SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2001

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                          COMMISSION FILE NO. 000-30191

                                   TSET, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    NEVADA                                     87-0440410
                    ------                                     ----------
         (State or Other Jurisdiction            (I.R.S. Employer Identification
      of Incorporation or Organization)                     Number)

  14523 WESTLAKE DRIVE, LAKE OSWEGO, OREGON                       97034
  ------------------------------------------                      -----
   (Address of Principal Executive Offices)                    (Zip Code)

        Registrant's telephone number, including area code (503) 598-1900

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

                    Common Stock, par value $0.001 per share
                    ----------------------------------------
                                (Title of Class)

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

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

         The  aggregate  market  value  of  the  voting  common  stock  held  by
non-affiliates  of the Registrant on October 10, 2001, was $11,625,808  based on
the average bid and asked prices on such date of $0.35.

         The Registrant had 33,643,695  shares of Common Stock, par value $0.001
per share, outstanding on October 10, 2001.

<PAGE>

                                     PART I

ITEM 1.  BUSINESS


GENERAL DESCRIPTION OF BUSINESS

         FORWARD-LOOKING  STATEMENTS AND ASSOCIATED  RISKS. THIS FILING CONTAINS
FORWARD-LOOKING STATEMENTS,  INCLUDING STATEMENTS REGARDING, AMONG OTHER THINGS:
(A) OUR  PROJECTED  SALES AND  PROFITABILITY,  (B) OUR  GROWTH  STRATEGIES,  (C)
ANTICIPATED  TRENDS IN OUR INDUSTRY,  (D) OUR FUTURE  FINANCING  PLANS,  (E) OUR
ANTICIPATED  NEEDS FOR  WORKING  CAPITAL,  AND (F) THE  BENEFITS  RELATED TO OUR
OWNERSHIP  OF KRONOS  AIR  TECHNOLOGIES,  INC.  IN  ADDITION,  WHEN USED IN THIS
FILING,  THE WORDS "BELIEVES,"  "ANTICIPATES,"  "INTENDS," "IN ANTICIPATION OF,"
"EXPECTS,"  AND SIMILAR WORDS ARE INTENDED TO IDENTIFY  CERTAIN  FORWARD-LOOKING
STATEMENTS.   THESE   FORWARD-LOOKING   STATEMENTS  ARE  BASED  LARGELY  ON  OUR
EXPECTATIONS  AND ARE  SUBJECT TO A NUMBER OF RISKS AND  UNCERTAINTIES,  MANY OF
WHICH ARE BEYOND OUR CONTROL.  ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING  STATEMENTS AS A RESULT OF VARIOUS FACTORS,  INCLUDING,  WITHOUT
LIMITATION, THE RISKS OUTLINED UNDER "CERTAIN BUSINESS RISK FACTORS" AND MATTERS
DESCRIBED IN THIS FILING GENERALLY.  IN LIGHT OF THESE RISKS AND  UNCERTAINTIES,
THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING  STATEMENTS CONTAINED IN THIS
FILING  WILL IN FACT  OCCUR.  WE DO NOT  UNDERTAKE  ANY  OBLIGATION  TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS TO THESE  FORWARD-LOOKING  STATEMENTS  THAT
MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.


OUR COMPANY

         We are a  Nevada  corporation.  Our  principal  executive  offices  are
located at 14523 Westlake Drive, Lake Oswego, Oregon 97034. Our telephone number
is (503) 598-1900.  The address of our website is WWW.TSET-NET.COM.  Information
on our website is not part of this filing.


REORGANIZATION

         We had been seeking select business opportunities globally among a wide
range  of  prospects.  Over the past two  years,  we made  several  investments,
including Kronos Air Technologies,  Inc. and  EdgeAudio.com,  Inc. After further
evaluation  of these  investments,  we believe  our  investment  in and the full
development of Kronos Air  Technologies and the KronosTM  technology  represents
the  single  biggest   opportunity  for  us.  As  a  result,   we  are  focusing
substantially  all of our  management  and  financial  resources  to develop and
market the Kronos(TM) technology.

         We have  reorganized our company to prioritize and focus management and
financial  resources on the full  development of Kronos Air Technologies and the
KronosTM  technology.  This  reorganization  has  resulted in the decision to no
longer pursue other investment opportunities previously identified.  We sold our
investment  in Atomic  Soccer USA,  Ltd.  in April  2001;  decided not to pursue
investments in Cancer Detection  International  LLC, Electric  Management Units,
and Cancer Treatment  Centers,  Inc. in July 2001;  established a formal plan to
dispose of EdgeAudio in September 2001; and terminated by mutual consent of both
parties a contract to distribute Computerized Thermal Imaging, Inc. equipment in
August 2000.


CORPORATE HISTORY

         TSET  (formerly  known as Technology  Selection,  Inc.) was  originally
incorporated  under  the laws of the  State  of Utah on  September  17,  1980 as
Penguin Petroleum,  Inc. Penguin Petroleum Inc.'s  stockholders  approved a name
change on October 6, 1982 to Petroleum  Corporation of America, Inc. On December
29, 1996,  stockholders  approved a reorganization  whereby they exchanged their
stock  on  a  one-for-one  basis  with  Technology  Selection,  Inc.,  a  Nevada
corporation.   Technology   Selection,   Inc.'s  shares  began  trading  on  the
Over-the-Counter  Bulletin  Board on August 28, 1996 under the symbol "TSET." On
November 19, 1998, Technology Selection,  Inc. changed its name to TSET, Inc. We
have  confined  most of our  activities  to  classifying  market and  commercial
targets,  investigating potential investment and acquisition opportunities,  and
capitalizing  on our  investment  in Kronos Air  Technologies,  and have not, to
date, generated  significant operating revenues. We have never been party to any
bankruptcy,  receivership,  or similar  proceedings and, other than noted above,
have not been party to any material reclassification,  merger, consolidation, or
purchase  or  sale of  significant  assets  not in the  ordinary  course  of our
business.

                                       2
<PAGE>

KRONOS AIR TECHNOLOGIES, INC.

         On March 13, 2000, we signed  agreements for the  acquisition of all of
the issued and outstanding  shares of Kronos Air Technologies,  Inc. We acquired
all of the issued and  outstanding  shares of Kronos Air  Technologies'  capital
stock in exchange for shares of our common  stock.  Kronos Air  Technologies  is
focused  on  the  development  and  commercialization  of an  air  movement  and
purification technology known as Kronos(TM) which is more fully described below.


TECHNOLOGY DESCRIPTION AND BENEFITS

         The  Kronos(TM) technology  operates through  the  application  of high
voltage  management  across paired electrical grids that creates an ion exchange
which moves air and gases at high velocities  while removing odors,  smoke,  and
particulates,  as well as killing pathogens,  including bacteria. We believe the
technology  is  cost  effective  and  is  more  energy  efficient  than  current
alternative  fan  and  filter  technologies.  Kronos(TM) has  multiple  U.S. and
International patents pending.

         The  Kronos(TM)  device is comprised of  state-of-the-art  high voltage
electronics  and electrodes on a single printed circuit board attached to one or
more sets of corona and target electrodes housed in a self contained casing. The
device can be flexible in size,  shape and  capacity and can be used in embedded
electronic devices,  standalone room devices, and integrated HVAC and industrial
applications.  The Kronos(TM)  device has no moving parts or degrading  elements
and is composed of cost effective, commercially available components.

         The Kronos(TM) technology combines the benefits of silent air movement,
air cleaning, odor removal,  limited ozone generation,  and static control (as a
Kronos(TM)  device can produce  either  positive or  negative  ions or both,  if
necessary).   Because  the   Kronos(TM)   air  movement   system  is  a  silent,
non-turbulent, and energy efficient air movement and cleaning system, we believe
that it is ideal for air circulation,  cleaning and odor removal in all types of
buildings as well as compact, sealed environments such as airplanes,  submarines
and  cleanrooms.  Additionally,  because  it has no  moving  parts  or  fans,  a
Kronos(TM)  device  can  instantly  block or  reverse  the  flow of air  between
adjacent areas for safety in hazardous or extreme circumstances. We believe that
the benefits of the KronosTM technology include the following:


           QUIET OPERATION:        Embodied in a non-turbulent, non-vibrating
                                   device - virtually silent.

           DURABILITY:             No moving or degradable parts.

           ADAPTABILITY:           Scalable in shape, size and capacity and
                                   adaptable to existing infrastructure,
                                   hardware and HVAC systems or can be used as a
                                   standalone device. Operates under both
                                   extreme high and low temperatures;
                                   inertialess with instantaneous air movement
                                   and is capable of deployment in a wide range
                                   of applications.

           EFFICIENCY:             Energy efficient, up to 10 times the cubic
                                   feet per minute per watt of a conventional
                                   fan at the same velocity and size.

           PURIFICATION:           Lethal towards a wide range of bacteria and
                                   spores and can remove particulate matter
                                   from the air (e.g., smoke, pollen).

           ANTI-STATIC:            Ions from the corona discharge neutralize
                                   electrostaticly charged particles in the
                                   ambient air (e.g., use in cleanrooms).

           VALUE:                  Built with readily available, existing
                                   electronics and hardware making the
                                   Kronos(TM) device cost effective to
                                   manufacture.


RECENT ACHIEVEMENTS

         UNDERWRITERS   LABORATORIES   APPROVAL.   In  June  2001,   Kronos  Air
Technologies  obtained  Underwriters  Laboratories,   Inc.'s  approval  for  the
Kronos(TM) device's core electronics. The electronic module is the key component
of Kronos Air Technologies' proprietary technology and is used in all Kronos(TM)
based  products.  We believe  the  Underwriters  Laboratories'  approval  of the
electronics should shorten the Underwriters  Laboratories'  approval process for
all future Kronos Air Technologies air movement and purification products. Final

                                       3
<PAGE>

Underwriters Laboratories'  approval for each  Kronos(TM) based device (based on
using the  current  core  electronics)  will  depend on meeting  mechanical  and
material   standards  for  each  device.  We  believe  this  final  Underwriters
Laboratories'  effort will focus  primarily on safety  standards  applied to the
casing for the device and materials used in final design.

         LOCKHEED MARTIN AND GENERAL  DYNAMICS  CONTRACTS.  In the quarter ended
June 30, 2001,  Kronos Air Technologies  began to generate revenue for the first
time in the military marketplace with the sale of Kronos(TM) devices to Lockheed
Martin and the delivery of its first  commercialized  Kronos(TM) devices to Bath
Iron Works,  a division of General  Dynamics.  The Bath Iron Works' air movement
and  purification  devices will be used in the chief quarters of the USS Winston
Churchill (DDG-81). Bath Iron Works and Kronos Air Technologies have also teamed
with Electric Boat, another subsidiary of General Dynamics, and General Dynamics
Advance Technology Systems Group to examine advanced demonstration opportunities
onboard other United States naval vessels.  These  demonstrations are being made
through the Office of Naval Research.

         SMALL  BUSINESS  INNOVATION  RESEARCH  CONTRACT  AWARDED.  In May 2001,
Kronos  Air  Technologies  was  awarded  a Small  Business  Innovation  Research
contract.  This  contract  is  sponsored  by  the  United  States  Navy  and  is
potentially worth up to $837,000 in product  development and testing support for
Kronos Air Technologies.  The first phase of the contract is worth up to $87,000
in funding for manufacturing and testing a prototype device for air movement and
ventilation  onboard naval vessels.  If awarded to Kronos Air Technologies,  the
second  phase  of the  contract  would be worth  up to  $750,000  in  additional
funding.  The  Kronos(TM)  devices  manufactured  under  this  contract  will be
embedded  in an  existing  HVAC  systems to move air more  efficiently  than the
current  fan  based   technology.   This   contract  is  an   extension  of  the
commercialization  effort by Kronos Air Technologies in the specialized military
marketplace.


STAND-ALONE PROTOTYPE COMPLETED

         In April  2001,  Kronos Air  Technologies  completed  development  of a
prototype  room-based air  purification  device and is now moving rapidly toward
commercialization of the Kronos(TM) technology outside of military applications.


BUSINESS STRATEGY

         Kronos Air Technologies'  business  development strategy is to sell and
license the  Kronos(TM)  technology  to six distinct  market  segments:  (1) air
movement and purification (health care, hospitality,  residential and commercial
facilities);  (2) air  purification for unique spaces  (cleanrooms,  automotive,
cruise ships and  airplanes);  (3) specialized  military (naval vessels,  closed
vehicles  and  environmental   devices);   (4)  embedded  cooling  and  cleaning
(electronic  devices and medical equipment);  (5) industrial  scrubbing (produce
storage  and diesel and other  emissions),  and (6)  hazardous  gas  destruction
(incineration and chemical facilities).

         AIR MOVEMENT AND  PURIFICATION.  Indoor air pollution,  including "sick
building  syndrome"  and  "building  related  illness," is caused by  inadequate
ventilation,   chemical   contaminants  from  indoor  and  outdoor  sources  and
biological  contaminants.  The addressable air movement and purification segment
is made up of four principal applications:  (1) health care, (2) hospitality (3)
residential and (4) commercial. Kronos Air Technologies is attempting to develop
a  Kronos(TM)  device  intended to address  the  specific  air  quality  issues,
including odors, found in most nursing home and assisted living facilities.

         AIR   PURIFICATION   FOR   UNIQUE   SPACES.   Electronics,   high-tech,
semiconductor,  pharmaceutical,  aerospace,  medical  and many  other  producers
depend on cleanroom  technology.  As products such as electronic  devices become
smaller,  the chance of  contamination  in  manufacturing  becomes  higher.  For
pharmaceutical   companies,   clean,  safe  and  contaminant-free  products  are
imperative to manufacturing  and distributing a viable product.  Other potential
applications  for the Kronos(TM)  technology  include  contained  spaces such as
aircraft,  cruise ships and other  transportation  modes that require  people to
breathe  contaminated,  re-circulated  air  for  extended  periods.  Kronos  Air
Technologies is also evaluating the  effectiveness of the Kronos(TM)  technology
on reducing diesel emissions.

         SPECIALIZED   MILITARY.   Kronos  Air  Technologies  has  been  working
extensively  with  General  Dynamics  on   commercializing   specific   military
applications of the Kronos(TM) technology.  To date, Kronos Air Technologies has
developed and shipped  miniature  Kronos(TM)  based devices for retrofitting the
sailors' bunk fans on United States Naval ships and a larger embedded device for
retrofitting fans in the ductwork of United States Naval ships. In addition,  as
stated above Kronos Air  Technologies  was awarded a Small  Business  Innovation
Research  contract.  This contract is sponsored by the United States Navy and is
potentially worth up to $837,000 in funding for product development and testing.
The  Kronos(TM)  devices  manufactured  under this  contract will be embedded in
existing  HVAC systems to move air more  efficiently  than the current fan based
technology.

                                       4
<PAGE>

         OTHER  MARKET  SEGMENTS.  The  technology  demonstrated  in  the  Small
Business   Innovation   Research  contract  has  direct  applications  to  other
commercial  market segments that Kronos Air Technologies is pursuing,  including
industrial   ventilation  for  building  HVAC  systems,   embedded  cooling  for
electronic equipment and hazardous gas scrubber systems.


CORPORATE RESTRUCTURING AND RELATED ACTIVITIES

         We have  reorganized  in order to prioritize  and focus  management and
financial resources on Kronos Air Technologies and the KronosTM technology. This
reorganization has resulted in the decision to no longer pursue other investment
opportunities previously identified.

         ACQUISITION  AND SALE OF ATOMIC SOCCER USA,  LTD.  Pursuant to a Letter
Agreement  dated as of April 11, 2001, we  transferred  ownership of 100% of the
issued  and  outstanding  shares  of  common  stock of  Atomic  Soccer  to a new
ownership  group  comprised  primarily  of Atomic  Soccer's  current  and former
management.  We determined that continued  financial and other support of Atomic
Soccer was not consistent with our long-term strategic plan of concentrating and
consolidating financial and management resources on Kronos Air Technologies.

         OTHER  INVESTMENTS.  Our reorganization has resulted in our decision to
no longer  pursue  other  investment  opportunities  previously  identified.  We
decided not to pursue further investments in Cancer Detection International LLC,
Electric  Management  Units,  and Cancer Treatment  Centers,  Inc. in July 2001,
established  a formal  plan to dispose  of  EdgeAudio  in  September  2001,  and
terminated  by mutual  consent a contract  to  distribute  Computerized  Thermal
Imaging, Inc. equipment in August 2000.


RETENTION OF THE EAGLE ROCK GROUP, LLC

         On July 9,  2001,  we signed an  agreement  to  utilize  the  strategic
planning and business plan execution  services of The Eagle Rock Group, LLC. The
Eagle Rock Group will work with the Kronos Air Technologies  team to develop and
capitalize on the  Kronos(TM)  technology.  We believe that The Eagle Rock Group
can assist us in unlocking the potential value of the Kronos(TM) technology.

         We believe  that The Eagle  Rock  Group's  multi-disciplined  approach,
which  uses  seasoned  business  executives  and  leverages   relationships  and
networks,  can  accelerate  the  Kronos(TM)  opportunity  versus  the timing and
development  if we were to continue on a  go-it-alone  strategy or if we were to
work and coordinate  with the myriad of groups  necessary to duplicate The Eagle
Rock  Group  team.  Specifically,  we  initially  envision  The Eagle Rock Group
working to augment and enhance  our efforts in the  following  areas (i) capital
raising and  allocation,  (ii) strategic  partner  introduction  and evaluation,
(iii)   distribution   channel   development,   (iv)  product  focus  and  brand
development,  (v) human resource placement, and (vi) capital market introduction
and awareness.

         Pursuant  to the  agreement  that we  entered  into with The Eagle Rock
Group,  we issued to The Eagle Rock Group a ten-year  warrant  granting them the
right to purchase  1,400,000  shares of our common stock at an exercise price of
$0.68 per share.  The shares  underlying the warrant have  piggy-back and demand
registration  rights, as well as subscription  rights in the event that we issue
any  rights to all of our  stockholders  to  subscribe  for shares of our common
stock. In addition,  the warrant contains redemption rights in the event that we
enter into a transaction that results in a change of control of our company.


FUSION CAPITAL TRANSACTION

         On June 19, 2001,  we entered into a common  stock  purchase  agreement
with Fusion  Capital.  Pursuant to the common stock purchase  agreement,  Fusion
Capital  has  agreed to  purchase  on each  trading  day  during the term of the
agreement,  $12,500 of our common stock or an aggregate  of $10.0  million.  The
$10.0  million of our common  stock is to be purchased  over a 40-month  period,
subject to a six-month  extension or earlier  termination at our sole discretion
and subject to certain events.  The purchase price of the shares of common stock
will be equal to a price based upon the future  market price of our common stock
without any fixed discount to the then-current market price. However,  there can
be no assurance of how much cash we will receive, if any, under the common stock
purchase agreement with Fusion Capital.


MILESTONES

         Our primary  business  objectives  over the next twelve  months are the
further development and  commercialization  of the Kronos(TM)  technology with a
view  toward  generating  cash  flow  from  customers.  The  primary  milestones
necessary to achieve these objectives are as follows:

                                       5
<PAGE>

         o        completion  of  commercialization  of  standalone   Kronos(TM)
                  devices to generate revenues,  including  completion of design
                  of   finished    products,    obtaining   final   Underwriters
                  Laboratories   approval   for  the  finished   products,   and
                  completion of customer beta testing programs;

         o        development of corporate  capability to manage the outsourcing
                  of production and post-sale servicing of Kronos(TM)  products,
                  including final selection of contract manufacturers and design
                  of product tooling;

         o        expansion  of  management  team and  further  development  and
                  augmentation   of   Kronos   Air   Technologies'   operational
                  capabilities to support revenue stream,  and identification of
                  new applications for Kronos(TM) technology;

         o        expansion of technical  resources and product  engineering  to
                  better  position Kronos Air  Technologies'  ability to address
                  specific customer issues and needs, including expanding Kronos
                  Air Technologies' chemical and materials technical expertise;

         o        hiring  additional  marketing  and sales  personnel  to expand
                  customer  base to allow Kronos Air  Technologies  to grow both
                  near term and long term revenue; and

         o        continuation  of  implementation  of Kronos Air  Technologies'
                  intellectual  property strategies,  including  continuation of
                  its U.S. and  international  patent filing process to enable a
                  full  development  and effective  management  of  intellectual
                  property rights and assets.

         We  estimate  that   achievement  of  these   milestones  will  require
approximately  $3,000,000 of funding.  We  anticipate  that such funding will be
obtained  pursuant to the Fusion Capital  transaction,  cash flow generated from
government  grants  and  contracts  (including  the  Small  Business  Innovation
Research  contract  sponsored  by the United  States Navy,  recently  awarded to
Kronos Air Technologies), and cash flow generated from customer revenue.


EMPLOYEES

         On  October  10,  2001,  TSET and its  subsidiaries  had the  number of
full-time employees set forth in the following table.

                NAME                                     NUMBER OF EMPLOYEES
                ----                                     -------------------

                TSET, Inc.                                       3

                Kronos Air Technologies, Inc.                    6

                Edge Audio.com, Inc                              6
                                                               ------
                         TOTAL                                   15
                                                               ======

         Of the total number of  full-time  employees,  2 work in marketing  and
sales, 9 in operations,  and 2 are employed in administrative  and other support
positions.  None of the employees are  represented by unions.  There has been no
disruption of operations due to a labor dispute.  We consider our relations with
our employees to be good.


CERTAIN BUSINESS RISK FACTORS

         We are  subject to  various  risks  which may have a  material  adverse
effect on our business,  financial condition and results of operations,  and may
result in a decline in our stock price. Certain risks are discussed below:


WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO
CONTINUE FOR THE FORESEEABLE FUTURE

         We have only recently  begun  implementing  our plan to prioritize  and
concentrate  our management and financial  resources to fully  capitalize on our
investment in Kronos Air  Technologies  and have yet to establish any history of
profitable  operations.  We have incurred annual operating losses of $9,866,083,
$1,965,183  and  $51,674,  respectively,  during the past three  fiscal years of
operation.  As a  result,  at June 30,  2001 we had an  accumulated  deficit  of

                                       6
<PAGE>

$11,973,785.   We  have  incurred  net  losses  from  continuing  operations  of
$3,572,558  and  $1,385,595  for the fiscal years ending June 30, 2001 and 2000.
Our revenues have not been sufficient to sustain our operations.  We expect that
our  revenues  will  not  be  sufficient  to  sustain  our  operations  for  the
foreseeable    future.   Our   profitability   will   require   the   successful
commercialization  of our  Kronos(TM)  technologies.  No assurances can be given
when this will occur or that we will ever be profitable.

         Our independent  auditors have added an explanatory  paragraph to their
audit opinion  issued in connection  with the financial  statements for the year
ended June 30, 2001 relative to our ability to continue as a going concern.  Our
ability to obtain additional funding will determine our ability to continue as a
going  concern.  Our financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.


WE WILL REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS AND WITHOUT IT WE
WILL NOT BE ABLE TO CONTINUE OPERATIONS

         At June 30, 2001 we had a working  capital  deficit of $1,850,915.  The
independent  auditor's  report  for the year ended June 30,  2001,  includes  an
explanatory  paragraph to their audit opinion stating that our recurring  losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. We had an operating cash flow deficit of
$10,524 in 1999,  an  operating  cash flow  deficit of  $288,262  in 2000 and an
operating  cash flow deficit of $1,613,573  in 2001.  We do not  currently  have
sufficient   financial  resources  to  fund  our  operations  or  those  of  our
subsidiaries. Therefore, we need additional funds to continue these operations.

         We only have the right to receive  $12,500  per  trading  day under the
common stock purchase  agreement unless our stock price equals or exceeds $3.00,
in which  case  the  daily  amount  may be  increased  at our  option.  Since we
initially registered 5,000,000 shares for sale by Fusion Capital pursuant to the
common stock purchase agreement, the selling price of our common stock to Fusion
Capital  will have to  average at least  $2.00 per share for us to  receive  the
maximum proceeds of $10,000,000 without registering  additional shares of common
stock.  Assuming a purchase  price of $0.36 per share (the closing sale price of
the common stock on October 10, 2001) and the purchase by Fusion  Capital of the
full 5,000,000 shares under the common stock purchase agreement,  proceeds to us
would  only be  $1,800,000  unless  we choose to  register  more than  5,000,000
shares,  which we have the right,  but not the obligation,  to do. The extent we
rely on Fusion Capital as a source of funding will depend on a number of factors
including,  the  prevailing  market  price of our common stock and the extent to
which we are able to secure working capital from other sources,  such as through
the sale of our Kronos(TM) air movement and purification  systems.  If obtaining
sufficient  financing from Fusion Capital were to prove prohibitively  expensive
and if we are unable to  commercialize  and sell the products or technologies of
our  subsidiaries,  we will need to secure another source of funding in order to
satisfy  our  working  capital  needs.  Even if we are able to access  the funds
available under the common stock purchase agreement with Fusion Capital,  we may
still need  additional  capital to fully  implement our business,  operating and
development  plans.  Should the  financing  we require  to sustain  our  working
capital needs be unavailable or prohibitively  expensive when we require it, the
consequences  would be a  material  adverse  effect on our  business,  operating
results, financial condition and prospects.


WE HAVE VERY LIMITED  MANUFACTURING,  SALES AND MARKETING  CAPABILITIES  FOR OUR
KRONOS(TM)  PRODUCTS AND OUR FAILURE TO DEVELOP ANY OF THESE  CAPABILITIES WOULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS

         We have  only  recently  begun  to  manufacture  and  market  prototype
versions  of our  Kronos Air  Technologies  products  and we have no  experience
manufacturing, marketing or distributing commercial quantities of our Kronos Air
Technologies  products.  Kronos  Air  Technologies  currently  does not have any
commercial-scale  manufacturing  facilities  nor  does  it  have  any  sales  or
marketing  personnel.  Kronos Air Technologies  does not have any  relationships
with third parties to contract  manufacture,  market or distribute  the KronosTM
products. If Kronos Air Technologies is unable to acquire adequate manufacturing
capabilities  and hire sales and marketing  personnel or if it cannot enter into
satisfactory  arrangements  with  third  parties  to  manufacture,   market  and
distribute  the  Kronos(TM)  products  on  commercially  reasonable  terms,  the
consequences  would be a  material  adverse  effect on our  business,  operating
results,  financial  condition and prospects.  There can be no assurance that we
will be able to acquire adequate  manufacturing  capabilities and hire sales and
marketing  personnel  or be able to enter into  satisfactory  arrangements  with
third parties to manufacture, market and distribute the Kronos(TM) products.


COMPETITION IN THE MARKET FOR AIR MOVEMENT AND  PURIFICATION  DEVICES MAY RESULT
IN THE FAILURE OF THE KRONOSTM PRODUCTS TO ACHIEVE MARKET ACCEPTANCE

         Kronos  Air  Technologies   presently  faces   competition  from  other
companies   that  are  developing  or  that  currently  sell  air  movement  and
purification  devices.  Many of these  competitors  have  substantially  greater

                                       7
<PAGE>

financial,  research and  development,  manufacturing,  and sales and  marketing
resources  than we do.  Many of the  products  sold by Kronos Air  Technologies'
competitors  already have brand  recognition  and  established  positions in the
markets that we have targeted for  penetration.  There can be no assurance  that
the  Kronos(TM)  products will compete  favorably  with the products sold by our
competitors.


OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," SUBJECT TO SPECIAL  REQUIREMENTS
AND CONDITIONS, AND MAY NOT BE A SUITABLE INVESTMENT

         Our common stock is deemed to be "penny  stock" as that term is defined
in Rule 3a51-1  promulgated  under the  Securities  Exchange Act of 1934.  Penny
stocks are stocks:

         o    With a price of less than $5.00 per share;
         o    That are not traded on a "recognized" national exchange;
         o    Whose  prices  are not quoted on the  Nasdaq  automated  quotation
              system  (Nasdaq  listed  stock must still have a price of not less
              than $5.00 per share); or
         o    In issuers with net tangible assets less than $2.0 million (if the
              issuer has been in continuous  operation for at least three years)
              or $5.0 million (if in  continuous  operation  for less than three
              years), or with average revenues of less than $6.0 million for the
              last three years.

         Broker/dealers   dealing  in  penny  stocks  are  required  to  provide
potential  investors  with a  document  disclosing  the  risks of penny  stocks.
Moreover,  broker/dealers  are required to determine  whether an investment in a
penny  stock  is  a  suitable  investment  for  a  prospective  investor.  These
requirements  may reduce the  potential  market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to resell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline.


WE RELY ON MANAGEMENT AND KRONOS AIR TECHNOLOGIES  RESEARCH PERSONNEL,  THE LOSS
OF WHOSE SERVICES COULD HAVE A MATERIAL ADVERSE EFFECT UPON OUR BUSINESS

         We rely principally upon the services of our Board of Directors, senior
executive  management,  and  certain  key  employees,  including  the Kronos Air
Technologies  research  team,  the loss of whose  services could have a material
adverse  effect  upon our  business  and  prospects.  We are in the  process  of
identifying  suitable  candidates for certain other senior management  positions
deemed essential to the future successful development of Kronos Air Technologies
and the Kronos(TM) technology. Competition for appropriately qualified personnel
is intense. Our ability to attract and retain highly qualified senior management
and technical research and development personnel are believed to be an important
element of our future success.  Our failure to attract and retain such personnel
may,  among other things,  limit the rate at which we can expand  operations and
achieve profitability. There can be no assurance that we will be able to attract
and retain  senior  management  and key  employees  having  competency  in those
substantive areas deemed important to the successful implementation of our plans
to fully  capitalize  on our  investment  in  Kronos  Air  Technologies  and the
Kronos(TM)  technology,   and  the  inability  to  do  so  or  any  difficulties
encountered by management in establishing  effective working relationships among
them may adversely affect our business and prospects. Currently, we do not carry
key person life insurance for any of our directors, executive management, or key
employees.


THE SALE OF OUR COMMON STOCK TO FUSION  CAPITAL MAY CAUSE  DILUTION AND THE SALE
OF THE SHARES OF COMMON STOCK  ACQUIRED BY FUSION  CAPITAL COULD CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE

         The purchase  price for the common stock to be issued to Fusion Capital
pursuant to the common stock  purchase  agreement  will  fluctuate  based on the
price of our common stock.  All shares  issued to Fusion  Capital will be freely
tradable.  Fusion  Capital  may sell  none,  some or all of the shares of common
stock  purchased  from us at any time.  We expect that the shares sold to Fusion
Capital  will be sold  over a  period  of up to 40  months  from the date of the
common stock purchase agreement.  Depending upon market liquidity at the time, a
sale of shares by Fusion Capital at any given time could cause the trading price
of our common stock to decline.  The sale of a  substantial  number of shares of
our common stock by Fusion Capital, or anticipation of such sales, could make it
more difficult for us to sell equity or equity-related  securities in the future
at a time and at a price that we might otherwise wish to effect sales.

                                       8
<PAGE>

OUR FAILURE TO FILE FEDERAL AND STATE INCOME TAX RETURNS FOR CALENDAR YEARS 1997
THROUGH 2001 MAY RESULT IN THE IMPOSITION OF INTEREST AND PENALTIES

         We failed to file  federal and state  income tax  returns for  calendar
years 1997 through 2001,  respectively.  We believe that we had operating losses
for each year  during  the  period  1997  through  2001,  and that  there are no
expected  income taxes due and owing for those years.  There can be no assurance
that we will not owe federal and/or state income taxes for any of the years that
we failed to file income tax returns,  nor owe interest  and/or  penalties  with
respect to such failure.  We anticipate  filing all past due returns by December
31, 2001. Our failure to file  delinquent  income tax returns in a timely manner
may,  among other things,  subject us to additional  interest and penalties with
respect to such tax  returns.  When  filed,  these  returns  could be subject to
review and potential  examination by the respective taxing  authorities.  Should
any of the returns come under examination by federal or state  authorities,  our
positions on certain income tax issues could be challenged.  The impact, if any,
of the potential  future  examination  cannot be determined at this time. If our
positions are successfully challenged, the results may have a material impact on
our financial position and results of operations.

                                       9
<PAGE>

ITEM 2.  PROPERTIES

         Our principal executive office is located at 14523 Westlake Drive, Lake
Oswego, Oregon in approximately 1,000 square feet of leased space. This lease is
a month-to-month lease at a monthly rate of $2,039.

         The offices of Kronos Air  Technologies  are located at 8549/8551 154th
Avenue NE,  Redmond,  Washington  98052.  Kronos Air  Technologies  is committed
through  June 30, 2003 to annual lease  payments on  operating  leases for 4,000
square feet of office/research lab premises of $42,670 per year.

         The offices of EdgeAudio  are located at 15615 74th Avenue,  Suite 100,
Tigard,  Oregon  97224.   EdgeAudio  is  committed  through  June  30,  2003  to
office/warehouse premises of $13,800 per year.

         We consider our existing  facilities to be adequate for our foreseeable
needs.


ITEM 3.  LEGAL PROCEEDINGS

         On  February  2,  2001,   we   initiated,   together  with  Kronos  Air
Technologies,  legal  proceedings  in Clackamas  County,  Oregon against W. Alan
Thompson,  Ingrid T.  Fuhriman,  and Robert L.  Fuhriman  II,  each of whom were
formerly  executive officers and members of the Board of Directors of Kronos Air
Technologies.  This suit alleges, among other things, breach of fiduciary duties
and breach of contract by these  individuals,  and seeks, among other things, an
order from the court referring the dispute to arbitration in accordance with the
terms of these  individuals.  We have agreed to a change of venue of this matter
to King County,  Washington, and arbitrators have been selected. The parties are
in the process of exchanging and complying with requests for discovery.

         On January 13,  2000,  we  initiated  legal  proceedings  in  Clackamas
County, Oregon against Foster & Price Ltd., an Isle of Man corporation, seeking,
among other things,  a judicial  declaration that a certain term sheet signed by
us and  Foster & Price  was  lawfully  terminated  by us due to Foster & Price's
failure to perform certain terms thereunder and was therefore null and void, and
that we and  Foster  & Price  had no  further  contractual  obligations  between
ourselves.  Foster & Price  claimed  entitlement  to the issuance of  10,000,000
shares of our  common  stock,  notwithstanding  its  alleged  nonperformance  of
certain important  obligations under the term sheet. On July 7, 2001, we entered
into a mutual release and  settlement  agreement with Foster & Price and Alex D.
Saenz, pursuant to which our company,  Foster & Price and Mr. Saenz mutually and
fully released each other from all related claims and  counterclaims  and agreed
to the  dismissal of the  litigation  initiated by us against  Foster & Price on
January 13, 2000.  The  settlement  agreement  does not contain any admission of
liability or fault by any party. The parties also agreed, among other things, to
not institute any future  litigation  relating to the term sheet of the previous
relationship.  As settlement  consideration,  we delivered to Foster & Price and
Mr. Saenz, collectively,  a total of 375,000 shares of our common stock. We have
agreed to  register  such  shares,  however,  Foster & Price and Mr.  Saenz have
agreed  that,  following  such  registration,  in no case shall they sell on any
given  trading day more than 5,000  shares,  or more than  12,500  shares in any
consecutive  five-day  trading period,  or more than 50,000 shares in any 30-day
consecutive trading period.  Foster & Price and Mr. Saenz have agreed to certain
confidential  provisions  and to indemnify us against  claims arising out of any
dispute  between  Foster & Price and Mr.  Saenz  relating to any  allocation  of
shares  between them as well as claims brought by persons who are not parties to
the settlement agreement.


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

         None.

                                       10
<PAGE>

                                     PART II


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

         Our common stock trades on the  Over-the-Counter  Bulletin  Board under
the trading  symbol "TSET." Our high and low bid prices by quarter during fiscal
2001, 2000, and 1999 are presented as follows:

                                                            FISCAL YEAR 2002
                                                         HIGH              LOW
     First Quarter (July 2001 to September 30, 2001)     $0.70             $0.32

                                                            FISCAL YEAR 2001
                                                         HIGH              LOW
     First Quarter (July 2000 to September 2000)         $3.31             $1.15
     Second Quarter (October 2000 to December 2000)      $2.04             $1.15
     Third Quarter (January 2001 to March 2001)          $1.65             $1.06
     Fourth Quarter (April 2001 to June 2001)            $1.21             $0.58

                                                            FISCAL YEAR 2000
                                                         HIGH              LOW
     First Quarter (July 1999 to September 1999)        $0.875            $0.437
     Second Quarter (October 1999 to December 1999)     $2.625            $0.750
     Third Quarter (January 2000 to March 2000)         $6.750            $1.187
     Fourth Quarter (April 2000 to June 2000)           $3.370            $2.063

                                                            FISCAL YEAR 1999
                                                         HIGH              LOW
     First Quarter (July 1998 to September 1998)           N/A               N/A
     Second Quarter (October 1998 to December 1998)     $1.562            $0.625
     Third Quarter (January 1999 to March 1999)         $1.000            $0.250
     Fourth Quarter (April 1999 to June 1999)           $1.000            $0.437

         On October 10, 2001,  the closing price of our common stock as reported
on the Over-the-Counter Bulletin Board was $0.36 per share. On October 10, 2001,
we had  approximately  1,000  beneficial  stockholders  of our common  stock and
33,643,695 shares of our common stock were issued and outstanding.


DIVIDENDS

         We have not  declared  or paid  dividends  on our common  stock  during
fiscal  1999,  2000 or 2001 and do not plan to declare or pay  dividends  on our
common stock during fiscal 2002.  Our dividend  practices are  determined by our
Board of  Directors  and may be  changed  from  time to time.  We will  base any
issuance of dividends upon our earnings (if any), financial  condition,  capital
requirements,  acquisition strategies, and other factors considered important by
our Board of  Directors.  Nevada law and our  Articles of  Incorporation  do not
require our Board of Directors  to declare  dividends  on our common  stock.  We
expect to retain any earnings  generated by our operations  for the  development
and expansion of our business and do not anticipate  paying any dividends to our
stockholders for the foreseeable future.


RECENT SALES OF UNREGISTERED SECURITIES

         All of the  following  shares  were  issued and  options  and  warrants
granted  pursuant  to the  exemption  provided  for  under  Section  4(2) of the
Securities  Act of 1933, as amended,  as a  "transaction  not involving a public
offering."  No  commissions  were  paid,  and no  underwriter  participated,  in
connection with any of these transactions.

         In April 1999, we issued 1,000,000  common shares,  valued at $0.30 per
share,  at an  aggregate  value of  $300,000,  to the nominee of a director  and
executive  officer of TSET,  based on an  employment  agreement  dated April 16,
1999.  The fair market  value of a share of our common  stock on April 16, 1999,
the date of grant,  was $1.00 per share. In September 2001, TSET determined that
such  employment  agreement  was  null  and  void  from  its  inception.   As  a
consequence, the issuance of the 1,000,000 common shares is void as of April 16,
1999, the effective date of the employment agreement, and these shares of common
stock will be treated as if they never were issued.  The issuance of such shares
is not reflected in the financial statements.

         In August 1999, we issued 100,000  common  shares,  valued at $0.50 per
share (the fair market  value for our shares as of such date),  at an  aggregate
value of $50,000, to twelve persons in exchange for ownership of U.S. patent no.
4,803,632  (issued  February 7, 1989) and related  intellectual  property rights
relating to a  technology  and device  referred to as the  "Intelligent  Utility
Meter System".

                                       11
<PAGE>

         In January 2000, we issued  74,094 common  shares,  valued at $0.69 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $51,125 in cash.

         In February 2000, we issued 80,435 common  shares,  valued at $0.92 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $74,000 in cash.

         In March 2000, we issued  619,645  common  shares,  valued at $1.81 per
share (the negotiated  purchase price for such shares), at an aggregate value of
$1,119,234,  to nine persons in exchange  for all of the issued and  outstanding
shares of common stock of Atomic Soccer owned by such persons.

         In March 2000, we issued  380,355  common  shares,  valued at $1.81 per
share (the negotiated  purchase price for such shares), at an aggregate value of
$687,016, to one person in exchange for all of the issued and outstanding shares
of common stock of Atomic Soccer owned by such person.

         In March 2000,  we issued  37,555  common  shares as part of the Atomic
Soccer acquisition. There was no value received for these shares. We are seeking
their return.

         In March 2000, we issued 2,250,000  common shares,  valued at $1.49 per
share (the negotiated  purchase price for such shares), at an aggregate value of
$3,346,875,  to six persons in exchange  for 100% of the issued and  outstanding
common stock of Kronos Air Technologies.

         In March 2000,  we issued  45,045  common  shares,  valued at $2.22 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $100,000 in cash.

         In March 2000,  we issued  78,325  common  shares,  valued at $2.03 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $159,000 in cash.

         In April 2000,  we issued  77,670  common  shares,  valued at $1.03 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $80,000 in cash.

         In April 2000, we issued  179,641  common  shares,  valued at $1.67 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $300,000 in cash.

         In May 2000, we issued  1,298,701  common  shares,  valued at $1.96 per
share (the negotiated  purchase price for such shares), at an aggregate value of
$2,550,000,  to five persons in exchange for 100% of the issued and  outstanding
common stock of EdgeAudio.

         In May 2000, we issued 180,000 common shares, valued at $1.96 per share
(the  negotiated  purchase  price for such  shares),  at an  aggregate  value of
$353,430,  to five  persons in exchange  for 100% of the issued and  outstanding
membership  interests of Cancer  Detection  International.  In 2001, there was a
20,000 common share  adjustment  ($39,250) to this  purchase  resulting in a net
160,000 common shares being issued.

         In May 2000, we issued 57,971 common shares,  valued at $1.38 per share
(the negotiated purchase price for such shares), to one person, a stockholder of
TSET, in exchange for $80,000 in cash.

         In May 2000, we issued 14,815 common shares, valued at $3.375 per share
(the fair market value for our shares as of such date), at an aggregate value of
$50,000,  to a director and  executive  officer of TSET,  based on an employment
agreement dated May 19, 2000.

         In June 2000, we issued 52,980 common shares, valued at $1.51 per share
(the negotiated purchase price for such shares), to one person, a stockholder of
TSET, in exchange for $80,000 in cash.

         In June 2000,  we issued  122,699  common  shares,  valued at $1.63 per
share (the negotiated  purchase price for such shares), at an aggregate value of
$200,000, to one person who is a director and executive officer of TSET.

         In July 2000,  we issued  161,538  common  shares,  valued at $1.17 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $189,000 in cash.

         In August 2000,  we issued 5,000  common  shares,  valued at $1.312 per
share (the fair market  value for our shares as of such date),  at an  aggregate
value of $6,560, to an executive officer of TSET, as compensation.

                                       12
<PAGE>

         In August 2000, we issued 120,000  common  shares,  valued at $1.00 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $120,000 in cash.

         In August  2000,  we issued 8,004  common  shares,  valued at $1.42 per
share (the negotiated  exchange value of such shares),  at an aggregate value of
$11,366, to one person in liquidation of indebtedness of Atomic Soccer.

         In August 2000,  we issued 44,667  common  shares,  valued at $1.24 per
share (the negotiated  exchange value of such shares),  at an aggregate value of
$55,388,  to two persons in  liquidation of  indebtedness  of Atomic Soccer.

         In September 2000, we issued 309,588 common shares, valued at $1.00 per
share (the negotiated  exchange value of such shares),  at an aggregate value of
$309,588,  to two persons in liquidation of  indebtedness  of Atomic Soccer.

         In September 2000, we issued 45,800 common shares,  valued at $1.00 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $45,800 in cash.

         In September 2000, we issued 559,000 common shares, valued at $1.00 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $559,000 in cash.

         In September 2000, we issued 150,000 common shares, valued at $1.00 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $150,000 in cash.

         In December 2000, we issued 168,492 common shares,  valued at $0.59 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $100,000 in cash.

         In December 2000, we issued 39,091 common  shares,  valued at $0.57 per
share  (the  negotiated   purchase  price  of  such  shares),  to  two  persons,
stockholders of TSET, in exchange for $22,340 in cash.

         In January 2001, we issued 687,500  common shares,  valued at $0.58 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $400,000 in cash.

         In January  2001,  we issued 7,693 common  shares,  valued at $0.65 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $5,000 in cash.

         In January 2001, we issued  50,000 common  shares,  valued at $0.60 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $30,000 in cash.

         In January 2001, we issued  10,000 common  shares,  valued at $0.64 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $6,400 in cash.

         In January 2001, we issued  40,000 common  shares,  valued at $1.25 per
share (the fair market  value for our shares as of such date),  at an  aggregate
value of  $50,000,  to one person in  exchange  for legal  services  rendered to
Kronos Air Technologies.

         In January  2001,  we issued 4,915 common  shares,  valued at $1.25 per
share (the fair market  value for our shares as of such date),  at an  aggregate
value of $6,144, to five persons,  directors,  executive officers, and employees
of Kronos Air Technologies, as compensation.

         In March 2001, we issued  186,302  common  shares,  valued at $0.72 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $135,000 in cash.

         In April 2001,  we issued  97,020  common  shares,  valued at $1.00 per
share (the negotiated  exchange value for such shares), at an aggregate value of
$97,020,  to two persons,  in liquidation of  indebtedness of Atomic Soccer.

         In April 2001,  we issued  38,038  common  shares,  valued at $0.46 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $17,530 in cash.

         In April 2001,  we issued  2,000  common  shares,  valued at $0.885 per
share (the fair market  value for our shares as of such date),  at an  aggregate
value of $1,770,  to one  person,  an  employee  of Kronos Air  Technologies, as
compensation.

                                       13
<PAGE>

         In  April  2001,  pursuant  to a stock  option  agreement,  we  granted
five-year  options to acquire  450,000  common  shares,  at an exercise price of
$0.885 per share (the fair market value for our shares as of the date of grant),
at an aggregate  value  $398,250,  to nine persons who are directors,  executive
officers, and key employees of TSET and Kronos Air Technologies, as compensation
for services. All such options immediately vested.

         In  April  2001,  pursuant  to a stock  option  agreement,  we  granted
ten-year  options to acquire  350,000  common  shares,  at an exercise  price of
$0.885 per share (the fair market value for our shares as of the date of grant),
at an aggregate value of $309,750, to one person who is a director and executive
officer  of TSET, in consideration  of the waiver of  certain  contract  rights.
125,000 of such options are immediately vested, and 225,000 of such options vest
upon  achievement of certain  milestones.  In September 2001, these options were
determined  to be null and void as of the date of grant and the issuance of such
options is not reflected in the financial statements.

         In  April  2001,  pursuant  to a stock  option  agreement,  we  granted
ten-year  options to acquire  398,475  common  shares,  at an exercise  price of
$0.885 per share (the fair market value for our shares as of the date of grant),
at an aggregate value of $352,650, to one person who is a director and executive
officer of TSET, in consideration of the waiver of certain contract rights.  All
such options immediately vested.

         In April 2001, we granted  five-year  options to acquire  shares of our
common stock, at an exercise price of $1.12 per share (the fair market value for
our shares as of the date of  grant),  to one person who is an officer of Kronos
Air  Technologies, as partial compensation  for services  pursuant to an accrual
formula set forth in a  consulting  agreement.  As of September  14, 2001,  such
accrued options entitled these two persons to acquire 148,000 common shares,  at
an aggregate value of $165,760. All such options are immediately vested.

         In May 2001, we issued 891,891 common shares, valued at $0.34 per share
(the negotiated purchase price for such shares), to one person, a stockholder of
TSET, in exchange for $300,000 in cash.

         In May 2001, we issued 52,778 common shares,  valued at $0.36 per share
(the negotiated purchase price for such shares), to one person, a stockholder of
TSET, in exchange for $19,000 in cash.

         In May 2001, pursuant to a stock option agreement,  we granted ten-year
options to acquire  250,000  common  shares,  at an exercise price of $0.710 per
share (the fair  market  value for our  shares as of the date of  grant),  at an
aggregate  value of  $177,500,  to two persons  who are  directors  of TSET,  as
compensation for services as directors. All such options immediately vested.

         In May 2001,  we granted  five-year  options  to acquire  shares of our
common stock, at an exercise price of $0.96 per share (the fair market value for
our shares as of the date of grant),  to two persons who are  directors of TSET,
as partial compensation for services pursuant to an accrual formula set forth in
a consulting agreement.  As of September 14, 2001, such accrued options entitled
these two persons to acquire  458,500  common shares,  at an aggregate  value of
$440,160. All such options immediately vested.

         In June 2001, we issued 50,000 common shares, valued at $0.95 per share
(the fair market value for our shares as of such date) at an aggregate  value of
$47,500,  to a former  director of TSET,  as  compensation  for his service as a
director.

         In June 2001,  we issued  640,000  common  shares,  valued at $0.72 per
share (the fair market  value for our shares as of such date),  at an  aggregate
value of $460,800,  to one person as compensation  under a Common Stock Purchase
Agreement dated as of June 19, 2001.

         In July 2001,  we issued  238,806  common  shares,  valued at $0.33 per
share  (the  negotiated  purchase  price  for such  shares),  to one  person,  a
stockholder of TSET, in exchange for $80,000 in cash.

         In July 2001,  we issued  375,000  common  shares,  valued at $0.57 per
share (the fair  market  value of our shares as of such date),  at an  aggregate
value of  $213,750,  to one person in  settlement  of  litigation  pursuant to a
Mutual Release and Settlement Agreement dated as of July 7, 2001.

         In July 2001,  we issued 250 common  shares,  valued at $0.45 per share
(the fair market value of our shares as of such date),  at an aggregate value of
$113, to one person, an employee of Kronos Air Technologies, as compensation.

                                       14
<PAGE>

         In August  2001,  we  granted a ten-year  warrant to acquire  1,400,000
common  shares,  at an exercise  price of $0.68 per share (the fair market value
for our shares as of the date of grant),  at an aggregate value of $952,000,  to
one person as compensation pursuant to a warrant agreement dated August 7, 2001,
for services to be provided in connection with a consulting agreement dated July
2, 2001. Pursuant to such consulting agreement,  a principal of the recipient of
the  warrant  currently  serves  as a  director  of TSET.  Such  warrant  vested
immediately.

                                       15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following summary statement of operations and summary balance sheet
data is derived from our audited consolidated financial statements and should be
read in conjunction  with the audited  consolidated  financial  statements as of
June 30, 2001,  2000,  1999 and 1998 and the notes  thereto.  We were  basically
inactive  in 1997 and prior,  therefore,  the  selected  consolidated  financial
information is not included for the years prior to June 30, 1998.

<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED JUNE 30,
                                                  ----------------------------------------------------------------

                                                                      2000                1999
                                                     2001          (RESTATED)*         (RESTATED)*      1998
                                                  -------------- ------------------ -------------- ---------------
<S>                                               <C>               <C>               <C>              <C>
STATEMENT OF OPERATIONS DATA:

Sales                                             $      95,000     $                 $                $
Cost of sales                                            62,500               --               --               --
Gross profit                                             32,500               --               --               --
Total operating expenses                              3,391,139        1,388,492           51,946           17,978
Other income (expense)                                (207,793)            2,897              272               --
Interest expense                                        (6,126)               --               --               --
Net loss from continuing operations                 (3,572,558)      (1,385,595)         (51,674)         (17,832)
Loss from discontinued operations                   (3,846,963)        (579,588)               --               --
Loss from sale of discontinued operations           (2,446,562)               --               --               --
Net loss                                            (9,866,083)      (1,965,183)         (51,674)         (17,832)
Net loss per share-basic and diluted:
    From continuing operations                           (0.11)           (0.05)               --           (0.00)
    From discontinued operations                         (0.20)           (0.02)               --               --
</TABLE>


<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED JUNE 30,
                                                  ----------------------------------------------------------------

                                                     2001             2000              1999             1998
                                                  -------------- ------------------ -------------- ---------------
<S>                                               <C>               <C>               <C>              <C>



BALANCE SHEET DATA:

Cash                                              $      32,619     $    102,949      $       536     $      3,763
Accounts Receivable, net                                     --            4,648               --               --
Prepaids                                                 37,679           23,253               --               --
Total Current Assets                                     70,298          130,850              536            3,763
Net Property & Equipment                                 44,707           23,019               --               --
Intangibles and other                                 2,431,524        2,970,731            2,500            3,500
Net Assets of Discontinued Operations                        --        4,502,888               --               --
Deferred Financing Fees                                 520,800               --               --               --
Total Assets                                          3,067,329        7,627,488            3,036            7,263
Total Current Liabilities                             1,921,213          388,796           79,841           42,396
Total Liabilities                                     2,588,763          388,796           79,841           42,396
Minority interest                                            --               --               --               --
Stockholders' Equity (Deficit)                          478,566        7,238,692         (76,805)         (35,133)
</TABLE>

--------------------
*See Note 3 to the Consolidated Financial Statements.

                                       16
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The  following  information  should  be read in  conjunction  with  our
consolidated  financial  statements and the notes thereto appearing elsewhere in
this filing.

         Certain  statements  within this Item and throughout this Annual Report
on  Form  10-K  and  the  documents  incorporated  herein  are  "forward-looking
statements"  as  described  in  the  "safe  harbor"  provision  of  the  Private
Securities  Litigation Reform Act of 1995. These statements  involve a number of
risks and  uncertainties  and actual results could differ  materially from those
projected.


GENERAL

         Historically,   we  had  been  seeking  select  business  opportunities
globally  among a wide  range of  prospects.  Over the past two  years,  we made
several  investments,  including Kronos Air  Technologies  and EdgeAudio.  After
further  evaluation of these  investments,  we believe our investment in and the
full  development  of  Kronos  Air  Technologies and  the  Kronos(TM) technology
represents  the  single  biggest  opportunity  for  us.  As a  result,  we  have
prioritized our management and financial  resources to fully  capitalize on this
investment  opportunity.  A more detailed explanation of Kronos Air Technologies
and the current  status of EdgeAudio  and the other  investments  made by us are
discussed below.

          We have reorganized our company to prioritize and focus management and
financial  resources on Kronos Air Technologies  and the Kronos(TM)  technology.
This  reorganization has resulted in the decision to sell or to no longer pursue
other investment opportunities previously identified.  We sold our investment in
Atomic  Soccer  in April  2001;  decided  not to  pursue  investments  in Cancer
Detection International, Electric Management Units, and Cancer Treatment Centers
in July 2001;  established  a formal plan to dispose of  EdgeAudio  in September
2001;  and terminated by mutual consent of both parties a contract to distribute
Computerized Thermal Imaging equipment in August 2000.


RESULTS OF OPERATIONS

          The  comparability  of our financial  statements  between years is not
easily  susceptible  to narrative  comparison  by virtue of the fact that (a) we
were basically  inactive from the time that we  discontinued  operations in 1996
until the time that we reactivated operations in mid-1999, (b) from inception we
have not had  significant  operating  revenues,  and (c) we acquired  Kronos Air
Technologies,  Atomic  Soccer,  EdgeAudio,  and Cancer  Detection  International
towards the end of the year ending June 30, 2000.


REORGANIZATION

          Based  on  our   decision  to  focus  our   resources  on  Kronos  Air
Technologies,   several  actions  were  taken  which  impacted  the  results  of
operations.  On April 10, 2001,  we sold Atomic  Soccer.  The sale resulted in a
loss of $2,297,000.  During our fourth  quarter of 2001, we determined  that the
assets of  EdgeAudio  were  impaired and we  recognized  an  impairment  loss of
$2,294,000.  On September 14, 2001, the board authorized  management to pursue a
formal plan for disposal of  EdgeAudio.  The  anticipated  loss from  operations
during the phase-out period is $150,000. We do not anticipate a loss on the sale
of EdgeAudio.  We also decided to discontinue  development  of Cancer  Detection
International  and we  have  recognized  an  impairment  loss  of the  remaining
goodwill of $273,000 associated with that investment.


CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 2001

         REVENUE AND COST OF SALES.  Revenues  are  generated  through  sales of
KronosTM  devices at Kronos Air  Technologies,  Inc. Sales for the twelve months
ended June 30, 2001 were $95,000. Cost of sales for the twelve months ended June
30, 2001 associated with the sale of Kronos(TM) devices was $62,500.  There were
no sales or cost of sales of  Kronos(TM)  devices in periods prior to the twelve
months ended June 30, 2001.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses for the twelve  months ended June 30, 2001  amounted to
$3,391,139 of which  compensation and benefits were 35%,  professional  services
were  22%,   research  and   development  was  9%,   depreciation,   intangibles
amortization  and  impairment  was  17% and  other  general  and  administrative
expenses  accounted for 17%. Operating expenses for the twelve months ended June
30, 2000  amounted to $1,388,492  of which  compensation  and benefits were 30%,
research and development was 46%, professional services were 11%,  depreciation,
intangibles  amortization was 7% and other general and  administrative  expenses
accounted for 6%.

                                       17
<PAGE>

          Research and  development  costs in 2000 included  $633,229 of expense
for in-process research and development purchased with the acquisition of Kronos
Air Technologies. Included in the intangible amortization and impairment in 2001
is  $272,945  for an  impairment  loss on Cancer  Detection  International.  The
increase  in  professional  services  expense  was the result of our  efforts to
better  position us to obtain  additional  outside  financing  and equity.  As a
result, we engaged new board members and outside consultants to assist us.


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2001

         Our  total  assets  at June 30,  2001  were  $3,067,329  compared  with
$7,627,488  at June 30, 2000, a decline of  $4,560,159,  principally  due to the
loss on disposal of  discontinued  operations of Atomic Soccer of $2,296,562 and
the impairment of assets for EdgeAudio of $2,294,316, which were recorded in the
fiscal year ended June 30, 2001.  Total  assets at June 30, 2001 were  comprised
mainly  of   $520,800   for   deferred   financing   fees  and   $2,431,524   of
patents/intellectual  property.  Total  assets at June 30,  2000 were  comprised
principally of $2,970,731 of patents/intellectual property and $4,502,888 of net
assets of  discontinued  operations.  Total current  assets at June 30, 2001 and
June 30,  2000  amounted  to $70,298  and  $130,850,  respectively,  while total
current  liabilities for those same periods amounted to $1,921,213 and $388,796,
respectively,  creating a working  capital deficit of $1,850,915 and $257,946 at
each  respective  period  end.  This  working  capital  deficit  is  principally
attributable to the increase in accrued  expenses in both years for compensation
and professional  services.  Total  liabilities as at June 30, 2001 and June 30,
2000 were  $2,588,763 and $388,796,  respectively,  representing  an increase of
$2,199,967.  Shareholders  equity  as at June 30,  2001  and  June 30,  2000 was
$478,566 and  $7,238,692,  respectively,  representing a decrease of $6,760,126.
The decrease in  shareholders  equity is  principally  the result of incurring a
$3,572,558 loss from operations, a $3,846,963 loss from discontinued operations,
and a  $2,446,562  loss on disposal of  discontinued  operations  for the twelve
months ended June 30,  2001.  In addition,  equity  increased  during the twelve
month period ended June 30, 2001 through the sale and issuance of  $3,105,956 of
common stock.


CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000

         REVENUE AND COST OF SALES. There were no sales or cost of sales for the
years ended June 30, 2000 and 1999.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses for the twelve  months ended June 30, 2000  amounted to
$1,388,492.  Primarily  as a result of the above,  the net loss from  continuing
operations  for the year ended June 30, 2000 was  $1,385,595,  and the loss from
discontinued  operations  was  $579,588  for a net loss of  $1,965,183,  thereby
increasing  our  accumulated  deficit to $2,107,703 at June 30, 2000.  Operating
expenses for the year ended June 30, 1999 were $51,946 of which compensation and
benefits accounted for $43,150 or 83%.


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000

          Our total  assets  at June 30,  2000 were  $7,627,488.  Total  current
assets amounted to $130,850 while total current liabilities amounted to $388,796
thereby creating a working deficit of $257,946. Total liabilities as at June 30,
2000 amounted to $388,796 and shareholders  equity was $7,238,692.  Total assets
at June 30, 1999 were $3,036 and total liabilities were $79,841. The increase in
assets and liabilities during 2000 occurred  principally from the acquisition of
Kronos Air Technologies,  EdgeAudio,  Atomic Soccer and Cancer Detection and our
emergence from our prior inactive status.


LIQUIDITY AND CAPITAL RESOURCES

          Historically we have relied principally on the sale of common stock to
finance our  operations.  Going forward,  we plan to rely on the proceeds from a
Small  Business  Innovation  Research  contract  with the United States Navy and
other government  contracts and grants, and cash flow generated from the sale of
Kronos(TM)  devices. We have also entered into a common stock purchase agreement
with  Fusion  Capital  under  which  we  have  the  right,  subject  to  certain
conditions,  to draw down approximately  $12,500 per day from the sale of common
stock to Fusion  Capital.  In  addition,  in May 2001,  Kronos Air  Technologies
signed a Small Business Innovation Research contract. This contract is sponsored
by the United  States  Navy and is  potentially  worth up to $837,000 in product
development and testing support for Kronos Air Technologies.  The first phase of
the contract is worth up to $87,000 in funding for  manufacturing  and testing a
prototype device for air movement and ventilation onboard naval vessels over the
next six months. If awarded to Kronos Air Technologies,  the second phase of the
contract would be worth up to $750,000 in additional funding.

         At June 30, 2001, we had a working capital deficit of $1,850,915, which
represented a decline of $1,592,969  from net working  capital at June 30, 2000.
Net cash flow used on operating  activities  was $1,590,553 and $285,761 for the

                                       18
<PAGE>

twelve months ended June 30, 2001 and June 30, 2000, respectively.  We were able
to satisfy some of our cash  requirements  for the twelve  months ended June 30,
2001 through the issuance and sale of our common stock.

         On June 19, 2001,  we entered into a common  stock  purchase  agreement
with Fusion  Capital.  Pursuant to the common stock purchase  agreement,  Fusion
Capital  has  agreed to  purchase  on each  trading  day  during the term of the
agreement,  $12,500 of our common stock or an aggregate  of $10.0  million.  The
$10.0  million of our common  stock is to be purchased  over a 40-month  period,
subject to a six-month  extension or earlier  termination at our sole discretion
and subject to certain events.  The purchase price of the shares of common stock
will be equal to a price based upon the future  market price of our common stock
without any fixed  discount to the  then-current  market price.  We plan to draw
down as much as $3.0  million  annually  from Fusion  Capital  which  management
believes  should more than offset our  operating  cash flow  deficits.  However,
there can be no assurance of how much cash we will  receive,  if any,  under the
common stock purchase agreement with Fusion Capital.


GOING CONCERN OPINION

         Our independent  auditors have added an explanatory  paragraph to their
audit opinion issued in connection  with the 2001 and 2000 financial  statements
that states that we do not have  significant  cash or other  material  assets to
cover our operating costs. Our ability to obtain additional funding will largely
determine our ability to continue in business.  Without such  funding,  there is
substantial  doubt  about  our  ability  to  continue  as a going  concern.  Our
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

         We can  make  no  assurance  that  we  will  be  able  to  successfully
transition from research and development to manufacturing and selling commercial
products on a broad basis. While attempting to make this transition,  we will be
subject  to all the risks  inherent  in a  growing  venture,  including,  but no
limited to, the need to develop and manufacture reliable and effective products,
develop marketing expertise and expand our sales force.

                                       19
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our consolidated financial statements appear beginning at page F-1.

                                       20
<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------

Board of Directors and Shareholders
TSET, Inc.

We have audited the accompanying  consolidated  balance sheets of TSET, Inc. and
its  subsidiaries  as of June 30, 2001 and 2000,  and the  related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
two years in the period ended June 30, 2001. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 misstatements. An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of TSET,
Inc. and its  subsidiaries  as of June 30, 2001 and 2000,  and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
two years in the  period  ended  June 30,  2001 in  conformity  with  accounting
principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company incurred a net loss from continuing  operations of $3,572,558 during
the year ended  June 30,  2001,  and,  as of that date,  the  Company's  current
liabilities  exceeded its current  assets by $1,850,915.  These  factors,  among
others,  as discussed in Note 4 of Notes to Consolidated  Financial  Statements,
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 4. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.



/s/ Grant Thornton LLP

Portland, Oregon
October 8, 2001

                                       F-1
<PAGE>

                           Randy Simpson C.P.A., P.C.
                            11775 South Nicklaus Roar
                                Sandy, Utah 84092
                          Fax & Phone (801) 572 - 3009

Board of Directors and Stockholders
TSET, Inc.
(Formerly Technology Selection, Inc.)
Salt Lake City, Utah

Independent Auditor's Report

We have audited the balance sheet of TSET, Inc. (formerly Technology Selection,
Inc.) as of June 30, 1999 and the related statements of operations and
accumulated development stage costs, changes in stockholders' equity and cash
flows for the year then ended. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of TSET, Inc.
(formerly Technology Selection, Inc.) as of June 30, 1999 and the results of its
operations and its cash flows for year then ended in conformity with generally
accepted accounting principles.


/s/ Randy Simpson C.P.A., P.C.
------------------------------
Randy Simpson C.P.A., P.C.
A Professional Corporation

March 17, 2000
Except for Note 3 which is date is October 8, 2001 Salt Lake City, Utah

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                                         TSET, INC
                                CONSOLIDATED BALANCE SHEETS

                                                                      JUNE 30,
                                                          --------------------------------
                                                          2001                     2000
                                                                                (RESTATED)
                                                          ----                  ----------
<S>                                                   <C>                      <C>
 ASSETS

 Current Assets
       Cash                                              $ 32,619                $ 102,949
       Accounts receivable, net                                 -                    4,648
       Prepaids                                            37,679                   23,253
                                                      -----------              -----------
            TOTAL CURRENT ASSETS                           70,298                  130,850
                                                      -----------              -----------
 PROPERTY AND EQUIPMENT                                    62,723                   25,216
       Less: Accumulated Depreciation                     (18,016)                  (2,197)
                                                      -----------              -----------
            NET PROPERTY AND EQUIPMENT                     44,707                   23,019
                                                      -----------              -----------
 OTHER ASSETS
       Intangibles                                      2,431,524                2,970,731
       Net assets of discontinued operations                    -                4,502,888
       Deferred financing fees                            520,800                        -
                                                      -----------              -----------
            TOTAL OTHER ASSETS                          2,952,324                7,473,619
                                                      -----------              -----------
 TOTAL ASSETS                                         $ 3,067,329              $ 7,627,488
                                                      ===========              ===========


 LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES
       Accounts payable                                 $ 323,045                 $ 22,213
       Accrued expenses                                 1,284,268                  301,400
       Notes payable, current portion                     313,900                   65,183
                                                      -----------              -----------
            TOTAL CURRENT LIABILITIES                   1,921,213                  388,796
                                                      -----------              -----------
 NET LIABILITIES OF DISCONTINUED OPERATIONS               667,550                        -
                                                      -----------              -----------
            TOTAL LIABILITIES                           2,588,763                  388,796
                                                      -----------              -----------
 SHAREHOLDERS' EQUITY
       Common stock, authorized 500,000,000
            shares of $.001 par value                      34,001                   29,652
       Capital in excess of par value                  12,418,350                9,316,743
       Retained earnings (Accumulated deficit)        (11,973,785)              (2,107,703)
                                                      -----------              -----------
            TOTAL SHAREHOLDERS' EQUITY                    478,566                7,238,692
                                                      -----------              -----------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $ 3,067,329              $ 7,627,488
                                                      ===========              ===========


 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

</TABLE>

                                                              F-3
<PAGE>

<TABLE>
<CAPTION>
                                                          TSET, INC
                                            CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                                 YEAR ENDED JUNE 30,
                                                              -------------------------------------------------------------
                                                                  2001                     2000                     1999
                                                                                        (RESTATED)               (RESTATED)
                                                                  ----                  ----------               ----------
<S>                                                           <C>                      <C>                         <C>
 Sales                                                        $     95,000             $          -                $       -
 Cost of sales                                                      62,500                        -                        -
                                                              ------------             ------------                ---------
 Gross Profit                                                       32,500                        -                        -
                                                              ------------             ------------                ---------
 Selling, General and Administrative expenses
       Compensation and benefits                                 1,201,048                  413,414                   43,150
       Research and development                                    297,004                  636,175                        -
       Professional services                                       735,296                  151,989                        -
       Impairment of investment in CDI                             272,945                        -                        -
       Depreciation and amortization                               323,164                   98,543                        -
       Other selling general & administrative
         expenses                                                  561,682                   88,371                    8,796
                                                              ------------             ------------                ---------
 Total Selling, General and Administrative expenses              3,391,139                1,388,492                   51,946
                                                              ------------             ------------                ---------
 Net Operating Income (Loss)                                    (3,358,639)              (1,388,492)                 (51,946)
 Other Income / (expense)                                         (207,793)                   2,897                      272
 Interest Expense                                                   (6,126)                       -                        -
                                                              ------------             ------------                ---------
 Net Income (Loss) Before Taxes                                 (3,572,558)              (1,385,595)                 (51,674)
 Provision for Taxes                                                     -                        -                        -
                                                              ------------             ------------                ---------
 Net Income (Loss) from continuing operations                   (3,572,558)              (1,385,595)                 (51,674)
 Income (Loss) from discontinued operations,
     net of income tax of $0                                    (3,846,963)                (579,588)                       -
 Loss on disposal of discontinued operations,
     net of income tax of $0                                    (2,446,562)                       -                        -
                                                              ------------             ------------                ---------
 Net Income (Loss)                                            $ (9,866,083)            $ (1,965,183)               $ (51,674)
                                                              ============             ============                =========
 Basic Earnings (Loss) Per Share
       Income (loss) from continuing operations                      (0.11)                   (0.06)                       -
       Loss from discontinued operations                             (0.20)                   (0.02)                       -
                                                              ------------             ------------                ---------
       Net Income (loss)                                      $      (0.31)            $      (0.08)               $       -
                                                              ============             ============                =========
 Diluted Earnings (Loss) Per Share
       Income (loss) from continuing operations                      (0.11)                   (0.06)                       -
       Loss from discontinued operations                             (0.20)                   (0.02)                       -
                                                              ------------             ------------                ---------
       Net Income (loss)                                      $      (0.31)            $      (0.08)               $       -
                                                              ============             ============                =========
Weighted average shares outstanding                             31,481,874               25,263,333               23,997,730



 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>

                                                              F-4
<PAGE>
<TABLE>
<CAPTION>
                                                           TSET, INC
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                             YEAR ENDED JUNE 30,
                                                                             --------------------------------------------------
                                                                                  2001              2000               1999
                                                                                                 (RESTATED)          (RESTATED)
                                                                                  ----           ----------          ----------
<S>                                                                          <C>               <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss from continuing operations                                     $ (3,572,558)     $ (1,385,595)         $ (51,674)
     ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
         (USED IN) PROVIDED BY OPERATIONS
         Depreciation and amortization                                            332,528            98,542              1,000
         In-process technology                                                          -           633,229                  -
         Impairment of investment in CDI                                          272,945            50,000                  -
         Common stock issued for compensation/services                            111,973            50,000             10,000
         Cancellation of note payable                                             (22,383)                -                  -
     CHANGE IN
         Accounts receivable                                                        4,648            (4,648)                 -
         Prepaid expenses and other assets                                        (14,426)          (23,253)                 -
         Accounts Payable                                                         300,832            22,213                  -
         Accrued Expenses and other liabilities                                   982,868           271,250             30,150
                                                                             --------------------------------------------------
            NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS               (1,613,573)         (288,262)           (10,524)

CASH FLOWS FROM INVESTING ACTIVITIES
         Purchases of property and equipment                                      (37,507)          (22,712)                 -
         Investment in patent protection                                          (79,697)                -                  -
         Cashed used in discontinued operations                                  (435,823)         (726,225)                 -
                                                                             --------------------------------------------------
            NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                  (553,027)         (748,937)                 -
                                                                             --------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
         Issuance of common stock                                               2,056,270         1,124,125                  -
         Proceeds from short-term borrowings                                      100,000            15,490              7,297
         Deferred finances costs paid                                             (60,000)                -                  -
                                                                             --------------------------------------------------
            NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                 2,096,270         1,139,615              7,297
                                                                             --------------------------------------------------
NET (DECREASE) INCREASE IN CASH                                                   (70,330)          102,413             (3,227)
CASH
     BEGINNING OF PERIOD                                                          102,949               536              3,763
                                                                             --------------------------------------------------
     END OF PERIOD                                                           $     32,619      $    102,949          $     536
                                                                             ==================================================
Supplemental schedule of non-cash investing and financing activities:
Supplemental disclosure of cash flow information:
         Interest paid in cash                                               $          -      $          -          $       -
         Income taxes                                                                   -                 -                  -

         Non-cash investing and financing activities:
                  Deferred financing fees                                    $    460,800      $          -          $       -
                  Debt satisfied with stock                                       516,163                 -                  -
                  Issuance of notes payable                                       213,900                 -                  -
                  Acquisition of subsidiaries with stock                                -         8,106,555                  -
                                                                             ==================================================



 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
</TABLE>

                                                                     F-5
<PAGE>

<TABLE>
<CAPTION>
                                                          TSET, INC
                                        STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


                                                   Common Stock
                                               ---------------------           Capital            Retained       Total
                                                                              in Excess           Earnings     Shareholders'
                                                                                pf Par          (Accumulated     Equity
                                                 Shares        Amount           Value             Deficit)      (Deficit)
                                              ---------------------------------------------------------------------------------
<S>                                            <C>            <C>          <C>              <C>                 <C>
 BALANCE at June 30, 1998                      24,001,730     $ 24,001         $ 41,718     $     (90,847)      $ (25,128)

   Shares certificate cancelled                    (4,000)          (4)                                                (4)

   Net loss for the year ended June                                                               (51,673)        (51,673)
   30, 1999 (Restated)
                                              ---------------------------------------------------------------------------------
 BALANCE at June 30, 1999 (Restated)           23,997,730       23,997           41,718          (142,520)        (76,805)

   Shares reissued from prior year
   cancellation                                     4,000            4                                                  4

   Shares issued on August 31, 1999 to
   acquire the patents and technology
   of the utility meter                           100,000          100           49,900                            50,000

   Shares issued on March 14, 2000 to
   acquire Atomic Soccer USA, Ltd.              1,000,000        1,000        1,805,250                         1,806,250

   Shares issued on March 14, 2000                 37,555           38              (38)                                -

   Shares issued on March 14, 2000 to
   acquire Kronos Air Technologies,
   Inc.                                         2,250,000        2,250        3,344,625                         3,346,875

   Shares issued on for May 9, 2000 to
   acquire EdgeAudio.com, Inc.                  1,298,701        1,299        2,548,701                         2,550,000

   Shares issued on May 9 to acquire
   Cancer Detection International Inc.            180,000          180          353,250                           353,430

   Shares issued on May 19, 2000 as
   compensation                                    14,815           15           49,985                            50,000

   Shares of restricted common stock
   issued on June 30, 2000 for cash               768,860          769        1,123,352                         1,124,121

   Net loss for the year ended June
   30, 2000 (Restated)                                                                         (1,965,183)     (1,965,183)
                                              ---------------------------------------------------------------------------------
   BALANCE at June 30, 2000 (Restated)         29,651,661       29,652        9,316,743        (2,107,703)      7,238,692

   Purchase price adjustment on Cancer
   Detection International, Inc.                  (20,000)         (20)         (39,230)                          (39,250)

   Shares issued on July 20, 2000 for
   cash                                           161,538          161          188,839                           189,000

   Shares issued on August 3, 2000                  5,000            5            6,555                             6,560

   Shares issued to liqudate debt of
   Atomic Soccer USA, Ltd.                        362,259          362          375,981                           376,343

   Shares issued in September 2000 for
   cash                                           832,000          832          831,168                           832,000

   Shares issued in September to
   liquidate TSET, Inc. debt                       42,800           43           42,757                            42,800

   Shares issued on December 8, 2000
   for cash                                       168,492          169           99,831                           100,000

   Shares issued on December 27, 2000
   for cash                                        39,091           39           22,301                            22,340

   Shares issued on January 8, 2001
   for cash                                       687,500          688          399,312                           400,000

   Shares issued on January 12, 2001
   for cash                                        57,693           57           34,943                            35,000

   Shares issued on January 19, 2001
   for cash                                        10,000           10            6,390                             6,400

   Shares issued on January 19, 2001
   for services and compensation                   44,915           45           56,098                            56,143

   Shares issued on March 23, 2001 for
   cash                                           186,302          186          134,814                           135,000

   Shares issued on April 9, 2001 as
   compensation                                     2,000            2            1,768                             1,770

   Shares issued on April 9, 2001 to
   liquidate debt of Atomic Soccer USA Ltd.        97,020           97           96,923                            97,020

   Shares issued in April 2001 for
   cash                                            38,038           38           17,492                            17,530

   Shares issued on May 3, 2001 for
   cash                                            52,778           53           18,947                            19,000

   Shares issued on May 7, 2001 for
   cash                                           891,891          892          299,108                           300,000

   Shares issued on June 14, 2001 as
   compensation                                    50,000           50           47,450                            47,500

   Shares issued on June 29, 2001 as a
   financing fee                                  640,000          640          460,160                           460,800

   Net loss for the year ended June
   30, 2001                                                                                    (9,866,083)     (9,866,083)
                                              ---------------------------------------------------------------------------------
BALANCE at June 30, 2001                       34,000,978     $ 34,001     $ 12,418,350     $ (11,973,785)      $ 478,566
                                              =================================================================================
</TABLE>

                                                                      F-6
<PAGE>

                           TSET, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

         TSET,  Inc.  (formerly,   Technology  Selection,  Inc.),  is  a  Nevada
corporation  (the "Company") and was originally  organized on September 17, 1980
as  Penguin  Petroleum,  Inc.  ("PPI")  under  the  laws of the  State  of Utah.
Stockholders  approved a name  change of the  corporation  on October 6, 1982 to
Petroleum  Corporation  of  America,  Inc. On December  29,  1996,  stockholders
approved a  reorganization  whereby they exchanged  their stock on a one-for-one
basis with  Technology  Selection,  Inc., a Nevada  corporation  ("TSI").  TSI's
shares began trading on the  over-the-counter  bulletin board exchange on August
28, 1996 under the symbol  "TSET." On November 19, 1998, TSI changed its name to
TSET, Inc.

         In March 2000, the Company  purchased Atomic Soccer USA, Ltd.  ("Atomic
Soccer"), a sports apparel manufacturer and distributor.  Atomic Soccer was sold
on April 11, 2001 (See note 15). In March 2000, the Company also acquired Kronos
Air  Technologies,   Inc.  ("Kronos  Air  Technologies")   which  is  developing
applications  for its patent pending air movement and purification  process.  In
May 2000, the Company purchased EdgeAudio.com,Inc. ("EdgeAudio"), a manufacturer
and  distributor  of  home  theater  speaker  systems   incorporating   licensed
DiAural(R) crossover  circuitry.  In May 2000, the Company also purchased Cancer
Detection International ("CDI") which performs state-of-the-art blood laboratory
analysis for the very early detection of cancer

         The Company historically had been seeking select business opportunities
globally  among a wide range of  prospects.  Over the past two years the Company
made several investments,  including Kronos Air Technologies,  Atomic Soccer and
EdgeAudio. After further evaluation of these investments, the Company decided to
only continue with the development of Kronos Air Technologies.  As a result, the
Company has prioritized its management and financial  resources to focus on this
investment opportunity.  In April 2001, the Company sold Atomic Soccer. Further,
the Company has  decided not to pursue its  investment  in CDI and has adopted a
formal plan to dispose of EdgeAudio (See note 15).


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ACCOUNTING  METHOD.  The Company's  financial  statements  are prepared
using the accrual method of accounting. The Company has elected a June 30 fiscal
year end.

         PRINCIPLES OF CONSOLIDATION.  The consolidated  financial statements of
the Company include those of the Company and of each of its subsidiaries for the
periods  in  which  the  subsidiaries  were  owned/held  by  the  Company.   All
significant  intercompany  accounts and transactions have been eliminated in the
preparation  of  the  consolidated  financial  statements.   Atomic  Soccer  and
EdgeAudio are disclosed as discontinued operations in these financial statements
and CDI's carrying value is $0 due to impairment

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

         CONCENTRATIONS  OF  CREDIT  RISK.   Financial   instruments  which  can
potentially  subject  the  Company  to  concentrations  of credit  risk  consist
principally  of trade  receivables.  The Company  manages  its  exposure to risk
through  ongoing  credit  evaluations  of its customers  and generally  does not
require collateral. The Company maintains an allowance for doubtful accounts for
potential losses and does not believe it is exposed to  concentrations of credit
risk  that  are  likely  to have a  material  adverse  impact  on the  Company's
financial position or results of operations.

         CASH AND CASH  EQUIVALENTS.  The Company  considers  all highly  liquid
short-term  investments,  with a remaining maturity of three months or less when
purchased, to be cash equivalents.

         ACCOUNTS  RECEIVABLE.  The Company  provides an allowance for losses on
trade  receivables  based  on  a  review  of  the  current  status  of  existing
receivables and management's evaluation of periodic aging of accounts.  Accounts
receivable  are shown net of  allowances  for doubtful  accounts of $0 and $0 at
June 30, 2001 and June 30, 2000, respectively.  The Company charges off accounts
receivable  against  the  allowance  for losses  when an account is deemed to be
uncollectable.

                                       F-7
<PAGE>

         PROPERTY AND  EQUIPMENT.  Property and  equipment are recorded at cost.
Depreciation  is provided over the estimated  useful lives of the assets,  which
range from three to seven years. Expenditures for major renewals and betterments
that extend the  original  estimated  economic  useful  lives of the  applicable
assets are  capitalized.  Expenditures  for normal repairs and  maintenance  are
charged to expense as incurred. The cost and related accumulated depreciation of
assets sold or otherwise disposed of are removed from the accounts, and any gain
or loss is included in operations.

         INTANGIBLES.   Intangible  assets  include  marketing  intangibles  and
developed and purchased  patent  technology  which are being  amortized  over 10
years.  Patent  technology  represents  acquired patents which are being further
developed to achieve  commercial  viability and generate  revenue.  The carrying
value of intangibles are reviewed whenever circumstances occur that indicate the
carrying values may not be recoverable.

         INCOME TAXES.  Income taxes are  accounted  for in accordance  with the
provisions of SFAS No. 109.  Deferred tax assets and  liabilities are recognized
for  the  future  tax  consequences  attributable  to  differences  between  the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment  date.  Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amounts expected to be realized, but no less than quarterly.

         RESEARCH  AND  DEVELOPMENT  EXPENSES.  Costs  related to  research  and
development are charged to research and development expense as incurred.

         EARNINGS (LOSS) PER SHARE.  Basic earnings (loss) per share is computed
using the weighted average number of shares outstanding. Diluted earnings (loss)
per share is computed using the weighted  average  number of shares  outstanding
adjusted  for the  incremental  shares  attributed  to  outstanding  options and
warrants to purchase common stock, when their effect is dilutive.

         REVENUE  RECOGNITION.  Revenues  from  sales for  EdgeAudio  and Atomic
Soccer are recognized upon shipment of the product to customers. As discussed in
Note 15 -  Discontinued  Operations,  the  operations of Atomic Soccer have been
disposed of and  management  has committed to a formal plan of action to sell or
otherwise  dispose of the  operations  of  EdgeAudio.  Kronos  Air  Technologies
recognizes  revenue on the sale of  non-custom  stock units upon shipment of the
product to customers.  Kronos Air Technologies recognizes revenue on the sale of
custom-designed  contract  sales under the  percentage of  completion  method of
accounting  in the ratio that costs  incurred  to date bear to  estimated  total
costs.  For  uncompleted  contracts  where costs and  estimated  profits  exceed
billings,  the net amount is  included  as an asset in the  balance  sheet.  For
uncompleted contracts where billings exceed costs and estimated profits, the net
amount is included as a liability in the balance  sheet.  Sales are reported net
of applicable cash discounts and allowances for returns.

         STOCK ISSUED FOR SERVICES.  Issuances of shares of the Company's  stock
to employees or  third-parties  for compensation or services is valued using the
closing  market price on the date of grant for  employees  and the date services
are completed for non-employees.

         STOCK  OPTIONS.  The Company  accounts for its stock option plans under
SFAS No. 123 "Accounting for  Stock-Based  Compensation."  As allowed under this
statement,  the Company  continues  to account for stock  options for  employees
under APB No. 25,  "Accounting  for Stock Issued to Employees,"  and has adopted
the disclosure only requirements of SFAS No. 123.  Accordingly,  no compensation
expense has been  recognized  for stock  option  grants to  employees  since the
options have exercise  prices equal to the market value of the stock on the date
of grant.

         OTHER ASSETS.  Deferred  Financing costs associated with a common stock
purchase  agreement  will be ratably  offset  against  the  proceeds as they are
received.

         RECENT  ACCOUNTING  PRONOUNCEMENTS.  On July 20, 2001,  the FASB issued
SFAS No. 141,  "Business  Combinations,"  and SFAS No. 142,  "Goodwill and Other
Intangible  Assets." These statements make significant changes to the accounting
for business combinations, goodwill, and intangible assets.

         SFAS No. 141  establishes  new standards for  accounting  and reporting
requirements for business combinations and will require that the purchase method
of accounting  be used for all business  combinations  initiated  after June 30,
2001. Use of the pooling-of-interests  method will be prohibited. This statement
is effective for business combinations initiated after June 30, 2001.

                                       F-8
<PAGE>

         SFAS No. 142  establishes  new  standards  for  goodwill  acquired in a
business combination, eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. Intangible assets with
a determinable  useful life will continue to be amortized over that period.  The
Company expects to adopt this statement  during the quarter ending September 30,
2002.  Goodwill  and  intangible  assets  acquired  after June 30,  2001 will be
subject immediately to the non-amortization  and amortization  provisions of the
statement.  The Company does not  currently  have any  goodwill  recorded on its
financial  statements and it is expected that there will be no immediate  impact
on the  Company's  financial  statements  as a result  of the  adoption  of this
statement.

         RECLASSIFICATION.  Certain reclassifications have been made to the 2000
financial statements in order to conform to the 2001 presentation.


NOTE 3 - RESTATEMENT

         In  September  2001,  the  Company  determined  that a 1999  employment
agreement  between the Company and its Chief Executive  Officer was not properly
executed under the laws of the State of Nevada (the state of  incorporation.) As
a result, the Company has determined that the employment  agreement was null and
void  from  its  inception.   During  1999  and  2000,  the  Company  recognized
compensation  expense as a result of stock  grants and  contingent  stock grants
under the agreement.  The Company has now  determined  that it is appropriate to
restate  the  1999  and 2000  financial  statements  to  correct  this  error in
previously issued financial statements

         The  effect  of the  change  on the 2000  financial  statements  was to
decrease  compensation  expense and net loss by $892,476  and decrease the basic
and  diluted  loss per share by  $0.03.  The  effect  of the  change on the 1999
financial  statements  was to  decrease  compensation  expense  and net  loss by
$300,000, and decrease the basic and diluted loss per share by $0.01.


NOTE 4 - REALIZATION OF ASSETS

         The accompanying  financial statements have been prepared in conformity
with accounting  principles  generally accepted in the United States of America,
which  contemplate  continuation of the Company as a going concern.  The Company
has  sustained  losses from  operations  in recent  years,  and such losses have
continued through the current year ended June 30, 2001. In addition, the Company
has used, rather than provided cash in its operations.  The Company is currently
using  its  resources  to raise  capital  necessary  to  complete  research  and
development work, and to provide for the working capital needs of itself and its
subsidiaries.

         In  view  of  the  matters   described  in  the  preceding   paragraph,
recoverability of a major portion of the asset amounts shown in the accompanying
balance sheet is dependent  upon continued  operations of the Company,  which in
turn is dependent upon the Company's ability to meet its financing  requirements
on a  continuing  basis,  to maintain  present  financing  and to succeed in its
future  operations.  The  financial  statements  do not include any  adjustments
relating to the  recoverability  and classification of recorded asset amounts or
amounts and  classification  of liabilities  that might be necessary  should the
Company be unable to continue in existence.

         Management has taken the following  steps with respect to its operating
and  financial  requirements,  which it believes are  sufficient  to provide the
Company with the ability to continue in existence:

         1.   In May 2001,  Kronos Air Technologies was awarded a Small Business
              Innovation  Research  contract.  This contract is sponsored by the
              United  States  Navy and is  potentially  worth up to  $837,000 in
              product   development   and   testing   support   for  Kronos  Air
              Technologies.  The  first  phase  of the  contract  is worth up to
              $87,000 in  funding  for  manufacturing  and  testing a  prototype
              device for air movement and ventilation  onboard naval vessels. If
              awarded  to  Kronos  Air  Technologies,  the  second  phase of the
              contract would be worth up to $750,000 in additional funding.  The
              phase two award,  if any, will be announced in December  2001. The
              KronosTM devices manufactured under this contract will be embedded
              in an existing HVAC systems to move air more  efficiently than the
              current fan based technology. This contract is an extension of the
              commercialization   effort  by  Kronos  Air  Technologies  in  the
              specialized military marketplace.

         2.   On  June  19,  2001,  we  entered  into a  common  stock  purchase
              agreement  with Fusion  Capital  pursuant to which Fusion  Capital
              agreed to  purchase  on each  trading  day  during the term of the
              agreement,  $12,500 of our  common  stock or an  aggregate,  under
              certain conditions,  of $10.0 million. The $10.0 million of common
              stock is to be  purchased  over a 40 month  period,  subject  to a
              six-month extension or earlier termination at our discretion.  The

                                       F-9
<PAGE>

              purchase  price of the shares of common stock will be equal to the
              then current  market  price of the common stock  without any fixed
              discount to the market  price.  The  agreement is dependent on the
              Company  registering  the associated  shares and on the ability of
              Fusion Capital to fund the purchase of those shares.  Assuming the
              Company's  share price  remains at current  levels,  the 5 million
              shares that the Company is currently  registering  would allow the
              Company  to  raise  approximately  $1.5  to $2.0  million  without
              registering additional shares.

         3.   On July 2, 2001,  we signed an agreement to utilize the  strategic
              planning and business  plan  execution  services of The Eagle Rock
              Group,  LLC.  The Eagle  Rock  Group will work with the Kronos Air
              Technologies   team  to  fully  develop  and   capitalize  on  the
              Kronos(TM)  technology.  We believe  that The Eagle Rock Group can
              assist  us in  unlocking  the  potential  value of the  Kronos(TM)
              technology.  The Eagle Rock  Group's  multi-disciplined  approach,
              which   uses   seasoned   business    executives   and   leverages
              relationships   and  networks,   can   accelerate  the  Kronos(TM)
              opportunity  versus  the  timing  and  development  if we  were to
              continue  on a  go-it-alone  strategy  or if we were  to work  and
              coordinate  with the myriad of groups  necessary to duplicate  The
              Eagle Rock Group team.  Specifically,  we  initially  envision The
              Eagle Rock Group working to augment and enhance our efforts in the
              following areas (i) capital raising and allocation, (ii) strategic
              partner  introduction and evaluation,  (iii) distribution  channel
              development,  (iv) product focus and brand development,  (v) human
              resource  placement,  and (vi)  capital  market  introduction  and
              awareness. Pursuant to the agreement that we entered into with The
              Eagle  Rock  Group,  we issued to The Eagle  Rock Group a ten-year
              warrant  granting them the right to purchase  1,400,000  shares of
              our common  stock at an  exercise  price of $0.68 per  share.  The
              shares   underlying   the  warrant  have   piggy-back  and  demand
              registration  rights, as well as subscription  rights in the event
              that we issue any rights to all of our  stockholders  to subscribe
              for shares of our common stock. In addition,  the warrant contains
              redemption  rights in the event that we enter  into a  transaction
              that results in a change of control of our company (See note 19).


NOTE 5 - BUSINESS COMBINATIONS

         On March 13, 2000,  the Company  acquired  Kronos Air  Technologies  (a
development stage company),  a Nevada corporation.  Kronos Air Technologies is a
research and development  company having  headquarters  in Redmond,  Washington.
Kronos Air Technologies owns all of the intellectual property rights,  including
certain patents pending, for a technology known as "Kronos(TM)"  (formerly named
the "electron  wind  generator").  The  consideration  for the  acquisition  was
2,250,000  shares of the Company's common stock. The Company acquired all of the
issued and outstanding  shares of Kronos Air  Technologies.  The transaction was
accounted for using the purchase method of accounting,  accordingly, the results
of operations from March 13, 2000 are included in the consolidated  statement of
operations.  The total purchase price of $3.3 million was determined  based upon
the market value of stock  issued which  incorporates  the  restrictions  on the
transferability of the shares and was allocated to the net assets acquired based
on their fair market values at the date of  acquisition.  Of the purchase price,
$633,000  was  allocated  to  in-process   technology   which  had  not  reached
technological feasibility which the Company expensed as of the acquisition date.
The remainder of the purchase price was allocated to purchased  technology ($2.1
million) and identifiable  intangibles ($0.6 million), which are being amortized
on a straight line basis over 10 years.

         On March  6,  2000,  the  Company  acquired  of all of the  issued  and
outstanding shares of Atomic Soccer, a Wisconsin  corporation (See note 15). The
consideration for the acquisition was 1,000,000 shares of TSET common stock. The
transaction was accounted for using the purchase method of accounting. The total
purchase  price of $1.8  million was  determined  based upon the market value of
stock issued which  incorporates the restrictions on the  transferability of the
shares and was allocated to the net assets  acquired  based on their fair market
values  at the date of  acquisition.  The  fair  value  of the  tangible  assets
acquired and liabilities  assumed were $700,000 and $1.6 million,  respectively.
The remainder of the purchase  price was allocated to goodwill  ($2.7  million).
This subsidiary was sold in April 2001 generating a loss of $2.3 million.

         On May 4, 2000, the Company  acquired  EdgeAudio.  The Company acquired
all of  EdgeAudio's  issued and  outstanding  shares in exchange  for  1,298,701
shares of the Company's  common stock.  The  transaction was accounted for using
the purchase method of accounting.  The total purchase price of $2.6 million was
determined  based upon the market value of stock issued which  incorporates  the
restrictions on the  transferability  of the shares and was allocated to the net
assets acquired based on their fair market values at the date of acquisition. At
the time this  acquisition  was  completed,  the purchase price was allocated to
goodwill ($2.6 million) which  management  determined was fully impaired at June
30, 2001.  EdgeAudio is included in the financial  statements as a  discontinued
operation of the Company. The resulting impairment adjustment of $2.3 million is
disclosed as a loss from discontinued operations.

                                      F-10
<PAGE>

         On May 4, 2000, the Company acquired 100% ownership of CDI, in exchange
for 160,000 shares of the Company's  common stock. The transaction was accounted
for using the purchase method of accounting.  The total adjusted  purchase price
of $314,000  was  determined  based upon the market  value of stock issued which
incorporates  the  restrictions  on the  transferability  of the  shares and was
allocated to the net assets  acquired  based on their fair market  values at the
date of  acquisition.  Since CDI is a development  stage  company,  the purchase
price was allocated to goodwill which  management  determined was fully impaired
at June 30, 2001.

         The following table reflects the unaudited proforma combined results of
operations of the Company, Kronos Air Technologies, Atomic Soccer, EdgeAudio and
CDI as if the  acquisitions  had taken place at the beginning of the fiscal year
for each of the periods presented,  excluding the effects of the one time charge
of in-process technology and the reclassifications  resulting from Atomic Soccer
and EdgeAudio as discontinued operations:

                                                   JUNE 30, 2000   JUNE 30, 1999
                                                     (RESTATED)      (RESTATED)
                                                   -------------   -------------
         (In thousands, except per share data)

         Revenue                                    $     960       $     730
                                                    =========       =========
         Net Income (loss)                          $ (2,392)       $ (1,134)
                                                    =========       =========
         Basic earnings (loss) per share            $ ( 0.09)       $(  0.05)
                                                    =========       =========
         Number of shares used in computing
                  basic earnings per share             25,263          24,001
                                                    =========       =========

         In management's  opinion,  the unaudited pro forma combined  results of
operations are not necessarily  indicative of the actual results that would have
occurred  had  the  acquisitions  been  consummated  at  the  beginning  of  the
respective years under the management of the Company.


NOTE 6 - PREPAID AND OTHER CURRENT ASSETS

         Prepaid and other current assets at June 30, consist of the following:

                                               2001                2000
                                        -----------------   -----------------
         Lease deposits                      $  29,110           $  23,253
         Professional retainers                  8,569                   -
                                       ------------------  ------------------
         Prepaid assets                      $  37,679           $  23,253
                                        =================   =================


NOTE 7 - PROPERTY AND EQUIPMENT

         Property and equipment at June 30, consists of the following:

                                                 2001                      2000
                                             ------------------  ---------------
         Leasehold improvements                $     5,139         $        -
         Office furniture and fixtures              54,061             25,216
         Machinery and equipment                     3,522                  -
                                             ----------------    ---------------
                                                    62,722             25,216

         Less accumulated depreciation            (18,015)            (2,197)
                                             ----------------    ---------------
         Net property and equipment            $   44,707          $   23,019
                                             ==================  ===============

         Depreciation  expense  for the years  ended June 30,  2001 and 2000 was
$16,456 and $2,197, respectively.

                                      F-11
<PAGE>

NOTE 8 - INTANGIBLES

         Intangible assets at June 30, consist of the following:

                                                 2001               2000
                                            -----------------  -----------------
           Marketing intangibles              $     587,711      $     587,711
           Purchased patent technology            2,125,935          2,125,935
           Developed patent technology               79,697                  -
           Goodwill                                       -            353,430
                                            -----------------  -----------------
                                                  2,793,343          3,067,076
           Less accumulated amortization          (361,819)           (96,345)
                                            -----------------  -----------------
           Net intangible assets              $   2,431,524      $   2,970,731
                                            =================  =================

         Amortization  expense  for the years  ended June 30,  2001 and 2000 was
$306,709 and $96,345, respectively. The Company recognized an impairment loss of
$272,945 on the goodwill of CDI during 2001.


NOTE 9 - ACCRUED EXPENSES

         Accrued expenses at June 30, consist of the following:

                                               2001             2000 (Restated)
                                         -----------------    ------------------
         Accrued compensation cash         $   238,740          $    35,000
         Accrued compensation stock            241,642                    -
         Deferred compensation                 200,000              180,000
         Accrued interest                       33,423               11,400
         Accrued professional services         420,463               75,000
         Other accruals                        150,000                    -
                                         -----------------    ------------------
                                           $  1,284,268         $   301,400
                                         =================    ==================


NOTE 10 - NOTES PAYABLE

         There are no outstanding notes payable at June 30 that are long-term in
nature.  The current  portion of notes payable  outstanding  at June 30, 2001 of
$313,900  consists of a $100,000  advance from Fusion Capital  against the Stock
Purchase agreement,  which was satisfied subsequent to year end, and $213,900 of
working capital due to EdgeAudio under the EdgeAudio  acquisition agreement (see
Note 17).


NOTE 11 - LEASES

         The  Company  has  entered  into  noncancelable  operating  leases  for
facilities. Rental expense was approximately $53,000 and $12,000 for years ended
June 30, 2001 and 2000, respectively.  Future minimum lease payments under these
operating leases for the years ending June 30, are as follows:

                   Year Ended
                    June 30,        Redmond, WA       Tigard     Total
                 ----------------  ------------  -----------  -----------
                      2002           $   42,670    $   6,900    $  49,570
                      2003               36,633            -       36,633
                   Thereafter                 -            -            -
                                   ------------  -----------  -----------
                      Total          $   79,303    $   6,900    $  86,203
                                   ============  =========== == =========

                                      F-12
<PAGE>

NOTE 12 - EARNINGS (LOSS) PER SHARE

         As of June  30,  2001,  there  were  outstanding  options  to  purchase
1,557,075 shares of TSET common stock. These options have been excluded from the
earnings per share calculation as their effect is anti-dilutive.


NOTE 13 - INCOME TAXES

         The  composition  of deferred tax assets and the related tax effects at
June 30, 2001 and 2000 are as follows:

                                            2001               2000 (Restated)
                                    ----------------------  --------------------
Benefit from carryforward of            $    2,803,890         $       713,373
net operating losses
Other temporary differences                  1,008,189                  80,920
Less:
  Valuation allowance                      (3,812,079)               (794,293)
                                    ----------------------  --------------------
  Net deferred tax asset                $            -         $             -
                                    ======================  ====================

         The other temporary differences shown above relate primarily to loss on
discontinued operations,  impairment reserves for intangible assets, and accrued
and deferred compensation.  The difference between the income tax benefit in the
accompanying  statements of  operations  and the amount that would result if the
U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows:

<TABLE>
<CAPTION>
                                                                       June 30,
                                      ------------------------------------------------------------------------------
                                                      2001                               2000 (Restated)
                                      ------------------------------------  ----------------------------------------
                                             Amount         % of pre-tax              Amount          % of pre-tax
                                                                 Loss                                      Loss
                                      --------------------- --------------- ------------------------ ---------------
<S>                                        <C>                  <C>                 <C>                 <C>
Benefit for income tax at
 federal statutory rate                  $   3,374,793            34.0%           $   668,162             34.0%
Non-deductible expenses                      (357,007)           (3.6)%             (303,665)           (15.5)%
Acquired NOL and other                               -                -               393,054             20.0%
Increase in valuation allowance            (3,017,786)          (30.4)%             (757,551)           (38.5)%
                                      --------------------- --------------- ------------------------ ---------------
                                         $           -             0.0%           $         -              0.0%
                                      ===================== =============== ======================== ===============
</TABLE>

         The  non-deductible  expenses  shown  above  related  primarily  to the
amortization  of  intangible  assets  and to the  accrual of stock  options  for
compensation  using different  valuation methods for financial and tax reporting
purposes.

         At June 30, 2001,  for federal income tax and  alternative  minimum tax
reporting  purposes,  the Company has  approximately  $8.0 million of unused net
operating  losses  available for  carryforward to future years. The benefit from
carryforward  of such net operating  losses will expire in various years between
2011 and 2020 and could be  subject  to  limitations  if  significant  ownership
changes occur in the Company. Of the $8.2 million of unused net operating losses
noted  above,  approximately  $1.1  million  relates to losses  incurred  by the
Company's  subsidiaries,  Atomic Soccer and EdgeAudio.  In fiscal years prior to
June 30, 2000,  Atomic  Soccer and EdgeAudio did not file their tax returns on a
consolidated basis with the Company. Accordingly, the $1.1 million loss incurred
by Atomic Soccer and EdgeAudio is further subject to separate  limitations  that
restrict the ability of the Company to use such losses.


NOTE 14 -- PURCHASED IN PROCESS RESEARCH AND DEVELOPMENT

         Purchased in process  research and development  (IPR&D)  represents the
value assigned in a purchase  business  combination to research and  development
projects  of the  acquired  business  that  had  commenced  but had not yet been
completed at the date of acquisition  and which have no alternative  future use.
In accordance with SFAS No. 2, "Accounting for Research and Development  Costs,"
as clarified by FASB Interpretation No. 4, amounts assigned to IPR&D meeting the
above stated  criteria  must be charged to expense as part of the  allocation of
the purchase price of the business  combination.  Accordingly,  charges totaling
$633,000  were  recorded  during  fiscal 2000 as part of the  allocation  of the
purchase price related to the acquisition of Kronos.

         The method used to determine the purchase  price  allocations  of IPR&D
was an income or cash flow method.  The calculations  were based on estimates of
operating  earnings,   capital  charges  (representing  the  effect  of  capital

                                      F-13
<PAGE>

expenditures),  trade name royalties,  charges for core technology,  and working
capital  requirements to support the cash flows attributed to the  technologies.
The after tax cash flows were  bifurcated to reflect the stage of development of
the technology. A discount rate reflecting the stage of development and the risk
associated  with the  technology was used to value IPR&D.  The Company  believes
there is limited  risk that the projects  described  below will not be concluded
within reasonable proximity to the expected completion date.

         The  allocation  of the  purchase  price  of  Kronos  Air  Technologies
resulted  in the  recording  of an IPR&D  charge  of  $633,000,  which  has been
included in the Kronos Air Technologies  segment.  Projects  associated with the
Kronos(TM)  technology  acquired  include  development  of  the  technology  and
development of devices  incorporating the Kronos(TM)  technology in a full range
of automotive, military,  hospital/medical clinic, medical equipment, hotel, and
home applications.  These projects were approximately 40 percent complete,  with
expected completion in years 2000 through 2004.


NOTE 15 - DISCONTINUED OPERATIONS

         In early January 2001,  management committed to a formal plan of action
to sell or  otherwise  dispose of Atomic  Soccer.  Agreement  was reached with a
buyer group, that included current and former Atomic Soccer management,  to sell
them the  outstanding  shares of common stock of Atomic  Soccer for $1,000.  The
transaction  was  effective on April 11, 2001.  On September  14, 2001 the board
approved a formal plan of action to sell or otherwise dispose of EdgeAudio.  The
Company  has  accrued  $150,000  for  anticipated  operating  loses  during  the
phase-out period. As a result,  both Atomic Soccer and EdgeAudio are included in
the financial statements as discontinued operations.

         The Company's audited consolidated financial statements for all periods
have been reclassified to report separately  results of operations and operating
cash flows from continuing operations and the discontinued  operations.  The net
revenues are included in the financial  statements  under Net Income (Loss) from
Discontinued  Operations.  The assets and  liabilities  of EdgeAudio  and Atomic
Soccer at June 30, 2000 are  included  in the balance  sheet under Net Assets of
Discontinued  Operations and the assets and liabilities of EdgeAudio at June 30,
2001 are included in Net Liabilities of Discontinued  Operations.  Net assets of
discontinued  operations  at June 30,  and  operating  results  of  discontinued
operations for the year ended June 30, are as follows:

<TABLE>
<CAPTION>
                                    Net Assets (Liabilities) of Discontinued Operations
                                                2001                                             2000
                           ----------------------------------------------- --------------------------------------------------
                            Atomic Soccer    Edge Audio        Total       Atomic Soccer    Edge Audio          Total
                           --------------- ---------------- -------------- -------------- -------------- --------------------
<S>                                <C>         <C>            <C>            <C>           <C>                <C>
Current Assets                     $    -      $   294,100    $    294,100   $   739,057   $    24,192        $   763,249
Net Property and Equip                  -           48,835          48,835        66,458        25,090             91,548
Goodwill                                -               -               -      2,617,826     2,554,052          5,171,878
Current Liabilities                     -        (464,788)       (464,788)    (1,258,853)      (88,592)        (1,347,445)
Notes payable                           -                -               -      (176,342)            -           (176,342)
Minority interest                       -        (545,697)       (545,697)             -             -                  -
                           --------------- ---------------- -------------- -------------- -------------- ---------------------
Net Assets (Liabilities)
of discontinued operations         $    -      $ (667,550)    $  (667,550)   $  1,988,146  $  2,514,742        $4,502,888
                           =============== ================ ============== =============== ============= =====================
</TABLE>

                                                                      F-14
<PAGE>

<TABLE>
<CAPTION>
                  Operating Results of Discontinued Operations

                                               2001                                              2000
                         ----------------------------------------------- ------------------------------------------------
                          Atomic Soccer    Edge Audio          Total       Atomic Soccer    Edge Audio        Total
                         --------------- -------------- ---------------- ---------------- -------------- ----------------
<S>                         <C>          <C>              <C>               <C>             <C>            <C>
Sales                       $ 714,464    $    757,100     $   1,471,564     $  292,889      $   13,182     $    306,071
Cost of sales               (512,282)       (381,341)         (893,623)      (248,773)         (7,820)        (256,593)
Depn and amort              (215,398)       (270,071)         (485,469)       (98,138)        (43,289)        (141,427)
General and Admin           (369,058)     (1,107,041)       (1,476,099)      (261,600)       (184,255)        (445,855)
                         --------------- -------------- ---------------- ---------------- -------------- ----------------
Operating income (loss)     (382,274)     (1,001,353)       (1,383,627)      (315,622)       (222,182)        (537,804)
Other Income                      735       (239,858)         (239,123)              -              -                -
Interest expense             (69,232)        (14,968)          (84,200)       (41,784)              -          (41,784)
Provision for asset
  impairment                       -      (2,294,316)       (2,294,316)             -               -                -
Minority interest                  -          154,303           154,303             -               -                -
                         --------------- -------------- ---------------- ---------------- -------------- ----------------
Income (Loss) pre-tax       (450,771)     (3,396,192)       (3,846,963)      (357,406)       (222,182)        (579,588)
Income taxes (benefits)             -               -                 -                                               -
                         --------------- -------------- ---------------- ---------------- -------------- ----------------
Loss from disc'd ops       $(450,771)    $(3,396,192)     $ (3,846,963)     $(357,406)      $(222,182)     $  (579,588)
                         =============== ============== ================ ================ ============== ================

</TABLE>

NOTE 16 - STOCK OPTIONS

         The Company has no formal  stock option plan but has offered as special
compensation  to certain  officers,  directors and third party  consultants  the
granting of non-qualified options to purchase Company shares at the market price
of such shares as of the option grant date. The options  generally have terms of
three to ten years.  The Company granted  non-qualified  stock options  totaling
1,557,075,  0, and 0 shares in the years  ended  June 30,  2001,  2000 and 1999,
respectively.

         The  Company has  elected to follow APB No. 25;  "Accounting  for Stock
Issued to Employees" ("APB 25"), and related  interpretations  in accounting for
its employee  stock  options.  Under APB 25,  because the exercise  price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the  grant,  no  compensation  expense is  recognized.  Pro forma
information  regarding  net  income  per  share is  required  by SFAS  No.  123,
"Accounting  for  Stock-Based  Compensation",  and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that statement.  The fair value of these options was estimated at the date of
grant using  Black-Scholes  option  pricing  model with the  following  range of
assumptions for the year ended June 30, 2001:

                                                          2001
                                                ----------------------
                  Risk free interest rate           4.473% to 4.888%
                  Expected dividend yield                  0%
                  Expected lives                     3 to 10 years
                  Expected volatility                    90.76%

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  Because the Company's  employee stock options have
characteristics  significantly  different  from  those of  traded  options,  and
because changes in the subjective  input  assumptions can materially  affect the
fair value estimate,  in the Company's opinion the existing  available models do
not  necessarily  provide a  reliable  single  measure  of the fair value of the
Company's employee stock options.

         Using the  Black-Scholes  option  valuation model, the weighted average
grant date fair value of options  granted  during the years ended June 30, 2001,
2000 and 1999 was $.65, $0, and $0 per option share, respectively.

         For the purpose of pro forma  disclosures,  the estimated fair value of
the options is amortized over the vesting period.

                                      F-15
<PAGE>

         The Company's pro forma information is as follows (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
                                                               June 30,
                                ---------------------------------------------------------------------
                                         2001                     2000                    1999
                                ---------------------------------------------------------------------
                                                Pro                     Pro                     Pro
                                 Reported      Forma       Reported    Forma       Reported     Forma
                                ----------   ----------   ----------   ---------   ---------  -------
<S>                             <C>          <C>          <C>          <C>         <C>        <C>
Net income (loss)               $  (9,866)   $ (10,642)   $  (1,965)   $ (1,965)   $    (52)  $  (52)
Earnings (loss) per Share:
         Basic                      (0.31)       (0.34)       (0.07)      (0.07)      (0.00)   (0.00)
         Diluted                    (0.31)       (0.34)       (0.07)      (0.07)      (0.00)   (0.00)
</TABLE>

         A  summary  of  the  Company's   stock  option   activity  and  related
information  for the years ended June 30, 2001,  2000 and 1999 is as follows (in
thousands, except per share amounts):
                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                                     Shares          Price
                                                   -------------   -----------
              Outstanding at June 30, 1998                     0      $      -
                   Granted  (1)                                0             -
                   Exercised                                   0             -
                   Cancelled                                   0             -
                                                   -------------    ----------
              Outstanding at June 30, 1999                     0             -
                   Granted                                     0             -
                   Exercised                                   0             -
                   Cancelled                                   0             -
                                                   -------------    ----------
              Outstanding at June 30, 2000                     0             -
                   Granted                                 1,557          0.89
                   Exercised                                   0             -
                   Cancelled                                   0             -
                                                   -------------    ----------
              Outstanding as June 30, 2001                 1,557      $   0.89
                                                       =========      ========

         A summary of options outstanding and exercisable at June 30, 2001 is as
follows (in thousands, except per share amounts):

<TABLE>
                                           Options Outstanding                       Options Exercisable
                             ------------------------------------------------  -------------------------------
<S>       <C>                    <C>           <C>                <C>              <C>            <C>
                                                  Weighted        Weighted                         Weighted
                                                   Average         Average                          Average
             Range of                          Remaining Life     Exercise                         Exercise
          Exercise Prices        Options         (in years)         Price          Options           Price
        -------------------- -------------- ------------------ -------------- --------------- ----------------
          $0.71  -  $1.12          1,557             7.14          $   0.89         1,557            $  0.89
</TABLE>



NOTE 17 - COMMITMENTS AND CONTINGENCIES

         Litigation. On February 2, 2001, we initiated, together with Kronos Air
Technologies,  legal  proceedings  in Clackamas  County,  Oregon against W. Alan
Thompson,  Ingrid T.  Fuhriman,  and Robert L.  Fuhriman  II,  each of whom were
formerly  executive officers and members of the Board of Directors of Kronos Air
Technologies.  This suit alleges, among other things, breach of fiduciary duties
and breach of contract by these  individuals,  and seeks, among other things, an
order from the court referring the dispute to arbitration in accordance with the

                                       F-16
<PAGE>

terms  of  these  individuals'  respective  employment  agreements,  which  were
terminated by us on January 30, 2001, and other  appropriate  equitable  relief.
Arbitration  has been  ordered  and the  arbitrators  selected.  The Company has
agreed to arbitration proceedings in the state of Washington. The parties are in
the process of exchanging and complying with requests for discovery.

         EdgeAudio "Earn-out" provision.  Part of the consideration given by the
Company for  EdgeAudio is related to an earn-out  provision in which the Company
would award $3.75 million of additional common stock of the Company as EdgeAudio
achieves stipulated revenue milestones over a five year period commencing on May
4, 2000. The earn out provides five  cumulative  gross revenue  milestones  that
range between  $1,764,271 and  $22,187,203.  Upon achieving each  milestone,  an
additional $750,000 of TSET common stock will be issued. The share conversion is
to be based on an  average  of the  closing  price  of the  shares  for the five
trading  days  immediately  preceding  the date that the  revenue  milestone  is
achieved.  Through  June  30,  2001,  EdgeAudio  has not  achieved  any of these
milestones.

         Placement agent fee. We have engaged  Dutchess  Advisors Ltd. to act as
our placement agent in connection with the Fusion Capital equity line of credit.
We will pay to Dutchess  Advisors Ltd. a one-time cash fee equal to $75,000 once
we have received $575,000 under the common stock purchase  agreement with Fusion
Capital.

         Income taxes. The company is delinquent in filing its 1997 through 2000
federal and state income tax returns. When filed, these returns could be subject
to review and potential examination by the respective taxing authorities. Should
any of these returns come under examination by federal or state authorities, the
Company's  positions  on  certain  income tax issues  could be  challenged.  The
impact, if any, of the potential future examination cannot be determined at this
time. If the Company's  positions are successfully  challenged,  the results may
have a  material  impact on the  Company's  financial  position  and  results of
operations.


NOTE 18 - SEGMENTS OF BUSINESS

         The Company operates principally in one segment of business: The Kronos
segment  licenses,  manufactures  and distributes air movement and  purification
devices  utilizing  the  Kronos(TM)  technology.  All other  segments  have been
disposed of or discontinued.  Although there are future plans for expansion into
foreign  markets,  in the year ended June 30, 2001, the Company operated only in
the U.S.


NOTE 19 - SUBSEQUENT EVENTS

         On July 2,  2001,  we signed an  agreement  to  utilize  the  strategic
planning and business plan execution  services of The Eagle Rock Group, LLC. The
Eagle  Rock  Group  will work with the  Kronos  Air  Technologies  team to fully
develop and capitalize on the KronosTM technology

         The Eagle Rock Group will work to augment  and  enhance  our efforts in
the following areas (i) capital raising and allocation,  (ii) strategic  partner
introduction  and  evaluation,  (iii)  distribution  channel  development,  (iv)
product focus and brand  development,  (v) human  resource  placement,  and (vi)
capital market introduction and awareness.

         We issued to The Eagle Rock Group a ten-year  warrant granting them the
right to purchase  1,400,000  shares of our common stock at an exercise price of
$0.68 per share.  The shares  underlying the warrant have  piggy-back and demand
registration  rights, as well as subscription  rights in the event that we issue
any  rights to all of our  stockholders  to  subscribe  for shares of our common
stock. In addition,  the warrant contains redemption rights in the event that we
enter into a  transaction  that  results in a change of control of our  company.
During the quarter  ending  September  30, 2001,  the Company  will  recognize a
consulting  expense and an  associated  liability of $837,200 as a result of the
issuance of the warrants. The Company will not recognize shareholder equity from
this transaction until the warrants are exercised.

         On July 7,  2001,  we  entered  into a mutual  release  and  settlement
agreement with Foster & Price and Alex D. Saenz,  pursuant to which our company,
Foster & Price and Mr.  Saenz  mutually and fully  released  each other from all
related claims and  counterclaims  and agreed to the dismissal of the litigation
initiated  by us against  Foster & Price on January  13,  2000.  The  settlement
agreement does not contain any admission of liability or fault by any party. The
parties also agreed,  among other things, to not institute any future litigation
relating  to  the  term  sheet  of  the  previous  relationship.  As  settlement
consideration,  we have  agreed to  deliver  to  Foster & Price  and Mr.  Saenz,
collectively,  a total of 375,000 shares of our common stock. Foster & Price and
Mr. Saenz have agreed to time restrictions on the sale of these shares. Foster &
Price and Mr.  Saenz  have  agreed to  certain  confidential  provisions  and to
indemnify us against  claims  arising out of any dispute  between Foster & Price
and Mr.  Saenz  relating to any  allocation  of shares  between  them as well as
claims brought by persons who are not parties to the settlement agreement.

         As  a  result  of  the  mutual  release  and  settlement,  the  Company
recognized $213,750 of settlement expenses subsequent to year-end. The amount of
the settlement expense was determined based upon the market value of the 375,000
shares on the date of settlement.

                                      F-17
<PAGE>

         On July 20,  2001,  James P.  McDermott  accepted an  appointment  as a
director of the Company. His annual compensation will be 50,000 shares of common
stock of the  Company.  Mr.  McDermott  is  Managing  Director of The Eagle Rock
Group.

         In  September,  2001,  the Company  determined  that a 1999  employment
agreement  between the Company and its Chief Executive  Officer was not properly
executed under the laws of the State of Nevada (the state of  incorporation.) As
a result, the Company has determined that the employment  agreement was null and
void from its  inception.  In October  2001,  Jeffrey D. Wilson  resigned as the
Company's Chairman of the Board and Chief Executive Officer.  Mr. Wilson remains
as a director of the Company.


NOTE 20 - RELATED PARTIES

         The Company has consulting agreements with certain members of the board
of directors who are acting officers of the Company.  The agreements provide for
cash and equity compensation per hour of service provided. At June 30, 2001, the
Company had accrued cash compensation under these agreements of $255,400 and had
granted  options to acquire  354,600  shares at an  exercise  price of $0.96 per
share.


NOTE 21 - QUARTERLY RESULTS (UNAUDITED)

         The Company was inactive from the time that it discontinued  operations
in 1996 until the time it was reactivated in mid-1999 and from inception through
June 30, 2000 it had no significant  revenues from  operations.  Therefore,  the
unaudited  results of operations by quarter for the year ended June 30, 1999 are
not  disclosed.  The  following is a summary of unaudited  results of continuing
operations for the years ended June 30, 2000 and 2001:

<TABLE>
                                                            Gross               Net            Net loss Per
         Fiscal Year Ended                  Sales           Profit             (Loss)          common share
         June 30, 2000:                 --------------  ---------------- ------------------  ---------------
<S>                                      <C>              <C>               <C>                 <C>
         First Quarter                   $           0    $           0     $      (48,841)     $        0.00
         Second Quarter                              0                0            (48,679)              0.00
         Third Quarter,
           as previously reported                    0                0           (675,185)            (0.03)
         Effect of Restatement                       0                0             519,400              0.02
                                         -------------    -------------     ---------------     -------------
         Third Quarter Restated                      0                0           (155,785)            (0.01)
         Fourth Quarter,
           as previously reported                    0                0         (1,505,366)            (0.06)
         Effect of Restatement                       0                0             373,076              0.01
                                         -------------    -------------     ---------------     -------------
         Fourth Quarter Restated                     0                0         (1,132,290)            (0.05)

         Fiscal Year Ended
         June 30, 2001:
         First Quarter                   $           0    $           0     $     (533,126)     $      (0.02)
         Second Quarter                              0                0           (939,302)            (0.03)
         Third Quarter                               0                0           (673,967)            (0.02)
         Fourth Quarter                         95,000           32,500         (1,426,163)            (0.04)
</TABLE>



NOTE 22 - FOURTH QUARTER ADJUSTMENTS

         During the fourth quarter of fiscal 2001, the Company  determined  that
its investment in EdgeAudio was impaired. The Company recognized $2.3 million as
an  impairment  loss.  Also  during the  fourth  quarter  of 2001,  the  Company
determined  that its  investment  in CDI was  impaired.  The Company  recognized
$273,000 as an impairment loss.

                                      F-18
<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         During fiscal 2000, we changed our independent  accountants  from Randy
Simpson,  C.P.A.,  P.C. to Grant Thornton LLP. There were no disagreements  with
Randy Simpson, C.P.A., P.C. on any accounting principles or practices, financial
statement disclosure, or auditing scope or procedures.

                                       21
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Our directors  and executive  officers and their ages as of October 10,
2001, are as follows:

NAME                             AGE          POSITION
----                             ---          --------
Jeffrey D. Wilson                46           Director
Charles D. Strang                79           Director
Richard F. Tusing                44           Director
Daniel R. Dwight                 41           Director
Richard A. Papworth              43           Director; Chief Financial Officer,
                                              Secretary, and
                                              Treasurer
Erik W. Black                    31           Director; Executive Vice President
James P. McDermott               39           Director

         JEFFREY D. WILSON, 46, was appointed Chairman of the Board of Directors
and Chief  Executive  Officer of TSET in April 1999.  On October 10,  2001,  Mr.
Wilson  resigned  as  Chairman  of the Board of  Directors  and Chief  Executive
Officer of TSET,  as well as  Chairman of the Board of  Directors  of Kronos Air
Technologies and EdgeAudio, respectively, pursuant to a mutual agreement between
TSET and Mr.  Wilson.  Mr. Wilson remains a director of TSET. Mr. Wilson has had
extensive international  transactions experience in Asia, Europe, Latin America,
Africa,  and the  U.S.,  having  represented  clients  in a wide  range of joint
venture,  corporate finance,  public and private securities,  regulatory,  asset
acquisition,   licensing,  investment,  technology,  mergers  and  acquisitions,
leveraged buy-out,  and other transactions,  and has assisted clients in gaining
access to foreign  markets and in  government  lobbying  activities.  Mr. Wilson
served as  Chairman of the Board of  Directors  of Kronos Air  Technologies  and
Atomic Soccer since March 2000; Mr. Wilson resigned as Chairman of Atomic Soccer
in November 2000. From 1992-1999,  Mr. Wilson maintained a private international
consulting practice for select clients and engaged in entrepreneurial  ventures.
From 1990-1992,  he served as  international  legal advisor for GGS Co., Ltd., a
Tokyo-based   Japanese   investment   company  (and  including  its  Hong  Kong,
Australian,  Canadian,  and U.S. affiliates),  having primary responsibility for
its international  projects.  From 1982-1990, he engaged in the private practice
of law. Mr. Wilson  received a B.A. from Brigham Young  University in 1979 and a
J.D. from the University of Kansas in 1982,  where he was also associate  editor
of the KANSAS LAW REVIEW and  President of the  International  Law Society.  Mr.
Wilson speaks Japanese fluently.

         CHARLES D. STRANG, 79, has served as a Director of TSET since September
2000 and as a Director of Kronos Air Technologies since January 2001. Mr. Strang
was named National  Commissioner of NASCAR  (National  Association for Stock Car
Racing) in 1998 and  continues  to serve in that  capacity.  In 1989 Mr.  Strang
received  President Bush's American  Vocation Success Award; in 1992 was elected
to the Hall of Fame of the National Marine  Manufacturers  Association;  in 1990
was awarded the Medal of Honor of the Union for International Motorboating;  and
is a life  member of the  Society of  Automotive  Engineers.  He also  currently
serves as a Director of the American Power Boat Association (the U.S.  governing
body  for  powerboat  racing)  and  Senior   Vice-President  of  the  Union  for
International  Motorboating (the world governing body for powerboat racing, with
approximately  60 member  nations).  He joined  Outboard  Marine  Corporation as
Director of Marine  Engineering in 1966, and retired as Chief Executive  Officer
in 1990 and as Chairman in 1993 after a more than  40-year  career in the marine
industry.  Mr. Strang  retired as a Director of Outboard  Marine  Corporation in
1996 and has been retired since that time. Mr. Strang's  accomplishments  during
this   period   include   the   invention   of   the   modern-day    stern-drive
(inboard/outboard)  power  system,  the  evolution of high  horsepower  outboard
motors,  dozens of  patents  in the field of engine  design,  marine  propulsion
devices,  and powerboats,  and the movement of the marine industry to vertically
integrate  engine   manufacturers   with  boat  builders;   these  efforts  have
accelerated the consolidation of the marine industry and the trend to "packaged"
boat and motor marketing. Under his leadership,  Outboard Marine Corporation was
transformed into a  vertically-integrated  producer of complete,  factory-rigged
and -powered boats; his engineering and management leadership has had a lasting,
substantial influence on the marine industry. Mr. Strang graduated with a degree
in mechanical  engineering  from  Polytechnic  University in 1943 and worked for
several years in the aerospace industry (including research and testing projects
on  aircraft  engines)  and  served  on  the  mechanical  engineering  staff  of

                                       22
<PAGE>

Massachusetts  Institute  of  Technology.  He  spent 13  years  with  Kiekhaefer
Corporation  (manufacturer of Mercury outboard motors),  rising from Director of
Research  to  Executive   Vice-President,   and  was  also  proprietor  of  U.S.
Executives,   Inc.,  a  management   consulting   firm,   and   Hydro-Mechanical
Development, an engineering firm.

         RICHARD F. TUSING,  44, has served as a Director of TSET since  October
2000 and as a Director of Kronos Air Technologies since January 2001. Mr. Tusing
has had extensive  experience in developing  new  enterprises,  negotiating  the
licensing of intellectual  property rights, and managing technical and financial
organizations,  and has more than 20 years of business development,  operations,
and consulting experience in the technology and  telecommunications  industries.
He has spent four years in executive management with several emerging technology
companies,  14 years in various  managerial  and  executive  positions  with MCI
Communications Corporation, and three additional years in managerial consulting.
While acting as an independent  management  consultant from 1996 to the present,
Mr. Tusing's experience with emerging  technology  companies includes serving as
Chief Executive  Officer and Chief Technology  Officer for Avalon Media Group (a
turnkey  advertising  services company);  primary  responsibility for technology
planning,  licensing,  and strategic technology  architecture  relationships for
ICU, Inc. (a mobile video conferencing company);  and Executive  Vice-President,
Chief Technology  Officer,  and Director of Entertainment Made Convenient (Emc3)
International, Inc. (a video and data downloading services company). Through his
private  consultancy,  Mr.  Tusing  provides,  among other  things,  managerial,
financial planning,  technical, and strategic planning services. From 1982-1996,
Mr.  Tusing  held  multiple   managerial   and  executive   positions  with  MCI
Communications  Corporation.  From  1994-1996,  he served as MCI's  Director  of
Strategy and Technology,  managing MCI's emerging  technologies division (having
primary  responsibility for evaluating,  licensing,  investing in, and acquiring
third-party  technologies  deemed  of  strategic  importance  to MCI),  and also
oversaw the development of several  early-stage and venture-backed  software and
hardware  companies;  in  this  capacity,  Mr.  Tusing  managed  more  than  100
scientists  and  engineers  developing   state-of-the-art   technologies.   From
1992-1994,  Mr. Tusing founded MCI Metro,  MCI's entree into the local telephone
services   business   and,   as   MCI   Metro's   Managing   Director,   managed
telecommunications operations, developed financial and ordering systems, and led
efforts in designing  its  marketing  campaigns.  From  1990-1992,  he served as
Director  of  Finance  and  Business   Development  for  MCI's  western  region,
overseeing  $1,000,000,000 in annual revenue and a $90,000,000 operating budget.
From 1982-1990, Mr. Tusing held other management and leadership positions within
MCI,   including  service  as  MCI's  Pacific   Division's   Regional  Financial
Controller,  Manager of MCI's Western Region's Information  Technology Division,
and led MCI's National Corporate Financial Systems Development Organization. Mr.
Tusing  received B.S.  degrees in business  management and  psychology  from the
University of Maryland in 1979.

         DANIEL R. DWIGHT,  41, has served as a Director of TSET since  November
2000, and as a Director and Chief Executive  Officer of Kronos Air  Technologies
since January 2001. He has extensive experience in private equity and operations
in a wide variety of high growth and core industrial  businesses.  Mr. Dwight is
currently  an   independent   management   consultant   who  provides   business
development,  strategic  consulting,  financial planning,  merchant banking, and
operational execution services to a wide range of clients. Prior to starting his
consulting  practice,  Mr. Dwight spent 17 years with General Electric including
10 years of operations,  manufacturing, and business development experience with
GE's  industrial  businesses,  and seven years of  international  investment and
private equity experience with GE Capital.  He has had responsibility for over a
$1 billion in merger and acquisition and private equity transactions at GE. Most
recently,  Mr. Dwight  initiated GE Capital's  entry in the Asia private  equity
market.  Between  1995 and 1999,  the Asian  equity  portfolio  grew to  include
consolidations,  leveraged buyouts,  growth capital and minority  investments in
diverse  industries,   including  information   technology,   telecommunications
services,   consumer   products,   services  and   distribution,   and  contract
manufacturing.  Mr. Dwight led deal teams with  responsibility for the execution
of   transactions,   monitoring  of  portfolio   companies  and  realization  of
investments.  Since  1982,  Mr.  Dwight  has  held  other  leadership  positions
domestically and  internationally  with GE Capital,  as well as senior positions
with GE Corporate Business Development  (1989-1992) and GE Corporate Audit Staff
(1984-1987).   His   responsibilities   included   identifying,   analyzing  and
implementing reorganizations,  restructurings,  consolidating acquisitions,  and
divestitures of GE businesses. He also had responsibility for the development of
new business  ventures and  commercialization  of new technologies  strategic to
GE's  industrial  businesses.  Mr.  Dwight holds an MBA in Finance and Marketing
with Honors from the University of Chicago in 1989 and a B.S. in Accounting with
Honors from the University of Vermont in 1982.

         RICHARD A.  PAPWORTH,  43, became a Director of TSET in June 2001,  was
appointed  Chief  Financial  Officer  of TSET in May 2000,  and has  served as a
Director,  Chief  Financial  Officer,  and Treasurer of Kronos Air  Technologies
since January 2001, and as Assistant  Secretary of Kronos Air Technologies since
December  2000.  Mr.  Papworth  has had diverse  finance,  tax,  and  accounting
experience    in   a   range    of    industries,    including    real    estate
development/construction,   software  development,   publishing,   distribution,
financial  institutions,  and  investment  companies.  From  1997-2000,  he  was
Vice-President  and  Controller of the U.S. and European  operations of Wilshire
Financial Services Group, a Portland,  Oregon-based publicly held specialty loan
servicing and investment company with more than $2 billion under management.  In
this capacity,  Mr.  Papworth was responsible for accounting and control system,
financial  reporting  and  analysis,  and  business  decision  support  for  the

                                       23
<PAGE>

worldwide  organization.  From 1996-97,  he was Chief Financial Officer of First
Bank of Beverly Hills, a $550 million banking  subsidiary of WFSG. From 1995-96,
Mr.  Papworth was Treasurer for  Maintenance  Warehouse  America  Corporation in
which capacity he  successfully  negotiated more than $50 million of real estate
and working capital financing, and was responsible for management of Maintenance
Warehouse  America  Corporation's  insurance  program and tax  compliance.  From
1994-95,  he maintained a private management and finance consulting practice for
select clients.  From 1989-94,  Mr. Papworth worked for Morrison Homes, the U.S.
home building  division of U.K.-based George Wimpey Plc., during which period he
held  various  positions  including  Chief  Financial  Officer,  Treasurer,  and
Assistant  Treasurer.  From 1985-89,  he engaged in tax consulting with Deloitte
and Touche,  a Big Five accounting  firm. He received a B.S. in accounting (with
minors in business,  economics, and Spanish) and a Macc (Masters of Accountancy)
with emphasis in tax law, from Brigham Young  University in 1984.  Mr.  Papworth
became licensed as a certified  public  accountant in the State of California in
1987. Mr. Papworth speaks Spanish fluently.

         ERIK W.  BLACK,  31,  became  a  Director  of TSET  in June  2001,  was
appointed Executive  Vice-President - Business  Development of TSET in May 2000,
and also  served as  Chairman of the Board of  Directors  of Atomic  Soccer from
November  2000 until the sale of Atomic  Soccer in April  2001.  Before  joining
TSET,  Mr. Black served from  1997-2000  as a business  and  corporate  strategy
consultant  to the  office  of the  Chairman  on  Funding  Selection,  Inc.,  an
investment  banking and mergers and  acquisitions  company.  He also  developed,
launched,  and  managed GI Bill  Express.com  LLP from  February  1999 until its
acquisition  by  Military.com  in April  2000.  Mr.  Black has also worked as an
e-business  associate  consultant for IBM Global  Services in Phoenix,  Arizona,
from March 1999 until April 2000. In addition, Mr. Black was the sole proprietor
of E.B. Web Designs,  an Internet  development  services and consulting  company
founded in 1998.  Mr. Black  worked as the  communications  coordinator  for the
Synthetic Organic Chemical  Manufacturers  Association in Washington,  D.C. from
1996-97 and as an associate  consultant  for Robert Charles Lesser & Co., a real
estate  consulting  firm, from 1995-96.  He received an M.B.A.  and a Masters of
Information  Management  degrees from Arizona State University in 2000 (where he
received the ASU MBA Kiplinger  Foundation  Prize for  outstanding  scholarship,
service, and contribution,  and served as Vice-President - communications of the
ASU MBA Student Body Association in 1999-2000),  a Global Leadership Certificate
from Thunderbird - The American  Graduate School of International  Management in
2000, and a B.A. from Pomona College in 1995, where he graduated magna cum laude
and was elected to Phi Beta Kappa. Mr. Black speaks Russian fluently.

         JAMES P.  MCDERMOTT,  39,  became a Director of TSET in July 2001.  Mr.
McDermott  has  over 17  years  of  financial  and  operational  problem-solving
experience.  From 1992 through 2000, Mr.  McDermott held various  managerial and
executive positions with PennCorp Financial Group, Inc. and its affiliates. From
1998  through  2000,  Mr.  McDermott  was  Executive  Vice-President  and  Chief
Financial Officer of PennCorp  Financial Group.  While serving in this position,
Mr.  McDermott  was  one-third  of  the  executive   management  team  that  was
responsible  for developing and  implementing  operational  stabilization,  debt
reduction and  recapitalization  plans for the company.  From 1995 through 1998,
Mr. McDermott served as Senior  Vice-President of PennCorp  Financial Group. Mr.
McDermott  worked closely with the Audit  Committee of the Board of Directors on
evaluating the PennCorp's accounting and actuarial practices.  In addition,  Mr.
McDermott was responsible for developing a corporate-wide  technology management
program  resulting in technology  convergence  and cost savings to the company's
technology  budget.  From 1994 through  1998,  Mr.  McDermott was a principal in
Knightsbridge  Capital Fund I, LP, a $92 million investment fund specializing in
leverage-equity acquisitions of insurance and insurance-related  businesses. Mr.
McDermott  was also the founding  Chairman of the  e-business  Internet  service
provider,  Kivex.com,  and a senior manager of one of the world's leading public
accounting  firms,  KPMG.  Mr.  McDermott  received  a B.S.  Degree in  Business
Administration from the University of Wisconsin, Madison.

DIRECTORS

         Our Board of Directors  consists of eight seats.  Directors serve for a
term of one year and stand for election at our annual  meeting of  stockholders.
Four  of  our  current  directors  were  reelected  at  our  annual  meeting  of
stockholders  held on December  15,  2000,  and two  additional  directors  were
appointed in June 2001. One vacancy  currently  exists on the Board of Directors
as of the date of this filing.  Pursuant to our Bylaws,  a majority of directors
may appoint a successor to fill any vacancy on the Board of  Directors.  Richard
A. Papworth, our Chief Financial Officer,  Secretary, and Treasurer, and Erik W.
Black, our Executive  Vice-President - Business Development,  are also executive
officers of TSET. James P. McDermott,  a principal of The Eagle Rock Group, LLC,
was nominated to our Board of Directors in July 2001.


ADVISORY BOARD

         We established  an Advisory Board in July 2001 to assist  management in
the development of long-range business plans for our Company. Currently, William
Poster is the sole Advisory Board Member. Mr. Poster is a seasoned  entrepreneur
with a successful track record as a founder of several businesses  spanning five

                                       24
<PAGE>

continents.  Mr. Poster has experience in developing  business  opportunities in
the United States, Europe, Asia and the Middle East. Mr. Poster recently stepped
down  as  President  of  Computer  Systems  &  Communications   Corporation,   a
wholly-owned  subsidiary of General Dynamics.  Computer Systems & Communications
Corporation is a  cutting-edge  communications  and technology  company that Mr.
Poster founded and later sold to General Dynamics.

         We will continue to evaluate  additional  potential  candidates for our
Advisory Board.


COMMITTEES

         On  September   11,  2001,   the  Board  of  Directors   established  a
Compensation  Committee  consisting of two  independent  members of the Board of
Directors.  The Compensation  Committee and Chairman will be designated annually
by the Board of Directors.  The Compensation Committee is charged with reviewing
and making  recommendations  concerning  TSET's general  compensation  strategy,
reviewing   salaries  for  officers,   reviewing  employee  benefit  plans,  and
administering TSET's stock incentive plan, once adopted or implemented.


COMPENSATION OF DIRECTORS

         CASH COMPENSATION.  Our Bylaws provide that, by resolution of the Board
of  Directors,  each  director may be  reimbursed  his expenses of attendance at
meetings of the Board of Directors;  likewise, each director may be paid a fixed
sum or receive a stated salary as a director. As of the date of this prospectus,
no  director  receives  any salary or other form of cash  compensation  for such
service. No director is precluded from serving our Company in any other capacity
and receiving compensation from us in connection therewith.

         SHARE-BASED COMPENSATION. Each director is entitled to receive annually
50,000 restricted shares of our common stock, either granted as shares or in the
form of fully-vested  options,  as compensation for their services as members of
our Board of  Directors.  The  Chairman of our Board of Directors is entitled to
receive annually an additional 50,000 shares of our common stock, either granted
as  shares  or in the form of  fully-vested  options,  as  compensation  for his
services  as  Chairman  of our  Board  of  Directors.  As of the  date  of  this
prospectus,  Messrs.  Wilson and Strang  have been  granted  200,000  and 50,000
options,  respectively as compensation for Mr. Wilson's  services as Chairman of
our Board of  Directors  and Mr.  Strang's  services as a member of our Board of
Directors. Messrs. Tusing and Dwight have each been granted 50,000 shares of our
common  stock as  compensation  for their  services  as  members of our Board of
Directors.


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

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  our
directors  and  executive  officers,  and  persons  who own  more  than 10% of a
registered  class of our  equity  securities  to file  with the  Securities  and
Exchange  commission  initial  reports of  ownership  and  reports of changes in
ownership  of  Common  Stock  and  other  of our  equity  securities.  Officers,
directors and greater than 10%  shareholders  are required by SEC regulations to
furnish us copies of all Section 16(a) forms they file.

         To our  knowledge,  based  solely  on a review  of the  copies  of such
reports furnished to us and written  representations  that no other reports were
required  during the fiscal year ended June 30, 2001,  all Section  16(a) filing
requirements  applicable  to  our  officers,  directors  and  greater  than  10%
beneficial owners were complied with.

                                       25
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

         The following table sets forth  compensation  for the fiscal year ended
June 30, 2001 for our executive officers:

<TABLE>
<CAPTION>
                                               SUMMARY COMPENSATION TABLE

                                         ANNUAL COMPENSATION                                   LONG-TERM COMPENSATION
                           -------------------------------------------------  -----------------------------------------------------
                                                                                          AWARDS                      PAYOUTS
                                                                              -----------------------------------------------------
                                                                               RESTRICTED     SECURITIES                    ALL
                                                                  OTHER           STOCK       UNDERLYING       LTIP        OTHER
                                       SALARY      BONUS       COMPENSATION      AWARDS      OPTIONS/SAR'S   PAYOUTS   COMPENSATION
NAME AND PRINCIPAL          YEAR         $           $              $               $              #            $             $
FISCAL POSITION
(A)                         (B)         (C)         (D)            (E)             (F)            (G)          (H)           (I)
------------------------- --------- ----------- ----------- ----------------- ------------ --------------- ---------- -------------
<S>                            <C>   <C>          <C>                <C>        <C>              <C>               <C>           <C>
Jeffrey D. Wilson,             2001     180,000          --            12,000           --       600,000(2)        --            --
    Chairman of the            2000  155,000(3)   30,000(4)          2,670(5)   700,000(6)          700,000        --            --
    Board of Directors         1999   25,000(3)          --                --      300,000               --        --            --
    and Chief
    Executive
    Officer(1)


Richard A. Papworth,           2001     120,000          --             2,000           --       448,475(8)        --            --
    Chief Financial            2000   10,000(7)          --                --    50,000(9)               --        --            --
    Officer                    1999          --          --                --           --               --        --            --



Erik W. Black,                 2001     100,000          --             6,000           --       50,000(10)        --            --
    Executive Vice             2000   4,167(11)          --         4,500(12)           --               --        --            --
    President -                1999          --          --                --           --               --        --            --
    Business
    Development
</TABLE>

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

(1)      Effective  October 10,  2001,  Mr.  Wilson  resigned as Chairman of the
         Board of Directors  and Chief  Executive  Officer of TSET pursuant to a
         mutual agreement between TSET and Mr. Wilson.

(2)      Mr. Wilson was granted 350,000 options  pursuant to a letter  agreement
         dated April 10, 2001 amending Mr. Wilson's employment agreement,  dated
         April 16, 1999.  125,000 options were fully vested as of April 10, 2001
         and the remaining  225,000 options were to vest upon the achievement of
         certain performance objectives.  The exercise price was equal to $0.885
         per share, which was the closing price of our Company's common stock as
         quoted on the  Over-the-Counter  Bulletin Board on April 9, 2001.  TSET
         has  determined  that the options to purchase  350,000 shares of common
         stock granted to Mr. Wilson  pursuant to the letter  agreement are void
         as of April 10, 2001, the effective date of the letter  agreement.  Mr.
         Wilson was granted 50,000  options on April 9, 2001.  These options are
         fully  vested and the exercise  price is equal to $0.885 per share.  In
         addition,  Mr. Wilson,  was granted  200,000 options on May 3, 2001, in
         connection  with his service as Chairman of the Board of  Directors  in
         1999 and 2000. These options are fully vested and the exercise price is
         equal to $0.71 per  share.

(3)      Mr.  Wilson's  1999  salary of  $25,000  consisted  of  two  months  at
         $12,500.  Mr. Wilson's 2000 salary of $155,000  consisted of ten months
         at $12,500 and two months at $15,000.  Mr.  Wilson  deferred all salary
         during  fiscal  years 1999 and 2000 and was  entitled  to  receive  12%
         annual  interest on all  deferred  amounts.  Pursuant  to an  agreement
         between TSET and Mr. Wilson  effective  October 10, 2001, TSET issued a
         promissory  note in the amount of $350,000 and will pay $30,000 in cash
         within  sixty days of October 15,  2001,  which  represents  all of Mr.
         Wilson's  accrued salary,  bonus and interest.  In addition,  TSET will
         also pay Mr. Wilson his unpaid reimbursable expenses.

4)       Under the terms of his employment agreement, Mr. Wilson  was to receive
         a cash bonus of $30,000 on or before May 1, 2000;  however,  Mr. Wilson
         deferred  his cash bonus  during  fiscal year 2000 and was  entitled to
         receive 12% annual interest on all deferred  compensation.  Pursuant to
         an agreement  between TSET and Mr. Wilson dated October 10, 2001,  TSET
         issued a promissory note in the amount of $350,000 and will pay $30,000
         in cash within sixty days of October 15, 2001,  which represents all of
         Mr. Wilson's accrued salary, bonus and interest. In addition, TSET will
         pay Mr. Wilson his unpaid reimbursable expenses.

(5)      Mr. Wilson was entitled to an automobile allowance of $1,000 per month,
         of which $2,670 was received in fiscal year 2000.

(6)      As a signing bonus to his employment  agreement,  Mr. Wilson's nominee,
         The Pangaea  Group LLC,  received  1,000,000  restricted  shares of our
         common stock.  Such stock vested at a rate of 100,000  shares per month
         over a 10-month period;  700,000 shares vested during fiscal year 2000.
         The $700,000 value was obtained by  multiplying  the vested shares with
         the closing  market price of our  unrestricted  common stock ($1.00 per
         share)  on  the  date  such  shares  were  granted  (April  20,  1999).
         Notwithstanding   the  above   calculation,   we  expensed  such  stock
         transaction  at a value of  $300,000,  or  $0.30  per  share.  TSET has
         determined that the issuance of the 1,000,000 shares of common stock is
         void  as of  April  16,  1999,  the  effective  date  of  Mr.  Wilson's
         employment agreement.

(7)      Mr. Papworth  joined  our  Company  in  May 2000.  He   is  compensated
         $120,000  annually.

(8)      Mr. Papworth  was granted  an option  to  purchase  398,475  restricted
         shares of our common stock pursuant to a letter  agreement  dated April
         10, 2001 amending Mr. Papworth's  employment  agreement,  dated May 19,
         2000.  The  options  were  fully  vested as of April  10,  2001 and the
         exercise  price is equal to $0.885  per  share,  which was the  closing
         price of our common  stock as quoted on the  Over-the-Counter  Bulletin
         Board on April 9, 2001. In addition,  Mr.  Papworth was granted  50,000
         options  on April 9,  2001.  These  options  are fully  vested  and the
         exercise price is equal to $0.885 per share.

(9)      As a signing bonus to his employment  agreement, Mr. Papworth  received
         14,815  restricted  shares of our common  stock.  The $50,000  value is
         determined  by  multiplying  the number of such shares with the closing
         market price of our  Company's  unrestricted  common stock  ($3.374 per
         share) on the date such shares were granted (May 19, 2000).

(10)     Mr. Black was  granted 50,000  options on April 9, 2001. These  options
         are fully vested and the exercise price is equal to $0.885 per share.

(11)     Mr. Black joined  our Company in May 2000. He is  compensated  $100,000
         annually, of which $4,167 was received in fiscal year 2000.

(12)     Mr.  Black is entitled to an  automobile  allowance of  $500 per month,
         and a one-time  relocation  allowance  of $5,000,  of which  $4,500 was
         received in fiscal year 2000.

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                AGGREGATED OPTIONS/SAR EXERCISES
                                                     IN LAST FISCAL YEAR AND
                                              FISCAL YEAR END OPTIONS/SAR VALUES(1)

                                                                          NUMBER OF SECURITIES     VALUE OF UNEXERCISED
                                       SHARES                            UNDERLYING UNEXERCISED        IN-THE-MONEY
                                    ACQUIRED ON             VALUE           OPTIONS/SAR'S AT         OPTIONS/SAR'S AT
             NAME                     EXERCISE          REALIZED ($)       FISCAL YEAR END(1)       FISCAL YEAR END(2)
-------------------------------- ------------------ ------------------ -------------------------- -----------------------
<S>                                      <C>                <C>          <C>            <C>                   <C>
Jeffrey D. Wilson                        -0-                -0-          Exercisable:   375,000(4)            $0
Chairman of the Board of                                                 Unexercisable: 225,000(4)            $0
Directors and
Chief Executive Officer(3)

Richard A. Papworth                      -0-                -0-          Exercisable:     448,475             $0
Chief Financial Officer                                                  Unexercisable:         0             $0

Erik W. Black                            -0-                -0-          Exercisable:      50,000             $0
Vice-President                                                           Unexercisable:         0             $0
Business Development
</TABLE>
---------------------------------

(1)      These grants represent  options to purchase common stock. No SAR's have
         been granted.


(2)      The value of the  unexercised  in-the-money  options were calculated by
         determining the difference  between the fair market value of the common
         stock  underlying  the options and the exercise price of the options as
         of June 30, 2001.


(3)      Effective  October 10,  2001,  Mr.  Wilson  resigned as Chairman of the
         Board of Directors  and Chief  Executive  Officer of TSET pursuant to a
         mutual agreement between TSET and Mr. Wilson.


(4)      TSET has  determined that  the options  to purchase  350,000  shares of
         common stock  granted to Mr.  Wilson  pursuant to the Letter  Agreement
         dated April 10, 2001 are void as of the April 10, 2001,  the  effective
         date of the Letter  Agreement.  Of these  options to  purchase  350,000
         shares of common stock,  options to purchase  125,000  shares of common
         stock were exercisable at fiscal year end 2001 and 225,000 options were
         unexercisable at fiscal year end 2001.



<TABLE>
<CAPTION>
                                                    OPTION/SAR GRANTS TABLE

                                                           % TOTAL
                                 NO. OF SECURITIES       OPTIONS/SAR'S
                                    UNDERLYING            GRANTED TO
                                   OPTIONS/SAR'S       EMPLOYEES IN FISCAL    EXERCISE OR BASE PRICE
             NAME                   GRANTED (#)            YEAR (%)               ($ PER SHARE)          EXPIRATION DATE
------------------------------ -------------------- ----------------------- ------------------------- ---------------------
<S>                               <C>                         <C>                     <C>                 <C>
Jeffrey D. Wilson                     50,000                   4.6%                   $0.885              April 9, 2006
Chairman of the Board of          350,000(2)                  31.9%                   $0.885              April 9, 2011
Directors and                        200,000                   1.8%                   $0.710                May 3, 2011
Chief Executive Officer(1)

Richard A. Papworth                   50,000                   4.6%                   $0.885              April 9, 2006
Chief Financial Officer              398,475                  36.3%                   $0.885              April 9, 2011

Erik W. Black                         50,000                   4.6%                   $0.885              April 9, 2006
Vice-President
Business Development
</TABLE>

---------------------------------
(1)      Effective  October 10,  2001,  Mr.  Wilson  resigned as Chairman of the
         Board of Directors  and Chief  Executive  Officer of TSET pursuant to a
         mutual agreement between TSET and Mr. Wilson.


(2)      TSET  has  determined  that the options  to purchase  350,000 shares of
         common stock  granted to Mr.  Wilson  pursuant to the Letter  Agreement
         dated April 10, 2001 are void as of April 10, 2001,  the effective date
         of the Letter Agreement.



STOCK OPTION PLANS

         As of the date of this filing,  we have not adopted or implemented  any
stock option plan.

                                       27
<PAGE>

EMPLOYMENT AGREEMENTS

         The Employment  Agreement of Jeffrey D. Wilson,  our Chairman and Chief
Executive  Officer,  is  effective  as of April 20,  1999 and  continues  for an
"evergreen"  term of five years  unless Mr.  Wilson  provides  at least 60 days'
prior written notice of his resignation.  Such agreement  provides for base cash
compensation  during the first  12-month  period in the  amount of  $12,500  per
month,  plus a cash bonus in the amount of $30,000 to be paid in one lump sum on
or before May 1, 2000. During the second 12-month period, Mr. Wilson's base cash
compensation  increases  to  $15,000  per month,  and during the third  12-month
period such base cash  compensation  increases to $20,000 per month.  Mr. Wilson
has deferred  all cash and bonus  compensation  from April 1999  through  August
2000;  however,  commencing in September  2000, Mr. Wilson began  receiving cash
compensation  in the  amount of  $17,500  per  month,  approved  by the Board of
Directors,  in consideration of his previous deferral of such  compensation.  We
are  obligated to pay  interest at the rate of 12% annually on all  compensation
deferred  by Mr.  Wilson  until all such  amounts  have  been paid in full.  Mr.
Wilson's  nominee,  The Pangaea Group,  LLC, received a signing bonus of 100,000
fully vested and  non-forfeitable  restricted  shares of our common  stock;  The
Pangaea  Group,  LLC received an  additional  900,000  restricted  shares of our
common  stock,  which  vested at the rate of  100,000  shares per month over the
9-month period following Mr. Wilson's  acceptance of the terms of his employment
agreement. As of the date of this prospectus,  all such shares are fully vested.
Mr. Wilson will be entitled to fully  participate  in any and all 401(k),  stock
option, stock bonus, savings, profit-sharing, insurance, and other similar plans
and benefits of employment;  however, as of the date of this prospectus, we have
not  adopted  or  implemented  any  such  plans.   Mr.  Wilson  has  "piggyback"
registration  rights with respect to all restricted shares owned by him, as well
as "demand"  registration  rights with  respect  thereto  exercisable  two times
during each 5-year term of his employment. The cost of exercising such piggyback
and  demand  registration  rights  shall be borne by us.  As of the date of this
prospectus, Mr. Wilson has not exercised such registration rights. Mr. Wilson is
entitled to be indemnified,  defended,  and held harmless by us from and against
any and all costs, losses,  damages,  penalties,  fines, or expenses (including,
without  limitation,  reasonable  attorneys'  fees,  court costs, and associated
expenses) suffered, imposed upon, or incurred by him in any manner in connection
with his service as our Chairman and Chief Executive Officer.

         On April 10, 2001, we entered into a Letter  Agreement  with Mr. Wilson
amending Mr. Wilson's  Employment  Agreement.  Pursuant to the Letter Agreement,
Mr. Wilson waived the  anti-dilution  provision of his  Employment  Agreement in
consideration  for options to purchase  350,000 shares of our restricted  common
stock. The option to purchase 125,000 shares of common stock was fully vested as
of  April  10,  2001 and the  remaining  225,000  share  option  vests  upon the
achievement  of certain  performance  objectives.  The  exercise  price of these
options is equal to $0.885 per share,  which was the closing price of our common
stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001.

         In September 2001, TSET determined that, among other things,  our Board
of  Directors  never  validly  approved  Mr.  Wilson's   Employment   Agreement.
Accordingly,  TSET has determined that Mr. Wilson's Employment Agreement and the
Letter Agreement are null and void from their inception. As a consequence,  TSET
has determined that the issuance of 1,000,000 shares of common stock pursuant to
Mr. Wilson's  Employment  Agreement and the grant of options to purchase 350,000
shares of common  stock  pursuant  to the  Letter  Agreement  are void as of the
effective dates of the Employment Agreement and Letter Agreement,  respectively,
and that these  shares of common  stock and  options are treated as if they were
never issued or granted,  as the case may be.  Effective  October 10, 2001,  Mr.
Wilson  resigned  as  Chairman  of the Board of  Directors  and Chief  Executive
Officer of TSET. Mr. Wilson remains as a director of TSET.


EMPLOYMENT AGREEMENTS WITH OTHER NAMED EXECUTIVE OFFICERS

         Richard A. Papworth,  our Chief  Financial  Officer,  has an Employment
Agreement  effective as of May 19, 2000, which continues for an "evergreen" term
of two years,  unless Mr.  Papworth  provides  at least 90 days'  prior  written
notice of his resignation. Mr. Papworth's Employment Agreement provides for base
cash compensation in the amount of $10,000 per month, a signing bonus of $50,000
worth of fully vested and non-forfeitable restricted shares of our common stock,
plus a year-end  bonus  payable in cash and  additional  shares,  in a "blended"
amount to be determined.  Mr. Papworth will be entitled to fully  participate in
any  and  all  401(k),  stock  option,  stock  bonus,  savings,  profit-sharing,
insurance,  and other similar plans and benefits of employment;  however,  as of
the date of this prospectus,  we have not adopted or implemented any such plans.
Mr.  Papworth is entitled to be indemnified,  defended,  and held harmless by us
from and  against  any and all costs,  losses,  damages,  penalties,  fines,  or
expenses  (including,  without  limitation,  reasonable  attorneys'  fees, court
costs, and associated  expenses)  suffered,  imposed upon, or incurred by him in
any manner in connection with his service as our Chief Financial Officer.

         On April 10, 2001, we entered into a Letter Agreement with Mr. Papworth
amending Mr. Papworth's Employment Agreement.  Pursuant to the Letter Agreement,
Mr. Papworth waived the anti-dilution  provision of his Employment  Agreement in
consideration  for an option to purchase 398,475 shares of our restricted common
stock.  The option was fully vested as of April 10, 2001 and the exercise  price
is equal to $0.885 per share, which was the closing price of our common stock as
quoted on the Over-the-Counter Bulletin Board on April 9, 2001.


EXECUTIVE SEVERANCE AGREEMENTS

         The Employment  Agreement of Jeffrey D. Wilson,  our Chairman and Chief
Executive  Officer,  provides that upon the occurrence of any "change of control
transaction" (as defined  therein),  any shares of our common stock to which Mr.
Wilson is entitled through any directors'  compensation,  stock option, or other
stock ownership plan shall immediately vest and, if such transaction  results in
termination  of his  employment,  Mr. Wilson will be entitled to receive all the
compensation and benefits of employment that he would have received for the full
term  of his  employment  but for  such  termination  (i.e.,  given  the  5-year
"evergreen"  term of his  employment,  Mr. Wilson would  therefore  receive five
years' worth of such compensation), the immediate vesting of shares in any stock
option or other stock ownership plan, and the immediate  vesting of all matching
contributions  made  by us in any  401(k),  savings,  profit-sharing,  or  other
similar plan or benefit program (such  entitlement  also applies in the event of
any  termination  of Mr.  Wilson's  employment  for reasons  other than  certain
"termination events" described in his Employment Agreement). For purposes of Mr.
Wilson's Employment  Agreement,  a change in control transaction is defined as a
merger,  sale,  share  exchange,  consolidation,  change  of  control,  or other
acquisition of TSET. In September 2001, TSET determined  determined  that, among
other  things,  our Board of  Directors  never  validly  approved  Mr.  Wilson's
Employment  Agreement.  Accordingly,  TSET  has  determined  that  Mr.  Wilson's
Employment  Agreement  and the  Letter  Agreement  are null and void from  their
inception. As a consequence,  TSET has determined that the issuance of 1,000,000
shares of common stock  pursuant to Mr.  Wilson's  Employment  Agreement and the
grant of options to  purchase  350,000  shares of common  stock  pursuant to the
Letter Agreement are void as of the effective dates of the Employment  Agreement
and Letter  Agreement,  respectively,  and that these shares of common stock and
options will be treated as if they were never issued or granted, as the case may
be.

         The Employment  Agreement of Richard A. Papworth,  our Chief  Financial
Officer, provides that upon the occurrence of any transaction involving a change
of control of TSET pursuant to which his employment is terminated, any shares of
our common stock to which Mr.  Papworth is entitled  through any stock option or
other stock  ownership  plan shall  immediately  vest and Mr.  Papworth  will be
entitled to receive all the  compensation  and  benefits of  employment  that he
would have received for the full term of his employment but for such termination
(i.e., given the 2-year  "evergreen" term of his employment,  Mr. Papworth would
therefore receive two years' worth of such compensation),  the immediate vesting
of shares in any stock option or other stock  ownership  plan, and the immediate
vesting  of  all  matching  contributions  made  by us in any  401(k),  savings,
profit-sharing, or other similar plan or benefit program.

         As of the  date of  this  filing,  we have  not  adopted  any  separate
executive severance agreements.


COMPARATIVE STOCK PERFORMANCE

         The  following  table  compares  the  performance  of our common  stock
against  the  Russell  2000 and the  Nasdaq  Non-Financial  Index for the period
commencing on June 17, 1999 and ending on June 30, 2001.

         The table  assumes  that $100 was  invested  on June 17,  1999 and that
dividends were reinvested.

                      COMPARISON OF CUMULATIVE TOTAL RETURN
                                AMONG TSET, INC.,
               THE RUSSELL 2000 AND THE NASDAQ NON-FINANCIAL INDEX
                                   JUNE 17,                 JUNE 30,
                                 -----------------------------------------------
                                     1999       1999        2000           2001
                                 -----------------------------------------------
TSET, Inc.                           $100       $91.67      $350.00       $96.00
Russell 2000                         $100      $103.35      $118.15      $118.92
Nasdaq Non-Financial Index           $100      $105.74      $163.61       $83.37

                                       28
<PAGE>

ITEM 12.  SECURITY OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  presents  certain   information   regarding  the
beneficial  ownership of all shares of common stock at October 10, 2001 for each
executive  officer and  director of our company and for each person  known to us
who owns  beneficially  more than 5% of the  outstanding  shares  of our  common
stock. The percentage ownership shown in such table is based upon the 33,643,695
common shares issued and  outstanding at October 10, 2001 and ownership by these
persons of options or  warrants  exercisable  within 60 days of such date.  Also
included  is  beneficial   ownership  on  a  fully  diluted  basis  showing  all
authorized,  but  unissued,  shares of our common  stock at October  10, 2001 as
issued and outstanding.  Unless otherwise indicated, each person has sole voting
and investment power over such shares.

                                                           COMMON STOCK
                                                       BENEFICIALLY OWNED
                                               ---------------------------------
NAME AND ADDRESS                                       NUMBER            PERCENT
---------------------------------              ---------------------------------
Jeffrey D. Wilson                                  300,000(1)               0.9%
333 South State Street
PMB 111
Lake Oswego, OR 97034
Charles D. Strang                                  100,000(2)               0.3%
333 South State Street
PMB 111
Lake Oswego, OR 97034
Richard F. Tusing                                  352,600(3)               1.0%
333 South State Street
PMB 111
Lake Oswego, OR 97034
Daniel R. Dwight                                   345,800(4)               1.0%
333 South State Street
PMB 111
Lake Oswego, OR 97034
Richard A. Papworth                                463,290(5)               1.4%
333 South State Street
PMB 111
Lake Oswego, OR 97034
Erik W. Black                                      172,699(6)               0.5%
333 South State Street
PMB 111
Lake Oswego, OR 97034
All Officers and Directors of TSET               1,734,389(7)               4.9%


(1)      Includes options to purchase 300,000 shares of common stock that can be
         acquired within sixty days of October 10, 2001.
(2)      Includes options to purchase 100,000 shares of common stock that can be
         acquired within sixty days of October 10, 2001.
(3)      Includes options to purchase 302,600 shares of common stock that can be
         acquired within sixty days of October 10, 2001.
(4)      Includes options to purchase 295,800 shares of common stock that can be
         acquired within sixty days of October 10, 2001.
(5)      Includes options to purchase 448,475 shares of common stock that can be
         acquired within sixty days of October 10, 2001.
(6)      Includes  options to purchase 50,000 shares of common stock that can be
         acquired within sixty days of October 10, 2001.
(7)      Includes options to purchase  1,496,875 shares of common stock that can
         be acquired within sixty days of October 10, 2001.

         We are  unaware of any  arrangement  or  understanding  that may,  at a
subsequent date, result in a change of control of our company.

                                       29
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         We believe that all prior related party  transactions have been entered
into upon terms no less  favorable to us than those that could be obtained  from
unaffiliated  third parties.  Our reasonable  belief of fair value is based upon
proximate  similar  transactions  with third  parties or  attempts to obtain the
consideration from third parties.  All ongoing and future transactions with such
persons,  including any loans or compensation to such persons,  will be approved
by a majority of disinterested members of the Board of Directors.

         In  connection  with his  Employment  Agreement,  Jeffrey  D.  Wilson's
nominee,  The Pangaea Group LLC, received a signing bonus of 100,000  restricted
shares of our common  stock;  such shares were fully vested and  non-forfeitable
upon issuance. In addition, The Pangaea Group LLC received an additional 900,000
restricted shares of our common stock, vesting at the rate of 100,000 shares per
month over the 9-month  period  ended  January  2000.  In September  2001,  TSET
determined  that,  among other  things,  our Board of  Directors  never  validly
approved Mr. Wilson's  Employment  Agreement.  Accordingly,  TSET has determined
that Mr. Wilson's Employment agreement is null and void from its inception. As a
consequence, TSET has determined that the issuance of 1,000,000 shares of common
stock pursuant to Mr. Wilson's Employment  Agreement is void as of the effective
date of the  Employment  Agreement,  and that these  shares of common  stock are
treated as if they were never issued.

         On August 11, 2000, we entered into a Finders Agreement with Richard F.
Tusing and Daniel R. Dwight,  pursuant to which  Messrs.  Tusing and Dwight will
introduce us to  prospective  investors and brokers that would  thereafter  make
similar introductions,  and otherwise assist us in corporate finance matters. We
approved  the list of  prospective  investors  and  brokers  provided by Messrs.
Tusing and Dwight  contemporaneously  with the  execution  and  delivery  of the
Finders Agreement.  Under the Finders Agreement,  we will pay to Messrs.  Tusing
and Dwight a finders fee equal to 1% of the total investment value realized from
investors  introduced by them that provide  equity or debt capital to us. In the
case of provision of equity or debt capital by investors  introduced  by brokers
introduced by Messrs.  Tusing and Dwight, the finders fee will be equal to 0.25%
of the total investment value realized from such investors.  We retain the right
to negotiate the specific terms of any financing  transaction arising out of any
such  introductions and are not obligated to accept any financing offered by any
such investors or through any such brokers.  Out-of-pocket  expenses incurred by
Messrs.  Tusing and Dwight in connection  with provision of their services under
the Finders Agreement will be reimbursed by us up to $15,000, unless expenses in
excess of this limit are  approved in writing by us. The Finders  Agreement  was
entered into prior to Messrs.  Tusing's and Dwight's  appointment  as members of
our Board of Directors in October 2000 and was  negotiated at arm's  length.  We
intend that the Finders  Agreement  will  remain in place,  notwithstanding  the
appointment of Messrs.  Tusing and Dwight to our Board of Directors.  We believe
that the compensation  and other  provisions of the Finders  Agreement are fair,
reasonable, customary, and favorable to us.

         On August 11, 2000, we entered into a Consulting Agreement with Richard
F. Tusing and Daniel R. Dwight, pursuant to which Messrs. Tusing and Dwight will
provide management, financial, strategic, and other consulting services to us in
exchange for  consulting  fees payable in cash and options of our common  stock.
Out-of-pocket  expenses incurred by Messrs. Tusing and Dwight in connection with
provision  of  their  services  under  the  Consulting  Agreement  will  also be
reimbursed  by us. The  Consulting  Agreement  was entered into prior to Messrs.
Tusing's  and  Dwight's  appointment  as  members of our Board of  Directors  in
October  2000  and  was  negotiated  at  arm's  length.   We  believe  that  the
compensation  and  other  provisions  of  the  Consulting  Agreement  are  fair,
reasonable, customary, and favorable to us. The Consulting Agreement was renewed
with Dwight,  Tusing & Associates  on similar terms and  conditions  with a rate
adjustment as of January 1, 2001,  and was amended on April 12, 2001 to decrease
the strike price of the options granted as partial compensation thereunder.

         Effective October 10, 2001, we entered into a Consulting Agreement with
Jeffrey D. Wilson,  pursuant to which Mr. Wilson will provide  thirty-five hours
per month of  management  and other  consulting  services to us in exchange  for
consulting  fees payable in cash and options of our common stock.  Out-of-pocket
expenses  incurred by Mr.  Wilson in connection  with  provision of his services
under the  Consulting  Agreement  will also be reimbursed by us. The  Consulting
Agreement was negotiated at arm's length.  We believe that the  compensation and
other provisions of the Consulting  Agreement are fair,  reasonable,  customary,
and favorable to us.

                                       30
<PAGE>

ITEM 14.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)(1)(2)  FINANCIAL STATEMENTS.  See index  to consolidated  financial
         statements and supporting schedules.

         (a)(3)  EXHIBITS.
<TABLE>
<CAPTION>

EXHIBIT NO.         DESCRIPTION                                                LOCATION
----------------- ------------------------------------------------------------ --------------------------------------------
<S>                 <C>                                                        <C>    <C>    <C>    <C>    <C>

    2.1             Articles of Merger for Technology Selection, Inc. with     Incorporated by reference to Exhibit 2.1 to
                    the Nevada Secretary of State                              Registrant's Registration Statement filed
                                                                               on August 7, 2001
    3.1             Articles of Incorporation                                  Incorporated by reference to Exhibit 3.1 to
                                                                               Registrant's Registration Statement filed
                                                                               on August 7, 2001
    3.2             Bylaws                                                     Incorporated by reference to Exhibit 3.2 to
                                                                               Registrant's Registration Statement filed
                                                                               on August 7, 2001
    5.1             Opinion re: Legality                                       Incorporated by reference to Exhibit 5.1 to
                                                                               Registrant's Registration Statement filed
                                                                               on August 7, 2001
    10.1            Employment Agreement, dated April 16, 1999, by and         Incorporated by reference to Exhibit 10.1
                    between TSET, Inc. and Jeffrey D. Wilson                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.2            Deal Outline, dated December 9, 1999, by and between       Incorporated by reference to Exhibit 10.2
                    TSET, Inc. and Atomic Soccer, USA, Ltd.                    to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.3            Letter of Intent, dated December 27, 1999, by and          Incorporated by reference to Exhibit 10.3
                    between TSET, Inc. and Electron Wind Technologies, Inc.    to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.4            Agreement, dated February 5, 2000, by and between          Incorporated by reference to Exhibit 10.4
                    DiAural, LLC and EdgeAudio, LLC                            to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.5            Stock Purchase Agreement, dated March 6, 2000, by and      Incorporated by reference to Exhibit 10.5
                    among TSET, Inc., Atomic Soccer USA, Ltd., Todd P.         to Registrant's Registration Statement
                    Ragsdale, James Eric Anderson, Jewel Anderson, Timothy     filed on August 7, 2001
                    Beglinger and Atomic Millennium Partners, LLC
    10.6            Acquisition Agreement, dated March 13, 2000, by and        Incorporated by reference to Exhibit 10.6
                    among TSET, Inc., High Voltage Integrated, LLC, Ingrid     to Registrant's Registration Statement
                    Fuhriman, Igor Krichtafovitch, Robert L. Fuhriman and      filed on August 7, 2001
                    Alan Thompson
    10.7            Letter of Intent, dated April 18, 2000, by and between     Incorporated by reference to Exhibit 10.7
                    TSET, Inc. and EdgeAudio.com, Inc.                         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.8            Lease Agreement, dated May 3, 2000, by and between         Incorporated by reference to Exhibit 10.8
                    Kronos Air Technologies, Inc. and TIAA Realty, Inc.        to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.9            Agreement and Plan of Reorganization, dated May 4, 2000,   Incorporated by reference to Exhibit 10.9
                    by and among TSET, Inc., EdgeAudio.com, Inc., LYNK         to Registrant's Registration Statement
                    Enterprises, Inc., Robert Lightman, J. David Hogan, Eric   filed on August 7, 2001
                    Alexander and Eterna Internacional, S.A. de C.V.
    10.10           Letter Agreement, dated May 4, 2000, by and between        Incorporated by reference to Exhibit 10.10
                    TSET, Inc. and Cancer Detection International, LLC         to Registrant's Registration Statement
                                                                               filed on August 7, 2001

                                                               31
<PAGE>

EXHIBIT NO.         DESCRIPTION                                                LOCATION
----------------- ------------------------------------------------------------ --------------------------------------------
    10.11           Employment Agreement, dated May 19, 2000, by and between   Incorporated by reference to Exhibit 10.11
                    TSET, Inc. and Richard A. Papworth                         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.12           Finders Agreement, dated August 21, 2000, by and among     Incorporated by reference to Exhibit 10.12
                    TSET, Inc., Richard F. Tusing and Daniel R. Dwight         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.13           Contract Services Agreement, dated June 27, 2000, by and   Incorporated by reference to Exhibit 10.13
                    between Chinook Technologies, Inc. and Kronos Air          to Registrant's Registration Statement
                    Technologies, Inc.                                         filed on August 7, 2001
    10.14           Letter of Intent, dated July 17, 2000, by and between      Incorporated by reference to Exhibit 10.14
                    Kronos Air Technologies, Inc. and Polus Technologies,      to Registrant's Registration Statement
                    Inc.                                                       filed on August 7, 2001
    10.15           Consulting Agreement, dated August 1, 2000, by and among   Incorporated by reference to Exhibit 10.15
                    TSET, Inc., Richard F. Tusing and Daniel R. Dwight         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.16           Preferred Stock Purchase Agreement, dated September 12,    Incorporated by reference to Exhibit 10.16
                    2000, by and between EdgeAudio.com, Inc. and Bryan         to Registrant's Registration Statement
                    Holbrook                                                   filed on August 7, 2001
    10.17           Shareholders Agreement, dated September 12, 2000, by and   Incorporated by reference to Exhibit 10.17
                    among TSET, Inc., Bryan Holbrook and EdgeAudio.com, Inc.   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.18           Amendment to Agreement and Plan of Reorganization dated    Incorporated by reference to Exhibit 10.18
                    September 12, 2000, by and among TSET, Inc.,               to Registrant's Registration Statement
                    EdgeAudio.com, Inc., LYNK Enterprises, Inc., Robert        filed on August 7, 2001
                    Lightman, J. David Hogan, Eric Alexander and Eterna
                    Internacional, S.A. de C.V.
    10.19           Agreement Regarding Sale of Preferred Stock, dated         Incorporated by reference to Exhibit 10.19
                    November 1, 2000, by and between EdgeAudio.com, Inc. and   to Registrant's Registration Statement
                    Bryan Holbrook                                             filed on August 7, 2001
    10.20           Amendment to Subcontract, dated December 14, 2000, by      Incorporated by reference to Exhibit 10.20
                    and between Bath Iron Works and High Voltage Integrated    to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.21           Consulting Agreement, dated January 1, 2001, by and        Incorporated by reference to Exhibit 10.21
                    between TSET, Inc. and Dwight, Tusing & Associates         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.22           Employment Agreement, dated March 18, 2001, by and         Incorporated by reference to Exhibit 10.22
                    between TSET, Inc. and Alex Chriss                         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.23           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.23
                    between TSET, Inc. and Jeffrey D. Wilson                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.24           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.24
                    between TSET, Inc. and Jeffrey D. Wilson                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.25           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.25
                    between TSET, Inc. and Daniel R. Dwight                    to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.26           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.26
                    between TSET, Inc. and Richard F. Tusing                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.27           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.27
                    between TSET, Inc. and Charles D. Strang                   to Registrant's Registration Statement

                                                               32
<PAGE>

EXHIBIT NO.         DESCRIPTION                                                LOCATION
----------------- ------------------------------------------------------------ --------------------------------------------
    10.28           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.28
                    between TSET, Inc. and Richard A. Papworth                 to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.29           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.29
                    between TSET, Inc. and Richard A. Papworth                 to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.30           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.30
                    between TSET, Inc. and Erik W. Black                       to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.31           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.31
                    between TSET, Inc. and J. Alexander Chriss                 to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.32           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.32
                    between TSET, Inc. and Charles H. Wellington               to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.33           Stock Option Agreement, dated April 9, 2001, by and        Incorporated by reference to Exhibit 10.33
                    between TSET, Inc. and Igor Krichtafovitch                 to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.34           Letter Agreement, dated April 10, 2001, by and between     Incorporated by reference to Exhibit 10.34
                    TSET, Inc. and Richard A. Papworth                         to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.35           Letter Agreement, dated April 12, 2001, by and between     Incorporated by reference to Exhibit 10.35
                    TSET, Inc. and Daniel R. Dwight and Richard F. Tusing      to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.36           Finders Agreement, dated April 20, 2001, by and between    Incorporated by reference to Exhibit 10.36
                    TSET, Inc. and Bernard Aronson, d/b/a Bolivar              to Registrant's Registration Statement
                    International Inc.                                         filed on August 7, 2001
    10.37           Indemnification Agreement, dated May 1, 2001, by and       Incorporated by reference to Exhibit 10.37
                    between TSET, Inc. and Jeffrey D. Wilson                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.38           Indemnification Agreement, dated May 1, 2001, by and       Incorporated by reference to Exhibit 10.38
                    between TSET, Inc. and Daniel R. Dwight                    to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.39           Indemnification Agreement, dated May 1, 2001, by and       Incorporated by reference to Exhibit 10.39
                    between TSET, Inc. and Richard F. Tusing                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.40           Indemnification Agreement, dated May 1, 2001, by and       Incorporated by reference to Exhibit 10.40
                    between TSET, Inc. and Charles D. Strang                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.41           Indemnification Agreement, dated May 1, 2001, by and       Incorporated by reference to Exhibit 10.41
                    between TSET, Inc. and Richard A. Papworth                 to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.42           Indemnification Agreement, dated May 1, 2001, by and       Incorporated by reference to Exhibit 10.42
                    between TSET, Inc. and Erik W. Black                       to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.43           Stock Option Agreement, dated May 3, 2001, by and          Incorporated by reference to Exhibit 10.43
                    between TSET, Inc. and Jeffrey D. Wilson                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.44           Common Stock Purchase Agreement, dated June 19, 2001, by   Incorporated by reference to Exhibit 10.44
                    and between TSET, Inc. and Fusion Capital Fund II, LLC     to Registrant's Registration Statement
                                                                               filed on August 7, 2001

                                                               33
<PAGE>

EXHIBIT NO.         DESCRIPTION                                                LOCATION
----------------- ------------------------------------------------------------ --------------------------------------------
    10.45           Registration Rights Agreement, dated June 19, 2001, by     Incorporated by reference to Exhibit 10.45
                    and between TSET, Inc. and Fusion Capital Fund II, LLC     to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.46           Mutual Release and Settlement Agreement, dated July 7,     Incorporated by reference to Exhibit 10.46
                    2001, by and between TSET, Inc. and Foster & Price Ltd.    to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.47           Letter Agreement, dated July 9, 2001, by and between       Incorporated by reference to Exhibit 10.47
                    TSET, Inc. and The Eagle Rock Group, LLC                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.48           Finders Agreement, dated July 17, 2001, by and between     Incorporated by reference to Exhibit 10.48
                    TSET, Inc. and John S. Bowles                              to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.49           Warrant Agreement, dated July 16, 2001, by and between     Incorporated by reference to Exhibit 10.49
                    TSET, Inc. and The Eagle Rock Group, LLC                   to Registrant's Registration Statement
                                                                               filed on August 7, 2001
    10.50           Agreement and Release, dated October 10, 2001, by and      Provided herewith
                    between TSET, Inc. and Jeffrey D. Wilson
    10.51           Promissory Note dated October 10, 2001 payable to Mr.      Provided herewith
                    Jeffrey D. Wilson
    10.52           Consulting Agreement, dated October 10, 2001, by and       Provided herewith
                    between TSET, Inc. and Jeffrey D. Wilson
    11.1            Statement re:  Computation of Earnings                     Not applicable
    12.1            Statement re:  Computation of Ratios                       Not applicable
    15.1            Letter re:  Unaudited Interim Financial Information        Not applicable
    16.1            Letter re:  Change in Certifying Accountant                Not applicable
    24.1            Power of Attorney                                          Not applicable
</TABLE>

                                                       34
<PAGE>

         (b)      REPORTS ON FORM 8-K.

         None.



                                   SIGNATURES

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

         Date:  October 15, 2001.

                                   TSET, INC.


                                   By:    /s/Richard A. Papworth
                                      -----------------------------------------
                                          Richard A. Papworth
                                          Chief Financial Officer and Director


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE                      TITLE                           DATE
/s/Erik Black
--------------------------
Erik Black                     Director and Executive          October 15, 2001
                               Vice-President
/s/Daniel R. Dwight
--------------------------
Daniel R. Dwight               Director                        October 15, 2001

/s/James P. McDermott
--------------------------
James P. McDermott             Director                        October 15, 2001

/s/Richard A. Papworth
--------------------------
Richard A. Papworth            Director and Chief              October 15, 2001
                               Financial Officer
/s/Charles D. Strang
--------------------------
Charles D. Strang              Director                        October 15, 2001

/s/Richard F. Tusing
--------------------------
Richard F. Tusing              Director                        October 15, 2001

/s/Jeffrey D. Wilson
--------------------------
Jeffrey D. Wilson              Director                        October 15, 2001




                                       35