restricted,  unregistered
common  stock for the payment of the  approximate  $69,757  dividend  payable at
December 31, 1999 on the Company's Convertible Preferred Stock.

In September 2000, the Company issued approximately 59,077 shares of restricted,
unregistered  common  stock in  settlement  of  outstanding  invoices  for legal
services with the Company's corporate product liability counsel in the aggregate
amount of  approximately  $14,700,  which  approximates  the "fair value" of the
number of shares issued in this transaction.

                                                                            F-23

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE P - COMMON STOCK WARRANTS

In  September  1997,  the Company  sold  155,000  Underwriter's  Warrants for an
aggregate price of $155 pursuant to a Registration Statement filed on Form SB-2.
Each  warrant  allows the  Underwriter  to purchase  one share of the  Company's
common  stock at $6.00 per share and one (1) 1997  Warrant at a price of $0.1875
per share.  The 1997  warrants are  described  in detail in the next  paragraph.
These warrants expire on September 9, 2002 if not exercised by the Underwriter.

In September and November  1997,  the Company sold,  pursuant to a  Registration
Statement  on Form SB-2,  an aggregate  1,782,500  warrants  (1997  Warrants) at
$0.125 each for gross proceeds of $222,813.  Each warrant entitles the holder to
purchase  one (1) share of the  Company's  common  stock at a price of $4.00 per
share  during the four year  period  commencing  on  September  9,  1998.  These
warrants  are  redeemable  by the  Company  at a  redemption  price of $0.01 per
warrant,  at any time after  September  9, 1998 upon  thirty  (30) days  written
notice to the  respective  warrant  holders if the average  closing price of the
Company's  common stock equals or exceeds $8.00 per share for the 20 consecutive
trading days ending three (3) days prior to the notice of redemption.

On March 9, 1999, the Company,  as  compensation  for waiving  certain events of
default and the amendment to the Company's loan  agreement with a  non-financial
institution  lender,  granted  the lender a stock  warrant to  purchase  100,000
shares of the  Company's  restricted,  unregistered  common  stock at a price of
$0.54 per share.  This warrant is exercisable at any time after its issuance and
expires four (4) years from its issuance.

In  conjunction  with the $300,000 and $930,000 term notes executed in the first
quarter of 2000,  the  Company  issued and  additional  50,000  warrants  to the
non-financial  institution  lender  at a price  of  $0.54  per  share  on  terms
identical to those discussed above.

In  conjunction  with a private  placement  of common stock during the first six
months of 2000, the Company issued 1,639,995  Warrants to purchase an equivalent
share of  common  stock  at a price  of $0.50  per  share.  These  warrants  are
redeemable  by the Company at a price of $0.01 per Warrant at any time after the
first anniversary of the "Final Closing Date" upon 30 days written notice to the
Warrant  holders,  if the average  closing price of the  Company's  common stock
equals or exceeds  $1.50 per share for the 20  consecutive  trading  days ending
three days prior to the date of the notice of redemption.  These Warrants expire
on May 31, 2005.

                                 Warrants        Warrants
                                originally    outstanding at
                                  issued     December 31, 2000    Exercise price
                                ----------   -----------------   ---------------

Underwriter's Warrants            155,000          155,000       $4.00 per share
1997 Warrants                   1,782,500        1,782,500       $4.00 per share
Lender's Warrants                 150,000          150,000       $0.54 per share
2000 Warrants                   1,639,995        1,639,995       $0.50 per share
                                ---------        ---------

Totals at December 31, 2000     3,727,495        3,727,495
                                =========        =========



                                                                            F-24

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE Q - STOCK OPTIONS

The Company's  Board of Directors has allocated an aggregate  125,377  shares of
the Company's common stock for unqualified stock option plans for the benefit of
employees of the Company and its subsidiaries.

During  1996,  the  Company  granted  options to purchase  59,355  shares of the
Company's   common  stock  to  employees  of  the  Company  and  its   operating
subsidiaries  at an exercise  price of $5.63 per share.  These options expire at
various times during 2001.

On January 30,  1997,  the Board of  Directors  of the  Company  adopted a stock
option plan  providing for the  reservation  of an  additional  66,667 shares of
common stock for options to be granted to  employees of the Company.  Concurrent
with this action,  the Company  granted  options to purchase 6,667 shares of the
Company's  common  stock at a price of $4.875 per shares to the  Company's  then
Chief  Financial  Officer and the  Company's  Vice  President of  Marketing  (VP
Options).  These  options are  exercisable  after January 30, 1998 and expire on
January 30, 2002. The options  granted to the Company's  former Chief  Financial
Officer expired concurrent with his termination in the first quarter of 1998.

Further,  on January  30,  1997,  the  Company  granted  options to  purchase an
aggregate  52,670  shares of the  Company's  common  stock to  employees  of the
Company  and its  operating  subsidiaries  at an  exercise  price of $4.875  per
post-split  share.  These  options are  exercisable  after  January 30, 1998 and
expire on January 30, 2002.

During 1998,  the Company  granted an aggregate  265,000  options to purchase an
equivalent number of shares of restricted, unregistered common stock to officers
and employees in conjunction with the employment of such officers and employees.
These options are  exercisable  at prices  ranging from $1.06 per share to $3.50
per share. Concurrent with the termination of a Company officer,  210,000 of the
granted 1998 options  terminated.  The remaining options are exercisable between
March 1999 and December 1999 and expire between March 2003 and December 2003.

In January 1999, as part of the Separation Agreement between the Company and its
then President and Chief Executive  Officer,  the Company issued this individual
options to purchase 15,000 shares of Common Stock at an option exercise price of
$1.06 per share.  This option was granted to replace options to purchase 200,000
shares of common  stock which were  effectively  canceled at  separation.  These
options are vested and expire on January 20, 2004.

During the fourth quarter of 1999, the Company granted options to its President,
Vice President of Administration and various employees.  These options vested in
various  amounts  over a period  from grant  through  three years from the grant
date.  These  options,  if not  exercised,  expire  between the fourth and fifth
anniversary date of the option grant. These options are summarized as follows:

                                              Options granted    Exercise price
                                              ---------------   ----------------

  President options                               450,000       $0.375 per share
  Vice President of Administration options        225,000       $0.375 per share
  Employee options                                  3,000       $0.375 per share
  Employee options                                117,000       $0.31  per share

Concurrent  with a settlement and release  agreement  reached with the Company's
former Vice President of Administration in the third quarter of 2000, 125,000 of
the granted 1999 options were terminated.

                                                                            F-25

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE Q - STOCK OPTIONS - Continued

The  options  that were  granted to  employees  during 1996 and 1997 to purchase
46,953 shares of Common Stock  originally  were issued at per share  exercisable
prices of $4.88 to $5.63 and expire  periodically at various times until January
31, 2003. The exercise price of these options was reduced to $0.375 per share by
the Board of Directors on August 21, 2000.

There were no exercise of any options  during the years ended  December 31, 2000
and 1999.  The  following  table  summarizes  all options  granted  from 1996 to
December 31, 2000.

                    Options    Options     Options     Options    Exercise price
                    granted   exercised  terminated  outstanding     per share
                   ---------  ---------  ----------  -----------  --------------
  1996 options        59,335          -      37,411       21,924      $0.375
  1997 VP options     13,334          -       6,667       6,667       $0.375
  1997 options        52,670          -      41,777      10,893       $0.375
  1998 options       265,000          -     230,000      35,000       $0.375
  1999 options       810,000          -     133,000     677,000   $0.31 - $0.688
                   ---------  ---------   ---------   ---------

  Totals           1,200,339          -     448,855     751,484
                   =========  =========   =========   =========

The weighted  average  exercise price of all issued and  outstanding  options at
December 31, 2000 and 1999, respectively, was $0.35 and $1.07.

Had  compensation  cost for options  granted been  determined  based on the fair
values at the grant dates, as prescribed by SFAS 123, the Company's net loss and
net loss per share would not have changed significantly as the exercise price of
the options was relatively equivalent to the market price at the grant date.

The  calculations  to estimate the fair value of the options were made using the
Black-Scholes pricing model which required making significant assumptions. These
assumptions include the expected life of the options, which was determined to be
one year, the expected volatility,  which was based on fluctuations of the stock
price over a 12 month  period,  the expected  dividends,  determined  to be zero
based on past performance,  and the risk free interest rate, which was estimated
using  the  bond  equivalent  yield  of 6.0% at  December  31,  2000  and  1999,
respectively.

1998 and 2000 Stock Compensation Plan
-------------------------------------

On May 27,  1998,  the  stockholders  of the  Company  approved  the 1998  Stock
Compensation  Plan of Karts  International  Incorporated  (the "1998  Plan") and
reserved  1,000,000 shares of Common Stock for issuance under the plan. The 1998
Plan terminates on April 1, 2008 unless  previously  terminated by the Board. On
December  12,  2000,  the  stockholders  of the Company  approved the 2000 Stock
Compensation Plan (the "2000 Plan"),  which initially reserves 750,000 shares of
Common Stock for issuance  under the 2000 Plan.  The 2000 Plan was  effective on
October 19, 2000 and terminates on October 19, 2010. The 1998 Plan and 2000 Plan
are both  administered by the  Compensation  Committee (the  "Committee") or the
entire Board.

The 1998 and 2000 Plans have similar terms.  Eligible  participants  in the both
the 1998 and 2000 Plans include full time  employees,  directors and advisors of
the Company and its subsidiaries.  Options granted under the 1998 and 2000 Plans
are intended to qualify as "incentive stock options"  pursuant to the provisions
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options which do not constitute incentive stock options ("nonqualified options")
as determined by the Committee.

                                                                            F-26

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE Q - STOCK OPTIONS - Continued

Under the 1998 and 2000  Plans the  Company  may also grant  "Restricted  Stock"
awards.  "Restricted Stock" represents shares of Common Stock issued to eligible
participants  under the 1998 and 2000 Plans subject to the  satisfaction  by the
recipient of certain conditions and enumerated in the specific  Restricted Stock
grant.  Conditions,  which may be  imposed,  include,  but are not  limited  to,
specified periods of employment, attainment of personal performance standards or
the  overall  performance  of the  Company.  The  granting of  Restricted  Stock
represents an additional incentive for eligible participants under the 1998 Plan
to promote the  development  of the  Company,  and may be used by the Company as
another means of  attracting  and retaining  qualified  individuals  to serve as
employees of the Company or its subsidiaries.

Incentive  stock  options may be granted  only to  employees of the Company or a
subsidiary  who,  in the  judgment of the  Committee,  are  responsible  for the
management or success of the Company or a subsidiary and who, at the time of the
granting of the incentive stock option, are either an employee of the Company or
a  subsidiary.  No incentive  stock option may be granted under the 1998 Plan or
2000 Plan to any  individual  who  would,  immediately  before the grant of such
incentive stock option, directly or indirectly,  own more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company unless
(i) such incentive  stock option is granted at an option price not less than one
hundred  ten percent  (110%) of the fair market  value of the shares on the date
the  incentive  stock  option is granted and (ii) such  incentive  stock  option
expires on a date not later than five  years from the date the  incentive  stock
option is granted.

The purchase  price of the shares of the Common Stock offered under the 1998 and
2000 Plans must be one hundred  percent  (100%) of the fair market  value of the
Common Stock at the time the option is granted or such higher  purchase price as
may be determined by the Committee at the time of grant;  provided,  however, if
an incentive  stock option is granted to an  individual  who would,  immediately
before the grant,  directly or indirectly own more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company, the purchase
price of the shares of the Common Stock covered by such  incentive  stock option
may not be less than one hundred ten percent  (110%) of the fair market value of
such shares on the day the  incentive  stock  option is  granted.  If the Common
Stock is listed upon an established stock exchange or exchanges, the fair market
value of the Common Stock shall be the highest closing price of the Common Stock
on the day the option is granted  or, if no sale of the Common  Stock is made on
an  established  stock  exchange on such day, on the next preceding day on which
there  was a sale of such  stock.  If there is no market  price  for the  Common
Stock,  then the Board and the Committee  may,  after taking all relevant  facts
into consideration, determine the fair market value of the Common Stock.

Under the 1998 and 2000 Plans, an individual may be granted one or more options,
provided that the aggregate fair market value (determined at the time the option
is granted) of the shares covered by incentive options, which may be exercisable
for the first time during any calendar year, shall not exceed $100,000.

Options are  exercisable  in whole or in part as provided under the terms of the
grant,  but in no event shall an option be  exercisable  after the expiration of
ten years  from the date of grant.  Except in case of  disability  or death,  no
option shall be  exercisable  after an optionee  ceases to be an employee of the
Company,  provided  that the  Committee  has the  right to  extend  the right to
exercise  for a period  not  longer  than  three  months  following  the date of
termination  of  an  optionee's  employment.  If  an  optionee's  employment  is
terminated by reason of disability, the Committee may extend the exercise period
for a period not in excess of one year  following the date of termination of the
optionee's employment.

                                                                            F-27

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE Q - STOCK OPTIONS - Continued

 If an optionee dies while in the employ of the Company and shall not have fully
exercised  his options,  the options may be exercised in whole or in part at any
time  within  one  year  after  the   optionee's   death  by  the  executors  or
administrators of the optionee's estate or by any person or persons who acquired
the option directly from the optionee by bequest or inheritance.

There presently are outstanding  options granted under the 1998 Plan to purchase
712,000  shares of Common  Stock at prices  ranging  from  $0.3125  to $3.50 per
share,  which options expire  periodically  from August 21, 2001 to December 31,
2005. On August 21, 2000, the Board of Directors approved lowering to $0.375 per
share  the  exercise  price  on  all  outstanding  employee  options  that  were
exercisable  at a price greater than $0.375 per share.  The Board  believed this
action was in the best  interest of the Company since  substantially  all of the
outstanding  employee  options  were  granted  at per share  exercisable  prices
significantly  greater  than the current  market price of the  Company's  Common
Stock, which has ranged from $.25 to $.50 per share.

As of December 31, 2000, no options have been granted under the 2000 Plan.

NOTE R - COMMITMENTS AND CONTINGENCIES

Building Lease
--------------

On May 16,  2000,  the  Company  executed  a lease  agreement  with  the Town of
Roseland Louisiana for a new production  facility.  The Company paid or accrued,
upon execution, approximately $200,000, which constitutes 100.0% of the required
lease  payments  for both the initial  lease term from  October 1, 2000  through
September  30,  2007 and the  option  lease term from  October  1, 2007  through
September 30, 2009. The unamortized  portion of this agreement is reflected as a
component of prepaid expenses in the accompanying financial statements.

Litigation
----------

The Company and/or it's operating  subsidiaries  are as  defendant(s) in several
product liability  lawsuits related to its "fun karts".  The Company has had and
continues  to have  commercial  liability  insurance  coverage  to  cover  these
exposures  with a $50,000 per claim  deductible  as of September  30, 2000.  The
Company is  vigorously  contesting  each  lawsuit and has  accrued  management's
estimation  of the  Company's  exposure  in each  situation.  Additionally,  the
Company  maintains  a reserve  for future  litigation  equal to the "per  claim"
self-insurance  amount times the  four-year  rolling  average of lawsuits  filed
naming the Company as a defendant.

The Company  anticipates no material impact to either the results of operations,
its financial  condition or liquidity  based on the  uncertainty of outcome,  if
any, of existing litigation,  either collectively and/or  individually,  at this
time.

                                                                            F-28

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE R - COMMITMENTS AND CONTINGENCIES - Continued

Employment agreements
---------------------

Effective  January 30, 1998,  the Company  entered into an Employment  Agreement
(Agreement)  with an individual  to serve as the  Company's  President and Chief
Executive  Officer  (President).  The Agreement is for a term of three (3) years
and  provides  the  President  with an  annual  base  salary of  $150,000.  Upon
execution of this Agreement,  the President  received  options to purchase up to
200,000  shares of the Company's  common stock at an exercise price of $3.25 per
share.  The options  vest as  follows:  100,000  shares as of January 30,  1999;
50,000 shares as of January 31, 2000;  50,000 shares as of January 31, 2001. All
unvested  options vest  immediately  upon the  termination  of the  Agreement if
termination is for reason other than "for cause",  and all  unexercised  options
expire on January 31, 2003.  The President may also receive  annual  performance
based  stock  options to purchase up to 50,000  shares of the  Company's  common
stock at a price equal to the market value of the Company's  common stock on the
date of issuance,  as  determined by the  Company's  Board of Directors,  and an
annual cash bonus not to exceed 15.0% of the annual base salary.

In January 1999, this individual resigned as President,  Chief Executive Officer
and as a director of the Company and the Company and the individual entered into
a Settlement  Agreement and Full and Final Release of All Claims (Agreement) for
the purpose of satisfying and  discharging all obligations of the Company to the
individual under the Agreement.  This Agreement  provides that the Company shall
forgive up to $19,000 of  non-reimbursable  expenses  incurred by the individual
and pay to for one week of earned vacation.  In consideration for the foregoing,
the   former   President   agreed   to  adhere   to  the   non-competition   and
non-solicitation  covenants set forth in the Employment  Agreement until January
13, 2001. As part of his separation from the Company,  the Company issued to the
individual  options  to  purchase  15,000  shares of  Common  Stock at an option
exercise  price of $1.06 per share which were  granted to replace the options to
purchase  200,000  shares of common  stock  which were  effectively  canceled at
separation. These options are vested and expire on January 20, 2004.

On  October  27,  1998,  the  Company  entered  into  an  Employment   Agreement
(Agreement) with the former sole shareholder of Straight Line for the individual
to serve  as the  President  of the  Straight  Line  subsidiary  (Straight  Line
President). The Agreement is for a term of three (3) years with an automatic one
year extension unless either the Company or the Straight Line President provides
a thirty (30) day written notice not to continue the  Agreement.  This Agreement
provides the Straight Line President with an annual base salary of $80,000. Upon
execution of this  Agreement,  the Straight Line President  received  options to
purchase up to 10,000 shares of the Company's  common stock at an exercise price
equal to the closing bid price of the  Company's  common  stock as quoted on the
NASDAQ SmallCap market. This individual was terminated for cause during 1999 and
this agreement terminated with no future benefits due to the individual.

                                                                            F-29

<PAGE>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE R - COMMITMENTS AND CONTINGENCIES - Continued

Employment agreements - continued
---------------------

On October 19, 1999,  the  Company's  Board of Directors  ratified an Employment
Agreement  (Agreement) with Charles Brister to serve as the Company's  President
and Chief Executive Officer.  The Agreement term was effective as of February 1,
1999  and  expires  on the  third  anniversary  date  of the  Agreement  with an
automatic one year extension unless either the Company or the President provides
a thirty (30) day written notice not to continue the  Agreement.  This Agreement
provides the President  with an annual  salary of $150,000 per year,  payable in
either common stock of the Company or cash. At the end of each calendar  quarter
during the first  calendar  year of this  Agreement,  the Company  shall pay the
President a cash portion to satisfy the President's  estimated federal and state
tax liability and the balance shall be paid in shares of common stock calculated
based on the closing bid price of the  Company's  common  stock as quoted at the
end of each  quarter.  Further,  the President  was granted  450,000  options to
purchase  shares of the Company's  common stock at 100% of the closing bid price
of the Company's common stock on the  ratification  date and the options vest as
follows:  100,000 at the  ratification  date of this  Agreement;  150,000 on the
second anniversary date of this Agreement;  and 200,000 on the third anniversary
date of this Agreement.  Additionally,  the President may be eligible to receive
an annual  bonus  which  shall be in the form of (a)  options to  purchase up to
50,000 shares of the Company's  common stock,  which shall vest immediately upon
grant and expire five years from the grant date and (b) cash,  not to exceed 15%
of the President's base salary.

On June 1, 2000,  and as amended on October 23,  2000,  Charles  Brister and the
Company  executed an Amended  Employment  Agreement which superceded the October
19, 1999 Agreement discussed above. Under the Amended Employment Agreement,  Mr.
Brister will serve the Company as President  and Chief  Executive  Officer for a
period  of  three  years  beginning  June 1,  2000  with an  automatic  one-year
extension  unless either the Company or Mr.  Brister  provides a 30-day  written
notice not to continue the Amended Employment Agreement.  The Amended Employment
Agreement  provides  Mr.  Brister  with an annual  salary of  $200,000  per year
payable in cash in accordance with the Company's established payroll procedures,
which  may be  increased  at any time at the  sole  discretion  of the  Board of
Directors of the Company.  Additionally, Mr. Brister was granted 350,000 options
to purchase shares of the Company's Common Stock at the closing bid price of the
Company's  Common  Stock  as of  August  21,  2000.  The  options  vest  and are
exercisable as follows:  (a) options to purchase 100,000 shares vested on August
21,  2000 at an  exercise  price of $0.375 per share;  (b)  options to  purchase
100,000 shares shall vest and be exercisable upon the second anniversary date of
the Amended  Employment  Agreement;  and (c) options to purchase  150,000 shares
shall vest and be  exercisable  upon the third  anniversary  date of the Amended
Employment Agreement. The options expire June 1, 2005. Additionally, Mr. Brister
may be  eligible  to receive an annual  bonus  which shall be in the form of (a)
options to purchase up to 50,000  shares of the Company's  Common  Stock,  which
options  shall vest  immediately  upon  issuance and shall expire five (5) years
from the date of  grant,  and (b) cash in an  amount  established  by an  annual
performance-based  management  bonus program which will be approved by the Board
of Directors. Subject to certain exceptions, if the Amended Employment Agreement
is terminated  by the Company or Mr.  Brister as a result of a change in control
(as defined in the Amended Employment Agreement),  Mr. Brister shall be entitled
to a cash payment of $200,000 and the immediate  vesting of all options  granted
but not yet vested at the effective date of such change in control,  as full and
final  satisfaction  of all  obligations  due and  owing to Mr.  Brister  by the
Company  under  the  terms of the  Amended  Employment  Agreement.  Mr.  Brister
resigned as President  and Chief  Executive  Officer on February 5, 2001 and was
elected  to  serve  as  Chairman  of the  Board.  This  resignation  voluntarily
terminated this employment agreement.

                                                                            F-30

<PAGE>
<TABLE>
<CAPTION>

                KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE R - COMMITMENTS AND CONTINGENCIES - Continued

Letter of Credit
----------------

On March 1, 2001, the Company  executed a $12,000 letter of credit in favor of a
utility  company to secure  service to the  Company's  new facility in Roseland,
Louisiana.

NOTE S - SIGNIFICANT CUSTOMERS

During  the  year  ended  December  31,  2000,  the  Company  had  one  customer
responsible  for more than 10.0% of total net sales.  Total sales to this entity
totaled  approximately 12.0% of total net sales. During 2000, the Company had no
other single or related groups of customers that  aggregated  more than 10.0% of
total net sales.

During  the  year  ended  December  31,  1999,  the  Company  had  one  customer
responsible  for more than 10.0% of total net sales.  Total sales to this entity
totaled 11.0% of total net sales.  During 1999,  the Company had no other single
or related  groups of  customers  that  aggregated  more than 10.0% of total net
sales.

NOTE T - SELECTED FINANCIAL DATA (Unaudited)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2000 and 1999, respectively.

                              Quarter ended   Quarter ended   Quarter ended   Quarter ended    Year ended
                                March 31,       June 30,      September 30,   December 31,    December 31,
                              ------------    ------------    ------------    ------------    ------------
<S>                           <C>             <C>             <C>             <C>             <C>
Calendar 2000
-------------
   Net revenues               $    948,750    $  1,840,657    $  2,104,600    $  3,960,336    $  8,854,343
   Gross profit                     83,134        (387,315)       (606,539)     (1,153,562)     (2,064,282)
   Net earnings
     from operations              (540,261)     (1,068,939)     (1,697,520)     (2,203,140)     (5,509,860)
   Basic and fully
     diluted earnings
     per share                $      (0.12)   $      (0.16)   $      (0.24)   $      (0.29)   $      (0.98)
   Weighted-average
     number of shares
     issued and outstanding      5,710,904      `7,164,009       7,448,283       7,498,392       6,956,046

Calendar 1999
-------------
   Revenues                   $  1,203,359    $  2,462,403    $  3,013,124    $  5,318,899    $ 11,997,785
   Gross profit                   (169,160)        189,978         248,865         397,911         667,594
   Net earnings
     from operations              (708,387)       (340,526)       (483,516)       (630,372)     (2,162,801)
   Basic and fully
     diluted earnings
     per share                $      (0.12)   $      (0.07)   $      (0.10)   $      (0.13)   $      (0.42)
   Weighted-average
     number of shares
     issued and outstanding      5,574,298       5,574,298       5,574,298       5,574,298       5,574,298

</TABLE>


                                                                            F-31

<PAGE>



                                INDEX TO EXHIBITS
                                -----------------

   Exhibit
   Number                           Description of Exhibit
--------------  ----------------------------------------------------------------
    3.4+        Amended and  Restated  Bylaws of the Company  effective  May 16,
                2000.
    3.5+        Certificate   of   Amendment  to  the   Company's   Articles  of
                Incorporation  as filed on  January  19,  2001  with the  Nevada
                Secretary of State.
    4.10+       Certificate of Designation Establishing Series B Preferred Stock
                of the Company filed with the Secretary of State of the State of
                Nevada on October 6, 2000.
    4.11+       Certificate of Designation Establishing Series A Preferred Stock
                of the  Company  as  filed  on May  17,  2000  with  the  Nevada
                Secretary of State.
    9.1+        Voting Agreement dated as of May 17, 2000, executed by and among
                the Company,  the Schlinger  Foundation  ("Schlinger"),  Charles
                Brister and Richard N. Jones.
   10.47+       Employment Agreement  dated June 1, 2000 between the Company and
                Charles Brister.
   10.48+       Amendment  No.  1  dated  October  23,  2000  to the  Employment
                Agreement  dated June 1, 2000  between  the  Company and Charles
                Brister.
   10.49+       Amended and Restated Loan Agreement dated May 17, 2000, executed
                by the Company, as Borrower, and Schlinger, as Lender.
   10.50+       Promissory  Note dated May 17, 2000 in the  principal  amount of
                $2.5 million payable by the Company to Schlinger.
   10.51+       Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                Straight Line  Manufacturing,  Inc., a subsidiary of the Company
                ("SLM"),  to guarantee payment of the Note referenced in Exhibit
                10.51.
   10.52+       Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                USA  Industries,  Inc., a subsidiary  of the Company  ("USA") to
                guarantee payment of the Note referenced in Exhibit 10.51.
   10.53+       Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                KINT,  L.L.C., a subsidiary of the Company ("KINT") to guarantee
                payment of the Note referenced in Exhibit 10.51.
   10.54+       Amended and Restated  Guaranty  dated May 17, 2000,  executed by
                Brister's  Thunder  Karts,  Inc.,  a  subsidiary  of the Company
                ("Brister's")  to guarantee  payment of the Note  referenced  in
                Exhibit 10.51.
   10.55+       Amended and Restated Pledge and Security Agreement dated May 17,
                2000,  executed by the Company in favor of  Schlinger  to secure
                payment of the $2.5 million Note referenced in Exhibit 10.51.
   10.56+       Form of Amended and Restated Pledge and Security Agreement dated
                May 17, 2000, executed by SLM and Schlinger to secure payment of
                the $2.5 million Note  referenced in Exhibit 10.51 (exhibits and
                schedules omitted).
   10.57+       Form of Amended and Restated Pledge and Security Agreement dated
                May 17, 2000, executed by USA and Schlinger to secure payment of
                the $2.5 million Note  referenced in Exhibit 10.51 (exhibits and
                schedules omitted).
   10.58+       Form of Amended and Restated Pledge and Security Agreement dated
                May 17, 2000,  executed by KINT and Schlinger to secure  payment
                of the $2.5 million Note  referenced in Exhibit 10.51  (exhibits
                and schedules omitted).
   10.59+       Form of Amended and Restated Pledge and Security Agreement dated
                May 17,  2000,  executed by  Brister's  and  Schlinger to secure
                payment of the $2.5 million  Note  referenced  in Exhibit  10.51
                (exhibits and schedules omitted).
   10.60+       Stock Purchase Agreement between the Company and Schlinger dated
                May 17, 2000 regarding the sale of 4,000,000  shares of Series A
                Preferred  Stock of the Company to  Schlinger  for an  aggregate
                purchase price of $3,000,000 (exhibits and schedules omitted).
   10.61+       Registration Rights Agreement dated as of May 17, 2000, executed
                by the Company and Schlinger.

<PAGE>

   10.62+       Stock  Purchase  Agreement  dated  October 9, 2000  between  the
                Company and the  Schlinger  Foundation  in  connection  with the
                purchase  by  Schlinger  of 73,333  shares of Series B Preferred
                Stock  of  the  Company  for  an  aggregate  purchase  price  of
                $5,500,000 (exhibits and schedules omitted).
   10.63+       Stock Purchase  Agreement  between the Company and the Schlinger
                Foundation dated November 28, 2000 regarding the purchase by the
                Foundation of 14,667  shares of Series B Preferred  Stock of the
                Company for an aggregate purchase price of $1,100,000  (exhibits
                and schedules omitted).
   10.64+       License  Agreement  dated August 1, 2000 between the Company and
                Charles  Brister  providing  for the  Company  to use the  pedal
                override  and clutch  lube  systems on its  products  held under
                certain patent rights by Charles Brister.
   10.65+       License Agreement dated October 10, 2000 between Charles Brister
                and the  Company  to  market  safety  fuel tank and  filler  cap
                apparatus  which is held under certain  patent rights by Charles
                Brister.
   10.66+       License  Agreement  between  Polaris  Industries and the Company
                dated January 6, 2000.
   10.67+       Amendment No. 1 to Registration  Rights  Agreement dated October
                9, 2000 by and among the Company and Schlinger.
    27.1+       Financial Data Schedule

-------------------------
+  Filed herewith.