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**UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB**

                  Annual report pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                    For the fiscal year ended: July 31, 2001

                         Commission File Number 0-28313

                             **RHINO ECOSYSTEMS, INC.**
           (Name of Small Business Issuer as specified in its charter)

               **Florida****65-0939751**
       (State or other jurisdiction of                   (IRS Employer
       incorporation or organization)                  Identification No.)

                      **40 Trowers Road, Woodbridge, Ontario,
                                 Canada L4L 7K6**

       Registrant's telephone number, including area code: (905) 264-0198

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. ____

Registrant's revenues for its most recent fiscal year were $332,046.

As of July 31, 2001, there were 7,561,251 shares of the registrant's $.0001 par
value common stock issued and outstanding.

Transitional Small Business Disclosure Format Used (Check one) Yes ___  No X

**TABLE OF CONTENTS

                                                                            PAGE****PART I**

Item 1.   Business of the Company.............................................4

Item 2.   Properties.........................................................11

Item 3.   Legal Proceedings..................................................11

Item 4.   Submission of Matters to a Vote of Security Holders................11

                                     **PART II**

Item 5.   Market for the Company's Common Equity And Related
          Shareholder Matters................................................12

Item 6.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations and Plan of Operation....................12

Item 7.   Financial Statements...............................................15

Item 8.   Disagreements on Accounting and Financial Disclosures..............15

                                    **PART III**

Item 9.   Directors and Executive Officers of the Registrant.................16

Item 10.  Executive Compensation.............................................17

Item 11.  Security Ownership of Certain Beneficial Owners and
          Management.........................................................18

Item 12.  Certain Relationships and Related Transactions.....................18

                                     **PART IV**

Item 13.  Exhibits, Financial Statements and Reports on Form 8-K.............19

Signatures...................................................................22

                           Forward-Looking Statements

This report contains forward-looking statements within the meaning of the
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Exchange Act of 1933, as amended, and is subject to the safe
harbors created by those sections. These forward-looking statements are subject
to significant risks and uncertainties, including information included under
Parts I and II of this annual report, which may cause actual results to differ
materially from those discussed in such forward-looking statements. The
forward-looking statements within this annual report are identified by words
such as "believes," "anticipates," "expects," "intends," "may," "will" and other
similar expressions regarding the Company's intent, belief and current
expectations. However, these words are not the exclusive means of identifying
such statements. In addition, any statements which refer to expectations,
projections or other characterizations of future events or circumstances, and
statements made in the future tense are forward-looking statements. Readers are
cautioned that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors, many of which are
beyond the control of the Company. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances occurring
subsequent to the filing of this annual report with the SEC. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this annual report.

                                        3

**PART I****ITEM 1.   BUSINESS OF THE COMPANY****General**

     Rhino Ecosystems, Inc. ("Rhino" or the "Company") was organized by the
filing of articles of incorporation with the Secretary of State of the State of
Florida on April 7, 1999. The articles of the Company authorized the issuance of
twenty-five million (25,000,000) shares of Common Stock at a par value of
$0.0001 per share. Rhino shall also include all references to its majority owned
subsidiary, Rhino Ecosystems Inc., a company subject to the provisions of the
Business Corporations Act of Ontario.

     On November 3, 1999, the stockholders of Rhino Ecosystems Inc. ("Rhino
Canada") a company incorporated under the laws of the Province of Ontario,
Canada on June 7, 1996, exchanged all of the issued and outstanding common
shares of Rhino Canada for an equal number of common shares of Rhino. Upon
completion of this transaction the former stockholders held approximately 85% of
the common shares of Rhino U.S. and controlled Rhino U.S. At the time of the
transaction, Rhino had no substantive operations.

     The combination of the two companies has been accounted for as a
recapitalization which results in the consolidated financial statements of the
combined entity being issued under the name of the legal parent ("Rhino") but
considered a continuation of the financial statements of the legal subsidiary,
Rhino Canada.

     Rhino has invented and tested a patented technology known as the Rhino Wet
Waste Interceptor. We have applied for a trademark on the corporate logo and
name and we have a Canadian patent pending, Patent # 2,178,270, as well as an
international PCT application No. PCT/CA97/00377 on this innovative technology.
Patents have been issued in the United States of America (09/194910) and in
Singapore (9806089-0). Trademark registration has also been issued by the United
States (Reg. No. 2,464,786) on July 3, 2001. The Rhino System provides a simple,
inexpensive solution for all restaurants and food-related industries with
regards to compliance with existing and future environmental legislation. The
RINO(TM) System is designed to work in conjunction with existing grease trap
filtration systems. The Rhino System will serve as a pre-grease trap filtration
system which captures a large portion of greases and food solids that are
typically sent down the drains of kitchen sinks, in a disposable filtration bag.
The RINO(TM) System has been tested and is in compliance with the following
standards: CSA B 125.0-98 for Plumbing Fixtures, and ASME A112.18.1M-1996 for
Plumbing Fixture Fittings.

     Water is heavily used in industrial, commercial and residential settings
during the preparation of food including the cleaning of containers, cookware
and utensils used in cooking. This produces a consequent amount of waste water
which typically contains a substantial amount of organic matter, including
grease. Grease, which enters the public sewage system, may be treated at sewage
treatment plants at a substantial cost. In industrial and commercial settings,
some local governments mandate the use of grease trap collection units to
minimize the volume of grease entering the public sewage system.

                                       4

     Standard grease trap collection units consist of settling tanks for the
collection of grease and other waste solids. These tanks may form part of the
waste water flow path and accordingly may not separate grease and other organic
matter efficiently. Furthermore, standard grease trap collection units may
require the services of a grease removal specialist to empty the trap and
dispose of the grease. Grease traps also generally require regular maintenance
to prevent the build up of excessive grease in the trap and the pipes. Excessive
grease in waste water systems may result in excessive bacteria, which may
attract vermin or insects, may cause blocked pipes and reduced flow rates in
sinks, and may allow noxious odors to enter the kitchen and restaurant seating
areas through waste water drains.

     The patented Rhino System is in compliance with Canadian Federal and
Provincial Regulatory requirements. In fact, current studies and literature are
leaning toward mandatory implementation of pre-grease trap interceptors of
grease and waste solids (i.e. Rhino System).

     American study groups such as the PDI (Plumbing and Drainage Institute) and
the ASPE (American Society of Plumbing Engineers) have identified the problems
with grease and waste solids entering the public sewage system.

     Test data captured from Rhino Systems installed in various locations has
been recently tested and audited by independent engineering and consulting
companies Fisher Associates Environmental Engineers Limited, Maxxam Analytics
Inc. and the City of Toronto-Waste & Wastewater Services. Tests performed have
proven the Rhino System to be highly cost effective. Preliminary observations
based on the testing have identified the following benefits:

1.     reduces the amount of grease and waste solids which flow down the drain;
2.     reduces the risk of the clogging or backing up of grease traps and sinks;
3.     reduces the number of grease  trap cleanings required (which  will reduce
       down  time associated with costly specialists required to clear the
       drains);
4.     reduces the odors associated with the grease trap (especially during
       cleaning);
5.     reduces the costs to the municipality for treating the sewage in  the
       public sewage system;
6.     increase in overall management and environmental awareness;
7.     reduces closure of restaurant and loss  of revenue due to the backing up
       of the grease trap, clogged sinks and plumbing.

**Business Strategy**

     Rhino from inception has been primarily engaged in developing the
manufacturing process for a wet waste interceptor and has had no significant
revenue derived from operations. Rhino intends to form long term working
relationships with selected component suppliers of the Rhino System. These
relationships will ensure quality components at a competitive price. The Sales
and Marketing strategy for the Company is to establish a series of, Europe and
Australia as these markets develop for the Rhino product line of Wet Waste
Interceptors. These dealership agreements do contain inventory and sales quotas
for a defined territory or region of the country.

                                       5
**Recent Developments**

     Rhino dealerships have been established in the various regions of Canada,
the United States and the Caribbean. Currently test units are being install in
various locations for a major U.S. plumbing manufacturer/distributor and a large
commercial kitchen equipment and chemical manufacturer. Both companies are
interested in becoming major distributors of the Rhino product line of wet waste
interceptors in fiscal 2002.

**Products and Features**

     The Rhino System is the registered trademark name for the pre-grease trap
interceptor and/or the wet waste interceptor filtration system. An initial
installation provides a collector body and contains one box of 30 removable
filters. Refills of the removable filters are then supplied to the customer as
required via the Company direct or the customers' local Rhino dealer.

     Once the Rhino unit is installed, the discharge water from the
establishments' sinks will be gravity fed into the top inlet spout of the Rhino
unit. The discharge water will pass through a collection bag (i.e. filter bag)
that will trap the wet waste materials while letting the water pass through the
discharge hole into a waste water collection area, which will be emptied as
follows:

     1.  Gravity Model - waste water will flow through the discharge outlet and
re-enter the resident plumbing drainage lines prior to the resident grease trap
interceptor.

     2.  Pump Models -in height restricted areas, an electrical wastewater pump
is used to pump the water out of the Rhino unit prior to the resident grease
trap interceptor.

     The filtration bag can be easily emptied and replaced via a front access
cover on the Rhino unit by any staff member of the respective establishment.
Upon removal of the filtration bag, it can be disposed of through the normal
waste removal collection system. Numerous tests performed to date have proven
the existing filter bag to be the most efficient in terms of its filtering
capabilities.

**Problems with Existing Grease Traps**

     The prevailing method of intercepting and removing fats, oil and grease
from waste water is through the use of grease traps. Grease traps are intended
to provide some retention time to cool the warm liquefied grease for separation
in the form of a surface scum or oil layer. Unfortunately, most grease traps are
undersized and provide only minimal grease separation prior to discharge to
sewers. Additionally, emulsified oil, unless the emulsion breaks, will normally
not separate in grease traps. To make things worse, many facilities do not
adequately maintain or service the existing grease traps.

                                       6

     Grease and wet waste solids which are not removed in grease traps will cool
down in sewers, both private and municipal, and in this way result in gradual
grease buildup within the sewers, leading to flow restrictions or complete
blockages. These blockages lead to bad odors scented in the respective
facilities, increased number of grease trap cleanings, potential down-time (i.e.
shut downs) as a result of costly work required to hire specialists to clean any
blockages, and an overall negative effect on the facilities' operations.
Additional expenses may be incurred due to municipal cost recovery on
prosecutions (i.e. fines) for municipal blockages.

     Rhino is committed to reduce and eventually eliminate the above noted
problems efficiently and most importantly cost-effectively. Efforts are being
made to create a low cost and highly effective biodegradable bag. This bag will
reduce any concerns raised by the currently used nylon bag to eliminate any
waste control issues.

     Installation of the Rhino System can be accomplished with a minimum of
disruptions to existing plumbing systems. Any local plumber will be able to
easily install a Rhino unit in a relatively short period of time.

**Physical Requirements**

     Rhino Ecosystems, Inc., has located itself in an 8,000 square foot facility
nearby its major component suppliers. The location of the facility is in the
central Greater Toronto Area near the 400 series highways, which can accommodate
high volumes of traffic.

**Staffing/Training**

     Rhino has established a central core of six key team members in the
Administrative, Manufacturing, Sales and Marketing areas. As the need for
additional qualified professionals arise in any area of the business, they will
be attracted to Rhino as a company and will be competitively compensated.

     Specialized laboratory technicians/engineering firms will be contracted as
required to maintain the Company's commitment to research and development in the
area of eliminating waste water grease and solids and to develop new technology
and/or new product lines.

**Manufacturing**

     The Company is dedicated to quality products. As such, the Company will be
seeking IS09000 accreditation and will be using IS09000 approved suppliers.

     All component manufacturing is subcontracted to companies who work with the
Company's patented and registered designs. Therefore, the Company will not
manufacture its own products but will assemble the components together, perform
quality control testing, do dealership and telemarketing sales and distribution.
Continual product redesign, research and development testing and servicing will
be done jointly between in-house personnel and outside engineering firms.

                                       7

     Benefits of not manufacturing are as follows:

     1.     Decrease in working capital required to conduct business;
     2.     Increase focus on sales and marketing;
     3.     Able to increase capacity quickly with a reduction in capital costs;
     4.     Increase in overall flexibility.

     The Rhino System is a pre-grease trap wet waste interceptor filtration
system. Once the Rhino System is sold and installed, Rhino filter bags will be
sold to Rhino users on a continual basis.

**Product Positioning and Pricing**

     The use of the Rhino System reduces the amount of grease and wet waste
solids that enter into the public sewage system. The significant savings can be
realized reducing by a municipality and a restaurateur who have Rhino wet waste
interceptors installed. Studies have proven that time interval between cleaning
of existing grease traps can be significantly lengthened when a Rhino wet waste
interceptor is installed.

     The saving generated equates to a payback of approximately one year for the
pump unit and approximately eight months for the gravity unit based on the
projected installed sale price of a Rhino System. Savings will also be in the
form of reduced down time, no loss of customers due to odors and no requirement
to hire a plumber to clean drains, and reduced risk of fines as a result of
violations of sewer use by-laws, which could cost up to $50,000 per violation.

     The publication "Best Management Practices" from the Canadian Ministry of
Environment and Energy directed to the restaurant sector are recommending that
restaurants reduce the amount of solids that are flushed down the drain. Various
government regulations exist to prevent solids and grease from entering into the
sewage system.

**The Market and Product Distribution**

     The potential markets are restaurants, and food producing and processing
facilities. In North American alone there are over 6.3 million commercial
establishments which need a Rhino wet waste interceptor. This does not include a
residential unit, which is in the planning and development stage. Introduction
is planned for fiscal 2003.

**Marketing Strategy**

     The Rhino Wet Waste Interceptor System will be marketed through an
information campaign directed at all public health and water pollution control
officials, restaurants and other food preparation or processing facilities, and
to all plumbing materials distribution outlets.

     The Company's sales and technical representatives will also attend all
relevant seminars and conferences held by the Federal, Provincial and Municipal
Ministries of Health and Environment in Canada to talk to decision makers in
each community. Representatives will also attend trade shows held by plumbing
associations to increase the overall awareness of the product. Contacts made and
requests developed through these sources will be followed up by the marketing
department.

                                       8

     Promotional material, such as brochures, CD ROM, documentation videos and
an Internet web page is currently available for public viewing and distribution
by the Rhino sales team. As well, there is a telephone marketing program being
implemented that will generate leads for all sales staff.

     A professional exhibit has been designed and built for use at various
conferences and trade shows. This information exhibit focuses on the mechanics
of the Rhino System, the problems the system resolves, and the spin-off benefits
and savings that result from the use of the system. Research papers supporting
these benefits will be made available.

**Sales**

     Rhino expects to sell the majority of its product line of wet waste
interceptors through it's ever increasing group of dealers/distributors across
North America.

**Direct Sales**

     The Company expects that a portion of its sales will come from direct sales
to owner-managed restaurants across the United States, until complete Rhino
dealership coverage is established. Commission-only sales personnel who will be
affiliated with but not directly working for the Company will achieve these
sales. These sales people will acquire Rhino Units through the Rhino product
distribution channels at standard company wide pre-set pricing.

**Restaurant Chains**

     The large number of franchise restaurant chains in North America will
require a combined effort from all of the Company's senior management team as
well as local dealer sales agents to adequately service this potential sales
market. Most of the fast food chains have central purchasing and distribution
for most of their standard equipment and supply requirements. Selling to the
head office, the need and benefits to the total organization will result in
large quantity orders to a customer.

**Competition**

     As the Rhino Wet Waste Interceptor is patented in some areas of the world
and is patent pending in other parts of the world, Rhino believes that the Rhino
process is very difficult, if not impossible, to duplicate in the foreseeable
future.

     Currently, there are no existing pre-grease trap, wet waste interceptor
filtration systems comparable to the patented Rhino System in place anywhere
in North America and as a result the lead time created by Rhino should protect
the Company from any future external developments. Other competitors, however,
could develop with greater financial and technical resources. Should such
competition develop, the Company's operations could be impaired.

                                       9
**Competitive Advantage**

     The Company's competitive advantages are numerous.  The main advantage is
the technological lead the Company has taken in the study of the pre-grease trap
wet waste interceptor system problem which creates the opportunity for the
Rhino system. The technology has also been granted pioneer status, meaning
"first use of scientific concept to solve a commercially valuable problem."

     The advantages of the Rhino System over existing grease traps are:

1.     reduces the amount of grease and  waste solids which flow into the public
       sewage system
2.     expensive costs associated with hiring a specialist to pump out backed up
       material from the drain and resulting in potential down-time
3.     reduces the number of grease trap cleanings
4.     reduces odors associated with the grease trap, particularly during
       cleaning
5.     reduction in costs to the municipality for treating the sewage in the
       public sewage system.  The Company is quite hopeful that the RINO (TM)
       System will be endorsed by all water pollution control governmental
       bodies
6.     increase in overall environmental awareness.

                                       10
**ITEM 2.   PROPERTIES**

     We do not own any real property.

     The Company leases its principal business operations at 40 Trowers Road,
Woodbridge, Ontario, Canada L4L 7K6. The lease expires March 31, 2006. Our rent
is Cdn$3953 per month. The Company's toll free telephone number is (877)746-6224
and the web site address is www.rhinoeco.com.

**ITEM 3.   LEGAL PROCEEDINGS**

     The Company is not involved in any litigation and the officers and
directors are not aware of any threatened or pending litigation that would have
a material, adverse effect on the Company.

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

     During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise.

                                       11
**PART II****ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS****Market Information**

     The Company's common stock is traded on the Over the Counter Bulletin Board
under the symbol "RHNC". The CUSIP number is 76217W108. The following is a table
of the high and low bid prices of the Company's stock for each of the trading
quarters of the fiscal years ended July 31, 2000 and 2001:

             Quarter Ended            High          Low 
               6/14/00               $3.00         $1.50
               7/31/00               $1.18         $1.00
              10/30/00               $0.97         $0.50
               1/31/01               $0.50         $0.38
               4/30/01               $0.38         $0.25
               7/31/01               $0.25         $0.16

     These quotations reflect inter dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
-----------
1. Trading on the National Daily Quotation Bureau began on June 14, 2000.

**Security Holders**

     As of July 31, 2001, the Company had approximately 230 shareholders of
record.

**Dividends**

     There have been no cash dividends declared or paid since the inception of
the Company, and no cash dividends are contemplated to be paid in the
foreseeable future. The Company may consider a potential dividend in the future
in either common stock or the stock of future operating subsidiaries.

**ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS AND PLAN OF OPERATION**

     The following discussion and analysis of the Company's consolidated
financial condition and results of operation for the fiscal year ended July 31,
2001 and 2000, should be read in conjunction with the Company's consolidated
financial statements included elsewhere herein. When used in the following
discussions, the words "believes," "anticipates," "intends," "expects," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, which could cause
results to differ materially from those projected.

                                       12
**Results of Operations**

     The Company is primarily engaged in the design, development, assembly,
marketing and sale of a unique patented wet waste interceptor, plumbing product
called the Rhino System. During the fiscal years July 31, 2001 ("fiscal 2001"),
as well as prior years, the Company's management has concentrated its time and
efforts on ensuring that the Rhino wet waste interceptor product line be
designed and developed into a product line that can be manufactured efficiently
and consistently to meet a wide variety of end users needs.

     During 2001, the Company maintained its aggressive sales and marketing
program throughout North America. The Company attended hospitality, restaurant
and plumbing related trade shows aimed at increasing the public's awareness of
the Company's patented wet waste interceptor product line and to attract new
dealers/distributors for the product line.

     During this time period, the Company attended trade shows in Toronto,
Moncton, Boston, Las Vegas and Chicago. The Company is concentrating on the
hospitality and food service market sector as this is a market area that can
realize an immediate savings from the installation of a Rhino Wet Waste
Interceptor.

     To aid in qualifying the show attendance at the Rhino booth at these
various trade shows, a telemarketing/sales team within the Company is being used
to promote its product line before and after each show.

     The Company intends to continue this sales and marketing approach to raise
the general public's awareness of the Rhino wet waste interceptor product line
and to obtain a distribution network of exclusive and non-exclusive dealers. The
Company intends to supply quality, manufactured product line to a professionally
trained and dedicated dealer network.

     As of the end of fiscal 2001, the Company has had no significant revenue
derived from operations. The Company's cumulative net loss from inception on
June 7, 1996 to July 31, 2001 totals $2,354,629. Positive results are intended
to be derived from future sales of the Company's products through the
establishment of exclusive and non-exclusive dealerships throughout North
America and the Caribbean. The Company intends to enlarge the dealership base
and resulting sales throughout the remainder of fiscal 2002.

**Fiscal Year 2001 Compared to Fiscal Year 2000**

     Total revenues for the fiscal year ended July 31, 2001 amounted to $332,046
which is an increase of 189% over fiscal 2000. Details of the revenues are:

                                           2001             2000
----------------------------------------------------------------
       Sales                        $   317,451     $    168,036
       Dealer licence fee                13,947              828
       Other                                648            5,078
----------------------------------------------------------------
                                    $   332,046     $    173,942
================================================================

                                       13

     The cost of sales as a percentage of sales during fiscal 2001 was 33.6%,
which compares to fiscal 2000 rate of 39.1%. The improvement in rate is related
to product mix of sales between the two years.

     Expenses associated with the sales and marketing of the Rhino Wet Waste
Interceptors decreased between fiscal 2000 and fiscal 2001 by $169,639 to
$96,224. This reduction in expenditures was due to the company's more selective
attendance of trade shows during fiscal 2001 which raised the public's awareness
of the Rhino Wet Waste Interceptor product line and increased the Rhino dealers
from four in fiscal 2000 to thirty two by the end of fiscal 2001.

     The benefits of attendance at trade shows continue to assist the company in
increased sales throughout this first quarter of fiscal 2002 and a continual
trade shows during fiscal 2002, to continue on the task of raising the publics
awareness of the Rhino product line of Wet Waste Interceptors.

     The increase in professional and consulting fees and wages by $92,306 to
$306,865 is a direct result of the increase in the number of employees and/or
contract professions used during the year to attend trade shows, tele-market the
company's products, assemble the Rhino product line, and test and certify the
Rhino product line to industry standards. (CSA B 125.0-98 Plumbing Fixtures and
ASME A112.18.1M-1996 Plumbing Fixture Fittings).

     The loss for the year ended July 31, 2001 at $574,647 includes a loss in
the amount of $121,600 on the extinguishment of debt recognized on the issue of
1,000,000 restricted common shares to extinguish debt payable to officers and
stockholders in the amount of $128,400.

**Liquidity and Capital Resources**

     During the past four fiscal years, the Company has financed its operations
primarily through cash provided through various short and long term credit
facilities and through the private sale of its securities pursuant to applicable
offering exemptions. The Company's management believes that sufficient funds
will be raised from future operations so as to minimize the need for future
equity capitalization.

     In addition, management of the Company believes the needs for additional
capital going forward will be derived somewhat from internal revenues and
earnings generated from the sale of its products and services. If the Company is
unable to begin to generate revenues from its anticipated products or generate
sufficient cash resources from revenues from its existing products to sustain
operations over the next twelve months, management believes the Company will
need to raise additional funds to meet its cash requirements. Failure to
identify additional financing in the near term may require the Company to reduce
its operating activities.

                                       14

     This document and other documents filed by the Company with the Securities
and Exchange Commission (the "SEC") contain certain forward-looking statements
under the Private Securities Litigation Reform Act of 1995 with respect to the
business of the Company. These forward-looking statements are subject to certain
risks and uncertainties, including those mentioned above, which may cause actual
results to differ significantly from these forward-looking statements. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be necessary to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. An investment in the Company involves various risks,
including those mentioned above and those which are detailed from time to time
in the Company's SEC filings.

**ITEM 7.   FINANCIAL STATEMENTS**

     The audited consolidated balance sheets of the Company for its years ended
July 31, 2001 and 2000 and related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended July 31, 2001 and cumulative from inception on June 7, 1996 to July
31, 2001 are included, following Item 13, in sequentially numbered pages
numbered F-1 through F-24. The page numbers for the financial statement
categories are as follows:

                         **Index                                             Page**

     Report of Independent Auditors                                        F-1

     Consolidated Balance Sheets as of July 31, 2001 and 2000              F-2

     Consolidated Statements of Operations
       for the years ended July 31, 2001, 2000 and 1999 and
       cumulative period from inception on June 7, 1996 to July 31, 2001   F-3

     Consolidated Statement of Stockholders' Equity [Deficiency] and
       Comprehensive Loss
       for the years ended July 31, 2001, 2000 and 1999 and cumulative
       period from inception on June 7,1996 to July 31, 2001               F-4

     Consolidated Statements of Cash Flows
       for the years ended July 31, 2001, 2000 and 1999 and
       cumulative period from inception on June 7, 1996 to
       July 31, 2001                                                       F-5

     Notes to Consolidated Financial Statements                            F-6

**ITEM 8.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES**

     The Company has had no disagreements on accounting issues and financial
disclosures.

                                       15
**PART III****ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

     The following sets forth the names, ages and positions held of all of the
Directors and Executive Officers of the Company.

                  Name                      Age      Position

                  Charles Cini              54       President
                  Mark Wiertzema            50       Chief Financial Officer
                  Gordan Novak              51       Vice President
                  Jan Walsh                 44       Secretary/Treasurer
                  Wilfred J. Goldlust       52       Director

Charles Cini, President

     Charles Cini has more than 30 years of experience in the waste removal
industry. He formerly owned and directed a waste collection business with 70+
operating truck servicing 4000 waste collection accounts. Mr. Cini helped design
and patent the Rhino Wet Waste Interceptor which is available through both
national and international dealerships.

Mark Wiertzema, Chief Financial Officer

     Mark Wiertzema currently serves as Chief Financial Officer of the Company.
Mr. Wiertzema graduated from the University of Iowa, where he received both his
graduate and post-graduate degrees. Mr. Wiertzema has over 25 years of
experience in financial and strategic management of regional, national and
international corporations. During the last 15 years, Mr. Wiertzema has had a
managerial position in an independent company that collects, transports,
re-directs, re-deploys, re-uses and recycles non-hazardous solid and liquid
waste products from large municipalities.

Gordan Novak, Vice President

     Since February, 1999, serves as Vice President of the Company. Mr. Novak is
Vice President of Light Steel Technologies, Inc., which licenses proprietary
light steel building technology and has established a number of joint ventures
in Czech Republic, Croatia, Germany, Russia and Ukraine. Mr. Novak was an
advisor to Queen of Diamonds Resources, Inc., where he negotiated the purchase
of mineral rights in Guyana. He also negotiated exclusive first right of refusal
for all mineral resources (excluding oil) in Somalia, and signed exclusive
contract for export of that country's scrap metal. In 1996, he acted as advisor
to Alba Resources, Inc., negotiating 50% joint venture agreements for two base
metal properties in Newfoundland. Mr. Novak has had over 28 years of business
experience.

Jan Walsh, Secretary/Treasurer

     Jan Walsh, since March, 1999, has served as Secretary/Treasurer of the
Company. Ms. Walsh works extensively on the development and maintenance of
corporate images through imaginative corporate logo design, print literature and
corporate informational videos. Ms. Walsh is a graduate of the Ontario College
of Art & Design and is an accomplished professional caricature artist. Her
professional objective is to create a better future in the world's ecology
through waste management efficiencies, practices and industrial pollution
prevention.

                                       16

Wilfred J. Goldlust, Director

     Mr. Goldlust has more than three decades of senior management experience in
the waste management industry and is dedicated to enhancing the company's
profitability with his leadership and organizational expertise. He is currently
the Senior Vice President - Operations (Ontario) of Union Energy Inc. In
previous positions, Mr. Goldlust, has served in top management roles that
handled acquisitions and restructuring of company's operations, budgeting,
purchasing and sales and marketing activities for various waste management
companies in Canada.

Section 16(A) Beneficial Ownership Reporting Compliance

     Section 16(A) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who beneficially own
more than 10% of the Company's common stock to file with the Securities and
Exchange Commission reports of ownership of common stock and other equity
securities in the Company. Officers, directors and more than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. Since the Company currently does not have a
class of equity securities registered pursuant to Section 12 of the Exchange
Act, there is no obligation upon the Company's offices, directors and 10% or
greater stockholders to file any such reports pursuant to Section 16(a) of the
Exchange Act.

**ITEM 10.  EXECUTIVE COMPENSATION**

     The following table provides information regarding the executive
compensation of persons serving as Rhino's executive officers during the fiscal
years ended 2001, 2000, and 1999.

------------------------------------------------------------------------------------------------
                                  SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------
                                                                   Long-Term
                                                                  Compensation          All
       Name and               Fiscal      Annual Compensation      Options by          Other
  Principal Position           Year          Salary Bonus         # of Shares      Compensation
-------------------------   ----------   ---------------------   --------------   --------------
Charles Cini                   2001         $  75,600
                               2000         $  64,800
                               1999         $  64,800
------------------------------------------------------------------------------------------------
Mark Wiertzema                 2001           $75,600
  Chief financial Officer      2000           $65,800
                               1999           $64,800
------------------------------------------------------------------------------------------------
Gordan Novak                   2001             N/A
  Vice President               2000
                               1999
------------------------------------------------------------------------------------------------
Jan Walsh                      2001             N/A
  Secretary/Treasurer          2000
                               1999
------------------------------------------------------------------------------------------------
Wilfred J. Goldlust            2001             N/A
  Director
------------------------------------------------------------------------------------------------

                                       17

     The Company had no employment agreements or stock options with any of its
executive officers as of July 31, 2001. Through July 31, 2001, none of the
officers or directors except Mr. Cini and Mr. Wiertzema received a salary or
other cash compensation.

**ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

     As of the date of this report, we have a total of 25,000,000 shares of
Common Stock authorized at a par value of $.0001, and there are shares 7,561,251
of Common Stock outstanding. The following table sets forth information as of
the date hereof with respect to the beneficial ownership of our Common Stock by
(a) each person known by us to be the beneficial owner of more than 5% of our
outstanding Common Stock, (b) the directors and officers of Rhino, and (c) the
directors and officers of the Company.

                                             Number of            % of Shares
Name and Address                             Shares Owned         Outstanding

Charles Cini                                    450,000               6%
65 Harbour Square - Suite 2502
Toronto, Ontario M5J 2L4

Mark Wiertzema                                  894,885              12%
13203 Guelph Line - R.R. # 1
Campbellville, Ontario L0P 1B0 Canada

Gordan Novak                                     53,333               1%
Hamilton, Ontario, Canada

Jan Walsh                                        12,000               *
65 Harbour Square, Suite 2502
Toronto, Ontario M5J 2L4, Canada

Wilf Goldlust                                         0               *
Toronto, Ontario Canada

All Directors and Officers as a group         1,410,218            18.7%
---------
* Less than 1%

**ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

     There are no transactions to which we are a party or certain matters
affecting us have or will result in a material benefit to certain of our
directors and executive officers, or may create conflicts of interest. Normal
business transactions that have occurred between Rhino shareholders and the
Company are discussed in the audited financial statements and are insignificant
in nature.

     No director, officer or principal security holder of Rhino has or has had a
direct or indirect material interest in any transaction to which we are or were
a party. We believe that the terms of each of the transactions described above
were no less favorable to us than could have been obtained from third parties.

                                       18
**PART IV****ITEM 13.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K**

     (a) Index to financial statements and financial statement schedules

     The audited balance sheets of the Company as of July 31, 2001 and 2000 and
the related statements of operations, stockholders' equity and cash flows for
the years ended July 31, 2001, 2000, and 1999 and cumulative period from
inception on June 7, 1996 to July 31, 2001 follow in sequentially numbered pages
F-1 through F-24. The page numbers for the financial statement categories are as
follows:

         Page                       Description

         F-1               Report of Independent Auditors
         F-2               Consolidated Balance Sheets as of July 31, 2001,
                                and 2000
         F-3               Consolidated Statements of Operations for the years
                                ended July 31, 2001, 2000, and 1999 and
                                cumulative period from inception on June 7,
                                1996 to July 31, 2001
         F-4               Consolidated Statements of Stockholders' Equity
                                (Deficiency) and Comprehensive Loss for the
                                years ended July 31, 2001, 2000 and 1999 and
                                cumulative period from inception on June 7,
                                1996 to July 31, 2001
         F-5               Consolidated Statements of Cash Flows for the years
                                ended July 31, 2001, 2000, and 1999 and
                                cumulative period from inception on June 7,
                                1996 to July 31, 2001
         F-6 through F-23  Notes to Consolidated Financial Statements

     (b)  8-K Reports

     No reports on Form 8-K have been filed on behalf of the Company.

     (c)  Exhibits:

     3.1      Articles of Incorporation (1)
     3.2      By-laws (1)
     10       Material contracts (N/A)
     11       Statement of Computation of Earnings per Share
     21       Subsidiaries of the Company

-------------------------------
1. Incorporated by reference to the Company's original registration statement on
Form 10SB.

                                       19

                             ADDITIONAL INFORMATION

                             Corporate Headquarters
              40 Trowers Road, Woodbridge, Ontario, Canada L4L 7K6
          Telephone Number: (905) 264-0198; Fax Number: (905) 265-0515
                   Toll Free Telephone Number: (877) 746-6224
                    Internet Address http://www.rhinoeco.com;
                        E-mail Address sales@rhinoeco.com

                                    KPMG LLP
                             Chartered Accountants
                         Suite 3300 Commerce Court West
                          PO Box 31 Stn Commerce Court
                               Toronto ON M2M 1B2

                                 Transfer Agent
                     American Stock Transfer & Trust Company
                                 40 Wall Street
                            New York, New York 10005

     Exhibits to Form 10-KSB will be provided to shareholders of the Registrant
upon written request addressed to Rhino Ecosystems, Inc., 40 Trowers Road,
Woodbridge, Ontario, Canada L4L 7K6. Any exhibits furnished are subject to a
reasonable photocopying charge.

     The Securities and Exchange Commission has not approved or disapproved of
this Form 10-KSB and Annual Report to Shareholders nor has it passed upon its
accuracy or adequacy.

                                       20

                                    KPMG LLP
                              Chartered Accountants
                         Suite 3300 Commerce Court West
                          PO Box 31 Stn Commerce Court
                               Toronto ON M2M 1B2

                      **INDEPENDENT AUDITOR'S REPORT**

                      Consolidated Financial Statements
                      (Stated in United States dollars)

                      **Rhino Ecosystems, Inc.**
                      (A DEVELOPMENT STAGE COMPANY)

                      Years ended July 31, 2001, 2000 and 1999 and
                      cumulative period from inception of the development
                      stage on June 7, 1996 to July 31, 2001

**Independent auditors' report**

To the Board of Directors and Stockholders
Rhino Ecosystems, Inc.

We have audited the accompanying consolidated balance sheets of Rhino
Ecosystems, Inc. (a development stage company) as of July 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity
(deficiency) and comprehensive loss and cash flows for each of the years in the
three-year period ended July 31, 2001 and for the cumulative period from
inception of the development stage on June 7, 1996 to July 31, 2001. These
consolidated financial statements are the responsibility of Rhino Ecosystems,
Inc.'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 financial position of Rhino Ecosystems,
Inc. as of July 31, 2001 and 2000 and the results of its operations and its cash
flows for each of the years in the three-year period ended July 31, 2001 and for
the cumulative period from inception of the development stage on June 7, 1996 to
July 31, 2001, in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that Rhino Ecosystems, Inc. will continue as a going concern. As
discussed in note 1(b) to the consolidated financial statements, Rhino
Ecosystems, Inc. has suffered recurring losses from operations and has a net
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regards to these matters are also
described in note 1(b). The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/KPMG LLP

Chartered Accountants

Toronto, Canada
October 22, 2001

                                       F-1
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Consolidated Balance Sheets
(Stated in United States dollars)

July 31, 2001 and 2000

-------------------------------------------------------------------------------
                                                        2001             2000
-------------------------------------------------------------------------------

**Assets**

Current assets:
     Accounts receivable (allowance for
        doubtful accounts;
        2001 - nil; 2000 - nil)                    $    21,674      $    14,896
     Goods and services taxes recoverable                5,859           11,600
     Investment tax credits recoverable                      -           33,054
     Inventory (note 3)                                125,028          202,775
     Prepaid expenses and deposits                      15,280           14,508
-------------------------------------------------------------------------------
                                                       167,841          276,833

Fixed assets (note 4)                                   23,212          112,718
Patent                                                 107,330           98,159

-------------------------------------------------------------------------------
                                                   $   298,383      $   487,710
-------------------------------------------------------------------------------

**Liabilities and Stockholders' Deficiency**

Current liabilities:
     Bank indebtedness                             $    18,537      $     8,806
     Accounts payable and accrued liabilities          319,807          344,004
     Loans payable (note 5)                             26,101                -
     Due to related parties (note 6)                   256,042          120,141
     Current portion of deferred revenue (note 7)            -            2,461
     Current portion of long-term debt (note 8)         22,087           21,015
-------------------------------------------------------------------------------
                                                       642,574          496,427

Deferred revenue (note 7)                                    -           11,486
Long-term debt (note 8)                                 84,969          108,580

Stockholders' deficiency:
     Share capital (note 9):
       Common stock, $0.0001 per share:
           Authorized - 25,000,000
           Issued and outstanding shares -
              7,561,251 in 2001
              and 6,525,539 in 2000                        756              653
       Additional paid-in capital                    1,924,713        1,661,051
-------------------------------------------------------------------------------
                                                     1,925,469        1,661,704
     Deficit accumulated during development stage   (2,362,036)      (1,787,389)
     Accumulated other comprehensive income (loss):
       Cumulative foreign currency translation
         adjustment                                      7,407           (3,098)
-------------------------------------------------------------------------------
                                                      (429,160)        (128,783)

Future operations (note 1(b))
Commitments and contingencies (note 10)

-------------------------------------------------------------------------------
                                                   $   298,383      $   487,710
-------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

                                       F-2
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Operations
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative
period from inception on June 7, 1996 to July 31, 2001

-------------------------------------------------------------------------------------------------------------------
                                                                                                    Cumulative
                                                                                                   period from
                                                                                                  inception on
                                                                                                  June 7, 1996
                                                 2001              2000              1999     to July 31, 2001
-------------------------------------------------------------------------------------------------------------------

Sales and other income (note 12)         $    332,046     $     173,942     $      28,998      $       534,986

Expenses:
     Cost of goods sold (excluding
       amortization of fixed assets)          106,602            65,710            13,384              185,696
     Marketing                                 96,224           265,863           156,788              632,625
     Professional and consulting fees         229,658           160,237           115,454              604,379
     Amortization of fixed assets              88,042           111,614           115,253              323,525
     Office salaries, benefits and
       services                               131,207           108,322            92,502              387,405
     Rent                                      43,856            45,457            37,505              173,780
     Research and product
       development                              4,080            37,488            45,087              109,842
     Telecommunications                        13,547            17,396            10,475               49,665
     Office and general                         2,839            17,379            13,667               69,126
     Bank charges and interest                 34,207            16,970            14,104               76,784
     Interest on long-term debt                11,297            13,166            15,679               45,154
     Travel and promotion                       7,739             9,906            25,925               83,543
     Utilities                                  3,924             5,025             3,563               13,689
     Royalties                                  9,180             3,805                 -               12,985
     Insurance                                  2,691             1,677             2,310                7,224
-------------------------------------------------------------------------------------------------------------------
                                              785,093           880,015           661,696            2,775,422
-------------------------------------------------------------------------------------------------------------------

Loss before extraordinary item               (453,047)         (706,073)         (632,698)          (2,240,436)

Extraordinary item:
    Loss on extinguishment of
      debt (note 9(b))                       (121,600)                -                 -             (121,600)

-------------------------------------------------------------------------------------------------------------------
Loss for the period                      $   (574,647)  $      (706,073)    $    (632,698)     $    (2,362,036)
-------------------------------------------------------------------------------------------------------------------

Loss per common share, basic and diluted:
    Loss per common share, basic and
      diluted before extraordinary item  $      (0.07)  $        (0.11)     $       (0.11)     $        (0.56)

    Loss per common share, basic and
      diluted after extraordinary item   $      (0.09)  $        (0.11)     $       (0.11)     $        (0.59)
-------------------------------------------------------------------------------------------------------------------

Weighted average number of common
   shares outstanding, basic and diluted    6,797,364         6,525,539         5,608,872            4,036,654
-------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

                                       F-3
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Stockholders' Equity (Deficiency) and Comprehensive
Loss (Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative
period from inception on June 7, 1996 to July 31, 2001

-----------------------------------------------------------------------------------------------------------------
                                                              Deficit
                                  Common stock            accumulated    Accumulated
                                               Additional        during          other
                        Number of        Par      paid-in   development  comprehensive             Comprehensive
                           Shares       value     capital         stage  income (loss)      Total  income (loss)
------------------------------------------------------------------------------------------------  ---------------

Shares issued on
   incorporation              100     $    -   $       73   $         -      $       - $       73

Loss for the year               -          -            -       (82,467)             -    (82,467)  $    (82,467)

Foreign currency
  translation adjustment        -          -            -             -            682        682            682
-----------------------------------------------------------------------------------------------------------------
                                                                                                    $    (81,785)
                                                                                                    =============
Balance, July 31, 1997        100          -           73       (82,467)           682    (81,712)

Shares issued for:
  Cash                  4,746,729        475      608,642             -              -    609,117
  Services                 20,000          2       14,013             -              -     14,015
  Cash and conversion
   of loans               758,710         76      157,795             -              -    157,871
     ---------------------------------------------------------------------------------------------
                        5,525,439        553      780,450             -              -    781,003
  Less share issue costs        -          -      (44,689)            -              -    (44,689)
     ---------------------------------------------------------------------------------------------
                        5,525,439        553      735,761             -              -    736,314
--------------------------------------------------------------------------------------------------

Loss for the year               -          -            -      (366,151)             -   (366,151)  $   (366,151)

Foreign currency
  translation adjustment        -          -            -             -        (14,072)   (14,072)       (14,072)
-----------------------------------------------------------------------------------------------------------------
                                                                                                    $   (380,223)
                                                                                                    =============

Balance, July 31, 1998  5,525,539        553      735,834      (448,618)       (13,390)   274,379

Loss for the year               -          -            -      (632,698)             -   (632,698)  $   (632,698)

Foreign currency
  translation adjustment        -          -            -             -          7,946      7,946          7,946
-----------------------------------------------------------------------------------------------------------------
                                                                                                    $   (624,752)
                                                                                                    =============
Balance, July 31, 1999          -        553      735,834    (1,081,316)        (5,444)  (350,373)

Loss for the year               -          -            -      (706,073)             -   (706,073)  $   (706,073)

Recapitalization
  (note 1(a))           1,000,000        100      925,217             -              -    925,317

Foreign currency
  translation adjustment        -          -            -             -          2,346      2,346          2,346
-----------------------------------------------------------------------------------------------------------------
                                                                                                    $   (703,727)
                                                                                                    =============
Balance, July 31, 2000  6,525,539        653    1,661,051    (1,787,389)        (3,098)  (128,783)

Shares issued for:
  Services (note 9(a))     35,712          3       13,762             -              -     13,765
  Debt extinguishment
   (note 9(b))          1,000,000        100      249,900             -              -    250,000
--------------------------------------------------------------------------------------------------
                        1,035,712        103      263,662             -              -    263,765

Loss for the year               -          -            -      (574,647)             -   (574,647)  $   (574,647)

Foreign currency
  translation adjustment        -          -            -             -         10,505     10,505         10,505
                                                                                                    -------------
                                                                                                    $   (564,142)
                                                                                                    =============
--------------------------------------------------------------------------------------------------
Balance, July 31, 2001  7,561,251     $  756   $1,924,713   $(2,362,036)        $7,407 $ (429,160)
--------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

                                       F-4
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Cash Flows
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative
period from inception on June 7, 1996 to July 31, 2001

-------------------------------------------------------------------------------------------------------------------
                                                                                                    Cumulative
                                                                                                   period from
                                                                                                  inception on
                                                                                                  June 7, 1996
                                                 2001              2000              1999     to July 31, 2001
-------------------------------------------------------------------------------------------------------------------

Cash provided by (used in):

Operations:
     Loss before extraordinary item      $   (453,047)    $    (706,073)    $    (632,698)     $    (2,240,436)
     Adjustments to reconcile
       loss for the year to net cash:
         Amortization of fixed assets          88,042           111,614           115,253              323,525
         Accounts receivable                   (6,778)          (14,896)                -              (21,674)
         Goods and services taxes
           recoverable                          5,741            (5,302)           38,837               (5,859)
         Inventory                             77,747          (164,858)          (17,434)            (125,028)
         Prepaid expenses and deposits           (772)           (3,106)           23,941              (15,280)
         Due from related parties                   -                 -            38,233                    -
         Accounts payable and accrued
           liabilities                        (24,197)          162,628            59,231              319,807
         Deferred revenue                     (13,947)           13,947                 -                    -
         Due to related parties                     -             8,673           109,445              120,141
         Issuance of share capital
           for services
           (note 9(a))                         13,765                 -                 -               27,780
-------------------------------------------------------------------------------------------------------------------
                                             (313,446)         (597,373)         (265,192)          (1,617,024)

Financing:
     Bank indebtedness (repaid)                 9,731           (25,726)           34,532               18,537
     Proceeds from loans payable               39,152                 -                 -               39,152
     Principal payments on loans payable      (13,051)                -                 -              (13,051)
     Proceeds from long-term debt                   -                 -                 -              165,355
     Principal payments on long-term debt     (22,539)          (19,086)          (16,674)             (58,299)
     Due to related parties                   264,301                 -                 -              264,301
     Advances from Rhino U.S.                       -           613,371           311,946              925,317
     Issuance of share capital                     -                  -                 -              696,979
     Share issue costs                             -                  -                 -              (44,689)
     Loans payable                                 -                  -                 -               70,082
-------------------------------------------------------------------------------------------------------------------
                                              277,594           568,559           329,804            2,063,684

Investments:
     Proceed on disposal of fixed assets        2,834                 -                 -                2,834
     Expenditures on fixed assets              (1,370)          (46,319)          (50,296)            (449,205)
     Expenditures on patent                    (9,171)          (20,468)          (48,386)            (107,330)
     Investment tax credits                    33,054            93,255               (99)              99,634
     Due from Le Group De Recuperation
        O'Energie P.H. Inc. (note 11)               -                 -            99,213                    -
     Accounts payable for fixed assets              -                 -           (97,817)                   -
-------------------------------------------------------------------------------------------------------------------
                                               25,347            26,468           (97,385)            (454,067)

Other:
     Foreign currency translation adjustment   10,505             2,346             7,946                7,407
-------------------------------------------------------------------------------------------------------------------

Decrease in cash                                    -                 -           (24,827)                   -

Cash, beginning of period                           -                 -            24,827                    -

-------------------------------------------------------------------------------------------------------------------
Cash, end of period                      $          -      $          -     $           -      $             -
-------------------------------------------------------------------------------------------------------------------

Supplemental information (note 15)

See accompanying notes to consolidated financial statements.

                                       F-5
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

Rhino Ecosystems, Inc. ("Rhino U.S." or the "Company") is incorporated under the
laws of the State of Florida. Rhino U.S. is considered to be a development stage
company, as from inception, Rhino U.S. and its wholly owned subsidiary have been
primarily engaged in developing the manufacturing process for a wet waste
interceptor and has had no significant revenue derived from operations.

**1.   Basis of presentation:**

     (a)  Recapitalization:

          In the fiscal year ended July 31, 1999, Rhino U.S. filed a Rule 504,
          Regulation D Offering under the United States Securities Act of 1933
          (the "504 Offering"). Pursuant to the 504 Offering, one million common
          shares of Rhino U.S. were offered at the price of USD $1.00 each.  In
          fiscal 2000 and 1999, the one million common shares were fully
          subscribed.

          The funds received for the share subscriptions were transferred to
          Rhino Ecosystems Inc. ("Rhino Canada") a company incorporated under
          the laws of the Province of Ontario, Canada on June 7, 1996.

          On November 3, 1999, the stockholders of Rhino Canada approved a share
          exchange whereby, the stockholders of Rhino Canada, exchanged all
          5,525,539 of the issued and outstanding common shares of Rhino Canada
          for 5,525,539 common shares of Rhino U.S. Upon completion of this
          transaction, Rhino U.S. had issued and outstanding 6,525,539 common
          shares of which the former stockholders of Rhino Canada held
          approximately 85% of the common shares of Rhino U.S. and controlled
          Rhino U.S.  At the time of the transaction, Rhino U.S. had no
          substantive operations.

          As former stockholders of Rhino Canada hold approximately 85% of the
          outstanding common shares of Rhino U.S. immediately subsequent to
          these transactions, the combination of the two companies has been
          accounted for as a recapitalization, effectively as if Rhino Canada
          had issued 5,525,539 common shares for consideration equal to the net
          monetary assets of Rhino U.S.

          Application of recapitalization accounting results in the following:

          (i)  The consolidated financial statements of the combined entity are
               issued under the name of the legal parent ("Rhino U.S.") but are
               considered a continuation of the financial statements of the
               legal subsidiary, Rhino Canada.

          (ii) Rhino Canada's assets and liabilities are included in the
               consolidated financial statements at their historical carrying
               values.

                                       F-6
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**1.   Basis of presentation (continued):**

          (iii)The consolidated statements of stockholders' equity (deficiency)
               and comprehensive loss presents the equity transactions of Rhino
               Canada on a historical basis with the recapitalization presented
               with effect from November 3, 1999.

          (iv) The financial position and results of operations of Rhino U.S.
               are included in the consolidated financial statements from
               November 3, 1999.

          For purposes of this transaction, the deemed consideration is
          considered to be equivalent to the net book value of Rhino U.S.'s net
          monetary assets as at November 3, 1999.  The net monetary assets of
          Rhino U.S. as at November 3, 1999 consisted solely of a receivable
          from Rhino Canada in the amount of $925,317 which had arisen from the
          transfer of the net funds received from the 504 Offering.

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

          Deemed consideration                                   $     925,317
          Assigned value of net monetary assets:
            Due from Rhino Canada                                $     925,317

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

     (b)  Future operations:

          These consolidated financial statements have been prepared assuming
          the Company will continue as a going concern notwithstanding the
          Company has suffered recurring losses since inception and has negative
          working capital and a net capital deficiency that raise substantial
          doubt as to its ability to continue as a going concern.  The
          application of the going concern concept which assumes the realization
          of assets and liquidation of liabilities in the normal course of
          business, is dependent on the Company's ability to attain profitable
          operations and obtain sufficient cash from external financing to meet
          the Company's liabilities and commitments as they become payable.
          Management is of the opinion that sufficient working capital will be
          obtained from operations and external financing to meet the Company's
          liabilities and commitments as they become payable.  Management is of
          the opinion that an additional $165,000 will be needed to be raised
          through external sources to sustain operations over the next twelve
          months.  However, no additional financing sources have been contracted
          to October 22, 2001 and there can be no certainty as to the
          availability of such financing in the future.  Failure to identify
          additional financing in the near term may require the Company reduce
          its operating activities.

          A failure to continue as a going concern would then require that
          stated amounts of assets and liabilities be reflected on a liquidation
          basis which could differ from the going concern basis.

                                       F-7
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**2.   Summary of significant accounting policies and practices:**

     (a)  Principles of consolidation:

          The consolidated financial statements include the accounts of Rhino
          U.S. and its wholly owned subsidiary, Rhino Canada.  All significant
          intercompany balances and transactions have been eliminated on
          consolidation.

     (b)  Inventory:

          Inventory is valued at the lower of cost, determined on a first-in,
          first-out basis and market.  For materials, market is defined as
          replacement cost; for work-in-process and finished goods, market is
          defined as net realizable value.

     (c)  Fixed assets:

          Fixed assets are stated at cost less related investment tax credits.
          Amortization is provided on a straight-line basis from the date the
          asset is put in use using the following annual rates:

          --------------------------------------------------------------------
          Moulds and dies                                              3 years
          Manufacturing equipment                                      3 years
          Furniture and fixtures                                       3 years
          Office equipment                                             3 years
          Computer equipment                                           3 years
          Vehicle                                                      2 years
          --------------------------------------------------------------------

     (d)  Patent:

          Patent is stated at the cost incurred to date with respect to a Patent
          Cooperation Treaty International Application to apply for letters of
          patent.  It is anticipated  when a commercial level of production and
          sales is attained amortization will be provided on the straight-line
          basis over a period that is the lesser of the legal life of the patent
          and the estimated period of benefit.

                                       F-8
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**2.   Summary of significant accounting policies and practices (continued):**

     (e)  Impairment of long-lived assets and long-lived assets to be disposed
          of:

          Long-lived  assets are accounted for in accordance with the provisions
          of  Statement  of  Financial  Accounting  Standards  ("SFAS") No. 121,
          Accounting  for the  Impairment  of Long-Lived  Assets and  Long-Lived
          Assets to be Disposed  of. This  statement  requires  that  long-lived
          assets and certain identifiable intangibles be reviewed for impairment
          whenever events or changes in circumstances indicate that the carrying
          amount of an asset may not be recoverable. Recoverability of assets to
          be held and used is measured by a comparison of the carrying amount of
          an asset to future  net cash flows  expected  to be  generated  by the
          asset. If such assets are considered to be impaired, the impairment to
          be recognized  is measured by the amount by which the carrying  amount
          of the  assets  exceed  the fair  value of the  assets.  Assets  to be
          disposed of are reported at the lower of the  carrying  amount or fair
          value less costs to sell.

     (f)  Revenue recognition:

          (i)  Product sales:

               Revenue from product sales is recorded when goods are shipped and
               title passes, there is persuasive evidence of an arrangement,
               collection is probable, the fee is fixed or determinable and the
               obligation is not contingent on the resale of the product.

          (ii)Dealer agreements:

               Rhino Canada grants both exclusive and non-exclusive rights to
               distribute and sell its products. The agreements are based on the
               dealer purchasing a yearly minimum amount of product and/or on a
               payment for a dealer licence.  Revenue derived from the sale of
               product in accordance with the product supply agreements is
               recorded when goods are shipped and title  passes, there is
               persuasive evidence of an arrangement, collection is probable,
               the fee is fixed or determinable and the obligation  is not
               contingent on the resale of the product.

               Revenue from dealer licence fees is deferred and amortized over
               the expected term of the agreement.

          (iii)Deferred revenue:

               Proceeds received in advance of meeting the revenue recognition
               criteria is recorded as deferred revenue.

                                       F-9
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**2.   Summary of significant accounting policies and practices (continued):**

          (iv) Warranty claims:

               Provision for potential warranty claims is provided for at the
               time revenue is recognized, based on warranty terms and claims
               experience.

     (g)  Stock-based compensation:

          To the date of these consolidated financial statements, arrangements
          have not been entered into whereby one or more employees receive
          shares of stock or other equity instruments of the Company or cash
          payments based on the future value of the Company's common stock for
          services performed.  The Company will recognize equity grants to
          employees by the intrinsic value method whereby compensation expense
          is recorded only to the extent that the market value at the grant date
          exceeds the exercise or payment price for the underlying instrument.

          The Company recognizes compensation expense at the fair value of
          shares, determined by reference to market value of the Company's
          shares, issued to both employees and non-employees in exchange for
          goods and services during the period of performance completion.

     (h)  Comprehensive income:

          The Company applies SFAS No. 130, Reporting Comprehensive Income. SFAS
          No. 130 establishes standards for reporting and presentation of
          comprehensive income and its components in a full set of financial
          statements.  Comprehensive income consists of net loss and foreign
          currency translation adjustments and is presented in the consolidated
          statements of stockholders' equity (deficiency) and  comprehensive
          loss.  The statement requires only additional disclosures in the
          consolidated financial statements; it does not affect the Company's
          financial position or results of operations.

     (i)  Income taxes:

          Income taxes are accounted for under the asset and liability method.
          Under the asset and liability method, deferred tax assets and
          liabilities are recognized for the future tax consequences
          attributable to differences between the financial statement carrying
          amounts of existing assets and liabilities and their respective tax
          bases and operating loss and tax credit carryforwards.  Deferred tax
          assets and liabilities are measured using enacted tax rates expected
          to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled.  The effect on
          deferred tax assets and liabilities of a change in tax rates is
          recognized in income in the year that includes the enactment date.

                                      F-10
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**2.   Summary of significant accounting policies and practices (continued):**

     (j)  Investment tax credits:

          Investment tax credits relating to fixed asset purchases and research
          and development expenses are accounted for by the deferral method as a
          reduction of the cost of such assets and expenses in the period
          allowable.

     (k)  Research and product development:

          Research and product development costs (R&D) are expensed as incurred.
          Related investment tax credits reduce R&D expense in the same period
          in which the related expenditures are charged to operations, provided
          there is reasonable assurance the benefits will be realized.

     (l)  Foreign currency translation:

          The Canadian dollar is the functional currency of the Company's
          business.  The consolidated financial statements are translated into
          United States dollars using the average rates for the year for items
          included in the consolidated statements of operations and the current
          rate for items included in the consolidated balance sheets.  The
          translation gains or losses are included in the consolidated
          statements of stockholders' equity (deficiency) and comprehensive loss
          as other comprehensive income or loss.

     (m)  Loss per common share:

          Basic and diluted loss per share before and after extraordinary items
          is computed using the weighted average number of common shares
          outstanding during the period.  Diluted loss per share is computed
          using the weighted average number of common shares and potentially
          dilutive common share issuances outstanding during the period.

     (n)  Use of estimates:

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States of America 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 year.  Actual
          results could differ from those estimates.

                                      F-11
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**3.   Inventory:**

     --------------------------------------------------------------------------
                                                    2001                 2000
     --------------------------------------------------------------------------
     Materials                              $      45,144        $      73,788
     Work-in-process and finished goods            79,884              128,987
     --------------------------------------------------------------------------
                                            $     125,028        $     202,775
     --------------------------------------------------------------------------

**4.   Fixed assets:**

     -------------------------------------------------------------------------------
                                                    Accumulated            Net book
     2001                               Cost       amortization               value
     -------------------------------------------------------------------------------

     Moulds and dies         $       232,758      $     232,758       $           -
     Manufacturing equipment          35,961             29,487               6,474
     Furniture and fixtures           23,762             20,892               2,870
     Office equipment                 25,353             13,492              11,861
     Computer equipment                9,322              7,370               1,952
     Vehicle                           4,396              4,341                  55
     -------------------------------------------------------------------------------
                             $       331,552      $     308,340       $      23,212
     -------------------------------------------------------------------------------

     -------------------------------------------------------------------------------
                                                      Accumulated          Net book
     2000                               Cost         amortization             value
     -------------------------------------------------------------------------------

     Moulds and dies         $       238,467      $     180,028       $      58,439
     Manufacturing equipment          37,062             18,036              19,026
     Furniture and fixtures           24,490             14,040              10,450
     Office equipment                 26,129              7,495              18,634
     Computer equipment                9,608              5,006               4,602
     Vehicle                           4,531              2,964               1,567
     -------------------------------------------------------------------------------
                             $       340,287      $     227,569       $     112,718
     -------------------------------------------------------------------------------

                                      F-12
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**5.   Loans payable:**

     In the fiscal year ended July 31, 2001, the Company received proceeds on
     unsecured loans with no fixed terms of repayment and repaid a portion of
     the loans. The loans bear interest at an annual rate of approximately  24%.
     Details are as follows:

     --------------------------------------------------------------------------
     Loan proceeds                                               $      39,152

     Payments                                                          (13,051)
     --------------------------------------------------------------------------
     Loans payable, July 31, 2001                                $      26,101
     --------------------------------------------------------------------------

     Interest paid on the loans and included in bank charges and interest
     expense in 2001 is $7,794.

**6.   Related party transactions:**

     Rhino U.S. and Rhino Canada (the "Companies") purchase products,
     administrative, consulting and marketing services from its officers,
     stockholders, individuals and companies related to the stockholders
     ("related parties").  The cost of these products and services aggregating
     2001 - $174,757; 2000 - $116,850; 1999 - $136,498; and was charged as
     follows:

     ------------------------------------------------------------------------------------------
                                                    2001              2000               1999
     ------------------------------------------------------------------------------------------
     Cost of goods sold                     $       3,590     $      20,162      $      14,842
     Marketing                                      6,285             9,744                  -
     Professional and consulting fees              77,851            39,124             51,642
     Office salaries, benefits and services        77,851            44,016             47,008
     Travel and promotion                               -                 -             15,724
     Royalties                                      9,180             3,804                  -
     Expenditures on fixed assets                       -                 -              7,282
     ------------------------------------------------------------------------------------------
                                            $     174,757     $     116,850      $     136,498
     ------------------------------------------------------------------------------------------

     These transactions are measured at the exchange amount, which is the amount
     of consideration established and agreed to by the related parties.

                                      F-13
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**6.   Related party transactions (continued):**

     The Companies also transfer and receive funds from the related parties.
     Interest paid at an annual rate of 16% in 2001 (2000 - nil, 1999 - nil) on
     the amounts due to related parties and included in bank indebtedness and
     interest expense in 2001 is $20,141 (2000 - nil, 1999 - nil).

     The amount due to related parties that has arisen from these transactions
     is unsecured with no fixed terms of payment and is as follows:

     --------------------------------------------------------------------------
                                                     2001                 2000
     --------------------------------------------------------------------------
     Due to related parties:
         Due to stockholders                $     256,042        $     120,141
     --------------------------------------------------------------------------

**7.   Deferred revenue:**

     --------------------------------------------------------------------------
                                                     2001                 2000
     --------------------------------------------------------------------------
     Deferred revenue                       $           -        $      13,947

     Current portion of deferred revenue                -               (2,461)
     --------------------------------------------------------------------------
                                           $           -        $      11,486
     --------------------------------------------------------------------------

     Deferred revenue represents the unearned revenue derived from a fee
     received for a dealer licence which is being  recorded to revenue over the
     period of the agreement term of sixty months.

     Effective April 2, 2001, the Company ("Rhino") entered into a Canadian
     Distribution Agreement ("Agreement") with Watts Industries (Canada) Inc.
     ("Watts").  The Agreement  grants Watts the exclusive rights to distribute
     and sell the Rhino's wet waste products in Canada, to either the Rhino
     dealers or Watts' customers.  Pursuant to the Agreement, Watts paid the
     Company CDN $200,000 for its initial purchase of product.  To maintain
     Canadian exclusivity, Watts must  purchase CDN $1.5  million in products
     during the eighteen-month period ending September 2002.

     In order to effect the Agreement, the Company had to negotiate  the
     cancellation of its licence with one dealer.  The Company successfully
     negotiated an arrangement with the dealer to change the dealer agreement to
     a product supply agreement.  Consequently, the unamortized dealer licence
     fee in the amount of $10,145 recorded in the accounts as deferred revenue
     as at April 2, 2001 was applied to the dealer's subsequent purchases of
     product.

                                      F-14
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**8.   Long-term debt:**

     --------------------------------------------------------------------------
                                                     2000                1999
     --------------------------------------------------------------------------
     Term loan bearing interest at the bank's
       prime rate plus 2.5%, repayable in
       principal monthly installments of
       USD $1,699 plus interest, due October
       2008, (CDN 2001 - $164,062,
       2000 - $192,708)                      $     107,056       $     129,595

     Current portion of long-term debt             (22,087)            (21,015)
     --------------------------------------------------------------------------
                                             $      84,969       $     108,580
     --------------------------------------------------------------------------

     The term loan is secured by a security agreement on specific equipment and
     by a stockholder's guarantee in the amount of $40,783.

     The aggregate maturities on long-term debt for each of the five fiscal
     years subsequent to July 31, 2001 and thereafter are as follows: 2002 -
     $22,087; 2003 - $20,388; 2004 - $20,388; 2005 - $20,388; 2006 - $20,388 and
     thereafter $3,417.

**9.   Share capital:**

     (a)  Share capital for services:

          In  November 2000, the Company issued 20,000 common shares as
          consideration for services provided by legal counsel (note 10(d)) and
          in May 2001, the Company issued 15,712 common shares as consideration
          for marketing services.  Values of $7,480 and $6,285 were assigned to
          the legal and marketing services, respectively, based on the market
          price of the shares at date of issuance. The 15,712 common shares were
          issued for marketing services under Section 4(2) Restricted Rule 144
          shares of the Securities Act of 1933 and are restricted for one year.

                                      F-15
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**9.   Share capital (continued):**

     (b)  Share capital for conversion of loans:

          At March 2001, the Company had outstanding interest free loans in the
          aggregate amount of $128,400 payable to officers and stockholders
          ("the lenders") of the Company.  Effective March 15, 2001, the lenders
          and parties related to the lenders received 1,000,000 restricted
          common shares of Company to extinguish the loans.

          The common shares issued are restricted for one year as they were
          issued under Section 4(2) Restricted Rule 144 shares of the Securities
          Act of 1933.  The fair value of the common shares based on the market
          price of 1,000,000 unrestricted common shares on the effective date of
          extinguishment of the loans, was $250,000.  The difference of $121,600
          between the fair value of 1,000,000 of unrestricted common shares of
          $250,000 and the $128,400 of loans extinguished has been recorded as a
          loss on extinguishment of debt in the consolidated statements of
          operations.

     (c)  Treasury stock:

          On August 23, 2000, the Company filed a Registration Statement
          ("Registration Statement") on Form S-8 with the United States
          Securities and Exchange Commission.  Pursuant to the Registration
          Statement an aggregate of 670,000 common shares of the Company were
          registered as having been issued and sold.  On November 12, 2000, the
          Company filed a Post Effective Amendment No.1 to the Form S-8 with the
          United States Securities and Exchange Commission. As a result, 390,000
          of 670,000 common shares that had been previously issued were
          cancelled and returned to treasury (note 10(d)).

                                      F-16
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**10.  Commitments and contingencies:**

     (a)  Lease commitments:

          Rhino Canada rents premises and equipment under operating leases with
          minimum aggregate payments as follows:

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

          2002                                                    $      32,439
          2003                                                           33,640
          2004                                                           33,958
          2005                                                           35,248
          2006                                                           24,072
     ---------------------------------------------------------------------------
                                                                  $     159,357
     ---------------------------------------------------------------------------

     (b)  Supply agreement:

          Rhino Canada has in place an exclusive supply agreement with Filterco
          Inc. which expires on April 30, 2003.  Pursuant to the agreement,
          Filterco Inc. is the exclusive supplier to Rhino Canada of the
          disposable filtration bags utilized in its wet waste interceptors.

     (c)  Royalties:

          Sales of wet waste interceptors are subject to royalties at a rate of
          3% of the sales price.  The royalties are payable to the inventor of
          the wet waste interceptor who is also a stockholder, as consideration
          for the inventor's assignment of all rights, title and interest in the
          invention.

     (d)  Consulting agreements:

          On August 23, 2000, the Company filed a Registration Statement
          ("Registration Statement") on Form S-8 with the United States
          Securities and Exchange Commission.

          Pursuant to the Registration Statement, an aggregate of 670,000 common
          shares ("shares") of the Company were registered as having been issued
          and sold. The shares were issuable to compensate for services received
          or to be received pursuant to ten separate consulting agreements and
          one fee agreement with legal counsel.

          20,000 of the issued shares were released as compensation to retain
          the services of legal counsel. The Company deferred release of the
          remaining 650,000 shares until such time it was satisfied it had
          received the services to be paid for by the release of the shares.

                                      F-17
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**10.  Commitments and contingencies (continued):**

          As of November 6, 2000, the Company determined that the services set
          out in six of the ten consulting agreements ("agreements") would not
          be rendered.  Consequently,  on November 12, 2000, the Company filed a
          Post Effective Amendment No.1 to the Form S-8 of August 23, 2000 with
          the United States Securities and Exchange Commission. As a result, the
          390,000 shares that had been previously issued for the six agreements
          were cancelled and the shares returned to treasury.  It is the opinion
          of management that the Company will have no liability for the
          non-release of the shares and subsequent cancellation.

          The remaining 260,000 shares held for four agreements are to be
          released to the intended recipient when the Company is satisfied that
          services pursuant to the agreements have been satisfactorily rendered.
          The services to be provided and the number of shares to be released
          pursuant to the four agreements are as follows:

          ----------------------------------------------------------------------
          Nature of service                                     Number of shares
          ----------------------------------------------------------------------

          Developing corporate dealership                                90,000

          Mould design                                                   60,000

          Testing measurements required on the
            patenting and plumbing code compliance                       50,000

          Assistance in locating warehouses throughout
            the United States for delivery of the
            Company's products                                           60,000
          ----------------------------------------------------------------------
                                                                        260,000
          ----------------------------------------------------------------------

          As at July 31, 2001, no services had been provided pursuant to the
          consulting agreements.

          The fair value of the 260,000 common shares determined by reference to
          the market value of the Company's common shares will be recognized
          during the period of performance completion.

                                      F-18
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**11.  Due from Le Group De Recuperation O'Energie P.H. Inc.:**

     In March 1998, in the course of negotiations to acquire all of the
     outstanding and issued shares of Le Group De Recuperation O'Energie P.H.
     Inc., Rhino Canada advanced to Le Group De Recuperation O'Energie P.H. Inc.
     $99,213.  The advance was non-interest bearing and was to be recovered upon
     either the favourable or unfavourable conclusion of the negotiations.  On
     August 26, 1999, the negotiations were concluded with the transaction not
     proceeding. During the year ended July 31, 1999, Rhino Canada received cash
     of $99,213 in full settlement of the amount advanced.

**12.  Sales and other income:**

     ----------------------------------------------------------------------------------
                                                                             Cumulative
                                                                            period from
                                                                           inception on
                                                                        June 7, 1996 to
                                 2001              2000           1999    July 31, 2001
     ----------------------------------------------------------------------------------

     Sales               $    317,451      $    168,036      $  19,059     $    504,546
     Dealer licence fee        13,947               828              -           14,775
     Other                        648             5,078          9,939           15,665
     ----------------------------------------------------------------------------------
                         $    332,046      $    173,942      $  28,998     $    534,986
     ----------------------------------------------------------------------------------

                                      F-19
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**13.  Fair value of financial assets and financial liabilities:**

     Financial instruments:

     The following table presents the carrying amounts and estimated fair values
     of financial instruments at July 31, 2001 and 2000.  The estimated fair
     value of a financial instrument is the amount at which the instrument could
     be exchanged in a current transaction between willing parties, other than a
     forced or liquidation sale. These estimates, although based on the relevant
     market information about the financial instrument, are subjective in nature
     and involve uncertainties and matters of significant judgment and therefore
     cannot be determined with precision.

     Changes in assumptions could significantly affect the estimates.

     ---------------------------------------------------------------------------
                                     2001         2001         2000         2000
     ---------------------------------------------------------------------------
                                 Carrying         Fair     Carrying         Fair
                                   amount        value       amount        value
     ---------------------------------------------------------------------------

     Financial assets:
       Accounts receivable     $   21,674   $   21,674   $   14,896   $   14,896
       Deposits                    12,605       12,605       14,200       14,200
     Financial liabilities:
       Bank indebtedness           18,537       18,537        8,806        8,806
       Accounts payable and
         accrued liabilities      319,807      319,807      344,004      344,004
       Loans payable               26,101       26,101            -            -
       Due to related parties     256,042      256,042      120,141      120,141
       Long-term debt             107,056      107,056      129,595      129,595
     ---------------------------------------------------------------------------

     The following methods and assumptions were used to estimate the fair value
     of each class of financial
       instruments:

     (i)  Accounts receivable, deposits, bank indebtedness and accounts payable
          and accrued liabilities:

          The carrying amounts approximate fair value because of the short term
          to maturity of these instruments.

                                      F-20
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**13.  Fair value of financial assets and financial liabilities (continued):**

     (ii) Loans payable and due to related parties:

          Imputed interest computed at comparable market rates on the loans
          payable and due to related parties is not considered to be material to
          the consolidated financial statements.  Consequently, the consolidated
          financial statements do not include a charge for imputed interest on
          the loans payable and due to related parties and the fair value is
          considered to be comparable to the carrying value.

     (iii)Long-term debt:

          The fair value is estimated by discounting the future cash flows at
          rates currently offered to Rhino U.S. and Rhino Canada for similar
          debt instruments of comparable maturity by the Company's bankers.

**14.  Income taxes:**

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets at July 31, 2001 and 2000 are presented
     below:

     ---------------------------------------------------------------------------
                                                    2001                 2000
     ---------------------------------------------------------------------------
     Deferred tax assets:

     Net operating loss carryforwards        $     732,000      $       623,000
     Fixed assets, principally due to
        differences in amortization                      -               12,000
     Unamortized share issue costs                       -                7,000
     ---------------------------------------------------------------------------

     Total gross deferred tax assets               732,000              642,000
     Less valuation allowance                     (732,000)            (642,000)

     ---------------------------------------------------------------------------
     Net deferred tax assets                 $           -        $           -
     ---------------------------------------------------------------------------

                                      F-21
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**14.  Income taxes (continued):**

     The valuation allowance for deferred tax assets as at July 31, 2001 and
     2000 was $732,000 and $642,000, respectively.  The net change in the total
     valuation allowance for the years ended July 31, 2001, 2000 and 1999 was an
     increase of $90,000, $242,000 and $223,000, respectively. In assessing the
     realizability of deferred tax assets, management considers whether it is
     more likely than not that some portion or all of the deferred tax assets
     will not be realized.  The ultimate realization of deferred tax assets is
     dependent upon the generation of future taxable income during the periods
     in which those temporary differences become deductible.

     Management considers projected future taxable income and tax planning
     strategies in making this assessment.  In order to fully realize the
     deferred tax assets, the Company will need to generate future taxable
     income of approximately $1,663,000 prior to the expiration of the net
     operating loss carryforwards which occur between 2004 and 2008. Based upon
     the level of historical taxable income and that the Company is considered a
     development stage company, it cannot be reasonably estimated at this time
     if its more likely than not the Company will realize the benefits of the
     deferred tax assets.  Consequently, the deferred  tax assets have been
     reduced by an equivalent valuation allowance.  The valuation allowance will
     be adjusted in the period that is determined with reasonable certainty that
     it is more likely than not that some portion or all of the deferred tax
     assets will be realized.

     At July 31, 2001, the Company has net operating loss carryforwards for
     income tax purposes of approximately $1,663,000 which are available to
     offset future taxable income, if any, through 2004 to 2008.

                                      F-22
**Rhino Ecosystems, Inc.**
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)

Years ended July 31, 2001, 2000 and 1999 and cumulative period from inception
of the development stage on June 7, 1996 to July 31, 2001

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

**15.  Supplemental information to consolidated statements of cash flows:**

     -----------------------------------------------------------------------------------------
                                                                                   Cumulative
                                                                                  period from
                                                                                 inception on
                                                                              June 7, 1996 to
                                              2001         2000          1999   July 31, 2001
     -----------------------------------------------------------------------------------------

     (a)  Cash paid during the year for:

            Interest                     $  31,438    $  22,140     $  18,165      $  83,602
            Income taxes                         -            -             -              -
     -----------------------------------------------------------------------------------------

     (b)  Non-cash financing activities:

          (i)  In fiscal 2001, 1,000,000 restricted common shares of Rhino U.S.
               were issued for extinguishment of stockholder loans payable of
               $128,400.

          (ii) In fiscal 2000, 188,828 common shares of Rhino U.S. were issued
               to compensate a merchant bank for the sale of shares pursuant to
               the 504 Offering.

          (iii)In fiscal 2000, 5,525,539 common shares of Rhino U.S. were
               issued upon the recapitalization described in note 1(a).

                                      F-23
**SIGNATURES**

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    Rhino EcoSystems, Inc.

October 31, 2001                    By:   /s/ Mark Wiertzema
                                              Mark Wiertzema, President
                                              and Chief Financial Officer

     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

                             Rhino EcoSystems, Inc.

October 31, 2001                    By:   /s/ Mark Wiertzema
                                              Mark Wiertzema, Director

October 31, 2001                    By:   /s/ Gordon Novak
                                              Gordon Novak, Vice President

October 31, 2001                    By:   /s/ Jan Walsh
                                               Jan Walsh, Secretary/Treasurer

                                       22
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