SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                                       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
       of Incorporation or Organization)                  Identification Number)

464 COMMON STREET, SUITE 301, BELMONT, MASSACHUSETTS              02478
----------------------------------------------------              -----
     (Address of Principal Executive Offices)                   (Zip Code)

        Registrant's telephone number, including area code (617) 993-9965

           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 September 23, 2002, was $5,344,601 based on
the average bid and asked prices on such date of $0.13.

      The Registrant had 45,141,293 shares of Common Stock, par value $0.001 per
share, outstanding on September 23, 2002.




<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 464 Common Street,  Suite 301,  Belmont,  Massachusetts  02478. Our telephone
number is (617)  993-9965.  The  address of our  website  is  www.kronosati.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.  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 best 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.  Effective
October 10, 2001,  Jeffrey D. Wilson resigned as Chairman of the Board and Chief
Executive  Officer  of TSET,  as well as  Chairman  of the Board of  Kronos  Air
Technologies and Aperion Audio,  respectively.  Mr. Wilson remains as a director
of TSET.  Effective  October 16, 2001, Daniel R. Dwight became our President and
Chief  Executive  Officer.  Mr.  Dwight  is a  Director  of TSET  and had been a
consultant to our Company prior to accepting his new position. Effective January
1, 2002, Richard F. Tusing became our Chief Operating  Officer.  Mr. Tusing is a
Director of TSET and had been a consultant to our Company prior to accepting his
new position.

      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; sold our
investment in Aperion Audio in June 2002;  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.
Effective  January  12,  2001,  we  began  doing  business  as  Kronos  Advanced
Technologies  and,  as of January  18,  2002,  we changed  our ticker  symbol to
"KNOS."  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.


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<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. 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 KronosTM which is more fully described below. In the fiscal years ended
June 30,  2002  and  2001,  respectively,  we have  recorded  customer-sponsored
research and development expenses of approximately $50,000 and $0, respectively.
In  those  same  periods,  we  have  recorded   company-sponsored  research  and
development expenses of approximately $224,000 and $297,000, respectively.


TECHNOLOGY DESCRIPTION AND BENEFITS

      The KronosTM  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 has completed the filing of four
patents in the United States. The Patent for Electrostatic Fluid Acceleration is
in Response to Office  Action and three  additional  patents for the control and
management of Electrostatic  Fluid Acceleration are awaiting  examination by the
Patent  Office.  Each of these  patents  describes  the  inventions  and  claims
necessary to move, control and filter air electrostatically,  without the use of
fans  or  moving  parts.  Additionally,   the  Patent  for  Electrostatic  Fluid
Acceleration  has been filed in  Australia,  Canada,  Mexico and Japan and await
approval.

      The  KronosTM  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 KronosTM device has no moving parts or degrading elements and
is composed of cost effective, commercially available components.

      The KronosTM technology combines the benefits of silent air movement,  air
cleaning,  odor removal,  limited  ozone  generation,  and static  control (as a
KronosTM  device can  produce  either  positive  or  negative  ions or both,  if
necessary). Because the KronosTM 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 KronosTM
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 KronosTM device cost
                            effective to manufacture.


                                       3
<PAGE>


RECENT ACHIEVEMENTS


COMPLETED CORE TECHNOLOGY DEVELOPMENT

      Having completed development of the core technology, we are now focused on
applying the KronosTM  technology to specific  customer  applications.  Customer
application  development  requires us to tailor the KronosTM  technology to meet
the  customer's  specific  product  requirements,  including  airflow volume and
velocity,  the level of particulate removal, the amount of gas destruction,  the
size and shape of the devices and the  measurement and monitoring of airflow and
air quality. This includes developing the product specifications,  designing the
actual product,  building and testing prototypes,  finalizing the design for the
manufacturer, and the manufacturing of the actual product.


UNITED STATES NAVY SMALL BUSINESS INNOVATION RESEARCH CONTRACT

      In July 2002, Kronos Air Technologies obtained a Pre-Award notice from the
U. S. Navy for a Small  Business  Innovation  Research  Phase II contract  worth
$600,000,  plus an option of $150,000.  During the Pre-Award stage,  Kronos will
have to complete a government cost accounting audit and the U. S. Navy will need
to complete the  necessary  documentation  for Kronos to begin work on Phase II.
Management  believes  that  the  government  cost  accounting  audit  will  take
approximately  30  days  for us to  complete  and the U. S.  Navy  expects  that
completion of the  documentation  will take  approximately 90 days. The Phase II
contract is an  extension  of the Phase I and the Phase I Option work that began
in 2001.  It is  intended  that the  KronosTM  devices  manufactured  under this
contract  will be embedded in  existing  HVAC  systems in order to move air more
efficiently than traditional, fan-based technology.


MEMORANDUM OF UNDERSTANDING WITH ACCESS BUSINESS GROUP INTERNATIONAL, L.L.C.

      In  July  2002,   Kronos  Air   Technologies   executed  a  Memorandum  of
Understanding with Access Business Group International  L.L.C. for the potential
licensing  of KronosTM  based air movement and  treatment  technologies.  Access
Business  Group  is  the  product   development,   manufacturing  and  logistics
subsidiary of Alticor Inc. and an affiliate of the Amway Corporation and Quixtar
Inc.  Under the proposed  arrangement,  Kronos will retain full rights to all of
our  intellectual   property,  as  well  as  manufacturing  of  our  proprietary
power-supply.  The final  agreement  is  subject  to  negotiations  between  the
parties.  Management  believes  that this  relationship  will  assist  Kronos in
expanding  into  global  markets,  including  Europe and Asia for  consumer  air
purification products.


LETTER OF INTENT FOR RETAIL CONSUMER PRODUCTS

      In  April  2001,  Kronos  Air  Technologies  completed  development  of  a
prototype   room-based  air  purification   device  and  is  now  moving  toward
commercialization  of the KronosTM technology outside of military  applications.
In May 2002,  Kronos Air  Technologies  executed a non-binding term sheet with a
consumer  retail products  company.  The Term Sheet provides for exclusive North
American  retail  distribution  rights  for a full  consumer  air  movement  and
purification  product line based on the Kronos technology for a term of at least
three years.  Kronos will be compensated  through royalty  payments with minimum
annual  levels.  Kronos  believes  it  will  retain  full  rights  to all of its
intellectual property, as well as manufacturing of its proprietary power supply.
The final agreement is subject to negotiations  between the parties. The product
line launch is  scheduled  for first  quarter  2003.  Kronos has  completed  the
development  of the core  KronosTM  technology.  Kronos is  required to keep the
identity  of  the  consumer  products  company  confidential  until  the  formal
announcement of the product launch.

      Management  believes that the cash flow generated  from this  relationship
will assist Kronos in expanding the KronosTM  technology  for  applications  in,
including:  (1) air  movement  and  purification  in health  care,  hospitality,
residential and commercial  facilities;  (2) air purification for unique spaces,
such as cleanrooms,  automobiles,  cruise ships and airplanes;  (3)  specialized
military uses in naval vessels,  closed vehicles and environmental  devices; (4)
embedded cooling and cleaning for electronic devices and medical equipment;  (5)
industrial  scrubbing  with  respect  to  product  storage  and diesel and other
emissions;  and (6)  hazardous gas  destruction  for  incineration  and chemical
facilities.  Management  further  believes  that this  relationship  will assist
Kronos in expanding into global markets.


UNDERWRITERS LABORATORIES' APPROVAL

      In June 2001, Kronos Air Technologies obtained Underwriters  Laboratories,
Inc.'s  approval for the KronosTM  device's  core  electronics.  The  electronic
module is the key component of Kronos Air Technologies'  proprietary  technology


                                       4
<PAGE>

and is  used  in all  KronosTM  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 Underwriters  Laboratories' approval
for each  KronosTM  based device  (based on using the current core  electronics)
will depend on meeting mechanical and material  standards for each device.  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 fourth  quarter  2001,  Kronos Air  Technologies  began to generate
revenue for the first time in the military marketplace with the sale of KronosTM
devices to Lockheed Martin and the delivery of its first commercialized KronosTM
devices to Bath Iron Works, a division of General Dynamics. The Bath Iron Works'
air movement and  purification  devices are being used in the chief  quarters of
the USS WINSTON CHURCHILL (DDG-81).

      With  respect  to  General  Dynamics,   we  are  working  to  develop  the
relationship  with them,  including  providing  demonstrations of our Kronos(TM)
technology.  We do not have any  specific  plans with  General  Dynamics  and/or
Lockheed Martin.  There are no anticipated time frames as to when we may receive
any future revenue from these companies.


SMALL BUSINESS INNOVATION RESEARCH CONTRACTS AWARDED

      UNITED STATES NAVY.  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 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.  In April 2002,  the United  States Navy and
Kronos  mutually  agreed to exercise the option on the first phase of the United
States  Navy SBIR  contract.  The  option is to provide  incremental  funding to
Kronos to further  test and  evaluate  the  KronosTM  devices  built  during the
initial funding.  Testing will include  demonstrating  the ability of the United
States Navy KronosTM  devices to capture and destroy  biological  hazards and to
effectively manage electrical magnetic interference.

      UNITED STATES ARMY. In December 2001,  Kronos Air Technologies was awarded
a Small Business Innovation Research contract. This contract is sponsored by the
United States Army and potentially  worth up to $870,000 in product  development
and testing support for Kronos Air Technologies. The first phase of the contract
is worth up to $120,000 in funding to investigate and analyze the feasibility of
the Kronos(TM)  technology to reduce  humidity in heating,  ventilation  and air
conditioning (HVAC) systems.  If awarded to Kronos Air Technologies,  the second
phase of the contract would be worth up to $650,000 in additional  funding.  The
KronosTM devices manufactured under this contract will be to further demonstrate
the  versatility of the Kronos(TM)  technology to meet airflow,  system pressure
and  reduced  humidity  requirements  for  HVAC  systems.  This  contract  is an
extension  of the  commercialization  effort by Kronos Air  Technologies  in the
specialized military marketplace.  In May 2002, the United States Army requested
our  company to submit a  detailed  phase two  proposal  by June 10,  2002.  The
proposal  was  submitted  on June 7,  2002 and the  evaluation  period  for this
proposal by the United States Army is expected to be approximately 9 months.


BUSINESS STRATEGY

      Kronos Air  Technologies'  business  development  strategy  is to sell and
license  the  KronosTM  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)


                                       5
<PAGE>

residential and (4) commercial. Kronos Air Technologies is attempting to develop
a KronosTM 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 KronosTM
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  with
General  Dynamics  on  commercializing  specific  military  applications  of the
KronosTM technology.  To date, Kronos Air Technologies has developed and shipped
miniature  KronosTM  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,  Kronos Air Technologies
was awarded a Small  Business  Innovation  Research  contract  sponsored  by the
United  States  Navy and is  potentially  worth up to  $837,000  in funding  for
product  development and testing.  The KronosTM devices  manufactured under this
contract will be embedded in existing HVAC systems to move air more  efficiently
than the current fan based technology.  In addition, Kronos Air Technologies was
awarded a Small Business  Innovation  Research contract  sponsored by the United
States  Army and is  potentially  worth up to  $870,000  in funding  for product
development and testing.  The KronosTM devices  manufactured under this contract
will be used to demonstrate the ability to commercialize the KronosTM technology
for mass production.

      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.

      For  each of  these  market  segments,  there  exists  a large  number  of
incumbent  specialty,  national and global  competitors.  These competitors have
firmly  established  products,  customers,  distribution  and sales channels and
broad brand recognition.  These competitors have significantly greater financial
resources than our company.  The consumer,  commercial  and industrial  fan, air
movement  and  air  purification   markets  are  highly  competitive  on  price,
availability,  customization,  service  and  warranty.  Kronos Air  Technologies
intends to utilize  its  advantages  in  features  and  performance  to create a
beneficial value to its customers. Kronos Air Technologies intends to compete in
licensing   of  air   movement  and   purification   technologies   to  existing
manufacturers and product sales  organizations.  Kronos Air Technologies intends
to also  design,  develop and  manufacture  air  movement  and air  purification
components and products for wholesale and retail sales.


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:

      o     completion of  commercialization  of standalone  KronosTM 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     further  development and  augmentation  of Kronos Air  Technologies'
            operational    capabilities   to   support   revenue   stream,   and
            identification of new applications for KronosTM 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


                                       6
<PAGE>
      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  effectively  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  contracts  sponsored  by the  United  States  Navy and Army,  recently
awarded to Kronos  Air  Technologies),  and cash flow  generated  from  customer
revenue.  Kronos has completed the development of the core KronosTM  technology.
We are  currently  focused on  applying  the  KronosTM  technology  to  specific
customer applications,  depending upon customer needs. We modify applications of
our existing KronosTM technology on a customer-by-customer basis.


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.

      ACQUISITION AND SALE OF APERION AUDIO,  INC.  Pursuant to a Settlement and
Mutual Release  Agreement dated as of June 7, 2002, we transferred  ownership of
100% of the issued and outstanding  shares of common stock of Aperion Audio to a
new ownership group comprised primarily of Aperion Audio's current management.

      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; 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 fully develop and
capitalize on the KronosTM technology.  We believe that The Eagle Rock Group can
assist us in unlocking the potential value of the KronosTM 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 KronosTM 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.

      Effective March 11, 2002, we entered into an agreement with The Eagle Rock
Group extending our relationship  with The Eagle Rock Group until March 1, 2003.
Pursuant to the agreement,  we agreed to convert the then-currently owed amounts


                                       7
<PAGE>

to The Eagle Rock Group of $120,000  into a  promissory  note due and payable on
March 1, 2003 and agreed to grant to The Eagle Rock Group a ten-year warrant for
the  right to  purchase  2,000,000  shares of our  common  stock.  Five  hundred
thousand  (500,000) warrant shares are earned over a 12-month period and will be
fully  earned on March 1,  2003.  The  remainder  of the  shares  may be earned,
contingent upon the occurrence of various events, including a successful capital
raise,  securing  contracts  with the U.S.  military,  securing  contracts  with
consumer-oriented   distribution   organizations,   and   the   adoption   of  a
branding/marketing  campaign principally  developed by The Eagle Rock Group. The
exercise  price of these  warrant  shares  will be equal to our  common  stock's
closing price as of the day an initial letter of intent or term sheet related to
such transaction is executed.


FUSION CAPITAL TRANSACTION

      On August 12, 2002,  we entered into a common  stock  purchases  agreement
with Fusion Capital. Pursuant to the common stock purchase agreement and subject
to the condition  that Fusion Capital is not obligated nor permitted to purchase
shares of our common stock if the  per-share  price of our common stock does not
equal or exceed the floor price of $0.10,  Fusion Capital has agreed to purchase
on each  trading  day  during the term of the  agreement,  $10,000 of our common
stock or an aggregate of $6.0  million.  The $6.0 million of our common stock is
to be  purchased  over a 30-month  period,  subject to a six-month  extension or
earlier  termination at our sole discretion and subject to certain  events.  The
purchase  price per share is equal to the lesser of (i) the lowest  price of our
common stock on the purchase  date;  or (ii) the average of the three (3) lowest
closing  sale  prices of our common  stock  during the twelve  (12)  consecutive
trading days prior to the date of a purchase by Fusion Capital.  However,  there
can be no assurance of how much cash we will receive,  if any,  under the common
stock purchase agreement with Fusion Capital.


EMPLOYEES

      On  September  23,  2002,  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.                      5
                                                         ---------

                TOTAL                                        8
                                                         =========

      Of  the  total  number  of  full-time  employees,  one  works  in  general
management, four in research and development, one in marketing and sales, one in
finance,  one in operations,  and none 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.  For the year ended  June 30,  2002,  we had  revenue of
$92,600  and  incurred a net loss of $2.8  million.  For the year ended June 30,
2002,  we generated  negative cash flows from our  operations.  We have incurred
annual net losses of $2.8 million, $9.9 million and $2.0 million,  respectively,
during the past three fiscal years of operation.  As a result, at June 30, 2002,
we had an accumulated deficit of $14.8 million.  For the fiscal years ended June
30,  2002,  2001  and  2000,  we  had  revenue  of  $92,600,   $95,000  and  $0,
respectively.  We have  incurred net losses from  continuing  operations of $3.5
million, $3.6 million and $1.4 million for the fiscal years ended June 30, 2002,
2001 and 2000.  For the fiscal years ended June 30, 2002 and 2001,  we generated
negative  cash  flows  from our  operations.  Our  revenues  and cash flows from
operations have not been sufficient to sustain our operations. We have sustained
our  operations  through the  issuance of our common  stock.  We expect that our



                                       8
<PAGE>

revenues and cash flows from  operations  may not be  sufficient  to sustain our
operations  for the  foreseeable  future.  Our  profitability  will  require the
successful commercialization of our KronosTM technologies.  No assurances can be
given  that  we  will  be  able  to  successfully   commercialize  our  KronosTM
technologies 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 years
ended June 30,  2002,  2001 and 2000  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.


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 30  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.

      You  should be aware that there is an  inverse  relationship  between  our
stock  price and the number of shares to be issued to Fusion  Capital  under the
common stock purchase agreement.  That is, as our stock price declines, we would
be required to issue a greater  number of shares under the common stock purchase
agreement to receive the same amount of proceeds.  This inverse  relationship is
demonstrated  by the  following  table,  which  shows the number of shares to be
issued under the common stock  purchase  agreement at a purchase  price of $0.20
(the  closing  sale price of our common  stock on August 30,  2002) and at lower
stock  prices in order to fully draw down the $6.0 million  available  under the
common  stock  purchase  agreement.  This table does not take into  account  any
shares of our common stock that would be issued upon  conversion  of any options
outstanding.


<TABLE>
<S>                              <C>             <C>             <C>            <C>
---------------------------------------------------------------------------------------------
Purchase Price:                       $0.20           $0.15           $0.12          $0.10
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
No. of Shares(1):                30,000,000      40,000,000      50,000,000     60,000,000
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Total Outstanding(2):            75,141,293      85,141,293      95,141,293    105,141,293
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Percent Outstanding(3):               39.9%           47.0%           52.6%          57.1%
---------------------------------------------------------------------------------------------
</TABLE>

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

(1)   Represents  the  number of shares of common  stock that could be issued to
      Fusion Capital at the prices set forth in the table.

(2)   Represents  the total number of shares of common stock  outstanding  after
      the possible issuance of the shares to Fusion Capital.

(3)   Represents the shares of common stock that could be issued as a percentage
      of the total number shares outstanding.

      In order for us to drawn down the entire $6.0 million  available under the
common  stock  purchase  agreement,  it may  be  necessary  for  us to  register
additional shares of common stock in a new registration statement.

      Fusion  Capital  may not  purchase  shares of our common  stock  under the
common stock purchase agreement if Fusion Capital, together with its affiliates,
would  beneficially  own more than 9.9% of our common stock  outstanding  at the
time of the purchase by Fusion Capital.  However, even though Fusion Capital may
not  receive  additional  shares of our common  stock in the event that the 9.9%
limitation  is ever  reached,  Fusion  Capital is still  obligated  to pay to us
$10,000 on each  trading  day,  unless the common  stock  purchase  agreement is
suspended,  an event of default  occurs or the  agreement is  terminated.  Under
these  circumstances,  Fusion Capital would have the right to acquire additional
shares in the future  should its  ownership  subsequently  become  less than the
9.9%.  Fusion  Capital has  indicated  to us that in the event that it ever held
9.9% of our common  stock,  it would  likely sell shares of our common  stock in
order to remain under the 9.9% threshold.


                                       9
<PAGE>

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

      At June 30, 2002, we had a working  capital  deficit of $1.7 million.  The
independent  auditor's  report for the years ended June 30, 2002,  June 30, 2001
and June 30,  2000  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.  For
the years ended 2002,  2001 and 2000,  we had an operating  cash flow deficit of
$1.5 million, $1.6 million and $0.3 million,  respectively.  We do not currently
have  sufficient  financial  resources  to fund our  operations  or pay  certain
existing obligations or those of our subsidiary.  Therefore,  we need additional
funds to continue these operations and pay certain existing obligations.

      Subject to the condition that Fusion Capital is not obligated and will not
be permitted to purchase  shares of our common stock if the  per-share  price of
our common stock is below the floor price of $0.10, we have the right to receive
$10,000 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. The selling price of our common stock to Fusion Capital
will have to average  at least  $0.40 per share for us to  receive  the  maximum
proceeds of $6.0 million without  registering  additional shares of common stock
in a new  registration  statement.  Assuming a purchase price of $0.20 per share
(the closing sale price of the common stock on August 30, 2002) and the purchase
by Fusion Capital of the full  15,000,000  shares being  registered on behalf of
Fusion  Capital,  proceeds  to us would only be  $3,000,000  unless we choose to
register more than the 15,000,000  shares which are being  registered,  which we
have the right,  but not the  obligation,  to do. The extent to which 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 form 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,  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, we would be forced
to curtail our business operations.  Additional financing could be prohibitively
expensive  due to the  recent  economic  downturn  in the U.S.  economy  and the
possibility of reduced investor  confidence  generally in the financial  markets
and in  emerging  growth  and  technology  companies.  In  addition,  additional
financing could be  prohibitively  expensive  because (i) we have limited assets
that have value to pledge as  collateral;  (ii) we have negative cash flows with
an accumulated deficit; and (iii) and we have no definitive  contractual revenue
stream from any customers.


EXISTING  SHAREHOLDERS WILL EXPERIENCE  SIGNIFICANT  DILUTION FROM OUR SALE OF
SHARES UNDER THE COMMON STOCK  PURCHASE  AGREEMENT WITH FUSION CAPITAL AND ANY
OTHER EQUITY FINANCING

      The sale of shares  pursuant to our agreement  with Fusion  Capital or any
other future equity  financing  transaction  will have a dilutive  impact on our
stockholders.  As a result,  our net income per share  could  decrease in future
periods,  and the market price of our common stock could  decline.  In addition,
the lower our stock  price is, the more  shares of common  stock we will have to
issue under the common stock purchase  agreement with Fusion Capital in order to
draw down the full  amount.  If our  stock  price is  lower,  then our  existing
stockholders  would experience  greater  dilution.  We cannot predict the actual
number of shares of common stock that will be issued  pursuant to the  agreement
with Fusion Capital or any other future equity financing  transaction,  in part,
because the  purchase  price of the shares will  fluctuate  based on  prevailing
market conditions and we do not know the exact amount of funds we will need.


FAILURE TO DEVELOP  MANUFACTURING AND SALES 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 and only limited sales and 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
KronosTM  products  on  commercially  reasonable  terms,  we would be  forced to
curtail our business operations.  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 KronosTM products.


                                       10
<PAGE>

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  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.  In the  event  that the  KronosTM  products  do not
favorably compete with the products sold by our competitors,  we would be forced
to curtail our business operations.


OUR FAILURE TO OBTAIN AND ENFORCE INTELLECTUAL  PROPERTY PROTECTION WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS

      Our  success  depends  in part on our  ability  to obtain  and  defend our
intellectual  property,   including  patent  protection  for  our  products  and
processes,  preserve our trade  secrets,  defend and enforce our rights  against
infringement  and operate  without  infringing the  proprietary  rights of third
parties, both in the United States and in other countries.

      We  presently  have  no  patents  and  patents  based  on  pending  patent
applications or any future patent  applications may not be issued.  We have four
U.S. and four foreign patent applications  pending.  The validity and breadth of
our intellectual  property claims in ion wind generation and electrostatic fluid
acceleration and control  technology involve complex legal and factual questions
and,  therefore,  may be highly  uncertain.  Despite  our efforts to protect our
intellectual proprietary rights, existing copyright,  trademark and trade secret
laws afford only limited protection.

      Our industry is characterized by frequent intellectual property litigation
based on allegations of infringement of intellectual  property rights.  Although
we are not aware of any  intellectual  property  claims  against us, we may be a
party to litigation in the future.

      Our  success   will  also  depend  in  part  on  our  ability  to  develop
commercially  viable  products  without  infringing  the  proprietary  rights of
others.  We have not  conducted  freedom of use patent  searches and patents may
exist or could be filed  which  would have an adverse  effect on our  ability to
market our products or maintain  our  competition  position  with respect to our
products.


POSSIBLE FUTURE  IMPAIRMENT OF INTANGIBLE ASSETS WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION

      Our net intangible  assets of approximately  $2.2 million and $2.4 million
as of June 30,  2002 and 2001  relate  only to the  acquisition  of  Kronos  Air
Technologies,  Inc. and consists  principally of purchased patent technology and
marketing intangibles.  They comprise 94% and 79% of our total assets as of June
30,  2002 and June 30,  2001,  respectively.  Intangible  assets are  subject to
periodic review and consideration for potential  impairment of value.  Among the
factors that could give rise to impairment include a significant  adverse change
in legal factors or in the business climate,  an adverse action or assessment by
a regulator, unanticipated competition, a loss of key personnel, and projections
or forecasts that demonstrate continuing losses associated with these assets. In
the case of our  intangible  assets,  specific  factors  that could give rise to
impairment would be, but are not limited to, an inability to obtain patents, the
untimely  death or other loss of Dr. Igor  Krichtafovitch,  the  inventor of the
KronosTM  technology,  or the ability to create a customer  base for the sale or
licensing of the KronosTM technology.

      Although no events have  occurred  that would  indicate that an impairment
may exist with respect to these intangible  assets,  should an impairment occur,
we would be required to  recognize  it in our  financial  statements.  Since the
intangible  assets  comprise  94% of out  total  assets as of June 30,  2002,  a
write-down of these  intangible  assets could have a material  adverse impact on
our total assets, net worth and results of operations.


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;


                                       11
<PAGE>
      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.  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 KronosTM 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.


OUR FAILURE TO TIMELY 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 timely file federal and state income tax returns for calendar
years 1997 through 2001, respectively; however, we are now current in all of our
income tax filings. We had operating losses for each year during the period 1997
through  2001,  and there  were no income  taxes due and owing for those  years.
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, 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,  we may be forced to pay income  taxes,  interest and  penalties for
those years.



                                       12
<PAGE>
ITEM 2.  PROPERTIES

      Our principal executive office is located at 464 Common Street, Suite 301,
Belmont, Massachusetts.

      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.

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


ITEM 3.  LEGAL PROCEEDINGS

      On June 6, 2002,  Dutchess  Advisors Ltd.  initiated legal  proceedings in
Middlesex  County,  Massachusetts,  against TSET. The complaint  alleges,  among
other  things,  breach  of  contract,  QUANTUM  MERUIT,  unjust  enrichment  and
conversion with respect to a letter agreement, dated June 19, 2001, between TSET
and Dutchess  Advisors  Ltd., and seeks,  among other things,  a judgment in the
amount of $75,000,  exclusive of  pre-judgment  interest,  costs and  attorneys'
costs.  TSET contested the  allegations  made by Dutchess by serving a motion to
dismiss all claims.  Dutchess  subsequently  filed an amended complaint with the
court on August 16, 2002. Dutchess seeks to recover up to three times its actual
damages as well as its costs and  attorneys'  fees. On September 23, 2002,  TSET
served on Dutchess  Advisors  Ltd. a motion to dismiss all counts in the amended
complaint.  TSET  believes  that it has  meritorious  defenses  and  intends  to
vigorously defend this matter.

      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 or the previous  relationship.  As
settlement  consideration,  we  delivered  to  Foster  & Price  and  Mr.  Saenz,
collectively, a total of 375,000 registered shares of our common stock valued at
$213,750  on May 31,  2002.  This  amount was  accrued  at June 30,  2001 and is
included in Other  Income/Expense  in the Statement of Operations for the period
ended June 30, 2001. The shares were not issued until the following  year.  Once
the shares were issued,  the transaction was properly reflected in shareholders'
equity. Foster & Price and Mr. Saenz have agreed that 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.

      On January 11, 2002, Aperion Audio, Inc. (f/k/a EdgeAudio.com),  a company
in which TSET owned common shares,  initiated  arbitration in a dispute over the
Agreement and Plan of  Reorganization  between the parties.  Aperion Audio, Inc.
requested damages of $213,900 plus consequential  damages. On June 7, 2002, TSET
settled all  outstanding  litigation  with Aperion  Audio,  Inc.,  including the
dismissal of  arbitration  proceedings,  pursuant to a Settlement  Agreement and
Mutual Release,  which included the sale of TSET-owned  shares of Aperion Audio,
Inc. common stock.  Under this settlement,  we have agreed to make the remaining
$213,900 capital  contributions  previously  agreed to at the time TSET acquired
Aperion Audio in the form of a non-interest bearing note payable over the next


                                       13
<PAGE>

14 months.  We also  agreed to sell  Aperion  Audio to two of its  managers  and
former shareholders.  As a result, we are returning all of the shares of Aperion
Audio and 500,000  shares of TSET common stock in exchange for a full release of
all liabilities and claims, including the release of the potential liability for
$3 million of additional consideration to be paid in shares of TSET common stock
via an earn-out provision in the Acquisition Agreement.


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

      None.





                                       14
<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
2002, 2001, and 2000 are presented as follows:

                                                               FISCAL YEAR 2002
                                                               HIGH         LOW
                                                               ----         ---
           First Quarter (July 2001 to September 2001)        $0.700      $0.300
           Second Quarter (October 2001 to December 2001)     $0.530      $0.210
           Third Quarter (January 2002 to March 2002)         $0.280      $0.185
           Fourth Quarter (April 2002 to June 2002)           $0.330      $0.140


                                                               FISCAL YEAR 2001
                                                               HIGH         LOW
                                                               ----         ---
           First Quarter (July 2000 to  September 2000)       $3.310      $1.150
           Second Quarter (October 2000 to December 2000)     $2.040      $1.150
           Third Quarter (January 2001 to March 2001)         $1.650      $1.060
           Fourth Quarter (April 2001 to June 2001)           $1.210      $0.580


                                                               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


      On September  23, 2002,  the closing price of our common stock as reported
on the  Over-the-Counter  Bulletin  Board was $0.14 per share.  On September 23,
2002, we had approximately 1,000 beneficial stockholders of our common stock and
45,141,293 shares of our common stock were issued and outstanding.


DIVIDENDS

      We have not declared or paid  dividends on our common stock during  fiscal
2000,  2001 or 2002 and do not plan to  declare or pay  dividends  on our common
stock during fiscal 2003. 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

      Except as otherwise  noted,  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.  Each such issuance
was made  pursuant to individual  contracts  which are discrete from one another
and are made only with persons who were  sophisticated in such  transactions and
who had knowledge of and access to sufficient  information about TSET to make an
informed  investment  decision.  Among  this  information  was the fact that the
securities were restricted securities.

      All  investors   participating   in  private   placements  for  cash  were
"accredited  investors" within the meaning of Regulation D. In addition, we note
that there are several  categories of recipients of these shares.  These include
investors  for cash,  officers,  directors,  consultants,  litigants  and former
shareholders of private  companies  acquired by TSET. TSET does not believe that
these  categories of recipients  should be integrated  with each other under the
concept of integration.  Under  Securities Act Release Nos. 4552 and 4434, these
categories  would  not  involve  a single  plan of  financing  and  would not be


                                       15
<PAGE>

considered to be made for the same general purpose.  As a result,  each category
should be reviewed on its own.  Given the small  number of  purchasers  in these
categories,  TSET believes that these transactions complied in all respects with
Section  4(2).   TSET  believes  that  this  conclusion  is  true  even  if  the
transactions   occurring   within  each  category  are  integrated   with  other
transactions occurring within six months or one year of a given transaction.

      In April 1999, we issued 1,000,000  shares of our common stock,  valued at
$0.30 per share,  at an aggregate value of $300,000,  to The Pangea Group,  LLC,
the nominee of Jeffrey A.  Wilson,  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 their
financial statements.

      In August 1999, we issued  100,000  shares of our common stock,  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".

      In January 2000,  we issued  74,094 shares of our common stock,  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 shares of our common stock,  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  shares of our common  stock,  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  shares of our common  stock,  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 shares of our common stock 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  shares of our common stock,  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  shares of our common  stock,  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  shares of our common  stock,  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  shares of our common  stock,  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  shares of our common  stock,  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  shares of our common  stock,  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 Aperion Audio.

      In May 2000, we issued 180,000 shares of our common stock, 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


                                       16
<PAGE>

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 shares of our common stock being issued.

      In May 2000, we issued 57,971 shares of our common stock,  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 shares of our common stock, 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 Richard A.  Papworth,  a director and executive
officer of TSET, based on an employment agreement dated May 19, 2000.

      In June 2000, we issued 52,980 shares of our common stock, 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  shares of our common  stock,  valued at
$1.63 per share (the negotiated purchase price for such shares), at an aggregate
value of $200,000, to Erik W. Black, a director and executive officer of TSET.

      In July 2000,  we issued  161,538  shares of our common  stock,  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  shares of our common  stock,  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.

      In August 2000, we issued  120,000  shares of our common stock,  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  shares of our common  stock,  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  shares of our common  stock,  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 shares of our common stock, 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 shares of our common stock,  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 shares of our common stock, 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 shares of our common stock, 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 shares of our common stock,  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 shares of our common stock,  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  shares of our common stock,  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 shares of our common  stock,  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 shares of our common stock,  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.


                                       17
<PAGE>

      In January 2001,  we issued  10,000 shares of our common stock,  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 shares of our common stock,  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 shares of our common  stock,  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  shares of our common  stock,  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  shares of our common  stock,  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  shares of our common  stock,  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  shares of our common  stock,  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.

      In April 2001, pursuant to a stock option agreement,  we granted five-year
options to acquire  450,000 shares of our common stock,  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,  including  Daniel R. Dwight,
Richard A.  Papworth,  Richard F.  Tusing,  Erik W.  Black,  Jeffrey D.  Wilson,
Charles D. Strang,  all of whom are directors and executive officers of TSET and
Kronos Air  Technologies.  The remaining three persons are 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 shares of our common stock,  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.  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 shares of our common stock,  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 this person to acquire  148,000  shares of our common
stock, at an aggregate value of $165,760. All such options immediately vested.

      In May 2001, we issued 891,891 shares of our common stock, 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 shares of our common stock,  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 shares of our common stock,  at an exercise price of
$0.710 per share (the fair market value for our shares as of the date of grant),


                                       18
<PAGE>

at an aggregate  value of $177,500,  to Jeffrey D. Wilson and Charles D. Strang,
each of whom 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 Daniel R. Dwight and Richard F. Tusing, each
of whom are directors of TSET, as partial  compensation for services pursuant to
an accrual formula set forth in a consulting agreement.  As of October 10, 2001,
such accrued options entitled these two persons to acquire 498,400 shares of our
common stock,  at an aggregate value of $478,464.  All such options  immediately
vested.

      In June 2001, we issued 50,000 shares of our common stock, 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 Wei Li, a former director of TSET, as compensation for his
service as a director.

      In July 2001,  we issued  238,806  shares of our common  stock,  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  shares of our common  stock,  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.  These
shares were delivered to the escrow agent on May 31, 2002.

      In July 2001,  we issued 250 shares of our common  stock,  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.

      In August 2001, we granted a ten-year warrant to acquire  1,400,000 shares
of our common  stock,  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
$686,000,  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.

      On October 1, 2001,  we authorized  the issuance of 360,000  shares of our
common stock pursuant to a consulting agreement,  valued at $0.28 per share (the
fair-market  value of our  shares as of such  date),  at an  aggregate  value of
$100,800, to Fusion Capital, LLC, in exchange for consulting services.

      On October 1, 2001, we authorized the issuance of 1,000,000  shares of our
common stock pursuant to a pledge,  valued at $0.448 per share,  at an aggregate
value of $447,982, to Fusion Capital, LLC, in exchange for $447,982 in cash.

      On October 1, 2001, we issued 2,250 shares of our common stock,  valued at
$0.452 per share (the fair-market value of our shares on April 9, 2001 and 1,250
of our shares on September 7, 2001), at an aggregate  value of $4,147.50,  to an
employee of TSET, as compensation.

      In February 2002, we granted  options to acquire  4,580,000  shares of our
common stock at an exercise price of $0.68 for 2,650,000 of these options and an
exercise  price  of $0.25  on the  remaining  1,930,000.  Of the  total  amount,
2,850,000  options  were granted to Daniel R.  Dwight,  Richard A.  Papworth and
Richard F. Tusing,  all of whom are directors and officers of TSET. The exercise
price  for  1,700,000  of these  options  is $0.68  and the  exercise  price for
1,150,000 of these options is $0.25.


                                       19
<PAGE>

      On May 7, 2002,  we  completed  a private  placement  of our common  stock
pursuant  to which we sold  1,971,976  shares of our  common  stock at $0.17 per
share to seven  accredited  investors  for  consideration  of $335,100  cash and
1,429,695  shares of our common  stock at $0.17 per share to six  members of our
management  team,  including Daniel R. Dwight,  Richard A. Papworth,  Richard F.
Tusing, Erik W. Black, and James P. McDermott, for consideration of $39,987 cash
and commitments to convert $203,061 of debt.

      On June 12, 2002, we issued 500,000 shares of our common stock,  valued at
$0.21 per share  (the  fair-market  value of our  shares as of such  date) at an
aggregate  value of $105,000 to two person  pursuant to a Settlement  agreement,
dated June 7, 2002, with Aperion Audio.





                                       20
<PAGE>



ITEM 6.  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-KSB  and  the  documents   incorporated  herein  are   "forward-looking
statements."


GENERAL

      Historically,  we had been seeking select business  opportunities globally
among a wide range of  prospects.  Over the past three  years,  we made  several
investments,  including Kronos Air Technologies,  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 best
opportunity  for  us.  As a  result,  we have  prioritized  our  management  and
financial resources to fully capitalize on this investment opportunity.

      Based on our decision to focus our  resources on Kronos Air  Technologies,
several actions were taken, most of which impacted the results of operations. On
April  11,  2001,  we  sold  Atomic  Soccer.  The  sale  resulted  in a loss  of
$2,297,000.  At the time of the sale,  Erik W. Black, an officer and director of
TSET, was Atomic Soccer's Chairman of the Board of Directors. Mr. Black resigned
from Atomic Soccer's Board of Directors  immediately  following the execution of
the sale document and was not a member of Atomic Soccer's new ownership group.

      During  our  fourth  quarter  of 2001,  we  determined  that the assets of
Aperion Audio  (formerly  known as EdgeAudio) were impaired and we recognized an
impairment  loss of  $2,294,000.  On June 7, 2002, we sold our shares of Aperion
Audio to Aperion Audio's management group. Pursuant to the sale, Aperion Audio's
management group received 500,000 shares of our common stock in exchange for any
rights these individuals may have had to earn-out  provisions  pursuant to their
original agreement with TSET. Under the terms of the sale, TSET will continue to
honor a  commitment  to provide  working  capital  to  Aperion  Audio in monthly
installments  of  $15,000  over  the  next  14  months.  As  a  result  of  this
transaction,  TSET  recognized  a gain of  $682,000.  At the  time of the  sale,
Richard A. Papworth,  an officer and director of the Company, was an officer and
director  of  Aperion  Audio.  Mr.  Papworth  resigned  from the board and as an
officer  of  Aperion   Audio   immediately   following   the  execution  of  the
sale/settlement  agreement and was not a member of Aperion Audio's new ownership
group.

      Based upon our decision to discontinue the development of Cancer Detection
International  as of June 30, 2001, we have recognized an impairment loss of the
remaining goodwill of $273,000 associated with that investment. In July 2001, we
also decided not to further pursue our investments in Electric  Management Units
and Cancer Treatment Centers.

      Effective October 10, 2001,  Jeffrey D. Wilson resigned as Chairman of the
Board and Chief  Executive  Officer of TSET, as well as Chairman of the Board of
Kronos Air Technologies and Aperion Audio, respectively. Mr. Wilson remains as a
director of TSET.  Effective  November 15, 2001,  Daniel R. Dwight was appointed
President  and Chief  Executive  Officer  of TSET.  Effective  January  1, 2002,
Richard F. Tusing was appointed Chief Operating Officer of TSET.

      On January 18, 2002, we began  trading  shares of our common stock under a
new ticker symbol  (KNOS).  At the same time, we announced that our Company will
be doing business under the name of Kronos Advanced Technologies.  We anticipate
asking our shareholders to vote for the approval of an amendment to our Articles
of  Incorporation   for  a  name  change  of  our  Company  to  Kronos  Advanced
Technologies, Inc. at our next annual meeting.

      Kronos  Air   Technologies,   Inc.  is  focused  on  the  development  and
commercialization  of an air  movement  and  purification  technology  known  as
Kronos(TM)  that  is more  fully  described  below.  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 U.S. and international patents pending.

      The  Kronos(TM)  device  is  comprised  of  state-of-the-art  high-voltage
electronics  and  electrodes  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


                                       21
<PAGE>

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, and odor removal.  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.

      The U.S.  Department  of Defense and  Department  of Energy have  provided
Kronos Air Technologies  with various grants and contracts to develop,  test and
evaluate the KronosTM  technology.  Since May 2001, the total potential value of
Small  Business  Innovation  Research  (SBIR)  contracts  awarded  to Kronos Air
Technologies  has been $1.7 million.  In May 2001,  Kronos Air  Technologies was
awarded its first SBIR  contract  sponsored by the U.S.  Navy.  That contract is
potentially worth $837,000 in product development and testing support. The first
phase of the  contract is worth up to $87,000 in funding for  manufacturing  and
testing  prototype  devices  for air  movement  and  ventilation  onboard  naval
vessels.  The second phase of the contract is worth up to $750,000 in additional
funding. In January 2002, Kronos Air Technologies received a Phase II invitation
letter for this grant with a potential $750,000 commitment. The KronosTM devices
manufactured under this contract will be embedded in an existing HVAC systems to
move air more  efficiently than the traditional,  fan based  technology.  We are
currently waiting for the announcement of the award of the Phase II contracts by
the U.S. Navy.

      In April 2002,  the U.S. Navy and Kronos  mutually  agreed to exercise the
option  on the first  phase of the U.S.  Navy SBIR  contract.  The  option is to
provide  incremental funding to Kronos to further test and evaluate the KronosTM
devices   built   during  the  initial  SBIR   funding.   Testing  will  include
demonstrating  the ability of these U.S.  Navy  KronosTM  devices to capture and
destroy  biological  hazards  and  to  effectively  manage  electrical  magnetic
interference.

      In December  2001,  Kronos Air  Technologies  was awarded an SBIR contract
sponsored by the U.S. Army. This contract is potentially worth up to $870,000 in
product  development and testing support for Kronos Air Technologies.  Phase One
of the  contract is worth up to $120,000 in funding to  investigate  and analyze
the  feasibility  of the  KronosTM  technology  to reduce  humidity  in heating,
ventilation and air conditioning  (HVAC) systems.  Dehumidification is essential
to making HVAC systems more energy efficient. Phase Two of the contract is worth
up to $730,000 in additional funding for product development and testing. In May
2002,  the U.S.  Army  requested  the  Company  to submit a  detailed  Phase Two
proposal by June 10, 2002.  The proposal was  submitted on June 7, 2002.  We are
currently waiting for the announcement of award of the Phase II contracts by the
U.S. Army.


CRITICAL ACCOUNTING POLICIES

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

      ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS.  We  provide  a  reserve  against  our
receivables for estimated  losses that may result from our customers'  inability
to pay.  These  reserves are based on  potential  uncollectible  accounts,  aged
receivables,  historical losses and our customers'  credit-worthiness.  Should a
customer's  account  become  past due,  we  generally  will  place a hold on the
account and  discontinue  further  shipments  and/or  services  provided to that
customer, minimizing further risk of loss.

      VALUATION OF GOODWILL,  INTANGIBLE  AND OTHER  LONG-LIVED  ASSETS.  We use
assumptions in establishing  the carrying value,  fair value and estimated lives
of our long-lived  assets and goodwill.  The criteria used for these evaluations
include management's estimate of the asset's ability to generate positive income
from  operations  and  positive  cash flow in  future  periods  compared  to the
carrying  value of the asset,  the strategic  significance  of any  identifiable
intangible   asset  in  our   business   objectives,   as  well  as  the  market
capitalization  of TSET.  We have used certain key  assumptions  in building the
cash  flow  projections  required  for  evaluating  the  recoverablility  of our
intangible  assets. We have assumed revenues from the following  applications of
the Kronos  technology:  consumer  stand-alone  devices,  assisted  care/skilled
nursing stand-alone devices, embedded devices in the hospitality industry and in
specialized  military  applications.  Expenses/cash out flows in our projections
include   sales   and   marketing,   production,   distribution,   general   and
administrative   expenses,   research  and  development   expenses  and  capital
expenditures.  These  expenses are based on  management  estimates and have been
compared  with   industry   norms   (relative  to  sales)  to  determine   their
reasonableness.  We use the same key assumptions for our cash flow evaluation as
we do for internal budgeting,  lenders and other third parties,  therefore, they
are  internally  and externally  consistent  with financial  statement and other


                                       22
<PAGE>

public and private  disclosures.  We are not aware of any negative  implications
resulting   from  the   projections   used  for  purposes  of   evaluating   the
appropriateness  of the carrying value of these assets. If assets are considered
to be impaired,  the  impairment  recognized is the amount by which the carrying
value of the assets  exceeds  the fair  value of the  assets.  Useful  lives and
related  amortization or  depreciation  expense are based on our estimate of the
period that the assets will  generate  revenues  or  otherwise  be used by TSET.
Factors that would influence the likelihood of a material change in our reported
results include  significant changes in the asset's ability to generate positive
cash flow, loss of legal ownership or title to the asset, a significant  decline
in the  economic  and  competitive  environment  on  which  the  asset  depends,
significant changes in our strategic business objectives, and utilization of the
asset.

      VALUATION OF DEFERRED INCOME TAXES.  Valuation allowances are established,
when  necessary,  to reduce  deferred  tax assets to the amount  expected  to be
realized.  The  likelihood of a material  change in our expected  realization of
these assets is dependent on future  taxable  income,  our ability to deduct tax
loss  carryforwards  against future taxable income, the effectiveness of our tax
planning and strategies among the various tax jurisdictions  that we operate in,
and any  significant  changes  in the tax  treatment  received  on our  business
combinations.

      ESTIMATED LOSSES FROM DISCONTINUED OPERATIONS.  We provided for an accrual
for the estimated  loss on our  discontinued  Aperion Audio  business based upon
management's  estimates  of the  estimated  operating  losses to be  incurred by
Aperion  Audio from the date we adopted our plan to dispose of Aperion  Audio in
September  2001,  through the ultimate  disposal date, as well as estimated cost
related to the disposal. To the extent that the actual operating losses incurred
by Aperion  Audio differ from the  estimates we used to calculate  our estimated
loss on disposal and to the extent that the estimated disposal costs differ from
the actual costs we incur, the loss from discontinued operations may change.

      REVENUE  RECOGNITION.  We recognize  revenue in  accordance  with SAB 101.
Further,   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.  Revenue from government
grants for  research  and  development  purposes is  recognized  as revenue when
received. Sales are reported net of applicable cash discounts and allowances for
returns.


RESULTS OF OPERATIONS


CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2002

      Our net loss for the  current  year ended June 30,  2002 was $2.8  million
compared with a net loss of $9.9 million for the prior year. The decrease in the
net loss for the year ended June 30,  2002,  as compared to the prior year,  was
the result of a gain on the disposition of  discontinued  operations of $682,000
for the year ended  June 30,  2002  compared  with a loss of $6.3  million  from
operations  and the  disposition of  discontinued  operations for the year ended
June 30, 2001. The net loss from continuing  operations  decreased  $107,000 for
the year ended June 30, 2002 compared to the prior year.

      REVENUE.  Revenues are generated  through  sales of Kronos(TM)  devices at
Kronos Air  Technologies,  Inc.  Revenues  for the year ended June 30, 2002 were
$93,000  compared  with $95,000 in the prior year.  Current year  revenues  were
primarily from our U.S. Navy Small Business Innovative Research contract.  Phase
I of this contract was awarded to Kronos in May 2001.

      COST OF SALES.  Cost of sales for the year ended June 30, 2002 was $78,000
compared  with $63,000 for the prior year.  Cost of sales is primarily  research
and development  costs  associated with our U.S. Navy Small Business  Innovative
Research contract.

      SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES.   Selling,  General  and
Administrative  expenses for the year ended June 30, 2002 decreased $10,000 from
the prior year to $3.4 million of which  professional  services  paid/accrued to
management   consultants   ($1.6  million),   legal  ($215,000)  and  accounting
professionals  ($186,000)  engaged  by the  Company  were  $2.0  million  or 60%
compared to 22% in the prior year. The majority of the consulting  fees expensed
in the  current  year  ($943,000)  relate to the value of  warrants  and options
issued for consulting  services.  Compensation and benefits were $520,000 or 15%
compared to 35% in the prior year,  depreciation  and  intangibles  amortization
were $271,000 or 8% compared to 17% in the prior year,  research and development
was  $224,000  or 7% compared  to 9% in the prior  year,  and other  general and
administrative expenses were $353,000 or 10% compared to 17% in the prior year.


                                       23
<PAGE>

CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2002

      Our total  assets at June 30, 2002 were $2.4  million  compared  with $3.1
million at June 30, 2001. Total assets at June 30, 2002 were comprised primarily
of $2.2 million of patents/intellectual  property. Total assets at June 30, 2001
were comprised  primarily of $2.4 million of  patents/intellectual  property and
$521,800 of deferred  financing fees.  Total current assets at June 30, 2002 and
2001 were $123,000 and $70,000,  respectively,  while total current  liabilities
for  those  same  periods  were $1.8  million  and $1.9  million,  respectively,
creating a working  capital  deficit of $1.7 million at each  respective  period
end.  This  working  capital  deficit is primarily  due to accrued  expenses for
compensation,  management  consulting  and other  professional  services.  Total
liabilities  at June 30,  2002 and June 30,  2001  were  $2.0  million  and $2.6
million,  respectively,  representing a decrease of $0.6 million.  Shareholders'
equity  (deficit)  as of June 30,  2002 and 2001 was  $(385,000)  and  $479,000,
respectively,   representing  a  decrease  of  $0.8  million.  The  decrease  in
shareholders'  equity is  primarily  the result of incurring a $2.8 million loss
from continuing  operations for the twelve months ended June 30, 2002, offset by
the sale and issuance, net of offering costs, of $1.7 million of common stock.


CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2001

      REVENUE  AND  COST OF  SALES.  Revenues  are  generated  through  sales of
Kronos(TM)  devices at Kronos Air  Technologies,  Inc.  Sales for the year ended
June 30,  2001 were  $95,000.  Cost of sales for the year  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 year ended June
30, 2001.

      SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES.   Selling,  general  and
administrative  expenses  for the year  ended  June 30,  2001  amounted  to $3.4
million 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 year ended  June 30,  2000  amounted  to $1.4
million 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%.

      Research and  development  costs in 2000 included  $636,000 of expense for
in-process research and development purchased with the acquisition of Kronos Air
Technologies.  In-process R&D was the for the development and  commercialization
specific applications of Kronos' primary air purification and airflow technology
which  were in  process  at the  time  of the  acquisition.  In-process  R&D was
calculated  using a discounted cash flow model with a future  five-year  period.
Management determined that the application development project was approximately
59% complete at the time of acquisition. This development has been completed and
we  anticipate  sales of  stand-alone  consumer  air-purification  devices using
Kronos  technology in early 2003.  Included in the intangible  amortization  and
impairment  in 2001 is  $273,000  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 outside consultants to assist us.

      Included in other  income/expenses in 2001 is the settlement of the Foster
& Price  litigation  in the amount of  $213,750.  This  amount was  accrued as a
liability  until such time as the related shares were issued to the escrow agent
per the settlement agreement. Although the expense was accrued in the year ended
June 30, 2001, the shares were not issued May 31, 2002.


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2001

      Our total  assets at June 30, 2001 were $3.1  million  compared  with $7.6
million at June 30, 2000, a decline of $4.5 million, principally due to the loss
on disposal of discontinued  operations of Atomic Soccer of $2.3 million and the
impairment of assets for Aperion  Audio of $2.3 million,  which were recorded in
the  fiscal  year  ended  June 30,  2001.  Total  assets  at June 30,  2001 were
comprised  mainly of $521,000  for deferred  financing  fees and $2.4 million of
patents/intellectual  property.  Total  assets at June 30,  2000 were  comprised
principally of $3.0 million of patents/intellectual property and $4.5 million of
net assets of discontinued operations. Total current assets at June 30, 2001 and
June 30,  2000  amounted  to $70,000  and  $131,000,  respectively,  while total
current  liabilities  for  those  same  periods  amounted  to $1.9  million  and
$389,000,  respectively,  creating a working capital deficit of $1.9 million and
$258,000  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 at June 30, 2001 and
June 30, 2000 were $2.6  million and  $389,000,  respectively,  representing  an
increase  of $2.2  million.  Shareholders'  equity at June 30, 2001 and June 30,
2000 was $479,000 and $7.2  million,  respectively,  representing  a decrease of
$6.7 million.  The decrease in shareholders' equity is principally the result of
incurring  a $3.6  million  loss  from  operations,  a $3.8  million  loss  from
discontinued  operations,  and a $2.4 million  loss on disposal of  discontinued


                                       24
<PAGE>

operations  for the twelve  months  ended June 30,  2001  offset by the sale and
issuance of $3.1 million of common stock.


LIQUIDITY AND CAPITAL RESOURCES

      Historically  we have relied  principally  on the sale of common  stock to
finance  our  operations.  On May 7, 2002,  we  completed a  successful  private
placement of our common stock through  which we were able to obtain  commitments
for 1,971,176  shares of our common stock at $0.17 per share to seven accredited
investors for  consideration of $335,100 cash and 1,429,695 shares of our common
stock at $0.17 per share to six members of our management team for consideration
of $39,987 cash and commitments to convert  $203,061 of debt into equity.  Going
forward,  in addition to continued sales of common stock, we plan to rely on the
proceeds from Small Business  Innovation Research (SBIR) contracts with the U.S.
Navy and Army as well as other  government  contracts and grants,  and cash flow
generated  from  the  sale  of  Kronos(TM)  devices.   The  SBIR  contracts  are
potentially worth up to $1.7 million in product  development and testing support
for Kronos Air  Technologies.  The first phase of the  contracts  is worth up to
$207,000 in funding. If awarded to Kronos Air Technologies,  the second phase of
the  contracts  would be worth up to $1.5  million  in  additional  funding.  In
January 2002 and May 2002 Kronos Air  Technologies  received Phase II invitation
letters for U.S. Navy and U.S. Army contracts,  respectively,  with  potentially
$1.5 million in commitments.

      Net cash flow used in operating  activities  was $1.5 million for the year
ended June 30, 2002. We were able to satisfy most of our cash  requirements  for
this period 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 this agreement, we have sold 5 million shares of our
common stock and have received $891,000.

      On August 12, 2002,  we  terminated  our common stock  purchase  agreement
dated June 19, 2001 and 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,
$10,000 of our common stock or an aggregate of $6.0 million. The $6.0 million of
our  common  stock is to be  purchased  over a  30-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. Fusion Capital is obligated to
purchase  shares under the  agreement as long as the share price exceeds a floor
of $0.10.  However,  there can be no assurance of how much cash we will receive,
if any, under the common stock purchase agreement with Fusion Capital.

      We  estimate   that   achievement   of  our  business  plan  will  require
approximately  $3.0 million of funding.  We  anticipate  that the funding of our
business  plan will be  obtained  pursuant  to the  Fusion  Capital  transaction
(approximately  $1.0 million),  cash flow generated from  government  grants and
contracts  (approximately  $0.8 million,  which includes  funding from the Small
Business  Innovation  Research contracts sponsored by the United States Navy and
Army, recently awarded to Kronos Air Technologies), and cash flow generated from
customer revenue (approximately $1.2 million).  Pursuant to discussions with the
companies  that we will be  licensing  our  technology  for sale to the consumer
markets,  we  anticipate  generating  cash flow from advance  funding from these
companies for production  development  work. We believe that the $3.0 million of
funding includes amounts sufficient to satisfy our capital  requirements for the
next 12 months.


GOING CONCERN OPINION

      Our  independent  auditors  have added an  explanatory  paragraph to their
audit  opinion  issued  in  connection  with the 2002,  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.  Accordingly,  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  develop,
manufacturer and sell 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 not limited  to, the need to develop  and  manufacture
reliable and  effective  products,  develop  marketing  expertise and expand our
sales force.

                                       25
<PAGE>



ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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





                                       26
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS


                                                                           Page
                                                                          ------

TSET, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2002 (AUDITED)

   Report of Independent Certified Public Accountants....................    F-2

   Consolidated Balance Sheets as of June 30, 2002 and June 30, 2001.....    F-3

   Consolidated Statements of Operations for the years ended June 30,
     2002, 2001 and 2000.................................................    F-4

   Consolidated Statements of Cash Flows for the years ended June 30,
     2002, 2001 and 2000.................................................    F-5

   Consolidated Statement of Changes of Shareholders' Equity for years
     ended June 30, 2002, 2001 and 2000..................................    F-6

   Notes to Consolidated Financial Statements............................    F-8




                                       F-1
<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, 2002 and 2001,  and the  related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended June 30, 2002.  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, 2002 and 2001,  and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
three years in the period  ended June 30,  2002 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 $3,465,985 during
the year ended  June 30,  2002,  and,  as of that date,  the  Company's  current
liabilities  exceeded its current  assets by $1,653,906.  These  factors,  among
others,  as discussed in Note 3 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 3. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.


/s/ Grant Thornton LLP


Portland, Oregon
September 4, 2002



                                       F-2
<PAGE>
                                   TSET, INC
                           CONSOLIDATED BALANCE SHEETS


                                              JUNE 30,               JUNE 30,
                                                2002                  2001

                                           ---------------        --------------
ASSETS

Current Assets
     Cash                                        $ 21,510              $ 32,619
     Accounts receivable, net                         700                    --
     Prepaids and other current assets            101,029                37,679
                                           ---------------        --------------
        TOTAL CURRENT ASSETS                      123,239                70,298
                                           ---------------        --------------

PROPERTY AND EQUIPMENT                             62,723                62,723
     Less: Accumulated Depreciation               (33,348)              (18,016)

                                           ---------------        --------------
        NET PROPERTY AND EQUIPMENT                 29,375                44,707
                                           ---------------        --------------

OTHER ASSETS
     Intangibles                                2,213,917             2,431,524
     Deferred financing fees                           --               520,800

                                           ---------------        --------------
        TOTAL OTHER ASSETS                      2,213,917             2,952,324
                                           ---------------        --------------

TOTAL ASSETS                                  $ 2,366,531           $ 3,067,329
                                           ===============        ==============


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                           $ 956,684             $ 323,045
     Accrued expenses                             284,761             1,284,268
     Notes payable, current portion               535,700               313,900

                                           ---------------        --------------
        TOTAL CURRENT LIABILITIES               1,777,145             1,921,213
                                           ---------------        --------------

LONG TERM LIABILITIES
     Notes payable                                225,466                    --

                                           ---------------        --------------
        TOTAL LONG TERM LIABILITIES               225,466                    --
                                           ---------------        --------------


                                           ---------------        --------------
Net liabilities of discontinued operations              -               667,550
                                           ---------------        --------------


                                           ---------------        --------------
        TOTAL LIABILITIES                       2,002,611             2,588,763
                                           ---------------        --------------

                                           ---------------        --------------
REDEEMABLE WARRANTS                               748,500                    --
                                           ---------------        --------------

SHAREHOLDERS' EQUITY (DEFICIT)
     Common stock, authorized 500,000,000          43,938                34,001
        shares of $.001 par value
     Capital in excess of par value            14,371,113            12,418,350
     Deferred equity compensation                 (41,668)                   --
     Retained earnings (Accumulated
     deficit)                                 (14,757,963)          (11,973,785)

                                           ---------------        --------------
      TOTAL SHAREHOLDERS' EQUITY (DEFICIT)       (384,580)              478,566
                                           ---------------        --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY    $ 2,366,531           $ 3,067,329
                                           ===============        ==============







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


                                      F-3
<PAGE>
<TABLE>
                                                              TSET, INC
                                                CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                     YEAR ENDED JUNE 30,
                                             ---------------------------------------------------------------
<CAPTION>
                                                  2002                    2001                    2000

<S>                                          <C>                      <C>                     <C>
 Sales                                       $       92,589           $      95,000           $           -

 Cost of sales                                       77,589                  62,500                       -

                                             ---------------          --------------          --------------
 Gross Profit                                        15,000                  32,500                       -
                                             ---------------          --------------          --------------

 Selling, General and Administrative expenses
      Compensation and benefits                     520,021               1,201,048                 413,414
      Research and development                      224,086                 297,004                 636,175
      Professional services                       2,012,485                 735,296                 151,989
      Impairment of investment in CDI                     -                 272,945                       -
      Amortization of intangibles                   271,364                 323,164                  98,543
      Other selling general & administrative
        expense                                     353,148                 561,682                  88,371

                                             ---------------          --------------          --------------
 Total Selling, General and Administrative
        expense                                   3,381,104               3,391,139               1,388,492
                                             ---------------          --------------          --------------

 Net Operating Income (Loss)                     (3,366,104)             (3,358,639)             (1,388,492)
 Other Income / (expense)                               639                (207,793)                  2,897

 Interest Expense                                  (100,520)                 (6,126)                      -

                                             ---------------          --------------          --------------
 Net Income (Loss) Before Income Taxes           (3,465,985)             (3,572,558)             (1,385,595)

 Provision for Income Taxes                               -                       -                       -
                                             ---------------          --------------          --------------

 Net Income (Loss) from continuing operations    (3,465,985)             (3,572,558)             (1,385,595)
 Income (Loss) from discontinued operations,              -              (3,846,963)               (579,588)
    net of income tax of $0
 Gain (Loss) on disposal of discontinued            681,808              (2,446,562)                      -
    operations, net of income tax of $0

                                             ---------------          --------------          --------------
 Net Income (Loss)                           $   (2,784,177)          $  (9,866,083)          $  (1,965,183)
                                             ===============          ==============          ==============

 Basic Earnings (Loss) Per Share

      Income (loss) from continuing operations        (0.09)                  (0.11)                  (0.06)
      Income (loss) from discontinued                  0.02                   (0.20)                  (0.02)
        operations                           ---------------          --------------          --------------
      Net Income (loss)                      $        (0.07)          $       (0.31)          $       (0.08)
                                             ===============          ==============          ==============

 Diluted Earnings (Loss) Per Share

      Income (loss) from continuing operations        (0.09)                  (0.11)                  (0.06)
      Income (loss) from discontinued                  0.02                   (0.20)                  (0.02)
        operations                           ---------------          --------------          --------------
      Net Income (loss)                      $        (0.07)          $       (0.31)          $       (0.08)
                                             ===============          ==============          ==============
</TABLE>








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


                                      F-4
<PAGE>
                                    TSET, INC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED JUNE 30,
                                                                     ------------------------------------------------------
                                                                         2002                2001                 2000
CASH FLOWS FROM OPERATING ACTIVITIES
                                                                     --------------       -------------       -------------
<S>                                                                  <C>                  <C>                 <C>
    Net loss from continuing operations                              $ (3,465,985)        $(3,572,558)        $(1,385,595)
    ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
      (USED IN) PROVIDED BY OPERATIONS
      Depreciation and amortization                                       286,696             322,528               98,542
      In-process technology                                                     -                   -              633,229
      Impairment of of assets                                                   -             272,945               50,000
      Common stock issued for compensation/services                       805,167             111,973               50,000
      Cancellation of note payable                                              -            (22,383)                    -
    CHANGE IN
      Accounts receivable                                                    (700)              4,648              (4,648)
      Prepaid expenses and other assets                                   (63,350)           (14,426)             (23,253)
      Accounts Payable                                                    826,700             300,832               22,213
      Accrued Expenses and other liabilities                              108,475             982,868              271,250
                                                                     --------------       -------------       -------------

         NET CASH (USED IN) PROVIDED BY CONTINUING                     (1,502,997)         (1,613,573)            (288,262)
CASH FLOWS FROM INVESTING ACTIVITIES
      Purchases of property and equipment                                       -             (37,507)             (22,712)
      Investment in patent protection                                     (53,757)            (79,697)                   -
      Investment in discontinued operations                                     -            (435,823)            (726,225)
                                                                     --------------       -------------       -------------

         NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES              (53,757)           (553,027)            (748,937)
                                                                     --------------       -------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Issuance of common stock                                          1,649,695           2,056,270            1,124,125
      Proceeds from short-term borrowings                                 130,700             100,000               15,490
      Repayments of short-term borrowings                                (155,000)                  -                    -
      Deferred finances costs paid                                        (79,750)            (60,000)                   -

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

         NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES            1,545,645           2,096,270            1,139,615
                                                                     --------------       -------------       -------------

NET (DECREASE) INCREASE IN CASH                                           (11,109)            (70,330)             102,413
CASH
    BEGINNING OF PERIOD                                                    32,619             102,949                  536
                                                                     --------------       -------------       -------------

    END OF PERIOD                                                    $     21,510         $    32,619         $    102,949
                                                                     ==============       =============       =============

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    Interest paid in cash                                            $     22,149                   -                    -
    Income taxes                                                                -                   -                    -

NON-CASH INVESTING AND FINANCING ACTIVITIES:
    Deferred financing fees                                          $          -         $   460,800         $          -
    Debt satisfied with stock                                        $    696,195         $   516,163         $          -
    Issuance of notes payable for accrued liabilities                $    471,566         $   213,900         $          -
    Issuance of stock in legal settlement                            $    115,000         $         -         $          -
    Acquisition of subsidiaries with stock                           $          -         $         -         $  8,106,555

</TABLE>






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



                                       F-5
<PAGE>

                                    TSET, INC
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                       COMMON STOCK
                                                                                        -------------------------------------------
                                                                                             SHARES                  AMOUNT
                                                                                        -------------------------------------------

<S>                                                                                      <C>                       <C>
 BALANCE at June 30, 1999                                                                23,997,730                $ 23,997
      Shares reissued from prior year cancellation                                            4,000                       4
      Shares issued on August 31, 1999 to acquire the patents                               100,000                     100
      Shares issued on March 14, 2000 to acquire Atomic Soccer USA, Ltd                   1,000,000                   1,000
      Shares issued on March 14, 2000                                                        37,555                      38
      Shares issued on March 14, 2000 to acquire Kronos Air Technologies, InV             2,250,000                   2,250
      Shares issued on for May 9, 2000 to acquire EdgeAudio.com, Inc.                     1,298,701                   1,299
      Shares issued on May 9 to acquire Cancer Detection International Inc.                 180,000                     180
      Shares issued on May 19, 2000 as compensation                                          14,815                      15
      Shares of restricted common stock issued on June 30, 2000 for cash                    768,860                     769
      Net loss for the year ended June 30, 2000

                                                                                        -----------                ---------
 BALANCE at June 30, 2000                                                                29,651,661                $ 29,652

      Purchase price adjustment on Cancer Detection International, Inc.                     (20,000)                    (20)
      Shares issued on July 20, 2000 for cash                                               161,538                     161
      Shares issued on August 3, 2000                                                         5,000                       5
      Shares issued to liqudate debt of Atomic Soccer USA, Ltd                              362,259                     362
      Shares issued in September 2000 for cash                                              832,000                     832
      Shares issued in September to liquidate TSET, Inc. debt                                42,800                      43
      Shares issued on December 8, 2000 for cash                                            168,492                     169
      Shares issued on December 27, 2000 for cash                                            39,091                      39
      Shares issued on January 8, 2001 for cash                                             687,500                     688
      Shares issued on January 12, 2001 for cash                                             57,693                      57
      Shares issued on January 19, 2001 for cash                                             10,000                      10
      Shares issued on January 19, 2001 for services and compensation                        44,915                      45
      Shares issued on March 23, 2001 for cash                                              186,302                     186
      Shares issued on April 9, 2001 as compensation                                          2,000                       2
      Shares issued on April 9, 2001 to liquidate debt of Atomic Soccer                      97,020                      97
      Shares issued in April 2001 for cash                                                   38,038                      38
      Shares issued on May 3, 2001 for cash                                                  52,778                      53
      Shares issued on May 7, 2001 for cash                                                 891,891                     892
      Shares issued on June 14, 2001 as compensation                                         50,000                      50
      Shares issued on June 29, 2001 as a financing fee                                     640,000                     640
      Net loss for the year ended June 30, 2001
                                                                                        -------------------------------------------
 BALANCE at June 30, 2001                                                                34,000,978                $ 34,001
</TABLE>











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


                                      F-6a
<PAGE>
                                    TSET, INC
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY



<TABLE>
<CAPTION>

                                                                                              Retained      Deferred       Total
                                                                                               Earnings      Equity   Shareholders'
                                                                              Capital in     (Accumulated   Compen-      Equity
                                                                             Excess of Par      Deficit)    sation     (Deficita)
                                                                             -------------------------------------------------------
<S>                                                                          <C>            <C>                <C>     <C>
 BALANCE at June 30, 1999                                                    $    41,718    $    (142,520)     $0      $  (76,805)
    Shares reissued from prior year cancellation                                                                                 4
    Shares issued on August 31, 1999 to acquire the patents                       49,900                                    50,000
    Shares issued on March 14, 2000 to acquire Atomic Soccer USA, Ltd          1,805,250                                 1,806,250
    Shares issued on March 14, 2000                                                  (38)                                        -
    Shares issued on March 14, 2000 to acquire Kronos Air Technologies, In     3,344,625                                 3,346,875
    Shares issued on for May 9, 2000 to acquire EdgeAudio.com, Inc.            2,548,701                                 2,550,000
    Shares issued on May 9 to acquire Cancer Detection International Inc.        353,250                                   353,430
    Shares issued on May 19, 2000 as compensation                                 49,985                                    50,000
    Shares of restricted common stock issued on June 30, 2000 for cash         1,123,352                                 1,124,121
    Net loss for the year ended June 30, 2000                                                  (1,965,183)              (1,965,183)

                                                                             -----------    --------------    ------   -----------
 BALANCE at June 30, 2000                                                    $ 9,316,743    $  (2,107,703)     $0      $ 7,238,692

    Purchase price adjustment on Cancer Detection International, Inc.            (39,230)                                  (39,250)
    Shares issued on July 20, 2000 for cash                                      188,839                                   189,000
    Shares issued on August 3, 2000                                                6,555                                     6,560
    Shares issued to liqudate debt of Atomic Soccer USA, Ltd                     375,981                                   376,343
    Shares issued in September 2000 for cash                                     831,168                                   832,000
    Shares issued in September to liquidate TSET, Inc. debt                       42,757                                    42,800
    Shares issued on December 8, 2000 for cash                                    99,831                                   100,000
    Shares issued on December 27, 2000 for cash                                   22,301                                    22,340
    Shares issued on January 8, 2001 for cash                                    399,312                                   400,000
    Shares issued on January 12, 2001 for cash                                    34,943                                    35,000
    Shares issued on January 19, 2001 for cash                                     6,390                                     6,400
    Shares issued on January 19, 2001 for services and comp                       56,098                                    56,143
    Shares issued on March 23, 2001 for cash                                     134,814                                   135,000
    Shares issued on April 9, 2001 as compensation                                 1,768                                     1,770
    Shares issued on April 9, 2001 to liquidate debt of Atomic Soccer             96,923                                    97,020
    Shares issued in April 2001 for cash                                          17,492                                    17,530
    Shares issued on May 3, 2001 for cash                                         18,947                                    19,000
    Shares issued on May 7, 2001 for cash                                        299,108                                   300,000
    Shares issued on June 14, 2001 as compensation                                47,450                                    47,500
    Shares issued on June 29, 2001 as a financing fee                            460,160                                   460,800
    Net loss for the year ended June 30, 2001                                                  (9,866,083)              (9,866,083)

                                                                             -----------    --------------   ---       ------------
 BALANCE at June 30, 2001                                                    $12,418,350    $ (11,973,785)   $0        $   478,566
</TABLE>



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


                                      F-6b
<PAGE>


                                   TSET, INC
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
                                                                                                 COMMON STOCK
                                                                                      ------------------------------------
                                                                                         SHARES                   AMOUNT
                                                                                      ------------------------------------
<S>                                                                                  <C>                         <C>
   Shares issued on July 6, 2001 for cash                                                238,806                     239
   Shares issued on July 20, 2001 as compensation                                            250
   Shares issued on October 1, 2001 for consulting services                              360,000                     360
   Shares issued on October 1, 2001 as compensation                                        2,250                       2
   Shares issued on October 1, 2001 for cash                                           1,000,000                   1,000
   Shares issued on November 30, 2001 to Fusion Capital for cash                         100,000                     100
   Shares issued on December 10, 2001 to Fusion Capital for cash                          50,000                      50
   Shares issued on December 12, 2001 to Fusion Capital for cash                         100,000                     100
   Shares issued on December 13, 2001 to Fusion Capital for cash                          75,000                      75
   Shares issued on December 14, 2001 to Fusion Capital for cash                         500,000                     500
   Shares issued in January 2002 to Fusion Capital for cash                              925,000                     925
   Shares issued in February 2002 to Fusion Capital for cash                             350,000                     350
   Shares issued in March 2002 to Fusion Capital for cash                              1,683,333                   1,684
   Shares issued in April 2002 to Fusion Capital for cash                                178,571                     179
   Shares issued in May 2002 to Fusion Capital for cash                                   97,848                      98
   Shares issued on May 31, 2002 for cash                                              2,206,394                   2,206
   Shares issued on May 31, 2002 for debt forgiveness                                  1,194,477                   1,194
   Shares issued on May 31, 2002 for settlement of litigation                            375,000                     375
   Shares issued on June 7, 2002 in Aperion Audio sale and settlement                    500,000                     500
   Stock options granted at June 30, 2002 for consulting services
   Amortization of deferred financing fees
   Deferred Equity Compensation at June 30, 2002
   Net loss for the year ended June 30, 2002
                                                                                     -----------                 -------
BALANCE at June 30, 2002                                                             $43,937,907                 $43,938
                                                                                     ===========                 =======
</TABLE>


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


                                      F-7a
<PAGE>




                                TSET, INC
               STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                         Retained                          Total
                                                                           Capital in    Earnings        Deferred      Shareholders
                                                                            Excess of  (Accumulated       Equity          Equity
                                                                               Par       Deficit)      Compensation      (Deficit)
                                                                         ----------------------------------------------------------
<S>                                                                      <C>            <C>                <C>           <C>
   Shares issued on July 6, 2001 for cash                                      79,761                                       80,000
   Shares issued on July 20, 2001 as compensation                                 113                                          113
   Shares issued on October 1, 2001 for consulting services                   100,440                                      100,800
   Shares issued on October 1, 2001 as compensation                             1,446                                        1,448
   Shares issued on October 1, 2001 for cash                                  446,982                                      447,982
   Shares issued on November 30, 2001 to Fusion Capital for cash               23,400                                       23,500
   Shares issued on December 10, 2001 to Fusion Capital for cash               10,950                                       11,000
   Shares issued on December 12, 2001 to Fusion Capital for cash               20,900                                       21,000
   Shares issued on December 13, 2001 to Fusion Capital for cash               16,050                                       16,125
   Shares issued on December 14, 2001 to Fusion Capital for cash              107,000                                      107,500
   Shares issued in January 2002 to Fusion Capital for cash                   194,700                                      195,625
   Shares issued in February 2002 to Fusion Capital for cash                   69,150                                       69,500
   Shares issued in March 2002 to Fusion Capital for cash                     260,691                                      262,375
   Shares issued in April 2002 to Fusion Capital for cash                      24,821                                       25,000
   Shares issued in May 2002 to Fusion Capital for cash                        14,903                                       15,001
   Shares issued on May 31, 2002 for cash                                     372,881                                      375,087
   Shares issued on May 31, 2002 for debt forgiveness                         201,867                                      203,061
   Shares issued on May 31, 2002 for settlement of litigation                 213,375                                      213,750
   Shares issued on June 7, 2002 in Aperion Audio sale and settlement         114,500                                      115,000
   Stock options granted at June 30, 2002 for consulting services             279,384                                      279,384
   Amortization of deferred financing fees                                   (600,550)                                    (600,550)
   Deferred Equity Compensation at June 30, 2002                                                           (41,668)        (41,668)
   Net loss for the year ended June 30, 2002                                               (2,784,177)                  (2,784,177)
                                                                         ------------   --------------    ----------    -----------

 BALANCE at June 30, 2002                                                $ 14,371,113   $ (14,757,963)    $ (41,668)    $ (384,580)
                                                                         ============   ==============    ==========    ===========
</TABLE>




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


                                      F-7b

<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").  The Company's  shares began  trading on the  over-the-counter
bulletin board  exchange on August 28, 1996 under the symbol  "TSET."  Effective
January  12,  2002,  the  Company  began  doing  business  as  Kronos   Advanced
Technologies  and, as of January 18, 2002, we changed the Company  ticker symbol
to  "KNOS."  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,  Inc.
("Kronos").  After further evaluation of these investments,  the Company decided
to only continue with the  development of Kronos.  As a result,  the Company has
prioritized  its management and financial  resources to focus on this investment
opportunity.


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.

      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 at June 30, 2002 and 2001.
The Company  charges off accounts  receivable  against the  allowance for losses
when an account is deemed to be uncollectable.

      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.  The Company uses  assumptions in  establishing  the carrying
value, fair value and estimated lives of our long-lived assets and goodwill. The
criteria used for these evaluations include management's estimate of the asset's
ability to generate  positive  income from  operations and positive cash flow in
future  periods  compared  to the  carrying  value of the asset,  the  strategic
significance of any identifiable intangible asset in our business objectives, as
well as the market capitalization of the Company. Cash flow projections used for
recoverability  and  impairment  analysis use the same key  assumptions  and are
consistent with  projections  used for internal  budgeting,  and for lenders and
other third  parties.  If assets are  considered to be impaired,  the impairment
recognized is the amount by which the carrying  value of the assets  exceeds the
fair value of the assets.  Useful lives and related amortization or depreciation
expense are based on our  estimate  of the period that the assets will  generate
revenues  or  otherwise  be used by  TSET.  Factors  that  would  influence  the
likelihood  of a material  change in our reported  results  include  significant
changes in the asset's  ability to generate  positive  cash flow,  loss of legal
ownership  or title to the asset,  a  significant  decline in the  economic  and


                                       F-8
<PAGE>

competitive  environment on which the asset depends,  significant changes in our
strategic business objectives, and utilization of the asset (see Note 3).

      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.  The Company  recognizes  revenue in accordance with
Staff  Accounting  Bulletin (SAB) 101, which requires  evidence of an agreement,
delivery  of the  product or  services  at a fixed or  determinable  price,  and
assurance of collection within a reasonable period of time. Further,  Kronos Air
Technologies  recognizes  revenue  on the sale of the  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.  Revenue  from  government  grants  for  research  and
development  purposes is recognized as revenue as long as the Company determines
that the government will not be the sole or principal expected ultimate customer
for the research and  development  activity or the products  resulting  from the
research and  development  activity.  Otherwise,  such revenue is recorded as an
offset to research and  development  expenses in  accordance  with the Audit and
Accounting Guide, Audits of Federal Government Contractors.  In either case, the
revenue or expense offset is not recognized  until the grant funding is received
and any customer acceptance provisions are met or lapse.

      STOCK,  OPTIONS AND WARRANTS  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 and warrants issued to non-employees for services are valued
on the measurement date using the Black-Scholes option pricing model.

      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. In 2002, deferred financing costs relating to a common stock
purchase agreement have been offset against the proceeds on a  dollar-for-dollar
basis  (see Note 21).  Financing  costs  related to future  financing  where the
proceeds are certain and are received at  established  intervals  will be offset
ratably against the proceeds as they are received.

      RECENT ACCOUNTING  PRONOUNCEMENTS.  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  adopted 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  management  is in the
process  of  determining  whether  there  will be any  impact  on the  Company's
financial statements as a result of the adoption of this statement.



                                       F-9
<PAGE>

      In June 2001,  the Financial  Accounting  Standards  Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations." This statement addresses the
financial  accounting  and reporting for the  retirement of tangible  long-lived
assets and the  associated  asset  retirement  costs.  The Company  believes the
adoption  of  SFAS  143  will  have  no  significant  impact  on  its  financial
statements.  This  statement is effective  for financial  statements  issued for
fiscal years beginning after June 15, 2002.

      In August 2001, the Financial  Accounting  Standards Board issued SFAS No.
144,  "Accounting  for the  Impairment or Disposal of  Long-Lived  Assets." This
statement addresses the financial accounting and reporting for the impairment or
disposal of  long-lived  assets.  The Company  believes the adoption of SFAS 144
will have no significant impact on its financial  statements.  This statement is
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001.

      RECLASSIFICATION.  Certain  reclassifications have been made to the 2000
and 2001 financial statements in order to conform to the 2002 presentation.


NOTE 3 - 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, 2002. 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 its working capital needs.

      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. In April 2002, the U.S. Navy and Kronos
                  mutually  agreed to  exercise  the option on the
                  first phase of the U.S. Navy SBIR contract.  The
                  option  is to  provide  incremental  funding  to
                  Kronos   to    further    test   and    evaluate
                  Kronos(TM)devices  built during the initial SBIR
                  funding.  Testing will include demonstrating the
                  ability of these U.S. Navy  Kronos(TM)devices to
                  capture  and destroy  biological  hazards and to
                  effectively    manage    electrical     magnetic
                  interference.   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.  We are  currently  waiting for the
                  determination  of  the  award  of the  phase  II
                  contracts by the Navy.

            2.    In December 2001,  Kronos Air  Technologies  was
                  awarded an SBIR  contract  sponsored by the U.S.
                  Army.  This contract is potentially  worth up to
                  $850,000  in  product  development  and  testing
                  support for Kronos Air  Technologies.  Phase One
                  of the  contract  is  worth  up to  $120,000  in
                  funding   to   investigate   and   analyze   the
                  feasibility  of  the   Kronos(TM)technology   to
                  reduce humidity in heating, ventilation and air


                                      F-10
<PAGE>

                  conditioning  (HVAC)  systems.  Dehumidification
                  is  essential to making HVAC systems more energy
                  efficient.  Phase Two of the  contract  is worth
                  up  to  $730,000  in   additional   funding  for
                  product   development   and   testing.   We  are
                  currently  under  contract  for and  working  on
                  phase   One.   In  May  2002,   the  U.S.   Army
                  requested  the  Company  to  submit  a  detailed
                  Phase Two  proposal  by June 10, 2002 for review
                  in the current  year.  We submitted the proposal
                  on June 7,  2002. We are  currently  waiting for
                  the  determination  of the award of the phase II
                  contracts by the Army.

            3.    On July 2, 2001, we signed a six month 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, The Eagle Rock Group is 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.

            4.    On March 1, 2002,  the  Company  entered  into a
                  12-month  consulting  agreement  with The  Eagle
                  Rock  Group.  Pursuant  to  the  agreement,  the
                  Company  granted  The Eagle Rock Group a 10 year
                  warrant for up to 2,000,000 shares of our common
                  stock.  Of this,  500,000  shares will be earned
                  over a period of 12 months. The 500,000 warrants
                  are for  general  consulting  services  for a 12
                  month period.  The remainder of the warrants may
                  be  earned  contingent  upon the  occurrence  of
                  various  events  including a successful  capital
                  raise  equal to or  greater  than $1.5  million,
                  securing   contracts  with  the  U.S.  military,
                  securing   contracts   with    consumer-oriented
                  distribution organizations,  and the adoption of
                  a  branding/marketing  campaign  which  has been
                  principally developed by The Eagle Rock Group.

            5.    On  May  3,  2002,   the   Company   executed  a
                  non-binding  term sheet  with a consumer  retail
                  products  company.  The  agreement  provides for
                  exclusive  North  American  retail  distribution
                  rights  for a full  consumer  air  movement  and
                  purification   product   line   based   on   the
                  Kronos(TM)  technology  for a term  of at  least
                  three years.  Kronos will be compensated through
                  royalty payments with minimum annual levels. The
                  consumer  products  company  has also  agreed to
                  provide Kronos with advanced  funding to pay for
                  certain  development  work  necessary to bring a
                  Kronos-based  consumer  product  line to market.
                  The  terms of the  advanced  funding  are  still
                  being negotiated. Kronos believes it will retain
                  full rights to all of its intellectual property,
                  as  well  as  manufacturing  of its  proprietary
                  power supply.  The final agreement is subject to
                  negotiations  between the  parties.  The product
                  line launch is scheduled  for the first  quarter
                  of calendar year 2003.  Kronos has completed the
                  development of the core KronosTM technology.  We
                  are  currently  focused on applying the KronosTM


                                      F-11
<PAGE>
                  technology  to specific  customer  applications.
                  Customer application  development requires us to
                  tailor  the  KronosTM  technology  to  meet  the
                  customer's   specific   product    requirements,
                  including airflow volume and velocity, the level
                  of  particulate   removal,  the  amount  of  gas
                  destruction,  the size and shape of the  devices
                  and the  measurement  and  monitoring of airflow
                  and air quality.  This includes  developing  the
                  product  specifications,  designing  the  actual
                  product,   building   and  testing   prototypes,
                  finalizing the design for the manufacturer,  and
                  the manufacturing of the actual product.  Kronos
                  is required to keep the identity of the consumer
                  products company  confidential  until the formal
                  announcement of the product launch.

            6.    On May 7, 2002, we completed a private placement
                  of our common  stock  pursuant  to which we sold
                  1,971,176  shares of our  common  stock at $0.17
                  per  share to  seven  accredited  investors  for
                  consideration  of  $335,100  cash and  1,429,695
                  shares of our common stock at $0.17 per share to
                  six   members   of  our   management   team  for
                  consideration of $39,987 cash and commitments to
                  convert $203,061 of debt.

            7.    In July 2002, Kronos Air Technologies executed a
                  Memorandum of Understanding with Access Business
                  Group International L.L.C. for the production of
                  a limited  number of Kronos(TM)  devices and for
                  the  potential  licensing of KronosTM  based air
                  movement  and  treatment  technologies.   Access
                  Business  Group  is  the  product   development,
                  manufacturing   and   logistics   subsidiary  of
                  Alticor  Inc.  and an  affiliate  of  the  Amway
                  Corporation  and Quixtar Inc. Under the proposed
                  arrangement,  Kronos  will retain full rights to
                  all of our  intellectual  property,  as  well as
                  manufacturing  of our proprietary  power-supply.
                  The final  agreement is subject to  negotiations
                  between the parties.

            8.    During  our year ended  June 30,  2002,  we sold
                  5,059,752  shares of our common  stock to Fusion
                  Capital  for  $1,194,608  under  the  terms of a
                  Common Stock Purchase  Agreement  dated June 19,
                  2001.  On August 12, 2002, we entered into a new
                  Common Stock Purchase Agreement with Fusion (See
                  Note 18).

NOTE 4 - 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 "KronosTM"  (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  expensed and  allocated  to  in-process  technology  which had not
reached  technological  feasibility and which had no alternative future use. 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 all of the issued and  outstanding
shares of Atomic Soccer,  a Wisconsin  corporation.  The  consideration  for the
acquisition was 1,000,000 shares of TSET common stock.  This subsidiary was sold
in April 2001 generating a loss of $2.3 million (See note 14).

      On May 4, 2000, the Company  acquired  Aperion Audio. The Company acquired
all of Aperion Audio's issued and  outstanding  shares in exchange for 1,298,701
shares of the Company's  common stock.  This subsidiary was sold on June 7, 2002
generating a gain (after impairment adjustment) of $0.7 million (See note 14).


                                      F-12
<PAGE>
      On May 4, 2000,  the Company  acquired 100%  ownership of CDI, in exchange
for 160,000 shares of the Company's  common stock.  Upon  performing  impairment
analysis, management determined this asset was fully impaired at June 30, 2001.


NOTE 5 - PREPAID AND OTHER CURRENT ASSETS

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

                                                    2002              2001
                                                --------------    -------------
       Lease deposits                            $  23,253        $  29,110
       Advances to employees                        15,000            8,569
       Prepaid insurance                            22,456                -
       Prepaid consulting fees                      40,320                -
                                                --------------    -------------
       Prepaid and other current assets         $  101,029        $  37,679
                                                ==============    =============


NOTE 6 - PROPERTY AND EQUIPMENT

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

                                              2002                 2001
                                       --------------------  ------------------
       Leasehold improvements               $      5,139        $      5,139
       Office furniture and fixtures              54,061              54,061
       Machinery and equipment                     3,523               3,523
                                       --------------------  ------------------
                                                  62,723              62,723
       Less accumulated depreciation            (33,348)            (18,016)
                                       --------------------  ------------------
       Net property and equipment          $      29,375       $      44,707
                                       ====================  ==================

      Depreciation  expense for the years ended June 30, 2002, 2001 and 2000 was
$15,332, $16,456 and $2,197, respectively.


NOTE 7 - INTANGIBLES

      Intangible assets at June 30, consist of the following:

                                              2002                2001
                                        -----------------   -----------------
         Marketing intangibles             $    587,711        $    587,711
         Purchased patent technology          2,125,935           2,125,935
         Developed patent technology            133,454              79,697
                                        -----------------   -----------------
                                              2,847,100           2,793,343
         Less accumulated amortization        (633,183)           (361,819)
                                        -----------------   -----------------
         Net intangible assets            $   2,213,917        $  2,431,524
                                        =================   =================

      Purchased  patent  technology was acquired in the Kronos  acquisition  and
relates to a patent  application  that was pending at the acquisition  date. The
patent application is in process and remains pending at June 30, 2002.

      Intangible  assets are being amortized on a  straight-line  basis over ten
years. Amortization expense for the years ended June 30, 2002, 2001 and 2000 was
$271,364,  $306,709  and  $96,345,   respectively.  The  Company  recognized  an
impairment loss of $272,945 on the goodwill of CDI during 2001.


                                      F-13
<PAGE>

NOTE 8 - ACCRUED EXPENSES

      Accrued expenses at June 30, consist of the following:

                                                2002                 2001
                                           ---------------      ----------------
      Accrued compensation                  $  154,928           $   480,382
      Deferred compensation                          -               200,000
      Deferred revenue                          20,000                     -
      Accrued interest                          29,038                33,423
      Accrued professional services             80,795               420,463
      Other accruals                                 -               150,000
                                           ---------------      ----------------
                                            $  284,761           $ 1,284,268
                                           ===============      ================


NOTE 9 - NOTES PAYABLE

      The Company had the following obligations as of June 30, 2002 and 2001,

                                                2002               2001
                                           ---------------     -------------
    (1) Obligation to Fusion Capital        $     123,000      $    100,000
    (2) Obligation to Aperion Audio               200,466           213,900
    (3) Obligation to Directors                   360,000                 -
    (4) Obligation to The Eagle Rock Group         70,000                 -
        Obligations to stockholders                 7,700                 -
                                           ---------------     -------------
                                                  761,166           313,900
       Less:
        Current portion                           535,700           313,900

        Total long term obligations net of
           current portion                  $     225,466        $        -
                                           ===============     =============

(1)   This is a non-interest  bearing demand  obligation and is only outstanding
      until Fusion Capital  purchases enough stock from the Company to eliminate
      the advance position.
(2)   This note is  non-interest  bearing with an initial payment of $35,000 and
      monthly payments thereafter of $15,000 until the note is paid in full.
(3)   This note is to a director of the Company and bears interest at 4.59%. The
      note calls for  quarterly  payments of  principal  and interest of $20,000
      until the note is paid in full.
(4)   This note bears interest at the rate of 12%. Payment terms are for monthly
      interest only payments with the balance due on March 1, 2003.

NOTE 10 - LEASES

      The  Company  has  entered  into  a  noncancelable   operating  lease  for
facilities.  Rental expense was approximately  $62,000,  $53,000 and $12,000 for
years ended June 30, 2002,  2001 and 2000,  respectively.  Future  minimum lease
payments  under this  operating  lease are  $36,633 for the year ending June 30,
2003 and $0 thereafter.


NOTE 11 - EARNINGS (LOSS) PER SHARE

      Weighted  average  shares  outstanding  used  in the  earnings  per  share
calculation were 37,088,274,  31,481,874 and 25,263,333 for the years ended June
30, 2002, 2001 and 2000, respectively.

      As of June 30, 2002, there were outstanding  options to purchase 7,641,975
shares of the Company's common stock.  These options have been excluded from the
earnings per share calculation as their effect is anti-dilutive.  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.


                                      F-14
<PAGE>
NOTE 12 - INCOME TAXES

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

                                                      2002            2001
                                                 --------------- ---------------
Benefit from carryforward of capital and
  net operating losses                           $  2,685,915     $ 1,538,801
Other temporary differences                           220,332         228,121
Less:
  Valuation allowance                             (2,906,247)     (1,766,922)
                                                 --------------- ---------------
  Net deferred tax asset                          $         -     $         -
                                                 =============== ===============

      The other temporary  differences  shown above relate primarily to gain and
loss on  discontinued  operations,  impairment  reserves for intangible  assets,
accrued expenses, 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 statutory  rates were applied to pre-tax loss is
as follows:

<TABLE>
<CAPTION>
                                                          June 30,
                                   -------------------------------------------------------
                                               2002                       2001
                                   --------------------------- ---------------------------
                                                      % of                      % of
                                                     pre-tax                   pre-tax
                                        Amount        Loss         Amount        Loss
                                   -------------- ------------ -------------- ------------
Benefit for income tax at
<S>                                <C>                <C>      <C>               <C>
 Federal statutory rate            $    946,620       34.0%    $  3,354,468      34.0%
 State statutory rate                    55,494        2.0%         197,322       2.0%
Non-deductible expenses               (111,278)      (4.0%)     (1,909,415)    (19.4)%
Acquired NOL and other                  248,489        8.9%       (669,612)     (6.8)%
Increase in valuation allowance     (1,139,325)     (40.9)%       (972,743)     (9.8)%
                                   -------------- ------------ -------------- ------------
                                    $         -        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.

      The Company has filed all of its federal and state  income tax returns for
all years  through  June 30,  2001.  The  Company  is  current on all income tax
filings.  At June 30, 2002, the Company has approximately $6.4 million of unused
Federal net operating  losses,  $1.0 million  capital  losses and $3.3 State net
operating  losses  available for  carryforward to future years. The benefit from
carryforward  of such losses will expire in various  years between 2006 and 2022
and could be subject to limitations if  significant  ownership  changes occur in
the Company.

NOTE 13 - CONSULTING AGREEMENTS

      In July 2001,  the  Company  signed a six-month  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 the Kronos(TM) technology.

      Pursuant to the  agreement  that the Company  entered  into with The Eagle
Rock  Group,  the  Company  issued to The Eagle Rock  Group a  ten-year  warrant
granting them the right to purchase  1,400,000  shares of the  Company's  common
stock at an exercise  price of $0.68 per share.  The warrants  were  immediately
vested  and  non-forfeitable.  The  warrant  was  valued at  $686,000  using the
Black-Scholes  option  valuation  model and was  initially  recorded as deferred
equity  compensation  and amortized  into current period  professional  services
expense  at a rate of  $137,200  per  month  over  the  term  of the  agreement.
Amortization  for the  year  ended  June  30,  2002  was  $686,000.  The  shares
underlying the warrant have piggy-back and demand  registration  rights, as well
as subscription rights in the event that the Company issues any rights to all of
its  stockholders  to subscribe  for shares of the Company's  common  stock.  In
addition,  the warrant contains  redemption rights in the event that the Company
enters into a transaction that results in a change of control of the Company.

      On  October 1,  2001,  the  Company  entered  into a  15-month  consulting
agreement with Joshua B.  Scheinfeld and Steven G. Martin,  principals of Fusion
Capital,   for  consulting  services  with  respect  to  operations,   executive
employment  issues,  employee  staffing,  strategy,  capital structure and other
matters as specified from time to time. As consideration for their services, the


                                      F-15
<PAGE>

Company  issued  360,000  shares of its common stock.  In  accordance  with EITF
96-18,  the measurement  date was established as the contract date of October 1,
2001 as the share grant was  non-forfeitable  and fully vested on that date. The
stock  was  valued  on that  date at $0.28 a share  (the  closing  price for the
Company's  common stock on the  measurement  date).  The stock issuance has been
recorded as a prepaid  consulting fee and is being amortized to Professional Fee
Expense ratably over the 15 month term of the contract.

      On March 1, 2002, the Company entered into a 12-month consulting agreement
with The Eagle Rock Group. Pursuant to the agreement,  the Company issued a note
for the outstanding balance of $120,000 due to The Eagle Rock Group. The note is
due on March 1,  2003  and  bears  interest  at the rate of 12% per  annum.  The
Company  also granted The Eagle Rock Group a 10 year warrant for up to 2,000,000
shares.  The warrant  contains  redemption  rights in the event that the Company
enters into a transaction that results in a change of control of the Company. Of
this,  500,000  shares will be earned over a period of 12 months.  The  exercise
price of the initial 500,000  warrants is $0.42 for 250,000  warrants and $0.205
(the closing price of the  Company's  common stock on March 1, 2002) for 250,000
warrants.  These warrants are irrevocable and are fully vested.  The measurement
date is March 1, 2002 as the warrants are fully  vested and  non-forfeitable  on
that date.  The value  assigned to these  warrants is $62,500 and was determined
using the  Black-Scholes  option  valuation  model. The 500,000 warrants are for
general consulting  services for a 12 month period. The $62,500 will be expensed
ratably over the term of the  consulting  contract.  The remainder of the shares
may be earned  contingent  upon the  occurrence  of various  events  including a
successful  capital  raise  equal to or  greater  than  $1.5  million,  securing
contracts with the U.S.  military,  securing  contracts  with  consumer-oriented
distribution  organizations,  and the adoption of a branding/marketing  campaign
which has been  principally  developed  by The Eagle Rock Group.  The  remaining
potential  1,500,000  shares  covered by the warrant  will be valued if and when
earned under the terms of the  contract.  The exercise  price for the  remaining
shares will be the market price on the date the grant is earned.


NOTE 14 - 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 and  resulted  in a loss of $2.3
million.

      At June  30,  2001,  the  Company  recognized  an  impairment  loss on the
intangible  asset related to its acquisition of Aperion Audio of $2,294,000.  On
September  14,  2001 the  board  approved  a formal  plan of  action  to sell or
otherwise dispose of Aperion Audio. The Company accrued $150,000 for anticipated
operating losses during the phase-out  period.  The sale of TSET-owned shares of
Aperion  Audio  common  stock  was  completed  on June 7,  2002,  pursuant  to a
Settlement  Agreement and Mutual Release. The Company sold its shares of Aperion
Audio to Aperion Audio's management group ("the Buyers").  Pursuant to the sale,
the Buyers  received  500,000 shares of the Company's  common stock.  Under this
agreement/settlement,  the  Company  agreed  to pay the  remaining  $213,900  of
capital  contributions  previously  agreed to at the time the  Company  acquired
Aperion  Audio,  as well as  Aperion  Audio's  legal  fees  associated  with the
arbitration of $21,566, in the form of a non-interest  bearing note payable over
the next 14 months.  In  exchange,  the Company  received a full  release of all
liabilities,  and claims  including the release of the  potential  liability for
$3.75 million of  additional  consideration  to be paid in shares of TSET,  Inc.
common  stock via an  earn-out  provision  in the  Acquisition  Agreement.  As a
result,  the Company  has no  additional  risk of loss or any other  commitments
other than the $235,466 fixed  payment,  of which $35,000 was paid prior to year
end.

      At June 30,  2001,  the  Company  wrote  down to $0 the  intangible  asset
associated  with its  investment in Aperion Audio creating a negative book value
for this investment of approximately  $800,000. The sale has resulted in a gain,
after  offsetting  the value of 500,000  shares  issued in the  transaction,  of
$682,000. For income tax purposes,  there was no write down in the Aperion Audio
intangible asset, therefore, there will be no tax effect on this gain.

      Both  Atomic  Soccer  and  Aperion  Audio are  included  in the  financial
statements as  discontinued  operations.  The Company's  consolidated  financial
statements  for all periods  have been  reclassified  to report  separately  the
results of operations  and operating cash flows from  continuing  operations and
the discontinued  operations.  The net revenues of Aperion Audio are included in
the financial  statements under Net Income (Loss) from Discontinued  Operations.
The assets and liabilities of Aperion Audio at June 30, 2001 are included in the
balance sheet as Net Liabilities of Discontinued Operations.  Net liabilities of
discontinued  operations at June 30, 2002 was $0. Net  liabilities and operating
results of discontinued operations for the years ended June 30, are as follows:


                                      F-16
<PAGE>

         NET LIABILITIES OF DISCONTINUED OPERATIONS AT JUNE 30, 2001

                                                           APERION AUDIO
                                                           -------------

                      Current Assets                        $  294,100
                      Net Property and Equipment                48,835
                      Current Liabilities                    (464,788)
                      Minority Interest                      (545,697)
                                                           -------------
                      Net Assets (Liabilities)              $(667,550)
                                                           =============


      In September 2000, the Company authorized a minority  investment of 20% of
Aperion  Audio.  The  following  is a summary  of the  calculation  of  minority
interest at June 30, 2001:

            Initial capital contribution by the minority
            interest holder                                        $    700,000
            Minority interest in net loss for the period
            ended June 30, 2001                                       (154,303)
                                                                   -------------
            Minority interest at June 30, 2001                     $    545,697
                                                                   =============

                OPERATING RESULTS OF DISCONTINUED OPERATIONS:
<TABLE>
<CAPTION>
                                                OPERATING RESULTS OF DISCONTINUED OPERATIONS:
                                       -------------------------------------------------------------
                                                        FOR THE YEAR ENDED JUNE 30,
                                       -------------------------------------------------------------
                                         2002                             2001
                                       ----------     ----------------------------------------------
                                       APERION                           APERION
                                        AUDIO            ATOMIC           AUDIO            TOTAL
                                      -----------      -----------     ------------    ------------

<S>                                   <C>              <C>             <C>             <C>
Sales                                 $   853,656      $   714,464     $    757,100    $  1,471,564
Cost of sales                           (340,479)        (512,282)        (381,341)       (893,623)
Depreciation and amortization            (12,133)        (215,398)        (270,071)       (485,469)
General and administrative              (672,127)        (369,058)      (1,107,041)     (1,476,099)
                                      -----------      -----------     ------------    ------------
Operating income (loss)                 (171,083)        (382,274)      (1,001,353)     (1,383,627)

Other income                               22,799              735        (239,858)       (239,123)
Interest expense                         (25,584)         (69,232)         (14,968)        (84,200)
Provision for asset impairment                  -                -      (2,294,316)     (2,294,316)
Reserve for operating losses
during phase-out period                   139,094                -                -               -
Minority interest                          34,774                -          154,303         154,303
                                      -----------      -----------     ------------    ------------
Income (Loss) pre-tax                           0        (450,771)      (3,396,192)     (3,846,963)

Income taxes (benefits)                         -                -                -               -
                                      -----------      -----------     ------------    ------------
Loss from discontinued operations     $         0      $ (450,771)     $(3,396,192)    $(3,846,963)
                                      ===========      ===========     ============    ============
</TABLE>


                                   OPERATING RESULTS OF DISCONTINUED OPERATIONS:
                                   ---------------------------------------------
                                            FOR THE YEAR ENDED JUNE 30,
                                   ---------------------------------------------
                                                        2000
                                   ---------------------------------------------
                                       ATOMIC       APERION AUDIO     TOTAL
                                   --------------- --------------- -------------

Sales                                    $ 292,889       $ 13,182       $306,071
Cost of sales                            (248,773)        (7,820)      (256,593)
Depreciation and amortization             (98,138)       (43,289)      (141,427)
General and administrative               (261,600)      (184,255)      (445,855)
Operating income (loss)                  (315,622)      (222,182)      (537,804)
                                   --------------- --------------- -------------
Interest expense                          (41,784)              -       (41,784)
                                   --------------- --------------- -------------
Income (Loss) pre-tax                    (357,406)      (222,182)      (579,588)
Income taxes (benefits)                          -              -              -
                                   --------------- --------------- -------------
Loss from discontinued operations      $ (357,406)     $(222,182)    $ (579,588)
                                   =============== =============== =============



                                      F-17
<PAGE>

NOTE 15 - STOCK OPTIONS

      On February 12, 2002, the Board of Directors approved the TSET, Inc. Stock
Option  Plan  under  which  TSET's  key  employees,   consultants,   independent
contractors,  officers and  directors  are  eligible to receive  grants of stock
options. TSET has reserved a total of 6,250,000 shares of common stock under the
Stock  Option Plan.  Prior to that,  the Company had no formal stock option plan
but 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 6,084,900,  1,557,075,  and 0 shares in the
years ended June 30, 2002, 2001 and 2000, 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 the  Black-Scholes  option pricing model with the following range of
assumptions for the years ended June 30:

                                                     2002             2001
                                                 ------------     ------------
                  Risk free interest rate        4.0% to 4.4%     4.5% to 4.9%
                  Expected dividend yield             0%               0%
                  Expected lives                 3 to 10 years    3 to 10 years
                  Expected volatility               143.00%          91.00%


      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, 2002,  2001
and 2000 was $.14, $.65, 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.

      The  Company's  pro  forma   information,   had  compensation  costs  been
determined  based on the fair value of the  options on the date of grant,  is as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                     June 30,
                               ---------------------------------------------------------------------------------
                                         2002                        2001                        2000
                               -----------------------     ------------------------    -------------------------
                                               Pro                           Pro                         Pro
                                Reported      Forma         Reported        Forma        Reported       Forma
                               ----------    ---------     ----------     ---------     ---------      --------

<S>                            <C>           <C>           <C>            <C>           <C>            <C>
Net income (loss)              $  (2,784)    $ (3,602)     $  (9,866)     $(10,642)     $ (1,965)      $(1,965)
Earnings (loss) per Share:
      Basic                        (0.07)       (0.10)         (0.31)        (0.34)        (0.07)        (0.07)
      Diluted                      (0.07)       (0.10)         (0.31)        (0.34)        (0.07)        (0.07)

</TABLE>



                                      F-18
<PAGE>

      A summary of the Company's stock option  activity and related  information
for the years ended June 30,  2002,  2001 and 2000 is as follows (in  thousands,
except per share amounts):

                                                                       Weighted
                                                                        Average
                                                                       Exercise
                                                    Shares              Price
                                                 ------------       -----------
                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 at June 30, 2001            1,557             0.89
                      Granted                           6,085             0.54
                      Exercised                             0                -
                      Cancelled                             0                -
                                                 ------------       -----------

                Outstanding as June 30, 2002            7,642  $          0.61
                                                 ============       ===========

      A summary of options  outstanding  and  exercisable at June 30, 2002 is as
follows (in thousands, except per share amounts):

                                                                       Options
                                 Options Outstanding                 Exercisable
              ----------------------------------------------------  ------------
                                             Weighted
                                              Average     Weighted
                                             Remaining     Average
                  Range of                     Life       Exercise
              Exercise Prices    Options    (in years)      Price      Options
              ---------------  ----------- ------------   ---------  -----------
June 30, 2002 $0.71 - $1.12       2,002        6.31       $   0.91      2,002
              $0.50 - $0.70       3,150        10.0       $   0.67        500
              $0.21 - $0.49       2,490        9.97       $   0.28        560

June 30, 2001 $0.71 - $1.12       1,557        7.14       $   0.89      1,557

      The weighted  average  exercise price for  exercisable  options are $0.91,
$0.61 and $0.42 for options  outstanding  at June 30, 2002 and $0.89 for options
outstanding at June 30, 2001.


NOTE 16 - COMMITMENTS AND CONTINGENCIES

      LITIGATION.  On June 6,  2002,  Dutchess  Advisors  Ltd.  initiated  legal
proceedings  in Middlesex  County,  Massachusetts,  against TSET.  The complaint
alleges,  among  other  things,  breach  of  contract,  QUANTUM  MERUIT,  unjust
enrichment and  conversion  with respect to a letter  agreement,  dated June 19,
2001,  between TSET and Dutchess Advisors Ltd., and seeks, among other things, a
judgment in the amount of $75,000, exclusive of pre-judgment interest, costs and
attorneys'  costs.  TSET contested the allegations made by Dutchess by serving a
motion to dismiss all claims.  Dutchess  subsequently filed an amended complaint
with the court on August 16, 2002.  Dutchess  seeks to recover up to three times
its actual  damages as well as its costs and  attorneys'  fees.  TSET intends to
file a motion to dismiss all counts in the amended complaint. TSET believes that
it has meritorious defenses and to vigorously defend this matter.

      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 form the
court referring the dispute to arbitration in accordance with the terms of these
individuals'  respective employment  agreements,  which were terminated by us on


                                      F-19
<PAGE>

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.

      APERION AUDIO "EARN-OUT" PROVISION. Part of the consideration given by the
Company for the acquisition of Aperion Audio is related to an earn-out provision
in which the  Company  would  award  additional  common  stock of the Company as
Aperion Audio achieves  stipulated  revenue  milestones  over a five year period
commencing on May 4, 2000. Through June 30, 2002, Aperion Audio has not achieved
any of these  milestones.  As part of the  settlement and sale of Aperion Audio,
all parties except for one, who has a 10% interest in the earn-out,  have agreed
to relinquish all rights to this earn-out provision.  Upon achieving each of the
five milestones,  an additional  $75,000 of TSET common stock would be issued to
him.


NOTE 17 - SEGMENTS OF BUSINESS

     The Company operates  principally in one segment of business:  Kronos plans
to license,  manufacture  and distribute 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, 2002, the Company operated only in the U.S.


NOTE 18 - SUBSEQUENT EVENT

      On August 12,  2002,  the Company  terminated  the Common  Stock  Purchase
Agreement with Fusion Capital Fund II, LLC, dated June 19, 2001 and entered into
a new Common  Stock  Purchase  Agreement.  The new  agreement  contains the same
provisions as the previous agreement with three notable changes.  First, the new
agreement is for the purchase of $6,000,000  in shares of the  Company's  common
stock,  whereas the June 19, 2001  agreement was for the purchase of $10,000,000
in shares.  Second,  the new agreement has established a purchase floor of $0.10
per share and Fusion  cannot  purchase  shares as long as the  trading  price is
below the floor. Under the June 19, 2001 agreement, the purchase floor was $0.25
per share and Fusion was able to  continue  purchasing  shares  when the trading
price was below the floor, even through they were not obligated to do so. Third,
the new  agreement  obligates  Fusion to purchase on each trading day $10,000 of
our common  stock,  provided the  agreement is not  suspended,  terminated or an
event of default has  occurred.  Under the June 19, 2001  agreement,  Fusion was
obligated  to purchase on each  trading  day  $12,500 of our common  stock.  The
agreement is for 30 months with an option available to the Company,  in its sole
discretion, to extend for an additional six months.

      On August 13, 2002,  the Company filed a  registration  statement with the
Securities and Exchange Commission registering 15 million shares of common stock
to be used in the common stock purchase agreement. As of September 23, 2002, the
Company  had not drawn any of the $6 million  available  under the common  stock
purchase  agreement.  The registration  statement was declared  effective by the
Securities and Exchange Commission on September 23, 2002.


NOTE 19 - RELATED PARTIES

      The  Company  has  consulting  agreements  with  members  of the  board of
directors,  one of which  who is also an  acting  officer  of the  Company.  The
agreements  provide  for  cash  and  equity  compensation  per  hour of  service
provided.  At June 30,  2002,  the Company had accrued cash  compensation  under
these  agreements of $398,400 and had granted  options to acquire 423,000 shares
at an exercise price of $0.96 per share.

      In 2002, it was determined the $279,000 of accrued compensation to certain
officers and directors would be settled with the issuance of stock options.


                                      F-20
<PAGE>

NOTE 20 - 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. The following is a
summary of unaudited  quarterly  results of continuing  operations for the years
ended June 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                           QUARTER
                                   ---------------------------------------------------------
                                       FIRST         SECOND           THIRD         FOURTH
                                   ---------------------------------------------------------
Year ended June 30, 2002
----------------------------
<S>                                <C>            <C>              <C>          <C>
    Sales                          $     25,014   $    40,056      $        -   $     27,519
    Gross profit                         15,000             -               -              -
    Net income (loss) from
      continuing operations         (1,052,634)    (1,228,599)      (657,251)      (527,501)
    Net income (loss) per share          (0.03)        (0.03)          (0.02)         (0.01)

Year ended June 30, 2001
----------------------------
    Sales                          $          -   $         -      $    5,000   $     90,000
    Gross profit                              -             -           5,000         27,500
    Net income (loss) from
      continuing operations           (533,126)     (939,302)       (673,967)    (1,426,164)
    Net income (loss) per share          (0.02)        (0.03)          (0.02)         (0.04)

</TABLE>



NOTE 21 - FOURTH QUARTER ADJUSTMENT

      During the fourth  quarter,  the  Company  offset the  remaining  deferred
finance  costs  of  $555,712,  for the  Fusion  Capital  common  stock  purchase
agreement, against the proceeds from the agreement.









                                      F-21
<PAGE>

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

      None




                                       27
<PAGE>
                                    PART III


ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Our directors  and  executive  officers and their ages as of September 23,
2002, are as follows:

          NAME                  AGE   POSITION
          -------------------- -----  ----------------------------------------
          Daniel R. Dwight      42    Director; President and Chief
                                      Executive Officer

          Richard A. Papworth   44    Director; Chief Financial Officer,
                                      Secretary, and Treasurer

          Richard F. Tusing     45    Director; Chief Operating Officer

          James P. McDermott    40    Director

          Charles D. Strang     79    Director

          Erik W. Black         31    Director

          Jeffrey D. Wilson     47    Director


      DANIEL R.  DWIGHT,  42, 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.  Effective  October 16,  2001,  Mr.  Dwight was  appointed
President and Chief  Executive  Officer of TSET. 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,  44,  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
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


                                       28
<PAGE>

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.

      RICHARD F. TUSING, 45, has served as a Director of TSET since October 2000
and as a  Director  of  Kronos  Air  Technologies  since  January  2001  and was
appointed  Chief  Operating  Officer  on January  1,  2002.  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.

      JAMES P.  MCDERMOTT,  40 became a  Director  of TSET in July  2001.  Mr.
McDermott  has over 18  years of  financial  and  operational  problem-solving
experience.  Mr.  McDermott  is a  co-founder  and  is  currently  a  Managing
Director of Eagle Rock  Advisors,  LLC,  the Manager for The Eagle Rock Group,
LLC.  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.

      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


                                       29
<PAGE>

(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
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.

      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.  Mr. Black  resigned as Executive
Vice-President  - Business  Development  of TSET - effective  December 31, 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.

      JEFFREY D. WILSON,  47, 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 Aperion Audio,  respectively.  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.


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.  Daniel R. Dwight,  our
President and Chief Executive Officer,  Richard A. Papworth, our Chief Financial
Officer,  Secretary,  and Treasurer,  and Richard F. Tusing, our Chief Operating
Officer, are also executive officers of TSET. James P. McDermott, a principal of
The Eagle Rock Group, LLC, was appointed to our Board of Directors in July 2001.

                                       30
<PAGE>
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 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.  Mr.  Poster is  currently a  principal  with Eagle Rock
Advisors, LLC.

      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 and 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 filing, 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. 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.

                                       31
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

      The following table sets forth compensation for the fiscal year ended June
30, 2002 for our executive officers:

<TABLE>
<CAPTION>
                                                SUMMARY COMPENSATION TABLE

                                     ANNUAL COMPENSATION                                     LONG-TERM COMPENSATION
                             ------------------------------------          -------------------------------------------------------
                                                                                      AWARDS                      PAYOUTS
                                                                           ------------------------------    ---------------------
                                                                            RESTRICTED      SECURITIES                     ALL
                                                                 OTHER        STOCK         UNDERLYING        LTIP        OTHER
NAME AND PRINCIPAL                   SALARY         BONUS     COMPENSATION    AWARDS        OPTIONS/SAR's    PAYOUTS   COMPENSATION
FISCAL POSITION               YEAR     $              $            $            $                #              $            $
------------------           -----   ------         -----     ------------  -----------     -------------    -------    ------------
(a)                            (b)     (c)           (d)          (e)             (f)             (g)            (h)          (i)

<S>                          <C>     <C>           <C>             <C>         <C>             <C>                <C>            <C>
Daniel R. Dwight,            2002    112,500            --         7,620            --         2,600,000          --             --
   President and             2001       --              --            --            --               --           --             --
   Chief Executive           2000       --              --            --            --               --           --             --
   Officer(1)



Richard F. Tusing,           2002       --              --            --            --               --           --             --
   Chief Operating           2001       --              --            --            --               --           --             --
   Officer(2)                2000       --              --            --            --               --           --             --




Jeffrey D. Wilson,           2002     70,000            --         3,500            --             50,000         --             --
   Former Chairman of        2001    180,000            --        12,000            --         600,000(4)         --             --
   the Board of              2000    155,000       30,000(6)       2,670(7)    700,000(8)            --           --             --
   Directors and Chief
   Executive Officer(3)



Richard A. Papworth,         2002    120,000 (9)        --            --            --          300,000           --             --
   Chief Financial           2001    120,000            --         2,000            --         448,475(10)        --             --
   Officer                   2000    10,000(11)         --            --        50,000(12)           --           --             --




Erik W. Black,               2002    60,000(      14)   --         6,000            --               --           --             --
   Former                    2001    100,000            --         6,000            --         50,000(15)         --             --
   Executive
                             2000    4,167(1      6)    --       4,500(17)          --               --           --             --
   Vice-President

   Business

   Development(13)
</TABLE>

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

(1)   Mr. Dwight became President and Chief Executive  Officer of TSET effective
      October 16, 2001.

(2)   Mr. Tusing became Chief  Operating  Officer of TSET  effective  January 1,
      2002.

(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)   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.

(5)   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.

(6)   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


                                       32
<PAGE>

      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.

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

(8)   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.

(9)   TSET accrued $45,000 of Mr. Papworth's 2002 salary.

(10)  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.

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

(12)  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).

(13)  Mr. Black resigned as Executive  Vice-President - Business  Development of
      TSET effective December 31, 2001.

(14)  TSET accrued $60,000 of Mr. Black's 2002 salary.

(15)  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.

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

(17)  Mr. Black was 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.

<TABLE>
                        AGGREGATED OPTIONS/SAR EXERCISES
                             IN LAST FISCAL YEAR AND
                      FISCAL YEAR END OPTIONS/SAR VALUES(1)
<CAPTION>
                                                       NUMBER OF SECURITIES    VALUE OF UNEXERCISED
                          SHARES                      UNDERLYING UNEXERCISED      IN-THE-MONEY
                       ACQUIRED ON     VALUE             OPTIONS/SAR'S AT          OPTIONS/SAR'S
        NAME             EXERCISE    REALIZED ($)       FISCAL YEAR END(1)      AT FISCAL YEAR END(2)
--------------------- ------------- -------------     -----------------------  -----------------------
<S>                       <C>           <C>         <C>            <C>                 <C>
Daniel R. Dwight          -0-           -0-         Exercisable:   l1,321,700          $0
President and                                       Unexercisable:  1,600,000          $0
Chief Executive
Officer(3)

Richard F. Tusing         -0-           -0-         Exercisable:   l473,000            $0
Chief Operating Officer(4)                          Unexercisable: a950,000            $0



Jeffrey D. Wilson         -0-           -0-         Exercisable:   l310,000(6)         $0
Former Chairman of                                  Unexercisable:  350,000(6)         $0
the Board of Directors
and Chief Executive
Officer(5)


Richard A. Papworth       -0-           -0-         Exercisable:   l448,475            $0
Chief Financial Officer                             Unexercisable:  300,000            $0

Erik W. Black             -0-           -0-         Exercisable:   l50,000             $0
Former Executive                                    Unexercisable:       0             $0
Vice-President
Business Development(7)
</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, 2002.
(3)   Mr.  Dwight  became  President  and  Chief  Executive  Officer  of  TSET
      effective November 15, 2001.
(4)   Mr. Tusing became Chief Operating  Officer of TSET effective  January 1,
      2002.
(5)   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.
(6)   TSET has determined that the options to purchase  350,000 shares of common
      stock granted to Mr. Wilson pursuant to a letter agreement dated April 10,
      2001 are void as of 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.
(7)   Mr. Black resigned as Executive  Vice President - Business  Development of
      TSET effective as of December 31, 2001.

                                       33
<PAGE>
<TABLE>
                             OPTION/SAR GRANTS TABLE
<CAPTION>
                                       % TOTAL
                        NO. OF       OPTIONS/SAR'S
                      SECURITIES      GRANTED TO
                      UNDERLYING      EMPLOYEES      EXERCISE OR
                     OPTIONS/SAR'S    IN FISCAL      BASE PRICE
        NAME          GRANTED (#)     YEAR (%)      ($ PER SHARE)   EXPIRATION DATE

------------------- -------------   ------------- ----------------  ---------------------
<S>                   <C>                <C>            <C>          <C>
Daniel R. Dwight       93,600(2)         1.5%           $0.960       November 15, 2004
President and          1,000,000        16.4%           $0.680       February 12, 2012
Chief Executive          600,000         9.9%           $0.250       February 12, 2012
                      500,000(3)         8.2%           $0.420       November 15, 2011
                      250,000(3)         4.1%           $0.660       November 15, 2011
                      250,000(3)         4.1%           $0.560       November 15, 2011

Richard F. Tusing     246,500(5)         4.1%           $0.960       June 30, 2005
Chief Operating          600,000         9.9%           $0.680       February 12, 2012
                         350,000         5.8%           $0.250       February 12, 2012

Jeffrey D. Wilson         50,000         0.8%           $0.885       April 9, 2006
Former Chairman of        10,000         0.1%           $0.210       March 31, 2005
the Board of
Directors and
Chief Executive
Officer(6)

Richard A. Papworth      100,000         1.6%           $0.680       February 12, 2012
Chief Financial          200,000         3.3%           $0.250       February 12, 2012
</TABLE>


---------------------------------
(1)   Mr.  Dwight  became  President  and  Chief  Executive  Officer  of  TSET
      effective November 15, 2001.

(2)   Represents options granted pursuant to Mr. Dwight's Consulting  Agreements
      dated August 11, 2000  (individual  agreement) and January 1, 2001 (Dwight
      Tusing & Associates' agreement), as amended April 12, 2001.

(3)   Represents options granted pursuant to Mr. Dwight's  Employment  Agreement
      effective  November  15, 2001 and Stock  Option  Agreement  dated April 1,
      2002.

(4)   Mr. Tusing became Chief Operating  Officer of TSET effective  January 1,
      2002.

(5)   Represents options granted pursuant to Mr. Tusing's Consulting  Agreements
      dated August 11, 2000  (individual  agreement) and January 1, 2001 (Dwight
      Tusing & Associates' agreement), as amended April 12, 2001.
(6)   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.

STOCK OPTION PLAN

      On February 12, 2002, the Board of Directors approved the TSET, Inc. Stock
Option  Plan  under  which  TSET's  key  employees,   consultants,   independent
contractors,  officers and  directors  are  eligible to receive  grants of stock
options. TSET has reserved a total of 6,250,000 shares of common stock under the
Stock Option Plan.  It is presently  administered  by TSET's Board of Directors.
Subject to the  provisions of the Stock Option Plan,  the Board of Directors has
full and final  authority  to select the  individuals  to whom  options  will be
granted,  to grant the options and to determine the terms and conditions and the
number of shares issued pursuant thereto.


EMPLOYMENT AGREEMENTS

      The  Employment  Agreement of Jeffrey D. Wilson,  our former  Chairman and
Chief  Executive  Officer,  was dated as of April 20, 1999 and  continued for an
"evergreen"  term of five years  unless Mr.  Wilson  provided  at least 60 days'
prior written notice of his resignation.  Such agreement  provided 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 was to increase to $15,000 per month, and during the third 12-month
period such base cash  compensation  was to  increase to $20,000 per month.  Mr.
Wilson 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
were  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


                                       34
<PAGE>

9-month period following Mr. Wilson's  acceptance of the terms of his employment
agreement.  Mr. Wilson was 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 filing,  we
have not adopted or  implemented  any such  plans.  Mr.  Wilson had  "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  was to be borne by us. As of the date of this
filing,  Mr. Wilson had 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 was to vest upon the
achievement  of certain  performance  objectives.  The  exercise  price of these
options was 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 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  were void as of the  effective
dates of the Employment Agreement and Letter Agreement,  respectively,  and that
these shares of common stock and options have been 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.

      Daniel R. Dwight,  our  President  and Chief  Executive  Officer,  and our
company entered into an Employment  agreement effective as of November 15, 2001.
The initial term of Mr.  Dwight's  Employment  Agreement is for 2 years and will
automatically  renew for  successive  1 year  terms  unless  TSET or Mr.  Dwight
provide the other party with  written  notice  within 3 months of the end of the
initial term or any subsequent renewal term. Mr. Dwight's  Employment  Agreement
provides for base cash compensation of $180,000 per year. Mr. Dwight is eligible
for annual  incentive  bonus  compensation  in an amount  equal to Mr.  Dwight's
annual salary based on the achievement of certain bonus objectives. In addition,
TSET granted Mr. Dwight 1,000,000  immediately vested and exercisable,  ten-year
stock options at various exercise  prices.  Mr. Dwight 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.
Mr. Dwight 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 Executive Officer.

      Richard  A.  Papworth,  our Chief  Financial  Officer,  has an  Employment
Agreement dated 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 filing,  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.


                                       35
<PAGE>

EXECUTIVE SEVERANCE AGREEMENTS

      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.

      The Employment Agreement of Daniel R. Dwight, our Chief Executive Officer,
provides that, upon the occurrence of any transaction as defined as a "change of
control" of TSET,  Mr. Dwight shall receive his salary and benefits for a period
of time  that is the  greater  of (i) one  year  or (ii)  the  remainder  of Mr.
Dwight's employment term.

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


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


                             PRINCIPAL SHAREHOLDERS

      The following table presents certain information  regarding the beneficial
ownership of all shares of common stock at September 23, 2002 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  45,141,293  common
shares  issued and  outstanding  at  September  23, 2002 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 September 23, 2002 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
----------------                                     ------------  -----------
Daniel R. Dwight                                     3,215,818(1)         6.9%
464 Common Street
Suite 301
Belmont, MA  02478

Richard A. Papworth                                    822,114(2)         1.8%
464 Common Street
Suite 301
Belmont, MA  02478

Richard F. Tusing                                    1,717,118(3)         3.8%
464 Common Street
Suite 301
Belmont, MA  02478

Jeffrey D. Wilson                                      310,000(4)            *
464 Common Street
Suite 301
Belmont, MA  02478

Erik W. Black                                          272,983(5)            *
464 Common Street
Suite 301
Belmont, MA  02478

                                       36
<PAGE>
                                                              COMMON STOCK
                                                            BENEFICIALLY OWNED
                                                     -------------------------
NAME AND ADDRESS                                           NUMBER      PERCENT
----------------                                     ------------  -----------
Charles D. Strang                                      100,000(6)            *
464 Common Street
Suite 301
Belmont, MA  02478

James P. McDermott                                        294,118            *
464 Common Street
Suite 301
Belmont, MA  02478

All Officers and Directors of TSET                   6,732,151(7)        14.1%

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

*     Less than 1%.

(1)   Includes options to purchase  1,321,700 shares of common stock that can be
      acquired within sixty days of August 30, 2002

(2)   Includes  options to purchase  448,475  shares of common stock that can be
      acquired within sixty days of August 30, 2002.

(3)   Includes  options to purchase  473,000  shares of common stock that can be
      acquired within sixty days of August 30, 2002.

(4)   Includes  options to purchase  310,000  shares of common stock that can be
      acquired within sixty days of August 30, 2002.

(5)   Includes  options to purchase  50,000  shares of common  stock that can be
      acquired within sixty days of August 30, 2002.

(6)   Includes  options to purchase  100,000  shares of common stock that can be
      acquired within sixty days of August 30, 2002.
(7)   Includes options to purchase  2,703,175 shares of common stock that can be
      acquired within sixty days of August 30, 2002.

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




                                       37
<PAGE>
ITEM 12.  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 was 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 have been 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.  Pursuant to TSET and Mr.  Dwight
entering  into his  Employment  Agreement,  effective  November  15,  2001,  Mr.
Dwight's Finders Agreement is no longer in effect. Mr. Tusing's Finder Agreement
is currently in effect.

      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.
Pursuant  to  TSET  and Mr.  Dwight  entering  into  his  Employment  Agreement,
effective November 15, 2001, Mr. Dwight's  Consulting  Agreement is no longer in
effect.  Pursuant to his Consulting  Agreement,  Mr. Dwight earned  $208,400 and
$179,600, respectively, in the years ended June 30, 2001 and 2002, respectively.
Of the aggregate amount of $388,000, we have paid $202,400 to Mr. Dwight and the
balance of $185,600  remains  payable.  Mr.  Tusing's  Consulting  Agreement  is
currently in effect. The initial term of Mr. Tusing's  Consulting  Agreement was
six months and is  automatically  renewed  for  successive  terms of six months,
unless our company or Mr. Tusing  terminate  the  agreement  upon 30 days' prior
written notice. Mr. Tusing performs  management and business consulting services
under  the  Consulting  Agreement.  Pursuant  to the  agreement,  Mr.  Tusing is
compensated  $150 per hour for his  services  and the number of hours  worked is
mutually  determined by our company and Mr. Tusing. At Mr. Tusing's  discretion,
he may elect to convert  his unpaid  hourly cash  compensation  for an option to
purchase restricted shares of TSET common stock at one hundred option shares for
each hour of consulting services.  Such option, once elected, is exercisable for
three years at an exercise price of $2.00 per share.  Pursuant to his Consulting


                                       38
<PAGE>

Agreement, Mr. Tusing earned $207,400 and $377,750,  respectively,  in the years
ended June 30, 2001 and 2002 and $30,750 through July 31, 2002. Of the aggregate
amount of  $615,900,  we have paid  $294,000  to Mr.  Tusing and the  balance of
$331,900 remains payable.

      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. The term of Mr.
Wilson's  Consulting  Agreement is one year. Mr. Wilson is compensated  $150 per
hour for his services.  Pursuant to his Consulting Agreement,  Mr. Wilson earned
$51,200 in the year ended June 30, 2002 and $5,300 through July 31, 2002. Of the
aggregate  amount of $56,500,  we have paid $5,200 to Mr. Wilson and the balance
of $51,300  remains  payable.  In addition,  our company  granted Mr.  Wilson an
option to  purchase  100,000  shares of TSET  common  stock upon the  successful
conclusion  of TSET's  legal  proceedings  against W. Alan  Thompson,  Ingrid T.
Fuhriman,  Robert L. Fuhriman II and Weihao Long.  The option is for three years
and fully vests and becomes exercisable  immediately upon the grant thereof. The
exercise price of the option will be the closing price of TSET's common stock on
the option's  date of grant.  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. Mr.  Wilson's
Consulting Agreement is currently in effect.

      Pursuant to Daniel R. Dwight's  Employment  Agreement,  effective November
15, 2001, our company and Mr. Dwight agreed that the Consulting Agreement, dated
January 1, 2001,  between our company and Mr. Dwight and the Finders  Agreement,
dated  August 11,  2000,  between  our company  and Mr.  Dwight were  terminated
effective  November 15, 2001.  We  acknowledged  and agreed that pursuant to the
terms of the Consulting  Agreement,  we owe Mr. Dwight past-due amounts equal to
$250,582.  We agreed that this  past-due  amount will accrue  interest at 1% per
month  until paid in full.  Payments  from our  company to Mr.  Dwight  shall be
allocated  first to  out-of-pocket  expenses,  second  to  salary,  and third to
repayment of the past-due amount. In addition,  we acknowledged and agreed that,
pursuant to the Consulting  Agreement and the Finders Agreement,  Mr. Dwight has
earned 271,700 options that are fully vested and exercisable under the terms and
conditions  of the  Consulting  Agreement,  the Finders  Agreement  and a Letter
Agreement, dated April 12, 2001 between our company and Mr. Dwight.



                                       39
<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>
   2.1    Articles of Merger for Technology           Incorporated by reference to
          Selection, Inc. with the Nevada             Exhibit 2.1 to the Registrant's
          Secretary of State                          Registration Statement on Form
                                                      S-1 filed on August 7, 2001 (the
                                                      "REGISTRATION STATEMENT")

   3.1    Articles of Incorporation                   Incorporated by reference to
                                                      Exhibit 3.1 to the Registration
                                                      Statement on Form S-1 filed on
                                                      August 7, 2001

   3.2    Bylaws                                      Incorporated by reference to
                                                      Exhibit 3.2 to the Registration
                                                      Statement on Form S-1 filed on
                                                      August 7, 2001

   10.1   Employment Agreement, dated April 16,       Incorporated by reference to
          1999, by and between TSET, Inc. and         Exhibit 10.1 to the Registration
          Jeffrey D. Wilson                           Statement on Form S-1 filed on
                                                      August 7, 2001

   10.2   Deal Outline, dated December 9, 1999,       Incorporated by reference to
          by and between TSET, Inc. and Atomic        Exhibit 10.2 to the Registration
          Soccer, USA, Ltd.                           Statement on Form S-1 filed on
                                                      August 7, 2001

   10.3   Letter of Intent, dated December 27,        Incorporated by reference to
          1999, by and between TSET, Inc. and         Exhibit 10.3 to the Registration
          Electron Wind Technologies, Inc.            Statement on Form S-1 filed on
                                                      August 7, 2001

   10.4   Agreement, dated February 5, 2000, by       Incorporated by reference to and
          between DiAural,  LLC and EdgeAudio,        Exhibit 10.4 to the Registration
          LLC Statement on Form S-1 filed on
          August 7, 2001

   10.5   Stock Purchase Agreement, dated March       Incorporated by reference to
          6, 2000, by and among TSET, Inc.,           Exhibit 10.5 to the Registration
          Atomic Soccer USA, Ltd., Todd P.            Statement on Form S-1 filed on
          Ragsdale, James Eric Anderson, Jewel        August 7, 2001
          Anderson, Timothy Beglinger and Atomic
          Millennium Partners, LLC

   10.6   Acquisition Agreement, dated March 13,      Incorporated by reference to
          2000, by and among TSET, Inc., High         Exhibit 10.6 to the Registration
          Voltage Integrated, LLC, Ingrid             Statement on Form S-1 filed on
          Fuhriman, Igor Krichtafovitch, Robert       August 7, 2001
          L. Fuhriman and Alan Thompson

   10.7   Letter of Intent, dated April 18, 2000,     Incorporated by reference to
          by and between TSET, Inc. and               Exhibit 10.7 to the Registration
          EdgeAudio.com, Inc.                         Statement on Form S-1 filed on
                                                      August 7, 2001

   10.8   Lease Agreement, dated May 3, 2000, by      Incorporated by reference to
          and between Kronos Air Technologies,        Exhibit 10.8 to the Registration
          Inc. and TIAA Realty, Inc.                  Statement on Form S-1 filed on
                                                      August 7, 2001

   10.9   Agreement and Plan of Reorganization,       Incorporated by reference to
          dated May 4, 2000, by and among TSET,       Exhibit 10.9 to the Registration
          Inc., EdgeAudio.com, Inc., LYNK             Statement on Form S-1 filed on
          Enterprises, Inc., Robert Lightman, J.      August 7, 2001
          David Hogan, Eric Alexander and Eterna
          Internacional, S.A. de C.V.

                                       40
<PAGE>
EXHIBIT
NO.       DESCRIPTION                                 LOCATION
--------- ----------------------------------          -----------------------------------
   10.10  Letter Agreement, dated May 4, 2000, by     Incorporated by reference to
          and between TSET, Inc. and Cancer           Exhibit 10.10 to the
          Detection International, LLC                Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.11  Employment Agreement, dated May 19,         Incorporated by reference to
          2000, by and between TSET, Inc. and         Exhibit 10.11 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.12  Finders Agreement, dated August 21,         Incorporated by reference to
          2000, by and among TSET, Inc., Richard      Exhibit 10.12 to the
          F. Tusing and Daniel R. Dwight              Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.13  Contract Services Agreement, dated June     Incorporated by reference to
          27, 2000, by and between Chinook            Exhibit 10.13 to the
          Technologies, Inc. and Kronos Air           Registration Statement on Form
          Technologies, Inc.                          S-1 filed on August 7, 2001

   10.14  Letter of Intent, dated July 17, 2000,      Incorporated by reference to
          by and between Kronos Air Technologies,     Exhibit 10.14 to the
          Inc. and Polus Technologies, Inc.           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.15  Consulting Agreement, dated August 1,       Incorporated by reference to
          2000, by and among TSET, Inc., Richard      Exhibit 10.15 to the
          F. Tusing and Daniel R. Dwight              Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.16  Preferred Stock Purchase Agreement,         Incorporated by reference to
          dated September 12, 2000, by and            Exhibit 10.16 to the
          between EdgeAudio.com, Inc. and Bryan       Registration Statement on Form
          Holbrook                                    S-1 filed on August 7, 2001

   10.17  Shareholders Agreement, dated September     Incorporated by reference to
          12, 2000, by and among TSET, Inc.,          Exhibit 10.17 to the
          Bryan Holbrook and EdgeAudio.com, Inc.      Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.18  Amendment to Agreement and Plan of          Incorporated by reference to
          Reorganization dated September 12,          Exhibit 10.18 to the
          2000, by and among TSET, Inc.,              Registration Statement on Form
          EdgeAudio.com, Inc., LYNK Enterprises,      S-1 filed on August 7, 2001
          Inc., Robert Lightman, J. David Hogan,
          Eric Alexander and Eterna
          Internacional, S.A. de C.V.

   10.19  Agreement Regarding Sale of Preferred       Incorporated by reference to
          Stock, dated November 1, 2000, by and       Exhibit 10.19 to the
          between EdgeAudio.com, Inc. and Bryan       Registration Statement on Form
          Holbrook                                    S-1 filed on August 7, 2001

   10.20  Amendment to Subcontract, dated             Incorporated by reference to
          December 14, 2000, by and between           Exhibit 10.20 to the
          Bath Iron Works and High Voltage            Registration Statement on Form
          Integrated                                  S-1 filed on August 7, 2001

   10.21  Consulting Agreement, dated January 1,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.21 to the
          Dwight, Tusing & Associates                 Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.22  Employment Agreement, dated March 18,       Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.22 to the
          Alex Chriss                                 Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.23  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.23 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.24  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.24 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

                                       41
<PAGE>
EXHIBIT
NO.       DESCRIPTION                                 LOCATION
--------- ----------------------------------          -----------------------------------
   10.25  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.25 to the
          Daniel R. Dwight                            Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.26  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.26 to the
          Richard F. Tusing                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.27  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.27 to the
          Charles D. Strang                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.28  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.28 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.29  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.29 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.30  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.30 to the
          Erik W. Black                               Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.31  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and J.      Exhibit 10.31 to the
          Alexander Chriss                            Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.32  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.32 to the
          Charles H. Wellington                       Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.33  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.33 to the
          Igor Krichtafovitch                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.34  Letter Agreement, dated April 10, 2001,     Incorporated by reference to
          by and between TSET, Inc. and Richard       Exhibit 10.34 to the
          A. Papworth                                 Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.35  Letter Agreement, dated April 12, 2001,     Incorporated by reference to
          by and between TSET, Inc. and Daniel R.     Exhibit 10.35 to the
          Dwight and Richard F. Tusing                Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.36  Finders Agreement, dated April 20,          Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.36 to the
          Bernard Aronson, d/b/a Bolivar              Registration Statement on Form
          International Inc.                          S-1 filed on August 7, 2001

   10.37  Indemnification Agreement, dated May 1,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.37 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.38  Indemnification Agreement, dated May 1,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.38 to the
          Daniel R. Dwight                            Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.39  Indemnification Agreement, dated May 1,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.39 to the
          Richard F. Tusing                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.40  Indemnification Agreement, dated May 1,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.40 to the
          Charles D. Strang                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

                                       42
<PAGE>
EXHIBIT
NO.       DESCRIPTION                                 LOCATION
--------- ----------------------------------          -----------------------------------
   10.41  Indemnification Agreement, dated May 1,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.41 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.42  Indemnification Agreement, dated May 1,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.42 to the
          Erik W. Black                               Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.43  Stock Option Agreement, dated May 3,        Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.43 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.44  Common Stock Purchase Agreement, dated      Incorporated by reference to
          June 19, 2001, by and between TSET,         Exhibit 10.44 to the
          Inc. and Fusion Capital Fund II, LLC        Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.45  Registration Rights Agreement, dated        Incorporated by reference to
          June 19, 2001, by and between TSET,         Exhibit 10.45 to the
          Inc. and Fusion Capital Fund II, LLC        Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.46  Mutual Release and Settlement               Incorporated by reference to
          Agreement, dated July 7, 2001, by and       Exhibit 10.46 to the
          between TSET, Inc. and Foster & Price       Registration Statement on Form
          Ltd.                                        S-1 filed on August 7, 2001

   10.47  Letter Agreement, dated July 9, 2001,       Incorporated by reference to
          by and between TSET, Inc. and The Eagle     Exhibit 10.47 to the
          Rock Group, LLC                             Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.48  Finders Agreement, dated July 17, 2001,     Incorporated by reference to
          by and between TSET, Inc. and John S.       Exhibit 10.48 to the
          Bowles                                      Registration Statement on Form
                                                      S-1 filed on August 7, 2001
   10.49  Warrant Agreement, dated July 16, 2001,     Incorporated by reference to
          by and between TSET, Inc. and The Eagle     Exhibit 10.49 to the
          Rock Group, LLC                             Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.50  Agreement and Release, dated October        Incorporated by reference to
          10, 2001, by and between TSET, Inc. and     Exhibit 10.50 to the
          Jeffrey D. Wilson                           Registrant's Form 10-K for the
                                                      year ended June 30, 2001 filed
                                                      on October 15, 2001

   10.51  Promissory Note dated October 10, 2001      Incorporated by reference to
          payable to Mr. Jeffrey D. Wilson            Exhibit 10.51 to the
                                                      Registrant's  Form  10-K  for
                                                      the year ended June 30,  2001
                                                      filed on October 15, 2001

   10.52  Consulting Agreement, dated October 10,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.52 to the
          Jeffrey D. Wilson                           Registrant's Form 10-K for the
                                                      year ended June 30, 2001 filed
                                                      on October 15, 2001

   10.53  Employment Agreement, dated April 1,        Incorporated by reference to
          2002, by and between TSET, Inc. and         Exhibit 10.53 to the
          Daniel R. Dwight                            Registrant's Form 10-Q for the
                                                      quarterly period ended March 31,
                                                      2002 filed on May 15, 2002

   10.54  Stock Option Agreement, dated April 1,      Incorporated by reference to
          2002, by and between TSET, Inc. and         Exhibit 10.54 to the
          Daniel R. Dwight                            Registrant's Form 10-Q for the
                                                      quarterly period ended March 31,
                                                      2002 filed on May 15, 2002

   10.55  Agreement, dated March 1, 2002, by and      Incorporated by reference to
          between TSET, Inc. and The Eagle Rock       Exhibit 10.55 to the
          Group, LLC                                  Registrant's Form 10-Q for the
                                                      quarterly period ended March 31,
                                                      2002 filed on May 15, 2002

   10.56  Agreement, dated November 13, 2001 by       Incorporated by reference to
          and between TSET, Inc. and Fusion           Exhibit 10.56 to the
          Capital Fund II, LLC                        Registrant's Amendment No. 1 to
                                                      Form S-1 filed on August 2, 2002


                                       43
<PAGE>
EXHIBIT
NO.       DESCRIPTION                                 LOCATION
--------- ----------------------------------          -----------------------------------
   10.57  Common Stock Purchase Agreement, dated      Incorporated by reference to
          August 12, 2002 by and between TSET,        Exhibit 10.57 to the
          Inc. and Fusion Capital Fund II, LLC        Registrant's Form S-1 filed on
                                                      August 13, 2002

   10.58  Registration Rights Agreement, dated        Incorporated by reference to
          August 12, 2002 by and between TSET,        Exhibit 10.58 to the
          Inc. and Fusion Capital Fund II, LLC        Registrant's Form S-1 filed on
                                                      August 13, 2002

   10.59  Termination Agreement, dated August 1Z,     Incorporated by reference to
          2002 by and between TSET, Inc. and          Exhibit 10.59 to the
          Fusion Capital Fund II, LLC                 Registrant's Amendment No. 1 to
                                                      Form S-1 filed on September 16,
                                                      2002

   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     Not applicable
          Information

   16.1   Letter re:  Change in Certifying            Not applicable
          Accountant

   21.1   Subsidiaries of the Registrant              Not applicable

   24.1   Power of Attorney                           Not applicable

   27.1   Financial Data Schedule                     Not applicable

</TABLE>

(b)   REPORTS ON FORM 8-K.
------------------------------------------------------------------------------

      None.






                                       44
<PAGE>

                                   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:  September 27, 2002.

                                   TSET, INC.


                                    By: /s/ Daniel R. Dwight
                                       ---------------------------------
                                          Daniel R. Dwight
                                          President, Chief Executive Officer
                                          and Director


                                    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 W. Black
-----------------------------
Erik W. Black                      Director and Executive     September 27, 2002
                                   Vice-President

/s/ Daniel R. Dwight
-----------------------------
Daniel R. Dwight                   Director                   September 27, 2002

/s/ James P. McDermott
-----------------------------
James P. McDermott                 Director                   September 27, 2002

/s/ Richard A. Papworth
-----------------------------
Richard A. Papworth                Director and Chief         September 27, 2002
                                   Financial Officer
/s/ Charles D. Strang
-----------------------------
Charles D. Strang                  Director                   September 27, 2002

/s/ Richard F. Tusing
-----------------------------
Richard F. Tusing                  Director and Chief         September 27, 2002
                                   Operating Officer

/s/ Jeffrey D. Wilson
-----------------------------
Jeffrey D. Wilson                  Director                   September 27, 2002


                                       45
<PAGE>

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with the Annual  Report of TSET,  Inc.  (the  "Company") on Form
10-KSB  for the year  ended  June  30,  2002 as filed  with the  Securities  and
Exchange Commission on the date hereof (the "Report"),  each of the undersigned,
in the capacities and on the dates indicated below, hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to his knowledge:

1.    The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

2.    The information  contained in the Report fairly presents,  in all material
respects, the financial condition and results of operation of the Company.



--------------------------------------
Daniel R. Dwight
President and Chief Executive Officer



--------------------------------------
Richard A. Papworth
Chief Financial Officer


                                       46
<PAGE>
                              OFFICER'S CERTIFICATE
                             PURSUANT TO SECTION 302

      The undersigned Chief Executive Officer of TSET, Inc., hereby certifies
that:

            1.    he has reviewed the Annual Report;

            2.    based on his knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading  with respect to the period covered by the
report;

            3.    based on his knowledge,  the financial  statements,  and other
financial  information  included in the report,  fairly  present in all material
respects the financial  condition,  results of operations  and cash flows of the
issuer as of, and for, the periods presented in the report;

            4.    he and the other certifying officers:

                  a.    are responsible for establishing and maintaining
            "disclosure controls and procedures" (a newly-defined term
            reflecting the concept of controls and procedures related to
            disclosure embodied in Section 302(a)(4) of the Act) for the
            issuer;

                  b.    have designed such disclosure controls and procedures
            to ensure that material information is made known to them,
            particularly during the period in which the periodic report is
            being prepared;

                  c.    have evaluated the effectiveness of the issuer's
            disclosure controls and procedures as of a date within 90 days
            prior to the filing date of the report; and

                  d.    have presented in the report their conclusions about
            the effectiveness of the disclosure controls and procedures based
            on the required evaluation as of that date;

            5.    he and the other  certifying  officers  have  disclosed to the
issuer's  auditors  and to the audit  committee  of the board of  directors  (or
persons fulfilling the equivalent function):

                  a. all significant  deficiencies in the design or operation of
            internal controls (a pre-existing term relating to internal controls
            regarding  financial  reporting)  which could  adversely  affect the
            issuer's ability to record, process,  summarize and report financial
            data and have  identified  for the  issuer's  auditors  any material
            weaknesses in internal controls; and

                  b.    any fraud, whether or not material, that involves
            management or other employees who have a significant role in the
            issuer's internal controls; and

            6.    he and the other  certifying  officers  have  indicated in the
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of their  evaluation,  including any corrective  actions with regard to
significant deficiencies and material weaknesses.



                                    ----------------------------------------
                                    Daniel R. Dwight
                                    Chief Executive Officer


                                       47
<PAGE>
                              OFFICER'S CERTIFICATE
                             PURSUANT TO SECTION 302

      The undersigned Chief Financial Officer of TSET, Inc., hereby certifies
that:

            1.    he has reviewed the report;

            2.    based on his knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading  with respect to the period covered by the
report;

            3.    based on his knowledge,  the financial  statements,  and other
financial  information  included in the report,  fairly  present in all material
respects the financial  condition,  results of operations  and cash flows of the
issuer as of, and for, the periods presented in the report;

            4.    he and the other certifying officers:

                  a.    are responsible for establishing and maintaining
            "disclosure controls and procedures" (a newly-defined term
            reflecting the concept of controls and procedures related to
            disclosure embodied in Section 302(a)(4) of the Act) for the
            issuer;

                  b.    have designed such disclosure controls and procedures
            to ensure that material information is made known to them,
            particularly during the period in which the periodic report is
            being prepared;

                  c.    have evaluated the effectiveness of the issuer's
            disclosure controls and procedures as of a date within 90 days
            prior to the filing date of the report; and

                  d.    have presented in the report their conclusions about
            the effectiveness of the disclosure controls and procedures based
            on the required evaluation as of that date;

            5.    he and the other certifying officers have disclosed to the
      issuer's auditors and to the audit committee of the board of directors
      (or persons fulfilling the equivalent function):

                  a. all significant  deficiencies in the design or operation of
            internal controls (a pre-existing term relating to internal controls
            regarding  financial  reporting)  which could  adversely  affect the
            issuer's ability to record, process,  summarize and report financial
            data and have  identified  for the  issuer's  auditors  any material
            weaknesses in internal controls; and

                  b.    any fraud, whether or not material, that involves
            management or other employees who have a significant role in the
            issuer's internal controls; and

            6.    he and the other  certifying  officers  have  indicated in the
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of their  evaluation,  including any corrective  actions with regard to
significant deficiencies and material weaknesses.



                                    ----------------------------------------
                                    Richard A. Papworth
                                    Chief Financial Officer






                                       48