SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   Form 10-KSB
                                   -----------

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001, or

[ ]      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the Transition Period from_______ to _______

                         Commission File Number 0-27177

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                   -------------------------------------------
                 (Name of small business issuer in its charter)

                  UTAH                                        87-0427597
         -------------------------------                 --------------------
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                  Identification Number)

                                  P.O. Box 1953
                                Orem, Utah 84057
                    (Address of principal executive offices)

         Issuer's telephone number, including area code: (801) 226-4490

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

                                                Name of each exchange
                  Title of each Class           on which registered

                          None                        None

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

              15,090,081 Shares Common Stock Issued and Outstanding
                               $0.00025 Par Value
                                (Title of Class)

                                      None
          (Former Name or Former Address, if changed since last Report)

         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 Company was required to file such reports),  and (2) has
been subject to such filing requirements for the past 90 days.

                      (1) Yes [X] No [ ] (2) Yes [X] No [ ]

         Check if there is no disclosure of delinquent files in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,   to  the  best  of  Company's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         State Issuer's  revenues for its most recent fiscal year:  December 31,
2001 - $0.


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         State  the  aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  computed by  reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.

         April 30, 2002 - - $1,147,424.10, calculated based on the closing price
of $.10 per share as quoted at April 30, 2002 on the  over-the-counter  bulletin
board market.  There are approximately  11,474,241 shares of common voting stock
of the Company held by non-affiliates.

     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

                                 Not Applicable.

                     (APPLICABLE ONLY TO CORPORATE ISSUERS)

         State the number of shares  outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date: 15,090,081.

                       DOCUMENTS INCORPORATED BY REFERENCE

A description of "Documents  Incorporated  by Reference" is contained in Item 13
of this report.

Additional documents set forth in Part IV hereof are incorporated by reference.

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

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<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                INDEX-FORM 10-KSB

                                     PART I

                                                                                                                 Page
                                                                                                                 ----

<S>                                                                                                               <C>
Item 1.    Description of Business................................................................................4

Item 2.    Description of Property................................................................................10

Item 3.    Legal Proceedings..................................................................................... 10



                                     PART II

Item 5.    Market for the Common Equity and Related Stockholder Matters...........................................10

Item 6.    Management's Discussion and Analysis and Plan of Operations............................................13

Item 7.    Financial Statements...................................................................................17

Item 8.    Changes in and disagreements with Accountants on Accounting and Financial Disclosure...................40


                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons; Compliance
           with Section 16(a) of the Exchange Act.................................................................40

Item 10.   Executive Compensation.................................................................................43

Item 11.   Security Ownership of Certain Beneficial Owners and Management ........................................46

Item 12.   Certain Relationships and Related Transactions ........................................................48


                                     PART IV

Item 13.   Exhibits and Reports on Form 8-K.......................................................................50

Signatures .......................................................................................................51

</TABLE>


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                                     PART I

ITEM 1.  Description of Business

Business Development.

         Galtech  Semiconductor   Materials  Corporation,   a  Utah  corporation
("Galtech") was organized on June 18, 1984, for the purpose of investing "in new
products, properties and/or businesses which may have potential for profit."

         At  inception,  Galtech was  authorized to issue  50,000,000  shares of
common voting stock, par value $0.001 per share, with fully-paid stock not to be
liable for further call or assessment.

Charter Amendments

         Since its inception,  Galtech has amended its Articles of Incorporation
as follows:

                  On January 29, 1986, the Company changed its name to "Galtech,
         Inc. and amended Article IV of the Articles of Incorporation to provide
         the authority to issue  200,000,000  shares of common stock,  par value
         $0.00025 per share,  with fully paid stock not to be liable for further
         call or assessment.

                  On September 9, 1986, the Company changed its name to "Galtech
         Semiconductor Materials Corporation.

                  On February 24,  1995,  Galtech  effected a 20-to-one  reverse
         split of its outstanding  shares,  with fractional  shares rounded to a
         whole share.

         Unless otherwise  indicated,  all computations in this report take into
account these adjustments.

         Copies of all  amendments  to the Company's  Articles of  Incorporation
were attached as exhibits to its Registration Statement on Form 10-SB, which was
filed with the Securities and Exchange  Commission on August 30, 1999,  which is
incorporated herein by this reference. See Item 13 of this Report.

General History

         Galtech  commenced  operations  in  approximately   January,  1986.  We
conducted  research  and  development  of a process  for  manufacturing  cadmium
telluride  and  the  renovation  of a  manufacturing  facility  to  produce  our
products.   Cadmium   telluride  is  a  compound  used  in  the   production  of
semiconductors.  A fire  destroyed  our  facilities  in 1990  and we  have  only
recently recommenced our semiconductor development activities.

         On February  28, 1995,  we acquired  all of the issued and  outstanding
common stock of Commodity Recovery Corporation  ("CRC"), a Utah corporation,  in
exchange for 500,000 "unregistered" and "restricted" shares of our common stock.
CRC was organized on October 31, 1994, for the purpose of marketing products for
destroying  aflatoxin,  a  cancer-causing  substance  found in grain  and  other
foodstuffs.

         Also on February  28,  1995,  we issued  4,200,000  "unregistered"  and
"restricted"  shares of  common  stock in  exchange  for all of the  issued  and
outstanding common stock of Energy Recovery Corporation, an Arizona corporation.
ERC was  incorporated  on February 7, 1994,  for the purpose of  developing  and
producing alternative energy sources.

         When we  acquired  CRC and  ERC,  neither  company  had any  assets  or
operations.  After its  acquisition,  CRC  developed  a treatment  method  using
ammonia vapor to destroy  aflatoxin.  In 1997,  management decided to narrow its
focus to the  development  of its  semiconductor  materials  and ceased  further
development of its aflatoxin technology.  The State of Utah has administratively
dissolved CRC for failure to file its annual report.

         On April 29,  1997,  ERC was  awarded a patent on a  carousel  electric
generator  that was  designed to provide a high level of  electrical  power in a

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compact structure.  We have conducted  preliminary  testing on the generator and
believe that it has  potential  for use in  electric-powered  vehicles.  We have
built an electric vehicle for additional testing.  However,  due to management's
decision to focus on our semiconductor  materials operations,  we do not plan to
spend very much money on our generator  project in the foreseeable  future.  The
State of Arizona  has  administratively  dissolved  ERC for  failure to file its
annual report.

         After  reviewing the current  market for  semiconductor  materials,  in
1997, we began work on modernizing and redesigning our antiquated  semiconductor
equipment  for the purpose of developing a reliable and  repeatable  process for
growing  large area,  single  crystal,  bulk cadmium  telluride and cadmium zinc
telluride  semiconductor  material. Some of the electronics and controls had not
been  updated for at least 15 years.  Updates to the  prototype  equipment  have
included  installation  of new  computers and software,  power  electronics  and
improvements  to the crystal growth  equipment.  Future plans for expansion will
depend on our success with semiconductor growth.

         Our equipment  consists of a walk-in  growth  furnace area and computer
equipment  to monitor  the  crystal  growth.  It is located at our  facility  in
Lindon, Utah. It is currently in a prototype/research  state. We are changing it
constantly  to  incorporate  new concepts and to make  incremental  improvements
based on results to date. This will continue as the process is perfected.

Business.

         Our  principal  operations  focus  on the  development  and  commercial
exploitation  of a new and more economical  method of growing cadmium  telluride
and related compounds with zinc and mercury semiconductor compounds.

         Prior to a 1990 fire in our facilities,  we had  successfully  produced
cadmium  telluride  crystal wafers of up to four to six square inches.  Previous
commercially  manufactured  cadmium  telluride  wafers  had been only one to two
square inches.  In addition,  we were able to produce round wafers,  rather than
the  customary  D-shaped and  rectangular  wafers.  Industry  users prefer round
wafers.

         We are now  concentrating  our  efforts on  refining  our  methods  for
producing  cadmium  telluride and cadmium zinc telluride  wafers and reproducing
our earlier production results.  In the future,  depending on the success of our
research and  development  efforts,  market  conditions and our success with our
principal operations, we will consider developing similar crystals made from the
following compounds:  indium phosphide;  indium antimonide;  gallium antimonide;
and gallium arsenide.

Principal Products and Services.

         We are  attempting  to develop a reliable  and  repeatable  process for
growing large area, single crystal,  cadmium telluride  semiconductor  material.
Each class of semiconductor  material has its own unique properties that make it
useful for specific  applications.  Cadmium telluride and cadmium zinc telluride
are  useful as photo  cathodes  -- the  detector  part of the device -- in night
vision  instruments,  focal  plane  arrays for  aerospace  guidance  and imaging
devices and as radiation detectors for medical imaging equipment,  to name a few
uses. In these applications,  the cadmium telluride is used to convert different
parts of the light spectrum, such as infrared light, x-rays and gamma rays, into
an  electronic  signal  that is used by  computers  to  produce an image for the
operator.  The market for these devices has  traditionally  been military due to
the high production costs of the cadmium telluride  crystals.  As the production
costs  decrease and these  devices are adapted for  consumer  use, we expect the
market for cadmium telluride and cadmium telluride compounds of mercury and zinc
to expand.

         Worth  P.  Allred,  our  senior  scientist  for  crystal  research  and
development,  was able to produce large -- four centimeters by three centimeters
-- crystalline  wafers of cadmium  telluride with rocking curve  measurements of
9.6 to 20 arc  seconds.  Arc seconds  measure the amount of scatter when a gamma
ray is projected  onto a material.  The lower the reading,  the better.  Rocking
curve measurements  indicate how uniform the crystal lattice is in the material.
The more uniform the lattice, the fewer flaws in the material and the better the
material is at performing its intended function. Previous best measurements were
34 to 50 arc seconds.  Washington  State  University's  independent  analyses of
material  produced by Mr.  Allred  documented  the high quality of these wafers.
(Khan, A.A., et al., Growth and Structural  Properties of Low Defect,  Sub-Grain
Free CdTe  Substrates  Grown by the Horizontal  Bridgman  Technique.  Journal of
Electronic  Materials,  Vol.  15,  Number 3,  1986.  Mr.  Allred  was one of six
co-authors of this paper.)

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         Cadmium   telluride  and  cadmium  zinc  telluride  are   semiconductor
materials  used in  electronic  equipment  such as infrared  detectors,  weapons
guidance   systems,   satellite   surveillance,    solar   cells,   deep   space
communications,   infrared  night  vision  devices,  tumor  detectors,   nuclear
radiation  and  gamma  detectors,  spectrometers  for  chemical  identification,
nuclear medicine,  astronomy and related  applications.  (Whitaker,  T., Picture
This, Compound Semiconductor, Vol. 4 Number 4, 17-20, May 1998).

         A Discover  Magazine article cited a July 1997 award to Sandia National
Laboratories  for  development of a compact cadmium zinc telluride  sensor.  The
following is quoted from the award  citation:  "Since these  sensors are compact
and work at room  temperature,  they  could  be used  not  only  for  monitoring
plutonium  but also for  detecting  environmental  radioactivity,  exploring for
minerals, and helping doctors find tumors."

         Cadmium telluride can be used in high capacity solar cells.  (Galloway,
S.A,  Characterization  of Thin Film  Cds/cdte  Solar Cells Using  Electron  and
Optical Beam Induced Current,  Solar Energy  Materials and Solar Cells,  Vol. 57
pp.  61-74,  1999.)  Cadmium  telluride  can  also be  used in high  temperature
infrared and near infrared  sensors.  (Mullins,  J.T.,  Carles, J. and Brinkman,
A.W.,  High  temperature  optical  properties of cadmium  telluride,  Journal of
Applied Physics, Vol. 81, No. 9, pp. 6374-6379, 1997.)

         Cadmium telluride, cadmium zinc telluride and cadmium mercury telluride
are difficult to grow in high quality crystalline structures, but are popular in
spite of these  limitations  because of their  superior  properties  in infrared
sensing applications.  (Whitaker, T., Picture This, Compound Semiconductor, Vol.
4 Number 4, 17-20, May 1998), (Rogalski, A.

Optical Engineering. Vol. 36, Pg. 1994.)

         Most of our target  markets  are in the United  States,  but  potential
opportunities are global. The major areas of concentration outside of the United
States are Japan, Taiwan, China, Korea, the United Kingdom,  Germany, France and
Italy.  (Private  Communication  with  Sanghamitra  Sen, Santa Barbara  Research
Center, Raytheon, Goleta CA, August, 1998).

         Presently, the only suppliers of specialty semiconductor materials such
as cadmium  telluride are  supplying at extremely  high prices and in very small
and inconsistent quantities.  (Private Communication with Sanghamitra Sen, Santa
Barbara  Research  Center,  Raytheon,  Goleta CA, August,  1998).  Users of this
material  have  expressed a desire for  additional  suppliers to  supplement  or
improve  their  current  sources  of  material.   (Private   Communication  with
Sanghamitra  Sen, Santa Barbara Research  Center,  Raytheon,  Goleta CA, August,
1998). Our goal will be to provide cadmium telluride  materials in wafer form at
lower cost and in larger amounts than other  suppliers.  If we are successful in
doing this, we expect the interest in cadmium telluride material to increase not
only in military and aerospace applications but also in a number of non-military
applications, the most notable of which is the medical imaging device area.

         While the  military and  aerospace  markets  continue to be  attractive
markets for us because of the high prices  being paid for the cadmium  telluride
material  for focal plane  arrays,  these  markets  appear to be less robust and
growing at a lower rate than the non-military and non-aerospace  markets.  While
the civilian  aerospace demand is growing,  the military  requirements have been
dropping  on a  year-to-year  basis  due  to  cutbacks  in  government  military
spending.  As a result,  we believe  that our  product  will allow us to compete
effectively in these important  markets where cost and quality are  increasingly
important.

         The medical  imaging market is undergoing a dramatic  change and moving
beyond  X-film  technologies.  This  change  involves  the  use  of  floroscopic
techniques  that reduce the x-ray  dosage to the patient  while  providing  high
definition  images.  The high  degree of clarity in this  technology  allows the
equipment  to be  used in  cardiac  procedures  on a  beating  heart  as well as
standard  vascular  procedures.  Currently,  cesium iodide receptors are used in
this  application.  The problem with cesium iodide is that  receptors  made from
this material can only be used in a curved  receptor that distorts the image and
requires  special  correction of the image to allow the physician to perform the
procedure. Even with correction, the image remains distorted to some degree.

         Cadmium  telluride has several  advantages  over cesium iodide.  A flat
panel receptor is possible with cadmium  telluride  detectors.  These  detectors
produce a receptor  with reduced size,  thickness and weight.  A true flat image
receptor  gives a more  constant  amount of  illumination  and is a much  better
detector for medical  procedures.  The  potential  market for devices using this
type of receptor is about $750 million dollars per year, with the  semiconductor

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material used in the receptor device being a large part of this value.  (Private
communication,  Market  Analysis  report-Medical  Imaging  Market,  Ross Riches,
Consultant, Angola, IN, May 2000).

Distribution Methods of the Products or Services

         In the  military and  aerospace  markets,  companies  such as Rockwell;
Raytheon (Santa Barbara  Research);  Texas  Instruments;  Hewlett-Packard;  ITT;
McDonnell Douglas; General Electric and NASA have done work in cadmium telluride
device  development or production.  Each of these companies would be a potential
customer for Galtech. In the medical imaging area,  companies such as GE Medical
Systems;  Philips Medical  Systems;  Siemens Medical  Systems;  Fischer Imaging;
Fluoroscan Imaging Systems; Lunar Corp.; Ziehm International Medical Systems and
Xiscan  Medical  are all  potential  customers  and users of this  semiconductor
material. (Private communication, Market Analysis report-Medical Imaging Market,
Ross Riches, Consultant, Angola, IN, May 2000).

         If we are  successful  in our  research  and  development  methods  for
producing high quality, single crystal cadmium telluride, we expect the cost and
the market price of cadmium  telluride  based  products to decrease.  We believe
this will present us with additional market opportunities.

         We plan to use both an  in-house  sales force and  contract  brokers to
market our products. In our experience,  the best and most enduring sales in the
semiconductor  industry  are made  through  personal  contacts and visits to the
customer's plant. These will be handled by regional representatives.

Status of any Publicly Announced New Product or Service.

         None; not applicable.

Competitive Business Conditions.

         Crystal growth yields;  wafer size and quality;  and overhead costs are
the three problems that beleaguer each of the companies providing  semiconductor
materials. As a result, prices range from $900 to $1200 per square inch for a 20
to 30 thousandths inch thick wafer. Due the lack of domestic  suppliers  capable
of  supplying  consistent  high  quality  material,most  military  and  civilian
contractors  are forced to grow much of their own  cadmium  telluride  material.
They have told us that they would  welcome  other  suppliers  of this  material.
(Private  Communication  with  Sanghamitra  Sen, Santa Barbara  Research Center,
Raytheon, Goleta CA, August, 1998).

         Yields. Our present competitors have difficulty growing monocrystalline
structures,  or  wafers  with a  single  crystal.  (Private  Communication  with
Sanghamitra  Sen, Santa Barbara Research  Center,  Raytheon,  Goleta CA, August,
1998).  The  proprietary  process that we are  developing is designed to provide
large area, single crystal cadmium telluride wafers more efficiently,  more cost
effectively and of a higher quality than our current competitors.

         Wafer  Size and  Quality.  Due to the  current  small  size of  cadmium
telluride wafers, many device  manufacturers have begun experimenting with other
wafer materials that could replace cadmium telluride.  These  manufacturers have
met with moderate success,  but would prefer to use a cadmium telluride wafer if
it was available in sufficient quantities and qualities.  (Private Communication
with  Sanghamitra  Sen,  Santa Barbara  Research  Center,  Raytheon,  Goleta CA,
August, 1998).

         Overhead Costs. Using its production protocol, management believes that
the manufacturing  costs of Galtech's  semiconductor  compound materials will be
approximately  one-fourth  of the  overhead and capital  equipment  costs of its
competitors'  methods.  We have  calculated  that we will be able to operate our
facility in the near term with four to five people,  which should  significantly
reduce our overhead.

         Major  competitors  in the  production of cadmium  telluride are II-VI,
Inc.,  located in Saxonburg,  Pennsylvania;  and Nippon Mining,  Ltd., of Japan.
II-VI,  Inc.,  employs  approximately  150 people and controls  approximately 75
percent of the market for cadmium telluride of one to three square  centimeters.
Its product is generally cut from large three-inch  multi-crystal ingots. Nippon
Mining is a major supplier of cadmium  telluride to the Japanese market. It also

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ships to  United  States  users and its  materials  are  reported  to be of good
quality.  We estimate Nippon Mining's market share at  approximately  five to 10
percent.

Sources and Availability of Raw Materials.

         Our source of  cadmium  telluride  is Alfa  Aesar,  a Johnston  Matthey
Company,  located  in Ward Hill,  Massachusetts.  Alfa  Aesar  provides  cadmium
telluride in a variety of forms,  including  powder and lumps of various  sizes.
The product is available in purities of 99.999% and 99.99999%. Alfa Aesar's most
recent catalog lists a retail price of $1182 for 100 grams of cadmium  telluride
of  99.99999%  purity,  and $228 per 100 grams of 99.999%  purity.  We generally
purchase  in  five  kilogram   quantities;   an  average   production  run  uses
approximately  two  kilograms.  Cadmium  telluride is  reusable,  with a loss of
approximately  five  percent  of the  original  material  with  each  additional
production run. Alfa Aesar is a well-established company and management believes
that it will be able to provide as much raw material as Galtech requires.

Dependence on One or a Few Major Customers.

         There is a worldwide  shortage of quality cadmium  telluride wafers. We
expect that there will be sufficient demand for our products for the foreseeable
future.

Patents,  Trademarks,  Licenses,  Franchises,  Concessions,  Royalty Payments or
Labor Contracts.

         In April,  1997, ERC was assigned a U.S. patent (Patent No.  5,625,241)
on a carousel electric generator that was invented by Russell R. Chapman,  David
R.  Porter,  and Harold E.  Ewing.  The  Company  has no  trademarks,  licenses,
franchises,   concessions,   royalty  agreements  or  labor  contracts.  Because
semiconductor  material  crystal  growth  patents are difficult to protect,  the
production  processes are closely guarded.  The Company will allow only a select
group of researchers  access to its processes and each employee will be required
to sign a nondisclosure  agreement before  receiving  knowledge of the Company's
processes.

Need for Government Approval of Principal Products or Services.

         Our  management  believes  that our  processes  and  products  will not
require governmental approval.

Effect of Existing or Probable Governmental Regulations on Business.

         As with other manufacturing  companies,  Galtech's operations will have
to comply with state and federal  workplace safety and  environmental  emissions
regulations.  We intend to take all steps  necessary to ensure  compliance  with
these laws and regulations.

         Cadmium telluride is a stable,  odorless material when in a solid form.
It has a melting point of 1905.8 degrees Fahrenheit. Heat, sparks and open flame
can  cause it to  become  unstable.  Exposure  to  cadmium  telluride  can cause
irritation to the eyes,  skin and mucous  membranes,  as well as lung cancer and
liver damage.  Precautions  for safe  handling  include the use of a respirator,
chemical goggles and protective clothing. We will ensure that all employees that
handle cadmium  telluride  comply with these workplace safety  requirements.  In
addition,  we have installed an air scrubber in our production furnace to remove
cadmium telluride from the air Galtech intends to dispose of waste in accordance
with federal, state and local regulations. Management believes that the costs of
compliance  with applicable  regulations  will be less than one percent of gross
profits.

Research and Development

         During the calendar  year ending  December 31, 2001,  we completed  the
setup and  initial  testing of the  equipment  needed to  produce  semiconductor
materials  at our  new  facility.  Currently  we are  fine-tuning  and  addition
additional production  equipment.  This equipment will enable us to proceed with
production of semiconductor material for sale.

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         During the calendar  year ended  December 31, 2000,  we spent $7,157 on
research and development  activities.  Finally,  during the most recent calendar
year ended December 31, 2001, we spent $91,795 on research and development.

         Galtech  received  $50,000  in the first  calendar  quarter  of 2000 to
continue  research on crystal growth.  We are receiving  bridge  financing which
permits  us to pursue  meaningful  development  of the  crystal  growth  process
through  December 2002.  Our current  resources will allow us to conduct no more
than five crystal  growth trials  through that date. We have been working on the
growth of single crystal cadmium telluride for approximately three years. During
that time, we conducted four crystal  growths.  We only have one growth furnace,
so any problem with the growth of a crystal  will delay all  progress  until the
problem  is fixed.  This lack of  additional  furnaces  has  greatly  slowed the
development of the process.

         If successful with our growth trials before June 2002, we plan to begin
pilot  production  of material  for the  purpose of  providing  samples  and, if
possible,  low volume sales to interested  customers.  We anticipate  that these
customers  will take from three to nine  months to  evaluate  our  material  and
approve Galtech as a source of supply for cadmium telluride wafers.

          In 1999, the former  president of Galtech and co-inventor of Galtech's
motor technology  purchased a used automobile,  an electric  conversion kit, and
paid to convert the vehicle  from  gasoline to electric  power.  The vehicle was
donated to Galtech for baseline testing,  performance evaluation,  and as a test
bed for possible future development of the motor technology. Although we are not
actively  pursuing  development of the  technology,  interested  individuals are
donating  their time and effort to  evaluate  the  current  state of the art. In
2000, we spent a total of $1,545 to update the charging  system.  We do not plan
to spend any other significant funds on this project in the near term.

Costs and Effects of Compliance with Environmental Laws.

         See  the  heading   "Effect  of   Existing  or  Probable   Governmental
         Regulations on Business."

Number of Employees.

         Galtech  has  five  unpaid   part-time   employees  and  one  full-time
employees.  During  the next 12  months,  management  expects  that we will have
approximately fifteeen full-time employees and no part-time employees.

Forward Looking Statements and Information May Prove Inaccurate

         When used in this Form 10-KSB and in other  filings by the Company with
the SEC,  in the  Company's  press  releases or in other  public or  stockholder
communications  or oral  statements  made  with the  approval  of an  authorized
executive officer of the Company, the words or phrases "would be," "will allow,"
"intends  to,"  "believes,"  "plans,"  "will likely  result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," or similar expressions
are intended to identify "forward looking  statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.

         The Company cautions readers not to place undue reliance on any forward
looking  statements,  which speak only as of the date made, are based on certain
assumptions  and  expectations  which may or may not be valid or actually occur,
and  which  involve  risks  of  product  demand,  market  acceptance,   economic
conditions,   competitive   products  and  pricing,   difficulties   in  product
development,  commercialization,  and technology,  and other risks. In addition,
sales and other revenues may not commence and /or continue as anticipated due to
delays or  otherwise.  As a result,  the  Company's  actual  results  for future
periods could differ materially from those anticipated or projected.

         The Company  does not intend to update the forward  looking  statements
contained  in this report,  except as may occur as part of its ongoing  periodic
reports filed with the Securities and Exchange Commission.

                                       9
<PAGE>


ITEM 2.  Description of Property.

         On July 23, 2001, the Company  entered into a lease with Kevin Maag for
approximately  2,250 square feet of work space located at 275 South Mountainland
Drive, Orem, Utah. This lease will expire on July 22, 2002. Rent for that period
will be $1,000 per month.  Rent expense for the year ended December 31, 2001 was
$5,000. The Company has relocated its operations to this property.

          We have  completed the relocation of all  equipment,  materials,  test
equipment,  administrative records and correspondence from our previous location
to a new  freestanding  building of  approximately  3,500 square feet.  This new
facility  should  accommodate  our needs over the next few years. If the Company
needs additional space for growth,  sufficient  additional compatible facilities
are available in the immediate area.

ITEM 3.  Legal Proceedings.

         We are not a party to any pending legal proceeding. To the knowledge of
management,  no  federal,  state  or  local  governmental  agency  is  presently
contemplating any proceeding against us. No director, executive officer or other
person who may be deemed to be an  "affiliate"  of Galtech or owner of record or
beneficially of more than five percent of our common stock is a party adverse to
Galtech or has a material interest adverse to Galtech in any proceeding.

         A judgment in the amount of $40,563 was entered against us in December,
1992. This amount has been included as an account payable for December 31, 2001,
in the Company's consolidated financial statements.

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

         None; not applicable.


                                     PART II

ITEM 5.  Market for Common Equity and Related Stockholder Matters

Market Information

         Our common stock is quoted on the OTC Bulletin  Board of the NASD,  but
there is currently no  established  market for the stock.  We can not assure you
that one will  develop or be  maintained.  For any market that  develops for our
common  stock,  the  sale  of  "restricted  securities"  under  Rule  144 of the
Securities and Exchange Commission may hurt our stock price.

         Rule 144  requires  that the  selling  stockholder  has held his or her
shares for at least one year.  The public must also have  access to  information
about us.  Sellers  under  Rule 144 may not sell  more than a certain  number of
shares  during any three month period.  Their sales must be through  unsolicited
broker's  transactions,  and the  sellers  must  file  with the  Securities  and
Exchange Commission a Notice of Sale on Form 144.

         Pink Sheets LLC,  formerly  known as the  "National  Quotation  Bureau,
LLC,"  provided  the  following   quotations.   They  do  not  represent  actual
transactions and they do not reflect dealer markups, markdowns or commissions.

                                       10
<PAGE>

                                          STOCK QUOTATIONS*
                                            Closing Bid

Quarter ended:                       High               Low
-------------                        ----               ---
March 31, 2000                       4.3125             0.44
June 30, 2000                        2                  0.75
September 30, 2000                   1.3125             0.75
December 31, 2000                    0.875              0.375
March 31, 2001                       0.62               0.57
June 30, 2001                        0.375              0.3225
September 30, 2001                   0.26               0.2375
December 31, 2001                    0.205              0.1625

Stockholders.

         As of the date of this Report, we have about 1,800  stockholders.  This
figure does not include an  indeterminate  number of  stockholders  who may hold
their shares in "street name."

Dividends.

         Galtech has not declared any cash  dividends with respect to its common
stock. We do not intend to declare dividends in the foreseeable  future. We will
not know our future dividend policy until we sell any of our products. We do not
have  any  material  restrictions  on  our  ability  to  pay  dividends  on  our
securities.  However, you should not invest in our shares if you need the income
that dividends provide.

Recent Sales of Unregistered Securities.

<TABLE>
<CAPTION>

                                  COMMON STOCK

                                                  Date                    Number of                   Aggregate
                  Name                          Acquired                   Shares                   Consideration
                  ----                          --------                   ------                   -------------
<S>                                             <C>                       <C>                 <C>
David R. Porter (1)                              7/6/99                   1,000,000           Services valued at
                                                                                              $0.27 per share
William Tunnell (2)                              7/6/99                   2,000,000           Services valued at
                                                                                              $0.27 per share
Russell R. Chapman (2)                           7/6/99                   1,000,000           Debt and subscription
                                                                                              valued at $0.27
                                                                                              per share
Verity Global Financial, LLC (3)                3/24/00                     200,000           $50,000
</TABLE>

                                       11
<PAGE>
<TABLE>
<CAPTION>

                                                  Date                    Number of                   Aggregate
                  Name                          Acquired                   Shares                   Consideration
                  ----                          --------                   ------                   -------------
<S>                                              <C>                        <C>               <C>
Todd Charl Proffitt                              9/11/01                   10,000             Services valued at
                                                                                              $0.17 per share
Verity Global Financial, L.L.C.                  9/17/02                   92,000             $23,000
Todd Charles Profitt                            12/17/01                   20,000             Services valued at
                                                                                              $0.13 per share
Philip Brown                                    12/17/01                   40,000             Services valued at
                                                                                              $0.13 per share
James Davis                                     12/17/01                   10,000             Services valued at
                                                                                              $0.13 per share
David Tracy                                     12/17/01                   74,000             Services valued at
                                                                                              $0.13 per share
</TABLE>

(1)      Management believes each of these persons was an "accredited  investor"
         as defined in Rule  501(a)(4)  of  Regulation D of the  Securities  and
         Exchange  Commission,  because each was a director or executive officer
         of Galtech when these shares were issued.  We believe these shares were
         exempt from the  registration  requirements  of the  Securities  Act of
         1933,  as  amended,  under the "safe  harbor"  provided  by Rule 506 of
         Regulation  D  and  Section  4(2)  of  the   Securities   and  Exchange
         Commission,  as the number of unaccredited purchasers did not exceed 35
         and each purchaser had access to all material information about Galtech
         prior to the offer, sale or issuance of these "restricted  securities."
         Nor did the  offer  or sale of these  securities  involve  any  general
         solicitation or general advertising.

(2)      Management  believes that these sales were exempt from the registration
         requirements  of the Securities Act of 1933, as amended,  under Section
         3(b)  thereof  and  Rule  504 of  Regulation  D of the  Securities  and
         Exchange Commission. At the time of this offering, Galtech did not have
         to meet  the  reporting  requirements  of  Section  13 or  15(d) of the
         Securities Exchange Act of 1934, as amended, and the aggregate offering
         price  of  all  securities   sold  in  this  offering  did  not  exceed
         $1,000,000.  Management  also  believes that all offers and sales under
         this offering complied with Rules 501 and 502 of Regulation D, with the
         exception  of Rule 502(c) and 502(d),  which do not apply to  offerings
         under Rule504.

(3)      Under a Securities  Purchase  Agreement  with Verity Global  Financial,
         LLC, we had anticipated selling 800,000 "unregistered" and "restricted"
         shares of our common stock to Verity on May 10, 2001for $200,000.

         The  Agreement  was amended on July  19,2001,  pursuant to which Verity
         provides bridge funding in a minimum of $6,000 per month.

         We did not use an underwriter in connection  with any securities  sales
listed in the above table.

                                       12
<PAGE>



ITEM 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Plan of Operation.

         This discussion contains "forward-looking"  statements and information,
all of which is modified by reference to the caption "Risk Factors' contained in
our Registration  Statement on Form SB-2, as amended,  and which is incorporated
herein by this reference.

         Due to recent weak stock market and economic conditions,  Verity Global
Financial,  LLC, is unable to proceed  with the terms of its initial  Securities
Purchase  Agreement with the Company.  On July 14, 2001, the parties executed an
Addendum to the Agreement. Verity to provide the Company with not bridge funding
of less than $6,000 per month in exchange for registered shares of the Company's
common stock,  at a price of $0.25 per share.  These payments are to be credited
against the initial $450,000 funding amount under the original Agreement. Verity
further agreed to subordinate its interest to any new financing that the Company
may obtain.

         Management  believes  that the bridge  funding  provided by Verity will
allow the Company to meet its  administrative  expenses over the next 12 months.
However,  unless the Company is able to obtain  substantial  additional  funding
from Verity or another source,  it has insufficient  funds to pursue  meaningful
development  of its process  for  production  of  semiconductor  materials.  The
Company  will not have enough  money to  purchase  cadmium  telluride  and other
crystal growth supplies until it obtains additional funding. We continue to seek
the needed  funding to continue  the  commercial  development  of  Galtech.  Our
preference  is to do this in a way that will  minimize the number of  additional
shares  required  to obtain  these  needed  funds.  The  Company  can provide no
assurance  that it will ever be able to obtain  sufficient  funding to  continue
with its research and development efforts.

         Since our  relocation to our new facilities we have completed the setup
and initial testing of the equipment needed to produce semiconductor  materials.
We are currently fine-tuning and adding additional  production  equipment.  This
will enable us to proceed with production of semiconductor material for sale.

         With  respect  to  the  motor/generator  technology  that  we  own,  we
recognize the importance of moving this technology  forward.  As a result of our
current  other  priorities,  we have entered into an agreement  with an investor
group who has  established  MagPower,  Inc., a company  created  specifically to
commercialize this motor generator technology.  MagPower has begun work and will
be issuing periodic  reports on its progress.  With the increasing need for more
efficient motor and generator technology we project a continued interest in this
technology.

         Our goal is to produce  high  quality,  round  shaped,  single  crystal
wafers with a high yield  process.  If Verity or another  entity  provides  full
funding, we will pursue four sub-projects in an effort to meet our goal:

                                       13
<PAGE>

         Finite Element Model Development -
         --------------------------------

         Cadmium  telluride  crystal  growth is a very slow process  measured in
weeks.  A system of testing  ideas in computer  simulation  is much  quicker and
allows  for a  greater  variety  of  designs.  No one has  adequately  applied a
computer  simulation  system to crystal  growth.  Our  efforts in this area will
build on  experience  that we have  gained  in the past two  years in  modeling,
refining, and understanding the key parameters for our growth process. From this
effort, we expect to verify the growth model by:

  o      correlating results to our model predictions;

  o      making  adjustments  in the  model to more  accurately  reflect  actual
         performance;

  o      investigating the effects of design changes in the configuration of the
         growth furnace and the process; and

  o      finding a better furnace and process design.

         Equipment Upgrade -
         -----------------

         We  have  already  upgraded  much of the  equipment  that we use in the
growth and production of crystals. Our lack of funding has restricted the number
of furnaces and spare furnace parts available. We hope to use the results of our
research and development  efforts to improve the components of the furnace.  Our
goal is to have  enough  replacement  parts to avoid  project  delays when a key
piece of equipment wears out under the extreme heat of the growth process.

         Crystal Design of Experiments
         -----------------------------

         A design of experiments is the most efficient way to quickly  determine
the key variables that affect any physical  process.  It is especially useful in
when a process only sporadically  produces outstanding results. The purpose of a
design of  experiments  is to identify  those  variables  that have the greatest
effect on the quality and  reproducibility  of the process.  We have planned two
experiments for this sub-project.

         With the resources that we have allocated for this phase,  we should be
able to produce about 40 cadmium telluride  boules, or lumps. In general,  every
actual crystal growth will first be modeled and tested in a computer  simulation
many times before we grow it in the laboratory.

         Sixteen  boules  will be used in Design of  Experiments  1. The goal of
Design of Experiments 1 will be to:

               o  verify and adjust the parameters of the computer model;

               o  identify the main factors affecting the growth process; and

               o  test two competing design improvements for the process.


                                       14
<PAGE>




         We  will  combine   information  from  Design  of  Experiments  1  with
information from our computer  modeling efforts to adjust the process  variables
and growth furnace design.

         Galtech plans to use the second 16 boules in Design of  Experiments  2,
which will take a more detailed look at the main factors identified in Design of
Experiments 1 and will attempt to determine the three or four main  variables to
use in the production of cadmium telluride.

         We will use the final eight  boules to verify our  selection of optimal
process  variables  from  Design of  Experiments  2 and to find out  whether the
process is repeatable.  We will perform eight  confirmation  runs using the best
combination  of process  variables that we identify from Design of Experiments 2
and from our computer testing.  Another goal of our confirmation runs will be to
establish production costs.

         Galtech will thoroughly analyze each set of experiments, using accepted
techniques  for assessing  crystal  quality.  We will send parts of  exceptional
boules to laboratories and potential customers for further analysis.

         If we are successful with our research and  development  efforts during
this time period,  we plan to begin pilot production of material for samples and
low volume sales to interested customers.

         We have  received  preliminary  results  from  tests  on a boule of our
material.  Results were delayed because Sandia National  Laboratories,  the U.S.
government laboratory conducting the tests, was not able to cut a boule as large
as the one we gave them. As a result,  the material had to be sent to on outside
firm to be cut into  wafers.  Because  of the  quality  and  size of the  single
crystal in the boule,  Sandia felt compelled to spend more time and money on the
evaluation than previously anticipated.

         Overall, Sandia evaluated the boule as being of moderately high to high
quality.  This  evaluation  is based on a comparison of our material to material
that is currently available from other companies.

         The  boule  contained  areas  of very  large  single  crystal.  Our own
evaluation of the material  remaining from the boule after Sandia  completed its
test revealed three crystals with no rotational  twins,  or crystals  having the
same crystal  orientation  as the main crystal but with a 180 degree phase shift
in one of the crystal planes.  The largest crystal accounts for about 70% of the
total  volume of the  sample.  This  means  that we should be able to get higher
yields than the current industry average for high grade cadmium  telluride.  The
industry  average is about 5% to 15%.  We are also  encouraged  by the fact that
this test boule was not seeded.  Seeding involves the use of an existing crystal
to cause a new crystal to solidify and develop the same  orientation as the seed
crystal.  We expect to get even better results in future runs of boules that are
not seeded.

         The crystalline  material in our boule showed high  resistivity.  It is
unusual for material grown only from cadmium telluride,  without the addition of
a doping agent, to demonstrate high resistivity.  Doping agents give a crystal a
positive or negative bias for use in semiconductor substrates. Resistivity is an

                                       15
<PAGE>



important  characteristic for certain devices and detectors.  Doping agents such
as zinc are generally added to increase this characteristic.  We believe that we
will be able to increase  the  resistivity  of our  material  even more with the
addition of a doping agent.

         Sandia computed the rocking curve of our material as 15 arc seconds. We
believe  this  further  supports  the  conclusion  that the material was of high
quality.  We will  continue our research and  development  efforts to refine the
process.  Although  results  to date  have  been  encouraging,  we have  not yet
completed the development  process and it is difficult to say when we can expect
success.

         If our research and development  efforts are successful,  and if we are
able to raise  sufficient  capital,  we  expect  to be able to begin  full-scale
production  in two years  after  funding.  We can not assure you that we will be
successful in any of these endeavors.

         This discussion contains "forward-looking"  statements and information,
all of which is modified by reference to the caption "Risk Factors."

Results of Operations.

         We have not had any material  operations since  approximately  1990. We
did not receive any revenues  during the year ended  December 31, 2001 and 2000.
Operating  expenses for those periods were $216,741 and $424,544,  respectively,
resulting in a net loss for those periods of $217,334 and  $425,384.  During the
year ended December 31, 2001 and 2000,  respectively,  the main expenses were as
follows:  Legal and  Professional,  Research and  Development  and  Depreciation
Expense.

Liquidity and Capital Resources.

         We had total  current  assets as of December 31, 2001,  of $86,066,  of
which  $85,708 was  inventory  and $358 was cash.  As of December 31, 2001,  our
total current liabilities were $59,344.

         We will not be able to conduct any material  research  and  development
activities until we receive substantial additional funding either from verity or
from another  source.  We cannot  assure you that we will be able to receive any
such funding.

Selected Financial Data

          The following  selected  financial  data of the Company as of December
31, 2001 and December 31, 2000 are derived from,  and are qualified by reference
to, the  financial  statements of the Company,  included  elsewhere in this Form
10-KSB.  The  information  set forth below  should be read in  conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of


                                       16
<PAGE>


Operations,"  the Financial  Statements  and Notes  thereto and other  financial
information included elsewhere in this Form 10-KSB.

                                                   The Years Ended December 31,
                                                     2001              2000
                                                     ----              ----
Revenue                                           $       --       $       --

Net (Loss)                                        $   (217,334)    $   (425,384)

Basic (Loss) per share                            $      (0.01)    $      (0.03)

Weighted Average Shares Outstanding                 14,879,048       14,806,313

Cash Dividends Declared per Common Share                  --               --

Summary Consolidated Balance Sheet Data

Working Capital                                   $     26,722     $    166,796

Total Assets                                      $     86,066     $    244,558

Stockholder's Equity                              $     26,722     $    189,356

Accumulated (Deficit)                             $ (4,966,364)    $ (4,749,030)


MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

General

ITEM 7.  Financial Statements

         Consolidated Financial Statements for the years ended December 31, 2001
         and 2000

         Independent Auditors' Report

         Consolidated Balance Sheet - December 31, 2001

         Consolidated  Statements of Operations for the Years Ended December 31,
         2001, and 2000, and from Inception on June 18, 1984,  through  December
         31, 2001.

         Consolidated  Statements of Stockholders' Equity from Inception on June
         18, 1984, to December 31, 2001

         Consolidated  Statements of Cash Flows for the Years Ended December 31,
         2001,  and 2000 and from Inception on June 18, 1984,  through  December
         31, 2001

         Notes to Consolidated Financial Statements


                                       17
<PAGE>

                         GALTECH SEMICONDUCTOR MATERIALS

                          CORPORATION AND SUBSIDIARIES

                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2001

                                       18
<PAGE>




                                 C O N T E N T S





Independent Auditors' Report .................................. 20

Consolidated Balance Sheet .................................... 21

Consolidated Statements of Operations ......................... 22

Consolidated Statements of Stockholders' Equity................ 23

Consolidated Statements of Cash Flows.........................  31

Notes to the Consolidated Financial Statements ...............  33

                                       19
<PAGE>





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

Board of Directors and Stockholders
Galtech Semiconductor Materials Corporation
and Subsidiaries

(A Development Stage Company)
Orem, Utah

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Galtech
Semiconductor  Materials  Corporation  and  Subsidiaries  (a  development  stage
company) as of December  31, 2001 and the  related  consolidated  statements  of
operations, stockholders' equity and cash flows for the years ended December 31,
2001 and 2000 and from  inception  on June 18, 1984  through  December 31, 2001.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the 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 Galtech
Semiconductor  Materials  Corporation  and  Subsidiaries  (a  development  stage
company) as of December 31, 2001 and the results of their  operations  and their
cash flows for the years ended  December 31, 2001 and 2000 and from inception on
June  18,  1984  through  December  31,  2001,  in  conformity  with  accounting
principles generally accepted in the United States of America.

The  financial  statements  have been  prepared  assuming  that the Company will
continue as a going concern. As discussed in Note 6 to the financial statements,
the Company is a development stage company with no significant operating results
to date. These conditions raise  substantial doubt about its ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described in Note 6. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.

/s/ HJ & Associates, LLC
------------------------
    HJ & Associates, LLC
    Salt Lake City, Utah
    March 21, 2001

                                       20
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES

                          (A Development Stage Company)
                           Consolidated Balance Sheet


                                     ASSETS
                                     ------

                                                                     December 31,
                                                                        2001
                                                                      -----------
<S>                                                                   <C>
CURRENT ASSETS

  Cash                                                                $       358
  Inventory                                                                85,708
                                                                      -----------

     Total Current Assets                                                  86,066
                                                                      -----------

EQUIPMENT, NET (Note 2)                                                      --
                                                                      -----------

     TOTAL ASSETS                                                     $    86,066
                                                                      ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES

  Accounts payable (Note 5)                                           $    49,253
  Notes payable - related (Note 3)                                          8,411
  Accrued expenses                                                          1,680
                                                                      -----------

     Total Current Liabilities                                             59,344
                                                                      -----------

COMMITMENTS AND CONTINGENCIES (Note 5)

STOCKHOLDERS' EQUITY

   Common stock, $0.00025 par value, 200,000,000 shares authorized;
     15,090,018 shares issued and outstanding                               3,773
   Additional paid-in capital                                           4,995,313
   Stock subscription receivable                                           (6,000)
   Deficit accumulated during the development stage                    (4,966,364)
                                                                      -----------

      Total Stockholders' Equity                                           26,722
                                                                      -----------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $    86,066
                                                                      ===========
</TABLE>

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

                                       21
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                      Consolidated Statements of Operations


                                                                       From
                                                                    Inception on
                                                                   June 18, 1984
                                         For the Years Ended           Through
                                            December 31,             December 31,
                                       2001             2000            2001
                                    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>
SALES                               $       --      $       --      $    599,609

COST OF PRODUCT SOLD                        --              --           676,198
                                    ------------    ------------    ------------

GROSS MARGIN                                --              --           (76,589)
                                    ------------    ------------    ------------

OPERATING EXPENSES

   General and administrative             56,193         373,267       2,714,923
   Legal and professional                 46,193           7,883         884,904
   Research and development               91,795           7,157         635,051
   Depreciation                           22,560          36,237         423,168
                                    ------------    ------------    ------------

     Total Expenses                     (216,741)        424,544       4,658,046
                                    ------------    ------------    ------------

Net Loss From Operations                (216,741)       (424,544)     (4,734,635)
                                    ------------    ------------    ------------

OTHER INCOME (EXPENSE)

   Interest expense                       (1,148)           (840)        (86,979)
   Interest income                           555            --            93,982
   Loss on disposal of assets               --              --          (241,238)
   Miscellaneous                            --              --             2,506
                                    ------------    ------------    ------------

     Total Other Income (Expense)           (593)           (840)       (231,729)
                                    ------------    ------------    ------------

NET LOSS                            $   (217,334)   $   (425,384)   $ (4,966,364)
                                    ============    ============    ============

LOSS PER  SHARE                     $      (0.01)   $      (0.03)           --
                                    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF
 SHARES OUTSTANDING                   14,879,048      14,806,313            --
                                    ============    ============    ============
</TABLE>

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


                                       22
<PAGE>


<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Consolidated Statements of Stockholders' Equity


                                                           Additional
                                       Common Stock         Paid-in   Accumulated        Treasury Stock    Subscription   Total
                                  Shares        Amount      Capital     Deficit        Shares      Amount   Receivable    Equity
                                 ----------  ----------  ----------    ----------   ----------    ----------  -----    ----------
<S>                                 <C>       <C>         <C>          <C>             <C>       <C>          <C>    <C>
Balance, June 18, 1984                 --     $    --     $    --      $    --           --      $    --      $--    $    --


Stock issued for cash at
 $0.0143 per share                  140,173          35       1,965         --           --           --       --        2,000
                                 ----------  ----------  ----------    ----------   ----------    ----------  -----    ----------
Balance, December 31, 1984          140,173          35       1,965         --           --           --       --        2,000


Stock issued for cash at
 $0.05 per share                    400,000         100      19,900         --           --           --       --       20,000

Stock issuance costs                   --          --        (4,450)        --           --           --       --       (4,450)

Purchase of treasury

 stock                                 --          --          --           --       (403,976)      (5,950)    --       (5,950)

Sale of treasury stock at
 $2.11 per share                       --          --       411,073         --        196,658        2,896     --      413,969

Stock issued to officers for
 services at $0.005
 per share                          438,600         110       2,083         --           --           --       --        2,193


Net loss  for the year ended
 December 31, 1985                     --          --          --       (146,384)        --           --       --     (146,384)
                                 ----------  ----------  ----------    ----------   ----------  ----------   -----    ----------
Balance, December 31, 1985          978,773   $     245   $ 430,571    $ (146,384)  (207,318)   $  (3,054)   $--     $ 281,378
                                 ----------  ----------  ----------    ----------   ----------  ----------   -----    ----------
</TABLE>


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

                                       23
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)


                                                      Additional
                                    Common Stock       Paid-in     Accumulated    Treasury Stock       Subscription       Total
                               Shares    Amount        Capital       Deficit    Shares        Amount     Receivable      Equity
                             ---------   --------   -----------   -----------  ---------     ---------    -----------  -----------
<S>                              <C>       <C>         <C>          <C>         <C>        <C>           <C>         <C>

Balance forward                978,773   $    245   $   430,571   $  (146,384)  (207,318)   $  (3,054)   $      --    $   281,378


Purchase of treasury stock        --         --            --            --      (13,997)     (13,500)          --       (13,500)


Sale of treasury stock at
 $29.65 per share                 --         --       1,838,032          --       62,000          768       (732,300)   1,106,500

Net loss for the year ended
 December 31, 1986                --         --            --        (542,930)      --           --             --       (542,930)
                             ---------   --------   -----------   -----------  ---------     ---------    -----------  -----------
Balance, December 31, 1986     978,773        245     2,268,603      (689,314)  (159,315)     (15,786)      (732,300)     831,448

Net loss for the year ended
 December 31, 1987                --         --            --        (509,693)      --           --             --       (509,693)
                             ---------   --------   -----------   -----------  ---------     ---------    -----------  -----------
Balance, December 31, 1987     978,773        245     2,268,603    (1,199,007)  (159,315)     (15,786)      (732,300)     321,755


Stock issued for services
 at $0.60 per share             25,000          6        14,994          --         --           --             --         15,000


Net loss for the year ended
 December 31, 1988                --         --            --        (501,513)      --           --             --       (501,513)
                             ---------   --------   -----------   -----------  ---------     ---------    -----------  -----------
Balance, December 31, 1988   1,003,773   $    251   $ 2,283,597   $(1,700,520) $(159,315)    $ (15,786)   $  (732,300) $  (164,758)
                             ---------   --------   -----------   -----------  ---------     ---------    -----------  -----------
</TABLE>

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


                                       24
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)


                                                       Additional
                                    Common Stock         Paid-in     Accumulated       Treasury Stock          Subscription   Total
                                  Shares      Amount     Capital       Deficit      Shares        Amount      Receivable    Equity
                                 ---------   --------   -----------   -----------  ---------     ---------    ----------- ----------
<S>                              <C>       <C>         <C>          <C>          <C>            <C>           <C>         <C>

Balance forward                 1,003,773   $   251   $ 2,283,597    $(1,700,520)  (159,315)      $(15,786)   $ (732,300) $(164,758)


Stock issued for cash at
   $2.00 per share                 10,000         3        19,997         --         --           --           --            20,000


Stock issued for cash at
 $0.575 per share                  20,000         5        11,495         --         --           --           --            11,500

Sale of treasury stock
  and subscription receivable        --        --         (34,786)        --       159,315       15,786         732,300     713,300


Net loss for the year ended
  December 31, 1989                  --        --            --         (306,612)      --           --           --        (306,612)
                                 ---------   --------   -----------   -----------  ---------     ---------  -----------  ----------

Balance, December 31, 1989      1,033,773       259     2,280,303     (2,007,132)      --           --           --         273,430


Cancellation of shares                 (5)     --            --           --           --           --           --             --

Stock issued for cash
  at $0.10 per share               25,000         6         2,494         --           --           --           --           2,500


Stock issued for cash at
 $0.005 per share                   3,150         1            15         --           --           --           --              16


Additional compensation
  for treasury stock                 --        --          34,701         --           --           --           --          34,701
                                 ---------   --------   -----------   -----------  ---------     ---------  -----------  ----------
Balance                         1,061,918   $   266    $2,317,513    $(2,007,132)      --         $ --        $  --       $ 310,647
                                 ---------   --------   -----------   -----------  ---------     ---------  -----------  ----------
</TABLE>



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

                                       25
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)


                                                           Additional
                                       Common Stock         Paid-in   Accumulated        Treasury Stock    Subscription  Total
                                  Shares        Amount      Capital     Deficit     Shares         Amount   Receivable   Equity
                                ----------  ----------   ----------    ---------- ----------    ----------  -----     ----------
<S>                              <C>        <C>         <C>          <C>             <C>       <C>          <C>        <C>

Balance forward                  1,061,918   $    266   $ 2,317,513   $(2,007,132)   --       $    --     $   --     $   310,647


Net loss for the year ended
  December 31, 1990                   --         --            --        (123,676)   --            --         --        (123,676)
                                ----------  ----------   ----------    ---------- ----------    ----------  -----     ----------

Balance, December 31, 1990       1,061,918        266     2,317,513    (2,130,808)                 --         --         186,971

Stock issued for services at
  $0.12 per share                   20,400          5         2,395          --      --            --         --           2,400


Net loss for the year ended
  December 31, 1991                   --         --            --        (207,142)   --            --         --        (207,142)
                                ----------  ----------   ----------    ---------- ----------    ----------  -----     ----------

Balance, December 31, 1991       1,082,318        271     2,319,908    (2,337,950)   --            --         --         (17,771)


Net loss for the year ended
  December 31, 1992                   --         --            --            --      --            --         --            --
                                ----------  ----------   ----------    ---------- ----------    ----------  -----     ----------

Balance, December 31, 1992       1,082,318        271     2,319,908    (2,337,950)   --            --         --         (17,771)


Net loss for the year ended
    December 31, 1993                 --         --            --            --      --            --         --            --
                                ----------  ----------   ----------    ---------- ----------    ----------  -----     ----------
Balance, December 31, 1993       1,082,318   $    271   $ 2,319,908   $(2,337,950)   --        $   --     $   --     $   (17,771)
                                ----------  ----------   ----------    ---------- ----------    ----------  -----     ----------
</TABLE>

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


                                       26
<PAGE>


<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)

                                                           Additional
                                       Common Stock         Paid-in       Accumulated         Treasury Stock   Subscription Total
                                  Shares        Amount       Capital        Deficit        Shares       Amount   Receivable Equity
                                ----------    ----------    ----------      ----------     -----     -----       -----   ----------
<S>                              <C>        <C>            <C>            <C>            <C>         <C>          <C>       <C>

Balance, December 31, 1993       1,082,318   $       271   $ 2,319,908    $(2,337,950)      --       $--          $--    $  (17,771)


Net loss for the year ended
  December 31, 1994                   --            --            --          (10,964)      --        --           --       (10,964)
                                ----------    ----------    ----------      ----------     -----     -----       -----   ----------

Balance, December 31, 1994       1,082,318           271     2,319,908     (2,348,914)      --        --           --       (28,735)


Stock issued for
  Commodity Recovery
  Corporation valued at
  predessor cost of $0.00          500,000           125          (125)          --         --        --           --          --


Stock issued for Energy
  Research Corporation
  Valued at predessor cost
  Of $0.00                       4,200,000         1,050        (1,050)          --         --        --           --          --


Conversion of debt to equity          --            --           3,500           --         --        --           --         3,500


Net loss for the year ended
  December 31, 1995                   --            --            --          (89,740)      --        --           --       (89,740)
                                ----------    ----------    ----------      ----------     -----     -----       -----   ----------
Balance, December 31, 1995       5,782,318   $     1,446   $ 2,322,233    $(2,438,654)      --       $--          $--    $ (114,975)
                                ----------    ----------    ----------      ----------     -----     -----       -----   ----------
</TABLE>

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

                                       27
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)

                                                       Additional
                                   Common Stock         Paid-in       Accumulated       Treasury Stock   Subscription  Total
                              Shares        Amount       Capital        Deficit        Shares   Amount    Receivable   Equity
                              --------    ----------    ----------      ----------     -----     -----       -----   ----------
<S>                           <C>          <C>          <C>           <C>              <C>       <C>     <C>         <C>

Balance, December 31, 1995    5,782,318   $     1,446   $ 2,322,233   $(2,438,654)       --      $--      $   --      $  (114,975)


Stock issued for cash at
  at $0.60 per share            150,000            38        89,962          --          --      --           --           90,000


Stock issued for services
  valued at $1.00 per share     288,000            73       287,927          --          --       --           --          288,000


Stock subscription receivable
  at $0.50 per share             40,000            10        19,990          --          --       --        (20,000)         --

Net loss for the year ended
  December 31, 1996                --            --            --        (400,501)       --       --           --         (400,501)
                              --------    ----------    ----------      ----------     -----     -----       -----       ----------

Balance, December 31, 1996    6,260,318         1,567     2,720,112    (2,839,155)       --       --        (20,000)      (137,476)


Stock issued for cash at
  $0.50 per share             1,163,700           291       575,773          --          --      --           --           576,064


Stock issued for services at
  $0.50 per share               250,000            63       124,937          --          --       --           --          125,000


Receipt of stock subscription      --            --            --            --          --      --         20,000          20,000


Net loss for the year ended
  December 31, 1997                --            --            --        (290,549)       --       --           --         (290,549)
                              --------    ----------    ----------      ----------     -----     -----       -----       ----------
Balance, December 31, 1997    7,674,018   $     1,921   $ 3,420,822   $(3,129,704)       --      $--      $    --      $  (293,039)
                              --------    ----------    ----------      ----------     -----     -----       -----       ----------
</TABLE>

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

                                       28
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)


                                                       Additional
                                   Common Stock         Paid-in       Accumulated       Treasury Stock   Subscription  Total
                              Shares        Amount       Capital        Deficit        Shares   Amount    Receivable   Equity
                              --------    ----------    ----------  ----------      -----         -----       -----     ----------
<S>                           <C>          <C>          <C>           <C>              <C>       <C>     <C>         <C>
Balance, December 31, 1997     7,674,018   $ 1,921   $ 3,420,822   $(3,129,704)       --         $ --   $      --     $   293,039


Stock issued for services
  valued at $0.12 per share    2,970,000       742       355,658          --          --           --          --         356,400


Contribution of capital by
  shareholder                       --        --          29,243          --          --           --          --          29,243


Net loss for the year ended
  December 31, 1998                 --        --            --        (464,211)       --           --          --        (464,211)
                              --------    ----------    ----------  ----------      -----         -----       -----     ----------

Balance, December 31, 1998    10,644,018     2,663     3,805,723    (3,593,915)       --           --          --         214,471


Stock issued for services
  valued at $0.27 per share    1,000,000       250       269,750          --          --           --          --         270,000


Stock issued for services to
   be rendered valued at
   $0.27 per share             2,000,000       500       539,500          --          --           --      (180,000)      360,000


Stock issued for debt and
  subscription valued at
  $0.27 per share              1,000,000       250       269,750          --          --           --      (208,002)       61,998


Net loss for the year ended
  December 31, 1999                 --        --            --        (729,731)       --           --          --        (729,731)
                              --------    ----------    ----------  ----------      -----         -----       -----     ----------
Balance, December 31, 1999    14,644,018   $ 3,663   $ 4,884,723   $(4,323,646)       --         $ --   $  (388,002)  $   176,738
                              --------    ----------    ----------  ----------      -----         -----       -----     ----------
</TABLE>



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

                                       29
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
           Consolidated Statements of Stockholders' Equity (Continued)

                                                        Additional
                                   Common Stock          Paid-in    Accumulated       Treasury Stock   Subscription      Total
                                Shares      Amount       Capital     Deficit        Shares   Amount     Receivable       Equity
                               --------    ----------  ----------     ----------     -----  -----      -----------     ----------
<S>                           <C>          <C>         <C>           <C>              <C>    <C>     <C>         <C>
Balance, December 31, 1999     14,644,018   $  3,663   $ 4,884,723   $(4,323,646)      --  $  --      $  (388,002)   $   176,738


Stock issued for cash valued
  at $0.25 per share              200,000         50        49,950          --         --     --             --           50,000


Receipt of stock subscription        --         --            --            --         --     --           25,000         25,000


Expense of stock subscription        --         --            --            --         --     --          363,002        363,002


Net loss for the year ended
  December 31, 2000                  --         --            --        (425,384)      --     --             --         (425,384)
                               --------    ----------  ----------     ----------     -----  -----          -------     ----------

Balance, December 31, 2000     14,844,018      3,713     4,934,673    (4,749,030)      --     --             --          189,356


Common stock issued for
  services at $0.17 per share      10,000          2         1,698          --         --     --             --            1,700


Common stock issued for
  cash at $0.25 per share          92,000         23        22,977          --         --     --           (6,000)        23,000


Common stock issued for
  services at $0.13 per share      20,000          5         4,995          --         --     --             --            5,000


Common stock issued for
  services at $0.13 per share      40,000         10         9,990          --         --     --             --           10,000


Common stock issued for
  services at $0.13 per share      10,000          2         2,498          --         --     --             --            2,500


Common stock issued for
  services at $0.13 per share      74,000         18        18,482          --         --     --             --           18,500


Net loss for the year ended
  December 31, 2001                  --         --            --        (217,334)      --      --             --         (217,334)
                               --------    ----------  ----------     ----------     -----  -----          -------     ----------
Balance, December 31, 2001     15,090,018   $  3,773   $ 4,995,314   $(4,966,364)      --  $   --      $    (6,000)   $    32,722
                               --------    ----------  ----------     ----------     -----  -----          -------     ----------
</TABLE>

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

                                       30
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                      Consolidated Statements of Cash Flows

                                                                                     From
                                                                                  Inception on
                                                                                  June 18, 1984
                                                       For the Years Ended          Through
                                                           December 31,           December 31,
                                                      2001           2000            2001
                                                   -----------    -----------    -----------

<S>                                                <C>               <C>         <C>
CASH FLOWS FROM OPERATING
   ACTIVITIES
   Net loss                                        $  (217,334)      (425,384)   $(4,966,364)
   Adjustment to reconcile net loss to net
    cash used by operating activities:
     Depreciation                                       22,560         36,237        423,168
     Common stock issued for services                   37,700           --        1,437,100
     Loss on disposal of property                         --             --          241,238
     Stock subscription expensed                          --          388,002        388,002
   Changes in operating assets and liabilities:

     (Increase) decrease in inventory                   91,135        (16,843)       (85,708)
     Increase (decrease) in accounts payable             3,179          5,510          8,689
     Increase (decrease) in accrued liabilities            841            768         61,351
                                                   -----------    -----------    -----------

       Net Cash (Used) by Operating Activities         (61,919)       (11,710)    (2,492,524)
                                                   -----------    -----------    -----------

CASH FLOWS FROM INVESTING
   ACTIVITIES

   Capital expenditures                                   --             --         (718,191)
   Purchase of treasury stock                             --             --          (19,450)
   Stock subscription                                     --             --         (732,300)
                                                   -----------    -----------    -----------

       Net Cash (Used) from Investing Activities          --             --       (1,469,941)
                                                   -----------    -----------    -----------

CASH FLOWS FROM FINANCING
   ACTIVITIES

   Proceeds from note payable - related                    122          6,865        547,785
   Repayments of note payable - related                   --             --         (443,761)
   Sale of treasury stock                                 --             --        1,911,183
   Stock subscription                                     --             --          732,300
   Common stock issued for cash                         17,000         50,000      1,215,316
                                                   -----------    -----------    -----------
     Net Cash Provided by Financing Activities     $    17,122    $    56,865    $ 3,962,823
                                                   -----------    -----------    -----------
</TABLE>


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

                                       31
<PAGE>

<TABLE>
<CAPTION>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Continued)

                                                                                                From
                                                                                             Inception on
                                                                                             June 18, 1984
                                                                     For the Years Ended        Through
                                                                         December 31,         December 31,
                                                                      2001          2000        2001
                                                                  ==========    ==========   ==========

<S>                                                               <C>           <C>          <C>
INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                             $  (44,797)   $   45,155   $      358

CASH AND CASH EQUIVALENTS
 AT BEGINNING OF PERIOD                                               45,155          --           --
                                                                  ----------    ----------   ----------

CASH AND CASH EQUIVALENTS
 END OF PERIOD                                                    $      358    $   45,155   $      358
                                                                  ==========    ==========   ==========


                 SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
                 ----------------------------------------------

CASH PAID DURING THE YEAR FOR

 Interest                                                         $     --      $     --     $   85,687
 Income taxes                                                     $     --      $     --     $     --

SCHEDULE OF NON-CASH FINANCING ACTIVITIES

 Common stock issued for services                                 $   37,700    $     --     $1,437,100
 Common stock issued for debt                                     $     --      $     --     $   61,998
 Common stock issued for stock
   subscriptions receivable                                       $     --      $    6,000   $    6,000
</TABLE>

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

                                       32
<PAGE>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 1 -      SIGNIFICANT ACCOUNTING POLICIES

              The  consolidated  financial  statements  presented  are  those of
              Galtech Semiconductor  Materials Corporation (the Company) and its
              wholly-owned  subsidiaries  Energy Research  Corporation (ERC) and
              Commodity Recovery Corporation (CRC). The Company was incorporated
              on June 18,  1984  under  the  laws of the  State of Utah as Versa
              tech,  Inc. On April 30,  1985,  the  Company  changed its name to
              Galtech,  Inc., and on June 18, 1986, the Company changed its name
              to Galtech Semiconductor  Materials  Corporation.  The Company was
              engaged in the  manufacture of compound  semiconductor  materials,
              but  ceased  all  operations  in 1990  when a fire  destroyed  the
              Company's  research  and  development  as  well  as the  Company's
              operations center.  Principal  operations have not yet resumed. On
              February 28, 1995,  the Company  issued  500,000  shares of common
              stock in exchange  for 100% of the issued and  outstanding  common
              stock of CRC. On February 28, 1995, the Company  issued  4,200,000
              shares of common  stock in  exchange  for 100% of the  issued  and
              outstanding shares of ERC. (Note 4)

              Energy Research  Corporation (ERC) was incorporated on February 7,
              1994 under the laws of the State of Arizona.  ERC was incorporated
              to develop and produce alternative sources of energy.

              Commodity  Recovery  Corporation (CRC) was incorporated on October
              31, 1994 under the laws of the State of Utah. CRC was incorporated
              to develop and market products relating to the  decontamination of
              aflatoxin.

              At the  time  of  acquisition  of CRC and  ERC,  the  Company  was
              essentially  inactive,  with no  operations  and  minimal  assets.
              Neither  CRC or ERC had any  assets or  operations.  As such,  the
              acquisition  was  recorded  at  predessor  cost  which was $0. The
              Company  is  the  continuing   entity  for  accounting  and  legal
              purposes.

              a.  Accounting Methods

              The Company's financial  statements are prepared using the accrual
              method of  accounting.  The Company has elected a December 31 year
              end.

              b.  Equipment

              Depreciation  of  equipment  is provided  using the  straight-line
              method over the estimated lives of five years.

              Maintenance  and repairs of the  equipment  that do not improve or
              extend the lives of the  respective  assets are charged to expense
              as incurred. Major renewals and betterments are treated as capital
              expenditures and depreciated accordingly.

              When assets are retired or otherwise  disposed of, or become fully
              depreciated,  the cost of the assets and the  related  accumulated
              depreciation  are removed from the accounts  with any gain or loss

                                       33
<PAGE>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 1 -      SIGNIFICANT ACCOUNTING POLICIES (Continued)

              c.  Income Taxes

              on  disposition  reflected  in the  statement  of  operations.  At
              December   31,   2001,   the  Company  had  net   operating   loss
              carryforwards  of  approximately  $2,857,418  that  may be  offset
              against  future  taxable  income through 2021. No tax benefits has
              been reported in the financial  statements,  because the potential
              tax benefits of the net operating  loss carry  forwards are offset
              by a valuation allowance of the same amount.

              The income tax benefit differs from the amount computed at federal
              statutory rates of approximately 38% as follows:
<TABLE>
<CAPTION>

                                                                                     For the Years Ended
                                                                                          December 31,
                                                                                    2001                2000
                                                                            ------------------  ------------------
<S>                                                                         <C>                 <C>
              Income tax benefit at statutory rate                          $           64,390  $          161,646
              Change in valuation allowance                                            (64,390)           (161,646)
                                                                            ------------------  ------------------
                                                                            $                -  $           -
                                                                            ==================  ==================

              Deferred tax assets (liabilities) are comprised of the following:

                                                                                   For the Years Ended
                                                                                          December 31,
                                                                                   2001                 2000
                                                                            ------------------  ------------------
              Income tax benefit at statutory rate                          $        1,085,770  $        1,021,380
              Change in valuation allowance                                         (1,085,770)         (1,021,380)
                                                                            ------------------  ------------------
                                                                            $                -  $           -
                                                                            ==================  ==================
</TABLE>

              Due to the change in ownership provisions of the Tax Reform Act of
              1986,  net operating  loss  carryforwards  for Federal  income tax
              reporting  purposes  are subject to annual  limitations.  Should a
              change in ownership occur, net operating loss carryforwards may be
              limited as to use in the future.

              d.  Cash Equivalents

              The  Company  considers  all  highly  liquid  investments  with  a
              maturity  of  three  months  or  less  when  purchased  to be cash
              equivalents.

                                       34
<PAGE>


                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 1 -      SIGNIFICANT ACCOUNTING POLICIES (Continued)

              e.  Basic Loss Per Share

                         For the Year Ended

                                     December 31, 2001
                        Loss              Shares              Per Share
                      (Numerator)    (Denominator)              Amount
                 ==================  ==================  ==================
                 $     (217,334)         15,090,018  $            (0.01)
                 ==================  ==================  ==================


                                     For the Year Ended
                                       December 31, 2000
                        Loss               Shares             Per Share
                     (Numerator)        (Denominator)           Amount
                 ==================  ==================  ==================
                 $     (425,384)         14,806,313  $            (0.03)
                 ==================  ==================  ==================

              The  computations of basic loss per share of common stock is based
              on the weighted  average number of shares  outstanding  during the
              period.

              f. Principles of Consolidation

              The  consolidated  financial  statements  include those of Galtech
              Semiconductor  Materials  Corporation  (the  Company) and its 100%
              owned  subsidiaries  Energy  Research  Corporation  and  Commodity
              Recovery  Corporation.  All significant  intercompany accounts and
              transactions have been eliminated.

               g. Use of Estimates

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

                                       35
<PAGE>


                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 1 -      SIGNIFICANT ACCOUNTING POLICIES (Continued)

              h.  Inventory

              The inventory of raw  materials  for crystal  growing is stated at
              the  lower  of  cost  or  market  and  is   accounted   for  on  a
              first-in-first-out basis.

              i.  Revenue Recognition

              The  Company   currently  has  no  source  of  revenues.   Revenue
              recognition  policies will be determined when principal operations
              begin.

              j. Newly Issued Accounting Pronouncements

              SFAS No.'s 141 and 142 -- In June 2001,  the Financial  Accounting
              Standards Board (FASB) adopted  Statement of Financial  Accounting
              Standards SFAS No. 141 is effective as to any business combination
              occurring  after June 30, 2001 and certain  transition  provisions
              that affect accounting for business combinations prior to June 30,
              2001 are  effective  as of the date that SFAS No.142 is applied in
              its entirety, which was September 30, 2001.

              SFAS No.  141  provides  standards  for  accounting  for  business
              combinations.  Among  other  things,  it  requires  that  only the
              purchase method of accounting be used and that certain  intangible
              assets acquired in a business  combination (i.e. those that result
              from  contractual  or other  legal  rights  or are  separable)  be
              recorded  as  an  asset  apart  from   goodwill.   The  transition
              provisions require that an assessment be made of previous business
              combinations and, if appropriate,  reclassifications be made to or
              from goodwill to adjust the  recording of  intangible  assets such
              that the  criteria  for  recording  intangible  assets  apart from
              goodwill  is applied to the  previous  business  combinations  The
              adoption of this principle had no material effect on the company's
              financial statements.

              SFAS No. 142  provides,  among other  things,  that  goodwill  and
              intangible assets with indeterminate lives shall not be amortized.
              Goodwill  shall be  assigned  to a  reporting  unit  and  annually
              assessed for impairment.  Intangible assets with determinate lives
              shall be amortized  over their  estimated  useful lives,  with the
              useful lives  reassessed  continuously,  and shall be assessed for
              impairment  under the provisions of SFAS No. 121,  "Accounting for
              the  Impairment of Long-Lived  Assets to be Disposed of." Goodwill
              is also  assessed for  impairment  on an interim basis when events
              and  circumstances  warrant.  Upon  adoption of SFAS No. 142,  the
              Company  will  assess   whether  an  impairment   loss  should  be
              recognized  and  measured  by  comparing  the  fair  value  of the
              Areporting unit' to the carrying value, including goodwill. If the
              carrying  value exceeds fair value,  then the Company will compare
              the  implied  fair value of the  goodwill  (as defined in SFAS No.
              142) to the  carrying  amount  of the  goodwill.  If the  carrying
              amount of the goodwill  exceeds the implied  fair value,  then the
              goodwill be adjusted to the implied fair value.

                                       36
<PAGE>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 1 -SIGNIFICANT ACCOUNTING POLICIES (Continued)

              j. Newly Issued Accounting Pronouncements (Continued)

              SFAS No. 143 -- On August 16, 2001,  the FASB issued SFAS No. 143,
              "Accounting for Asset Retirement  Obligations," which is effective
              for fiscal years  beginning  after June 15, 2002. It requires that
              obligations   associated   with  the   retirement  of  a  tangible
              long-lived asset be recorded as a liability when those obligations
              are incurred,  with the amount of the liability initially measured
              at  fair  value.   Upon  initially   recognizing  for  an  accrued
              retirement  obligation,  an  entity  must  capitalize  the cost by
              recognizing  an  increase  in the  carrying  amount of the related
              long-lived  asset.  Over time,  the  liability  is accreted to its
              present value each period, and the capitalized cost is depreciated
              over the useful life of the related asset.  Upon settlement of the
              liability,  an  entity  either  settles  the  obligation  for  its
              recorded amount or incurs a gain o loss upon settlement.

              While the Company has not completed the process of determining the
              effect of this new accounting  pronouncement  on its  consolidated
              financial  statements,  the  Company  currently  expects  that the
              effect of SFAS No. 143 on the Company's financial statements, when
              it becomes effective, will not be significant.

NOTE 2 -     EQUIPMENT
                                                           December 31,
                                                               2001
                                                         -----------------
             Equipment consists of the following:

             Research equipment                          $         181,187
             Less: accumulated depreciation                       (181,187)
                                                         -----------------

             Net Equipment                               $               -
                                                         =================

             Amounts  charged to  depreciation  expense were $22,560 and $36,237
             for the years ended December 31, 2001 and 2000, respectively.

NOTE 3 -     RELATED PARTY TRANSACTIONS

             The former  president of the Company has  provided  advances to the
             Company  to  cover   operating   expenses  as  well  as   equipment
             acquisitions  which have been recorded as a note payable - related.
             This  note  is  unsecured,  non-interest  bearing  and is due  upon
             demand.  The advances are repaid as the Company's cash needs allow.
             During the year  ended  December  31,  1998,  the former  President
             advanced $13,000 to the Company, was repaid $31,933 and contributed
             the  balance  of the  advance  payable  to him of  $29,243,  to the
             Company.

             In 1999,  the former  president paid expenses of $61,998 toward the
             stock  subscription of $270,000.  the  subscription  has been fully
             expensed as of December 31, 2000.

             In 2000 and 2001, the current officers made advances to the Company
             of $8,289 and $122,  respectively  which bear  interest at 10%, are
             unsecured and due on demand.

                                       37
<PAGE>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 4 -     STOCK TRANSACTIONS

             On  February  8, 1995,  the Board of  Directors  approved a 20 to 1
             reverse  stock split.  All  references  to shares  outstanding  and
             earnings per share have been retroactively  restated to reflect the
             reverse stock split.

             On February 28, 1995, the Board of Directors  issued 500,000 shares
             of common stock to acquire Commodity  Research  Corporation  (CRC).
             CRC has no assets or  operating  history  and the  acquisition  was
             valued at $0.

             On February  28,  1995,  the Board of  Directors  issued  4,200,000
             shares of  common  stock to  acquire  Energy  Research  Corporation
             (ERC). ERC had no assets or operating history,  and the acquisition
             was valued at predecessor cost of $0.

             In November 1995, the Company issued 125,000 shares of common stock
             for public  relations  services to be  performed.  The contract was
             canceled in December, 1995 and the stock was returned and canceled.
             Accordingly,  the financial  statements do not reflect the issuance
             and cancellation of the 125,000 shares.

              In 1996,  the Company  issued  150,000  shares of common stock for
              cash at $0.60 per share.

             In 1996,  the Company  issued  40,000  shares of common stock for a
             subscription receivable valued at $0.50 per share.

             In 1996,  the Company  issued  288,000  shares of common  stock for
             legal  and  professional  services  rendered,  valued  at $1.00 per
             share.

             In 1997,  the Company issued  1,163,700  shares of common stock for
             cash at $0.50 per share.

             In 1997,  the Company  issued  250,000  shares of common  stock for
             services, valued at $0.50 per share.

             In 1998,  the Company issued  2,970,000  shares of common stock for
             services valued at $0.12 per share.

             In 1999,  the Company issued  3,000,000  shares of common stock for
             services valued at $0.27 per share.

             In 1999,  the Company issued  1,000,000  shares of common stock for
             debt and subscription valued at $0.27 per share.

             In 2000, the Company issued 200,000 shares of common stock for cash
             valued at $0.25 per share.

             In 2001,  the  Company  issued  10,000  shares of common  stock for
             services valued at $0.17 per share.

                                       38
<PAGE>

                   GALTECH SEMICONDUCTOR MATERIALS CORPORATION
                                AND SUBSIDIARIES
                          `A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2001 and 2000

NOTE 4 -     STOCK TRANSACTIONS (Continued)

             In 2001,  the Company issued 92,000 shares of common stock for cash
             valued at $0.25 per share.

             In 2001,  the Company  issued  144,000  shares of common  stock for
             services valued at $0.13 per share.

NOTE 5 -     COMMITMENTS AND CONTINGENCIES

             On December 18,  1992,  a judgment was entered  against the Company
             for $40,563 for non-payment of an account payable.  This amount has
             been  included in the accounts  payable for December 31, 2001.  The
             Company has written off other accounts  payable which were incurred
             prior to 1990. The Company's legal counsel has represented that the
             statute of  limitations  for  collection of the payables which were
             written off has  expired.  The  Company  does not intend to pay the
             liabilities  which were written off,  however there is no assurance
             that the creditors will not make claims against the Company.

             In July 2001, the Company entered into a twelve-month lease for its
             office space. The Company pays $1,000 per month at the beginning of
             the month.  Rent  expense for the year ended  December 31, 2001 was
             $5,000.

NOTE 6 -     GOING CONCERN

             The Company's financial statements are prepared using the generally
             accepted  accounting  principles  applicable to going concern which
             contemplates   the   realization  of  assets  and   liquidation  of
             liabilities in the normal course of business.  However, the Company
             has little  cash and without  realization  of  additional  adequate
             financing,  it would be  unlikely  for the  Company  to pursue  and
             realize its objective of operating profitably. The Company plans to
             continue the research and development process prior to the sales of
             its product.  In the interim,  management has committed to covering
             the operating expenses of the Company.

                                       39
<PAGE>

ITEM  8.  Changes  in and  disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

         During  our two  most  recent  calendar  years,  and  since  then,  our
principal  independent  accountant  has not  resigned  or  declined to stand for
re-election,  and we have not  dismissed our  principal  independent  accountant
during that period. The Company and its auditors have not disagreed on any items
of accounting treatment or financial disclosure.

                                    PART III

ITEM 9.  Management and Certain Security Holders

Identification of Directors and Executive Officers

         The  following  table  sets  forth  the  names  of all  of our  current
directors and executive officers. These persons will serve until the next annual
meeting of the  stockholders or until their  successors are elected or appointed
and qualified, or their prior resignations or terminations.

                                                         Date of
                            Positions                  Election or
Name                        Held                       Designation
----                        ----                       -----------
S. Kent Holt                Executive VP,                 8/98
                            Director,                     8/98
                            Acting President             6/29/01
                            and
                            Chief Executive              6/29/01
                            Officer
Worth P. Allred             VP, Research
                            & Development                 9/91
                            Director                      9/91
Rulon Cluff                 Secretary/                   7/10/01
                            Treasurer                    7/10/01


         Effective June 29, 2001, William F. Pratt resigned as President,  Chief
         Executive  Officer  and  Director,  and  David R.  Porter  resigned  as
         Secretary, Treasurer and Director of the Company.

                                       40
<PAGE>

Business Experience.


         S. Kent Holt, Acting  President,  Chief Executive Officer and Director.
Mr. Holt,  age 47, holds an executive MBA degree from  Washington  University in
St.  Louis and  Bachelor of Science  degrees in  Nutrition  and Food Science and
Business  Administration  from Utah State University.  From 1995 to the present,
Mr. Holt was  Director,  New  Products  with the Corn  Products  Division of CPC
International,  where he directed the New Product Marketing, Product Development
and  Applications   Research  groups  and  directed   cross-functional   product
development  teams vital to creating new  business  for the company.  From June,
1998 to the present, Mr. Holt has served as a Vice President and Director .

         Worth P. Allred,  Vice President,  Research and Development,  Director.
Mr.  Allred  is 74  years  of  age.  He has  over  40  years  of  experience  in
semiconductor  compound  materials and is one of the world's  leading experts in
the field of crystal  growth.  Mr. Allred  received a Masters  degree in Nuclear
Physics from Brigham Young  University in 1953. He has spent the past five years
conducting  research in cadmium  telluride  and cadmium zinc  telluride  crystal
growth  at  Galtech.  Mr.  Allred  has  published  over 33 papers in the area of
crystal growth.

         Rulon Cluff,  Secretary/ Treasurer and Director.  Mr. Cluff is 72 years
of age. Mr. Cluff has over 20 years  experience  in the  semiconductor  compound
materials  field in  management  positions  as  president  and  director  and in
marketing  capacities.  For the past  eight  months,  Mr.  Cluff has served as a
member of the transition team for the Company.  During the past five years,  Mr.
Cluff has been active in civil  aviation  education  and  training  and has also
served as an advisor to the company and more recently, as Secretary/Treasurer.

Time Commitments by Management.

         Kent Holt is currently  managing our  marketing  efforts on a part-time
basis and will  devote ten or more  hours per week as  necessary.  Worth  Allred
serves as a senior scientist for crystal growth  technology and has committed to
spend thirty-five to forty hours per week on our business, as necessary.

                                       41
<PAGE>

Significant Employees.

         We do not currently have any employees who are not executive  officers,
but who are expected to make a significant contribution to our business.

Family Relationships.

         Mr. Allred and Mr. Cluff are brothers-in-law. There are no other family
         relationships between any director or executive officer.

Involvement in Certain Legal Proceedings.

         During the past five years,  no present or former  director,  executive
officer or person  nominated  to become a director  or an  executive  officer of
Galtech:

         (1) was a general partner or executive  officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy or
two years prior to that time;

         (2) was  convicted  in a  criminal  proceeding  or named  subject  to a
pending  criminal  proceeding,  excluding  traffic  violations  and other  minor
offenses;

         (3) was  subject to any order,  judgment  or decree,  not  subsequently
reversed,  suspended  or  vacated,  of  any  court  of  competent  jurisdiction,
permanently or temporarily enjoining,  barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or

         (4) was found by a court of competent  jurisdiction  in a civil action,
the Commission or the Commodity  Futures  Trading  Commission to have violated a
federal or state  securities or  commodities  law, and the judgment has not been
reversed, suspended or vacated.

Board Meetings and Committees

         The Board of Directors held a total of four meetings  during the fiscal
year ended March 31, 2001. The Compensation  Committee,  consisting of the Board
of Directors,  is primarily responsible for reviewing  compensation of executive
officers and  overseeing  the granting of stock  options.  Rulon Cluff served as
Chairman of the Audit  Committee and convened four meetings with the accountants
during the  preceding  fiscal year. No director  attended  fewer than 75% of all
meetings of the Board of Directors during the 2001 fiscal year.

                                       42
<PAGE>



Compliance with Section 16(a) of the Securities and Exchange Act of 1934

         Effective May 1, 1991, the Securities and Exchange  Commission  adopted
revised  rules  regarding  reporting of  beneficial  ownership of  securities by
officers,  directors  and  owners of more  than 10% of any class of a  company's
equity securities. During fiscal 1998, the affected persons were in compliance.

         The directors are elected for one-year terms,  which expire at the next
annual meeting of shareholders.  Executive  officers are elected annually by the
Board of Directors to hold office until the first meeting of the Board following
the next annual meeting of  shareholders  and until their  successors  have been
elected and qualified.

ITEM 10.  Executive Compensation

          There were no officers or directors of the Company  ("Named  Executive
Officers") at December 31, 2001,  whose salary and bonus for all services in all
capacities exceed $100,000 for the calendar year then ended.

Cash Compensation

         The following table sets forth the aggregate  compensation that Galtech
has paid for services rendered during the periods indicated:

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                               Annual Compensation                                Long Term Compensation
                                                                                                  Awards          Payouts
                                                                       Other                    Securities                  All
                              Year or                                  Annual       Re-           Under-        LTIP       Other
Name and                      Period         Salary        Bonus       Compen-    stricted        lying         Pay-      Compen-
Principal Position            Ended             ($)         ($)        sation      Stock         Options        outs       sation
------------------            -----          ---------     -----      --------     -----         -------        ----      --------
          (a)                     (b)           (c)         (d)         (e)         (f)            (g)           (h)
<S>                           <C>               <C>         <C>          <C>      <C>           <C>              <C>         <C>
S. Kent Holt                  12/31/98          -0-         -0-          -0-       500,00        500,000 (1)     -0-         -0-
Acting President,             12/31/99          -0-         -0-          -0-        -0-            -0-           -0-         -0-
Chief Executive               12/31/00          -0-         -0-          -0-        -0-            -0-           -0-         -0-
Officer                       12/31/01          -0-         -0-          -0-        -0-            -0-           -0-         -0-
and Director

Worth P. Allred               12/31/98          -0-         -0-          -0-       800,00          -0-          -0-         -0-
Vice President R & D,         12/31/99          -0-         -0-          -0-         0             -0-          -0-         -0-
and Director                  12/31/00          -0-         -0-          -0-        -0-            -0-          -0-         -0-
                              12/31/01          -0-         -0-          -0-        -0-            -0-          -0-         -0-

</TABLE>




(1)      On July 1, 1998,  we granted  Mr.  Holt  options  to  purchase  500,000
         "unregistered"  and  "restricted"  shares  of our  common  stock at the
         average  closing  price  of  our  stock  for  the 10  days  immediately
         preceding  the   notification   of  our   stockholders  of  Mr.  Holt's
         appointment as a director and executive officer. Based on this formula,
         the  exercise  price of the  options  is $0.27 per  share.  Options  to
         purchase  250,000  shares  vested on July 1, 1999,  and the  options to
         purchase  the  remaining  250,000  shares  vested on July 1, 2000.  The
         options are exercisable for three years from the date of vesting.

                                       43
<PAGE>

         We did not  grant  any  cash  compensation,  deferred  compensation  or
long-term  incentive  plan  awards to our  management  during  the  years  ended
December 31, 2001, or 2000.  Other than Mr. Holt's options,  we have not granted
any member of management any option or stock appreciation rights.


         The  following  table  shows the  number  and value of our  outstanding
options on December 31, 2001.

<TABLE>
<CAPTION>

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTIONS/SAR VALUES

 (a)                      (b)               (c)                   (d)                     (e)
                                                              Number of
                                                              Securities                Value of
                                                              Underlying                Unexercised In-
                                                              Unexercised               the-Money
                      Shares Acquired        Value            Options/SAR's             Options/SARs
Name (1)              on Exercise (#)     Realized ($)        at FY End (#)             at FY End ($)
--------              ---------------     ------------       -------------             -------------
<S>                          <C>               <C>            <C>                       <C>      <C>
S. Kent Holt                -0-               -0-             250,000                   $_______ (2)
                                                              exercisable

                                                                      250,000           $_______ (2)
                                                                      unexercisable
</TABLE>

                                       44
<PAGE>

(1)      S. Kent Holt is the only officer to whom we have granted options in the
         last three calendar years, or since then.

(2)      Calculated  based on the $0.1625  average  closing bid price of Galtech
         common shares during the quarterly period ended December 31, 2001, less
         the exercise price of $0.27 per share.

Bonuses and Deferred Compensation

         None.

Compensation Pursuant to Plans

         None.

Pension Table

         None; not applicable.

Other Compensation

         None.

Compensation of Directors

         Galtech does not have any standard arrangements to compensate directors
for their  services as  directors.  We do not pay our  directors  for  committee
participation or special assignments.

Employment  Contracts  and  Termination  of  Employment  and  Change in  Control
Arrangements.

         We  do  not  have  any  employment  contracts,  compensatory  plans  or
arrangements,  including  payments to be received  from us, with  respect to any
director or  executive  officer  which  would  result in payments to that person
because  of  his  or  her  resignation,   retirement  or  other  termination  of
employment,  any  change in  control  of  Galtech,  or a change in the  person's
responsibilities following a change in control of Galtech.

Compliance with Section 16(a) of the Exchange Act

         Each of our  directors and  executive  officers  filed a Form 3 Initial
Statement of Beneficial Ownership of Securities with the Securities and Exchange
Commission on February 8, 2000.  On September 11, 2000,  David R. Porter filed a
Form 4 Statement of Changes in Beneficial  Ownership of  Securities,  reflecting
his sale of 22,500 shares of our common stock.

                                       45
<PAGE>

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth the shares of common stock  beneficially
owned as of March  31,  2002,  by each  person  known by the  company  to be the
beneficial  owner of more the five  percent  (5%) of the common  stock,  by each
director of the company, by the chief executive officer, and by all officers and
directors of the company as a group.  Unless noted otherwise,  each person named
has sole voting and investment power with respect to the shares indicated.

                                                                 Percentage
                                       Number of Shares           of Class
Name and Address of Beneficial         eneficially Owned      Outstanding (1)
------------------------------         -----------------      ---------------
Owner
-----
William F. Pratt                            1000000               6.2%
1184 East 830 South
Pleasant Grove, Utah  84062

S. Kent Holt                                382,560 (2)           2.4%
18320 Lochner Road
Spencerville, Indiana  46788

Worth P. Allred                           1,000,000 (3)           6.2%
Post Office Box 120
Moroni, Utah  84646

David R. Porter                              987217               6.0%
286 W. Thorneberry Way
Pleasant Grove, Utah  84062

William Tunnell                             851,560 (4)           5.2%
20165 N. 67th Ave., #122A
Glendale, Arizona 85308

Russell R. Chapman                           500003               3.0%
1242 N. Palm Springs Dr.
Gilbert, Arizona  85234

W. D. Newman                                1000000               6.2%
3647 Sky Harbor Drive
Coeur d'Alene, Idaho  83814

Bruce Chapman (5)                           1286000               7.9%
4104 East Broadway
Suite 2020
Mesa, Arizona 85206

Verity Global Financial, LLC                292,000 (6)           1.7%
3621 Frankford Drive
Suite 328
Dallas, Texas 75287

                                       46
<PAGE>

(1)      These  figures  take into account the  potential  issuance of 1,400,000
         shares of our common  stock that  Verity is entitled to purchase at the
         rate of not less than $6,000 per month. See also footnote (6).

(2)      Does not include options to acquire an additional  500,000 shares.  See
         the caption "Executive Compensation" of this Report.

(3)      A total of 800,000 of these  shares are held in joint  tenancy with Mr.
         Allred's wife.

(4)      We  are  holding  these  shares  until  Mr.  Tunnell  performs  certain
         obligations   under  our  Agreement  for  Financial   Public  Relations
         Services.   See  the  caption   "Certain   Relationships   and  Related
         Transactions."

(5)      A total of  786,000  of these  shares  are  beneficially  owned by Firm
         International  Group Trust. Bruce Chapman,  the adult son of Russell R.
         Chapman,  is the sole trustee of Firm  International  Group  Trust.  No
         other person has control over this entity. Bruce Chapman's brothers and
         sisters  and  their  children  are  the  sole   beneficiaries  of  Firm
         International Group Trust.

(6)      This figure includes: (i) 200,000 shares that Verity currently acquired
         in March, 2000; and 92,000 shares it purchased during 2001. Verity also
         has the right to purchase up to an additional 1,308,000 shares pursuant
         to its bridge funding arrangement; however, Verity is only obligated to
         purchase a minimum of 24,000  shares per month . If it purchases all of
         these securities, Verity will beneficially own approximately 12% of our
         then-outstanding  shares,  assuming  that we do not issue or cancel any
         shares in the meantime. Gary Quintana, who is the managing director and
         the sole member of Verity,  may be considered the  beneficial  owner of
         these securities.

Security Ownership of Management.

          The  following  table sets forth the share  holdings of the  Company's
directors and executive  officers as of the date hereof.  Information  regarding
the  capacities in which each person serves for the Company is contained in Item
9.

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<PAGE>



                                                                     Percentage
Name and Address of Beneficial                 Number of Shares       of Class
Owner                                         Beneficially Owned    Outstanding
-----                                         ------------------    -----------

Worth P. Allred                                  1,000,000 (1)          6.8%
P.O. Box 120
Moroni, Utah 84646

S. Kent Holt                                       382,560 (2)          2.6%
18320 Lochner Road
Spencerville, Indiana 46788

All directors and executive officers as a         1,382,560             9.4%
group (2 persons)

         The  percentages set forth above have been computed based on 15,090,018
shares,  which is the  number of  shares of the  common  stock  outstanding  and
exercisable  options held by officers and directors  outstanding as of March 31,
2002.

(1)      A total of 800,000 of these  shares are held in joint  tenancy with Mr.
         Allred's wife.

(2)      Does not include options to acquire an additional  shares.  See Item 10
         of this Report.

Changes in Control.

         To the  knowledge  of the  Company's  management,  there are no present
arrangements or pledges of the Company's securities which may result in a change
in control of the Company.

ITEM 12.  Certain Relationships and Related Transactions.

Transactions with Management and Others.

         In 2000 and 2001, the current  officers made advances to the Company of
$7,865 and $122,  respectively which bear interest at 10%, are unsecured and due
on demand.

         During the past two years,  the only  transactions  between  members of
management,  nominees to become a director or  executive  officer,  five percent
stockholders,  or  promoters  or persons  who may be deemed to be parents of the
Company are:

         On October 24, 2000, we entered into an Agreement for Financial  Public
Relations Services with William R. Tunnell. Under the Agreement,  Mr. Tunnell is
to provide  various  investor  relations  and fund  raising  services for us, in
exchange for  2,000,000  "unregistered"  and  "restricted"  shares of our common
stock.  These  shares are for services  valued at $540,000,  or $0.27 per share.
Since 1997,  Mr.  Tunnell has spent about 8,330 hours  helping us with  investor
relations and investment  banking matters,  including placing us in contact with
Verity  for the  purpose  of  prior  business  acquaintance  with V. L.  Farmer,
Verity's principal. Mr. Tunnell's shares vest as follows:

                                       48
<PAGE>

o        500,000 shares on July 6, 1999;

o        500,000 shares upon signing of the Securities  Purchase  Agreement with
         Verity; and

o        1,000,000 shares upon receipt of $500,000 in funding from Verity.

         Mr. Tunnell has received his first  1,000,000  shares,  and are holding
the remaining shares until we receive the Verity funding.  Mr. Tunnell helped us
to locate  Verity  as a source of  funding,  but he has no other  connection  to
Verity.

         We valued the shares issued for services based on the approximate value
of these  services if rendered by  unrelated  third  parties in an arm's  length
transaction.  See the caption "Security  Ownership of Certain  Beneficial Owners
and Management" of this Report.

         Galtech has a policy that  permits it to enter into  transactions  with
affiliates  on terms no less  favorable  to Galtech  than would be  available in
similar arm's length transactions with unaffiliated third parties.

Parents of the Issuer.

          Galtech has no corporate parent.

                                       49
<PAGE>



                                     PART IV

EXHIBITS AND REPORTS

ITEM 13.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

         The  following  Exhibits  are filed  herewith  pursuant  to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.

Exhibit No.          Description

                  Articles of Incorporation. *

                  Bylaws. *

                  Registration Statement on Form SB-2, filed with the Securities
                  and  Exchange   Commission  on  July  13,  2000,  and  amended
                  September 25, 2000;  January 10, 2001;  February 1, 2001;  and
                  February 8, 2001.*

                  Addendum to Verity Global Financial, L.L.C. Agreement with the
                  Company.*

                  Form 10-QSB  quarterly report under Section 13 or 15(d) of the
                  Securities  Exchange  Act of 1934,  for the  quarterly  period
                  ended March 31, 2001.

                  Form 10-QSB  quarterly report under Section 13 or 15(d) of the
                  Securities  Exchange  Act of 1934,  for the  quarterly  period
                  ended June 30, 2001.

                  Form 10-QSB  quarterly report under Section 13 or 15(d) of the
                  Securities  Exchange  Act of 1934,  for the  quarterly  period
                  ended September 30, 2001.

         (b)      Reports on Form 8-K

                  Current  Report  on Form 8-K  filed  with the  Securities  and
                  Exchange Commission on June 29, 2001.*

      *  These documents,  together with related exhibits,  have previously been
         filed with the Securities and Exchange  Commission and are incorporated
         hereby by reference.

                                       50
<PAGE>

                                   SIGNATURES
                                   ----------

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

                        REGISTRANT:

                        GALTECH SEMICONDUCTOR
                        MATERIALS CORPORATION

Date: 4-30-02           By:   /s/ S. Kent Holt
                              ---------------------------------------------
                                  S. Kent Holt
                                  Acting CEO, Acting President and Director

Date: 4-30-02           By:   /s/ Rulon Cluff
                              ---------------------------------------------
                                  Rulon Cluff
                                  Secretary/Treasurer

                                       51