CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1998
<TABLE>
<CAPTION>

                                     ASSETS

<S>                                                               <C>
CURRENT ASSETS
 Cash and cash equivalents                                        $     36,883
 Investments                                                             9,219
 Accounts receivable                                                    11,695
 Inventory                                                              32,786
 Deferred tax asset                                                      2,500
 Other current assets                                                    3,065
                                                                  -------------
     Total current assets                                               96,148
                                                                  -------------
PROPERTY AND EQUIPMENT
 Furniture and equipment                                                61,915
 Leasehold improvements                                                 24,800
                                                                  -------------
                                                                        86,715
 Less: Accumulated depreciation                                         69,916
                                                                  -------------
     Total property and equipment                                       16,799
                                                                  -------------

OTHER ASSETS
 Deferred tax asset                                                    212,500
                                                                  -------------
TOTAL ASSETS                                                      $    325,447
                                                                  =============
</TABLE>

The  accompanying  notes to financial  statements  are an integral  part of this
statement.

                                     F-2
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1998
                                   (Continued)
<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                               <C>
CURRENT LIABILITIES
 Accounts payable and accrued expenses                            $      6,055
                                                                  -------------

COMMON STOCK SUBJECT TO REPURCHASE,  par value $.0001 per share,
 100,000 shares authorized, 8,000 shares issued and outstanding          1,660
                                                                  -------------

STOCKHOLDERS' EQUITY
 Class A common stock, par value $.0001 per share,  
  9,900,000 shares authorized, 1,316,584 shares issued 
  and outstanding;  Class B non-voting common stock, par
  value $.0001 per share, 10,000,000 shares
  authorized, 0 shares issued and outstanding                              130
 Additional paid-in capital                                          1,690,734
 Accumulated other comprehensive income (loss)                          (4,164)
 Accumulated deficit                                                (1,368,968)
                                                                  -------------
     Total stockholders' equity                                        317,732
                                                                  -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $    325,447
                                                                  =============
</TABLE>

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

                                     F-3
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                      1998            1997
                                                  -------------   -------------
<S>                                               <C>             <C>
PRODUCT SALES                                     $    276,325    $    283,677

COST OF PRODUCTS SOLD                                   55,856          71,227
                                                  -------------   -------------
GROSS PROFIT                                           220,469         212,450

CONSULTING SERVICES AND OTHER OPERATING REVENUE            350          86,667
                                                  -------------   -------------
TOTAL OPERATING REVENUE                                220,819         299,117
                                                  -------------   -------------

OPERATING EXPENSES
 Selling, general and administrative                   175,427         347,685
 Public offering expenses                               70,689         127,467
 Write down of inventory to net realizable
  value                                                 57,187               -
                                                  -------------   -------------
     Total operating expenses                          303,303         475,152
                                                  -------------   -------------
LOSS FROM OPERATIONS                                   (82,484)       (176,035)
                                                  -------------   -------------

OTHER INCOME (EXPENSE)
 Investment and other income                            10,633           1,654
 Gain due to change in redemption price
  on common stock subject to repurchase                    420           6,408
 Equity in loss from unconsolidated joint 
  venture                                                    -            (420)
 Allowance for loss from unconsolidated 
  joint venture                                              -         (40,406)
 Interest expense                                       (3,152)         (2,727)
                                                  -------------   -------------
     Total other income (expense)                        7,901         (35,491)
                                                  -------------   -------------
LOSS BEFORE INCOME TAXES                               (74,583)       (211,526)

INCOME TAX BENEFIT (EXPENSE), net                      (35,000)         20,650
                                                  -------------   -------------
NET LOSS                                          $   (109,583)   $   (190,876)
                                                  =============   =============

NET LOSS PER COMMON SHARE                         $       (.08)   $       (.15)
                                                  =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES OUTSTANDING                                  1,290,434       1,230,973
                                                  =============   =============
</TABLE>
The  accompanying  notes to financial  statements  are an integral part of these
statements.

                                     F-4
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                      1998            1997
                                                  -------------   -------------
<S>                                               <C>             <C>
NET LOSS                                           $  (109,583)   $   (190,876)
                                                  -------------   -------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
  Unrealized holding losses arising during
   the period                                           (4,164)         (3,755)
  Less:  Reclassification adjustment for
   losses included in net loss                           3,755               -
                                                  -------------   -------------
OTHER COMPREHENSIVE INCOME (LOSS)                         (409)         (3,755)
                                                  -------------   -------------
COMPREHENSIVE INCOME (LOSS)                       $   (109,992)   $   (194,631)
                                                  =============   =============
</TABLE>

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

                                     F-5
<PAGE>
<TABLE>
<CAPTION>
                                           CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                                               STATEMENTS OF STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   COMMON STOCK            ADDITIONAL    COMMON STOCK    ACCUM. OTHER                      TOTAL
                            ___________________________     PAID-IN       ISSUED FOR    COMPREHENSIVE   ACCUMULATED   STOCKHOLDERS'
                               SHARES       AMOUNT          CAPITAL      FUTURE SERV.   INCOME (LOSS)     DEFICIT        EQUITY
                            ------------   ------------   ------------   ------------   ------------   ------------   -------------
<S>                         <C>            <C>            <C>            <C>            <C>            <C>            <C>
Balance, December 31, 1996    1,200,110    $       120    $ 1,670,434    $   (18,500)   $         -    $(1,068,509)   $    583,545

Shares issued for services       10,000              1          2,809              -              -              -           2,810

Shares returned, originally
issued in 1996 for services     (10,000)            (1)        (2,499)             -              -              -          (2,500)

Compensation earned                   -              -              -         18,500              -              -          18,500

Expiration of repurchase
obligation on common stock       20,000              -              -              -              -              -               -

Other comprehensive income
  (loss)                              -              -              -              -         (3,755)             -          (3,755)

Net loss                              -              -              -              -              -       (190,876)       (190,876)
                            ------------   ------------   ------------   ------------   ------------   ------------   -------------
Balance, December 31, 1997    1,220,110            120      1,670,744              -         (3,755)    (1,259,385)        407,724

Shares issued for services      106,474             11         24,989              -              -              -          25,000

Shares repurchased and
 retired                        (10,000)            (1)        (4,999)             -              -              -          (5,000)

Other comprehensive income
  (loss)                              -              -              -              -           (409)             -            (409)

Net loss                              -              -              -              -              -       (109,583)       (109,583)
                            ------------   ------------   ------------   ------------   ------------   ------------   -------------
Balance, December 31, 1998    1,316,584    $       130    $  1,690,734    $        -    $    (4,164)   $(1,368,968)   $    317,732
                            ============   ============   =============   ===========   ============   ============   =============
</TABLE>

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

                                       F-6
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                            STATEMENTS OF CASH FLOWS
                           DECEMBER 31, 1998 AND 1997
                     Increase in Cash and Cash Equivalents


                                                         1998          1997
                                                     ------------  ------------

CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                            $  (109,583)  $  (190,876)
                                                     ------------  ------------
 Adjustments to reconcile net loss to net cash 
  provided by operating activities:
   Depreciation and amortization                          14,282        34,200
   (Gain) loss on sale of investments                      2,019          (702)
   Deferred compensation earned                                -        18,500
   Equity in loss of unconsolidated joint venture              -           420
   Allowance for loss from unconsolidated joint 
     venture                                                   -        40,406
   Write down of inventory to net realizable value        57,187             -
   Gain based on redemption price of common
     stock subject to repurchase                            (420)       (6,408)
   Stock issued for services                              25,674           310
   Decrease in accounts receivable                        29,841        64,656
   Increase in inventory                                  (2,977)      (10,617)
   Decrease in other current assets                          363           585
   Decrease (increase) in deferred income taxes           35,000       (20,650)
   Decrease in deferred offering costs                    35,000        92,531
   Increase (decrease) in accounts payable and
    accrued expenses                                     (23,240)       18,752
                                                     ------------  ------------
        Total adjustments                                172,729       231,983
                                                     ------------  ------------
    Net  cash  provided by operating activities           63,146        41,107
                                                     ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of equipment and leasehold improvements         (3,733)       (9,255)
 Loan to employee                                              -        (4,000)
 Repayment of employee loan                                2,467        11,283
 Proceeds from sale of investment                         19,331        43,756
 Purchases of investments                                (13,382)      (64,405)
                                                     ------------  ------------
    Net cash provided by (used in) investing
     activities                                            4,683       (22,621)
                                                     ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES
 Net payments on line-of-credit                          (23,877)      (28,322)
 Net proceeds (payments) on investment margin account    (10,400)       10,400
 Proceeds from loan payable to stockholder                16,771         9,090
 Payment to stockholder on loan                          (16,771)       (9,090)
 Repurchase of stock                                      (5,000)            -
                                                    ------------  ------------
Net cash used for financing activities                   (39,277)      (17,922)
                                                     ------------  ------------
Net increase in cash and cash equivalents                 28,552           564

CASH AND CASH EQUIVALENTS, beginning of year               8,331         7,767
                                                     ------------  ------------
CASH AND CASH EQUIVALENTS, end of year               $    36,883   $     8,331
                                                     ============  ============


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

                                     F-7
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                             STATEMENTS OF CASH FLOWS
                           DECEMBER 31, 1998 AND 1997
                      Increase in Cash and Cash Equivalents
                                   (Continued)


                                                         1998         1997
                                                     ------------  ------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest               $     3,152   $     2,727
                                                     ============  ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
 FINANCING ACTIVITY
  Common stock issued for services                   $    25,674   $       310
                                                     ============  ============


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

                                     F-8
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The  following  is a summary  of the more  significant  accounting  policies  of
Cyclodextrin  Technologies  Development,  Inc.  (the  Company)  which affect the
accompanying financial statements:

     (a)  ORGANIZATION  AND  OPERATIONS--The  Company was incorporated in August
     1990, as a Florida corporation with operations  beginning in July 1992. The
     Company is engaged in the marketing and sale of  cyclodextrins  and related
     products to food,  pharmaceutical  and other  industries.  The Company also
     provides  consulting  services  related  to  cyclodextrin  technology.  The
     Company's current market is primarily within the United States.

     (b) CASH AND CASH  EQUIVALENTS--For  the purposes of reporting  cash flows,
     the  Company  considers  all highly  liquid  investments  with an  original
     maturity of three months or less to be cash equivalents.

     (c) PROPERTY AND  EQUIPMENT--Property  and  equipment are recorded at cost.
     Depreciation on equipment is computed using primarily  accelerated  methods
     over the  estimated  useful  lives of the assets,  which are either five or
     seven  years.  Depreciation  on leasehold  improvements  is computed on the
     straight-line  method over the lesser of the term of the  related  lease or
     the estimated useful lives of the assets.

     (d)  INVENTORY--Inventory  consists  of products  purchased  for resale and
     chemical complexes  manufactured  in-house, and is recorded at the lower of
     cost (first-in, first-out) or market.

     (e) INVESTMENTS--The Company's investments are marketable equity securities
     held for an indefinite period and are classified as available for sale. Net
     unrealized  holding losses on such  securities  were $4,164 at December 31,
     1998, and are charged to stockholders' equity.  Realized losses were $2,019
     in 1998 using the specific identification method.

     (f) REVENUE RECOGNITION--Revenues are recorded when products are shipped.

     (g)  ADVERTISING--The  Company expenses the production costs of advertising
     the first time the advertising takes place.

                                     F-9
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (Continued)

     (h) NET INCOME (LOSS) PER COMMON  SHARE--Net income (loss) per common share
     is computed in accordance  with the  requirements of Statement of Financial
     Accounting Standards No. 128 (SFAS 128) at December 31, 1998 and 1997. SFAS
     128 requires net income per share information to be computed using a simple
     weighted average of common shares outstanding during the periods presented.
     SFAS 128  eliminated  the  previous  requirement  that  earnings  per share
     include  the  effect  of  any  dilutive  common  stock  equivalents  in the
     calculation.  Common shares  outstanding  includes  common stock subject to
     repurchase.

     (i) USE OF ESTIMATES--The preparation of financial statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates  and  assumptions   that  affect  certain  reported  amounts  and
     disclosures. Accordingly, actual results could differ from those estimates.


(2) COMMITMENTS:

On July 7, 1994, the Company  entered into a five year  noncancelable  operating
lease for office space,  commencing  November 1994. The Company has an option to
rent  additional  space and a purchase  option in which ten percent of the lease
payments may be applied to the purchase price. The future minimum lease payments
under operating leases as of December 31, 1998, are as follows:


                    YEAR ENDING
                    DECEMBER 31,                     AMOUNT
                    ------------                   -----------
             
                    1999                                18,240
                                                   -----------
                    Total                          $    18,240
                                                   ===========


Rent  expense  under the  foregoing  lease and all other  operating  leases  was
$23,391 and $22,606 for 1998 and 1997, respectively.

                                     F-10
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(2) COMMITMENTS:  (Continued)

Effective  January 1, 1995, the Company  obtained an exclusive right to market a
dietary  supplement in the United States for three years.  The Company agreed to
pay  approximately  $60,000 for this right. The agreement allowed the Company to
recover this fee through  discounts on inventory  purchased through December 31,
1997. The license fee was amortized on a straight-line basis over the three year
period  of  the  contract  and  was  fully   amortized  at  December  31,  1997.
Amortization  expense in 1997 was $20,000.  In January 1998,  this agreement was
extended  until  December  31,  1998,  including  the right of first  refusal to
reobtain its  exclusive  marketing  rights  during this period.  The Company was
required to order  additional  inventory of  approximately  $15,000 by March 31,
1998, under the terms of this agreement extension.  The deadline to purchase the
additional inventory was further extended on March 23, 1998 to June 1, 1998. The
Company paid approximately $5,500 in January 1998 toward this obligation.  As of
June 1, 1998,  the Company had not  purchased the  additional  inventory and the
right of first refusal  expired.  As of December 31, 1998 the $5,500  prepayment
has been  expensed  and the Company is under no further  obligation  to purchase
inventory.

In April 1997, the Company  entered into an agreement with Atlantic  Syndication
Network,  Inc.  (ASNI) for the  production of a half hour premier cable program.
The Company  paid $2,500 in 1997 to reserve  production  time and also issued to
ASNI 10,000  shares of the  Company's  voting  common  stock.  The Company  also
granted ASNI an option to purchase up to 25,000 shares of its non-voting  common
stock at a purchase price of $1 per share.  This option expired June 1, 1998. On
August 10, 1998 the Company repurchased the 10,000 shares for $5,000 and retired
these shares previously issued to ASNI.

The Company has other commitments as discussed in Notes 3 and 7.

                                     F-11
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


(3) COMMON  STOCK  SUBJECT TO  REPURCHASE:During  1994,  the  Company  adopted a
nonqualified  employee stock  issuance plan to provide  incentives to employees.
The Company has reserved  100,000 of its  10,000,000  voting common stock shares
authorized  to be used under this Plan.  Stock  issued under this plan is at the
discretion  of the Board of  Directors  of the Company  and bears a  restrictive
legend.  All shares  issued  pursuant to this Plan must be held for a minimum of
two years and become fully vested after five years. During the three year period
beginning  on the first day of the third year  after  issuance  and ending  five
years after  issuance,  the Company shall purchase all or any part of the shares
from the employee upon the employee's written request; the purchase price of the
shares shall be 50% of the then current market value of the shares.

1994 Shares
The Company  valued the shares  issued  under the plan in 1994 at 50% of the bid
price on award  date.  The quoted  market  price was not used to value the stock
since the stock does not trade  freely in an  established  market,  and thus,  a
market  price  could not be  accurately  established.  The amount  recorded  was
classified as a reduction to stockholders' equity in the accompanying  financial
statements.  The Company  amortized  this amount over the vesting  period on the
straight-line basis, the estimated benefit of future services.

In December  1994,  the Company  issued  25,000  shares to employees  for future
services under this plan. The Company valued the 25,000 shares at $37,500, which
was  approximately  50% less than the bid price at the award  date.  On June 30,
1997,  all of the  remaining  employees  holding  stock issued in 1994 under the
employee  stock  issuance  plan  noted  above,  terminated  employment  with the
Company. At that time, the remaining  unamortized amount of the stock issued for
future services was charged to expense.  The Company's  obligation to repurchase
the remaining 5,000 1994 shares expires in 1999.

                                       F-12
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(3) COMMON STOCK SUBJECT TO REPURCHASE:  (Continued)

1998 Shares
The Company valued the shares issued under the plan in 1998 at an average of the
stock price  during the 30 days prior and the 30 days after the award date.  The
quoted  market  price was not used to value the stock  since the stock  does not
trade  freely in an  established  market,  and thus, a market price could not be
accurately established.

In April 1998, the Company issued 1,500 shares to employees for future  services
under  this  plan.  The  Company  valued  the 1,500  shares  at $675,  which was
approximately 50% less than the bid price on the effective award date.

The  Company  expensed  $675 and  $18,500  under  the plan for the  years  ended
December 31, 1998 and 1997. No shares have been  repurchased  under this plan in
1997 or 1998.

The Company reflects its obligation to repurchase the stock as a liability under
the caption  Common Stock Subject to Repurchase  in the  accompanying  financial
statements. Any change in the valuation of this account is recorded as a gain or
loss in the  accompanying  statement of  operations.  The  Company's  repurchase
obligation for current  employees is valued at 50% of the bid price of the stock
on the balance sheet date. The Company's repurchase obligation for stock held by
former employees is valued at 50% of the bid price on the date of the employee's
termination.

Common stock subject to repurchase activity comprises the following:


                                                        1998           1997
                                                     -----------    -----------
         
          Balance, beginning of year                 $    1,405     $    7,813
          Common stock issued                               675              -
          Expiration of repurchase obligation                 -         (6,250)
          Market changes in redemption price               (420)          (158)
                                                     -----------    -----------
          Balance, end of year                       $    1,660     $    1,405
                                                     ===========    ===========


                                     F-13
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

 (4) CONCENTRATIONS OF CREDIT RISK:

Significant concentrations of credit risk for all financial instruments owned by
the Company, are as follows:

     (a) DEMAND  DEPOSITS--The  Company has demand  deposits in two local branch
     banks which are insured by the Federal Deposit Insurance  Corporation up to
     $100,000.  At December 31, 1998, the bank balance was $36,907.  The Company
     has no policy of  requiring  collateral  or other  security  to support its
     deposits.

     (b)  ACCOUNTS  RECEIVABLE--The  Company's  accounts  receivable  consist of
     amounts  due  primarily  from  food and  pharmaceutical  companies  located
     primarily  in the  United  States.  The  Company  has no  policy  requiring
     collateral or other security to support its accounts receivable.

(5) MAJOR CUSTOMERS:

Sales to two customers in 1998 represented  approximately 59% of total sales. Of
this, sales to one major customer were  approximately  $132,000 or 48% of sales,
and sales to another major customer were approximately  $30,000 or 11% of sales.
The  aggregate  accounts  receivable  balances at December  31, 1998 for the two
major  customers  were  $6,250.  Sales  to two  customers  in  1997  represented
approximately  58% of total sales.  Of this,  sales to one major  customer  were
approximately $130,000 or 35% of sales, and sales to another major customer were
approximately $87,000 or 23% of sales.

(6) NOTES PAYABLE:
The  Company  has a $25,000  unsecured  line-of-credit  with a local  bank.  The
monthly minimum  payment is calculated  based on the  outstanding  balance.  The
interest  rate is variable  (11.25% at December  31,  1998).  The Company has no
outstanding balance as of December 31, 1998. The credit line can be canceled and
payment of the  outstanding  amount due can be required on demand by the bank at
any time.

                                     F-14
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


(7) JOINT VENTURES:

Effective May 1, 1995, the Company entered into a joint venture  agreement under
the name of Ocudex,  Inc. (Ocudex).  The Company and Ocumed,  Inc., an unrelated
company,  each own 50% of Ocudex.  The Company had advanced Ocudex $51,000 as of
December 31, 1997.  The Company  accounts for its investment in the Ocudex joint
venture using the equity method of accounting  whereby its investment is carried
at cost,  including  advances,  adjusted for the Company's share of earnings and
losses.  The Company  reduced  its  investment  in the joint  venture to zero at
December 31, 1997, due to uncertainty as to the recovery of these amounts.

In March 1997, the Company entered into a joint venture agreement with Jurox PTY
Limited  (Jurox),  an  unrelated  company,  in order to  develop a new  product.
According to the agreement, each party shall be separately responsible for their
own costs for the development of the product.  The Company has agreed to provide
the developed product to Jurox at the cost to manufacture plus 10%. Jurox agrees
to pay the Company royalties on net sales of the product as follows:
          5% of net sales for the first  year of sales,  
          4% of net sales for the second year of sales, and 
          3% of net sales for a further 8 years.
Jurox  purchased  $360 of product  from CTD in the fourth  quarter of 1998 under
this agreement.

(8) FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial  Accounting Standards No. 107 requires disclosure of fair
value to the extent  practicable for financial  instruments which are recognized
or  unrecognized  in  the  balance  sheet.  The  fair  value  of  the  financial
instruments  disclosed  herein is not necessarily  representative  of the amount
that could be realized or settled,  nor does the fair value amount  consider the
tax  consequences of realization or settlement.  The following table  summarizes
financial  instruments  by  individual  balance sheet account as of December 31,
1998:


                                                       CARRYING         FAIR
                                                        AMOUNT          VALUE
                                                      ----------     ----------
        
         FINANCIAL ASSETS:
          Cash and cash equivalents                   $   36,883     $   36,883
          Investments                                      9,219          9,219
          Accounts receivable                             11,695         11,695
                                                      ----------     ----------
              Total financial assets                  $   57,797     $   57,797
                                                      ==========     ==========

          FINANCIAL LIABILITIES:
           Accounts payable and accrued expenses      $    6,055     $    6,055
                                                      ----------     ----------
               Total financial liabilities            $    6,055     $    6,055
                                                      ==========     ==========


The fair value of investments  are determined  from quoted market prices at year
end. The fair value of all other  financial  instruments  classified  as current
assets or liabilities approximates carrying value due to the short-term maturity
of the instruments.

                                     F-15
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(9) INCOME TAXES:

The  Company  recorded  an income  tax  benefit  of  $32,975  for the year ended
December  31,  1997,  reflecting  the  future  benefit of the  current  year net
operating  loss,  net of the 10%  valuation  allowance.  The  valuation  account
decreased $166,925 during 1997 as a result of the above changes.

The  Company  has  available  at  December  31,  1998,   unused  operating  loss
carryforwards  totaling  approximately  $1,485,000  that may be applied  against
future taxable income. If not used, the carryforwards will expire as follows:



           Year Ending
           December 31,                               Amount
        -----------------                       -----------------
        
        2011                                    $       1,084,000
        2012                                              195,000
        2014                                              206,000
                                                -----------------
        Total                                   $       1,485,000
                                                =================


The  Company  also  has  deductible  temporary  difference  resulting  from  the
difference  between  financial  and tax bases of inventory  and stock issued for
services totaling approximately $82,000 at December 31, 1998.

If all of the operating loss carryforwards and temporary deductible  differences
were used,  the  Company  would  realize a deferred  tax asset of  approximately
$345,000  based upon  expected  income tax rates.  Under  Statement of Financial
Accounting  Standards No. 109,  Accounting  for Income  Taxes,  the deferred tax
asset  should be reduced by a valuation  allowance if it is likely that all or a
portion of it will not be realized. Realization depends on generating sufficient
taxable  income  before  the  expiration  of the  loss  carryforwards.  Although
realization is not assured,  management  believes that sixty-two  percent of the
deferred tax asset will be realized based upon anticipated future profitability.
The amount of the deferred tax asset considered  realizable,  however,  could be
reduced  in the near term if  estimates  of future  taxable  income  during  the
carryforward period are reduced.  The Company has recorded income tax expense of
$35,000 as a result of an increase in the  valuation  allowance  on the deferred
tax asset less the tax benefit of temporary differences at December 31, 1998.


                                                        1998          1997
                                                     -----------   ------------
     
      Current income taxes                           $        -    $         -
      Tax benefit of temporary differences              (21,500)             -
      Effect of decrease in effective tax rate                -        183,325
      Effect of increase (decrease) in valuation
       allowance                                         56,500       (166,925)
      Tax benefit of current year loss                        -        (37,050)
                                                     -----------   ------------
      Total net expense (benefit)                    $   35,000    $   (20,650)
                                                     ===========   ============


(10) PUBLIC OFFERING EXPENSES:

The Company has incurred certain costs  associated with the following  offerings
of common stock:

1996 STOCK OFFERING

Effective  February 5, 1996 the Company filed Form SB-2 Registration  Statements
with the Securities and Exchange  Commission for a proposed  securities offering
of 250,000  shares of common stock and 125,000  common stock  purchase  warrants
with a combined  proposed maximum aggregate  offering price of $1,250,500.  This
offering expired in April 1997.  No shares were sold.

In January 1996, the Company entered into an agreement with Geller International
Associates  (Geller),  an unrelated company,  to provide various public relation
services.  In return,  the  Company  agreed to pay Geller  $2,000 per month plus
out-of-pocket  expenses  with  the  first  three  months  being  guaranteed.  In
addition, the Company agreed to pay Geller 1% of net moneys received as a result
of Geller's efforts to secure funding for the current public offering. The

                                     F-16
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(10) PUBLIC OFFERING EXPENSES:  (Continued)

total amount paid to Geller under this agreement was $10,461. In addition,  Rick
Strattan,  president  of the  Company,  gave Geller  $6,000 worth of the Company
stock on behalf of the  Company to provide  the above  mentioned  services.  The
value of the stock given was recorded as a  contribution  to the Company.  Since
all of the services performed by Geller  represented  activities for the purpose
of promoting the 1996 public offering,  the total consulting fees paid and stock
issued to Geller in 1996 were deferred at December 31, 1996.  These amounts were
expensed  in 1997.  The  agreement  with  Geller was  canceled at the end of the
initial three months.

On January 1, 1996,  the Company  resolved to issue 48,000  shares of its common
stock to various unrelated parties for services performed in connection with the
Company's anticipated selfunderwritten stock offering. Furthermore, two of these
parties  acknowledged  that in the event the gross proceeds of the offering were
less than $500,000,  then one-half of their shares (20,000) would be returned to
the  Company.  The shares  were issued with a  restrictive  legend.  The Company
valued the 48,000 shares at $12,000 which is approximately 50% less than the bid
price at the date of issuance. The quoted market price was not used to value the
stock since the stock does not trade freely in an established  market.  Of these
shares, 47,000 were issued on August 19, 1996. The other 1,000 shares, valued at
$250, were not issued.

Since all the costs  associated with these shares were directly  attributable to
the proposed offering,  they were classified as deferred charges at December 31,
1996. In addition, all other specific incremental  professional fees incurred in
1996 which were clearly and directly  attributable  to the  Company's  effort to
obtain equity financing were deferred. The total amount deferred during 1996 was
$127,531.  These deferred  professional  costs were to be offset against the net
proceeds of the  offering.  Since no proceeds  were  received from the offering,
these deferred  offering costs and any additional 1997 offering costs related to
this offering were expensed  during the year ended December 31, 1997. The amount
expensed  was reduced by $2,500 for the value of 10,000  shares of common  stock
returned by an advisor as described above.

                                     F-17
<PAGE>
                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(10) PUBLIC OFFERING EXPENSES:  (Continued)

PROPOSED 1998 STOCK OFFERING

On October 14, 1997,  the Company  entered into a financial  services  agreement
with an unrelated company for financial  consulting  services related to raising
additional  capital.  Under this  agreement,  the  Company  issued an option for
600,000 shares of the Company's  common stock with an exercise price of $.25 per
share,  which is  approximately  50% of the market price on the date the parties
agreed to the terms of the  agreement.  The quoted  market price was not used to
value the stock since the stock does not trade freely in an  established  market
and, thus, a market price could not accurately be established.  The Company also
agreed to pay the consultant $85,000 in installments of $20,000 in October 1997,
and $5,000 each month  thereafter  until November 1998.  Beginning in March 1998
the  agreement  was  amended to provide  payment of the  remaining  installments
through the future issuance of the Company's  common stock. The Company has paid
all  amounts  due as of  December  31,  1998.  The  number of shares  issued was
determined  monthly by dividing $5,000 by 50% of the average market price of the
stock during the month the compensation was earned.  As of December 31, 1998 the
Company  has paid  $40,000  in cash and  $25,000 in common  stock,  the value of
106,474 shares.

On April 30, 1998 the Company gave sixty days notice to terminate  the financial
services  agreement  and cancel the option for 600,000  shares of the  Company's
common  stock in favor of a new  agreement.  The Company  agreed to continue the
$5,000  monthly  payments for service in stock  through  July 31, 1998.  The new
agreement  specified  that if at least $2.5  million in new  capital  was raised
before July 31, 1998,  the  consultant  would be issued  50,000 shares of common
stock,  plus an amount of stock equal to $25,000  divided by the lowest  monthly
average  stock value during the months of March  through July 1998 and a monthly
retainer of $2,500 through  December 31, 1998. No new capital was raised by July
31, 1998 and the new agreement terminated.

                                     F-18
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(10) PUBLIC OFFERING EXPENSES (Continued):

As the Company was preparing for a private placement to raise additional capital
in 1998,  the costs under this  agreement  and the direct  costs of  preparing a
business plan were classified as deferred charges.  These deferred costs were to
be offset  against the net  proceeds of the  offering.  Since no new capital was
raised under this agreement and the agreement was terminated  effective July 31,
1998, deferred offering costs in the amount of $71,347 were expensed.

(11)  WRITE DOWN OF INVENTORY TO NET REALIZABLE VALUE:

During 1998 the Company  determined  that its quantity of Garlessence  inventory
was in excess of  current  requirements  based on lower  than  expected  product
sales.  Accordingly,  the  Garlessence  inventory  has been  written down to its
estimated net realizable value, and $57,187 has been charged to expense in 1998.

                                   F-19

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