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

                                   FORM 10-KSB
(Mark One)

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

     For the fiscal year ended December 31, 2000

                                       OR

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

     For the transition period from _____ to _____

Commission File Number  000-30115

              KUSHI NATURAL FOODS CORP.
(Exact name of Small Business Issuer as specified in its charter.)

         DELAWARE                                            13-3912047
(State of other jurisdiction of                             (IRS Employer
incorporation or organization)                            Identification No.)

                      c/o Madison Venture Capital II, Inc.,
                 150 East 58th Street, New York, New York 10022
         (Address of principal executive offices, including zip code.)

                                 (212) 583-1363
               (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

                                                  Name of Each Exchange
         Title of Each Class                      on Which Registered
         -------------------                      -------------------
                None                                      None

Securities registered under Section 12(g) of the Exchange Act:

                         COMMON STOCK, PAR VALUE $.0001
                         ------------------------------
                                (Title of Class)

Check whether the issuer:  (1) Filed all reports required to be filed by Section
13 or 14(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                                  Yes [X]   No [_]

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

State issuer's revenues for its most recent fiscal year:  $0.


<PAGE>

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference to the lack of average bid and asked prices of such stock on March
28, 2000 was $0.00.

The number of shares  outstanding  of the issuer's  common stock as of March 28,
2000 was 10,588,718.

Transitional Small Business Disclosure Format (check one):   Yes [_]   No [X]


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<PAGE>

FORWARD LOOKING STATEMENTS

THIS FORM 10-KSZB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY KUSHI
NATURAL FOODS CORP.  (HEREINAFTER REFERRED TO AS "KUSHI AND/OR THE "COMPANY") OR
ITS  REPRESENTATIVES  CONTAIN  STATEMENTS WHICH MAY CONSTITUTE  "FORWARD-LOOKING
STATEMENTS"  WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF  1995.  FIFTEEN  U.S.C.A.  SECTIONS  77Z-2  AND  78U-5  (SUPP.  1996).  THOSE
STATEMENTS   INCLUDE  STATEMENTS   REGARDING  THE  INTENT,   BELIEF  OR  CURRENT
EXPECTATIONS  OF  KUSHI  AND  MEMBERS  OF ITS  MANAGEMENT  TEAM  AS  WELL AS THE
ASSUMPTIONS  ON WHICH SUCH  STATEMENTS  ARE  BASED.  PROSPECTIVE  INVESTORS  ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING  STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE  AND INVOLVE RISKS AND  UNCERTAINTIES,  AND THAT ACTUAL  RESULTS MAY
DIFFER MATERIALLY FROM THOSE  CONTEMPLATED BY SUCH  FORWARD-LOOKING  STATEMENTS.
IMPORTANT  FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN  FORWARD-LOOKING  STATEMENTS ARE SET FORTH IN
THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING  STATEMENTS INCLUDED AS
EXHIBIT  99.1 TO THIS  FORM  10-SB12G,  AND ARE  HEREBY  INCORPORATED  HEREIN BY
REFERENCE.   THE  COMPANY   UNDERTAKES   NO   OBLIGATION  TO  UPDATE  OR  REVISE
FORWARD-LOOKING  STATEMENTS TO REFLECT  CHANGED  ASSUMPTIONS,  THE OCCURRENCE OF
UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.

RISK FACTORS

1. Control by Principal Shareholders, Officers and Directors.

     The  Company's   principal   shareholders,   officers  and  directors  will
beneficially  own  approximately  ninety  percent (90%) of the Company's  Common
Stock. As a result, such persons may have the ability to control the Company and
direct its affairs and business.  Such  concentration of ownership may also have
the  effect of  delaying,  deferring  or  preventing  change in  control  of the
Company. See "Principal Stockholders."

2. Conflicts of Interest.

     None of the  Company's  management is engaged by the Company on a full time
basis.  In addition,  both Dr. Eugene Stricker and Mark Schindler are engaged in
the  venture  capital   business   through  entities  other  than  the  Company.
Accordingly,  certain  conflicts of interest  exist  between the Company and its
officers and directors.  They have other business interests to which they devote
their  attention,  and they may be  expected  to continue to do so. As a result,
conflicts of interest may arise that can be resolved only through their exercise
of such  judgment as is  consistent  with each  officer's  understanding  of his
fiduciary duties to the Company. See "Management," and "Conflicts of Interest."


                                        3

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3. Possible Need for Additional Financing.

     The Company has very limited  funds,  and such funds may not be adequate to
take advantage of any available  business  opportunities.  Even if the Company's
funds  prove  to be  sufficient  to  acquire  an  interest  in,  or  complete  a
transaction  with,  a business  opportunity,  the  Company  may not have  enough
capital to exploit  the  opportunity.  The  ultimate  success of the Company may
depend  upon its  ability  to raise  additional  capital.  The  Company  has not
investigated  the   availability,   source,  or  terms  that  might  govern  the
acquisition of additional  capital and will not do so until it determines a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available,  that they can be
obtained on terms  acceptable to the Company.  If not  available,  the Company's
operations  will be  limited  to those  that  can be  financed  with its  modest
capital.

4. Regulation of Penny Stocks.

     The  Company's  securities,  if and when  available  for  trading,  will be
subject to a Securities and Exchange  Commission rule that imposes special sales
practice  requirements upon  broker-dealers  who sell such securities to persons
other than established  customers or accredited  investors.  For purposes of the
rule, the phrase  "accredited  investors" means, in general terms,  institutions
with assets in excess of $5,000,000, or individuals having a net worth in excess
of $1,000,000 or having an annual  income that exceeds  $200,000 (or that,  when
combined with a spouse's income, exceeds $300,000).  For transactions covered by
the rule, the broker-dealer  must make a special  suitability  determination for
the purchaser and receive the purchaser's  written  agreement to the transaction
prior to the sale.  Consequently,  the rule may  affect  the  ability of broker-
dealers to sell the  Company's  securities  and also may  affect the  ability of
purchasers  in this  offering to sell their  securities in any market that might
develop therefor.

     In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the Securities Exchange Act of 1934,
as amended.  Because the securities of the Company may constitute "penny stocks"
within the meaning of the rules, the rules would apply to the Company and to its
securities. The rules may further affect the ability of owners of Shares to sell
the securities of the Company in any market that might develop for them.

     Shareholders  should be aware that,  according to  Securities  and Exchange
Commission  Release No.  34-29093,  the market for penny  stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the  security  by one or a few  broker-dealers  that are often
related  to  the  promoter  or  issuer;  (ii)  manipulation  of  prices  through
prearranged  matching  of  purchases  and sales and false and  misleading  press
releases;  (iii) "boiler room" practices  involving  high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed  bid-ask  differentials  and markups by selling broker- dealers;
and  (v)  the  wholesale  dumping  of  the  same  securities  by  promoters  and
broker-dealers after prices have been manipulated to a desired level, along with
the resulting  inevitable  collapse of those prices and with consequent investor
losses.  The  Company's  management  is aware of the abuses  that have  occurred
historically in the penny stock market.  Although the Company does not expect to
be in a position to dictate the behavior of the market or of broker-dealers  who
participate  in the  market,  management  will  strive  within the  confines  of
practical  limitations to prevent the described  patterns from being established
with respect to the Company's securities.


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<PAGE>



5. No Operating History.

     The Company was formed in August of 1996 in  connection  with the merger of
Kushi  Macrobiotics Corp. and American Phoenix Group, Inc. Pursuant to the terms
of the merger agreement  between Kushi  Macrobiotics  Corp. and American Phoenix
Group,  Inc., the Company's shares were spun off to the Kushi Macrobiotics Corp.
holders on a three for one basis and all of Kushi  Macrobiotics  Corp.'s  assets
related to its Kushi Cuisine  business and  approximately  $115,000 in cash were
transferred to the Company. The Company entered into a joint venture to continue
to promote the Kushi  Cuisine  business,  but the joint  venture  failed and the
Company lost its investment  therein of approximately  $48,000.  The Company was
inactive  for several  years and is now  registering  its common stock under the
1934  Act in order  to  better  pursue  its  purpose  of  acquiring  a  business
opportunity.  The Company has no operating history, revenues from operations, or
assets other than cash  transferred  to the Company at the time of its formation
(of which  approximately  $50,000 remains on hand). The Company faces all of the
risks of a new business  and the special  risks  inherent in the  investigation,
acquisition,  or involvement in a new business opportunity.  The Company must be
regarded  as a new or  "start-up"  venture  with  all of the  unforeseen  costs,
expenses, problems, and difficulties to which such ventures are subject.

6. No Assurance of Success or Profitability.

     There is no assurance  that the Company  will acquire a favorable  business
opportunity.   Even  if  the  Company  should  become  involved  in  a  business
opportunity, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's Common Stock will be increased thereby.

7. Reporting Requirements May Delay Or Preclude Acquisition.

     Section 13 of the  Securities  Exchange Act of 1934 (the  "Exchange  Act"),
requires  companies  subject  thereto  to  provide  certain   information  about
significant  acquisitions,  including  certified  financial  statements  for the
company acquired,  covering one or two years,  depending on the relative size of
the  acquisition.  The time and  additional  costs that may be  incurred by some
target  entities  to  prepare  such  statements  may   significantly   delay  or
essentially preclude  consummation of an otherwise desirable  acquisition by the
Company.  Acquisition  prospects  that do not have or are  unable to obtain  the
required  audited  statements may not be appropriate  for acquisition so long as
the reporting requirements of the 1934 Act are applicable.

8. Lack of Market Research or Marketing Organization.

     The Company has neither  conducted,  nor have others made  available to it,
results  of  market  research  indicating  that  market  demand  exists  for the
transactions  contemplated by the Company.  Moreover, the Company does not have,
and does not plan to  establish,  a  marketing  organization.  Even in the event
demand is identified  for a merger or acquisition  contemplated  by the Company,
there is no assurance  the Company will be  successful  in  completing  any such
business combination.


                                        5

<PAGE>



9. Possible Business - Not Identified and Highly Risky.

     The  Company has not  identified  and has no  commitments  to enter into or
acquire a specific business opportunity and therefore can disclose the risks and
hazards of a business or opportunity  that it may enter into except in a general
manner,  and cannot  disclose the risks and hazards of any specific  business or
opportunity that it may enter into. An investor can expect a potential  business
opportunity to be quite risky. The Company's  acquisition of or participation in
a business  opportunity  will likely be highly  illiquid  and could  result in a
total loss to the Company and its  stockholders  if the business or  opportunity
proves to be unsuccessful. See Item 1 "Description of Business."

10. Type of Business Acquired.

     The  type of  business  to be  acquired  may be one that  desires  to avoid
effecting  its  own  public  offering  and  the  accompanying  expense,  delays,
uncertainties,  and  federal  and state  requirements  which  purport to protect
investors.  Because of the Company's limited capital, it is more likely than not
that any  acquisition  by the Company will involve  other  parties whose primary
interest is the acquisition of control of a publicly traded  reporting  company.
Moreover,  any business  opportunity  acquired may be currently  unprofitable or
present other negative factors.

11. Impracticability of Exhaustive Investigation.

     The  Company's  limited  funds and the lack of  full-time  management  will
likely make it impracticable to conduct a complete and exhaustive  investigation
and analysis of a business opportunity before the Company commits its capital or
other resources thereto.  Management decisions,  therefore,  will likely be made
without detailed feasibility studies,  independent analysis,  market surveys and
the  like  which,  if the  Company  had more  funds  available  to it,  would be
desirable.  The Company will be particularly  dependent in making decisions upon
information provided by the promoter,  owner, sponsor, or others associated with
the business  opportunity  seeking the  Company's  participation.  A significant
portion of the  Company's  available  funds may be  expended  for  investigative
expenses and other  expenses  related to  preliminary  aspects of  completing an
acquisition transaction, whether or not any business opportunity investigated is
eventually acquired.

12. Lack of Diversification.

     Because of the limited  financial  resources  that the  Company  has, it is
unlikely  that  the  Company  will be  able to  diversify  its  acquisitions  or
operations.  The Company's  probable  inability to diversify its activities into
more than one area will  subject the Company to economic  fluctuations  within a
particular business or industry and therefore increase the risks associated with
the Company's operations.

13. Possible Reliance upon Unaudited Financial Statements.

     The Company  generally  will  require  audited  financial  statements  from
companies that it proposes to acquire. No assurance can be given,  however, that
audited  financials  will be available to the  Company.  In cases where  audited
financials  are  unavailable,  the  Company  will  have to rely  upon  unaudited
information received from target companies' management that has


                                        6

<PAGE>



not been  verified  by  outside  auditors.  The lack of the type of  independent
verification  which audited  financial  statements would provide,  increases the
risk that the Company,  in evaluating an acquisition with such a target company,
will not have the benefit of full and accurate  information  about the financial
condition and operating  history of the target company.  This risk increases the
prospect that the acquisition of such a company might prove to be an unfavorable
one for the Company or the holders of the Company's  securities.  Moreover,  the
Company will be subject to the reporting  provisions of the Securities  Exchange
Act of 1934,  as amended  (the  "Exchange  Act"),  and thus will be  required to
furnish certain  information about significant  acquisitions,  including audited
financial   statements   for  any  business  that  it  acquires.   Consequently,
acquisition  prospects  that do not have,  or are unable to  provide  reasonable
assurances  that they will be able to obtain,  the required  audited  statements
would not be considered by the Company to be appropriate for acquisition so long
as the reporting  requirements  of the Exchange Act are  applicable.  Should the
Company,  during the time it remains subject to the reporting  provisions of the
Exchange Act,  complete an acquisition of an entity for which audited  financial
statements prove to be unobtainable, the Company would be exposed to enforcement
actions by the  Securities and Exchange  Commission  (the  "Commission")  and to
corresponding administrative sanctions,  including permanent injunctions against
the  Company  and its  management.  The  legal and other  costs of  defending  a
Commission enforcement action are likely to have material,  adverse consequences
for the Company and its business.  The  imposition of  administrative  sanctions
would subject the Company to further adverse consequences.

     In addition,  the lack of audited  financial  statements  would prevent the
securities  of the Company from  becoming  eligible  for listing on NASDAQ,  the
automated  quotation system sponsored by the National  Association of Securities
Dealers,  Inc., the Over the Counter  Bulletin  Board,  or on any existing stock
exchange.  Moreover,  the  lack  of  such  financial  statements  is  likely  to
discourage  broker-dealers from becoming or continuing to serve as market makers
in the securities of the Company.  Without  audited  financial  statements,  the
Company  would  almost   certainly  be  unable  to  offer   securities  under  a
registration  statement  pursuant to the Securities Act of 1933, and the ability
of the  Company  to raise  capital  would be  significantly  limited  until such
financial statements were to become available.

14. Other Regulation.

     An acquisition  made by the Company may be of a business that is subject to
regulation or licensing by federal, state, or local authorities. Compliance with
such regulations and licensing can be expected to be a time-consuming, expensive
process and may limit other investment opportunities of the Company.

15. Dependence upon Management; Limited Participation of Management.

     The Company  currently has four individuals who are serving as its officers
and directors. The Company will be heavily dependent upon their skills, talents,
and abilities to implement its business plan,  and may, from time to time,  find
that the  inability of the sole officers and directors to devote their full time
attention to the business of the Company  results in a delay in progress  toward
implementing  its business plan.  Furthermore,  since only four  individuals are
serving as the  officers  and  directors  of the  Company,  it will be  entirely
dependent  upon their  experience  in seeking,  investigating,  and  acquiring a
business  and in  making  decisions  regarding  the  Company's  operations.  See
"Management." Because investors will not be able to evaluate the


                                        7

<PAGE>



merits of possible business  acquisitions by the Company, they should critically
assess the information concerning the Company's three officers and directors.

16. Lack of Continuity in Management.

     The Company does not have an employment  agreement with any of its officers
and directors, and as a result, there is no assurance that they will continue to
manage the Company in the future.  In connection with  acquisition of a business
opportunity,  it is likely the current officers and directors of the Company may
resign.  A decision  to resign will be based upon the  identity of the  business
opportunity  and the nature of the  transaction,  and is likely to occur without
the vote or consent of the stockholders of the Company.

17. Indemnification of Officers and Directors.

     The Company's Articles of Incorporation and applicable Delaware Law provide
for the indemnification of its directors, officers, employees, and agents, under
certain  circumstances,  against  attorney's fees and other expenses incurred by
them in any  litigation  to  which  they  become  a  party  arising  from  their
association  with or activities on behalf of the Company.  The Company will also
bear  the  expenses  of  such  litigation  for any of its  directors,  officers,
employees,  or agents,  upon such person's promise to repay the Company therefor
if it is ultimately determined that any such person shall not have been entitled
to  indemnification.  This  indemnification  policy could result in  substantial
expenditures by the Company which it will be unable to recoup.

18. Director's Liability Limited.

     The Company's  Articles of Incorporation  exclude personal liability of its
directors to the Company and its stockholders for monetary damages for breach of
fiduciary  duty  except in certain  specified  circumstances.  Accordingly,  the
Company will have a much more limited right of action against its directors than
otherwise would be the case. This provision does not affect the liability of any
director under federal or applicable state securities laws.

19. Dependence upon Outside Advisors.

     To supplement the business  experience of its officers and  directors,  the
Company may be required to employ  accountants,  technical experts,  appraisers,
attorneys,  or other consultants or advisors. The selection of any such advisors
will be made by the  Company's  officers  and  directors  without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing  fiduciary or other  obligation to the
Company.  In the event the  President  of the Company  considers it necessary to
hire outside advisors, he may elect to hire persons who are affiliates,  if they
are able to provide the required services.

20. Leveraged Transactions.

     There is a possibility  that any  acquisition of a business  opportunity by
the Company may be leveraged,  i.e., the Company may finance the  acquisition of
the  business  opportunity  by  borrowing  against  the  assets of the  business
opportunity to be acquired,  or against the projected future revenues or profits
of the business opportunity. This could increase the Company's


                                        8

<PAGE>



exposure to larger losses. A business  opportunity  acquired through a leveraged
transaction  is  profitable  only if it generates  enough  revenues to cover the
related  debt and  expenses.  Failure to make  payments on the debt  incurred to
purchase the business  opportunity  could result in the loss of a portion or all
of the assets  acquired.  There is no assurance  that any  business  opportunity
acquired through a leveraged  transaction will generate  sufficient  revenues to
cover the related debt and expenses.

21.  Competition.

     The search for potentially  profitable business  opportunities is intensely
competitive.  The Company  expects to be at a  disadvantage  when competing with
many firms that have  substantially  greater financial and management  resources
and capabilities than the Company.  These  competitive  conditions will exist in
any  industry in which the  Company may become  interested.  In  addition,  some
acquisition  candidates  may  negatively  regard  the  transaction  in which the
Company was formed as no  registration  statement  under the  Securities  Act of
1933, as amended, was filed at that time.

22. No Foreseeable Dividends.

     The  Company  has not  paid  dividends  on its  Common  Stock  and does not
anticipate paying such dividends in the foreseeable future.

23. Loss of Control by Present Management and Stockholders.

     The Company may consider an acquisition in which the Company would issue as
consideration  for the  business  opportunity  to be  acquired  an amount of the
Company's  authorized  but  unissued  Common  Stock that would,  upon  issuance,
represent the great majority of the voting power and equity of the Company.  The
result of such an acquisition would be that the acquired company's  stockholders
and management would control the Company,  and the Company's management could be
replaced  by  persons  unknown  at this time.  Such a merger  would  result in a
greatly  reduced   percentage  of  ownership  of  the  Company  by  its  current
shareholders. In addition, the Company's officers could sell their control block
of stock at a premium price to the acquired company's stockholders.

24. No Public Market Exists.

     There is no public market for the Company's  common stock, and no assurance
can be given that a market will develop or that a shareholder  ever will be able
to liquidate his investment without  considerable  delay, if at all. If a market
should  develop,  the  price  may be  highly  volatile.  Factors  such as  those
discussed in this "Risk Factors" section may have a significant  impact upon the
market price of the  securities  offered  hereby.  Owing to the low price of the
securities,  many brokerage  firms may not be willing to effect  transactions in
the  securities.  Even if a  purchaser  finds  a  broker  willing  to  effect  a
transaction in these securities, the combination of brokerage commissions, state
transfer  taxes,  if any,  and any other  selling  costs may exceed the  selling
price.  Further,  many  lending  institutions  will not  permit  the use of such
securities as collateral for any loans.


                                        9

<PAGE>



25. Rule 144 Sales.

     All of the outstanding shares of Common Stock held by present  stockholders
are "restricted  securities" within the meaning of Rule 144 under the Securities
Act of 1933, as amended.

     As  restricted  shares,  these  shares may be resold  only  pursuant  to an
effective  registration statement or under the requirements of Rule 144 or other
applicable  exemptions  from  registration  under the Act and as required  under
applicable state securities laws. Rule 144 provides in essence that a person who
has held  restricted  securities  for a  prescribed  period may,  under  certain
conditions,  sell every three  months,  in brokerage  transactions,  a number of
shares  that does not exceed  the  greater  of 1.0% of a  company's  outstanding
common stock or the average weekly trading volume during the four calendar weeks
prior to the sale.  As a result of revisions to Rule 144 which became  effective
on or about April 29, 1997,  there will be no limit on the amount of  restricted
securities that may be sold by a non-affiliate  after the restricted  securities
have been held by the owner for a period of two years.  A sale under Rule 144 or
under any other exemption from the Act, if available,  or pursuant to subsequent
registrations  of shares of Common  Stock of  present  stockholders,  may have a
depressive  effect  upon the price of the Common  Stock in any  market  that may
develop.  Of the  total  10,588,718  shares  of  common  stock  held by  present
stockholders of the Company,  8,603,718 shares which were issued more than three
years ago and are  presently  available  for  resales  under  Rule 144,  and the
remaining  1,985,000  became  available  for resale  starting in December  2000.
Management is aware that recent  interpretations  by the Securities and Exchange
Commission's  Staff cast doubt as to whether Rule 144 will be available  for the
resale of those 1,985,000 shares.

26. Blue Sky Considerations.

     Because the securities  registered  hereunder have not been  registered for
resale  under the blue sky laws of any state,  the  holders  of such  shares and
persons who desire to purchase them in any trading  market that might develop in
the future,  should be aware that there may be  significant  state  blue-sky law
restrictions  upon  the  ability  of  investors  to sell the  securities  and of
purchasers  to purchase the  securities.  Some  jurisdictions  may not under any
circumstances  allow  the  trading  or  resale of  blind-pool  or  "blank-check"
securities.  Accordingly, investors should consider the secondary market for the
Company's securities to be a limited one.


                                       10

<PAGE>





                                     PART I

ITEM 1. BUSINESS
ITEM I. DESCRIPTION OF BUSINESS.

General

     The  Company  was  incorporated  under the laws of the State of Delaware on
August 1, 1996, and is in the early  developmental  and promotional  stages.  To
date the Company's only activities  have been acquiring the "Kushi  Assets",  as
defined below,  liquidating  the same and activities  directed at developing its
present  business  plan and  raising its  initial  capital.  The Company has not
commenced any commercial operations.  The Company has no full-time employees and
neither  owns nor leases any real estate.  The Company was formed in  connection
with the merger  acquisition of Kushi  Macrobiotics  Corp. ("KMC") with American
Phoenix Group, Inc. (APGI") in 1996. Prior to such acquisition, KMC had operated
a business of  marketing a line of natural  foods (the  "Kushi  Cuisine").  This
business was not successful and  management  determined  that it would be in the
shareholder's  interest  for KMC to operate a  different  business.  In the APGI
reverse merger,  the shareholders of APGI became the owners of 85% of the shares
of KMC, which changed its name to American Phoenix Group, Inc. As a condition to
the merger, KMC was required to divest itself of all assets related to the Kushi
Cuisine  business.  This  divestiture  was effected by  transferring  all of the
assets  related  to  the  Kushi  Cuisine  business,  principally  inventory  and
receivables,  and approximately  $115,000 to a newly formed entity, the Company,
and  spinning off the shares of the Company to the KMC  shareholders  on a three
for one basis  simultaneously with the consummation of the KMC merger with APGI.
The Kushi Cuisine  assets and a portion of the cash were  contributed to a joint
venture   which  failed  and  the  Company  lost  its   investment   therein  of
approximately $48,000. See. "Notes to Financial Statements- Note 4." To the best
of the Company's knowledge, the Company's shares have never traded, nor have any
such shares been  transferred  from their original holders except by the laws of
descent and distribution.

     The proposed business activities described herein classify the Company as a
"blank  check" or "shell  company"  whose sole purpose at this time is to locate
and consummate a merger or acquisition  with a private entity.  Many states have
enacted  statutes,  rules and  regulations  limiting the sale of  securities  of
"blank check" companies in their respective  jurisdictions.  Management does not
believe  it will  undertake  any  efforts  to cause a market to  develop  in the
Company's securities until such time as the Company has successfully implemented
its  business  plan  described  herein.  However,  if  the  Company  intends  to
facilitate the eventual  creation of a public trading market in its  outstanding
securities,  it must consider that the Company's securities,  when available for
trading,  will be subject to a  Securities  and  Exchange  Commission  rule that
imposes special sales practice  requirements upon  broker-dealers  who sell such
securities to persons other than established  customers or accredited investors.
For purposes of the rule, the phrase  "accredited  investors"  means, in general
terms, institutions with assets in excess of $5,000,000, or individuals having a
net worth in excess of  $1,000,000  or  having  an annual  income  that  exceeds
$200,000 (or that, when combined with a spouse's income, exceeds $300,000).  For
transactions  covered  by the  rule,  the  broker-  dealer  must  make a special
suitability  determination for the purchaser and receive the purchaser's written
agreement  to the  transaction  prior to the  sale.  Consequently,  the rule may
affect the ability of


                                       11

<PAGE>



broker-dealers to sell the Company's  securities and also may affect the ability
of purchasers in this offering to sell their securities in any market that might
develop therefor.

     In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the Securities Exchange Act of 1934,
as amended.  Because the securities of the Company may constitute "penny stocks"
within the meaning of the rules, the rules would apply to the Company and to its
securities. The rules may further affect the ability of owners of Shares to sell
the securities of the Company in any market that might develop for them.

     Shareholders  should be aware that,  according to  Securities  and Exchange
Commission  Release No.  34-29093,  the market for penny  stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the  security  by one or a few  broker-dealers  that are often
related  to  the  promoter  or  issuer;  (ii)  manipulation  of  prices  through
prearranged  matching  of  purchases  and sales and false and  misleading  press
releases;  (iii) "boiler room" practices  involving  high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed  bid-ask  differentials  and markups by selling broker- dealers;
and  (v)  the  wholesale  dumping  of  the  same  securities  by  promoters  and
broker-dealers after prices have been manipulated to a desired level, along with
the resulting  inevitable  collapse of those prices and with consequent investor
losses.  The  Company's  management  is aware of the abuses  that have  occurred
historically in the penny stock market.  Although the Company does not expect to
be in a position to dictate the behavior of the market or of broker- dealers who
participate  in the  market,  management  will  strive  within the  confines  of
practical  limitations to prevent the described  patterns from being established
with respect to the Company's securities.

     As part of its  business  plan,  this  Company is filing this  registration
statement  on Form  10-SB on a  voluntary  basis in order to  become a  "public"
company  by  virtue  of  being  subject  to the  reporting  requirements  of the
Securities Exchange Act of 1934.

     The  Company's  business plan is to seek,  investigate,  and, if warranted,
acquire  one or more  properties  or  businesses,  and to pursue  other  related
activities  intended to enhance shareholder value. The acquisition of a business
opportunity  may be made by purchase,  merger,  exchange of stock, or otherwise,
and may encompass  assets or a business  entity,  such as a  corporation,  joint
venture,  or partnership.  The Company has limited  capital,  and it is unlikely
that the Company will be able to take  advantage of more than one such  business
opportunity.  The  Company  intends  to  seek  opportunities  demonstrating  the
potential of long-term growth as opposed to short-term earnings.

     At the present time the Company has not identified any business opportunity
that it plans to pursue, nor has the Company reached any agreement or definitive
understanding with any person concerning an acquisition.  The Company's officers
and directors have  previously  been in discussions  involving a possible merger
between an established company and a shell entity, and have a number of contacts
within the field of corporate  finance.  As a result,  they have had preliminary
contacts  with  representatives  of several  companies  concerning  the  general
possibility  of a merger or acquisition  by a shell  company.  However,  none of
these preliminary  contacts or discussions have developed into a possible merger
or acquisition transaction with the Company.


                                       12

<PAGE>



     It is  anticipated  that the  Company's  officers and  directors may in the
future  contact  broker-dealers  and other persons with whom they are acquainted
who are involved in corporate  finance  matters to advise them of the  Company's
existence and to determine if any companies or businesses they represent have an
interest in considering a merger or acquisition with the Company.  In connection
with any transaction which may occur, the Company may be required to pay finders
fees in stock, cash or a combination thereof. No assurance can be given that the
Company  will be  successful  in  finding  or  acquiring  a  desirable  business
opportunity,  given the  limited  funds that are  expected to be  available  for
acquisitions,  or that any  acquisition  that  occurs  will be on terms that are
favorable to the Company or its stockholders.

     The  Company's  search  will be  directed  toward  small  and  medium-sized
enterprises which have a desire to become public corporations and which are able
to satisfy,  or anticipate in the reasonably  near future being able to satisfy,
the minimum asset  requirements in order to qualify shares for trading on NASDAQ
or  on  a  stock  exchange  (See   "Investigation   and  Selection  of  Business
Opportunities").   The  Company  anticipates  that  the  business  opportunities
presented to it will (i) be recently organized with no operating  history,  or a
history of losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating  difficulties;  (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept;  or (v) have a combination of the
characteristics   mentioned  in  (i)  through  (iv).  The  Company   intends  to
concentrate its acquisition efforts on properties or businesses that it believes
to be  undervalued.  Given the above factors,  investors  should expect that any
acquisition candidate may have a history of losses or low profitability.

     The  Company  does not  propose  to  restrict  its  search  for  investment
opportunities  to  any  particular  geographical  area  or  industry,  and  may,
therefore,  engage in  essentially  any  business,  to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's  discretion in the selection of business  opportunities is
unrestricted,  subject  to the  availability  of  such  opportunities,  economic
conditions, and other factors.

     As a consequence of this  registration of its securities,  any entity which
has an interest in being  acquired by, or merging into the Company,  is expected
to be an entity that desires to become a public  company and  establish a public
trading  market  for  its  securities.  In  connection  with  such a  merger  or
acquisition, it is highly likely that an amount of stock constituting control of
the  Company  would be issued  by the  Company  or  purchased  from the  current
principal shareholders of the Company by the acquiring entity or its affiliates.

     Depending  upon the nature of the  transaction,  the current  officers  and
directors of the Company may resign their management  positions with the Company
in connection  with the Company's  acquisition  of a business  opportunity.  See
"Form  of  Acquisition,"  below,  and  "Risk  Factors  - The  Company  - Lack of
Continuity in  Management."  In the event of such a  resignation,  the Company's
current  management would not have any control over the conduct of the Company's
business following the Company's combination with a business opportunity.

     It is anticipated  that business  opportunities  will come to the Company's
attention from various sources,  including its officers and directors, its other
stockholders,   professional   advisors  such  as  attorneys  and   accountants,
securities  broker-dealers,   venture  capitalists,  members  of  the  financial
community, and others who may present unsolicited proposals. The Company has no


                                       13

<PAGE>



plans,  understandings,  agreements, or commitments with any individual for such
person to act as a finder of opportunities for the Company.

     The  Company  does  not  foresee  that it  would  enter  into a  merger  or
acquisition  transaction  with any business with which its officers or directors
are currently affiliated.  Should the Company determine in the future,  contrary
to the foregoing expectations,  that a transaction with an affiliate would be in
the best  interests  of the  Company  and its  stockholders,  the  Company is in
general permitted by Delaware law to enter into such a transaction if:

1. The material facts as to the relationship or interest of the affiliate and as
to the  contract  or  transaction  are  disclosed  or are  known to the Board of
Directors, and the Board in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested  directors,  even though
the disinterested directors constitute less than a quorum; or

2. The material facts as to the relationship or interest of the affiliate and as
to the contract or  transaction  are disclosed or are known to the  stockholders
entitled to vote  thereon,  and the  contract  or  transaction  is  specifically
approved in good faith by vote of the stockholders; or

3. The  contract or  transaction  is fair as to the Company as of the time it is
authorized, approved or ratified, by the Board of Directors or the stockholders.

Investigation and Selection of Business Opportunities

     To a large  extent,  a  decision  to  participate  in a  specific  business
opportunity may be made upon  management's  analysis of the quality of the other
company's  management  and  personnel,  the  anticipated  acceptability  of  new
products  or  marketing  concepts,  the  merit  of  technological  changes,  the
perceived  benefit the company will derive from becoming a publicly held entity,
and numerous other factors which are difficult,  if not  impossible,  to analyze
through the  application of any objective  criteria.  In many  instances,  it is
anticipated that the historical  operations of a specific  business  opportunity
may not necessarily be indicative of the potential for the future because of the
possible need to shift marketing approaches substantially, expand significantly,
change product emphasis,  change or substantially  augment  management,  or make
other  changes.  The  Company  will be  dependent  upon the owners of a business
opportunity to identify any such problems  which may exist and to implement,  or
be primarily  responsible for the implementation  of, required changes.  Because
the Company may  participate in a business  opportunity  with a newly  organized
firm or with a firm  which is  entering  a new  phase of  growth,  it  should be
emphasized that the Company will incur further risks, because management in many
instances  will not have proved its  abilities  or  effectiveness,  the eventual
market for such company's  products or services will likely not be  established,
and such company may not be profitable when acquired.

     It is anticipated that the Company will not be able to diversify,  but will
essentially  be limited to one such  venture  because of the  Company's  limited
financing.  This lack of  diversification  will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be  considered an adverse  factor  affecting any decision to purchase the
Company's securities.

     It is emphasized  that  management  of the Company may effect  transactions
having a potentially adverse impact upon the Company's  shareholders pursuant to
the authority and


                                       14

<PAGE>



discretion  of  the  Company's  management  to  complete   acquisitions  without
submitting any proposal to the stockholders for their consideration.  Holders of
the Company's securities should not anticipate that the Company necessarily will
furnish  such  holders,  prior to any  merger  or  acquisition,  with  financial
statements,  or any other  documentation,  concerning  a target  company  or its
business. In some instances,  however, the proposed  participation in a business
opportunity may be submitted to the stockholders for their consideration, either
voluntarily  by such directors to seek the  stockholders'  advice and consent or
because state law so requires.

     The analysis of business  opportunities  will be undertaken by or under the
supervision  of the  Company's  President,  who is not a  professional  business
analyst.  See "Management." Since Company management has no current plans to use
any outside consultants or advisors to assist in the investigation and selection
of business  opportunities,  no policies have been adopted regarding use of such
consultants or advisors,  the criteria to be used in selecting such  consultants
or advisors,  the services to be provided, the term of service, or regarding the
total amount of fees that may be paid.

         The Company anticipates that it will consider,  among other things, the
following factors:

1.   Potential  for  growth  and  profitability,  indicated  by new  technology,
     anticipated market expansion, or new products;

2.   The Company's perception of how any particular business opportunity will be
     received by the investment community and by the Company's stockholders;

3.   Whether, following the business combination, the financial condition of the
     business  opportunity would be, or would have a significant prospect in the
     foreseeable  future of becoming  sufficient to enable the securities of the
     Company to qualify for  listing on an  exchange or on a national  automated
     securities quotation system, such as NASDAQ, so as to permit the trading of
     such securities to be exempt from the  requirements of Rule 15c2-6 recently
     adopted by the Securities and Exchange Commission.  See "Risk Factors - The
     Company - Regulation of Penny Stocks."

4.   Capital requirements and anticipated  availability of required funds, to be
     provided by the Company or from operations,  through the sale of additional
     securities,  through joint ventures or similar arrangements,  or from other
     sources;

5.   The extent to which the business opportunity can be advanced;

6.   Competitive  position as compared to other  companies  of similar  size and
     experience  within the industry segment as well as within the industry as a
     whole;

7.   Strength and diversity of existing management, or management prospects that
     are scheduled for recruitment;

8.   The cost of  participation  by the  Company as  compared  to the  perceived
     tangible and intangible values and potential; and

9.   The  accessibility  of  required  management  expertise,   personnel,   raw
     materials, services, professional assistance, and other required items.


                                       15

<PAGE>




     In regard to the  possibility  that the shares of the Company would qualify
for listing on NASDAQ,  the current  standards include the requirements that the
issuer of the  securities  that are sought to be listed have total  assets of at
least  $4,000,000  and total  capital  and surplus of at least  $2,000,000,  and
proposals have recently been made to increase these  qualifying  amounts.  Many,
and  perhaps  most,  of the  business  opportunities  that  might  be  potential
candidates  for a  combination  with the  Company  would not  satisfy the NASDAQ
listing criteria.

     No one of the factors  described above will be controlling in the selection
of a business  opportunity,  and management  will attempt to analyze all factors
appropriate to each  opportunity and make a determination  based upon reasonable
investigative  measures  and  available  data.  Potentially  available  business
opportunities  may occur in many  different  industries and at various stages of
development,  all of which will make the task of comparative  investigation  and
analysis  of  such  business  opportunities  extremely  difficult  and  complex.
Potential  investors  must  recognize  that,  because of the  Company's  limited
capital  available for  investigation  and  management's  limited  experience in
business analysis,  the Company may not discover or adequately  evaluate adverse
facts about the opportunity to be acquired.

     The  Company is unable to  predict  when it may  participate  in a business
opportunity.  It expects,  however,  that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.

     Prior to making a decision to  participate in a business  opportunity,  the
Company  will  generally  request  that it be provided  with  written  materials
regarding the business  opportunity  containing  such items as a description  of
products,   services  and  company  history;   management   resumes;   financial
information; available projections, with related assumptions upon which they are
based; an explanation of proprietary products and services; evidence of existing
patents,  trademarks, or services marks, or rights thereto; present and proposed
forms of compensation to management;  a description of transactions between such
company and its affiliates during relevant periods; a description of present and
required  facilities;  an  analysis  of  risks  and  competitive  conditions;  a
financial  plan  of  operation  and  estimated  capital  requirements;   audited
financial  statements,  or  if  they  are  not  available,  unaudited  financial
statements,   together  with  reasonable   assurances  that  audited   financial
statements  would be able to be produced within a reasonable  period of time not
to  exceed  60 days  following  completion  of a merger  transaction;  and other
information deemed relevant.

As part of the Company's  investigation,  the Company's  executive  officers and
directors may meet personally  with management and key personnel,  may visit and
inspect  material  facilities,  obtain  independent  analysis or verification of
certain information provided,  check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited  financial  resources and  management  expertise.  There will be no loan
agreements or understandings between the Company and third parties, nor does the
Company intend to raise any operating capital by implementing private placements
of restricted stock and/or public offerings of its common stock.

     It is  possible  that the range of  business  opportunities  that  might be
available  for  consideration  by the Company  could be limited by the impact of
Securities and Exchange Commission regulations


                                       16

<PAGE>



regarding purchase and sale of "penny stocks." The regulations would affect, and
possibly impair, any market that might develop in the Company's securities until
such time as they  qualify  for listing on NASDAQ or on another  exchange  which
would make them exempt from applicability of the "penny stock" regulations.  See
"Risk Factors - - Regulation of Penny Stocks."

     Company  management  believes  that various  types of  potential  merger or
acquisition  candidates might find a business combination with the Company to be
attractive.  These include  acquisition  candidates  desiring to create a public
market for their shares in order to enhance liquidity for current  shareholders,
acquisition  candidates  which have long-term  plans for raising capital through
the public sale of securities and believe that the possible prior existence of a
public  market  for  their  securities  would  be  beneficial,  and  acquisition
candidates  which  plan  to  acquire   additional  assets  through  issuance  of
securities rather than for cash, and believe that the possibility of development
of a public market for their  securities  will be of assistance in that process.
Acquisition  candidates which have a need for an immediate cash infusion are not
likely  to find a  potential  business  combination  with the  Company  to be an
attractive alternative.

Form of Acquisition

     It is impossible to predict the manner in which the Company may participate
in a business opportunity.  Specific business  opportunities will be reviewed as
well as the respective needs and desires of the Company and the promoters of the
opportunity  and,  upon the basis of that  review and the  relative  negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected.  Such structure may include,  but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual  arrangements.  The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing   such   structure  may  require  the  merger,   consolidation   or
reorganization  of the  Company  with other  corporations  or forms of  business
organization,  and although it is likely, there is no assurance that the Company
would  be  the  surviving  entity.  In  addition,  the  present  management  and
stockholders  of the Company  most likely will not have control of a majority of
the voting shares of the Company following a reorganization transaction. As part
of such a  transaction,  the  Company's  existing  directors  may resign and new
directors may be appointed without any vote by stockholders.

     Management may actively  negotiate or otherwise  consent to the purchase of
any portion of their  common  shares as a condition to or in  connection  with a
proposed merger or acquisition transaction.  It is emphasized that management of
the Company may effect transactions having a potentially adverse impact upon the
Company's shareholders pursuant to the authority and discretion of the Company's
management  to complete  acquisitions  without  submitting  any  proposal to the
stockholders for their consideration. Holders of the Company's securities should
not anticipate that the Company necessarily will furnish such holders,  prior to
any  merger  or   acquisition,   with   financial   statements,   or  any  other
documentation,  concerning a target company or its business.  In some instances,
however,  the proposed  participation in a business opportunity may be submitted
to  the  stockholders  for  their  consideration,  either  voluntarily  by  such
directors to seek the  stockholders'  advice and consent or because state law so
requires.

     It is likely that the Company will acquire its  participation in a business
opportunity  through the  issuance of Common  Stock or other  securities  of the
Company.  Although the terms of any such  transaction  cannot be  predicted,  it
should be noted that in certain circumstances the


                                       17

<PAGE>



criteria for determining whether or not an acquisition is a so-called "tax free"
reorganization  under  the  Internal  Revenue  Code of  1986,  depends  upon the
issuance to the stockholders of the acquired  company of a controlling  interest
(i.e.  80% or more) of the common  stock of the  combined  entities  immediately
following the reorganization. If a transaction were structured to take advantage
of these provisions  rather than other "tax free" provisions  provided under the
Internal Revenue Code, the Company's  current  stockholders  would retain in the
aggregate  20% or less of the total issued and  outstanding  shares.  This could
result  in  substantial  additional  dilution  in the  equity  of those who were
stockholders of the Company prior to such  reorganization.  (See "Description of
Business - General").

     It is  anticipated  that any new  securities  issued in any  reorganization
would  be  issued  in  reliance  upon  exemptions,  if any are  available,  from
registration  under  applicable  federal  and  state  securities  laws.  In some
circumstances,  however, as a negotiated element of the transaction, the Company
may agree to register  such  securities  either at the time the  transaction  is
consummated,  or under certain conditions or at specified times thereafter.  The
issuance of substantial  additional securities and their potential sale into any
trading  market  that  might  develop  in the  Company's  securities  may have a
depressive effect upon such market.

     The  Company  will  participate  in a business  opportunity  only after the
negotiation  and  execution of a written  agreement.  Although the terms of such
agreement  cannot  be  predicted,  generally  such an  agreement  would  require
specific  representations and warranties by all of the parties thereto,  specify
certain events of default,  detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing,  outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.

     As a general matter,  the Company  anticipates that it, and/or its officers
and  principal  shareholders  will  enter  into a  letter  of  intent  with  the
management,  principals or owners of a prospective business opportunity prior to
signing a binding agreement. Such a letter of intent will set forth the terms of
the proposed  acquisition but will not bind any of the parties to consummate the
transaction.  Execution  of a letter of intent  will by no means  indicate  that
consummation  of an acquisition is probable.  Neither the Company nor any of the
other  parties  to the  letter  of  intent  will  be  bound  to  consummate  the
acquisition unless and until a definitive  agreement  concerning the acquisition
as described  in the  preceding  paragraph is executed.  Even after a definitive
agreement  is  executed,  it is  possible  that  the  acquisition  would  not be
consummated  should  any  party  elect to  exercise  any right  provided  in the
agreement to terminate it on specified grounds.

     It is anticipated that the investigation of specific business opportunities
and the negotiation,  drafting and execution of relevant agreements,  disclosure
documents and other  instruments  will require  substantial  management time and
attention and  substantial  costs for  accountants,  attorneys and others.  If a
decision is made not to  participate  in a specific  business  opportunity,  the
costs  theretofore   incurred  in  the  related   investigation   would  not  be
recoverable.  Moreover,  because many  providers  of goods and services  require
compensation at the time or soon after the goods and services are provided,  the
inability of the Company to pay until an  indeterminate  future time may make it
impossible to procure goods and services.


                                       18

<PAGE>



Investment Company Act and Other Regulation

     The  Company  may  participate  in a business  opportunity  by  purchasing,
trading or selling  the  securities  of such  business.  The  Company  does not,
however,  intend to  engage  primarily  in such  activities.  Specifically,  the
Company intends to conduct its activities so as to avoid being  classified as an
"investment  company" under the Investment  Company Act of 1940 (the "Investment
Act"),  and  therefore  to  avoid  application  of the  costly  and  restrictive
registration  and other  provisions of the Investment  Act, and the  regulations
promulgated thereunder.

     Section  3(a)  of  the   Investment  Act  contains  the  definition  of  an
"investment  company," and it excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing,  owning, holding or trading "investment
securities"  (defined as "all  securities  other than  government  securities or
securities of  majority-owned  subsidiaries")  the value of which exceeds 40% of
the value of its total assets  (excluding  government  securities,  cash or cash
items).  The Company  intends to implement  its business  plan in a manner which
will  result  in the  availability  of this  exception  from the  definition  of
"investment company." Consequently, the Company's participation in a business or
opportunity  through the  purchase  and sale of  investment  securities  will be
limited.

     The  Company's  plan  of  business  may  involve  changes  in  its  capital
structure,  management,  control and business,  especially  if it  consummates a
reorganization  as  discussed  above.  Each of these areas is  regulated  by the
Investment Act, in order to protect purchasers of investment company securities.
Since the Company will not register as an investment company,  stockholders will
not be afforded these protections.

     Any  securities  which the Company might acquire in exchange for its Common
Stock will be "restricted  securities"  within the meaning of the Securities Act
of  1933,  as  amended  (the  "Act").  If the  Company  elects  to  resell  such
securities,  such sale cannot proceed  unless a registration  statement has been
declared  effective by the  Securities  and Exchange  Commission or an exemption
from registration is available.  Section 4(1) of the Act, which exempts sales of
securities not involving a distribution, would in all likelihood be available to
permit a private  sale.  Although  the plan of  operation  does not  contemplate
resale of securities acquired, if such a sale were to be necessary,  the Company
would be  required  to comply  with the  provisions  of the Act to  effect  such
resale.

     An acquisition made by the Company may be in an industry which is regulated
or  licensed  by  federal,  state or local  authorities.  Compliance  with  such
regulations can be expected to be a time-consuming and expensive process.

Competition

     The Company expects to encounter substantial  competition in its efforts to
locate attractive opportunities,  primarily from business development companies,
venture capital  partnerships and  corporations,  venture capital  affiliates of
large  industrial  and financial  companies,  small  investment  companies,  and
wealthy  individuals.  Many of these  entities will have  significantly  greater
experience,  resources  and  managerial  capabilities  than the Company and will
therefore  be in a  better  position  than  the  Company  to  obtain  access  to
attractive business


                                       19

<PAGE>



opportunities.  The Company also will experience  competition  from other public
"blind pool"  companies,  many of which may have more funds  available than does
the Company.

Employees

     The Company is a development  stage company and currently has no employees.
Management of the Company expects to use consultants,  attorneys and accountants
as necessary,  and does not anticipate a need to engage any full-time  employees
so long as it is seeking and  evaluating  business  opportunities.  The need for
employees  and their  availability  will be  addressed  in  connection  with the
decision  whether  or  not  to  acquire  or  participate  in  specific  business
opportunities.  Although  there is no current plan with respect to its nature or
amount, remuneration may be paid to or accrued for the benefit of, the Company's
officers  prior  to,  or in  conjunction  with,  the  completion  of a  business
acquisition.  The Company's  officers  have  accepted  common stock for services
rendered for consulting,  organizing the corporation,  seeking merger candidates
and evaluating these candidates. See "Executive Compensation" and under "Certain
Relationships and Related Transactions."

ITEM 2.  DESCRIPTION OF PROPERTIES

     The Company currently maintains a mailing address at 150 East 58th Street -
24th Floor,  New York,  New York 10022,  which is the office  address of Madison
Venture Capital II, Inc., a company owned by Messrs. Stricker and Schindler. The
Company's  telephone  number is (212) 583-1363 which is the telephone  number of
Madison  Venture  Capital II, Inc. which is used without expense to the Company.
Other than this mailing  address,  the Company does not  currently  maintain any
other office facilities, and does not anticipate the need for maintaining office
facilities at any time in the  foreseeable  future.  The Company pays no rent or
other fees for the use of this mailing address and facilities.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not currently a party to any material legal proceeding.


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

     There were no matters submitted to a vote of stockholders during the fourth
quarter of 2000.


                                       20

<PAGE>



                                     PART II

ITEM 5.  MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     No public trading market exists for the Company's securities and all of its
outstanding  securities are restricted  securities as defined in Rule 144. There
were  approximately  200  holders  of record of the  Company's  common  stock on
December 31, 1999. No dividends  have been paid to date and the Company's  Board
of Directors does not anticipate paying dividends in the foreseeable future.

     The Company does not plan to take affirmative steps to request or encourage
any broker-dealer to act as a market maker for the Company's  securities.  There
are to date no understandings,  agreements or discussions in place with any such
broker-dealer.  Although  management has set forth  disclosure  throughout  this
registration  statement indicating it would consider the public "trading" of its
securities if such activity was in the best  interests of its  shareholders,  it
presently has no plans to do so.

     The Company has never declared  dividends or paid any cash dividends on its
capital stock. The Company currently  intends to retain all future earnings,  if
any, for use in the operation and  development  of its business and,  therefore,
does not expect to declare or pay any cash  dividends on its Common Stock in the
foreseeable future.

ITEM 6.  MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
         CONDITION

Plan of Operations

     Kushi  intends  to seek to acquire  assets or shares of an entity  actively
engaged in business which  generates  revenues,  in exchange for its securities.
Kushi  has no  particular  acquisitions  in mind  and has not  entered  into any
negotiations  regarding  such an  acquisition.  None of the Company's  officers,
directors,  promoters or affiliates have engaged in any  preliminary  contact or
discussions  with  any   representative  of  any  other  company  regarding  the
possibility  of an  acquisition  or merger  between  the  Company and such other
company as of the date of this registration statement.

     While the Company will attempt to obtain audited financial  statements of a
target entity, there is no assurance that such audited financial statements will
be available. The Board of Directors does intend to obtain certain assurances of
value of the target entity's  assets prior to  consummating  such a transaction,
with  further  assurances  that an audited  statement  would be provided  within
seventy-five  days  after  closing  of  such a  transaction.  Closing  documents
relative  thereto  will  include  representations  that the value of the  assets
conveyed to or  otherwise so  transferred  will not  materially  differ from the
representations  included in such closing documents. Any business combination or
transaction  will  likely  result  in  a  significant  issuance  of  shares  and
substantial dilution to Kushi's present stockholders.

     The Company has, and will continue to have,  limited  capital with which to
provide the owners of business  opportunities with any significant cash or other
assets. However, management believes the Company will be able to offer owners of
acquisition candidates the


                                       21

<PAGE>



opportunity to acquire a controlling ownership interest in a publicly registered
company  without  incurring  the cost and time  required  to  conduct an initial
public offering.  The owners of the business  opportunities will, however, incur
significant  legal and accounting  costs in connection with the acquisition of a
business  opportunity,  including the costs of preparing  Form 8-K's,  10-K's or
10-KSB's,  agreements and related reports and documents. The Securities Exchange
Act of 1934 (the "34 Act"), specifically requires that any merger or acquisition
candidate  comply with all  applicable  reporting  requirements,  which  include
providing  audited  financial  statements  to be  included  within the  numerous
filings  relevant to complying with the 34 Act.  Nevertheless,  the officers and
directors of the Company have not conducted market research and are not aware of
statistical  data which  would  support  the  perceived  benefits of a merger or
acquisition transaction for the owners of a business opportunity.

     As stated  hereinabove,  the  Company  will not  acquire  or merge with any
entity which cannot provide  independent  audited financial  statements within a
reasonable period of time after closing of the proposed transaction. The Company
intends to become subject to all of the reporting  requirements  included in the
34 Act. Included in these requirements is the affirmative duty of the Company to
file  independent  audited  financial  statements  as part of its Form 8-K to be
filed with the Securities and Exchange  Commission upon consummation of a merger
or acquisition,  as well as the Company's audited financial  statements included
in its annual report on Form 10-K (or 10-KSB,  as  applicable).  If such audited
financial  statements  are not available at closing,  or within time  parameters
necessary to insure the Company's  compliance  with the  requirements  of the 34
Act,  or if the  audited  financial  statements  provided  do not conform to the
representations  made by the candidate to be acquired in the closing  documents,
the  closing  documents  may  provide  that  the  proposed  transaction  will be
voidable, at the discretion of the present management of the Company.

Liquidity and Capital Resources

     The Company has on hand  approximately  $42,000  which  represents  the net
remaining of the $115,000 cash that it received in the spin off. Such assets are
maintained  in a checking  account and a money  market  account and earn nominal
interest.  In the opinion of  Management,  these assets  should be sufficient to
enable the Company to effect this  registration  under the Exchange Act and file
periodic reports until such time as it is able to locate an acquisition  partner
and complete its business plan.

     The Company  will carry out its plan of business as  discussed  above.  The
Company cannot  predict to what extent its liquidity and capital  resources will
be diminished prior to the consummation of a business combination or whether its
capital  will be  further  depleted  by the  operating  losses  (if  any) of the
business entity which the Company may eventually acquire.

Results of Operations

     The Company has not  conducted any  operations in the last year and,  other
than  activities  incident to locating an  acquisition  partner and effecting an
acquisition,  does not expect to conduct  substantial  operations in the current
year.  Costs  of  operations  consisted  of  $4,319  in  Selling,   General  and
Administrative  expense  which  was  primarily  related  professional  fees  and
EDGARizer's  charges to  complying  with the  reporting  requirements  under the
Exchange Act of 1934, as amended.


                                       22

<PAGE>



Need for Additional Financing

     The Company  believes that its existing  capital will be sufficient to meet
the Company's cash needs,  including the costs of compliance with the continuing
reporting requirements of the Securities Exchange Act of 1934, as amended, for a
period of more than two years. Accordingly,  in the event the Company is able to
complete a business  combination  during this period,  it  anticipates  that its
existing  capital  will be  sufficient  to  allow it to  accomplish  the goal of
completing a business  combination.  There is no  assurance,  however,  that the
available funds will  ultimately  prove to be adequate to allow it to complete a
business  combination,  and  once  a  business  combination  is  completed,  the
Company's needs for additional financing are likely to increase substantially.

Income Taxes

     The Company  accounts  for income  taxes in  accordance  with  Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109") issued by the Financial Accounting  Standards Board ("FASB"),  under which
deferred  tax assets and  liabilities  are provided on  differences  between the
carrying  amounts  for  financial  reporting  and the tax  basis of  assets  and
liabilities for income tax purposes using the enacted tax rates.

     Under  SFAS 109,  deferred  tax  assets  may be  recognized  for  temporary
differences  that will  result  in  deductible  amounts  in  future  periods.  A
valuation allowance is recognized, if on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized.

Federal Income Tax Aspects of Investment in the Company

     The  discussion  contained  herein has been  prepared by the Company and is
based on existing law as contained in the Code,  amended United States  Treasury
Regulations ("Treasury Regulations"), administrative rulings and court decisions
as of the date of this  Registration  Statement.  No assurance can be given that
future legislative  enactments,  administrative  rulings or court decisions will
not modify the legal basis for statements contained in this discussion. Any such
development may be applied retroactively to transactions  completed prior to the
date thereof,  and could contain  provisions  having an adverse  affect upon the
Company and the holders of the Common Stock. In addition,  several of the issues
dealt with in this  summary are the subject of proposed and  temporary  Treasury
Regulations.  No assurance can be given that these  regulations  will be finally
adopted in their present form.

Basis in Common Stock

     The tax basis that a  Shareholder  will have in his Common Stock will equal
his cost in acquiring his Common Stock.  If a Shareholder  acquires Common Stock
at different  times or at different  prices,  he must maintain  records of those
transactions  so that he can  accurately  report  gain  or  loss  realized  upon
disposition of the Common Stock.

Dividends on Common Stock

     Distributions  made by the Company with respect to the Common Stock will be
characterized  as dividends that are taxable as ordinary income to the extent of
the Company's


                                       23

<PAGE>



current or accumulated earnings and profits ("earnings and profits"), if any, as
determined  for  U.S.  federal  income  tax  purposes.  To  the  extent  that  a
distribution  on the Common Stock  exceeds the holder's  allocable  share of the
Company's  earnings and profits,  such  distribution  will be treated first as a
return of capital  that will  reduce  the  holder's  adjusted  tax basis in such
Common Stock,  and then as taxable gain to the extent the  distribution  exceeds
the holder's adjusted tax basis in such Common Stock. The gain will generally be
taxed as a long-term  capital gain if the holder's holding period for the Common
Stock is more than one year.

     The  availability  of earnings  and profits in future  years will depend on
future profits and losses which cannot be accurately predicted.  Thus, there can
be no assurance  that all or any portion of a  distribution  on the Common Stock
will be characterized  as a dividend for general income tax purposes.  Corporate
shareholders will not be entitled to claim the dividends received deduction with
respect to  distributions  that do not qualify as dividends.  See the discussion
regarding the dividends received deduction below.

Redemption of Common Stock

     The Company  does not have the right to redeem any Common  Stock.  However,
any  redemption  of Common  Stock,  with the  consent of the  holder,  will be a
taxable event to the redeemed holder.

     The Company  does not believe that the Common Stock will be treated as debt
for federal income tax purposes.  However, in the event that the Common Stock is
treated as debt for federal tax purposes, a holder generally will recognize gain
or loss upon the  redemption  of the Common  Stock  measured  by the  difference
between the amount of cash or the fair market value of property received and the
holder's  tax basis in the  redeemed  Common  Stock.  To the  extent the cash or
property received are attributable to accrued interest, the holder may recognize
ordinary income rather than capital gain.  Characterization  of the Common Stock
as debt would also cause a variety of other tax implications,  some of which may
be  detrimental  to either the holders,  the Company,  or both  (including,  for
example,  original  issue  discount  treatment  to  the  Investors).   Potential
Investors  should consult their tax advisors as to the various  ramifications of
debt characterization for federal income tax purposes.

Other Disposition of the Common Stock

     Upon the sale or  exchange of shares of Common  Stock,  to or with a person
other than the Company,  a holder will  recognize  capital gain or loss equal to
the  difference  between the amount  realized  on such sale or exchange  and the
holder's  adjusted basis in such stock. Any capital gain or loss recognized will
generally be treated as a long-term capital gain or loss if the holder held such
stock for more than one year. For this purpose,  the period for which the Common
Stock was held would be  included  in the  holding  period of the  Common  Stock
received upon a conversion.

State, Local and Foreign Taxes

     In  addition  to the  federal  income  tax  consequences  described  above,
prospective  investors should consider  potential  state,  local and foreign tax
consequences of an investment in the Common Stock.


                                       24

<PAGE>



ERISA Considerations for Tax-Exempt Investors/Shareholders

General Fiduciary Requirements

     Title I of  ERISA  includes  provisions  governing  the  responsibility  of
fiduciaries  to their  Qualified  Plans.  Qualified  Plans must be  administered
according to these rules.  Keogh plans that cover only partners of a partnership
or  self-employed  owners of a business  are not subject to the  fiduciary  duty
rules of ERISA, but are subject to the prohibited transaction rules of the Code.

     Under ERISA,  any person who exercises any authority or control  respecting
the management or disposition of the assets of a Qualified Plan is considered to
be a fiduciary of such  Qualified  Plan (subject to certain  exceptions not here
relevant).

     ERISA  Section  404(a)(1)  requires  a  fiduciary  of a  Qualified  Plan to
"discharge  his duties  with  respect to a plan  solely in the  interest  of the
participants  and  beneficiaries  and (A)  for the  exclusive  purpose  of:  (i)
providing benefits to participants and their  beneficiaries,  and (ii) defraying
reasonable  expenses  of  administering  the  plan;  (B) with the  care,  skill,
prudence,  and diligence under the circumstances  then prevailing that a prudent
man acting in a like  capacity and familiar  with such matters  would use in the
conduct  of an  enterprise  of a like  character  and  with  like  aims;  (C) by
diversifying  the  investments  of a plan so as to  minimize  the  risk of large
losses,  unless under the  circumstances it is clearly prudent not to do so; and
(D) in  accordance  with the  documents  and  instruments  governing  the plan."
Fiduciaries  who breach the duties that ERISA  imposes may suffer a wide variety
of legal and  equitable  remedies,  including  (i) the  requirement  to  restore
qualified plan losses and to pay over any  fiduciary's  profits to the qualified
plan;  (ii) removal as fiduciary of the qualified  plan; and (iii) liability for
excise taxes that Section 4975 of the Code imposes


ITEM 7.  FINANCIAL STATEMENTS

SEE "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" BEGINNING ON PAGE F-1.


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

         None.


                                       25

<PAGE>



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

     The directors and executive  officers  currently serving the Company are as
follows:

Name                        Age         Positions Held and Tenure

Dr. Eugene Stricker          66         President and a Director since inception

Mark Schindler               79         Vice President, Secretary and a Director
                                                            since inception

Daniel A. France             52         Treasurer a Director since February 1999

Frank J. Hariton             52         Assistant Secretary since December 1999

     The directors  named above will serve until the first annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders'  meeting.  Officers will hold their positions at the
pleasure of the board of directors,  absent any employment  agreement,  of which
none  currently  exists  or  is   contemplated.   There  is  no  arrangement  or
understanding  between the sole  directors  and  officers of the Company and any
other person  pursuant to which any director or officer was or is to be selected
as a director or officer.

     The sole  directors  and  officers of the Company will devote their time to
the Company's affairs on an "as needed" basis. As a result, the actual amount of
time which they will devote to the Company's affairs is unknown and is likely to
vary substantially from month to month.

Biographical Information

     Dr.  Eugene  Stricker was elected a Director upon the  organization  of the
Company and has served the Company as President and Director since inception. He
has been a partner  with Mr.  Schindler in Madison  Venture  Capital II, Inc., a
venture  capital firm, for more than the past five years.  From 1968 until 1991,
he held various administrative positions within the New York State Department of
Health, including serving as special assistant to the Commissioner. Dr. Stricker
is a graduate of the  University  of Maryland,  received his Doctor of Dentistry
from  Howard  University,  Washington,  D.C.,  and  received a Masters in Public
Health  from the  University  of  Michigan  at Ann Arbor.  He was a Director  of
Servtex  International,  Inc. from September 1991 until its merger with Hymedix,
Inc. (HYMX:OTCBB) in February 1994. From December 1991 to November 1994 he was a
Director  of  Natural   Child  Care,   Inc.   which   merged  into  Winners  All
International,   Inc.  in  September  1992  and  which  later  became   Erecotes
Industries,  Inc.  (UREC:OTCBB).  In July 1993,  he became a  Director  of Light
Savers USA,  Inc.  and served until  February  1995 when that company was merged
into Hospitality World Wide, Inc. (HWS:AMEX) which later became Hotel Works.com.
Dr.  Stricker was a Director and  Secretary of Kushi  Macrobiotics  Corp ("KMC")
from May 1994 to October 1996 when it merged with American  Phoenix Group,  Inc.
("APGI") which later merged with Tal Wireless Networks, Inc. (TALW:OTCBB) .


                                       26

<PAGE>



     Mark  Schindler  has been a Director,  Vice  President and Secretary of the
Company  since  inception.  He has been a partner  with Dr.  Stricker in Madison
Venture  Capital II, Inc., a venture  capital firm,  for more than the past five
years. He was the owner,  until 1984, of his own business engaged in electronics
distribution.  Mr. Schindler was a founder of Astrex, Inc. and its Chairman from
September  1960 to August 1984.  While he remains a Director of that entity,  he
devotes no time to it other than attending Board Meetings.  He was a Director of
Servtex  International,  Inc. from September 1991 until its merger with Hymedix,
Inc. (HYMX:  OTCBB) in February 1994. From December 1991 to November 1994 he was
a  Director  of  Natural  Child  Care,   Inc.  which  merged  into  Winners  All
International,   Inc.  in  September  1992  and  which  later  became   Erecotes
Industries,  Inc.  (UREC:OTCBB).  In July 1993,  he became a  Director  of Light
Savers USA,  Inc.  and served until  February  1995 when that company was merged
into Hospitality World Wide, Inc.  (HWS:AMEX) which became Hotel Works.com.  Mr.
Schindler was a Director and Treasurer of KMC from May 1994 to October 1996 when
it merged  with  APGI  which  later  merged  with Tal  Wireless  Networks,  Inc.
(TALW:OTCBB) .

     Daniel A. France, was a co-founder of KMC and became Vice President/Finance
and Chief  Financial  Officer of KMC on July 6, 1994 and Assistant  Secretary on
December 15, 1994. Mr. France was the Chief  Financial  Officer of Natural Child
Care, Inc. from May 1992 until September 1993. Following its merger with Winners
All International, Inc. ("WAI"), he maintained the accounting records of WAI and
Light Savers USA, Inc.  until December 1994 when he resigned from both to devote
full time to KMC. Mr.  France served as KMC's Vice  President/Finance  and Chief
Financial  Officer from July 1994 until  shortly after KMC's merger with APGI in
September  1996.  Since such time Mr. France has be self employed as a financial
and business consultant.  Mr. France was elected treasurer and a director of the
Company in February 1999. Mr. France is a CPA.

     Frank J. Hariton is an attorney in private  practice  with offices in White
Plains,  New York and New York City. He has been engaged in the private practice
of law for more than the last five years.  He received a B.A. in 1971 and a J.D.
in 1974 from Case Western Reserve University.  He is also assistant secretary of
Vitafort   International   Corporation   (VRFT:OTCBB),   a  company  engaged  in
developing,  marketing  and  distributing  snack  foods and low fat and fat free
snacks.


Indemnification of Officers and Directors

     Article Seventh of the Company's Certificate of Incorporation  provides for
indemnification  of the Company's  officers and directors to the fullest  extent
permitted under the General Corporation Law of the State of Delaware ("DGCL").

     SECTION  145 of the  DGCL,  as  amended,  applies  to the  Company  and the
relevant portion of the DGCL provides as follows:

                  145.     Indemnification of Officers, Directors, Employees and
                           Agents; Insurance.

                           (a) A corporation may indemnify any person who was or
                  is a  party  or is  threatened  to be  made  a  party  to  any
                  threatened,  pending or completed action,  suit or proceeding,
                  whether  civil,  criminal,   administrative  or  investigative
                  (other than an action by or


                                       27

<PAGE>



                  in the right of the corporation) by reason of the fact that he
                  is or  was a  director,  officer,  employee  or  agent  of the
                  corporation,  or is or  was  serving  at  the  request  of the
                  corporation  as a  director,  officer,  employee  or  agent of
                  another  corporation,  partnership,  joint  venture,  trust or
                  other  enterprise,   against  expenses  (including  attorneys'
                  fees),  judgments,   fines  and  amounts  paid  in  settlement
                  actually and  reasonably  incurred by him in  connection  with
                  such action,  suit or proceeding if he acted in good faith and
                  in a manner he reasonably  believed to be in or not opposed to
                  the best  interests of the  corporation,  and, with respect to
                  any criminal action or proceeding,  had no reasonable cause to
                  believe his  conduct  was  unlawful.  The  termination  of any
                  action,  suit or  proceeding by judgment,  order,  settlement,
                  conviction,   or  upon  a  plea  of  nolo  contendere  or  its
                  equivalent,  shall not, of itself,  create a presumption  that
                  the person did not act in good faith and in a manner  which he
                  reasonably  believed  to be in or  not  opposed  to  the  best
                  interests  of  the  corporation,  and,  with  respect  to  any
                  criminal action or proceeding, had reasonable cause to believe
                  that his conduct was unlawful.

                           (b) A corporation may indemnify any person who was or
                  is a  party  or is  threatened  to be  made  a  party  to  any
                  threatened,  pending or completed  action or suit by or in the
                  right of the corporation to procure a judgment in its favor by
                  reason  of the  fact  that he is or was a  director,  officer,
                  employee or agent of the corporation,  or is or was serving at
                  the  request  of  the  corporation  as  a  director,  officer,
                  employee or agent of another corporation,  partnership,  joint
                  venture, trust or other enterprise against expenses (including
                  attorneys'  fees) actually and  reasonably  incurred by him in
                  connection  with the defense or  settlement  of such action or
                  suit if he acted in good  faith and in a manner he  reasonably
                  believed to be in or not opposed to the best  interests of the
                  corporation and except that no  indemnification  shall be made
                  in  respect  of any  claim,  issue or matter as to which  such
                  person   shall  have  been   adjudged  to  be  liable  to  the
                  corporation  unless and only to the  extent  that the Court of
                  Chancery or the court in which such action or suit was brought
                  shall   determine   upon   application   that,   despite   the
                  adjudication of liability but in view of all the circumstances
                  of the case, such person is fairly and reasonably  entitled to
                  indemnity  for such  expenses  which the Court of  Chancery or
                  such other court shall deem proper.

                           (c) To the extent that a director,  officer, employee
                  or agent of a corporation has been successful on the merits or
                  otherwise  in  defense  of  any  action,  suit  or  proceeding
                  referred to in subsections (a) and (b) of this section,  or in
                  defense of any  claim,  issue or matter  therein,  he shall be
                  indemnified  against  expenses  (including   attorneys'  fees)
                  actually  and   reasonably   incurred  by  him  in  connection
                  therewith.


                                       28

<PAGE>



                           (d) Any indemnification under subsections (a) and (b)
                  of this section  (unless  ordered by a court) shall be made by
                  the corporation only as authorized in the specific case upon a
                  determination that  indemnification of the director,  officer,
                  employee  or agent is proper in the  circumstances  because he
                  has met the  applicable  standard  of  conduct  set  forth  in
                  subsections  (a) and (b) of this section.  Such  determination
                  shall be made (1) by the board of directors by a majority vote
                  of a quorum  consisting  of directors  who were not parties to
                  such action,  suit or  proceeding,  or (2) if such a quorum is
                  not   obtainable,   or,  even  if   obtainable   a  quorum  of
                  disinterested  directors  so  directs,  by  independent  legal
                  counsel in a written opinion, or (3) by the stockholders.

                           (e) Expenses (including  attorneys' fees) incurred by
                  an officer  or  director  in  defending  any civil,  criminal,
                  administrative or investigative action, suit or proceeding may
                  be paid by the corporation in advance of the final disposition
                  of  such  action,  suit  or  proceeding  upon  receipt  of  an
                  undertaking  by or on behalf of such  director  or  officer to
                  repay such amount if it shall ultimately be determined that he
                  is  not  entitled  to be  indemnified  by the  corporation  as
                  authorized   in  this  section.   Such   expenses   (including
                  attorneys' fees) incurred by other employees and agents may be
                  so paid upon such terms and  conditions,  if any, as the board
                  of directors deems appropriate.

                           (f) The  indemnification  and advancement of expenses
                  provided by, or granted pursuant to, the other  subsections of
                  this section shall not be deemed exclusive of any other rights
                  to which  those  seeking  indemnification  or  advancement  of
                  expenses may be entitled under any by-law,  agreement, vote of
                  stockholders or disinterested directors or otherwise,  both as
                  to action in his official capacity and as to action in another
                  capacity while holding such office.

                           (g) A  corporation  shall have power to purchase  and
                  maintain  insurance  on behalf of any  person  who is or was a
                  director, officer, employee or agent of the corporation, or is
                  or  was  serving  at  the  request  of  the  corporation  as a
                  director,  officer,  employee or agent of another corporation,
                  partnership,  joint venture, trust or other enterprise against
                  any liability  asserted against him and incurred by him in any
                  such capacity,  or arising out of his status as such,  whether
                  or not the  corporation  would have the power to indemnify him
                  against such liability under this section.

                           (h) For purposes of this section,  references to "the
                  corporation"  shall  include,  in  addition  to the  resulting
                  corporation,   any  constituent   corporation  (including  any
                  constituent of a constituent)  absorbed in a consolidation  or
                  merger which, if its


                                       29

<PAGE>



                  separate  existence  had  continued,  would have had power and
                  authority to indemnify its directors, officer and employees or
                  agents, so that any person who is or was a director,  officer,
                  employee or agent of such  constituent  corporation,  or is or
                  was serving at the request of such constituent  corporation as
                  a director, officer, employee or agent of another corporation,
                  partnership,  joint venture, trust or other enterprise,  shall
                  stand in the same position  under this section with respect to
                  the resulting or surviving  corporation  as he would have with
                  respect  to  such  constituent  corporation  if  its  separate
                  existence had continued.

                           (i) For purpose of this section, references to "other
                  enterprises" shall include employee benefit plans;  references
                  to "fines" shall include any excise taxes assessed on a person
                  with respect to any employee  benefit plan;  and references to
                  "serving at the request of the corporation"  shall include any
                  service  as a  director,  officer,  employee  or  agent of the
                  corporation  which imposes duties on, or involves services by,
                  such director,  officer, employee, or agent with respect to an
                  employee benefit plan, its participants, or beneficiaries; and
                  a person who acted in good faith and in a manner he reasonably
                  believed  to  be in  the  interest  of  the  participants  and
                  beneficiaries  of an employee  benefit plan shall be deemed to
                  have acted in a manner "not  opposed to the best  interests of
                  the corporation" as referred to in this section.

                           (j) The  indemnification  and advancement of expenses
                  provided  by, or granted  pursuant  to,  this  section  shall,
                  unless   otherwise   provided  when  authorized  or  ratified,
                  continue  as to a  person  who has  ceased  to be a  director,
                  officer,  employee  or agent and shall inure to the benefit of
                  the heirs, executors and administrators of such a person.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933,  may be permitted to  directors,  officers or persons  controlling  the
Company  pursuant to the  foregoing  provisions,  the Company has been  informed
that,  in  the  opinion  of  the  Securities  and  Exchange   Commission,   such
indemnification  is against  public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.

Conflicts of Interest

     The officers and  directors of the Company will devote only a small portion
of their  time to the  affairs  of the  Company,  estimated  to be no more  than
approximately  10 hours per month,  except at times when a business  combination
may be  imminent.  There will be  occasions  when the time  requirements  of the
Company's  business  conflict  with the  demands  of their  other  business  and
investment  activities.  Such conflicts may require that the Company  attempt to
employ  additional  personnel.  There is no assurance  that the services of such
persons will be available or that they can be obtained  upon terms  favorable to
the Company. Messrs Stricker and Schindler will devote most of their time to the
affairs of Madison  Venture  Capital II, Inc.,  and this may result in conflicts
with the Company. In addition, in the future, one or more


                                       30

<PAGE>



members of  management  may become  involved in the  management  of other "blank
check" companies. Messrs. Schindler and Stricker, or Madison Venture Capital II,
Inc. may receive consulting fees for investment  banking or business  consulting
services  which  they may offer to a party to a  business  combination  with the
Company.  While, Messrs.  Stricker and Schindler believe that any such fees will
be consistent with fees that they or Madison Venture Capital II, Inc. may charge
to entities in similar circumstances,  the presence of such fees may impact upon
the number of shares  received by the  Company's  shareholders  in the  business
combination.

     There is no procedure in place which would allow the  Company's  management
to resolve potential conflicts in an arms-length fashion. Accordingly, they will
be  required  to use their  discretion  to resolve  them in a manner  which they
consider appropriate.

ITEM 10: EXECUTIVE COMPENSATION.

     No officer or  director  has  received  any  remuneration  from the Company
during the year ended  December 31, 2000.  The Company's  officers and directors
purchased  the  Company's  stock in the  December  1999 Private  Placement.  See
"Certain  Relationships  and  Related  Transactions."  The  Company has no stock
option,  retirement,  pension,  or  profit-sharing  programs  for the benefit of
directors, officers or other employees, but the Board of Directors may recommend
adoption of one or more such programs in the future.

     It is possible that, after the Company successfully consummates a merger or
acquisition  with an  unaffiliated  entity,  that entity may desire to employ or
retain one or more  members of the  Company's  management  for the  purposes  of
providing   services  to  the  surviving  entity,  or  otherwise  provide  other
compensation to such persons.  However, the Company has adopted a policy whereby
the offer of any post-transaction remuneration to members of management will not
be  a  consideration  in  the  Company's  decision  to  undertake  any  proposed
transaction.  Each member of management  has agreed to disclose to the Company's
Board of Directors any discussions  concerning possible  compensation to be paid
to them by any entity which proposes to undertake a transaction with the Company
and  further,  to  abstain  from  voting on such  transaction.  Therefore,  as a
practical  matter, if each member of the Company's Board of Directors is offered
compensation in any form from any prospective  merger or acquisition  candidate,
the  proposed  transaction  will  not be  approved  by the  Company's  Board  of
Directors  as a result of the  inability of the Board to  affirmatively  approve
such a transaction.

     No member of management of the Company will receive any finders fee, either
directly or indirectly, as a result of their respective efforts to implement the
Company's  business plan outlined herein.  Also, there are no plans,  proposals,
arrangements  or  understandings  with  respect  to  the  sale  or  issuance  of
additional  securities by the Company prior to the location of an acquisition or
merger candidate.  Please also see "Item I, Description of Business-General" for
information  regarding  the  seeking  out and  selection  of a  target  company,
addressing  matters such as the manner of solicitation  of potential  investors,
the  approximate  number of persons who will be  contacted or  solicited,  their
relationships to the Company's management, etc.

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

     The following  table sets forth as of December 31, 2000,  information  with
respect to the beneficial ownership of the Company's outstanding Common Stock by
(i) each director and


                                       31

<PAGE>



executive officer of the Company,  (ii) all directors and executive  officers of
the Company as a group,  and (iii) each shareholder who was known by the Company
to be the beneficial owner of more than 5% of the Company's  outstanding  Common
Stock. Except as otherwise indicated,  the persons or entities listed below have
sole  voting and  investment  power with  respect to all shares of Common  Stock
beneficially owned by them.

<TABLE>
<CAPTION>

                                                     NUMBER                      PERCENTAGE
         NAME                                        OF SHARES                   OF CLASS
         ----                                        ---------                   ----------

<S>                                                   <C>                            <C>
         Dr. Eugene Stricker                          1,052,127 (1)                   9.9%

         Mark Schindler                                 827,695 (2)                   7.8%

         Daniel A. France                               253,113                       2.4%

         Frank J. Hariton                               162,000                       1.5%

         All officers and
         directors as a group (4 persons)             2,294,935 (1) (2)              21.7%
</TABLE>

(1)  Does not include  70,044  shares owned by the Eugene  Stricker  Irrevocable
     Trust. Dr. Stricker disclaims beneficial ownership of such shares.

(2)  Does  not  includes:  (i)  140,088  shares  owned  by  the  Mark  Schindler
     Irrevocable Trust; and (ii) 140,088 shares owned by Mr. Schindler's fiance,
     Ms. Barbara Serota. Mr. Schindler disclaims  beneficial  ownership of these
     shares.  Includes  565,000 shares owned by The SBS Limited  Partnership,  a
     limited partnership where Mr. Schindler is the general partner.

     Management has no plans to issue any  additional  securities to management,
promoters or their affiliates or associates and will do so only if such issuance
is in the best  interests of  shareholders  of the Company and complies with all
applicable federal and state securities rules and regulations.

     Although  the Company has a very large  amount of  authorized  but unissued
common  and  preferred  stock  that may be issued  without  further  shareholder
approval  or notice,  it is the  intention  of the  Company to avoid  initiating
certain  transactions with prospective  acquisition or merger candidates through
the issuance of preferred stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

     The Company was formed in August,  1996 . Each of the then  shareholders of
KMC received  three shares of the  Company's  common stock for each share of KMC
that they owned in connection with the spin off of the Company by KMC. See. Item
1.  Description of Business - General.  Included in such  shareholders  were the
then officers and directors of KMC.

     During December 1999, the Company sold 1,985,000 shares of its common stock
to eleven investors in a private placement for $1,985 or $.001 per share.  Among
the Purchasers in


                                       32

<PAGE>



such private placement were: Dr. Eugene Stricker, an officer and director of the
Company, who purchased 580,000 shares for $580; The SBS Limited  Partnership,  a
New York limited partnership of which Mark Schindler, an officer and director of
the Company is the general partner, purchased 565,000 shares for $565; Daniel A.
France, on officer and director of the Company, purchased 78,000 shares for $78;
and Frank J. Hariton,  an officer of the Company,  purchased  162,000 shares for
$162. The purchase was at par value and therefor below book value.

                                     PART IV

ITEM 13:          EXHIBITS LIST AND REPORTS ON FORM 8-K.

(a)      Exhibits:

3(a)     Articles of Incorporation*

3(b)     Bylaws*

4(b)     Specimen Stock Certificate*

10.1     Spin - Off Agreement,  dated September 19, 1996, between the Registrant
         and Kushi Macrobiotics Corp.*

10.2.    Amended and  Restated  Agreement  and Plan of Merger by and among Kushi
         Macrobiotics Corp. and American Phoenix Group, Inc. and the Registrant,
         dated August 12, 1996*

21       Subsidiaries of the Registrant - None

*  Incorporated  by  reference  to the like  numbered  exhibit to the  Company's
Registration Statement on Form 10-SB.

(b)      Reports on Form 8-K.

         There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 2000.


                                       33

<PAGE>


                                   SIGNATURES

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

KUSHI NATURAL FOODS CORP.


By:          /s/ Dr. Eugene Stricker
     --------------------------------------------------
         Dr. Eugene Stricker, President

NEW YORK, NEW YORK
DATE:  March 28,  2001


Pursuant to the  requirements  of the  Exchange  Act,  this report has been duly
signed below by the  following  persons on behalf of the  Registrant  and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

Name                                        Title(s)                                    Date
----                                        --------                                    ----

<S>                                         <C>                                         <C>
       /s/  Dr.Eugene Stricker              Director and President                      March 28, 2001
------------------------------------
         Dr. Eugene Stricker                (Principal Executive
                                            and Finanacial Officer)

       /s/  Mark Schindler                  Director                                    March 28, 2001
------------------------------------
         Mark Schindler

        /s/ Daniel A. France                Director and Treasurer                      March 28, 2001
------------------------------------        (Principal Accounting Officer)
         Daniel A. France


       /s/ Frank J. Hariton                 Director                                    March 28, 2001
----------------------------------
         Frank J. Hariton
</TABLE>


                                       34
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

Index to Financial Statements                                 F-1

Report of Independent Auditors                                F-2

Balance Sheet - December 31, 2000                             F-3

Statements of Operations - December 31, 2000                  F-4

Statement of Changes in Stockholders'
         Equity - December 31, 2000                           F-5

Statements of Cash Flows - December 31, 2000                  F-6

Notes to Financial Statements -
         December 31, 2000                                    F-7 to F-9


                                       F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Kushi Natural Foods Corp.

We have audited the  accompanying  balance sheet of Kushi Natural Foods Corp. (a
development  stage  enterprise)  as  of  December  31,  2000,  and  the  related
statements of operations,  changes in stockholders'  equity,  and cash flows for
each of the two years in the period ended  December 31, 2000, and for the period
August 1, 1996 (inception) through December 31, 2000. These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Kushi Natural Foods Corp. at
December 31, 2000, and the results of its operations and its cash flows for each
of the two years in the  period  ended  December  31,  2000,  and for the period
August 1, 1996  (inception)  through  December  31,  2000,  in  conformity  with
generally accepted accounting principles.



                                               WOLINETZ LAFAZAN & COMPANY , P.C.


Rockville Centre, New York
February 20, 2001


                                       F-2
<PAGE>

                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                                  BALANCE SHEET
                                DECEMBER 31, 2000


                                     ASSETS

Current Assets:

  Cash and Cash Equivalents                                            $  41,914
                                                                       ---------

Total Assets                                                           $  41,914
                                                                       =========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

  Accounts Payable                                                     $  18,319

Commitments and Contingencies

Stockholders' Equity:

  Preferred Stock, $.0001 par value; 5,000,000 shares
    Authorized, none issued and outstanding                $     --
  Common Stock, $.0001 par value; 35,000,000 shares
    Authorized, 10,588,718 shares issued and outstanding       1,059
  Additional Paid-In Capital                                 213,494
  Deficit Accumulated in the Development Stage              (190,958)
                                                           ----------

         Total Stockholders' Equity                                       23,595
                                                                       ---------

Total Liabilities and Stockholders' Equity                             $  41,914
                                                                       =========



The accompanying notes are an integral part of the financial statements.


                                       F-3
<PAGE>

                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                                                       Cumulative
                                                                                                                          From
                                                                                                                     August 1, 1996
                                                                                Year Ended                             (Inception)
                                                                                December 31,                         To December 31,
                                                                                  2000                  1999              2000
                                                                              -----------------------------------------------------
<S>                                                                            <C>                   <C>                <C>
Revenues                                                                       $       --            $      --          $    --

Costs and Expenses:
  Selling, General and Administrative Expenses                                        4,319                5,160           51,500
                                                                               ------------          -----------        ---------

Loss from Operations                                                                 (4,319)              (5,160)         (51,500)

Other Income:
  Interest Income                                                                       915                  912            1,827
                                                                               ------------          -----------        ---------

Loss from Continuing Operations                                                      (3,404)              (4,248)         (49,673)
                                                                               ------------          -----------        ---------

Discontinued Operations:

  Loss from Operations of Discontinued Joint Venture                                   --                   --            (99,143)
  Loss on Write-Off of Investment in Discontinued
    Joint Venture                                                                      --                   --            (42,142)
                                                                               ------------          -----------        ---------
                                                                                       --                   --           (141,285)
                                                                               ------------          -----------        ---------

Net Loss                                                                       $     (3,404)         $    (4,248)       $(190,958)
                                                                               ============          ===========        =========

Earnings Per Common Share - Basic

Weighted Average Common Shares Outstanding                                       10,588,718            8,652,663
                                                                               =============         ===========

Net Loss Per Common Share - Basic                                              $       (.00)         $      (.00)
                                                                               =============         ===========

</TABLE>


The accompanying notes are an integral part of the financial statements.


                                       F-4
<PAGE>

                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
         FOR THE PERIOD AUGUST 1, 1996 (INCEPTION) TO DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                            Deficit
                                                                                          Accumulated
                                                                        Additional          In The
                                           Preferred        Common        Paid-In         Development
                                             Stock           Stock        Capital            Stage              Total
                                           ---------       ---------      ---------        ---------          ---------

<S>                                        <C>             <C>            <C>              <C>                <C>
Balance at August 1, 1996                  $    --         $    --        $    --          $    --            $    --

Issuance of 8,603,718 Shares of
  Common Stock as Consideration
  for the Net Assets of Kushi
  Macrobiotics Corp.                            --               860        129,488             --              130,348

Contributed Capital by Officers
  Pursuant to Debt Cancellation                 --              --           78,250             --               78,250

Net Loss for the Period Ended
  December 31, 1996                             --              --             --            (41,190)           (41,190)
                                           ---------       ---------      ---------        ---------          ---------

Balance at December 31, 1996                    --               860        207,738          (41,190)           167,408

Net Loss for the Year Ended
  December 31, 1997                             --              --             --           (112,116)          (112,116)
                                           ---------       ---------      ---------        ---------          ---------

Balance at December 31, 1997                    --               860        207,738         (153,306)            55,292

Net Loss for the Year Ended
  December 31, 1998                             --              --             --            (30,000)           (30,000)
                                           ---------       ---------      ---------        ---------          ---------

Balance at December 31, 1998                    --               860        207,738         (183,306)            25,292

Sale of 1,985,000 Shares of
  Common Stock                                  --               199          5,756             --                5,955

Net Loss for the Year Ended
  December 31, 1999                             --              --             --             (4,248)            (4,248)
                                           ---------       ---------      ---------        ---------          ---------

Balance at December 31, 1999                    --             1,059        213,494         (187,554)            26,999

Net Loss for the Year Ended
  December 31, 2000                             --              --             --             (3,404)            (3,404)
                                           ---------       ---------      ---------        ---------          ---------

Balance at December 31, 2000               $    --         $   1,059      $ 213,494        $(190,958)         $  23,595
                                           =========       =========      =========        =========          =========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                       F-5
<PAGE>


                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                               Cumulative
                                                                                                                  From
                                                                                                            August 1, 1996
                                                                                 Year Ended                    (Inception)
                                                                                 December 31,                To December 31,
                                                                             2000              1999                2000
                                                                       --------------------------------    --------------------
<S>                                                                       <C>               <C>               <C>
Cash Flows from Operating Activities:
  Net Loss                                                                $  (3,404)        $  (4,248)        $(187,554)
  Adjustments to Reconcile Net Loss to Net Cash
    (Used) by Operating Activities:
  Stock Compensation                                                           --               3,970             3,970
  Loss from Operations of Discontinued Joint Venture                           --                --              99,143
  Loss on Write-Off of Investment in Discontinued Joint
     Venture                                                                   --                --              42,142
  Changes in Operating Assets and Liabilities:

     Increase (Decrease) in Accounts Payable                                 (7,314)           (9,867)           23,648
                                                                          ---------         ---------         ---------

Net Cash (Used) by Operating Activities                                     (10,718)          (10,145)          (18,651)
                                                                          ---------         ---------         ---------

Cash Flows from Investing Activities:
  Investment in Joint Venture                                                  --                --             (47,854)
  Cash Acquired Pursuant to Spin-Off                                           --                --             115,167
                                                                          ---------         ---------         ---------

Net Cash Provided by Investing Activities                                      --                --              67,313
                                                                          ---------         ---------         ---------

Cash Flows from Financing Activities:
  Proceeds of Stock Subscriptions Receivable                                  1,985              --               1,985
                                                                          ---------         ---------         ---------

Net Cash Provided by Financing Activities                                     1,985              --               1,985
                                                                          ---------         ---------         ---------

Increase (Decrease) in Cash and Cash Equivalents                             (8,733)          (10,145)           50,647

Cash and Cash Equivalents - Beginning                                        50,647            60,792              --
                                                                          ---------         ---------         ---------

Cash and Cash Equivalents - Ending                                        $  41,914         $  50,647         $  50,647
                                                                          =========         =========         =========

Supplemental Disclosure of Cash Information:

  Cash Paid for Income Taxes                                              $    --           $    --           $    --
                                                                          =========         =========         =========

  Cash Paid for Interest                                                  $    --           $    --           $    --
                                                                          =========         =========         =========

Non-Cash Investing and Financing Activities:
  Contributed Capital by Officers Pursuant
    to Debt Cancellation                                                  $    --           $    --           $  69,250
                                                                          =========         =========         =========
  Issuance of Common Stock as Consideration for
    the Net Assets of Kushi Macrobiotics Corp.
  Increase in Stock Subscriptions Receivable Upon Sale of
    Common Stock                                                          $    --           $   1,985         $   1,985
                                                                          =========         =========         =========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                       F-6
<PAGE>

                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

NOTE 1 - Organization and Basis of Presentation

     Kushi Natural Foods Corp.  (the  "Company") was  incorporated  on August 1,
1996 under the laws of the State of Delaware  as a  wholly-owned  subsidiary  of
Kushi Macrobiotics Corp., a Delaware Corporation ("KMC").

     On September 19, 1996 the Company was assigned  certain  assets and assumed
certain  liabilities  of  KMC.  The  Company  was  thereafter  spun-off  to  the
shareholders of KMC immediately prior to KMC's merger with another corporation.

     The assets and  liabilities  transferred to the Company by KMC were for the
purpose of the Company to  develop,  produce  and/or  market a full line of high
quality  macrobiotic  natural foods.  The Company has not generated any revenues
from the natural foods business and has incurred  losses to date.  Consequently,
the Company has abandoned the natural foods business and is currently seeking to
obtain  capital in order to take advantage of business  opportunities  which may
have profit  potential.  Accordingly,  the Company's  financial  statements  are
presented as statements of a development stage enterprise.


NOTE 2 - Summary of Significant Accounting Policies

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
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 these estimates.

     Cash and Cash Equivalents

     The Company  considers those  short-term,  highly liquid  investments  with
original maturities of three months or less as cash equivalents.

     Joint Venture

     The Company  accounted  for its  investment  in the Joint Venture under the
equity method.

     Income Taxes

     The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary  differences between the financial
statement  and income tax bases of the  Company's  assets  and  liabilities.  An
allowance is recorded,  based upon currently available  information,  when it is
more  likely  than not that any or all of the  deferred  tax  asset  will not be
realized.  The provision for income taxes includes taxes currently  payable,  if
any, plus the net change during the year in deferred tax assets and  liabilities
recorded by the Company.


                                       F-7
<PAGE>

                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 2 - Summary of Significant Accounting Policies (Continued)

     Net Loss Per Common Share

     Net loss per common  share is based  upon the  weighted  average  number of
common shares outstanding during the periods reported.

     Fair Value of Financial Instruments

     The carrying value of the Company's financial  instruments,  including cash
and cash equivalents and accounts payable approximated fair value because of the
short maturity of these instruments.


NOTE 3 - Stock Subscriptions Receivable

     Stock  subscriptions  receivable  represents amounts owed from the December
1999 sale of  1,985,000  shares of the  Company's  common  stock  pursuant  to a
private offering (see Note 5). The total amount receivable of $1,985 was paid in
January 2000.

NOTE 4 - Joint Venture

     In October 1996 the Company and EnerVite Corp ("EVC")  agreed to enter into
a joint  venture  in  which  the  Company  and EVC  would  each own 50% of a new
corporation called EVC/Kushi, Inc. ("EVCK").

     The Company invested approximately $141,000 for a 50% ownership interest in
EVCK. In September 1997 EVCK discontinued operations.  During the period October
1996 to September 1997 EVCK incurred a net loss of approximately  $198,000. Upon
discontinuance  of  operations  of EVCK,  the  Company  wrote off the  remaining
balance of its investment in EVCK.


NOTE 5 - Stockholders' Equity

     Spin-Off Agreement

     On September 19, 1996 the Company was assigned  certain  assets and assumed
certain liabilities of KMC. In connection therewith the Company issued 8,603,718
shares  of  common  stock as  consideration  for net  assets  in the  amount  of
$130,348.  The  Company  was  thereafter  spun-off  to the  shareholders  of KMC
immediately prior to KMC's merger with another corporation.

     Conversion of Debt to Equity

     In 1996 four officers of the Company converted  indebtedness of the Company
to them in the amount of $78,250 into additional paid-in capital.


                                       F-8
<PAGE>

                            KUSHI NATURAL FOODS CORP.
                        (A Development Stage Enterprise)
                        --------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 5 - Stockholders' Equity (Continued)

     Sale of Common Stock

     During December 1999 the Company sold 1,985,000  shares of its common stock
to eleven  investors  in a private  placement  for  $1,985,  or $.001 per share.
Although the sales price represented management's best estimate of fair value at
date of sale the  Company  has taken a charge  to  operations  in the  amount of
$3,970,  representing the difference  between the sales price and book value per
share.  Among the  purchasers in such private  placement were four directors and
affiliates of the Company, of whom purchased 1,385,000 shares in the aggregate.

     Preferred Stock

                  The Company's  Board of Directors may,  without further action
by the  Company's  stockholders,  from time to time,  direct the issuance of any
authorized  but unissued or unreserved  shares of Preferred  Stock in series and
may, at the time of issuance,  determine the rights, preferences and limitations
of each  series.  The  holders of  Preferred  Stock may be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company  before any payment is made to the holders of the Common Stock.  The
Board of Directors could issue Preferred Stock with voting and other rights that
could adversely affect the voting power of the holders of Common Stock and could
have certain anti-takeover effects.

NOTE 6 - Income Taxes

     The  Company  is  subject to  Federal  and state  income  taxes but has not
incurred a liability for such taxes due to losses  incurred.  As of December 31,
2000 the Company had a net  operating  loss  carryforward  ("NOLC")  for federal
income tax purposes of approximately  $191,000. This NOLC is available to offset
future  federal  taxable  income,  if  any,  through  2020.  Limitations  on the
utilization of the Company's net operating tax loss carryforward could result in
the event of certain changes in the Company's ownership.

     The Company had  deferred tax assets of  approximately  $65,000 at December
31, 2000, resulting primarily from net operating loss carryforwards. Th deferred
tax assets have been fully offset by a valuation  allowance  resulting  from the
uncertainty  surrounding  the  future  realization  of the  net  operating  loss
carryforwards.

NOTE 7 - Commitments and Contingencies

     Legal

     The Company may be subject to legal  proceedings and claims which may arise
in the ordinary course of its business. Currently, the Company is not a party to
any known legal proceedings.


                                       F-9