<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-KSB

(Mark One)

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

For the fiscal year ended JULY 31, 1999
                          -------------
                                       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 0-22964

                          SEL-DRUM INTERNATIONAL, INC.
                          ----------------------------
                 (Name of Small Business Issuer in Its Charter)

            NEW YORK                                    84-1236134
            --------                                    ----------
(State or Other Jurisdiction of            (I.R.S. Employer Identification No.)
Incorporation or Organization)

 501 AMHERST STREET, BUFFALO, NEW YORK                  14207-2913
 -------------------------------------                  ----------
(Address of Principal Executive Offices)                 (Zip Code)

                                 1-800-263-9356
                                 --------------
                 Issuer's Telephone Number, Including Area Code

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

   Title of Each Class                Name of Each Exchange on Which Registered
   -------------------                -----------------------------------------

          None                                           None

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

                          COMMON STOCK, $.01 PAR VALUE
                          ----------------------------
                               Title of Each Class

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

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

The Issuer's revenues for the year ended July 31, 1999 were $ $14, 631,235.

As of October 27,1999 there were 7,417,500 outstanding shares of Common Stock,
$.01 par value. The aggregate market value of the voting stock of the registrant
held by non-affiliates on October 27, 1999 based on the average bid and asked
price on such date was $172,496.


<PAGE>   2


ITEM 1.  DESCRIPTION OF BUSINESS.
---------------------------------

General
-------

        Sel-Drum International, Inc., a New York Corporation ("Sel-Drum" or the
"Company") is the successor corporation to Dakota Equities, Ltd., a
publicly-held "blind pool." On February 1, 1995, the Company acquired all the
outstanding common shares of Sel-Drum Imaging Corporation, the parent
corporation of Sel-Drum Corporation, a privately held Canadian corporation which
was founded in 1978. The Company amalgamated Micron Imaging Corporation (now the
Kelowna Facility) and Sel-Drum Corporation on November 1, 1996.

        Sel-Drum is a leading independent distributor of high mortality copier
and printer replacement parts and supplies. As one of the largest independent
high mortality copier parts distribution companies in North America, Sel-Drum
provides a link between parts manufacturers, sellers and buyers. Sel-Drum is
also developing strong relationships with suppliers who seek advanced inventory
management and order processing. Through its strategic alliance with
Densigraphix Kopi inc.("Densigraphix"), the Company strengthened its hold in the
toner segment of the market and positioned itself for a year of strong growth in
the US market. Please see below for more details on this transaction.

        Through its Sel-Drum Imaging Corporation subsidiary, the Company has two
wholly-owned subsidiaries, Sel-Drum Corporation (U.S.A.), Inc. and Sel-Drum
Corporation. Unless otherwise indicated, all references to "Sel-Drum" or the
"Company" include the Company, Sel-Drum Imaging Corporation, Sel-Drum
Corporation and Sel-Drum Corporation (U.S.A.), Inc. It should be noted that
approximately 95% of the Kelowna Facility's refurbished products are sold
directly to the other operating divisions. Sel-Drum Corporation (U.S.A.), Inc.
and Sel-Drum Corporation employ a number of sales agents and telemarketers who
directly contact the copier machine dealers throughout North America. There are
approximately 7,000 such dealers marketing various brands of copier products.
The Company estimates that the potential marketplace for high mortality
replacement parts, drums and toner, not controlled by the Original Equipment
Manufacturers ("O.E.M's") to be approximately $750 million in North America.

        The Company's primary business is the distribution of high mortality
copier and printer replacement parts and toners. The Company also refurbishes
facsimile and laser printer and fax cartridges. During the course of last year,
the Company discontinued its drum manufacturing activities. This decision was
motivated by a change in technology and did not effect the Company's operations
as it had been ready to use the appropriate facilities for its cartridges
refurbishing activities. The technology and equipment affiliated with the drum
manufacturing operations have been written off and as of the year ended July 31,
1999, a loss of $394,006 was recorded against earnings. To be able to offer an
integrated service comprehending both a product component and a value added
technological component, the Company has been offering for the past months,
through its Burlington office, specialized technical connectivity (net-working)
software services. The Company markets in the United States and Canada through a
direct network of sales agents and telemarketers. Outside of North America, the
Company is represented by several distributors with their sales accounting for
less than 5% of the total revenues.

        On March 7, 1997, the Company and certain principal shareholders
terminated discussions with JRCS Corp. regarding the sale of substantially all
of the outstanding capital stock of the Company.

        On October 29, 1997, the Company hired Raymond C. Sparks as its Chief
Executive Officer and President, replacing Brian Turnbull who had agreed to
remain with the Company as a full-time consultant.

<PAGE>   3

        In December 1997, the Company reorganized its sales staff and began
implementing this reorganization during the month of January 1998. As expected,
as a result of this reorganization of sales staff, sales were flat during
Fiscal 1998.

        On January 15, 1998, the Company began funding a repurchase of 172
shares of Class C and 241 shares of Class D Preferred Stock in the Company's
Sel-Drum Imaging Corporation subsidiary held by two of the Company's former
principal shareholders. The total purchase price was $300,000, of which
approximately $175,000 was delivered during the quarter ended January 31, 1998,
and approximately $125,000 was delivered during the quarter ended April 30,
1998.

        In late 1997, the Company initiated a strategic plan which was
designated to focus on the longer term growth prospects of the Company. This new
strategy called for concentrating future efforts to take advantage of the
perceived potential financial returns presented by existing opportunities within
the high mortality copier replacement part and printer part marketplace. In line
with its aim of bolstering the Company's core business, the Company signed a
cartridge sales contract in January 1999 with an important authorized dealer
thus taking advantage of the under-utilized Kelowna Facility refurbishing and
distribution capacity. The second tier of the contract, increasing the number of
cartridges processed in the Kelowna Facility, took effect in early September
1999. The profitability of the Kelowna Facility is presently dependent on this
contract which can be cancelled on three months notice. At present, the Company
has no indication that such a cancellation could be forthcoming.

        In the course of the implementation of its strategic plan which included
seeking acquisition candidates, the Company contacted Densigraphix of Montreal,
Quebec, a company specialized in the toner and cartridge distribution business,
which already distributed some of Sel-Drum's products. In view of the
complementary nature of the businesses and the compatible management
philosophies, an agreement was reached between the principal shareholders and
related parties of the Company whereby, C. Cotran Holding inc., a private
company wholly-owned by Camille Cotran, purchased all of the shares held by
Sel-Drum's principal shareholders and related parties. Following this
transaction, C. Cotran Holding inc. holds 97% of the Common Stock of the
Company.

        The third component of the strategic plan was to study the possibility
of seeking a listing on the Chicago Stock Exchange, the Nasdaq SmallCap Market
or a national or other regional exchange. Although not pursued during the past
year in view of its acquisition by C. Cotran Holding inc., this goal remains at
the forefront of the Company's development strategy.

        A new computer system was introduced in 1999. Training is completed. The
Company is now in a good position to take advantage and develop a full
functionality of the system.

        On July 30, 1999, Brian Turnbull and Robert Asseltine, the principal
shareholders of the Company, and other parties related to them, disposed of all
of their shares of Common Stock in the Company. On July 6, 1999, Messrs.
Turnbull and Asseltine delivered an executed original Term Sheet (the "Term
Sheet") among themselves, C. Cotran Holding inc. and Densigraphix ("the
Purchasers"). Pursuant to the Term Sheet, Messrs. Asseltine and Turnbull agreed
to sell to the Purchasers all of the Company's Common Stock beneficially held by
them at a price of $.40 US per share. Additionally, Messrs. Asseltine and
Turnbull agreed to deliver and sell to the Purchasers an additional 1,119,000
shares of Common Stock held by family members or related parties. The Term Sheet
further provided for the Purchaser's acquisition of all outstanding shares of
Preferred Stock held by Messrs. Asseltine and Turnbull (or their affiliates) in
the Company's Sel-Drum Imaging Corporation subsidiary at a price of $457.90 US
per share.


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<PAGE>   4


        The proposed transaction was contingent upon several items including but
not limited to: the repayment of indebtedness to the Company owed by related
parties (approximately $159,820 US is owed by two corporations controlled by
Mr. Turnbull); the resignation of current members of the Board of Directors and
the execution of a definitive agreement.

        A Stock Purchase Agreement (the "Agreement") was executed on July 30,
1999 with respect to the shares of Common Stock between C. Cotran Holding inc.,
a company incorporated under the laws of Canada and Robert E. Asseltine, 547118
Ontario Limited represented by Brian F. Turnbull and the other selling
shareholders of the Company, and with respect to the Preferred Stock of Sel-Drum
Imaging Corporation, the parties to the Agreement are Densigraphix, a company
incorporated under the laws of Canada and Robert E. Asseltine, Geraldine
Asseltine and 547118 Ontario Limited.

        The Agreement provided for the acquisition of 97% of the issued and
outstanding Common Stock of the Company by C. Cotran Holding inc. and all of the
outstanding Preferred Stock of Sel-Drum Imaging Corporation by Densigraphix.
Subject to post-closing adjustments, the aggregate purchase price for the Common
Stock and Preferred Stock was $5,702,472 US.

        The National Bank of Canada (the "Bank") agreed to make available a
global financing in the amount of $6,000,000.00CDN for the acquisition of the
Company through C. Cotran Holding inc., Densigraphix and Sel-Drum Corporation.
To secure the payment of various loans made for the purpose of the acquisition,
the 0ffer of Financing by the Bank provides for certain undertakings by the
Company, C. Cotran Holding inc., Densigraphix, Sel-Drum Corporation and Sel-Drum
Corporation (U.S.A.), Inc. which include a moveable hypothec with delivery
(pledge) of all the shares of the Company owned or to be owned by each of the
respective borrowers.

Company Strategy
----------------

        Through flexibility in sourcing as well as customer service, the Company
continually strives to be a reliable, innovative and cost-effective provider of
high mortality copier and facsimile component products to the approximately $750
million per year market in North America.

        The Company's focus in the next year will be on the sale of toners in
the US, taking advantage of the synergies created by the strategic alliance with
Densigraphix. The Company will remain attentive to opportunities in the European
and Asia-Pacific regions and take advantage of communications established
through its Website. The Company's strategy for the next year is to consolidate
and reorganize certain operations to fully benefit from its strategic alliance
with Densigraphix. Significant progress was achieved as to the main objectives
of the Company:

-      Provide high quality products and superior customer service. The Company
       has experienced a very low rate of customer returns as it monitors its
       sales force and the quality of its products on a continuous basis. The
       Company intends to continue its strategy of demanding high quality from
       its vendors.

-      Improve refurbishing flexibility. The Company's refurbishing facility in
       Kelowna, British Columbia (the "Kelowna Facility") obtained its ISO 9002
       certification in June 1999. New contracts have permitted a more efficient
       use of its capacity.

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<PAGE>   5

-      Establish integrated data system. To date, the basic functions of an
       integrated system have been successfully implemented as planned and
       within the budget. The Company is now in a position to benefit from the
       increased flexibility provided by this new system. The implementation of
       additional functions is planned in the course of the year. No assurances
       can be given that such functions will be implemented or if implemented
       will be successful.

-      Customers have access to the Company's Website. Orders are channeled
       through the sales representatives.

-      The Company has just completed a major transaction and will seek the full
       benefits of its alliance with Densigraphix through consolidation of
       certain operations or reorganization of certain functions. At this date,
       the Company has not yet established definitive plans in that regard.

-      In order to position itself advantageously, management intends to
       consolidate certain operations or reorganize certain functions prior to
       refocusing its effort on obtaining listing on the Nasdaq SmallCap Market
       system, a regional or national exchange. The Company's management
       recognizes that it is substantially more difficult for investors to
       dispose of securities or to obtain accurate quotations as to securities
       in the OTC Bulletin Board Service. To date, the Company does not meet the
       necessary minimum bid price per share or public float criteria required
       for getting its shares listed on an exchange. As part of an overall
       strategy to be developed within its alliance with Densigraphix, the
       Company may seek listing on a regional or national exchange. There can be
       no assurance that any application will be approved or that a market for
       the Common Stock will be obtained.

        As a result of the Company's strategic alliance with Densigraphix, its
strategy to promote superior customer service, increase sales in the US and
outside of North America and pursue the development of its integrated data
system, the Company believes it is well positioned to increase sales and
profitability. The Company's strategy is subject to certain conditions outside
of its control and no assurances can be given that the Company will be
successful in implementing any or all of its corporate objectives. See
"Investment Considerations."

Copier, Facsimile, and Printer Parts Distribution
-------------------------------------------------

        Management believes Sel-Drum is one of the largest independent North
American distributors of high mortality copier parts, drums, toner and related
supplies, serving both the commercial, institutional and general copier
after-markets through authorized and independent dealers. Product lines
distributed by Sel-Drum include a variety of other supplies. Sel-Drum purchases
these new parts from suppliers for its own account and resells such parts to its
customers, which include authorized and independent dealers and other
distributors. Sel-Drum purchases its generic toner almost exclusively from
Densigraphix. The terms and conditions under which such purchases are made have
been reviewed by the Board of Directors to ensure that these terms and
conditions are fair and at least as advantageous as those Sel-Drum could have
obtained if it has dealt at arms' length with a third party.

        The Company distributes high mortality copier parts from customer
service centers located throughout North America, and to a limited extent in
Europe and the Asia-Pacific region. In the immediate future, the Company intends
to focus its efforts on developing its sales of toner in the US markets building
on the synergies deriving from its strategic alliance with Densigraphix.
Already, prior to the transaction, Densigraphix was a significant distributor of
toner to the reprographics industry. As well, the Company marketed some of the
Densigraphix toners outside of Quebec. Field sales representatives



                                       4
<PAGE>   6

located in regions throughout North America call upon current and potential
customers on a regular basis to solicit orders and provide product and
operational information. Each service center is staffed to receive and process
telephone, facsimile and mail orders. A majority of the parts distributed by the
Company are located in its Buffalo, New York warehouse complex, with the
remaining parts distributed from the Company's Burlington, Ontario and Kelowna,
British Columbia facilities. To date, sales outside of North America account for
less than 5% of total sales.

        Management believes that this diversity distinguishes Sel-Drum from most
other distributors which carry a narrower range of products. Over 2,500 unique
part numbers are sold to approximately 4,500 customers. Refurbished cartridges
for the facsimile and printer market were introduced in August 1995. Many of
these products are marketed by the copier dealers already marketing the
Company's products. It is estimated that 75 million cartridges will be sold to
the North American market by all North American distributors in 1999, and
approximately 25 million of these will be re-charged units.

        Through its Kelowna Facility, the Company markets refurbished cartridge
products to the industry's dealers, vendors and resellers in North America.

Sales and Marketing
-------------------

        The Company markets and inventories a line of 2,500 high mortality
replacements parts, toner, coin-ops for copier and vending machines,
keycounters, key pads and other related accessories and refurbished facsimile
and printer cartridges. Sel-Drum emphasizes breadth of product offering,
competitive pricing, attention to customer service and value-added functions
through advanced systems and inventory management/logistics applications.
Sel-Drum's parts distribution operations serve the different requirements of
both the commercial copier and the general copier after-market sectors.

        Sel-Drum's commercial and institutional copier parts distribution sales
operations conduct direct sales and marketing efforts through a team of regional
sales managers and field sales representatives who meet regularly with
Sel-Drum's major customers. Their function is not only to sell and provide
technical support for existing products but also to work with Sel-Drum's
customers and with suppliers in order to identify new market opportunities.

        Sel-Drum's general copier parts distribution operations sell through
both employee and third-party sales representatives to meet customer
requirements. The general copier parts distribution staff works closely with the
regional sales staff and the inventory provisioning group to ensure that
inventory availability and customer service levels are maintained. Frequent
meetings are conducted with suppliers to provide new product introductions as
well as marketing and sales training.

        Sel-Drum warrants its products to its customers. These product
warranties do not represent a material cost to the Company.

Seasonality of Business
-----------------------

        Although there is no significant fluctuation in the flow of business,
revenues are generally lower during the Company's fourth fiscal quarter. The
Company believes this occurs due to school closings and governments summer
recess because those institutional customers are significant users of copying
machines producing high volumes of copies and the recurring need for replacement
parts.

                                       5
<PAGE>   7
Competition
-----------

        Sel-Drum's primary competitors for sales of copier parts and supplies
are other independent distributors and the OEMs. While Sel-Drum historically
competed in the parts distribution sector on the basis of price and availability
of parts, management believes that a primary basis for competition today, and a
key differentiating factor in the future, will be the ability to offer
value-added services to accommodate customers, such as broad-based inventory
management services and sophisticated systems capability.

Employees
---------

        At July 31, 1999, Sel-Drum employed approximately 93 full time employees
located in the United States and Canada up from 68 as at 1998 year-end. The
additional employees were recruited mostly to service the increase in
contractual obligations at the Kelowna Facility. The Company has no employees
represented by unions. The Company believes that its relationship with its
employees is satisfactory.

Forward-Looking Information
---------------------------

        This document contains, and other materials filed or to be filed by the
Company with the Commission which are incorporated by reference herein, as well
as information included in oral statements or other written statements made or
to be made by the Company, contain or will contain or include, disclosures which
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1934, as amended (the "Act"), and Section 21E of the Exchange
Act. Such forward-looking statements address, among other things, strategic
initiatives (including plans for enhancing the Company's business through new
acquisitions, information technology systems, sales strategies, market growth
plans, margin enhancement initiatives, capital expenditures, and financing
sources). Such forward-looking information is based upon management's current
plans or expectations and is subject to a number of uncertainties and risks that
could significantly affect current plans, anticipated actions and the Company's
future financial condition and results. These uncertainties and risks include,
but are not limited to, those relating to successfully managing a program to
acquire and integrate new companies, including technical services risks and
uncertainties relating to conducting operations in a competitive environment;
delays, technological changes, management transitions and employment issues;
debt service requirements (including sensitivity to fluctuation in interest
rates and foreign currency); and general economic conditions. As a consequence,
current plans, anticipated actions and future financial condition and results
may differ from those expressed in any forward-looking statements made by or on
behalf of the Company.

Investment Considerations
-------------------------

        The following factors are important and relevant considerations in
evaluating the business of the Company and a potential investment in the
Company's securities.

        Public Market for the Company's Common Stock. The Company's Common Stock
currently trades on the NASD's OTC Bulletin Board. The Company intends to apply
to list the Common Stock on the Nasdaq SmallCap Market or regional or national
exchange, if denied listing on such market. There can be no assurance that a
market for the Common Stock will develop or be sustained. As a result,
purchasers of the Company's securities may have difficulty in selling such
securities should they desire to do so.

        Common Stock Eligible for Resale. Of the 7,417,500 shares of Common
Stock presently outstanding, over 7,165,680 shares are "restricted securities"
and under certain circumstances may be sold


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<PAGE>   8

in compliance with Rule 144 adopted under the Securities Act. Future sales of
such shares are likely to depress the market price of the Company's Common
Stock, which would have an adverse effect on the value of the Company's
securities.

        Ability to Respond to Rapid Change. The Company's future success will
depend significantly on its ability to enhance its current products and develop
or acquire and market new products which keep pace with technological
developments and evolving industry standards as well as to respond to changes in
customer needs. The failure of the Company's management to adapt to changing
technological and business conditions, as well as the growth of its own
business, results of operations and prospects, would have a material adverse
effect on the Company's business.

       Management Transition; Dependence Upon Key Personnel. The Company's
success will depend in large measure on the efforts of key senior management.
Mr. Camille Cotran became Chief Executive officer of the Company replacing the
Company's founder, Brian F. Turnbull who retired on July 30, 1999. Mr. Raymond
C. Sparks remains as President of the Company. Furthermore, the Company now
benefits from the knowledge and experience of Densigraphix's specialized
personnel. With the alliance with Densigraphix, the Company has therefore become
less dependent on a few individuals.

        Management of Change. The Company's future performance will depend in
part on its ability to manage changes in its operations and will require the
Company to hire additional management and technical personnel, particularly in
the marketing and customer support areas. In addition, the Company's ability to
manage changes in its operations will require it to continue to improve its
operational and financial control system and to attract, train, motivate, manage
and retain key employees. If the Company's management were to become unable to
manage growth effectively, that would have a material adverse effect on the
Company's financial condition, prospects and operating results.

        Potential Unspecified Acquisitions. The Company is currently considering
acquiring other smaller businesses within its industry segment from whom
economies of scale can be achieved. In the event the Company determines to
acquire such businesses or assets, investors may not have an opportunity to
review the financial statements of such businesses or to vote on such
acquisitions. To date, the Company has not identified any acquisition candidates
and no assurances can be given that any such acquisitions will occur or if they
occur whether such acquisitions will provide the economies of scale the Company
desires from such candidates.

        Competition. The high mortality copier parts business is highly
competitive. The Company believes that competition in the industry is based
principally upon experience, quality, prices and the ability to meet customer
delivery requirements. Prior competition in the industry affects the Company's
ability to increase prices on certain products and, in some cases, subjects the
Company to pressure from its customers to reduce prices. While recently
committing its efforts to improve its refurbishing and assembly processes to
permit the Company to reduce costs through operating efficiencies, thereby
improving profitability, there can be no assurances that these efforts will
serve to improve productivity and profitability. Additionally, some of the
Company's competitors have greater financial resources than the Company and
there can be no assurance that the Company will be able to compete effectively
with these competitors.

        Control by Management. C. Cotran Holding inc., whose sole shareholder is
Camille Cotran, holds approximately 97% of the Common Stock of the Company. As a
result, C. Cotran Holding inc. is in a position to control the management and
policies of the Company, including, but not limited to, electing or removing the
Company's Board of Directors, changing the core business of the Company, causing
or


                                       7
<PAGE>   9

restricting the sale of the Company, causing the Company to engage in
transactions with affiliated companies and controlling the Company's dividend
policy.

        Reliance on Quality Control of Unaffiliated Manufacturers. Although the
Company believes that it maintains good control with respect to product
specifications and quality, there can be no assurance that unaffiliated
manufacturers become unable or unwilling to continue to manufacture the
Company's distributed products that are consistent with the Company's quality
and performance standards. In this regard, the Company has occasionally
received, and may in the future receive, shipments of product from unaffiliated
manufacturers of products that fail to conform to the Company's quality control
standards or are not timely delivered. Although shipments from unaffiliated
manufacturers of products that failed to conform to the Company's standards have
not materially affected the Company's operation, there cannot be any assurance
that such failure in the future would not materially adversely affect the
Company's results of operations or its reputation in the marketplace.

ITEM 2.  DESCRIPTION OF PROPERTY.
---------------------------------

        As of July 31, 1999, the Company was utilizing approximately 45,300
square feet of warehouse and manufacturing space and approximately 6,700 square
feet of office, administrative, training and sales space. The Company believes
that its properties are adequate for its needs. Information with respect to the
principal facilities used by Sel-Drum is set forth below:

ADDRESS                            PRIMARY            USE

501 Amherst Street                 (1)                Registered Headquarters
Buffalo, N.Y. U.S.A.                                  and U.S.A. Distribution

1370 Artisans Court                (2)                Executive and
Burlington, On. Canada                                Administration Facilities
                                                      Canadian Distribution

1910 Dayton Street                 (3)                Manufacturing Facility
Kelowna, B.C., Canada

1890 Dayton Street                 (3)                Distribution Center
Kelowna, B.C., Canada

(1) The Company established its U.S.A. distribution facilities in 1982, which it
has agreed to lease through October 2001 at an annual rental of $38,000.

(2) Established in 1978 as the executive and administrative offices, together
with the distribution center for product within Canada. The Company has agreed
to lease the property through February 2002 at an annual rental of $78,000.

(3) The Kelowna Facility occupies two properties, one owned by a former director
Robert Asseltine and the other by a third party. The property owned by Mr.
Asseltine is leased by the Company through July 2001 and has an annual rent of
approximately $52,000. The other property is leased by the Company through April
2002 at an annual rent of $22,000.


                                       8
<PAGE>   10

ITEM 3.  LEGAL PROCEEDINGS.
---------------------------

        As of July 31, 1999, there are no known material legal proceedings
against the Company or any of its officers and directors.

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

        No matters were submitted to a vote of the security holder during the
fourth fiscal quarter of 1999.

                                     PART II

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

        The Common Stock of the Company began trading on the OTC Bulletin Board
June 20, 1995 under the symbol "SDUM". The OTC Bulletin Board is an NASD
sponsored and operated inter-dealer automated quotation system for equity
securities not included in the Nasdaq system. The OTC Bulletin Board has only
recently been introduced as an alternative to "pink sheet" trading of
over-the-counter securities. Consequently, the liquidity and stock price of the
Company's securities in the secondary market may be adversely affected. There is
no assurance that a regular trading market will develop for any of the Company's
securities or that, if developed, any such market will be sustained. The range
of high and low bid quotations for the Company's Common Stock for the last two
Fiscal Years were obtained from the NASD and are provided below. The volume of
trading in the Company's Common Stock has been limited and the bid prices
reported may not be indicative of the value of the Common Stock or the existence
of an active trading market.

<TABLE>
<CAPTION>
                                                  COMMON STOCK PRICE
                 First Quarter           Second Quarter           Third Quarter            Fourth Quarter
              High          Low        High         Low         High          Low        High         Low
<S>        <C>          <C>          <C>        <C>         <C>            <C>        <C>         <C>
Fiscal       $0.375       $0.375       $0.375     $0.375      $0.375         $0.375     $0.375      $0.315
1999

Fiscal       $0.125       $0.0625      $0.50      $0.07       $0.53125       $0.375     $0.87       $0.3125
1998
</TABLE>

        On October 15, 1999 there were approximately 359 holders of record of
the Company's common stock. The number of shares outstanding was 7,417,500.

        The Company has not paid a dividend with respect to its Common Stock nor
does the Company anticipate paying dividends in the foreseeable future.

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

        The Company markets and distributes a line of 2,500 high mortality
replacement parts, Drums, toner, facsimile and printer cartridges. The
replacement parts are principally manufactured in Japan and Germany, many
exclusively to the Company's specifications. Facsimile and printer cartridges
are manufactured for the Company for distribution to the copier dealer market in
North America by its Kelowna Facility.



                                       9
<PAGE>   11

Results of Operations
---------------------

        The Company's results of operations are affected by numerous factors
such as general economic conditions, competition and inventory costs. The
largest component of the Company's cost of sales is inventory cost, which may
vary slightly from period to period based upon timing of purchases which
indirectly affect the Company's inventory costs.

        During Fiscal 1999, the Company discontinued its drum operations at its
Kelowna Facility. Information relating to the discontinued operations for the
years ended July 31, 1999 and 1998 have been shown separately but 1997 and 1996
have not been restated.

The following table sets forth for each of the periods presented, certain income
statement data for the Company expressed as a percentage of net sales.

<TABLE>
<CAPTION>
                                                                           Years Ended
                                                                           -----------
Statement of Operations Data                                1999              1998            1997
----------------------------                                ----              ----            ----
<S>                                                     <C>               <C>             <C>
Net Sales                                                 100.0%            100.0%          100.0%
As a Percentage of Net Sales:
Cost of Goods Sold                                         72.1%             69.8%           70.3%
Gross Profit                                               27.9%             30.2%           29.7%
Selling, General and Administrative Expenses               22.6%             22.1%           19.5%
Provision for Bad Debt                                       .9%               .2%             .5%
Income from Operations                                      4.4%              7.8%            9.7%
Other Income (Expense)                                     (.4)%             (.7)%           (.7)%
Income from continuing operations before Taxes              4.0%              7.1%            9.0%
Net Income from continuing operations                       2.4%              4.2%            5.8%
Discontinued operations                                   (2.7)%             (.5)%               -
Net Income                                                 (.3)%              3.7%            5.8%
                                                           =====              ====            ====
</TABLE>


YEAR ENDED 1999 COMPARED TO YEAR ENDED 1998
-------------------------------------------


        Net sales for the year ended July 31, 1999 were stable at $14.6 million
as compared with $14.1 million for the year ended July 31, 1998. The flatness in
sales is the result of the following factors:

    -    General Economic Conditions. To a certain extent the Company's business
         is counter cyclical. Purchasers of copier, facsimile and printer high
         mortality replacement parts tend to eschew such purchases in favor of
         new machine purchases during favorable economic periods. Parts dealers
         consequently do not require as high order volume and companies such as
         Sel-Drum experience lower purchase volumes (and therefore lower
         revenues) from dealers. The Company experienced this trend to a certain
         degree during Fiscal 1999.

                                       10
<PAGE>   12

    -    Movement toward Digital. The movement away from analogue technology
         toward a digital technology within the copier, facsimile and printer
         replacement part marketplace created new copier, facsimile and printer
         products which did not have an immediate need for replacement parts.

    -    Competition. In the last twelve months the industry has witnessed a
         consolidation process within the dealers network as well as the
         introduction of more aggressive programs by the Office Equipment
         Manufacturers. These two factors account for a more competitive market
         which impacts on sales.

        However, for the year to come, the Company anticipates that the
strategic alliance with Densigraphix will open up U.S. markets for sales of
toner products. As a result, the Company foresees a possible increase in sales
for Fiscal 2000, although no assurance can be given that this will occur.

        The Company's distribution centers in Burlington, Ontario (Canada) and
Buffalo, New York (USA) showed gross profit margins during the fiscal year ended
July 31, 1999 on a combined basis of 29%. The margins at the Company's Kelowna
Facility, showed a gross profit in absolute dollars of approximately $200,000
compared to a negative margin of approximately $60,000 for Fiscal 1998 as a
result of the Company using the Kelowna Facility to remanufacture cartridges
instead of relying upon third party suppliers as was done historically.

        Gross profit margin for the year ended July 31, 1999 was 27.9%, as
compared to 30.2% for Fiscal 1998. The decrease in gross margin is the result of
the negative impact of the exchange rate between the Canadian and the U.S.
dollars in the first two quarters as well as the increased competitiveness of
the market previously mentioned.

        Selling, general, and administrative expenses for the year ended July
31, 1999 increased 6.4% from the prior comparable period. The increase resulted
from sales salaries due to some addition to the sales force, as well as
increased professional fees incurred in the acquisitions research process and in
work on special corporate projects.

        As a result of the foregoing, net income from continuing operations was
$344,141 for Fiscal 1999, a decrease of $248,630 in absolute dollars from the
previous year. In addition during the year, the Company decided to discontinue
its drum recoating division in Kelowna because of the historic losses and
decrease in sales. As a result, a non-recurring loss net of taxes of $394,006
was recorded, bringing the results for Fiscal 1999 to a net loss of $49,865. The
abandonment of the business segment has been accounted for as discontinued
operations and, accordingly the results of operations have been excluded from
continuing operations for Fiscal 1999 and 1998.

YEAR 2000 COMPLIANCE ISSUES
---------------------------


        An issue affecting the Company and others is the inability of many
computer systems and applications to process the year 2000 date change and the
leap year 2000. Many currently installed computer systems and software
applications are coded to accept only two digit entries in the date code field.
These date code fields will need to accept entries to distinguish 21st century
dates from 20th century dates. The inability to recognize or properly treat the
year 2000 may cause our systems and applications to process critical financial
and operational information incorrectly.


                                       11
<PAGE>   13

        The Company has invested approximately $177,000 to change its computer
system in order to be year 2000 compliant. An amount of $149,000 has been
capitalized and the Company expects to be within its budget of $200,000 by the
time the implementation is completed in connection with hardware and software
upgrades relative to the establishment of an integrated data system.

        INTERNAL SYSTEMS

               After evaluating the Company's internal computer systems, it was
        decided to change the whole system in order to be year 2000 compliant.

               The Company is now in the final phase of implementing it's new
        computer system which is certified by the supplier to be year 2000
        compliant.

        OUTSIDE VENDORS AND CUSTOMERS

               Disruptions with respect to the computer systems of vendors or
        customers, which are outside the Company's control, could impair the
        Company's ability to obtain products and services or conduct business
        with our customers.

               The Company has sent year 2000 issue questionnaires to its
        significant suppliers. Although the responses received do not indicate
        any significant year 2000 issues, there is no assurances that all
        significant suppliers and customers will take the necessary steps to
        ensure that their respective systems will be protected against the year
        2000 issue or that even if such steps are taken, they will be
        successful.

        PRODUCTS

               The products and services offered by the Company are year 2000
        compliant and will accommodate the year 2000 date change.

        SUMMARY

               There is no assurance that any year 2000 issue - related
        precautions with respect to internal information technology systems or
        products will eliminate the numerous and varied risks associated with
        the year 2000 date change.

Liquidity and Capital Resources
-------------------------------

        The Company's principal capital requirements are to fund its working
capital needs and material inventory requirements and to fund the improvement of
facilities, machinery and equipment. Historically the Company has used income
generated by operations as well as bank financing to fund these capital needs.

        Net cash provided by operating activities primarily represents net
income plus changes in working capital positions. Net cash provided by operating
activities showed an improvement for the year ended July 31, 1999 at $783,590
compared to $462,587 for the previous year. The non-recurring loss on
discontinued operations did not have an impact on the working capital. The
Company's arrangements with its North American customers typically provide that
payments are due within 30 days following the date of the Company's shipment of
goods, while arrangements with overseas


                                       12
<PAGE>   14

customers are generally on a letter of credit basis. Due to the Company's
expansion strategy, management believes that the Company's working capital
requirements will increase.

        The Company currently has a revolving demand loan arrangement with the
National Bank of Canada in the amount of $2,463,460 (U.S.). These borrowings
generally assist the Company with funding of accounts receivable and inventory
purchases.

        Cash flow from operations coupled with cash flow generated by bank
financing has provided the Company with the cash necessary to meet its cash
requirements. The Company has invested approximately $149,000 to change its
computer system in order to be year 2000 compliant.

        During Fiscal 1999, the Company repurchased treasury stock for an amount
of $100,000. In addition, 245,000 common shares, held by a key employee under a
common stock repurchase and non-competition agreement, were sold to a major
shareholder, thereby relieving the Company of its stock repurchase and
non-competition obligations.

        There was a change in the ownership of the Company as at July 30, 1999,
and as a result, the Company expects that its financing structure might be
reorganized in Fiscal 2000 according to the terms of financing included in the
offer of financing by the National Bank of Canada.

Risks
-----

        Sel-Drum faces the financial risks inherent to the nature of its
activities. The Company also faces risks stemming from other factors such as
fluctuations in exchange rates and economic market conditions in general.

YEAR ENDED 1998 RESTATED COMPARED TO YEAR ENDED 1997
----------------------------------------------------

        Net sales for the year ended July 31, 1998 were $14.1 million as
compared with $16.6 million for the year ended July 31, 1997, a decrease of
15.4%. The decrease in net sales is principally the result of the following
factors:

    -      Lingering Effects of Two Potential Acquisitions of the Company During
           Fiscal 1997 and early Fiscal 1998. Prior to refocusing its efforts on
           its core business, the Company engaged in discussions with two
           potential acquirors. Employee morale and retention suffered as a
           result of this prior strategy and the Company lost several sales
           personnel which adversely affected sales for the first half of Fiscal
           1998. Management spent much of the first half of Fiscal 1998 focusing
           on employee productivity and retention.

    -      General Economic Conditions. To a certain extent the Company's
           business is counter cyclical. Purchasers of copier, facsimile and
           printer high mortality replacement parts tend to eschew such
           purchases in favor of new machine purchases during favorable economic
           periods. Parts dealers consequently do not require as high order
           volume and Company's such as Sel-Drum experience lower purchase
           volumes (and therefore lower revenues) from dealers. The Company
           experienced this trend to a certain degree, particularly during the
           third and fourth quarters of Fiscal 1998.

    -      Management Transition. As previously disclosed, the Company spent
           much of Fiscal 1998 reorganizing management, including restructuring
           its sales and marketing staffs. This



                                       13
<PAGE>   15

           restructuring diverted some of management's attention and contributed
           to a drop in sales.

    -      Movement toward Digital. The movement away from analogue technology
           toward a digital technology within the copier, facsimile and printer
           replacement part marketplace created new copier, facsimile and
           printer products which did not have an immediate need for replacement
           parts.

        The Company's distribution centers in Burlington, Ontario (Canada) and
Buffalo, New York (USA) showed profit margins during the fiscal year ended July
31, 1998 on a combined basis of 30%. The Company's Kelowna Facility, however,
recorded a loss in absolute dollars of approximately $150,000 as a result of
limited remanufacturing production of Drums and the partial conversion of the
Kelowna Facility to cartridge remanufacturing.

        Gross profit margin for the year ended July 31, 1998 was 30.2%, as
compared to 29.7% for Fiscal 1997. As disclosed above, gross profit margins
reflect an increase in profit margins in the Company's two distribution centers
located in Burlington, Ontario and Buffalo, New York, and a loss from the
Company's manufacturing facility in Kelowna, British Columbia.

        Selling, general, and administrative expenses for the year ended July
31, 1998 decreased 4.0% from the prior comparable period. The decrease resulted
from lower sales commission due to lower sales volumes and the restatement of
the costs of goods sold.

        As a result of the foregoing, net income fell by 36.2% from Fiscal 1997
to Fiscal 1998.

ITEM 7.  FINANCIAL STATEMENTS.
------------------------------


<PAGE>   16
                          SEL-DRUM INTERNATIONAL, INC.
                                AND SUBSIDIARIES


                              AUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS


                                       AND

                          INDEPENDENT AUDITORS' REPORT

                             JULY 31, 1999 AND 1998

                                      F - 1
<PAGE>   17




                                    CONTENTS
                                    --------


<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                                           PAGE
-----------------------------------------                                                                           ----
<S>                                                                                                               <C>
   Independent Auditors' Report                                                                                     F -3

   Consolidated Balance Sheet                                                                                       F -4

   Consolidated Statements of Operations                                                                            F -6

   Consolidated Statements of Comprehensive Operations                                                              F -8

   Consolidated Statements of Changes in Shareholders' Equity                                                       F -9

   Consolidated Statements of Cash Flows                                                                           F -11

   Notes to Consolidated Financial Statements                                                                      F -13
</TABLE>



                                      F-2
<PAGE>   18

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------




Shareholders and Board of Directors
Sel-Drum International, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Sel-Drum
International, Inc. and Subsidiaries as of July 31, 1999, and the related
consolidated statements of operations, comprehensive operations, changes in
shareholders' equity and cash flows for each of the two years in the period
ended July 31, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sel-Drum International, Inc. and Subsidiaries as of July 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended July 31, 1999, in conformity with
generally accepted accounting principles.


                                             /s/ Mengel, Metzger, Barr & Co. LLP


Rochester, New York
September 24, 1999


                                      F-3
<PAGE>   19


                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

                           CONSOLIDATED BALANCE SHEET
                           --------------------------

                                  JULY 31, 1999
                                  -------------

<TABLE>
<CAPTION>
                                      ASSETS
                                      ------

<S>                                                                     <C>
CURRENT ASSETS
--------------
  Cash and cash equivalents                                             $   202,965
  Accounts receivable, net of allowance for doubtful
    accounts of $100,000                                                  1,877,050
  Inventories                                                             3,007,597
  Refundable income taxes                                                    49,027
  Deferred income taxes                                                      38,000
  Other current assets                                                      101,710
                                                                        -----------
                                        TOTAL CURRENT ASSETS              5,276,349

PROPERTY
--------
  Equipment                                                                 989,118
  Vehicles                                                                   13,922
  Furniture and fixtures                                                     80,050
  Leasehold improvements                                                    412,109
                                                                        -----------
                                                                          1,495,199
  Less accumulated depreciation and amortization                            930,822
                                                                        -----------
                                                                            564,377

OTHER ASSETS
------------
  Non-competition agreement, net of
    accumulated amortization of $18,702                                      24,936
  Sundry, principally deposits                                               11,885
                                                                        -----------
                                                                             36,821
                                                                        -----------
                                                                        $ 5,877,547
                                                                        ===========
</TABLE>


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


                                      F-4
<PAGE>   20

<TABLE>
<CAPTION>
                       LIABILITIES AND SHAREHOLDERS' EQUITY
                       ------------------------------------

<S>                                                                     <C>
CURRENT LIABILITIES
-------------------
  Current portion of long-term debt                                     $    31,827
  Accounts payable                                                          404,162
  Other current liabilities                                                 321,878
                                                                        -----------
                                            TOTAL CURRENT LIABILITIES       757,867

SHAREHOLDERS' EQUITY
--------------------
  Common stock                                                               76,425
  Additional paid-in capital                                                706,846
  Preferred stock                                                         4,499,805
  Retained earnings                                                         211,222
  Accumulated other comprehensive loss                                     (274,618)
                                                                        -----------
                                                                          5,219,680
  Less: Common stock in treasury, at cost                                   100,000
                                                                        -----------
                                                                          5,119,680
                                                                        -----------



                                                                        $ 5,877,547
                                                                        ===========
</TABLE>


                                      F-5
<PAGE>   21

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------

<TABLE>
<CAPTION>
                                                                         Year ended July 31,
                                                                    -----------------------------
                                                                         1999            1998
                                                                    ------------    ------------

<S>                                                                 <C>             <C>
Net sales                                                           $ 14,631,235    $ 14,066,426

Cost of goods sold                                                    10,555,266       9,824,694
                                                                    ------------    ------------
                                               GROSS PROFIT            4,075,969       4,241,732

Selling, administrative and general
  expenses                                                             3,305,529       3,107,659

Bad debts                                                                130,326          34,533
                                                                    ------------    ------------
                                     INCOME FROM OPERATIONS              640,114       1,099,540

Other income (expense):
  Interest income                                                          1,325          17,303
  Interest expense                                                       (53,706)        (75,289)
  Loss on disposal of property                                            (2,241)           --
  Foreign currency transaction loss                                       (9,465)        (46,310)
                                                                    ------------    ------------
                                                                         (64,087)       (104,296)
                                                                    ------------    ------------
                          INCOME FROM CONTINUING OPERATIONS
                                        BEFORE INCOME TAXES              576,027         995,244

Income tax expense (benefit):
  Current                                                                235,886         393,469
  Deferred                                                                (4,000)          9,004
                                                                    ------------    ------------
                                                                         231,886         402,473
                                                                    ------------    ------------
                       NET INCOME FROM CONTINUING OPERATIONS             344,141         592,771

Discontinued operations:
  Loss from operations of drum recoating division
    (net of income tax benefit of $13,222 in 1999
    and $50,845 in 1998)                                                 (19,833)        (76,267)

  Write-off of assets related to drum recoating division
    (net of income tax benefit of $49,725)                              (374,173)           --
                                                                    ------------    ------------
                                                                        (394,006)        (76,267)
                                                                    ------------    ------------
                                           NET (LOSS) INCOME        $    (49,865)   $    516,504
                                                                    ============    ============
</TABLE>



                                      F-6
<PAGE>   22


                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

                  CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
                  ---------------------------------------------


<TABLE>
<CAPTION>
                                                                         Year ended July 31,
                                                                    -----------------------------
                                                                         1999            1998
                                                                    ------------    ------------

<S>                                                                 <C>             <C>
Net (loss) income per common share:
  Basic and diluted:
    Continuing operations                                           $       0.04    $       0.08
    Discontinued operations:
      Loss from operations                                                  --             (0.01)
      Write-off of assets                                                  (0.05)           --
                                                                    ------------    ------------
                          NET (LOSS) INCOME PER COMMON SHARE        $      (0.01)   $       0.07
                                                                    ============    ============

Weighted average:
  Common shares                                                        7,542,158       7,642,500
  Dilutive stock options                                                    --              --
                                                                    ------------    ------------
                    COMMON SHARES AND DILUTIVE STOCK OPTIONS           7,542,158       7,642,500
                                                                    ============    ============
</TABLE>

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



                                      F-7
<PAGE>   23


                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
               ---------------------------------------------------

                                                        Year ended July 31,
                                                      ----------------------
                                                         1999         1998
                                                      ---------    ---------

Net (loss) income                                     $ (49,865)   $ 516,504

Other comprehensive income (loss):
  Foreign currency translation adjustment                    25     (161,332)
                                                      ---------    ---------

                        COMPREHENSIVE (LOSS) INCOME   $ (49,840)   $ 355,172
                                                      =========    =========


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


                                      F-8
<PAGE>   24


                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
           ----------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                                            (Accumulated
                                                                         Additional                            deficit)
                                                         Common           paid-in          Preferred           retained
                                                         stock            capital            stock             earnings
                                                    ----------------  ----------------  ----------------   ----------------

<S>                                                 <C>               <C>               <C>                <C>
Balance at
  August 1, 1997                                    $        76,425   $       706,846   $     4,800,180    $      (255,417)

Net income for the year                                        --                --                --              516,504

Current year other comprehensive loss                          --                --                --                 --

Repurchase of 172 shares of Class C
  preferred stock and 241 shares of Class D
  preferred stock                                              --                --            (300,375)              --

345,000 common shares subject to
  "put rights", at $.50 per share                              --                --                --                 --
                                                    ---------------   ---------------   ---------------    ---------------
                                       BALANCE AT
                                    JULY 31, 1998            76,425           706,846         4,499,805            261,087

Net loss for the year                                          --                --                --              (49,865)

Current year other comprehensive income                        --                --                --                 --

Repurchase of 100,000 common shares
  subject to "put rights" at $.50 per share                    --                --                --                 --

Reversal of balance of common shares
  previously subject to "put rights", resulting
  from third party transaction, as described
  in Note H                                                    --                --                --                 --

Repurchase of 125,000 common shares
  at $.40 per share                                            --                --                --                 --
                                                    ---------------   ---------------   ---------------    ---------------
                                       BALANCE AT
                                    JULY 31, 1999   $        76,425   $       706,846   $     4,499,805    $       211,222
                                                    ===============   ===============   ===============    ===============
</TABLE>


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



                                      F-9
<PAGE>   25



<TABLE>
<CAPTION>
                                                       Accumulated          Common            Common
                                                          other             stock,             stock              Total
                                                      comprehensive       subject to       in treasury -      shareholders'
                                                           loss           "put rights"         at cost            equity
                                                    -----------------   ---------------   ---------------    ---------------
<S>                                                 <C>                <C>                <C>                <C>
Balance at
  August 1, 1997                                    $      (113,311)   $          --      $          --      $     5,214,723

Net income for the year                                        --                 --                 --              516,504

Current year other comprehensive loss                      (161,332)              --                 --             (161,332)

Repurchase of 172 shares of Class C
  preferred stock and 241 shares of Class D
  preferred stock                                              --                 --                 --             (300,375)

345,000 common shares subject to
  "put rights", at $.50 per share                              --             (172,500)              --             (172,500)
                                                    ---------------    ---------------    ---------------    ---------------
                                       BALANCE AT
                                    JULY 31, 1998          (274,643)          (172,500)              --            5,097,020

Net loss for the year                                          --                 --                 --              (49,865)

Current year other comprehensive income                          25               --                 --                   25

Repurchase of 100,000 common shares
  subject to "put rights" at $.50 per share                    --               50,000            (50,000)              --

Reversal of balance of common shares
  previously subject to "put rights", resulting
  from third party transaction, as described
  in Note H                                                    --              122,500               --              122,500

Repurchase of 125,000 common shares
  at $.40 per share
                                                               --                 --              (50,000)           (50,000)
                                                    ---------------    ---------------    ---------------    ---------------
                                       BALANCE AT
                                    JULY 31, 1999   $      (274,618)   $          --      $      (100,000)   $     5,119,680
                                                    ===============    ===============    ===============    ===============
</TABLE>


                                      F-10
<PAGE>   26


                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------



<TABLE>
<CAPTION>
                                                                                            Year ended July 31,
                                                                                         --------------------------
                                                                                             1999           1998
                                                                                         -----------    -----------
<S>                                                                                      <C>            <C>
CASH FLOWS - OPERATING ACTIVITIES
---------------------------------
  Net (loss) income                                                                      $   (49,865)   $   516,504
  Adjustments to reconcile net (loss) income to net cash provided
    from operating activities:
      Bad debts                                                                              130,326         34,533
      Depreciation and amortization                                                          167,867        208,189
      Deferred income taxes                                                                  (53,913)         9,004
      Loss on disposal of property                                                             2,241           --
      Write-off of assets related to drum recoating division                                 423,898           --
      Changes in certain assets and liabilities affecting operations:
        Accounts receivable                                                                 (180,484)       269,731
        Inventories                                                                          364,073       (432,582)
        Refundable income taxes                                                               72,124        (85,457)
        Other current assets                                                                   6,120        (31,736)
        Deposits                                                                                 (74)         5,768
        Accounts payable                                                                    (285,034)        90,507
        Other current liabilities                                                            186,311       (121,874)
                                                                                         -----------    -----------
                                                            NET CASH PROVIDED FROM
                                                              OPERATING ACTIVITIES           783,590        462,587

CASH FLOWS - INVESTING ACTIVITIES
---------------------------------
  Purchases of property                                                                     (205,026)      (146,422)
  Proceeds on disposal of property                                                             2,312           --
                                                                                         -----------    -----------
                                                                NET CASH (USED FOR)
                                                              INVESTING ACTIVITIES          (202,714)      (146,422)

CASH FLOWS - FINANCING ACTIVITIES
---------------------------------
  (Decrease) increase in bank overdraft                                                     (315,284)       329,443
  Decrease (increase) in loans receivable from related parties                               160,084        (56,810)
  Short-term repayments, net                                                                (310,043)    (1,014,616)
  Repayments on long-term debt                                                               (98,439)       (65,254)
  Repurchase of preferred stock                                                                 --         (300,375)
  Purchase of treasury stock                                                                (100,000)          --
                                                                                         -----------    -----------
                                                                NET CASH (USED FOR)
                                                              FINANCING ACTIVITIES          (663,682)    (1,107,612)

Effect of exchange rate changes on cash                                                           21         (7,757)
                                                                                         -----------    -----------
                                                                     NET (DECREASE) IN
                                                         CASH AND CASH EQUIVALENTS           (82,785)      (799,204)
Cash and cash equivalents at beginning of year                                               285,750      1,084,954
                                                                                         -----------    -----------
                                                         CASH AND CASH EQUIVALENTS
                                                                    AT END OF YEAR       $   202,965    $   285,750
                                                                                         ===========    ===========
</TABLE>






                                      F-11
<PAGE>   27
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

                  CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
                  ---------------------------------------------


<TABLE>
<CAPTION>
                                                                                            Year ended July 31,
                                                                                     ----------------------------------
                                                                                          1999               1998
                                                                                     ----------------   ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

  Cash paid during the year for:

<S>                                                                                       <C>               <C>
    Interest                                                                              $   53,706        $  68,928
                                                                                          ==========        =========

    Income taxes                                                                          $  150,536        $ 425,486
                                                                                          ==========        =========
</TABLE>

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

                                      F-12
<PAGE>   28

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE A:   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

     Description of business
     -----------------------
     In March 1998, Sel-Drum International, Inc. (the "Company") was
     re-incorporated in New York State. The Company, which is a holding company,
     owns 100% of the common stock of Sel-Drum Imaging Corporation (a Canadian
     holding company). Sel-Drum Imaging Corporation owns 100% of the common
     stock of Sel-Drum Corporation (U.S.A.), Inc. (a United States operating
     company) and Sel-Drum Corporation (a Canadian operating company).

     Sel-Drum Corporation (U.S.A.), Inc. operates from a warehouse located in
     Buffalo, New York. Sel-Drum Corporation's facility for its wholesale
     distribution operations, which includes warehouse space and administrative
     offices, is located in Burlington, Ontario, Canada. Sel-Drum Corporation
     also has a manufacturing facility and administrative offices in Kelowna,
     British Columbia, Canada.

     Sel-Drum Corporation (U.S.A), Inc. and the Burlington division of Sel-Drum
     Corporation are engaged in the wholesale distribution of parts and supplies
     used in the reprographic industry. The Kelowna division of Sel-Drum
     Corporation is engaged in the re-manufacture of cartridges used in laser
     printers and facsimile machines. The Kelowna division of Sel-Drum
     Corporation discontinued the commercial production and distribution of
     photocopier drums used in duplicating machinery as of January 1999. The
     financial impact of the discontinued segment is detailed in Note L.

     The Company grants credit to customers which are located throughout the
     United States and Canada, and arranges for letters of credit and sight
     drafts with international customers.

     Principles of consolidation
     ---------------------------
     The accompanying consolidated financial statements include the accounts of
     Sel-Drum International, Inc. and its wholly-owned subsidiaries (through
     Sel-Drum Imaging Corporation), Sel-Drum Corporation (U.S.A.), Inc. and
     Sel-Drum Corporation. All material intercompany balances and transactions
     have been eliminated in consolidation.

     Cash and cash equivalents
     -------------------------
     The Company's policy is to invest cash in excess of operating requirements
     in income producing investments. Cash equivalents are highly liquid
     investments purchased with original maturities of three months or less.
     Cash equivalents consist of investments in term deposit accounts at a
     Canadian financial institution. At July 31, 1999, there was no excess cash
     invested in these term deposit accounts.

     Concentration of credit risk  - cash
     ------------------------------------
     The Company maintains cash balances at financial institutions located in
     New York and Canada. Accounts at the New York institution are insured by
     the Federal Deposit Insurance Corporation up to $100,000. Accounts at the
     Canadian institutions are insured by the Canadian Deposit Insurance
     Corporation up to approximately $40,000 ($60,000 Canadian). Uninsured
     balances aggregated approximately $272,500 at July 31, 1999. The Company
     has not experienced any losses in such accounts and believes that there is
     no exposure to significant credit risk in this regard.

     Inventories
     -----------
     Inventories are valued at the lower of cost, determined by the first-in,
     first-out (FIFO) method, or market.



                                      F-13
<PAGE>   29

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------




NOTE A:   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Cont'd
----------------------------------------------------------------------------

     Property
     --------
     Property is stated at cost less accumulated depreciation and amortization.
     Depreciation and amortization are computed using accelerated and
     straight-line methods over the estimated useful lives of the related
     assets, which are as follows:

           Equipment                                    5 - 10 Years
           Vehicles                                          5 Years
           Furniture and fixtures                            5 Years
           Leasehold improvements                           10 Years


     Major renewals and betterments are capitalized, while maintenance and
     repairs are charged to operations as incurred. Upon sale or retirement, the
     related cost and accumulated depreciation or amortization are removed from
     the accounts and the related gain or loss is reflected in operations.

     Non-competition agreement
     -------------------------
     The non-competition agreement is being amortized on a straight-line basis
     over 42 months through July 31, 2001.

     Foreign currency translation and transactions
     ---------------------------------------------
     Sel-Drum International, Inc. and Sel-Drum Corporation (U.S.A.), Inc.
     maintain their accounting records in U.S. dollars, while Sel-Drum Imaging
     Corporation and Sel-Drum Corporation maintain their accounting records in
     Canadian dollars. The accompanying consolidated financial statements are
     presented in U.S. dollars. Accordingly, all balance sheet accounts of
     Sel-Drum Imaging Corporation and Sel-Drum Corporation are translated into
     U.S. dollars at period-end exchange rates, and statements of operations
     items are translated at weighted average exchange rates. The resulting
     translation adjustments are made directly to accumulated other
     comprehensive loss. Gains or losses from foreign currency transactions,
     such as those resulting from the settlement of foreign receivables or
     payables, are included in the statements of operations.

     Change in ownership
     -------------------
     On July 30, 1999, 7,173,680 shares of the issued and outstanding common
     stock of Sel-Drum International, Inc. were acquired by C. Cotran Holding,
     Inc. (a Canadian holding company). Further, on July 30, 1999, 100% of the
     issued and outstanding preferred shares of Sel-Drum Imaging Corporation
     (Class C and Class D) were acquired by Densigraphix Kopi, Inc. (a
     wholly-owned subsidiary of C. Cotran Holding, Inc.).

     Revenue recognition
     -------------------
     Revenue is recognized by the Company when products are shipped to
     unaffiliated customers, with appropriate provision for uncollectible
     accounts.

     Advertising costs
     -----------------
     The Company's policy is to expense advertising costs as incurred.
     Advertising costs for the fiscal years ended July 31, 1999 and 1998
     approximated $104,000 and $85,000, respectively.


                                      F-14
<PAGE>   30
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------

NOTE A:   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Cont'd
----------------------------------------------------------------------------

     Income taxes
     ------------
     Deferred income tax assets and liabilities arise from temporary differences
     associated with differences between the financial statement and tax basis
     of assets and liabilities, as determined by the enacted rates which are
     expected to be in effect when these differences reverse. Deferred tax
     assets and liabilities are classified as current or noncurrent, depending
     on the classification of the assets and liabilities to which they relate.
     Deferred tax assets and liabilities not related to an asset or liability
     are classified as current or noncurrent depending on the periods in which
     the temporary differences are expected to reverse. The principal types of
     temporary differences between assets and liabilities for financial
     statement and tax return purposes are detailed in Note E.

     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
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Fair value of financial instruments
     -----------------------------------
     Statement of Financial Accounting Standards Number 107, "Disclosures about
     Fair Value of Financial Instruments," requires the Company to disclose
     estimated fair values for its financial instruments. The carrying amounts
     reported in the accompanying consolidated balance sheet for cash, accounts
     receivable, accounts payable and other current liabilities approximate fair
     value because of the short maturity period of those instruments.

     Stock options
     -------------
     In October 1995, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards Number 123 (SFAS 123) "Accounting for
     Stock-Based Compensation". This statement established accounting and
     reporting standards for stock-based employee compensation plans. As
     permitted by the Statement, the Company continues to account for such
     arrangements under Accounting Principles Board Opinion Number 25,
     "Accounting for Stock Issued to Employees", and related interpretations.
     Accordingly, no compensation expense is recognized for stock-option grants
     because the exercise price of the stock options equals the market price of
     the underlying stock on the date of grant.

     Net (loss) income
     -----------------
     Basic net (loss) income per common share is determined by dividing net
     (loss) income by the weighted average number of common shares outstanding.
     As of July 31, 1999 and 1998 there are no dilutive potential common shares.




                                      F-15
<PAGE>   31
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------

NOTE B:  INVENTORIES
--------------------

     The components of inventories at July 31, 1999 are as follows:

         Raw materials                                            $  115,521
         Finished goods                                            2,892,076
                                                                  $3,007,597

NOTE C:   NOTES PAYABLE TO BANK
-------------------------------

     Sel-Drum Corporation has several debt arrangements with a Canadian bank,
summarized as follows:

       FACILITY A: $2,463,460 revolving demand loan ($3,700,000 Canadian
       dollars) to assist with financing of the accounts receivable and
       inventories of Sel-Drum Corporation and Sel-Drum Corporation (U.S.A.),
       Inc. The arrangement provides for interest to be paid monthly at the
       bank's prime rate plus .25% (an effective rate of 6.25% at July 31,
       1999). This arrangement may be drawn upon by Sel-Drum Corporation and
       Sel-Drum Corporation (U.S.A.), Inc. Letters of credit (see Facility B
       below), which reduce the amount of borrowings available under the terms
       of the arrangement, were outstanding at July 31, 1999 in an amount of
       $127,500.

       FACILITY B: This arrangement provides the Company with letters of credit
       to purchase inventories, up to an amount approximating $998,700
       ($1,500,000 Canadian dollars), subject to the outstanding balance of
       Facility A cited above.

       FACILITY C: $250,000 revolving demand loan to finance the payment of U.S.
       trade accounts payable, subject to the outstanding balance of Facility A
       cited above.

       FACILITY D: $50,000 facility to provide check clearing privileges for
       U.S. dollar checks, subject to the outstanding balance of Facility A
       cited above.

       FACILITY E: $233,030 ($350,000 Canadian dollars) facility to provide for
       the purchase of up to $1,165,150 ($1,750,000 Canadian dollars) of forward
       exchange contracts in various foreign currencies. Borrowings are subject
       to the outstanding balance of Facility A cited above. At July 31, 1999,
       the Company had outstanding forward exchange contracts aggregating
       $750,000, which reduced the availability for borrowing under Facility A
       by $150,000.

     At July 31, 1999 the Company had $2,185,960 available for borrowing under
     these arrangements.

     The above arrangements are secured by substantially all assets of Sel-Drum
     Corporation and Sel-Drum Corporation (U.S.A.), Inc., the limited corporate
     guarantees of Sel-Drum International, Inc. and Sel-Drum Imaging Corp., each
     in the amount of $2,330,300 ($3,500,000 Canadian dollars), and the limited
     corporate guarantee of Sel-Drum Corporation (U.S.A.), Inc. in the amount of
     $998,700 ($1,500,000 Canadian dollars). Further, the arrangements contain
     various covenants which provide for, among other things, the maintenance of
     certain ratios and dividend restrictions.



                                      F-16
<PAGE>   32
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE D:  DEBT
-------------

     Debt at July 31, 1999 is summarized as follows:

<TABLE>
<S>                                                                                          <C>
         Interest free loan payable to Western Economic Diversification Fund,
         due in monthly payments of approximately $4,550 through
         February 2000.                                                                      $ 31,827

         Less:  Current portion of long-term debt                                              31,827
                                                                                             --------
                                                                                             $      -
                                                                                             ========
</TABLE>

NOTE E:   INCOME TAXES
----------------------

     The total tax provisions are different from the amount that would have been
     recorded by applying the U.S. statutory federal income tax rate to income
     before income taxes. The reconciliation of these differences is as follows:

<TABLE>
<CAPTION>
                                                                                   July 31,
                                                                             -------------------
                                                                               1999       1998
                                                                             --------   --------

<S>                                                                         <C>        <C>
Statutory U.S. tax rate                                                        34.0 %     34.0 %
State income taxes, net of federal tax benefit                                  2.0        2.0
Other                                                                           4.3        4.4
                                                        EFFECTIVE TAX RATE     40.3 %     40.4 %
                                                                             ========   ========
</TABLE>


     The tax effects of temporary differences that give rise to the current
     deferred tax asset as of July 31, 1999 are presented below:




                                                         Assets/
                                                       (Liability)
                                                      ------------

Allowance for doubtful accounts receivable            $     24,000
Capitalization of overhead costs under Section 263A         14,000
Depreciation - continuing operations                       (90,000)
Depreciation - discontinued operations                     118,300
                                                      ------------
                                                            66,300
Less valuation allowance                                    28,300
                                                      ------------
                                                      $     38,000
                                                      ============


     There was no valuation allowance at July 31, 1998.




                                      F-17
<PAGE>   33
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------

NOTE F:  COMMON AND PREFERRED STOCK

     The following is certain information regarding common and preferred stock
as of July 31, 1999:

<TABLE>
<CAPTION>
         Sel-Drum International, Inc.
         ----------------------------
<S>                                                                                       <C>
                 Preferred Stock
                 ---------------
                   Par value                                                                          $0.01
                   Shares authorized                                                             10,000,000
                   Shares issued and outstanding                                                       None

                 Common stock
                 ------------
                   Par value                                                                          $0.01
                   Shares authorized                                                            100,000,000
                   Shares issued                                                                  7,642,500
                   Shares held in treasury                                                          225,000

         Sel-Drum Imaging Corporation
         ----------------------------

                 Preferred Stock
                 ---------------
                     Class A (5% non-cumulative):
                     Par value                                                                         None
                     Stated value                                                                   $727.30
                     Shares authorized                                                                2,000
                     Shares issued and outstanding                                                     None

                   Class B (5% non-cumulative):
                     Par value
                     Stated value                                                                      None
                     Shares authorized                                                              $727.30
                     Shares issued and outstanding                                                    5,000
                                                                                                       None
                   Class C (5% non-cumulative):
                     Par value                                                                         None
                     Stated value                                                                   $727.30
                     Shares authorized                                                               10,000
                     Shares issued and outstanding                                                    1,588

                   Class D (5% non-cumulative):
                     Par value                                                                         None
                     Stated value                                                                   $727.30
                     Shares authorized                                                               10,000
                     Shares issued and outstanding                                                    4,599
</TABLE>



                                      F-18
<PAGE>   34
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------

NOTE G:   COMMITMENTS AND CONTINGENCIES
---------------------------------------

     Lease commitments
     -----------------
     Sel-Drum Corporation leases its facility in Burlington, Ontario, Canada at
     a base monthly rental approximating $6,470 through February 2002. In
     addition to the base rental, the Company is responsible for property taxes,
     insurance, utilities and repairs and maintenance.

     Sel-Drum Corporation also leases two facilities in Kelowna, British
     Columbia, Canada. The base monthly rental on one facility is approximately
     $4,300 per month through the expiration of the lease in July 2001. The base
     monthly rental on its other facility is approximately $1,530 per month
     through the expiration of the lease in April 2002. In addition to the base
     rental, the Company is responsible for property taxes, insurance, utilities
     and repairs and maintenance.

     Sel-Drum Corporation (U.S.A.), Inc. leases its facility at a base monthly
     rental approximating $3,200 through the expiration of the lease in October
     2001. The base monthly rental includes property taxes.

     Total rent expense for the Company's facilities was $208,969 and $209,821
     for the years ended July 31, 1999 and 1998, respectively.

     In addition, the Company has operating lease agreements for certain
     vehicles and equipment, which expire in various years through 2002.

     Total minimum future rental payments required under all non-cancelable
     leases are approximately as follows:

             Year ending July 31,                                   Amount
             --------------------                              ----------------

                     2000                                            $ 202,500
                     2001                                              198,700
                     2002                                               66,300
                                                                     ---------
                                                                     $ 467,500


     The amounts included in the minimum future rental payments above for the
     Company's Canadian facilities have been converted to U.S. dollars using the
     appropriate period-end exchange rates.

     Employment contracts
     --------------------
     Employment contracts exist with the President, Vice President - Sales and
     Vice President - Finance of Sel-Drum International, Inc. These contracts
     provide for minimum annual salaries plus bonuses.



                                      F-19
<PAGE>   35

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------

NOTE H:  COMMON STOCK REPURCHASE AND NON-COMPETITION AGREEMENT
--------------------------------------------------------------

     On February 1, 1998, the Company entered into a common stock repurchase and
     non-competition agreement with a key employee ("Seller") who owned 345,000
     shares of the Company's common stock. The agreement provided that the
     Company would be obligated to repurchase 100% of this common stock from the
     Seller at various times through August 1, 2000 for $1.00 per share. The
     agreement also allowed the Seller to sell the shares to a third-party if
     the Seller so desired. In the event that a third-party were to purchase
     such shares from the Seller, the Company's obligation to the Seller would
     be reduced accordingly. On August 1, 1998, the Company acquired 100,000
     shares of common stock from the seller for $100,000. Of this amount,
     $50,000 was allocated to the fair market value of the stock and $50,000 was
     allocated to a non-competition agreement (which included $43,638 for the
     non-competition agreement itself, and $6,362 of accrued interest). On July
     30, 1999, the seller sold his remaining 245,000 shares of common stock to a
     then major shareholder of the Company for $1 per share, thereby relieving
     the Company of its obligation to repurchase such shares from the Seller.

     Accounting standards under rules and regulations issued by the Securities
     and Exchange Commission require that common stock subject to "put rights"
     (which are exercisable under certain circumstances pursuant to the
     above-cited common stock repurchase agreement) be presented separately from
     common stock which is not subject to "put rights" in order to distinguish
     it from permanent capital. At February 1, 1998, management determined that
     the Company's common stock had a fair market value of $.50 per share.
     Accordingly, the Company had recorded a liability of $172,500 to the
     above-cited Seller (345,000 shares x $.50 per share) in the Company's
     consolidated balance sheet at July 31, 1998 and reduced shareholders'
     equity by a similar amount. As a result of the acquisition of the Seller's
     outstanding stock during fiscal 1999, there were no remaining common shares
     subject to "put rights" at July 31, 1999.

     As part of the original common stock repurchase agreement, the Company also
     entered into a non-competition agreement with the Seller for a period which
     the Company expected to last through August 1, 2002. As a result of the
     entire purchase of the Seller's outstanding common stock (as cited above),
     the non-competition agreement will expire on July 31, 2001. The Company
     expected to pay a total of $172,500 to the Seller for this non-competition
     agreement and, accordingly, recorded an asset and corresponding liability
     of $147,050 on February 1, 1998 (the original date of the agreement) to
     reflect the then present value of the expected payments to be made under
     the agreement. However, the Company was only required to pay $43,638 for
     the non-competition agreement (on August 1, 1998, as described above) and
     has no additional liability to the Seller for such agreement. Accordingly,
     the remaining asset and liability previously cited have been eliminated
     during the year ended July 31, 1999.


                                      F-20
<PAGE>   36
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE I:  STOCK OPTION PLANS
---------------------------

     On November 24, 1995, the Company's shareholders approved the Sel-Drum
     International, Inc. 1995 Employee and Non-Employee Director Stock Option
     Plan (the "Plan"). The Plan is designed to attract and retain key
     employees, directors or advisors of the Company and to encourage them to
     contribute to the Company's success by providing the opportunity for stock
     ownership. The Plan originally provided for the grant of incentive stock
     options and nonstatutory stock options to key employees, directors and
     advisors of the Company to purchase up to an aggregate of 500,000 shares of
     the Company's common stock. On December 1, 1998, the Company's shareholders
     approved an amendment to the Plan to increase the number of shares
     available for option grants under the Plan to 700,000 shares. The Plan is
     administered by a Stock Option Committee, which is authorized to determine
     the recipients of options, the type of options granted, the number of
     shares subject to each option, the term of each option, exercise prices and
     other option features. The term of an option may not exceed 5 years where
     the optionee would thereafter own stock possessing more than 10% of the
     combined voting power of the common stock ("a 10% Shareholder"). The
     exercise price must at least equal the fair market value of the common
     stock on the date of the grant of the option, except that if an incentive
     stock option is granted to a 10% Shareholder, the exercise price shall be
     no less than 110% of the fair market value of the common stock on the date
     of the grant of the option. Stock option grants generally have a
     contractual life of ten years and vest over a period of two years from the
     grant date.

     On November 3, 1997, the Company granted a non-incentive stock option to
     the President of the Company to purchase 250,000 shares of the Company's
     common stock. The exercise price for the shares subject to this option was
     equal to the fair market value of the common stock on the date of the
     grant. This option has a contractual life of five years and vested 100% at
     the grant date.

     The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                                                           Weighted-
                                                                                           Shares           average
                                                                                          subject           exercise
                                                                                         to options          price
                                                                                      ----------------  ----------------
<S>                                                                                   <C>               <C>
         Outstanding at July 31, 1998                                                         741,000            $ 0.47
         Granted                                                                               40,000            $ 0.50
         Forfeited                                                                            (81,500)           $ 0.50
                                                                                              --------
         Outstanding at July 31, 1999                                                         699,500            $ 0.46
                                                                                             ========

         Exercisable at July 31, 1999                                                         563,000            $ 0.46
                                                                                             ========

         Exercisable at July 31, 1998                                                         413,666            $ 0.44
                                                                                             ========
</TABLE>


                                      F-21
<PAGE>   37

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE I:  STOCK OPTION PLANS, Cont'd

     The following table summarizes information about stock options outstanding
     at July 31, 1999:

<TABLE>
<CAPTION>
                                              Options outstanding                               Options exercisable
                             --------------------------------------------------------  ------------------------------------
                                                                       Weighted-
                                                    Weighted-           average                               Weighted-
                                                     average           remaining                               average
             Exercise             Shares            exercise          contractual           Shares            exercise
               price            subject to            price             life in           subject to            price
             per share            options           per share            years              options           per share
         -----------------   -----------------  -----------------  ------------------  -----------------  -----------------
<S>                          <C>                <C>                <C>                 <C>                <C>
                    $ .40             250,000              $ .40                 3.3            250,000              $ .40

                    $ .50             449,500              $ .50                 8.8            313,000              $ .50
                                     --------                                                  --------

                                      699,500              $ .46                 6.8            563,000              $ .46
                                     ========                                                  ========
</TABLE>


     Pro forma information regarding net (loss) income and basic and diluted net
     (loss) income per share is required by SFAS No. 123, and has been
     determined as if the Company had accounted for its employee stock options
     under the fair value method of that Statement. This disclosure may not be
     representative of the effects on reported pro forma net (loss) income and
     basic and diluted net (loss) income per share for future years, because of
     the various vesting schedules of the stock options and the fact that
     additional awards may be made in the future. The Company's pro forma net
     (loss) income and basic and diluted net (loss) income per share are as
     follows:

<TABLE>
<CAPTION>
                                                                                             Year ended July 31,
                                                                                      ----------------------------------
                                                                                           1999              1998
                                                                                      ----------------  ----------------

<S>                                                                                         <C>              <C>
         Pro forma net (loss) income                                                        $ (62,555)       $ 490,780
                                                                                            ==========       =========

         Pro forma basic net (loss) income per share                                        $   (0.01)       $    0.06
                                                                                            ==========       =========

         Pro forma diluted net (loss) income per share                                      $   (0.01)       $    0.06
                                                                                            ==========       =========
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of a stock
     option is amortized to expense over the option's vesting period. The fair
     value of these stock options was estimated at the date of grant using facts
     and circumstances available to the Company for its common stock, which is
     thinly traded.

NOTE J:  MAJOR CUSTOMER

     For the year ended July 31, 1999, approximately 24% of net sales were made
     to one customer. At July 31, 1999 total amounts due from this customer of
     approximately $609,000 are included in accounts receivable, as reflected in
     the accompanying consolidated balance sheet.



                                      F-22
<PAGE>   38
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE K:  SEGMENT FINANCIAL INFORMATION
--------------------------------------

     On July 31, 1998, the Company adopted SFAS Number 131, "Disclosure About
     Segments of an Enterprise and Related Information". This statement
     establishes standards for reporting information about operating segments
     and related disclosures about products and services and geographic areas.

     The Company's two business segments, as further described in Note A, are
     wholesale distribution and manufacturing. The reportable segments are each
     managed separately because they offer and provide different products and
     services.

     The accounting policies of the reportable segments are the same as those
     described in the summary of significant accounting policies (see Note A).
     The Company evaluates segment performance and allocates resources based on
     profit and loss from operations before income taxes. Identifiable assets
     are those directly used in the operations of each segment.

     The wholesale distribution segment's activities are carried on in the
     United States and Canada. The manufacturing segment operates exclusively at
     the Company's British Columbia, Canada location.

     For the year ended July 31, 1998, gross profit attributable to the
     Company's operations in Canada is net of gross loss of $62,385 incurred by
     the Company's manufacturing operation in British Columbia, Canada.

     The following tables present sales and other financial information by
     geographic region and business segment for the years ended July 31, 1999
     and July 31, 1998:


<TABLE>
<CAPTION>
                                                       United States         Canada          Eliminations       Consolidated
                                                      -----------------  ----------------   ---------------   -----------------
<S>                                                   <C>                <C>                <C>               <C>
         July 31, 1999:
         --------------
           Sales to unaffiliated customers                 $ 8,550,672        $6,080,563               $ -         $14,631,235
           Intercompany sales                                1,980,590         3,088,095        (5,068,685)                  -
           Gross profit                                      2,737,534         1,444,349          (105,914)          4,075,969
           Operating earnings                                  385,105           255,009                 -             640,114
           Identifiable assets                               3,043,658         2,808,953                 -           5,852,611
           Capital expenditures                                  5,778           199,248                 -             205,026
           Depreciation and amortization                        51,605            83,876                 -             135,481

         July 31, 1998:
         --------------
           Sales to unaffiliated customers                 $ 9,622,758        $4,443,668               $ -         $14,066,426
           Intercompany sales                                1,185,694         3,209,806        (4,395,500)                  -
           Gross profit                                      3,188,299         1,053,433                 -           4,241,732
           Operating earnings                                1,113,583           (14,043)                -           1,099,540
           Identifiable assets                               3,312,930         3,102,971                 -           6,415,901
           Capital expenditures                                 14,749           131,673                 -             146,422
           Depreciation and amortization                        67,109            39,925                 -             107,034
</TABLE>



                                      F-23
<PAGE>   39
                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE K:  SEGMENT FINANCIAL INFORMATION, Cont'd
---------------------------------------

<TABLE>
<CAPTION>
                                       Year ended July 31,
                                   ---------------------------
                                       1999           1998
                                   ------------   ------------
<S>                                <C>            <C>
Net sales:
----------
  Wholesale distribution           $ 13,132,839   $ 13,737,970
  Manufacturing                       1,498,396        328,456
                                   ------------   ------------
                                   $ 14,631,235   $ 14,066,426
                                   ============   ============

Gross profit (loss):
--------------------
  Wholesale distribution           $  3,848,302   $  4,304,117
  Manufacturing                         227,667        (62,385)
                                   ------------   ------------
                                   $  4,075,969   $  4,241,732
                                   ============   ============

Operating earnings (loss):
--------------------------
  Wholesale distribution           $    588,981   $  1,237,632
  Manufacturing                          51,133       (138,092)
                                   ------------   ------------
                                   $    640,114   $  1,099,540
                                   ============   ============

Tangible assets:
----------------
  Wholesale distribution           $  5,332,161   $  5,310,649
  Manufacturing                         520,450      1,105,252
                                   ------------   ------------
  Total identifiable assets           5,852,611      6,415,901
  Discontinued operations                  --          456,284
  Non-competition agreement, net         24,936        130,711
                                   ------------   ------------
                                   $  5,877,547   $  7,002,896
                                   ============   ============

Capital expenditures:
---------------------
  Wholesale distribution           $    173,343   $     95,423
  Manufacturing                          31,683         50,999
                                   ------------   ------------
                                   $    205,026   $    146,422
                                   ============   ============

Depreciation and amortization:
------------------------------
  Wholesale distribution           $     75,447   $     93,121
  Manufacturing                          60,034         13,913
                                   ------------   ------------
                                        135,481        107,034
  Discontinued operations                32,386        101,155
                                   ------------   ------------
                                   $    167,867   $    208,189
                                   ============   ============
</TABLE>



                                      F-24
<PAGE>   40

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE L:  DISCONTINUED OPERATIONS

     During fiscal 1999, the Company discontinued its commercial production and
     distribution of photocopier drums used in duplicating machinery. The
     abandonment of this business segment has been accounted for as a
     discontinued operation and, accordingly, the results of operations have
     been excluded from continuing operations for this business segment in the
     accompanying consolidated statements of operations for all periods
     presented. Information relating to the discontinued operations of the
     business segment for the years ended July 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                              1999          1998
                                                          ----------    ----------

<S>                                                       <C>           <C>
Net sales                                                 $   48,266    $  265,146

Cost of goods sold                                            75,635       331,137
                                                          ----------    ----------
                                             GROSS LOSS      (27,369)      (65,991)

Selling, administrative and general expenses                   5,686        61,121
                                                          ----------    ----------

Loss before income taxes                                     (33,055)     (127,112)

Income tax benefit                                            13,222        50,845
                                                          ----------    ----------
                                               NET LOSS   $  (19,833)   $  (76,267)
                                                          ==========    ==========
</TABLE>


     The above-cited business segment ceased accepting new business during
     January 1999 and, accordingly, the assets used in the commercial production
     and distribution of photocopier drums were written down to their estimated
     net realizable value as of January 31, 1999. The charge to discontinued
     operations had no effect on the cash flow of the Company and increased net
     loss per common share for fiscal 1999 by $.05. The write-off of
     identifiable assets used in the production of the photocopier drums is as
     follows:

Inventories                                                     $ 85,902
Equipment, net of accumulated depreciation of $255,109           292,744
Purchased and developed technology, net of accumulated
  amortization of $40,443                                         39,117
Organization costs, net of accumulated amortization of $6,346      6,135
                                                                --------
                                                                 423,898
Less income tax benefit                                           49,725
                                                                --------
                                                                $374,173
                                                                ========


                                      F-25
<PAGE>   41

                  SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
                  ---------------------------------------------

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont'd
               --------------------------------------------------

                   FOR THE YEARS ENDED JULY 31, 1999 AND 1998
                   ------------------------------------------


NOTE M:  IMPACT OF YEAR 2000 (UNAUDITED)

     Like other companies, Sel-Drum International, Inc. and Subsidiaries could
     be adversely affected if the computer systems of the Companies or their
     suppliers or customers do not properly process and calculate date-related
     information and data from the period surrounding and including January 1,
     2000. This is commonly known as the "Year 2000" issue. Additionally, this
     issue could impact non-computer systems and devices such as equipment and
     security systems. The Companies have implemented a plan to modify their
     business technologies to be ready for the Year 2000 and are in the process
     of converting critical data processing systems. The project is expected to
     be substantially completed by October 1999. However, at this time, because
     of the complexities involved in the issue, management cannot provide
     absolute assurance that the Year 2000 issue will not have an impact on the
     consolidated company operations.




                                      F-26


<PAGE>   42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------

        None

                                    PART III

        The information required by Item 9 (Directors, Executive Officers,
Promoters and Control Person; Compliance with Section 16(a) of the Exchange
Act), Item 10 (Executive Compensation). Item 11 (Security Ownership of Certain
Beneficial Owners and Management), and Item 12 (Certain Relationships and
Related Transactions) are incorporated herein by reference to the Company's
Proxy Statement to be issued in connection with the Annual Meeting of
Shareholders to be held on January, 17, 2000, which proxy statement will be
filed within 120 days after the Company's July 31, 1999 fiscal year end.

ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
--------------------------------------------------

        (a)    See Index to Exhibits

        (b)    Reports on Form 8-K

        Report on Form 8-K dated July 6, 1999 reporting on Item 5. Other was
filed during the quarter ended July 31, 1999, and a related Report on Form 8-K
dated July 30, 1999 reporting on Item 1. Changes in Control of Registrant was
filed on August 12, 1999. Financial statements were not filed with either
report.



                                       15
<PAGE>   43



                                   SIGNATURES

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

                                     SEL-DRUM INTERNATIONAL, INC.


Dated:  October 29, 1999             By: /s/ Camille Cotran
                                        ----------------------------------------
                                           Camille Cotran, Chairman of the Board
                                           and Chief Executive Officer
                                           (Principal Executive Officer)

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

        Signature and Title                                   Date
        -------------------                                   ----

/s/ Camille Cotran                                        October 29, 1999
-----------------------------------
Camille Cotran, Director


/s/ John Brohman                                          October 29, 1999
-----------------------------------
John Brohman, Director


Louise Vaillancourt-Chatillon                             October 29, 1999
-----------------------------------
Louise Vaillancourt-Chatillon,
Director and Secretary


John C. Hall                                              October 29, 1999
-----------------------------------
John C. Hall
Vice President - Finance
(Principal Accounting Officer)



                                       16
<PAGE>   44



                                INDEX TO EXHIBITS


(2)      PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
         SUCCESSION

         Not applicable.

(3)     (a)       ARTICLES OF INCORPORATION

                  Articles of Incorporation are incorporated herein by
                  reference to Exhibit 3.1 to the Registrant's Form 10-KSB
                  filed for the fiscal year ended July 31, 1996.

        (b)       BY-LAWS

                  By-laws are incorporated herein by reference to Exhibit 3.2
                  to the Registrant's Form 10-KSB filed for the fiscal year
                  ended July 31, 1996.

(4)      INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS, INCLUDING INDENTURES

        (a)       The documents listed under Item (3) of this Index are
                  incorporated herein by reference.

(9)      VOTING TRUST AGREEMENT

         Not applicable.

(10)     MATERIAL CONTRACTS

                    (a)   Employment Contract dated as of November 1, 1997,
                          between Sel-Drum International, Inc., and Raymond C.
                          Sparks is incorporated herein by reference to Exhibit
                          10(a) to the Company's Form 10-QSB for the quarter
                          ended January 31, 1998.

                    (b)   Non-Incentive Stock Option Grant granted as of
                          November 3, 1997, by Sel-Drum International, Inc., to
                          Raymond C. Sparks is incorporated herein by reference
                          to Exhibit 10(b) to the Company's Form 10-QSB for the
                          quarter ended January 31, 1998.

                    (c)   Sel-Drum International, Inc. 1995 Employee and
                          Non-Employee Director Stock Option Plan is
                          incorporated herein by reference to Exhibit 99.1 to
                          the Company's Registration Statement on Form S-8
                          (Registration No. 333-57885).

                    (d)   Stock Sale and Purchase Agreement among the Selling
                          Shareholders of Sel-Drum International, Inc. and
                          Densigraphix Kopi inc. and C. Cotran Holding inc.
                          dated July 30, 1999 is incorporated herein by
                          reference to Exhibit 2.1 to the Company's Report on
                          Form 8-K dated July 30, 1999.

<PAGE>   45

                    *(e)  Offering Letter by the National Bank of Canada to
                          Sel-Drum International, Inc. is included herein as
                          Exhibit 10 (e).

(11)     STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS

         Computation can be clearly determined from the Financial Statements and
         Notes thereto included herein.

(13)     ANNUAL OR QUARTERLY REPORTS, FORM 10-Q AND FORM 10-QSB

         Not applicable.

(16)     LETTER ON CHANGE IN CERTIFYING ACCOUNTANT

         Not applicable.

(18)     LETTER ON CHANGE IN ACCOUNTING PRINCIPLES

         Not applicable.

*(21)    SUBSIDIARIES OF THE REGISTRANT

(22)     PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE

         Not applicable.

*(23)    CONSENT OF EXPERTS AND COUNSEL

         Consent of Mengel, Metzger, Barr & Co. LLP is included herein as
         Exhibit 23.1

(24)     POWER OF ATTORNEY

         Not applicable.

*(27)    FINANCIAL DATA SCHEDULE

         The Financial Data Schedule is included herein as Exhibit 27.

(99)     ADDITIONAL EXHIBITS

         Not applicable.


* Exhibit filed with this Report