<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                 (FEE REQUIRED)

For the Fiscal Year Ended                                        Commission File
      March 31, 1999                                              Number 0-15654

                         TRANSPIRATOR TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                                  <C>
          Delaware                                        22-2789408
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification No.)

       850-870 U.S. Highway #1
    North Brunswick, New Jersey                             18902
(Address of principal executive offices)                  (Zip Code)
</TABLE>


Registrant's telephone number, with area code 732-246-5900

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

<TABLE>
<CAPTION>
                                                        Name of each exchange
         Title of each class                             on which registered
         -------------------                            ---------------------
<S>                                                     <C>
                  NONE                                          NONE
</TABLE>

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

                          Common Stock, $0.01 par value
                                (Title of class)

         Indicate by a 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 as 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  / /
<PAGE>   2
On June 25, 1999 the aggregate market value of the voting stock of Transpirator
Technologies, Inc. held by nonaffiliates of the registrant was approximately
$162,295 based upon the average bid and asked prices of such common stock on
said date as reported by NASDAQ. On such date, there were 2,775,950 shares of
common stock of the registrant outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


                                       2
<PAGE>   3
                         TRANSPIRATOR TECHNOLOGIES, INC.
                                      INDEX
                                TABLE OF CONTENTS

                                     PART I

Item 1. Descriptions of Business

Item 2. Descriptions of Property

Item 3. Legal Proceedings

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

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Item 6. Management's Discussion and Analysis or Plan of Operation

Item 7. Financial Statements

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosures

                                    PART III

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

Item 10. Executive Compensation

Item 11. Security ownership of Certain Beneficial owners and Management

Item 12. Certain Relationships and Related Transactions

                                     PART IV

Item 13. Exhibits and Reports on Form 8-K


                                       3
<PAGE>   4
ITEM I.  DESCRIPTION OF BUSINESS

FORWARD-LOOKING

Transpirator Technologies, Inc. (the "Company") cautions readers that certain
important factors may affect the Company's actual results and could cause such
results to differ materially from any forward-looking statements which may be
deemed to have been made in this report or which are otherwise made by or on
behalf of the Company. For this purpose, any statements contained in this report
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"May," "Will," "Expect," "Believe," "Anticipate," "Intend," "Could," "Would,"
"Estimate," or "Continue" or the negative other variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors which
may affect the Company's results include, but are not limited to, the risks and
uncertainties associated with a medical apparatus company which has only
recently licensed its sole product including a history of net losses, some
unproven technologies, limited manufacturing experience, current and potential
competitors with significant technical and marketing resources, need for future
capital and dependence on collaborative partners and on key personnel.
Additionally, the Company is subject to the risks and uncertainties associated
with all medical apparatus companies, including compliance with government
regulations. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission (the "Commission").

GENERAL

The Company was organized on December 22, 1986 as a Delaware corporation and
filed an S-1 Registration Statement on April 8, 1987. The Company was organized
to design, develop and market respiratory therapy products for veterinary and
human use. The main products developed by the Company were the ET-1000 Equine
Unit and the MT-1000 Human Unit.

In the initial years of operation, the Company had sales of the Equine Unit as
well as rental of the Equine Units. However, sales of the Equine product were
not substantial enough to be profitable and on January 25, 1990, the Company
granted all rights to the future sales of the Equine Unit to another party in
exchange for a note in the amount of $263,000, plus $20,000 in cash and
royalties of $200 for each unit sold. The note was payable monthly and was paid
off by 1993. The Company has received no royalties from the royalty agreement
since its inception.

Subsequent to March 31, 1989, and the sale of the rights to the Equine Unit, the
Company wound down its activities by paying off its creditors. The Company could
not continue the development and marketing plans for the MT-1000 Unit without
additional funding.

The Company has been dormant since March 31, 1990 except for keeping its patents
current. For the year ended March 31, 1991, the Company had no revenues and had
expenditures of approximately $116,009, comprised primarily of salaries, legal
fees, consulting and the remaining product development.


                                       4
<PAGE>   5
For the year ended March 31, 1992, the Company had minimal activity, resolving
the remainder of the Company's debts by negotiating with creditors for final
settlements. As a result of these negotiations there was debt forgiveness of
approximately $143,000 in that year. Otherwise, the expenditures for accounting
and office supplies, etc., were less than $30,000. For the years March 31, 1993
through 1997, the Company had kept its charter effective to protect its patents
and product rights for the Human MT-1000 Unit.

In May of 1997, the Company entered into a licensing agreement ("Licensing
Agreement") with Healthcare Quality Solutions, Inc., a Maryland corporation (the
"Licensee"). It is anticipated that the Licensee may facilitate the development,
manufacture and market the Company's products. The Licensee has the option to
purchase the Company's technology for 2 million dollars. The Licensee shall pay
an annual minimum royalty payment of $25,000 for the first year, $50,000 for the
second year and $100,000 for the third year. Additional royalties are to be paid
to the Company for sales of products equal to 5-10% of gross sales, depending
upon the product and the total gross sales amounts of the year. The agreement
can be terminated at the discretion of the licensee and by giving 30 days
notice.

CHANGE IN CONTROL

The Company received a copy of a Schedule 13D, on January 4, 1989, as amended
April 18, 1989, filed on behalf of J.T. Moran & Co., Inc. ("Moran"). Moran was a
registered broker dealer and was the underwriter of the Company's 1986 initial
public offering. The Schedule 13D reported that Moran had acquired a total of
1,023,650 shares of which 812,500 were acquired in a private transaction with
Oxygen Enrichment Company, Ltd (OECO). The balance of 211,150 shares was
reported to have been acquired by Moran in its capacity as a market maker in the
Company's stock at various prices relative to the market. Management has been
informed that OECO and Moran have been liquidated by the Bankruptcy Courts
approximately four years ago. The Company intends to hire counsel to settle out
the rights of the parties in a declaratory judgement action in the proper
jurisdiction. The Company will assert that these shares have been terminated.
Management has stated that no one from the Bankruptcy Court ever contacted the
Company.

PROPRIETARY RIGHTS

The Company follows a policy of protecting its proprietary rights to its
products to the full extent permissible by law.

The Company's U.S. patent applications regarding the method for the treatment of
the human respiratory and equine tract with vapor phase water were issued in
September, 1988 into U.S. Patent No. 4,773,410.

The Company believes that alternative suppliers exist for all products presently
licensed by the Company.


                                       5
<PAGE>   6
CONTRACTS

The Licensing Agreement is for the licensing of United States Patent No.
4,773,410 issued September 27, 1988 ("Patent"). This Patent is the method and
apparatus for the treatment of the respiratory track with vapor-phase water. The
licensee is responsible for the payment of fees on the Patent. Licensee has
agreed to spend time, money and effort at no set amount to develop and market
new and/or improved respiratory therapy units for the human market which may or
may not incorporate the Patent; ("New Products") and which New Products will be
the sole property of Licensee. For sales of products developed by the Licensor,
Licensee shall pay a royalty as follows:

a)       Ten percent (10%) of gross sales up to one million dollars ($1,000,000)

b)       Seven percent (7%) of gross sales from one million and one dollar to
         two million dollars ($2,000,000)

c)       Five percent (5%) of gross sales above two million dollars ($2,000,000)
         and

d)       50% of the above commission rate to be paid on membrane cartridges sold
         separately.

For sales of New Products the Licensor shall receive royalties as follows:

a)       Five percent (5%) of gross sales up to one million dollars ($1,000,000)

b)       Three and one half percent (3.5%) of gross sales from one million and
         one dollar ($1,000,001) to two million dollars ($2,000,000)

c)       Two and one half percent (2.5%) of gross sales above two million
         dollars ($2,000,000) and

d)       50% of the above commission rate to be paid on membrane cartridges sold
         separately.

The minimum to be paid for all products is $50,000 for the year ended March 31,
1999 and $100,000 for the year ended March 31, 2000. The Licensee has advised
management that it's New Products are currently under development and patents
are in process. Management has been informed that minimum royalty payments
pursuant to the Licensing Agreement can be anticipated through the second
quarter of 1999.

The Licensee is now the owner of the trademarks of the Company Transpirator and
Vapotherm.

COMPETITION

There are a number of companies, including presently manufacturing devices which
serve the function of introducing humidity into an individual's airstream or
oxygen stream for the treatment of illness or maintenance of respiratory health.

The Company believes its proposed less expensive human Transpirator device will
principally differ from existing personal humidifiers known to the Company in
that existing personal humidifiers are primarily intended for hospital use in
conjunction with other breathing support systems, deliver substantially lower
flow rates, do not provide for direct administration to the user, and/or are
designed to be used with medication.

Many, if not all, of the symptoms which the Company's devices are intended to
address can also be treated by various medications.


                                       6
<PAGE>   7
Many of the companies competing in the human humidification or human medication
markets have greater resources than the Company and there can be no assurance
that at some point in the future devices or medications will not be developed
which may be less expensive or more effective than the Transpirator devices.

EMPLOYEES

At March 31, 1999, the Company had no full-time employees.

ITEM 2. DESCRIPTION OF PROPERTY

None.

ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings, the outcome of which would have a
material adverse effect on the Company's financial position.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

                                     PART II

ITEM 5. MARKET OF COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company has been dormant since 1990 and there currently is no active trading
in the Company's common stock on a recognized exchange.

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

RESULTS OF OPERATIONS

FISCAL 1999 AS COMPARED TO FISCAL 1998 AND 1997

The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes thereto included in Part II, Item 7
of this report.

For fiscal 1999 the Company had net royalty income of $47,916 versus royalty
income of $25,000 less a deferred amount of $2,083 in 1998 and zero in fiscal
1997. The income was attributable to a royalty agreement signed in May, 1997.
The royalty agreement provides for minimum royalties for three years from the
signing of the agreement in the amounts of $25,000, $50,000 and $100,000. The
agreement provides for royalties on a percentage basis from the sale of products
developed from use and further enhancement of the patents. The royalty agreement
also provides an option for the patents to be purchased for $2,000,000.

Selling, general and administrative expenses increased $27,313 compared to
fiscal 1998 and $22,640 to $25,628 from $2,988 in 1997. The increases in 1999
and 1998 were due primarily from legal, printing, accounting costs and stock
transfer costs to bring and keep the Company's records current.


                                       7
<PAGE>   8
Extraordinary income for fiscal 1998 increased by $59,250 due to forgiveness of
accrued interest and accrued salaries. There was no extraordinary income for
1999.

LIQUIDITY AND CAPITAL RESOURCES

Statement of Cash Flows

Net cash used in operations was $31,795 for fiscal 1999 as compared to cash
provided by operations in fiscal 1998 of $15,784. The decrease in cash from
operations was the result of a decrease in royalty income received in the amount
of $12,500 and a increase in selling, general and administrative expenses paid
of $35,079.

LIQUIDITY

The Company's annual and quarterly operating results will be affected by a
number of factors. The company expects to receive at least the minimum royalty
payments as outlined above. The Company expects to incur legal, accounting and
stock transfer costs for the foreseeable future. At the same time, the Company
has employment agreements with two officers for salaries of $1,000 per month for
36 months starting in August, 1998. Therefore, it is expected that the Company
will have increased liquidity from royalty payments in excess of the operating
expenses.

NET OPERATING LOSS CARRY FORWARDS

As of March 31, 1999, the Company had a net operating loss ("NOL") for Federal
Income Tax purposes of approximately $3,549,000 which begins to expire in 2003.
The ability of the Company to utilize the NOL is not probable at March 31, 1999
and therefore, no benefit has been recorded.

ITEM 7. FINANCIAL STATEMENTS

The response to this item is incorporated by reference to pages F1 - F10 herein.

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

The Company's former accountants, Hacker, Johnson, Cohen & Grieb PA, declined to
be reinstated as the Company's auditors on October 7, 1998. The Company engaged
Brimmer, Burek, Keelan & McNally LLP on March 17, 1999 to be the Company's
independent certified public accountants.

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


                                       8
<PAGE>   9
The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
         NAME              AGE              POSITIONS
         ----              ---              ---------

<S>                        <C>              <C>
Raymond Romano             48               Chairman of the Board, Chief Executive Officer and
                                            Director

John Porcella              49               President and Director

John Signorelli            57               Director
</TABLE>

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's executive officers, directors and holders of more
than 10% of the Company's Common Stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission. Such persons are
required to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely on its review of the copies of such forms received by it or oral
written representations from certain reporting persons no Forms 5 were required
for those persons and the Company believes that, with respect to fiscal 1998,
its executive officers, directors who are greater than 10% beneficial owners
complied with all such filing requirements.

ITEM 10. EXECUTIVE COMPENSATION

The Company paid compensation of $ 8,500 to Raymond Romano, Chief Executive
Officer, $4,500 to John Porcella, President and $2,500 to John Signorelli, a
director, for the fiscal year ended March 31, 1999.

The Company paid compensation of $4,000 each to Raymond Romano, Chief Executive
Officer and John Porcella, President and $2,500 to John Signorelli, a director,
for the fiscal year ended March 31, 1998.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There are no members of Management that own 5% or more beneficial ownership of
Company's stock. Previously a Company (OECO) owned 32% of the Company's common
stock. OECO transferred ownership of that stock to another company in 1989.
However, both companies are bankrupt and out of business. The Company's position
is that those shares have been terminated and cancelled.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company conducts its operations at the office facilities of an officer of
the Company at no cost. During the year ended March 31, 1998 interest previously
accrued on notes payable to related parties was forgiven by the parties through
March 31, 1998. The interest forgiven, which included certain accrued and unpaid
interest on debt principal which was repaid in prior years, was $59,593. This
item is included in Extraordinary item-forgiveness of debt in the accompanying
statements of operations for the year ended March 31, 1998. During fiscal 1998,
the Company entered into employment agreements with two officers of the company.
The employment agreements commenced August 1, 1998 and provided for the


                                       9
<PAGE>   10
payment of an aggregate salary of $1,000 per month for 36 months.

On February 9, 1999, the Board of Directors approved the payment of 150,000
shares of common stock to the three directors of the Company for services valued
at $7,500.

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Royalty agreement - Healthcare Products Inc.

(b)      Consent of Accountants

(c)      Form 8-K June 23, 1998

(d)      Form 8-K October 7, 1998

(e)      Form 8-K July 15, 1999

Ex-27    Financial Data Schedule (for SEC use only)
                                       10

<PAGE>   11
                                   SIGNATURES

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

                                       TRANSPIRATOR TECHNOLOGIES INC.

Date:  July 15, 1999                   By  /s/ Raymond J. Romano
                                       --------------------------------------
                                       Raymond J. Romano
                                       Chairman and Chief Executive Officer

     Pursuant to the requirements of 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.

/s/ Raymond J. Romano
------------------------------------
Raymond J. Romano
Chairman and Chief Executive Officer
July 15, 1999

/s/ John E. Porcella
--------------------
John E. Porcella
President
July 15, 1999

Directors:

/s/ Raymond Romano
------------------
Raymond Romano
July 15, 1999

/s/ John E. Porcella
--------------------
John E. Porcella
July 15, 1999

/s/ John Signorelli
-------------------
John Signorelli
July 15, 1999


<PAGE>   12
                         INDEX TO FINANCIAL STATEMENTS

                        TRANSPIRATOR TECHNOLOGIES, INC.

AUDITED FINANCIAL STATEMENTS

Independent Auditors' Report................................F-2

Balance Sheets, March 31, 1999 and 1998.....................F-3

Statements of Operations for the Years Ended
  March 31, 1999 and 1998...................................F-4

Statements of Stockholders' Equity (Deficit)
  for the Years Ended March 31, 1999 and 1998...............F-5

Statements of Cash Flows for the Years Ended
  March 31, 1999 and 1998...................................F-6

Notes to Financial Statements for the Years
  Ended March 31, 1999 and 1998........................F-7 - F-11

                                      F-1
<PAGE>   13
                          INDEPENDENT AUDITORS' REPORT

Stockholders and Board of Directors of
     Transpirator Technologies, Inc
     New Brunswick, New Jersey:

We have audited the accompanying balance sheets of Transpirator Technologies,
Inc., (the "Company") at March 31, 1999 and 1998 and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at March 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
years then ended in conformity with generally accepted accounting principles.

                                           BRIMMER, BUREK, KEELAN & McNALLY LLP




                                              Certified Public Accountants

July 14, 1999

                                      F-2
<PAGE>   14
                        TRANSPIRATOR TECHNOLOGIES, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            MARCH 31,
                                                   ---------------------------
                                                       1999           1998
                                                   -----------     -----------
<S>                                                <C>            <C>
  ASSETS
Current assets:
  Cash                                             $    14,820    $    46,615
  Royalties receivable                                  33,333             --
                                                   -----------    -----------
    Total current assets                                48,153         46,615
                                                   -----------    -----------
Patents, net                                            11,811         17,143
                                                   -----------    -----------
    Total                                          $    59,964    $    63,758
                                                   ===========    ===========

  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable and accrued expenses            $     9,736    $     5,122
  Deferred royalty income                                   --          2,083
  Notes payable - related parties                       29,750         29,750
                                                   -----------    -----------
    Total current liabilities                           39,486         36,955
                                                   -----------    -----------

Related party transactions (Note 2 and 3)

Stockholders' equity (deficit):
  Preferred stock, $.10 par value - 1,000,000
    shares authorized none outstanding                      --             --
  Common stock, $0.01 par value, 3,500,000
    shares authorized; 2,775,950 and
    2,625,950 shares issued and outstanding
    in 1999 and 1998                                    27,760         26,260
  Additional paid-in capital                         3,575,097      3,569,097
  Accumulated deficit                               (3,582,379)    (3,568,554)
                                                   -----------    -----------
    Total stockholders' equity (deficit)                20,478         26,803
                                                   -----------    -----------
    Total                                          $    59,964    $    63,758
                                                   ===========    ===========
</TABLE>





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


                                      F-3
<PAGE>   15
                        TRANSPIRATOR TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                              YEARS ENDED MARCH 31,
                                                            -------------------------
                                                            1999           1998
<S>                                                        <C>            <C>
Revenue                                                     $   47,916     $   22,917

General and administrative expenses                             60,142         25,628
                                                            ----------     ----------
  Loss from operations                                         (12,226)        (2,711)

Interest income (expense)                                       (1,599)           851
                                                            ----------     ----------
  Loss before extraordinary item                               (13,825)       (1,860)

Extraordinary item-

  Forgiveness of debt                                               --         59,593
                                                            ----------     ----------
  Net earnings (loss)                                       $  (13,825)     $  57,733
                                                            ==========     ==========
Basic and diluted earnings (loss) per share                      (.006)          .023
                                                            ==========     ==========
Weighted-average number of shares outstanding
  for basic and diluted earnings (loss) per share            2,625,950      2,525,950
                                                            ==========     ==========
</TABLE>


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


                                      F-4
<PAGE>   16
                        TRANSPIRATOR TECHNOLOGIES, INC.

            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                  FOR THE YEARS ENDED MARCH 31, 1999 AND 1998



<TABLE>
<CAPTION>

                                               COMMON STOCK                                   TOTAL
                                              .01 PAR VALUE     ADDITIONAL                 STOCKHOLDERS'
                               PREFERRED    -----------------     PAID-IN    ACCUMULATED     EQUITY
                                STOCK       SHARES     AMOUNT     CAPITAL      DEFICIT      (DEFICIT)
                               ---------   ---------   -------  ----------   -----------   -------------
<S>                               <C>      <C>         <C>      <C>          <C>             <C>
Balance at March 31, 1997         --       2,525,950    25,260   3,515,808    (3,626,287)     (85,219)

Common stock issued for
  services                        --         100,000     1,000      10,250            --       11,250

Accounts payable and accrued
  expenses contributed to
  capital                         --              --        --      43,039            --       43,039

Net earnings                      --              --        --          --        57,733       57,733
                               ---------   ---------   -------  ----------   -----------     ------------

Balance at March 31, 1998         --       2,625,950    26,260   3,569,097    (3,568,554)      26,803

Net loss                          --              --        --          --       (13,825)     (13,825)

Common stock issued for
  services                        --         150,000     1,500       6,000            --        7,500
                               ---------   ---------   -------  ----------   -----------     ------------

Balance at March 31, 1999         --       2,775,950   $27,760  $3,575,097   $(3,582,379)    $ 20,478
                               =========   =========   =======  ==========   ===========     ============
</TABLE>



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



                                      F-5
<PAGE>   17

                        TRANSPIRATOR TECHNOLOGIES, INC.
                           STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                          YEARS ENDED MARCH 31,
                                                                                     ------------------------------
                                                                                     1999                      1998
                                                                                     ----                      ----
<S>                                                                                  <C>                  <C>
Cash flows from operating activities:
  Net earnings (loss)..............................................................  $(13,825)              $57,733
  Adjustments to reconcile net earnings (loss) to net
   cash provided by (used in) operating activities:
     Common stock issued for services..............................................     7,500                11,250
     Amortization..................................................................     5,332                 2,857
     Extraordinary item - debt forgiveness.........................................      --                 (59,593)
     Increase in accounts receivable...............................................   (33,333)                --
     Increase in accounts payable and accrued expenses.............................     4,614                 1,454
     Increase (Decrease) in deferred royalty income................................    (2,083)                2,083
                                                                                     --------               -------
         Net cash provided by (used in) operating activities.......................   (31,795)               15,784
                                                                                     --------               -------
Net increase (decrease) in cash....................................................   (31,795)               15,784
Cash at beginning of year..........................................................    46,615                30,831
                                                                                     --------               -------
Cash at end of year................................................................ $  14,820               $46,615
                                                                                    =========               =======
Supplemental disclosures of cash flow information:
    Interest paid.................................................................. $   1,736                    --


Noncash financing activity-
  Accounts payable and accrued expenses contributed
    to additional paid-in capital.................................................. $   --                  $43,039
                                                                                    =========               =======
  Common stock issued for services................................................. $   7,500               $11,250
                                                                                    =========               =======
</TABLE>

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

                                       F-6
<PAGE>   18
                        TRANSPIRATOR TECHNOLOGIES, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           AT MARCH 31, 1999 AND 1998

(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES

   DESCRIPTION OF BUSINESS. Transpirator Technologies, Inc. was organized on
     December 22, 1986 as a Delaware corporation and filed an S-1 Registration
     Statement on April 8, 1987. The Company was organized to design, develop
     and market respiratory therapy products for veterinary and human use. The
     main products developed by the Company were the ET-1000 Equine Transpirator
     Respiratory Unit ("Equine Unit") and the MT-1000 Human Transpirator
     Respiratory Unit ("Human Unit").

     In the initial years of operation, the Company had sales of the Equine Unit
     as well as rental of the Equine Unit. However, sales of the Equine product
     were not substantial enough to be profitable and on January 25, 1990, the
     Company granted all rights to the future sales of the Equine Unit to
     another party in exchange for a note in the amount of $263,000, plus
     $20,000 in cash and royalties of $200 for each unit sold. The note was
     payable monthly and was paid off by 1993. The Company has received no
     royalties from the sale of Equine Units under the royalty agreement.

     Subsequent to March 31, 1989, and the sale of the rights to the Equine
     Unit, the Company wound down its activities by paying off its creditors.
     The Company could not continue the development and marketing plans for the
     Human Unit without additional funding. The Company has been dormant since
     March 31, 1990 except for keeping its patents current.

   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. A summary of the significant
     accounting policies followed in preparing the accompanying financial
     statements is as follows:

   REVENUE RECOGNITION. Revenue consists of royalties and is recognized when the
     royalty is earned under the terms of the associated licensing agreement.
     Royalty payments received prior to the consummation of the earnings process
     are included in deferred royalty income and are recognized in accordance
     with the terms of the licensing agreement.

   INCOME TAXES. Deferred tax assets and liabilities are recognized for the
     future tax consequences attributable to differences between the carrying
     amounts of existing assets and liabilities 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 period that includes the enactment date.

   ESTIMATES. The preparation of financial statements in conformity with
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements and the reported amounts of revenues and
     expenses during the reporting period. Actual results could differ from
     those estimates.


                                                                     (continued)

                                      F-7
<PAGE>   19
                        TRANSPIRATOR TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED

    PATENTS. Amortization of patent costs is based upon the royalty income as a
        percentage of projected minimum royalties under the terms of the Human
        Unit royalty agreement commencing in the fiscal year ended March 31,
        1998.

    BASIC AND DILUTED EARNINGS (LOSS) PER SHARE. Basic and diluted earnings
        (loss) per share were computed based on the weighted average number of
        common shares outstanding during the period. There were no Diluted
        Potential Common Shares outstanding during the years ended March 31,
        1999 and 1998.

    STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No.
        123, "Accounting for Stock-Based Compensation," encourages, but does not
        require companies to record compensation cost for stock-based employee
        compensation plans at fair value. The Company has chosen to account for
        stock-based compensation using the intrinsic value method prescribed in
        Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
        to Employees," and related interpretations. Accordingly, compensation
        cost for stock options is measured as the excess, if any, of the quoted
        market price of the Company's stock at the date of the grant over the
        amount an employee must pay to acquire the stock.

    ACCOUNTING REQUIREMENTS. Financial Accounting Standards 130 -- Reporting
        Comprehensive Income establishes standards for reporting comprehensive
        income. The Standard defines comprehensive income as the change in
        equity of an enterprise except those resulting from stockholder
        transactions. All components of comprehensive income are required to be
        reported in a new financial statement that is displayed with equal
        prominence as existing financial statements. The company had no
        comprehensive income in the year ended March 31, 1999.

(2) NOTES PAYABLE -- RELATED PARTIES

    Notes payable -- related parties consists of the following:

<TABLE>
<CAPTION>
                                                       MARCH 31,
                                                ---------------------
                                                  1999         1998
                                                -------       -------
<S>                                             <C>           <C>
    7% notes payable to related parties
      payable on demand, interest accrued
      beginning May 3, 1998..................   $29,750       $29,750
                                                =======       =======
</TABLE>


                                                                     (continued)

                                      F-8
<PAGE>   20
                        TRANSPIRATOR TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

(3) RELATED PARTY TRANSACTIONS

    The Company conducts its operations at the office facilities of an officer
      of the Company at no cost. During the year ended March 31, 1998 interest
      previously accrued on notes payable to related parties was forgiven by the
      parties through March 31, 1998. The interest forgiven, which included
      certain accrued and unpaid interest on debt principal which was repaid in
      prior years, was $59,593. This item is included in Extraordinary
      item-forgiveness of debt in the accompanying statements of operations for
      the year ended March 31, 1998. During fiscal 1998, the Company entered
      into employment agreements with two officers of the company. The
      employment agreements commenced August 1, 1998 and provide for the payment
      of an aggregate salary of $1,000 per month for 36 months. Included in
      accrued expenses is an amount of $8,000 which is officers' salary accrual
      for the year ended March 31, 1999.

    The Board of Directors approved the payment of 150,000 and 100,000 shares
      of common stock to the three directors of the Company for services valued
      at $7,500 and $11,250 for the years ended March 31, 1999 and 1998
      respectively. This item has been included in general and administrative
      expenses in the accompanying statements of operations for the years ended
      March 31, 1999 and 1998 respectively.

(4) STOCK OPTION PLAN

    The Company has a stock option plan whereby key full or part-time
      employees are eligible to receive Incentive Stock Options (ISO) and
      Nonqualified Stock Options and certain directors are eligible to receive
      nonqualified stock options. The plan provides for awarding options for a
      minimum of 450,000 shares of the Company's common stock at an exercise
      price not less than fair market value at the date of the grant. Options
      are nontransferable and expire within ten years from the date of grant.
      The period for which options are exercisable is determined by the Board of
      Directors, however, in no event can options designated as an ISO vest more
      than $100,000 in any one year, determined at the time of grant. At March
      31, 1999 and 1998, no options are issued or outstanding. The plan has been
      extended through May 17, 2008.

(5) ROYALTY LICENSING AGREEMENT

    The Company entered into a royalty license agreement with a unrelated
      party on May 17, 1997. The agreement provides for the payment of royalties
      based on sales of the Human Unit products. The agreement provides for the
      payment of minimum royalty payments of $25,000, $50,000 and $100,000 for
      the fiscal years ended March 31, 1998, 1999 and 2000, respectively. In
      addition, the agreement provides for the payment of royalties based on the
      percentage of sales of products ranging from 5% to 10% on existing Human
      Unit products and 2.5% to 5% for sales of newly developed Human Unit
      products. The agreement provides the licensee with the option to purchase
      the patents subject to the licensing agreement for $2,000,000. The
      agreement can be cancelled by the licensee at any time by giving the
      Company thirty days written notice of termination. The Company received
      $12,500 during the year ended March 31, 1999. A royalty receivable of
      $33,333 is included in the year ended March 31, 1999.

                                                                     (continued)


                                      F-9
<PAGE>   21
                        TRANSPIRATOR TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


(5) ROYALTY LICENSING AGREEMENT, CONTINUED

    The Company has also entered into a technology licensing agreement with
      respect to the Equine Unit. The agreement expires January 25, 2010. The
      agreement provides for the payment of $200 for each Equine Unit produced
      by the licensee. During the two-year period ended March 31, 1999, the
      Company has not received any payments with respect to this agreement
      because no Equine Units have been produced by the licensee.

(6) INCOME TAXES

    The tax effects of temporary differences that give rise to significant
      portions of the deferred tax asset are presented below:

<TABLE>
<CAPTION>
                                              AT MARCH 31,
                                        -------------------------
                                            1999          1998
                                        ----------    -----------
<S>                                     <C>           <C>
Deferred tax assets:
  Net operating loss carryforwards      $ 1,398,117   $ 1,333,184
  Accrued expenses                               --            --
  General business credit carryforwards      58,225        58,225
  Amortization                                1,505           573
                                        -----------   -----------
  Total gross deferred tax assets         1,457,847     1,391,982

Less valuation allowance                (1,457,847)    (1,391,982)
                                        ----------    -----------
  Net deferred tax assets               $      --     $       --
                                        ==========    ===========
</TABLE>

A valuation allowance has been established to reduce the deferred tax assets to
  an amount that management believes will ultimately be realized. Realization of
  deferred tax assets is dependent upon sufficient future taxable income during
  the period that temporary differences and carryforwards are expected to be
  available to reduce taxable income. With respect to the resulting deferred tax
  assets at March 31, 1999 and 1998, based on the Company's history of operating
  earnings and expectations for the future, management believes sufficient
  uncertainty exists regarding the realizability of these items that a valuation
  allowance is required.

                                                                 (continued)

                                      F-10
<PAGE>   22
                        TRANSPIRATOR TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

6) INCOME TAXES, CONTINUED

     At March 31, 1999, the Company has net operating loss carryforwards for
tax reporting purposes totaling approximately $3,549,000. These carryforwards
will expire in the following fiscal years:

<TABLE>
<CAPTION>
FISCAL YEAR                                                        AMOUNT
<S>                                                              <C>
2000.........................................................    $  346,000
2001.........................................................       219,000
2002.........................................................       352,000
2003.........................................................       926,000
2004.........................................................     1,468,000
2005.........................................................       204,000
2007.........................................................         7,000
2008.........................................................         4,000
2009.........................................................        13,000
2010.........................................................         2,000
2011.........................................................         2,000
2012.........................................................         6,000
                                                                 ----------
                                                                 $3,549,000
                                                                 ==========
</TABLE>

     At March 31, 1999, the Company has general business credit carryforwards
of $55,486 and $2,739, which will expire in fiscal years 2000 and 2002,
respectively.


                                      F-11