SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

                  For the fiscal year ended December 31, 2001.

                                       OR

[  ]      TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the transition period from _____________ to ____________.


                        COMMISSION FILE NUMBER 333-33134

                              SAVE ON ENERGY, INC.
                 (Name of Small Business Issuer in Its Charter)

                         Georgia                     58-2267238
             (State or Other Jurisdiction of      (I.R.S. Employer
              Incorporation or Organization)     Identification No.)

                        4851 Georgia Highway 85
                              Suite 211
                         Forest Park, Georgia              30050
               (Address of Principal Executive Offices) (Zip Code)

                                 (404) 765-0131
                (Issuer's Telephone Number, Including Area Code)

         SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:

                                               Name of Each Exchange
               Title of Each Class             on Which Registered
                    None                                None

         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
                                      NONE

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

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


                                       1
<PAGE>


Revenues for the fiscal year ended December 31, 2000 totaled $288,874 and for
fiscal year ended December 31, 2001 totaled $190,552.

As of May 13, 2002, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the average of the closing bid and
asked prices on such date) was approximately $902,267

As of May 13, 2002, the registrant had outstanding 11,514,896 shares of common
stock, 42,216.15 shares of Series A Preferred Stock and 195,209.52 shares of
Series B Preferred Stock.


                       DOCUMENTS INCORPORATED BY REFERENCE

None


                                        2
<PAGE>


                                     PART I

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

            This Annual Report on Form 10-K, including information incorporated
herein by reference, contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to expectations concerning matters
that are not historical facts. Words such as "projects," "believes,"
"anticipates," "estimates," "plans," "expects," "intends," and similar words and
expressions are intended to identify forward-looking statements. We cannot
assure you that the expectations of future events will prove to be correct. Some
of the factors that could cause actual results to differ materially from those
expectations are disclosed in this document including, without limitation, in
the "Risk Factors" beginning on page 13. All forward-looking statements
attributable to Save on Energy, Inc. are expressly qualified in their entirety
by this cautionary statement and you should not place undue reliance on any
forward-looking statement. We do not undertake any obligation to update any
forward-looking statements. You are also urged to carefully review and consider
the various disclosures we have made which describe factors which affect our
business, including the "Risk Factors".

                                  OUR BUSINESS

Overview

         Save On Energy, Inc. (the "Company" or, as the context requires ""we",
"us", "our") is a development-stage company that is primarily involved in the
research, development and marketing of high-performance, low emissions engine
fuel systems that allow the use of natural gas in engines which were originally
built to be powered by diesel.

         We previously developed and marketed a patented, mechanical, dual fuel
natural gas and diesel system (the "Mechanical Fuel System") which, when
installed on a diesel engine vehicle, permits the use of natural gas and diesel
fuel together. Recently we completed our development of a digital version of
this system (the "Digital Fuel System") and we are currently in the process of
testing such system with a major diesel truck fleet operator. The Digital Fuel
System offers a number of advantages over the Mechanical System, the most
important of which is performance improvement in the form of tighter control for
both diesel fuel and natural gas (resulting in the displacement of more diesel
fuel). The Digital Fuel System also allows for faster and easier installation,
set-up, and training, and enables the Company to communicate via email or a
dedicated data-link line with customers/users of its systems to assist with
set-up and trouble-shooting.

         Natural gas has both economic benefits and environmental benefits over
diesel fuel. It is generally cheaper (depending on a particular State's
proximity to natural gas supplies) than diesel fuel and results in less
pollutants when burned. We believe that our Digital Fuel System is among the
most cost-effective solutions available for reducing hydrocarbon particulate
matter and nitrogen oxides (NOx) from existing diesel engines, one of the major
sources of air pollution.

         We believe that our Digital Fuel System can also be modified so as to
apply to stationary diesel engines. The need for conversion of stationary diesel
engines mirrors the need for conversion of motor vehicle diesel engines.
Although there can be no assurance, we believe our Digital Fuel System will
provide operators of stationary generators a means through which they can meet
the increasingly pervasive and stringent national and local government emissions
standards.

         We believe the demand for our Digital Fuel System will continue to
increase as a result of certain phased-in domestic regulatory requirements at
the national, state and local levels associated with a reduction in air
pollution, certain tax credits and related economic incentives for those
utilizing alternative fuels, and the generally lower costs of alternative fuels
domestically as well as internationally.


                                       3
<PAGE>

Recent Developments

         During the early part of 2002, we experienced significant change in our
personnel at the senior management and board level. In the first half of 2002,
Messrs. Wacker, Erwin and Perry resigned from our board of directors and Mr.
Issa Al-Muzaini joined our board of directors. In addition, Robert Stiles, who
served as our President and was a member of the Board of Directors, resigned in
March 2002. We are currently seeking additional senior management personnel for
the Company.

         In addition, and as previously disclosed, in December 2001, we
completed our acquisition of certain assets from the Alternative Fuel Vehicle
division of New York State Electric and Gas Corporation ("NYSEG") through our
wholly-owned subsidiary, Alternative Fuel Technologies, Inc. ("AET"). The
acquisition included substantially all of NYSEG's assets relating to its natural
gas vehicle service , maintenance and construction business. Mr. Stiles, our
former President, previously served as the manager of NYSEG's Alternative Fuel
Vehicle division. During the first quarter of 2002, we made the determination
that the existing business of the AET, together with the additional business we
have been able to generate to date, was, and during the short-term would
continue to be, insufficient to cover the related operating expenses of AET.
Consequently, we have decided to seek a purchaser for these assets and focus our
resources on commercializing the Digital Fuel System. Towards that end, we are
currently negotiating with a third-party to dispose of AET's assets for nominal
consideration and with NYSEG to release us from our guarantee of the
approximately $190,000 remaining due as of April 30, 2002 on the promissory note
issued in connection with the acquisition. There can be no assurance that we
will be successful in selling such assets or obtaining any such a release from
NYSEG.

         On May 23, 2002, we were delisted from the OTC Bulletin Board due to
our failure to comply with NASD Rule 6530 which requires all companies that
are traded on the OTC Bulletin Board to timely file all reports required to
be filed pursuant to the Securities and Exchange Act of 1934, as amended.  As
a result, our common stock now trades on the "Pink Sheets."  We are in the
process of seeking to become relisted on the OTC Bulletin Board.

The Mobile Digital Fuel System

         The Market

         Our Digital Fuel System can be applied to medium and heavy-duty diesel
engine vehicles through an after-market conversion enabling the use of up to 90%
natural gas (liquefied or compressed) as the primary fuel while retaining the
remaining percentage of diesel fuel. Based on available statistics, we believe
there are currently over 4.5 million medium and heavy-duty diesel-powered
vehicles in the United States, including transit buses, school buses, sanitation
trucks, dump trucks, wreckers, concrete mixers, interstate freight trucks, local
freight delivery trucks and retail delivery trucks. In addition, although
international market data is scarce, we believe there are approximately 10
million such vehicles located outside of the U.S

       Key Features of Our Digital Fuel System

       Our Digital Fuel System involves essentially two parts consisting of
hardware and an electronic control unit. The Digital Fuel System is capable of
being used with various engine families made by different manufactures with only
minor modification to the electronic control unit, which can be accomplished
with a CD Rom or floppy disk.

                           Reduction in Emissions

         The U.S. Environmental Protection Agency (the "EPA") has issued
regulations that require significant emissions reductions for heavy-duty diesel
trucks in 2002 and further reductions in 2007. We believe that our Digital Fuel
System will reduce Nox emissions and particulate hydrocarbon emissions to a
level sufficient to meet such regulations. One of the byproducts of our Digital
Fuel System is an increase in carbon monoxide emissions, however, this effect
can be alleviated by adding a catalytic converter to the converted engine.

         In conjunction with a major fleet operator, we have recently completed
emissions testing of our Digital Fuel System at the University of West
Virginia's Emissions Testing Laboratory, and we expect to have the definitive
results from such testing by the end of May. Thereafter, we expect to begin the
EPA certification process for our Digital Fuel System with respect to certain
engine families. See Regulatory Environment - Engine Certification" below.


                                       4
<PAGE>


                                    Closed-Loop System

         There are two types of dual fuel systems in use: open-loop and
closed-loop. Our dual fuel system is a closed-loop system. This means that the
fuel flow controller monitors engine operating parameters and, based on the
input it receives, it adjusts the gas/air and diesel fuel mixtures as necessary
to create the optimum engine performance for the load at the time. Since it is a
computer controlled system, it makes continuous changes to the percentages of
natural gas and diesel entering the cylinder during the intake cycle. In an
open-loop system, as used by certain of our competitors, the natural gas to
diesel fuel mixture is pre-set, usually at approximately 40% gas and 60% diesel.
The engine receives this ratio at all times, without regard to engine speed or
load. Incomplete combustion is very common with this type of system, which
causes an overall increased fuel consumption, engine knocking, and reduced power
performance.

         Based upon several months of testing the Digital Fuel System in
conjunction with a major fleet operator, we believe that the engine performance
of engines using natural gas with our Digital Fuel System is equal to or better
than the performance of such engines as powered by diesel.

                           Compressed Natural Gas vs. Liquefied Natural Gas

         Our Digital Fuel System is able to operate using either compressed
natural gas or liquefied natural gas. In general, compressed and liquefied
natural gas differ only in their method of storage. Once they leave their
storage vessels and are presented for insertion into the engine's fuel flow,
both are in a gaseous state.

         Currently, liquefied natural gas is generally the preferred form of
fuel in heavy-duty vehicles. In liquid form, the gas requires less space to hold
and its tanks put less weight onto the vehicle than does compressed natural gas.
Because the liquefied natural gas dealer brings the gas to the fleet site as
frequently as needed, there is no supply constraint. It is possible, though,
that compressed natural gas filling stations might proliferate making these more
easily accessible than is presently the case.

         To date, we have been involved primarily in the research and
development of the Mechanical Fuel Unit and, more recently, we have been
involved in the beta testing of the Digital Fuel System. Since our inception we
have outfitted approximately 1,000 Mechanical Fuel Systems (the precursor to the
Digital Fuel System) into vehicles throughout the U.S. and in several foreign
markets.

Regulatory Environment

         Environmental Legislation Effecting the Demand for Natural Gas Vehicles

         In addition to the fact that diesel gas is generally more expensive
than natural gas, one of the primary disadvantage of a diesel engine is that it
emits far more pollutants than its gasoline-fueled counterpart. Diesel exhaust
contains particulate matter, visible as soot that contains unburned and
partially burned fuel. These hydrocarbon emissions are a significant contributor
to air pollution and to human respiratory system difficulties. Also of
significance is the fact that diesel fuel combustion produces Nitrogen Oxides
(NOx), a toxin that is harmful to humans and the environment. NOx is a major
known contributor to greenhouse gas formation resulting in global warming.

         Increasingly, federal, state and local environmental legislation is
being enacted which either require, or provide incentives, for the reduction of
vehicle pollutants. For example, the Federal Clean Air Act was amended in 1990
(the "1990 Amendments") to, among other things, set emissions standards for
stationary and mobile pollutant sources and establish targets, standards and
procedures for reducing human and environmental exposure to a range of
pollutants generated by industry in general and transportation in particular.
Among other mandates, the 1990 Amendments require businesses that maintain
centrally fueled fleets of 10 or more vehicles in certain heavy smog locations
to convert, either through new vehicle purchases or by converting existing
vehicles, a portion of their fleet to clean burning alternative fuels. These
laws specifically include the diesel and natural gas dual fuel system as an
alternative fuel and specify actions that fleet operators must take in order to
comply and timetables for doing so.


                                       5
<PAGE>


         Similarly, the Energy Policy Act of 1992 (the "Energy Act") was created
to accelerate the use of alternative fuels in the transportation sector. The
Energy Act mandates the schedule by which Federal, state and municipal vehicle
fleets must incorporate alternative fueled vehicles into their overall vehicle
mix. This has significant ramifications for the military, which operates
thousands of diesel vehicles, and for the state departments of transportation,
which operate tens of thousands of diesel powered dump trucks and related
highway service and repair vehicles, plus the tens of thousands of vehicles
operated by the private contractors who support these agencies.

         In addition to the foregoing, a variety of legislative and related
incentive programs relating to alternative fuel vehicle programs have been
created, including:

o    Clean Cities Program. Created by the Department of Energy, the Clean Cities
     Program coordinates voluntary efforts between locally based government and
     industry to accelerate the use of alternative fuels and expand the
     alternative fuel vehicle refueling infrastructure. Grants are available for
     natural gas fueling stations and vehicle conversions to natural gas.
     Typical grants offset the cost of conversion by as much as 80%.

o    Alternative Fuel Vehicle Credits Program. Congress created this credits
     program to encourage fleets to increase the number of alternative fuel
     vehicles in their fleets early and aggressively. Credits are allocated to
     state fleet operators and cover alternative fuel provider fleet operators
     when alternative fuel vehicles are acquired over and above the amount
     required, or earlier than expected. Since credits can be traded and sold,
     fleets have the flexibility to acquire alternative fuel vehicles on the
     most cost-effective schedule.

o    State Energy Program. States will promote the conservation of energy,
     reduce the rate of growth of energy consumption, and reduce dependence on
     imported oil through the development and implementation of a comprehensive
     State Energy Program. The State Energy Program is the result of the
     consolidation of two Federal formula-based grant programs - the State
     Energy Conservation Program and the Institutional Conservation Program. The
     State Energy Program includes provisions for financial assistance for a
     number of state-oriented special project activities. These activities
     specifically include programs to accelerate the use of alternative
     transportation fuels for government vehicles, fleet vehicles, taxis, mass
     transit, and individuals' privately owned vehicles.

         Engine Certification

         In order to qualify for U.S. Federal and state grants and tax benefits,
the reduction in polluting emissions that result from the Digital Fuel System
must be certified by independent testing agencies, and approved by the
Environmental Protection Agency (EPA) or the California Air Resources Board
(CARB). Moreover, we will need to certify each engine family with respect to
which we intend to market the Digital Fuel System. An "engine family" is
generally one manufacturer, displacement, or horsepower type of engine, and the
same engine model may considered a different "family" in different manufacturing
years. We may also be required to obtain separate engine certification depending
upon whether an engine has an electric ignition or a compression ignition.

         We currently have CARB certification for our Mechanical Fuel System on
older model-year four-stroke heavy-duty vehicles 1993 and older excluding those
equipped with self-compensating or electronic fuel pumps. Upon successful
completion of the testing of our Digital Fuel System at the University of West
Virginia, as mentioned above, we intend to certify our Digital Fuel System with
respect to as many engine families as our financial resources will permit,
beginning with the most popular engines. We expect that the cost to certify an
engine will generally be between $50,000 and $75,000. Testing requires about 30
days, including set up and tear down. The Environmental Protection Agency
typically issues reports of the results and certifications within 60 days
following the testing.

Manufacturing & Inventory

         We currently utilize contract manufacturers for key components of the
Digital Fuel System and assemble the components in-house. In order to operate
converted vehicles on natural gas, natural gas storage tanks must be


                                       6
<PAGE>


installed on the converted vehicle. We do not include gas storage vessels in our
conversion kit. The customer purchases these separately from a number of
companies who manufacture them, or from us at the customer's request.

Marketing and sales.

         To date, we have initiated marketing and sales activities on only a
limited basis and only with respect to the Mechanical Fuel System. We do not
expect to initiate any marketing and sales efforts with respect to the Digital
Fuel System until we receive EPA or CARB certification for specific engine
families.

Employees

         As of May 10, 2002, the Company employed six persons on a full-time
basis, of which five were engaged in research and development and one is engaged
in administrative, clerical and accounting functions. We also employee three
consultants and two part time employees dedicated to research and development.
To implement our business strategy, we will have to hire additional personnel in
2002, although we cannot predict with certainty when or if we will do so. We
believe that our relationship with our employees is good and we are not a party
to any collective bargaining agreement.

Intellectual Property

         Our success depends to a great extent on our ability to protect our
intellectual property. We license our core intellectual property pursuant to a
license agreement between the Company and the Davis Family Trust which is filed
as an exhibit hereto (as amended, the "License Agreement"). The initial patent
upon which the Company based its technology (U.S. Patent #4,479,466), was
granted was granted to Frank Davis, who presently serve as a senior consultant
to the Company on October 30, 1984, for "[a] natural gas and air mixing device
for allowing the combustion of a mixture of natural gas and air in a
conventional internal combustion engine." Although this device was designed
specifically for the purpose of using natural gas to power a gasoline engine, it
set the stage for future work to develop conversion kits that would permit
diesel engines to operate on a mixture of diesel and natural gas.

         Frank Davis and his son, Robby Davis, presently an employee of the
Company, were also granted three additional patents for mixing devices. Two were
issued in 1991 and the third in 1994. All three described apparatuses for
introducing a mixture of air and gaseous fuel into internal combustion engines
and the method or process by which that is done. Further, in December 6, 1994,
Frank Davis and Robby Davis were issued United States Patent # 5,370,097 for a
"Combined Diesel and Natural Gas Engine Fuel Control System and Method of Using
Such" for an internal combustion engine. This patent describes using a control
means to insert the gaseous fuel in response to engine speed and load. This is
the base patent upon which we now rely. Each of these patents was subsequently
assigned to the Davis Family Trust.

         In addition, Frank Davis and Robby Davis have obtained foreign patents
(PCT) in Germany and the United Kingdom, and have assigned their interests in
these patents to the Davis Family Trust.

         Pursuant to the License Agreement between the Company and the Davis
 Family Trust, as amended, we maintain the exclusive rights to utilize and
 exploit each of the five patents, including marketing and selling, within the
 United States, Canada, Mexico, Egypt and South America. Pursuant to the terms
 of the License Agreement, we are required to pay a royalty of $21 per patent
 per unit sold during the life of four of the patents and $150 per unit sold on
 a fifth patent for a dual fuel control system (collectively, the "Original
 Royalties"), which amounts are subject to adjustment annually to reflect
 changes in the consumer price index. In accordance with the terms of the
 License Agreement, the Original Royalty is increased at certain points by an
 amount equal to $79 per patent per unit (the "Additional Royalty"). The
 Additional Royalty shall be payable until such time as the amount of any
 Additional Royalty generated from the sale of units shall aggregate $150,000
 plus accrued interest calculated at the rate of 12% per annum. To date,
 operations have not reached the threshold levels of revenues necessary to
 result in royalties. After such time as this amount is paid, the royalty
 reverts to the original royalty as adjusted to reflect increases in the
 consumer price index.



                                       7
<PAGE>


         The License Agreement, and the rights granted thereunder, expires upon
the expiration of the underlying patents, and any extensions thereof. In
addition, the License Agreement can be terminated earlier in the event that,
among other things,:

o    We are adjudicated bankrupt or insolvent, enter into a composition with
     creditors, make an assignment of all or substantially all of our assets for
     the benefit of our creditors or if a receiver is appointed for our assets;

o    We refuse to produce or manufacture, sell or market the Digital Fuel
     Systems;

o    We fail to pay the royalties when due; or

o    A material breach by us or our affiliates of the License Agreement.

         We rely primarily on a combination of copyright and trade secret
protection together with the protections under the Licensing Agreement and
nondisclosure and confidentiality agreements to establish and protect our
proprietary rights. The patent protection afforded to our licensed intellectual
property is uncertain and may involve complex legal and factual issues. With
respect to the pending international patents assigned to the Davis Family Trust,
there can be no assurance that such patents will be issued or, if issued,
whether they will provide significant proprietary protection or will be
circumvented or invalidated. Additionally, there can be no assurance that others
will not independently develop substantially equivalent proprietary technology
or otherwise gain access to our trade secrets or technology, or that we can
adequately protect our intellectual property rights.

Competition

The market for our products is rapidly evolving and highly competitive. We
expect competition to continue to intensify in the future. We currently or
potentially compete with a variety of companies. These competitors include:

o    Advanced Engine Components, Ltd. This Australian company markets a control
     unit and other proprietary parts that are necessary to convert a diesel
     engine to dedicated natural gas.

o    Clean Air Partners ("CAP"). CAP is a California based technology research
     organization that developed the closed-loop system of using natural gas
     together with diesel fuel to create a lower emission diesel engine. CAP has
     provided this technology to Caterpillar for both OEM and after-market
     applications through its dealer network and to some smaller diesel engine
     after-market products companies.

o    Caterpillar. Caterpillar offers two OEM dual fuel engines. Both are
     open-loop systems that operate on one, pre-set mixture of diesel and
     natural gas.

o    Westport Innovations, Inc. ("Westport"). Westport is headquartered in
     Calgary, Alberta, Canada manufactures an after-market kit to convert an
     existing vehicle electronic engine to dual fuel. Westport is a publicly
     traded company on the Canadian Stock Exchange.

In addition we also compete indirectly with product types that impact negatively
on our market, including:

o    OEM Dedicated Natural Gas Fuel Systems. Many diesel engine manufacturers
     offer an engine alternative that runs exclusively on natural gas. These
     single-fuel (natural gas) engines cost, on average, between $35,000 and
     $50,000 more than the same engine in diesel-only form. The major reason for
     this incremental cost difference is that conversion of a diesel engine so
     that it operates only on natural gas requires the incorporation of a
     complete spark plug and ignition system. In addition, because the all-gas
     mixture explodes much more violently upon ignition, the pistons have to be
     extensively modified to reduce the compression ratio. In addition to the
     front-end incremental expense, these engines have higher maintenance costs
     and shorter lives.

o    Bio-Diesel Fuel. In addition to natural gas/diesel, bio-diesel is another
     alternative fuel that has been characterized as clean burning. This fuel is
     a mixture of diesel and a vegetable oil. Several such oils are available in
     the market. Bio-diesel fuel requires no engine conversion for use. At
     approximately $3.00 per gallon, however, it is much more expensive than
     alternative fuels, and cost-prohibitive to most operators. It is used and
     sold primarily as a mixture of 20% bio and 80% diesel and is identified as
     B20. Our dual fuel conversion system can be used with vehicles operating
     with B20 biodiesel. Another issue associated with bio-diesel fuel is the
     odor it emits, which, depending on the specific oil that is being used, can
     be unpleasant.



                                       8
<PAGE>


o    Hydrogen Fuel Cells. A large number of companies, including most major
     automobile manufacturers, are currently seeking to develop viable hydrogen
     fuel cell vehicles. When vehicles are fueled with pure hydrogen, they are
     considered to be zero emission vehicles. To our knowledge, to date, such
     technology has only been applied to passenger vehicles, and not to
     heavy-duty trucks.

         We believe that the principal competitive factors on which we compete
in our markets are the quality of our technology and the price of our units, we
also expect to compete based upon our customer service.

ITEM 2.  DESCRIPTION OF PROPERTY

         We currently occupy leased space located in (i) an industrial park
which consists of approximately 6,000 square feet of combination office and
warehouse space located at 4851 Georgia Highway 85, Suite 211, Forest Park,
Georgia 30050, pursuant which lease expired in April 30, 2002. We are currently
negotiating to renew such lease with our landlord.

         In addition, Alternative Fuel Technologies, Inc., our wholly-owned
subsidiary, leases 4,000 square feet of office, garage and warehouse space
located 432 East Main Street, Endicott, NY 13760, and a 200 square feet
office located at 125 Mohican Avenue, Buffalo, NY 14211. We are currently
negotiating with a third party to dispose of all of the assets of AET,
including these leases.

         We believe our existing facilities are adequate for our needs.

ITEM 3.  LEGAL PROCEEDINGS

            On May 17, 2002 we were served with a complaint that was filed in
the Supreme Court of the State of New York, County of Broome, on May 14, 2002.
The lawsuit alleges, among other things, that Alternative Energy Technologies,
Inc., our wholly-owned subsidiary ("AET"), has defaulted in its payment of
approximately $190,000 remaining due under a promissory note issued to New York
State Electric and Gas Company ("NYSEG") in connection with AET's acquisition of
certain assets from NYSEG. Payment of the note is secured by a security
agreement between NYSEG and AET and guaranteed by Save On Energy. Copies of the
note, security agreement and guaranty have all been filed as exhibits. We intend
to vigorously defend against these claims and to assert certain counterclaims
against NYSEG. However, due to the inherent uncertainties of litigation, we
cannot accurately predict the ultimate outcome of the litigation. Any
unfavorable outcome in litigation could materially and adversely affect our
business, financial condition and results of operations.

            We are unaware of any other pending litigation.

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

         During the fourth quarter of the fiscal year ended December 31, 2001 no
matters were submitted to a vote of the shareholders of the Company.


                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                  Market Information

On May 23, 2002 our common stock was delisted from the OTC Electronic Bulletin
Board due to the Company's failure to file this annual report on Form 10-KSB
in a timely fashion.  As a result the company currently trades on the "Pink
Sheets"

The Company is currently seeking to relist on the OTC Electronic Bulletin Board.

Prior to May 23, 2002 the Company's common stock had been quoted on the OTC
Electronic Bulletin Board maintained by the National Association for Securities
Dealers, Inc. (the "OTC Bulletin Board") under the symbol "SOEI" since April
2001. Prior to such time we traded on the "Pink Sheets" under the same symbol.


                                       9
<PAGE>

The following table sets forth representative high and low bid prices by
calendar quarters as reported in either the OTC Bulletin Board or the "Pink
Sheets" during the last two fiscal years. The level of trading in the Company's
common stock has been limited and the bid prices reported may not be indicative
of the value of the common stock or the existence of an active market. The OTC
market quotations reflect inter-dealer prices without retail markup, mark-down,
or other fees or commissions, and may not necessarily represent actual
transactions.

                                 High Bid Price          Low Bid Price
2000
First Quarter                        $3.50                  $0.8125
Second Quarter                         *                       *
Third Quarter                          *                       *
Fourth Quarter                         *                       *

2001
First Quarter                          *                       *
Second Quarter                        0.875                  0.25
Third Quarter                         0.85                   0.30
Fourth Quarter                        0.62                   0.15

------------------------------
     * During this period, our stock was quoted on the Pink Sheets and accurate
     trading prices are not available.

         As of May 8, 2002, there were 11,547,896 shares of common stock
outstanding, 42,216.15 shares of Series A Preferred Stock (which are convertible
into an aggregate of 526,304 shares of common stock), and 195,209.52 shares of
Series B Preferred Stock (which are convertible into 2,272,238 shares of common
stock).

         Shareholders

         As of May 10, 2002, the number of holders of record of our common stock
was 75, with any shares held by persons or companies in street or nominee name
counted only under such street or nominee name.

         Dividends

         We have not paid any cash dividends in the past and have no present
intention of doing so. Payment of future cash dividends will be determined from
time to time by our Board of Directors, based upon its future earnings (if any),
financial condition, capital requirements and other factors, the company is not
presently subject to any contractual or similar restriction on its present or
future ability to pay such dividends, except that the Company cannot pay
dividends on its common stock unless a dividend is paid on the outstanding
Series A and Series B preferred shares on an as-converted basis.

         Recent Sales of Unregistered Securities

In November 2001, we granted 15,000 warrants with a strike price of $0.01 per
share to Joseph Burdette in consideration of certain services rendered. These
warrants expire in 2004.

In November 2001, we granted 10,000 warrants with a strike price of $0.01 per
share to Donna Henderson in consideration of certain services rendered. These
warrants expire in 2004.

In November 2001, we granted 15,000 warrants with a strike price of $0.01 per
share to Linda Davis in consideration of $5000 in cash and assets. These
warrants expire in 2004.

In November 2001, we granted 40,000 warrants with a strike price of $0.01 per
share to Michael Spearman in consideration of certain services rendered. These
warrants expire in 2004.

In November 2001, we granted 40,000 warrants with a strike price of $0.01 per
share to Evelyn Land in consideration of $16,000 in cash and assets. These
warrants expire in 2004.

                                       10
<PAGE>

In November 2001, we granted 100,000 warrants with a strike price of $0.01 per
share to John Davis in consideration of certain services rendered. These
warrants expire in 2004.

In November 2001, we sold 15,000 shares of Common Stock to John Hancock in
consideration of legal services rendered in the amount of $9,300.

In November 2001, we sold 10,000 shares of Common Stock to John Harper in
consideration of cash and equipment with a value of $8,000.

In November 2001, we sold 5,000 shares of Common Stock to Jim Kendall in a
private placement transaction for $5,000.

In November 2001, we sold 10,000 shares of Common Stock to Matt Matsukawa in
consideration of certain engineering services rendered with a value of $7,500.

In December 2001, we sold 2,600,000 shares of Common Stock to SWI Holdings,
Limited, a Bermuda Corporation, in a private placement transaction for $500,000.

All of these securities were issued in private direct transactions, exempt under
Section 4(2) of the Securities Act of 1933, as amended, Regulation S, or
Regulation D promulgated thereunder.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS


         The following is management's discussion and analysis of significant
factors which have affected our financial position and operations during the
fiscal year ended December 31, 2000 ("Fiscal 2000") and December 31, 2001
("Fiscal 2001"). This discussion should be read in conjunction with our
financial statements and the accompanying notes appearing elsewhere in this
report.

         Overview

         We are engaged in the research, development, manufacturing and
marketing of high performance, low-emissions engine fuel systems that
facilitates the use of natural gas as the primary fuel within existing diesel
and gasoline engines. Our patented fuel system is a cost-effective solution to
reducing sulfur, hydrocarbon particulate matter, and nitrogen oxides (NOx) from
existing diesel engines, three of the major air pollution concerns. The flexible
system design has been successfully configured to fit most diesel engine classes
(vehicular and stationary generators) with little modifications.

Results of Operations - Comparison of Twelve Month Periods Ended December 31,
2001 and December 31, 2000

The following table sets forth certain statement of operation items as a
percentage of net sales for the period indicated:

                                              Twelve Months
                                            Ended December 31:
                                     2001                        2000
                                     ----                       -----
Product Sales              $205,570        100%         $288,874      100%
Cost of Goods Sold         169,116         82%           173,265       60%
Gross Profit                36,454         18%           115,609      40%
Operating Expenses        2,115,339       1029%          979,836      321%
Other Income & Expense    (34,089)        (17%)          (77,407)    (45%)
Income Tax                   ---           ---             ---        ---
Loss                    $(2,112,974)     (1028%)       $(941,634)    (326%)


                                       11
<PAGE>

Product Sales


         Product sales decreased from $288,874 during the year ended December
31, 2000 to $205,570 during the year ended December 31, 2001. Product sales of
our Mechanical Fuel System and related components during the years ended
December 31, 2001 and 2000 amounted to $190,555 and $288,874, respectively.
Product and service sales of AET, originating from our December 11, 2001
acquisition, and which relate principally to contract services, amounted to
$15,015. As a result of the subsequent suspension of this business future sales
from AET are expected to be minimal. We are presently negotiating with a
third-party to dispose of the assets of Alternative Fuel Technologies, Inc. for
nominal consideration.

         Approximately 22 Mechanical Fuel Systems were sold in 2000 and about 10
systems were sold in 2001. This decrease was due mainly to our focus away from
sales and towards research and development with respect to our Digital Fuel
System and raising capital. We believe that the Digital Fuel System will produce
greater market appeal and better facilitate engine customization and EPA
certification In conjunction with a major fleet operator, we have recently
completed emissions testing of our Digital Fuel System at the University of West
Virginia's Emissions Testing Laboratory, and we expect to have the definitive
results from such testing by the end of May. Thereafter, we expect to begin the
EPA certification process for our Digital Fuel System with respect to certain
engine families. The remaining revenues resulted from the sale of gasoline
bi-fuel conversion kits, part kits for dedicated diesel fuel vehicles, and
installation of conversion kits and sales of fuel tanks.

Cost of Product Sales

         Cost of product sales decreased from $173,265 during the year ended
December 31, 2000 to $169,116 for the year ended December 31, 2001. As a
percentage of sales cost of product sales increased from 60.0% during the year
ended December 2000 to 82.2% for the year ended December 31, 2001. The increase
in this percentage is attributable to the mix of product sales in each period.
As noted in the preceding paragraph, higher margin Mechanical Fuel System sales
decreased from 22 in 2000 to 10 in 2001. Sales of lower margin component and
service parts contributed a greater amount of 2001 product sales. Subsequent to
December 31, 2001, the Company implemented price increases on its Mechanical
Fuel Systems that are expected to improve overall profit margins.

Professional and Outside Services

         Professional and outside services increased from $257,574 during the
year ended December 31, 2000 to $1,091,795 during the year ended December 31,
2001. The increase during 2001 related to higher levels of financial, legal and
consulting services that the Company required to address relatively flat capital
markets, merger and acquisition activities, corporate legal matters and
additional product development activities. In addition, AET, which commenced
operations on December 11, 2001 incurred $56,612 in legal and professional
services related to the acquisition, corporate and other general legal matters.
Because of the shortage of capital, the Company compensated professionals and
consultants with 1,430,360 shares of common stock, valued at $626,764 and
certain warrants with an aggregate value of $248,471. Securities issued for
services were valued at fair value on the dates of issuance, using the closing
market prices for stock issuances and the Black-Scholes model for warrants. The
Company continues to engage the support of consultants to address its financial
and legal needs. Future levels of professional and outside services are largely
dependent upon the success in raising capital and promptly resolving legal
matters.

Other Operating Expenses

         Other operating expenses increased from $478,784 during the year ended
December 31, 2000 to $451,399 for the year ended December 31, 2001. Other
operating expenses include rents, utilities, insurance, office expense and
research and development. Approximately, $40,600 of the increase in 2001 related
to AET. The Company endeavors to curtail its operating costs and will continue
to make efforts to develop cash savings where possible.

Research and Development

         Research and development expense, which is included as a component of
other operating expenses decreased from $34,281 during the year ended December
31, 2000 to $16,344 during the year ended December 31,

                                       12
<PAGE>

2001. Research and development in alternative fuel technologies are an
important component of the Company's operation and, if practicable, will
continue at these or higher levels.


Salaries and Wages

         Salaries and wages decreased from $177,392 during the year ended
December 31, 2000 to $168,086 during the year ended December 31, 2001. The
decrease is attributable to reductions in headcount and workload.

Impairment Charges

            On December 11, 2001, the Company, through its wholly owned
subsidiary, Alternative Energy Technologies, Inc. ("AET"), completed the
acquisition of certain assets of New York State Electric & Gas Corporation
("NYSEG"). The acquisition included substantially all of NYSEG's assets relating
to its natural gas vehicle service, maintenance and construction business.
Simultaneously with the closing of the acquisition, the Company entered into a
Service Agreement with NYSEG pursuant to which, among other things, the Company
agreed to maintain NYSEG's natural gas refueling facilities for a period of four
years. The new company was originally expected to provide customers with
heavy-duty vehicle natural gas conversion equipment, facility and equipment
maintenance, training, consulting, and infrastructure design construction
services.

            The transaction was accounted for as a purchase transaction. The
aggregate purchase price of $355,300 consisted of $30,000 in cash, a seller note
payable in the amount of $307,800 and expenses of $17,500. The purchase price
was allocated to the net assets acquired based upon their respective fair
values. An amount of $191,000 was allocated to inventories and $146,000 was
allocated to equipment. This allocation resulted in the recognition of $18,300
of goodwill, which management originally intended to amortize over five years.

            The newly acquired subsidiary required unexpected funding of
approximately $90,805 from the period from December 11, 2001 to December 31,
2001, and additional funding appeared necessary to sustain its operations. As a
result, management, with the concurrence of the Board of Directors, has decided
to dispose of the operation by sale at a nominal price or abandonment. As a
result, the net assets of the acquired company, amounting to $355,330, were
charged to operations as an impairment charge in the fourth quarter of 2001.

Interest Expense

         Interest expense increased from $78,233 during the year ended December
31, 2000 to $167,711 during the year ended December 31, 2001. Interest expense
in 2001 includes a non-cash charge of $139,000 as discussed below. Excluding the
non-cash charge, interest expense decreased during 2001 by $49,522, to $28,711,
which was attributable to the conversion of $380,000 face value 12% convertible
notes payable early in the year ended December 31, 2001 into common stock.

            During the year ended December 31, 2001, the holders of 415,000 face
value in 12% convertible notes exercised an improved conversion offer by the
Company. The improved conversion offer provided for the a conversion price lower
than that stipulated in the underlying debt agreements, plus the payment of
accrued interest with common stock. Pursuant to this offer, the Company issued
1,164,786 shares of common stock to convert $460,324 of debt principal and
accrued interest. The fair value of the additional shares issued under the
induced conversion amounted to $139,000, which was charged to interest expense.

            During December 2001, the Company entered into a promissory note of
$307,800 in connection with the AET acquisition. As of December 31, 2001, the
balance due on the note amounted to $237,800. This note will contribute to
future levels of interest expense until it is paid off. As of the date of
filing, the Company has been unable to make the required payments under this
promissory note, and continues to accrue interest based upon the outstanding
balance.

Extraordinary Item

         During the year ended 2001, the Company exchanged 282,000 shares of
common stock for certain payables, with a book value of $131,670, that were
related principally to legal and outside consultants. The value of

                                       13
<PAGE>


the common stock used for accounting purposes represented the closing market
price on the date of issuance, or $70,500. The gain from extinguishments of
these liabilities of $61,170 has been reported as an extraordinary item in
the accompanying financial statements.


Results of Operations - Comparison of Twelve Month Periods Ended December 31,
2000 and December 31, 1999

The following table sets forth certain statement of operation items as a
percentage of net sales for the period indicated:

                                            Twelve Months Ended :
                                                December 31

                          1999              2000          1999          2000
                          ----              ----          ----          ----
Net Sales               $560,124        $288,874        100.00%       100.00%
Cost of Goods Sold      $329,791        $173,265         58.88%        59.98%
Gross Profit            $230,333        $115,609         41.12%        40.02%
Operating Expenses      $681,918        $926,996        121.74%       320.90%
Other Income & Expense  $158,013        $130,247         28.21%        45.09%
Income Tax              ---             ---               0.00%         0.00%
Income (Loss)          ($609,598)      ($941,634)      (108.83%)      (325.97%)


         Our revenues during Fiscal 1999 and Fiscal 2000 resulted primarily from
sales of the our Mechanical System Technology dual fuel system kits.
Approximately 48 such kits were sold in 1999 and about 22 systems were sold in
2000. Our remaining revenues resulted from the sale of gasoline bi-fuel
conversion kits, part kits for dedicated diesel fuel vehicles, installations of
conversion kits and sales of fuel tanks.

         Our revenues decreased from $560,124 in Fiscal 1999 to $288,874 in
Fiscal 2000. This decrease was due mainly to our focus away from sales and
towards perfecting and certifying our technology and raising capital. There was
only a very minor change in our Cost of Goods Sold and our Gross Profit between
the two periods.

         Our Operating Expenses rose by $245,078 between Fiscal 1999 and Fiscal
2000. This was due in large part to a significant increase in our consulting
charges, which rose by $149,521 as a result principally of fees associated with
our financing activities, an increase in our rental charges from $25,950 to
$36,974 due principally to additional space we leased for operations, an
increase in our research, development and product testing expenses from $3,155
to $34,281 due primarily to our drive-by-wire and L10 projects, an approximate
doubling of our royalty and patent charges from $15,978 to $32,325 principally
due to increased sales of our kits subject to our License Agreement with the
Davis Family Trust, a 443% increase in our sales promotion, advertising and
public relations expenditures from $5,847 to $25,924 due to our increased and
expanded marketing activities, an increase in professional fees from $35,910 to
$96,764 due principally to costs incurred in relation to the preparation and
filing of our SB-2 registration statement covering the resale of certain
outstanding securities.

         Our Other Interest Income and Expense, which consisted of Interest
Expense, Interest Income, Loss on Litigation and Penalties on Tax deficiencies,
decreased from $158,013 to $130,247 in Fiscal 2000 and Fiscal 1999,
respectively. This was primarily the result of a Loss on Litigation experienced
in 1999, a large expense associated with penalties on tax deficiencies in 2000,
and an increase in Interest Expense from $35,489 to $78,233 as a result of our
issuance of $380,000 in 12% convertible notes as of November 1999 through May
2000.


                                       14
<PAGE>

 Liquidity and Capital Resources

Going Concern

         The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern for a reasonable period,
not to exceed one year. As reflected in the financial statements, the Company
has incurred significant losses from operations during all periods presented and
has a significant working capital deficiency as of December 31, 2001. In
addition, the Company is in default under two debt agreements with outstanding
balances amounting to $385,800. Substantially, all of the Company's assets and
intellectual properties serve as security for these obligations and one of the
creditors has initiated an action to recover its $237,800 debt. The Company has
also sustained turnover in key management roles during 2001 and, to date in
2002. These conditions raise substantial doubt about the Company's ability to
continue.

         The Company's ability to continue is dependent upon the current
management's ability to raise sufficient capital to fund operating losses and,
ultimately, achieve profitable operations. The current management raised
$500,000 during December 2002 that was received between December 11, 2001 and
January 14, 2002. Also, as discussed in Note 11 to the accompanying consolidated
financial statements, additional proceeds of $435,000 were received in
connection with the sales of securities subsequent to December 31, 2001. Of this
amount, approximately $855,000, was received by SWI Holdings Limited, a private
investment company for whom Wolfgang Wacker, our former director, serves as
President. In addition, the new management has taken action to dispose of the
AET acquisition (See Note 4 to the consolidated financial statements) that was
acquired December 11, 2001 because of its draw on capital.

         The Company will require a significant amount of additional capital in
order to complete the engineering and development of the Digital Fuel System,
obtain EPA and/or CARB certification on at least two engine families, build a
management infrastructure, initiate our sales and marketing campaign, and
manufacture our Digital Fuel Systems. There can be no assurance that SWI, or any
other investor, will continue to purchase shares of our capital stock on
acceptable terms, or at all, or that we will otherwise be able to obtain such
capital. If we fail to raise capital on acceptable terms, our business could be
substantially harmed or we could be forced to cease operations.

Operating Activities

         Operating activities used cash of $797,490 during the year ended
December 31, 2001 compared to $467,880 during the year ended December 31, 2000.
Cash used in operating activities was substantially lower than reported net loss
of $2,112,974 primarily as a result of the following non-cash charges to
operations during the period: $875,235 related to common stock and warrants
issued for services; $355,330 related to the aforementioned impairment of AET;
$139,000 related to non-cash interest expense; and, $48,945 related to the
depreciation and reserve of operating assets. Other changes in operating assets
resulted in net uses of cash to settle liabilities and accrued expenses.

         The Company's cash flow during 2001 and liquidity have benefited
greatly by its ability to use common stock and warrants to pay operating
expenses. There can be no assurance that vendors will continue to accept such
securities as payment for services.

Investing Activities

         Investing activities used cash of $53,640 during the year ended
December 31, 2001 compared to $38,711 during the year ended December 31, 2000.
Purchases of equipment and leasehold improvements have been curtailed to a
minimal level. Such purchases amounted to $6,140 during 2001 compared to $38,711
during 2000. The Company also used $47,500 of cash to acquire AET, in addition
to a promissory note of $307,800.

         The Company currently has no material capital commitments. However, the
Company will require a significant amount of additional capital in order to
complete the engineering and development of the Digital Fuel System, obtain EPA
and/or CARB certification on at least two engine families, build a management
infrastructure, initiate our sales and marketing campaign, and manufacture our
Digital Fuel Systems.


                                       15
<PAGE>


Financing Activities

         Financing activities provided cash of $842,527 during the year ended
December 31, 2001 compared to $385,032 during the year ended December 31, 2000.
During the year ended December 31, 2001, the Company generated cash with the
private sales of 5,312,500 shares of common stock for net proceeds of $917,492.
Additional subscription proceeds of $200,000 related to these sales of common
stock was received in January 2002. Cash was used in financing activities to
make payments on notes payable amounting to $74,965, of which $70,000 related to
the AET seller promissory note and the remainder related to equipment loans.

         On December 10, 2001, the Company completed the private placement of
2,600,000 shares of common stock (included in the total 5,312,500 shares
referred to above) and warrants to purchase 250,000 shares of common stock for
$0.50 each, to SWI Holdings, Limited ("SWI"), a Bermuda company, for an
aggregate purchase price of $500,000. The Company received $300,000 of the
proceeds on December 10, 2001. The balance of $200,000 was recorded as a
subscription receivable and was received on January 14, 2002. Pursuant to the
Company's Stock Purchase Agreement with SWI, SWI has the right during the period
between December 31, 2003 and June 30, 2004 to require the Company to purchase
up to 2,500,000 of these shares at a price of $0.20 per share (the "Put
Option"). The Put Option will automatically terminate in the event that the
Company (i) completes a financing of in excess of in excess of $2.0 million in
gross proceeds at an offering price per share of not less than $0.40 or (ii)
completes a merger or other business combination pursuant to which the common
stock is valued at a price per share of not less than $0.40. The Company's
obligations under the Put Right are secured by a lien in favor of SWI on all of
the Company's assets. The value associated with the put option, amounting to
$500,000, has been reclassed to the caption "redeemable securities" in the
accompanying balance sheet.

         During the year ended December 31, 2001, the holders of 415,000 face
value in 12% convertible notes exercised an improved conversion offer by the
Company in settlement of their notes. The improved conversion offer provided for
the a conversion price lower than that stipulated in the underlying debt
agreements, plus the payment of accrued interest with common stock. Pursuant to
this offer, the Company issued 1,164,786 shares of common stock to convert
$460,324 of debt principal and accrued interest.

            During December 2001, the Company financed $307,800 of the total
NYSEG purchase price of $355,300 with a seller note payable. As of December 31,
2001, the balance on the promissory note was $237,800. The Company did not meet
the payment terms on the promissory note payable to NYSEG, discussed in Note 4,
which has a remaining balance of $237,800. The promissory note is secured by the
acquired assets and is guaranteed by the Company. NYSEG has not waived its
rights under the promissory note and, on May 21, 2002 commenced an action to
seek recovery of remaining amounts due. The case is in its early stages and
management is currently attempting to assess the matter. However, the outcome of
this contingency could have a material adverse affect on the Company. Also see
the section entitled "Working Capital Deficiency", below, regarding the
Company's default on this note.

         The Company did not meet the December 1, 2001 payment date on a bank
note payable, which has a balance of $148,000. The creditor has not waived its
rights under the credit agreement, but has not commenced actions against the
Company for recover. There can be no assurance that the bank will not seek
recovery and that event could have a material adverse affect on the Company.

Working Capital Deficiency

         The Company has a working capital deficiency of $921,694 as of December
31, 2001 ($1,145,836 at December 31, 2000). Current assets decreased from
$201,230 at December 31, 2000 to $143,739 at December 31, 2001, due to lower
inventory and cash levels. Current liabilities decreased from $1,347,066 at
December 31, 2000 to $1,065,433 at December 31, 2001. Current liabilities
decreased principally as a result of non-cash conversions. Current liabilities
decreased from (i) the conversion of convertible notes and interest amounting to
$460,324 to common stock (ii) the settlement of $131,670 of liabilities for
common stock, and (iii) the settlement of a litigation matter that resulted in a
reduction in the related accrual by $70,000. Current liabilities increased as a
result of the remaining balance of $237,800 on the promissory note related to
the NYSEG acquisition.


                                       16
<PAGE>


         Projected operations for periods during 2002 are not currently expected
to produce sufficient cash to provide for the timely liquidation of accounts
payable in the normal course of business. In addition, the Company is in default
on payment terms of notes payable to NYSEG and a bank creditor. On May 14, 2002,
NYSEG commenced an action against the Company to obtain payment. The outcome of
this action and any action that may be brought by the bank creditor cannot yet
be predicted. However, these contingencies could have a material adverse affect
on the Company.

Estimates, Critical Accounting Policies and Recent Accounting Pronouncements

Estimates and Critical Accounting Policies

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that may affect the reported
amounts of assets and liabilities, disclosure of contingent amounts, and the
amounts of revenue and expenses. Significant estimates included in the
accompanying financial statements include the estimate of bad debt allowances
and inventory reserves. While actual results could differ from these estimates,
management believes that the estimates are reasonable. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to determine the accounting
policies appropriate for the Company and assure their consistent application.
Currently, management does not believe that there are any accounting policies
that are particularly sensitive to changes in conditions that are outside the
control of the Company.

Recent Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS No. 142 that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS No. 141. SFAS No. 142
requires, among other things, that companies no longer amortize goodwill, but
instead test goodwill for impairment at least annually. In addition, SFAS No.
142 requires that the Company identify reporting units for the purposes of
assessing potential future impairments of goodwill, reassess the useful lives of
other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. SFAS No. 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. As of December 31, 2001, the Company has charged the
net assets of its entire recent acquisition to operations, as impaired. However,
the Company is currently reviewing other acquisition or merger candidates to
which this standard may apply.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. SFAS No. 144 replaces SFAS No. 121,
Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of. SFAS No. 144 retains the fundamental provisions of SFAS No. 121
for the recognition and measurement of the impairment of long-lived assets to be
disposed of by sale. Under SFAS No. 144, long-lived assets are measured at the
lower of the carrying amount or fair value, less cost to sell. The Company will
be required to adopt this statement no later than January 1, 2002. The Company
is currently assessing the impact of this statement on its results of
operations, financial condition, and cash flows.

         In April 2002, the FASB issued SFAS No. 145 covering, among other
things, the recission of SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt. Under SFAS No. 4, all gains and losses from the
extinguishment of debt were required to be aggregated and, if material,
classified as an extraordinary item in the statement of operations. By
rescinding SFAS No. 4, SFAS No. 145 eliminates the requirement to classify debt
extinguishment as extraordinary items. The new standard is effective for
companies with fiscal years beginning after May 15, 2002. However, early
application of the standard is encouraged. As discussed in Note 7 to the
accompanying consolidated financial statements, the Company has reported the
gain from the extinguishment of certain indebtedness as extraordinary. As a
result of having reported this event as extraordinary in previous quarterly
filings, this presentation has been continued in this annual report.


                                       17
<PAGE>


Risk Factors

         The Company's liquidity, capital resources, and results of operations
indicate that an investment in the Company remains speculative, involves a high
degree of risk, and should not be made by persons who cannot afford the loss of
their entire investment. Prospective investors in the Company should carefully
consider all of the information contained in this Report before deciding whether
to purchase securities of the Company, and, in particular, the factors set forth
below.

RISKS ASSOCIATED WITH OUR BUSINESS

We Have A History Of Losses And May Never Achieve Profitability.

         We have incurred net losses since our inception. At December 31, 2001,
our accumulated deficit was $4,591,863. We anticipate that we will continue to
incur additional operating losses in the near to mid-term. Our losses to date
have resulted principally from expenses incurred in our research and development
programs, including beta testing, and from general and administrative and sales
and marketing expenses. We cannot assure you that we will attain profitability
or, if we do, that we will remain profitable on a quarterly or annual basis in
the future.

Our Auditors Have Determined That There is Uncertainty As To Our Ability to
Continue As A Going Concern.

         Our auditors, Aidman Piser, & Company, P.A. have modified their report
on our financial statements for the year ended December 31, 2001 to emphasis (i)
substantial doubt surrounding the Company's ability to continue as a going
concern for a reasonable period and (ii) defaults on our certain of our
indebtedness that have gone uncured and, in one instance, has resulted in an
action against the Company. These matters are discussed in our consolidated
financial statements included elsewhere in this annual report.

Our Auditors Have Communicated That There are Material Weaknesses in Our
Internal Controls

         Our auditors, Aidman, Piser & Company, P.A. have informed the Company's
management, counsel and its Audit Committee that they believe we lack the
financial processes, internal controls and personnel to provide timely and
accurate financial reporting that is necessary for public reporting. A material
weakness in internal control is a condition in which the design or operation of
one or more of the internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions.

Recent personnel changes may interfere with our operations.

         Recently we have experienced significant changes at the senior
management and Board of Directors levels. Robert Stiles, our former President
and a member of the Board of Directors, resigned from his positions in March of
2002. We are presently seeking to find a replacement for such officer position.
In addition, we have experienced significant changes at the board of directors
level. Messrs. Wacker, Perry and Erwin each resigned from their positions on our
Board of Directors during the first half of 2002 and Mr. Issa Al-Muzaini was
appointed to our Board during such period.

         If we do not successfully attract and retain skilled personnel for
Board of Director, management and other key personnel positions, we may not be
able to effectively implement our business plan.

Our Limited Operating History Makes It Difficult To Analyze Our Prospects For
Success.

         We were organized on April 1, 1996 and have conducted only limited
operations to date, consisting of negotiating the license to use the patents,
further research and development, including beta testing, and limited sales
efforts. No assurances can be given that we will develop a marketing and sales
program which will generate significant revenues from the sales of our duel fuel
conversion systems. The likelihood of our success must be viewed in light of the
delays, expenses, problems and difficulties frequently encountered by an
enterprise in its


                                       18
<PAGE>


development stage, many of which are beyond our control. We are subject to all
the risks inherent in the development and marketing of new products.

We Have Limited Resources To Devote To Product Development And
Commercialization.

         We have only recently completed development of our Digital Fuel System
and have not yet received EPA or CARB certification with respect to any engine
families. Because we have limited resources to devote to product development and
commercialization, any delay in the development or certification of our Digital
Fuel System will have a material adverse effect on our business and prospects.
Moreover, if we fail to rapidly achieve market acceptance for our Digital Fuel
System, our business could be substantially harmed.

Technological Change May Make Our Products Obsolete Or Difficult To Sell At A
Profit.

         To date, the market for alternative fuel technology systems and
equipment has not, to our knowledge, been characterized by rapid changes in
technology. However, there can be no assurance that new products or
technologies, presently unknown to management, will not, at any time in the
future and without warning, render our dual fuel technology less competitive or
even obsolete. Major automobile and truck companies, academic and research
institutions, or others, for example, could develop new fuels or new devices
which could be installed at the original equipment manufacturer level and which
could potentially render our systems obsolete. Moreover, the technology upon
which our dual fuel systems are based could be susceptible to being analyzed and
reconstructed by an existing or potential competitor. Although the Company is
the license holder of certain United States patents respecting its proprietary
dual fuel system, we may not have the financial resources to successfully defend
such patent, were it to become necessary, by bringing patent infringement suits
against parties that have substantially greater resources than those available
to us. We must continue to create innovative new products and modifications to
our existing products reflecting evolving needs within our domain of expertise,
and we must meet be able to meet the financial demands associated with such
continued development. Failure to do so could prevent us from developing and
maintaining a significant market for our products.

         In addition, competitors may develop technology and systems that can be
sold and installed at a lower per unit cost. There can be no assurance that we
will have the capital resources available to undertake the research which may be
necessary to upgrade our equipment or develop new devices to meet the
efficiencies of changing technologies. Our inability to adapt to technological
change could have a materially adverse effect on our results of operations.

We License Our Proprietary Technology from a Third Party and such Technology May
Not Be Adequately Protected From Unauthorized Use By Others, Which Could
Increase Our Litigation Costs.

         Our success depends to a great extent on our ability to protect our
intellectual property. We license our core intellectual property pursuant to a
license agreement between the Company and the Davis Family Trust which is filed
as an exhibit hereto (as amended, the "License Agreement") and the License
Agreement is terminable under certain circumstances.

         Our ability to compete effectively will depend in part on our ability
to develop and maintain proprietary aspects of our technology and either to
operate without infringing the proprietary rights of others or to obtain rights
to technology owned by third parties. Pursuant to the License Agreement, we have
licensed certain patents from the Davis Family Trust. We cannot assure you that
any of our licensed technology rights will offer protection against competitors
with similar technology. We cannot assure you that the patents covered by the
License Agreement will not be challenged, invalidated or circumvented in the
future or that the rights created by those patents will provide a competitive
advantage. We also rely on trade secrets, technical know-how and continuing
invention to develop and maintain our competitive position. We cannot assure you
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets.

         We cannot assure you that we will not become subject to patent
infringement claims and litigation in the United States or other countries or
interference proceedings conducted in the United States Patent and Trademark
Office to determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings, and related legal
and administrative proceedings are costly, time-consuming and


                                       19
<PAGE>


distracting. We may also need to pursue litigation to enforce any patents issued
to us or our collaborative partners, to protect trade secrets or know-how owned
by us or our collaborative partners, or to determine the enforceability, scope
and validity of the proprietary rights of others. Any litigation or interference
proceeding will result in substantial expense to us and significant diversion of
the efforts of our technical and management personnel. Any adverse determination
in litigation or interference proceedings could subject us to significant
liabilities to third parties. Further, as a result of litigation or other
proceedings, we may be required to seek licenses from third parties which may
not be available on commercially reasonable terms, if at all.

We Have Limited Manufacturing Experience and Capacity and Will Rely Upon Third
Party Contract Manufacturers Who Have Not Yet Been Contractually Secured

         To be successful, we must manufacture, or contract with a third party
for the manufacture of, our current and future products in sufficient quantities
and on a timely basis, while maintaining product quality and acceptable
manufacturing costs. In the past, the control boxes and other key elements used
for our conversion kits are received from a single source, Ambac International
Corporation, with whom we have been involved in a dispute over outstanding
balances. Accordingly, should we not timely secure an alternate contract
manufacturer, or for some reason we are no longer able to obtain the control
boxes or other key elements from our supplier, we will not be able to produce or
will be delayed in producing conversion kits for sale or distribution, which
could cause delays in our operation or sales or make continued operation or
sales unprofitable.

The nature of our products subjects us to product liability risks.

         Our product and services relate to fuel system components which handle
or come into contact with natural gas which is highly combustible. A malfunction
of or design defect in certain of our products or improper design, construction,
installation or servicing of facility and equipment infrastructure could result
in liability, tort or warranty claims. Although we attempt to reduce the risk of
exposure from such claims through warranty disclaimers and liability limitation
clauses in our sales agreements and by maintaining product liability insurance,
we cannot assure you that these measures will be effective in limiting our
liability for any damages. Any liability for damages resulting from product
malfunctions or services provided could be substantial and could have a material
adverse effect on our business and operating results. In addition, a
well-publicized actual or perceived malfunction or impropriety involving our
products or service could adversely affect the market's perception of our
products in general, regardless of whether any malfunction or impropriety is
attributable to our products or services. This could result in a decline in
demand for our products and services, which would have a material adverse effect
on our business and operating results.

A Public Market For Our Shares May Not Be Sustained And The Price May Fluctuate.

         On May 23, 2002 our stock was delisted from the OTC Bulletin Board as a
result of our failure to file an annual report on form 10-KSB.  Our stock is
publicly traded in the "pink sheets" under the symbol "SOEI". The closing bid
price as of May 22, 2002 was $0.03. There can be no guarantee that the current
price can be maintained or be expected to increase in value. Although there can
be no assurance we expect to become listed on the OTC Bulletin Board maintained
by NASDAQ. If for any reason our common stock does not become listed on the OTC
Bulletin Board, or if it becomes listed and at some point thereafter is no
longer listed, purchasers of the shares may have difficulty selling their common
stock should they desire to do so. In either case, we intend to apply to have
our common stock approved for quotation on the NASDAQ SmallCap Market at such
time, in the future, that it meets the requirements for inclusion. As of the
date hereof, however, the Company is not eligible for inclusion on NASDAQ or for
listing on any national stock exchange. All companies applying and authorized
for NASDAQ are required to have not less than $4,000,000 in net tangible assets,
a public float with a market value of not less than five million dollars, and a
minimum bid of price of $4.00 per share. At the present time, the Company is
unable to state when, if ever, it will meet the NASDAQ application standards.
Unless the Company is able to increase its net worth and market valuation
substantially, either through the accumulation of surplus out of earned income
or successful capital raising financing activities, it will never be able to
meet the eligibility requirements of NASDAQ.


                                       20
<PAGE>

Unless An Active Public Trading Market Develops For Our Securities, You May Not
Be Able To Sell Your Shares

         To date, there has been a very limited public market for our Common
Stock, and until such time as we are able to become listed on a national
exchange or on the NASDAQ Stock Market, if at all, there will continue to be
only very limited public trading market for our Common Stock. There can be no
assurance, moreover, that an active trading market will ever develop or, if
developed, that it will be maintained. Failure to develop or maintain an active
trading market could negatively affect the price of our securities.

Our Common Stock May be Subject to Penny Stock Regulation.

         The Securities Enforcement and Penny Stock Reform Act of 1990 requires
special disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a "penny stock". Securities Exchange Commission
("Commission") regulations generally define a penny stock to be an equity
security that has a market price of less than $5.00 per share and is not listed
on The NASDAQ SmallCap Stock Market, The NASDAQ National Market or a major stock
exchange. These regulations subject all broker-dealer transactions involving
such securities to the special "Penny Stock Rules" set forth in Rule 15g-9 of
the Securities Exchange Act of 1934 (the "34 Act"). These Rules affect the
ability of broker-dealers to sell the Company's securities and also may affect
the ability of purchasers of the Company's common stock to sell their shares in
the secondary market, if such a market should ever develop. The current market
price of the our common stock is substantially less than $5 per share and such
stock can, for at least for the foreseeable future, be expected to continue to
trade in the over-the-counter market at a per share market price of
substantially less than $5. Accordingly, any broker-dealer sales of our common
shares will be subject to the Penny Stock Rules.

         The Penny Stock Rules also impose special sales practice requirements
on broker-dealers who sell such securities to persons other than their
established customers or "Accredited Investors". Among other things, the Penny
Stock Rules require that a broker-dealer make a special suitability
determination respecting the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. In addition, the Penny Stock
Rules require that a broker-dealer deliver, prior to any transaction, a
disclosure schedule prepared in accordance with the requirements of the
Commission relating to the penny stock market. Disclosure also has to be made
about commissions payable to both the broker-dealer and the registered
representative and the current quotations for the securities. Finally, monthly
statements have to be sent to any holder of such penny stocks disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Accordingly, for so long as the Penny Stock
Rules are applicable to our common stock, it may be difficult to trade such
stock because compliance with such Rules can delay and/or preclude certain
trading transactions. This could have an adverse effect on the liquidity and/or
price of our common stock.

We May Issue Preferred Stock With Certain Preferences May Depress Market Price
Of The Common Stock.

         The Board of Directors may designate additional series or classes of
preferred shares without shareholder consent which designations may give the
holders of the preferred stock, if previously issued, voting control and other
preferred rights such as to liquidation and dividends. The authority of the
Board of Directors to issue such stock without shareholder consent may have a
depressive effect on the market price of Uncommon Media Group's common stock
even prior to any such designation or issuance of preferred stock. Any such
issuance of shares of preferred stock, under certain circumstances, could have
the effect of delaying or preventing a change in control of Save On Energy, Inc.
or other take-over attempt and could adversely materially affect the rights of
holders of shares of the common stock.

         RISKS ASSOCIATED WITH OUR INDUSTRY

Competition From Companies With Already Established Marketing Links To Our
Potential Customers May Adversely Effect Our Ability To Market Our Products.

         As the time to comply with federal and state regulations relating to
emissions and fuel efficiency approaches, so too does the universe of entities
seeking to develop and market products such as those we sell. A very limited
number of companies presently are marketing dual fuel conversion kits. In
addition, automobile and



                                       21
<PAGE>

truck manufacturers may develop and install similar proprietary devices as
original equipment. Unless we are able to become a licensor to such a group or
groups, any such occurrence could have a materially adverse effect on our
business.

         We expect our competition to intensify. Although competitors are
limited, several current and potential competitors have longer operating
histories, larger customer bases, greater brand name recognition and
significantly greater financial, marketing and other resources than we have.
Certain of our competitors may be able to secure product from vendors on more
favorable terms, devote greater resources to marketing and promotional
campaigns, and adopt more aggressive pricing or inventory availability policies,
than we will. There can be no assurance that we will be able to compete
successfully against current and future competitors, and competitive pressures
faced by us are likely to have a materially adverse affect on our business,
results of operations, financial condition and prospects.

Competition Utilizing Other Energy Sources May Adversely Affect Our Ability To
Market Our Products.

         The current regulatory emphasis on lowering engine emissions is an
economic incentive for developing non-petroleum based or decreased hydrocarbon
emitting power sources, some of which may be superior to ours or may well be
selected by converters, states or federal agencies, regardless of superiority.
In this regard, we are also competing against manufacturers of electric vehicles
and against vehicles which rely on other fuel sources such as solar power or
hydrogen. Electric cars have been in development for many years and have been
tested extensively and some manufacturers are selling such vehicles on a
commercial basis.

Safety Concerns in Connection with Alternative Fuels and our Products Generally,
and our Limited Liability Insurance May Adversely Affect our Ability to Conduct
Business.

         Liquefied natural gas is highly flammable and may present risk in the
event of a collision involving the storage tanks. These concerns may make
marketing our products more difficult at any point in time. Further, an accident
or catastrophe could adversely affect our ability to conduct business in view of
our limited insurance. Although we have obtained liability insurance from a
"Best" A rated insurance carrier, our coverage is only in the gross amount of $2
million in the aggregate during any one year and $1 million per event to cover
accidents or other liability incurred as a result of a malfunction of our
products. There is no assurance that coverage in this amount will be sufficient
to meet all claims which we may face in respect of our products, particularly in
the event of any serious bodily harm or property damage as a result of defects
or flaws in the products. In the event the amount of any claim or claims in the
aggregate exceeds the amount of our liability insurance, we may be required,
among other possible scenarios, to remit all revenues to claimants which may
force us to cease operations.

The Limited Availability Of Alternative Fueling Stations Can Hinder Our Ability
To Market Our Products.

         Alternative fuel engines have been commercially available in the past;
however, the most significant impediment to the growth in the market for
alternative fuel vehicles traditionally has been the limited availability of
alternative fuel fueling locations (stations) for natural gas and propane. The
success of engines based on alternative fuels will probably be directly affected
by the development of the fueling infrastructure of the natural gas industry and
the widespread availability of such fuel sources. In all events, our business
and the market for alternative fuel vehicles would benefit substantially from
the growth of the infrastructure of the natural gas industry and the more
widespread availability of alternative fuels. Conversely, our business and the
market for alternative fuel vehicles would be substantially hurt by a diminished
or lack of growth of the infrastructure of the natural gas industry and the less
widespread availability of alternative fuels.

ITEM 7.  FINANCIAL STATEMENTS

         Our financial statements, required to be included in this Report
pursuant to Item 310(a) of Regulation S-B, are incorporated by reference to the
Financial statements filed with this report.


                                       22
<PAGE>


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

         On August 6, 2001, we filed a current report on Form 8-K to report a
change in certifying accountants with the firm of Jack Kane & Co., P.C. being
replaced by Aidman, Piser & Company, P.A. effective as of August 6, 2001.

                                    PART III

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

Name                      Age          Position and Office Held
----                      ---          ------------------------
Ricky Davis               39           Director and Chief Financial Officer
Jeffrey Davis             36           Secretary
Issa Al Muzaini           42           Director

Ricky Davis. Director of the Company since October 2001. Before that he served
as the Company's Chief Financial Officer and Treasurer since 1996. Prior to
joining Save, Mr. Davis was employed by Combustion Labs, Inc. for three years as
a technician working with gasoline to natural gas conversions, for four years as
the Office Manager of a large mechanical contractor and ran his own
mechanical/electrical contracting business for 6 years. Mr. Davis studied
Business Management and Marketing at Griffin Area Tech, Atlanta Georgia.

Jeffrey F. Davis. Secretary. Prior to joining Save, Mr. Davis was employed by
Clayton County, Georgia, working primarily in the transportation and development
group. He holds an AA degree in Business Administration from Clayton State
College where he was named to the deans list.

Issa Al Muzaini. Director of the Company since February 2002. Mr. Al Muzaini is
a consultant on the Kuwait Stock Exchange and has been actively involved in all
its activities for the last ten years. Prior to that, he worked as a civil
engineer for a private company located in Kuwait. Mr. Al Muzaini holds a
Bachelors Degree in Civil Engineering from St. Martins College, Washington and a
Masters Degree in Financial Management.

Frank Davis. Senior Consultant and Product Research and Development Coordinator
since 1996. Mr. Davis presently serves in a consulting capacity and is
responsible for certain technical development, including the drive-by-wire
engine conversion kits, as well as many general business and strategic matters.
In 1980, he founded, and until 1996 served, as Chief Executive Officer of
Combustion Labs, Inc., where he conducted research and development related to
converting gasoline and diesel engines to run on natural gas or bifuel. Frank
Davis is the father of Robby F. Davis, Jeffrey Davis and Ricky Davis.

ITEM 10.   EXECUTIVE COMPENSATION.

Executive Compensation

         The Company did not have any executive officers whose annual
compensation was in excess of $100,000 for the fiscal year ended December 31,
2001. The Board of Directors and stockholders of the Company have ratified and
approved the Save On Energy, Inc. 2001 Stock Option Plan (the "Plan") for which
the Company has reserved 2,000,000 shares of Common stock for issuance upon the
exercise of qualified and non-qualified stock options granted under the Plan to
employees, advisors, consultants and Directors of the Company at prices and on
terms which have not been determined. As of December 31, 2001 no options had
been issued under the Plan.


                                       23
<PAGE>

         The following table sets forth summary information regarding
compensation paid by the Company for the years ended December 31, 1999, 2000 and
2001 to the two persons who served as our chief executive officer during such
period.

                         Long-Term Annual Compensation
<TABLE>
<S>                                   <C>              <C>            <C>               <C>                 <C>
                                                                                                               Securities
                                                                                            Other Annual       Underlying
    Name and Principal Position            Year           Salary            Bonus           Compensation      Options (#)
    ---------------------------            ----           ------            -----           ------------      -----------

Robby Davis                                2001         $43,967 (1)          -0-                 -0-              -0-
    Former President and Chief             2000         $41,965               $2,000             -0-              -0-
   Executive Officer                       1999         $39,811               $2,000             -0-              -0-


Robert Stiles                              2001         $34,375 (2)          -0-                 -0-             30,000
     Former President  and
      Chief Executive Officer
</TABLE>

-------------------------
 (1) Robby Davis served as President and CEO of the Company until July 17, 2001,
at which point he continued to serve as an employee of the Company. The salary
indicated represents Mr. Davis' total annual salary for 2001.
 (2) Mr. Stiles served as President of the Company from July 17, 2001 until his
resignation in March 2002. The amount listed is the amount accrued pursuant to
Mr. Stiles employment agreement from July 17, 2001 until December 31, 2001.
Only $6,250 of this amount was actually paid in Fiscal 2001.

         Director Compensation

We do not currently maintain any policy for compensating, or reimbursing
expenses to, non-officer directors for attendance at meetings, and no
non-officer directors received any such compensation or expense reimbursement.

 Information Concerning Stock Options

The following table provides information about the stock options granted to the
named executive officer during the fiscal year ended December 31, 2001. We
granted a total of 30,000 options to the named executive officers during the
fiscal year ended December 31, 2001.

         Options Granted in Fiscal Year 2001
<TABLE>
<S>            <C>                  <C>        <C>              <C>           <C>
                                                  % of Total
                                                    Options
                Number of Shares     Date of       Granted to
               Underlying Options    Option      Employees in     Exercise
Name                 Granted           Grant      Fiscal Year       Price        Expiration Date

Robert Stiles        30,000          7-17-01          100%          $ .50               7-18-06
</TABLE>

The following table sets forth the number of stock options held by the executive
officers named in the Summary Compensation Table as of December 31, 2001 and the
value of unexercised "in-the-money" options held which represents the positive
difference between the exercise price and the market price at fiscal year end.
No such executive exercised any options during the fiscal year 2001.


                                       24
<PAGE>


        2001 Fiscal Year End Option Values

                   Number of Unexercised           Value of Unexercised
Name            Options at Fiscal Year End  in-the-money Option Fiscal Year End
----            --------------------------  -----------------------------------

Robert Stiles             30,000                            -0-


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


         The following table sets forth, as of May 10, 2002, the beneficial
ownership of the Company's Securities by (i) each current member of the Board of
Directors of the Company, (ii) the executive officer named in the Section
entitled "Executive Compensation," above and (iii) all current directors and
executive officers of the Company as a group. On May 10, 2002, the Company had
11,514,896 shares of common stock issued and outstanding. Unless otherwise
indicated, the address of each stockholder is the address of the Company, which
is 4851 Georgia Highway 85, Suite 211 Forest Park, Georgia 30050.
<TABLE>
<S>                                 <C>                                 <C>                         <C>
Title of Class                                  Name and                        Amount of
                                       Address of Beneficial Owner         Beneficial Ownership       Percent of Class
-------------                          ---------------------------         --------------------       ----------------
Common Stock                         Robby E. Davis                            357,000 (1)                  3.1%
Common Stock                         Robert Stiles                              30,000 (2)                    *
Common Stock                         Ricky Davis                               357,000 (1)                  3.1
Common Stock                         Jeffrey Davis                             357,000 (1)                  3.1%
Common Stock                         Davis Family Trust                        358,000 (1)                  3.1%
Common Stock                         Wolfgang Wacker                         6,204,098 (3)                 41.0%
Common Stock                         Issa Al Muzaini                               -0-                       --
Series A Preferred Stock             Wolfgang Wacker                           42,216.15 (4)                100%
Series B Preferred Stock             Wolfgang Wacker                          195,209.52 (4)                100%
                                                                               ----------
   All Current officers  and
directors as a group (4 persons)                                            6,561,098                      43.4%
</TABLE>
----------------
*Less than 1%
(1)  Robby E. Davis, our former Chief Executive Officer, Jeffrey Davis, our
     Secretary, and Ricky Davis, our Chief Executive Officer and a member of the
     Board of Directors, are siblings, and the children of Frank Davis, a senior
     consultant to the Company. Each of the Davis's disavows beneficial
     ownership of, or control over, the shares of common stock owned by their
     parents, siblings and the Davis Family Trust.
(2)  Consists of an option to acquire up to 30,000 shares of the common stock of
     the Company, which option is presently exercisable.
(3)  Consists of (i) 2,600,000 shares of common stock owned by SWI Holdings,
     Limited, (ii) a warrant to purchase up to 250,000 shares of common stock
     which was issued to SWI, (iii) 42,216.15 shares of Series A preferred stock
     owned by SWI which are presently convertible into up to 526,304 shares of
     common stock, (iv) 195,209.52 shares of Series B preferred stock owned by
     SWI which are presently convertible into up to 2,2272,238 shares of common
     stock and (v) a Secured Convertible Promissory Note held by SWI which is
     presently convertible into up to 555,556 shares of common stock. Mr. Wacker
     is the President of SWI.
(4)  The Series A preferred Stock and Series B Preferred Stock is held by SWI
     Holdings, Limited. Mr. Wacker is the President of SWI.

                                       25
<PAGE>


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Licensing Agreement with the Davis Family Trust

         All of the technology, know-how, devices and apparatus embodied in the
patents and incorporated into the various products sold by us were developed and
patented by Frank Davis or Frank Davis and Robby E. Davis and assigned to the
Davis Family Trust, an irrevocable trust established by Mr. Davis for the
benefit of his family and which is administered by an independent third party.
Pursuant to an agreement dated May 13, 1996, the trust granted a license to us
to exploit the patents throughout certain territories for the life of the
patents, seventeen years, plus any extension thereof, including the right to
market and sell any and all products developed therefrom or to grant, licenses
to others to manufacture and sell any such products, subject to the approval of
the trustee of the trust (the "License Agreement").

         In consideration for the License Agreement, we executed a promissory
 note for $150,000 (the "Promissory Note") pursuant to which we are required to
 pay a royalty of $21 per patent per unit sold during the life of four of the
 patents and $150 per unit sold on a fifth patent for a dual fuel control system
 (collectively, the "Original Royalties"), which amounts are subject to
 adjustment annually to reflect changes in the consumer price index. In
 accordance with the terms of the License Agreement, the Original Royalty is
 increased at certain points by an amount equal to $79 per patent per unit (the
 "Additional Royalty"). The Additional Royalty shall be payable until such time
 as the amount of any Additional Royalty generated from the sale of units shall
 aggregate $150,000 plus accrued interest calculated at the rate of 12% per
 annum. After such time as this amount is paid, the royalty reverts to the
 original royalty as adjusted to reflect increases in the consumer price index.

      To date, the License Agreement has been amended twice. First, on June 18,
1998, to provide that the $150,000 promissory note would be satisfied by the
payment of $42,576.10 on July 31, 1998 and the delivery to the trust of 108,000
shares of our common stock. Second, on January 3, 2000, in consideration of
250,000 shares of our common stock, the License Agreement was amended to (i)
restrict the license rights to the United States, Canada, Mexico and Egypt, and
(ii) eliminates all quotas as specified in the original agreements.

         Agreement with International Fuel Systems, Inc.

         On June 24, 1999, we entered into a certain agreement (the "IFS
Agreement") with International Fuel Systems, Inc., a Tennessee corporation
("IFS") owned or otherwise controlled by Lanier M. Davenport, an individual who
owned, as of April 24, 2001, 300,000 shares of Save common stock. The IFS
Agreement was amended as of January 7, 2000, and ,as amended, provided for (i)
an issuance by the Company of 600,000 shares of our common stock to various
designees of IFS, together with both piggy-back and demand registration rights,
(ii) a purchase by IFS of an additional 200,000 shares of our common stock at a
price of $0.75 per share, such shares to be issued to various designees of IFS,
and such funds to be applied to the repayment of certain then outstanding debt
owed by us pursuant to certain notes, and (iii) IFS agreed to attempt to
identify and secure OEM customers for our products in exchange for which it
would have received certain additional common stock issuances (which never
occurred).

         Sales of Securities to SWI Holdings, Limited

         Mr. Wolfgang Wacker, a former member of our board of directors, also
serves as the President of SWI Holdings, Limited ("SWI"), a Bermuda corporation.
SWI has made the following purchases of securities from the Company during the
period that Mr. Wacker was a director:

o    In December 2001, we sold 2.6 million shares of common stock and a warrant
     to purchase up to an additional 250,000 shares of common stock at an price
     per share of $0.50, to SWI for an aggregate consideration of $500,000.



o    In January 2002, we sold 45,215.15 shares of Series A Preferred Stock to
     SWI for an aggregate consideration of $100,000

                                       26
<PAGE>


o    During March and April 2002, we sold an aggregate of 195,209.52 shares of
     Series B Preferred Stock to SWI for an aggregate consideration of $205,000.

o    In April 2002, we issued a six month Secured Convertible Promissory Note to
     SWI with a face value of $50,000, which accrues interest at 6% per annum.
     This note is convertible at to Common Stock at a rate $0.09 per share.

         We believe that the terms of each of these transactions were at least
as favorable as those that we could have obtained from a third party.

         Loan to Frank Davis

         On January 1, 2002 the Company loaned to Frank Davis, a senior
consultant to the Company, $38,000. Such loan was evidence by a Promissory Note
issued to the Company which specifies repayment of the loan within five years
with interest accruing at a rate of 8% per annum.



                                       27
<PAGE>


                                     PART IV

ITEM 13.   EXHIBITS, FINANCIAL STATEMENT AND SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits:


Exhibit
No.      Description of Exhibit

2.1  Asset Purchase Agreement between the Company and New York State Electric &
     Gas Corporation, dated as of October 29, 2001, incorporated by reference to
     Exhibit 2.1 of the 8-K filed on December 26, 2001.

2.2  Secured Promissory Note in favor of New York State Electric & Gas
     Corporation, dated as of December 11, 2001, incorporated by reference to
     Exhibit 2.2 of the 8-K filed on December 26, 2001.

2.3  Security Agreement between the Company and New York State Electric & Gas
     Corporation, dated as of December 11, 2001, incorporated by reference to
     Exhibit 2.3 of the 8-K filed on December 26, 2001.

2.4  Guaranty from the Company in favor of New York State Electric & Gas
     Corporation, dated as of December 11, 2001, incorporated by reference to
     Exhibit 2.4 of the 8-K filed on December 26, 2001.

3.1  Articles of Incorporation of Save On Energy , Inc., incorporated by
     reference to Exhibit 3.1 to the SB-2 filed on March 23, 2001.

3.2  Amendment to Articles of Incorporation of Save On Energy, Inc.,
     incorporated by reference to Exhibit 3.2 to the SB-2 filed on March 23,
     2001.

3.3  By-laws of Save On Energy, Inc., incorporated by reference to Exhibit 3.3
     to the SB-2 filed on March 23, 2001.

4.1  Certificate of Designation of Series A Preferred Stock filed with the
     Secretary of State on February 19th, 2002.*

4.2  Certificate of Designation of Series B Preferred Stock filed with the
     Secretary of State on May 7th, 2002.*

10.1 License Agreement by and between the Davis Family Trust and Electronic Fuel
     Control, Inc. dated May 13, 1996, incorporated by reference to Exhibit 10.1
     to the SB-2 filed on March 23, 2001.

10.2 Amendment to License Agreement by and between the Davis Family Trust and
     Electronic Fuel Control, Inc, dated June 18, 1998, incorporated by
     reference to Exhibit 10.2 to the SB-2 filed on March 23, 2001.

10.3 Amendment to License Agreement by and between the Davis Family Trust and
     Electronic Fuel Control, Inc. dated January 3, 2001, incorporated by
     reference to Exhibit 10.3 to the SB-2 filed on March 23, 2001.

10.4 Consulting Agreement between Save on Energy, Inc. and MBO, Inc. dated
     November 23, 2000, Trust and Electronic Fuel Control, Inc, incorporated by
     reference to Exhibit 10.4 to the SB-2 filed on March 23, 2001.

10.5 Exclusive Supply Agreement between Ambac International Corporation and
     Electronic Fuel Control, Inc. dated April 29, 1006, incorporated by
     reference to Exhibit 10.5 to the SB-2 filed on March 23, 2001.

10.6 Agreement re: International Fuel Systems, Inc. and Davenport, dated January
     7, 2001, incorporated by reference to Exhibit 10.6 to the SB-2 filed on
     March 23, 2001.

10.7 Employment Agreement with Robert Stiles, dated July 17, 2001, incorporated
     by reference to Exhibit 10.1 of the 10-QSB filed on November 19, 2001.

10.8 2001 Stock Option Plan - Incorporated by reference to the 2001 Annual Proxy
     Statement filed October 1, 2001. 10.9 Stock Purchase Agreement between the
     Company and SWI Holdings, Limited, dated as of December 10, 2001 (Composite
     Version), incorporated by reference to Exhibit 10.1 of the 8-K filed on
     December 26, 2001.

10.10 Security Agreement between the Company and SWI Holdings, Limited, dated as
      of December 10, 2001, incorporated by reference to Exhibit 10.2 of the 8-K
      filed on December 26, 2001.

10.11 Convertible Secured Promissory Note issued to SWI Holdings, Limited, dated
      April 23, 2002.*

10.12 Security Agreement between the Company and SWI Holdings, Limited, dated as
      of April 23, 2002.*

------------------------------------------
* Filed herewith


                                       28
<PAGE>



(b) Reports on Form 8-K

         A Current Report on Form 8-K was filed with the SEC on August 8, 2001
disclosing the Company's change in its independent auditor.

         A Current Report on Form 8-K was filed with the SEC on December 26,
 2001 disclosing the Company's acquisition of assets from New York State
 Electric & Gas Corporation.



                                       29
<PAGE>

                                   Signatures

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


SAVE ON ENERGY, INC.



By:/s/_Ricky Davis___________
------------------------------
Name:    Ricky Davis

Title:   Chief Financial Officer


Date:  May 30, 2002


 Pursuant to the requirements of the Securities and 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.

Signature                     Title                               Date


_/s/ Ricky Davis____________  Chief Financial Officer             May 30, 2002
----------------------------
Ricky Davis                   (principal executive officer) and
                              Director

_/s/  Issa Al Muzaini_______  Director                            May 30, 2002
----------------------------
Issa Al Muzaini




                                       30
<PAGE>




                              SAVE ON ENERGY, INC.

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2001





                                       31
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Aidman Piser & Company, P.A.                                      F2

Report of Jack Kane & Company, P.C.                                         F3

Consolidated Balance Sheets as of December 31, 2001 and 2000                F4

Consolidated Statements of Operations for the years ended December 31, 2001
     and 2000                                                               F5

Consolidated Statements of Stockholders' Deficit for the years ended
     December 31, 2001 and 2000                                             F6

Consolidated Statements of Cash Flows for the years ended December 31,
     2001 and 2000                                                          F7

Notes to Consolidated Financial Statements                                  F9



<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
Save On Energy, Inc.

We have audited the accompanying consolidated balance sheet of Save On Energy,
Inc. and Subsidiary ("Company") as of December 31, 2001, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year 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 audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Save On
Energy, Inc. and Subsidiary at December 31, 2001, and the consolidated results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note 2, the Company has incurred significant operating losses,
has a significant working capital deficiency and is in default on substantially
all of its indebtedness. These conditions raise substantial doubt regarding the
Company's ability to continue as a going concern. Management's plans related to
these conditions are also discussed in Note 2. The consolidated financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.

As discussed in Note 5, the Company is in default on notes payable aggregating
$385,800. One creditor who is owed $237,800 has commenced a legal action against
the Company to recover its balance due. The course of action of another creditor
owed $148,000 is not currently known. The outcome of this matter could have a
material adverse affect on the Company.


                                           /s/ Aidman, Piser & Company, P.A.

Tampa, Florida
May 22, 2002

                                       F2
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
Save On Energy, Inc.

We have audited the accompanying balance sheet of Save On Energy, Inc.,
(Formerly Electronic Fuel Control, Inc.), a development stage company, as of
December 31, 2000, and the related statements of operations, stockholders'
deficit and cash flows for the year 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 audit.

We conducted our audit 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 audit provides 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 Save on Energy, Inc. as of
December 31, 2000, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
in its developmental stage. This condition raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 8. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty


                                  /s/ JACK KANE & COMPANY, P.C.



New York, New York
March 23, 2001

                                       F3
<PAGE>


                                        SAVE ON ENERGY, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                            DECEMBER 31, 2001 AND 2000

<TABLE>
<S>                                                                    <C>                  <C>
                                                                             2001                  2000
                                                                        ----------------      ---------------
ASSETS
   Current assets:
      Cash                                                                    $   5,604            $  14,207
      Accounts receivable, net of $16,600 and $7,150 of
         allowances for uncollectable accounts                                   24,710               28,688
      Inventories                                                               113,425              158,335
                                                                        ----------------      ---------------
                                                                                143,739              201,230
                                                                        ----------------      ---------------

   Equipment and leasehold improvements                                         136,476              130,335
      Less accumulated depreciation                                           (100,172)             (78,438)
                                                                        ----------------      ---------------
                                                                                 36,304               51,897
                                                                        ----------------      ---------------

                                                                        ----------------      ---------------
Total assets                                                                 $  180,043            $ 253,127
                                                                        ================      ===============

LIABILITIES, REDEEMABLE SECURITIES AND
STOCKHOLDERS' DEFICIT
   Current liabilities:
      Debt in default                                                        $  385,800              $    --
      Accounts payable                                                          250,933              250,826
      Payroll and other taxes payable                                           229,631              216,838
      Accrued litigation loss                                                    34,990              125,000
      Advances due to affiliate and other related parties                       140,395               39,666
      Other accrued expenses                                                     15,518              181,784
      Notes and current maturities of long-term debt                              8,166              532,952
                                                                        ----------------      ---------------
                                                                              1,065,433            1,347,066

   Long-term debt, less current maturities                                       13,853               21,996
                                                                        ----------------      ---------------
                                                                        ----------------      ---------------
         Total liabilities                                                    1,079,286            1,369,062
                                                                        ----------------      ---------------
   Redeemable securities                                                        530,000                   --
                                                                        ----------------      ---------------

   Commitments and contingencies (Notes 5 and 9)                                     --                   --

   Stockholders' deficit:
      Preferred stock, 5,000,000 undesignated shares authorized                      --                   --
      Common stock, $.001 par value, 20,000,000 shares
         authorized, 11,313,646 and 3,406,000 shares issued
         and outstanding, respectively                                           11,314                3,406
      Paid-in capital                                                         3,412,981            1,421,223
      Accumulated deficit                                                   (4,653,538)          (2,540,564)
      Stock subscription receivable                                           (200,000)                   --
                                                                        ----------------      ---------------
         Total stockholders' deficit                                        (1,429,243)          (1,115,935)
                                                                        ----------------      ---------------

Total liabilities, redeemable securities and stockholders'
   deficit                                                                   $  180,043            $ 253,127
                                                                        ================      ===============
</TABLE>

                             See accompanying notes.

                                       F4
<PAGE>


                                        SAVE ON ENERGY, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                      YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<S>                                                                    <C>                   <C>
                                                                             2001                  2000
                                                                        ----------------      ---------------

Product sales                                                                $  205,570            $ 288,874
Cost of product sales                                                           169,116              173,265
                                                                        ----------------      ---------------
                                                                                 36,454              115,609
Other operating costs and expenses:
   Professional and outside services, including $875,235 in
      stock-based compensation in 2001                                        1,091,795              257,574
   Other operating expenses                                                     451,399              478,784
   Salaries and wages                                                           168,086              177,392
   Travel expense                                                                48,729               66,086
   Impairment charges                                                           355,330                   --
                                                                        ----------------      ---------------
      Total other operating costs and expenses                                2,115,339              979,836
                                                                        ----------------      ---------------

Loss from operations                                                        (2,078,885)            (864,227)

Other income and (expense):
   Interest expense, including $139,000 related to the issuance
      of common stock to induce conversion of debt                            (167,711)             (78,233)
   Other income                                                                  72,452                  826
                                                                        ----------------      ---------------

Loss before income taxes and extraordinary item                             (2,174,144)            (941,634)

   Income taxes                                                                      --                   --
                                                                        ----------------      ---------------

Loss before extraordinary item                                              (2,174,144)            (941,634)

   Extraordinary item:
      Gain on extinguishment of debt (no applicable income
      taxes)                                                                     61,170                   --
                                                                        ----------------      ---------------

Net loss                                                                  $ (2,112,974)          $ (941,634)
                                                                        ================      ===============

Loss per share information:
   Loss before extraordinary item, basic and diluted                         $   (0.31)            $  (0.22)
   Gain on extinguishment of debt                                                  0.01                   --
                                                                        ----------------      ---------------
      Net loss per share                                                     $   (0.30)            $  (0.22)
                                                                        ================      ===============

Basic and diluted weighted average shares outstanding                         6,930,225            4,199,051
                                                                        ================      ===============
</TABLE>





                             See accompanying notes.

                                       F5
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                       STATEMENTS OF STOCKHOLDERS' DEFICIT
                     YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                                               Stock
                                                 Common Stock                Paid-in       Accumulated      Subscription
                                           Shares            Amount          Capital          Deficit        Receivable
                                   ----------------- ----------------- --------------- ---------------- ----------------
<S>                                <C>               <C>                <C>            <C>               <C>
January 1, 2000 balances                  2,136,000         $   2,136     $ 1,188,575     $(1,598,930)               --

Sales of common shares                    1,270,000             1,270         232,648               --               --
Net loss                                         --                --              --        (941,634)               --
                                   ----------------- ----------------- --------------- ---------------- ----------------

December 31, 2000 balances                3,406,000             3,406       1,421,223      (2,540,564)               --

Sales of common shares                    5,312,500             5,313       1,112,179               --      $ (200,000)
Common shares issued for
   services and liabilities               1,430,360             1,430         625,334               --               --
Warrants issued for services                     --                --         248,471               --               --
Common shares issued for the
   conversion of debt                     1,164,786             1,165         535,774               --               --
Reclassification of put option
   on the sale of shares of
   common stock to
   redeemable securities                         --                --       (500,000)               --               --
Reclassification of contingent
   net cash settlement on the
   issuance of warrants to a
   consultant to redeemable
   securities                                    --                --        (30,000)               --               --
Net loss                                         --                --              --      (2,112,974)               --
                                   ----------------- ----------------- --------------- ---------------- ----------------

December 31, 2001 balances               11,313,646         $  11,314     $ 3,412,981     $(4,653,538)      $ (200,000)
                                   ================= ================= =============== ================ ================
</TABLE>



                             See accompanying notes.

                                       F6
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2001 AND 2000

                           INCREASE (DECREASE) IN CASH

<TABLE>
<S>                                                                     <C>                   <C>
                                                                              2001                  2000
                                                                         ----------------      ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                $ (2,112,974)          $ (941,634)
   Adjustments to reconcile net loss to net cash flows from
   operating activities:
      Common shares issued for services                                          626,764                   --
      Warrants issued for services                                               248,471                   --
      Impairment charges                                                         355,330                   --
      Non-cash charge to interest for the fair value of common
         shares issued to induce conversion of debt to equity                    139,000                   --
      Gain on extinguishment of debt                                            (61,170)                   --
      Provisions for bad debts and inventory obsolescence                         27,212                   --
      Depreciation                                                                21,733               19,860
      Changes in operating assets and liabilities:
         Accounts receivable                                                     (5,472)              (5,915)
         Inventories                                                              27,148             (47,505)
         Notes receivable                                                             --               22,500
         Accounts payable                                                            107              211,257
         Accrued expenses                                                      (164,368)              233,891
         Advances due from affiliates and related parties                        100,729               39,666
                                                                         ----------------      ---------------
Net cash flows from operating activities                                       (797,490)            (467,880)
                                                                         ----------------      ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Cash paid for business                                                       (47,500)                   --
   Purchases of equipment and leasehold improvements                             (6,140)             (38,711)
                                                                         ----------------      ---------------
Net cash flows from investing activities                                        (53,640)             (38,711)
                                                                         ----------------      ---------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from sales of common stock                                           917,492              233,918
   Proceeds from sales of convertible notes payable                                   --              230,000
   Proceeds from notes payable                                                        --               39,666
   Proceeds from equipment loans                                                      --               26,948
   Advances on credit facility--in default                                            --                8,000
   Payments on debt in default                                                  (70,000)                   --
   Payments on notes payable and long-term debt                                  (4,965)            (153,500)
                                                                         ----------------      ---------------
Net cash flows from financing activities                                         842,527              385,032
                                                                         ----------------      ---------------

CHANGE IN CASH                                                                   (8,603)            (121,559)
CASH AT BEGINNING OF YEAR                                                         14,207              135,766
                                                                         ----------------      ---------------
CASH AT END OF YEAR                                                            $   5,604            $  14,207
                                                                         ================      ===============
</TABLE>


                                   Continued.

                                       F7
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                      STATEMENTS OF CASH FLOWS (CONTINUED)
                     YEARS ENDED DECEMBER 31, 2001 AND 2000


                       SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<S>                                                                    <C>                    <C>
SUPPLEMENTAL OPERATING DATA
   Cash paid for interest                                                      $   3,202            $   2,515
                                                                         ================      ===============
   Cash paid for income taxes                                                         --                   --
                                                                         ================      ===============

NONCASH INVESTING AND FINANCING ACTIVITES
   Acquisition of business partially for promissory note                       $ 307,800             $     --
                                                                         ================      ===============
   Debt and interest converted to common stock                                 $ 536,939             $     --
                                                                         ================      ===============
</TABLE>



                             See accompanying notes.

                                       F8
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2001 AND 2000



1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Save On Energy, Inc. ("the Company") was incorporated in Georgia on April 1,
1996 to manufacture and market retrofit systems for the conversion of gasoline
and diesel engines to non-petroleum based fuels such as compressed natural gas.
The Company acquired the exclusive right in North America, Mexico, Egypt, and
South America to exploit the patents relating to the retrofit devices pursuant
to a license ("the License") acquired on June 1, 1996 (See Note 9). Revenues to
date have been derived from domestic sources.

During 2001, the Company ceased reporting its operations as a development stage
enterprise.

2. LIQUIDITY AND MANAGEMENT'S PLANS

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern for a reasonable period, not to
exceed one year. As reflected in the consolidated financial statements, the
Company has incurred significant losses from operations during all periods
presented and has a significant working capital deficiency as of December 31,
2001. In addition, the Company is in default under two debt agreements with
outstanding balances amounting to $385,800. Substantially, all of the Company's
assets and intellectual properties serve as security for these obligations and
one of the creditors has initiated an action to recover its $237,800 debt.
Finally, during 2002, the Company has undergone turnover at the Chief Executive
Officer and Chief Financial Officer levels. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.

The Company's ability to continue is dependent upon the current management's
ability to raise sufficient capital to fund operating losses and, ultimately,
achieve profitable operations. The current management has raised $500,000
between December 11, 2001 and January 14, 2002. In addition, as discussed in
Note 11, additional proceeds of $435,000 were received subsequent to year-end in
connection with sales of securities. Subsequently, the new management has taken
action to dispose of the AET acquisition (See Note 4) that was acquired December
11, 2001 because of its draw on capital. There can be no assurances that
management will be successful in raising additional capital at acceptable terms,
or at all, or that the Company's technologies can be deployed at a commercially
viable level. The accompanying financial statements do not include any
adjustments that might arise as a result of this uncertainty.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Save
On Energy, Inc. and its wholly-owned subsidiary, Alternative Energy
Technologies, Inc. (AET). All intercompany balances and transactions have been
eliminated in consolidation.


                                       F9
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash Flows

For purposes of reporting cash flows, the Company considers cash to include cash
on hand and in depository accounts and any highly liquid investments with an
original maturity of three months or less.

Inventories

Inventories consist of component parts used in the manufacture of retrofit
systems for the conversion of gasoline and diesel engines to non-petroleum based
fuels such as compressed natural gas. Inventories are stated at the lower of
cost, determined using the first-in, first-out method, or market.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation is
provided over the estimated useful lives of the assets or, if less, the term of
the lease, using the straight-line method. The net carrying value of equipment
and leasehold improvements is periodically reviewed by management for
indications of impairment. If indications of impairment are present, management
adjusts the carrying value to readily available market values.

Financial Instruments

The Company's financial instruments consist of accounts receivable, accounts
payable and debt. As of December 31, 2001 and 2000, the carrying amount of these
financial instruments reasonably approximated their respective fair values.

Revenue Recognition

Revenue on product sales is recognized when the earnings process is complete and
the risks and rewards of ownership have transferred to the customer, which is
generally considered to have occurred upon shipment and delivery of the product.

Stock-Based Compensation

The Company measures stock-based compensation expense related to the grant of
stock awards to employees using the intrinsic approach in Accounting Principles
Opinion No. 25 Accounting for Stock Issued to Employees. The Company accounts
for stock-based compensation related to the grant of stock-awards for services
to non-employees using a fair value approach in Financial Accounting Standards
No. 123 Accounting for Stock-Based Compensation. Fair value is generally
measured using the closing market price of the Company's publicly traded common
stock or the Black-Scholes model for options and warrants.

                                      F10
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Research and Development

Research and development is expensed as incurred. Research and development
amounted to $16,344 and $34,281 for the years ended December 31, 2001 and 2000,
respectively.

Income Taxes

Income taxes are provided for the tax effect of transactions reported in the
financial statements and consists of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statements and income tax purposes. The differences
are related primarily to allowance for doubtful receivables (deductible for
financial statement purposes but not for income tax purposes) and certain
stock-based compensation. The deferred tax assets and liabilities represent the
future tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized for operating losses and tax credits that are
available to offset taxable income, and reduced by the portion of deferred taxes
not likely to be realized.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period. Dilutive loss per
share is computed by dividing the net loss by the weighted average number of
shares outstanding, plus the dilutive effects of stock options, warrants and
convertible securities. As of December 31, 2001 and 2000, the effects of
warrants to purchase 1,935,000 and 415,000, respectively, shares of common stock
were not included in dilutive loss per share because the effect would not be
dilutive. In addition, as of December 31, 2000, the effects of debt convertible
into 553,333 shares of common stock were not included in dilutive loss per share
because the effect would not be dilutive.

Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that may affect the reported amounts of assets and
liabilities, disclosure of contingent amounts, and the amounts of revenue and
expenses. Significant estimates included in the accompanying financial
statements include the estimate of bad debt allowances and inventory reserves.
While actual results could differ from these estimates, management believes that
the estimates are reasonable.


                                      F11
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires the use of the purchase method of accounting and prohibits
the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS No. 142 that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS No. 141. SFAS No. 142
requires, among other things, that companies no longer amortize goodwill, but
instead test goodwill for impairment at least annually. In addition, SFAS No.
142 requires that the Company identify reporting units for the purposes of
assessing potential future impairments of goodwill, reassess the useful lives of
other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. SFAS No. 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. As of December 31, 2001, the Company has charged the
net assets of its entire recent acquisition to operations, as impaired. However,
the Company is currently reviewing other acquisition or merger candidates to
which this standard may apply.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for the
recognition and measurement of the impairment of long-lived assets to be
disposed of by sale. Under SFAS No. 144, long-lived assets are measured at the
lower of the carrying amount or fair value, less cost to sell. The Company will
be required to adopt this statement no later than January 1, 2002. The Company
is currently assessing the impact of this statement on its results of
operations, financial condition, and cash flows.

In April 2002, the FASB issued SFAS No. 145 covering, among other things, the
rescission of SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt. Under SFAS No. 4, all gains and losses from the extinguishment of debt
were required to be aggregated and, if material, classified as an extraordinary
item in the statement of operations. By rescinding SFAS No. 4, SFAS No. 145
eliminates the requirement to classify debt extinguishment as extraordinary
items. The new standard is effective for companies with fiscal years beginning
after May 15, 2002. However, early application of the standard is encouraged. As
discussed in Note 7, the Company has reported the gain from the extinguishment
of certain indebtedness as extraordinary. As a result of having reported this
event as extraordinary in previous quarterly filings, this presentation has been
continued in this annual report.

                                      F12
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


4. ACQUISITION OF BUSINESS AND DISPOSAL

On December 11, 2001, the Company, through its wholly owned subsidiary,
Alternative Energy Technologies, Inc. ("AET"), completed the acquisition of
certain assets of New York State Electric & Gas Corporation ("NYSEG"). The
acquisition included substantially all of NYSEG's assets relating to its natural
gas vehicle service, maintenance and construction business. Simultaneously with
the closing of the acquisition, the Company entered into a Service Agreement
with NYSEG pursuant to which, among other things, the Company agreed to maintain
NYSEG's natural gas refueling facilities for a period of four years. The new
company was to provide customers with heavy-duty vehicle natural gas conversion
equipment, facility and equipment maintenance, training, consulting, and
infrastructure design construction services.

The transaction was accounted for as a purchase transaction. The aggregate
purchase price of $355,300 consisted of $30,000 in cash, a seller note payable
in the amount of $307,800 and expenses of $17,500. The purchase price was
allocated to the net assets acquired based upon their respective fair values. An
amount of $191,000 was allocated to inventories and $146,000 was allocated to
equipment. This allocation resulted in the recognition of $18,300 of goodwill,
which management originally intended to amortize over five years.

The newly acquired subsidiary required unexpected funding of approximately
$90,805 from the period from December 11, 2001 to December 31, 2001, and
additional funding appeared necessary to sustain its operations. As a result,
management, with the concurrence of the Board of Directors, has decided to
dispose of the operation by sale at a nominal price or abandonment. As a result,
the net assets of the acquired company were charged to operations as an
impairment charge during 2001.

5. DEBT IN DEFAULT

The Company did not meet the payment terms on the promissory note payable to
NYSEG, discussed in Note 4, which has a remaining balance of $237,800. The
promissory note is secured by the acquired assets and is guaranteed by the
Company. NYSEG has not waived its rights under the promissory note and, on May
14, 2002, commenced an action to seek recovery of remaining amounts due. The
case is in its early stages and management is currently attempting to assess the
matter. However, the outcome of this contingency could have a material adverse
affect on the Company.

The Company did not meet the December 1, 2001 payment date on a bank note
payable, which has a balance of $148,000. The creditor has not waived its rights
under the credit agreement, but has not commenced actions against the Company
for recovery. There can be no assurance that the bank will not seek recovery and
that event could have a material adverse affect on the Company.


                                      F13
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


6. OTHER NOTES PAYABLE AND LONG-TERM DEBT

Other notes payable and long-term debt consist of the following at December 31,
2001 and 2000:
<TABLE>
<S>                                                      <C>               <C>
                                                              2001                  2000
                                                         ----------------      ---------------

13% equipment loans due in monthly installments (1)            $  22,019            $  26,948
12% convertible notes payable (2)                                     --              380,000
Prime plus 2% bank note payable (3)                                   --              148,000
                                                         ----------------      ---------------
                                                                  22,019              554,948
   Less current maturities                                         8,166              532,952
                                                         ----------------      ---------------
                                                               $  13,853            $  21,996
                                                         ================      ===============
</TABLE>

(1)  Maturities are as follows: $8,166 in 2002; $6,420 in 2003; $7,301 in 2004;
     and, $132 in 2005.

(2)  The convertible notes had an original conversion rate of $0.75, or 506,667
     common shares. During the first quarter of 2001, management improved the
     conversion rate to induce conversion by the holders of outstanding
     principal and interest, resulting in the issuance of 1,164,786 common
     shares. The value of the additional shares issued were valued at the
     closing market price of the Company's common stock, aggregating $139,000
     and was charged to interest expense.

(3)  The bank note payable has been reclassified as debt in default as of
     December 31, 2001. See Note 5.

7. STOCKHOLDERS' EQUITY

Sales of Common Stock

On December 10, 2001, the Company completed the private placement of 2,600,000
shares of common stock and warrants to purchase 250,000 shares of common stock
for $0.50 each, to SWI Holdings, Limited ("SWI"), a Bermuda company, for an
aggregate purchase price of $500,000. The Company received $300,000 of the
proceeds on December 10, 2001. The balance of $200,000 was recorded as a
subscription receivable and was received on January 14, 2002. Pursuant to the
Company's Stock Purchase Agreement with SWI, SWI has the right during the period
between December 31, 2003 and June 30, 2004 to require the Company to purchase
up to 2,500,000 of these shares at a price of $0.20 per share (the "Put
Option"). The Put Option will automatically terminate in the event that the
Company (i) completes a financing of in excess of in excess of $2.0 million in
gross proceeds at an offering price per share of not less than $0.40 or (ii)
completes a merger or other business combination pursuant to which the common
stock is valued at a price per share of not less than $0.40. The Company's
obligations under the Put Right are secured by a lien in favor of SWI on all of
the Company's assets. The value associated with the put option, amounting to
$500,000, has been classified as redeemable securities.

During the year ended December 31, 2001, the Company additionally sold 2,712,500
shares of common stock for aggregate proceeds of $617,492.

                                      F14
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


7. STOCKHOLDERS' EQUITY (CONTINUED)

Conversion of Debt to Common Stock

During the year ended December 31, 2001, the holders of 415,000 face value in
12% convertible notes exercised an improved conversion offer by the Company. The
improved conversion offer provided for the a conversion price lower than that
stipulated in the underlying debt agreements, plus the payment of accrued
interest with common stock. Pursuant to this offer, the Company issued 1,164,786
shares of common stock to convert $460,324 of debt principal and accrued
interest. The fair value of the additional shares issued under the induced
conversion amounted to $139,000, which was charged to interest expense.

Common Stock Issued for Services and Payables

During the year ended December 31, 2001, the Company issued 1,430,360 shares of
common stock valued at $626,764 for professional services and certain accounts
payable. The value of the common stock used represented the closing market price
on the date of issuance. Included in these amounts are 282,000 shares, valued at
$70,500 that were used in the first fiscal quarter as payments for accounts
payable with a book value of $131,670. The gain from extinguishment of this
liability has been reported as an extraordinary item in the accompanying
financial statements.

Stock Options

During 2001, the Company approved the 2001 Stock Plan, which provides for the
issuance of stock options to purchase up to 2,000,000 shares of common stock,
generally at exercise prices not in excess of trading market value. As of
December 31, 2001, no options had been granted under the plan.

Warrants

During the year ended December 31, 2001, the Company issued warrants to purchase
1,520,000 shares of common stock to consultants and other non-employees for
services. The Company uses the Black-Scholes option-pricing model to value
warrants issued to non-employees. As a result, warrants for 1,270,000 shares of
common stock had an aggregate value of $248,471. The remainder of the warrants
had no value on their respective measurement date.

The following table summarizes the Company's warrant activity during each of the
years ended December 31, 2001 and 2000:
                                                Number of     Weighted Average
                                                 Warrants      Exercise Price
                                             --------------     -----------
  Balance as of January 1, 2000                    336,900     $      1.13
     Additions                                     162,500            0.85
     Exercised                                          --              --
     Expirations                                  (84,400)            1.50
                                             --------------
  Balance as of December 31, 2000                  415,000            0.94
     Additions                                   1,520,000            0.42
     Exercised                                          --              --
     Expirations                                        --              --
                                             --------------
  Balance as of December 31, 2001                1,935,000            0.53
                                             ==============

                                       F15
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


7. STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes the Company's outstanding warrants as of December
31, 2001:

       Number of Warrants           Exercise Price             Expiration
    -------------------------- ------------------------- -----------------------

               315,000                 $  1.00                  2003-2005
               250,000                    0.75                  2003-2004
             1,050,000                    0.50                    2004
               320,000                    0.01                    2004
    --------------------------
             1,935,000
    ==========================

On November 13, 2001, the Company issued warrants to a consultant, included in
the above tables, to purchase 300,000 shares of the Company's common stock for
$0.50 per share. These shares have a nominal value using the Black-Scholes
valuation model. However, the underlying consulting agreement provides that the
Company will incur a net cash settlement to the consultant of up to $30,000 if
the underlying common shares are not registered within five months of the
consulting agreement. Because the registration of securities is considered to be
outside of the Company's control, the maximum net cash settlement amount has
been reclassified to redeemable securities.

8. INCOME TAXES

The Company's provision (benefit) for income taxes for the years ended December
31, 2001 and 2000 are as follows:
<TABLE>
<S>                                                     <C>                   <C>
                                                              2001                  2000
                                                         ----------------      ---------------
Federal:
   Current                                                      $     --             $     --
   Deferred benefit, net operating loss carryforward           (417,958)            (329,715)
State:
   Current                                                            --                   --
   Deferred benefit, net operating loss carryforward           (139,697)            (109,485)
                                                         ----------------      ---------------
                                                               (557,655)            (439,200)
Change in valuation allowance                                    557,655              439,200
                                                         ----------------      ---------------
                                                                $     --             $     --
                                                         ================      ===============
</TABLE>

Differences between the income tax provision (benefit) using the statutory rate
and the above effective rate are attributable to (i) non deductible penalties,
(ii) non deductible stock based compensation and (iii) the change in the
valuation allowance.


                                      F16
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


8. INCOME TAXES (CONTINUED)

Temporary differences and carryforwards that give rise to deferred tax assets
and liabilities as of December 31, 2001 and 2000 are as follows:

                                        2001                  2000
                                   ----------------      ---------------
Net operating loss carryforwards       $ 1,558,384           $1,013,340
Inventory reserves                           7,993                   --
Allowances for bad debts                     7,478                2,860
                                   ----------------      ---------------
                                         1,573,855            1,016,200
Valuation allowances                   (1,573,855)          (1,016,200)
                                   ----------------      ---------------
                                          $     --             $     --
                                   ================      ===============

As of December 31, 2001 the Company has a net operating loss carryforward of
approximately $3,500,000 that is available to offset future taxable income
through 2021.

9. COMMITMENTS AND CONTINGENCIES

Related Party License Agreement

The Company is a party to a license that gives the Company the exclusive rights,
as amended below, to utilize and exploit five patents including marketing and
selling products. In addition, the Company has the first option to acquire the
License for the same patents in other countries where it has not year been
granted. The underlying patents were developed by Frank Davis, the Companies
Chief Consultant (a non-employee position) and other family members who are
employees of the Company, and have since been assigned to a trust ("the Trust"
or "Licensor") the beneficiaries of which are all related to the Chief
Consultant.

In consideration for the license, the Company initially executed a promissory
note for $150,000 which required the Company to pay a royalty of $21 per patent
per unit sold during the life of four of the patents and $150 per unit sold on a
fifth patent for a dual fuel control system, adjusted annually to reflect
changes in the consumer price index. Substantially all of the units sold by the
Company require payments under two patents. Under the Terms of the License, the
royalty shall be increased by an amount equal to $79 (the "Additional Royalty")
per patent per unit. The Additional Royalty shall be payable until such time as
the amount of Additional Royalty generated from the sale of units shall
aggregate $150,000 plus accrued interest calculated at the rate of 12% per
annum. When said sum is paid, the royalty shall revert to the original royalty
as adjusted to reflect increases in the consumer price index. The promissory
note was marked paid and returned on June 18, 1998 in consideration of 108,000
shares of the Company's stock.

The license agreement was amended on January 3, 2000. The amendment restricts
the license rights to the United States, Canada, Mexico and Egypt, and
eliminates all quotas as specified in the original agreements. In exchange for
this amendment the Company issued 250,000 shares of voting stock to the Trust.
As a result, there were no royalties due and payable under this agreement, as
amended, during the years ended December 31, 2001 and 2000.


                                      F17
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


9. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Litigation

In 1999 an independent consultant filed suit against the Company to recover fees
and damages of $125,000 inclusive of interest to December 31, 1999. The
consultant's complaint originated from a contract to provide personal services
and expertise, in the field of diesel and gasoline to natural gas conversions,
on a project that occurred in 1997 and 1998 in the country of Uzbekistan. The
Company contracted with the consultant at the direction and benefit of another
party who was the primary contractor of the project. Although the Company had
defenses against the plaintiff and will have a recovery claim against the
primary contractor, it was management's opinion, supported by counsel, that a
loss has been sustained in the period. Accordingly, the Company accrued the loss
as prescribed by Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies. During the fourth quarter of 2001, the Company settled with
the independent consultant for $55,000. The accrued litigation loss was
adjusted to this amount with the credit made to professional and outside
services expenses.  Both parties agreed to a payment schedule for the remaining
$55,000.  As of December 31, 2001, the Company owed $35,000 and will make a
$5,000 per month payment until the balance is paid in full in fiscal year 2002.

Lease

The lease on the Company's office and warehouse space expired on December 31,
2000. The Company has negotiated for a new one-year lease beginning May 1, 2001.
Rent expense under the lease during the extension period is $2,350 each month
through April 30, 2002.

Delinquent Taxes

The Company is delinquent in the payment of payroll and state sales taxes. The
Company is currently following payment schedules, developed after negotiations
with taxing authorities. Amounts in arrears for delinquent taxes, along with
related penalties and interest assessed by the taxing authorities are as follows
as of December 31, 2001 and 2000:

                                   2001                  2000
                              ----------------      ---------------
Payroll and sales taxes             $  21,734            $ 112,222
Penalties and interest                207,897              104,616
                              ----------------      ---------------
                                    $ 229,631            $ 216,838
                              ================      ===============

Employment Contract Termination

The Company is currently negotiating the settlement of the employment agreement
with the former Chief Executive Officer. The settlement may involve cash, equity
or a combination of both. While the outcome of these negotiations is not
currently determinable, management does not believe such will have a material
affect on the accompanying or future financial statements.

                                      F18
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


10. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2001, the Company made cash payments to
non-employee family members of the Company's officers in the amount of $49,376.
During the same period the Company issued 850,000 shares of common stock and
warrants for the purchase of 615,000 shares of common stock with an aggregate
value of $334,600, to non-employee family members of the Company's officers.
These payments and issuances were made for general corporate services, and the
related charges are included in professional and outside services.

During the year ended December 31, 2001 the Company made cash payments of
$20,698, issued 850,000 shares of common stock and issued warrants to purchase
450,000 shares of common stock to an affiliate (the "Affiliate") that is engaged
in the development of the business, raising capital and other corporate
consulting services. Services of the Affiliate are rendered pursuant to a
one-year consulting agreement dated March 7, 2001. The consulting agreement, as
amended, provided for the aforementioned cash and equity issuance. As of
December 31, 2001, the only remaining obligations under the consulting agreement
pertains to fees ranging from 2 1/2% to 5% of capital raised, but no less than
$25,000. The consulting agreement renews automatically on a month-to-month basis
until either the Affiliate or the Company terminate the agreement. Charges to
professional and outside services related to these consulting services amounted
to $231,760 during the year ended December 31, 2001.

As of December 31, 2001 advanced due to affiliates and other related parties
consisted of $13,537 due to the Trust, $22,289 due to a former officer and
$104,569 due to the Affiliate.


11. SUBSEQUENT EVENTS

Designation of Preferred Stock

         Effective February 1, 2002, the Company designated 999,779 shares of
previously undesignated preferred stock as Series A Preferred Stock, for which
45,216 shares are authorized and Series B Preferred Stock, for which 954,563
shares are authorized.

         Series A Preferred Stock is convertible, at the option of the holder,
at any time, into shares of the Company's common stock as determined by dividing
$0.19 by a conversion price determined on the date the related certificate is
surrendered. The conversion price is subject to periodic adjustment and is
initially established at $0.01632. Series A Preferred Stock is automatically
convertible into shares of the Company's common stock upon (i) the date
specified by vote or written consent or agreement of holders of at least
three-quarters of the shares of Series A Preferred Stock outstanding, or (ii)
upon the closing of the sale of the Company's common stock in a firm commitment,
underwritten public offering registered under the Securities Act in which the
Company receives gross proceeds of no less than $20,000,000. Series A Preferred
Stock has a liquidation preference of the greater of $0.19 per share or the
amount that such share would be entitled to upon liquidation or distribution.
The Series A Preferred Stock has voting rights, except as to the election of
directors, equal to the number of shares of common stock into which the Series A
Preferred Stock is convertible. The Series A Preferred Stockholders have the
right to elect one director of the Company.

         Series B Preferred Stock is convertible, at the option of the holder,
at any time, into shares of the Company's common stock as determined by dividing
the lower of $0.09 or the price per share paid by the holder of the Series B
Preferred Stock by a conversion price determined on the date the related
certificate is surrendered. The conversion price is subject to periodic
adjustment and is initially established at $0.00773. Series B Preferred Stock is
automatically convertible into shares of the Company's common stock upon (i) the
date specified by vote or written consent or agreement of holders of at least
three-quarters of the shares of Series B Preferred Stock outstanding, or (ii)
upon the closing of the sale of the Company's common stock in a firm commitment,
underwritten public offering registered under the Securities Act in which the
Company receives gross proceeds of no less than $20,000,000. Series B Preferred
Stock has a liquidation preference of the greater of $0.09 per share or the
amount that such share would be entitled to upon liquidation or distribution.
The Series B Preferred Stock has voting rights, except as to the election of
directors, equal to the number of shares of common stock into which the Series B
Preferred Stock is convertible. The Series B Preferred Stockholders have the
right to elect one director of the Company.


                                      F19
<PAGE>


                       SAVE ON ENERGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


11. SUBSEQUENT EVENTS (CONTINUED)

Sales of Securities

         On February 1, 2002, the Company sold 45,216 shares of Series A
Preferred Stock to SWI for net proceeds of $100,000.

         On dates between February 5, 2002 and April 3, 2002, the Company sold
195,210 shares of Series B Preferred Stock to SWI for net proceeds of $205,000.

         On dates between March 5, 2002 and May 9, 2002, the Company sold
450,000 shares of common stock for net proceeds of $80,000.

         On dates between April 18, 2002 and May 7, 2002, the Company issued
non-interest bearing demand notes to SWI in exchange for loans of $50,000.

         On January 1, 2002, the Company sold 38,000 shares of common stock for
net proceeds of $38,000 to a family member of one of the Company's officers.

Loans to Affiliates

         On January 1, 2002, the Company loaned $38,000 to the Company's Chief
Consultant under an 8%, five-year promissory note.

                                      F20

<PAGE>